Fight Club, Canadian-style (Sherritt vs. shareholders)

by James Kwantes, WorldofMining.com

Sherritt and Clarke resumed their very public boardroom battle this week with fresh accusations and countercharges.

A group of battered Sherritt shareholders whose luck is about to change? (Fight Club photo)

Sherritt chairman Hap Stephen opened fire Monday morning with a 7-page broadside attacking dissident shareholder George Armoyan. Stephen spent about 1 1/2 pages defending the existing board and management (“the good news”) and the rest of the letter attacking Armoyan (“the bad news”) – delving into his regulatory past and somewhat checkered record on the topic of corporate governance. By the close of trading Monday, Sherritt stock was more than 9% higher. It held those gains Tuesday, closing at $4.73 (up 3 cents) during a session that saw most mining issues hammered on the TSX.

Sherritt 6-month chart (Google Finance)

Armoyan, the CEO of Clarke who is leading the “Concerned Shareholders” in the proxy fight, responded on the SaveOurSherritt.com website with his own dirty dozen – 12 reasons shareholders should elect his 3 board nominees (himself, David Wood and Ashwath Mehra) to shake up Sherritt. Mehra has a wealth of international metals and commodity experience including 10 years spent running Glencore’s nickel and cobalt businesses.

Clarke stock has had a good 12-month run (up 82%) but has failed to appreciate recently on pace with Sherritt’s move (up 66% from February’s multi-year low). As of March 5 – when Sherritt stock closed at $3.29 – Clarke owned a $43.9 million stake that made up about a third of Clarke’s publicly traded debt and equity, according to a corporate presentation on Clarke’s website. That would have given Clarke about 13.34 million shares at the time, a stake worth about $63 million at current prices. The market capitalization of Clarke, which runs several other businesses in addition to the marketable securities and had $46.5 million in cash as of March 5, is about $150 million.

Clarke 6-month chart (Google Finance)

Sherritt’s 40% owned Ambatovy nickel mine in Madagascar is coming on-stream just as nickel prices are rising, and it has robust oil and gas assets as well as a nickel mine in Cuba. It’s flush with cash after selling the Canadian thermal coal business, including royalties, at the end of last year. Yet the share price as of February was barely above lows plumbed during the depth of the 2008 financial crisis. Stephen’s criticisms of the Concerned Shareholders ring false when looked at through the lens of the stock’s chronic underperformance and the rich compensation levels of existing management and directors, especially when their paltry shareholding is taken into account. The Concerned Shareholders website is SaveOurSherritt.com.

Disclosure: I own shares of Sherritt and Clarke Inc. This is not investment advice; all investors should do their own due diligence, always. Please read my disclaimer.

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

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