UPDATE: Grupo Mexico Proposes Merging Southern Copper, Asarco
24 July 2010 - 7:32AM
Dow Jones News
Mexican copper mining and railroad company Grupo Mexico SAB
(GMEXICO.MX) on Friday proposed consolidating its mining operations
under a single roof by combining Southern Copper Corporation (SCCO)
and Asarco LLC, bringing back into the fold the U.S. company it
came close to losing in a drawn-out bankruptcy case.
In a filing with the Mexican stock exchange, Grupo Mexico said
its subsidiary Americas Mining Corporation, or AMC, has presented
the plan to the board of Southern Copper, which runs the group's
Mexican and Peruvian mining operations. Asarco has operations in
Arizona and Texas.
Under the proposal, Southern Copper shareholders would receive
1.237 shares of AMC for every Southern Copper share owned. The
proposal values Asarco at $5.94 billion, and would create a single
company with the world's largest proven copper reserves at an
estimated 74 million tons. Southern Copper said it will set up a
special committee of independent directors to evaluate the
plan.
"The transaction would give Southern Copper shareholders the
opportunity to participate in the future growth of Southern Copper
and Asarco, which would be fueled by synergies and operating
efficiencies that could be had under a common ownership and
management," Grupo Mexico said. AMC would then be listed on the New
York and Lima stock exchanges.
The merger would raise Grupo Mexico's stake in Southern Copper
to 100% from 80%, and the shareholders who own about 20% of
Southern Copper would have a 16.6% stake in AMC.
Southern Copper shares rose, fell, and rose again on the news,
closing up 0.7% at $32.26. Grupo Mexico series B shares rose 3.7%
to 33.62 pesos ($2.64) on the Mexican stock exchange.
Mining analyst Juan Pablo Cordova at Peru's Banco de Credito
said there were two big questions over the possible merger:
Firstly, what is the real value of the Asarco operations, and
secondly, whether the proposed share exchange reflects the fair
values of both companies.
The transaction would bring Grupo Mexico's U.S. operations back
into the fold years after the company separated Asarco with the
merger of its Mexican and Peruvian mines into Southern Copper. In
2005, faced with huge environmental claims, undetermined asbestos
claims, and hit by a strike, Asarco filed for Chapter 11 bankruptcy
proceedings and Grupo Mexico lost management control soon
after.
Grupo Mexico recovered Asarco last December after staving off an
offer to buy the company from Vedanta Resources PLC (VED.LN). Grupo
Mexico expects Asarco to produce around 220,000 metric tons of
copper this year, in addition to Southern Copper's estimate of
500,000 tons, not including eventual output from Cananea.
In June, Grupo Mexico recovered control of Cananea, Mexico's
largest copper mine, after a long strike and dispute with the
national mining workers union that kept the facility shut for
nearly three years, shutting in 180,000 tons of capacity.
Production is expected to take three to six months to resume.
Rodrigo Heredia, a metals and mining analyst at Mexico's Ixe
brokerage said the proposed transaction would add value to Grupo
Mexico as the holding company by bringing the mining division
together. Heredia, who also expects Grupo Mexico could spin off its
railroads division next year, said that would give investors
clear-cut options.
"That means if you wanted to invest in the mining company, you
would have Americas Mining Corporation; in railways, you would have
Ferromex; and if you wanted both, you would have Grupo Mexico," he
said.
Grupo Mexico officials weren't available to comment.
-By Anthony Harrup, Dow Jones Newswires; (5255) 5980-5176,
anthony.harrup@dowjones.com
(Sophie Kevany in Lima and Laurence Iliff in Mexico City
contributed to this article.)
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