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TORONTO – In the short-term, the diplomatic breakthrough between the United States and Cuba changes very little for Sherritt International Corp. and the dozens of other Canadian companies active in Cuba. But a potential lifting of the U.S. embargo would have a transformative impact on them.
Sherritt’s stock jumped more than 26% on Wednesday as the two countries re-established diplomatic ties. The reaction was not surprising, as the Toronto-based miner has always had a “Cuban discount” baked into its stock. Sherritt is the biggest foreign investor in the Communist state by a huge margin. Its shares closed at $2.87, up 60¢ in Toronto.
“There’s always been this uncertainty around political risk in Cuba as a result of the Cuba-America relationship,” chief executive David Pathe said in an interview. “And if this can help alleviate that, we think it’s a positive development for Cuba and for us.”
Nonetheless, it is largely irrelevant to the company’s business interests. The U.S embargo, which remains in place, prevents Sherritt from having any business dealings with companies inside the U.S., including banks. And the U.S. Helms-Burton Act prevents some of Sherritt’s directors and officers from entering the country.
Many experts see Wednesday’s news as the first step towards scrapping those policies. That is where Mr. Pathe sees potential. Sherritt could save costs by sourcing U.S.-made mining equipment and selling finished nickel and cobalt from Cuba to U.S. customers. Additionally, it would become much easier for U.S. investors to buy the stock.
“We do have some U.S. shareholders [today]. But nobody participates directly and we don’t do any marketing in the U.S.,” Mr. Pathe said.
Sherritt is planning to expand its Cuban business next year by building an acid plant that would reduce operating costs.
There is broad agreement in the Canadian business community that the U.S. embargo on Cuba has been counter-productive and will eventually be abandoned. But no one has a clue when that will happen given the entrenched political opposition.
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