TORONTO – Sherritt International Corp. (TSX:S) says its troubled nickel mine project in Madagascar is now near completion after the company had to boost estimated costs as it struggled with underperforming contractors and inaccurate estimates.
CEO Ian Delaney told a conference call Wednesday that the company is making good progress at the Ambatovy site, which should be completed by the end of the year.
“I was on site last week and (there’s been) much, much progress from my prior visit five weeks ago,” Delaney said, adding that work on the project’s refinery is better than anticipated.
“In general we’re pleased with the progress in spite of the increased cost, not to say that the ultimate cost is completely predictable simply because we are held hostage to things like weather.”
Last month, the mining giant increased estimated costs for its Ambatovy joint venture for the second time, blaming poor performance by certain contractors, inaccurate estimates for piping and electrical materials, shipping, additional food and accommodation for staff, and installation of materials.
Sherritt owns the largest piece of the Ambatovy project, with Sumitomo and Korea Resources each holding 27.5 per cent and Montreal-based SNC-Lavalin (TSX:SNC) five per cent.
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Capital cost for the project will now come in at US$5.5 billion, compared with any original estimate of $4.52 billion, the company said.
During the quarter, Ambatovy continued to advance towards production, with about 2,000 construction workers demobilized.
Delaney made the comments on the same day the company reported its profit and revenue grew by double digits in the second quarter, but still fell short of analyst estimates.
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The diversified mining company, which is also Canada’s largest coal producer, said its net income was $60.1 million or 20 cents per share.
That’s up 20 per cent from $50.2 million or 17 cents per share in the same period a year earlier.
The Toronto-based company’s revenue improved 23 per cent to $500.6 million from $406.3 million.
Estimates compiled by Thomson Reuters indicated analysts expected a better quarter from Sherritt. The consensus was for 25 cents per share of earnings. The one estimate for revenue was $546.6 million.
Sherritt said the higher revenue was primarily from its thermal coal, oil and nickel businesses.
Coal accounted for about half of Sherritt’s revenue in the quarter, rising to $254.1 million from $189.8 million. However, its earnings from operations fell to $18.6 million from $28.2 million.
Sherritt attributed the lower earnings from coal to higher mining costs, the impact of a stronger loonie relative to the U.S. dollar and the timing of shipments at its Mountain operations. Those negatives were offset by higher prices for thermal coal exports, the impact of an acquisition and higher royalty and coal revenue from its Prairie operations.
In the conference call, the company said fertilizer production was lower and sales were down due to heavy rains in Western Canada affecting the spring planting and application season.
But Sherritt said contract delays stemming from Japan’s earthquake and tsunami earlier this year have now been resolved.
Revenue from metals, including nickel grew, to $149.4 million from $138.3 million while oil and gas generated $81.5 million in revenue, up from $63.7 million. Sherritt’s power division increased revenue to $13 million from $12.3 million.
Sherritt is a world leader in the mining and refining of nickel from lateritic ores, with projects and operations in Canada, Cuba and Indonesia, as well as 40 per cent of the Ambatovy mine.
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