How Little-Known Seller of Caterpillar Trucks Dodged Mining Routby and
Ferreycorp benefiting from new-mine construction in Peru
Company's bonds outperform junk bonds, Caterpillar notes
The free fall in commodities is upending demand for the construction and mining machinery made by global behemoth Caterpillar Inc. Yet for a little-known distributor of the company’s products in Peru, things couldn’t be busier.
Lima-based Ferreycorp is in high demand as companies from Freeport McMoRan Inc. to MMG Ltd. stick with plans to ramp up new copper mines in the Andean nation. The mines are part of a construction boom that will push copper output to a record in Peru, the world’s third-biggest producer of the metal.
Ferreycorp’s ability to dodge the industry-wide slump has been a boon to the company’s bond investors. Its $300 million of junk-rated notes have returned 0.8 percent in the past three months, versus an average loss of 7.1 percent for speculative-grade debt globally. Ferreycorp has also fared better than Caterpillar, whose bonds have lost 0.2 percent.
“Peru’s stock of mines is getting bigger every year so the sales of mining equipment are giving the company an important boost,” said Alonso Alcorta, an analyst at MCC Seminario in Lima. “New equipment sales also mean much more maintenance and overhauls in the future. It’s a dynamic that’s serving it well when you consider how badly miners are faring.”
Ferreycorp reported record revenue in the first nine months of 2015, citing higher demand for spare parts and sales of trucks to mines undergoing expansion. Caterpillar has 60 percent market share in Peru for open-pit mining equipment and 70 percent for the building industry, according to Ferreycorp.
Ferreycorp Chief Financial Officer Patricia Gastelumendi didn’t respond to an e-mail seeking comment on the performance of the company’s bond.
Ferreycorp is rated Ba1 by Moody’s Investors Service, one level below investment grade and five steps lower than Caterpillar.
In October, Caterpillar, the world’s largest manufacturer of construction and mining machinery, said its third-quarter profit fell more than analysts forecast as plunging commodity prices dim demand for mining and energy equipment. The Peoria, Illinois-based company said sales to those industries will drop as much as 10 percent in 2016.
Caterpillar’s press office didn’t respond to an e-mailed request for comment on its bonds.
Peru’s copper output will rise 19 percent this year to 1.9 million tons, according to the central bank, as Melbourne-based MMG ramps up what will become one of the world’s biggest mines.
Still, the 50 percent drop in the price of copper since 2012 means there’ll be fewer new mines in Peru going forward, according to Larrain Vial.
Ferreycorp will be able to offset the drop in demand for new-mine construction with strong sales at its most profitable division -- spare parts and maintenance, said Giovana Almendaris, an analyst at Peruvian pension fund Prima, which holds the company’s notes.
“It’s a credit with positive drivers for 2016 relative to other credits such as mining companies, whose credit ratios are deteriorating sharply,” she said by phone from Lima. “Ferreycorp isn’t going to deteriorate.”