Grupo Mexico doubts full Cananea output

Juan Rebolledo, Grupo Mexico's vice-president for international relations, listens to a question at the Reuters Summit in Mexico City April 1, 2008.

MEXICO CITY (Reuters) - Grupo Mexico's (GMEXICOB.MX) plans to reach full output at its Cananea copper pit by May could be stifled by new blockades as a strike drags on, Mexico's largest copper miner said on Tuesday.

Over the weekend, unionized workers who have been on strike for eight months blocked the entrance to the giant copper mine to prevent the entrance of contract workers who were slowly ramping up production.

The mine reopened in January after a government labor board ruled the strike illegal and the company projected it would be up to significant copper output by next month.

"To say we will be at 100 percent by May, even without the incident on Saturday, may be pushing it," Daniel Muniz, the company's chief financial officer, told the Latin America Investment Summit in Mexico City.

Production of copper cathode last week at Cananea before the blockade was at 100 percent capacity -- some 150 tonnes a day -- and production of copper in concentrate was up to about 45 percent capacity.

But if the some 1,000 contract workers are prevented from entering the mine and the unionized miners remain on strike, it will be difficult to raise production to pre-strike levels.

In 2005, the last year Cananea was not plagued with labor strife, the mine produced 175,000 tonnes of copper cathode and concentrate, Muniz said.

Cananea's production fell by almost half last year to 99,000 tonnes after workers laid down their tools in July over health and safety concerns.

Tight global copper supplies due to shortages caused by labor problems and low inventories have sent prices to record highs in the past couple of years, and Muniz said the trend would continue upward.

RISING PRICES

"In our plans for this year we estimated a price of $3.29 and a long-term price of $1.30," said Muniz, adding that the company's price estimates are always conservative.

"But I think we are unlikely to see a long-term price below $2 because of pressures from high costs," he said. Prices are also likely to rise as growing demand from China outstrips global supply of the red metal.

In the volatile commodities market many large miners are eyeing new acquisitions. Grupo Mexico said it was not closed to the idea of buying new properties, but wants to focus first on exploiting its existing reserves in Mexico and South America.

"We have the reserves," Muniz said. "When it comes to mergers and acquisitions we are in an enviable position."

The company said its Southern Copper (SPC.LM)PCU.N subsidiary was not in talks with potential buyers and had no immediate plans to put itself up for sale, despite speculation in the market that the division was being eyed for takeovers.

"We are always open to analyzing all the options, but we've received no concrete offer," Muniz said. "My feeling is that selling is not an option, the more likely scenario is a merger if the circumstances are right."

(For summit blog: summitnotebook.reuters.com/)

For more on the Reuters Latin America Investment Summit see <ID:nN31419789>

(Editing by Braden Reddall)