Tag Archives: Sherritt International

SHERRITT INTERNACIONAL PLANEA EXPLOTAR YACIMIENTOS DE NÍQUEL EN CUBA POR ‘VARIAS DÉCADAS’

El presidente general de la compañía afirma que se estudian opciones para ampliar la capacidad de producción de la planta de Moa, que el pasado año quedó por debajo de lo previsto.

Diario de Cuba, Moa 21 Oct 2021

Articulo Original: Sherritt Internacional

El presidente general de la compañía canadiense Sherritt Internacional Corporation, Leon Binedell, afirmó este miércoles durante una visita a Cuba que planea aumentar la producción de Níquel en Moa para seguir explotando los yacimientos por “varias décadas”, informó Granma.

Estamos considerando opciones para ampliar la capacidad de producción de la planta y continuar operando en este lugar por muchas décadas más”, dijo Binedell durante una visita a las instalaciones de la compañía acompañado por el ministro de Energía y Minas cubano, Liván Arronte Cruz.

La fábrica procesadora de níquel Comandante Pedro Sotto Alba, ubicada en el municipio holguinero de Moa, es operada desde 1995 por la compañía mixta Moa Nikel S.A, administrada por Sherritt, quien firmó un contrato con el Estado cubano para explotar yacimientos y ejecutar otras inversiones en el sector energético.

Tras el cambio en la directiva de la compañía canadiense, dado por la llegada de Binedell en sustitución de David Pathe, las autoridades cubanas temieron por el fin de los acuerdos, pero el actual director ha manifestado su interés en mantener los negocios en la Isla.

Durante el encuentro, reseñado por la prensa estatal, Arronte Cruz dijo que la fábrica está a punto de cumplir 27 años de fundada como corporación mixta, lo que calificó como un buen momento para seguir consolidado su eficiencia.

De acuerdo con la prensa estatal, la planta procesadora de níquel Comandante Pedro Sotto Alba mantiene récord históricos de producción y es uno de los ejemplos más referidos respecto a los negocios entre Cuba y Canadá.

Sin embargo, en 2020 la empresa canadiense comunicó que las dificultades que encaró durante en su planta y negocios mineros en Moa influyeron negativamente en su balance productivo anual.

El líder mundial en la extracción y refinación de níquel y cobalto de minerales lateríticos, con proyectos y operaciones en Canadá y Cuba, anunció que su producción terminada de níquel en Moa fue de 31.506 toneladas en 2020, ligeramente inferior a la proyección de entre 32.000 y 33.000 toneladas en ese periodo.

Según el balance de la empresa, resumido por el sitio especializado Kitco.comla producción se vio afectada por las interrupciones del servicio ferroviario que tuvieron lugar durante el primer trimestre del año.

Asimismo, Sherritt sufrió el cierre prolongado de la planta Pedro Sotto Alba durante el tercer trimestre debido a trabajos adicionales y a la reducción de la disponibilidad del contratista cubano a causa de la pandemia del Covid-19, así como por reparaciones no planificadas de las autoclaves en el cuarto trimestre.

Además, numerosos residentes en la localidad han denunciado el defectuoso sistema de abastecimiento de agua y la elevada contaminación que provoca la procesadora en Moa.

A la escasez de agua, la sequía y la contaminación ambiental se suma en Moa el desabastecimiento de alimentos y productos de higiene, razón por la cual un centenar de residentes de la localidad protestaron en plena calle a mediados del mes de junio de 2020, según se pudo observar en un video compartido en Youtube.

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TRUMP ACTIVATED A LONG-DORMANT CLAUSE IN CUBA TRADE WAR — AND IT’S STARTING TO HURT CANADIAN COMPANIES

Sherritt International is suffering from a ratcheting up of U.S. restrictions on everything from financial transactions, to travel and shipping

Naomi Powell, November 5, 2019, 3:47 PM EST

Tougher U.S. sanctions on Cuba squeezed Sherritt International in the third quarter, disrupting the supply of diesel to its nickel mine on the island and casting doubt over the timing of key payments in foreign currency.

The Toronto based firm, which operates the Moa mine as a joint venture with the Cuban government, was forced to adopt conservation measures including running fewer mining trucks as U.S. sanctions on oil shipments worsened an acute fuel shortage.

The measures reduced production of mixed sulphite, though nickel production was unaffected. Mixed sulphides production is now back on track and access to fuel supply returned to normal in the fourth quarter, the company said in a call with investors Friday.

Meantime, the Trump administration’s attempts to unsettle business in the Communist run nation have stifled the flow of cash Cuba needs to pay Sherritt, which has taken pains to limit its direct exposure to American sanctions, including the recent activation of Title III of the Helms Burton Act.

 

Sherritt’s Moa Cuba Operations

“The U.S. sanctions continue to be a concern for us,” Sherritt chief executive David Pathe said in a call with analysts last week. “There is potential for further sanction increases in the months ahead and that does put further difficulty on our ability to forecast the timing of Cuban receivables, receipt of cash on Cuban receivables from our Cuban partners in the oil and power business.”

The Trump administration moved in April to activate Title III of the 1996 Helms Burton Act, the legal underpinning of the U.S. embargo on Cuba. The long-dormant provision allows parties whose property was confiscated by the Cuban government in the 1959 revolution to sue in U.S. courts anyone who “traffics” or derives an economic benefit from that property. The provision has been suspended by every previous U.S. President.

Though a certified claim of $88.3 million stands against Sherritt’s Moa nickel mine, the company has structured its operations to avoid having any presence in the U.S. where a claim could be pursued. And changes made in 1996 to Canada’s Foreign Extraterritorial Measures Act (FEMA) state that any judgement made under the U.S. embargo will not be recognized or enforced in Canada.

But that hasn’t sheltered Sherritt from a ratcheting up of the U.S. restrictions on everything from financial transactions, to travel and shipping.

In an effort to punish Havana for its close ties to Nicolas Maduro’s regime in Venezuela, the Trump administration has limited U.S. travel to Cuba, banned American cruise ships from entering Cuban ports, imposed sanctions on shipping companies and restricted the ability of Americans to send remittances to family in the country. The moves have limited foreign investment in Cuba, restricted access to supplies and equipment and reduced the availability of foreign currency, Sherritt said.

That’s left the Caribbean nation unable to pay Sherritt — it’s largest private investor — for the energy it has produced. Sherritt also produces electricity, oil and gas in the country.

“Each one of those implemented successively does impact Cuba’s ability to draw hard currency reserves into the country and puts more pressure on their liquidity situation and hence more pressure on their ability to service our receivables,” Pathe told investors.

Sherritt’s Cuban partners are currently overdue on US$154.8 million in payments, though the Canadian miner did receive its monthly injection of US$2.5 million, National Bank Canada analyst Don DeMarco said in a note.

Cuba’s timing in paying off the debt will have implications for Sherritt’s liquidity and “ability to repay (or refinance) the Cdn $170 million first tranche of corporate debt due in 2017,” he added.

So far 20 lawsuits have been filed under Title III, according to John Kavulich, president of the U.S.-Cuba Trade and Economic Council Inc., a group that tracks Title III lawsuits. That’s a long way from the avalanche of claims many experts were expecting when Trump activated the provision, many of which were expected to affect Canadian companies.

Nearly 6,000 certified claims for property confiscated in Cuba have been certified by the U.S. Justice Department. And the number of uncertified claims have been estimated to be as high as 200,000.

Many parties are likely waiting to see how U.S. courts sort out various jurisdictional and other issues related to the law before venturing out with their own claims, said John Boscariol, head of the international trade and investment law group at McCarthy Tétrault LLP.

“This just happened in April so this is just the tip of the iceberg I think,” he said. “A lot of Canadian companies stepped in to fill the vacuum after the U.S. left so I think we’ll be seeing a lot more of this.”

Though former U.S. President Barack Obama sought to settle the certified claims and restore relations with Cuba, Trump has taken a markedly different stance. Ultimately the action will have a “chilling effect” on investment in Cuba, he added.

“Rather than face lawsuits, these companies may decide not to spend in Cuba at all,” he said.

Financial Post

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THE SHERRITT–CUBA JOINT VENTURE: UNCERTAINTIES FOR BOTH PARTNERS

By Arch Ritter  

September 6,  2016

Cuban nickel production and the Sherritt-Cuba joint venture should have good prospects in view of Cuba’s large and low-cost reserves of nickel. Sherritt’s technology and probable future demand.  However, there are a number of looming issues that darken the horizon for Sherritt and to a lesser extent for Cuba including high transportation costs – shipping nickel/cobalt concentrate from Cuba to Fort Saskatchewan Alberta – together with the “Helms-Burton” status of the mine, and future price levels and volatility..

The Moa mine and processing facility, with a 25,000 ton capacity, were initially constructed by US interests – the Moa Bay Mining Company, a subsidiary of Freeport Sulphur. They used proprietary technology from Sherritt, which had pioneered hydrometallurgy processes at their plant in Fort Saskatchewan Alberta. Extraction and processing began in 1959.

The Government of Cuba then expropriated the operation without compensation in August, 1960 and restarted it in 1961 producing concentrate for the Soviet Union.  The US Foreign Claims Settlement Commission (US FCSC) valued the company at US$ 88.4 million at the time of the expropriation.

Sherritt’s direct connection with Cuba began in 1991 with purchases of Cuban nickel concentrate for its Alberta refinery.  Sherritt had had insufficient volumes of concentrate for many years and in 1990 a refining contract with INCO expired. In 1994, Sherritt International and the Compania General de Niquel of Cuba established a 50/50 joint venture, which now owns the Moa extraction, processing, and smelting operation, the Alberta refinery and the international marketing enterprise. The former President of the company, Ian Delaney, also negotiated agreements with the Cuban Government, permitting Sherritt to enter other sectors of the economy, including electric energy, oil and gas, agriculture, tourism, transportation, communications, and real estate. By 2000, Sherritt International had become a major diversified conglomerate in Cuba.

In this deal, the Cuban Government became and is currently a foreign investor in Canada, as the Compania General de Niquel owns 50% of the nickel refinery, a fact not well known in either Cuba or Canada.

The joint venture between Sherritt International and the Government Cuba is a cooperative masterpiece.  It has generated great benefits for both parties.

 I.         The Nickel/Cobalt Operation

The linking of the Moa nickel deposit and part of Cuba’s processing capacity with the Alberta refinery and its access to attractive energy sources was a stroke of genius and/or good luck for Sherritt and Cuba.

Cuba acquired a market for its nickel concentrate. It acquired access to the technological improvements that have occurred from 1959 to 2016.  These have generated improvements in productivity, energy efficiency, environmental impacts, and health and safety.  It acquired Sherritt’s managerial know-how which. Together with technological improvements, have increased production from around 12,500 tons in the early 1990s to around 34,000 tons in the 2010s.zzzzz3The Government of Cuba is now the joint owner of a vertically integrated nickel operation, from extraction and concentrating through to refining and international marketing. Cuba also has obtained new technologies and managerial skills for oil and gas extraction and utilization, as well as electricity generation.  Cuba’s nickel reserves are fifth largest in the world and production volumes are 10th largest.[i] Nickel has been Cuba’s largest merchandise export since the collapse of sugar by 2002. Foreign exchange earnings from the Sherritt-Cuba joint venture’s share of nickel and cobalt exports have averaged about 40% of total nickel/cobalt exports.

It is not surprising that Ian Delaney became known as “Fidel’s Favorite Capitalist”!

For its part, Sherritt has been able to maintain its Canadian refinery and to use its base in nickel to enter other sectors in Cuba. Its earnings from its Cuban operations are significant. The joint venture has been able to increase metal production and achieve high net operating earnings, which have been in the area of 40 to 50 percent of the company’s gross revenues for most years, depending on international nickel prices.  The following chart illustrates Cuba’s total nickel production volumes.  The impact of Sherritt’s innovations in increasing production volumes in the second half of the 1990s is apparent.

 II.        Petroleum, Natural Gas and Electric Power

Sherritt International’s petroleum and natural gas activities also have been successful. New sources of oil and gas have been discovered and extraction rates have increased through enhanced recovery techniques from 1996 to 2000. Natural gas recovery and utilization has also been improved through the construction of two processing plants, a feeder pipeline network, and a 30 Kilometer pipeline to Havana (Sherritt International, Annual Report, 1997, 13).

Sherritt invested CDN $215 million for the construction of two integrated gas processing and electrical generation systems. The natural gas feedstock previously had been flared and wasted. Commissioned in mid-2002, these operations had a combined capacity of 226 megawatts and generated a significant proportion of Cuba’s electricity. At the same time they reduced sulfur emissions, a potential problem especially at the Varadero site, which is adjacent to the hotel zone. By 2007, installed electricity generation capacity had been further increased to 375 mega watts, following an 85 MW expansion that came on stream in early 2006.

In February 1998, Sherritt acquired a 37.5 percent share of Cubacel, the cellular telephone operator in Cuba for $US 38 million, but this was resold. “Sherritt Green,” a small agricultural branch of the company, entered market gardening, cultivating a variety of vegetables for the tourist market. Sherritt also acquired a 25 percent share of the Las Americas Hotel and golf course in Varadero and a 12.5 percent share of the Melia Habana Hotel, both of which were managed by the Sol Melia enterprise but these also have been divested.  By 2010, Sherritt’s Cuban operations were large and growing. Gross revenues reached CDN $1,040 million in 2008.

 III.      Energy Costs, Transport Costs and Potential Relocation

However, there are a number of clouds on the horizon for Sherritt. First, Cuban nickel concentrate is transported by ship to the east coast of Canada and then overland to the Alberta refinery. This makes some sense economically when energy prices are low.  So far, the existence of the refinery there has compensated for high transportation costs. However, if – or when –transportation costs rise with higher energy prices or when full normalization with the United States occurs or when the existing plant reaches the end of its useful life, would a different location become more attractive?   Energy sources are also available in Venezuela as well as the Gulf of Mexico region of the United States or could be transported to Cuba itself in future.  At some point it will likely make sense to relocate a refinery to a locale closer to the nickel ore body.

 zz3

So far, Cuba is tied to the Canadian location through its 50% joint ownership of the Alberta refinery. But would Sherritt relocate the refinery to a lower-risk Cuba at some time in the future, or to the post-embargo United States or a post-Maduro Venezuela?  Perhaps. However, Alberta will continue to have competitive energy prices and low risk to compensate for its locational disadvantage for some years to come.

 IV.       “Helms-Burton” Status of the Mine Properties.

The second possible problem for Sherritt is that the Moa mine and the concentration plant are “Helms-Burton” properties for which there are US claimants. What would be the current value of the Using the US FCSC interest rate of 6% per year of non-payment, the 2016 compounded value would be a whopping US$ 2,054.6 million. Obviously there will be a negotiations problem for this and all other such claims.

Resolution of the compensation claims issue with full US-Cuba normalization may require Sherritt and the Government of Cuba to negotiate some sort of compensation package for the original US owners.  In one scenario, the US claimants would simply take over the Cuba-Sherritt operation in Cuba. But this would not be reasonable because at this time, the refinery for Cuban nickel is in Alberta and it is jointly owned by Cuba. My guess, however, is that Sherritt, the Government of Cuba and the US claimants will negotiate an arrangement that will be reasonable for all parties.

In any case, the claim of US interests on the mine property generates ambiguities and uncertainties and will be problematic at some time in the future. Sherritt International may well be one of the few economic interests that perhaps could lose from US-Cuban complete economic normalization. A resolution of the property claims issue may turn out to be very expensive for Sherritt. .

 V.        “Nickel Pig Iron”

A technological advance in the production of “Nickel Pig iron” (NPI), a substitute for refined nickel-steel alloys for some uses where high quality is less necessary.  “Nickel pig iron” may well have already captured a portion of the nickel market for low quality alloys.  In future, it may reduce the demand for nickel thereby placing downward pressures on nickel prices. This will likely reduce and Cuba’s foreign exchange earnings and Sherritt’s revenues and profits from nickel exports in future.

As illustrated in Chart 2, nickel prices spiked in the boom of 2003-2007 – helping to generate a period of relative prosperity for Cuba – then declined in the recession of 2008.  What is striking at this time is that in real inflation adjusted terms, the price of nickel in 2015 and 2016 is pretty much where it was in the 1990s. A number of factors are contributing to this of course, especially the growth rate deceleration in China reducing the demand for nickel.  Is “nickel pig iron” also contributing to weak demand for nickel at this time?  What will be its impact in future?

 zzzzz2

Source: United States Geological Survey, Minerals Information, Nickel: Statistics and information., various years. The “real” or “inflation adjusted” price is the US consumer price deflator.

In conclusion, Sherritt has had a great run in Cuba, contributing to improved nickel production and exports, higher foreign exchange earnings for Cuba and high revenues and profits for itself, especially in the 2004-2014 decade.  The future may be less brilliant for both with the uncertainties of resolving the property claims issue and a possible slow=down in international demand for nickel generated in part by “nickel pig iron.”

[i] United States Geological Survey, Commodity Surveys, Nickel, 2016. http://minerals.usgs.gov/minerals/pubs/commodity/nickel/mcs-2016-nicke.pdf

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Craig Wong of the Canadian Press: “Ian Delaney, Sherritt CEO Retires”

Ian Delaney, CEO of Sherritt International is retiring, but will remain active as Chairman of the board. Delaney’s visionary linking of Cuba’s nickel concentrate production with Sherritt’s unused refinery in Fort Saskatchewan Alberta has been of immense benefit to both Cuba and Sherritt. A fact not widely known inside or outside Cuba is that the Government of Cuba is now a foreign investor in Canada as joint owner of the Refinery in Alberta.

Ian Delaney and Raul Castro Appreciating a Comment

Long-time Sherritt chief executive Ian Delaney to retire, remains chairman

By: Craig Wong, The Canadian Press, November 24, 2011

The long-time chief executive of Sherritt International Corp., who transformed the company by flying in the face of conventional wisdom and betting big on Cuba, is retiring at the end of the year. Ian Delaney, who turned 68 last month, will remain chairman of the Toronto-based miner while Sherritt’s chief financial officer, David Pathe, will replace him as CEO on Jan. 1.

Delaney took over the struggling company — then Sherritt Gordon — in 1990 after winning a proxy battle with the help of Eric Sprott, then-president of Sprott Securities, and Bruce Walter of Delaney Walter & Co. But it was his defiance of the U.S. trade embargo and investment in the Moa joint venture in Cuba that helped Delaney, a former investment banker with a reputation as “the Smiling Barracuda of Bay Street,” make his mark.

Delaney, who was Sherritt’s CEO for much of the last two decades, was often called Fidel Castro’s favourite capitalist. His deal with the Cuban dictator provided the communist country with hundreds of millions of dollars in badly needed foreign exchange in return for mining rights that turned Sherritt into a diversified resources company. Raymond Goldie, senior mining analyst at Salman Partners, said Delaney once pronounced that he wanted to turn Sherritt into the “Canadian Pacific of Cuba,” referring the Canadian railway that once owned coal mines, hotels, ships, and oil and gas assets before it spun them all off. “He bet big on Cuba,” said Goldie, who noted Sherritt would later sell its hotel, mobile phone and other non-core investments in Cuba.

When Delaney took over Sherritt the company was floundering. It had a nickel refinery in Fort Saskatchewan, Alta., but nothing to refine. “Sherritt had a smelter refinery all dressed up and nothing to feed into it,” Goldie said. So Delaney turned to Cuba for supply, a move that Goldie said the company had considered before, but rejected because of the risks involved with angering the United States. The company’s investment in 1994 would eventually lead to Delaney and his family, as well as several top executives, being blacklisted by the U.S. State Department and barred from visiting the United States. “He was brave enough to say ‘I’m never going to set foot in the United States again,'” Goldie said.

While the deal turned Sherritt into a major player in Cuba, it also made him an enemy of some U.S. politicians. “Ian Delaney has made a deal with the devil,” like those who “did business with Hitler’s Germany or Stalin’s Russia,” Marc Thiessen, an aide to Senate Foreign Relations Committee chairman Jesse Helms, was quoted as saying at the time. Helms, the ultra-conservative Republican Senator from North Carolina, was the co-author of the Helms-Burton Act, which tightened U.S. sanctions against foreigners who invest in Cuba. But Delaney thumbed his nose at the insults and in 1996 Sherritt became the first foreign capitalist company to hold a board meeting in Cuba since Castro’s revolution in 1959.

Archibald Ritter, a Carleton University economics professor and expert on Cuba, said Sherritt has been a driving force in the modernization of the Cuban resource sector. “It has been mutually beneficial,” he said. Ritter said Cuba had been relying on old Soviet-era technology, but Sherritt changed all of that with modern technology for mining and drilling for oil that boosted exports and increased production for the country.

Nearly two decades after its initial investment, Sherritt’s Moa joint venture produced 33,972 tonnes of nickel and 3,706 tonnes of cobalt in 2010. The company also owns oil and gas operations in Cuba as well as a stake in power utility Energas, which has power plants across the country with a combined capacity of 356 megawatts.

Since the Cuban deal, Sherritt has also cashed in on the global commodities boom of the last decade, also betting heavily on coal, expanding its operations in Canada beyond nickel and other metals. In 2001, Delaney partnered with the Ontario Teachers’ Pension Plan and acquired the Luscar coal business in Alberta that supplies fuel to coal-fired power plants in Alberta and Saskatchewan. More recently, though, Sherritt has faced difficulties. Its shares (TSX:S) were unchanged in trading Thursday at $5.09, but down from their peak of more than $17 in 2007 during the commodities boom.

In 2009, Sherritt saw an oil production-sharing contract between the Cuban government and Sherritt’s partner Pebercan Inc. (TSX:PBC) scrapped nearly 10 years early after months of efforts to have the Cuban government catch up on missed payments to the company.

Earlier this year, Sherritt extended its work schedule and increased estimated costs for its Ambatovy project in Madagascar. It cited a litany of problems including poor performance by contractors and inaccurate estimates on the project in the island country off the east coast of Africa. The company has said the capital cost of the project will come in at US$5.5 billion, about 16 per cent more than it had previously predicted. In the quarter ended Sept. 30, Sherritt more than doubled its profits to $45.5 million or 16 cents a share. That was up from $22.5 million or seven cents a year ago. Revenues rose to $466.4 million from $412.7 million. Besides its nickel and cobalt operations, the company is the largest producer of thermal coal in Canada. It also is the largest independent energy producer in Cuba, with extensive oil and power operations across the island.

Sherritt, which has more than 6,800 employees and a stock market value of more than $1.5 billion, also licenses its nickel mining technology to other metals companies.

See also:

Bad News for Cuba’s Nickel Industry and Sherritt, June 28, 2010

Does Sherritt International Have a Future in Cuba?, October 20, 2010

From The Cuba Standard: “Piñón on Energy: Analyzing Sherritt”, February 25, 2011

Up-Date on Canadian-Cuban Economic Relations, May 27, 2011

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Up-Date on Canadian-Cuban Economic Relations

By Arch Ritter 1. Canadian Tourism in Cuba Canada continues to be the largest national source of tourists in Cuba, a position that it has had consistently since 1990. Canadian tourists numbered 555,872 out of a total of 1,179.963 from January to April 30, 2011, according to Cuba’s Oficina Nacional de Estadisticas. This is almost 10 times more than the second source country, Britain. Excluded from the ONE Chart are visitors from the United States who have been increasing rapidly and at this time must be a not-too-distant second to Canada Total Canadian tourism to Cuba will likely approach 1 million for all of 2011. It seems almost rare to encounter a Canadian who has not visited Cuba. While many visit only once, many others are repeat visitors, and obviously like their visits to Cuba. Tourism is of course a major source of foreign exchange earnings for Cuba, larger than any single merchandise export but also smaller than other service exports (mainly medical services.)  Foreign exchange earnings from Canadian tourism were likely in the area of US$ 882 million for 2008, (calculated as 37.6% of total tourism earnings of U.S. $ 2,347.  million.) If one takes both Canadian tourism plus Canadian merchandise imports (mainly nickel) from Cuba into consideration, Canada contributed about U.S. $1.6 billion in 2008, a substantial proportion of Cuba’s foreign exchange availability. One partial consequence of the steadily increasing contacts between the citizens of Cuba and Canada is the expansion in Cuban immigration to Canada. This has increased slowly but steadily reaching 1,421 individuals in 2009, up from 845 in 2000. (Citizenship and Immigration Canada www.cic.gc.cahttp://www.cic.gc.ca/english/resources/statistics/facts2009/permanent/10.asp) Chart 1.          Principal Sources of Tourists, January to April 2011 Source: ONE, Turismo. Llegada de Visitantes Internacionales Enero – Abril 2011 2. Canadian Foreign Investment in Cuba. The first trimester of 2011 has been good for Sherritt International, the largest Canadian investment in Cuba by far, as well as for the nickel sector in Cuba. As a result mainly of a 27.5% increase in nickel prices, metals’ earnings from operations were  $57.4 million for January to March 31, 2011 and were $18.6 million higher than in the same period in 2010. Higher operations costs had a small negative impact on metals earnings, however. (Sherritt International Corporation, 2011 FIRST QUARTER REPORT, for the January to March 31, 2011, p.21) Another major Canadian investor in Cuba is Leisure Canada – headed by the legendary Canadian mining financier Walter Berukoff.  This firm is planning the construction of at least three major hotels, namely Monte Barreto in Miramar Havana, Jibacoa between Havana abnd Varadero (with a small “boutique beach”) and Cayo Largo as well as a golf course and a marina.  Perseverance has won out for Leisure Canada which succeeded in obtaining the rights – a 99 year lease presumably – to a 34,000 square meter-oceanfront property in the Miramar section of Havana.

The Monte Barreto Project

Here is some description of the projects from Leisure Canada’s publicity:

“The Monte Barreto site is located on the last significant piece of oceanfront property in Havana’s Miramar business and trade district. The property is 34,500 square metres and sits across from the new Miramar Trade Center, and adjacent to Havana’s National Aquarium. The proposed 716-room hotel project will have a significant retail and convention/entertainment component. With a planned 737-room hotel accompanying significant convention and retail space, Monte Barreto will stand as Cuba’s foremost luxury hotel catering to the world’s most sophisticated traveler. “ http://www.leisurecanada.com/monte_barreto.htm

“Jibacoa – Leisure Canada’s site spans 5.5 square kilometers of oceanfront property, which is located 65 kilometers east of Havana. The site is being developed as the first high-end destination resort in Cuba, and it will host six luxury hotels, two PGA championship golf courses, and timeshare villas.”

Cayo Largo – This small limestone quay, located 50 kilometers south of the main island of Cuba, possesses the most spectacular white sand beaches in all of the Caribbean. Cayo Largo is also rated as one of the world’s best diving sites. Leisure Canada’s project will involve the construction of 900 rooms, and a central pedestrian village that will offer retail and amenity experiences currently not offered on the island.

Another Canadian enterprise Standing Feather International spear-headed by Vincent McComber from the Kahnawake Mohawk reserve outside Montreal, is planning a 36-hole golf course, a beachfront hotel, spas, shopping centres – and, in a first for the island, villas owned privately by foreigners. This will be in a joint venture arrangement. If the foreign ownership of villas is accepted, it will constitute a major change for Cuba.   3. Cuba-Canada Trade Canadian trade with Cuba has begun to recover from the sharp contraction of 2008-2009 that reflected the impacts of the world recession on commodity prices, notably nickel, and on Cuba’s reduced foreign exchange earnings and lower capacity to purchase imports. Cuba’s exports to Canada continue to far exceed Canada’s exports to Cuba largely because of the importation into Canada of nickel concentrate from the Sherritt operation for refining in Fort Saskatchewan Alberta.  

Perhaps Raul Likes Golf

 

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From The Cuba Standard: “Piñón on Energy: Analyzing Sherritt”

On February 24, The Cuba Standard published an analysis by Jorge R. Piñón by on Cuba’s energy sector focusing in particular on Sherritt International, which has a joint venture in oil extraction and refining, natural gas, electric power and nickel mining, concentrating, refining  and marketing.

The full article can be found here: http://www.cubastandard.com/2011/02/23/pinon-on-energy-analyzing-sherritt/

An introduction to Piñón’s analysis is presented below.

Crude oil: Crude oil prices reached this week a 30-month high of nearly $100 per barrel, with industrial residual fuel oil prices close behind at a 28-month high of $80. These price increases are reflected in Sherritt’s year-end 2010 financial reports released today.

Cuba’s onshore and coastal 2010 crude oil production is estimated at approximately 50,000 barrels per day, of which 11,128 barrels per day represents Sherritt’s net working interest (equity) production. This is an 11-percent decrease from 2009 levels of 12,489 barrels per day.  Sherritt sells this production to state oil company Cupet at a discounted U.S. Gulf Coast residual fuel oil price.

Sherritt and Cuba do not realize the true value of the island’s crude oil production — based on its refined products yield — because Cuban crude is used directly as industrial fuel for electric power plants, instead of optimizing its inherent value by processing it into high-value refined products such as gasoline, diesel and jet fuel.

Cuba’s realized crude oil value could substantially rise if it was able to market its crude oil to U.S. Gulf Coast refining companies.Realized prices should also rise once Cuba is able to monetize its heavy-oil production in planned conversion facilities at Cienfuegos and Matanzas.

High oil prices negatively impact Cuba’s balance of payments in two ways: Not only as the value of its crude oil imports from Venezuela under the 2000 Convenio Integral de Cooperación services for oil barter agreement increases, but also as it has to purchase part of its domestic crude oil production from Sherritt. We estimate that the total value of Venezuelan petroleum imports and the purchase of Sherritt equity production for 2010 will be approximately $2.894 billion.

Nickel: The good news is that nickel prices also reached this week a 24-month high of $13 per pound, an increase of 177 percent from a low of $4.50 in February 2009. However, this is still far from the contract record high of $24 a pound in May 2007.

Canada’s Sherritt reported nickel and cobalt revenues for 2010 of $453.1 million, reflecting a 29-percent improvement over 2009 revenues of $350.7 million. The reported figures only reflect Sherritt’s 50-percent interest in the Moa/Saskatchewan nickel joint venture with Cubaníquel; therefore a similar improvement should mirror its Cuban partner operations.

Cuba and Sherritt offset receivables between Sherritt’s nickel and crude oil operations, therefore alleviating Cuba’s crude oil negative cash flow impact on the national balance of payments.

Jorge R. Piñón was president of Amoco Corporate Development Company Latin America from 1991 to 1994; in this role he was responsible for managing the business relationship between Amoco Corp. and regional state oil companies, energy ministries and energy regulatory agencies

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Does Sherritt International Have a Future in Cuba?

By Arch Ritter

The joint venture between Sherritt International and Cuba is a cooperative masterpiece that generates great benefits for both parties.  However, when looked at from the perspective of transportation costs – shipping nickel/cobalt concentrate from Cuba to Fort Saskatchewan Alberta – together with the “Helms-Burton” status of the mine, some questions occur as to its long term viability.

The Moa mine was initially constructed by US interests – the Moa Bay Mining Company and expropriated by the government of Cuba in August, 1960. The US Foreign Claims Settlement Commission valued the company at $88,349,000 at the time of the take-over.

Sherritt’s connection with Cuba began in 1991 with purchases of Cuban nickel concentrate for its Alberta refinery.  Sherritt had had insufficient volumes of concentrate for many years and in 1990 a refining contract with INCO expired. In 1994, Sherritt International and the Compania General de Niquel of Cuba established a 50/50 joint venture, which now owns the Moa extraction, processing, and smelting operation, the Alberta refinery and the international marketing enterprise. The President of the company, Ian Delaney, also negotiated agreements with the Cuban Government, permitting Sherritt to enter other sectors of the economy, including electric energy, oil and gas, agriculture, tourism, transportation, communications, and real estate. By 2000, Sherritt International had become a major diversified conglomerate in Cuba.

Sherritt International CEO Ian Delaney and President Raul Castro appreciate a comment.

In this deal, the Cuban Government became and is currently a foreign investor in Canada, as the Compania General de Niquel owns 50% of the nickel refinery, a fact not well known in either Cuba or Canada.

I. The Nickel/Cobalt Operation

The linking of the Moa nickel deposit and part of Cuba’s processing capacity with the Alberta refinery and its access to attractive energy sources was a masterful move and has generated important benefits for Cuba and for Sherritt. Cuba has acquired a market for its nickel concentrate. It acquired access to improved production technologies relative to its older 1950s-vintage US technology and its 1960s-vintage Soviet technology which has generated improvements in productivity, energy efficiency, environmental impacts, and health and safety. The Government of Cuba is now the joint owner of a vertically integrated nickel operation, from extraction through to refining and international marketing. Cuba also has obtained new technologies and managerial skills for oil and gas extraction and utilization, as well as electricity generation.

(Click to enlarge)

The Nickel Refinery at Fort Saskatchewan Alberta, jointly owned 50/50 by Sherritt International and the Compania General de Niquel of Cuba.

Sherritt is able to utilize more fully its Canadian refinery and to use its base in nickel to enter other sectors in Cuba. Its earnings from its Cuban operations are significant. The joint venture has been able to increase metal production and achieve high net operating earnings, which have been in the area of 40 to 50 percent of the company’s gross revenues for most years, depending on international nickel prices.  The following Table presents some information on Sherritt’s Cuban operations, drawn from its Annual Reports.

(Click to enlarge)

II. Petroleum, Natural Gas and Electric Power

Sherritt International’s petroleum and natural gas activities also have been successful. New sources of oil and gas have been discovered and extraction rates have increased through enhanced recovery techniques from 1996 to 2000. Natural gas recovery and utilization has also been improved through the construction of two processing plants, a feeder pipeline network, and a 30 Kilometer pipeline to Havana (Sherritt International, Annual Report, 1997, 13).

Sherritt invested CDN $215 million for the construction of two integrated gas processing and electrical generation systems. The natural gas feedstock previously had been flared and wasted. Commissioned in mid-2002, these operations had a combined capacity of 226 megawatts and generated a significant proportion of Cuba’s electricity. At the same time they reduced sulfur emissions, a potential problem especially at the Varadero site, which is adjacent to the hotel zone. By 2007, installed electricity generation capacity had been further increased to 375 mega watts, following an 85 MW expansion that came on stream in early 2006.

In February 1998, Sherritt acquired a 37.5 percent share of Cubacel, the cellular telephone operator in Cuba for $US 38 million, but this has been resold. “Sherritt Green,” a small agricultural branch of the company, entered market gardening, cultivating a variety of vegetables for the tourist market. Sherritt also acquired a 25 percent share of the Las Americas Hotel and golf course in Varadero and a 12.5 percent share of the Melia Habana Hotel, both of which were managed by the Sol Melia enterprise but these also have been divested.  By 2010, Sherritt’s Cuban operations were large and growing. Gross revenues reached CDN $1,040 million in 2008.

III. Energy Costs, Transport Costs and Potential Relocation

However, there are two clouds on the horizon. First, Cuban nickel concentrate is transported by ship to the East coast of Canada and then overland to the Alberta refinery. This seems to make sense economically at this time low energy prices in Alberta and the existence of the refinery there compensate for high transportation costs. However, if – or when –transportation costs rise with higher energy prices, and when the existing plant becomes obsolete or simply reaches the end of its useful life, would a different location become more attractive?   Low cost energy is also available in Venezuela for example. The Chvez factor is also of relevance. Will a future Cuban post-Raul Government still be enamored of a Chvez or post-Chvez Government in Venezuela? What will be the relative risks of relocating the refinery to another location such as Venezuela?

So far, Cuba is tied to the Canadian location through its 50% joint ownership of the Alberta refinery. Would Sherritt ever accept a transfer of the refinery to Venezuela, if pushed by its Cuban partner?  Perhaps in a more distant future that is difficult to foresee. However, Alberta will continue to have competitive energy prices and low risk for a many years to come.

IV. “Helms-Burton” Status of the Mine Properties.

The second possible problem for Sherritt is that the Moa mine and the concentration plant are “Helms-Burton” properties for which there are US claimants. US-Cuba normalization may require Sherritt to negotiate some sort of compensation package for the original US owners.  In one scenario, the US claimants would simply take over the Cuba-Sherritt operation in Cuba. But this would not be reasonable because at this time, the refinery for Cuban nickel is in Alberta and it is jointly owned by Cuba. To construct another would be costly. My guess, however, is that Sherritt, the Government of Cuba and the US claimants will negotiate an arrangement that will be reasonable for all parties.

In any case, the claim of US interests on the mine property generates uncertainties and will be problematic at some time in the future. Sherritt International may well be one of the very few economic interests that perhaps could lose from US-Cuban economic and diplomatic normalization.

V. “Nickel Pig iron”

As noted in an earlier entry in this Blog, a technological breakthrough in the production of “Nickel Pig iron” (NPI), a substitute for refined nickel is already having an impact on the nickel market and causing reductions in the price of nickel. This technology will likely put a cap on nickel prices in future a as alternate new supplies enter the market. This will likely reduce Sherrittt and Cuba’s foreign exchange earnings from nickel exports in future, and may halt any expansions in nickel nickel mining for some time to come. (See Bad News for Cuba’s Nickel Industry and Sherritt.)

Thus, while the near-future looks as bright for Sherritt International in Cuba as the last 10 years or so, these three issues raise ambiguities about its medium and longer term future – at least in the nickel sector.

Ian Delaney: a Sympatico CEO, it would appear

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Bad News for Cuba’s Nickel Industry and Sherritt

A major technological breakthrough in the production of “NPI”, a substitute for refined nickel mined and concentrated in Cuba – as well as Canada. Russia and Australia – is already having a major impact on the nickel market and causing reductions in the price of nickel. This will probably reduce Cuba’s foreign exchange earnings from nickel exports in future, and will likely halt any expansions of nickel mining for years or even decades to come.

A June 11 2010 report by Andy Hoffman in the Toronto Globe and Mail describes a new product, “nickel pig iron” or “NPI”,  that permits a low cost alternative to nickel with obvious implications for the Cuban, Canadian and international nickel industry. NPI is a low-cost and low-tech innovation in the production of stainless steel, developed since 2006 on China. It now accounts for about 10% of world’s $21-billion-a-year nickel market and is increasing rapidly in China, as indicated in the chart below. It also has a long way to go before it captures a large share of the Chinese nickel market.The emergence of NPI has reduced the demand for smelted and refined nickel from traditional sources and will likely lead to further reductions in future. The peak prices of nickel in 2006-2007 that resulted from the tightening market generated by sustained Chinese economic growth over the last 30 years and the general rapid expansion of the world economy from 2000 to 2007 are likely a thing of the past. The cost of NPI will put a permanent ceiling on nickel prices and perhaps reduce demand and mine extraction for traditional nickel in future.

The new technology is based on the direct smelting via cheap electricity of Indonesian or Philippine ore that contains very low levels of nickel – around 2% – but also around 50% iron ore together with coking coal and a mix of gravel and sand . This produces the NPI that is suitable for stainless steel products.

Hoffman estimates that future prices for nickel will remain below about $8.50 per lb. after peaking at about $24.00 a pound in 2007. This means that Cuba’s foreign exchange earnings will never again reach the approximate $2.33 billion of 2007. More likely they would remain around one third this level and then perhaps diminish if new mine development were to be halted because of sustained low prices and shrinking markets.

But there are some questions about the long term attractiveness of NPI.

  1. Does it produce a high grade stainless steel of consistent quality?
  2. To what extent is the electricity used for the smelting process subsidized?
  3. To what extent does the relative cost competitiveness depend on China’s grossly and obviously undervalued exchange rate?
  4. Will environmental concerns and potential pollution abatement costs of mining coal for coking purposes raise costs and reduce the competitiveness of China’s NPI production?

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