Cuba: The Investment Play

With Fidel Castro's retirement, is it time to start thinking seriously about investing in Cuba?

The island nation offers more than sun, sugar, rum, and cigars: Cuba may have billions of barrels of oil and trillions of cubic feet of natural gas deep deep underneath its northern coastal waters.

At the same time, it suffers from the shortages and underinvestment caused by four decades of central planning to a greater extent than the European Soviet bloc nations did.

The problem for any American investor who might want to get in before any opening by the communist regime is that it is illegal to do so. Under the United States economic embargo, Americans cannot invest or trade with Cuba (an exception was made in 2000 for agricultural products). The Helm-Burton law of 1996 allows for sanctions to be imposed on foreign companies or countries that trade with or invest in Cuba.

Still, there are several possibilities.

The most notable is Sherritt International Corp. of Canada, Cuba's largest foreign investor. It is a partner with the Havana government in a nickel and cobalt mine and a refinery and is a big power provider. Last summer, the company said it would invest $1.25 billion in Cuba over the next two years.

"The operating environment in Cuba is really good," Sherritt's chairman, Ian Delaney, told Reuters in June. "Our business is being run well."

Shares of Sherritt rose nearly 4 percent in trading on the Toronto Stock Exchange.

Among the foreign energy giants involved in oil and natural gas exploration off Cuba's coast is Repsol of Spain. Its American depository shares rose 1 percent in trading on the New York Stock Exchange.

And Jon Ogg on the 24/7 Wall St. blog points to a closed-end fund that invests in the Caribbean Basin, including Cuba, the Herzfeld Caribbean Basin Fund.

The Miami-based fund, started in 1994, invests in companies that stand to do well if the embargo against Cuba is lifted, as well as Cuban-American companies that have claims on property seized in the 1959 revolution.

The fund, which surged in the summer of 2006, when Fidel Castro appeared to be at death's door, is up sharply again today. Its ticker symbol probably helps: CUBA.

Jeffrey Cane