Grupo Mexico eyes Mission closure

Vancouver – Diversified miner BHP Billiton (BHP-N) may not envision any further production cuts from its copper operations, but the world’s third largest copper producer is exploring the prospects of closing its Mission mine in southern Arizona.

Over the next few weeks, Grupo Mexico’s U.S. subsidiary Asarco will be studying a shutdown, with an eye on closing the unit by the end of the year. The move, prompted by high production costs and low copper prices, would cut another 50,000 tonnes of contained metal from the market.

The announcement came as Grupo Mexico posted a nine-month loss of MP1.1 billion (US$104 million) on revenues of MP18.7 billion (US$1.9 billion). Comparable figures for 2001 were a loss of MP804 million on revenues of MP22.4 billion.

Last year, Phoenix-based Asarco slashed output at Mission by 61%. In the face of oversupply and lower demand, Asarco trimmed overall refined copper production by 151,000 tonnes in 2001. The prospects of closing the Mission operations would also impact the company’s Hayden copper smelter in Arizona, which depends on feed from the mine.

Despite 18 months of production cuts from the top five global producers, which includes Codelco, Phelps Dodge (PD-N) and Grupo Mexico, the price of copper continues to languish near levels not seen since 1987.

With the majors accounting for only 40% of overall copper production, smaller players continue to crank out the metal at a record setting pace. In early September, ten major Chinese copper producers agreed to cut output by 120,000 tonnes per year. But latest national production figures indicate that the metal is still being churned out at a rapid pace. In the first nine months of the year refined output was up 13.5% over 2001, coming in at 1.2 million tonnes. China’s second largest producer, Jiangxi Copper, said it would produce 220,000 tonnes of copper, little changed from last year. In September, the company stated that it would reduce its target to 208,000 tonnes.

For its part, BHP stated that it does not envisage further production cuts beyond 2002. The world’s largest diversified miner first responded to the weak demand in November 2001 by announcing a 170,000-tonne reduction in copper production. The move was accomplished by constraining output at the Escondida mine in Chile, and temporarily closing the sulphide operation at the Tintaya operation in Peru.

The major subsequently extended the cuts in December 2002, removing an additional 80,000 tonnes of copper production from Escondida through to the end of this calendar year.

In total, the combined cuts at Escondida amount to 250,000 tonnes over the course of 2002. Overall, production there is expected to result in slightly less copper in calendar 2002 and in 2001, despite the start of a fourth phase of work in September.

BHP owns 57.5% of Escondida, the world’s largest copper mine, which last year produced 794,131 tonnes of the red metal. Rio Tinto (RTP-N) holds 30%, a Japanese consortium 10%, and the World Bank’s International Finance Corp., 5%.

Other big copper producers slashed production at about the same time as BHP in a further attempt to battle a surplus of the metal.

Phelps Dodge is currently producing at a rate of about 900,000 tonnes copper per year, despite having a 1.5-million-tonne annual capacity.

Meanwhile, Grupo Mexico-controlled Southern Peru Copper (PCU-N) managed to put in a strong financial performance in the latest quarter ended Sept. 30. The company saw profits rise 24% to US$14.4 million even as sales soften to US$169.9 million from the US$171.5 million tallied a year earlier. Third quarter copper production rose 0.4% to 87,000 tonnes, with the company realising an average copper price of US$0.69 per lb. (US$1,520 per tonne), a 2-cent improvement over the third quarter of 2001.

The star performer for the company was the Cuajone mine, where production was up 3,100 tonnes over last years’ quarter. Higher grades and better recoveries are cited for boosting the bottom line.

Grupo Mexico has a 54% stake in the company with Phelps Dodge and Cerro Trading, each holding about 14%.