MEXICO CITY - Mining and transportation giant Grupo Mexico said on Thursday a proposed merger of two of its railroad units could come by the first quarter of next year depending on a green light from Mexico's competition commission.
Grupo Mexico controls Ferromex, the largest railroad company in Mexico. In 2005, Grupo Mexico bought another Mexican railroad, Ferrosur, through a subsidiary but antitrust regulators objected.
In May of this year, a federal court ruled in Grupo Mexico's favor and said the commission, known as Cofeco, should consider the merger approved, but regulators could still appeal that decision.
"We are expecting the notification ... of this ruling will be by the end of August," Octavio Ornelas, a director of the company's transportation arm, said on a conference call for investors.
"If Cofeco appeals that ruling, then we will spend another six to nine months in order to have a positive ruling so we will have that consolidation ready by the end of the first quarter of next year," he said.
Ferromex and Ferrosur are clustered under Grupo Mexico's transportation division, Infraestructura y Transportes Mexico, or ITM.
Grupo Mexico has floated the idea of launching an IPO for its transportation division, but no firm decisions will be made until a resolution is reached with regulators, Ornelas said.
"We will begin to work (on the consolidation) once we know we have a positive ruling," he said. Ornelas said any merger of the two railroads will involve a negotiation with Union Pacific Corp, which owns 26 percent of Ferromex.
"We need to see how the market is evolving at that moment in order to see if we need to make the merger, or first make the IPO and then proceed (with) the merger. It's something we have not decided," Ornelas said.
Ferromex expects to invest $134 million for the year mainly on infrastructure renewal, he said. The board also approved the acquisition of 44 new locomotives, which will increase cargo capacity by 7,5 percent, Ornelas said.
SPENDING AT MINES
Investment plans will not be limited to expanding Grupo Mexico's railroad business. The company also aims to boost copper and molybdenum production at its mines in Mexico, Peru and the United States. Much of the growth will come at Cananea, the company's largest copper mine in Mexico, which was paralyzed for nearly three years by a strike.
The company recently regained control of Cananea and plans to spend $3,8 billion over the next five years at the mine, mainly on a mineral crushing and conveying system that feeds the copper leaching plants and the leaching plants themselves, Grupo Mexico Chief Executive Daniel Muniz said on the call.
With the new investments, including $114 million to repair damage to the mine from the prolonged work stoppage, the company expects to boost production at Cananea by 150 percent to 450 000 t of copper a year.
In Peru, some investment plans have been put on hold as environmental impact studies are completed at the Tia Maria mine, operated by the company's mining unit Southern Copper.
Overall, the company will spend $1,1 billion on expansion projects next year and $1 billion in 2012, Muniz said.
The company has proposed a merger between Southern Copper and U.S. copper miner Asarco. Grupo Mexico pulled Asarco out of bankruptcy after a winning a long court battle in December last year. Asarco, which operates copper mines in Arizona, is valued at around $6 billon, the company said.
Grupo Mexico's quarterly results were helped by the incorporation of Asarco, which can produce around 200 000 tonnes of copper annually.
Thomson Reuters' IFR reported on Wednesday that Grupo Mexico could be eyeing a possible stock deal for Southern Copper to fund the purchase of Asarco out of bankruptcy. Although discussions remain fluid, the deal could be worth $1,5 billion, IFR said, citing bankers close to the company.
Source: Reuters