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RELATED PARTY TRANSACTIONS:
 6 Months Ended
Jun. 30, 2011
RELATED PARTY TRANSACTIONS:  
RELATED PARTY TRANSACTIONS:

NOTE 10 — RELATED PARTY TRANSACTIONS:

 

Receivable and payable balances with related parties are shown below (in millions):

 

 

 

As of

 

 

 

June 30,
2011

 

December 31,
2010

 

Affiliate receivable:

 

 

 

 

 

Grupo Mexico, S.A.B de C.V. and affiliates

 

$

0.8

 

$

32.7

 

Mexico Proyectos y Desarrollos S.A de C.V. and affiliates

 

3.3

 

—

 

Asarco LLC

 

0.3

 

—

 

 

 

$

4.4

 

$

32.7

 

Affiliate payable:

 

 

 

 

 

Grupo Mexico S.A.B. de C.V. and affiliates

 

$

2.6

 

$

2.3

 

Ferrocarril Mexicano S.A. de C.V.

 

1.3

 

0.1

 

Mexico Transportes Aereos S.A de C.V. (“Mextransport”)

 

0.5

 

0.4

 

Mexico Productos Automotrices S.A. de C.V.

 

0.3

 

—

 

Mexico Proyectos y Desarrollos S.A de C.V. and affiliates

 

—

 

0.9

 

Consorcio Tricobre

 

—

 

0.5

 

Higher Technology S.A.C.

 

—

 

0.1

 

Breaker S.A. de C.V

 

0.9

 

0.3

 

Pigoba S.A. de C.V

 

—

 

0.1

 

Other

 

—

 

—

 

 

 

$

5.6

 

$

4.7

 

 

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.

 

Purchase Activity:

 

The following table summarizes the purchase activity with related parties in the six months ended June 30, 2011 and 2010 (in millions):

 

 

 

Six months ended
June 30,

 

 

 

2011

 

2010

 

Grupo Mexico and affiliates:

 

 

 

 

 

Grupo Mexico Servicios, S.A de C.V

 

$

7.0

 

$

6.9

 

Asarco LLC

 

7.7

 

—

 

Ferrocarril Mexicano, S.A de C.V.

 

4.1

 

1.6

 

Mexico Constructora Industrial S.A. de C.V.

 

14.1

 

—

 

Compania Perforadora Mexico S.A.P.I. de C.V and affiliates

 

0.4

 

—

 

Consorcio Tricobre

 

0.5

 

1.4

 

Mexico Proyectos y Desarrollos, S.A. de C.V. and affiliates

 

1.8

 

8.8

 

 

 

 

 

 

 

Other Larrea family companies:

 

 

 

 

 

Mexico Compania de Productos Automotrices, S.A. de C.V.

 

0.2

 

1.1

 

Mextransport

 

1.3

 

1.0

 

 

 

 

 

 

 

Companies with relationships to SCC executive officers families:

 

 

 

 

 

Higher Technology S.A.C.

 

0.9

 

1.5

 

Servicios y Fabricaciones Mecanicas S.A.C.

 

0.2

 

0.2

 

Sempertrans France Belting Technology

 

0.2

 

0.4

 

PIGOBA, S.A. de C.V.

 

0.1

 

0.1

 

Breaker, S.A. de C.V.

 

2.9

 

0.3

 

Total purchased

 

$

41.4

 

$

23.3

 

 

Grupo Mexico, the Company’s ultimate parent and the majority indirect stockholder of the Company, and its affiliates provide various services to the Company.  These services are primarily related to accounting, legal, tax, financial, treasury, human resources, price risk assessment and hedging, purchasing, procurement and logistics, sales and administrative and other support services.  The Company pays Grupo Mexico Servicios S.A de C.V., a subsidiary of Grupo Mexico, for these services.  The Company expects to continue to pay for these services in the future.

 

The Company’s Mexican operations paid fees for freight services provided by Ferrocarril Mexicano S.A de C.V., for construction services provided by Mexico Constructora Industrial and its affiliates and for drilling services provided by Compania Perforadora Mexico S.A.P.I. de C.V., these three companies are subsidiaries of Grupo Mexico.

 

The Company’s Peruvian operations paid fees for engineering and consulting services provided by Consorcio Tricobre, a Peruvian company in which Servicios de Ingenieria Consutec, S.A. de C. V., an indirect subsidiary of Grupo Mexico, has 42.7% participation.

 

The Larrea family controls a majority of the capital stock of Grupo Mexico, and has extensive interests in other businesses, including oil drilling services, construction, 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 mining and refining services, the lease of office space and air transportation and construction services.  In connection with this, the Company paid fees for maintenance services and sale of vehicles provided by México Compania de Productos Automotrices, S.A. de C.V., a company controlled by the Larrea family, and which is currently in liquidation.

 

Additionally, in 2007, the Company’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 June 30, 2011 are as follows:

 

 

 

Loan Open

 

Original loan balance (in millions)

 

$

8.5

 

Maturity

 

August 2013

 

Interest rate

 

Libor + 0.15

%

Remaining balance at June 30, 2011 (in millions)

 

$

3.2

 

 

MexTransport provides aviation services to the Company’s Mexican operations.  The guaranty provided to MexTransport is backed up by the transport services provided by MexTransport to the Company’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 balances, plus interest.  The Company paid fees to MexTransport for aviation services.

 

The Company purchased industrial materials from Higher Technology S.A.C. and paid fees for maintenance services provided by Servicios y Fabricaciones Mecanicas S.A.C.  Mr. Carlos Gonzalez, the son of SCC’s Chief Executive Officer, has a proprietary interest in these companies.

 

The Company purchased industrial material from Sempertrans France Belting Technology, in which Mr. Alejandro Gonzalez is employed as a sales representative.  Also, the Company 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.

 

The Company purchased industrial material and services from Breaker, S.A. de C.V., a company in which Mr. Jorge Gonzalez, son-in-law of SCC’s Chief Executive Officer, has a proprietary interest.

 

In 2011, the Company paid fees to Asarco, a subsidiary of Grupo Mexico, for tolling services provided to the Company’s Mexican operations.  Also, in the second quarter of 2010 the Company recovered from Asarco $7.7 million related to a previously written-off net accounts receivable position.  This recovery was recorded in the condensed consolidated statement of earnings as follows: $5.0 million in cost of sales, $1.6 million in other income and $1.1 million as interest income.

 

Sales Activity:

 

The Company sold copper cathodes, rod and anodes, as well as sulfuric acid and lime to Asarco. The following table summarizes the sales activity in the three and six months ended June 30, 2011 (in millions):

 

 

 

2011

 

2010

 

First quarter

 

$

17.9

 

$

—

 

Second quarter

 

34.6

 

5.1

 

Total

 

$

52.5

 

$

5.1

 

 

It is anticipated that in the future the Company will enter into similar transactions with these same parties.