An update on Sherritt
2nd May 2019 |
A few of you have been asking about Sherritt International so I thought I would give a round-up of what is happening with the stock.
Sherritt has fallen abruptly over the last week. The reason why is because President Donald Trump is amping up pressure on Cuba because of its support for the Nicolas Maduro regime in Venezuela. This is being achieved through the use of a clause in the Helms-Burton Act which allows US companies to sue for loss of access to their holdings when the Communists appropriated resources.
Sherritt’s nickel mine used to be owned by a company called Moa Bay Mining Co., which is now a subsidiary of Freeport-McMoRan Inc. The worst-case scenario is that represents an $80 million liability for the company. Here is what the CEO had to say on this of that actually coming to pass:
“We don’t believe there’s any basis on which a U.S. court could assert jurisdiction over Sherritt if anybody were to commence a lawsuit in U.S. court,”
Sherritt no longer does any business with the US. It sells all of the nickel and cobalt it produces to other parties. All of the oil it produces is consumed in Cuba. The reason the share is falling so aggressively is because of the outstanding liabilities owed by the Cuban government. These have been higher in the past and the Cuban government tends to muddle through.
The bigger picture is that with the flow of oil from Venezuela dropping, Cuba needs to produce more domestically. Sherritt is well placed to do that so the country has a clear interest in ensuring the company is capable of meeting its obligations.
Meanwhile cobalt prices are bottoming, oil prices continue to trend higher and nickel is consolidating. The recovery of the prices of commodities the company produces is a medium-term positive and the payment backlog from Cuba will get worked out.
Therefore I am not recommending that we liquidate the position because I believe we are close to a meaningful low.
All the best,
Eoin Treacy
Investment Director, Frontier Tech Investor
