One of Sherritt International Corp.'s major shareholders told the Canadian mining company to revamp its board as the miner announced the $946-million sale of its thermal coal business.
The request from Clarke Inc., a Halifax-based investment company, overshadowed the news that Sherritt was exiting the coal business.
"The whole board and the management own less half of 1 per cent of the company," said Clarke's chief executive George Armoyan. "A lot of people have been dissatisfied with performance of the stock. We want to have ownership representation on the board."
Sherritt's stock has dropped more than 40 per cent this year. Though on Tuesday, its stock jumped 15 per cent to $3.88 a share after Sherritt announced its coal sale.
Clarke, which said it holds a 5.2-per-cent stake in Sherritt, officially asked the company to call a shareholder meeting to replace some of the miner's independent directors. The order, which was made public on Tuesday, came after Mr. Armoyan said his requests to speak to management were rebuffed.
Now Mr. Armoyan said he is due to speak to Sherritt's managers early in January.
"We are hoping common sense prevails and everybody works for the best interest of creating shareholder value and finds a resolution," he said. "But if we don't then we are prepared to have a proxy fight."
Sherritt's chief executive David Pathe said in an interview that Sherritt would review Clarke's request. Mr. Pathe did not provide further details.
Sherritt, the largest producer of thermal coal in Canada, announced on Tuesday the sale of its highly profitable royalty portfolio of coal and potash to St. John's-based Altius Minerals Corp. for $481-million. As well, Sherritt sold its suite of coal mines in Alberta and Saskatchewan to Colorado-based Westmoreland Coal for $465-million.
The sale will give Sherritt about $800-million in cash, which will be used to pay down its debt as well as for a potential nickel acquisition. At the end of the third quarter, the miner had a cash position of $371-million and $2.1-billion in debt.
"I really believe there are opportunities to do things at this point in the cycle that you can't do at other times," Mr. Pathe said. "Having financial flexibility at this point in the cycle is a real value and that was a big part of today's announcement."
Mr. Pathe said the company, which has oil and gas operations in Cuba as well as metal projects, was looking within and outside of Canada and wanted a metal asset that was "cash flowing" or close to providing revenue.
"We are going to be prudent about this. We are not going to rush out and do something rash," he said. "There is nothing that is imminent. No decisions have been made. Today's transaction gives us the financial capacity and flexibility to now seriously start that process."
But Mr. Armoyan, who has contacted Sherritt's other major shareholders and said they collectively own 22 per cent of Sherritt, said an acquisition at this time would be a big mistake.
"We will not be supporting it," he said. "They should be buying their shares back."
Sherritt's coal sale is the second-largest mining deal this year in Canada, where metal companies have shied away from acquisitions to preserve cash. The largest mining deal this year was when an affiliate of JSC Atomredmetzoloto spent $1.35-billion to privatize Uranium One.
Under the terms of its unsecured loans, Sherritt has one year to redeploy the proceeds of the coal sale into new assets or it will have to use the cash to repurchase the bonds.
Sherritt has nickel and cobalt assets in Canada and Madagascar, though its huge Ambatovy nickel project near the capital of Madagascar is not expected to start commercial production this year.
Although the coal sale gives Sherritt a much needed cash injection, the company also loses a source of revenue.
Because of this, Mr. Pathe said the company's board of directors will be reviewing Sherritt's dividend. The company last paid shareholders a dividend of 4 cents mid-October.
"We're not selling assets to pay a dividend," Mr Pathe said. "We look at the cash flow that is coming out of the business and I think there is a legitimate question whether paying a dividend at that rate makes sense going forward."
Rothschild and CIBC advised Sherritt. Scotiabank and Salman Partners advised Altius. BMO Nesbitt Burns Inc. and Deutsche Bank Securities advised Westmoreland.