UPDATE 3-Grupo Mexico plans to unite Southern Copper, Asarco

Fri Jul 23, 2010 5:33pm EDT

* Grupo Mexico to combine Asarco with Southern Copper

* Asarco valued at almost $6 billion

* Company says combining assets to create savings (New throughout, adds byline)

By Michael O'Boyle

MEXICO CITY, July 23 (Reuters) - Mexico's Grupo Mexico (GMEXICOB.MX) said on Friday it planned to combine its Arizona-based miner Asarco with its Latin American mining operation to cut costs, after pulling the U.S. miner out of bankruptcy last year.

Combining Asarco with Southern Copper (SCCO.N) (SPC.LM) would increase savings between the two units and give Southern Copper shareholders exposure to Asarco's growth potential, Grupo Mexico said in a regulatory filing. Grupo Mexico owns all of Asarco and 80 percent of Southern Copper.

"We believe a combination of Southern Copper and Asarco under common ownership would provide important synergies, including cost reductions in operations and transportation," Grupo Mexico said.

The plan assigns a $6 billion value to Asarco.

Santander analyst Victoria Santaella wrote in a note to clients that Southern Copper's minority shareholders may not benefit from combining Asarco and Southern Copper, one of the world's biggest copper producers.

"We believe that this is negative for Southern Copper's stockholders ... as the price of the transaction is very high, and the combination dilutes the good assets of Southern Copper with Asarco's mediocre assets," Santaella wrote.

Grupo Mexico paid more than $2.5 billion to regain control of Asarco last year after the company, which Grupo Mexico originally acquired in 1999, went bankrupt due to environmental claims.

Under the plan, Southern Copper shareholders would trade in their stock for shares in Americas Mining Corporation (AMC), a Grupo Mexico subsidiary controlling Asarco.

After the merger, Southern Copper's minority shareholders would have a 17-percent stake in AMC and the rest would be owned by Grupo Mexico.

Packaging Asarco with Grupo Mexico's other mining assets in a publicly listed company sheds the first light on the value of Asarco after its bankruptcy saga, analysts said.

Santander's Santaella said she valued Asarco at around $3.4 billion.

Mexico City-based Ixe brokerage analyst Rodrigo Heredia put Asarco's value at about $5 billion.

Asarco produces around 350 million to 400 million pounds of copper a year.

Shares of Southern Copper ended 0.66 percent higher at $32.26 in New York.

Grupo Mexico (GMEXICOB.MX) shares rose 3.73 percent to end at 33.62 pesos on the Mexican exchange.

Grupo Mexico is also considering spinning off its railroad unit in an initial pubic offering next year. ($1 = 12.73 pesos) (Additional reporting by Jason Lange and Cyntia Barrera Diaz)