Steve Erwin. The
Province. June 1, 2001
TORONTO (CP) - Coal is as good as gold for Sherritt International, and the
recent joint-venture acquisition of Luscar Coal is key to Sherritt's future as a
supplier to energy-hungry North America.
Even the company's links with Cuba that are a source of political
controversy in the United States shouldn't be a stumbling block in selling coal
to Americans, Sherritt chairman Ian Delaney said at the annual meeting Thursday
in Toronto.
Demand for coal should increase substantially as the United States looks to
add to capacity at coal-fired power plants, Delaney told shareholders.
It's the main reason Sherritt had Edmonton-based Luscar - Canada's largest
coal producer - in its sights more than a year ago, expanding an international
portfolio that includes oil and gas, mining and tourism, he said.
"To the extent that you need large-scale additions to
(power-generating) capacity, probably the only near-term solution is coal,"
Delaney said after the meeting.
Sherritt Coal - a partnership between Sherritt International and the Ontario
Teachers' Pension Plan Board - took control in early May of Luscar Coal Income
Fund, the trust that owned the coal producer. Sherritt Coal now holds about 95
per cent of Luscar units and debentures.
The $1-billion deal gave Sherritt Coal control of the nearly 38 million
tonnes of coal produced by Luscar each year from mines in Western Canada.
A U.S. energy strategy unveiled by President George W. Bush in mid-May calls
for more coal-fired power generation, expanded oil and gas drilling and a return
to nuclear power to meet energy demand amid blackouts in California and high
gasoline prices.
"Most jurisdictions in North America are going to be squeezed for power
supplies in the next few years," Delaney said, adding that coal production
at Luscar will be increased.
"In absolute terms there's just not enough natural gas, and if there is
natural gas, it's going to be at very high prices," he added.
However, Sherritt has no immediate plans to buy or build its own coal-fired
plants.
"We want to dig coal out of the ground and sell it to plants,"
Delaney said. "Eventually, we will look at various kinds of generating
issues. But for the immediate future, we just want to do more of what we know
how to do."
Despite U.S. policy restrictions that prevent Sherritt executives from
travelling into the United States due to the company's extensive assets in Cuba,
Luscar's coal can be sold to American power plants, Delaney said.
However, a Luscar circular distributed to shareholders in March warned that
the Helms-Burton law of 1996, which aims to punish companies that operate on
property expropriated by the Cuban government, could have an impact on the coal
producer's U.S. business.
"If Sherritt acquires Luscar, it is possible that the assets of Luscar
Ltd. located in the United States may be seized to satisfy a judgment,"
Luscar said in the circular.
That circular was sent out while Luscar was seeking an alternative,
white-knight bidder. Sherritt and the Teachers' Pension Plan Board later upped
their offer for Luscar and the deal was completed.
Luscar is a separate company and Sherritt's Cuban operations have no impact
on Luscar's finances or its ability to do business with the United States, said
Patrice Merrin Best, Sherritt's chief operating officer.
Delaney said Luscar won't boost Sherritt's earnings this year due to
acquisition costs. Discussions to refinance Luscar's massive debt - estimated at
about $600 million in late April - are under way but won't affect Luscar's 2,200
employees.
"We certainly haven't hit any speedbumps to date," Delaney said,
adding the company is "always looking" for other acquisitions.
While Sherritt forecasts more growth its oil and gas operations in Cuba,
high energy prices and lower nickel prices have hurt its metal and fertilizer
operations in Western Canada and first-quarter profits, which slipped to $22.3
million from $34.7 million in the same year-ago period.
"It is critical to reduce our energy utilization," Sherritt chief
executive Fred Wellhauser said.
Delaney has also been named interim board chairman of Anaconda Nickel Ltd.,
which has major nickel projects in Australia. Sherritt has a 10 per cent
interest in Anaconda, which this week completed a management shuffle demanded by
shareholders.
© The Canadian Press, 2001 | 