After a month-long trial, U.S. District Court Judge Andrew Hanen will now decide if Grupo Mexico illegally stripped Tucson-based copper miner Asarco of its most valuable operations before putting the American mining company into Chapter 11 to avoid paying billions in environmental liabilities.
Hanen indicated it may take him months to pour through all the evidence and issue a ruling.
During five hours of testimony, one of Mexico's richest men, German Larrea, Chairman and CEO of Grupo Mexico, repeatedly stated that he never wanted Asarco to go into bankruptcy. Instead, he asserted Asarco suffered from a cash crunch, and survived for more than two and one-half years before filing for bankruptcy in 2005.
However, Asarco argue d that shortly after Grupo Mexico bought Asarco for $817 million in 1999, it isolated the Southern Peru Copper shares from Asarco, leaving Asarco insolvent. Asarco transferred its 54.2% interest in SPCC to Americas Mining Corporation (AMC) in March 31, 2003. Asarco claimed that the AMC dominated and controlled Asarco and forced Asarco to transfer its SPCC shares with the goal of placing the SPCC stock out of reach of creditors.
Asarco claimed that in order to facilitate financing for the SPCC transfer, AMC made an improper, undisclosed handshake deal with its lender, Banco Inbursa, to pay Asarco's unsecured $100 million Yankee Bonds at part, plus interest. Asarco claims that Inbursa, whose principal owner is Mexico's richest man, Carlos Slim, had together purchased approximately 90% of the bonds at deep discounts.
The U.S. miner claimed that AMC forced Asarco to cannibalize itself by high grading its mines, selling its land at bargain basement prices, monetizing its insurance policies, and allow its valuable interest in Montana Resources to be diluted to nothing, in an effort to keep Asarco alive long enough to outrun the statutes of limitation on fraudulent transfer and preference claims.
At stake is more than $11 billion in assets that Asarco wants returned. Asarco has asked the federal court for a 30% stake in Southern Peru Copper shares, now valued at $9.6 billion. It also wants the dividends that Americas Mining has collected from SPCC since 2003, estimated at $1.7 billion.
The sale was originally opposed by the U.S. Department of Justice, which asserted that the deal was a fraudulent transfer of lucrative assets at below-market prices. The U.S. Government was concerned that Asarco-stripped of its most lucrative asset Southern Peru Copper-would be unable to fund the cleanup of at least 75 polluted mining sites including several on the Superfund list. The Justice Department eventually negotiated an agreement with Grupo Mexico that required the company to pay $765 million for SPPC shares, including paying $100 million to an environmental trust fund to pay claims.
In addition, 95,000 asbestos-related claims totaling an estimated $2.7 billion were submitted to the federal bankruptcy court. A number of environmental claims, including some with the federal government have been settled through mediation. Talks are also underway involving the asbestos claims.
However, in a recent news release, Grupo Mexico said the sale of Asarco's majority stake in Southern Peru Copper to Grupo subsidiary Americas Mining allowed Asarco to eliminate all of its existing short-term debt obligation through 2013, significantly reducing its current and future financing costs, boost its credit ratings and reach a standstill agreement with the U.S. Department of Justice to help resolve its environmental liabilities.
GMexico firmly believes Asarco's troubles derive largely from poor legal advice from Asarco's law firm, Baker Botts, which incorrectly convinced the company's board members that Chapter 11 process would solve all of Asarco's problems by quickly resolving its environmental and unknown asbestos liabilities at a very low cost. ...Three years and millions of dollars in legal fees later, the company still faces numerous unsolved liabilities, has reached unnecessarily high settlements on others and has been largely unable to take advantage from the dramatic turnaround in commodity prices, Grupo asserted.
Larrea and Grupo Mexico have criticized its subsidiary, which is in bankruptcy, is spending millions of dollars to sue its parent rather than paying creditors.
Meanwhile, a federal bankruptcy court is expected to rule whether to approve the proposed $2.6 billion sale of Asarco to Vedanta Resources subsidiary Sterlite Industries. Grupo Mexico has said it will put up $4.1 billion to pay off claims against Asarco, including putting up $2.7 billion, use $1 billion Asarco has on hand and then put in another $440 million if needed, which far exceeds the Sterlite proposal.
Two Arizona congressmen have also raised objections with the U.S. Justice Department about the sale to Vedanta Resources, expressing concerns about the company's environmental track record.
In a letter released to the news media, Representatives Gabrielle Giffords and Raul Grijalva asked Attorney General Michael Mukasey to investigate Vedanta's operating record in India and Africa, which they contend, does not bode well for responsible stewardship of assets in the U.S.
The congressman said if the Department of Justice approves the Asarco settlement before launching the probe, we will ask the Arizona Department of Environmental Quality to conduct an investigation before approving any transfer or offering permits to the new owner.