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Strategies & Market Trends : Commodities - The Coming Bull Market -- Ignore unavailable to you. Want to Upgrade?

To: craig crawford who wrote (581)	7/23/2001 3:54:22 AM
From: craig crawford	Read Replies (1) \| Respond to of 1643

Friday July 20, 9:13 am Eastern Time Grupo Mexico Q2 seen pounded by low copper prices biz.yahoo.com By Pav Jordan MEXICO CITY, July 20 (Reuters) - Lower-than-expected copper prices and a slowdown in industrial demand for the metal will mean weak second-quarter earnings for world No. 3 copper producer Grupo Mexico, analysts said. The Mexican miner, whose earnings are highly sensitive to the copper price, is expected to report on July 27 a loss of between $0.05 and $0.07 a share for the April-June period, analysts said. Copper prices have been falling for most of the past year. The price of a pound of copper fell to $0.75 from $0.80 in the first three months of the year. And copper prices recently hit two-year lows on metal exchanges in London and New York as inventories rose amid dwindling worldwide demand. ``If you have copper prices in the second quarter averaging 75 cents a lb, down from 80 cents a lb in the first quarter, that could have a big impact on Grupo Mexico's profitability,'' Hillary Peruzzi, a New York-based analyst with Morgan Stanley Dean Witter, said in an interview. ``We are not going to see good results at these copper price levels,'' said Mauricio Reveco, an analyst with Salomon Smith Barney, FALLING EXPECTATIONS Reveco on Monday cut his rating on Grupo Mexico stock to ``neutral, high risk'' from ``outperform, high risk'' amid the weaker-than-expected copper market. Morgan Stanley Dean Witter also reduced its target price for Grupo Mexico shares because of copper's poor outlook. ``I think that because copper prices are low, earnings from all the copper producers around the world are going to be hit,'' Peruzzi said. Peruzzi predicted Grupo Mexico's revenue for the April-June period would be $739 million, down 8.2 percent from the same period last year and 4.4 percent lower than first-quarter revenue. Reveco forecast revenues of $762 million for the second quarter. The decline in revenues will come in spite of a projected rise in sales volume in the quarter. ``Revenue in dollar terms will, we think, be down in the second quarter versus both first quarter and a year ago,'' Peruzzi said. ``But volume will be up.'' In the second quarter, Grupo Mexico sold inventories that it had built up in the first quarter. Analysts do not foresee a rise in the price of copper until at least the fourth quarter of this year, when demand is expected to pick up. COPPER-PRICE SENSITIVE Grupo Mexico has become increasingly sensitive to the copper price since late 1999, when it acquired U.S. metals company Asarco Inc. for $2.25 billion. Grupo Mexico also holds a 54.2 percent stake in leading Peru miner Southern Peru Copper Corp. Before raising its stake in copper holdings, Grupo Mexico's earnings were balanced with the performance of its railroad business, now a smaller portion of operations. In September 2000, the average London Metal Exchange (LME) cash price stood at $1,960 a tonne, global industrial production growth was 7.5 percent year-on-year, and exchange stocks stood at 400,000 tonnes. By June 2001, prices had fallen to an average of $1,610 a tonne, LME stocks had risen to 465,000 tonnes, and global IP had fallen to around -0.2 percent year-on-year,'' Bloomsbury Minerals Economics (BME) said. Grupo Mexico's earnings are also held back by Asarco, whose cash costs still exceed profits. Asarco is spending about 80 cents a lb to mine copper, or 5 cents more than the average price of copper in the quarter. The company has been cutting costs and increasing efficiency at the Asarco operations since they were bought, but analysts said more could be done. ``Grupo Mexico have picked the low-lying fruit,'' said Peruzzi, ``But there are still steps they can take.'' The company said in the first quarter that it expects to cut cash costs at Asarco to less than 75 cents a lb by the end of the year. Grupo Mexico's earnings before interest, taxes, depreciation and amortization (EBITDA) are seen coming in at around $115 million to $131 million for the quarter, higher than in the first quarter but below the second quarter of 2000.