Sherritt Bonds Plummet in Value
Bonds are usually safer than stocks. But it’s also possible to lose a lot of money in bonds if we’re not careful. Last year I blogged about buying $5,000 of Sherritt’s high yield bonds. I made this decision based on the attractive 8% annual yield! 😀 Sherritt International Corporation is a mining and energy company that operates in Canada, Cuba and Madagascar. Sherritt’s primary business is mining and refining nickel ore and similar base metals. I expected the bonds would mature in November 2018 and I’d get back my principal.
However, a lot of things have changed since 2014. As with all mining companies, the value of Sherritt’s business depends heavily on the price of the underlying commodity it sells, in this case, nickel. When I bought the bond last summer the spot price of nickel was roughly $9 per pound. And it appeared to have stabilized. However, 15 months later, the price has now dropped in half to just $4.5 a pound. 😕 Below is a 5 year chart of the price of nickel.
Obviously this had a devastating impact on resource and mining stocks. Teck Resources and Freeport-McMoRan are both down about 50% year to date. And Sherritt is down 70%. I guess you can say these mining companies have hit rock bottom. 😆 Even though I don’t own any Sherritt stocks, I’m still a little concerned as a bond holder. With the common share price dropping this low, there’s a real chance that Sherritt could file for bankruptcy protection in the foreseeable future. And if the company’s board of directors choose to do that before my 2018 bonds are due then I may not get my $5,000 principal back. 😐