Paula Myson – Director, IR Ian Delaney – Chairman, President and CEO Dean Chambers – SVP, Finance and CFO

Onno Rutten – UBS Securities Robin Kozar – RBC Capital Markets Lawrence Smith – Scotia Capital Tony Robson – BMO Capital Markets Anoop Prihar – GMP Securities

Thank you and good afternoon, everyone. Welcome to Sherritt second quarter 2010 earnings conference call.

Our press release was issued this morning and a copy of the release, the MD&A and the financial statements are available on our website. In additional to the investor and analysts on the call the media will participate on a listen-only basis and a replay of this call will be available on our website.

I'd like to remind everyone that certain of the comments in both the press release and the call include forward-looking statements. Please refer to the cautionary language in the press release and the risk factors that we outlined in the CEDAR filings.

On the call today are Ian Delaney, our Chairman and Chief Executive Officer, and Dean Chambers, our Senior Vice President of Finance and Chief Financial Officer. We'll open with a few brief comments on the quarter and then take some questions.

So let's begin. I'll now turn the call over to Ian Delaney.

Thank you, Paula, and good afternoon. Thank you for taking time out to listen to us this afternoon.

I will be fairly brief and then, I will ask Dean to walk through the key points in our quarterly financial and at the conclusion of Dean’s remarks, we’ll be happy to entertain any questions that people on the phone might have. So our quarter from operational point of view was satisfactory, the operations all in good shape, all having their numbers from the production point of view, costs performing quite well, our capital projects now pretty – we’re very comfortable with our big project in Madagascar, the Ambatovy Project, we’re very comfortable with the capital number there, we don’t think there’s much possibility of any leakages there.

We’re very comfortable with the time schedule and I’m hopeful that year-to-date we will actually be producing metal. The solid spot in the quarter was some non-cash charges at the Sherritt level, which, I’ll let Dean to speak to and in mainly non-cash and for the most part non-recurring [ph] and so why don’t I just ask Dean to step in at this point and walk us through financials for the quarter.

Okay. Thanks, Ian, and afternoon to everyone on the call.

I guess, our financial reporting point of view is somewhat of an interesting quarter. We had operating earnings approximately $87 million, EBITDA of about $150 million and both of those measures significantly higher than the second quarter of 2009, and we know that first half of last year was significantly impacted by the global economic crisis.

But these results are even better than our first quarter of this year, first quarter of 2010. But earnings – net earnings of $15.7 million, or $0.05 a share, compared to $0.08 a share in the second quarter of last year and $0.20 a share in the first quarter of this year.

So as Ian said, obviously, there are some accounting charges running through accounts that are having a significant impact on net results and today we have – and due to the three significant items, non-cash charges of about 37 million, or $0.13 per share. What I’d like to do is maybe give you some color on those three major components.

The first component was an unrealized foreign exchange loss of about $18.1 million or $0.06 per share. This results from the translation of foreign denominated financial instruments.

We have more liabilities in this category than assets and so as the Canadian dollar weaken about $0.045 [ph] during the period, this resulted in a loss. This is a major component of the $35.5 million net financial expense that you’ll see on our statement of operations.

So what’s happening here is, is what we’re seeing is that, actually the assets are declining a bit and some loans have been repaid and the biggest new item that’s occurring is the growth of our additional partner loans from Ambatovy department. So essentially as we continue to increase that balance continue borrow on those loans, this exposure if you will is increasing.

And as a result, this is sort of a growing exposure that could have an impact on net earnings for the next few periods, first, depending on what happens to the Canadian dollar exchange rate. Ultimately, this is associated with Ambatovy, and we begin operations in January, U.S.

dollar cash flow and some of this exposure will go away. The other item is a – another, second item is a $15.3 million future income tax expense that we booked in the quarter.

This is related to taxation of our reserve in oil and gas, and power businesses in Cuba. Based on a review and other taxes with respect to those businesses, and to be conservative and consistent with our treatment of taxes in Cuba.

We’ve decided that more likely or not the taxes could be due on this reserve and so we booked this entry was $15.3 million in this reporting period and that’s about $0.05 per share. The other item is the, was related to the Mineral Products division and we acquired that division from Dynatec, was part of the Dynatec acquisition, the major asset is the Canada Gum [ph] Corporation, the Canada top mine.

We have announced that we will close those operations in August, and as a result we written down some assets taken a partial accrual of termination benefits and also increase the asset retirement liability associated with that mine, a total about $3.8 million or $0.02 per share. So if you’d adjust for all those items, net earnings would be $52.9 million or $0.18 per share.

The one significant operational item in the quarter was, this was the quarter where we took the total plant average of our nickel and cobalt refinery in Fort Saskatchewan. You may recall, we intend to do this once every five years, that’s a significant event.

And so, if you look at our nickel sales in particularly, they are down compared to other quarters, probably somewhat north of 1000 tonnes. But I would like to emphasis that we have not changed our nickel production outlook for the entire year, despite the re-impact of the shutdown in this particularly quarter.

On June 30th, we completed the acquisition of the outstanding inners of the core value partnership that we do already own; we acquire that from Ontario Teachers' Pension Plan for total consideration of $45 million, but $35 million that sort of for the equity interest in $10 million for an outstanding loan. As a result, our balance sheet includes all the assets and liabilities of core value, you may notice that there’s a line item for about $10 million called unallocated purchase price.

We will be fair valuing the assets we’ve acquired and we’ll make adjustments in the third quarter accordingly. And clearly going forward as of July 1st, our earnings will reflect the 100% of the earnings of core valley for future periods.

One of the things, last thing I would like to mention is there has been a change in the way we fund our investment in battery. If you go back to late 2008, early 2009 as we’re all facing a global economic crisis.

It was clear to us that we need to make near arrangements and how we funded in battery project and we sat down with our partners who have always been so supportive of the project and our participation in the project and negotiated the additional partner loan structure whereby we can borrow on those loans to fund our proportion interest in the project, keep our 40% in return we agreed obliviously to pay 100% of our distributions to be paid those loans first. And it was a good arrangements for us at the time, times a bit different today, our balance sheet is strong, our liquidity position is strong, it just make sense to us in terms of the long-term relationship with our partners to sit down and we visit these arrangements.

And as a result, we have agreed to fund at least U.S. $80 million up of our balance sheet directly to fund the project, before we enter any additional borrowing on the additional loans.

So you will see that we’ve borrowed, I think, we saw we contributed about $28 million Canadian during the quarter up above our balance sheet. We’d expect the substantial portion of our funding of the project in the third quarter to be funded off of our balance sheet before we go back to borrowing on the loans and I think it’s something that in time-in-time we’ll looks it, looks the best way for us to follow the project going forward.

That’s the last of my comment. And I’m going to turn it back to Paula Myson for questions.

Thanks, Dean. John, we can now open the line to questions.

Yeah, good afternoon everyone. Hi, Ian.

First, two quick question on the core business, first of all the low volume of coals from the utility, that was related to the – you know, the amount you indicate. Could you elaborate on how you see that evolving going into the second half of this year?

I think one of that reduce consumer demand is due to affiliate of our power plants sometimes, I believe, is it that going to affect your volumes going forward?

We don’t think the volume is going forward. It’s going to be materially affected.

The total amount of coal consumed by all of our utility customers in Western Canada, it will be largely affected for the most part by the weather and secondarily by general economic conditions and lower aggregate demand and the problems will be the lower aggregate demand in electricity. And the demand and history tells us that what was round pretty stable mean and so now we’re now (inaudible) much variants at all from total predicted volumes.

And the affiliate of one of your power plant that takes the coal. Is it going to be redistributed or is that not big enough to make a difference in the overall number?

I don’t think it’s going to affect the overall number for the course of the year.

Okay. And then something that I don’t want to bring up but I will bring up because another big coal producing kind of that brought it up this morning, selenium in affluence.

Do you think this is something we should be discussing or is this just part of long term proper operating of coal mines?

It’s not a new issue.

No, I am well aware with that, this one has to raise it but it kind of say in the market today.

And so a lot of the present metrofitting of coal plants in North America is going to deal with heavy metals and in fact one of the newer businesses that we’ve got and do in our coal business is our activated carbon business which has a specifically design to remove heavy metal in this case and then in the case of that mercury more than selenium and – but there are other kinds of other technologies which will eventually and actually you have to get the heavy metals out of coal affluence and I think fast progress is being made.

And what about the affluence of mine sides?

It’s always been there and it’s but it’s like everything else in the world you going to have to – mine side and I don’t think it’s particularly concerned where we are because our eyes are remediated pretty thoroughly. So I am not sure the context that you are coding so and to you guys, well I could say on it.

Okay. Very well.

That’s fine with me. I just had to bring it up.

Last thing on about the your contribution of at least “80 million” why was that number chosen in the context of 7, 800 million of partner loans so overall why 80, first of fall and secondly the comment at least could you elaborate on whether this could grow?

Okay. It could go but not by much.

It’s an appropriate number for us, as a real. But it’s hard to understand that the driving motivation here is that we were sitting, looking at each other and might have been with an explicit on this conference call in the first quarter of 2008.

We would ensure where the world was going to end up. I don’t think anybody was at that point in time and our partners were very accommodating.

They wanted to finish this project. They wanted to keep us holding in the management and ownership and they really want their dead lines to extent themselves so that we could continue with the project.

But times are different as Dean has said. They are going to be our partners for another 30 odd years and that was a terrific deal but no longer necessary.

And so we’ve gone some way to reach a new point in that partnership and when they leave in amount of capital that’s comfortable for us but also meaningful in terms of the project. The $81 million number, Dean, I don’t think that can be owned by.

Yeah. That was the minimum.

One thing I probably forgot to mention is that as a result of contributing, there is a formula by which we will get a share of distributions going from the project so that...

Yeah. Good incentive for us.

It’s incentive to us so there was a trade off there that I forgot to mention. We put in at least 80, depending on the ultimate cost of the project, the interest et cetera.

We will get some share of distribution when distributions are available for the project.

Bottomline, I think your question is, is that potential for great capital leakage here and the answer is no.

Yeah. I wouldn’t call it leakage because there is a sort of (inaudible) on it, if everything works well, like you say, you will get the part of suite, instead of 100% suite, it might be 90:10 from that.

Exactly.

And I do expect to go back to borrowing on additional partner loans once we’ve contributed on the $80 million.

Yeah. My point is if you’ve lot of cash for your own balance sheet, disposable, that you can use.

So why not to hunt those, just to play devil’s advocate to why not 400? Is that a matter of risk weighting the money and then just and other uses of cash that you might be visiting going forward?

Is that the way to look at it?

All of the above.

Okay.

Okay.

Okay. I leave it at that.

Thanks.

Good afternoon everyone and thank you. Three questions, Onno did ask one of my questions but three other questions I had.

First was, just went to those $80 million in term, you didn’t mention, Dean, that it was part of establishing the long-term relationship for maintaining that. I mean, was this something that Sherritt went and asked the partners to sit down or is it the partners that came to Sherritt and asked that perhaps to sit down or you visit the amount of equity that Sherritt is directly contributing to project?

Now, this is at our initiative.

Pretty simple answer.

I think it’s important to emphasize the point rather. A 100% of our business relationships in long-term partnerships and there is just no way, you’re going to keep – we’ve been 20 years in Cuba.

We’ve had great partners in the coal business. We’ve got very strong partners in Ambatovy.

You have to be sensitive to the partnership, relationships.

Okay. My next question, just deals with CapEx somewhat.

You guys did reduce the guidance for full year and was due to – you guys are putting up constructions of the sulfuric acid plant. Now, you did mention that Moa [ph] pending adequate financing.

You referring to Cuba, sulfur is a third-party – third source of financing…

It’s a third source and third-party source of financing for the acid totally, that’s all.

Yes. So, it has nothing to do with the finances of Cuba.

Yeah. Fair enough.

Okay. Now, staying in Cuba, I did know as well to that Sherritt is talking about the expansion of 150 megawatt power expansion in Cuba.

Now, remind me, perhaps, it’s made my question but was that decided this last quarter. I thought that was previously put on hold but it appears that you guys are going to have it that again.

Construction be done in 2014, is that right?

That’s correct.

Okay.

We’re yet to hear the statement on timing, that’s correct. We’ve to put it on hold and we recommence the project the last quarter.

It just seems like an opportunistic time now. Are these finances are right or just?

We have got – we have awareness going in finance position and we’re a year ago, that’s for sure, little more certainty and you shouldn’t underestimate the need, the desperate need for electricity in any fair growth country and same at Madagascar by the way. You know, they are in a very strong social component on the demand for electricity and production of electricity.

We’re seeing how Sherritt has been successful with them in the past. I guess, we’re moving to, I guess, some next question in terms of battery.

There is a bit of delay. It appears there will be likely a delay in the power plant construction.

When you guys are talking about the targeting behaving of next year mechanical completion, are we talking about the few weeks delay are we talking about the first half or back in few months?

Later, you will end up being work around. We’ll have larger, up moving, buying some electricity.

When we’ve started to commissioning process, we’re in fact starting up probably 20 or 30 different separate steps in varying stages. So this will be a work around.

So, for instance, we’re starting to mine – probably right now as we’re sitting here and speaking here. We want to be well ahead of the mining plants.

So the mining will come and so we will able to buy electricity. We will be able to generate steam out of an acid plant.

And so it won’t delay the commissioning process. And I don’t know; there will be work around.

Certainly, not be doing (inaudible) but we’ve gotten everybody focused on this issue now and focused on in a way that to do the work around so that it doesn’t attract the overall commissioning process.

Okay. Great.

Thank you for taking my questions.

Thank you.

Good afternoon. I hate to come back to the million dollars that you are going to chip into the equity for the project.

You talked about that you will be getting proportionate share of cash flow. What percentage of cash flow, will you guys get over the project, one to think commercial production; can you give me a number on that?

Based on our current projections, I guess we all know we had an answer. Someone had an estimate in sort of 9%, 10% and that’s not that.

I’m not going to like that estimate.

It doesn’t depend ultimately on what the final total cost comes out to be. And I mean total cost including financing expenses, working capital charges all that sort of stuff.

So it’s hard to know what that number is going to be, the only base in our projection at this point.

The key thing is that you’ll be getting it.

Yes.

It’s not that you have to wait for all the shares or loan to be repaid.

No. No, no.

So rather than a 100% of the distributions are going to pay loans, what distributions are available. Let’s say roughly, 19% will go to pay loans and then another sort of 9, 10% or something like that will probably go to shares account.

That will depend on the final outcomes.

One another question on the project. There was some talk about, in accelerated ramp up to full production.

Any update on when you see the project will reach for production. And I guess my additional question would be any update on the cost structure will be.

And that’s it for me. Thank you very much.

I expect the cost structure – We remain and believe that we see no reason why that there should not be cheaper cost of production than keep operations which are right at the bottom of the cost of good. I missed the other question.

Accelerate the ramp up.

Accelerate the ramp up. We are not going to budget and accelerate ramp up.

We budgeted – I think 3 to 6 months.

We are going to accelerate schedule from that.

We think, we are going to be disappointed if we can accelerate that – The more we, it’s get through the list. Just to remind people on the phone that this process is just to get an arc of what we are doing in Cuba.

In terms of the commissioning process, we are not anticipating, we don’t have any chemistry issues. We’re certainly probably going to have lots of mechanical issues.

But they tend to make themselves evident in the early stages of commissioning, field wells, field seas, pumps, quad [ph] filters that kind of stuff. You tend to find that fairly early on in the commissioning process, but I think they can really give you a lot heart ache in these things if you are dealing with – some new chemical balance or technology push out and there are none of those here.

So we’re fairly comfortable we can accelerate this.

Other question.

Thank you and good afternoon. Thanks for taking my question.

Firstly question for Dean, just like to confirm would that the $15.3 million for future income tax expenses is a one-off. Do you see that sensational this reserve coming through when you get into future quarters, please?

There is for prior periods in there. There is – There will be an ongoing fast impact.

I think is about 14.8. But $14 million of that I think is part of 2010 and the rest is year to date.

So each quarter there will be a small impact on the current taxes. It really means that you can take the – keep statutory rate of 30% for our oil and gas and power business.

Okay. Pretty.

Great. Thank you.

And a follow-up question please on coal production cost, unit cost for quarter too being high, which you did touch on in your release. For the quarter three and quarter four, can we expect them to go back to say, quarter one on more normal levels price?

In fact it was area of Mountain. Well, we would certainly expect them to go back to normal, with volumes in both the decisions.

I actually expect Mountain to do, now, with that any delays in getting permits et cetera that has been resolved. I would expect cost to be back to normal in Mountain.

Okay. Great, surprised.

That’s it for me. Paula and Dean, thank you.

Thank you.

Hi. Good afternoon.

Most of my questions have been answered. But just one – on the 50% interest in Coal Valley that your acquired 45 million, I mean if we annualized this quarter’s EBITDA, you basically bought at your partners, is about one times.

And I recall too many cases are happening before, so I’m wondering, was there any issue that was a factor into that valuation such as reserve place or was it just case that you guys are being able to cut a fairly attractive transaction for yourselves?

Well, we aren’t really price takers on the transactions. We are the national buyers.

It was stress test and teachers didn’t have, was very carefully and thoroughly, combed the market and it came in as it was not there. As I say, we are price takers, we are not price makers.

And we are the national buyer, of course. It is difficult to sell a non operated interest like that, but I think teachers are satisfied.

They had all kinds of external advices to what was appropriate and we just took their price.

Okay. Great.

Thanks.

As always we are available, do you have any further questions, our next schedule results will be in the last week of October when we release the third quarter. Thank you for joining us.

Have a good afternoon and enjoy the rest of the summer.

Thank you very much.