Asarco pursues diversification but focus will remain on metals

The following was excerpted from a speech by Richard de J. Osborne, chairman of Asarco (NYSE), at the copper producer’s recent annual meeting in New York City, regarding Asarco’s development into an integrated mining company: While buying and selling assets for short-term trading profits is popular in the investment community these days, these assets and the resource base we have established in the U.S. in recent years are of enormous long-term value. They are scarce and could not easily be replaced. That point differentiates us from many other businesses, and we think it is a perspective that may be useful in understanding Asarco’s strategy.

We have also recently acquired a greater stake in the specialty chemicals business. We have been nurturing this business through our Enthone subsidiary for the past 30 years. In 1988, we acquired OMI International for US$100 million. This acquisition brought access to technologies and international markets which we previously lacked. In 1989, we acquired Imasa, a former Enthone licensee in Europe, for US$18 million. . .

In 1988, we made two small acquisitions in the minerals business, broadening the position we have held for nearly 20 years in the eastern Tennessee construction aggregates market. In the first quarter of this year, we acquired two small ready-mix concrete operations to enhance our newly established market position in middle Tennessee. We are trying to develop this business further, but find prices being asked and paid for properties higher than our estimates of their value. We will continue to seek investments in this business segment, but only at what we consider to be reasonable prices.

We have also begun the development of an environmental services segment to our business. We think there is real potential in this field, if we can identify and exploit a market which matches our capabilities. We acquired Hydrometrics in 1988. This is a small but very successful hydrogeological consulting business. We are trying to develop a commercial business at Biotrace in Salt Lake City, which capitalizes on our historic capabilities in biological monitoring. This has been an important part of our internal health and safety program for many years.

And finally, we have retrofitted and licensed our former Corpus Christi zinc plant as a hazardous waste treatment and recycling facility. We are currently marketing this service with encouraging results. It is too early to pronounce the effort a success or failure, but we are encouraged by our progress so far.

So, Asarco today is a vastly different company than it was only a few years ago. As unlikely as it may have seemed at the time, the economic rigors of the mid-1980s created opportunities that have enabled us to transform Asarco from a predominately custom smelting and refining company to a major integrated mining company. We have also begun the process of developing several other businesses, which I have just reviewed, and which we think have significant future potential.

As we look forward to the decade ahead, our strategy will be first and foremost to continue our growth in the metals business. We will spend about US$250 million in 1990 and about US$200 million in 1991 improving, modernizing and expanding our current metals mining and processing business. We expect our copper mine production to grow by 45% over 1989 rates by 1992, and lead mine production to grow by 23%.

In the near term, at least, we plan to make only small niche acquisitions in specialty chemicals, and to concentrate most of our efforts on developing and improving the business we now have. We will continue to seek economically sound acquisitions in the minerals business and will concentrate our energies in the waste treatment business on proving the market for our waste treatment and recycling activities at Corpus Christi.

We would like to establish a more significant position in gold, but at the price/earnings multiples now being paid, gold properties cannot be bought on reasonable economic terms. We have, however, increased our exploration budget by 40% in 1990 and are spending over 70% of that US$12.5 million budget on gold exploration. Asarco Australia is spending virtually all of its US$25-million exploration budget on gold.

The focus of our attention has been and will continue to be the building of shareholder value. In doing so, we have tried to maintain a balance between current and long- term shareholder return. We now have the reserve base to support the production growth we are developing. That will further increase the earnings capacity of the company.

We are, of course, dependent on the metals market cycle for our quarter to quarter results, but over that cycle, Asarco should earn a good return . . .