Industrias Penoles, S.A. de C.V.
Industrias Penoles, S.A. de C.V.
Founded: 1887 as Compañía Minera de Penoles
Sales: 5.75 billion pesos (US$845.6 million) (1995)
Stock Exchanges: Mexico City
SICs: 1021 Copper Ores; 1031 Lead & Zinc Ores; 1041 Gold Ores; 1044 Silver Ores; 1099 Miscellaneous Metal Ores, Not Elsewhere Classified; 2819 Industrial Inorganic Chemicals, Not Elsewhere Classified; 2899 Chemicals & Chemical Preparations, Not Elsewhere Classified; 3339 Primary Smelting & Refining of Nonferrous Metals, Except Copper & Aluminum
Industrias Penoles, S.A. de C.V. is the world’s leading refiner of primary silver. It was mining and refining almost two-thirds of the silver in Mexico, which ranked first among nations in primary silver output, in the mid-1990s. It also was extracting and refining more than 90 percent of Mexico’s lead, about 40 percent of its gold, and about 25 percent of its zinc. Industrias Penoles operates the most important nonferrous metals complex in Latin America, including a lead smelter, electrolytic zinc plant, and lead-silver refinery. The company also produces both inorganic and organic chemicals, including fertilizers.
Founding and Growth to 1945
The Compañía Minera de Penoles was founded in 1887 to exploit the silver-lead mines at Mapimi, in the state of Durango, that had been discovered by the Spanish in 1598. During the late 19th century the Durango-Mapimi Mining Co. of Council Bluffs, Iowa united the principal mines and smelted some 20 tons of ore a day but was unable to make a profit. Operating with capital provided by a Spanish investor, Charles Reidt made a major new strike. The Compania Minera de Penoles was organized in 1887 to exploit this deposit and by 1892 had opened a smelter to treat the ores. Large-scale operations began during 1893-94, when the company introduced electricity and built a railroad to connect the mines and smelter, a task that involved construction of a suspension bridge.
By 1903 Penoles was the largest independent base-metal enterprise in Mexico, producing lead, silver, and arsenic. Its revenues rose from 673,000 pesos (US$336,500) in 1893 to more than four million pesos (US$2 million) in 1899. The profits were immense for Penoles and its backers, Minerales y Metales, S.A. and the German-controlled American Metal Co., for the enterprise yielded dividends of 100,000 pesos (US$50,000) per month on a total capitalization of only 250,000 pesos (US$125,000). With its profits Penoles and its subsidiary, the Mexican Metal Co., bought mines in other areas of northern Mexico and was strong enough to survive the chaos of the 1910-1917 Mexican Revolution.
Minerales y Metales was merged in 1920 into Penoles, which in turn became a wholly owned subsidiary of American Metal in 1923. Using its cash reserves, American Metal had acquired additional properties during the revolution, including smelters in Torreón and Monterrey and their rail connections. Most of the ore treated at these facilities came from the Mapimi area, but these mines were being depleted, and the Mapimi smelter was eventually abandoned. With the end of this supply, the Torreón and Monterrey smelters turned to custom work for other clients. Penoles, however, had many other mining properties by this time, including a silver-lead deposit in Santa Eulalia and coal mines at Agujita, both purchased during the revolution.
Despite mixed results, Penoles retained its ranking in the 1920s as the second largest mining company in Mexico. Ore from Santa Eulalia and Santa Barbara in the state of Chihuahua was shipped to Torreón. The company took over a pyritic copper ore deposit in the state of Guerrero that was difficult to refine and solved the problem, building a 300 ton mill. But the Monterrey smelter had to cast around for business because Penoles’s lead ores in the area were being depleted and ventures in the states of Durango, Guanajuato, Oaxaca, and Zacatecas were unsuccessful. The Torreón smelter was closed in 1932 because of falling lead and silver prices during the Great Depression.
Under Mexican Ownership, 1961-90
Compania Metalurgica de Penoles was formed after World War II to lease the smelting and refining plants of Compañía Minera de Penoles. San Francisco Mines of Mexico Ltd. (37.5 percent owned by American Metal) received the contract to smelt and refine the lead and copper production of both Pertoles companies. The two were merged by 1961, when American Metal (now American Metal Climax, Inc.) sold a 51 percent interest in Metalúrgica Mexicana Penoles, S.A. (Met-Mex Penoles) to the Mexican nationals Raul Bailleres and Jose A. Garcia. The sale was mandated by a law requiring all mining companies in Mexico to be majority owned by Mexicans. Bailleres was a founder of the first mining financial institution, Crédito Minero y Mercantil, S.A., in 1934, and had 15 years’ experience in managing the buying and selling of nearly all the gold, silver, and mercury in the country.
American Metal Climax sold the remaining 49 percent to Bailleres and Garcia in 1965 for about $10 million. Penoles thereby became the first major mining and smelting company in Mexico to be completely Mexican-owned, although Bernard Rohe, an American citizen, remained its chief executive officer until 1983. The company had diversified into industrial chemicals, organizing a subsidiary to produce sodium sulphate in 1963. Penoles became a public company in 1968, when it first offered shares on the Bolsa, Mexico’s stock exchange. Beginning in 1969, it also began borrowing heavily from U.S. banks to finance a massive, eight-year, $500-million, exploration and development program.
By 1977 Industrias Penoles had raised its estimated mineral reserves more than tenfold and had opened enough new silver mines to enable Mexico to pass the Soviet Union as the world’s leading producer of the metal. It was the twelfth largest company in Mexico that year, with sales of 6.89 billion pesos (about US$313 million), compared with only US$92 million in 1972, and income more than three times the US$5 million 1972 level. The company also expanded the scope of its activities by acquiring Refractarios Mexicanos, S.A. de C.V. in 1973.
By 1980 Industrias Penoles was producing gold, silver, lead, zinc, copper, cadmium, bismuth, sodium sulphate, sulphuric acid, magnesium oxide, fluorspar, granular refractories, and refractory bricks. Net sales came to 21.7 billion pesos (US$947.6 million) in 1980, when net income was 1.8 billion pesos (US$78.6 million). This was an exceptionally strong year, for silver prices reached a record $50.35 an ounce. By early 1982 silver had sunk to $4.50 an ounce, and that year an international payments crisis sent the peso into free fall. At first glance, this seemed a recipe for disaster for Penoles, but the company was selling most of its products abroad for dollars and incurring its costs in devalued pesos. Record profits enabled it to reduce its foreign debt of US$208 million in 1983 to US$141 million at the end of 1985. That year it had net sales of US$597.3 million and net profit of US$10.5 million, of which chemical production now accounted for about 40 percent. The company had added barite to its product mix during this period.
By 1986 Penoles’s position was strong enough to consider new acquisitions. That year it bought out Bethlehem Steel’s 40 percent share of its Met-Mex Penoles metals processing subsidiary. The company remained a majority partner in mining ventures with AMAX (the former American Metal Climax) and two other companies. Its other joint ventures included one with the Finnish firm Outokumpu in zinc mining and with A.P. Green Refractories to manufacture refractory materials with its magnesium oxide production. Outside of Mexico, Penoles had a sodium sulphate joint venture in Spain, a refractories plant in Argentina, an acquisition in France from Vielle Montaign, large acquisitions in Japan, and trading companies in New York City and Sao Paulo, Brazil. Alberto Bailleres, the company chairman, held 20 percent of its stock in 1987.
Penoles in the 1990s
Net sales reached two trillion pesos (US$663 million) in 1991, and net profit was 129.6 billion pesos (US$42.9 million). A joint venture with U.S. Cyprus Minerals Corp. and a venture capital affiliate of the giant financial services firm Banamex was established in 1990 for one of the richest ore deposits in Mexico—about 8.5 million metric tons of minable reserves, principally zinc, silver, and lead. During 1993 Penoles increased its stake in this joint venture, Minera Bismark, S.A., to 90 percent by acquiring Cyprus’s 40 percent holding. It assumed full ownership of the enterprise in 1995. Penoles withdrew from the manufacture of refractories in 1994 by selling properties, including its share in the joint venture with Green, to subsidiaries of the U.S. company Indresco, Inc. for US$75 million. This sector of its business accounted for US$71 million in sales the previous year.
In 1994 Penoles started gold mining operations in Durango through a subsidiary, Minera Mexicana La Ciénega, and opened a mine producing zinc and silver in the state of Mexico, in participation with a Japanese firm, through 51 percent owned Minera Tizapa. In 1995 it opened a lead and zinc mine named La Negra in the state of Queretaro through Minera Cápela, a wholly owned subsidiary. Also in 1995, Penoles incorporated subsidiaries in Peru and Argentina to explore and exploit mining concessions.
Because it was selling a high percentage of its goods abroad, Penoles remained profitable despite the economic crisis that gripped Mexico following the devaluation of the peso in December 1994. Net sales dropped, in dollar terms, from 3.73 billion pesos in 1994 (US$1.07 billion) to 5.75 billion pesos (US$845.6 million). Net income, however, rose from 28.8 million pesos (US$8.2 million) to 1.01 billion pesos (US$148.5 million). Export sales represented 60 percent of the 1995 total, with the United States accounting for 62 percent of export sales and Japan for 16 percent. The long-term debt fell from 2.09 billion pesos (US$597 million) to 1.86 billion pesos (US$273.5 million). Alberto Bailleres remained chairman of the board. In addition to his holdings in Penoles, Bailleres controlled the insurer Grupo Nacional Provincial and had an estimated net worth of US$1.8 billion in mid-1996.
During 1996 Industrias Penoles announced it would invest $70 million in a new silver-rich mining project in the state of Zacatecas, with the start-up date scheduled sometime in 1998. This mine had proven reserves of 23.2 million metric tons— mostly silver ore, with some zinc, lead, and copper. Also in 1996, Industrias Penoles agreed to pay $160 million to take full control of the Rosario companies, primarily producing silver, gold, lead, and zinc, from its joint venture partner Alumax Inc. This company had been spun off from AM AX in 1993, when AMAX was acquired by Cyprus Minerals, which then became Cyprus AMAX Minerals Co.
Penoles purchased a 51 percent share in Peru’s largest metallurgical complex, state-owned La Oroya, in 1997 for $194 million. The complex, consisting of smelters and refineries to produce copper, lead, and zinc, plus some gold and silver, from ores, was expected to add nearly $500 million to the company’s revenues and just under $50 million in operating income. Its chief liability was that La Oroya was one of the most environmentally damaged mining sites in Peru. Also in 1997, a consortium composed of Industrias Penoles and Grupo Acerero del Norte purchased, for $23 million, a 25-year operating concession on the previously government-owned, 442 mile Coahuila-Durango railway line.
Industrias Penoles in 1996
The heart of Industrias Penoles was Met-Mex Penoles, which operated the Torreón complex. This subsidiary of Metales Penoles accounted for 72 percent of its 1994 revenues. It was seven percent owned by U.S. interests. Also important was Compañía Fresnillo, a 60 percent owned subsidiary of Minas Penoles producing lead, zinc, and other metal concentrates. The other 40 percent was U.S. owned. Fresnillo’s revenues came to 20 percent of the parent company’s total in 1994. Another subsidiary of Minas Penoles was Compania Minera Las Torres. Founded in 1966, it had 45 percent U.S.-Canadian participation in 1985, but this fell to 14 percent in 1995. Las Torres’s revenues came to five percent of the parent company’s in 1994. Silver accounted for some 35 percent of Industrias Penoles’s revenues in the mid-1990s. Lead and zinc accounted for another 31 percent, and gold accounted for 13 percent.
In the mid-1990s Minas Penoles, the company’s mining group, was producing, through six operating companies, gold, silver, lead, zinc, copper, and tungsten. Metales Penoles, the Metals Group, was operating, through Met-Mex Penoles, the Torreon complex, which consisted of a lead smelter, zinc plant, lead-silver refinery, two sulfuric acid plants, and cadmium, bismuth, ammonium sulphate, antimonium trioxide, cadmium oxide, and liquid sulphur dioxide plants. Through Quimicos Industriales Penoles, its Chemicals Division, the company operated four companies in the inorganic chemicals area, producing magnesium oxide and sodium sulphate from brines; magnesium oxide from sea water and chemical lime; and other chemical products, such as fertilizers, some of which were obtained using raw materials from Met-Mex.
Corporativo Penoles, S.A. de C.V.; Metales Penoles, S.A. de C.V.; Minas Penoles, S.A. de C.V.; Química Magna, S.A. de C.V.; Quimicos Industriales Penoles, S.A. de C.V.; Servicios Industriales Penoles, S.A. de C.V.; Termimar S.A. de C.V.
“Alumax Selling Rosario Stake,” American Metal Market, May 29, 1996, p. 2.
“American Metal Climax Sells Its 49% Interest in Penoles of Mexico,” Wall Street Journal, July 22, 1965, p. 8.
Bernstein, Marvin D., The Mexican Mining Industry, 1890-1950, Albany: State University of New York, 1964, pp. 39, 67-68, 119-120, 141, 146, 173.
Dorfman, John R., “If Any Stock Can Be Said to Have Silver Lining, This Mexican Mining Concern Just Could Be It,” Wall Street Journal, March 3, 1992, p. C2.
“Industrias Penoles Finds a Silver Lining in the Plight of the Peso,” Business Week, November 28, 1983, p. 76.
“Industrias Penoles: Mining Mexican Silver with U.S. Money,” Business Week, August 21, 1978, pp. 110-112.
“Mexican Comparison,” Mining Journal, December 22, 1995, p. 487.
“Mexico’s Industrial Groups,” Business Latin America, April 27, 1987, p. 132.
“Penoles Gains a Foothold in Peru,” El Fianciero International Edition, May 5-11, 1997, p. 17.
Scrutton, Alistair, “Penoles Wins Peruvian Mining Bid,” Financial Times, April 22, 1997, p. 33.
Smith, Arthur, “Prospecting by Penoles Expected to Yield Rich Silver Find in Mexico,” American Metal Market, April 13, 1976, pp. 1, 13.