Billionaire Slim Digs for Gold in Mexico as Metal's Price Gains
Mexican billionaire Carlos Slim. Photographer: Daniel Acker/Bloomberg
Billionaire Carlos Slim is digging for gold in Mexico, taking advantage of bullion prices that touched a record last month while awaiting a broader economic rebound.
Slim’s mining outfit Grupo Frisco, a division of holding company Grupo Carso SAB, plans to open more mines this year and acquired one this month after ramping up gold production more than ninefold in 2009. That increase helped boost Carso’s profits as gold spot prices leaped 24 percent for the year.
Slim, who has been in the mining business for more than two decades, is leaning on commodities for growth as Carso’s other units await improvements in Mexican construction and consumer spending.
The mining division’s sales rose 58 percent last year to 4.5 billion pesos ($351.8 million), a larger increase than the companywide gains at any of Slim’s publicly traded holdings except the financial services business, Grupo Financiero Inbursa SAB. Mexico’s economy shrank 6.5 percent in the same period.
“His portfolio is set up so he can shift to a sector that’s performing well cyclically,” said Gaspar Quijano, an analyst at Vector Casa de Bolsa in Mexico City. “It’s all part of diversification.”
While Carso always looks for attractive mining projects, it’s not currently in talks for purchases, said an executive with Grupo Condumex, the unit that includes Frisco mining. The company doesn’t disclose its production targets, said the executive, who declined to be named, citing company policy.
World’s Wealthiest
Slim, 70, has been in mining for almost 24 years, since the December 1986 purchase of Frisco, according to his website. That was before his 1990 takeover of Telefonos de Mexico SAB in a government privatization sale and his move this year to the top of Forbes magazine’s ranking of the world’s wealthiest individuals.
Carso’s larger divisions include a retail group, which operates the Sanborns department-store chain and Sears and Saks locations in Mexico, and units that make auto parts and cables for phone networks.
Slim has a 79 percent stake in Carso, which makes up about $6.52 billion of his $56 billion in holdings of publicly traded companies, according to Bloomberg data. Carso has climbed about 14 percent this year in Mexico City trading, making it the third-best performer of the six publicly traded Mexican companies that Slim controls.
Developing Economies
Investing in commodities such as minerals and oil will yield growth because people in developing nations are gaining economic power and will be in a position to purchase more products made from those materials, Slim said at a summit of business leaders last month in New York.
“As hundreds of millions move from poverty, from auto- consumption, to the new society, they are demanding goods,” Slim said at the June 23 event. “Primary production is very important.”
While Grupo Frisco trails rivals including Goldcorp Inc. and Fresnillo Plc in gold production, the Carso unit is growing. After two years of declines, the company mined 97,492 ounces of gold in 2009, compared with 10,496 ounces in 2008.
The company’s projects in development include the San Felipe and Concheno mines, which Carso estimated in April would be able to produce a combined 68,000 daily tons of ore containing gold and silver.
Carso’s Acquisitions
Carso bought the El Porvenir gold-mining project in Aguascalientes, Mexico, for $25 million from Goldgroup Mining Inc., the Vancouver-based company said July 12. Goldgroup said last year that it expected Porvenir to yield as much as 50,000 ounces of gold a year.
The mining business helped Carso weather Mexico’s worst economic slump since the 1930s. The company’s overall revenue rose less than 1 percent last year to 66 billion pesos ($5.15 billion). The purchase of a real-estate portfolio from another Slim company helped the retail unit’s sales climb 4 percent in that period while revenue from the division that makes auto parts and construction materials slid 24 percent.
While increases in gold and silver prices helped Carso in 2009, the company decreased its output of copper even as the base metal’s price was climbing.
Gold, which peaked in 2009 at a spot price of $1,226.56 an ounce, was considered a safe haven for investors concerned that their assets would lose value in the global economic crisis. Copper benefited from inventory shortages and expectations that demand for construction materials would rise, said Rodrigo Heredia, an analyst at Ixe Grupo Financiero in Mexico City.
It’s difficult for any company to time the market for price shifts, since mines take years to develop and exploit, Heredia said.
Precious Metal Prices
Gold and silver spot prices have extended their gains this year, with bullion touching a record $1,265.30 an ounce on June 21, and silver climbing more than 8 percent through yesterday, as copper prices dropped. While Frisco is shifting to more gold and silver production, gains in any of the metal prices help Slim, and declines hurt, since Carso produces all types of metals.
While such prices last, the mining business will be good, the Condumex executive said.
Frisco’s gold mines may be less profitable than competitors because its production is spread out, Heredia said. Slim’s largest-producing mines last year were in three Mexican states: Zacatecas, Chihuahua and Aguascalientes.
Gold production last year at the La Herradura mine alone, in which Fresnillo holds a 56 percent stake, was about 259,000 ounces, more than double the output at all of Frisco’s mines, according to Fresnillo data. Frisco’s operating profit across all mines and metals was 42 percent of sales in the same period, trailing Fresnillo’s 50 percent margin.
“As long as you have bigger production in your mines, your profitability margins are bigger,” Heredia said. With bigger mines, companies don’t have to spread equipment across several locations to get the same production volume, he said. For Related News and Information: Grupo Carso events: GCARSOA1 MM <Equity> EVT <GO> Stories on Mexican mining: TNI MNG MEX <GO> Stories on Carso: GCARSOA1 MM <Equity> CN <GO> Mexican stock market news: MEXBOL <Index> CN <GO> Fresnillo financial statements: FRES LN <Equity> FA <GO> Grupo Carso segments: GCARSOA1 MM <Equity> PGEO <GO>
To contact the reporter on this story: Crayton Harrison in Mexico City at tharrison5@bloomberg.net
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