Minera Autlán was nationalized in 1989 and reprivatized in 1993, when it was about to disappear. What were the reasons that convinced Grupo Ferrominero to buy?
Grupo Ferrominero was basically put together to buy Minera Autlán. Before buying Grupo Ferrominero I had, and still have, a company named Serfimex (Servicios Financieros Mexicanos). Before Serfimex I used to be a stockbroker. I began buying and selling companies through Serfimex. When we analyzed Autlán, I decided to keep Autlán in my personal portfolio mainly because it was going to be very difficult to reconvert Autlán fast and sell it out. Since I've become involved with Autlán, it has been an excellent profitable experience for me, so I decided to stay with Minera Autlán on a long-term basis.
The truth is that your family has traditionally been involved in businesses other than mining. How would you describe your experience in mining?
Yes, my family hasn't had anything to do with manganese or Minera Autlán in the past. My family was basically involved in textiles and before that, in beer. My great-grandfather was German and was one of the founders of a beer company in Monterrey. I decided to do this myself.
Minera Autlán is a very rich experience. It's an integrated company with its own mine and ferroalloyscompanies. It's a very international company. Actually, our competition is not in Mexico. We are the only manganese mine in North America. In the continent, we only compete with Brazil in manganese ore and manganese alloys. There are little manganese alloys companies in this continent: one in Venezuela, one in the United States, one in Brazil. We compete with Europe, Asia, and Africa. It's a very hard-working competitive business.
In 1994 you started a joint venture with the Australian BHP. Could you tell us more about this experience?
Yes, BHP used to be a great manganese ore and manganese alloys producer. We have our own manganese mine but at the same time we have to operate our manganese with high-grade ore coming from other parts of the wold. We analyzed different options and we chose to join forces with BHP through a long-term basis contract for manganese supplies and technical exchange of experience. As you've come to learn, I didn't have any mining experience, so I chose BHP as my partner because it is a miner and it is a specialist in this business sector. Our joint venture expired in 1998 but BHP decided to sell its manganese shares. They sold it to Billiton and I bought their Grupo Ferrominero shares.
Could you specify about the products you supply your customers with?
What is most consumed by our products are ferroalloys. Silico manganese is our main product. Then we have ferromanganese, high-carbon and medium carbon and other refined products such as low-carbon and extra-low-carbon. That is basically the coal part of our business. We also produce manganese dioxide to sell to the dry-battery producers, the ceramic sector, agriculture for fertilizers and also as food for animals. Those are the manganese by-products.
We have other investments. Some are on their way. We are basically developing real-estate projects: one in Puebla and another in Parras, Coahuila. We are also developing a power plant to produce our own energy in Puebla. We have some mineral research projects. We have a small company listed in the Vancouver stock exchange to raise equity to invest in different projects. This company is owned by the holding company.
What are the reasons behind these diversification steps?
We have a strong dependency on the steel industry, which is cyclical. We are looking forward to be less affected by this cycle. In Autlán, our focus is to lower our costs through investment in the main factors that affect our costs: transportation, energy. But in Grupo Ferrominero we are diversifying ourselves in a totally different scenario. We have a majority ownership of Líneas Aéreas Allegro, we have the largest charter airline in Mexico. We also have a regional airline and we are developing a schedule airline to replace Taesa in the market. We have 15 airplanes. Last year, we moved more than one million passengers from the U.S.A. to Mexico. This year, we expect to move 1.35 million passengers. The diversity in Allegro is a strategy of Grupo Ferrominero.
You claim to be the lowest-cost producer of manganese and ferroalloys in the world. What are Minera Autlán's advantages, being that manganese applications have no satisfactory substitute today?
I believe that in most of our products we are the lowest-cost producer worldwide. That is a big advantage. The advantage we have is that we are an integrated company. We have our own mine and our own alloy plants. It's a balanced company. I don't sell manganese to third parties. I use all my production. We are very close to one of the largest markets in the world, the U.S.A., but we also have a very good Mexican market, where we control more than 90% of the market.
Minera Autlán has the ISO-9001 certification, as well as a Mexican recognition in mining security. What is the philosophy behind those achievements and what is the next step?
We believe that safety is the most important factor in the mining business. Taking care of the people has a priority before making money. We don't risk our people in order to profit. All our employees are safety-conscious and we are always working to prove there is safety in our plants and our mines. The reason for the ISO certification is that we believe we need to do things the right way. This is a culture that has been passed around. Autlán was founded with very deep beliefs and I'd like to keep them and strengthen them in our people. I think our people are very proud of the ISO-14000.
Pollution is a mayor concern. What is your policy in this respect?
We have the policy of complying with all the global requirements. We still have many things to do. The problem we face is to finance these projects. The cost of capital is very expensive in Mexico and lately financing is not available at a reasonable price.
Minera Autlan's markets include Latin America, Europe and Asia. Do you think that your export activity is sufficiently diversified as you'd like it to be?
I would like to have more clients. But we believe that we cover most of the clients around the world. We compete in alloys mainly in Mexico, the United States and Canada, in Central and South America. In manganese dioxide, we compete in Europe and Asia. We are currently not active in the Middle East. Today, our challenge is to find synergies with other producers, because there is enough manganese alloys capacity in the world. We are trying to buy or merge with some of our producers to strengthen our position worldwide.
Your main market is the United States?
Besides Mexico, yes, the United States. After that there is Canada, Central and South America.
Do you expect to benefit from the signature of free trade agreements with Asian countries, such as Japan or Singapore?
We don't foresee great benefits from the free trade agreements with Asia nor with the EU. Ours is a very specialized product so we don't pay high tariffs to export it to other countries because they are not produced in those countries. In manganese dioxide, we are one of three producers worldwide. The biggest benefit we might find are loans of equity coming from Asia or Europe at better rates than those found in the United States. Competing with China is difficult, so I don't see a big market in Asia. We have a good manganese dioxide market. We expect to expand this market. We expect to benefit with the free trade agreement with Asia, if we sign it.
Considering that prices in the international markets are expected to increase in the future and that Minera Autlan has posted positive results in the first trimester of the year 2000. What are your expectations for the near future?
It depends on the economic policy Mexico follows.
We've been hurt from 1998 to 1999 in the exchange
rate. The peso devaluation has been hurting our
company, because Autlán sells 100% in U.S.
dollars, even to Mexican customers. That puts Autlán
in a difficult position in the export market. At
least we won't have that benefit. On the other hand,
the Mexican authorities have been increasing the
cost of energy: electricity and gas. I don't understand
why, because Mexico is rich in gas and petroleum.
We should have an advantage compared with other
countries and we pay more than France, Spain or
Norway. Norway has hydroelectric generators. But
I don't see why energy is cheaper in France than
in Mexico. Australia's energy costs are also cheaper. |
So, from my perspective, prices are going to be much better. If the Mexican government realizes that it has to work together with the private sector, I believe that the expectations for Minera Autlán will be very good.
What made you take the decision to integrate your production through Compañía de Energía Mexicana, GFM Trade in Mexico and GFM Trade Incorporated?
If we are able to survive in a crisis we should have an important benefit during the bonanza, and we expect one. We expect to see much better prices, growth in the steel industry. We have seen the growth that the United States and Mexico have had. I haven't seen the statistics in Europe and Japan, but I believe they have also been growing. I expect to see a better rate. We will benefit from the export companies. In our case we will benefit through an increase in prices.
You used to be a broker so you know your figures. How would you define your company's financial situation and the performance of your shares in the stock exchange?
The performance of shares has been lousy. We faced a very difficult period during '98 and '99, which have been the worst years besides the year I bought the company and that has reflected in the market. We don't have a lot of liquidity in our share. I expect to see higher share prices in the near future. The company has a very strong balance, a very good performance, so they have mainly been affected by the exchange rate. We've been increasing sales volumes in different parts of the world but we have been receiving fewer pesos for the exchange rate. I believe the exchange rate is unreal. I don't see the logic of signing a free trade agreement with Europe and devaluating the peso against the Euro. That places Mexico in a difficult position to export to Europe. And our export margins have been very low in 1999, but this year I'm beginning to see the margins. I believe that what remains of the year and the year to come will show an improvement in our shares.
You have a real-estate development project run by Minera Autlán, but what exactly are you trying to build?
The company owns various plotsand we aretrying to join forces with real-estate specialists to develop the land and sell it.
How did you get involved in the airline business, what are the company's destinations and its expansion plans?
I bought the majority of this airline company in 1996 and we turned it around. At that time the company was selling 50 million dollars. In the year 2000 we expect to sell 135. We moved more than one million passengers from the United States to Mexico. We have 15 airplanes. All our airplanes are stage 3. We fly from 52 U.S. cities to the Caribbean Sea and Mexican Ports, such as Acapulco, Vallarta. It has tremendous growth, it's very profitable. It's the largest charter airline in Mexico. We started replacing Taesa with the Tijuana-Mexico City, Mexico City-Cancún route. We expect to fly to Guadalajara and later to Morelia, Oaxaca, Durango and other states. The growth of our label is very impressive. It basically has no leverage. The airline business grows 10 percent per year.The opportunities for aviation are enormous.
Why would you say Taesa didn't succeed?
My guess is that they had a badmanagement.
Should CINTRA be privatized in one block or in two different blocks?
I believe that CINTRA has more value if they sell it all together. I have seen many people try to buy Aeromexico and not too many people interested in Mexicana. I'd certainly rather see one CINTRA and not two different companies in Mexico.
There are those who are criticizing the sale of the company in one block saying it would create a monopoly in this country. Do you agree?
If they are ruled by the same standards we are, I don't fear to compete with them. The problem is that, because the Mexican government owns them, they have benefits we don't have.
Would you eventually be interested in participating in the bidding process?
With an interested partner, yes.
Minera Autlán claims to be a company engaged in the development of Mexico. What would you like your contribution to the country to be?
First of all, I believe we have a country rich in natural resources and we have to convert those resources in final products and services for the world. I'm quite confident that in Mexico we have the talent and the people. We have to put our house in order but I believe that if the private sector and the government work together, we'll be able to become a very important nation for the world. Minera Autlán has a big commitment with our country and I'd like to believe that we'll be here for many years doing our best to prove to the world that Mexico has a place in the world.
From a macroeconomic level, what are the advantages and drawbacks of the Mexican country?
Mexico is very rich in energy sources, such as petroleum, gas. We should take advantage of the richness Mexico has. It's very rich in minerals. Mexico has many natural resources. Our people have raised their education. We still have a lack of education compared with Europe and developed countries, but I believe our people are very hard workers. We have excellent engineers. In our field, we compare our engineers with the best in the world: Norwegian, German. This doesn't mean we aren't willing to learn from other countries and areas of the world to increase our competitiveness.
You mentioned you are not very happy with the trade agreements that have been signed. The truth is that if we look at the figures, 60 percent of the Mexican GDP comes from foreign trade. Some analysts say that the government should focus on building the domestic market. Do you agree with this statement?
I'm not saying I'm not happy. From Mexico's point of view, I think it's a good thing for our country. In our particular industry, Autlán, I don't see the benefit. We were already exporting and were already a global company before the agreement. The United States, Europe and Asia are not great alloy producers, so I, personally, have not benefited from the treaties. The exchange rate doesn't allow me to compete with Europe's infrastructure. The Mexican government claims we have a better infrastructure, yes we do compared to ten years ago, but not if we compare it to the U.S.A. and Europe. We have lousy ports, roads, railroads, and trucks. We are lacking infrastructure compared with developed countries we signed agreements with. We must realize where our strengths lie, gas should be very cheap in Mexico such as water in Canada. Why are gas and diesel expensive in Mexico if we are petroleum producers? Once our government realizes we must take advantages of our benefits, I'll be happier of competing in the free-trade world.
You must be willing to see some key industries privatized, aren't you?
Currently, saying the word "privatize" is an insult. Just open the markets. You don't have to privatize Pemex or the Comisión Federal de Electricidad, just liberate the market and the prices will decrease. |
Minera Autlán