Mega copper merger gets green light

Shareholders of Southern Peru Copper (PCU-N) have approved a merger with Minera Mexico, the mining arm of Grupo Mexico.

Mexican-listed Grupo Mexico owns 54% of Southern Peru Copper and will transfer Minera Mexico (99.15%-held by Grupo Mexico subsidiary Americas Mining) to Southern Peru Copper.

Minera Mexico owns Mexicana de Cobre, Industrial Minera Mexico (IMMSA), Minerales Metalicos del Norte, and Mexicana de Cananea. The ownership extends to the La Caridad and Cananea open-pit copper mines in northeastern Mexico, which are held by Mexicana de Cobre and Mexicana de Cananea. In 2004, the two mines produced a total of 320,640 tonnes of copper concentrate. IMMSA operates four underground mines in central and northern Mexico, one of which, Charcas, is Mexico’s largest zinc producer.

Southern Peru Copper owns the Cuajone and Toquepala mines, which, combined, produced 400,000 tonnes of refined copper last year.

The company resulting from the Southern Peru/Minera Mexico merger will be among the world’s largest copper producers.

Improvements at the La Caridad and Cananea mines are expected to boost production by 25% over the next three years.

Grupo Mexico will issue 67.2 million new shares to existing shareholders. The company will own about 75% of the newly formed company, which will retain the name Southern Peru Copper and have 147.4 million shares outstanding.

The company will trade on both the New York and Lima stock exchanges.

Minera Mexico has a debt of US$1.04 billion; Southern Peru Copper, US$289 million. Before completing the deal, the latter will pay shareholders a dividend amounting to US$100 million.

Phelps Dodge (PD-N) and Cerro Trading will each own 7.5% of the new Southern Peru Copper.

Shares in Southern Peru and Grupo Mexico closed down on the news, by 5% and 10%, respectively.