by James Kwantes

When I last wrote about Canadian value investor George Armoyan, he was licking his wounds after losing a bid to install three directors on the board of nickel miner Sherritt International (S.TO). Sherritt produces nickel as well as oil and gas in Cuba and a major focus going forward is its 40% owned Ambatovy nickel mine in Madagascar.

Armoyan had taken aim at Sherritt – long home to a curious combination of lavish pay packages and chronic underperformance – through Clarke (CKI.TO), his publicly listed investment company. Clarke accumulated 5%-plus of Sherritt’s stock, which had sunk below $4 a share after hitting 2007 highs above $17 and 2011 highs above $9.

George Armoyan gets the last laugh after failed Sherritt proxy battle. Halifax Chronicle Herald photo

George Armoyan gets the last laugh after failed Sherritt proxy battle. Halifax Chronicle Herald photo

Following months of failed behind-the-scenes negotiations, Armoyan publicly criticized Sherritt management and launched a determined, if improbable, proxy battle that would have seen him and two associates join Sherritt’s board of directors. The public spat, along with a surging nickel price and analyst upgrades, sent Sherritt stock up to the high $4s in the spring.

Turns out that while Armoyan lost the Sherritt proxy battle, he won the war – to generate returns for shareholders.

Clarke disclosed in its second-quarter financials, released on Aug. 7, that it had unloaded its entire stake in Sherritt (a portion during Q2 and the rest subsequently), generating a profit of more than a few nickels on the transaction – $17.5 million, to be precise.

Armoyan has since been deploying its large cash pile closer to home, boosting Clarke’s already-substantial ownership stakes in growing hotel play Holloway Lodging (HLC.TO) and oil-and-gas focused holding company TerraVest Capital (TVK.TO).

Clarke shares closed at $8.17 the day I first wrote about the Clarke-Sherritt showdown. They are now trading in the range of $10.60, a gain of about 30% (compared to about 9% for the S&P/TSX Composite). Clarke also pays a dividend and is yielding about 3.8% at current prices.

As for Sherritt shares, they have slumped back below $4 (I bought in the low $4s and got stopped out at $4.50).

On July 30, Sherritt announced a second-quarter net loss of $30.1 million, or 10 cents a share, despite increased revenues and surging nickel prices during the three-month period.

As for Armoyan, Clarke’s beefed-up Holloway investment is also working out nicely. The stock is up more than 30% in the past month after value investor Guy Gottfried talked the company up at the Value Investing Congress in New York in early September.

Disclosure: I own Clarke shares. All investors should do their own due diligence.

Related reading

Sherritt and Clarke: Nickel for your thoughts | World of Mining

A proxy loss, but Sherritt shaken | World of Mining