Nickeled and primed

Insider: David Pathe

David Pathe, president and CEO, Sherritt International Corp.: Nickel and oil producer's long-term prospects in Cuba got a boost in December when U.S. began to normalize relations with that country

Who David Pathe, president and CEO, Sherritt International Corp. (TSX:S), a major Canadian producer of nickel and oil with operations in Western Canada, Madagascar and, most notably, Cuba, where it has mining, energy and power interests.

Involvement Pathe has been Sherritt’s CEO since 2012, when he took over from founder Ian Delaney. In 2014, Pathe and Sherritt faced many ups and downs. On the plus side: surviving an activist campaign to have him fired; getting Sherritt out of coal; hearing U.S. President Obama’s surprise decision to normalize relations with Cuba, and hitting a yearend production milestone for Sherritt’s new Ambatovy joint-venture nickel mine in Madagascar. The negative: prices for both nickel and oil and gas, pretty much Sherritt’s whole business, plummeted; coupled with write-downs and start-up costs at Ambatovy, it made for a money-losing year, which included a fall restructuring and the sale of its Toronto headquarters.

Listed In December, when U.S. President Barack Obama announced plans to normalize relations with Cuba, Sherritt shares jumped about 40%. How do you view the news?

David Pathe We’ve been in Cuba a long time. We never made an investment decision in Cuba on the assumption that things were going to change with the embargo; we’ve always been able to operate successfully within that. [That said,] I think it’s very encouraging for us and it’s very encouraging for Cuba. But I think it’s going to take quite some time yet. It doesn’t affect our business immediately. The embargo is still in place. The Helms-Burton legislation is still in place. And changing those is going to take some action on the part of Congress as well as the president.

Listed How will you benefit if the U.S. embargo is lifted?

David Pathe It would give us access to the U.S. market both for products and supplies. Right now we process nickel and cobalt that we mine in Cuba in our refinery in Fort Saskatchewan, Alberta. It would be attractive for us to sell some of that nickel into the largest market in the world just south of the border from there. We’d also be able to access U.S. suppliers for our [Cuban] oil and gas business. Right now we import a lot of supplies from Canada, from Europe. It would be nice to have access to suppliers and technology. It would also mean that I’d be able to travel to the United States again.

Listed You’ve been ramping up production at the Ambatovy mine in Madagascar. Final certification requires it get to 90% capacity by September. What is its status?

David Pathe In December, we hit our 2014 production guidance, producing 37,000 tonnes of nickel, making it our largest single nickel operation. We got a lot of work done there in the latter part of the year on maintenance and I think positioned ourselves very well for 2015. We’re looking to be up to 90% capacity, running at a 54,000-tonne annualized rate, by mid-year.

Listed How does this mine fit within Sherritt’s business model?

David Pathe We are now more focused on the nickel business than I think we’ve ever been, with two large-scale, world-class, long-life nickel producing facilities [Ambatovy and the Moa mine in Cuba]. We’ve published some guidance on what we expect our cost profile to look like at Ambatovy. We’ve been trying to convince the world—and I think in 2015 we’re finally going to be able to do it—that we’re going to have a long-life, low-cost nickel asset there that we can operate for 25 to 30 years, the kind of asset that you can run successfully even in depressed economic times and be around to reap the benefits at the top of a few cycles.

Listed You had an eventful 2014. Besides refocusing the business and launching Ambatovy, you successfully fended off a bid by activist George Armoyan to oust you and members of the board.

David Pathe We did go through that process with an activist shareholder at our AGM last year. But we came away from that having had a lot of good conversations with our shareholders in explaining where we were going strategically. And I personally found the results from the AGM quite gratifying in reinforcing that we’re on the right track.

Listed You also worked on improving the balance sheet and undertook a restructuring and some asset sales in 2014. What were the results?

David Pathe We got a complicated debt restructuring done over the course of the fall where we paid off some additional debt—overall we paid off more than $750 million in debt last year. We’ll finish [fiscal 2014] with most of $500 million in cash in the bank and no public debt maturity until 2018. So we’re in a solid position from a financial perspective to weather however long this trough lasts and well positioned to show some production growth building on the production increases of 2014.

Interview by Listed staff

Photography: Sherritt International Corp.

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