Grupo Mexico to merge Asarco, Southern Copper

One of Mexico’s biggest natural resource company’s, Grupo Mexico, wants to unite two of its affiliates to create a behemoth in the copper world.

The company is proposing to merge Asarco and Southern Copper (SCCO-N) to usher in greater efficiency and rationalize its mining division.

The two companies would be brought together under the Americas Mining Corp. banner — which is also a subsidiary of Grupo Mexico — in a deal that would give Southern Copper shareholders 1.24 Americas Mining shares for each Southern share held. The shares of the merged company would then trade in both the U.S. and Peru.

The deal values Asarco at US$5.9 billion and would leave Southern Copper’s minority shareholders with 16.6% of the new company.

Southern Copper has a strong Peruvian focus and boasts the largest copper reserves in the world. It is 80% held by Grupo Mexico.

Asarco is the third-largest copper producer in the U.S., producing roughly 400 million lbs. of copper per year. Both companies are integrated miners with smelting and refining facilities.

Grupo Mexico regained full control of Asarco late last year when it pulled it out of a four-year bankruptcy protection.

By bringing the two mining units together, investors would have a single stock through which to access the conglomerate’s mining division. Grupo also has railroad and oil-drilling units. It is considering doing a separate initial public offering for its rail division.

As for the increased efficiency that Grupo believes the merger would bring, the company says transportation costs and capital investments would be lowered if the two companies were merged.

Word of the proposed merg- er had yet to unleash a positive impact on Southern Copper’s share price as the company was off a percentage point to US$31.72 in New York on July 23. The stock has, however, climbed from US$29.33 on July 16.