Regional Focus

Cash-strapped Cuba wants to reboot its flagging mining sector by luring foreign investors with attractive untapped reserves. While there’s been some interest, could frosty relations with the US and years of under-investment mean Cuba indicate a struggle? Heidi Vella investigates

The constrains of geopolitics

To date, Canadian company Sherritt International is Cuba’s biggest mining investor, with a 50% stake in the Moa Joint Venture nickel project. Sherritt chief executive David Pathe has previously praised Cuba, saying it is a “pretty stable place to do business”. He also noted that he wasn’t concerned about the recent change in leadership. Cuba’s new president, Miguel Díaz-Canel, who assumed office in April, is the first not to be a member of the Castro family for more than 40 years.

“Rather oddly, instability is quite the opposite of what we can expect from the new leader”, says Wood Mackenzie principal analyst, mining and metals fundamentals Adrian Gardner. “Díaz-Canel has already said he will not make any changes to the structure of the national fabric, including private ownership of corporate ventures.”

Swiss-based commodities giant Trafigura will increase Cuba’s mineral output later this year when its $278m Castellanos new lead and zinc mine in north-western Cuba comes online producing 100,000t of zinc concentrate and 50,000t of lead concentrate annually, according to Emincar, overseer of the project. Justo Hernández Pérez, Emincar deputy general manager, is bullish about the potential Cuba offers, exclaiming “this is just the start”, about the project in July.

However, despite the general positivity, mining firms investing and operating in Cuba still face several hurdles. Although relations between Cuba and the US appeared to thaw in 2015 when sanctions were loosened under the Obama administration, they did not extend to restrictions of US investments in mining.

Gardner says the changes left it unclear if non-US companies are able to invest in or profit from Cuban-based mining ventures without still attracting sanctions themselves. “This position has not changed, and so Cuba's attempts to attract foreign investment in the mining sector have largely been unsuccessful,” he says.

Another challenge, Gardner adds, is where companies can sell their Cuba-derived products. For example, Sherritt, gets most of the mixed intermediate Ni-Co feed for its Fort Saskatchewan refinery that operates in Canada from its Moa Bay mine in Cuba.

“However, Sherritt cannot sell the briquettes leaving Fort Saskatchewan into the US, its closest market, because of US sanctions against Cuba,” explain Gardner. “In theory, the US would also penalise those countries/companies which buy the finished Ni briquettes emanating from Sherritt – so if Sherritt sells briquettes into Belgium, the US Government could pursue its claim against Cuba via the buyer of Sherritt's briquettes in Belgium; though in practise the US does not do this.”

He adds that the Trafigura's project, which hasn’t begun producing concentrates yet, will face similar issues with where it can sell its feed. The current US administration has yet to reveal its position towards Cuba but has said all policies are ‘under review’.

Sherritt cannot sell the briquettes leaving Fort Saskatchewan into the US

No significant new nickel and cobalt tonnage will come from Cuba for the next decade

Getting Cuban minerals to market

“There’s still lots of ore in Cuba,” said Sherritt’s Pathe recently, adding “we fully expect to be in the nickel business in Cuba for many years to come”. Pathe is likely positive because the island’s identified nickel reserves and mineral resources are extensive and with good grades. The nickel reserves in particular could be a boon for Cuba given that demand for nickel is set to increase significantly due to the anticipated growth in the electric vehicles market.

Furthermore, geology and mineralogy present no issues as all identified nickel resources are laterites, rather than sulphides, which are well-understood and can be exploited via low-cost open-pit methods. However, Gardner believes that due to lack of state investment and the absence of significant foreign development funds going forward, many of these reserves will remain unexploited.

“There will be no significant new nickel and cobalt tonnage coming from Cuba for the next decade,” he says, and “the country will most likely miss out on the next global step-change in demand for both”. Gardner says Cuba’s anticipated 2018 production of mined nickel from two mines will amount to no more than 2.4% of global production.

So, what can Cuba do to turn a current few willing investors into more fervent global interest? “Political and legislative choices need to be made by the new administration to capitalise on and benefit from the nation's mineral reserves to attract foreign capital,” he says. “However, even though it is early days in Díaz-Canel's tenure, the overtures made so far do not indicate that the required choices will be made.”