Investment fund urges Sherritt International to buy back shares, review Ambatovy

TORONTO – Investment fund Takota Asset Management issued an open letter Tuesday calling on the board of directors of Sherritt International (TSX:S) to buy back shares and review the work at its Ambatovy project.

In the letter, Takota principal Scott Leckie said the value of buying back shares would be hard to beat for the company

“Because the management and the board intimately know the company’s assets, the risk to the capital invested in a share buy-back is much less than for outside projects,” Leckie wrote.

“Furthermore, no costly incremental management time or effort is required to implement a share buy-back plan.”

Leckie also called on the company to take a look at its troubled $5.5-billion Ambatovy nickel project that has been plagued with delays and increased costs that have driven its price tag hundreds of millions of dollars higher than originally estimated.

Takota did not disclose its stake in Sherritt other than to say it was an “important position” to the firm.

Sherritt said Tuesday its board regularly reviews the company’s dividend and share buybacks.

“Considering the ongoing pressure on commodity prices, as well as a continued obligation to fund Ambatovy project costs until the operation generates free cash flow, Sherritt’s board and management view a share buyback program to be inappropriate at this time,” the company said.

Sherritt, which holds a 40 per cent stake in Ambatovy, has cited a litany of problems during construction, including poor performance by contractors and inaccurate estimates on the project in the island country off the east coast of Africa.

Leckie said Tuesday the company should form a special committee to review the performance by its engineering contractor SNC-Lavalin (TSX:SNC).

Sherritt produces nickel from operations in Canada, Cuba, Indonesia and Madagascar, an island off the east coast of Africa.

The company is also the largest producer of thermal coal in Canada and the largest independent energy producer in Cuba, with extensive oil and power operations across the island.