Latin American iron ore, copper miners in better shape than global peers--Fitch

Fitch Ratings suggests the Latin America Metals and Mining Industry is well-positioned for a stable 2010.

RENO, NV - 

Fitch Ratings says Latin America's metals and mining industry is faring better than their international peers in weathering the global downturn and have benefitted by domestic market demand.

In a recent analysis, Fitch analysts said, "As a whole the metals and mining companies in Latin America exhibit solid capital structure and low cash costs of operations, enabling them to remain cash generative during troughs in the cycle."

"In addition, many of these companies have comfortable liquidity positions due to their strong cash balances and manageable debt amortization schedules," the analysts noted, adding Brazilian metals and mining companies stand out in particular amongst their regional peers.

China is the largest end customer for the vast majority of Latin American mining companies.  Demand for iron ore this year was predominately led by China with the expectation of continuing and increasing during 2010. Brazil's Vale, the biggest iron ore miner in the world with a market share of 30.2% of the seaborne market, generated 17.4% of its gross revenues last year in China with this share expected to expand in 2010.

Fitch analysts said the outlook for Latin American copper producers next year is stable.  "Copper producers have responded to the current economic environment by cutting production and delaying expansion activities. "

"Given supply constraints on copper," Fitch said, "a return of demand in Europe and the U.S., along with continued demand from China...could lead to a quick rebound to levels seen during mid-2008 of above USD3.50 per pound."

Supporting long-term Latin American copper fundaments are the long-life reserves found across the region, Fitch analysts said. "Vis-à-vis their global piers, the copper companies in Latin American have some of the lowest cost structures in the world due to high ore grades and the presence of byproducts such as molybdenum, gold, silver, zinc and lead."

However, Fitch analysts consider the outlook for base metals to be mixed. While prices for nickel and aluminum have rebounded from their lows, the analysts assert they will not approach their highs during 2010 due to more subdued demand.

Despite the strong showing of iron ore and copper markets as well as precious metals, Fitch warns the Latin American mining industry faces challenges in the next year which include the risk of low prices and continuing labor strikes, "as seen at SCC's Cananea mine in Mexico and Codelco's Chuquicamata mine in Chile."

"For the Americas Mining Corporation (AMC)...there is also the possibility of future strike action from its recently reintegrated Asarco subsidiary, based in Arizona USA," they advised.

Nevertheless, Fitch suggested the principal consumers of base metals-- global construction, automotive and capital goods industries-should reach a level of demand in 2010 above that of 2009 "as the contraction phase of this unprecedented cycle begins to end."

"Absent high merger and acquisition activity, it is expected that ratings actions will be minimal during 2010 and that leverage levels will begin to return to pre-crisis levels," the analysts concluded. "The recovery should be driven by an improvement in the economic climate of the region."

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