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Analysis

Mining Involvement to Support Steel Production

Wed, 10/21/2015 - 10:02

As one of the leading steel companies in the Americas, Ternium has important operations in Mexico, Argentina, the US, Guatemala, and Colombia. In 2013, its annual production capacity was estimated at 10.9 million tonnes of finished steel products, such as pipes, profiles, and long steel products that are used in the construction industry, appliances, containers, the food industry, and the automotive sector. One of Ternium’s most outstanding features is its highly integrated value chain, as the company’s activities encompass ore extraction at its mines, steel manufacturing, the production of finished goods, and their distribution.

Naturally, resource-intensive processes such as steel manufacturing require Ternium to have extensive mining operations consisting of the exploration, extraction, and production of iron, which is turned into pellets needed in steel plants. The company’s Las Encinas subsidiary operates two open-pit mines, Aquila in Michoacan and Cerro Náhuatl in Colima, as well as the El Encino underground mine in the Pihuamo municipality in Jalisco. Las Encinas also has a pelletizing plant located in Cuauhtemoc, Colima, next to Cerro Náhuatl. In 2009, Ternium invested US$30 million in the crushing plant for its Aquila mine in spite of adverse economic conditions at the time. This investment resulted in the creation of 400 direct jobs. Overall, Las Encinas created 1,400 direct and indirect jobs. This subsidiary produces 400,000 tonnes of fines and 1.9 million tonnes of pellets annually. Other mining operations include a 50-50 joint ownership of Peña Colorada with ArcelorMittal, an open-pit mine in Minatitlan, Colima, and a two-module pelletizing plant in Manzanillo in the same state. In addition to creating 1,850 jobs, this subsidiary’s production amounts to 400,000 tonnes of concentrate and 4 million tonnes of pellets annually. Once the raw material is transformed into pellets, these are shipped to processing plants in Monterrey and Puebla to be turned into steel.

As for exploration, Ternium has projects in PiscilaCayal in Colima, Sierra del Alo in Jalisco, and Colomera in Michoacan. In order to provide its workers with comfortable living conditions during exploration activities, Ternium has two camps in Alotitlan, Jalisco, to shelter staff members. There is a 9.7km distance between the two camps. La Esperanza consists of 11 cabins and can host approximately 44 people. The oldest camp, La Tuna, is known for its reforestation efforts to compensate for the toll exploration activities have on the environment. From 2000 to 2010, 14,500 pine trees were planted throughout an 8.4 hectare area. Reforestation operations are just one part of the company’s commitment to the environment and the communities where it operates. Considering that mines have a limited life, Ternium has initiatives to mitigate the impact that the closing of a mine has on a region’s economy by promoting self-employment. Such is the case of LANESEK, a company owned by the Aquila community that transports processed minerals, workshops that lead to the creation of small companies, and the Peña Colorada Productive Project that helps local farmers.

Ternium has 11 steel producing and processing units in Mexico. Of the three integrated steel plants, two produce long steel products and one produces flat steel products and has two service centers. The four downstream flat steel processing plants combine hot rolling, cold rolling, and coating facilities, also including two service centers. Finally, the company has four additional steel service centers. These operations are further aided by eleven distribution centers dotted across Mexico, which mainly cater to customers in the construction industry.

Part of Ternium’s growth comes from adding the strength and industrial knowhow of four steel pioneers. The company was formed in 2005 with the consolidation of three companies: Siderar from Argentina, Sidor from Venezuela, and Hylsa from Mexico. Techint, an ItalianArgentinian industrial conglomerate, is the founder of Siderar and Ternium’s holding company. The firm, which has approximately 16,600 employees worldwide, was listed on the New York Stock Exchange in 2006. Although Ternium’s Venezuelan branch, Sidor, was nationalized in 2008 following a resolution of the National Assembly of Venezuela, Ternium was allowed to keep a 10% stake in the company.

In 2005, the group also acquired Hylsa, a steel company form Monterrey that dates back to 1942. When the price of scrap metal went up during the Korean War, Hylsa developed the first direct reduction plant to reduce iron contents in its production. This is achieved by chemically reducing the amount of oxygen in iron by mixing it with hydrogen and carbon monoxide at high temperatures. This ultimately leads to the production of a very pure, porous iron ore that is easy to handle in the manufacturing of steel. In 2007, Ternium further secured its Mexican steelwork activities with the acquisition of Grupo Imsa, a flat steel processor. Given Grupo Imsa’s operations, its inclusion in Ternium also strengthened its position as a leading steel company in the Americas by enhancing its operations in the US and Guatemala