A Self-Exiled Ex-Fugitive Is Making Mexican Billionaires Nervous

(Bloomberg) -- An old foe of Grupo Mexico SAB is poised for a comeback.

Mining-union leader Napoleon Gomez Urrutia, who fled to Canada more than a decade ago after being accused of embezzlement, is on the short list for a senate seat in Mexico with presidential front-runner Andres Manuel Lopez Obrador’s party Morena.

In an election cycle filled with colorful characters and some tough-talking, the nomination of the polemic union rep and ex-fugitive caused some head-scratching and a stir -- especially for a mining giant who has a history of bad blood with Gomez Urrutia. German Larrea, the billionaire controller of Grupo Mexico, has spoken out against his candidacy in statements, while also worrying about Lopez Obrador’s bid for president in a letter to employees and shareholders.

He has reason to worry, analysts and investors say. Lopez Obrador has vowed to raise workers’ wages, change how mining taxes are distributed and see into how the use of explosives affect the environment, and Gomez Urrutia would be an important backer of that agenda in the Senate.

“They’ve had problems with him for years,” said Alberto Vazquez, a partner at Vazquez, Sierra & Garcia, a legal firm that specializes in mining law. Now, “he’s coming back with immunity and a very clear target: Grupo Mexico.”

Controversial

Under Mexican law, 32 out of the 128 senators are appointed by political parties proportionate to the number of total votes the party garners. Gomez Urrutia’s place on the list makes his appointment all but certain.

Although a controversial choice, Lopez Obrador has stood behind his nomination of Gomez Urrutia, who has denied all allegations against him. (At one point, Mexico sought to extradite him from Canada to face trial for allegedly embezzling $55 million from a union trust, but the charges were later thrown out, and it’s unclear if any legal cases against him remain open.)

His candidacy “is an act of justice,” Lopez Obrador claimed at a rally in February. “It’s an injustice that the towns where companies extract gold are where we have more poverty and abandonment,” he said at a different event in April.

Fifth-richest

Larrea, whose $4.1 billion fortune makes him the fifth richest in Mexico, is not a fan of either Urrutia or Lopez Obrador. In April, Grupo Mexico said it was surprised by the union leader’s nomination, saying he only really represents less than 10 percent of the mining industry workers and is best known for trying to destabilize the industry. As for Lopez Obrador, he said his company was being cautious with its investments and deleveraging its dollar-denominated debt in case he won.

Another worried miner could be Alberto Bailleres, who controls Industrias Penoles SAB and Fresnillo Plc. Larrea’s fellow billionaire also owns high-end department stores El Palacio de Hierro, where staff were recently required to listen to talks where they were told to vote for whichever candidate has the best shot at beating Lopez Obrador.

“Penoles and Fresnillo work in many states across the country and have relationships with different local and state governments; we’ve never had problems working hand in hand with them,” the company said in response to questions, declining to comment about Gomez Urrutia’s candidacy.

Grupo Mexico’s shares are down 14 percent this year, more than twice the 4.7 percent drop for the nation’s benchmark index. While a combination of recent commodity and currency volatility are at play, so is the uncertainty created by Gomez Urrutia’s potential return, said Monex Casa de Bolsa analyst Fernando Bolanos.

“Investors aren’t sure if he’s going to retaliate against Grupo Mexico,” Bolanos said. “The question is: how far can he go? It could be something as simple as having some mines blocked by the union.”

Grupo Mexico didn’t respond to requests for comment. Efforts to reach Gomez Urrutia through his lawyers were also unsuccessful.

Family Business

Gomez Urrutia’s father, Napoleon Gomez Sada, led the union for four decades before he named his son successor at the turn of the century. The move was opposed by parts of the union because the younger Napoleon had never worked in a mine. The disagreement led the union to split apart, with Gomez Urrutia claiming he’s still the leader and others saying he lost control many years ago.

Though his stint was shorter than his father’s, Gomez Urrutia proved an outspoken adversary to the mining companies. The rift intensified after a methane explosion at a coal mine killed 65 workers in 2006. Most of the bodies were never recovered, and Gomez Urrutia blamed Grupo Mexico for it. The company and government said the explosion made the site unsafe for rescue workers and closed the mine for good.

Back in the spotlight, Gomez Urrutia isn’t missing the chance to speak up again. Larrea, Bailleres and other executives “have tried to transmit to their employees their fear and cowardice of anything that takes them out of the comfort they live in -- that is the changes that are coming to Mexico,” he wrote in a letter to the union dated May 31. “We must contribute with our votes to a change of the economic model, to transform the current situation where only a handful of privileged ones handle the economy, ultimately hurting the people.”

--With assistance from Nacha Cattan.

To contact the reporter on this story: Andrea Navarro in Mexico City at anavarro30@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net, Jessica Brice, Carlos Manuel Rodriguez

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