Grupo Mexico expands to meet growing copper demand

Mexican copper giant Grupo Mexico said on Thursday its most aggressive year of investments in mine expansions places the company on a firm footing in coming years for expected copper deficits.

Grupo Mexico, which has the world's largest copper reserves, is spending $1.9 billion in its mining division to increase output, including revamping its massive Cananea copper mine, reopened for the first time after the end of a three-year strike.

"We have a very aggressive program of capital expenditure and I think it is the most aggressive one that we have posted," Chief Financial Officer Daniel Muniz said in an interview at the company's offices in Mexico City.

He said demand will continue to grow in the developing world as China rebuilds depleted stocks and new consumers like India build infrastructure that uses copper, while slow-moving new copper projects will struggle to meet global needs. The company said in a conference call this week that it expects between 4 and 5 percent demand growth in 2011.

"I think it's very hard for the market to catch up. There are not a lot of projects coming in the pipeline. Analysts will coincide between a 400,000-tonne and 800,000-tonne （copper） deficit for 2011," Muniz said.

The tight market has helped push prices for the red metal to record highs, hitting $10,160 per tonne in London and $4.6375 per lb in New York on Monday.

The long-shuttered Cananea copper mine, near the U.S.-Mexico border, will regain its full capacity of between 150,000 and 180,000 tonnes by the end of the year.

The company retook control of the pit from striking workers with the help of federal police in June and began ramping up production by the end of 2010, reaching just 20,696 tonnes of production last year.

POSITIVE ON ASARCO MERGER

Grupo Mexico, which also operates Mexico's largest railroad, runs mines in Mexico and Peru under its Southern Copper unit and in the southwestern United States under the recently reincorporated company Asarco.

Grupo Mexico paid more than $2.5 billion to regain control of Asarco in 2009 and proposed merging the company with Southern Copper in July to cut costs and streamline operations.

Muniz said mines in Peru could process material in Asarco's refinery in Texas, for example.

An independent committee is currently doing due diligence to evaluate the proposed merger but at least one Southern copper shareholder has objected to the deal saying it would devalue the stock.

"We do think that there is value for everyone including the minority shareholders if we combined the operations and I think the market agrees with me on that," Muniz said.

Under the plan, Southern Copper shares would be delisted from the New York stock exchange and replaced with Americas Mining Co stock, which would incorporate both Southern Copper and Asarco's businesses.

The two companies combined are seen producing 830,000 tonnes of copper in 2011.

"There is no strict time frame," for the deal, Muniz said. "But if things evolve as they have, due diligence is almost over … this should be done by the first half of 2011," he said.