Sherritt International Corp. says it is on the brink of securing a deal with its partners to help finance its share of the world's largest nickel project, the troubled Ambatovy venture in Madagascar.
Ian Delaney, Sherritt's chairman and acting chief executive officer, says he expects to announce an agreement within a month that will allow the $4.5-billion (U.S.) project, which has been sideswiped by skyrocketing construction costs, to proceed.
“It's imminent. It's in the papering process, I'm just not in a position to announce it,” Mr. Delaney told reporters after Sherritt's annual meeting in Toronto yesterday.
Costs to build the nickel-and-cobalt mine and processing plants on the African island country have soared to $4.52-billion from previous estimates of $3.4-billion. Sherritt, which owns 40 per cent of Ambatovy, said in February that it would not be able to cover its share of the costs.
The Toronto-based miner has since been in discussions with its Ambatovy partners including Sumitomo Corp. of Japan, Korea Resources Corp. and SNC-Lavalin Inc. of Montreal, trying to strike a deal.
Mr. Delaney declined to provide details of the pending arrangement and it remains to be seen if Sherritt will be forced to give up part of its equity interest in the project, which is expected to produce 60,000 tonnes of nickel a year.
When asked what the company would have to give up in return for loans from its partners Mr. Delaney said, “not anything particularly, but you are asking me for terms of a closing I am not willing to discuss.”
Industry sources suggested Sherritt would likely pledge its share of the early cash flow generated by the mine to its partners, in return for the financing. Production is slated to commence in 2011.
Sherritt and the Ambatovy partners have already secured $2.1-billion in project financing, but have had to find alternate sources of capital to cover the massive cost overrun.
Sherritt acquired its interest in the project at the peak of the nickel boom, offering $1.46-billion (Canadian) in stock for Dynatec Corp. (where Mr. Delaney was also chairman) in April, 2007. At the time, nickel was fetching more than $20 a pound. The metal, which is used to make stainless steel, was changing hands yesterday at about $5.50 a pound.
Mr. Delaney insisted that even at current commodity prices, Ambatovy will be economically viable. During the first quarter, Sherritt's costs to produce nickel at its Moa operations in Cuba were slightly more than $4 a pound.
“This will be at least as cheap producer as Cuba - at least as low cost,” Mr. Delaney said.
Sherritt's beleaguered shares, which have been battered by the commodities crash, have enjoyed strong gains in recent weeks. Optimism of a pickup in demand for the nickel, cobalt, oil and coal Sherritt produces have helped its stock rise 62 per cent since the start of the year. However, over the past 12 months, the shares are still down nearly 67 per cent.
The stock has also benefited from U.S. President Barack Obama's decision to allow Americans to visit Cuba. Many believe Washington's policy shift could be the first step toward lifting the U.S. trade embargo against the socialist country. Abolishing the embargo would allow Sherritt's Cuban operations to procure less expensive supplies from the United States, but Mr. Delaney said the benefits for its already low-cost Cuban operations would likely be small.
“The embargo is a silly thing and Mr. Obama seems like a reasonable man,” he said. “We're optimistic ... it would modestly advantageous for us and enormously advantageous for the Cuban government.”
Source: Toronto Globe And Mail
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