UPDATE 2-Sherritt, partners arrange Ambatovy funding

* Construction of Ambatovy about 50 pct complete

* Sumitomo, Korea Resources agree on funding deal

* Sherritt stock up nearly 8 percent on news (Adds details; in U.S. dollars unless noted)

TORONTO, June 24 (Reuters) - Sherritt International (S.TO) has finalized arrangements with its partners for the remaining funding for the Ambatovy nickel project in Madagascar, the company said on Wednesday, pushing its shares higher.

Japan's Sumitomo Corp (8053.T), Korea Resources Corp and SNC-Lavalin Inc (SNC.TO) have agreed to fund Sherritt's pro rata share of financing for Ambatovy, which is currently under construction and expected to begin production in 2011.

The deal should allow Toronto-based Sherritt to move ahead with the project as its operator without committing any additional funding itself and with the option of maintaining its 40 percent equity stake.

"Essentially, what these arrangements have done is allow the project to proceed without Sherritt having to contribute any of its own financial resources on its balance sheet," Dean Chambers, the company's chief financial officer, said on a conference call.

Sherritt, which also operates in Cuba and Canada, said in February that the project's construction costs had ballooned to $4.5 billion, forcing it to seek alternative funding options to finance its share.

The funding announcement was welcomed by investors, who drove the company's shares up by nearly 8 percent on Wednesday, although higher nickel prices were also likely behind the move. Just before midday, the shares were up 38 Canadian cents at C$5.39 on the Toronto Stock Exchange.

However, the stock briefly gave up some of its gains after management said on the conference call that the $4.5 billion cost estimate did not include certain financing and working capital costs that should tack an extra $300 million to $400 million to the price tag.

Ambatovy is expected to one day produce 60,000 tonnes of nickel a year. Sumitomo and government-owned Korea Resources each hold a 27.5 percent interest, while SNC-Lavalin indirectly holds a 5 percent interest in the project.

Financing of $2.1 billion is already in place. Sherritt said this funding will be unaffected by the new arrangements.

Under the plan, Sherritt will repay the loans through distributions from the project, and the company has the right to prepay some or all the loans at its option.

The partners have the right to exchange some or all of the new loans for a share of Sherritt's equity interest in the project, up to a maximum of 15 percent, which could reduce Sherritt's stake to as low as 25 percent.

However, Sherritt has the right to repay the loans to avoid diluting its stake.

Construction of the Ambatovy project was slowed last fall due to low nickel prices, but the company has said it is now running full tilt and is about 50 percent complete.