Southern Copper Corp.'s massive Toquepala open-pit mine, in southern Peru, produced 187,579 tons of copper in 2006.

Courtesy of Southern Copper Corp.

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Timeline

A timeline of major events since 1999 involving Asarco and Grupo Mexico.

October 1999: Asarco announces it will be bought by Grupo Mexico in a deal valued at $2.25 billion. In accepting Grupo Mexico's offer, Asarco turned down an earlier offer from Phelps Dodge.

January 2003: Grupo Mexico overcomes U.S. government objections and purchases Asarco's 54 percent stake in what is now called Southern Copper Corp. — a company that runs two mines and related operations in Peru — for $765 million. As part of the deal, Asarco is to set aside $100 million to cover environmental liabilities.

July 2005: More than 1,500 Asarco workers in Arizona and Texas go on strike.

August 2005: Asarco files for bankruptcy in Corpus Christi, Texas, citing environmental and asbestos liabilities, a recent credit-rating downgrade and the strike.

December 2005: A bankruptcy judge appoints a board to oversee Asarco, giving Grupo Mexico only one seat on the board and minimizing the parent company's influence.

February 2007: Asarco sues Americas Mining Corp., Grupo Mexico's subsidiary, over the sale of Asarco's majority interest in Southern Peru Copper. Asarco argues that it was paid too little and that the transfer was intended to take Asarco's most valuable asset while leaving all its liabilities. At the time, environmental claims against Asarco totaled about $6 billion.

Monday: Asarco's suit against Americas Mining Corp., arguing that the Southern Peru sale was a fraudulent transfer, will go to trial in U.S. District Court in Brownsville, Texas. Testimony is scheduled to last four weeks, spread over a five-week period.

Asarco claims it was stripped fraudulently Grupo Mexico denies being 'evil empire' in Asarco deal

Business

Asarco bankruptcy a homicide or suicide? Trial starts Monday

Judge set to decide if Mexican conglomerate Grupo Mexico gave U.S. mines the shaft

By Gabriela Rico

Arizona Daily Star

Tucson, Arizona | Published: 05.11.2008

This week in a Texas court, a Mexican conglomerate must confront an accusation that has long simmered in Southern Arizona:

Did Grupo Mexico buy Asarco only to extract its most valuable resource — a majority stake in a Peruvian copper company — and leave Asarco to descend into bankruptcy?

This drama, starring Tucson-based Asarco LLC, is set to play out in U.S. District Court in Brownsville beginning Monday. Billions of dollars and the future of Asarco, which is seeking to emerge from Chapter 11 bankruptcy protection, are at stake.

So is the outcome of billions of dollars in environmental claims against Asarco related to polluted sites scattered across the country.

Mexico City-based Grupo Mexico S.A. de C.V. nearly destroyed Asarco by buying Asarco's majority share in lucrative Peruvian mines, then neglecting U.S. operations by allowing equipment to break down and production to slow to a crawl, Asarco's attorneys allege.

Ensuing layoffs, talk of a possible Southern Arizona mine closure, a four-month-long strike by miners in Arizona and Texas, and billions of dollars' worth of environmental claims led Asarco to file for Chapter 11 bankruptcy protection in August 2005.

Then, in February 2007, Asarco lashed out at its parent company by filing a lawsuit, claiming fraudulent transfer of the mines in Peru and demanding that its majority share in those mines be restored.

Attorneys for Grupo Mexico have said Asarco mismanaged itself and that its bankruptcy filing — which happened two years after the mine transfer — was a result of the strike.

"The whole thing is messy," said economist George Leaming, of the Western Economic Analysis Center in Marana. "Whether Asarco committed suicide or was pushed off the cliff is hard to say."

What happened?

Grupo Mexico bought Asarco in 1999, and within four years it sold Asarco's 54 percent interest in Southern Peru Copper Corp. to Americas Mining Corp., a Delaware-based subsidiary created by Grupo Mexico in 2000 to hold its mining assets. (The South American firm is now known as Southern Copper Corp.)

Asarco claims in court documents that Grupo Mexico wanted to shield the Peruvian assets from Asarco's unpaid creditors and from environmental liabilities.

The loss of Southern Peru was "particularly detrimental" to Asarco, because it accounted for "most if not all of its operating income," according to court documents filed by Asarco attorneys.

Asarco received little profit from the sale of the mines and was financially "doomed" and forced to "cannibalize itself," the company said in court filings.

Attorneys for Grupo Mexico contend the transfer of the mines in Peru was done for the purpose of paying, not evading, creditors and environmental claims. In court filings, the company noted that a federal court judge approved the transaction.

Attorneys for Americas Mining Corp. could not be reached for comment.

In the fall of 2002, Asarco announced it might close its Mission Complex mine near Green Valley, and it began a series of layoffs due to a cash shortage because of high production costs and low copper prices. The average copper price at the time was 71 cents per pound.

In July 2005, wage disputes led to miners in Arizona and Texas walking off the job and beginning a four-month strike. Asarco filed for bankruptcy the following month.

After the bankruptcy filing, Asarco was placed under the control of the court — and out of control of Grupo Mexico. The company regrouped, signed a labor contract with its workers, and — with the union now an ally against Grupo Mexico — went on the offensive.

Bill Hogan, president of United Steelworkers of America Local 937, said workers are eager to see the outcome.

"We'll be watching it closely," Hogan said. "It's like watching a craps game."

What's next?

The four-week trial in the federal courthouse in Brownsville promises to be a lively show.

Two top executives of Grupo Mexico — Genaro and German Larrea, brothers in one of the wealthiest families in Mexico — are expected to testify, as is the former Asarco CEO, Daniel Tellechea, who resigned two months after the start of the miners' strike in 2005.

"It should be fun," Irv Terrell, a Houston trial lawyer for Asarco, said last week. He did not foresee a settlement.

Attorneys for both parties will present their theories on the near-collapse of Asarco as they fight for their stake in two of the world's richest copper mines. Accusations of fraud and conspiracy have been filed in court documents during the past year.

U.S. District Judge Andrew S. Hanen has set a firm timeline for the trial — with a verdict to be decided by the judge rather than a jury. Hanen will give each side 40 hours to present its case, including cross-examination of the other sides' witnesses.

The trial is set to begin Monday and end on June 12, with a one-week break for Memorial Day.

What's at stake?

If it's victorious in the Texas courtroom, Asarco — with headquarters at the Williams Centre in Tucson — will be catapulted into the big leagues of international mining, Leaming said.

With copper prices at record levels, the value of the mines in the Andes Mountains of Peru is estimated at close to $8 billion.

The financial boon also could provide Asarco with the ability to settle billions of dollars' worth of environmental claims from Washington state to Hayden, which is a small town between Tucson and Globe.

In Tacoma, Wash., 35 miles south of Seattle, Asarco is liable for an estimated $60 million cleanup of arsenic contamination in Commencement Bay and neighborhoods around the former site of a copper smelter that operated for more than a century.

Asarco has agreed to pay Washington state $126 million to settle a claim stemming from the toxic plume that spread across parts of Pierce, King and Thurston counties during the century of operation at the company's Ruston smelter.

Closer to home, at its smelter operation in Hayden, the company last month agreed to pay $13.5 million to clean up copper, lead and arsenic and avoid having the town designated a Superfund site by the federal government.

Dozens of other claims at former and current Asarco sites also are pending.

● Contact reporter Gabriela Rico at 573-4232 or grico@azstarnet.com.

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