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Spending more in Cuba: Armoyan

CUBA STANDARD — Weakened by a three-year drop in share prices, due to low nickel prices and a lagging mining project in Madagascar, Sherritt International Corp. has become the target of an activist investor who is headed for a proxy fight.

The Toronto-based mining and energy concern — Cuba’s largest private foreign investor — announced it will hold a special meeting May 6 to deal with investor Clarke Inc.’s request to revamp the company’s board.

Halifax-based Clarke Inc., which trades on the Toronto Stock Exchange, buys shares in what it believes are undervalued companies and tries to boost their price, with the goal of selling its holdings at a profit. Entities controlled by Clarke President George Armoyan own 5.11 percent of Sherritt shares, allowing them to call for a special meeting under Canadian regulations. The Clarke investors are focusing their criticism on what they describe as neglect of Sherritt’s Cuban core business, and excessive executive compensation.

“We invested in Sherritt because we felt the market was undervaluing its asset base,” Dustin Haw, vice president investments of Clarke, told Cuba Standard. “We ask for a board shuffle because we feel the shareholders should have a say in how the company is run. As of now, there is very minimal ownership among the current directors.”

Most significantly for the company’s future direction, Clarke suggests to refocus the company on its Cuban roots. Over the past five years, Sherritt has invested hundreds of millions of dollars in a large nickel mining project in Madagascar, which just began commercial production, according to a Jan. 22 press release. Sherritt is also looking at starting another nickel mining project in Indonesia.

“We believe the Cuban assets are very much under appreciated,” Haw says. “We think the Cuban assets are Sherritt’s strongest assets, and they should be the primary focus of the company. We think Sherritt has neglected these assets in recent years, and they should be allocating more capital to them going forward.”

A Sherritt spokesman said proxy solicitation rules limit what the company can say about its Cuban operations. However, he pointed at a passage of a Dec. 24 press release announcing that part of the proceeds from the sale of Sherritt’s coal assets will benefit the company’s oil business in Cuba.

“Rationalizing the asset base and significantly enhancing the liquidity of the Corporation gives Sherritt the capacity and flexibility to pursue opportunities to develop and grow its core businesses,” the release said, adding that Sherritt will extend the term of an onshore oil block in Cuba and add four new blocks, “which together would provide a low-risk, high-return opportunity that would capitalize on proximity to our existing infrastructure.”

On Christmas Eve, the company announced it will sell its coal operations and assets for $946 million, “to significantly enhance the liquidity of the Corporation and give Sherritt the capacity and flexibility to pursue opportunities to grow and develop its core businesses” of oil and nickel, the company said in a press release.

Even so, Sherritt shares have continued to linger. Share prices dropped throughout 2013, from a high of $6 in the beginning of the year to a low of $3 in December. Apparently jolted by the asset sale in December, stocks rose temporarily to $4; the price is now hovering slightly below that mark.

At the May meeting, Armoyan wants Sherritt to remove five directors, reduce the size of the board from nine to seven, and appoint three new directors, including Armoyan, Haw and a third Clarke employee.

Clarke, according to a letter to Sherritt, also wants the company to scrap a compensation paid to executives and directors for possible hardship, should the U.S. government prohibit them to enter the country under the U.S. Helms-Burton Act. The payments should only be made if Sherritt executives are actually banned from entering the U.S., Clarke says in the letter.

Sherritt’s non-executive directors were paid Helms-Burton allowances between CDN$ 90,000 and C$150,000 for 2012, according to Bloomberg Businessweek, making up more than half the compensation for some of the directors.

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