SHERRITT INTERNATIONAL CORP. is getting a big boost to its nickel production by acquiring DYNATEC CORP. in a friendly deal worth $1.6 billion. The jump in Sherritts output will come with control of Dynatecs 40% share of the Ambatovy laterite nickel development now underway in Madagascar.
Lets take a quick look at the companies.
Sherritt was for years a major Canadian nickel producer. It operated three minesRuttan, Fox and Lynn Lakein northern Manitoba. Reserves were exhausted at all three; the last mine, Ruttan, closed in 2002, and Sherritt pretty much fell off the radar of the mining scene. It did have robust business interests in oil & gas, fertilizers, and metals refining. In 1994, the company had become a 50% partner in a Cuban nickel mine. In 2001, Sherritt teamed up with the ONTARIO TEACHERS PENSION PLAN to create LUSCAR ENERGY PARTNERSHIP, which acquired the largest coal producer in Canada. The partnership is now known as ROYAL UTILITIES INCOME FUND. Today Sherritts business interests include coal, nickel, cobalt, oil & gas, fertilizers, power, soybeans and tourism.
Dynatec carved a niche for itself as a contract miner, eventually growing to become a respected consultant in the mining, metallurgical and drilling sectors. It stepped into the role of nickel miner in 2003 when it reopened the McCreedy West mine near Sudbury, Ont., with partner FNX MINING. Dynatec now holds a 25% interest in FNX, and is no longer a direct owner but continues to provide contract mining services. Dynatec has stepped into coal-bed methane production in West Virginia, and nickel laterite development at Ambatovy.
Dynatecs interest in the Ambatovy project is undoubtedly what attracted Sherritt. Other partners in the project are SUMITOMO CORP. (27.5%), KOREA RESOURCES CORP. (27.5%), and SNC-LAVALIN (5%), with Dynatec holding the remaining 40%. Construction is to begin this year on what will be one of the lowest-cost nickel producers in the world. Cash operating costs are estimated at US$0.77/lb Ni. The project capacity will be 60,000 t/y of LME Class 1 nickel, 5,600 t/y of cobalt, and 190,000 t/y of ammonium sulphate. It carries a total capital cost estimate of US$2.5 billion, including infrastructure and a contingency fund. First production is anticipated in 2010. Proven and probable reserves of 125.0 million t grading 1.04% Ni and 0.099% Co are sufficient for 27 years of production.
Although Sherritt is eager to acquire a share of the Ambatovy project, it has no interest in Dynatecs mining services division. It has thus given FNX the right to purchase that part of the business when the takeover closes. For FNX to gain a contract mining division is a good fit for a small, vigorous nickel and PGM producer.
If the deal closes as expected, Sherritt will more than double its nickel production to roughly 40,000 t/y. Thats worth more than $1.6 billion a year at current nickel prices.