Asarco charges Mexican parent company with stealing most valuable asset

Section:

By Les Blumenthal
McClatchy Newspapers
Monday, February 5, 2007

http://www.realcities.com/mld/krwashington/16629646.htm

WASHINGTON -- One-time mining giant Asarco, charging that its Mexican owner stole its most valuable asset and left it to face $7 billion worth of environmental and asbestos-related claims, has asked a federal bankruptcy judge to void the transfer of two Peruvian copper mines to Grupo Mexico, S.A. de C.V.

The stakes couldn't be higher for U.S. taxpayers, who'd be stuck with the tab for cleaning up nearly 100 contaminated sites nationwide where Asarco once operated. If the court agrees that the mines were "fraudulently transferred," Asarco could recover several billion dollars, by some estimates.

In a 23-page complaint filed late Friday in a Texas bankruptcy court, Asarco alleged that Grupo Mexico plotted to gain control of Asarco's 54.2 percent interest in the Peruvian mines. The complaint, which reads like a "legal potboiler," according to one lawyer in the case, charges that Grupo Mexico took control of the mines with the "actual intent to hinder, delay and or defraud" Asarco's creditors.

"Grupo Mexico's goal was to take Asarco's most valuable asset, the majority ownership of SPCC (the Peruvian mines), and remove it from the reach of creditors," the complaint said.

Lawyers and officials of Grupo Mexico and the subsidiary named in the complaint, Americas Mining Corp., didn't return phone calls seeking comment.

Grupo Mexico is owned by one of Mexico's richest families, the Larreas. The complaint alleges that another of Mexico's super rich, Carlos Slim, who owns and controls Inbursa, a Mexican bank, may have benefited from the deal. The complaint describes Slim as a "close associate" of the Larrea family.

Though Asarco, which is assembling a reorganization plan and trying to emerge from bankruptcy, is still wholly owned by a Grupo Mexico subsidiary, under federal bankruptcy laws it's now responsible to its creditors rather than to its stockholders.

Asarco, a century-old mining, smelting, and refining company that once was listed on the Fortune 500, filed for bankruptcy protection in 2005. It faces about $6 billion in environmental claims filed by the federal government and more than a dozen states, as well as 95,000 asbestos-related claims that could be worth between $500 million and $1 billion.

The federal Environmental Protection Agency filed a $1.3 billion claim for cleanup of Superfund sites across the country. The federal departments of Agriculture and Interior, along with local governments, several Indian tribes and private parties, have also filed environmental claims.

Asarco has talked with state and federal lawyers about the possibility of settling the environmental claims, though there are no offers in the table.

Cynthia Magnuson, a spokeswoman for the U.S. Justice Department, which is representing the EPA, declined comment.

Asarco officials had little to say.

"The complaint speaks for itself," said Joseph Lapinsky, president and chief executive of the Tucson, Ariz.-based company.

Lapinsky said it would be up to the bankruptcy court judge to decide how much the Peruvian mines are worth, if he ultimately rules that they were taken from Asarco illegally. And, even though Grupo Mexico is a foreign company, Lapinsky said it has U.S.-based subsidiaries that could make it possible to recover any judgment without having to seek redress in Mexican courts.

Asarco's independent directors had been looking at filing such a complaint for months at the urging of some of the company's creditors, Lapinsky said.

The complaint details Grupo Mexico's actions since it bought Asarco in 1999 through a leverage buyout:

Shortly after the takeover, top Grupo Mexico officials took over Asarco's board of directors and filled many of the company's executive positions.

"Grupo Mexico structured the leveraged buyout so that Asarco assumed huge amounts of debt," the complaint said. "Asarco was left inadequately capitalized to conduct its business."

At the direction of its Grupo Mexico-dominated board, the complaint says, Asarco began selling its subsidiaries, cashing in insurance policies that had been purchased to cover environmental and asbestos claims and stripping its remaining mines of high-quality ore. The revenue was used to cover day-to-day expenses as Asarco slipped toward insolvency.

Grupo Mexico also forced Asarco to pay off bonds that had been bought at deep discounts by Slim and other "friends" of Grupo Mexico executives, the complaint charges.

Meanwhile, Grupo Mexico was angling to seize control of the Peruvian copper mines. After one independent company valued the two mines at nearly $1 billion, Grupo Mexico hired another company, which placed their value at $720 million. At one point, according to the complaint, Grupo Mexico offered Asarco $450 million, but only $100 million of it was in cash and the rest was in debt forgiveness.

The mines eventually were sold to a Grupo Mexico subsidiary for $765 million without soliciting any competitive bids. The complaint charges that Asarco received "not a nickel" in cash from the sale to cover its operating expenses.

As soon as the sale was complete, the Grupo Mexico executives on Asarco's board resigned. The complaint alleges that that even after the sale, Grupo Mexico tried to keep Asarco out of bankruptcy until the statute of limitations on a fraudulent conveyance claim had passed.

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