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Tight-lipped Sherritt is one of Cuba's top foreign investors
CubaNews / September 2002

By Larry Luxner

Canada’s Sherritt International Corp., which earns 35% of its revenues in Cuba, has invested in nearly every productive sector of the Cuban economy except sugar: oil drilling, nickel mining, food-processing, agribusiness, tourism and mobile telephony.

Yet the Toronto-based conglomerate has earned the wrath of Miami’s Cuban exile community for “exploiting” its workers, “trafficking in confiscated property” and helping to keep Fidel Castro in power through its ambitious ventures with the Cuban government.

Although it’s a publicly traded company, Sherritt avoids the spotlight and its officials rarely give interviews on Cuba-related topics. Neither Sherritt’s new president and chief executive, Dennis Maschmeyer — appointed in December 2001 — nor Ernest F. Lalonde, vice-president of investor relations and corporate affairs, would comment for this story.

Yet much can be gleaned from reading Sherritt’s 2001 annual report and its 2nd-quarter 2002 earnings statement, issued Jul. 30.

Net earning for the first six months of 2002 were $30.9 million (all figures have been converted into U.S. dollars) on revenues of $264.5 million. That compares with net earnings of $23.5 million on revenues of $163.8 million for the first six months of 2001.

Sherritt’s interests extend from oil fields, hotels and agribusiness ventures in western Matanzas province to the Moa nickel mine in the eastern province of Holguín. It also has interests in power plants and in Cuba’s dominant cellular telephone network.

“They have a wide footprint [throughout the island], but it’s not as deep as initially planned,” said John Kavulich, president of the U.S.-Cuba Trade and Economic Council Inc.

“Mining is a significant foreign-exchange earner for the country, and their efforts in the energy field have certainly assisted Cuba in lessening its dependence on foreign fuels,” Kavulich told CubaNews.

“But over the last several years, Sherritt has determined that Cuba is not an appropriate venue for further investment at this time, and they have used those funds to make investments in Canada and Australia.”

OIL EXPLORATION

Sherritt remains the largest foreign inves-tor in Cuba’s oil and gas sector, and is benefitting from both higher oil prices and increased production this year.

In the first six months of 2002, Sherritt’s oil and gas division earned $27.8 million on revenues of $61.9 million, up from earnings of $20.4 million on revenues of $49.6 million during the first half of 2001. Sherritt’s share of Cuban oil production in the first six months of 2002 was 19,435 barrels a day, a 14% increase from the same period in 2001.

“Oil production in Cuba is sold to a Cuban government agency at sales prices based on an international reference price for fuel oil of comparable quality,” said Sherritt, noting that that price has risen from $16.21 per barrel in the second quarter of 2001 to $21.65 per barrel in the second quarter of 2002.

Sherritt is currently participating in seven development wells and one exploration well in Cuba, which accounts for 97% of the company’s oil and gas revenues. I

t has already finished three development wells at Yumuri, Canasi and Varadero that were begun in late March; initial production rates from these wells average 1,500 barrels a day net to Sherritt after payout, which occurs shortly after the wells begin production.

In the Seboruco field, one well was re-entered and drilled higher in the reservoir to exploit additional reserves; results for this well are not yet available. Also at Yumuri, one existing well was partially re-drilled due to mechanical problems at the well bore, yielding an initial production rate, net to Sherritt, of approximately 1,300 barrels per day.

Two development wells at Canasi and Puer-to Escondido were started in June and are still in progress. In the Majaguillar East area of Block 9, the Majaguillar East 1 exploration well was completed but yielded rather disappointing results.

Other than the development wells underway, Sherritt anticipates drilling five wells during the third quarter of 2002.

NICKEL MINING

In 2001, the Pedro Soto nickel mine at Moa produced a record 32,360 metric tons of nickel plus cobalt contained in mixed sulfides, 10% higher than the record 29,520 tons produced in 2000.

Total production of mixed sulfides for the first six months of 2002 came to 16,870 tons, up from the 16,131 tons produced during the same period in 2001.

“Higher ore grades from the first full year of production from the Moa Oriental ore body and a systematic debottlenecking of the production process at Moa, combined with a modified leach autoclave configuration at the refinery, contributed to the record output,” says Sherritt.

Those improvements, together with higher nickel prices, translated into operating earnings of $14.8 million on revenues of $93.1 million in the first six months of 2002 — up from earnings of $6.6 million on revenues of $81.0 million during the first half of 2001.

POWER GENERATION

The company owns 49.7% of Sherritt Power Corp., which in turn holds a one-third indirect interest in Energas S.A. The latter company was established to build and operate power-generating facilities in Cuba, utilizing natural gas from Cuba’s petroleum fields. These plants also recover natural gas liquids and sulfur from the gas stream.

Sherritt Power has built plants at Varadero and Boca de Jaruco with combined installed capacity of 131 megawatts. An existing 20-megawatt turbine near Varadero has been refurbished, and the company is now completing a project to add 75 megawatts of gas-fired electric generating capacity at its Varadero plant. When finished, that expansion will bring Sherritt Power’s total capacity to 226 megawatts.

AGRIBUSINESS

Sherritt also has a 49% indirect interest in Procesadora de Soya S.A., a 500-ton-a-day food processing plant in Santiago de Cuba. The plant produces texturized soy protein, soy flour, soymeal and crude soy oil as well as lecithin.

“PDS is continuing to develop Cuban markets for its value-added food products while optimizing the logistics of both raw material inputs and deliveries to customers,” the company says. The corporation also holds a 50% stake in a market garden joint venture known as Sherritt Green. This venture operates a 200-hectare farm in Matanzas.

TELECOMMUNICATIONS

Sherritt owns 40% of Teléfonos Celulares de Cuba S.A. In 2001, Cubacel’s revenue grew by 10% to $11.1 million, reflecting a 24% jump in the number of cellular subscribers, last estimated at 3,000. But that was offset by a 17% decrease in average monthly revenue per user to $171. Lower long-distance usage and a switch to billing customers on a real-time basis from the historic practice of billing by full-minute increments contributed to the lower average revenue per user.

TOURISM

Finally, Sherritt controls 25% of the concession for the Meliá Las Americas luxury hotel and bungalow complex in Varadero. It also holds a 12.5% stake in the Meliá Hotel Habana. The company says both properties suffered “reduced occupancy rates brought on by the general decline in travel following Sept. 11, 2001.”

All these “other businesses” — agribusiness, power generation, telecom and hotels — had combined 2nd-quarter 2002 operating earnings of only $65,000, compared with earnings of $200,000 in the second quarter of 2001. For the six-month period, earnings were breakeven, compared with earnings of $816,000 for the same period in 2001.

“Increases in Sherritt’s share of losses from equity investments resulted from lower income from hotel operations, primarily due to reduced occupancy,” the company says, “and increased losses from Sherritt Power, largely due to increased financing costs, as construction of the final phase at the Varadero facility nears completion.”

POLITICAL IMPLICATIONS

Sherritt says it has received “certain assurances” from the Cuban government “that protect it from adverse changes in law, although such changes remain beyond the control of the corporation and the effect of any such changes cannot be accurately predicted.”

Another thing it can’t predict is future U.S. policy toward Cuba.

Acknowledging that Washington’s embargo “limits Sherritt’s access to U.S. capital, finance, customers and suppliers,” Sherritt told stockholders in its 2001 annual report that “the corporation has received letters from U.S. nationals claiming ownership of certain Cuban properties or rights in which the corporation has an indirect interest, and explicitly or implicitly threatening litigation.”

In an op-ed piece published last year in the New York Times, Sen. Jesse Helms (R-N.C.) claimed Sherritt’s operations are illegal because they occupy a nickel mine “stolen” from New Orleans-based Freeport McMoRan in 1960 by the Castro government.

“Roughly 1,500 Cubans work there as virtual slave laborers,” Helms wrote. “Sherritt pays Castro approximately $10,000 a year for each of these Cuban workers. Castro gives the workers about $18 a month in pesos, then pockets the difference. The net result is a subsidy of nearly $15 million in hard currency each year that Castro then uses to pay for the security apparatus that keeps the Cubans enslaved.”

While Sherritt wasn’t available for a response, Kaylin A. Bailey of the National Policy Association has a different point of view.

“Sherritt may be exploiting their workers just by the fact that they’re investing there. But what would those workers be doing if Sherritt weren’t there?” she asked, adding that “Sherritt has been known to build community centers and medical clinics. It’s a benefit the workers might not otherwise have.”

Because neither Sherritt nor its subsidiaries hold assets located in the United States, it doesn’t have to worry about those assets being confiscated. And because lawsuits under the 1996 Helms-Burton Act by U.S. nationals against companies that have “trafficked” in properties confiscated by the Castro government haven’t been authorized, Sherritt is in no immediate danger of any such lawsuits.

Even so, Sherritt feels it is being unfairly singled out. That’s why it’s among the top corporate donors to the Cuba Policy Foundation, a non-profit group in Washington that opposes the U.S. trade embargo.

Sally Grooms Cowal, president of the CPF, wouldn’t say how much Sherritt gives to her foundation, but she describes the Canadian company as “one of the prime victims” of Helms-Burton.

“Under Title IV, their executives cannot visit the United States. So they’re anxious for there to be some pressure in Congress” to lift the embargo, said Cowal. “Secondly, they genuinely believe that if the Cuban economy is opened up, the rising tide will raise all boats. They’re producing electricity, and the demand for electricity goes up exponentially with the demand for new businesses.”

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