Armoyan’s Clarke books $17.5-million gain on Sherritt foray

by James Kwantes

When I last wrote about Canadian value investor George Armoyan, he was licking his wounds after losing a bid to install three directors on the board of nickel miner Sherritt International (S.TO). Sherritt produces nickel as well as oil and gas in Cuba and a major focus going forward is its 40% owned Ambatovy nickel mine in Madagascar.

Armoyan had taken aim at Sherritt – long home to a curious combination of lavish pay packages and chronic underperformance – through Clarke (CKI.TO), his publicly listed investment company. Clarke accumulated 5%-plus of Sherritt’s stock, which had sunk below $4 a share after hitting 2007 highs above $17 and 2011 highs above $9.

George Armoyan gets the last laugh after failed Sherritt proxy battle. Halifax Chronicle Herald photo

Following months of failed behind-the-scenes negotiations, Armoyan publicly criticized Sherritt management and launched a determined, if improbable, proxy battle that would have seen him and two associates join Sherritt’s board of directors. The public spat, along with a surging nickel price and analyst upgrades, sent Sherritt stock up to the high $4s in the spring.

Turns out that while Armoyan lost the Sherritt proxy battle, he won the war – to generate returns for shareholders.

Clarke disclosed in its second-quarter financials, released on Aug. 7, that it had unloaded its entire stake in Sherritt (a portion during Q2 and the rest subsequently), generating a profit of more than a few nickels on the transaction – $17.5 million, to be precise.

Armoyan has since been deploying its large cash pile closer to home, boosting Clarke’s already-substantial ownership stakes in growing hotel play Holloway Lodging (HLC.TO) and oil-and-gas focused holding company TerraVest Capital (TVK.TO).

Clarke shares closed at $8.17 the day I first wrote about the Clarke-Sherritt showdown. They are now trading in the range of $10.60, a gain of about 30% (compared to about 9% for the S&P/TSX Composite). Clarke also pays a dividend and is yielding about 3.8% at current prices.

As for Sherritt shares, they have slumped back below $4 (I bought in the low $4s and got stopped out at $4.50).

On July 30, Sherritt announced a second-quarter net loss of $30.1 million, or 10 cents a share, despite increased revenues and surging nickel prices during the three-month period.

As for Armoyan, Clarke’s beefed-up Holloway investment is also working out nicely. The stock is up more than 30% in the past month after value investor Guy Gottfried talked the company up at the Value Investing Congress in New York in early September.

Disclosure: I own Clarke shares. All investors should do their own due diligence.

Related reading

Sherritt and Clarke: Nickel for your thoughts | World of Mining

A proxy loss, but Sherritt shaken | World of Mining

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