INFORME ANUAL GRUPO MÉXICO 02

ANNUAL REPORT 2011

grupo México s.a.b. de c.v. EFFICIENCY

edificio parque reforma

campos elíseos 400

col. lomas de chapultepec

c.p. 11000 méxico, d.f.

tel.: 52 (55) 1103 5000 

www.gmexico.com
02 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 03

HIGHLIGHTS 02

LETTER TO INVESTORS 05

GRUPO MÉXICO SALES FIGURES 12

MINING DIVISION 18

GEOGRAPHIC MINE LOCATION 20 

COPPER 22

MOLYBDENUM 28

ZINC 30

PRECIOUS METALS 32

PROJECTS AND INVESTMENTS 40

EXPLORATIONS 48

HEALTH AND SAFETY 56

ENVIRONMENTAL ACTIONS AND OUR COMMUNITIES 58

SUCCESS STORY “CANANEA” 66

TRANSPORTATION DIVISION 72

GEOGRAPHIC LOCATION OF THE PRINCIPAL ROUTES 75

FERROSUR 78

INTERMODAL 79

PACÍFICO TRANSPORTATION LTD 80

ITM 81

INFRASTRUCTURE DIVISION 84

GEOGRAPHIC LOCATION OF THE INFRASTRUCTURE DIVISION 87 

GRUPO MÉXICO FOUNDATION 96

FINANCIAL ANALYSIS AND DISCUSSION 104

CORPORATE STRUCTURE 127

BOARD OF DIRECTORS 134 

Jaime Espino. Truck trainer. Buenavista del Cobre, Sonora.
02 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 03

Real Var. %

2008 2009 2010* 2011* 2011 / 2010

Sales Volumes **

Copper (tons) 505,540 514,946 701,708 790,103 13 

Zinc (tons) 100,318 104,103 93,964 90,663 (4)

Silver (thousands of ounces) 15,000 18,474 19,584 17,411 (11)

Gold (ounces) 47,229 63,491 69,690 60,748 (13)

Molybdenum (tons) 16,510 18,590 20,508 18,632 (9)

Average Prices (dollars)

Copper (COMEX) (pound) 3.13 2.35 3.43 4.01 17 

Zinc (LME) (pound) 0.85 0.75 0.98 0.99 1 

Silver (COMEX) (pound) 14.97 14.67 20.18 35.18 74 

Gold (LF) (pound) 871.71 972.98 1,224.66 1,568.58 28 

Molybdenum (MW DEALER OXIDE) (pound) 28.42 10.91 15.61 15.33 (2)

Railroad Division Statistics

Net tons/km (millions of tons) 40,186 39,205 52,117 52,182 (-)

Cars loaded (thousands of units) 730.2 688.0 1,078.2 1,140.3 6 

Balance Sheet (millions of dollars)

Current Assets 3,068 4,405 6,003 5,566 (7)

Fixed Assets 4,862 6,655 7,370 7,862 7 

Total Assets 8,788 12,462 14,598 15,201 4 

Bank Debt 1,688 3,418 4,096 3,801 (7)

Total Liabilities 3,160 5,888 7,113 6,464 (9)

Total Equity Capital 5,628 6,574 7,485 8,737 17 

Earnings (millions of dollars)

Total Sales 6,033 4,827 8,338 10,443 25 

Cost of Sales 2,958 2,574 4,226 5,105 21 

Taxes Assessed 891 544 964 1,408 46

Operating Profit plus Depreciation 2,904 2,115 3,921 5,193 32 

Net Profit 1,076 888 1,627 2,472 52 

Cash Flow (millions of dollars)

From Operations 2,096 1,394 3,072 2,946 (4)

Dividends paid (1,344) (199) (793) (1,464) 85

Taxes Paid 983 640 907 1,538 70

Applied to Financing Activities (854) 1,166 452 (489) (208) 

Total Cash Flow (102) 2,361 2,731 993 (64)

Allocated to Investments (804) (2,980) (916) (1,779) 94

Cash flow after investments (906) (619) 1,815 (786) (143)

GRUPO MÉXICO

Highlights

Real Var. %

2008 2009 2010* 2011* 2011 / 2010

Stock Information ***

Total Shares Outstanding (thousands) 7,610,000 7,785,000 7,785,000 7,785,000 -

EBITDA per Share 0.37 0.27 0.50 0.67 34

Cash Flow per Share 0.24 0.21 0.35 0.45 29

Earnings per Share 0.14 0.11 0.21 0.32 52

Book Value 0.55 0.65 0.77 0.93 21

Financial Ratios

Operating Margin 41% 35% 41% 44% 7

Operating Margin plus Depreciation 48% 44% 47% 50% 6

Current Assets to Current Liabilities (times) 2.8 2.7 2.8 3.5 25

Total Liabilities to Total Assets 36% 47% 49% 43% (12)

Debt/Capital+Debt 23% 34% 35% 30% (14)

EBITDA/Interests (times) 17.56 15.84 12.22 17.56 44 

Employees 18,928 23,002 25,891 26,989 4

Annual Inflation

Mexico 7% 4% 4% 4% -

United States 0% 3% 1% 3% 200

Peru 7% 0% 2% 5% 150

Exchange Rate at Year End

Mexico (peso/dollar) 13.54 13.06 12.36 13.98 13

Peru (sol/dollar) 3.14 2.89 2.81 2.70 (4)

Average Exchange Rate

Mexico (peso/dollar) 11.14 13.51 12.64 12.43 (2)

Peru (sol/dollar) 2.93 3.01 2.83 2.75 (3)

Expressed according to US GAAP

* Proforma financial statements, including Ferrosur.

** Throughout this report all tons are metric and all ounces are troy.

***Referring to 7,785,000,000 shares.
ANNUAL REPORT GRUPO MÉXICO 05

Despite the economic adversity and uncertainty that haunted economic and political 

processes around the world, 2011 was a very positive year for Grupo México. For 

Grupo México investors, 2011 was a year that saw record breaking sales of US$10.443 

billion (a 25% increase), operating cash flow (EBITDA) of US$5.192 billion (32% 

higher), and net earnings of US$2.439 billion (a 52% increase). Overall, this year 

could be considered the best in the Company’s history.

Nothing about this positive outcome has been easy. The economic data did not reflect 

the fundamental realities of copper production and demand, subjecting prices to 

volatility. This situation led us to experience copper prices above US$4.50 per pound, 

then a few months later, below US$3.20 per pound. However, on average, copper prices 

were US$4.01 per pound. Copper prices were influenced more by global economic 

uncertainty, deficit concerns among some European countries, and unemployment 

in the US than by the fundamental aspects of supply and demand, which even today 

remain solid and sustain average copper prices. Despite this environment, our efforts 

made in production and in mitigating the pace at which costs are rising explain, in 

large part, the excellent results reported by the Company’s Mining Division.

In light of the above, we were able to invest a record amount in our Companies 

of US$1.217 billion, almost double the investment made in 2010 and more than 

half the net profit for the year. Of this, US$715 million was invested in the Mining 

Division; US$355 million in the Transportation Division, double the figure for 2010, 

and US$147 million in the Infrastructure Division. In addition, the Company paid 

out US$1.464 billion in dividends, an 85% increase over 2010. Over the past 5 

years, Grupo México has reinforced its commitment to its shareholders by paying 

out US$5.235 billion in dividends.

LETTER TO INVESTORS

Haulage Truck. Buenavista del Cobre, Sonora.
06 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 07

The Mining Division represented 83% of total Company sales, with our mines in 

Mexico contributing 42%, those in Peru 36%, and those in the United States 22% 

to this figure. The Transportation Division contributed 16% and the Infrastructure 

Division the remainder.

Copper production by our Mining Division, represented by Americas Mining 

Corporation, increased 12.3% over 2010 to reach nearly 800,000 tons. The principal 

reason was the return of the Buenavista del Cobre mine in Cananea, Sonora to full 

operation. As a result, production of anodes, cathodes, and copper rod increased 

benefiting sales with a higher premium. In 2011, the Company purchased over 70,000 

tons of copper from third parties to stabilize the refineries in Peru, the United States, 

and in Mexico. Zinc and silver production was slightly lower than that for 2010, due 

to flooding at the Santa Eulalia mine. The Mining Division reported sales of over 

US$8.655 billion, despite the drop in prices in the second half of the year. Costs 

have risen in parallel to increased energy consumption, materials, and equipment, 

and also increased taxes. Despite these cost pressures, Grupo México maintained its 

position as a global leader in low cost copper production (excluding byproducts) the 

cost of copper in 2011 was US$0.74 per pound.

At Grupo México, we know there is little we can do about metals prices, which are set 

by the international market. However, the Company can do more to streamline and 

modernize its operations, to keep cost increases low and above all, during the good 

years, maintain a high level of investment so as to generate more production and 

better identify our reserves. To this effect, US$1.746 billion will be invested in this 

Division in 2012.

The most significant projects for the Mining Division in the near future are: the expansion of Buenavista del Cobre to increase production in the next 4 years from the 

current 180,000 tons to 488,000 tons of copper content. The expansion of Toquepala 

and Cuajone, which jointly will generate an additional 125,000 tons in the next 3 to 4 

years. The completion of these and other projects means that by 2017, Grupo México 

will be producing over 1.4 million metric tons of copper. The new Tia Maria project 

in Peru is awaiting a new decision from the Peruvian government on the environmental impact assessment, which now considers the UN’s comments and additional 

requests made by the Peruvian government.

Our Transportation Division, represented by Infraestructura y Transportes México 

(ITM) increased its sales 14%, to reach a record US$1.626 billion. EBITDA for ITM 

increased 6.2% to US$465 million, in spite of an 11% hike in fuel prices and various 

phenomena that affected industry, such as the tsunami in Japan, which had an effect 

on the automotive sector, the effects of hurricanes and constant trouble on certain 

routes involving criminal activity and undocumented migrants. We are developing a 

plan for collaboration with the federal and local authorities and investing in technology and security for freight transportation. The intermodal segment has maintained 

its growth pace transporting over 250,000 containers, a 15% increase over 2010. For 

2012, we expect faster freight transportation times due to investment in improving the 

lines and sidings and the purchase of 58 new locomotives.

The Transportation Division operates over 10,000 kilometers of track, twice that of 

our principal competitor, with 40% more locomotives, and nearly 5 times more cars 
08 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 09

for transporting freight. The challenge of modernizing our lines, some dating back to 

the late 1800s, is great. We are now on a mission to meet this challenge seeing it as a 

mechanism to compensate rising costs, increase speed, and improve transportation 

times, and to maintain our railroad Company as the most competitive in the country. 

We have an investment budget of US$231 million for this Division in 2012. 

For the Transportation Division, the acquisition of locomotives and significant 

disbursements to improve or modernize the rail lines will lead to better freight 

transportation times, greater volumes, and increased sales for the Company. The 

Company now has 770 modern and efficient locomotives. 

The completion of the Grijalva River deviation tunnels was a major event for our 

Infrastructure Division. The Tunnels are now in operation helping to prevent flooding 

in Tabasco, optimizing the use of the area’s hydroelectric power generating system. 

This was a highly complex and difficult project because of the geological factors in 

the region. Also in 2011, we were awarded a concession to construct and operate 

the highway between Leon and Salamanca in Mexico, which our Construction 

Company (México Constructora Industrial and México Compañía Constructora) will 

be responsible for, representing an investment of nearly US$400 million. In addition, 

Compañía Perforadora México purchased two twin Jack Up Friede & Goldman 

Super M2 ocean platforms to drill for hydrocarbons in shallow waters for the state 

Company PEMEX. Both platforms are equipped with the latest technology and built in 

the United Arab Emirates. This purchase represents an investment of approximately 

US$370 million. Also noteworthy is the construction of two self-supply 250 megawatt 

combined cycle power plants in the state of Sonora, representing an investment of 

US$540 million. The first plant is on schedule to start operations during the fourth 

quarter of 2013, the second in mid-2014. We have an investment budget of US$636 

million for the Infrastructure Division in 2012.

Grupo México and its companies hold total debt of US$3.800 billion, 7% less than 

the debt reported in 2010. As the Company holds a consolidated cash balance of 

US$2.230 billion at December 2011, Grupo México’s net debt is US$1.570 billion. 

In terms of the EBITDA generated in 2011, the Company’s leverage is 0.75x, one of 

the lowest in the industry. The debt profile has no significant maturities until 2020 

at which time US$400 million will be due. Grupo México is a company with a solid 

capital structure, which allows it to take advantage of growth opportunities that 

generate value for its shareholders.

Standard and Poor’s upgraded its ratings for Grupo México, Americas Mining Corporation, Southern Copper Corporation, and Minera México from BBB- to BBB. In 

the middle of a wave of uncertainty in terms of country and Company debt, this is 

particularly good news. Also, Grupo México was selected by the Mexican Stock Exchange (BMV) to be included in their first index of “Sustainable Companies”; Minera 

México, SCC mining Company in Mexico, was recognized by the Mexican Confederation of Industrial Chambers (CONCAMIN) for its corporate ethics and values, for 

the second consecutive year the Company received “ESR” distinction as a Socially 

Responsible Company. It has required constant and intense efforts for Grupo México 

and its companies to continue to meet the most demanding international standards.
10 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 11

The Company also met its social, environmental, and community support responsibilities. The initiatives undertaken and results of this work by each company in the 

Group and Fundación Grupo México are detailed in our 2011 Sustainable Development Report, while this report mentions just some of our outstanding social and environmental projects this year. The first of these is the decisive action to change the 

relationship the Company has with the city of Cananea, with its new union, and with 

the local community. This change is based on a long range program that touches 

the most important fibers of the city: health, with the construction of a new second 

level hospital; urban infrastructure, with paving and support for the repair of the 

clean water network; entertainment, with the construction of a full service shopping 

center, sports, and also a new hotel. A total of US$30 million has been spent on the 

project this year.

This great effort, carried out primarily in 2011, is deserving of the recognition it 

has received in Sonora and throughout the country. In June, Buenavista del Cobre 

received the “Premio a la Filantropía Sonora” (Sonora Philanthropy Award) in the 

businesses category.

In Peru, livestock and farming technification projects continue to be developed 

and put into action with producers in the regions where we operate. The Huaytire 

comprehensive development program in the province of Candarave includes 

improvements in education, health, nutrition, and livestock productive development. 

A Nutrition Program was started in this same province to help in changing behaviors 

in terms of health and eating habits in the community.

In the Transportation Division, the Tarahumara and Mayo indigenous communities 

in the states of Chihuahua and Sinaloa, respectively, were benefited by the railroads 

with free passenger and cargo service to their communities. Free passage was also 

given to representatives of the church serving these communities providing, among 

others, healthcare services and helping special needs children.

Despite market uncertainties, 2011 was a very encouraging year for Grupo México’s 

investors. Everyone that works for the companies of Grupo México has contributed 

to presenting our investors with a good report and, even more importantly, a more 

attractive outlook for 2012 and for years to come.

GERMÁN LARREA MOTA VELASCO

Chairman of the Board
12 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 13

01.GRUPO MÉXICO SALES FIGURES

SALES

RECORD HIGH RESULTS

$10.443

BILLION IN SALES, A NEW RECORD

GRUPO MÉXICO SALES INCREASED 25% 

OVER LAST YEAR

CONSISTENCY

Oscar Rodríguez Rodríguez

Copper Rod Sales Manager. Corporate Offices, Mexico.
14 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 15

US$10.443

GRUPO MÉXICO SALES FIGURES

BILLION

IN CONSOLIDATED SALES FOR 

GRUPO MÉXICO, A NEW RECORD.

BILLION PAID IN TAXES BY 

GRUPO MÉXICO IN 2011

Copper maintained good prices during the first half of the year, but as was 

the case for most commodities, prices fell during the second half of the year 

due to low expectations for demand, principally because of the effect of the 

European debt crisis, and also lower outlooks for global economic growth.

Despite this environment, Grupo México’s consolidated net sales for 2011 

reached a record high of US$10.443 billion, a 25% increase over the 

US$8.338 reported for 2010.

This increase is attributed to greater production by Buenavista del Cobre, 

improved copper, silver, and zinc prices, and also the 14% growth in sales 

reported by the Transportation Division, due to increased revenue mainly 

from the energy, minerals, and intermodal segments.

The cost of sales was US$5.105 billion, a 21% increase over 2010, due 

mainly to mine maintenance, increased energy and diesel costs, and higher 

rights of track usage expenses for the railroad.

7,078

6,033

4,827

8,338

10,443

07 08 09 10 11

12000

6000

0

TOTAL SALES

(MILLIONS OF DOLLARS)

Sales

Product Volume in tons Thousands of dollars

2010 2011 Var.% 2010 2011 Var.%

Copper 701,708 790,103 13 5,270,932 6,888,007 31 

Zinc 93,964 90,663 (4) 212,408 209,993 (1)

Silver (thousands of ounces) 19,584 17,411 (11) 384,896 605,798 57 

Molybdenum 20,508 18,632 (9) 683,351 544,040 (20)

Gold (ounces) 69,690 60,748 (13) 83,431 95,706 15 

Lead 21,775 16,225 (25) 46,979 44,114 (6)

Sulfuric Acid 1,462,001 1,887,525 29 78,551 193,706 147 

Infrastructure Services and others 150,319 235,516 57 

Railroad Transportation 1,078.2 1,140.3 6 * 1,427,408 1,626,012 14 

 

Total Sales 8,338,275 10,442,892 25 

* (Cars loaded thousands of units) 

Panoramic view of Buenavista del Cobre, Sonora.

US$1.408
16 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 17

China’s demand for copper is expected to continue to be 

relatively strong due to the investments needed in the power, 

household appliance, automotive, telecommunications, and 

housing sectors. The lower inflation in China could result in a 

more relaxed monetary policy, which would make more credit 

available and, consequently, increase demand for copper.

The Transportation Division reported a 14% growth in sales 

to reach US$1.626 billion. For Ferromex, the figure for freight 

transported is significant: 45 million tons, 0.6% below 

2010. Ferrosur posted a new record for freight transported, 

growing 5.1% to 7.2 million tons. A 14% increase in the 

number of cars loaded for Ferromex and 10.4% for Ferrosur, 

shows us that the broadness of the operations continues to 

be very dynamic.

Costs for the Transportation Division increased 18% from a 

little over US$950 million to more than US$1.118 billion. This 

is largely due to higher fuel prices and greater volumes of diesel 

used vis-à-vis the increase in number of tons transported. 

Ferromex increased its diesel consumption from 87 million 

liters to 92.2 million liters. All things considered, Ferromex’s 

sales were 12.2% higher than in 2010 ($1.311 billion compared 

to $1.168 billion in 2010). Ferrosur also increased its sales 

compared to 2010, by 16.1%.

Mexico Compañía Constructora completed work in 2011 for 

more than US$111 million and is expected to develop projects 

in 2012 for over US$300 million, in the construction of both 

highways and Grupo México industrial plants in Sonora.

Meanwhile, Compañía Perforadora México closed 2011 with 

sales of US$112.6 million, EBITDA of US$27.0 million, and a 

net profit of US$14.7 million. Sales increased 59% this year, 

compared to 2010, mainly as a result of the contract awarded 

to the Company for the Sonora Platform in March 2011 and the 

significant improvement in the productivity of the land operation 

for the Tertiary Oil Gulf Project.

SALES SHARE BY PRODUCT 2011

1

2

3

4

5

6

7 8

1. Copper 66%

2. Zinc 2%

3. Transportation 16%

4. Gold 1%

5. Silver 6%

6. Sulfuric Acid 2%

7. Molybdenum 5%

8. Others 2%

SALES SHARE BY REGION 2011

1

2

3 4

5

1. Mexico 29%

2. Europe 13%

3. Asia 7%

4. Latin America 14%

5. United States 37%

SALES SHARE BY REGION 2010

1

2

3 4

5

1. Mexico 27%

2. Europe 13%

3. Asia 7%

4. Latin America 18%

5. United States 35%

SALES SHARE BY PRODUCT 2010 

1

2

3

4

5

6

7

8

1. Copper 63%

2. Zinc 3%

3. Transportation 17%

4. Gold 1%

5. Silver 5%

6. Sulfuric Acid 1%

7. Molybdenum 8%

8. Others 2%

Perforadora México. Poza Rica, Veracruz.
18 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 19

MINING DIVISION

WORLD CLASS MINES

DEDICATION US$8.655

BILLION IN SALES FOR THE MINING DIVISION, A RECORD HIGH

COPPER ACCOUNTED FOR 80% 

OF GRUPO MÉXICO SALES 

02.MINING DIVISION - AMERICAS MINING CORPORATION

Dulce Gálvez

Truck Operator. Buenavista del Cobre, Sonora.
20 GRUPO MÉXICO ANNUAL REPORT

GEOGRAPHIC MINE LOCATION

LEGEND

MINES

PLANTS

CORPORATE OFFICES

OFFICES

EXPLORATIONS

BUENAVISTA

PILARES

BUENAVISTA DEL COBRE

EL ARCO

san luis potosÍ

ANGANGUEO MEXICO, CITY

ray

HAYDEN MISSION

AGUA PRIETA

AMARILLO

LA CARIDAD

SANTA

EULALIA NUEVA ROSITA

SANTA

BÁRBARA

SAN MARTÍN

charcas

TAXCO

Chalchiuites

PHOENIX

SILVER BELL

TANTAHUATAY

LOS CHANCAS

LIMA

TÍA MARÍA

ILO

CATANAVE

CUAJONE

TOQUEPALA

CHAUCHA

20 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 21 SMELTERS, REFINERIES

& OTHER PLANTS:

ILO 

Copper Smelter

Sulfuric Acid Plant

Copper Electrolyte Refinery

Precious Metals Plant

TOQUEPALA

Copper SX/EW Plant

asarco

MINES:

Mission, Arizona: 

Gold, Silver, Copper & Molybdenum Silver Bell, Arizona

Copper Ray, Ari

zona

Gold, Silver & Copper SMELTERS, REFINERY 

& OTHER PLANTS:

Hayden, Arizona

Copper and Sulfuric Acid Smelter

Ray, Arizona

Copper SX/EW Plant

Amarillo, Texas

Copper Refinery, Precious Metals

Nickel, Selenium, Tellurium

Copper Rod Plant

Cake Plant

PRINCIPAL EXPLORATION 

OR DEVELOPMENT PROJECTS:

El Arco, Baja California 

Copper & Gold

Anguangueo, Michoacán

Gold, Silver, Lead, Zinc & Copper 

Buenavista,Sonora

Silver, Copper, Zinc & Molybdenum 

Chalchihuites,Zacatecas

Silver, Copper & Zinc

Pilares, Sonora

Copper, Gold & Silver Los Chancas, Apurimac

Copper, Molybdenum & Gold

Catanave, Arica

Silver & Gold

Chaucha,Guayaquil

Copper & Molybdenum

MINES:

 

MEXICANA DE COBRE La Caridad, Sonora

Copper, Molybdenum, Gold & Silver

BUENAVISTA DEL COBRE

Cananea, Sonora

Copper, Gold & Silver

INDUSTRIAL MINERA MÉXICO 

Charcas, San Luis Potosí

Silver, Copper, Lead & Zinc San Martín, Zacatecas

Silver, Lead, Zinc & Copper Santa Eulalia, Chihuahua

Silver, Lead & Zinc Santa Bárbara, Chihuahua

Gold, Silver, Copper, Lead & Zinc Taxco, Guerrero

Gold, Silver, Lead & Zinc

Nueva Rosita, Coahuila

Coal & coke

 Minera México

Grupo mÉxico

GEOGRAPHIC MINE LOCATIONSMELTER

S, REFINERIES

& OTHER PLANTS:

MEXICANA DE COBRE La Caridad, Sonora

Copper Smelter

Copper Electrolyte Refinery

Copper SX/EW Plant

Sulfuric Acid Plant

Copper Rod Plant

Precious Metals, Selenium, 

Tellurium Plant

Agua Prieta, Sonora

Lime Plant

BUENAVISTA DEL COBRE

Cananea, Sonora 

Copper SX/EW Plants

INDUSTRIAL MINERA MÉXICO San Luis Potosí, San Luis Potosí

Sulfuric Acid Plant

Zinc Electrolyte Refinery, Cadmium

Nueva Rosita, Coahuila 

Coke Plant

SPCC

MINES:

CUAJONE

Copper, Silver, Molybdenum & Gold

TOQUEPALA

Copper, Silver, Molybdenum & Gold
22 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 23

The Mining Division of Grupo México is represented by its subsidiary 

Americas Mining Corporation (“AMC”), whose principal subsidiaries are 

Southern Copper Corporation (“SCC”) in Mexico and Peru, and Asarco 

in the United States. The sum of both companies hold the world’s largest 

copper reserves. SCC trades on the New York and Lima stock exchanges. Its 

stockholders, directly or through subsidiaries, are: GMéxico (80.9%) and 

other stockholders (19.1%). The Company has mines, metallurgic plants, 

and exploration projects in Peru, Mexico, the United States, Argentina, Chile, 

and Ecuador. Asarco was reincorporated into Grupo México on December 

9, 2009 and operates three mines, a smelter, and copper cathode and ore 

processing plants in Arizona, copper and precious metals refineries, and 

also a copper rod plant in Texas. 

COPPER

Copper accounted for 80% of the Mining Division’s sales in 2011. Despite 

variances in copper prices, due to global economic uncertainty, the metal 

achieved an average price of US$4.01 per pound, 17% higher than the 2010 

average of US$3.43. Grupo México sales improved considerably thanks to 

prices and increased production in 2011.

MINING DIVISION

BILLION

IN SALES FOR THE MINING 

DIVISION IN 2011.

80%

OF THE MINING DIVISION’S

SALES WERE COPPER

464.1 496.6 512.5

588.7

712.0

07 08 09 10 11

800

600

400

200

0

SMELTED COPPER

(THOUSANDS OF TONS)

Copper Prices and Inventories

322.17

237.0

313.36

386.0

235.42

509.0

342.51

557.0

07 08 09 10 11

400.00

300.00

200.00

100.00

0.00

600.0

500.0

400.0

300.0

200.0

100.0

0.00

480.50

540.0

COMEX N.Y. Inventories + LME London

COMEX N.Y. Prices

Dollar cents / pound

Thousands of Metric Tons

445.7 459.2 451.4

638.9

774.3

07 08 09 10 11

800

600

400

200

0

Refined Copper

(Refineries + SX/EWs)

(thousands of tons)

Refineries 351.7 389.0 387.2 498.6 593.1

SX/EWs 94.0 70.2 64.2 140.3 181.2

592.2

488.9 496

688

772.6

07 08 09 10 11

800

600

400

200

0

Primary mined copper

(Concentrators + SX/EWs)

(thousands of tons)

Concentrators 498.2 418.7 431.8 547.7 591.4

SX/EWs 94.0 70.2 64.2 140.3 181.2

US$8.655
24 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 25

Consolidated copper production was 772,562 tons in 2011, which represents 

a 12.3% increase over the 687,980 tons produced in 2010. This increase was 

principally the result of the restart of production at Buenavista del Cobre, which 

has been operating at full capacity since April. Cathode and rod production at the 

Company’s facilities in La Caridad, Mexico; Ilo, Peru; and in Hayden, Arizona and 

Amarillo, Texas reported similar increases.

Smelter production in 2011 was 712,000 tons, while refineries produced 774,300 tons. 

There are 71.5 million tons of copper reserves, equal to 69 years of mine life.

Cash Cost

The operating cash cost per pound of copper, excluding byproducts was US$1.81, 

compared to US$1.63 per pound in 2010. The operating cash cost per pound of 

copper, net of byproducts, was US$0.74 per pound this year, positioning the Company 

as a global industry leader in efficiency and low cost.

PRIMARY MINED COPPER PRODUCTION AND RESERVES 2011

...

Production Reserves

Ore Copper Ore Copper

 Processed Content Content Grade Years in operation

thousands of tons Millions of tons % 

Mexico

Concentrator:

La Caridad 33,201 89.8 4,302.1 9.51 0.22 130 

Buenavista del Cobre 22,444 110.2 5,256.1 22.55 0.43 234 

Underground Mines 2,831 5.5 47.5 0.23 0.49 4 a 16 

Subtotal 58,476 205.5 9,605.7 32.29 

SX/EWs:

La Caridad 32,333 23.9 223.4 0.46 0.21 7 

Buenavista del Cobre 47,399 62.3 2,658.8 4.34 0.16 56 

Subtotal 79,732 86.2 2,882.2 4.80 

Peru

Concentrator: 

Cuajone 28,946 140.1 2,354.6 11.21 0.48 81 

Toquepala 21,497 120.4 3,377.9 15.98 0.47 157 

Subtotal 50,443 260.5 5,732.5 27.19 

SX/EWs: * 

Cuajone 3,096 - 15.1 0.07 0.48 5 

Toquepala 47,142 35.3 1,641.7 1.90 0.12 35 

Subtotal 50,238 35.3 1,656.8 1.97

United States

Concentrator:

Mission 14,547 66.0 303.4 1.28 0.42 21 

Ray 15,422 59.4 540.2 2.88 0.53 35 

Subtotal 29,969 125.4 843.6 4.16 

SX/EWs:

Ray 27,506 38.5 211.8 0.57 0.27 8 

Silver Bell 7,852 21.2 162.5 0.50 0.31 21 

Subtotal 35,358 59.7 374.3 1.07 

Total Concentrators 138,888 591.4 16,181.8 63.64 

Total SX/EWs 165,328 181.2 4,913.3 7.84 

Total 304,216 772.6 21,095.1 71.48 

* Solutions with leached copper from Cuajone are sent to the SX/EW Plant at Toquepala

** Reserves are valued at US$2.97 per pound of copper, except for Asarco, which are valued at US$1.80

Copper rod plant. Mexicana de Cobre, Sonora.
26 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 27

SMELTED COPPER PRODUCTION 2011

Thousands of tons

Mexico

La Caridad 231.7 

Peru

Ilo 337.8 

United States

Hayden 142.5 

Total 712.0 

REFINED COPPER PRODUCTION 2011

Thousands of tons

Mexico

La Caridad Refinery 186.9 

SX/EWs 86.2 

Subtotal 273.1 

Peru

Ilo Refinery 261.0 

SX/EWs 35.3 

Subtotal 296.3 

United States

Amarillo Refinery 145.2 

SX/EWs 59.7 

Subtotal 204.9 

Total 774.3 

SEMI-MANUFACTURED COPPER PRODUCTION 2011

Thousands of tons

Wire Rod

Mexico

La Caridad 107.9 

United States

Amarillo 174.6 

Total 282.5 

Cake

United States

Amarillo 10.7 

Total 293.2 

Production of copper cathodes or plates.
28 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 29

Average molybdenum prices saw a slight drop in 2011 to US$15.33 from 

US$15.61 in 2010, representing a 1.8% decrease.

Molybdenum sales were US$544 million in 2011, a decrease of 20.4% year 

over year. Molybdenum production was 9.5% lower, due to lower ore grades 

at our Peruvian mines.

Sales translated into ton volume were 18,632 tons compared to the 20,508 

tons sold in 2010.

Molybdenum reserves at La Caridad, Toquepala, and Cuajone are 10.035 

billion tons of ore, with an average grade of 0.024% and equal to 69 years 

of mine life at the current rate of production.

MOLYBDENUM

MOLYBDENUM MINING PRODUCTION AND RESERVES 2011

Ore Molybdenum Ore Reserves 

Production Processed Content

millions of Grade

Thousands of tons tons %

Mines

Mexico

La Caridad 33,201 10.4 4,302.1 0.028 

Peru

Toquepala 21,497 5.4 3,377.9 0.024 

Cuajone 28,946 2.8 2,354.6 0.017 

Subtotal 50,443 8.2 5,732.5 

Total 83,644 18.6 10,034.6 

16.2 16.4

18.7

20.5

18.6

07 08 09 10 11

20

15

10

5

0

PRIMARY MINED MOLYBDENUM

(THOUSANDS OF TONS)

Molybdenum Prices

29.91 28.42

10.91

15.61

07 08 09 10 11

30.00

25.00

20.00

15.00

0.00

15.33

MW Dealer Oxide Prices

dollars/pound

Panoramic view of La Caridad, Sonora.
30 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 31

Zinc sales in 2011 were US$209.9 million, which compared to the 

US$212.4 million sold in 2010, were 1.2% lower.

The ton volume sold was 4% under that for 2010 and also production of 

metallic zinc was 4.4% lower than the previous year at 90,900 tons, due 

mainly to the lack of production at the Santa Eulalia mine, which is still 

being cleared after suffering flooding in 2010. Operations are expected to 

restart in the second quarter of 2012.

Zinc reserves total 47.5 million tons with an average grade of 2.77%, 

considering the following mines: Charcas, Santa Bárbara, San Martín, and 

Santa Eulalia, equal to 17 years.

ZINC

PRIMARY MINED ZINC PRODUCTION AND RESERVES 2011

 Ore Zinc Ore Reserves

 Production Processed Content

Millions of Grade Years in 

Thousands of tons Tons % Operation

Mines

Mexico

Charcas 1,123.6 52.7 4.5 4.44 4 

Santa Bárbara 1,552.9 31.1 24.7 2.60 16 

San Martín - - 16.4 2.13 28 

Santa Eulalia 154.2 - 1.9 6.47 12 

Total 2,830.7 83.8 47.5 

REFINED ZINC PRODUCTION

Thousands of tons

Refineries

Mexico

San Luis Potosí 90.9 

121.0

106.9

110.4

99.2

83.8

07 08 09 10 11

140

100

60

20

0

PRIMARY MINED ZINC

(THOUSANDS OF TONS)

90.8

95.4 98.7 95.1

90.9

07 08 09 10 11

100

75

50

25

0

REFINED ZINC

(THOUSANDS OF TONS)

Zinc Prices and Inventories

147.07

89.0

85.4

254.0

75.08

391.0

98.01

701.0

07 08 09 10 11

160.00

120.00

80.00

40.00

0.00

1.000.0

800.0

600.0

400.0

200.0

0.00

99.49

824.0

LME London Inventories

 LME London Prices

Dollar cents / pound

Thousands of Metric Tons
32 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 33

PRECIOUS METALS

Silver

Silver sales increased from US$384.9 million in 2010 to US$605.8 million 

this year, representing a 57% increase. This was a great year for silver with 

average prices of US$35.18 per ounce, a 74.3% increase over the previous 

year, when prices were US$20.18 per ounce.

The reduced production of primary mined silver (4.6%) is attributed to 

flooding at the Santa Eulalia mine in Chihuahua.

Refined silver production increased from 13.17 to 15.85 million ounces, 

representing a 20% increase over 2010.

57%

increase

in silver sales over 2010

US$1,568.6

per ounce, the average

price for gold in 2011, 

28.1% higher.

15.2

12.3

13.3

15.2

14.5

07 08 09 10 11

16

12

8

4

0

PRIMARY MINED SILVER

(MILLIONS OF OUNCES)

6.2

7.4

10.0

13.2

15.8

07 08 09 10 11

16

12

8

4

0

REFINED SILVER

(MILLIONS OF OUNCES)

Panoramic view of the Santa Bárbara mine, Chihuahua.
34 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 35

Gold

2011 was a good year for gold as prices for this metal increased 28.1% 

compared to 2010 to an average US$1,568.58 per ounce.

Primary mined gold production was 36,111 ounces, a 110% increase over 

2010. Refined gold production increased to 62,038 ounces, which was 

lower than that for 2010 due to a decrease in purchases of byproducts 

containing gold.

Sales increased 15% to US$95.7 million this year due to higher gold prices.

The mines that produce gold are: La Caridad, Buenavista del Cobre, Charcas, 

Santa Bárbara, Santa Eulalia, Toquepala, and Cuajone.

There are currently 16.182 billion tons in reserves for both these metals.

Silver Prices and Inventories

07 08 09 10 11

40.00

30.00

20.00

10.00

0.00

140.0

120.0

100.0

80.0

60.0

0.0

134.0 128.0

118.0

105.0

117.0

COMEX N.Y. Inventories

COMEX N.Y. Prices

Dollars/Ounces

Millions of Troy Ounces

13.39 14.97 14.67

20.18

35.18

Gold Prices and Inventories

696.66

7,365.0

8,535.0

871.71 972.98

9,007.0

1,224.66

11,592.0

07 08 09 10 11

2,000.00

1,500.00

1,000.00

500.00

0.00

12,000.0

10,000.0

8,000.0

6,000.0

4,000.0

0.00

1,568.58

11,393.0

COMEX N.Y. Inventories 

LONDON CLOSING Prices 

Dollars/Ounce

Thousands of Troy Ounces

22.6

14.9 15.1

17.2

36.1

07 08 09 10 11

40

30

20

10

0

PRIMARY MINED GOLD

(THOUSANDS OF OUNCES)

27.0 26.3

41.6

65.4

62.0

07 08 09 10 11

70

50

30

10

0

REFINED GOLD

(THOUSANDS OF OUNCES)

Production of silver ingots at La Caridad, Sonora.
36 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 37

SILVER AND GOLD MINE PRODUCTION AND RESERVES 2011

Content Silver Ore 

ounces Reserves

Production Millions of Grade

Gold Silver Tons grs/ton

Mines

Concentrates:

Mexico

La Caridad 6,833 1,775,528 4,302.1 3.1 

Buenavista del Cobre 15,367 1,464,300 5,256.1 3.1 

Underground Mines 6,286 5,866,321 47.5 93.0 

Subtotal 28,486 9,106,149 9,605.7 

Peru

Toquepala 2,808 1,707,066 3,377.9 4.9 

Cuajone 4,817 1,917,520 2,354.6 5.0 

Subtotal 7,625 3,624,586 5,732.5 

United States 

Mission - 1,301,836 303.4 5.3 

Ray - 448,229 540.2 1.5 

Subtotal - 1,750,065 843.6 

Total 36,111 14,480,800 16,181.8 

SMELTER PRODUCTION OF SILVER AND GOLD 2011

Ounces

Gold Silver

La Caridad 43,079 8,827,841 

Ilo 14,479 4,646,454 

Hayden 12,927 3,731,548 

Total 70,485 17,205,843 

REFINERY PRODUCTION OF SILVER AND GOLD 2011

Ounces

Gold Silver

Refineries

La Caridad 32,024 6,913,428 

San Luis Potosí 2,082 2,524,358 

Ilo 11,674 3,152,236 

Amarillo 16,258 3,258,882 

Total 62,038 15,848,904 
38 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 39

Mine Production Summary*

Distribution 2011

Tons 2011 2010 2009 ** 2008 2007

Copper Concentrates 2,369,759 2,093,685 1,683,646 1,643,178 1,918,281 

Copper Content in Concentrates 591,329 547,692 431,772 418,726 498,207 

Copper Content SX/EWs (Cathodic) 181,233 140,288 64,249 70,203 93,975 

Total Mine Copper Content 772,562 687,980 496,021 488,929 592,182 

Smelter Copper Content 712,015 588,701 512,493 496,595 464,110 

Refinery Copper 593,026 498,640 387,187 389,070 351,740 

Refined Copper (Refineries + SX/EWs) 774,259 638,928 451,436 459,273 445,715 

Refined copper made into Wire Rod 282,492 247,825 62,852 76,283 96,607 

Refined copper made into Cake 10,747 9,643 491 - - 

Zinc Concentrates 151,493 179,826 199,083 194,035 222,762 

Zinc Content in Concentrates 83,807 99,194 110,430 106,920 121,013 

Refinery Zinc 90,869 95,072 98,688 95,420 90,766 

Lead Concentrates 34,719 36,514 40,406 38,312 39,130 

Lead Content in Concentrates 18,817 20,240 22,492 20,445 19,382 

Gold Content in Concentrates (ounces) 36,111 17,204 15,073 14,948 22,602 

Refinery Gold (ounces) 62,038 65,392 41,552 26,323 26,995 

Silver Content in Concentrates (ounces) 14,481 15,242 13,326 12,316 15,229 

Refinery Silver (ounces) 15,849 13,173 10,010 7,357 6,197 

Molybdenum Content in Concentrates 18,570 20,519 18,687 16,390 16,208 

Coal 238,504 240,538 238,209 296,814 97,446 

Coke 84,428 72,933 72,016 70,317 63,455 

Sulfuric Acid 2,538,040 2,039,729 1,761,682 1,698,905 1,610,717 

Cadmium 628 602 609 647 634 

Arsenic Trioxide - - - - 653 

Lime 130,862 96,520 63,360 86,379 102,754 

* Figures in metric tons except where indicated

** Includes Asarco production December 10-31, 2009.

ANNUAL REPORT GRUPO MÉXICO 39

Production of zinc ingots at the Zinc Electrolyte Plant, San Luis Potosi.
40 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 41

PROJECTS & INVESTMENTS

CONSTANT GROWTH

 US $2.613

BILLION IN TOTAL INVESTMENT EXPECTED IN 2012 

US$1.746 BILLION WILL BE INVESTED 

IN THE MINING DIVISION IN 2012

PLANNING

03.PROJECTS AND INVESTMENTS

Ing. James Stewart

General Supervisor. Ray, Arizona.
42 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 43

PROJECTS AND INVESTMENTS

We are committed to the ongoing growth of our Company. In 2012 we 

will continue with our investment plan, budgeting US$1.746 billion for 

investments in the Mining Division. US$1.507 billion has been allocated 

for Southern Copper and US$239 million for Asarco, which includes 

approximately US$1.045 billion for our investment program in Mexico. 

These investments are part of our five year capital expenditure plan, which 

will increase production of copper, molybdenum, gold, and silver.

PROJECTS

SX/EW III plant at Buenavista

After obtaining the necessary environmental permits, construction of the 

plant is underway. All the equipment originally purchased for the Tia Maria project will be used for this SX/EW III plant. This project will increase 

the annual SX/EW plant capacity from 88,000 to 120,000 tons. The new 

plant is expected to start operations in the second half of 2013. The project has a total budget cost of US$444 million.

Crusher and conveyor system at Buenavista

Associated with the SX/EW III project, we are also building a Quebalix facility at Buenavista. This investment consists of a crusher, conveyor, and 

spreading system that will improve SX/EW copper production 

by increasing recovery and reducing the time required to extract 

copper from mineral. The project reports 88% completion and 

this facility is expected to start operations in the third quarter of 

2012. The project has a total budgeted cost of US$70 million, 

with US$48.7 million expended through December 31, 2011.

Molybdenum plant at Buenavista

The first of Buenavista’s two molybdenum plants (2,000 ton 

annual capacity) is in the equipment purchasing stage, under 

an engineering, procurement, construction, and management 

contract. Environmental permits will be obtained shortly and 

we expect to start construction in the first quarter of 2012, with 

production beginning in the second quarter of 2013. The project 

has a total budget cost of US$38.2 million, with US$1.2 million 

expended through December 31, 2011.

New Concentrator at Buenavista

Work continues on the new Buenavista concentrator, with a 

milling capacity of 100,000 tons per day. The basic and detailed engineering are moving forward as scheduled and we 

have received the environmental permits necessary. We are 

US$1.217

BILLION

IN TOTAL CAPITAL 

EXPENDITURES IN 2011

THE 5 YEAR INVESTMENT 

PLAN WILL INCREASE COPPER

PRODUCTION TO 1.4 MILLION 

TONS, MAKING US THE WORLD’S 

THIRD LARGEST PRODUCER.

Construction of the Quebalix Plant at Buenavista del Cobre, Sonora.

MILLION IN CAPITAL

EXPENDITURES IN THE 

MINING DIVISION ALONE

US$715
44 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 45

evaluating several supplier proposals for the main equipment 

and purchase orders for crushers, primary and secondary ball 

mills, and motors have been placed. The new concentrator will 

have an estimated annual production capacity of 188,000 tons 

of copper and is expected to start operations in 2015. The total 

budget cost of this project is US$1.384 billion. As part of this 

new concentrator, a second molybdenum plant will add 2,600 

tons to the previously mentioned capacity. 

The required infrastructure for these projects, including power, 

water, roads, shops, laboratories, townsites, etc., is considered 

in the master plan. A preliminary study has been delivered and 

we are working to have these projects aligned.

Pilares

The Board of Directors approved the continuation of the viability studies and the purchase of land for the development of the 

Pilares mine and the expansion of the concentrator at La Caridad. In 2008, we acquired 100% ownership of Pilares, with the 

intention of operating it as an open pit facility.

for the project was presented to the Ministry of Energy and Mines (MINEM) in July 

2011. As part of the approval process for the EIA, a public hearing was held in 

September 2011. We are awaiting the necessary approvals to move forward with the 

project. Project completion is scheduled for the first quarter of 2014.

Cuajone concentrator expansion

Through December 31, 2011, we have invested US$80.2 million in the Cuajone 

expansion project. As a first stage of the expansion plans, the project includes 

a variable cutoff grade methodology that will increase copper and molybdenum 

production. When finished, the project is expected to increase annual copper 

production by 22,000 tons. The completion of the project is scheduled for third 

quarter of 2012.

Tailings disposal at Quebrada Honda

This project will increase the height of the existing Quebrada Honda dam to impound 

future tailings from the Toquepala and Cuajone mills and will extend the expected 

life of this tailings facility by 25 years. The first stage of the tailings disposal project 

has been completed and the construction of the drainage system for the lateral dam 

started in June 2010, has also been finished. 

Panoramic view of Buenavista del Cobre, Sonora.

Angangueo

The Board of Directors also approved an expenditure of 

US$131 million for the development of the Angangueo mine. 

This site in Michoacan, Mexico, is a polymetallic deposit 

with an annual production potential of 36,000 tons of copper 

concentrate, 4.5 million ounces of silver, and 41,000 tons of 

zinc. In 2012, we expect to start the underground development 

and the construction of a 2,000 tons per day concentrator. 

The project is scheduled to begin production in the second 

half of 2014.

Toquepala concentrator expansion

Through December 31, 2011, we have invested US$199 million in the Toquepala expansion, mainly on mine equipment, 

which is being used for the initial stripping of the project. The 

scope of the project has been defined as an increase in milling 

capacity to 120,000 tons per day, which is expected to increase 

annual production by 100,000 tons of copper and 3,100 tons 

of molybdenum. The Environmental Impact Assessment (EIA) 
46 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 47

The project has a total budgeted cost of US$66.0 million with US$47.7 million 

expended through December 31, 2011.

Tantahuatay

The Tantahuatay mine is located in Cajamarca, in northern Peru. Production started 

in August 2011 and the mine produced 46,200 ounces of gold and 260,100 ounces 

of silver in 2011. Tantahuatay is expected to have an average annual production of 

90,000 ounces of gold and 425,000 ounces of silver for five years. We hold a 44.2% 

interest in this project.

Tia Maria

We have initiated a new Environmental Impact Assessment (EIA) for the project, taking 

into account the concerns brought forward by the community, the new guidelines 

given by the Peruvian government, and the comments received from the UN body 

contracted by Peru’s Ministry of Energy and Mines for this purpose. We are confident 

this initiative will allow us to obtain approval for the development of the 120,000 ton 

Panoramic view of Cuajone, Peru.

annual copper production project. As a result, we have rescheduled the project start 

up to the beginning of 2015. Meanwhile, all the equipment already purchased is being 

reassigned to our operations at Buenavista, Toquepala, and Cuajone.

Mission Expansion

At Asarco, the Mission expansion project will increase the annual production capacity 

of the concentrator from its current 66,000 tons per year to 77,500 tons copper content. This project represents a total investment of US$60 million, which is expected to 

be completed in the second quarter of 2013. In addition, studies have begun for the 

refurbishment and reopening of the molybdenum plant at Mission. The plant will have 

a production capacity of 544 tons of molybdenum, represents an investment of US$5 

million, and is expected to start operations in the first quarter of 2013. 

These investment projects play an important role in our 5 year expansion program, 

the goal of which is to increase the copper production capacity of the Mining 

Division from 800,000 to 1.4 million tons and molybdenum production from 18,570 

to 26,800 tons.
48 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 49

EXPLORATIONS

We are engaged in ongoing extensive exploration to locate additional ore bodies in 

Mexico, Peru, the United States, Argentina, Ecuador, and Chile. We invested US$50.3 

million in exploration programs in 2011.

Currently in Peru we hold direct control of 145,064 hectares of mining rights. In 

Mexico, we currently hold 176,250 hectares of exploration concessions. We also hold 

21,068 hectares, 35,958 hectares, and 2,544 hectares of exploration concessions in 

Argentina, Chile, and Ecuador, respectively. 

MExico

In addition to exploratory drilling programs at existing mines, we are currently 

conducting exploration to locate mineral deposits at various other sites in Mexico. 

The following are some of our more significant exploration projects: 

El Arco

The El Arco site is a copper deposit located in the state of Baja California in Mexico. 

Exploration work at the site indicates approximately 1.207 billion tons of mineralized 

sulfide material with an average copper content of 0.5% and 0.125 grams of gold per 

ton and 290 million tons of copper oxide with a copper grade of 0.35%. In 2010, a 

deep drilling program of 1,214 meters indicates approximately 390 million tons of 

mineralized material with a copper content of 0.62% below the current pit limits. We 

continue to work on the infrastructure studies necessary for the viability of the project, 

including the feasibility study, already completed.

Toquepala, Peru.
50 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 51

Chalchihuites

Chalchihuites is located in the state of Zacatecas and is a 

replacement deposit with mixed oxides and sulfides of lead, 

copper, zinc, and silver. A drilling program in the late 1990s 

defined 16 million tons of mineralized material containing 95 

grams of silver, 0.36% lead, 0.69% copper, and 3.08% zinc per 

ton. In 2011, 9,386 meters were drilled. This drilling identified 

additional resources of at least 7,000,000 tons grading 0.97% 

g/t silver, 0.41% lead, 0.52% copper, and 2.53% zinc at the 

recently acquired Cronos and Guantes concessions. During 

2012, we plan to continue with drilling and conduct the final 

metallurgic testing. We expect to complete the prefeasibility 

study by the end of 2012.

Pilares

In 2008, we bought Freeport-McMoran’s 49% interest in Minera 

Pilares, S.A. de C.V. (“Pilares”), giving us 100% ownership of 

Pilares. Pilares is located in the state of Sonora, ten kilometers 

from the town of Nacozari de García and six straight line 

kilometers from our La Caridad mine. In 2011, 3,840 meters 

were drilled. With the data obtained, Mintec made a new 

calculation of the reserves indicating 52.3 million tons with 

a copper content of 0.78%. The planning for the integration of 

this pit with the La Caridad pit will be completed in 2012.

PerU

We are developing an ongoing extensive exploration program to locate additional ore 

bodies in Peru and are also conducting exploration in the areas of our current mining 

operations. We invested US$37.5 million in exploration programs in 2011. 

Los Chancas

The Los Chancas project, located in the department of Apurimac in southern Peru, is 

a copper and molybdenum porphyry deposit. As a result of the prefeasibility studies 

and after the preliminary design of the pit, estimates show 355 million tons of 

mineralized material with a copper content of 0.62%, molybdenum content of 0.05%, 

and 0.039 grams of gold per ton. During 2011, we completed the prefeasibility study 

and plan to conduct a feasibility study for the project in 2012.

Panoramic view of Toquepala, Peru.
52 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 53

UNITED STATES

In addition to the exploratory drilling programs at Asarco’s existing mines, exploration 

is ongoing to locate additional ore deposits in the United States. 

Chilito, Arizona

Chilito is a copper porphyry located in Gila County, Arizona along the south side of 

the Dripping Springs range about 6.4 kilometers northeast of the Asarco smelter in 

Hayden, Arizona. Asarco acquired the deposit with the purchase of the Ray mine in 

1986. Asarco controls approximately 70% of the deposit while Freeport controls the 

remaining 30%. Drilling indicates the Chilito deposit has two mineralized zones, one 

shallow, near surface hosted in the porphyry, dolerite and sedimentary units, and a 

deeper zone (around 457 meters below the surface) hosted in the dolerite. The firm 

Independent Mining Consultants prepared a new calculation of reserves in 2010 that 

includes the upper zone and just touches the top of the deeper zone (the bottom of 

the block model has an elevation of 610 meters). The model indicates that at a cutoff 

grade of 0.25% there are approximately 190 million tons grading 0.374% copper. In 

2011, a total of 14,300 meters were drilled to support the calculation of the reserves 

and to provide new information on the deeper mineralized zone. A slope stability study 

has been completed and column leach testing continues.

Copper Butte, Arizona

The Greater Copper Butte area, located about eight kilometers west-southwest of 

Ray in Pinal County, Arizona, consists of three prospects, Copper Butte, Buckeye, 

and Pioneer – Alabama, all of which have been explored at various times for copper 

by different companies since 1901. Copper oxide and copper silicate ores were 

discovered and mined in small amounts at Copper Butte. After Asarco acquired Ray, 

a small amount of exploration and resource modeling continued until 1996. Using 

a cutoff grade of 0.2% copper, 73 million tons grading 0.74% total copper with a 

stripping ratio of less than 2:1 was estimated at Copper Butte; using the same cutoff 

Mission Mine, Arizona. Asarco.
54 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 55

grade, 39 million tons grading 0.385% total copper with a stripping ratio of 3.1:1 were 

estimated at Buckeye. Both properties have additional exploration potential and both 

seem amenable to heap leaching and SX/EW recovery. Pioneer-Alabama needs further 

work to identify reserves. 

Porphyry exploration, Nevada

An exploration program has been underway in Nevada for porphyry copper deposits 

over the last three years. Several old districts have been examined and two have been 

selected for drill testing. One property is located near Reno, Nevada. The second 

prospect is called Quartz Mountain and is located near Gabbs in Nye County. Airborne 

and ground geophysics have been run across the property as well as detailed geologic 

mapping and sampling. A total of 2,700 meters were drilled in 2011, the results of 

which were inconclusive. A 1,000 meter drilling program is planned for 2012 to 

continue the search for a porphyry deposit. The property has the potential to host over 

90 million tons grading 0.5% copper or greater.

Chile

Ticnamar

The Ticnamar prospect, located in northern Chile, has been explored as a deposit with 

copper-molybdenum porphyritic veins. In 2011, a diamond drilling program of 1,124 

meters was completed. For 2012, we plan to continue exploration with a diamond 

drilling program of 3,000 meters.

Catanave

Located in northern Chile (Arica), Catanave belongs to a mineralized epithermal system of gold and silver. In 2010, the environmental impact assessment was approved 

and during 2011, 2,189 meters of diamond drilling were completed. This prospect 

has good possibilities and for 2012 we plan to continue exploration with a diamond 

drilling program of 3,000 metros.

Santa Marta

Located in the Atacama region, Santa Marta is being explored for a copper and 

molybdenum porphyry. During 2011 and 2010, we diamond drilled 2,837 meters and 

3,318 meters, respectively, with promising results. Exploration will continue in 2012, 

with a diamond drilling program of 4,000 meters.

El Salado

El Salado is a copper-gold prospect located in the Atacama region in northern Chile. 

During 2011, we evaluated the information available for the prospect to plan the work 

to be done in the next stage. For 2012, we plan a diamond drilling program of 5,000 

meters and metallurgical testing.

Ecuador

We started exploration activities in Ecuador in 2011. For 2012, we expect to begin 

exploration work on the Chaucha prospect, located to the south of Guayaquil. The 

mineralization is characteristic of a copper-molybdenum porphyry system. In 2012, 

we are planning 10,000 meters of diamond drilling to evaluate the deposit.

Argentina

We started exploration activities in Argentina during the last quarter of 2011. We plan 

to carry out exploration in the south of Argentina, where mineralization for porphyry 

copper, epithermal gold and silver, and polymetallic skarns are expected.
56 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 57

OHSAS 18001 Certifications

In 2011, thirteen of fourteen SCC units are OHSAS 18001:2007 certified. 

Buenavista del Cobre is the only unit that is still in the process of aligning 

with this international Occupational Health and Safety standard, because of 

its recent restart of operations. 

Corporate Forum on Safety Cells

Minera México held a Corporate Forum on Safety Cells, November 29-30 at 

the Company’s offices in Mexico City. Un ionized personnel at all units were 

invited to participate.

Participants presented proposals to reduce the probability of the occurrence 

of work-related risks.

HEALTH AND SAFETY

US$34.6

MILLION

INVESTED IN HEALTH 

AND SAFETY PROGRAMS

MILLION INVESTED 

IN HEALTH

Recognitions

– Cámara Minera de México (Mexican Mining Chamber) 

“11th Underground Mine Rescue Squad and First Aid 

Competition”.

The Santa Bárbara unit participated in the 11th National Mine 

Rescue Squad Competition 2011 taking Second Place in the 

“Benchman Biopack Biomarine” category.

– “President’s Award”

This award is given by the President of Minera México to the 

unit that has the lowest accident rate during the year. The 2011 

award was given to the Nueva Rosita plant for its achievement of 

ZERO accidents. This is the second year that Nueva Rosita has 

received this award.

Health and Safety Week

A “Health and Safety Week” was held September 5-9 at all 

plants and units, for the first time simultaneously and included 

the Company’s regional offices in Hermosillo and corporate 

offices in Mexico City. The activities held during the event 

included: conferences, talks, workshops, health and safety fair, 

sports events, exhibition of work carried out at the Company’s 

Community Centers, orientation in different preventive aspects 

of health and safety, and activities for the families of our 

employees and the general public.

Mine Safety Award

In Peru, at the most important specialized meeting on Mine Safety, the Mine Safety Institute (ISEM) gave Southern Copper Peru 

the Mine Safety Award in the category Smelters and Refineries.

US$29.8

MILLION INVESTED 

IN SAFETY

CONFERENCES, TALKS, 

WORKSHOPS, SAFETY FAIR, 

EXCLUSIVE EVENTS, AND 

EXHIBITION OF WORK OFFERED 

DURING HEALTH AND SAFETY 

WEEK

ANNUAL REPORT GRUPO MÉXICO 57

Participants in the Corporate Forum on Safety Cells.

US$4.8
58 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 59

ENVIRONMENTAL ACTIONS 

& OUR COMMUNITIES

BENEFIT & GROWTH

US $112.5

MILLION INVESTED 

GRUPO MÉXICO JOINS THE MEXICAN 

STOCK EXCHANGE IPC SUSTAINABILITY INDEX

SUPPORT

04.ENVIRONMENTAL ACTIONS AND OUR COMMUNITIES

Olivia Rangel

Nursery technician, IMMSA Didactic Nursery.
60 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 61

MExico

Closing of the Copper Plant in San Luis Potosi

In March, the Company announced to the Department of the Environment 

and Natural Resources (SEMARNAT) the definitive closing of the Copper 

Plant the Company has been operating since 1892. Representing an 

investment of US$12.6 million, Minera México has started the first phase of 

the project, which consists of the closure of the facilities, the quantification 

and identification of residuals, authorization for impounding, comprehensive 

handling of hazardous waste, dismantling, and clean up. The second phase 

of the project will include soil remediation to prepare the site for residential, 

commercial, and recreational zoning in accordance with the San Luis Potosi 

state Urban Development and Ecological Ordering Plans. The neighboring 

communities will benefit from the closing of the plant with the development 

of green spaces, gardens, schools, and shopping centers. The budgeted 

investment for the whole project will be US$30.8 million.

ENVIRONMENTAL ACTIONS AND OUR COMMUNITIES

US$112.5

MILLION INVESTED

IN ENVIRONMENTAL ACTIONS 

AND OUR COMMUNITIES 

3.28%

INCREASE IN TREE PRODUCTION 

AT OUR NURSERIES.

Grupo México joins the Mexican Stock Exchange IPC 

Sustainability Index

In December, the Mexican Stock Exchange (BMV) presented 

Grupo México as one of the 23 highest rated issuers demonstrating excellence in environmental performance, social responsibility, and corporate governance, to be included in the new IPC 

Sustainability Index. In terms of environmental performance, the 

key parameters analyzed are: water efficiency, water discharges, 

air emissions, responsible handling of hazardous and non-hazardous waste.

Grupo México is honored to be included in the Mexican Stock 

Exchange’s first sustainability index as it solidifies the Company’s commitment to social responsibility, environmental sustainability, and corporate governance.

Tree production

Tree production at our nurseries in Charcas, Guaymas, San Luis 

Potosi, and Nacozari was 1,734,000 trees, to keep us on top 

among Mexican mining companies in terms of this activity.

Renewable Energy Projects: Generating power through 

solar panels and heating water with thermosolar systems.

The 10 tower solar panel electrical power project at the corporate 

explorations offices in Hermosillo, Sonora has been completed. 

The system follows the sun as it crosses the sky (heliotrope) and 

will generate more than 210,000 Kwh of power annually, sufficient 

to power 120 homes. This project is the largest and most advanced 

of its kind not only in the state of Sonora but in all of Mexico, and 

will stop the release of 118 tons of CO2 into the atmosphere. 

REPRESENTING AN 

INVESTMENT OF US$304,000 

THE 10 TOWER SOLAR PANEL 

POWER PROJECT WAS 

COMPLETED AT THE CORPORATE 

EXPLORATIONS OFFICES IN 

HERMOSILLO, SONORA.

Soil remediation project, San Luis Potosi.
62 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 63

Thanks to the ideal conditions for solar energy present in Mexico and given the characteristics of the state of Sonora, Cananea 

is an excellent choice for the installation of a solar powered water heating system, because of its feasibility given the existing 

conditions and being environmentally friendly by not releasing 

contaminants. The total surface area for warming for the six thermosolar projects at Buenavista is 270 m2 and together they can 

store up to 27,305 liters of hot water, equal to 600 showers.

The system will generate more than 464,000 KWh of power 

annually. Considering the system will replace gas heaters, this 

will stop 127 tons of CO2 emissions from being released into 

the atmosphere.

PET Recycling

For the third year in a row, Minera México was recognized as the 

non-bottler Company that recycles the most PET in the state of 

Sonora. The corresponding resources obtained are donated to 

the Red Cross in Esqueda, Sonora.

Environmental Cooperation Program

Mexicana de Cobre received recognition from the Department 

of the Environment and Natural Resources (SEMARNAT) and 

the Mexican Employers’ Association (COPARMEX) for having 

participated in the 3rd National Waste Recycling Competition in 

the category Special Waste Handling with its project “Reciclaje 

que Salva Vidas” (Recycling that Saves Lives). 

PerU

Company operations are subject to Peru’s environmental 

laws and regulations. The Peruvian government, through the 

Ministry of the Environment (MINAM), conducts annual environmental audits and inspections on the Company’s mine 

and metallurgic operations in Peru. These environmental 

audits include various environmental related aspects of our 

operations and also compliance with the commitments established in environmental management documents, such as the 

Environmental Impact Assessments (EIA) and Mine Closure 

Plans. These audits also include compliance with the Maximum Limits Permitted for dumping liquids and atmospheric 

emissions and compliance with Environmental Quality Standards in the urban areas near our facilities. The proper handling of the solid waste produced by our operations is also 

verified. The Company is continually working to remain in 

good standing with the Peruvian environmental laws and 

regulations applicable.

Peruvian law requires mining companies to set out their 

obligations for future closures and remediation. In compliance 

with this law, the Ministry of Energy and Mines (MINEM) has 

approved the Company’s Closure Plans. As part of the Closure 

Plan, as of January 2010 the Company is obliged to provide 

guarantees to ensure there are sufficient funds available to meet 

the obligation to remove assets. 

Response plans for spills of hazardous materials

In compliance with our Response Plans for spills of hazardous 

materials, land and sea drills were held at our operating units, 

simulating hypothetical spill situations, in which our brigade 

personnel participated to develop their skills and abilities so 

as to be able to respond efficiently, safely, and environmentally in the event of any spill involving hazardous materials. 

These drills were led by specialist consulting firms and 42 

of our brigade personnel received certification as a result. In 

addition, similar courses were organized for Community organizations and representatives and which comprise the Local 

Action Plans and Systems for contingencies involving hazardous materials.

Solar panels at the Explorations Offices in Hermosillo, Sonora. Emergency Response Brigade. Mexicana de Cobre, Sonora.
64 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 65

Control of atmospheric emissions

In the area of atmospheric emissions control, a control system has been implemented 

to increase the recovery of particulate matter in the gases from the hygiene system of 

the Isa furnace building, resulting in efficient handling exceeding that required to meet 

the Maximum Limits Permitted as set by the corresponding authorities. 

Environmental Impact Assessment for the Toquepala Concentrator 

Expansion

In compliance with current legislation, the Environmental Impact Assessment for 

the Toquepala Concentrator Expansion project has been submitted to the Ministry 

of Energy and Mines. This project will increase the processing capacity of the concentrator from 60,000 metric tons per day (mtpd) to 120,000 mtpd, without needing 

to use additional sources of freshwater by reusing water recovered from the tailings 

and employing water efficiency technology. The Environmental Impact Assessment 

is currently under review.

SOCIAL RESPONSIBILITY 

MExico

Sonora Philanthropy Award

Governor Guillermo Padrés Elías himself delivered the “Sonora 

Philanthropy Award” to Buenavista del Cobre, for the Company’s contribution, as a member of the private sector, to improving the community, promoting values including solidarity, 

responsibility, and social commitment for the development of 

the state of Sonora.

The purpose of the award is to promote social commitment and 

joint efforts through community action programs directed at 

improving the community and serving others, to recognize and 

disseminate the experiences of the institutions, companies, 

and people involved in this work, and to encourage reflection 

on specific social problems, to reinforce working together and 

developing a culture of altruism for the benefit of all Sonora..

Community Centers

During 2011, 85 federal, state, and municipal institutions, 

and also various charity organizations, participated in a wide 

range of social programs held at the Community Development 

Centers. There were 280 community days, 31 meetings with 

citizen councils and neighborhood organizations to listen to 

the main problems present in the community, 570 awareness 

campaigns for programmed activities, 105 meetings with institutions engaged in social programs, and 61 roundtables; 

112 productive courses were offered, training 1,720 people 

over 15 years of age, to consolidate the productive potential 

of 420 cases that led to commercialization projects; 105 consults were provided on topics such as profiling and incubating 

productive projects.

ANNUAL REPORT GRUPO MÉXICO 65

Community Development Center, San Luis Potosi.

Mine operations. Toquepala, Peru.
66 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 67

Success story. “Cananea”

With the goal of creating a new relationship with the community of Cananea and to offer 

social benefits to the area, in 2008 Grupo México started to work with the community 

promoting values, strengthening the social weave, and encouraging unity.

The Company wanted to be more involved with the community and that is how the 

project “Participemos por Cananea” (Let’s Help Cananea) was born, a program that 

offers improvements in educational infrastructure, social infrastructure, and social 

development.

These projects are approved by the Cananea Community Committee, a body formed 

by volunteers from the community, leaders from different walks of life, and who 

are responsible for overseeing, approving, and reviewing the proper execution of 

the projects. The Cananea Community Committee is a plural and transparent body 

that lends credibility to the assignment and follow-up of the resources provided by 

Grupo México. 

Grupo México has invested US$1.7 million in these projects. During 2011, support 

was given to 40 school infrastructure projects, 5 service institution support projects, 

25 social development and strengthening projects for the “Casa 

Encuentro” Community Center. Directly, the Company has 

dedicated nearly 700,000 service hours to these social projects. 

It is estimated that more than 28,000 users1 have benefited 

from the various supports given to the social and educational 

infrastructure. We are also interested in measuring the effect 

of these programs. The data drawn from studies conducted is 

periodically entered into a virtual database, which then produces 

a Social Impact Table, which can be consulted (in Spanish) 

online at http://impactosocialcananea.weebly.com

Commitments

The Sonora state government, the federal government, and 

the Company signed a list of commitments to be undertaken 

in benefit of the community and resources were committed to 

improve infrastructure, education, health, and an expansion plan 

for the Buenavista del Cobre mine. With these investments, the 

state of Sonora, and the region, but mainly the community of 

Cananea, will benefit from the grassroots transformation. The 

1 Total number of direct beneficiaries estimated for each institution supported through infrastructure projects (for example, students and teachers at remodeled schools).

commitments signed involve aspects such as social and urban 

infrastructure, medical services, and education, and include:

Paving: Streets near the mine have been paved to provide 

employees with better access to their workplace. We also 

improved the access road to the Industrial Park.

Wells: Water wells have been drilled and completed to help 

solve the water supply problem in the city.

Medical services: The Cananea General Hospital received 

improvements and remodeling. A new sewer system was built, 

electrical problems were repaired, water tanks installed, heating 

and air conditioning units supplied, pipes repaired, and also 

civil and finishing works in general. Construction on a new 

second level hospital will begin in 2012, which will be operated 

by the Sonora State Social Security Institute and will provide 

quality healthcare to Company employees. This project will 

involve the participation of the federal government, the state, 

and the Company.

Young people from “Grupo Encuentro”. Remodeling of Cananea General Hospital, Sonora.
68 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 69

Donations: Donation of a vehicle to Comité Particular de Caridad I.A.P. to launch the 

program “Camino a la Vida” (Path to Life), which consists of providing comfort to patients who need to be transferred from Cananea to Hermosillo and Nogales to receive 

dialysis and cancer treatments and for women who require mammogram screening.

Participemos por Cananea: With 58,096 man hours dedicated to the projects of the 

“Participemos por Cananea” program, 156 institutions have received our support 

in educational infrastructure and social development. The benefits are reflected in 

donations of equipment, furnishings, and the remodeling of schools and institutions. 

“Grupo Encuentro”, through cultural, educational, and recreational activities, has 

helped to achieve our closer involvement in the community.

Library: The Cananea Library was equipped with new computers and printers to offer 

its 3,000 monthly users a better service.

Scholarships: Fundación Grupo México and Fundación Bécalos have given out 120 

academic scholarships to teachers and students in 2011.

Sports facilities: Construction of a baseball diamond and basketball court at the 

Instituto Tecnológico de Cananea.

Entertainment Center: 22 hectares of land have been purchased on which construction 

has started for a Shopping Center that will have movie theaters, various shops and 

stores, and a food court, and there will also be recreational areas, a soccer field, 

basketball courts, a baseball diamond, a jogging track, gymnasium, covered pool, 

and a hotel.

Museum: A mining museum will be housed in the Entertainment Center.

Artisan workshop: Construction and operation of a training center for trades and 

handcrafts using copper.

Development of providers: There has been an important development of providers in 

the area thanks to the opening of the mine and the refurbishment works, providers 

who have offered their services with the sale of parts, various repairs, equipment 

maintenance, etc.

PerU

Asociación Civil Ayuda del Cobre

During 2011, the contribution Southern Peru made to Asociación 

Civil Ayuda del Cobre increased to nearly US$4.8 million. 

This investment was allocated to health programs, primary 

education and educational support programs, technical training 

programs, and improvements to schools, and also nutritional 

programs for children under 5 and pregnant women, and to 

basic infrastructure with improvement projects for sanitation 

works, access roads, power, and water.

Huaytire Comprehensive Development Program

The Huaytire Comprehensive Development Program in the 

province of Candarave has been in operation since 2007 with 

its principal areas of interest being livestock production development, education, health and nutrition, and the transformation 

and commercialization of the products the region produces. The 

main results for this program for 2011 are: the implementation of 

30 eco-kitchens that will improve the quality of life for the community of Huaytire, preventing eye and lung diseases caused by 

breathing in smoke, the donation of school supplies and uniforms for 123 students in the community of Huaytire, helping to 

improve the education conditions at all three school levels.

Candarave Nutrition Program

This program consists of various actions aimed at changing 

health related behaviors and aspects, such as eating habits, 

hygiene, and order in families with children under 3 years of 

age, nursing mothers, and pregnant women in the province of 

Candarave, which will contribute to improving the nutritional 

health of these groups to favorably impact the nutritional levels 

of the community and the local governments. There have been 

830 direct beneficiaries of the project, 414 children under five 

and 416 mothers. This program represents and investment of 

US$1.28 million.

Technical Training Program

This program was developed in the province of Jorge Basadre 

and consists of offering training to the community in 7 education related areas. The courses offered are: Front loader operator, computers, boiler operator, and welder. A second module 

of courses is currently being offered.

A total of 4,380 class hours were given in 2011, benefiting 

more than 20 communities.
70 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 71

UNITED STATES

We are involved with United Way in Tucson, Arizona 

and Amarillo, Texas

United Way is a non-profit organization. Its operation is based 

on the voluntary participation of the private and business 

sector to support the development and sustainable wellbeing 

of the communities most in need in Tucson, Arizona and 

Amarillo, Texas. Through their contributions, Asarco and its 

employees demonstrate their commitment to the children of 

the communities where we operate, supporting them with 

Family Literacy Programs, which help the participating children 

complete their education.

A Development Program called “Ready to Learn” has also 

been implemented, which provides Parents and Guardians 

with the tools necessary to enrich the development stages of 

their children. With welfare reform, there is greater government 

support for childcare improving the quality of and access to 

childcare programs for low income working families.

Support for local schools with transportation to the 

“Mineral Discovery Center”

Asarco recognizes the importance of educating our children 

and students about the Mining Industry and offers students at 

schools in southern Arizona free transportation to the “Mineral 

Discovery Center”, which communicates the importance of the 

Mining Industry in the area, educating students and teachers 

on the Earth Sciences and preservation of the mining history of 

Arizona and the western United States. Asarco owns this center, 

which is located near the Mission mine to the south of Tucson, 

Arizona, and is open to the public. The center can be visited 

online at: www.mineraldiscovery.com

San Miguel High School students support program

Asarco is involved in the internship program offered at San 

Miguel High School. Asarco provides participant students with 

job experience and training to help develop their work-related 

skills. The student employees start by performing different 

clerical tasks such as filing and data entry, then they are given 

greater responsibility depending on their aptitudes. The student 

employees learn skills and gain experience from working in 

a professional environment. They work in teams to fill entry 

level positions at companies and organizations throughout 

the metropolitan area of Tucson, Arizona, learning the skills 

necessary to be successful in a professional career and they earn 

money to help with the cost of their high school education.

Sports Centers 

Recognizing the importance of encouraging physical and 

sporting activities, Asarco, together with the Professional 

Basketball League, supported Sports Centers for the children of 

our employees at the Ray complex and the Hayden Smelter in 

Arizona to get involved in these activities and to also promote 

the wellbeing of the mining community and the health of our 

employees and their families.

Huaytire Livestock Development Program. Candarave, Peru.
72 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 73

TRANSPORTATION DIVISION

EXTENSIVE NATIONAL COVERAGE

EXPANSION 81%

COVERAGE IN MEXICO

ITM SALES TOTALED US$1.626 BILLION 

AND INCREASED 13.5%

05.TRANSPORTATION DIVISION

Clemente Tovar

Certified Locomotive Operator. Roundhouse, Guadalajara.
74 GRUPO MÉXICO ANNUAL REPORT

TP

UP

BNSF

GRUPO MÉXICO RAILROAD LINES

TRACK USAGE RIGHTS

UNION PACIFIC

BNSF

LEGEND

GEOGRAPHIC LOCATION

PRINCIPAL ROUTES

calexico

mexicali

nogales

b.hill

hermosillo

guaymas

topolobampo

mazatlán

durango

cd. frontera

chihuahua

ciudad

juárez

presidio

ojinaga

piedras

negras

escalón

torreón saltillo monterrey

san luis

potosí

viborillas

Mexico

City

huehuetoca

felipe

pescador

aguascalientes

guadalajara

manzanillo colima

pto.altamira

tampico

veracruz

coatzacoalcos

progreso

salina cruz

alpine

san angelo jct

eagle

pass

corpus

christi

houston

ft.worth dallas

sierra blanca

el paso

tucson

phoenix san

diego

albuquerque

iowa

new

orleans

ANNUAL REPORT GRUPO MÉXICO 75

TRANSPORTATION DIVISION

The Transportation Division of Grupo México is represented by its 

subsidiary Infraestructura y Transportes México, S.A. de C.V. (“ITM”), 

whose principal subsidiaries are Grupo Ferroviario Mexicano, S.A. de C.V. 

(“GFM”), Ferrocarril Mexicano, S.A. de C.V. (“Ferromex”), Intermodal 

México, S.A. de C.V., and Texas Pacífico, LP, Inc. Ferromex is the largest 

railroad Company with the most extensive coverage in Mexico. Ferromex 

operates a network of 8,111 kilometers of track covering approximately 71% 

of Mexico. Its lines connect to five border points with the United States, 

four ports on the Pacific Coast and two on the Gulf of Mexico. Ferromex 

is controlled by GMéxico 55.5%, Union Pacific 26%, and Grupo CarsoSinca Inbursa 18.5%. On November 24, 2005, Grupo México incorporated 

Ferrosur through Infraestructura y Transportes Ferroviarios, S.A. de C.V. 

(“ITF”). Ferrosur operates a track network of 1,813 kilometers covering 

the central and southeastern part of the country, serving principally the 

states of Tlaxcala, Puebla, Veracruz, and Oaxaca, and has access to the 

ports of Veracruz and Coatzacoalcos on the Gulf of Mexico. Ferrosur is 

controlled by Grupo México, holding 74.99%, with Grupo Carso-Sinca 

Inbursa holding the remaining 25.01%.

16.1%

INCREASE

IN FERROSUR SALES

12%

INCREASE IN 

FERROMEX SALES

FERROMEX CONNECTS 

TO FIVE BORDER POINTS 

WITH THE UNITED STATES 

AND REACHES FOUR PORTS 

ON THE PACIFIC OCEAN AND 

TWO ON THE GULF 

OF MEXICO. 
76 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 77

Ferromex

Ferromex sales in 2011 were US$1.311 billion, a 12.2% 

increase over the US$1.168 billion reported for 2010. This 

increase was largely the result of a favorable mix of rates and 

traffics, including international traffics billed in US dollars.

The volume transported during 2011 decreased 0.6%, transporting 44.990 billion net tons/kilometer, compared to the 

45.277 billion transported in 2010. The sectors that experienced the greatest variation were: intermodal 21%, chemicals 

and fertilizers 7%, energy 5%, industrial (16%), and agriculture (5%).

The operating cost in 2011 was US$912.9 million, 18.3% above 

that for 2010. This increase is explained by the additional freight 

volume, an 11.0% increase in the price of diesel, increases in 

connection and terminal services, car leasing, police and security services, locomotive leasing, maintenance, and exchange 

rate fluctuations.

EBITDA for 2011 was US$358.8 million (equivalent to 27.4% of 

sales), representing a (2.1%) decrease compared to 2010.

Ferromex focuses on different market niches in the agricultural, 

industrial, mineral, automotive, chemical, metals, cement, 

energy, and intermodal segments. The transportation of 

products and materials in bulk, especially over long distances, 

is more effective and efficient by train than by truck. Ferromex 

has implemented a commercial strategy based on three actions: 

a) retaining its current customer base, b) increased sales with 

current customers, and c) seeking out new customers.

Since it began operations, Ferromex has implemented new 

operating practices and made significant capital expenditures to 

reduce costs in the long term and improve operating efficiency.

Capital Expenditures (capex)

Ferromex offers its customers efficient and reliable service, 

competing favorably with the trucking industry. In 2011, 

Ferromex invested a total of US$284.3 million in new equipment 

and infrastructure to improve the efficiency and reliability 

of its railroad system, increasing the capacity of its network. 

Significant investments include the purchase of locomotives 

and railcars, crossdocking terminals and distribution centers 

to transfer freight from truck to train for customers that require 

door to door service.

In April 2011, Ferromex successfully placed 10 year notes 

for $1.5 billion pesos in the Mexican financial market. These 

resources were allocated primarily to finance the purchase of 44 

new locomotives, for a total fleet of 595 locomotives, with which 

Ferromex can meet its volume of traffics and improve efficiency 

and reliability as the new locomotives are less aggressive to 

the track and perform better on curves, reducing the release of 

contaminants and providing better fuel performance.

Capital expenditures of US$180.0 million are planned for 2012, 

which includes the completion of sidings to increase track 

capacity and speeds on our lines.

Loading fuel. Ferromex locomotive. Container platform.
78 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 79

Ferrosur

On November 24, 2005, Grupo México announced that its subsidiary ITM had acquired 

outright ownership of the Company Ferrosur from Grupo Condumex-Sinca Inbursa

Ferrosur sales in 2011 were US$307.6 million, 16.1% higher than the US$265.1 

million reported for 2010. The volume transported in 2011 increased 5.1%, transporting 

7.192 billion net tons/kilometer, compared to 6.840 billion net tons/kilometer in 2010. 

The operating cost for 2011 was US$211.9 million, 12.9% above that for 2010. This 

increase is due mainly to the greater volume of freight and increased diesel prices. 

The cumulative EBITDA at December 31, 2011 was US$87.6 million, compared to 

US$65.5 million for 2010. Net earnings were US$38.4 million in 2011, 66.7% higher 

than that reached in 2010. 

Capital Expenditures (capex)

During 2011, Ferrosur invested US$63.1 million to increase its track capacity and 

improve operating efficiency. These investments included the purchase of 14 new 

locomotives and investments in network infrastructure.

Capital expenditures of US$48 million are planned for 2012 to improve infrastructure 

and operating costs.

Ferrosur Merger

ITM received a favorable final decision on the ITM-Ferrosur merger in 2011.

On March 25, 2011, the First Collegiate Court on Administrative Matters in Mexico City 

(TFJFA) found to dismiss the appeal filed by the Federal Competition Bureau (CFC) 

against the decision of the Federal Court of Justice on Tax and Administrative Matters 

(TFJFA) in favor of ITM, which approved the ITM-Ferrosur merger. Consequently the 

acquisition of Ferrosur by ITM has received final approval as no further recourse may 

be admitted against the decision.

Ferrosur’s financial information is consolidated with Grupo México as of this year.

Intermodal México

Intermodal México celebrated its tenth anniversary this year with a 34% increase 

in sales year over year, improving its operating margin and its EBITDA. Sales were 

US$30 million. The Company has broad geographic coverage, providing value added 

services to Ferromex and Ferrosur users.

New business like Fuel Oil Transfer for Petróleos Mexicanos (PEMEX) and integral 

solutions for customers in the automotive industry supported by the IT platform 

New ecological locomotive, Ferrosur. New ecological locomotive, Ferrosur.
80 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 81

developed for our customers, recognize Intermodal México as a solid Company so 

that users of the railroad for transporting freight consider Intermodal México their 

right hand for these services.

Pacífico Transportation LTD

Thanks to the discovery of oil and gas deposits in the area where the Texas Pacífico 

line is situated, the demand for railroad traffic has increased significantly, transporting 

sand for well and crude oil drilling.

The US$30 million investment made in improving the line means the Company can 

take advantage of opportunities with new customers that will quadruple traffic over the 

next two years, helping in the development of the area.

The development of the service on this line will give the Company strategic 

opportunities to connect to the Ferromex network at Fort Worth, Texas.

ITM

Environmental Actions

To minimize its impact on the environment, in 2011 the Transportation Division gave 

special attention to the control and prevention of spills, energy efficiency, and to 

reducing greenhouse gas emissions.

Certifications

Five Ferrosur maintenance shops and the Puebla fueling zone were recertified in 

Environmental Quality this year. Ferromex maintains its Clean Industry certification 

for the Locomotive Maintenance Shop and its Environmental Quality certification for 

the car repair shop in Guadalajara.

Energy and climate change

Various initiatives were implemented in 2011 to use energy from renewable sources 

and to improve energy efficiency to successfully reduce greenhouse gas emissions.

Fuel Consumption

The acquisition of new ecological locomotives combined with an awareness campaign 

aimed at train personnel resulted in a 16.4% saving in fuel consumption by our 

locomotives that have AESS systems installed.

Old and new bridge over the Colorado River. Ballinger, Texas.
82 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 83

Waste handling and spills

As a result of improvements made to locomotive maintenance processes, we generated 

21% less hazardous waste in 2011 than the previous year. Efficiency in the use of 

cleaning materials was promoted to prevent saturation with hydrocarbons. Used oil is 

sent to authorized cement plants to be used as an alternative fuel, while other waste is 

sent to an authorized incinerator.

Biodiversity

In 2011, 41.37 hectares with desert type vegetation were cleared to make way for various 

sidings projects in different states. This clearing principally affected: mesquites, cacti, 

acacias, and other species, totaling 38,089 plants affected. 2,558 plants were rescued 

and replanted outside the right of way. Also, to compensate for the plants affected that 

could not be transplanted, 38,148 mesquite and cacti plants were planted.

Community Responsibility

In 1994, when Ferromex obtained the concession to operate the railroad freight 

transportation service, the Company was also awarded the concession on the 

Ferrocarril Chihuahua Pacífico (Chepe), which provides tourist passenger service 

from Chihuahua to Los Mochis in Sinaloa. This route passes through the heart of 

the breathtaking Copper Canyons, where the Tarahumara and Mayo indigenous 

communities have their home.

In support of these two communities, members of the Tarahumara and Mayo 

communities in the states of Chihuahua and Sinaloa, respectively, and also low income 

residents, received a special rate to travel on the passenger train. Free passage was 

given to priests, nuns, and missionaries engaged in social action in these areas. Also, 

goods and materials were transported for these communities free of charge.

This program offered special rates to 70,691 passengers this year and free passage 

to 75 priests, nuns, and missionaries who, due to their work in the community, travel 

continually and are often accompanied by indigenous who are ill or children needing 

special attention.

Chepe tourist train. Roundhouse in Guadalajara, Jalisco.
84 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 85

INFRASTRUCTURE DIVISION

PROJECTS

EXPERIENCE 75

YEARS THINKING BIG

US$636 MILLION WILL BE INVESTED IN 

THE INFRASTRUCTURE DIVISION IN 2012

06.INFRASTRUCTURE DIVISION

Miguel Angel Monsiváis

Operator.
86 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 87

INFRASTRUCTURE DIVISION

The Infrastructure Division of Grupo México is represented by its 

subsidiaries México Proyectos y Desarrollos, S.A. de C.V. (“MPD”), 

México Constructora Industrial, S.A. de C.V. (“MCI”), México Compañía 

Constructora, S.A. de C.V.(“MCC”), Servicios de Ingeniería Consutec, S.A. 

de C.V. (“Consutec”), México Generadora de Energía S.de R.L. (“MGE”), 

and Compañía Perforadora México, S.A.P.I. de C.V., which are wholly 

owned by Grupo México. MPD, MCI, and MCC are active in engineering, 

procurement, and infrastructure construction projects. Perforadora México 

offers oil and water drilling services and related value added services such 

as cementation engineering and directional or slanted drilling. Consutec 

engages in integral industrial and infrastructure project engineering 

activities. México Generadora de Energía is a recently created Company 

that develops power generating and renewable energy projects. 

México Compañía Constructora 

In 2011, México Compañía Constructora celebrated 75 years of operation 

supporting Mexico’s infrastructure. Its beginnings in the construction 

sector date back to 1936 and the Company’s value added has been its 

strength in demonstrating its ability to execute projects.

MILLION

IN SALES FOR 

THE INFRASTRUCTURE DIVISION

MILLION IN SALES

FOR MÉXICO COMPAÑÍA 

CONSTRUCTORA IN 2011

HISTORY AND EXPERIENCE 

HAVE GIVEN US THE 

OPPORTUNITY TO PARTICIPATE 

IN ALMOST ALL LARGE 

INVESTMENTS MADE IN THE 

INFRASTRUCTURE SECTOR

LEGEND

INFRASTRUCTURE DIVISION

GEOGRAPHIC LOCATION

PEMSA

MGE

MCI

CONSUTEC

VILLAHERMOSA

POZA RICA

CD. DEL CARMEN

Mexico City

JUCHITÁN, OAXACA

NACOZARI, SONORA

TUXTLA GUTIÉRREZ

GUADALAJARA

LEON

SAN LUIS POTOSÍ

HERMOSILLO

SONORA

ANNUAL REPORT GRUPO MÉXICO 87

US$224

US$111
88 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 89

The history and experience of the Construction Company have afforded us the 

opportunity to participate in almost all large investments made in the infrastructure 

sector in canal and irrigation projects, railroad and hydroelectric projects, warehousing 

and derivatives, oil and gas, thermoelectric plants, and highway projects. 

México Compañía Constructora reported sales of US$111.3 million, EBITDA of 

US$15.1 million, and its costs and expenses at US$96.5 million for 2011.

Major Projects

– Federal Power Commission (CFE). Construction of two 14x14 meter deviation 

tunnels, 1,135 m in length, now in operation helping to prevent flooding in 

Tabasco and optimizing the use of the Grijalva River hydroelectric power 

generating system.

Inaugurated by President Felipe Calderón Hinojosa, México Constructora Industrial 

has completed delivery of the Deviation Tunnels on the Grijalva River to the Federal 

Power Commission.

– Minera Dolores. Construction of the “Chabacán” dam in Madera, Chihuahua.

Construction on the El Chabacán storage dam in the state of Chihuahua has 

been completed. 

– Ferromex. Construction and refurbishment of eight railroad sidings in the states 

of Zacatecas, Guanajuato, Jalisco, and Colima. Improvement works are also 

ongoing on the track infrastructure of the railroad lines in the states of Colima 

and Sonora. 

Railroad improvement and expansion projects were delivered at the end of 2011.

– Buenavista del Cobre. Overall refurbishment of the mine facility, civil works 

projects for the cementations of the Quebalix III and Crusher Building at the 

site, maintenance work on the edges of the Tailings Dam and the Dam at the Old 

Concentrator, and the dismantling of the Smelter and old Concentrator.

Edge maintenance work on the Tailings Dam. Buenavista del Cobre, Sonora.
90 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 91 – Mexicana de Cobre. Construction of the outside borders of Tailings Dam number 

7, manufacturing and installation of new cribs for the Concentrator’s primary mills, 

assignment of engineering personnel, assignment of maintenance and operating 

personnel for heavy machinery, and street paving inside the Lime Plant at Agua 

Prieta, Sonora.

– Industrial Minera México. Work on the San Luis Potosi Bicentenary Park is 

complete and personnel are now being assigned to dismantle the Arsenic and 

Copper Plant in San Luis Potosi and to the Exploration Projects in Charcas, San 

Luis Potosi.

The Department of Transport and Communications (SCT) awarded México 

Constructora Industrial a 30 year concession to build and operate the Salamanca 

- León Highway in the state of Guanajuato, which will contribute to the growth of 

the region.

Constructora México will continue to participate in tenders for the construction 

and operation of highways, hydroelectric dams, railroad lines, and other important 

infrastructure projects.

Environmental Actions

México Compañía Constructora, with the collaboration of the Selva Ocote Biosphere 

Reserve, member of the Mexican Commission for Natural Protected Areas (CONANP) 

in state of Chiapas, and the Save the Mountain Rural Production Preservation, 

undertook a commitment for the reforestation and revegetation of the reserve. 

Thirty-five hectares have been reforested after being destroyed by forest fires in the 

community of La Florida in Cintalapa de Figueroa, which lies in the buffer zone 

of the reserve, to compensate for the areas affected by the construction activities 

for the “Contingencia Río Grijalva, Túneles de Conducción-Desastres Naturales, 

Estado de Chiapas” project (Grijalva River Contigency Project, Deviation TunnelsNatural Disasters, Chiapas) and to meet compliance with the requirements set by the 

Department of the Environment and Natural Resources (SEMARNAT). 

90 GRUPO MÉXICO ANNUAL REPORT

Generator Plant, La Caridad.
92 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 93

More than 45,000 native plants of different species were planted, including cedar 

(cedrela odorata), cocoite (gIiricidiam sepium), maculis (tabebuia rosea), mahogany 

(carapa guianensis), guanacaste (enterolobium ciclocarpum), guash (leucaena leucocephala (Lamark), jolotzin (heliocarpus mexicanus (Turcz) Sprague). A nursery 

was set up for this program with a production capacity of 550,000 plants. This nursery 

was also used to produce species for areas destroyed by fire in the state of Chiapas.

Compañía Perforadora México (“La México”)

Compañía Perforadora México closed 2011 with sales of US$112.6 million, EBITDA 

of US$27.0 million, and a net profit of US$14.7 million.

Sales increased 59% this year, compared to 2010, principally as a result of the 

contract the Company was awarded for the Sonora Platform in March 2011 and 

significant improvements made to the productivity of the land operation for the 

Tertiary Oil Gulf project.

Ocean Drilling

Sonora Platform

The Sonora Platform received a full mechanical overhaul and 

remodeling of its living area in 2011.

The platform has been under a daily rental contract since 

March 24, 2011 and engages in shallow water drilling in the 

state of Campeche.

New Chihuahua and Zacatecas platforms

In December 2011, the purchase of two 300 foot Friede & 

Goldman Jack Up platforms was finalized, with a drilling 

capacity of up to 30,000 feet below the seabed.

Transporting the “Chihuahua” platform, Dubai-Gulf of Campeche, Mexico.

The first platform, known as “Chihuahua”, started its mobilization from the Arab Emirate of Sharjah the last week of February and is scheduled to arrive at the oil port of Dos Bocas 

in the state of Tabasco on April 15, with operations starting 

in June, 2012.

The second platform, “Zacatecas”, is scheduled to be completed 

June 30, to then be transported between July and August and 

start operations in September 2012.

Land Drilling

Productivity this year increased over 60%, which had a 

significant impact on the Company’s results.

The Tertiary Oil Gulf Project has a contract expiring after 2012. 
94 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 95

Drilling services

Cementations

The cementations division started a new contract in October, expiring December 2013.

We are currently working on the addendums for certain products that La México 

provides in its cementations segment. These activities will result in increased 

revenue for this Division.

Since August 2011, the Company has provided service, both land and sea, to third 

parties holding comprehensive contracts with PEMEX. 

Slanted drilling

In 2011, we completed projects for PEMEX under a 3 year contract.

We are participating in tenders that will be awarded during the first half of 2012. This 

division also provides land services to third parties and is analyzing opportunities to 

start operations overseas.

Drilling fluids

This division focuses on offering services under our comprehensive Tertiary Oil Gulf 

land drilling contract.

México Generadora de Energía (MGE)

México Generadora de Energía is building two 250 MW Combined Cycle Power 

Plants to the north of Nacozari, Sonora, representing a total investment of US$540 

million of which US$144.5 million has been spent as of year close. Plant I reports 

46% completion and Plant II 12% completion at December 31, 2011.

These plants are scheduled to be completed in the fourth quarter of 2013 and the 

second quarter of 2014, respectively, and will supply power to the mines and plants 

in Sonora and their expansions.

In 1998, Grupo México built a pipeline connecting Douglas, Arizona with the 

national pipeline and construction of a 3km offshoot is underway to connect the 

power plants.

MGE is developing a 50 MW Wind Power Project in the state of Oaxaca, which is 

currently in its engineering and processing stage. This project represents an estimated 

investment of US$118 million and will supply power to some Grupo México facilities 

and to other potential buyers.

México Proyectos y Desarrollos is conducting the engineering for 6 mini 98 MW 

hydroelectric dams in the states of Puebla, Sonora, and Sinaloa. Renewable energies 

that will reduce greenhouse gas emissions.

The power produced by these dams will be used to supply new medium scale mining projects.

Transporting the “Chihuahua” platform, Dubai-Gulf of Campeche, Mexico.
96 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 97

GRUPO MÉXICO FOUNDATION

TANGIBLE RESULTS

COMMITMENT 14,724

PEOPLE BENEFITED THANKS TO OUR PROGRAMS

THE GRUPO MÉXICO FOUNDATION IS 

ACTIVE IN NINE STATES IN MEXICO

07.GRUPO MÉXICO FOUNDATION

Juan Ramírez

Beneficiary of Grupo México Foundation’s Social Programs.
98 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 99

GRUPO MÉXICO FOUNDATION

Cultural and Social Programs

– Revenues from sales of the book “Kakaw” were matched and donated 

to Casa Hogar Auxilio in the state of Chiapas to complete general 

remodeling projects. This shelter houses minor aged girls at risk and 

living in poverty.

– El Cuernito A.C. was another organization supported by the Grupo 

México Foundation. The dining room and kitchen at the daycare center 

were remodeled improving the food service the organization provides 

to children under 6 years of age..

– The second Musical Composition Contest was held with a railroad 

theme “Sinfonía Vapor” (Steam Symphony) in which the Grupo México 

Foundation participated giving financial support for teachers and 

students of symphonic and chamber music.

PEOPLE BENEFITED

GRUPO MÉXICO FOUNDATION 

IS ACTIVE IN THE STATES OF: 

SONORA, MORELOS, SAN LUIS 

POTOSI, JALISCO, NUEVO LEÓN, 

CHIAPAS, TAMAULIPAS, ESTADO 

DE MÉXICO, CHIHUAHUA, 

AND MEXICO CITY.

through the development

of three programs

1,023

STUDENT AND TEACHER 

SCHOLARSHIPS GIVEN BY THE 

GRUPO MÉXICO FOUNDATION

14,724

Working with the community.
100 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 101

Support for other institutions

– In collaboration with Cinemex we held various red carpet events and movie 

premieres. The funds raised from these events were donated to various NGOs. 

In terms of health services, we helped finance cochlear implants, kidney 

transplants, cancer treatments for the underprivileged, medications for children 

with immunological disorders, and physiotherapy for children needing muscularskeletal strengthening. In the area of education, we were able to finance materials 

for schools with underprivileged special needs children, a training workshop for 

60 young people rescued from the street, and a documentary on breast cancer 

prevention was distributed. In addition, we helped finance the work of women with 

small businesses in the Mixteca region in Oaxaca. 

– Through 1,687 Cinemex theaters, we raised awareness for different organizations 

with “cineminuto” commercial spots to promote the work of participating 

organizations and also offering moviegoers the opportunity to seek out the help 

that perhaps they’ve been looking for. 

– Consequently, Cinemex theaters were in high demand during 2011. The organizations 

involved have taken up the task of finding synergies to be able to produce quality 

“cineminutos”. Through this project, the Grupo México Foundation has been able 

to join companies, advertising agencies, creative minds, directors, and producers 

under a single purpose: to help and promote a social message. 

– This year we supported 8 organizations with 4-week spots each, showing a total 

5,850 messages, reaching nearly 14 million moviegoers.

– In this same area, the Grupo México Foundation was a finalist for the “Caracol 

de Plata” award given for excellence in social messaging, with the cineminuto

“Nuestros Niños” (Our Children), an organization that provides comprehensive 

care to children under 6 years of age.

– In June, we collaborated on the highly successful 2nd Cinemex Run to benefit the 

Michou y Mau Foundation to transport child burn victims and provide follow-up 

care. A total 4,000 runners participated. Simultaneously, a fundraising campaign 

was held through the concession stands at movie theaters in Mexico City and 

metropolitan area to raise money for this same cause.

Various fundraising campaigns have been held at theaters to raise money for different 

organizations:

° Fundación Ale. The funds raised helped to finance 5 kidney transplants.

Reforestation in Huixquilucan, Estado de 

México, with the participation of 

Grupo México employees.

Michou y Mau Foundation. Organization supported.
102 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 103

° Thanks to the sale of stickers for the “En Nuestras Manos” 

Foundation, money was raised to create a “Stylist Shop”, 

which will be inaugurated soon at the Centro de Atención 

Integral para la Profesionalización del Empleo (CAI). 

° As a member of the Group “Unidos por Ellos”, the Grupo 

México Foundation doubled the amount raised nationally to 

support victims of Hurricane Alex. Delivery was made on 

101 homes in the state of Tamaulipas and 114 in the state of 

Nuevo León.

Education and Environmental Programs

– In collaboration with Fundación Televisa and the Bécalos 

program, we gave out 476 scholarships for academic excellence in the state of Sonora. During 2012, our students 

will start the second of their three year scholarships. In 

2011, thanks to this same collaboration, 547 scholarships 

were given to teachers as part of the “Formando Formadores” program.

– A donation of equipment and learning materials was made 

to Preparatoria Enrique Esqueda in the state of Sonora, 

which has 180 students enrolled in its high school diploma program.

– The Grupo México Foundation sponsored and inaugurated 

the Centro Educativo Ambiental Desierto de los Leones. 

This center offers courses on environmental related topics 

to approximately 4,000 students each year.

– A donation was given to the Red Cross in Esqueda, Sonora 

for their work with special needs people.

– In San Luis Potosi, 26,510 trees were donated to the 

project “Vías Verdes”, which has a direct impact on nine 

communities.

– 150 Grupo México employees participated in the reforestation of one hectare in Huixquilucan, Estado de México, 

planting 2,000 trees.

– Through the freight transportation services that Ferromex 

offers, we supported different organizations by transporting 

842 tons of goods for 6 different Tarahumara communities 

in the state of Chihuahua.

– Thanks to the supplement “Equilibrio”, which reaches 43,000 

Reforma newspaper subscribers, we can communicate and 

create awareness for issues such as sustainability and the 

environment.

ANNUAL REPORT GRUPO MÉXICO 103

“Tree Production”.
104 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 105

FINANCIAL ANALYSIS AND DISCUSSION

CONSOLIDATED RESULTS

SOLID 25%

INCREASE IN CONSOLIDATED SALES

CONSOLIDATED SALES REACHED 

A RECORD HIGH US$10.443 BILLION

0 8 . F I N A N C I A L A N A LYS I S A N D D I S C U S S I O N

Julio Valencia

Tractor operator. Buenavista del Cobre, Sonora.
106 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 107

FINANCIAL ANALYSIS AND DISCUSSION

This analysis and discussion presents a review of the consolidated financial results 

for Grupo México, S.A.B. de C.V. and subsidiaries (“GMéxico” or the “Company”) 

(BMV: GMEXICOB). The audited financial results for the twelve months ended 

December 31, 2011 are compared with 2010.

Grupo México is a holding company, whose main activities are in the miningmetallurgic industry, and include the exploration, exploitation, and benefit of metallic 

and non-metallic minerals, and freight and multimodal railroad services, and also 

infrastructure projects.

All figures in this report were prepared according to US GAAP and are expressed 

in US dollars ($), except where indicated otherwise, and at December 31, 2011. 

All percentage variances are expressed in real terms. The conversion from Mexican 

pesos to US dollars is included for reference purposes only, applying the exchange 

rate set by the Bank of Mexico for settling obligations, which was 13.97 pesos per 

dollar on December 31, 2011.

This report may contain forward-looking statements and such statements are to be 

interpreted as estimates prepared by the Company in good faith. These forwardlooking statements reflect the opinions of Company Management based on currently 

available information. Actual results are subject to future and uncertain events that 

may have a material impact on the actual performance of the Company.

STOCK EXCHANGE LISTING

Grupo México is a publicly traded company, whose shares have been quoted on the 

Mexican Stock Exchange (Bolsa Mexicana de Valores or BMV) since 1978, under the 

listing code: GMEXICOB. Grupo México is represented by 7,785,000,000 common 

series “B” shares, fully subscribed and paid. At December 31, 2011, the Company has 

7,785,000,000 common series “B” shares outstanding.

SCC shares are traded on the New York Stock Exchange (NYSE) and the Lima Stock 

Exchange (BVL) under the listing code SCCO on both exchanges.

PRINCIPAL MINE PRODUCTS

Copper is the third most used metal in the world and an important component in 

creating infrastructure worldwide. Copper has exceptional chemical and physical 

properties, with high electrical conductivity and resistance to corrosion, and also has 

excellent malleability and ductility, making it an ideal material for field applications in 

electricity, telecommunications, computers, cell phones, construction, transportation, 

and industrial machinery.

Copper is also an important material for non-electrical applications, such as 

plumbing and roofing, and when alloyed with zinc forms bronze, and is also used in 

consumer and household products. Copper is used in fungicides and various other 

chemical products.
108 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 109

Molybdenum is used to give greater resistance to steel alloys, steel tools, to soften 

tungsten alloys, is resistant to corrosion, and is used as a catalyst in the oil and gas 

industry to remove sulfur. It is also used in fertilizers, dyes, paints, and reagents. 

Silver is used for photographic, electrical, and electronic products, and to a lesser 

degree, in welding alloys, jewelry, coins, silverwork, and catalysts. Zinc is used 

primarily to galvanize steel and iron to protect these from corrosion. It is also used to 

make molds, in batteries, and in sheets for architectonic purposes. 

METALS PRICES

During 2011, most metals prices experienced high volatility as a result of global 

economic uncertainty, particularly the European crisis, economic recovery in the US, 

and lower expectations for global growth. However, copper prices posted an average 

US$4.01 per pound, a 16% increase over 2010, due principally to a shortfall between 

global production and consumption of copper, and also meteorological factors, 

strikes, lower ore grades, delays in the startup of projects, and China’s demand for 

infrastructure projects.

Prices for our products depend mainly on supply and demand and are set by the New 

York Commodities Exchange (COMEX) and the London Metals Exchange (LME), the 

two most important exchanges in the world. Molybdenum prices are set using the 

publications Metals Week Dealer Oxide and Platts Metals Week. Our contract prices 

also reflect the premiums negotiated, shipping costs, and other factors. The following 

table shows the average annual metals prices for 2011 and 2010.

Copper Copper

LME Comex Molybdenum Zinc Lead Silver Gold

Metals Prices: ($/lb) ($/lb) ($/lb) ($/lb) ($/lb) ($/oz) ($/oz)

1T 2011 4.36 4.38 17.17 1.08 1.18 31.74 1,384.38

2T 2011 4.15 4.15 16.50 1.02 1.15 38.42 1,504.30

3T 2011 4.07 4.07 14.44 1.00 1.11 38.76 1,700.16

4T 2011 3.41 3.40 13.2 0.86 0.89 31.81 1,685.50

Average 2011 4.00 4.01 15.33 0.99 1.08 35.18 1,568.59

1T 2010 3.30 3.30 16.24 1.05 1.01 16.92 1,110.16

2T 2010 3.19 3.20 16.38 0.93 0.89 18.35 1,196.53

3T 2010 3.30 3.31 15.13 0.93 0.94 18.98 1,227.73

4T 2010 3.91 3.94 15.84 1.06 1.09 26.58 1,370.45

Average 2010 3.43 3.44 15.90 0.99 0.98 20.21 1,226.22

Variance: 4T11 vs. 4T10 -12.8% -13.7% -16.7% -18.8% -18.3% 19.7% 23.0%

Variance: Year 2011 vs. 2010 16.7% 16.4% -3.6% -0.2% 10.2% 74.1% 27.9%

Zinc production. Zinc Electrolyte Refinery.
110 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 111

CONSOLIDATED RESULTS

Consolidated net sales for Grupo México in 2011 reach a record 

high US$10.443 billion, compared to US$8.338 billion in 2010. 

This 25% growth is attributed principally to increased production with the restart of the Buenavista mine, which has been 

operating at maximum capacity since April. During the first half 

of the year we witnessed highs in metals prices and growths in 

the Transportation Division, principally due to increased exportations of consumer goods and freight transportation nationally. 

Sales for the Transportation Division reached US$1.626 billion 

for 2011, a 14% increase over 2010, setting a new record for 

ITM; representing 16% of total revenue, while the Mining Division represented 83% of Grupo México’s total revenue.

The cost of sale for 2011 was US$5.105 billion, a 21% increase 

over 2010, due mainly to mine maintenance, the reincorporation 

of Buenavista del Cobre, higher energy and fuel costs, and 

increased rights of track usage expenses.

Although the prices for our principal supplies and materials may 

experience variances that are beyond our control, the Company 

will continue strict efforts to reduce costs, optimize processes, 

and increase productivity; and will also continue its disciplined 

approach to consumption and expense, which has allowed the 

Company to maintain its position as one of the best low cost 

leading copper producers in terms of cost per pound produced.

As a result, the operating profit reached US$4.607 billion in 

2011, 36% higher than 2010; while the EBITDA operating flow 

reported a record high US$5.192 billion, 32% higher than 2010, 

placing the EBITDA margin at 50% in 2011, an improvement 

over the 47% reported for 2010. 

The majority consolidated net profit for 2011 reached a record 

high US$2.472 billion, a 52% increase over 2010, representing 

a total equivalent to 24% of sales. 

INVESTMENT IN FIXED ASSETS

Grupo México’s consolidated investment program at 

December 31, 2011, reached a record high US$1.217 billion, 

compared to the US$651 million invested in 2010, of which 

US$715 million was allocated to the Mining Division to 

increase production and improve margins with cost savings. 

A record amount was also invested in the Transportation 

Division, US$355 million, which was used to improve the 

railroad infrastructure, construct new sidings, and increase 

the fleet of locomotives. During 2011, 58 locomotives were 

purchased for a total fleet of 770 locomotives, resulting in 

increased speeds and fuel savings. Investments of US$147 

million were made in the Infrastructure Division, principally 

for the construction of two 250 megawatt self-supply 

combined cycle power plants, ensuring the Mining Division’s 

power consumption at a more competitive cost. The total 

investment for this project is estimated at US$540 million. 

The first 250 megawatt plant is scheduled to start operations 

in 4Q13 and the second plant in 2Q14.

Container yard. Torreón, Coahuila.
112 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 113

STOCK DIVIDENDS

During 2011, Grupo México paid out a total of $18,012 billion 

pesos in dividends. The following table shows the per share 

dividend amounts paid out for each quarter over the last two 

years, and also their equivalent when the dividend payment was 

made with new shares.

The Board of Directors sets the dividend amounts considering 

the current capital expenditure program and the future cash flow 

our operations are expected to generate quarterly.

STOCK REPURCHASE FUND

During 2011, Grupo México purchased 20 million treasury 

shares for $722.4 million. This repurchase was carried out 

under the $2.240 billion peso program approved by the Ordinary 

General Shareholders’ Meeting. The repurchase program was 

activated to take advantage of low GMéxico stock prices and 

considering this to offer a better return than cash positions, 

creating greater value for Company shareholders.

CONSOLIDATED NET DEBT

At December 31, 2011, the total consolidated debt of Grupo 

México was US$3.801 billion, which taking into account a 

cash and banks balance of US$2.232 billion, represents net 

debt of US$1.570 billion, maintaining a manageable long term 

amortization schedule.

On April 15, 2011, Ferromex placed 10 year notes for $1.5 

billion pesos at a fixed rate of 8.88%. These resources were 

allocated to finance the purchase of 44 new locomotives.

2011

MX$/share Date of Payment

First Quarter 0.40 May 5, 2011

Second Quarter 0.45 August 19, 2011

Third Quarter* 0.49 November 14, 2011

Fourth Quarter 0.40 February 20, 2012

2010

MX$/share Date of Payment

First Quarter 0.17 May 17, 2010

Second Quarter 0.17 September 10, 2010

Third Quarter 0.25 November 25, 2010

Fourth Quarter 0.30 February 18, 2011

(*) A stock dividend payment was approved in 3Q11 at one share per 389 shares.

Thickeners at the La Caridad Concentrator, Sonora.
114 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 115

COMFORTABLE DEBT MATURITY 

The total consolidated debt of Grupo México has an amortization schedule that 

does not present a difficult financial burden for the Company. The average debt 

amortizations per year between 2012 and 2010 will be US$165 million, with US$400 

million maturing in 2020 being the most significant. The maturity schedule for the 

debt is as follows: 

STOCK PERFORMANCE

GMéxico continues to be one of the most important shares for the Mexican Stock 

Exchange. In 2011, it was the second most traded share and fourth in terms of 

market capitalization.

 

DEBT MATURITY

$285.3 $251.0 $302.00

$225.7

$422.7

$282.8

$1000.0

$1100.0

12 13 14 15 16-20 21-30 35 40

1,400.0

1,000.0

600.0

200.0

0

DERIVATIVE INSTRUMENTS

Grupo México uses derivative instruments to manage its exposure to market risks 

due to variances in international metals prices, energy costs, interest rates, and 

exchange rates. Through its two divisions, Mining and Transportation, Grupo 

México engaged the following derivative instruments:

Mining Division. The subsidiaries AMC, SCC, and Asarco engaged hedging to: a) 

protect prices on a portion of their copper sales; b) fix the energy rates for part of 

their production costs, and c) protect part of their operating costs in the face of an 

appreciation of the Mexican peso against the US dollar.

In 2011 AMC, taking advantage of volatility in the peso/dollar exchange rate and low 

interest rates, engaged a Cross Currency Interest Rate Swap to convert the whole of 

AMC’s debt listed in pesos at a floating rate maturing in December 2014, to dollars 

at a fixed rate. The total amount of the debt was $8.399 billion pesos, with the swap 

negotiated at an exchange rate of $13.60, the debt is equal to US$618 million as of 

September 30, 2011. The loan rate was the 28d TIIE + 425bps (~9.05%), which was 

exchanged for a fixed dollar rate of 5.90%.

Transportation Division. The subsidiary GFM engaged an interest rate derivative to 

cover a bank loan.

GFM holds an interest rate derivative for a US$47.9 million loan, which reports an 

unfavorable valuation as of December 31, 2011 and 2010 of US$2.1 million and 

US$1.9 million, respectively.
116 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 117

Moody ́s Standard & Poor ́s Fitch Ratings

Grupo México

International Rating - BBB BBB

Americas Mining Corporation

International Rating - BBB BBB

Southern Copper Corporation

International Rating Baa2 BBB BBB

US$1 billion Bonos Baa2 BBB BBB

Local Rating - - BBB

Minera México

Local Rating - - BBB

International Rating Baa2 BBB BBB

Secured Bond Baa2 - BBB

Ferromex

Long term Local Rating - MXAA AA+(Mex)

International Rating - - BBB

On January 26, 2012, the ratings firm S&P upgraded its ratings for Grupo México, 

Americas Mining Corporation, Southern Copper Corporation, and Minera México 

from BBB- to BBB. The improved rating is attributable to the Company’s low cost 

structure, geographical diversification, our position as the fifth largest copper 

producer globally, vertical integration, long life reserves, and also our solid financial position.

credit profile

116 GRUPO MÉXICO ANNUAL REPORT

Tripper. Crusher and Conveyor System. Buenavista, Sonora.
118 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 119

GRUPO MÉXICO JOINS THE IPC SUSTAINABILITY INDEX

On December 8, 2011, Grupo México obtained one of the highest ratings as a 

Sustainable Company according to the methodology of the Mexican Stock Exchange 

(BMV), and was chosen to be included in the BMV’s new IPC Sustainability Index. 

This selection recognizes compliance with the adoption of strict sustainability 

criteria, policies, and systems.

The 70 most traded companies were analyzed to develop the “IPC Sustainability 

Index”, meeting the criteria for evaluation based on corporate governance, 

environmental issues, and social responsibility. Two research providers conducted 

the evaluation, the British firm EIRIS (Empowering Responsible Investment) and 

Universidad Anáhuac del Sur in Mexico. The companies included in the Index 

were compared using the average rating EIRIS publishes evaluating over 3,000 

companies worldwide.

Grupo México is proud to be included in the BMV’s first sustainability index, 

reaffirming our commitment to social responsibility, environmental sustainability, 

and corporate governance.

SUMMARY OF OPERATIONS 

BY BUSINESS UNIT

MINING DIVISION – AMERICAS

MINING CORPORATION

The Mining Division of Grupo México is represented by its 

subsidiary Americas Mining Corporation (“AMC”), whose 

principal subsidiaries are Southern Copper Corporation (“SCC”) 

in Mexico and Peru, and Asarco in the United States. SCC trades 

on the New York and Lima stock exchanges. Its stockholders, 

directly or through subsidiaries, are: GMéxico (80.9%) and 

other stockholders (19.1%). The Company operates mines, 

metallurgic plants, and exploration projects in Peru, Mexico, 

the United States, Argentina, Ecuador, and Chile. Asarco was 

reincorporated into GMéxico on December 9, 2009. Asarco has 

3 mines and 1 smelting plant in Arizona and 1 refinery in Texas. 

FINANCIAL HIGHLIGHTS FOR AMERICAS MINING CORPORATION

January - December Variance

(Thousands of Dollars) 2011 2010 US$000 %

Copper Sold (TM) 790,103 701,708 88,395 12.6 

Sales 8,654,639 6,803,189 1,851,450 27.2 

Cost of Sales 3,886,032 3,182,660 703,372 22.1 

Operating Income 4,266,806 3,102,062 1,164,744 37.5 

EBITDA 4,722,775 3,512,389 1,210,386 34.5 

EBITDA Margin (%) 54.6% 51.6% 

Net Earnings 2,347,381 1,475,705 871,676 59.1 

Investments / Capex 714,724 454,299 260,425 57.3 

In October 2011, Grupo México’s Board of Directors, after 

consulting with the SCC Independent Committee, decided 

to maintain the value Asarco represents for its subsidiary 

Americas Mining Corporation and withdrew its offer to combine 

Asarco’s operations with SCC. AMC, as a holding company in 

GMéxico’s Mining Division that consolidates the operations of 

SCC and Asarco, will explore alternative strategies to create 

value through its two subsidiaries, which may include the 

placement of AMC stock on the capital markets to ensure future 

sources of financing and structural adjustments to consolidate 

as a leading mining group.

Water quality analysis. Hayden, Arizona.
120 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 121

MINE PRODUCTION & SALES

Mining Division January - December Variance

2011 2010 %

Copper (t.m.)

Production 772,562 687,980 84,582 12.3 

Sales 790,103 701,708 88,396 12.6 

Molybdenum* (t.m.)

Production 18,570 20,519 (1,949) (9.5)

Sales 18,632 20,508 (1,876) (9.1)

Zinc* (t.m.)

Production 83,807 99,194 (15,387) (15.5)

Sales 90,663 93,964 (3,300) (3.5)

Silver (Miles oz)

Production 14,481 15,242 (761) (5.0)

Sales 17,411 19,584 (2,173) (11.1)

Gold* (Oz)

Production 36,111 17,204 18,907 109.9 

Sales 60,748 69,690 (8,942) (12.8)

*Asarco does not produce this mineral

Sulfuric Acid (t.m.)

Production 2,538,040 2,039,729 498,311 24.4 

Sales 1,887,525 1,462,001 425,524 29.1 

Cash Costs

An indicator we use, and which is common in the mining industry, to measure 

performance is the cash cost per pound of copper produced. Our cash cost is 

a measure that is not found in GAAP as it has no standardized significance and 

cannot be compared with similar measures provided by other companies. We have 

defined our per pound cash cost as the cost of production plus overhead, charges 

for treatment and refining, and costs of sale; less revenues from byproducts and 

sales premiums, divided by the total pounds of copper produced. Our cash cost 

calculation credits the sale of byproducts, principally molybdenum, zinc, and silver, 

and premiums on the market prices we obtain on copper sales, against our costs. 

We calculate our revenues from byproducts in this manner as our principal business 

is the production and sale of copper.

We believe the investor community sees Americas Mining Corporation as a copper 

company and it is valued, largely, by its capacity to produce copper at a reasonable 

cost. We also include premiums on copper sales as a credit as these amounts are 

higher than published copper prices. 

The consolidated Americas Mining Corporation cash cost per pound of copper, net 

of byproducts, increased from US$0.587 per pound of copper in 2010 to US$0.739 

per pound of copper in 2011. Despite the increase in costs, Americas Mining 

Corporation is still an industry leader in low cost.
122 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 123

SCC

35.8

18

41.5

09 10 11

50

40

30

20

0

ASARCO

157.8 151.2

173.9

09 10 11

200

150

100

50

0

AMC Consolidated 

operating cash cost

62.4

58.7

73.9

09 10 11

80

70

60

50 } 0

TRANSPORTATION DIVISION

Infraestructura y Transportes México (ITM)

Financial Highlights for Infraestructura y Transportes México (ITM)

January - December Variance

(Thousands of Dollars) 2011 2010 US$000 %

Vol. Transported (million tons / km) 52,182 52,117 65 0.1 

Sales 1,626,012 1,432,756 193,256 13.5 

Cost of Sales 1,117,820 949,917 167,903 17.7 

Operating Profit 321,279 312,815 8,464 2.7 

EBITDA 464,557 437,320 27,237 6.2 

EBITDA Margin (%) 28.6% 30.5% 

Net Earnings 156,899 206,179 (49,280) (23.9)

Profit Margin (%) 9.6% 14.4% 

Investments - (Capex) 354,752 179,367 175,385 97.8 

RESOURCES, TRANSPORTATION DIVISION

Item Ferromex Ferrosur Total

Track Network (km) 8,111 1,813 9,924 

Locomotives 595 175 770 

Cars 13,961 4,841 18,802 

Employees 7,917 1,998 9,915 

Productivity (millions of TKN / worker) 5.7 3.6 

EBITDA for 2011 was US$464.5 million (equivalent to 28.6% of sales), representing a 6.2% growth over 2010.

ITM focuses on different market niches in the agriculture, industrial, mineral, automotive, chemical, iron and steel products, 

Power shovel. Cuajone, Peru.
124 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 125

cement, energy, and intermodal segments. The transportation of products and 

materials in bulk, particularly over long distances, is more effective and efficient 

by train than by truck. 

98 99 00 01 02 03 04 05 06 07 08 09 10 11

50.000

42.000

34.000

26.000

18.000

10.000

0.00

Año

1,150.000

1,050.000

950.000

850.000

750.000

650.000

0.0

TON-KM

CARS

CARS NET TON KILOMETERS (MILLIONS)

RAIL FREIGHT - ITM

ITM - 2011

Sales by Segment Diversification

1

2

3

4

5

6

7

8

9

10 11 12

1. Agricultural 25%

2. Diesel surcharge 13%

3. Minerals 9%

4. Industrial 9%

5. Automotive 9%

6. Chemicals 8%

7. Energy 6%

8. Steel 6%

9. Intermodal 6%

10. Cement 4%

11. Car-Hire 2%

12. Others 3%

Grain hopper.
ANNUAL REPORT GRUPO MÉXICO 127

Mexico Projects and Development

100%

Infrastructure Division

PEMSA México Compañía 

Constructora

México Generadora 

de Energía

100% 100% 100%

Mining Division

Among the world’s largest producers of Cu, 

Mo, Ag & Zn.

Southern Copper 

Corporation

80.9% 100%

Mexico Division Peru Division

100% 100%

Americas Mining Corporation

(AMC)

100%

Asarco

100% 74% 26%

25.1%

Ferrosur

Grupo Ferroviario 

Mexicano

Infrastructure and Transport, Mexico

(ITM)

74.9%

Transportation Division

Ferromex

100% 100%

Infraestructura 

y Transportes 

Ferroviarios

GMEXICO

The largest & most profitable railroad 

company in Mexico (55% market share).

75 years experience in 

infrastructure & construction 

projects.

corporate structure

Leachable material conveyor belt. Toquepala, Peru.
128 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 129

4.734 4.862

6.655 7.370

7.862

07 08 09 10 11

8000

6000

4000

2000

0

FIXED ASSETS

(MILLIONS OF DOLLARS)

4.271

1.392

3.068

1.101

4.405

6.033

1.661

2.131

1.615

5.566

07 08 09 10 11

7000

5000

3000

1000

0

CURRENT ASSETS CURRENT LIABILITIES

CURRENT ASSETS AND LIABILITIES

(MILLIONS OF DOLLARS)

6,114

5,629

6,574

7,485

8,737

07 08 09 10 11

10000

7500

5000

2500

0

EQUITY CAPITAL

(MILLIONS OF DOLLARS)

0.47

0.32

0.22

0.43

0.59

07 08 09 10 11

0.70

0.50

0.30

0.10

0

OPERATING PROFIT PER SHARE

(DOLLARS)

0.21

0.14

0.11

0.21

0.32

07 08 09 10 11

0.35

0.25

0.15

0.05

0

PER SHARE EARNINGS

(DOLLARS)
130 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 131

6,114

9,745

5,629

8,788

6,574

7,485

12,462

14,598

8,737

07 08 09 10 11

16000

12000

8000

4000

0

EQUITY CAPTIAL AND TOTAL ASSETS

(MILLIONS OF DOLLARS)

15,201

EQUITY CAPITAL TOTAL ASSETS

6,114

3,632

5,629

3,160

6,574

7,485 5,888

7,113 8,737

07 08 09 10 11

8000

6000

4000

2000

0

EQUITY CAPITAL AND TOTAL LIABILITIES

(MILLIONS OF DOLLARS)

6,464

EQUITY CAPITAL TOTAL LIABILITIES

0.60

0.55

0.65

0.77

0.93

07 08 09 10 11

1.00

0.80

0.60

0.40

0

BOOK VALUE PER SHARE

(DOLLARS)

23.23

17.56

15.84

12.22

17.56

07 08 09 10 11

25.00

20.00

15.00

10.00

0

EBITDA / INTERESTS

(TIMES)

2,067

8,181

1,688

7,317

3,418 4,096

9,992

11,581

3,801

08

23

07

25

09

34

10

35

11

 30 %

14000

10500

7000

3500

0

DEBT / EQUITY CAPITAL + DEBT

(MILLIONS OF DOLLARS)

12,539

DEBT EQUITY CAPITAL + DEBT
132 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 133

0.51

0.37

0.27

0.50

0.67

07 08 09 10 11

0.80

0.60

0.40

0.20

0

EBITDA PER SHARE

(DOLLARS)

0.36

0.24

0.21

0.35

0.45

07 08 09 10 11

0.45

0.35

0.25

0.15

0

CASH FLOW PER SHARE

(DOLLARS)

2,067

2,665

-598

3,418

1,162

1,688 1,760

2,998

4,096

1,098

-72

2,256

2,231

3,801

07 08 09 10 11

4,000

3,000

2,000

1,000

0

-1,000

Net Debt

(millions of dollars)

1,570

Total Debt Cash and Banks Net Debt

New Caterpillar Equipment, Buenavista del Cobre. 
134 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 135

BOARD OF DIRECTORS

Grupo México

Emilio Carrillo Gamboa

Alfredo Casar Pérez

Valentín Diez Morodo

Xavier García de Quevedo

Oscar González Rocha

Claudio X. González

Prudencio López Martínez

Antonio Madero Bracho

Fernando Ruiz Sahagún

Agustín Santamarina †

Rolando Vega Saenz

Alberto de la Parra Zavala

Secretary

Christian Lippert Helguera

Alternate Secretary

Germán Larrea Mota Velasco

Chairman

Genaro Larrea Mota Velasco

Vice-Chairman

Executive Officers

Juan Rebolledo Gout

Vice-President, International Relations

Daniel Muñiz Quintanilla 

Chief Financial and Administrative Officer

Alberto de la Parra Zavala

General Counsel

Rafael Ríos García 

Chief Safety Officer

Southern Copper Corporation

Members of the Board of Directors

Germán Larrea Mota Velasco

Chairman

 

Emilio Carrillo Gamboa 

Alfredo Casar Pérez

Xavier García de Quevedo Topete

Oscar González Rocha

Daniel Muñiz Quintanilla 

Luis Castelazo Morales

Enrique Castillo Sánchez Mejorada

Luis Miguel Palomino Bonilla

Gilberto Perezalonso Cifuentes

Juan Rebolledo Gout

Carlos Ruiz Sacristán

Alberto de la Parra Zavala

Executive Officers

Oscar González Rocha

Executive President

Xavier García de Quevedo

Executive President

Genaro Guerrero Díaz-Mercado

Chief Financial Officer

Remigio Martínez Muller

Vice-President, Explorations

Vidal Muhech Dip

Vice-President, Projects

Raúl Jacob Ruisánchez

Comptroller

José de los Heros U.

Vice-President, Sales 

Asarco LLC, Inc. Executive Officers

Oscar González Rocha 

Executive President

Manuel Ramos Rada

Chief Operations Officer

Oscar González Barrón

Chief Financial Officer

Alberto de la Parra Zavala

Secretary to the Board

Jorge Lazalde Psihas

General Counsel
136 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 137

Ferrocarril Mexicano, S.A. de C.V.

Members of the Board of Directors

Germán Larrea Mota Velasco

Chairman

Alfredo Casar Pérez 

Jaime Corredor Esnaola 

Xavier García de Quevedo Topete 

Robert M. Knight Jr. 

Agustín Santamarina Vázquez † 

James R. Young 

Rogelio Vélez López de la Cerda

Albred Anthony Chacón

Alberto de la Parra Zavala

Alternate Secretary

Christian Lippert Helguera

Secretary

Executive Officers

Alfredo Casar Pérez 

Executive President

Rogelio Vélez López de la Cerda

Chief Executive Officer 

Lorenzo Reyes Retana Márquez Padilla

Chief Operations Officer

Terrence Mc. Dermott 

Vice-President, Sales

Octavio Ornelas Esquinca 

Chief Financial and Administrative Officer

Ferrosur, S.A. de C.V.

Alfredo Casar Pérez

Executive President 

Rogelio Vélez López de la Cerda

Chief Executive Officer

Intermodal México, S.A. de C.V.

Hilario Gabilondo Picollo

Chief Executive Officer

México Proyectos y Desarrollos, S.A. de C.V.

Xavier García de Quevedo

Executive President

Federico Schroeder Contreras

Chief Executive Officer, Ingeniería y Construcción

Julio Larrea Mena

Chief Executive Officer, México Compañía 

Constructora Industrial

Ricardo Arce Castellanos

Chief Executive Officer, Perforadora México

José Luis Berjón 

Chief Executive Officer, Consutec

DESIGN: DESIGN CENTERTM
ANNUAL REPORT GRUPO MÉXICO 1

Independent Auditors’ Report 02

Consolidated Balance Sheets 04

Consolidated Statements of Income 05

Consolidated Statements of Stockholders’ Equity 06

Consolidated Statements of Cash Flows 08

Notes to Consolidated Financial Statements 10

Grupo México, S. A. B. de C. V. and Subsidiaries

Consolidated Financial Statements for the Years

Ended December 31, 2011 and 2010 and Independent

Auditors’ Report Dated March 30, 2012

Grupo México, S. A. B. de C. V. and Subsidiaries

Independent Auditors’ Report and Consolidated Financial Statements for 2011 and 2010
2 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 3

We have audited the accompanying consolidated balance sheets of Grupo México, 

S. A. B. de C. V. and subsidiaries (the “Company”) as of December 31, 2011 and 

2010, and the related consolidated statements of income, stockholders’ equity, and 

cash flows for the years then ended. These financial statements are the responsibility 

of the Company’s management. Our responsibility is to express an opinion on these 

financial statements based on our audits. 

We conducted our audits in accordance with auditing standards generally accepted 

in the United States of America. Those standards require that we plan and perform 

the audit to obtain reasonable assurance about whether the financial statements are 

free of material misstatement. An audit includes consideration of internal control over 

financial reporting as a basis for designing audit procedures that are appropriate in the 

circumstances, but not for the purpose of expressing an opinion on the effectiveness 

of the Company’s internal control over financial reporting. Accordingly, we express no 

such opinion. An audit also includes examining, on a test basis, evidence supporting 

the amounts and disclosures in the financial statements, assessing the accounting 

principles used and significant estimates made by management, as well as evaluating 

the overall financial statement presentation. We believe that our audits provide a 

reasonable basis for our opinion.

Independent Auditors’ Report to the Board of Directors 

and Stockholders of Grupo México, S. A. B. de C. V. and 

Subsidiaries

In our opinion, such consolidated financial statements present fairly, in all material 

respects, the financial position of Grupo México, S. A. B. de C. V. and subsidiaries 

as of December 31, 2011 and 2010, and the results of their operations, stockholders ́ 

equity and their cash flows for the years then ended, in conformity with accounting 

principles generally accepted in the United States of America.

Galaz, Yamazaki, Ruiz Urquiza, S. C.

Member of Deloitte Touche Tohmatsu Limited

C. P. C. Luis Javier Fernández Barragán

March 30, 2012
4 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 5

Grupo México, S. A. B. de C. V. and Subsidiaries

Consolidated Balance Sheets

As of December 31, 2011 and 2010 (In thousands of U.S. dollars)

Grupo México, S. A. B. de C. V. and Subsidiaries

Consolidated Statements of Income

For the years ended December 31, 2011 and 2010 (In thousands of U.S. dollars, except for income per share amounts)

Assets 2011 2010

Current assets:

Cash and cash equivalents $ 2,229,281 $ 2,999,623

Restricted cash 190,478 210,483

Short-term investments 523,572 80,496

 Trade accounts receivables 963,134 968,507

Other accounts receivable 294,548 261,693

Inventories – Net 1,092,463 990,253

Prepaid expenses and other 94,531 19,138

Deferred income tax 332,769 401,514

Total current assets 5,720,776 5,931,707

Restricted cash 36,344 38,010

Property, plant and equipment – Net 7,642,150 6,920,125

Concession titles – Net 219,666 79,806

Investments in shares of associated companies, other unconsolidated subsidiaries and other investments 663,981 725,845

Leachable material – Net 167,953 65,222

Other intangible assets – Net 224,713 232,446

Deferred income tax 1,056,165 996,740

Other assets 169,456 147,653

Total assets $ 15,901,204 $ 15,137,554

Liabilities and Stockholders’ Equity

Current liabilities:

Bank loan and current portion of long-term debt $ 286,874 $ 262,002

Accounts payable and accrued liabilities 841,054 790,254

Due to related parties 8,338 120,488

Income tax payable 191,673 245,854

Employees’ statutory profit sharing 262,030 241,622

Derivative financial instruments 15,674 375,004

Total current liabilities 1,605,643 2,035,224

Long-term debt 3,514,545 3,695,195

Labor liabilities 527,954 476,855

Deferred income tax 945,361 913,063

Non current tax payable 229,836 185,932

Other liabilities and reserves 339,158 343,519

Total liabilities 7,162,497 7,649,788

Stockholders’ equity:

Stockholders’ equity of Grupo México, S. A. B. de C. V.

Common stock (shares authorized and issued: 2011 and 2010, 7,785,000,000, respectively) 2,003,496 2,003,496

Reserve for shares purchase 243,306 243,306

Additional paid-in capital 9,043 9,043

Treasury stock (547,518) (344,646)

Accumulated other comprehensive loss (233,002) (291,955)

Retained earnings 5,782,353 4,347,524

Stockholders’ equity of Grupo México, S. A. B. de C. V. 7,257,678 5,966,768

Noncontrolling interest 1,481,029 1,520,998

Total stockholders’ equity 8,738,707 7,487,766

Total liabilities and stockholders’ equity $ 15,901,204 $ 15,137,554

See the accompanying notes to these consolidated financial statements.

2011 2010

Income:

Net sales $ 8,654,639 $ 6,803,190

Service revenue 1,718,429 1,279,852

 10,373,068 8,083,042

Costs and operating expenses:

Cost of sales (exclusive of depreciation, amortization and depletion) 5,023,556 4,017,172

Administrative expenses 172,674 249,155

Depreciation, amortization and depletion 500,758 483,473

Exploration 38,386 38,240

 5,735,374 4,788,040

Income from operations 4,637,694 3,295,002

Interest expense 358,996 309,939

Capitalized interest (5,851) (7,462)

Interest income (28,975) (109,789)

 Foreign exchange (income) loss (18,413) 33,688

Loss on derivative instruments 1,509 2,886

 307,266 229,262

Income before income taxes 4,330,428 3,065,740

Income taxes 1,302,094 1,030,892

Equity in the results of associated companies and other unconsolidated subsidiaries 11,127 27,453

Consolidated net income 3,039,461 2,062,301

Less: net income attributable to noncontrolling interest (567,798) (451,786)

Net income attributable to Grupo México, S. A. B. de C. V. $ 2,471,663 $ 1,610,515

Net earnings - basic and diluted income per share. $ 0.32 $ 0.21

Dividends paid $ 0.13 $ 0.06

Weighted average shares outstanding ( ́000) 7,785,000 7,785,000

See the accompanying notes to these consolidated financial statements.
6 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 7

Grupo México, S. A. B. de C. V. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

For the years ended December 31, 2011 and 2010 (In thousands of U.S. dollars)

Outstanding 

shares 

in thousands

Common

stock

Reserve 

for shares 

purchase

Additional

paid-in

capital

Treasury

stock

Accumulated 

other 

comprehensive 

loss

Retained 

earnings

Stockholders’ 

equity of Grupo 

Mexico, SAB 

de CV

Non controlling 

interest Total

Balances as of December 31, 2009 $ 7,785,000 $ 2,003,496 $ 369,050 $ 9,043 $ (346,049) $ (127,862) $ 3,180,909 $ 5,088,587 $ 1,485,035 $ 6,573,622

Treasury stock - - (125,744) - - - 125,744 - - -

Dividends paid - - - - - - (453,560) (453,560) (311,600) (765,160)

Acquisition of non controlling interest - - - - - - (116,084) (116,084) (75,914) (191,998)

Decrease in treasury stock - - - - 1,403 - - 1,403 - 1,403

Comprehensive result:

Consolidated net income - - - - - - 1,610,515 1,610,515 451,786 2,062,301

Unrealized loss on hedge derivative instruments

net of income tax of $71,430 - - - - - (206,491) - (206,491) (25,107) (231,598)

Cumulative translation adjustment - - - - - 42,398 - 42,398 (3,202) 39,196

- - - - - (164,093) 1,610,515 1,446,422 423,477 1,869,899

Balances as of December 31, 2010 7,785,000 2,003,496 243,306 9,043 (344,646) (291,955) 4,347,524 5,966,768 1,520,998 7,487,766

Repurchase of shares (20,000) (3,270) (44,751) - (9,385) - - (57,406) - (57,406)

Dividends paid - (988,813) (988,813) (476,905) (1,465,718)

Dividends paid in shares 20,000 3,270 44,751 - - - (48,021) - - -

Increase treasury stock - - - - (193,487) - - (193,487) - (193,487)

Comprehensive result:

Consolidated net income - - - - - - 2,471,663 2,471,663 567,798 3,039,461

Unrealized gain on hedge derivative instruments

net of income tax of $67,930 - - - - - 296,428 - 296,428 25,024 321,452

Cumulative translation adjustment - - - - - (237,475) - (237,475) (155,886) (393,361)

- - - - - 58,953 2,471,663 2,530,616 592,822 2,967,552

Balances as of December 31, 2011 $ 7,785,000 $ 2,003,496 $ 243,306 $ 9,043 $ (547,518) $ (233,002) $ 5,782,353 $ 7,257,678 $ 1,481,029 $ 8,738,707

See the accompanying notes to these consolidated financial statements.
8 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 9

Grupo México, S. A. B. de C. V. and Subsidiaries

Consolidated Statements of Cash Flows 

For the years ended December 31, 2011 and 2010 (In thousands of U. S. dollars)

2011 2010

Operating:

Consolidated net income $ 3,039,461 $ 2,062,301

Charges (credits) not requiring (providing) resources:

Seniority premiums and compensation for retirement (7,214) (11,661)

Equity in the results of associated companies and other unconsolidated subsidiaries (11,127) (27,453)

Depreciation, amortization and depletion 500,758 483,473

(Gain) loss cumulative translation adjustment (70,253) 54,194

Deferred income tax and employees’ statutory profit sharing 37,519 98,494

(Gain) loss on sale of property (878) 2,372

Other (16,147) 5,092

 3,471,849 2,666,812

Changes in operating assets and liabilities:

Accounts receivable 5,373 (338,983)

Inventories (204,941) (85,932)

Accounts payable, accrued liabilities and other liabilities (336,799) 1,013,850

Net cash provided by operations (536,367) 588,935

Investing:

Additions to property and equipment (1,216,763) (603,629)

Other investment acquisitions (163,347) (343,948)

Sale of property 12,575 8,671

Restricted cash 20,005 (14,132)

Sale of marketable securities (443,076) (124,704)

Net cash used in investing activities (1,790,606) (1,077,742)

2011 2010

Financing:

Proceeds from notes payable 191,682 1,500,148

Debt repaid (350,916) (1,026,696)

Dividends paid to controlling and noncontrolling stockholders (1,465,718) (765,160)

(Increase) decrease in treasury stock (308,432) 1,403

Net cash used in financing activities (1,933,384) (290,305)

(Decrease) increase in cash and cash equivalents (788,508) 1,887,700

Effect of exchange rate changes on cash and cash equivalents 18,166 (50,041)

 (770,342) 1,837,659

Cash and cash equivalents at beginning of year 2,999,623 1,161,964

Cash and cash equivalents at end of year $ 2,229,281 $ 2,999,623

RSupplemental disclosure of cash flow information:

Cash paid during the year for:

Interest $ 286,288 $ 394,112

Income taxes $ 1,219,405 $ 676,314

Employees’ statutory profit sharing $ 249,046 $ 158,270

Non cash Ferrosur consolidation disclosure

Net Ferrosur equity $ 327,256 $ - 

See the accompanying notes to these consolidated financial statements.
10 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 11

Grupo México, S. A. B. de C. V. and Subsidiaries

Notes to Consolidated Financial Statements

For the years ended December 31, 2011 and 2010 (In millions of U.S. dollars)

1. Nature of business, basis of presentation and foreign currency financial statements

Nature of business - The operating companies that comprise Grupo México, S. A. B. de C. V. and subsidiaries (collectively 

“the Company” or GMEXICO) are in the metallurgical mining, freight railway and infraestructure services industries. They 

engage in the exploration, mining and processing of metallic and nonmetallic minerals, the mining of coal, provide multi-use 

and freight railway services and provide infraestructure services.

The Company’s mining operations are contained through its wholly owned subsidiary Americas Mining Corporation (“AMC”), 

which in turn is parent company of Southern Copper Corporation (“SCC”) and Asarco Inc. (“Asarco”).

SCC and subsidiaries comprise an integrated producer of copper and other minerals, which operates mining, smelting and 

refining facilities in Peru and Mexico. SCC and subsidiaries conduct their Peruvian operations through a registered branch 

(“the Branch”). The Branch is not a corporation separate from SCC. The Company’s Mexican operations are conducted 

through Minera México, S. A. de C. V. and subsidiaries (“MM”).

The Branch produces copper and other minerals through the operation of two mining facilities, a smelting facility, a solvent 

extraction/electro winning (SX/EW) facility and a refining facility, all located in southern Peru.

MM and its subsidiaries produce copper in Mexico through the operation of two major open-pit mines, three solvent extraction/electro winning (SX-EW) facilities, two smelting facilities and a refining facility, one precious metals refining facility and 

one copper wire facility. MM’s operations also include five underground mining facilities producing lead, zinc and copper 

concentrates, a zinc refining facility, a coal mine and a coke plant.

Asarco produces copper through its operation of three major open-pit mines, two smelting facilities, one of which is currently 

on standby, two solvent extraction/electro winning (SX-EW) facilities and a refining facility. Operations in the United States of 

America (“U. S.”) also include a lead smelter facility.

The Company’s railway system operations are carried out by Infraestructura y Transportes México, S. A. de C. V. (“ITM”), in 

which GMEXICO owns 75%. The remaining 25% of ITM is owned by Sinca Inbursa, S. A. B. de C. V. and Grupo Carso, S. A. B. 

de C. V.. ITM owns 74% of Grupo Ferroviario Mexicano, S. A. de C. V. (“GFM”), which, owns a 100% of Ferrocarril Mexicano, 

S. A. de C. V. (“Ferromex”). The remaining 26% of GFM is owned by Union Pacific.

On November 24, 2005, the Company reported that ITM, through its recently incorporated subsidiary, Infraestructura y 

Transportes Ferroviarios, S. A. de C. V. (“ITF”), acquired 99.99% of the capital stock of Ferrosur, S. A. de C. V. (“Ferrosur”) from Sinca Inbursa, S. A. de C. V. (“Sinca”) and Grupo Condumex, S. A. de C. V. (“GCondumex”). In accordance 

with guidance set forth in Accounting Standards Codification (“ASC”) Topic 805, “Business Combinations”, it is necessary to have the Federal Antitrust Commission’s final authorization before the Company can consolidate Ferrosur. On 

November 8, 2006, the Federal Antitrust Commission denied the acquisition of Ferrosur by ITF. As a result, ITM and 

ITF initiated a legal proceeding to revoke the above mentioned ruled proposed by the Federal Tax and Administrative 

Justice Court. Because of the aforementioned circumstances and as long as the said authorization remains pending, 

until march 31, 2011 the investments in Ferrosur was accounted for using the equity method in GMEXICO’s consolidated financial statements.

Beginning April, 2011 the Company consolidated the Ferrosur financial statements due to the authorization granted by the 

First Collegiate Circuit Court in Administrative Matters. See more comments in Note 8.

ITM, through its wholly owned subsidiary, GFM, was formed to participate in the privatization of the Mexican Railway System. 

The main subsidiary of GFM is Ferromex, which is engaged in providing freight and multi-modal railroad services and related 

activities, including land transportation, storage and other complementary railroad transportation services. The Mexican Federal Government granted Ferromex a 50-year concession (exclusive for 30 years) to operate the branches known as NorthPacific and the Ojinaga-Topolobampo Short Line. The concession is renewable, subject to certain conditions, for a similar 

period. In addition, the Mexican Federal Government also sold certain fixed assets and the materials necessary to operate 

Ferromex, plus 25% of the shares of Ferrocarril y Terminal del Valle de México, S. A. de C. V. (“FTVM”), the entity responsible for operating the México City Terminal. In August 1999, Ferromex obtained the rights to operate the Nogales -Nacozari 

Short Line concession for 30 years, renewable for a period not exceeding 50 years, beginning on September 1, 1999. GFM 

accounts for this 25% investment in FTVM under the equity method. In addition, ITM through its subsidiary Ferrosur operates 

the Southeast Railroad track concession granted by the government.

The operations under MM, ITM, GFM and Infraestructure and their respective subsidiaries are collectively referred to as the 

“Mexican Operations”. The operations under the Branch are collectively referred to as the “Peruvian Operations”. Asarco ́s 

operations are referred to as the “American Operations”.

The infraestructure sector operations are realized by Mexico Proyectos y Desarrollos, S. A. de C. V. (“MPD”), which owns 

100% of the capital stock of Mexico Compañía Constructora, S. A. de C. V. (“MCC”) and Mexico Constructora Industrial, 

S. A. de C. V. (“MCI”), and by Compañía Perforadora México, S. A. P. I. de C. V. (“PEMSA”), in which on January 28, 2010, 

GMEXICO acquired the remaining 80% of PEMSA’s capital stock.

Controladora de Infraestructura Petrolera México, S. A. de C. V. (“CIPM”) was incorporated in 2011. CIPM, the main purpose 

of the company will be promote, establish, organize, browse, purchase and take equity or equity of all kinds of companies or 

civil associations or companies.
12 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 13

PEMSA’s main operation is oil well drilling and providing related integral maintenance services. To date, PEMSA has provided 

services to Pemex for more than 50 years, and owns land and sea drilling platforms. Additional services provided by PEMSA 

include cementation engineering, directional drilling. PEMSA also participates in drilling water wells for mining industry companies in Mexico. This investment is part of GMEXICO’s strategy to increase its participation in the infraestructure industry 

and expand its catalog in engineering and construction services.

MCI and MCC provide direct or indirect construction and engineering services for public and private infraestructure projects, 

including hydroelectric and storage dams, highways, thermoelectric plants, railroad projects, mining projects, manufacturing 

plants, petrochemical plants and housing projects.

Significant Events - 

i. SCC share exchange - On July 22, 2010, SCC received a non-binding proposal from AMC, offering to effect a share 

exchange in which all stockholders of SCC would receive 1.237 common shares of AMC in exchange for each share 

of SCC. Under this proposal, AMC stock would be registered and listed on the New York, Mexico and the Lima Stock 

Exchanges. Once the listing and registration of the Company shares are completed, SCC’s shares would be delisted from 

the exchanges. In October 2011, AMC announced, in light of discussions with a committee of is independent directors, 

that it had withdrawn the proposed transaction to combine AMC and SCC.

As a result of the repurchase of shares of SCC’s common stock Grupo Mexico’s direct and indirect ownership was 80% 

as of December 31,2010 and increased to 80.9% at December 31, 2011.

AMC and several directors of SCC are named defendants in the Lemon Bay litigation disclosed in “Class actions” in 

note 23 “Contingencies.” SCC has also been named as a nominal defendant. All defendants have appealed the judgment 

issued on December 29, 2011. 

ii. Acquisition of PEMSA - In February 2010, the Company acquired from the principal shareholder of GMEXICO the remaining 80% of the equity at $192 subsequent to the respective approval obtained from the authorities. The acquisition 

of the noncontrolling interest in 2010 resulted in a deficit of $116 which was recorded in retained earnings.

2. Basis of presentation:

a. Comparability - As mentioned in Note 1, the Ferrosur acquisition was approved in April 2011. As of the approval date, 

the acquired subsidiary financial statements are consolidated in GMEXICO financial statements. Consequently, the 

consolidated statements of income of 2010 and the first quarter of 2011 do not include Ferrosur  ́s results while from 

April through December 2011 such results are included. This situation affects the comparability of the 2011 and 2010 

consolidated statements of income.

b. Consolidation principles - The accompanying financial statements include the consolidation of the financial statements of GMEXICO (as parent and holding company) and those of its subsidiaries, over which the Company exercises 

control. These consolidated financial statements were prepared under accounting principles generally accepted in the 

United States of America (“U. S. GAAP”).

The Company’s direct consolidated subsidiaries are shown below:

Company Ownership 

Percentage

Ownership 

Percentage

Activity

2011 2010

Americas Mining Corporation (AMC) 100% 100% Exploration and extraction of minerals

Infraestructura y Transportes Mexico, S. A. 

de C. V. (ITM) 74.9% 74.9%

Freight and multimodal railway 

services

Compañía Perforadora Mexico, 

S. A. P. I. de C. V. (PEMSA) 100% 100%

Drilling and maintenance of oil wells

México Proyectos y Desarrollos, S. A. 

de C. V. (MPD) 100% 100%

Public and private infraestructure and 

construction

Grupo México Servicios, S. A. de C. V. 

(GMS) 100% 100%

Administrative and personnel services

Controladora de Infraestructura Petrolera 

México, S. A. de C. V. (CIPM) * ...100% -

Public and private infraestructure and 

construction

(*) CIPM was incorporated on December 13, 2012. No operations were performed as of December 31, 2011.

All significant intercompany transactions and balances have been eliminated in consolidation.

The permanent investments in the entities in which control is held are consolidated in these financial statements because 

they grant the power to govern the entity’s financial and operational policies. The investments over which the Company 

does not have significant control are recognized by the equity method.
14 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 15

c. Foreign currency financial statements - In accordance with local laws, the Peruvian branch keeps its accounting 

books in Peruvian nuevos soles; and MM and ITM and infraestructure division in Mexican pesos.

In the mining division, the functional currency is the U. S. dollar, therefore, foreign currency assets and liabilities are 

remeasured into U. S. dollars at current exchange rates except for non-monetary items such as inventory, property, plant 

and equipment, intangible assets, other assets and stockholders’ equity which are remeasured at historical exchange 

rates. Revenues and expenses are generally translated at actual exchange rates in effect during the period, except for 

those items related to balance sheet amounts that are remeasured at historical exchange rates. Gains and losses from 

foreign currency remeasurement are included in earnings of the period.

The gains and (losses) resulting from foreign currency transactions are included in “Cost of sales (exclusive of depreciation, amortization and depletion)”.

The functional currency of ITM, ITF and construction companies is the Mexican peso. Therefore, these entities use the 

current rate translation method to translate its financial statements in to U. S. dollars. The current rate method requires 

the translation of all assets and liabilities using the year-end exchange rate and the capital stock continues to be translated at historical exchange rates. The components of the statements of operations, including foreign exchange gains 

and losses recorded in Mexican pesos as a result of fluctuations in the rate of exchange between the Mexican pesos 

and the U. S. dollars, are translated at the average exchange rate for the period. The effect of the exchange rate on the 

translation is reflected as a component of accumulated other comprehensive loss within stockholders’ equity. The gains 

and (losses) from foreign currency transactions are shown in the consolidated statements of income.

The consolidated financial statements should not be construed as representations that Mexican pesos had been, could 

have been or may be converted in the future into U. S. dollars at such rates or any other rates.

Relevant exchange rates used in the preparation of these consolidated financial statements were as follows:

2011 2010

Mexican pesos (Ps) per one U. S. dollar:

Current exchange rate at December 31 Ps. 13.9787 Ps. 12.3571

Weighted average exchange rate for the year ended Ps. 12.4272 Ps. 12.6366

Peruvian nuevos soles (Pns) per one U. S. dollar:

Current exchange rate at December 31 Pns. 2.6970 Pns. 2.8090

Weighted average exchange rate for the year ended Pns. 2.7549 Pns. 2.8258

d. Use of estimates - The preparation of financial statements in conformity with U. S. GAAP requires management to 

make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent 

assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during 

the reporting period. Significant items subject to such estimates and assumptions include: ore reserves that are the 

basis for future cash flow estimates and amortization calculations; environmental, reclamation, closure and retirement 

obligations; estimates of recoverable copper in mill and leach stockpiles; asset impairments (including estimates of 

future cash flows); bad debts; inventory obsolescence; deferred and current income tax; valuation allowances for deferred tax assets; reserves for contingencies and litigation; and fair value of financial instruments. The Company bases 

its estimates on the historical experience and on various other assumptions that are believed to be reasonable under the 

circumstances. Actual results could differ from those estimates.

e. Reclassifications - Certain amounts in the consolidated financial statements as of and for the year ended December 31, 

2010 have been reclassified in order to conform to the presentation of the consolidated financial statements as of and for 

the year ended December 31, 2011. Such reclassifications applied to correct departures from U. S. GAAP are immaterial.

3. Significant accounting policies:

A summary of the significant accounting policies used in the preparation of the accompanying consolidated financial statements follows:

a. Revenue recognition - Substantially all of the Company’s copper is sold under annual or other longer-term contracts. 

Revenue is recognized when title passes to the customer. The passing of title is based on terms of the contract, generally 

upon shipment. Copper revenue is determined based on the monthly average of prevailing commodity prices according 

to the terms of the contracts. The Company provides allowances for doubtful accounts based upon historical bad debt, 

claims experience and periodic evaluation of specific customer accounts.

For certain of the Company’s sales of copper and molybdenum products, customer contracts allow for pricing based 

on a month subsequent to shipping, in most cases within the following three months and occasionally in some cases a 

few additional months. In such cases, revenue is recorded at a provisional price at the time of shipment. The provisionally priced copper sales are adjusted to reflect forward in the London Metal Exchange (“LME”) or in the Commodities 

Exchange in New York (“COMEX”) copper prices at the end of each month until a final adjustment is made to the price of 

the shipments upon settlement with customers pursuant to the terms of the contract. In the case of molybdenum sales, 

for which there are no published forward prices, the provisionally priced sales are adjusted to reflect the market prices 

at the end of each month until a final adjustment is made to the price of the shipments upon settlement with customers 

pursuant to the terms of the contract.
16 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 17

These provisional pricing arrangements are accounted for separately from the contract as an embedded derivative 

instrument under ASC 815-15 “Derivatives and Hedging – embedded derivatives” (in prior literature SFAS 133 “Accounting for Derivative Instruments and Hedging Activities”). 

The Company sells copper in concentrate, rod, anode, cathode, blister and refined form at industry standard commercial terms. Net sales include the invoiced value and corresponding fair value adjustment of the related forward contract 

of copper, zinc, silver, molybdenum, acid and other metals.

ITM and subsidiaries recognize revenue as transportation services in the period services are rendered as the shipment 

moves from origin.

PEMSA, MCC and MCI recognize revenues based on the “percentage of completion” method, in which revenue is 

recognized according to the cumulative costs incurred as a percentage of total estimated costs required to finish 

the project. If the most recent cost estimate exceeds the total revenue contracted, a loss is recorded to income of 

the period

b. Shipping and handling fees and costs - Amounts billed to customers for shipping and handling, are classified as 

sales. Amounts incurred for shipping and handling are included in cost of sales (exclusive of depreciation, amortization and depletion).

c. Cash and cash equivalents - Cash and cash equivalents consist mainly of bank deposits in checking accounts and 

short-term investments with maturities less than three months. Cash is stated at nominal value and cash equivalents 

are valued at fair value

d. Restricted cash - Consists of cash in the custody of Asarco and AMC for which the use in whole or in part is restricted for specific purposes pursuant to binding agreements. The restricted cash, including both current and longterm balances at December, 31, 2011 and 2010, were $226.8 and $248.5, respectively. The carrying value of these 

investments approximates fair value and is classified as Level 1 inputs in the fair value hierarchy.

e. Short-term investments - The Company accounts for short-term investments in accordance with ASC 320-10 

“Investments Debt and Equity Securities Recognition” (in prior literature SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities). The Company determines the appropriate classification of all short-term 

investments as held-to-maturity, available-for-sale or trading at the time of purchase and re-evaluates such classifications as of each balance sheet date. Unrealized gains and losses on available-for-sale investments, net of taxes, 

are reported as a component of accumulated other comprehensive income (loss) in stockholders’ equity, unless such 

income (loss) is deemed to be other than temporary. At the end of 2011 and 2010, the Company does not hold any 

held-to-maturity investments.

f. Inventories - Metal inventories, consisting of work- in-process and finished goods, are carried at the lower of average 

cost or market. Costs incurred in the production of metal inventories exclude general and administrative costs.

Work-in-process inventories represent materials that are in the process of being converted into a saleable product. Conversion processes vary depending on the nature of the copper ore and the specific mining operation. For sulfide ores, 

processing includes milling and concentrating and results in the production of copper and molybdenum concentrates. 

Molybdenum in-process inventory includes the cost of molybdenum concentrates and the costs incurred to convert 

those concentrates into various high-purity molybdenum chemicals or metallurgical products.

Finished goods include saleable products (e.g., copper concentrates, copper anodes, blister copper, copper cathodes, 

copper rod, molybdenum concentrates and other metallurgical products).

Supplies inventories are carried at average cost less a reserve for obsolescence.

Inventories consist primarily of rails, railroad ties and other materials for maintenance of property and equipment, as 

well as diesel fuel used in providing railroad services. Inventories are stated at the lower of cost or realizable value, using 

average cost method. Also, the cost of sales is recognized at historical cost of the purchased inventories during 2011 

and 2010. Values thus determined do not exceed their market value.

The allowance for obsolete inventory is considered sufficient to absorb losses on these concepts, which is determined 

according to studies by the administration of ITM.

g. Property, plant and equipment - Property, plant, mining, railway and drilling equipment are recorded at acquisition 

cost, net of accumulated depreciation and amortization.

Cost includes major expenditures for improvements and replacements, which extend the useful lives or increase capacity and interest costs associated with significant capital additions. Maintenance, repairs, normal development costs at 

existing mines and gains or losses on assets retired or sold are reflected in earnings as incurred.

Buildings and equipment are depreciated on the straight-line method over their estimated lives ranging from 5 to 40 

years or the estimated life of the mine if shorter.

The Mexican railway operation uses the straight-line method based on the estimated useful lives of the assets ranging 

from 4 to 50 years.

h. Mine development - Mine development includes primarily the cost of acquiring land rights to an exploitable ore body, 

pre-production stripping costs at new mines that are commercially exploitable, costs associated with bringing new mi-
18 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 19

neral properties into production, and removal of overburden to prepare unique and identifiable areas outside the current 

mining area for such future production. Mine development costs are amortized on a unit of production basis over the 

remaining life of the mines.

There is a diversity of practices in the mining industry in the treatment of drilling and other related costs to delineate new 

ore reserves. The Company follows the practices delineated in the next two paragraphs in its treatment of drilling and 

related costs.

Drilling and other associated costs incurred in the Company’s efforts to delineate new resources, whether near-mine 

or Greenfield are expensed as incurred. These costs are classified as mineral exploration costs. Once the Company 

determines through feasibility studies that proven and probable reserves exist and that the drilling and other associated 

costs embody a probable future benefit that involves a capacity, singly or in combination with other assets, to contribute 

directly or indirectly to future net cash inflow, then the costs are classified as mine development costs. These mine 

development costs incurred prospectively to develop the property are capitalized as incurred, until the commencement 

of production, and are amortized using the units of production method over estimated life of the ore body. During the 

production stage, drilling and other related costs incurred to maintain production are included in production cost in the 

period in which they are incurred.

Drilling and other related costs incurred in the Company’s efforts to delineate a major expansion of reserves at an existing production property are expensed as incurred. Once the Company determines through feasibility studies that proven and probable incremental reserves exist and that the drilling and other associated costs embody a probable future 

benefit that involves a capacity, singly or in combination with other assets, to contribute directly or indirectly to future 

net cash inflow, then the costs are classified as mine development costs. These incremental mine development costs 

are capitalized as incurred, until the commencement of production and amortized using the units of production method 

over the estimated life of the ore body. A major expansion of reserves is one that increases total reserves at a property 

by approximately 10%.

For the years ended December 31, 2011 and 2010 the Company did not capitalize any drilling and related costs. The net 

balance of capitalized mine development costs at December 31, 2011 and 2010 were $39.8 and $42.1, respectively.

i. Value Beyond Proven and Probable Ore Reserves - Included as a component of property on the consolidated balance sheets at December 31, 2011 and 2010, are values for ore bodies beyond proven and probable reserves (“VBPP”). 

VBPP is attributable to (i) mineralized material, which includes measured and indicated amounts that the Company 

believes could be brought into production with the modification of existing permits and should market conditions and 

technical assessments warrant, (ii) inferred mineral resources, and (iii) exploration potential. Mineralized material is a 

mineralized body that has been delineated by appropriately spaced drilling and/or underground sampling to support 

reported tonnage and average grade of minerals. Such a deposit does not qualify as proven and probable reserves until 

legal and economic feasibility are confirmed based upon a comprehensive evaluation of development costs, unit costs, 

grades, recoveries, and other material factors. Inferred mineral resources are those parts of a mineral resource for which 

the overall tonnages, grades, and mineral contents can be estimated with a reasonable level of confidence based on geological evidence and apparent geological and grade continuity after applying economic parameters. An inferred mineral 

resource has a lower level of confidence than that applying to an indicated mineral resource.Exploration potential is the 

estimated value of potential mineral deposits that the Company has the legal right to access. Carrying amounts assigned 

to VBPP are not charged to expense until the asset becomes associated with additional proven and probable reserves 

and they are produced or the asset is determined to be impaired. Transfers from VBPP to provien reserves are recorded 

at the carrying value. Additions to proven and probable reserves for properties with VBPP will carry with them the value 

assigned to VBPP at the date the Company acquired Asarco.

j. Capitalization of railway improvements and maintenance - Railway improvements and maintenance are capitalized in the caption “”Rails and structures”, when the components of more than 20% of a track section are changed. 

The capitalized items are depreciated at an average rate between 3.3% and 6.6%. When maintenance or repairs do not 

require changing the components of more than 20% of one section of a track, the cost is expensed as incurred.

k. Capitalization of overhauls - Regular maintenance and repair costs are expensed as incurred. The costs of a locomotive overhauls, which extend the useful life, are capitalized and amortized over a term ranging from 4 to 10 years, 

depending on the type of overhaul.

l. Concession titles - Concessions titles are recorded at their adjudication cost. Amortization is calculated using the 

straight-line method, based on the remaining estimated useful life of the fixed assets under concession, which was an 

average of 30.3 years (as determined by independent experts), as of the date the concessions were granted.

m. Asset retirement obligations (reclamation and remediation costs) - The fair value of a liability for asset retirement 

obligations is recognized in the period in which the liability is incurred. The liability is measured at fair value and is adjusted to its present value in subsequent periods as accretion expense is recorded. The corresponding asset retirement costs 

are capitalized as part of the carrying value of the related long-lived assets and depreciated over the asset’s useful life.

n. Intangible assets - Intangible assets include primarily the excess amount paid over the book value for investment 

shares of the Branch and mining and engineering development studies. Intangible assets are carried at its acquisition 

cost net of accumulated amortization and are amortized principally on a unit of production basis over the estimating 

remaining life of the mines. Intangible assets are reviewed for impairment whenever events or changes in circumstances 

indicate that the carrying amount of the asset may not be recoverable.

o. Debt issuance costs - Debt issuance costs, which are included in other assets, are amortized using the interest method over the term of the related debt.
20 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 21

p. Ore reserves - The Company periodically reevaluates estimates of its ore reserves, which represent the Company’s 

estimate as to the amount of unmined copper remaining in its existing mine locations that can be produced and sold at 

a profit. Such estimates are based on engineering evaluations derived from samples of drill holes and other openings, 

combined with assumptions about copper market prices and production costs at each of the respective mines.

The Company updates its estimate of ore reserves at the beginning of each year. In this calculation the Company uses 

current metal prices which are defined as the average metal price over the preceding three years. The current price per 

pound of copper, as defined, was $3.26 U. S. dollars and $2.97 U. S. dollars at the end of 2011 and 2010, respectively. 

The ore reserve estimates are used to determine the amortization of mine development and intangible assets.

q, Leachable material and capitalized mine stripping - In prior years the Company capitalized the production cost 

of leachable material with low copper content at the Buenavista mine in Mexico, Ray and Silver Bell in US. In 2011, 

the Company extended this practice of recognizing inventories for costs associated with leaching activities at the La 

Caridad mine in Mexico and the Toquepala mine in Peru in order to conform to evolving mine production plans at 

these mines. As a result of changing market conditions and mining processes, mineral extraction through leaching 

has become integral to the mining operations carried out at our mines. The Company has also completed engineering 

studies at these mines, which the Company believes adequately support its estimate of recoverable mineral content 

contained in the leach dumps. Accordingly, the process and sale of mineral content in leaching dumps is reasonably assured and the costs associated with leaching activities at such mines are now recognized as inventories. As 

the production cycle of the leaching process is significantly longer than the conventional process of concentrating, 

smelting and electrolytic refining, the Company includes on its balance sheet, current leach inventory (included in 

work-in-process inventories) and long-term leach inventory. The cost attributed to the leach material is charged to 

cost of sales generally over a five-year period (the average estimated recovery period based on the historical recovery 

percentages of each mine).

r. Exploration - Tangible and intangible costs incurred in the search for mineral properties are charged against earnings 

when incurred.

s. Income taxes - Provisions for income tax are based on taxes payable or refundable for the current year and deferred 

taxes on temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial 

statements. Deferred tax assets and liabilities are included in the consolidated financial statements at currently enacted 

income tax rates applicable to the period in each jurisdiction in which the deferred tax assets and liabilities are expected 

to be realized and settled as prescribed in ASC Topic 740 “Income Taxes”. As changes in tax laws or rates are enacted in 

each jurisdiction, deferred tax assets and liabilities are adjusted in income in the period that the change is enacted. Deferred income tax assets are reduced by a valuation allowance to the amount of benefits that, in the Company’s opinion, 

are more likely than not to be realized.

The Company classifies income tax-related interest and penalties as income taxes in the consolidated financial statements.

The Company’s operations involve dealing with uncertainties and judgments in the application of complex tax regulations in multiple jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with taxing 

authorities in various jurisdictions and resolution of disputes arising from federal, state, and international tax audits. 

The Company recognizes potential liabilities and records tax liabilities for anticipated tax audit issues in the U. S. and 

other tax jurisdictions based on the estimate of whether, and the extent to which, additional taxes will be due. The 

Company follows the guidance of ASC 740 “Income tax” (FIN 48 “Uncertain tax positions” in prior literature) to record 

these liabilities. The Company adjusts these reserves in light of changing facts and circumstances; however, due to the 

complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from 

the Company’s current estimate of the tax liabilities. 

If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would 

result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when the Company determines the liabilities are 

no longer necessary. The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in 

income tax expense. 

t. Derivative financial instruments - The Company utilizes certain types of derivative financial instruments to enhance 

its ability to manage risks that exist as part of its ongoing business operations and to enhance its return on Company’s 

assets. Derivative contracts are reflected as assets or liabilities in the consolidated balance sheet at their fair value. 

The estimated fair value of the derivatives is based on market and/or dealer quotations and in certain cases valuation 

modeling. From time to time, the Company has entered into copper swap contracts to protect a fixed copper price for 

portions of its metal sales, hedging contracts to fix power prices for a portion of its production costs, interest rate 

swap agreements to hedge the interest rate risk exposure on certain of its bank obligations with variable interest rates, 

currency swap arrangements to ensure Mexican peso/U. S. dollar conversion rates. Gains and losses related to copper 

and zinc hedges are included in net sales, gain and losses related to power costs are included in cost of sales, all other 

gains and losses on derivative contracts are included in “Gain (loss) on derivative instruments” in the consolidated 

statement of income.

The Company assesses the effectiveness of the derivative contracts periodically using either regression analysis or 

the dollar offset approach, both retrospectively and prospectively, to determine whether the hedging instruments have 

been highly effective in offsetting changes in fair value of the hedged items. The hedge derivative positions meet the 

80%-125% of effectiveness required. For hedging relationships in which the Company applies the critical-terms-match 

method, the Company performs periodic quantitative assessments to confirm that the relationship was highly effective 

and that the ineffectiveness is de minimis.
22 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 23

The Company does not purchase, hold or sell derivative financial instruments unless there is an existing asset or 

obligation or if it anticipates a future activity that is likely to occur and will result in exposure to market risks and the 

Company intends to offset or mitigate such risks. The Company does not enter into any derivative financial instruments 

for speculative purposes. The Company’s derivatives programs include strategies that both qualify and do not qualify for 

hedge accounting treatment under the Codification topic for Derivatives and Hedging.

Unrealized gains (losses) on cash flow derivatives that meet the requirements of hedge accounting are included in “other 

comprehensive income” in the consolidated balance sheet until settlement.

u. Asset impairments - The Company evaluates its long-term mining, railway and drilling assets when events or 

changes in economic circumstances indicate that the carrying amount of such assets may not be recoverable. 

These evaluations in case of mining segment are based on business plans that are prepared using a time horizon 

that is reflective of the Company’s expectations of metal prices over its business cycle. The Company is currently 

using a long-term average copper price of $3.00 dollars per pound of copper and an average molybdenum price 

of $14.74 dollars per pound, reflective of the current price environment, for the impairment tests. The results of its 

impairment tests using these long-term copper and molybdenum prices show no impairment in the carrying value 

of their assets.

In recent years the Company’s assumptions for long-term average prices resulted in stricter evaluations for impairment 

analysis than would the higher three year average prices for copper and molybdenum. Should this situation reverse in the 

future with three year average prices below the long-term price assumption, the Company would assess the need to use 

the three year average prices in its evaluations. The Company uses an estimate of the future undiscounted net cash flows 

of the related asset or asset group over the remaining life to measure whether the assets are recoverable and measures 

any impairment by reference to fair value.

Related to the Tia Maria project and based on the current developments of the project the Company has performed an 

impairment analysis of the project assets and has concluded that no impairment exists as of December 31, 2011.

v. Investment in shares of associated companies, non-consolidated subsidiaries and other investments- Investments in shares of associated companies are valued according to the equity method. Under this method, the acquisition costs are initially recognized based on the net fair value of the entities’ identifiable assets and liabilities as of the 

date of acquisition. Such value is subsequently adjusted for the portion related both to comprehensive income (loss) 

of the associated company and the distribution of earnings or capital reimbursements thereof. The equity in income of 

associates and non-consolidated subsidiaries is included in earnings. Comprehensive income attributable to associates 

and non-consolidated subsidiaries is included in other presented comprehensive income. Permanent investments made 

by the Company in entities over which it has no control that are accounted for using the cost method, joint control, or 

significant influence, are initially recorded at acquisition cost and adjusted to its fair value if such investments have 

readily determinable fair values.

w. Other comprehensive income - Comprehensive income represents changes in equity during a period, except those 

resulting from investments by owners and distributions to owners. During the fiscal years ended December 31, 2011 

and 2010, the components of “other comprehensive loss” were the unrealized gain (loss) on cash flow hedge derivative 

instruments, the unrecognized gain (loss) on employee benefit obligations, the unrealized gain on equity securities and 

cumulative translation adjustment (CTA).

Unrecognized pension 

costs and CTA

Unrealized loss on 

derivative instruments

Accumulated other 

comprehensive loss

Balance, January 1, 2010 $ (127.8) $ - $ (127.8)

Change during period 42.4 (206.5) (164.1)

Balance, December 31, 2010 (85.4) (206.5) (291.9)

Change during period (237.5) 296.4 58.9

Balance, December 31, 2011 $ (322.9) $ 89.9 $ (233.0)

x. Adoption of new accounting principle - During 2011 the Company adopted the following Accounting Standards 

Updates (“ASU”) and ASC’s issued by the Financial Accounting Standard Board (“FASB”).

ASU 2011-05: In June 2011, the FASB issued ASU 2011-05 “Presentation of Comprehensive Income” an amendment 

of ASC topic 220 “Comprehensive Income” to provide new guidance for the reporting of comprehensive income. Under 

this ASU, to increase the prominence of items reported in other comprehensive income which shall be reported either in 

a single continuous statement of comprehensive income or in two separate but consecutive statements. The first statement should present total net income and its components followed by a second statement that should present total other 

comprehensive income, its components and the total of comprehensive income. This ASU also eliminates the option to 

present components of other comprehensive income as part of the statement of changes in stockholders’ equity. The 
24 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 25

ASU is effective for fiscal years, and interim periods, beginning after December 15, 2011 with early adoption permitted. 

The Company will adopt this ASU in 2012.

ASU No. 2010-06: In January 2010, the FASB issued ASU No. 2010-06 “Fair Value Measurements and Disclosures 

(Topic 820): Improving Disclosures about Fair Value Measurements,” an update of ASC Subtopic 820-10 “Fair Value 

Measurements and Disclosures - Overall.”

With the adoption of this ASU in 2011, the Company has expanded its financial instruments disclosures to include 

those related to purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010, and for interim periods within those 

fiscal years. 

ASU No. 2011-11: On December 16, 2011, the FASB issued ASU No. 2011-11 “Disclosures about Offsetting Assets 

and Liabilities” an amendment of ASC topic 210 “Balance Sheet.” The objective of this ASU is to improve disclosures 

about offsetting and related arrangements to enable users of financial statements to understand the effect of those 

arrangements on its financial position. Entities are required to disclose both gross information and net information 

about both instruments and transactions eligible for offset in the statement of financial position and instruments and 

transactions subject to an agreement similar to a master netting arrangement. This scope would include derivatives, 

sale and repurchase agreements and reverse sale and repurchase agreements, and securities borrowing and securities 

lending arrangements. The objective of this disclosure is to facilitate comparison between those entities that prepare 

their financial statements on the basis of U. S. GAAP and those entities that prepare their financial statements on the 

basis of IFRS.

This ASU is effective for annual periods beginning on or after January 1, 2013, and interim periods within those annual 

periods. An entity should provide the disclosures required by those amendments retrospectively for all comparative 

periods presented.

ASU 2011-12: In connection with ASU 2011-05, on December 23, 2011, the FASB issued ASU 2011-12 “Deferral 

of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other 

Comprehensive Income in Accounting Standards Update No. 2011-05” an amendment of ASC topic 220 “Comprehensive Income” to allow the Board time to redeliberate whether to present on the face of the financial statements the 

effects of reclassifications out of accumulated other comprehensive income on the components of net income and 

other comprehensive income for all periods presented. While the Board is considering this matter, entities should 

continue to report reclassifications out of accumulated other comprehensive income consistent with the presentation 

requirements in effect before ASU 2011-05. The ASU is effective for fiscal years, and interim periods, beginning after 

December 15, 2011.

4. Short-term investment

The balance of short-term investments was as follows:

2011 2010

Trading securities $ 514.6 $ 66.9

Weighted average interest rate 1.37% 1.14%

Available for sale $ 8.9 $ 13.6

Weighted average interest rate 0.58% 1.01%

Total $ 523.5 $ 80.5

Trading securities: Consist of bonds issued by public companies. Each financial instrument is independent of the others. The 

Company has the intention to sell these bonds in the short-term.

Available-for-sale investments consist of securities issued by public companies. Each security is independent of the others 

and, as of December 31, 2011, included corporate bonds and asset and mortgage backed obligations. As of December 31, 

2011 and 2010, gross unrealized gains and losses on available-for-sale securities were not material. 

Related to these investments the Company earned interest, which was recorded as interest income in the consolidated statement of earnings. Also the Company redeemed some of these securities and recognized gains (losses) due to changes in fair 

value, which were recorded as other income (expense) in the statement of income.

As of December 31, contractual maturities of debt securities classified as available-for-sale are as follows:

2011 2010

One year or less $ 2.1 $ 76.1

Maturing after one year through five years - 0.2

Maturing after five years through ten years 0.6 0.7

Due after ten years 6.2 8.0

Total debt securities $ 8.9 $ 85.0
26 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 27

The following table summarized the activity of these investments:

2011 2010

Trading:

Interest earned $ 6.0 $ 2.6

Unrealized loss 7.9 -

Available for sale

Interest earned $ 0.1 $ 0.2

Investment redeemed 2.1 14.8

5. Inventories

2011 2010

Metals and minerals:

Finished goods $ 152.0 $ 125.4

Work-in-process 551.3 508.8

 703.3 634.2

Materials and Supplies 389.2 356.0

Inventories - Net $ 1,092.5 $ 990.2

Inventory, long-term:

Leachable material Long-term $ 167.9 $ 65.2

As of December 31, 2011 and 2010, work in-process includes $92.0 and $84.4, of leaching costs capitalized.

As of December, 31, 2011 total leaching costs capitalized as long-term inventory of leacheable material amanted to $167.9. 

Leacheable material recognized as cost of sales amounted to $153.5 and $150.5 in 2011 and 2010, respectively.

6. Property, plant and equipment

2011 2010

Buildings and equipment $ 7,906.3 $ 7,696.6

Locomotives and freight cars 914.6 700.2

Rails and structures 684.0 561.6

Train yards and terminals 147.2 146.2

Value beyond proven and probable reserves 162.5 210.2

Other railway equipment 464.6 277.0

Rig - 26.9

 10,279.2 9,618.7

Less - Accumulated depreciation, amortization and depletion (5,138.6) (4,661.6)

 5,140.6 4,957.1

Land, other than mineral 1,009.3 969.5

Construction in progress 1,492.3 993.6

Property, plant and equipment - Net $ 7,642.2 $ 6,920.2

Depreciation and depletiation expense for the years ended December 31, 2011 and 2010 amounted to $500.7 and $483.4, 

respectively.
28 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 29

7. Concession titles

Concessions are comprised of the following:

2011 2010

North-Pacific railroad track $ 102.2 $ 115.6

Southeast railroad track 197.1 -

Nogales-Nacozari short railroad track 1.5 1.6

Ojinaga-Topolobampo short railroad track 0.2 0.2

South-Oaxaca short railroad track 0.2 -

Overhauls 17.8 20.1

 319.0 137.5

Accumulated amortization (99.3) (57.7)

Concession titles - Net $ 219.7 $ 79.8

Amortization charged to 2011 and 2010 income amounted to $8.7 and $4.4, respectively.

The value of the North-Pacific Railway concession title was determined by deducting the value of the tangible assets received 

from the price paid for the Ferromex shares, net of the liability arising from the capital lease of 24 locomotives that Ferrocarriles Nacionales de México (“FNM”) had entered into with Arrendadora Internacional, S. A. de C. V. (settled in 2001).

Ferromex is entitled to use, and has the obligation to maintain in good condition, the rights of way, railroad tracks, buildings 

and maintenance facilities, title to those assets and facilities; however, lies with the Federal Mexican Government and all rights 

over those assets must be returned to the Federal Mexican Government upon termination of the concession term.

8. Investments in associated companies, other non-consolidated subsidiaries and other 

investments

Investments in associated companies and other non-consolidated subsidiaries 

The investments in associated companies and other non-consolidated subsidiaries were as follows:

Equity in the results

from the year ended

Investment at December 31, December 31,

Associated companies % 2011 2010 2011 2010

Ferrosur 75 $ - $ 318.7 $ - $ 24.0

FTVM 25 21.7 9.8 6.2 2.8

TTX Company 0.6 8.5 9.7 - 0.6

Minera Coimolache 44 54.7 - - -

Other 59.0 18.3 - -

Investments $ 143.9 $ 356.5 $ 6.2 $ 27.4

In December 2007 Ferromex purchased 100 shares of TTX Company, the main activity of this company is to provide equipment to drive its partners, mainly Class I railroads of North America.

During 2011, the Company purchased 44.24% of Minera Coimolache equity, the main activity of this company is the extraction and sales of ore principally in Peru.

The acquisition of Ferrosur was accounted on November 24, 2005 using the “purchase method”, pursuant to the provisions 

of SFAS No. 141 “Business combinations”, issued by FASB. These provisions establish that when applying the purchase 

method, the cost of the acquired entity is compared to the assigned amounts (fair value) of assets acquired and liabilities 

assumed. The allocated fair values were determined by means of independent appraisals, public information on market 

prices and management’s estimations.

As a consequence of the application of this method, the Company recorded $57.8 excess in cost of the acquired entity 

over the net of the amounts allocated to assets acquired and liabilities assumed (goodwill). As mentioned in Note 1 

the investment in Ferrosur was accounted for by the equity method due to the uncertainty about the result of the legal 

procedure in process from COFECO so the goodwill was presented in the balance sheet at December 31, 2010 as part of 

equity investments.

As of December 31, 2011 and 2010, Ferrosur is the only subsidiary of ITF and it is mainly engaged in providing freight multimodal railroad services and auxiliary services, as well as any activity that directly supports and is related to this purpose, 

including any other supplementary activities to railroad transportation services.
30 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 31

The Mexican Federal Government awarded Ferrosur a 50-year concession to operate the Southeast Railroad Track (exclusive 

for 30 years), renewable for a similar period, subject to certain conditions. The Mexican Federal Government also sold certain 

fixed assets and the materials necessary to operate the railroad, plus 25% of FTVM shares. In addition, in December 2005, 

Ferrosur obtained the rights to operate the Oaxaca-South short line concession for 30 years, renewable for a period not exceeding 50 years, beginning on December 1, 2005.

Ferrosur has the right to use and the obligation to maintain in good conditions the trackage rights, railways, buildings and maintenance facilities, as well as the ferryboat terminal. Ownership of those assets and facilities is retained by the Mexican Federal 

Government and all of the rights over those assets will revert to the Mexican Federal Government at the end of the concessions.

On March 25, 2011, the First Collegiate Circuit Court in Administrative Matters dismissed the reconsideration action filed by 

the COFECO against the judgment of the Federal Tax and Administrative Justice Court (TFJFA by its Spanish acronym) where 

approved Ferrosur concentration with ITM; therefore on April 1, 2011; the findings of fact and conclusions of this judgment 

were published. The High Court issued a ruling on April 4, 2011, acknowledging receipt of the judgment rendered by the 

First Collegiate Court. This matter is closed. The COFECO has not yet complied with the executory judgment; since it has not 

yet issued the certificate documenting that the concentration is not objected. Beginning April 2011 the Company decided to 

consolidate the Ferrosur financial statements. 

Revenues and earnings of Ferrosur since the date of consolidation in April 2011 were $231.3 and $28.1, respectively. The pro 

forma revenues and consolidated net income as though the consolidation of Ferrosur had occurred at the beginning of each 

respective period are as follows: 

2011 2010

Pro form revenue $ 10,488.9 $ 8,348.4

Consolidated net income 3,039.5 2,085.0

Other investments

The Company’s share in these investments, and their acquisition cost, are as follows:

Company Share in 2011 Share in 2010 Acquisition cost 2011 Acquisition cost 2010

Grupo Aeroportuario del 

Pacífico S. A. B. de C. V. 28.04% 15.90% $ 520.1 $ 369.4

9. Other intangible assets

2011 2010

Mining concessions $ 121.2 $ 121.2

Mine engineering and development studies 6.0 6.0

Software 7.8 7.6

 135.0 134.8

Accumulated amortization (41.6) (39.5)

 93.4 95.3

Goodwill 131.3 137.1

Intangible assets $ 224.7 $ 232.4

Amortization expense on intangible assets was $2.1 for the year ended December 31, 2011 and 2010. The estimated aggregate amortization expense for intangibles is $11.9 for the years 2012 through 2016 for an average expected annual expense 

of approximately $2.4 per year during this period.

10. Maintenance agreements

Ferromex has executed a maintenance and repairs agreements with Lámparas General Electric, S. de R. L. de 

C. V. (“Lamparas”), GE Transportation Systems México, S. A. de C. V. (“GETS”), Alstom Mexicana, S. A. de C. V. (“ALSTOM”), and EMD Locomotive Company de México, S. A. de C. V. (“EMDL”) to provide repair and maintenance services, as 

well as the major repairs of some locomotives, as follows:

Number of Terms of the agreement

locomotives included Initial date Expiration date

Supplier:

Lamparas 253 February 2006 February 2012

GETS 160 May 1999 December 2026

ALSTOM 50* February 2010 February 2015

EMDL 98 June 2006 June 2026

Total 561

(*) Minimum number of locomotives; the number can be increased depending on the needs of strength.
32 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 33

Ferromex is entitled to cancel some of the maintenance agreements, in which case, it would assume the respective cost of 

early termination. Regarding to the Lamparas agreement that will expire in February 2012, Ferromex is under renewal process, 

effective in March 2012.

The GETS agreement for 160 locomotives includes two separate fleets (AC-4400 and ES-4400AC); the AC-4400 agreement, 

expiring in June 2024, provides that Ferromex cannot cancel the agreement until July 1, 2009 and a penalty would have to be 

paid ranging from $2.0 in 2009 to $0.13 in June 2024. As regards to the 100 ES-4400AC (EVO) locomotives, the agreement 

states that Ferromex shall only cancel it as of 2010 paying a penalty from $2.7 in the year 2010 to $0.17 in 2026.

The ALSTOM agreement with expiration in February 2015 includes early termination, for which Ferromex would have to pay 

the inventory cost, as well as termination of labor contracts to Alstom staff.

The EMDL agreement shall only be terminated in advance as of July 1, 2015. If Ferromex decides to conclude the contract 

between July 1, 2015 and June 30, 2016, Ferromex must pay an equivalent quantity to 15 months of average billing, amount 

which shall be reduced in a month per year.

Maintenance and repairs - With respect to the locomotive’s maintenance and repair work, pursuant to the agreements; Ferromex must make monthly payments based on certain fees that include mainly preventive and corrective maintenance. These 

fees are recorded as maintenance expense in results of operations at the time such services are received. At December 31, 

2011 and 2010, Ferromex paid $57.0 and $52.3, respectively.

Overhauls - Overhauls are capitalized to property and equipment as incurred.

11. Bank loans and long-term debt

At December 31, 2011 and 2010, the Company was in compliance with the guarantees and restrictions established by the 

debt agreements which include financial covenants and restrictions on contracting additional debt and on certain capital 

expenditures, the consolidated debt was as follows:

2011 2010

AMC $ 554.6 $ 836.5

SCC 2,694.6 2,704.0

GFM/ITM 491.6 350.3

MM 51.1 56.4

PEMSA 9.5 10.0

Total notes payable 3,801.4 3,957.2

Less - Current portion (286.9) (262.0)

Long-term debt $ 3,514.5 $ 3,695.2

The maturities of notes payable as of December 31, 2011 were as follows:

Year Principal due *

2012 $ 286.9

2013 240.7

2014 287.4

2015 224.6

Thereafter 2,787.2

$ 3,826.8
34 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 35

Long-term debt

Mining segment:

2011 2010

AMC Syndicated credit with quarterly repayments from 2010 up to 2014 

at interest rate of LIBOR plus 3.5 points to 6.5 points. $ 554.6 $ 836.5

SCC

6.375% Notes due 2015 ($200 face amount, less unamortized discount of 

$0.6 and $0.7 at December 31, 2011 and 2010, respectively) 199.4 199.3

5.375% Notes due 2020 ($400 face amount, less unamortized discount of 

$1.9 and $2.0 at December 31,2011 and 2010, respectively) 398.1 398.0

6.750% Notes due 2040 ($1,100 face amount, less unamortized discount of 

$8.0 and $8.1 at December 31,2011 and 2010, respectively) 1,092.0 1,091.9

7.500% Notes due 2035 ($1,000 face amount, less unamortized discount of 

$14.9 and $15.2 at December 31, 2011 and 2010, respectively) 985.1 984.8

2.02% Mitsui credit agreement due 2013 (Japanese LIBOR rate plus 

1.25% (1.71% at December 31, 2010)) 20.0 30.0

MM

9.250% Yankee Bonds - Series "B" due 2028 51.1 56.4

Total debt 3,300.3 3,596.9

Less - Current portion (194.9) (219.1)

Long-term debt $ 3,105.4 $ 3,377.8

Total debt maturities do not include the debt discount valuation account of $25.4.

The bonds, referred above as “Yankee bonds”, contain a covenant requiring MM to maintain a ratio of EBITDA to interest expense 

of not less than 2.5 to 1.0 as such terms are defined by the facility. At December 31, 2011, MM is in compliance with this covenant.

The Mitsui credit agreement is collateralized by pledges of receivables on 31,000 tons of copper per year. The Mitsui agreement requires AMC to maintain a minimum stockholders’ equity of $750 and a specific ratio of debt to equity. Reduction of 

Grupo Mexico’s direct or indirect voting interest in the Company to less than a majority would constitute an event of default 

under the Mitsui agreement. At December 31, 2011, the Company is in compliance with these covenants.

In July 2005 the SCC issued $200 6.375% Notes due 2015 at a discount of $1.1 and $600 7.5% Notes due 2035, at a discount 

of $5.3. The notes are senior unsecured obligations of SCC. SCC capitalized $8.8 of costs associated with this facility and its 

unamortized balance is included in “Other assets”, non-current on the consolidated balance sheet. The net proceeds from the 

issuance and sale of the notes were principally used to repay outstanding indebtedness of SCC and the balance was used for 

general corporate purposes. SCC filed a registration statement on Form S-4 with respect to these notes in October 2005. In 

January 2006 SCC completed an exchange offer for $200, 6.375% Notes due 2015 and $600, 7.5% Notes due 2035. In the 

exchange offer, $197.4 of the 6.375% old notes due 2015 were tendered in exchange for an equivalent amount of new notes 

and an aggregate of $590.5 of the 7.5% old notes due 2035 were tendered in exchange for an equivalent amount of new notes. 

The indentures relating to the notes contain certain covenants, including limitations on liens, limitations on sale and leaseback transactions, rights of the holders of the notes upon the occurrence of a change of control triggering event, limitations 

on subsidiary indebtedness and limitations on consolidations, mergers, sales or conveyances. 

Certain of these covenants cease to be applicable before the notes mature if the issuer obtains an investment grade rating. 

At December 31, 2011 SCC is in compliance with these covenants. At December 31, 2011, the securities had an investment 

grade rating, see “Changes in Credit Risk Rating” below.

On May 9, 2006, SCC issued an additional $400 7.5% notes due 2035. These notes are in addition to the $600 of existing 

7.5% notes due 2035 that were issued in July 2005. The current transaction was issued at a spread of +240 basis points over 

the 30-year U. S. Treasury bond. The original issue in July 2005 was issued at a spread of +315 basis points over the 30-year 

U. S. Treasury bond. The notes were issued at a discount of $10.8. SCC capitalized $3.2 of cost associated with this facility 

and its unamortized balance is included in non-current “Other assets, net” on the consolidated balance sheet. SCC used 

proceeds from the May 2006 issuance for its expansion programs.

The notes issued in July 2005 and the new notes issued in May 2006 are treated as a single series of notes under the indenture, including for purposes of covenants, waivers and amendments. SCC has registered these notes under the Securities Act 

of 1933, as amended.
36 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 37

On April 16, 2010, the Company issued $1.5 billion in fixed-rate unsecured notes with a discount of $10.3, which is being 

amortized over the term of the related debt. Net proceeds will be used for general corporate purposes, including the financing 

of the SCC’s capital expenditure program. 

The $1.5 billion fixed-rate senior unsecured notes were issued in two tranches, $400 due in 2020 at an annual interest rate of 

5.375% and $1.1 billion due in 2040 at an annual interest rate of 6.75%. SCC has registered these notes under the Securities 

Act of 1933, as amended. 

Interest on the notes will be paid semi-annually in arrears. The notes will constitute SCC’s general unsecured obligations and 

the series of notes will rank pari passu with each other and will rank pari passu in right of payment with all of the SCC’s other 

existing and future unsecured and unsubordinated indebtedness. 

Also, related to these notes SCC has deferred $8.2 of costs associated with the issuance of this facility, which its unamortized 

balance is included in “Other assets” non-current in the consolidated balance sheet and is being amortized as interest expense over the life of the loans.

In connection with the transaction, on April 16, 2010, SCC entered into a base indenture with Wells Fargo Bank, National 

Association, as trustee, as well as a first supplemental indenture and a second supplemental indenture which provide for the 

issuance, and set forth the terms of, the two tranches of notes described above. The indentures contain covenants that limit 

SCC’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale and leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all SCC’s assets. 

If SCC experiences a Change of Control Triggering Event (as defined in the indentures governing the notes), SCC must offer 

to repurchase the notes at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, 

if any. A Change of Control Trigger Event also includes a rating decline, that is, if the rating of the notes, by at least one of the 

rating agencies shall be decreased by one or more gradations.

SCC may issue additional debt from time to time pursuant to the base indenture.

Changes in Credit Risk Rating:

On April 1, 2010, Moody’s investor service upgraded to Baa2 from Baa3 SCC’s senior unsecured ratings and the rating on 

its Yankee bonds. Also on April 5, 2010, Fitch and Standard & Poor’s (“S&P”) ratings services assigned ratings of ‘BBB’ 

and ‘BBB-’, respectively, to the new notes issued. At the same time, these credit rating agencies confirmed their long-term 

corporate credit rating of SCC (‘Baa2’, ‘BBB and ‘BBB- for Moody’s, Fitch and S&P, respectively).

On January 26, 2012, S&P raised its long-term corporate credit rating of the Company to BBB from BBB-. Also S&P raised its 

ratings of the Company ́s senior notes to ‘BBB from ‘BBB-. S&P noted that this rating reflects its assessment of a satisfactory 

business risk profile, supported by the Company ́s low cash cost structure, geographic diversity, position as the world ́s sixth 

largest copper producer, vertical integration and long-life reserves.

On December 9, 2009, AMC contracted a syndicated credit for $1,500 with BBVA Bancomer, S. A. Institución de Banca 

Múltiple, Grupo Financiero BBVA Bancomer acting as broker. The credit is divided into three tranches; Tranche A for 

$385.7, generating interest at the LIBOR rate plus a margin of between 3.5 and 6.0 points, with quarterly repayments from 

2011 up to 2012, which may be fully or partially pre-paid at any time; Tranche B for a Mexican peso amount equivalent 

to $850, and; Tranche C for $134.3 and a Mexican peso amount equivalent to $130. Tranches B and C generate interest 

at the LIBOR rate plus a margin of between 4.0 and 6.5 points for US dollars, and the TIIE (Interbank Interest Rate) plus a 

margin of between 4.0 and 6.5 points for Mexican pesos. Both tranches require quarterly repayments from 2011 until 2014. 

Tranches A and C cannot be prepaid before the maturity of tranche A. In June 2011, AMC prepaid in-full the tranches A and 

B and its accrued interest.

During 2010, Asarco prepaid in full a $280.0 secured note with Asbestos Personal Injury Settelment Trust related to past environmental liabilities. The note term included annual interest of 6% and quarterly installment payments with a final maturity 

of December 2010.

Aggregate maturities of the outstanding borrowings at December 31, 2011, are as follows:

Year Principal due

2012 $ 194.9

2013 194.9

2014 184.8

2015 200.0

Thereafter 2,551.1

 3,325.7

At December 31, 2011 and 2010, other assets included $5.2 and $5.3, respectively, held in escrow accounts as required by 

the Mitsui’s loan agreement. The funds are released from escrow as scheduled loan repayments are made.

At December 31, 2011 and 2010, the balance of capitalized debt issuance costs was $18.8 and $19.3, respectively. Amortization charged to interest expense was $0.5 and $0.4 in 2011 and 2010, respectively.
38 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 39

Railway segment:

December 31,

2011 2010

Loan from BNP PARIBAS (BNP) and Export-Import Bank (EXIM) with maturities 

every three months up to July 25, 2013, subject to an interests at the LIBOR 

rate for three months plus 0.09% (1) $ 8.1 $ 12.8

Loan from HSBC Bank PLC and Export Development Canada (“EDC”), with maturities every six months up to November 26, 2014, subject to an interest at the 

LIBOR rate for six months plus 0.08% (2) 8.6 11.5

Loan from HSBC México, S. A. Commercial Bank (HSBC) with maturities every 

six months up to November 26, 2014, subject to an interest at the LIBOR rate 

for six months plus 0.40% (2) 1.5 2.0

Loan from CREDIT AGRICOLE CIB (before CALYON) - and EXIM with maturities 

every three months up to June 15, 2016, subject to an interests at the LIBOR 

rate for three months without spread (3) 37.5 45.8

Loan from CREDIT AGRICOLE CIB (before CALYON) - for with maturities every 

three months up to June 15, 2016, subject to an interests at the LIBOR rate for 

three months plus 0.40% to 0.50% (3) 10.5 12.8

Loan from HSBC México, S. A. Commercial Bank (HSBC), subject to an interest at 

a the LIBOR monthly rate plus 1.5%, with maturity expire on February 1, 2012 (4) 26.2 -

Long-term debt contracts in Mexican pesos:

Loan from BANAMEX and EXIMBANK with maturities every three months up to 

September 15, 2015, subject to an interest at the fixed rate of 8.18% (5) 37.4 53.6

Loan from BANAMEX with maturities every three months up to March 15, 2014, 

subject to interest at the fixed rate of 8.25% (5) 5.8 9.5

Loan from IXE BANK, whit maturities every three months up to August 31, 2013 

subject to an interest at 91-days TIIE rate plus 1.35% (6) 32.2 -

Syndicated loan from various banks managed by CITIBANK, N. A., secured by 

ITM comprised of the following tranches: 

I. Ps$364,570 thousands subject to 28-day TIIE interest rate plus 0.575%, 

with quarterly amortizations, through June 6, 2013 (7) 26.1 -

II. $25.0 subject LIBOR interest rate plus 0.55% with quarterly amortizations 

through June 7, 2010, amounted $11.5 subject LIBOR interest rate plus 

0.55% with at three-month through December 31, 2013 (7) 11.5 -

Debt securities (“certificados bursátiles”) (8) 286.2 202.3

 491.6 350.3

Current portion of long-term debt (82.5) (32.9)

Long-term debt $ 409.1 $ 317.4

Debt matures as follows:

Maturity

2012 $ 82.5

2013 45.9

2014 102.6

2015 24.6

2017 and thereafter 236.0

$ 491.6

(1) In order to secure the loans from BNP and EXIM on December 30, 2004 and on January 27, 2005, an irrevocable trust 

guarantee was set up, with Banco Nacional de México, S. A. (BANAMEX) as the trustee, GFM as the trustor, EXIM as 

the trust beneficiary in the first instance and BNP as trust beneficiary in the second instance, for which GFM pledged 

the rights of 25 acquired locomotives that gave rise to these loans, as well as the titles and interest on the guarantees 

provided to the trustee.
40 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 41

(2) Loans from HSBC BANK PCL - EDC and HSBC BANK MEXICO, respectively contracted for the purchase of 15 SD70ACe 

locomotives, which are pledged for these loans.

(3) Loans from CREDIT AGRICOLE CIB (before CALYON) - EXIM and CREDIT AGRICOLE CIB (before CALYON), respectively contracted for the purchase of 40 locomotives, which are pledged for these loans.

(4) Loans with HSBC - HSBC EXIM and direct, contract for the purchase of 23 locomotives, which remained in collateral for 

these loans.

(5) Loans from BANAMEX - EXIMBANK and direct loan from BANAMEX, hired to settle in advance the bridge loan from 

BANAMEX, used for the purchase of 60 locomotives, which are pledged for such loans.

In the loans mentioned above Ferromex signed as guarantor.

(6) Loan from IXE BANK hired by Ferrosur to refinancing liabilities and working capital.

(7) June 2007 Ferrosur derivative transaction held a fixed interest rate of 8.51% at 6 years. On September 29, 2006 Ferrosur held a derivative transaction exchange rate and interest rate to 7 years, making the obligation of $25.0 to $274.9 

thousand pesos, generating monthly interest at the TIIE 28 0.71% days.

(8) On November 13, 2007, the Mexican Securities and Exchange Commission (CNBV), authorized Ferromex to enter into 

a new program to issue debt paper in the aggregate amount of Ps. 5,000 million pesos (nominal value), during a period 

of four years.

Ferromex has issued debt paper under these programs with the following features and whose balances are as follows:

Date of Maturity December 31

Issuance Transaction Date Annual Rate (%) 2011 2010

FERROMX -07 Nov 16, 2007 Nov 7, 2014 TIIE 28 days +0.34% $ 71.5 $ 80.9

FERROMX -07-2 Nov 16, 2007 Oct 28, 2022 Fixed rate of 9.03% 107.4 121.4

FERROMX -07-2 Apr 15, 2011 Apri 2, 2021 Fixed rate of 8.88% 107.3 -

$ 286.2 $ 202.3

The loans and the debt paper establish certain covenants for GFM, which as of December 31, 2011 had been fulfilled.

The average annual rates for the years ended on December 31, 2011 and 2010 were: 6-month LIBOR: 0.51% and 0.59%, 

3-month LIBOR of 0.34% and 0.34% and TIIE for 28 days 3.33% and 4.91%, respectively.

Infraestructure segment:

2011 2010

PEMSA

Bank loan with IXE, S. A., with maturity on April 5, 2011, bears 

interest at a rate equal to monthly LIBOR plus 3.5% $ 9.5 $ 10.0 

12. Asset retirement obligation

The Company accounting for reclamation and remediation obligations requires management to make estimates, unique to 

each mining operation, relating to the future costs anticipated to complete reclamation and remediation work that is required 

to comply with existing laws and regulations. Actual costs incurred in future periods could differ from amounts estimated. 

Additionally, future changes to environmental laws and regulations could increase the extent of reclamation and remediation 

work required. 

The Company maintains an estimated asset retirement obligation for its mining properties mainly in Peru, as required by the 

Peruvian Mine Closure Law. In accordance with the requirements of this law the Company submitted plans to the Peruvian 

Ministry of Energy and Mines (“MEM”). As part of the closure plans, commencing in January 2010 the Company is required 

to provide annual guarantees of $2.6 over a 34 year period to furnish the funds for the asset retirement obligation. In the 

near-term future the Company has pledged the value of its Lima office complex as support for this obligation. The accepted 

value of the Lima office building, for this purpose, is $17. The closure cost recognized for this liability includes the cost, as 

outlined in its closure plans, of dismantling the Toquepala and Cuajone concentrators, the smelter and refinery in Ilo, and 

the shops and auxiliary facilities at the three units. In 2010, the closure plan for the new Ilo marine trestle was added to the 

asset retirement obligation.

The following table summarizes the asset retirement obligation activity for the two years ended December 31, 2011 

and 2010:
42 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 43

2011 2010

Balance as of January 1 $ 72.1 $ 60.3

Changes in estimates 0.3 5.3

Additions - 1.6

Closure payments (0.5) -

Accretion expense 5.3 4.9

Balance as of December 31, $ 77.2 $ 72.1

13. Employees’ statutory profit sharing

The Company’s operations in Peru and Mexico are subject to statutory workers’ participation.

In Peru, the provision for workers’ participation is calculated at 8% of pre-tax earnings. The current portion of this participation, which is accrued during the year, is based on Peruvian Branch’s taxable income and is distributed to workers following 

determination of final results for the year. The annual amount payable to an individual worker is capped at the worker’s salary 

for an 18 month period. Amounts determined in excess of the 18 months of worker’s salary is no longer made as a payment 

to the worker and is levied first for the benefit of the “Fondo Nacional de Capacitacion Laboral y de Promocion del Empleo” 

(National Workers’ Training and Employment Promotion Fund) until this entity receives from all employers in its region an 

amount equivalent to 2,200 Peru taxable units (approximately $2.9 in 2011). Any remaining excess is levied as payment for 

the benefit of the regional governments. These levies fund worker training, employment promotion, road infraestructure and 

other government programs.

The deferred employees’ statutory profit sharing - Mexican law requires companies to pay their employees 10% of taxable 

profit each year. The profit sharing arrangement has deferred tax consequences to the extent that basis differences exist between financial reporting and income tax reporting. Prior years’ losses are not deductible in calculating profit sharing. Profit 

sharing expense is deductible in arriving at taxable income.

The provision for workers’ participation is included in “Cost of sales (exclusive of depreciation, amortization and depletion)” 

and “Administrative expenses” in the consolidated statement of income. For the years ended December 31, 2011 and 2010, 

workers’ participation expense was $276.7 and $234.4, respectively.

14. Related party balances and transactions

December 31,

2011 2010

Due to related parties

Empresarios Industriales de México, S. A. de C. V. $ - $ 100.6

TTX Company 3.9 -

Ferrocarril y Terminal Valle de México S. A. de C. V. 2.6 -

México Transportes Aéreos, S. A. de C. V. 1.2 -

Ferrosur, S. A. de C. V. - 17.0

Other 0.6 2.9

$ 8.3 $ 120.5

The Company has entered into certain transactions in the ordinary course of business with parties that are controlling shareholders or their affiliates. These transactions include the lease of office space, air transportation and construction services 

and products and services relating to mining and refining. The Company lends and borrows funds among affiliates for acquisitions and other corporate purposes. These financial transactions bear interest and are subject to review and approval by 

senior management, as are all related party transactions. It is the Company’s policy that the Audit Committee of the Board of 

Directors shall review all related party transactions. The Company is prohibited from entering or continuing a material related 

party transaction that has not been reviewed and approved or ratified by the Audit Committee.

The Larrea family controls a majority of the capital stock of Grupo Mexico, and has extensive interests in other businesses, 

including aviation and real estate. The Company engages in certain transactions in the ordinary course of business with other 

entities controlled by the Larrea family relating to the lease of office space and air transportation. In connection with this, SCC 

paid fees for maintenance services and sale of vehicles provided by Mexico Compañia de Productos Automotrices, S. A. de 

C. V., a company controlled by the Larrea family and which is currently in liquidation.

Additionally, in 2007, SCC’s Mexican subsidiaries provided guaranties for two loans obtained by MexTransport, a company 

controlled by the Larrea family, from Bank of Nova Scotia in Mexico. One of these loans has been repaid and the remaining 

loan requires semi-annual repayments. Conditions and balance as of December 31, 2011 are as follows:
44 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 45

Loan open

Original loan balance $ 8.5

Maturity August 2013

Interest rate Libor + 0.15%

Remaining balance at December 31, 2011 $ 2.6

MexTransport provides aviation services to SCC’s Mexican operations. The guaranty provided to MexTransport is backed 

up by the transport services provided by MexTransport to SCC’s Mexican subsidiaries. If MexTransport defaults on the loan, 

SCC’s subsidiaries would have to satisfy the guaranty and repay to the bank the remaining balance plus interest. SCC pays 

fees to MexTransport for aviation services.

SCC purchased publicity services from Cadena Mexicana de Exhibicion S. A. de C. V., a subsidiary of Grupo Cinemex, a 

company controlled by the Larrea family.

SCC purchased industrial materials from Higher Technology S. A. C., and paid fees for maintenance services provided by Servicios y Fabricaciones Mecanicas S. A. C. Mrs. Carlos Gonzalez, the son of SCC’s Chief Executive Officer, has a proprietary 

interest in these companies.

SCC purchased industrial material from Sempertrans France Belting Technology, in which Mr. Alejandro Gonzalez is employed as a sales representative. Also, SCC purchased industrial material from PIGOBA, S. A. de C. V., a company in which Mr. 

Alejandro Gonzalez has a proprietary interest. Mr. Alejandro Gonzalez is the son of SCC’s Chief Executive Officer.

SCC purchased industrial material and services from Breaker, S. A. de C. V., a company in which Mr. Jorge Gonzalez, son-inlaw of SCC’s Chief Executive Officer, has a proprietary interest.

15. Benefit plans

Mining segment 

AMC has two noncontributory defined benefit pension plans covering former salaried employees in the U. S. and certain 

former employees in Peru. Also, AMC also has a postretirement health care plan. Net periodic benefit costs and other disclosures related to the Peruvian defined benefit pension and postretirement health care plans are not material.

Mexican Operations

MM/Defined Benefit Pension Plans -

MM has established for its salaried employees a defined contribution benefit pension plan. This plan is in addition to benefits 

granted by the Mexican Institute of Social Security (Instituto Mexicano del Seguro Social —“IMSS”). Under this plan, MM 

will make yearly matching contributions equaling 3% of participating employee’s base salary. Related to this, MM recorded 

a contribution expense of $1.0 and $0.9 in 2011 and 2010, respectively. The defined contribution plan liability was $1.4 and 

$1.8 in 2011 and 2010, respectively.

MM has established for its union employees a non-contributory defined benefit pension plan. This plan is in addition to 

benefits granted by IMSS.

The components of net periodic benefit costs calculated in accordance with ASC 715 “Compensation retirement benefits” (in 

prior literature SFAS No. 87 “Employers Accounting for Pensions”), using December 31 as a measurement date, consist of 

the following:

2011 2010

Service cost $ 0.9 $ 2.1

Interest cost 0.6 1.6

Expected return on plan assets (2.8) (3.0)

Amortization of transition assets, net (0.1) -

Amortization of net actuarial loss (1.3) (1.0)

Amortization of prior services cost - 0.2

Settlement /curtailment(*) - (19.0)

Net periodic benefit cost $ (2.7) $ (19.1)

The change in benefit obligation and plan assets for the years 2011 and 2010 are as follows:
46 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 47

2011 2010

Change in benefit obligation:

Projected benefit obligation at beginning of year $ 12.7 $ 32.5

Service cost 0.9 2.1

Interest cost 0.6 1.6

Loss gain, net (0.4) (0.6)

Benefits paid (0.9) (0.9)

Settlement /curtailment(*) - (23.7)

Inflation adjustment (1.3) 1.7

Projected benefit obligation at end of year $ 11.6 $ 12.7

(*) Included in the 2010 settlement/curtailment amount is a payment of $11.9 severance to Buenavista workers who accepted the Company’s buyout offer

2011 2010

Change in plan assets:

Fair value of plan assets at beginning of year $ 46.3 $ 38.8

Actual return on plan assets (1.1) 6.9

Employee contribution (0.5) (0.6)

Benefits paid (0.2) (0.9)

Currency exchange rate adjustment (5.4) 2.1

Fair value of plan assets at end of year $ 39.1 $ 46.3

Funded status $ 27.5 $ 33.6

ASC 715 amounts recognized in the statement of financial position consists of:

2011 2010

Non current assets $ 27.5 $ 33.6

ASC 715 amounts recognized in accumulated other comprehensive income consists of:

2011 2010

Net loss (gain) $ (7.0) $ (11.2)

Transition asset - (0.1)

Total (net of income tax of $4.7 and $7.6, respectively) $ (7.0) $ (11.3)

The following table summarizes the changes in accumulated other comprehensive income for the years ended December 31, 

2011 and 2010, respectively related to MM’s defined benefit pension plan, net of income tax:

2011 2010

Reconciliation of accumulated other comprehensive income:

Accumulated other comprehensive income at beginning of plan year $ (11.3) $ (6.1)

Prior services cost amortized during the year - (0.1)

Net loss amortized during the year 0.8 0.6

Net loss (gain) occurring during the year 2.2 (2.7)

Settlement / curtailment - (2.8)

Currency exchange rate changes 1.3 (0.2)

Net adjustment to accumulated other comprehensive income 4.3 (5.2)

Accumulated other comprehensive income at end of plan year $ (7.0) $ (11.3)

The following table summarizes the amounts in accumulative other comprehensive income amortized and recognized as a 

component of net periodic benefit cost, net of income tax:
48 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 49

2011 2010

Amortization of net losses $ 0.8 $ 0.6

Amortization of prior services cost - (0.1)

Total amortization expenses $ 0.8 $ 0.5

The assumptions used to determine the pension obligation and seniority premiums as of year-end and net cost in the ensuing 

year were:

2011 2010

Weighted average discount rate 7.5% 7.5%

Expected long-term rate of return on plan asset 7.5% 7.5%

Rate of increase in future compensation level 4.5% 4.0%

These rates are based on Mexican pesos as pension plan payments will be paid in México.

The benefits expected to be paid in each of the next five years, and thereafter, are as follows:

Expected

Year Benefit Payments

2012 $ 7.3

2013 0.5

2014 0.5

2015 0.5

2016 0.5

2017 to 2021 3.4

Total $ 12.7

The amount of contributions that MM expects to pay to the plan during 2012 is $7.3, which includes $3.4 of pending payments 

to former Buenavista workers.

MM’s policy for determining asset mix targets includes periodic consultation with recognized third party investment consultants. The expected long-term rate of return on plan assets is updated periodically, taking into consideration assets allocations, historical returns and the current economic environment. The fair value of plan assets is impacted by general market 

conditions. If actual returns on plan assets vary from the expected returns, actual results could differ.

The plan assets are managed by three financial institutions, SCOTIABANK INVERLAT S. A., BANCO SANTANDER and IXE 

BANCO, S. A. 26% of the funds is invested in Mexican government securities, including treasury certificates and development bonds of the Mexican government. The remaining 74% is invested in common shares of Grupo Mexico.

The plan assets are invested without restriction in active markets and are accessible when required and are therefore considered as level 1, in accordance with ASC 820.

The following table represents the asset mix of the investment portfolio:

2011 2010

Asset category:

Equity securities 74% 71%

Treasury bills 26% 29%

100% 100%

MM/Post-retirement health care plan -

The components of net period benefit costs are as follows:

2011 2010

Interest cost $ 3.2 $ 4.3

Service cost - 0.4

Amortization of net loss - 0.1

Amortization of transition obligation 1.3 1.5

Amortization of prior service cost (10.0) -

Net periodic post-retirement benefit costs $ (5.5) $ 6.3
50 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 51

The change in benefit obligation and a reconciliation of funded status are as follows:

2011 2010

Change in benefit obligation:

Projected benefit obligation at beginning of year $ 49.7 $ 53.0

Service cost - 0.4

Interest cost 3.2 4.3

Amendments (24.2) -

Actuarial loss (3.3) (11.1)

Benefits paid (1.3) -

Currency exchange rate adjustment (5.7) 3.1

Projected benefit obligation at end of year $ 18.4 $ 49.7

Funded status $ (18.4) $ (49.7)

ASC-715 amounts recognized in the statement of financial position consist of:

2011 2010

Non current liabilities $ (18.4) $ (49.7)

ASC-715 amounts recognized in accumulated other comprehensive income consists of:

2011 2010

Net loss (gain) $ (4.0) $ (2.3)

Transition obligation - 10.5

Total (net of income tax of ($2.7) and $5.5, respectively) $ (4.0) $ 8.2

The following table summarizes the changes in accumulated other comprehensive income for the years ended December 31, 

2011 and 2010, respectively, related to the MM post-retirement health care plan, net of income tax:

2011 2010

Reconciliation of accumulated other comprehensive income:

Accumulated other comprehensive income at beginning of plan year $ 8.2 $ 15.5

Amortization of net gain - (0.1)

Amortization of transition obligation (0.8) (0.9)

Amortization of prior service cost 6.0 -

Prior services credit (14.5) -

Net gain occurring during the year (2.0) (6.7)

Currency exchange rate changes (0.9) 0.4

Net adjustment to accumulated other comprehensive income (12.2) (7.3)

Accumulated other comprehensive income (loss) at end of plan year $ (4.0) $ 8.2

The following table summarizes the amounts in accumulated other comprehensive income (loss) amortized and recognized 

as a component of net periodic benefit cost, net of income tax:

2011 2010

Amortization of transaction obligation $ 0.8 $ 0.9

Amortization of prior service credit (6.0) -

Amortization of net losses - 0.1

Total amortization (income) expenses $ (5.2) $ 1.0

Discount rates used in the calculation of other post-retirement benefits and costs as of December 31, 2011 and 2010 

were 7.5%.

The benefits expected to be paid in each of the next five years, and thereafter, are as follows:
52 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 53

Expected

Year Benefit Payments

2012 $ 1.4

2013 1.5

2014 1.6

2015 1.7

2016 1.8

2017 to 2021 13.0

Total $ 21.0

For measurement purposes, a 4.5% annual rate of increase in the per capita cost of covered health care benefits was assumed 

for 2011 and remains at that level thereafter.

An increase in other benefit cost trend rates have a significant effect on the amount of the reported obligations as well as 

component cost of the other benefit plan. One percentage-point change in assumed other benefits cost trend rates would have 

the following effects:

One Percentage Point

Increase Decrease

Effect on total service and interest cost components $ 1.5 $ 1.2

Effect on the post-retirement benefit obligation $ 20.2 $ 16.8

American Operations

Asarco - Pension Plans of defined benefits

Pension and Postretirement Plans

The Company recognizes the funded status (i.e., the difference between the fair value of plan assets and benefit obligations) of its defined benefit postretirement plans in the balance sheet, with corresponding adjustments to accumulated other 

comprehensive income, net of tax. These amounts are recognized as net periodic postretirement cost in accordance with 

the Company’s historical accounting policy for amortizing such amounts. Further, actuarial gains and losses that arise in 

subsequent periods and are not recognized as net periodic postretirement cost in the same periods will be recognized as a 

component of other comprehensive income. These amounts will be subsequently recognized as a component of net periodic 

postretirement cost on the same basis as the amounts recognized in accumulated other comprehensive income.

Pension Plans

The Company maintains two noncontributory defined benefit pension plans covering substantially all its employees. Benefits 

for salaried plans are based on salary and years of service. Hourly plans are based on negotiated benefits and years of service. Pension costs are determined annually with the assistance of independent actuaries. The Company’s funding policy is 

to contribute amounts to the plans sufficient to meet the minimum funding requirements set forth in the Employee Retirement 

Income Security Act of 1974, plus such additional tax deductible amounts as may be advisable under the circumstances. 

Benefit accruals under the Salaried Plan were frozen effective April 30, 2011. As amended, anyone who has not yet become 

a participant as of that date will be excluded, and current participants will not accrue any credited service after April 30, 2011 

for purposes of determining retirement benefits; however, participants will continue to accrue credited service for purposes of 

vesting and for eligibility for early retirement under the Plan. This amendment resulted in a one-time curtailment gain of $8.6 

recognized in income. Plan assets are invested principally in commingled stock funds, mutual funds, and securities issued 

by the U. S. government. 

Supplemental Executive Retirement Plan (“SERP”)

In 2011, the Company recorded a liability related to a SERP benefit for certain of its executives. All assumptions used to calculate the liability match the December 31, 2011 salaried plans noted above. As such, unrealized gains and losses that will arise 

in subsequent periods, as calculated by the actuaries, will be recognized as a component of other comprehensive income until 

such amounts are realized. The total present value of the SERP liability recorded as of December 31, 2011 was $1,518, and is 

in addition to the Salaried Plan as presented below.

The measurement dates used to determine benefit obligations were December 31, 2011 and 2010, and are based on census 

data provided as of the beginning of the years of such plans. No events have occurred that would have a significant impact on 

those calculations and measurements.

Postretirement Benefits

Contributory postretirement health care coverage under the Company’s health plans is provided to substantially all U. S. retirees not eligible for Medicare. A cost-sharing Medicare supplement plan is available for retired salaried employees, and life 

insurance coverage is provided to substantially all retirees. The plans are unfunded but exist as general corporate obligations. 

The postretirement health care plans have a December 31st year end.
54 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 55

The measurement dates used to determine benefit obligations were December 31, 2011 and 2010, and are based on census 

data provided as of the beginning of the fiscal years of such plans. No events have occurred that would have a significant 

impact on those calculations and measurements.

Changes to the Company’s benefit plans as of December 31, 2011 and 2010, are reflected as follows:

Change in Projected Benefit 

Obligation Period ended

December 31, 2011

Pension

Pension

Benefits Hourly

Post-retire Post-retire

Benefits

Salaried

Health Care 

Salaried

Health Care 

Hourly Total

Beginning of the period $ 208.0 $ 236.4 $ 40.0 $ 291.4 $ 775.8

Service cost 1.7 5.7 1.1 11.7 20.2

Interest cost 11.1 13.1 1.7 14.2 40.1

Actuarial (gain)/loss 6.9 22.7 (4.8) 17.1 41.9

Administrative expenses paid (1.1) (1.6) - - (2.7)

Benefits paid (12.5) (12.6) (1.6) (7.2) (33.9)

Benefit Obligation at December 31 $ 214.1 $ 263.7 $ 36.4 $ 327.2 $ 841.4

Accumulated Benefit Obligation $ 214.1 $ 263.7

Change in Plan Assets Pension Pension Post-retire Post-retire

Period ended 

December 31, 2011

Benefits

Salaried

Benefits 

Hourly

Health Care 

Salaried

Health Care 

Hourly Total

Beginning of the period $ 143.5 $ 172.8 $ - $ - $ 316.3

Actual return on plan assets (3.6) (4.5) - - (8.1)

Employer contributions 15.6 23.7 1.6 7.2 48.1

Benefits paid (12.5) (12.6) (1.6) (7.2) (33.9)

Administrative expenses (1.1) (1.6) - - (2.7)

Fair Value of Plan Assets at 

December 31 $ 141.9 $ 177.8 $ - $ - $ 319.7

Funded Status at December 31 $ (72.2) $ (85.9) $ (36.4) $ (327.2)

Change in Projected Benefit 

Obligation Period ended 

December 31, 2010

Pension Pension Post-retire Post-retire

Benefits Benefits Health Care Health Care

Salaried Hourly Salaried Hourly Total

Beginning of the period $ 201.5 $ 232.5 $ 41.8 $ 240.4 $ 716.2

Service cost 3.9 5.5 1.2 10.2 20.8

Interest cost 11.2 12.9 1.9 14.4 40.4

Actuarial (gain)/loss 3.4 (2.2) (3.5) 30.3 28.0

Administrative Expenses Paid (0.6) (0.9) - - (1.5)

Benefits paid (11.4) (11.4) (1.4) (3.9) (28.1)

Benefit Obligation at December 31 $ 208.0 $ 236.4 $ 40.0 $ 291.4 $ 775.8

Accumulated Benefit Obligation $ 198.3 $ 235.8

Change in Plan Assets

Period ended 

December 31, 2010

Pension Pension Post-retire Post-retire

Benefits Benefits Health Care Health Care

Salaried Hourly Salaried Hourly Total

Beginning of the period $ 129.5 $ 150.6 $ - $ - $ 280.1

Actual return on plan assets 16.9 20.3 - - 37.2

Employer contributions 9.2 14.4 1.4 3.9 28.9

Benefits paid (11.4) (11.4) (1.4) (3.9) (28.1)

Administrative expenses (0.7) (1.1) - - (1.8)

Fair Value of Plan Assets at 

December 31 $ 143.5 $ 172.8 $ - $ - $ 316.3

Funded Status at December 31 $ (64.5) $ (63.6) $ (40.0) $ (291.4) $ -

Amounts recognized in the accompanying consolidated balance sheets consisted of the following:
56 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 57

Period ended

December 31, 2011

Pension

Benefits

Salaried

Pension

Benefits

Hourly

Post-retire 

Health Care 

Salaried

Post-retire 

Health Care 

Hourly

Current liabilities $ - $ - $ (2.3) $ (9.2) $ (11.5)

Non-current liabilities (71.9) (86.0) (34.3) (317.8) (510.0)

Net amount recognized $ (71.9) $ (86.0) $ (36.6) $ (327.0) $ (521.5)

Period ended

December 31, 2010

Pension

Benefits

Salaried

Pension

Benefits Hourly

Post-retire Post-retire

Health Care 

Salaried

Health Care 

Hourly

Current liabilities $ - $ - $ (2.8) $ (9.6) $ (12.4)

Non-current liabilities (64.4) (63.6) (37.4) (281.7) (447.1)

Net amount recognized $ (64.4) $ (63.6) $ (40.2) $ (291.3) $ (459.5)

Amounts recognized in other comprehensive income during the periods consisted of the following:

Pension Pension Post-retire Post-retire

Period ended 

December 31, 2011

Benefits Benefits Health Care Health Care

Salaried Hourly Salaried Hourly Total

Net loss $ 30.0 $ 41.1 $ (4.0) $ 17.1 $ 84.2

Net amount recognized $ 30.0 $ 41.1 $ (4.0) $ 17.1 $ 84.2

Pension Pension Post-retire Post-retire

Period ended

December 31, 2010

Benefits Benefits Health Care Health Care

Salaried Hourly Salaried Hourly Total

Net loss $ (2.9) $ (10.0) $ (3.3) $ 30.2 $ 14.0

Net amount recognized $ (2.9) $ (10.0) $ (3.3) $ 30.2 $ 14.0

Amounts recorded in accumulated other comprehensive income consisted of the following:

Pension Pension Post-retire Post-retire

Period ended December 31, 

2011

Benefits Benefits Health Care Health Care

Salaried Hourly Salaried Hourly Total

Beginning balance $ (8.3) $ (16.5) $ (4.1) $ 25.1 $ (3.8)

Amortization of net gain - - 0.7 - 0.7

Net gain / (loss) 30.0 41.1 (4.8) 17.1 83.4

Net amount recorded $ 21.7 $ 24.6 $ (8.2) $ 42.2 $ 80.3

Pension Pension Post-retire Post-retire

Period ended

December 31, 2010

Benefits Benefits Health Care Health Care

Salaried Hourly Salaried Hourly Total

Beginning balance $ (5.4) $ (6.5) $ (0.8) $ (5.1) $ (17.8)

Amortization of net gain - - 0.2 - 0.2

Net gain / (loss) (2.9) (10.0) (3.5) 30.2 13.8

Net amount recorded $ (8.3) $ (16.5) $ (4.1) $ 25.1 $ (3.8)

The components of net periodic benefit cost for the periods ended are as follows:

Pension Pension Post-retire Post-retire

Period ended

December 31, 2011

Benefits Benefits Health Care Health Care

Salaried Hourly Salaried Hourly Total

Service cost $ 1.7 $ 5.7 $ 1.1 $ 11.7 $ 20.2

Interest cost 11.1 13.1 1.7 14.2 40.1

Expected return on plan assets (11.3) (13.8) - - (25.1)

Recognized actuarial gain (8.3) - (0.7) - (9.0)

Total net periodic benefit cost $ (6.8) $ 5.0 $ 2.1 $ 25.9 $ 26.2
58 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 59

Pension Pension Post-retire Post-retire

Period ended December 31, 

2010

Benefits Benefits Health Care Health Care

Salaried Hourly Salaried Hourly Total

Service cost $ 3.9 $ 5.5 $ 1.2 $ 10.2 $ 20.8

Interest cost 11.2 12.9 1.9 14.4 40.4

Expected return on plan assets (10.5) (12.5) - - (23.0)

Recognized actuarial gain - - (0.2) - (0.2)

Total net periodic benefit cost $ 4.6 $ 5.9 $ 2.9 $ 24.6 $ 38.0

The actuarial assumptions used to determine end of period benefit obligations were as follows:

Pension Pension Post-retire Post-retire

Period ended

December 31, 2011

Benefits Benefits Health Care Health Care

Salaried Hourly Salaried Hourly

Discount rate 5.00% 5.00% 4.85% 4.60%

Expected return on assets 7.75% 7.75% N/A N/A

Rate of compensation increase N/A 4.00 N/A N/A

Pension Pension Post-retire Post-retire

Period ended

December 31, 2010

Benefits Benefits Health Care Health Care

Salaried Hourly Salaried Hourly

Discount rate 5.70% 5.70% 5.45% 5.60%

Expected return on assets 8.00% 8.00% N/A N/A

Rate of compensation increase 4.00% 4.00% N/A N/A

Weighted-average assumptions used to determine net period benefit costs were as follows:

Pension Pension Post-retire Post-retire

Period ended

December 31, 2011

Benefits Benefits Health Care Health Care

Salaried Hourly Salaried Hourly

Discount rate 5.70% 5.70% 5.45% 5.65%

Expected return on assets 8.00% 8.00% N/A N/A

Rate of compensation increase 4.00% 4.00% N/A N/A

Pension Pension Post-retire Post-retire

Period ended

December 31, 2010

Benefits Benefits Health Care Health Care

Salaried Hourly Salaried Hourly

Discount rate 5.75% 5.75% 5.35% 5.85%

Expected return on assets 8.25% 8.25% N/A N/A

Rate of compensation increase 4.00% 4.00% N/A N/A

Plan Assets

The Company’s investment policy is to actively manage certain asset classes where potential exists to outperform the broader 

market while maintaining acceptable risk levels inherent in specific benchmarks used to measure performance for each asset 

class. To develop an expected long-term rate of return on assets assumption, the Company considered the historical returns 

and the future expectations for returns for each asset class as well as the target asset allocation of the pension portfolio.

The Company’s policy for determining asset allocation targets includes periodic consultation with recognized third-party 

investment consultants. The fair value of plan assets is affected by general market conditions. If actual returns on plan assets 

vary from the expected returns, actual results could differ.

The allocations as of December 31, 2011 and 2010 were as follows:
60 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 61

Asset allocation and fair value hierarchy

2011 Level 1 Level 2 Level 3 2010

US equity composite $ 89.7 98% 2% - $ 89.7

International equity composite 71.0 96 4 - 79.8

Emerging markets composite 17.5 96 4 - 23.4

Fixed income composite 86.1 61 23 16 79.1

Hedge fund composite 20.7 - 65 35 21.0

REIT's composite 11.6 100 - - 6.5

Cash composite 23.1 - 100 - 16.9

Total asset allocation $ 319.7 $ 316.4

Investments in commingled “composite” funds are recorded at fair value based on the net asset value of the fund as provided 

by the fund manager or general partner. Investments in these funds are specific to asset allocation strategies. The classifications include both direct investments in debt and equity securities as well as investments in privately held entities that manage 

an underlying portfolio of marketable debt and equity securities.

For the year ended December 31, 2011, the health care cost trend rate assumptions have a significant effect on the amounts 

for postretirement health care costs and obligations, as show in the following table:

Salaried Hourly

1% increase $ 0.5 $ 6.9

1% decrease (0.4) (5.3)

Effect on postretirement benefit obligation

1% increase $ 3.4 $ 58.8

1% decrease (3.0) (47.1)

For measurement purposes, an 8.5% annual rate of increase in the per capita cost of covered health care is assumed for 2011 for 

both salaried and hourly plans. The rates are assumed to decrease until reaching 4.9% in 2069.

Assumed Health Care Cost Trend

Rates at December 31 2011 Salaried Hourly

Health care trend assumed for next year 8.50% 8.50%

Ultimate health care cost trend rate 4.90% 4.90%

Year that the rate reaches the ultimate trend rate 2069 2069

Cash Inflows and Outflows - The Company contributed approximately $39.3 and $23.6 to the pension plans in 2011 and 

2010, respectively, and expects to contribute approximately $31.8 to the combined pension plans in 2012. 

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (the “Act”) was reflected as of December 31, 

2011 and 2010, assuming that the Company will continue to provide a prescription drug benefit to retirees that is at least 

actuarially equivalent to Medicare Part D. The benefit payments listed in the following table are shown net of the expected 

Medicare Part D subsidy.

The Company projects benefit payments to be paid by the combined plans as follows:

Pension Benefits Postretirement Health Care

2012 $ 27.5 $ 11.5 

2013 27.6 12.5

2014 28.6 13.4

2015 29.1 14.3

2016 29.7 14.9

2017 - 2021 156.6 88.2

$ 299.1 $ 154.8

Employee Savings Plan - The Company maintains employee savings plans for salaried and hourly employees that permit employees to make contributions by payroll deductions pursuant to section 401(k) of the Internal Revenue Code. The Company 

matches contributions up to 6% of compensation for its employees. As of April 30, 2011, in conjunction with the Salaried 
62 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 63

Pension Plan freeze, the Company increased the matching contributions for employees who were active participants in the 

salaried plan, from 3% to 6% of compensation. In connection with the required match, the Company’s contributions, for both 

the salaried and hourly plans, charged against earnings were $3.6 and $1.6 in 2011 and 2010, respectively.

Copper Basin 401(k) Plan - Copper Basin also maintains a defined contribution plan that permits eligible employees to make 

contributions by payroll deductions pursuant to Section 401(k) of the Internal Revenue Code, which includes a matching 

Company contribution up to 6% of compensation. The contributions charged against earnings in 2011 and 2010 were $0.12 

and $0.10, respectively. 

Railway segment

ITM - Defined Benefit Pension Plans 

In ITM and subsidiaries the liabilities and costs pertaining to the seniority premiums, which employees are entitled after 15 

years of service are recognized on the basis of actuarial studies performed by independent experts.

ITM has also established plans to cover dismissal indemnities on the basis of actuarial studies, performed by independent 

experts. At 2011 and 2010 labor liabilities were immaterial

Corporate Services

Grupo México Servicios, S. A. de C. V. (GMS, direct subsidiary of GMEXICO) provides various professional services to its 

affiliates. Currently GMS has 73 executives and as of December 31, 2011 and 2010 the labor liabilities were immaterial.

16. Stockholders’ equity

Common stock:

At December 31, 2011 and 2010, the Company’s paid common and outstanding stock consists 7,785,000,000, fully paid and 

subscribed shares, corresponding to fixed capital Series “B”, Class I shares. Variable capital is limited to ten times the amount 

of the minimum fixed capital.

Series “B” consists of ordinary voting stock representing 100% of all Class I and Class II voting stock. At least 51% of the 

shares comprising this Series must be subscribed by private individuals or companies considered to be Mexican investors, 

as established by the Ley General de Sociedades Mercantiles.

During 2011, Board of directors approved two dividends in accordance with the resolutions taken in the Ordinary Stockholders’ Meeting held on April 29, 2010 which amounted to $458.1 paid as follows: in February 18, 2011, a dividend was paid 

equal to 0.30 peso cents per share amounting $194.0 and other equivalent to 0.40 peso cents per share, amounting $264.1 

paid in May 5, 2011, both allocated in retained earnings.

During 2011, Board of directors approved two dividends in accordance with the resolutions taken in the Ordinary Stockholders’ Meeting held on April 29, 2011 which amounted to $530.7 paid as follows: In August 19, 2011, a dividend was paid 

equal to 0.45 peso cents per share amounting $300.5, other equivalent to 0.40 peso cents per share, amounting $230.2 paid 

in November 1, 2011, both allocated in retained earnings.

During 2011, Board of directors approved a dividend in shares in accordance with the resolutions taken in the Ordinary Stockholders’ Meeting held on April 29, 2011 equivalent to one share per each 389 current shares, amounting $48.02

Pursuant Ordinary Stockholders’ Meeting held on April 29, 2011, the stockholders agreed to repurchase ownshares until 

Ps.2, 240 million pesos (243.3 million dollars). As of December 31, 2011, the shares repurchased amounting Ps.722.4 million 

pesos (57.4 million dollars), which Ps. 112 million pesos (9.3 million dollars) was granted to the trust of Employee Stock 

Purchase Plan and appied in the treasury stock account.

During 2010, Board of directors approved two dividends in accordance with the resolutions taken in the Ordinary Stockholders’ Meeting held on April 29, 2010 which amounted to $260.7 paid as follows: in September 10, 2010, a dividend was paid 

equal to 0.17 peso cents per share amounting $103.6 and other equivalent to 0.25 peso cents per share, amounting $157.1 

paid in November 12, 2010.

In addition, the stockholders agreed to decrease the reserve for shares purchase to Ps.2, 240 million pesos ($243.3 million 

dollars), the reduction was applied to retained earnings.

During 2010, Board of directors approved two dividends in accordance with the resolutions taken in the Ordinary Stockholders’ 

Meeting held on April 30, 2009, which amounted to $192.9 paid as follows: a 0.14 peso cents per share dividend paid in March 

12, 2010, amounting $84.3 and other equivalent to a 0.17 peso cents per share dividend amounting $108.6 paid on May 17, 2010.

On January 28, 2010, the Company acquired the noncontrolling interest of PEMSA for $191.9. With this transaction, the Company owns 100% of PEMSAs equity. Since the purchase price exceeded the carrying amount of the investment, the Company 

reduced retained earnings by $116.0.

Dividends paid are not subject to income tax if the dividends come from the Net Tax Profit Account (CUFIN, for its acronym 

in Spanish). Any dividends paid in excess of this account are subject to a tax equivalent to 38.89%. The tax is payable by 
64 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 65

the Company and may be credited against its income tax in the same year or in the following two years. Dividends paid from 

previously taxed profits are not subject to tax withholding or additional tax payment. In the event of a capital reduction, any 

excess of stockholders’ equity over capital contributions, the latter restated in accordance with the provisions of the Income 

Tax Law, is accorded the same tax treatment as dividends.

At December 31, 2011 and 2010, the CUFIN amounted to $3,228.3 and $2,782.3, respectively.

Appropriated Retained Earnings - As of December 31, 2011, the Company’s management set aside $2.0 billion of unremitted earnings of its Mexican subsidiary MM, as appropriated retained earnings. It is the Company’s intention to indefinitely 

invest these funds in Mexico. These amounts are earmarked for the Company’s Mexican expansion program. 

Treasury Stock - Included in treasury stock are shares of the Company and SCC’s common stock carried at cost. Activity in 

treasury stock was as follows:

2011 2010

GMEXICO common shares

Balance as of January 1 $ 345 $ 346

Other activity, including received dividends, interest and 

currency translation effect – Net 202 (1)

Balance as of December 31 $ 547 $ 345

At December 31, 2011 and 2010, treasury stock holds 43,616,086 shares and 34,596,086 shares of SCC’s common stock, 

respectively with a cost of $734.1 and $461.0, respectively. The shares of SCC’s common stock held in treasury are used for 

general corporate purposes.

On July 28, 2011, the Board of Directors approved an increase of the SCC share repurchase program from $500 to $1.0 

billion. These shares will be available for general corporate purposes. SCC may purchase additional shares from time to 

time, based on market conditions and other factors. This repurchase program has no expiration date and may be modified or 

discontinued at any time.

The shares of SCC are used for general corporate purposes, including, among others, for awards under the Directors’ Stock 

Award Plan. GMEXICO’s shares are used to grant awards under both the Employee Stock Purchase Plan and the Executive 

Stock Purchase Plan.

Directors Stock Award Plan - SCC established a stock award compensation plan for certain directors who are not compensated as employees of the Company. Under this plan, participants will receive 1,200 shares of common stock upon election 

and 1,200 additional shares following each annual meeting of stockholders thereafter 600,000 shares of the Company ́s 

common stock have been reserved for this plan. The fair value of the award is measured each year at the date of the grant.

Reserve for purchase of shares - In April 2005, the Company established a reserve of $201.7 for the repurchase of shares, of which $10 will be included in the SCC’s Treasury Stock for future sales to its employees. During 2011 and 2010, the 

Company purchased own shares for 44,751 and 125,744, respectively. In 2011, a dividend was declared of 48.

Employee Stock Purchase Plan - During 2007 and 2010, the Company offered to eligible employees a stock purchase plan 

(the “Employee Stock Purchase Plan”) through a trust that acquires shares of the Company ́s stock for sale to its employees, 

employees of subsidiaries, and certain affiliated companies. The purchase price is established at the approximate fair market 

value on the grant date. Every two years employees will be able to acquire title to 50% of the shares paid in the previous two 

years. The employees will pay for shares purchased through monthly payroll deductions over the eight year period of the plan. 

At the end of the eight year period, the Company will grant the participant a bonus of 1 share for every 10 shares purchased 

by the employee.

If the Company pays dividends on shares during the eight year period, the participants will be entitled to receive the dividend 

in cash for all shares that have been fully purchased and paid as of the date that the dividend is paid. If the participant has only 

partially paid for shares, the entitled dividends will be used to reduce the remaining liability owed for purchased shares.

In the case of voluntary resignation of the employee, the Company will pay to the employee the fair market sales price at the 

date of resignation of the fully paid shares, net of costs and taxes. When the fair market sales value of the shares is higher 

than the purchase price, the Company will apply a deduction over the amount to be paid to the employee based on the 

following schedule:

If the resignation occurs during: % Deducted

1 st year after the grant date 90%

2nd year after the grant date 80%

3rd year after the grant date 70%

4th year after the grant date 60%

5th year after the grant date 50%

6th year after the grant date 40%

7th year after the grant date 20%
66 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 67

In the case of involuntary termination of the employee, the Company will pay to the employee the difference between the fair 

market value of the shares at the date of termination of employment and the purchase price. When the fair market value of 

the shares is higher than the purchase price, the Company will apply a deduction over the amount to be paid to the employee 

based on the following schedule.

If the termination occurs during: % Deducted

1 st year after the grant date 100%

2nd year after the grant date 95%

3rd year after the grant date 90%

4th year after the grant date 80%

5th year after the grant date 70%

6th year after the grant date 60%

7th year after the grant date 50%

In case of retirement or death of the employee, the Company will render the buyer or his legal beneficiary, fair market value as 

of the date of retirement or death of the shares effectively paid, net of costs and taxes.

For each of the years ended December 31, 2011 and 2010, the stock based compensation expense under the Employee Stock 

Purchase Plan was $2.1. As of December 31, 2011, there was $6.4 of unrecognized compensation expense under this plan, 

which is expected to be recognized over the remaining three year period.

The following table presents the stock award activity of the Employee Stock Purchase Plan for the years ended December 31, 

2011 and 2010:

Shares

Unit weighted average

grant date fair value

Outstanding shares at January 1, 2010 11,556,625 1.16

Granted -

Exercised -

Forfeited (635,932) 1.16

Outstanding shares at December 31, 2010 10,920,693 1.16

Granted -

Exercised (3,402,855) 1.16

Forfeited (247,497) 1.16

Outstanding shares at December 31, 2011 7,270,341 1.16

Executive Stock Purchase Plan - The Company also offers a stock purchase plan for certain members of its executive 

management and the executive management of its subsidiaries and certain affiliated companies. Under this plan, participants 

will receive incentive cash bonuses which are used to purchase shares of the Company which are deposited in a trust.

17. Income tax, asset tax and flat tax

The components of the provision (benefit) for each jurisdiction for current and deferred income tax in 2011 and 2010 were 

as follows:
68 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 69

For the year ended December 31. 2011

México U. S. Peru Total

Income tax:

Current $ 723.7 $ 125.2 $ 559.4 $ 1,408.3

Deferred (39.7) 44.3 (110.8) (106.2)

Total provision for income tax $ 684.0 $ 169.5 $ 448.6 $ 1,302.1

For the year ended December 31. 2010

México U. S. Peru Total

Income tax:

Current $ 361.8 $ 12.2 $ 590.0 $ 964.0

Deferred 32.3 42.8 (8.2) 66.9

Total provision for income tax $ 394.1 $ 55.0 $ 581.8 $ 1,030.9

The reconciliation of the statutory income tax rate to the effective tax rate is as follows:

2011 2010

Expected tax 35.0% 35.0%

Effect of income taxed at a rate other than the statutory rate (0.5) (0.4)

Depletion (5.6) (5.7)

Dividends - 0.3

Permanent differences 1.3 1.1

Peru tax on net income deemed distributed 1.2 1.6

Decrease in valuation allowance (3.3) -

Difference in foreign tax base 1.9 -

Decrease in unrecognized tax benefits for uncertain tax positions - 2.7

Other 0.1 (1.0)

Effective income tax rate 30.1% 33.6%

AMC files income tax returns in three jurisdictions, Peru, Mexico and the United States. For the years presented above the statutory income tax 

rates for Peru and the United States were 30% and 35%, respectively. The statutory income tax rate for Mexico was 30% in 2011 and 2010.

The Company has chosen to use the U. S. income tax rate of 35% for this tax rate reconciliation because most of the distributable retained earnings relate to AMC, a U. S. company. Peruvian income tax provision is the largest component of tax the 

expense for each of the two years presented. For all of the years presented, both AMC and the Company filed separate tax 

returns in their respective tax jurisdictions. Although the tax rules and regulations imposed in the separate tax jurisdictions 

may vary significantly, similar permanent items exist, such as items which are nondeductible or nontaxable. Some permanent 

differences relate specifically to AMC, such as the allowance in the U. S. for percentage depletion.

Temporary differences and carryforwards that gave rise to deferred tax liabilities, assets and related valuation allowances were as follows:

2011 2010

Assets:

Inventories $ 108.9 $ 165.4

Minimun tax credits 63.4 62.9

Posterior benefit obligations 133.0 132.4

Pension obligations 53.2 43.5

Capitalized exploration expenses 31.9 19.8

Foreign tax credit carryforward 778.2 640.7

General business credit carryforward 0.4 1.1

Reserves 72.3 124.0

Tax loss carryforwards 53.0 37.5

Capital loss carryforward - 30.5

Valuation allowance (57.5) (81.3)

Hedging losses - 99.2

Effect on U. S. tax Peruvian deferred tax liabilities - 38.6

Other 152.1 58.4

Total deferred tax assets 1,388.9 $ 1,372.7

Liabilities:

Property and equipment $ (689.2) (755.3)

Investments (57.0) (46.0)

Deferred charges (35.3) (25.0)

Retained earnings (85.4) (20.0)

Mexican tax consolidated dividends (32.6) (32.7)

Other (45.8) (8.5)

Total deferred tax liabilities (945.3) (887.5)

Total net deferred tax assets $ 443.6 $ 485.3
70 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 71

The Company and Mexican Subsidiaries/Mexico

In 2009, Mexico enacted new tax laws, which, among other things, impose restrictions on certain benefits of tax consolidation 

and temporarily increased the statutory tax rate.

Under the previous tax consolidation rules, Mexican companies were allowed to indefinitely defer taxes assessed on dividends in excess of tax-basis retained earnings accounts that are distributed among entities of a consolidated tax group, and 

the offsetting net operating losses (NOL’s) incurred by one entity against the profits of another entity, until the occurrence of 

certain events, such as the dissolution of the tax consolidation regime. The new law, which applies retroactively to qualifying 

dividends paid and the net operating losses since 1999, eliminates the indefinite deferral period and requires payment of the 

tax beginning in the sixth year following the dividend. The new law applies retroactively and reduced the NOL carryforward 

period from ten years to five years. The total liability affected by these amendments is $106.6. This amount includes an additional liability of $22.6 recognized in 2009 and recorded as income tax expense in the consolidated statement of income; the 

balance of the liability $84.0 has been recorded as a deferred tax charge in prior years.

In March 2011 and in June 2010, the Mexican mining company made tax payments of 125 mexican pesos and 121 mexican 

pesos (approximately $9.3 and $10), respectively in accordance with the changes in the law. In subsequent years these taxes 

will continue to be paid in March.

The mexican statutory income tax rate increased to 30% from 2010 through 2012, will decrease to 29% in 2013, and to 28% 

in 2014 and thereafter.

Mexican companies are subject to a dual tax system comprised of regular income tax and a corporate flat tax that was enacted 

in 2007. The rate under the corporate flat tax law is 17.5%. Mexican companies pay the greater of the corporate flat tax or 

regular income tax and determine its deferred income taxes based on the tax regime it expects to be subject to in the future. 

Based on earnings projections, the Company believes it will be subject to regular income tax for the foreseeable future and 

has calculated its temporary differences and deferred taxes based on the regular income tax law.

AMC, Asarco and SCC/U. S. and PERU

U. S. Tax Matters

As of December 31, 2010, SCC had unused U. S. net capital losses carryover of $30.0 which expired unutilized in 2011. SCC 

had a full valuation allowance on the capital loss carryforwards.

As of December 31, 2011, SCC considers its ownership of the stock of MM to be essentially permanent in duration. The excess 

of the amount for financial reporting over the tax basis of the investment in this stock is estimated to be at least $2.9 billion.

The SCC has provided a deferred tax liability of $91.6 as of December 31, 2011 for the U. S. income tax effects of $951 of 

foreign earnings that may potentially be repatriated in the future by MM.

At December 31, 2011, there were $778.2 of foreign tax credit available for carryback or carryforward. These credits have 

limited carryback and carryforward periods and can only be used to reduce U.S. income tax on foreign earnings included in 

the annual U.S. consolidated income tax return. At December 31, 2011 there were $63.4 of minimum tax credits available for 

carryforward. A valuation allowance again $50.9 of the minimum tax credits exists because the Company does not expect 

to be able to utilize a portion of credits due to separate company limitations. There were no other material U.S. tax credits at 

December 31, 2011.

Peruvian Tax MattersAMC obtains income tax credits in Peru for value-added taxes paid in connection with the purchase of capital equipment and 

other goods and services, employed in its operations and records these credits as a prepaid expense. Under current Peruvian 

law, AMC is entitled to use the credits against its Peruvian income tax liability or to receive a refund. The carrying value of 

these Peruvian tax credits approximates their net realizable value.

Special Mining tax -

In September 2011, the Peruvian government enacted a new tax for the mining industry. This tax is based on operating income 

and its rate ranges from 2% to 8.4%. It begins at 2% for the first 10% of operating income margin and for each additional 5% 

of operating income margin is increased by an additional rate of 0.4% until 85% of operating income margin is reached. In the 

last quarter of 2011 AMC made provisions of $16.4 por this tax. This provision is included as “income tax” in the consolidated 

statement of income.

Mexican Tax Matters

In 2009, Mexico enacted new rules related to the income tax law, which, among other things, impose restrictions on certain 

benefits of tax consolidation and temporarily increased the statutory tax rate.

Under the previous tax consolidation rules, Mexican companies were allowed to indefinitely defer taxes assessed on dividends in excess of tax-basis retained earnings accounts that are distributed among entities of a consolidated tax group, and 

the offsetting net operating losses (NOL’s) incurred by one entity against the profits of another entity, until the occurrence of 

certain events, such as the dissolution of the tax consolidation regime. The new law, which applies retroactively to qualifying 

dividends paid and the net operating losses since 1999, eliminates the indefinite deferral period and requires payment of the 

tax beginning in the sixth year following the dividend. The new law applies retroactively and reduced the NOL carryforward 

period from ten years to five years. The total liability affected by these amendments is $106.6. This amount includes an addi-
72 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 73

tional liability of $22.6 recognized in 2009 and recorded as income tax expense in the consolidated statement of earnings; 

the balance of the liability $84 has been recorded as a deferred tax charge in prior years.

In March 2011 and in June 2010, the Mexican parent company made tax payments of 125 million pesos and 121 million 

pesos (approximately $9.3 million dollares and $10 million dollares), respectively in accordance with the changes in the law. 

In subsequent years these taxes will continue to be paid in March.

The Mexican statutory income tax rate increased to 30% from 2010 through 2012, will decrease to 29% in 2013, and to 28% 

in 2014 and thereafter.

Mexican companies are subject to a dual tax system comprised of regular income tax and a corporate flat tax that was enacted 

in 2007. The rate under the corporate flat tax law is 17.5%. Mexican companies pay the greater of the corporate flat tax or 

regular income tax and determine its deferred income taxes based on the tax regime it expects to be subject to in the future. 

Based on earnings projections, the Company believes it will be subject to regular income tax for the foreseeable future and 

has calculated its temporary differences and deferred taxes based on the regular income tax law.

Accounting for Uncertainty in Income TaxesThe total amount of unrecognized tax benefits in 2011 and 2010, were as follows:

2011 2010

Unrecognized tax benefits, opening balance $ 178.6 $ 163.4

Gross (decrease) increases — tax positions in prior periods (0.1) 1.5

Gross increases — current-period tax positions 50.1 13.2

Increase (decrease) related to settlements with taxing authorities - 0.5

Unrecognized tax benefits, ending balance $ 228.6 $ 178.6

The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $106.3 at December 31, 

2011 and $28.4 at December 31, 2010. These amounts relate entirely to U.S. income tax matters. AMC has no unrecognized 

Peruvian or Mexican tax benefits.

As of December 31, 2011, AMC’s liability for uncertain tax positions included $20.3 for accrued interest and penalties. At 

December 31, 2010, AMC’s liability for uncertain tax positions included no amount for accrued interest and penalties. 

Management does not expect that any of the open years will result in a cash payment within the upcoming twelve months 

ending December 31, 2012. AMC’s reasonable expectations about future resolutions of uncertain items did not materially 

change during the year ended December 31, 2011. 

In the second quarter of 2011, AMC reached agreement with the IRS and settled tax years 2005, 2006, and 2007 relating 

solely to separate tax returns filed by its subsidiary, Southern Copper Corporation.

The following tax years remain open to examination and adjustment by the Company’s three major tax jurisdictions:

Peru: 2008 up to 2011 (years 1997 through 2006 have been examined by the Peruvian tax 

authority and the issues raised are being contested; no new issues can be raised for 

these years. Year 2007 is being examined since December 2011)

U.S.: 2008 and all future years

Mexico: 2004 and all future years

In the fourth quarter of 2011, the IRS commenced its U.S. federal income tax audit of the Company for the years 2008 through 

2010. At December 31, 2011, both the Company and its subsidiaries as ITM report no unrecognized tax benefits. This condition is evaluated periodically.

18. Business segments:

The Company’s segments are organized using the management approach by industry and geographical region, resulting in 

five primary reportable segments: MM, the Branch, Asarco, ITM and Infraestructure. The MM (open pit and underground 

operations) produce copper, with production of by-products of molybdenum, silver and other material, the Branch and Asarco 

include integrated copper extraction, smelting and refining operations, produce copper, with production of by-products of 

molybdenum, silver and other material, mainly in Peru and the U. S., respectively. The corporate and other amounts originate 

from corporate activities performed in the U. S. ITM carries out railway transportation activities through its main subsidiary 

GFM mainly in México. Infraestructure activities are mainly performed by MCI and PEMSA which main operations are infraestructure services and oil well drilling, respectively.

Information by segments is shown in the same format used by the Company’s management to evaluate each business. An 

operating segment is defined as a component of the Company dedicated to business activities from which the Company 

generates income and incurs costs and expenses, with respect to which information for decision-making is prepared and in 
74 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 75

respect of which the Company’s management evaluates the allocation of resources periodically. The accounting policies of 

the segments are described in the summary of significant accounting policies. The Company assesses the performance by 

segment based on the operating income or (loss) before these expenses.

The most significant data by business segment in 2011 and 2010 were as follows:

2011

MM The Branch Asarco ITM Infraestructure

Corporate 

and other Total 

Sales of product and 

services $ 3,563 $ 3,187 $ 1,904 $ 1,544 $ 175 $ - $ 10,373

Income from 

operations $ 2,087 $ 1,539 $ 654 $ 303 $ 28 $ 27 $ 4,638

Administrative 

expenses $ 51 $ 54 $ 14 $ 68 $ 16 $ (30) $ 173

Depreciation and 

amortization $ 146 $ 142 $ 87 $ 112 $ 14 $ - $ 501

Comprehensive 

financing result $ (1) $ (172) $ 11 $ (37) $ (63) $ (45) $ (307)

Net income (loss) $ 1,446 $ 454 $ 448 $ 157 $ 21 $ (54) $ 2,472

Total assets, 

not including 

investment in 

shares of associated 

companies $ 4,222 $ 3,768 $ 4,058 $ 2,184 $ 217 $ 788 $ 15,237

Total liabilities $ 647 $ 3,380 $ 1,631 $ 772 $ 123 $ 609 $ 7,162

Net investment in 

property, plant and 

equipment $ 2,216 $ 2,204 $ 1,580 $ 1,394 $ 100 $ 148 $ 7,642

Capital expenditures $ (407) $ (206) $ (108) $ (355) $ (147) $ 6 $ (1,217)

2010

MM The Branch Asarco ITM Infraestructure

Corporate 

and other Total 

Sales of product and 

services $ 1,985 $ 3,164 $ 1,654 $ 1,173 $ 107 $ - $ 8,083

Income from 

operations $ 892 $ 1,712 $ 498 $ 269 $ (16) $ (60) $ 3,295

Administrative 

expenses $ 58 $ 63 $ 43 $ 13 $ 20 $ 52 $ 249

Depreciation and 

amortization $ 143 $ 137 $ 108 $ 83 $ 12 $ - $ 483

Comprehensive 

financing result $ (3) $ (150) $ (169) $ 23 $ - $ 70 $ (229)

Net income (loss) $ 592 $ 650 $ 233 $ 204 $ (39) $ (30) $ 1,610

Total assets, 

not including 

investment in 

shares of associated 

companies $ 3,248 $ 4,868 $ 4,246 $ 1,800 $ 186 $ 64 $ 14,412

Total liabilities $ 689 $ 3,529 $ 2,633 $ 553 $ 118 $ 128 $ 7,650

Net investment in 

property, plant and 

equipment $ 1,880 $ 2,215 $ 1,614 $ 1,107 $ 104 $ - $ 6,920

Capital expenditures $ (141) $ (268) $ (46) $ (132) $ (17) $ - $ (604)
76 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 77

The Company made direct sales to customers and rendered railway transportation services in the following areas:

2011

Country MM The Branch Asarco ITM Infraestructure Total

U. S. $ 1,269 $ - $ 1,905 $ $ $ 3,174

México 1,584 451 1,544 174 3,753

Europe 250 1,042 1,292

Peru 1 261 262

China and Asia 56 607 663

Latin America, except 

Mexico and Peru 396 819 1,215

Derivative instruments 7 7 14

Grand total $ 3,563 $ 3,187 $ 1,905 $ 1,544 $ 174 $ 10,373

2010

Country MM The Branch Asarco ITM Infraestructure Total

U. S. $ 573 $ 708 $ 1,654 $ - $ - $ 2,935

México 834 3 8 - 1,173 107 2,152

Europe 190 877 - - - 1,067

Peru - 316 - - - 316

China and Asia 49 489 - - - 538

Latin America, except 

Mexico and Peru

 339 778 - - - 1,117

Derivative instruments - (42) - - - (42)

Grand total $ 1,985 $ 3,164 $ 1,654 $ 1,173 $ 107 $ 8,083

19. Derivative instruments:

AMC

As part of its risk management policy, AMC occasionally uses derivative instruments to (i) safeguard the corporate assets; 

(ii) insure the value of its future revenue stream, and (iii) lessen the impact of unforeseen market swings of its sales revenues. 

To comply with these objectives AMC, from time to time, enters into commodities prices derivatives, interest rate derivative, 

exchange rate derivative and other instruments. AMC does not enter into derivative contracts unless it anticipates a future 

activity that is likely to occur that will result in exposing AMC to market risk.

Copper swaps:

From time to time AMC has entered into derivative contracts to protect a fixed copper or zinc price for a portion of its 

metal sales.

In 2011 and 2010, AMC entered into copper swaps and zero cost collar derivative contracts to reduce price volatility and to 

protect its sales value as shown below. These transactions meet the requirements of hedge accounting. The realized gains and 

losses from these derivatives were recorded in net sales on the consolidated statement of earnings and included in operating 

activities on the consolidated statement of cash flows. The following table summarized the copper derivative activity related 

to copper sales transactions realized in 2011 and 2010:

2011 2010

Copper swap contracts $ (13.5) $ 66.7

Copper collar call option contracts - 3.0

Realized gain (loss) on copper derivatives $ (13.5) $ 69.7

In addition, AMC has a hedge program to protect the sales value of a portion of its copper production for the first quarter of 

2012. The hedge instruments are based on LME copper prices. AMC performed statistical analysis on the difference between 
78 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 79

the average monthly copper price on the LME and the COMEX exchanges and determined that the correlation coefficient is 

greater than 0.999. Based on this analysis AMC considers that the LME underlying price matches its sales priced at COMEX 

prices. These cash flow hedge relationships qualify as critical matched terms hedge relationships and as a result have no 

ineffectiveness. AMC performs periodic quantitative assessments to confirm that the relationship was highly effective and 

that the ineffectiveness was de minimis.

Asarco has designed the following cash flow hedges as hedging instruments:

2011 2010

Copper collar put option contracts Other current assets $ 7.7 $ 10.6

Copper collar put option contracts Other assets and deferred costs - 3.5

Commodity swap contracts Derivative liabilities - (117.9)

Copper collar call option contracts Derivative liabilities (0.1) (73.3)

Copper collar call option contracts Other liabilities and reserves - (4.7)

$ 7.6 $ (181.8)

Asarco’s copper swaps:

At December 31, 2010, the Company held copper swap contracts for 212 pounds at an average price of $3.81 per pound 

valued at $118 with maturities through December 2011. These hedge transactions are intended to reduce short-term price 

volatility in earnings and cash flows associated with anticipated product sales. All of the contracts were unsettled as of December 31, 2010, accordingly, there were no realized gains and losses reported in earnings for the year ended December 31, 

2010. In addition, the Company did not have any significant gains or losses during the year ended December 31, 2010, resulting from hedge ineffectiveness. However, all of the contracts were settled during 2011 and accordingly, the Company realized 

a loss in earnings of $72.7 for the year ended December 31, 2011.

Asarco’s copper collar:

At December 31, 2010, the Company held zero-cost copper collar contracts for 251 pounds capped at an average price of 

$4.77 per pound (call option) with an average floor price of $3.18 per pound (put option) valued at $78 with maturities through 

March 2012. At December 31, 2011, the Company held zero-cost copper collar contracts for 39.7 pounds capped at an average price of $5.22 per pound (call option) with an average floor price of $3.50 per pound (put option) valued at $7.7, with 

maturities through March 2012. The copper collar contracts consist of the simultaneous purchase of an annual put option and 

the sale of an annual call option. The put option portion of this hedge effectively ensured a minimum price per pound while 

the call option portion established a maximum price per pound. The primary objective of these contracts is to set a minimum 

price, and the secondary objective is to retain market upside. All of the contracts remained unsettled as of December 31, 2010, 

accordingly, there were no realized gains and losses reported in earnings for the year ended December 31, 2010. In addition, 

the Company did not have any significant gains or losses during the year ended December 31, 2010, resulting from hedge 

ineffectiveness. However, substantially all of the contracts were settled during 2011 and accordingly, the Company realized a 

loss in earnings of $2.7 for the year ended December 31, 2011. The Company estimates that approximately $7.7 in net losses 

that are currently reported in accumulated other comprehensive income will be reclassified into earnings during 2012.

At the end of 2011 AMC held copper derivative contracts to protect a portion of its copper sales for 2011 and the first quarter 

2012, as follows:

2011

1st Quarter

2012

Zero cost collar contracts:

Pounds (in millions) 423.3 46.3

Average LME cap price $ 3.6 $ 5.18

Average LME floor price $ 2.2 $ 3.50

Estimate % of copper sales covered - 13.6%

Realized gain on copper derivatives $ 13.5 $ -

2011

1st Quarter

2012

Swap contracts:

Pounds (in millions) 390.8 -

Weighted average COMEX price $ 3.4 $ -

Unrealized gain recognized in other 

comprehensive income (net of income taxes of $3.5) $ - $ 5.4

The Company expects to reclassify into earnings during the first quarter of 2012 the unrealized gain included in accumulated 

other comprehensive loss of approximately $5.4 (net of income taxes) at the time the underlying hedged transactions are 
80 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 81

realized. However, changes in copper prices in that period could increase or decrease the amount of the gain to be reclassified 

into earnings.

At the end of 2011 Asarco held copper derivative contracts to protect a portion of its copper sales for 2011 and the first quarter 

2012, as follows:

2011

1st Quarter

2012

Zero cost collar contracts:

Pounds (in millions) 39.7 -

Average LME cap price $ 5.22 $ -

Average LME floor price $ 3.50 $ -

Estimate % of copper sales covered - -

Realized gain on copper derivatives $ 2.7 $ 7.7

The amount of gains or losses reported in accumulated other comprehensive income for derivative financial instruments of 

Asarco as of December 31, 2011 and 2010 is as follow:

Cash Flow Hedging Relationships

Gain or (Loss) in Accumulated 

Other Comprehensive Income

2011 2010

Copper collar put option contracts $ 7.7 $ 14.2

Copper collar call option contracts (0.1) (78.1)

Commodity swap contracts - (117.9)

Total $ 7.6 $ (181.8)

A summary of the amount of loss recognized in income on derivatives qualified as hedge accounting of Asarco, for the years 

ended December 31, 2011 and 2010 is as follows:

Derivatives Designated as 

Hedging Instruments

Location of

Loss Recognized 

in Income on 

Derivative

Amount of 

Loss Recognized 

in Income 

on Derivative

2011 2010

Copper collar call option contracts Revenue $ (2.7) $ -

Commodity swap contracts Revenue (72.7) -

Total $ (75.4) $ -

Asarco had similar contracts that were not designated as hedging instruments which were settled as of December 31, 2010. 

A summary of the amount of loss recognized in income in 2010 is as follows:

Location of Amount of

Loss Recognized Loss Recognized

Derivatives Not Designated as Hedging in Income on in Income on

Instruments Derivative Derivative

2010

Copper collar call option contracts Revenue $ (2.9)

Commodity swap contracts Revenue (24.8)

Total $ (27.7)

Transactions under these metal price protection programs are accounted for as cash flow hedges under ASC 815-30 “Derivatives 

and Hedging-Cash Flow Hedges” as they meet the requirements for this treatment and are adjusted to fair market value based on 

the metal prices as of the last day of the respective reporting period with the gain or loss recorded in other comprehensive income 

until settlement, at which time the gain or loss is reclassified to net sales in the consolidated statements of earnings.

AMC ́s Cross Currency Swap and Interest Rate
82 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 83

On September 9, 2011, AMC contracted with HSBC and Morgan Stanley an interest rate (IR) and cross currency swap (CCS) 

with the purpose of managing interest and exchange rate risk on its outstanding with syndicated credit with BBVA Bancomer, 

S. A. Institución de Banca Mutiple, Grupo Financiero BBVA Bancomer acting as broker, on liabilities denominated in Mexican Pesos, with notional of MXP $8,398.8 (US 617.7). The IR change the profile of interest payments from TIIE (Interbank 

interest rates) plus a margin between 4.0 and 6.5 points to fixed rate 5.9067% the CCS result in a fixed exchange rate of 

MXP $13.5961 per one US dollar. To hedge the payment of principal and interest of loan denominated in that currency by the 

amount of MXP $8,398.8. Derivates have the same expiration date as the liabilities covered. The fair value of the IR and CCS 

at December 31, 2011 was $15.7 and recognized as liability.

Ferrosur’s Cross Currency Swaps and Interest Rate 

Ferrosur used the following methods and assumptions to determine the fair value of financial instruments: 

On September 29, 2006, Ferrosur entered into two Cross Currency Swaps (CCS) on liabilities denominated in dollars with 

notional amounts of $25.0 each, which expire on June 6, 2011 and 2013, respectively. The CCS result in a fixed exchange 

rate of $10.9950 per one US dollar, to hedge the payment of principal and interest of both loans, denominated in that currency by the amount of $25.0 each. The CCS also changes the profile of interest payments from 3-month LIBOR + .45% and 

.55% to a 28-day TIIE rate + .61% and .71%. Derivatives have the same expiration date as the liabilities covered. The CCS, 

which expires on June 6, 2013, began with quarterly payments from June 7, 2010. Tthe remaining balance at December 31, 

2011 is $11.5.

Although the CCS represent an effective hedge from an economic standpoint, for accounting purposes, from 2010, such 

instruments were classified as trading derivatives with the related fair value recognized in net comprehensive financing costs. 

The fair value of the CCS at December 31, 2011 and 2010 was $32.6 and $53.6 millions mexican pesos, respectively. 

On June 6, 2007, the Company contracted two IRS, which pay fixed interest rates and receive variable interest rates. One of those 

swaps whose notional amount totals was $789.9 millon mexican pesos, matures on a quarterly basis from June 7, 2010 until 

June 6, 2013, as of December 31, 2011 the remaining balance of $364.5 and the other IRS with a notional amount of $564.2 

mexican pesos due on June 6, 2011 (in both cases the notional amount expiration dates coincide with the risk positions). During 

2011, the Company paid the IRS interest rates 8.51% and 8.37%, respectively, and received a weighted average interest rate 

of 5.396% and 5.376%. The difference was recorded in comprehensive finance cost, in addition to the variable rate of the loan 

covered. The IRS fair values at December 31, 2011 and 2010 were recognized as liabilities of $9.3 and $28.9 million mexican 

pesos, respectively. In 2011, comprehensive income within stockholders’ equity was decreased by ($8.5 mexican pesos), being 

recognized again as interest accrued in comprehensive financing cost and deferred income taxes of $2.5 mexican pesos.

The credits listed establish certain restrictions and obligations, which at December 31, 2011 and 2010 have been met.

20. Financial instruments

Subtopic 810-10 of ASC “Fair value measurement and disclosures — Overall” establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable 

inputs (Level 3 measurements). The three levels of the fair value hierarchy under Subtopic 810-10 are described below:

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2 - Inputs that are observable, either directly or indirectly, but do not qualify as Level 1 inputs. (i.e., quoted prices 

for similar assets or liabilities).

Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and 

unobservable (i.e., supported by little or no market activity).

The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable (other than 

accounts receivable associated with provisionally priced sales) and accounts payable approximate fair value due to their 

short maturities. Consequently, such financial instruments are not included in the following table that provides information 

about the carrying amounts and estimated fair values of other financial instruments that are not measured at fair value in the 

consolidated balance sheet as of December 31, 2011:

Balance at December 31, 2011

Carrying Value Fair Value

Liabilities - Long-term debt (*) $ 3,826.8 $ 2,974.90

Balance at December 31, 2010

Carrying Value Fair Value

Liabilities - Long-term debt (*) $ 3,983.2 $ 3,983.2

(*) Long-term debt is carried at amortized cost and its estimated fair value is based on quoted market prices classified as Level 1 in the fair value hierarchy. The 

Mitsui loan is based on the present value of the cash flow discounted at 10%, which is AMC’s weighted average cost of capital.
84 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 85

Fair values of assets and liabilities measured at fair value on a recurring basis were calculated as of December 31, 2011 and 

2010, are as follows:

Balance at

December 31,

Quoted prices in 

active markets for 

identical assets

Significant 

other observable 

inputs

Significant 

unobservable 

inputs

2011 (Level 1) (Level 2) (Level 3)

Assets:

Short-term investments:

-Trading securities $ 1,034.7 $ 1,034.7 $ - $ -

-Available for sale debt securities: 

Corporate bonds 0.5 - 0.5 -

Asset backed obligations 

Mortgage backed securities 6.8 - 6.8 -

Accounts receivable:

- Derivatives - Classified as flow hedges:

Zero Cost Collar 16.6 - 16.6 -

Accounts receivable: 

-Derivatives - Not classified as hedges: 

Provisionally priced sales: 

Copper 221.5 221.5 - -

Molybdenum 138.1 138.1 - -

Copper collar put option

Liabilities: 

Other current liabilities: 

-Liability derivatives - Classified as cash 

flow hedges: 

Swap - - - -

Zero cost collar (15.7) - (15.7) -

Total $ 1,402.5 $ 1,394.3 $ 8.2 $ -

Balance at

December 31, 

Quoted prices in 

active markets for 

identical assets

Significant 

other observable 

inputs

Significant 

unobservable 

inputs

2010 (Level 1) (Level 2) (Level 3)

Assets:

Short-term investments:

-Trading securities $ 456.2 $ 455.4 $ 0.8 $ -

-Available for sale debt securities: 

Corporate bonds 0.4 - 0.4 -

Asset backed obligations 0.3 - 0.3 -

Mortgage backed securities 8.6 - 7.4 1.2

Accounts receivable: 

-Derivatives - Not classified as 

hedges: 

Provisionally priced sales: 

Copper 4.8 4.8 - -

Molybdenum 7.3 7.3 - -

Copper collar put option 14.2 - 14.2 -

Liabilities: 

Other current liabilities: 

-Liability derivatives - Classified 

as cash flow hedges: 

Swap (244.2) - (244.2) -

Zero cost collar (150.8) - (150.8) -

Total $ 96.8 $ 467.5 $ (371.9) $ 1.2

Certain short-term trading securities investments are classified as Level 1 because they are valued using quoted prices of the 

same securities.

The Company’s short-term available-for-sale investments are classified as Level 2 because they are valued using quoted 

prices for similar investments. The Company classifies investments within Level 3 of the valuation hierarchy in certain cases 
86 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 87

where there is limited activity or less observable inputs to the valuation. Investments classified within Level 3 as of December 31, 2010, include mortgage-backed securities. These investments are valued by the fund’s management advisor taking 

into consideration different factors and methodologies considered appropriate in the circumstance. Factors can include the 

following or a combination of the following observed transactions, broker quotes, cash flow analysis, vendor prices and other 

factors, as appropriate.

Derivatives are valued using financial models that use as their basis readily observable market inputs, such as time value, 

forward interest rates, volatility factors, and current and forward market prices for foreign exchange rates and a set of probabilities. The Company generally classifies these instruments within Level 2 of the valuation hierarchy. Such derivatives at 

December 31, 2011 and December 31, 2010, include copper swaps and zero cost collars.

The Company’s accounts receivables associated with provisionally priced copper sales are valued using quoted market prices 

based on the forward price on the London Metal Exchange (LME) or on the Commodities Exchange (COMEX) in New York. 

Such value is classified within Level 1 of the fair value hierarchy. Molybdenum prices are established by reference to the 

publication Platt’s Metals Week and are considered Level 1 in the fair value hierarchy.

The table below sets forth a summary of changes in the fair value of the Company’s Level 3 short-term investments (corporate 

bond, asset backed obligations, and mortgage backed securities), for the years ended on December 31, 2011 and 2010.

2011 2010

Balance at beginning of period $ 1.2 $ 3.1

Purchase, sales, issuance and settlements (net) - (1.3)

Transfers in/out of Level 3 (1.2) (0.6)

Balance at end of period $ - $ 1.2

The total amount of unrealized loss for the period was included in other income (expense) in the consolidated statement of 

income for December 31, 2011 and 2010, respectively.

21. Concentration of risk

AMC operates four open-pit copper mines, five underground poly-metallic mines, two smelters and eight refineries in Peru 

and Mexico and substantially all of its assets are located in these countries. There can be no assurances that AMC’s operations and assets that are subject to the jurisdiction of the governments of Peru and Mexico will not be adversely affected by 

future actions of such governments. Much of AMC’s products are exported from Peru and Mexico to customers principally in 

the United States, Europe, Asia and South America.

Financial instruments, which potentially subject AMC to a concentration of credit risk, consist primarily of cash and cash 

equivalents, short-term investments and trade accounts receivable.

AMC invests or maintains available cash with various banks, principally in the United States, Mexico, Europe and Peru, or in 

commercial papers of highly-rated companies. As part of its cash management process, SCC regularly monitors the relative 

credit standing of these institutions. At December 31, 2011, SCC had invested its cash and cash equivalents as follows:

Country % of total cash % invested in one institution

United States 86.9% 25.2%

Peru 9.1% 84.3%

Mexico 4.0% 96.1%

During the normal course of business, AMC provides credit to its customers. Although the receivables resulting from these 

transactions are not collateralized, AMC has not experienced significant problems with the collection of receivables.

AMC is exposed to credit loss in cases where the financial institutions with which it has entered into derivative transactions 

(commodity, foreign exchange and currency/interest rate swaps) are unable to pay when they owe funds as a result of protection 

agreements with them. To minimize the risk of such losses, the Company only uses highly-rated financial institutions that meet 

certain requirements. The Company also periodically reviews the creditworthiness of these institutions to ensure that they are 

maintaining their ratings. The Company does not anticipate that any of the financial institutions will default on their obligations.

Mining Division largest customers as percentage of accounts receivable and total sales were as follows:

2011 2010

Accounts receivable trade as of December 31

Five largest customers 43.9% 49.1%

Largest customer 35.8% 16.3%
88 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 89

Total sales in year

Five largest customers 73.7% 29.6%

Largest customer 55.3% 9.9%

22. Commitments

Mining segment

Peruvian and Mexican Operation

Power purchase agreement

In 1997, SCC sold its Ilo power plant, to an independent power company, Enersur, S. A. (“Enersur”). In connection with the 

sale, a power purchase agreement was also completed under which the Company agreed to purchase all of its power needs 

for its Peruvian operations from Enersur for twenty years, commencing in 1997.

The Company signed in 2009 a Memorandum of Understanding (“MOU”) with Enersur regarding its power supply agreement.

The MOU contains new economic terms that the Company believes better reflect current economic conditions in the power 

industry and in Peru. The new economic conditions agreed to in the MOU have been applied by Enersur to its invoices to the 

Company since May 2009. Additionally, the MOU includes an option for providing power for the Tia Maria project. During 

2010 and 2011, the Company continued its negotiation with Enersur. However, due to the delay at the Tia Maria project the 

final agreement was put on hold.

 Long-Term Sales Contracts

Under the terms of a sales contract with Mitsui & Co. Ltd. (“Mitsui”), the Company is required to supply Mitsui with 48,000 

tons of copper cathodes annually through 2013. If the shipment destination is Asia, the pricing of the cathodes is based upon 

the LME monthly average settlement price. However, if the destination of shipments is the United States, the pricing of the 

cathodes is based upon the COMEX monthly average settlement price. In either case a producer premium will be included 

which is agreed upon annually based on world market terms. 90,000 tons related to a prior contract (period 1994-2000) will 

be supplied as follows: 48,000 in 2014 and 42,000 in 2015.

Under the terms of a sales contract with Molibdenos y Metales, S. A., SPCC Peru Branch is required to supply 23,300 tons of 

molybdenum concentrates from 2012 through 2014. This contract may be extended for one more calendar year during each 

October to maintain a three year period unless either party decides to terminate the agreement. The sale price of the molybdenum concentrates is based on the monthly average of the high and low Metals Week Dealer Oxide quotation. The roasting 

charge deduction is agreed based on international market terms.

Under the terms of a sales contract with Molymex, S. A. de C. V., MM is required to supply at least the 85% of its molybdenum 

concentrates production from 2012 through 2015. The sale price of the molybdenum concentrate is based on the monthly 

average of the high and low Metals Week Dealer Oxide quotation. The roasting charge deduction is negotiated based on 

international market terms.

American Operations:

Asarco has entered into several lease agreements, substantially all for mining equipment, and has options to purchase that 

equipment. The options are at fixed prices prior to expiration of the leases and at fair market value upon expiration. The leases 

have been accounted for as operating leases.

Minimum future rental payments under non-cancelable operating leases having remaining terms in excess of one year in the 

aggregate at December 31, 2011, are as follows:

Period ended December 31

2012 $ 7.5

2013 4.4

2014 2.1

2015 1.1

Total $ 15.1

Total rental expenses was $46.2 and $69.2 for the years ended December 31, 2011 and 2010, respectively, and is included 

in costs of revenue in the consolidated statements of income. Included in total rental expenses are land royalty payments for 

$32.9 and $58.5 for the years ended December 31, 2011 and 2010, respectively. Asarco guarantees 100% of an operating 

lease of SBM, which is 75% owned by the Company. For the years ended December 31, 2011 and 2010, $6.5 and $6.2, 

respectively, are related to the SBM lease.

Letters of Credit, Surety Bonds and Guarantees — During 2010 Asarco canceled its $5.0 standby letters of credit with Chase 

Bank, therefore as of December 31, 2011 and 2010, the amounts outstanding were $0. Asarco had outstanding surety bonds 
90 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 91

totaling $15.5 and $15.2 at December 31, 2011 and 2010, respectively. These bonds are primarily associated with reclamation and permit obligations of $12.2 and $12.3 and other miscellaneous bonds of $3.1 and $2.9 as of December 31, 2011 

and 2010, respectively. The underlying liabilities associated with the above-referenced financial assurances are reflected in 

the consolidated balance sheets as environmental remediation obligations. At December 31, 2011 and 2010, Asarco had a 

guarantee outstanding for 100% of an operating lease at SBM, of which 75% is owned by Asarco. The guarantee by Asarco 

was a requirement by the lessor as part of the lease agreement with SBM. The lease has a remaining term of 1-1/2 years at 

December 31, 2011. The maximum potential amount of future payments under the guarantee is approximately $8.3 at December 31, 2011. Payment would be required if SBM defaults on its lease obligations.

Railway segment

Ferromex’s operations are subject to Mexican federal and state laws, and to regulations related to environmental protection. Under these laws, guidelines have been issued concerning air, soil and water pollution, and studies have been 

carried out concerning environmental impact, noise control and hazardous residues. The Environment and Natural Resources Ministry (SEMARNAT for its acronym in Spanish) may impose administrative and criminal sanctions against 

companies that breach environmental laws and it has authority to partially or entirely close any facilities that fail to 

comply with such regulations.

As of December 31, 2011, there are 3 administrative processes were opened before the Procuraduría Federal de Protección 

al Ambiente (PROFEPA), related to product’s spills by railway accidents in which it hopes that lower economic sanctions 

could be imposed to Ferromex because the impacted soils’ sanitation was fulfilled. Regarding that none of these events had 

relevance or impact in the consolidated financial statements. All events related liberation of products to environment by railway accidents, which its cost be superior to fifty thousand dollars, these events are protected by coverages of assurance by 

environmental damages. 

Under the terms of the concession, the Mexican Federal Government has the right to receive payments from Ferromex equal 

to 0.5% of the gross revenue during the first 15 years of the concession and 1.25% during the remaining years of the concession. In the years ended on December 31, 2011 and 2010, such payments $8.0 and $5.79, respectively.

As part the concession agreements, the Port Authority of Coatzacoalcos (APICOA) is entitled to receive from Transgolfo 

Terminal, S. A. de C. V. (subsidiary) a monthly fee per square meter of surface terminal. In the year December 31, 2011, the 

amount of these payments totaled $476.

Ferromex leases the building where its main offices are located, the lease agreement is for ten years beginning from April 1, 

2003. In addition, Ferromex leases certain equipment, such as hoppers, boxcars, flatcars and tanker cars.

Commitments for minimum payments under lease agreements for the following years are as follows:

Total 

$ 60.5

2013 51.4

2014 38.7

2015 35.0

2016 Thereafter 95.1

Total $ 280.7

In January 1998, Ferromex entered into a fuel purchase agreement with PEMEX, under which Ferromex is required to purchase, at market value, a minimum of 19,575 cubic meters and a maximum of 38,650 cubic meters of diesel per month, although 

this limit may be exceeded, without any repercussion, in conformity to the modifying agreement which became effective 

since May 18, 2010. At the same time, in the modifying agreement which became effective from June 29, 2007, the purchase 

agreement has effect during four years and its validity will be extended for two years, and at the end of this two years period 

it will be renewed every year.

Ferromex entered into a fuel purchase agreement with PEMEX, under which Ferromex is required to purchase, at market 

value, a minimum of 19,575 meters and a maximum cubic 38,650 meters cubic of diesel per month, although this limit may 

be exceeded, without any repercussions, according to the contract of sale of first-hand petroleum products for consumption 

concluded between PEMEX Refining and Ferromex which took effect from September 15, 2011. The contract is valid for four 

years renewable for an additional two years and therafter renewed each year.

On January 5, 2001, Ferrosur entered into a contract with PEMEX refining for own consumption, which establishes a contractual volume in relation to any month that PEMEX refinery is forced to sell and Ferrosur to buy and indicating a maximum 

contract amount and a minimum contract volume by center assigned shipper, (volume 2,075 cubic meters (m3) minimum and 

maximum volume 10,500 m3 in total) that contract is effective from the date above and continues in force for an indefinite term 

until terminated by either party at the end of any month upon notice to the other party with at least three months in advance. 

On June 29, 2007 amended the contract and is valid for four years, after which written request may be made to extend for a 

term of two years and won it, for another year and so on for each year.
92 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 93

ITM is the guarantor of Ferrosur on:

a. Syndicated loan with several banks operated on June 6, 2006 by CITIBANK, N. A., consists of the following segments:

- $364.5 thousand Mexican pesos which bears interest at a rate of TIIE 28 days 0.575% with quarterly amortizations from 

June 6, 2010, until June 6, 2013.

- $11.5 thousand Mexican pesos bearing interest at Libor plus 0.55% three months, with quarterly amortizations from 

June 6, 2010, until June 6, 2013.

b. Additionally Ferrosur uses the following methods and assumptions to determine the fair value of financial instruments:

On September 29, 2006, Ferrosur hired two Cross Currency Swaps (CCS) on liabilities denominated in dollars with notional 

amount of $25.0 who conquered and settled on June 6, 2011 and $11.5, which expires on June 13, 2013. The CCS fix an 

exchange rate of $10.9950 per dollar, to cover the payment of principal and interest on two loans, denominated in that currency for the amount of $25.0 (liquidated in 2011) and $11.539, the CCS also change profile of interest payments of US-rate 

3-month LIBOR + 0.45% and 0.55% at a 28-day TIIE + 0.61% and 0.71%. The derivatives have the same expiration date of 

the liabilities covered.

On June 6, 2007 Ferrosur contracted two interest rate hedges (IRS) for its acronym in English “Interest Rate Swap”, through which 

pay fixed interest rates and receives variable interest rates. One of the swaps whose notional amount is $364.5 expires on June 

6, 2013, and the other with a notional amount of $564.2 expired and was settled on June 6, 2011 (in both cases both the notional 

amount and maturity dates coincide with the risk positions.) During 2011, ITM paid Ferrosur interest rates 8.51% and 8.37%.

The credits listed establish certain restrictions and obligations, which at December 31, 2011 and 2010 have been met.

23. Contingencies

Mining Segment

 Environmental matters

Peruvian and Mexican Operation

The Company has instituted extensive environmental conservation programs at its mining facilities in Peru and Mexico. The 

Company’s environmental programs include, among other features, water recovery systems to conserve water and minimize 

impact on nearby streams, reforestation programs to stabilize the surface of the tailings dams and the implementation of 

scrubbing technology in the mines to reduce dust emissions.

Company’s operations in Peru are subject to applicable Peruvian environmental laws and regulations. The Peruvian government through the environmental ministry conducts annual audits of Company’s Peruvian mining and metallurgical operations. 

Through these environmental audits, matters related to environmental commitments, compliance with legal requirements, 

atmospheric emissions, and effluent monitoring are reviewed. The Company believes that it is in material compliance with 

applicable Peruvian environmental laws and regulations.

Peruvian law requires that companies in the mining industry provide for future closure and remediation. In accordance with 

the requirements of this law the Company’s closure plans were approved by MINEM. As part of the closure plans, the Company is providing guarantees to ensure that sufficient funds will be available for the asset retirement obligation. See Note 12, 

“Asset retirement obligation,” for further discussion of this matter.

Company’s operations in Mexico are subject to applicable Mexican federal, state and municipal environmental laws, to Mexican official standards, and to regulations for the protection of the environment, including regulations relating to water supply, 

water quality, air quality, noise levels and hazardous and solid waste.

The principal legislation applicable to Company’s Mexican operations is the Federal General Law of Ecological Balance and 

Environmental Protection (“General Law”), which is enforced by the Federal Bureau of Environmental Protection (“PROFEPA”). PROFEPA monitors compliance with environmental legislation and enforces Mexican environmental laws, regulations 

and official standards. PROFEPA may initiate administrative proceedings against companies that violate environmental laws, 

which in the most extreme cases may result in the temporary or permanent closing of non-complying facilities, the revocation 

of operating licenses and/or other sanctions or fines. Also, according to the Federal Criminal Code, PROFEPA must inform 

corresponding authorities regarding environmental noncompliance.

Mexican environmental regulations have become increasingly stringent in recent years, and this trend is likely to continue and has 

been influenced by the environmental treaty entered into by Mexico, United States and Canada in connection with NAFTA in 1999.

In relation the aforementioned, on January 28, 2011, Article 180 of the General Law was amended. This amendment, gives an 

individual or entity the ability to contest administrative acts, including environmental authorizations, permits or concessions 

granted, without the need to demonstrate the actual existence of harm to the environment, natural resources, flora, fauna or 

human health, because it will be sufficient to argue that the harm may be caused.

As a result of the amendment, more legal actions supported or sponsored by non-governmental groups, interested in halting 

projects, and not necessarily in protecting the rights of affected communities may be filed against companies operating in all 

industrial sectors, including the mining sector.
94 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 95

In addition, on August 30, 2011, amendments to the Civil Federal Procedures Code (“CFPC”) were published in the Official Gazette wich have already entered into force. These amendments establish three categories of collective actions, by 

means of which 30 or more people claiming injury derived from environmental, consumer protection, financial services 

and economic competition issues will be considered to be sufficient in order to have a legitimate interest to seek through a 

civil procedure restitution or economic compensation or suspension of the activities from which the alleged injury derived. 

The amendments to the CFPC may result in more litigation, with plaintiffs seeking remedies, including suspension of the 

activities alleged to cause harm.

On December 5, 2011, the Senate Chamber approved the Environmental Liability Federal Law which establishes general guidelines in order to determine which environmental actions will be considered to cause environmental harm that will give rise 

to administrative responsibilities (remediation or compensations) and criminal responsibilities. Also economic fines could be 

established. This initiative has been turned to lower chamber for discussion and voting. The law will be in force once approved 

by the lower chamber and signed by the President.

FIn March 2010, the Company announced to the Mexican federal environmental authorities the closure of the copper smelter 

plant at San Luis Potosi. The Company has initiated a program for plant demolition and soil remediation with a budget of 

$35.7, of which the Company has spent $22.5 through December 31, 2011. The program is expected to be completed by the 

end of 2013. The Company expects to remediate the site and promote an urban development to generate a net gain on the 

disposal of the property.

The Company believes that all of its facilities in Peru and Mexico are in material compliance with applicable environmental, 

mining and other laws and regulations.

The Company also believes that continued compliance with environmental laws of Mexico and Peru will not have a material 

adverse effect on the Company’s business, properties, result of operations, financial condition or prospects and will not result 

in material capital expenditures.

Environmental remediation

United States operations

In connection with the matters referred to below, AMC is working with federal and state agencies to resolve environmental 

issues. Asarco accrues for losses when such losses are deemed probable and reasonably estimable. Such accruals are adjusted as new information comes to Asarco’s attention or circumstances change. These environmental liabilities are not discounted to present value. Recoveries of environmental remediation and related costs from insurance carriers and other parties 

are recorded as assets when realized. Remedial action is being undertaken by Asarco at, and in some instances nearby, some 

of the following sites:

Hayden - The Environmental Protection Agency (“EPA”) notified Asarco that it was considering listing certain areas surrounding Asarco’s Hayden Smelter in Hayden, Arizona, on the Federal Superfund’s National Priorities List (“NPL”). The basis of the 

listing was ostensibly that emissions from the smelter have contributed to elevated levels of metals in soil. Asarco, the EPA, 

and the Arizona Department of Environmental Quality (“ADEQ”) entered into negotiations to address environmental conditions 

at the Hayden site without resorting to such a listing. The parties participated in extensive negotiations regarding the scope of 

actions to be taken at the Hayden site, which resulted in an agreement regarding cleanup of the site. Pursuant thereto, Asarco 

has begun work on certain residential yards that the EPA deems to be a high priority.

As required to Secure its Obligations Under The approved settlement agreement, Asarco established and funded a $15.0 

trust on July 3, 2008. The funds in the Hayden site trust are to be used to pay for (I) required cleanup of the residential areas 

surrounding the smelter and (II) to pay for additional investigative work at the Hayden site to identify any releases of hazardous 

substances if any such releases are not otherwise being addressed under any other regulatory program for cleanup. Under 

the settlement agreement, Asarco’s liability for cleanup of the residential areas is limited to $13.5, while there is no cap on 

Asarco’s liability for the cost of the required investigation activities of on-site remediation. The residential cleanup is substantially complete and management believes the funds in the Hayden site trust are adequate to cover any further investigative 

activities. The amounts reserved on the Company’s consolidated balance sheets as of December 31, 2011 and 2010, were 

$6.7 and $8.1, respectively.

On November 10, 2011 the EPA issued Asarco a Finding of Violation (“FOV”) stating it believed the Hayden smelter was a 

major source of Hazardous Air Pollutants (“HAP’s”). In December, 2011, AMC met with the EPA, ADEQ and the State Attorney 

General’s Office to consider possible resolutions to the FOV. Asarco discussed the progress of an anode ventilation project at 

the smelter and evaluations of additional smelter upgrades to comply with the newly implemented sulfur dioxide regulations. 

Asarco belives that this upgrade together with the anode ventilation project will reduce HAPs emissions to a verifiable degree 

sufficient to resolve the FOV. Further discussions and negotiations are expected to continue with the EPA and Department of 

Justice on this matter.

Rosemont Mining Property Avoidance Action - In 2007, Asarco filed a complaint to avoid the transfer of certain of its property 

located in Pima County, Arizona, to Rosemont Ranch, LLC (“Rosemont”). Asarco sold the property for $4.2 to certain defendants while Asarco was insolvent, and certain defendants then sold the property less than one year later to other defendants 

for approximately $20.0. The property contains substantial proven and probable mineral reserves.

On January 15, 2009, the parties executed a term sheet compromising and setting Asarco’s claims in the lawsuit. In February 

2009, the settlement was approved by the Bankruptcy Court and the initial payment of $1.3 was made to Asarco on March 16, 

2009. Additionally, the agreement calls for $9.0 over eight years, payable from profits, if any, of production at the Rosemont 

project and subject to an option (“Buy-Back Option”), which, if exercised, would require Augusta Resources Corporation 

(“Augusta”) (the current owner) to pay Asarco the net present value of such payments in cash calculated using an 18% 
96 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 97

discount rate. For 2009, the parties agreed that the option exercise price would be $2.6. In October 2010, Augusta resources 

exercised the Buy-Back Option and paid the Company $2.7 to satisfy its obligation in full under the settlement agreement. The 

amount was recorded in other income (expense) in the consolidated statements of income.

Litigation matters

Peruvian operations

Garcia Ataucuri and Others against the Company (“SCC’s Peruvian Branch”, “Branch” or “Peruvian Branch”):

In April 1996, the Branch was served with a complaint filed in Peru by Mr. Garcia Ataucuri and approximately 900 former 

employees seeking the delivery of a substantial number of its “labor shares” (acciones laborales) plus dividends on such 

shares, to be issued to each former employee in proportion to their time of employment with SCC’s Peruvian Branch.

The labor share litigation is based on claims of former employees for ownership of a portion of labor shares that the plaintiffs’ 

state that the Branch did not issue during the 1970s until 1979 under a former Peruvian mandated profit sharing system. In 

1971, the Peruvian government enacted legislation providing that mining workers would have a 10% participation in the pretax profits of their employing enterprises. This participation was distributed 40% in cash and 60% in an equity interest of the 

enterprise. In 1978 the equity portion, which was originally delivered to the mining industry organization, was set at 5.5% of 

pre-tax profits and was delivered mainly in the form of “labor shares” to individual workers. The cash portion was set at 4.0% 

of pre-tax earnings and continued to be delivered to individual employees also in proportion to their time of employment at 

the Branch. In 1992 the workers’ participation was set at 8%, with 100% payable in cash and the equity participation was 

eliminated from the law.

In relation to the issuance of “labor shares” by the Branch in Peru, the Branch is a defendant in the following lawsuits:

1) Mr. Garcia Ataucuri seeks delivery, to himself and each of the approximately 900 former employees of the Peruvian 

Branch, of the 3,876,380,679.65 old soles or 38,763,806.80 “labor shares” (acciones laborales), as required by Decree 

Law 22333 (a former profit sharing law), to be issued proportionally to each former employee in accordance with the 

time of employment of such employee with SCC’s Branch in Peru, plus dividends on such shares. The 38,763,806.80 

labor shares sought in the complaint, with a face value of 100.00 old soles each, represent 100% of the labor shares issued by the Branch during the 1970s until 1979 for all of its employees during that period. The plaintiffs do not represent 

100% of SCC’s eligible employees during that period. 

It should be noted that the lawsuit refers to a prior Peruvian currency called “sol de oro” or old soles, which was later 

change to the “inti”, and then into todays “nuevo sol”. One billion of old soles are equivalent to today’s one nuevo sol.

After lengthy proceedings before the civil courts in Peru on September 19, 2001, on appeal from the Branch (the 2000 

appeal), the Peruvian Supreme Court annulled the proceedings noting that the civil courts lacked jurisdiction and that 

the matter had to be decided by a labor court.

In October 2007, in a separate proceeding initiated by the plaintiffs, the Peruvian Constitutional Court nullified the September 19, 2001 Peruvian Supreme Court decision and ordered the Supreme Court to decide again on the merits of the 

case accepting or denying the Branch’s 2000 appeal.

In May 2009, the Supreme Court rejected the 2000 appeal of the Branch affirming the adverse decision of the appellate 

civil court and lower civil court. While the Supreme Court has ordered SCC’s Peruvian Branch to deliver the labor 

shares and dividends, it has clearly stated that SCC’s Peruvian Branch may prove, by all legal means, its assertion that 

the labor shares and dividends were distributed to the former employees in accordance with the profit sharing law then 

in effect, an assertion which SCC’s Peruvian Branch continues to make. None of the resolutions state the manner by 

which SPCC must comply with the delivery of such labor shares or make a liquidation of the amount to be paid for past 

dividends and interest.

On June 9, 2009, SCC’s Peruvian Branch filed a proceeding of relief before a civil court in Peru seeking the nullity of 

the 2009 Supreme Court decision and in a separate proceeding a request for a precautionary measure. The civil court 

rendered a favorable decision on the nullity and the precautionary measure, suspending the enforcement of the Supreme Court decision, for the reasons indicated above and other reasons. In February 2012, the Branch was notified that 

the civil court had reversed its decision regarding the nullity. The precautionary measure is still in effect. The Peruvian 

Branch has appealed the unfavorable decision before the superior court. In view of this, and the recent civil court decision, SCC ́s Peruvian Branch continues to analyze the manner in which the Supreme Court decision may be enforced 

and what financial impact, if any, said decision may have.

2) In addition there are filed against SCC’s Branch the following lawsuits which seek the same number of labor shares as in 

the Garcia Ataucuri case, plus interest, labor shares resulting from capital increases and dividends: Cornejo Flores and 

others v. SCC’s Peruvian Branch (filed May 10, 2006); Alejandro Zapata Mamani and others v. SCC’s Peruvian Branch 

(filed June 27, 2008); Arenas Rodriguez and others, represented by Mr. Cornejo Flores, v. SCC’s Peruvian Branch (filed 

January 2009); Eduardo Chujutalli v. SCC’s Peruvian Branch (filed May 2011); Edgardo García Ataucuri, in representation of 216 of SCC’s Peruvian Branch former workers, v. SCC’s Peruvian Branch (filed May 2011); Silvestre Macedo 

Condori v. SCC’s Peruvian Branch (filed June 2011); Juan Guillermo Oporto Carpio v. SCC’s Peruvian Branch (filed 

August 2011); Rene Mercado Caballero v. SCC’s Peruvian Branch (filed November 2011) and Enrique Salazar Alvarez 

and others v. SCC’s Peruvian Branch (filed December 2011). SCC’s Branch has answered the complaints and denied the 

validity of the claims.
98 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 99

SCC’s Peruvian Branch asserts that the labor shares were distributed to the former employees in accordance with the 

profit sharing law then in effect. The Peruvian Branch has not made a provision for these lawsuits because it believes that 

it has meritorious defenses to the claims asserted in the complaints. Additionally the amount of this contingency cannot 

be reasonably estimated by management at this time.

3) Sociedad Minera de Responsabilidad Limitada Virgen Maria de Arequipa (SMRL Virgen Maria):

In August 2010, a lawsuit was filed against SCC’s Branch and others by SMRL Virgen Maria, a company which until 

July 2003 owned the mining concession Virgen Maria, which forms part of the Tia Maria project. SMRL Virgen Maria 

sold this mining concession in July 2003 to Excomet (see above noted case).

The plaintiff alleges that the sale of the mining concession Virgen Maria to Excomet is null and void because the persons who attended the shareholders’ meeting of SMRL Virgen Maria, at which the purchase was agreed upon, were not 

the real owners of the shares. The plaintiff is also pursuing the nullity of all the subsequent acts regarding the mining 

property (acquisition of the shares of Excomet by SCC’s Branch, noted above, and the sale of the concession to SCC’s 

Branch by Excomet). On October, 2011, the civil court dismissed the case on the grounds that the claim had been barred 

by the statute of limitations. The plaintiff has appealed this decision before the superior court. At December 31, 2011, 

resolution of the appeal was pending. 

4) Exploraciones de Concesiones Metalicas S. A. C.:

In August 2009, a lawsuit was filed against SCC’s Branch by the former stockholders of Excomet. The plaintiffs allege 

that the acquisition of Excomet’s shares by the Branch is null and void because the $2 million purchase price paid by 

the Branch for the shares of Excomet was not fairly negotiated by the plaintiffs and the Branch. In 2005, the Branch 

acquired the shares of Excomet after lengthy negotiations with the plaintiffs, and after the plaintiffs, which were all of the 

stockholders of Excomet, approved the transaction in a general stockholders’ meeting. Excomet was at the time owner 

of a mining concession which forms part of the Tia Maria project. In October 2011, the civil court dismissed the case on 

the grounds that the claim had been barred by the statute of limitations. The plaintiff has appealed this decision before 

the superior court. At December 31, 2011, resolution of the appeal was pending.

5) Omar Nunez Melgar:

In May 2011, Mr. Omar Nunez Melgar commenced a lawsuit against the Peruvian Mining and Metallurgical Institute and 

the MINEM challenging the denial of Mr. Nunez’s concession request that conflicted with SCC’s Branch’s Virgen Maria 

concession, which forms part of the Tia Maria concession. SCC’s Branch has been made a party to the proceedings 

as the owner of the Virgen Maria concession. SCC’s Branch has answered the complaint and denied the validity of the 

claim. As of December 31, 2011, this case remains open with no further developments.

SCC asserts that the lawsuits are without merit and is vigorously defending against these lawsuits.

Mexican Operations

Pasta de Conchos Accident:

On February 19, 2010, three widows of miners, who perished in the 2006 Pasta de Conchos accident, filed a complaint for 

damages in the United States District Court for the District of Arizona against the defendants, Grupo Mexico, AMC and SCC. 

The plaintiffs allege that the defendants’ purported failure to maintain a safe working environment at the mine amounted to a 

violation of several laws and treaties. The Company considers that the court does not have subject-matter jurisdiction over 

the plaintiffs’ claims and will defend itself vigorously. On April 13, 2010, the Company filed a motion to dismiss the plaintiffs’ 

complaint. On March 29, 2011, the District Court for the District of Arizona dismissed the case for lack of subject-matter 

jurisdiction. On April 5, 2011, the plaintiffs filed a notice of appeal in this case. At March 30, 2012, resolution of the appeal 

was pending.

United States operations

Disputed Claims Reserve (“DCR”)

Management had identified certain bankruptcy claims at December 31, 2009, that requires Asarco to settle in cash. These 

contingent liabilities are related to the following:

• Administrative claims of labor unions, medical plan administration fees, and other miscellaneous items

• Certain enhancement claims by legal firms, consulting firms, and other professionals participating in the bankruptcy 

proceedings

• Substantial contribution claims, by previous officers, board members, and plan participants 

The full face value of claims remaining in the DCR on December 31, 2011 is approximately $31.1. Management believes the 

likelihood of any of these claims prevailing at face value is remote and will not have a material adverse effect on Asarco’s 

financial position, results of operations, or cash flows because the Parent’s Plan Administrator (“PPA”) has reserved cash 

in the DCR for future payments of these unsettled administrative general unsecured claims and any successful remaining 

administrative claims listed above. On December 31, 2011 and 2010, the DCR restricted cash balances were $129.9 and 

$139.1, respectively. In addition to the assets recorded as restricted cash, Asarco has recorded associated liabilities in the 
100 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 101

amounts of $25.3 and $31.7 at December 31, 2011 and 2010, respectively. The liability amounts represent management’s 

best estimate to ultimately settle and pay these contingent claims at the full allowed amount. Any residual cash in the DCR 

will be returned to Asarco, and any deficiency will be funded by Asarco. Management believes the amount is sufficient to 

pay the disputed claims in full and will not have a material adverse effect on Asarco’s consolidated financial position, results 

of operations, or cash flows.

Labor matters

In recent years the Company has experienced a number of strikes or other labor disruptions that have had an adverse impact 

on its operations and operating results.

Peruvian Operations

Approximately 61% of the 4,159 Company’s Peruvian workers were unionized at December 31, 2011, represented by eight 

separate unions. Three of these unions, one at each major production area, represent the majority of the Company’s workers. 

In September 2010, the Company reached a collective bargaining agreement with these three unions which will expire on August 31, 2012. This agreement includes, among other things, a 5% annual salary increase and a signing bonus of approximately 0.007 for each of the workers (approximately 2,000). In addition, this agreement provides a productivity bonus program 

for the departments that reach certain goals.

In addition, there are five smaller unions, representing the balance of the workers. Collective bargaining agreements with 

these unions will expire in November 2012. The Company expects that negotiations with the eight unions will likely continue 

throughout the first quarter of 2013.

There were no strikes during 2011 and 2010.

Mexican operations

Approximately 75% of the Company’s 7,975 Mexican workers were unionized at December 31, 2011, represented by three 

separate unions. Under Mexican law, the terms of employment for unionized workers is set forth in collective bargaining 

agreements. Mexican companies negotiate the salary provisions of collective bargaining agreements with the labor unions 

annually and negotiate other benefits every two years. The Company conducts negotiations separately at each mining complex and each processing plant.

In recent years the Buenavista mine experienced several labor stoppages. The latest labor stoppage started in July 2007 and 

finished in June 2010. The Company began the rehabilitation of the Buenavista mine during the second half of 2010 and is 

now operating the facility at full capacity. In 2011, the Company completed all repairs to the Buenavista mine at a total cost of 

$212.8, of this $131.7 were capitalized and $81.1 were charged to operating cost.

On June 6, 2011, the Confederation of Mexican Workers (“CTM”) was awarded the collective bargaining agreement of the 

Buenavista del Cobre’s union by the Federal Board of Conciliation and Arbitration. CTM now represents around 780 workers 

of this mine.

Additionally, the San Martin and Taxco mines have been on strike since July 2007. On December 10, 2009, a federal court 

confirmed the legality of the San Martin strike. In order to recover the control of the San Martin mine and resume operations, 

on January 27, 2011, the Company filed a court petition requesting that the court establish the Company’s responsibility for 

the strike and that it define the termination payment for each unionized worker. The court denied the petition alleging that 

according to Federal labor law, the union was the legitimate party to file the petition. On appeal by the Company, on May 13, 

2011, the Mexican federal tribunal accepted the petition of the Company. In July 2011, the union appealed the favorable court 

decision before the Supreme Court. At March 30, 2012, resolution of the appeal was pending.

In the case of the Taxco mine, following the workers refusal to allow exploration of new reserves, the Company commenced 

litigation seeking to terminate the labor relationship with workers of the Taxco mine (including the related collective bargaining 

agreement). On September 1, 2010, the federal labor court issued a ruling approving the termination of the collective bargaining agreement and all the individual labor contracts of the workers affiliated with the Mexican mining union at the Taxco 

mine. The ruling was based upon the resistance of the mining union to allow the Company to search for reserves at the Taxco 

mine. If sustained, this ruling will also have the effect of terminating the protracted strike at the Taxco unit. The mining union 

appealed the labor court ruling before a federal court. In September 2011, the federal court accepted the union’s appeal and 

requested that the federal labor court review the procedure and to take into account all the evidence to issue a new resolution. 

On January 3, 2012, the federal labor court again issued a new resolution, approving the termination of the collective bargaining agreement and all the individual labor contracts of the workers affiliated with the Mexican mining union at the Taxco 

mine. On January 25, 2012, the mining union appealed the resolution before the federal court. The resolution of the appeal is 

expected to be issued within the next months.

Other legal matters

Class actions:

Three purported class action derivative lawsuits were filed in the Delaware Court of Chancery (New Castle County) late in December 2004 and early January 2005 relating to the proposed merger transaction between the Company and Minera Mexico, 

S. A. de C. V. (the “Transaction”), which was completed effective April 1, 2005. On January 31, 2005, the three actions - Lemon Bay, LLP v. AMC, et al., Civil Action No. 961-N, Therault Trust v. Luis Palomino Bonilla, et al., and Southern Peru Copper 
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Corporation et al., Civil Action No. 969-N, and James Sousa v. Southern Peru Copper Corporation, et al., Civil Action 

No. 978-N — were consolidated into one action, captioned. In re Southern Peru Copper Corporation Shareholder Derivative 

Litigation, Consol. Civil Action No. 961-N; the complaint filed by Lemon Bay was designated as the operative complaint in 

the consolidated lawsuit. The consolidated action purports to be brought on behalf of AMCand its common stockholders; 

the defendants in the consolidated action are AMC, German Larrea Mota-Velasco, Genaro Larrea Mota-Velasco, Oscar 

Gonzalez Rocha, Emilio Carrillo Gamboa, Jaime Fernando Collazo Gonzalez, Xavier Garcia de Quevedo Topete, Armando 

Ortega Gomez and Juan Rebolledo Gout (together, the “AMC Defendants”), Carlos Ruiz Sacristan, Harold S. Handelsman, 

Gilberto Perezalonso Cifuentes, and Luis Miguel Palomino Bonilla (together, the “Special Committee Defendants”). The 

consolidated complaint alleges, among other things, that the Transaction was the result of breaches of fiduciary duties by 

the Company’s directors and was not entirely fair to the Company and its minority stockholders. On December 21, 2010, the 

Court dismissed the Special Committee Defendants from the action.

October 14, 2011, the Court issued an opinion on this action finding that SCC had paid AMC too much stock consideration 

in the Transaction. The Court issued a revised final order and judgment on December 29, 2011. The Court decided that 

the AMC Defendants were jointly and severally liable for damages in the amount of $1,347 plus $684.6 of pre-judgment 

interest. Post-judgment interest continues to accrue from October 15, 2011. The Court decided that the award is payable 

by AMC with cash, or with the return of a number of shares of SCC equal in value to award, or by SCC cancelling an 

equivalent number of shares owned by AMC, or by any combination thereof, so long as the total is equivalent to the 

amount of the judgment plus accrued post-judgment interest. The Court also awarded attorneys’ fees and expenses in the 

amount of $304.7, or 15% of the judgment, plus post-judgment interest, payable by SCC out of the award and not from 

existing SCC’s cash.

On January 20, 2012, the AMC defendants appealed the Court’s decisions. On the same date, SCC appealed the Court’s 

decision related to the award of attorneys’ fees and expenses.

The consolidated complaint alleges, among other things, that the transaction is the result of breaches committed by the directors of the Company of its fiduciary duties, and that is not entirely fair to the Company or to its minority shareholders. On 

December 21, 2010, the Court dismissed the Plaintiffs of the Special Committee of demand.

Oklahoma Firefighters Pension & Retirement System et al. v. SCC:

Four purported class action derivative lawsuits have been filed in the Delaware Court of Chancery (Oklahoma Firefighters 

Pension & Retirement System et al. v. SCC et al., Gary Martin et al. v. SCC et al., Thomas Griffin et al. v. SCC et al., and Sheet 

Metal Workers Pension Plan of Northern California et al. v. SCC et al.) from August 2010 to October 2010 relating to the 

proposed combination of the Company with AMC, the parent company of Asarco. The complaints name SCC, its current and 

certain former directors, AMC and Grupo Mexico as defendants. Two of the actions also name Asarco as a defendant. The 

actions purport to be brought on behalf of the Company’s common stockholders.

The complaints allege, among other things, that the proposed transaction would result in breaches of fiduciary duties by the 

defendants and is not entirely fair to the Company and its minority stockholders. The complaints seek, among other things, 

a preliminary and permanent injunction to enjoin the transaction, the award of damages to the plaintiffs and the class, and 

such other relief that the court deems equitable, including interest, attorneys’ and experts’ fees and costs. On January 25, 

2011, the Oklahoma Firefighters and Sheet Metal Workers plaintiffs filed an amended and joint motion to consolidate and have 

Firefighters’ counsel appointed lead counsel. Plaintiffs also moved to stay the Martin and Griffin actions. The Sheet Metal 

plaintiffs have withdrawn their prior motion to consolidate in connection with the new motion. Oral argument on all plaintiffs’ 

motions and cross-motions to stay or consolidate and appoint lead counsel is pending.

The Firefighters’ plaintiffs also moved for leave to file an amended complaint to add or supplement factual allegations concerning the summary judgment ruling in the Lemon Bay action described above. On April 1, 2011, the plaintiffs’ motion was 

granted. The defendants believe that these lawsuits are without merit and are defending against the actions.

On October 28, 2011, AMC announced that it had withdrawn the proposed transaction to combine AMC and Southern Copper.

The Company is involved in various other legal proceedings incidental to its operations, but the Company does not believe 

that decisions adverse to it in any such proceedings, individually or in the aggregate, would have a material effect on its financial position or results of operations. Additionally, the Company does not believe that the outcome of the purported class 

action derivative lawsuits would have a material adverse effect on its financial position or results of operations. While the 

defendants, including Grupo Mexico and its affiliates, believe that the claims in the purported class action derivative lawsuits 

are without merit, the Company cannot assure you that these or future claims, if successful, will not have an adverse effect on 

Grupo Mexico, AMC or the Company.

United States Operations

Asarco is a defendant in lawsuits in Arizona, the earliest of which commenced in 1975, involving the United States, Native 

Americans, and other Arizona water users. These suits seek damages for usage and alleged contamination of ground water. 

The lawsuits could affect Asarco’s use of water at its Ray Complex, Mission Complex, and other Arizona operations. Asarco is also involved in multiple suits and claims against it arising from such matters as workers’ compensation claims and 

employment-related claims, among other matters. Management has analyzed the issues and has accrued approximately $2.8 

and $1.8 to settle these additional litigation matters as of December 31, 2011 and 2010, respectively.
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Other commitments

Mining royalty charge

The Company’s Peruvian operations have been subject to a 1% to 3% mining royalty charge based on sales and calculated 

on the value of the concentrates and SXEW copper produced at the Toquepala and Cuajone mines. The Company made provisions for this charge in 2011 and 2010 of $52.5 and $65.5, respectively.

In September 2011, the Peruvian Congress approved an amendment to the mining royalty charge. The new mining royalty 

charge is based on operating income margins with graduated rates ranging from 1% to 12%, with a minimum royalty charge 

assessed at 1% of net sales. If the operating income margin is 10% or less, the royalty charge is 1% and for each 5% increment in the operating income margin, the royalty charge rate increases by 0.75%, up to a maximum of 12%. In the last quarter 

of 2011, we made provisions of $19.3 for this charge.

These provisions are included in “Cost of sales (exclusive of depreciation, amortization and depletion)” in the condensed 

consolidated statement of earnings.

Tia Maria

Tia Maria, a Peruvian investment project of over $1.0 billion, was suspended by governmental action in April 2011 in light 

of protests and disruptions carried out by a small group of activists who alleged, among other things, that the project would 

result in severe environmental contamination and the diversion of agricultural water resources. While the Company continues 

high level negotiations with the Peruvian government, the Company has begun the preparation of a new EIA study.

For this purpose, the Company proposes to stop the appeal process of the original EIA submitted to the MINEM in 2011 and 

to expedite the preparation of the new EIA that will address the issues and questions raised during the previous EIA approval 

process and provide the required technical answers.

The Company considers that this new EIA process will alleviate all the concerns previously raised by the Tia Maria project’s 

neighboring communities, provide them with an independent source of information and reaffirm the validity of the Company’s 

assessment of the project.

The Company is confident that this initiative will have a positive effect on its stakeholders and will allow the Company to 

obtain the approval for the development of the 120,000 ton annual production copper project. As a consequence, the project 

start-up is now rescheduled to 2015. While the new EIA is in process, some of the equipment purchased for Tia Maria is being 

assigned to our operations at Toquepala, Cuajone and Buenavista.

The Company has legal and valid title to the Tía Maria mining concessions and the over-lapping surface land in the area. None 

of above noted activities have in any way challenged, revoked, impaired or annulled the Company ́s legal rights to the Tia 

Maria mining concessions and/or the over-lapping surface land titles acquired in the past. All the Company’s property rights 

on these areas are in full force.

However, in view of the suspension of this project, the Company has reviewed the carrying value of this asset to ascertain 

whether impairment exists. Total spending on the project, through December 31, 2011, is $434.1. As the project is currently 

suspended, some of the equipment is being used at the Company’s mining operations at Toquepala and Cuajone. Should the 

Tia Maria project not be restarted, the Company is confident that the project equipment will continue to be used productively, 

through reassignment to other mine locations operated by the Company. While the Company may incur additional costs due 

to the delay, it believes that an impairment loss, if any, will not be material.

Railway segment

Negotiations being conducted with another Mexican railroad company

The Company is owed net receivables by Kansas City Southern México, S. A. de C. V. (KCSM) formerly TFM, S. A. de C. 

V. (TFM) accrued from 1998 to 2011 and negotiations are currently being conducted to determine the amounts receivable 

by segment (interline services and trackage and haulage rights) that are not properly defined in the concession titles. As of 

December 31, 2011 and 2010, net receivables were recorded in the amounts of $20.1 and $25.4, respectively. At December 

31, 2011 Ferromex considers that these amounts have been properly assessed and therefore no additional contingencies have 

been recorded in order to take into account any contingent positive or negative results ensuing from the negotiations and legal 

proceedings specified below.

Legal actions and administrative proceedings

Ferromex is involved in various legal actions deriving from its normal operations. In regard to these actions, Ferromex and its 

legal counsel are of the opinion that regardless of their outcome when taken as a whole, they would have no material adverse 

effect on the Company ́s financial condition or on the results of its operations. The main legal actions in which the Ferromex 

is involved are the following:

a. Ordinary commercial actions against KCSM. Ferromex filed three actions against KCSM, requesting the Court’s determination on the amounts to be paid as consideration for trackage rights, and interline traffic and interconnection services. 

At present these actions were settled as follows:
106 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 107

i. For the period running from February 19, 1998 to August 31, 2001, the amounts claimed at the time action was filed 

(nominal value) were for a total of Ps792.7 million and $20.6. After being processed at all court levels, Ferromex 

was denied constitutional relief under a writ of “amparo”, and although it’s right to sue again was safeguarded, it was 

ordered to pay legal costs and expenses. Both parties filed various appeal actions. On June 17, 2009 the trial Court 

and the Fifth Chamber in Civil Matters were notified of the judgment by which Ferromex was ordered to pay legal 

costs and expenses in an approximate amount of $6,292. The total amount actually paid was the amount of $6.3 

and is included in the entry for sundry expenses at December 31, 2009. By rulings dated May 18, 2010, published 

in the Judicial Bulletin on May 19, which were effective as of the 20th of the said month and year, issued in various 

appellate proceedings (1344/01/28, /29, /30, /31 and /32) the destruction of the appellate dossiers was ordered to 

take place after giving notice to the Court Chamber that a final an unappealable judgment had been rendered and the 

case closed. KCSM filed a brief dated May 27, 2010 by which it designated legal professionals for service of process 

purposes and a ruling on this brief was issued on June 2, 2010. No other procedural action has taken place since 

then. Notwithstanding the foregoing, and since due to the judgment rendered on February 3, 2005, Ferromex’s right 

to sue again was safeguarded, it should be underscored that Ferromex is still entitled to recover the relevant amounts 

and therefore, at present, the draft of the new complaint to be filed is under review.

ii. For the period running from September 1 to December 31, 2001, during which the sum claimed (at nominal value) 

amounts to a total of Ps21.0 million. After several actions were filed and remedies were sought by both parties, a 

final and conclusive judgment was rendered that found partially in favor of Ferromex. Nevertheless, both parties 

filed for appeal, the appeals were dismissed and the final judgment upheld. Both parties filed for constitutional 

relief under a direct amparo action. Ferromex was granted relief while relief was denied to KCSM. The amparo was 

granted to Ferromex in order for defendant to be sentenced to pay the legal costs and expenses incurred both at 

the trial and appellate levels, and therefore, by a ruling issued on November 4, 2009, the amparo judgment became 

final and conclusive, upholding the judgment rendered at the trial level in full but sentencing defendant to pay legal 

costs and expenses at both jurisdictional levels. Finally, by ruling issued on January 26, 2010, it was determined 

not to grant KCSM constitutional relief, and ordered that the case be sent to archives and finally closed. On August 

12, 2010 a motion was filed claiming the settlement of the amount of interest accrued. On September 3, 2010, the 

trial Court issued a judgment and approved the proposal for the settlement of interest filed by Ferromex and KCSM 

was ordered to pay Ps8.0 million. On September 14, 2010, Ferromex filed an additional motion claiming settlement 

of default interest accrued from August 13, 2010 to September 9, 2010. On October 12, 2010, the trial Court issued 

an interlocutory judgment to resolve on the matter and approved the proposal for the settlement of interest filed by 

Ferromex. KCSM appealed this interlocutory judgment. With a brief filed on October 29, 2010, KCSM submitted to 

the Court a deposit voucher in an amount of Ps8.1 million, thus complying with judgments rendered on September 

3, and October 12, 2010, settling the full amount KCSM was adjudged to pay by way of interest. Ferromex filed a 

brief dated November 4, 2010 acknowledging payment by KCSM. The original of the deposit voucher was delivered 

to the Ferromex on November 18, 2010. This matter has been settled and closed.

iii. On September 19, 2006, Ferromex filed an ordinary commercial action against KCSM, seeking that accounts be 

rendered for the period running from January 2002 to December 2004, and claiming payment for the resulting 

amounts. As a result of this action both parties filed various legal remedies, as follows: Ferromex filed an appeal for 

rehearing against the ruling that admitted KCSM’s cross-appeal; in August 2009, the Chamber granted Ferromex’s 

appeal for rehearing and dismissed KCSM’s cross-appeal filed against the ruling ordering discontinuance. By a 

ruling issued on December 11, 2009, The Second Collegiate Court in Civil Matters of the First Circuit granted 

Ferromex constitutional relief under a writ of amparo against the ruling that illegally ordered discontinuance of the 

action at the trial level. By a ruling issued on February 10, 2010, Ferromex filed a motion to charge KCSM for failure 

to respond to the motion under which KCSM was notified that Ferromex had petitioned for non-admission of the 

evidence submitted by KCSM. On the 24th of that same month, KCSM appealed the ruling issued on the motion. 

By a brief filed on March 2, 2010, Ferromex petitioned for the Court to admit closing arguments and on March 24, 

both Ferromex and KCSM submitted their briefs containing their closing arguments. By a judgment issued on May 

12, 2010, the Court found in favor of KCSM and released it from making any payment on the amounts claimed by 

Ferromex. By a ruling dated May 31, 2010, the appeal filed by Ferromex against the judgment rendered at the trial 

level was admitted and process was served upon KCSM to reply within a term of 3 work days. KCSM filed its brief 

dated June 7, 2010 in response to Ferromex’s bill of exceptions in the appeal proceeding. On June 10, 2010 the 

Court ruled that KCSM had submitted its answer to the exceptions and ordered that the appeal be remitted to the 

First Chamber in Civil Matters of the Superior Court of Justice of the Federal District for processing. By judgment 

rendered on October 7, 2010, the First Chamber admitted the appeal filed by Ferromex and overturned the May 12, 

2010 judgment of the trial Court, ordering KCSM to render the accounts as sought by Ferromex. On November 9. 

2010, KCSM filed for constitutional relief, under a direct amparo action against the judgment rendered on October 

7, 2010. This action was brought before the jurisdiction of the Second Collegiate Court in Civil Matters of the First 

Circuit under case file D. C. 780/2010. On December 13, 2010 the action reached the sentencing stage. A final, 

executory judgment was rendered on April 7, 2011 and KCSM was granted constitutional relief in the amparo, and 

thus the First Chamber in Civil Matters was ordered to overturn the judgment rendered on October 7, 2010 and 

render judgment in substitution thereof adhering to the specified guidelines. By judgment rendered on May 9, 

2011 the First Chamber in Civil Matters acted on the executory judgment dated April 7, 2011 and upheld the final 

judgment rendered on May 12, 2010 y the Ninth Court in case 754/2006 and ordered Ferromex to pay legal costs 

and expenses at both jurisdictional levels. On June 1, 2011 Ferromex brought a new direct amparo action for constitutional relief against this judgment with the Second Collegiate Court in Civil Matters of the First Circuit, under 

case file D. C. 414/2011. By an executory judgment issued on July 14, 2011, the afore mentioned Court resolved 

to deny Ferromex this relief, and thus the judgment which releases KCSM and orders Ferromex to pay legal costs 

and expenses became final and conclusive.

b. Actions for annulment against several official communications issued by the Ministry of Communications and Transportation (SCT) on trackage rights, and interconnection and terminal services. Currently three of these actions are being 
108 GRUPO MÉXICO ANNUAL REPORT ANNUAL REPORT GRUPO MÉXICO 109

processed before the Federal Court of Administrative and Fiscal Justice (Spanish acronym TFJFA), the Supreme Court 

of Justice, the Collegiate Courts and the SCT. The Company is awaiting for rulings be issued on these actions.

c. Action for annulment filed by KCSM. - Amendment to the FERROMEX Title to Concession. On October 18, 2006, the 

SCT published in the Official Gazette of the Federation the Amendment to the FERROMEX Title to the Concession of 

Ferrocarril Pacífico Norte (former name of Ferromex). KCSM objected to this amendment and filed an action for its annulment. The parties, after litigating this matter at the various jurisdictional levels, decided to both file, on February 22, 

2010, briefs to abandon action as a result of the agreement they had reached. The case was addressed by the Court at a 

session held on August 4, 2010, and the Chamber en banc, ruled for dismissal and non-suit as a result of the voluntary 

discontinuance of the parties.

d. Inquiry into Monopolistic Practices IO-02-2006. - By means of official communication No. DGIPMARCI-10-096-2008-001 dated January 14, 2008, the Federal Commission of Economic Competition (COFECO) requested that Ferrocarril Mexicano, S. A. de C. V. and other companies submit sundry information, which Ferromex submitted on February 28, 2008. COFECO served Notices of Probable Responsibility to the companies which had participated 

in the stock acquisitions reported by Infraestructura y Transportes México, S. A. de C. V. (ITM) and Infraestructura 

y Transportes Ferroviarios, S. A. de C. V. (ITF) from November 2005 onwards. In November 2008 the stage for the 

offering of evidence in response to the Notice of Probable Responsibility came to a close and both KCSM and the 

companies against whom action was filed were granted a term to submit their arguments. On November 26 arguments 

were filed with COFECO. On January 22, 2009, a ruling was issued in this inquiry proceeding. On January 30, 2009, 

COFECO notified Ferromex of its ruling finding that the Company together with other companies were responsible for 

monopolistic practices and imposed monetary sanctions, the one imposed on Ferromex amounting to Ps82.2 million 

and GFM amounted to Ps0.7 million.

The entities subject to this inquiry appealed for reconsideration. Ferromex, KCSM and COFECO have all continued 

with different legal actions. By ruling issued on June 9, 2009, COFECO decided to uphold its ruling of January 22, 

2009. This decision was challenged by an amparo action (Case File 887/2009). The Federal Court of Fiscal and 

Administrative Justice remanded a certified copy of the ruling issued in administrative proceeding no. 3825/07-

17-05-8, in which ITM and ITF are plaintiffs, by which the challenged ruling was annulled, that is to say, it is to be 

understood that COFECO has no objection in regard to the mergers carried out by plaintiffs. On September 28, 2010 

the processing of the amparo action began. On December 17, 2010 the judgment at the trial level was published that 

was rendered by the Sixth District Court in Administrative matters dismissing the amparo action. On December 28, 

2010, a motion for review was filed against this decision. Acting on a ruling issued on July 12, 2011, published on the 

13th of this same month, the Thirteenth Collegiate court took cognizance of the review motion filed under case file RA 

(262/2011. By a ruling issued on 2011 the case was turned over to Mr. José Ángel Mandujano Gordillo as drafting 

judge. On August 23, 2011 Mr. Guillermo Fajardo was designated to act as drafting court clerk. The review and study 

of the case has not yet started.

e. Federal Administrative Action, Case file 3825/2007-17-05-8, ITM and ITF acting as plaintiffs, the former holding 74% of 

Ferromex’s outstanding stock through GFM. Plaintiffs challenged by means of this action the resolution dated November 

8, 2006 by which the COFECO board acting en banc in respect of case file RA-21-2006 reviewed under a joinder of 

actions, ruled on motions for reconsideration filed by ITM and ITF, upholding the resolution not to authorize the concentrations dated June 22, 2006, rendered in case file CNT-132-2005 reviewed under joinder of actions, and the resolution 

contained in official communication dated November 16, 2006, by which the COFECO board, acting en banc, tried to 

clarify the manner in which the resolution rendered in case file RA-21-2006 was voted.

On February 2, 2007, an action for annulment was filed with the TFJFA and the case was assigned to the Fifth Regional 

Metropolitan Chamber. The action was admitted to be heard by a ruling issued on June 4, 2007 and the matter was 

assigned to the High Chamber for it to consider whether or not to exercise its authority to assert its jurisdiction. The 

High Chamber decided to exercise this authority over the matter in question. The action was resolved at its session held 

on May 12, 2010, and concluded that under the Federal Law of Economic Competition, the COFECO had to find that the 

acquisition of Ferrosur by ITM and ITF should be authorized, that is, it was to be considered that the COFECO had no 

objection to this transaction. This finding was notified to all parties involved. On November 29, 2010 ITM and ITF were 

given notice that the authority had filed an action for reconsideration against the May 12 judgment. On February 1, 2011 

the action for reconsideration filed by COFECO was turned over to the First Collegiate Circuit Court in Administrative 

Matters under case file R. F. 68/2011. On March 25, 2011 the action was dismissed and therefore the May 12 ruling 

issued by the High Court was upheld. On April 1, 2011, the findings of fact and conclusions of this judgment were published. The High Court issued a ruling on April 4, 2011, acknowledging receipt of the judgment rendered by the First 

Collegiate Court. This matter is closed. The COFECO has not yet complied with the executory judgment, since it has not 

yet issued the certificate documenting that the concentration is not objected.

f. Indirect Litigation. These are actions in which Ferromex is a codefendant by virtue of labor actions filed against Ferrocarriles Nacionales de México (FNM), which due to their particular characteristics cannot be quantified. Nevertheless 

any financial impact they may have has to be absorbed by the entity in charge of the liquidation of FNM or by the Federal 

Government, under terms previously agreed upon.

g. Direct Litigation. These are labor-related actions filed against Ferromex and/ o Ferrosur as defendant. The amount 

of the entry recorded would have to be settled in the event the actions are lost and should there be no possibility of 
110 GRUPO MÉXICO ANNUAL REPORT

reaching a settlement. The amounts of the indemnities paid during 2011 and 2010 on labor-related actions were $4.8 

and $0.3, respectively.

As of December 31, 2011 and 2011, Ferromex considers that it has adequately assessed its accounts payable and its 

receivables and therefore it has not provided for an additional estimate to cover any potential positive or negative differentials arising as a result of the negotiations and legal actions described above.

24. Subsequent events

The Company evaluated subsequent events after December 31, 2011, and through March 30, 2012, the date these consolidated financial statements were available for issuance, and determined any events or transactions occurring during this period 

that would require recognition or disclosure are appropriately addressed in these consolidated financial statements.

i. In January 26, 2012, the Bankruptcy Court entered judgment in favor of the Company in the net amount of $82.75 

related to a claim against Sterlite (USA), Inc., and Sterlite Industries (India) Ltd., (collectively, “Sterlite”) for breach 

of an asset purchase agreement to acquire assets of the Company. The $82.75 the Company was awarded includes 

$102.75 in interest damages, $30 in additional professional fees, less $50 representing a letter of credit Sterlite posted 

as security, which was previously drawn by the Company in November 2009. The judgment is open for appeal to seek 

reconsideration. The Company has not recorded a gain in the consolidated financial statements as of and for the year 

ended December 31, 2011, related to this judgment.

ii. On January 26, 2012, the Grupo Mexico Board of Directors authorized a dividend of $0.40 cents per share to be paid on 

February 20, 2012.