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Company History: Grupo Mexico, S.A. de C.V. is Mexico’s largest mining company and the world’s third largest producer of copper, fourth largest of silver, and fifth largest of zinc. It also engages in the mining and processing of other minerals, principally gold, lead, and molybdenum. In addition to its holdings in Mexico, Grupo Mexico owns ASARCO, Inc., a company with many mining facilities in the United States and a majority stake in Southern Peru Copper Corporation Grupo Mexico also holds the majority share in Mexico’s longest railway.
Under U.S. Ownership: 1892-1965
Grupo Mexico originated not with a Mexican company but with the activities of the Guggenheim family of the United States, through their M. Guggenheim’s Sons partnership, which had been investing in U.S. mining and smelting operations since 1880. In 1889 Simon Guggenheim persuaded some Mexican mine owners to send their silver ores to the Guggenheim smelter in Pueblo, Colorado. After Congress imposed a heavy duty on imported ores the following year, the Guggenheims established smelters in Monterrey (1892) and Aguascalientes (1895) and first leased, then bought, mines in Mexico yielding lead, iron, silver, and copper.
By 1901 Guggenheim-owned smelters were processing 40 percent of the lead and 20 percent of the silver mined in Mexico. Meanwhile, industrialists in the United States were forming a cartel-like trust of large smelting operations, founded in 1899 as the American Smelting and Refining Co. (ASARCO). The Guggenheims declined to join and, when the trust ran into difficulty, purchased a controlling stake in ASARCO in 1901 for $45.2 million.
The Guggenheim Exploration Co. bought for $5 million, in 1902 or 1903, a copper, lead, and zinc mine at Velardena, Durango, which was turned over to ASARCO. This company also very early acquired a lead and zinc mine at Santa Eulalia, Chihuahua. A smelter completed in 1907 near Chihuahua became, in the 1920s, the largest lead smelter in the world. The Tiro General mine at Charcas, San Luis Potosi, was acquired by ASARCO in 1911, and a smelter and refinery were built nearby.
Mexico was now entering the decade of civil war following the fall of President Porfirio Diaz. By supporting the ambitions of Pancho Villa in the north of Mexico, ASARCO was able to keep five of its plants open, while all the others farther south had to close. Also during this period, the company acquired a vein system in the mineral-rich (lead, zinc, and copper) Santa Barbara, Chihuahua district.
In 1919 ASARCO acquired the Rosita coalfields near Sabinas, Coahuila. Coal from this property would be the fuel to generate the electricity needed for the company’s mining and smelting operations. The facility cost $8.5 million to develop, including coke ovens, Mexico’s only zinc smelter, and a showpiece model town. ASARCO gained control of the San Potosi smelter in 1923. The Monterrey and Aguascalientes smelters were abandoned as antiquated in the 1920s, but ASARCO opened a Monterrey lead refinery in 1929.
Profits from its Mexican properties helped ASARCO sustain itself during the Great Depression. In 1947 11 ASARCO plants in Mexico were treating 6,100 metric tons of ore a day and producing 29,700 tons of lead, zinc, copper, and iron concentrates a month. The Rosita coal mine was producing 600,000 tons a year. ASARCO was the largest private employer in Mexico at this time.
ASARCO’s Mexican revenues came to perhaps $80 million in 1962, but its earnings were estimated at only $2 million. The company’s executives complained that its profit margins were almost being eliminated by taxes and export duties, especially the latter, which was raised to 28 percent for refined products in 1954. The Mexican government allowed a reduction of the export duty when foreign properties came under majority Mexican ownership, and ASARCO expressed its willingness to make such an arrangement but said it was having trouble finding Mexican partners. Low metal prices apparently were making it impossible for wealthy Mexicans to achieve a rate of return on equity high enough to make ASARCO a worthwhile investment.
Thriving on Copper: 1965-90
Prodded to comply with the law requiring certain enterprises, such as mining concerns, to be Mexican-controlled, ASARCO sold a 51 percent share of its Mexican subsidiary in 1965 for between $30 and $40 million to a group headed by industrialist Bruno Pagliai. The ensuing company, Asarco Mexicana, S.A., became Industrial Minera Mexico, S.A. (IMM) in 1974, when another 15 percent was sold to Mexican investors, reducing ASARCO’s stake to 34 percent. In 1978 this company was placed under Grupo Industrial Minera Mexico, S.A. de C.V., a holding company with all-Mexican equity that began selling stock on the Mexico City stock exchange. A subsidiary, Mexico Desarrollo Industrial Minero, S.A. de C.V. (Medisma) remained 34 percent owned by ASARCO.
The group’s richest holding was the La Caridad copper mine in the state of Sonora. In 1968 Asarco Mexicana signed agreements with two government agencies to explore intensively a site within a national mining reserves area. Important copper production in the area–the Nacozari district–had begun around 1900 but had ended in 1949 because of low copper prices. The company’s efforts culminated in the 1979 opening of Mexico’s second largest copper mine, an open-pit operation with reserves of 680 million tons of ore, plus a smelter to produce blister (rough) copper and a refinery to purify it further. IMM was acting as the sales agent for Mexicana de Cobre, S.A., which was 44 percent owned by the Mexican government. In 1985 Mexicana de Cobre was constructing a new smelter to handle the ore, which was being extracted at the rate of 72,000 metric tons a day, and to meet the demands of the refinery.
Grupo Industrial Minero acquired 92 percent of the government’s share of Mexicana de Cobre in a 1988 public auction and increased its share in 1997 to 98.5 percent. The company was producing 57 percent of Mexico’s copper in 1990, when it bought 77 percent of the Cananea mine for $475 million. Located in the state of Sonora not far south of the Arizona border, Cananea was Mexico’s largest copper mine, an open-pit operation worked on a small scale in the late 19th century by General Ignacio Pesqueira.
An Arizona prospector, William C. Greene, took out an option in 1898 from his widow for $47,000 and began large-scale exploitation. A miner’s strike was bloodily repressed in 1906, and in 1911 the mine was producing six million pounds of copper a month. Anaconda Copper Mining Co. purchased Greene Cananea Copper Co. in 1928. The Mexican government and private companies acquired 51 percent of the shares in 1971, but Anaconda remained the largest single stockholder until 1982 of what became Mexicana de Cananea.
Grupo Mexico in the 1990s
Grupo Industrial Minera Mexico’s net sales came to 3.41 billion new pesos ($1.13 billion) and net income amounted to 729.44 million new pesos ($241.86 million) in 1991. The following year was almost as good, but in 1993 sales dropped and the company incurred a net loss. In 1994 Grupo Mexico, S.A. de C.V. was established as a holding company with the objective of replacing Grupo Industrial Minera Mexico and consolidating all of the company’s subsidiaries. This was accomplished through the acquisition of all of the shares representing the foreign investment in Medisma, which now included Mexicana de Cananea as well as Mexicana de Cobre. ASARCO announced later in the year that it expected to sell most of its 24 percent stake in Grupo Mexico within the next two years. The purchase was completed in 1997 for $323 million.
Grupo Mexico’s mineral production in 1994 included 289,882 metric tons of coal and 186,361 metric tons of zinc. Copper production in 1995 totaled 303,685 metric tons. The company was operating ten mines and seven plants. Jorge Larrea Ortega, Grupo Mexico’s chairman and chief executive officer and known as Mexico’s ‘King of Copper,’ yielded his posts in 1994 to his son German Larrea Mota-Velasco. After this difficult year, marked by capital flight and a peso devaluation, Grupo Mexico made a comeback&mdashded by higher copper prices–in 1995, earning 3.83 billion pesos (about $563 million) on sales of 10.07 billion pesos (about $1.48 billion). This proved to be Grupo Mexico’s best result in the 1990s.
In 1997 a consortium of three companies that included Grupo Mexico and the U.S. company Union Pacific Corp. purchased a 50-year operating concession of government-owned Ferrocarril Pacifico del Norte, S.A. de C.V., for $527 million, with Grupo Mexico taking 74 percent. The rail network of roughly 4,000 miles connected Mexico City with such cities on the U.S. border as Ciudad Juarez and Mexicali and included a passenger run for tourists through the Copper Canyon.
Grupo Ferroviario Mexicano was established by the partners to run the railway. ‘We combine a cyclical company with a cash cow and the end result is the stabilization of cash flows,’ was the reason for the acquisition that the chief financial officer of Grupo Mexico gave to Alex Mathias of Euromoney. ‘Copper prices are low right now but the rail business subsidiary is good.’ A government official later credited Larrea with acting shrewdly. ‘When Grupo Mexico bought the Pacific Northern line he paid cash,’ the official told Joel Millman of the Wall Street Journal. ‘Then he went to Wall Street and asked for better financing than even the government gets.’
Grupo Mexico made a bigger acquisition and brought its relationship with ASARCO full circle in 1999, when it bought this company for $1.18 billion in cash and the assumption of $1.02 billion in debt. The purchase of ASARCO, which held a number of U.S. mines, smelters, and refineries and a majority stake in Southern Peru Copper Corporation, made Grupo Mexico the world’s third largest copper producer. It was hotly contested by Phelps Dodge Corporation, the largest U.S. copper producer, which had earlier made a bid for ASARCO in order to keep it from merging with Cyprus Amax Minerals Co. Grupo Mexico won the bidding war not by offering to pay more but to pay all in cash.
To help finance the acquisition, Grupo Mexico quickly sold Enthrone-OMI, Inc., ASARCO’s specialty chemicals division, to Cookson Group plc for slightly more than $500 million. In 2000 it sold American Limestone Co., another ASARCO business, to CSR America, a unit of Australian-based CSR Ltd., for more than $211 million.
In 2000 Grupo Mexico’s mining subsidiary, Grupo Minero Mexico, consisted of three principal operating units: Mexicana de Cobre, Mexicana de Cananea, and Industrial Minera Mexico. The former two were operating the La Caridad and Cananea mines, respectively. IMM consisted of eight underground mines producing zinc, gold, silver, copper, lead, and coal in central and northern Mexico.
Among them was Charcas, the nation’s largest zinc producer, and San Martin, the nation’s largest underground mine, in the state of Zacatecas. Grupo Minero Mexico’s processing facilities consisted of two copper smelters; three refineries–for copper, zinc, and precious metal; and leaching and solvent extraction/electrowinning (SX/EW) facilities at La Caridad and Cananea. Grupo Mexico’s rail operations were under the Grupo Ferroviario Mexicano subsidiary.
Aside from the La Caridad (copper, molybdenum, gold, and silver), Cananea (copper, gold, and silver), Charcas (silver, copper, lead, and zinc), and San Martin (silver, lead, zinc, and copper) mines, Grupo Mexico was still operating mines at Santa Eulalia, Chihuahua (silver, lead, and zinc), and Nueva Rosita, Coahuila (coal). The mines at Velardena, Durango (silver, copper, lead, and zinc), and Santa Barbara, Chihuahua (gold, silver, copper, lead, and zinc) also had long been exploited by the company’s predecessors. Another mine, at Taxco, Guerrero (gold, silver, lead, and zinc), was near one of Mexico’s most popular tourist cities and the historic home of silver treasures.
Grupo Mexico also was operating a mine at Rosario, Sinaloa (lead, zinc, silver, and gold). La Caridad was the site of a copper smelter and refinery, silver and gold refinery, SX/EW and sulfuric-acid plants, and a rod mill. Cananea had a copper smelter and SX/EW plant. San Luis Potosi was home to a copper smelter, a sulfuric-acid plant, and zinc and arsenic refineries. A silver and gold refinery was in Monterrey and a lime plant in Agua Prieta Sonora. The company was pursuing exploration and development projects at El Arco, Baja California Norte; Bolanos, Jalisco; Buenavista, Sonora; and Angangueo, Michoacan.
ASARCO included four zinc mines in Tennessee and three copper and silver mines in Arizona. The other two U.S. mines were in Colorado and Montana. There were three smelters–in Arizona, Montana, and Texas; two refineries in Amarillo, Texas; and two SX/EW facilities in Arizona. Southern Peru Copper was producing copper, silver, molybdenum, and gold in Cuajone and Toquepala, which also had an SX/EW plant. Ilo had two refineries, a smelter, and a sulfuric-acid plant.
Of Grupo Mexico’s revenues of 17.32 billion pesos (about $1.81 billion) in 1999, copper accounted for 48 percent, transport services for 28 percent, and zinc for 10 percent. Mexico accounted for 52 percent of company sales, and the United States for 44 percent. Grupo Minero Mexico accounted for more than 80 percent of the parent company’s 497,057 metric tons of copper sold. It also accounted for more than 95 percent of the 152,984 metric tons of zinc sold.
Grupo Ferroviario Mexicano (Ferromex) transported 32.6 million metric tons of cargo an average distance of 728 kilometers (452 miles). Some $238 million was spent as part of a five-year program of modernization, including the rehabilitation of 202 kilometers (126 miles) of road and the laying of 23,835 metric tons of new rail. A total of 50 locomotives were acquired, and work began on a yard in Guadalajara. Grupo Mexico’s net income was 1.88 billion pesos (about $195 million).
1892: M. Guggenheim’s Sons opens its first Mexican facility, a smelter in Monterrey.
1911: Guggenheim-controlled ASARCO now owns many mines and smelters in Mexico.
1947: ASARCO has 11 Mexican facilities and is the nation’s largest private employer.
1965: ASARCO sells 51 percent of its Mexican subsidiary to Mexican investors.
1978: As Grupo Industrial Minera Mexico, the now independent company begins selling stock to the public.
1979: Company opens La Caridad, Mexico’s second largest copper mine.
1990: Company acquires a majority stake in Cananea, Mexico’s largest copper mine.
1994: Grupo Industrial Minera Mexico is reorganized as Grupo Mexico, S.A. de C.V.
1997: Grupo Mexico purchases a 74 percent share of Mexico’s longest railway.
1999: Grupo Mexico purchases ASARCO, its former owner, for $2.2 billion.
Principal Subsidiaries: ASARCO, Inc. (U.S.A.); Grupo Ferroviario Mexicano, S.A. de C.V. (74%); Grupo Minero Mexico, S.A. de C.V.; Southern Peru Copper Corporation (U.S.A.; 54%).
Principal Operating Units: Ferrocarril Chihuahua-Pacifico; Ferrocarril Mexicana; Industrial Minera Mexico; Mexicana de Cananea (98.5%); Mexicana de Cobre (96.4%).
Principal Competitors: Corporacion Nacional del Cobre de Chile; Phelps Dodge Corporation.
‘All Aboard,’ LatinFinance, August 1998, pp. 49, 52.
Anderson, Jenny, ‘Copper-Topped Battering,’ Institutional Investor, January 2000, p. 93.
‘Asarco Plans to Sell Most of Its 24% Stake in Grupo Mexico SA,’ Wall Street Journal, November 25, 1994, p. C13.
Baldwin, Letitia, ‘Mexican Copper Producers Eye Rebound,’ American Metal Market, April 3, 1985, pp. 3, 18.
Bernstein, Marvin D., The Mexican Mining Industry, 1890-1950, Albany, State University of New York, 1964.
Chase, Martyn, ‘Mexico to Become Sixth in World Copper Output,’ American Metal Market, June 13, 1979, pp. 1, 12.
Contreras, Oscar, Cananea, Mexico City: Miguel Angel Porrea, 1998.
Macdonald, John, ‘The Big New Kicker at Asarco,’ Fortune, January 1963, pp. 82-83.
Marcasson, Isacc F., Metal Magic: The Story of the American Smelting & Refining Company, New York: Farrar, Straus and Co., 1949.
Mathias, Alex, ‘Grupo Mexico: King Copper with Railway,’ Euromoney, December 1998, p. 68.
Millman, Joel, ‘Grupo Mexico Sets Bold Plan to Go Global in Copper,’ Wall Street Journal, September 28, 1999, p. A18.
Sisselman, Robert, ‘La Caridad Copper,’ Engineering and Mining Journal, October 1979, pp. 72-84, 87-89.
Source: International Directory of Company Histories, Vol. 40. St. James Press, 2001.
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