St. LOUIS () -- After nearly a decade of defying America, Fidel Castro announced yesterday he will not accept a nomination to serve another 5-year term of president of Cuba, effectively resigning his post. Cuba, as one of the world's largest producers of nickel and cobalt, indeed has the ability to move the base metals market; however, analysts see little chance of any substantial changes to the dynamics of the market.
"The status quo has been maintained even though Castro has de facto not been running the country for a while now," said Jessica Cross, CEO of VM Group.
On July 31, 2006, Castro announced he had undergone intestinal surgery and was temporarily stepping aside. He appointed his brother Defense Minister Raul Castro to lead Cuba and its ruling Communist Party during his recovery. Although Castro retains his powerful post as first secretary of Cuba's Communist Party, it is unclear how much sway he will have over the new government.
What is clear is that he has lived through 10 U.S. administrations beginning with that of Dwight Eisenhower, survived assassination attempts, an invasion by a CIA-trained exile army at the Bay of Pigs and a standoff with Washington over Soviet missiles that pushed the world to the brink of nuclear war.
Cross told RI that this change will not make all that much difference in the nickel market. Even if U.S.-Cuba relations improve, and U.S. companies are again able to invest in the country's resources as was done in the 1940s, the nickel market would only evolve slowly over time.
"Europe and China have not been prevented in investing in the county's mining industry - it's only the U.S," said Cross.
Nickel emerged as Cuba's biggest export-earner in 2000 and has since surpassed earnings from tourism. The country produced 68,305 tonnes in 2000, up from 51,220 tonnes just 4 years earlier, and has increased production by 11% since then.
In 2005, total production for nickel and cobalt was reported at 77,000 tonnes, representing a 4% increase from 2004, while 2006 output came in at around 74,000 tonnes. The country garnered more than $1 billion in 2005 and $1.3 billion in 2006. In 2007, Cuba produced 76,000 tonnes of nickel plus cobalt, generating revenues of around $2.7 billion, surpassing that of tourism at around $2.1 to $2.2 billion for the first time.
The country forecasts unrefined nickel plus cobalt production should reach a record 80,000 tonnes in 2008 with almost all output destined for Canada, Europe and China. The country is now the world's fourth largest nickel producer, and Cuban nickel is considered to be Class II with an average 90% nickel content.
Cuba's National Minerals Resource Center reported that eastern Holguin province counted 34% of the world's known reserves, or some 800 million tonnes of proven nickel plus cobalt reserves, and another 2.2 billion tonnes of probable reserves, with lesser reserves in other parts of the country.
Cuba's also has the world's second largest cobalt reserves, and already produces about 10% of the world's total. According to the U.S. Geological Survey, Cuba has cobalt reserves totalling 1 million tonnes and resources of 2 million tonnes, which is about 14% of known world cobalt resources.
Robert Baylis, senior analyst at Roskill Information Services Ltd., told RI that Cuba has the potential to become a significant cobalt producer, but "it is unlikely that an improved Cuban-U.S. relationship would have a direct effect on the cobalt market."
He said the U.S. is not directly reliant on cobalt derived from Cuba. Unless the U.S. invests in producing cobalt products in Cuba, it is unlikely that cobalt from Cuba will go directly to the U.S. - all cobalt from Cuba is currently processed in Canada and China.
"Also, I do not believe there is anywhere for nickel-cobalt ore/concentrates to be treated and refined in the U.S.," said Baylis. "Therefore the dynamics of the cobalt market in the U.S. are unlikely to change."
The production of nickel and cobalt in Cuba is concentrated in the factories Rene Ramos Latour of Nicaro, and the Pedro Soto Alba and Ernesto Che Guevara in Moa, both in Holguin province. The Nicaro-based Rene Ramos Latour plant and Moa-based Che Guevara plant are owned and operated by state-owned Cubaniquel, while a third Moa-based plant, the Pedro Soto Alba, is a 50-50 joint venture with Canada-based Sherritt International [TSX:N].
The Rene Ramos Latour plant produces around 10,000 tonnes of unrefined nickel plus cobalt per year. The Che Guevara plant and Pedro Soto Alba plant each produce more than 30,000 tonnes of unrefined nickel plus cobalt annually. However, the stated Cuban investment plans envision raising total production to 120,000 tonnes within 5 years.
Sherritt International has announced plans to add 16,000 tonnes to the capacity of its JV Pedro Soto Alba plant, 4,000 tonnes in 2008, another 9,000 tonnes in 2009 and a final 3,000 tonnes in 2011. Commissioning is planned for later 2008 with total expansion costs at approximately US$450 million. On the announcement, Sherritt's share prices jumped more than 6% to C$15.50.
Baylis told RI that many non-U.S. domiciled companies are looking and have looked at nickel-cobalt projects in Cuba, BHP Billiton [NYSE:BHP] being just one example. He said it was much more likely that China would invest in expanding nickel-cobalt production in Cuba than the U.S. if it became possible.
China, the largest consumer of nickel in the world, only imports about 10,000 tonnes of nickel per annum from Cuba out of 300,000 tonnes in total imports.
China's state-owned Minmetals signed an agreement in 2004 create a Chinese-Cuban JV to complete and modernize the unfinished Soviet-built Las Camarioca ferronickel plant. The plans estimated a capacity of 22,500 tonnes of nickel a year for 25 years. But in early 2007, the Venezuelan government took over China Minmetals' 49% stake in the nickel project.
Unfortunately, there is a severe lack of infrastructure and support services able to support a mining operation in Cuba. In general, most machinery must be brought in from overseas and there is an almost complete lack of service companies.
"One would have thought that if the Chinese saw the merits of investing in that country they would have done so already," added Cross.
After a brief spike this year, nickel prices have settled at about $12.50/lb after fluctuating from $12 to 12.50 for most of January and February. Last year, nickel prices lost about 25%, after running up to nearly $25/lb in the spring. This followed 2006's gain of 157%.
Cobalt prices have more than tripled in the past two years, rising from $15.20/lb at the end of 2005 to today's price of $48.50/lb.