 |
Offshore investment is getting a bad name lately, but that’s the tax-avoidance variety. There’s another potential investment offshore, and a few elite investors are already licking their chops at the prospect. I’m talking about Cuba.
On Monday, the Obama administration lifted restrictions on Cuban-Americans who want to travel and send money to their island homeland. This is a calculated break with a half-century of U.S. policy of isolating communist Cuba.
Now, investors and politicians alike are wondering when the rest of America’s obsolete cold-war-era policies toward Cuba are scrapped. After all, China is run by oppressive Communists, and we do business with China. Venezuela is run by bellicose militants who hate us (Hello-o-o, Hugo Chavez!) and we do business with Venezuela.
The only reason Cuba is still isolated is to mollify sugar growers in Florida and a few wing-nuts … two political groups that are fading in influence with each passing hour. Their protests were drowned out by positive reaction to the White House’s move — a fact that will only embolden President Obama to further open the door to Cuba.
At the same time that President Obama lifted restrictions on Cuban-Americans, he also allowed U.S. telecommunications firms to seek business in Cuba. The broader U.S. trade embargo remains in place … for now.
What Happens If The Financial
Restrictions Fall Away?
Sure, tourism in Cuba will boom. Cuba is just 90 miles from the United States and an ideal destination for American tourists. We’ll probably see some U.S. hotel and construction companies get a piece of that action, and it would be a boon to the cruise-ship industry.
But the opportunities that excite me the most are the natural-resource variety.
Cuba is rich in cobalt, nickel, manganese, iron ore, chromium and copper. And oil. Did I mention the oil?
 |
| Cuba’s domestic oil production has surged in the past two decades. |
CRUDE OIL: Since the 1990s, Cuba’s domestic oil production has surged thanks to applications of new technology to old fields. According to the Cuban government, Cuba currently produces around 65,000 barrels of oil per day, nearly 50 percent of its consumption.
Foreign companies are responsible for most of this production and Havana is currently seeking additional foreign investment to raise production to 100,000 barrels per day by the end of the decade.
More interesting is the discovery of potential deep water oil and gas reserves off the northern coast of the island.
Cuba said late last year that oil reserves in its part of the Gulf of Mexico are twice as big as U.S. estimates — totaling some 21 billion barrels. Earlier this month Manuel Marrero Faz, a Cuban government oil adviser, seemed to tell Bloomberg News that Cuba wanted to work with U.S. oil companies:
“We are open,” said Marrero Faz, noting that Chinese, Russian and Angolan companies are in talks to explore areas about 100 miles off the U.S. coast. “We’re very close to each other. We’re neighbors. Why not do business?”
Cuba divided its 112,000 square kilometers of the Gulf of Mexico into 59 exploration blocks when it opened up to foreign companies in 1997. Six companies (from Canada, India, China, Spain and Norway) signed up for 16 of the blocks. Oil exploration is undertaken in conjunction with Cubapetrol (Cupet), the state oil firm.
And then there are the other resources …
NICKEL: Cuba produced 70,000 metric tonnes of nickel for export in 2008 — nickel accounts for 50 percent of the island’s export earnings in recent years — making nickel Cuba’s most important export. But plunging nickel prices are also making the nickel mines in Cuba nearly unprofitable, and Cuba could soon cut production.
Could Cuba benefit from a foreign partner who could bring in new technology and efficient mining methods? It sure worked in Mexico.
And it would be worth it. Cuba’s National Minerals Resource Center reports that eastern Holguin province has 34 percent of the world’s known reserves, or some 800 million metric tonnes, of proven nickel plus cobalt reserves. There are an additional 2.2 billion metric tonnes of probable reserves.
Speaking of cobalt …
COBALT: Cuba supplies 10 percent of the world’s cobalt, which is critical for making super alloys used in aircraft engines and other products.
Cobalt is considered a strategic metal by the U.S. government — that means it is defined as a commodity whose lack of availability during a national emergency would seriously affect the economic, industrial, and defensive capability of the USA.
The U.S. is almost completely import dependent for its supplies of cobalt AND consumes about 20 percent of world production. So do you think a deal with Cuba for cobalt would be in America’s best interests? Heck, yeah!
MANGANESE: Next to iron, manganese is the most essential mineral in the production of steel. You cannot produce steel without adding 10 to 20 pounds of manganese per ton of iron.
Therefore, it is essential for America’s national defense, and it was certified as a strategic mineral in 1987. And like cobalt, we import almost all of our manganese. France, Gabon and Brazil supply manganese to the U.S.
Too bad the U.S. has sold off its strategic manganese stockpiles to the bare walls. Guess who is sitting on a nice supply of manganese, closer to our shores than any of our other suppliers? You only get one guess, and that should be “Cuba.”
How To Get In On The Opportunities
Of The Cuban Treasure Trove
I could go on, but you get the picture. Cuba is an underdeveloped treasure trove of natural resources close to our shores. That’s not to say there aren’t potential pitfalls.
Corporations that deal with the Cuban government have experiences that range from China-esque (awkward) to Venezuela-esque (downright raw deals).
But, as with China, it’s probable that the more business we do with Cuba, the more the country will open up, and the more dependent on trade with us they will become — and therefore, they’ll be more eager to get more partners by enforcing and obeying contracts.
Here are some companies that are already making deals in Cuba, or could soon …
Sherritt International (S on the TSX, SHERF on the pink sheets in the U.S.) is a Canadian company that is the largest foreign investor in Cuba.
Sherritt produces approximately two-thirds of Cuba’s oil and also owns a 50 percent interest in Cuba’s Moa nickel and cobalt joint venture at Moa Bay. This project includes mining, processing and refining operations.
Sherritt is a nutshell example of the good and bad of investing in Cuba. Sherritt’s shares keeled over in January after the Cuban government said it would scrap a production-sharing oil contract and pay $140 million in compensation, including $60 million to Sherritt’s Cuban subsidiary.
The loss of the oil field, known as Block 7, means the company’s Cuban oil production will fall 25 percent to about 23,500 barrels per day for 2009.
Sherritt has also faced missed payments from Cuba, but chief executive Ian Delaney said in February the government has agreed to pay off the $162 million it owes Sherritt over the next five years.
Some other ideas …
Repsol (REP on the NYSE). This Spain-based oil company is hard at work developing oil resources in Cuba. Repsol is exploring offshore oil blocks that already show signs of oil.
Petrobras (PBR on the NYSE) is also exploring for oil in Cuba in partnership with the Cuban government.
A more outside bet, but still worth considering, is Freeport-McMoRan Copper & Gold Inc. (FCX on the NYSE). This company mines and produces copper, gold, and silver, along with other minerals, all over the world.
And interestingly, FCX owned the Moa Mine before it was confiscated by Fidel Castro in the revolution. I think FCX might have some institutional history in know-how that might be very useful in developing Moa — and a deal between the U.S. and Cuba has the potential for a partnership as some form of reparations for the confiscation.
If you want to hedge your bets by moving outside of natural resources Cruise ship operator Royal Caribbean (RCL on the NYSE) and rival Carnival (CCL on the NYSE) will probably soar if and when travel restrictions to Cuba are lifted for everyone.
And remember — U.S. telecoms can bid on projects in Cuba now. That means Verizon Wireless, owned by Verizon Communications (VZ on the NYSE), Vodafone Group Plc (VOD on the NYSE) and AT&T Inc (T on the NYSE) all stand to gain.
There is risk in any Cuban trade. But it could also be the next offshore investing bonanza.
All the best,
Sean
P.S. For daily updates on gold and more, check out my new blog at http://blogs.uncommonwisdomdaily.com/red-hot-energy-and-gold/.
About Uncommon Wisdom
For more information and archived issues, visit http://www.uncommonwisdomdaily.com
Uncommon Wisdom (UWD) is published by Weiss Research, Inc. and written by Sean Brodrick, Larry Edelson, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in UWD, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in UWD are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
Attention editors and publishers! Uncommon Wisdom issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:
This investment news is brought to you by Uncommon Wisdom. Uncommon Wisdom is a free daily investment newsletter from Weiss Research analysts offering the latest investing news and financial insights for the stock market, precious metals, natural resources, Asian and South American markets. From time to time, the authors of Uncommon Wisdom also cover other topics they feel can contribute to making you healthy, wealthy and wise. To view archives or subscribe, visit http://www.uncommonwisdomdaily.com.
From time to time, Uncommon Wisdom may have information from select third-party advertisers known as “external sponsorships.” We cannot guarantee the accuracy of these ads. In addition, these ads do not necessarily express the viewpoints of Uncommon Wisdom or its editors. For more information, see our terms and conditions.
© 2009 by Weiss Research, Inc. All rights reserved. |
15430 Endeavour Drive, Jupiter, FL 33478 |
Related posts:
{ 3 comments… read them below or add one }
Hi Sean, thanks for your timely and insightful “Your Next Offshore Investment Bonanza?” article about Cuba. I was born in Cuba and migrated to the USA when I was 12 or so. I grew up in Miami, FL in the Cuban-American community. I can share with you and your readers that my experience straddles the culture of my Dad and that of my Son, an american kid. My Dad, the stereotypical immigrant Cuban, was a staunch lifelong Republican hard set on enforcing the embargo on Cuba and demanding Castro’s downfall. My Son is a college kid Obama Democrat who intuitively KNOWS our Cuba policy is wrong and our best shot is to engage and allow our blue jeans, music, free enterprise and high tech culture to influence Cuba. It does everywhere it reaches the population. I think practical experience shows my Son is right!
The victims of our wrong headed ineffective 50 year old embargo policy are the Cubans and the Americans. Cubans have been deprived of medicines, technology, and all the comforts we enjoy; and we Americans have had our travel freedom curtailed and our business opportunities with Cuba denied while Canadians, Europeans, and Asians have had access to them.
It is time to change our position and try a new approach.
While president Obama’s initiatives are mere baby steps they are, I think, promising and right.
We should press forward and establish fully functional bilateral relations with Cuba.
And we must remove all restraints on Americans to travel and do business in Cuba.
As we do we will witness a progressive unstoppable transformation in Cuba influenced by our values, culture, and economic vitality that will reduce tensions, improve lives, and bring success to both nations. And THAT will drive Cuba from Communism toward Democracy.
Thanks again for all your timely and intersting commentaries on current events impacting us!
Cheers, Jay
I would like to see you include Canada and Mexico in your Stock Market Indexes.
I would also like to see a chart comparing the US dollar with the other currencies, again including the Canadian $ and Mexican Peso.
Being Canadian, and I’m sure you have many readers who are, I find it difficult at times to figure out where Canada and Mexico are in relation to the market as they are so often left out.
Jay; I hope I’m in the right place for this question.
I have $25,000 in GOLDMONEY.COM.
Do you consider them an honest and safe haven.
Everything I’ve seen so far says so, but I would like an unbiased opinon.
Thanks.