Codelco opts out of Disputada bid (March 04, 2002)

Vancouver — With copper miners eyeing further production cuts, Corporacion Nacional del Cobre de Chile (Codelco) has opted out of the contest to buy Exxon Mobil’s (XOM-N) copper company, Disputada de las Condes.

The world’s largest copper producer stated the Exxon had rejected its latest offer for the company, which holds two Chilean mines and a smelter.

“Exxon Mobil has informed us that our last offer for the acquisition of 100% of the rights of Minera Disputada Las Condes and Inmobiliaria CMD Limitada still do not fulfill its expectations.” said a statement from the company. “Taking this into account, Codelco has decided not to persist in acquiring these assets and withdraws from the process.”

Codelco would not disclose the amount of its offer but industry sources generally put the price tag at about US$1 billion.

Other mining firms vying for the assets are London-listed mining group Antofagasta Plc, South Africa’s Anglo American (AAUK-Q) and Brazil’s Companhia Vale do Rio Doce .

Exxon put the fore sale sign up on Disputada late last year and in October announced that a number of firms signed confidentiality agreements to evaluate the company’s assets. The oil giant states that it would sell the company only at the “right” price.

Disputada produced 254,000 tonnes of copper last year from the Los Bronces and El Soldado copper mines in central Chile. Nearby, the firm also runs the Chagres smelter.

Late last year, an oversupply of copper on the World’s market prompted Codelco to cut production by 4% in 2002. The Chilean state-owned entity plans to trim 11,300 tons of production from its highest-cost operation, the El Salvador mine, in the northern part of the country, as well as slash 47,000 tons at its largest mine, Chuquicamata. Smaller cutbacks of 25,000 and 23,000 tons are slated for the El Teniente and Andina mines, respectively. The only operation not affected by the cutbacks is the Radomiro Tomic mine.

The move reduces the company’s production forecast to 1.5 million tons in 2002 from the 1.6 million tons of copper produced in 2001.

Grupo Mexico , the world’s third-largest copper producer warned during in its latest quarterly report that it could make new copper production cuts. The Mexico City-based mining giant already cut output in November and December when it announced the temporary closing of mining operations in the United States and Mexico. A total of 151,000 tonnes of copper was chopped from subsidiary Asarco’s production, reductions at a mine in Mexico, and the suspension of third-party copper sales.

The company stated: “Grupo Mexico would seriously consider continuing to cut back production as an orthodox reply to the significant increase in the world inventories. We are convinced that reasonable inventories will protect future markets and will create an additional protection against the uncertainty of the economic factors we are facing.”

Last year’s output cuts came as copper prices hovered near historic lows, cutting into Grupo Mexico’s balance sheet.

For the year ended Dec. 31, 2001, a 16.2% reduction in costs and expenses failed to offset a 15% drop in copper prices as Grupo Mexico saw an 18.3% drop in sales to US$2.84 billion. In the fourth quarter, sales plunged 28.5% when compared to the year ago period, tallying US$599 million. During the period, the company posted a loss of US$254 million, compared with a loss of US$104 million recorded in 2000.

Copper sales dropped 76,844 tonnes, or 6.7%, to 1.06 million tonnes from the 1.14 million tonnes tallied in 2000. Similar results were seen in zinc and silver sales, down 7.7% and 32.4% respectively to 193,907 tonnes and 1.14 million kg.

The prospect of further cutbacks by Grupo Mexico comes on the heels of a series of production cuts designed to prop up prices for the metal amid weak global demand. A year ago, Phelps Dodge (PD-N) started the parade of cutbacks, followed by BHP Billiton (BHP-N), which cut output at its Escondida mine in Chile and at the Tintaya operation in Peru. Also, Asarco and Noranda (NRD-T) tabled cutbacks at their North American operations.