JOHANNESBURG (miningweekly.com) – Re-establishing diplomatic relations between Cuba and the US after 54 years has rekindled fresh hopes that Cuba’s mining and petroleum industries will benefit from potential US investment in these sectors.
On January 15, the US Department of Commerce and the Treasury published regulatory amendments to the Cuba sanctions regime, which resulted in changes to the implementation of the embargo, but not its total lifting.
Most transactions involving Cuba, including private and public investment in mineral production, continue to be prohibited in accordance with the Helms-Burton Act.
Nonetheless, Cuban Ministry of Energy and Mines general mining director Juan Ruiz Quintana tells Mining Weekly that restoring diplomatic relations between the US and Cuba, including the revocation of the economic blockade, will create a generally favourable investment climate in Cuba, as this will result in the country’s risk profile rating improving.
“This will also allow for the participation of US investors in Cuba,” he points out.
Independent research-driven investment dealer Salman Partners VP and senior mining analyst Raymond Goldie explains, however, that the US government still deems the mines that are currently operated by diversified Canadian miner Sherritt International, in Cuba’s Moa Bay, in Holguin province, as stolen assets of US-based diversified miner Freeport-McMoRan.
Therefore, the US is still demanding that compensation be paid to Freeport for these mines that were seized from the company by the Cuban State in 1960.
When former Cuban Prime Minister Fidel Castro’s Communist Party seized power in Cuba in 1959, it swiftly nationalised the assets of most foreign corporations as the country transitioned to communism, including that of Freeport’s Moa Bay operation.
Nonetheless, Goldie notes that Sherritt will certainly benefit from using US mining and oil and gas extraction technologies as they could improve the company’s recovery rate on these wells by “20% to 50%”, should the trade embargo on Cuba be lifted.
He stresses that the Helms-Burton Act has to be rescinded, which will require an Act of Congress to be passed, before the US embargo on Cuba can be lifted.
However, the Republican Party, currently with a majority vote in US Congress, has voiced its opposition to rescinding the Helms-Burton Act and it might, therefore, take several years before it will be legal for US companies to restart trade relations with Cuba.
Goldie also points out that, while Sherritt shares are traded on the NYSE, the company’s executives are barred from entering the US making it quite difficult for Sherritt executives to market their operations and meet with investors in the US.
“If this limitation on Sherritt executives entering the US were lifted, it would provide significant new opportunities for the company to raise capital in the US,” he states.
Sherritt’s Cuban Operations
A 50:50 joint venture (JV) partnership between Sherritt and the Cuban government has been in existence since 1994.
The JV is a vertically integrated nickel and cobalt mining, processing, refining and marketing business that comprises a mining and processing facility in Moa Bay and a metals refinery in Alberta, Canada.
The Moa Bay mine uses openpit mining to mine lateritic nickel and cobalt ore, which is processed on site into mixed sulphides containing nickel and cobalt. These mixed sulphides are shipped to the east coast of Canada, and then transported by train to Sherritt’s Fort Saskatchewan facility for refining into finished nickel and cobalt.
The Moa Bay operation produced 16 455 t (on a 50% basis) of nickel and 1 605 t (on a 50% basis) of cobalt in 2014.
The metals business also includes Sherritt’s 100%-owned fertiliser and utilities operation, in Fort Saskatchewan, which provides inputs for the metals refinery and produces agricultural fertiliser for sale in western Canada.
The Moa Bay JV employs about 1 000 people of whom about 900 are Cubans; the Fort Saskatchewan refinery employs about 500 people.
Sherritt COO Steve Wood further points out that the company also has an energy franchise in Cuba, including an oil business at the Puerto Escondido and Yumuri oilfields, in Varadero. The operation produces about 20 000 bbl/d of oil at a cost of about $10/bl, thereby making it one of the lowest-cost operations worldwide, he adds.
Wood notes that this has enabled the company to largely withstand the sharp decline in oil prices over the past 18 months. Sherritt is expanding its oil operations in Cuba, with seven new oil wells having been drilled this year already and the company plans to drill two more wells by the end of the year, he notes, adding that the company’s oil and gas and electricity business employs about 500 people.
Further, the company is building a third acid plant at its Moa Bay operation, which, he says will significantly save Sherritt costs on having to import acid, thereby reducing operating costs by about 15% overall.
The multimillion-dollar plant is scheduled for completion and commissioning by the end of 2016, with Sherritt and the Cuban government each contributing to the plant’s construction.
“We have a partnership with the Cuban State based on mutual trust and respect. Both parties bring great value to the partnership, which is why it has been so successful to date,” Wood enthuses.
US and Cuba
Wood notes that there is much positive sentiment regarding the improvement in relations between the US and Cuba, which is causing a more favourable opinion of Cuba among global business investors.
Other than during a brief period in December 2014, when the company’s share price surged by about 40% following President Barack Obama’s announcement that the US was seeking to restore diplomatic ties with Cuba, the improved relations have yet to translate into any real change for Sherritt, he says.
Wood believes that, in a post-embargo world, there will be many substantial opportunities for Sherritt on which to capitalise, such as gaining access to US investors, skills and labour, manufactured mining, as well as oil and gas technologies.
Additionally, Sherritt could transport its nickel product through the US instead of its current longer route, which will amount to a cost saving of millions of dollars a year.
Opportunities
Goldie points out that Cuba, compared with other “risky places” in which mining and oil and gas companies invest, ranks very favourably from a legislative, political and social stability perspective.
“Cuba has . . . provided a more stable mineral resources legislative environment over the past 30 years than many other developed countries, such as Canada, particularly in the oil and gas sector,” he adds.
Quintana comments that no changes are expected in Cuba’s mining legislation this year, although he says that changes could be made in subsequent years, as the country’s mining policies are being reviewed, including the Mining Act.
He highlights that Cuba is open to foreign investment, noting that in March 2014, the country introduced a new foreign investment law, which offers significant tax cuts to foreign companies and investment security guarantees.
Quintana says the new law halves profits taxes from 30% to 15% and also exempts investors from paying those taxes for eight years. The new law also introduces incentives for companies establishing JVs with Cuba and those developing investment links with foreign-owned and Cuban companies.
He concludes that there are many mining exploration and extraction opportunities for companies seeking to invest in Cuba, such as large ferronickel deposits at Moa Bay, proven polymetallic resources in several areas of the country, gold and silver resources in central and western Cuba, as well as an active tungsten project on Juventud island.