Fitch Affirms Ratings of Grupo Mexico & Subsidiaries; Outlook Stable

Business Wire, Dec 19, 2008

CHICAGO -- Fitch Ratings has affirmed Grupo Mexico, S.A. de C.V.'s (Grupo Mexico) Issuer Default Ratings (IDRs), as well as the IDRs and issue ratings of its subsidiaries, as follows:

Grupo Mexico

--Foreign currency IDR at 'BBB-';

--Local currency IDR at 'BBB-'.

Americas Mining Corporation (AMC)

--Foreign currency IDR at 'BBB-'.

Grupo Ferroviario Mexicano, S.A. de C.V. (GFM)

--Foreign currency IDR at 'BBB-';

--Local currency IDR at 'BBB-'.

Southern Copper Corporation (SCC)

--Foreign currency IDR at 'BBB';

--Local currency IDR at 'BBB'.

--Unsecured debt issuances at 'BBB'.

Fitch has also affirmed the ratings of GFM's railroad subsidiary Ferrocarril Mexicano, S.A. de C.V. (Ferromex) as follows:

Ferromex

--National scale at 'AA(mex)'

--Mexican peso-denominated bonds (certificados bursatiles) 'AA(mex)'.

The Rating Outlook for all of the Grupo Mexico corporate entities is Stable.

Grupo Mexico's 'BBB-' ratings reflect the group's position as a leading global copper producer through AMC and its operating subsidiary SCC; its comprehensive railroad network covering approximately 70% of Mexico through its subsidiaries GFM and Ferrosur; and the company's conservative capital structure. As of the last 12 months (LTM) ended Sept. 30, 2008, Grupo Mexico's revenues were US$6.8 billion of which approximately 84% was generated by its mining unit and 16% by its railway division. EBITDA for the same period was US$3.6 billion, of which 90% was due to mining and 10% came from its railroad division.

Grupo Mexico's consolidated debt as of Sept. 30, 2008 was US$1.9 billion, with approximately US$1.3 billion held at the SCC level, US$587 million at GFM and US$42 million at AMC. The consolidated group exhibited a positive net cash position for the same period of US$927 million. Grupo Mexico's total debt to EBITDA ratio of 0.5 times (x) during the LTM ended Sept. 30, 2008, remained unchanged from 2007. Funds from operations (FFO) of US$2.1 billion results in an adjusted FFO leverage of 0.8x, which is low versus its peers.

Factored into the current ratings are risks surrounding unresolved litigation concerning Asarco LLC. Other factors that limit the ratings are: disputes over tracking rights between GFM and its competitors; unresolved anti-trust concerns about a merger of Ferromex and Ferrosur; a prolonged strike at one of the companies' Mexican mines; and a negative outlook for copper prices in the near- to medium-term.

AMC's 'BBB-' ratings reflect the company's position as a holding company with no operating assets but the ability to receive dividends from SCC due to its 76.2% ownership stake in that company. SCC continues to generate strong cash flows from which it paid US$1.4 billion of dividends in the first three quarters of 2008. As of Oct. 31, 2008, debt at the AMC level consists of two notes to Asarco totaling US$42 million.

SCC's 'BBB' IDR and unsecured debt issuance affirmation reflects its position as Grupo Mexico's main operating subsidiary. As of the LTM ended Sept. 30, 2008, SCC had revenues of US$5.7 billion and EBITDA of US$3.3 billion, down from US$6.1 billion and US$3.8 billion respectively in 2007.

The decline in revenues and EBITDA is a result of the decline in copper prices during 2008 and the loss of production at the company's Cananea mine due to a strike. Copper accounted for about 63% of revenues for the LTM ended Sept. 30, 2008, down from 69% in 2007, while molybdenum contributed to 19% of revenues versus 18% in 2007. The remainder of revenues is derived from other by-products of the copper production process such as zinc, silver, gold, lead and sulphuric acid. SCC's total debt as of Sept. 30, 2008 was US$1.3 billion, a reduction from US$1.5 billion at the end of 2007. The company was extremely liquid, holding US$1.2 billion of cash at the end of September 2008. SCC generated US$2.3 billion of FFO during the LTM. With an FFO adjusted leverage ratio of 0.5x and a total debt to EBITDA ratio of 0.4x during the LTM, SCC's leverage is low.

GFM's 'BBB-' credit rating is supported by its strong operational performance. GFM's revenues grew to US$ 1.1 billion during the LTM ended Sept. 30, 2008 from US$988 million in 2007, while its EBITDA climbed to US$348 million from US$309 million. Agricultural cargo accounted for 29% of LTM revenues. The next most important categories were industrial (11%), mineral (10%) and automotive (8%). GFM's debt declined to US$587 million at the end of September 2008 from US$618 million at the end of 2007. The company has a conservative capital structure. At the end of September, GFM's debt to EBITDA ratio was 1.7x and its FFO adjusted leverage ratio was 2.6x.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.