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Grupo Mexico expects copper production to grow

8th Feb 2010, 8:37 am
Grupo Mexico expects copper production to grow

 

By: Dorothy Kosich, Mineweb.com

Mexico City-based mega-miner Grupo Mexico expects 2010 will be "a year of consolidation for copper and for our other metals due to the anticipated growth of the manufacturing sector worldwide, recovery in American, European, and Asian demand, and the continued Chinese consumption."

"These factors are expected to start a reversal of the upward trend in inventories over the coming months," the company said in its financial results.

Grupo forecast that its Mining Division (which now includes U.S. copper miner Asarco) is expected to produce 720,000 tons of copper this year without including any production from Mexico's Cananea copper mine, which remains closed because of a lengthy labor dispute.

Copper production for 2008 was 496,022 metric tons, a 1.5% increase over 2008 production. "This increase is the result of our strict operating focus and improved ore grades at La Caridad [in Mexico] and [Peru's] Toquepala mines," the company said in its financial results release.

GMexico said, "The outlook for molybdenum is equally positive, and this metal will start trading on the London Metals Exchange in (LME) in February."

The company reported a 14% increase in moly production last year for a total of 18,687 metric tons. Zinc production increased 3.3% in 2009 to 110,430 tons. The increase was due principally to improved ore grades at La Caridad and improved grade and recovery at Cuajone in Peru, according to Grupo.

Last year's silver production increased 8.2% to 13.3 million ounces of silver while gold production was reported at 15,088 ounces, a slight increase over 2008.

ASARCO

Meanwhile, Grupo Mexico's hard-fought reacquisition of U.S. copper miner Asarco will generate tax benefits of US$1.024 billion for Grupo, which will be realized beginning the second quarter of this year.

Asarco is the third largest copper producer in the U.S. and has reserves of 5 million tons of copper concentrate, representing 30 years of mine life, according to its parent.

 "With the integration of Asarco, GMexico positions itself as the number one company in copper reserves worldwide," the company claimed, "ahead of Codelco and Freeport, and reaffirms its position as one of the main producers of mined and refined copper."

Asarco contributed 10,646 tons of copper, 122,068 ounces of silver and 24,405 tons of sulfuric acid as GMexico had only consolidated the Asarco operation for 22 days beginning December 10, 2009.

Grupo said it contributed $705 million in cash and secured financing of $1.5 billion to capitalize Asarco in the amount of $2.2 billion. Asarco contributed $1.357 billion from its own cash and made payment to its credits for an aggregate cash consideration of $3.562 billion.

In addition a one-year promissory note of $280 million was delivered to Asarco's asbestos creditors.

CAPEX PROGRAM

On January 29th, Grupo's board of directors also approved a $3.9 billion capex program for the next three years. Of that, $2.95 billion will be invested in the Mining Division, $576 million in the Transportation Division, and $384 million in the Infrastructure Division.

The board approved a $2.8 billion capex program for Southern Copper Corporation (SCC) including $1.8 billion to increase SCC's annual copper production by 120,000 metric tons by the end of 2011 with the completion of the Peruvian Tia Maria project. The capex program will also expand the Toquepala mine in Peru, which will increase annual production by 100,000 metric tons of copper and 3,100 metric tons of moly by 2012. The Cuajone mine will be modernized and expanded to increase annual copper production by 72,000 metric tons of copper.

The board also voted to invest $1 billion in Mexico "if and when the company has been provided with the necessary labor and judicial conditions required for such an investment."

The budget includes the expansion of production at the La Caridad mine by 50,000 metric tons of copper and 3,000 tons of moly annually. The program also includes the construction of a power plant "resulting in significant savings of approximately 50% of our current costs."

The three-year investment program could include an additional $3.85 billion of investment in Mexico, which would be directed towards projects at the Cananea mine and the development of the Greenfield copper and gold deposit of El Arco in Baja California.

"These incremental investments would result in an additional 490,000 tons of copper production per year to the previously mentioned 342,000 tons," the company said. "This investment is suspended until the company is provided with the labor conditions and the availability of competitive energy rates that are required to undertake these projects."

The capex investments programmed for Asarco over the next three years are $150 million.

FINANCIALS

GMexico reported net consolidated earnings of $887 million or 11-cents per share for 2009, down $189 million or 17.6% from 2008 which reported net earnings of $1.076 billion or 14-cents/sh.

For the fourth-quarter 2009, Grupo reported net income of $342.05 million or 4-cents/sh, up 297.5% from a loss of $173.2 million or negative 2-cents/sh reported during the fourth quarter of 2008.

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