CRU/CESCO-Low metal prices to cut profits, fuel acquisitions
Fri Mar 27, 2009 4:04pm EDT
reuters.com
By Teresa Cespedes
LIMA, March 27 (Reuters) - Metal prices that have sunk on the global economic slowdown will slash profits at most Latin American miners in 2009, but some are working to take advantage of the downturn to spur acquisition activity.
Miners of industrial metals like copper and zinc will be hardest hit by falling prices, while miners of precious metals like gold, which has not dropped significantly on the financial crisis, are expected to fare far better.
"In general, what you will see this year is a dip in profits because of lower prices," said Gustavo Urrutia, an analyst with Centura in Lima, Peru's capital.
In Chile, the gigantic state-run copper company Codelco posted a pre-tax profit of $4.97 billion last year, a 41.2 percent drop from 2007, as both production and prices fell.
In Peru, Southern Copper(SPC.LM), which is controlled by Grupo Mexico (GMEXICOB.MX), posted 2008 profits of $1.4 billion, nearly 37 percent less than in 2007.
Despite miners' lower returns, analysts say soaring demand from China, the world's top consumer of the red metal, and lower global output will prevent prices from falling further.
"We believe prices will stay near where they are right now because between the last quarter of last year and January, prices hit a floor," said Juan Pablo Ramos, an analyst with Scotiabank Peru, about copper.
Prices for copper are currently hovering between $1.50 and $1.80 per lb, less than half what they were in July last year.
ACQUISITIONS
Lower profits are bad news for miners, but analysts looking at the bright side say some companies are positioning to use the global crisis to fuel aggressive expansion plans.
Grupo Mexico, Mexico's top copper producer, posted a fourth-quarter net loss of $175 million in 2008, down from a $169.6 million profit in the same period in 2007.
The firm still has a solid financial position, with significant cash on hand.
"Grupo Mexico is in an excellent place to take advantage of the lower valuations of many miners, and grow though acquisitions," said a report from Mexico's Ixe Grupo.
Brazil's Votorantim Metals has also been working to expand its footprint in Latin America. It bought Peruvian zinc miner Atacocha last year and attempted to take control of Milpo, which mines zinc, lead and copper in Peru.
"There are several solid companies, with available cash and good positioning for a recovery in metal prices," said an analyst with a big trading house in Lima.
"In spite of the crisis, some miners are continuing to invest, expand their operations and buy other miners with liquidity problems," he said, mentioning Southern Copper and Peru's Buenaventura (BUEv.LM) as examples. (Writing by Dana Ford; Additional reporting by Manuel Farias in Santiago and Tomas Sarmiento in Mexico; Editing by Marguerita Choy) |
