Tin Billionaire’s IPhone-Backed Fortune Lifts Bondholders

When Peru’s billionaire Brescia family bought the world’s biggest tin deposit on the eve of the financial crisis in 2008, Apple Inc. (AAPL) was selling 11.6 million iPhones a year. Now it’s selling more than 150 million.

The boom in smartphones, which use tin as solder, combined with a slump in exports from top producer Indonesia is pushing up metal prices and helping the Brescias’ mining company Minsur SA outperform in the bond market. Its debt due 2024 has returned 12 percent since they were sold on Jan. 31, the most among 33 notes of similarly rated mining companies and double the average 6 percent gain.

Six years after buying the Amazon jungle deposit and investing $400 million in its San Rafael mine in Peru, Minsur’s sales have almost doubled as soaring demand for solder used in electronic devices caused shortages of tin. Prices for the metal have risen 4.6 percent this year, compared with copper’s 5.8 percent drop, boosting Minsur’s cash generation and growth outlook, according to Standard & Poor’s.

“The tin market has shown with these prices a robustness that in terms of credit quality makes it relatively better to other metal markets,” Diego Ocampo, an S&P analyst in Buenos Aires, said by telephone. “There are no significant and economically viable projects in the horizon that could significantly increase supply in the short to medium term.”

Indonesia Crackdown

Tin prices have tripled in the past decade as the European Union banned the use of lead in electrical appliances, making the silvery metal the best alternative.

Electronics manufacturers use solder to attach and connect components. The solder points are tiny but omnipresent, numbering about 7,000 in just two of the components in an iPad, according to research company IHS’s iSuppli.

Tin is the second-best-performing metal on the London Metal Exchange so far this year after nickel as Indonesia restricts sales from informal mines.

Indonesia, which accounts for 26 percent of global tin trade, will continue to dictate prices as the ban aimed at stemming environmentally damaging operations on Bangka Island may cause a further drawdown on stockpiles, Bloomberg Industries analyst Kenneth Hoffman said April 9.

China’s Yunnan Tin Co. (000960), the world’s largest producer, predicts prices will surge to $40,000 a metric ton because of shortages and spiraling costs of mining the metal, Chief Executive Officer Gao Wenxiang said in a May 14 presentation in Penang, Malaysia. Tin for delivery in three months closed yesterday at $23,375 a ton in London.

Tiny Blobs

Apple and Samsung Electronics Co. are paying companies like Minsur a premium for tin sourced from mines in Brazil and Peru that comply with stringent environmental standards, Irvin Leon, a credit analyst at Credicorp in Lima said by telephone.

Foxconn Technology Group, Apple’s biggest contractor, uses thousands of tons of the metal melted into tiny blobs used to fix components onto the circuitry boards of iPhones and iPads.

“Apple is obligated in its requirements to use products that have complied with environment and labor standards,” Leon said. “That allows Minsur to sell at a premium over the rest of the market.”

Minsur tapped the debt market in January with a $450 million debut dollar bond issuance. The company is expanding output at its Pitinga tin mine in Brazil’s Amazon Jungle and start a new copper and gold in Peru.

Most Volatile

The company’s BBB- from S&P, the lowest investment grade rating, is based on its high exposure to tin, Ocampo said. Tin has been the most volatile of the metals traded on the LME in the past 12 months. Tin’s change of fortunes may be snubbed out as Myanmar boosts output to 15,000 tons this year, from 11,000 tons, Yunnan’s Gao said.

The Brescia banking and industrial group, founded in the 19th century by immigrant Fortunato Brescia, bought Lima-based Minsur in the 1970s and has become the world’s largest tin producer after Yunnan and Malaysia Smelting Corp.

The global tin shortage should push prices toward $24,000 a ton and as much as $25,000 if there are further mine disruptions, said Cesar Perez, the head of research at BTG Pactual in Santiago.

Minsur, which increased output by 12 percent to 7,551 tons in the first quarter, will start processing previously mined material later this decade at its San Rafael mine, boosting annual output by 6,000 tons.

“These are the only guys that have stable production,” Perez said. “The combination of Pitinga, which is occurring now, and San Rafael in the future, certainly places them as the best in the planet right now.”

To contact the reporter on this story: Matt Craze in Santiago at mcraze@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net Dennis Fitzgerald

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