Global financial crisis puts Asarco settlements in doubt

McClatchy NewspapersOctober 22, 2008 

WASHINGTON -- The global economic slowdown has threatened to unravel Asarco's plan to emerge from bankruptcy, and the century-old mining company's Mexican owners may yet reassert control.

Nine states, including Washington, along with the U.S. Department of Justice have sought to block Grupo Mexico S.A. de C.V. from reclaiming Asarco. In a filing before a federal bankruptcy judge in Texas, they said it would lead to "multiplicitous litigation" that could threaten already negotiated settlements of billions of dollars worth of environmental claims.

At stake for Washington is $122.6 million to clean up lead, arsenic and other heavy metals released from Asarco's former Ruston smelter. Officials have said the toxic plume settled over 1,000 square miles of Pierce, King and Thurston counties.

Three years after it sought protection in the biggest environmental-related bankruptcy ever, Asarco's reorganization plan to sell its major remaining mining and smelting assets to an Indian company for $2.6 billion is in danger of collapsing. The money raised from the sale to Sterlite Industries Ltd. would have allowed Asarco to pay off its major secured creditors and settle roughly $9 billion worth of environmental and asbestos claims.

All the major players in the bankruptcy have been asked to attend a mediation session in Houston on Halloween.

Earlier this month, Asarco told U.S. Bankruptcy Judge Richard Schmidt in Corpus Christi, Texas, that Sterlite "cannot and will not" close on its agreement unless the purchase price was renegotiated.

"Sterlite told Asarco the recent world economic events affecting credit markets have impacted its anticipated financing for operations, capital requirements and acquisitions," Asarco said in a press release.

Sterlite did not respond to an e-mail requesting comment.

Asarco said Sterlite also advised it that a drop in the price of copper by almost half in recent months has "negatively impacted" Sterlite's willingness to close the transaction at the agreed price.

While the deal hasn't officially collapsed and may yet be renegotiated, the sale to Sterlite was considered crucial to Asarco's plans to emerge from bankruptcy. Now, a competing offer from Grupo Mexico, worth about $100 million more, is very much on the table, and state and federal lawyers aren't happy about it.

"We have sat on opposite sides of the table from them any number of times," said Elliott Furst, a senior counsel for the Washington state Attorney General's Office who has been handling the case. "Basically, Grupo wants to reopen the settlements. We would be back in court."

Grupo Mexico, which is owned by one of Mexico's richest families, bought Asarco in 1999. But Schmidt stripped Grupo of control when Asarco sought bankruptcy protection in 2005. Since then, there have been repeated court clashes between Asarco and Grupo Mexico.

Under federal bankruptcy laws, once Asarco sought court protection its "fiduciary responsibilities" shifted from Grupo Mexico's stockholders to its own creditors.

Two Peruvian mines have been at the heart of the dispute over Asarco. And a recent court decision supported allegations that Grupo Mexico bought Asarco only to get a hold of its majority interest in two lucrative Peruvian mines, eventually forcing Asarco into bankruptcy, where it could shed the cost of cleaning up more than 100 sites in 16 states, including 20 Superfund sites.

In September, U.S. District Judge Andrew Hanen in Brownsville, Texas, ruled that the Peruvian mines had been "fraudulently" transferred by Grupo Mexico to another of its subsidiaries as part of a conspiracy that all but assured Asarco's bankruptcy.

Asarco is seeking $10.2 billion in cash and stock for the mines. Grupo Mexico, which continues to deny any illegality, will appeal Hanen's decision.

Hanen has yet to set damages in the case, but after conferring with Schmidt, the Oct. 31 mediation was scheduled. It will be the first time the bankruptcy case and the Peruvian mine case have officially intersected.

"It certainly has gotten more complicated," said Irv Terrell, a Houston lawyer representing Asarco. "Grupo has zero credibility with creditors. No one trusts Grupo."

Terrell warned that if Sterlite was caught in the global credit crisis and falling copper prices, Grupo has to be in the "same condition."

Furst and Terrell both said they thought a new deal involving Sterlite may yet be negotiated.

"We don't believe Sterlite is gone," Terrell said.

Grupo Mexico, through its subsidiary Americas Mining Co., declined to comment, as did the Justice Department.

"It's unclear what will happen next," said Andrew Ames, a Justice Department spokesman.

Washington state had originally sought $300 million to clean up the pollution from the Ruston smelter, which operated for 100 years or so. The smelter, including its 562-foot smokestack, has been torn down and the site is being developed. But state and local officials remain concerned that the smelter's toxic plume may have contaminated downwind neighborhoods.

The Ruston smelter claim eventually was trimmed to $112 million. Under a negotiated settlement, the state would receive $80.6 million to clean up the pollution as well as $15.3 million for natural resource damages. The Environmental Protection Agency would receive $27 million for its share of the Ruston cleanup.

Washington would receive an additional $100 million or so to clean up other Asarco sites in the state.

"Everyone would like to see an end to this and the environmental settlements and other creditors paid," said Furst.

McClatchy Newspapers 2008

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