Grupo Mexico subsidiary takes credit hit

Bond rating house Fitch IBCA has downgraded the credit rating of Grupo Minera Mexico, the major domestic operating subsidiary of Grupo Mexico.

Minera Mexico, which is the direct owner of Grupo’s Cananea and La Caridad operations in Sonora state, had been rated BBB (investment-grade) by Fitch. It was moved to BB, the highest rating for speculative-grade credit. Fitch had earlier put Minera Mexico on a credit watch with negative implications.

Parent Grupo Mexico had used US$250 million cash from Minera Mexico to finance its takeover of U.S.-based copper miner Asarco in 1999. Along with less cash on its balance sheet, Minera Mexico had lower earnings in 2000 and the first half of 2001: earnings before interest, taxes, depreciation and amortization had an interest expense of 1.7 times in 2000 and 1.6 times in the first half of this year.

Continued low copper prices in the second half, coupled with increased energy costs and a rising value for the peso in U.S.-dollar terms, led Fitch to project lower cash flow from operations for Minera Mexico.

The BBB rating indicates only that there is a possiblity of credit risk developing, not that there is an immediate prospect of default. Another ratings agency, Standard & Poor’s, had already put Minera Mexico in its BB class.