Cuba's Nickel Dreams

Forget cigars, Cuba’s massive nickel reserves are its latest claim to fame, one that could make it a powerful force in the market in the future.

By Lynne Meredith Cohn

Lynne Meredith Cohn is a writer based in Ferndale, Mich.

With one of the largest nickel reserves in the world, Cuba would seem to be a prime place for mine development. But companies in America and abroad are holding back from the metal-rich tropical spot due to U.S. laws that have tried to isolate Cuba since the early 1960s.

Of course, many countries trade with Cuba despite the U.S. embargo. Spain, Italy, France, the Netherlands, and Canada are chief among the 40 nations doing business on the Caribbean island, the Cuban government says. Canada, in particular, has been a vocal critic of U.S. policy toward Cuba. And it is one Canadian nickel company—Sherritt International Corp. (Fort Saskatchewan, Alberta)—that has delved deep into Cuba’s rich terrain.

Will other non-U.S. companies follow Sherritt’s lead—and risk the wrath of the U.S. government? Will the United States ease its Cuban trade restrictions, thus allowing U.S. companies to take advantage of Cuba’s nickel riches? Will Fidel Castro’s reign end, bringing about a normalization in relations—and trade—between the United States and Cuba? While only time will answer these questions, this overview provides some insights on Cuba’s nickel operations now and what could happen with them in the future.

Welcome to Nickel Island

Cuba is the largest island in the Caribbean Sea. Roughly the size of Pennsylvania, it has about 11 million citizens, of which 22 percent are younger than 15 and more than half are between 15 and 64. Cuba was the second Caribbean island to be colonized by Spain and the last to achieve independence in 1898. Copper mining was a major industry during the 19th century, and minor amounts of the red metal are still produced.

Although tourism is now the most important economic base for Cuba, mining is considered one of its most promising industries, with roughly a third of all foreign investment targeting its mineral potential. And it isn’t just nickel—foreign investors have their eyes on the possibility for other Cuban metal production, namely chromium, cobalt, copper, gold, lead, manganese, silver, and zinc. In 1996, mining joint ventures with foreign companies accounted for 30 percent of all foreign joint ventures in Cuba.

Cuba is widely regarded as one of the most important locations for nickel in the world, with potentially a third of global nickel reserves. Moreover, Cuba is considered one of the lowest-cost places to produce the metal. Cuban nickel ore is plentiful but low-grade, ranging from a 1.16- percent nickel grade to 1.3 percent. This ore could potentially boost or saturate the world market, depending on demand and how quickly the supply is brought to market. “The reserves within Cuba are quite extensive and really have never been fully tapped,” says Mark Parker, director of market research for Inco Ltd. (Toronto).

Three government-owned operations—at Nicaro, Punta Gorda, and Moa Bay, which are known in Cuba by the names of revolutionary comandantes such as Che Guevara—constitute the Cuban nickel industry, which is concentrated in the northeastern section of the island. These three plants reportedly produced about 54,000 mt of nickel contained in concentrate in 1996 and some 67,000 mt last year. Cuba expects to increase its annual nickel production to 100,000 mt by 2000 if it can gain sufficient foreign investment.

Using an acid lead-leaching process, Moa Bay produced about 27,000 mt of mainly nickel cobalt sulfur last year while Nicaro and Punta Gorda, which use an ammonia carbonate leaching process, produced more than 15,000 mt and roughly 25,000 mt, respectively, of nickel sinter (a material with roughly 90-percent nickel content). 

A fourth plant—at Las Camariocas—is under construction about 6 miles east of Punta Gorda, although work there has been suspended for much of this decade due to the withdrawal of Cuba’s former partners in the venture: Romania, the former Czechoslovakia, and the former Soviet Union. A Russian financial group, however, is reportedly interested in completing the project, which was about 80 percent finished when work halted in 1991. Las Camariocas could potentially extract another 30,000 mt of either nickel or nickel sinter annually. Cuba is also considering Las Camariocas as the site for its first primary nickel refinery, Metals Week reports.

A fifth plant is also a possibility. In March 1997, Cuba’s foreign investment minister said that Cuba would begin construction on its fifth nickel facility in an unspecified location before 2000.

Despite its vast nickel potential, Cuba’s desire to expand nickel production through foreign investment has often been thwarted by U.S. efforts to punish it for seizing American-owned facilities on the island after Castro came to power in 1959. Two of Cuba’s three nickel operations, for instance, were originally built by the United States and then nationalized by the Cuban government.

The Nicaro facility was built by the U.S. government during World War II and began production in 1943. It was operated for the U.S. government by National Lead Co., now NL Industries Inc. (Houston). Moa Bay was built and operated during the 1950s by National Lead and Freeport Sulfur Co., now Freeport-McMoRan (New Orleans). The site subsequently underwent a major expansion in 1978.

Moa Bay is worth an estimated $88 million and Nicaro is worth about $33 million, according to certified claims for compensation filed by U.S. corporations.

The Punta Gorda site, which was commissioned in 1986, was built for Cuba by the Soviet Union as a copy of the original Nicaro site.

Courting Customers and Controversy

As the Communist governments of Eastern Europe collapsed in the late 1980s, culminating with the fall of the Soviet Union in 1991, Cuba started looking for new customers to scoop up its nickel product. Russian interests, which had processed the nickel ore in the Ural Mountains, pulled out of Cuba, leaving the Cuban government desperate for a place to process its ore.

In 1994, Canada’s Sherritt International—a publicly held corporation that owns and operates nickel and cobalt mining and refining facilities, as well as fertilizer, oil, and gas asset development and engineering enterprises—became an investor in the Moa Bay ore processing plant. The project, which is operated in conjunction with the Cuban government, employs 2,000 people.

In addition, the Nicaro and Punta Gorda facilities are currently being modernized with help from German, Dutch, and other foreign banks.

To mine nickel reserves in Cuba, Sherritt formed a 50/50 joint venture via the state-owned Compania General de Niquel SA. Cuba contributed a mine, one of the two processing plants at Moa Bay, and ore reserves to operate the plant for at least 25 years. Sherritt processes the ore at its nickel-cobalt refinery in Fort Saskatchewan.
Even before Sherritt entered the scene, production at the Moa Bay site had begun a dramatic rise, growing from 15,000 mt in 1992 to nearly 27,000 mt in 1997. At the same time, Punta Gorda production almost doubled from 17,000 mt in 1992 to nearly 32,000 mt last year. But Sherritt’s involvement in Cuba is specifically credited with a surge in production in 1995, when the country’s nickel output rose 48 percent from 27,000 mt in 1994 to 40,000 mt.

Sherritt has committed $150 million over five years to its Cuban project, primarily for environmental cleanup of the Moa Bay complex. But some critics question Sherritt’s motives, alleging that the company got involved in Cuba because of the island nation’s lower environmental standards. The firm has been accused of favoring productivity over environmental cleanup, and Sherritt’s Cuban subsidiaries have been blacklisted by the United States.

More recently, several U.S. lawmakers also accused Sherritt of condoning “slave labor” in Cuba because the company does not pay its Cuban workers directly but instead gives the money to Cuba’s state-run employment agency, as reportedly required under Cuban law. In a March 15 article on Sherritt’s Moa Bay project, the Toronto Sun noted that the Cuban government “pays the workers very little, keeping the rest, ostensibly to provide the free health care, education, and tax-free lives of their citizens.”

Sherritt defends this practice by arguing that it also directly pays the workers a monthly production bonus in U.S. dollars.

Such under-the-table payments have done little to assuage the anger of American lawmakers, who have used the Helms-Burton Act to bar senior executives of Sherritt—and their families—from entering the United States because of the company’s investments in the formerly U.S.-owned Cuban nickel facilities. Helms-Burton was passed by the U.S. Congress two years ago to punish any company—U.S. or foreign—that does business with Cuba, particularly those that use assets expropriated by the Cuban government. Although President Clinton has never fully enforced the law, Canada and other nations have condemned this attempt to force other countries to comply with the U.S. embargo.

Not Even the Kitchen Sink

Regardless of what one thinks about the U.S. embargo, there’s no denying the complexity of compliance—at least as far as the metal industry is concerned. Banning Cuban cigars from the United States is fairly straightforward. But traditionally, the origin of a metal is based on where it’s refined, not where it’s mined, explains Kris Hansen, a former senior official with WMC Nickel Marketing Group (Toronto). Under U.S. law, absolutely no end product that contains Cuban nickel may be imported into the United States—even if the metal is exported to a consumer in Europe, who then converts the metal into sheet or a finished good such as a kitchen sink. If any part of the product’s makeup came from Cuba, it’s prohibited from entering the United States, Hansen says.

So far, at least, the ban has been effective in keeping out Cuban nickel and its derivatives. “This is a tightly sealed issue—no product with Cuban nickel gets into the United States,” Hansen emphasizes.

But Hansen believes the United States is ultimately the loser in this arrangement. Cuba is “a good place to be involved with,” he says. “Canadians are very involved with Cuba in general, to the dismay of our neighbors in the United States. I suspect American nickel consumers are upset by Canada’s involvement in Cuba, but I would also say they’re probably jealous because the world’s single greatest source of nickel is at their doorstep and they can’t have any of its production. The Helms-Burton law is a thorn in the flesh of many people and regarded as silly. Most would like to see it put to an end, but I’m not sure that’s likely to happen.”

At the moment, Helms-Burton is apparently doing its job. Companies that might get involved in Cuban nickel mining—like Western Mining Corp. and Queensland Nickel of Australia, and Gencor of South Africa—have hesitated to do so because of the U.S. ban on the product, says Peter Kuck, nickel specialist at the U.S. Geological Survey (Reston, Va.). Inco, for one, hasn’t actively pursued any mining projects in Cuba because of U.S. sensitivity—but like other nickel producers, it monitors Cuba closely.

The Embargo Effect

Despite U.S. efforts, a few new nickel projects are poised to start in Cuba, notes Richard Prothero, senior consultant at CRU International Ltd. (London). But he doesn’t predict rapid growth for the industry. “At the moment, Cuba is a relatively small player in nickel and looks as if it will stay that way,” Prothero explains. “But it does have the potential to be bigger.”

Prothero adamantly agrees that large nickel producers around the world might like to set up shop in Cuba but are afraid to do so because of the U.S. ban. While companies other than Sherritt have expressed interest, “most of them don’t seem to have really put a lot of investment there yet,” Prothero says. “That’s quite important because Cuba does have a lot of nickel resources that could be mined, but for the moment the major nickel companies don’t seem that keen on investing there. There’s far more investment going on in Australia, Indonesia, and New Caledonia.”

On the consuming side, Cuba currently has one stainless mill of small proportions. Down the road, if Cuban nickel operations get up and running, its raw nickel might not need an intermediary for processing. Rather, the metal could go directly into the production of Cuban stainless steel, keeping the production and business on the island and making the island nation a cost-effective, efficient competitor in the world stainless market.

And while laws like Helms-Burton remain on the books, there are also signs that the United States might ease sanctions against Cuba. Following Pope John Paul II’s historic visit to Cuba in January, the Clinton administration decided to permit humanitarian flights to Cuba and visits for families with relatives on the island. There’s also talk of holding a trade show in Cuba for U.S. manufacturers of medical gear and pharmaceuticals, Business Week reports. These actions raise the possibility of more normalized relations between the United States and Cuba, though a total rapprochement is unlikely as long as Castro is in power. If or when the United States lifts its embargo, however, Cuba’s metals industry—including nickel—would likely be a prime target for investment and development by U.S. businesses.

For now, the U.S. embargo remains in force, and Cuba’s nickel wealth remains largely in the ground. In addition to the U.S. boycott, Cuba is currently coping with reduced demand for nickel worldwide triggered by the ongoing Asian financial crisis. According to Inco’s Parker, the nickel market should be fine—for now—without Cuban nickel. But sooner or later—and probably sooner—a need for more nickel will arise, especially given the steady 4 percent annual growth, historically, in world demand for nickel. “Certainly in the near-term, with all the projects being planned—if they do come on-stream—they’ll meet the needs of the nickel market,” Parker says. “Supply in the immediate term isn’t an issue. But in the long term, there will need to be new nickel supply to meet the demands as they grow.”

That said, it appears that little will be done in Cuba without U.S. consent, or at least a loosening of U.S. restrictions on the sale of Cuban products in the United States.

Prothero doubts that “the current U.S. laws will necessarily stop someone else from getting involved in Cuba, but maybe any major company will want to make sure the benefits of doing that will outweigh the problems of annoying the Americans, so to speak.” •