Sunday, February 24, 2008

A losing bet on a free Cuba

A losing bet on a free Cuba

By David Berman
The Globe and Mail
José Cadenas
Bureau Chief
Research Dept.
La Nueva Cuba
February 20, 2008

If you are licking your chops at the thought of a free Cuba following
half a century of communist rule there, keep in mind that there will be
losers as well as winners if and when the economy opens up – and
Canada's Sherritt International Corp. could be on the losing end.

On Tuesday afternoon, within hours of Fidel Castro resigning as supremo
dictator of the Caribbean island, investors began to snap up equity
plays on Cuba. These are not Cuban-based companies, but rather companies
based elsewhere that stand to benefit if the United States ends its
economic embargo. Cuba might have a population of just 11 million,
making it tiny next to other regions of the world that have lowered
economic barriers recently. But it has big nickel, sugar, tobacco and
tourism interests that nonetheless make it a magnet for money.

Toronto-based Sherritt springs to mind when Cuba is mentioned, thanks to
its substantial mining and tourism interests there – a key reason why
its shares bounced nearly 5 per cent on Tuesday. However, according to
Robbert Van Batenburg, head of global research at Louis Capital Markets
in New York, Sherritt stands to lose out from a free Cuba.

That's because the company operates a nickel mine at Moa, which the U.S.
administration considers confiscated U.S. property. It used to belong to
Freeport-McMoRan Copper & Gold Inc. before the wave of expropriations
following the Cuban revolution in 1959 – and could revert to Freeport if
the U.S. ends its embargo.

"Subject to removal of the embargo is obviously a settlement of the
claims that U.S. companies have on Cuba," Mr. Van Batenburg said.
"Freeport McMoRan dwarfs Sherritt, so if the issue comes about and
normalizing relationships is on the table, then Freeport McMoRan will
make a claim on this asset. I cannot see how Sherritt can possibly
benefit from this."

Here is another thought, relating to Ian Delaney, Sherritt's chairman,
which could take on a new urgency if Cuba's shackles fall to the ground.
Ten years ago, Lincoln Diaz-Balart, a U.S. congressman and
Cuban-American activist, told Reuters: "Delaney has very willingly
accepted his role as the most clearly identified business figure in
collaboration with the Castro dictatorship. That is a very risky
corporate policy and I would not want to be in Delaney's or Sherritt's
shoes once the Cuban people are allowed to elect their representatives."

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