Will sale of copper producer affect pollution, asbestos claims?

McClatchy NewspapersApril 20, 2008 

WASHINGTON — Nearly three years after it began, the largest and one of the most complicated environmental-related bankruptcies in U.S. history could be nearing a climax as ASARCO faces billions of dollars in claims amid a struggle for control of the century-old mining and smelting company.

The legal drama will unfold during the coming weeks in two south Texas courtrooms and involve half a dozen or so potential buyers, one of Mexico's richest families and a stake in two of the world's richest copper mines in the foothills of the Andes Mountains in Peru.

Initially, the federal government and more than a dozen states filed $11 billion in claims against the company for the cleanup of 75 sites across the nation, including many listed under the Superfund. In addition, 95,000 asbestos-related claims worth an estimated $2.7 billion and hundreds of millions of dollars in claims from other creditors were submitted to the bankruptcy court in Corpus Christi, Texas.

The amounts have been whittled down as ASARCO and the claimants negotiated settlements. No one knows exactly how much ASARCO ultimately could owe, but it's still thought to be a substantial amount. And no one is sure whether ASARCO will have the money to pay off its creditors after it sells its remaining assets.

"We are about down to the lick log here," said Leif Clark, a San Antonio bankruptcy judge and adjutant professor at the University of Texas School of Law who has followed the ASARCO case.

ASARCO officials declined to discuss who might be interested in buying the Tucson, Ariz.-based company's three remaining copper mines in Arizona, along with a smelter and a refinery. But with the price of copper hovering near a record $4 a pound and roughly $500 million in its bank account, ASARCO could be an attractive purchase.

Three of the possible bidders are known: Harbinger Capital Partners, a hedge fund; Citigroup Global; and Grupo Mexico S.A. de C.V., ASARCO's parent company, which has fought to regain control after being stripped of its ownership by the bankruptcy court.

"What we would like is a gazillion dollars," said Jack Kinzie, a Dallas lawyer representing ASARCO. "What we want is the highest, best cash offer."

The bids are due April 30. But it could take weeks to sort through them, and Corpus Christi bankruptcy Judge Richard Schmidt will eventually have to give his OK.

Kinzie said a number of environmental claims, including some with the federal government, have been settled through mediation. There are also global talks under way involving the asbestos claims, he said.

"There could be some dark days and bumps in the road ahead, but I am a shameless optimist," Kinzie said.

State officials say they're generally satisfied with their settlements and are now interested in seeing how much ASARCO will have to pay off its creditors.

"We don't feel cheated," said Elliott Furst, a senior counsel in the Washington State Attorney General's Ecology Division.

Furst said Washington's claim is now the largest among the states after Oklahoma's was pared down. The largest settlement involving Washington state, for $126 million, involves cleanup of a plume of arsenic, lead and other toxic chemicals emitted from ASARCO's now-closed smelter near Tacoma, which covered more than 1,000 square miles in three counties. The state originally had sought $300 million to clean up contamination from the plume.

Federal officials said some of their claims have been settled, though they didn't provide specifics.

"The United States and some of the other creditors have made substantial progress in talking with ASARCO about a possible plan of reorganization that would address the remaining claims," Andrew Ames, a Justice Department spokesman, said in an e-mail.

Even as the bankruptcy case in Corpus Christi enters the home stretch, a separate but closely watched and related case in federal court in nearby Brownsville, Texas, is scheduled for trial in early May.

In that case, ASARCO accuses its Mexican owners of stripping off its most valuable asset — its majority interest in the two Peruvian copper mines — in a move that made bankruptcy inevitable. Others have alleged that Grupo Mexico planned to force ASARCO into bankruptcy so it could shed its environmental and asbestos liabilities.

Among those who could testify are members of the Larrea family, which controls Grupo Mexico. The Larreas are one of the 100 or so richest families in Mexico, a collection known as the "fantasticos" because of their economic, political and social clout.

German Larrea, Genaro Larrea and other top officials of Grupo Mexico already have been questioned, but their depositions were sealed.

"They have fought us all the way, and they continue to do so," said Irv Terrell, a Houston trial lawyer representing ASARCO.

The Peruvian mines could be worth $7 billion to $8 billion. ASARCO is also seeking punitive damages. Under the federal bankruptcy code, ASARCO's fiduciary responsibility is now to its creditors, not its owners, and thus it was allowed to bring the lawsuit against Grupo Mexico.

At the time the mines were transferred to another Grupo Mexico subsidiary, Americas Mining Co., they were worth nearly $1 billion, ASARCO said. Grupo Mexico paid only $765 million, and most of that was used to retire ASARCO's debt rather than provide a cash infusion to the company for continued operations.

"The transactions doomed ASARCO," the company said in a recent court filing, which added that the Larreas, along with other "Mexico City people," dominated ASARCO and orchestrated the sale of the Peruvian mines.

ASARCO said the deal was an "insider transaction made with the actual intent to hinder, delay and defraud" the company's creditors.

Lawyers for Americas Mining Co. didn't return phone calls seeking comment.

But in asking the court in March to throw out the lawsuit, Americas Mining Co. said Grupo Mexico and its owners had hoped money from the sale of the Peruvian mines would give ASARCO breathing space to resolve its financial difficulties. The Americas filing also said the Larreas opposed bankruptcy because they feared they could lose control of the company, and "culturally, there is a significant stigma attached to a bankruptcy in Mexico."

McClatchy Newspapers 2008

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