MAC: Mines and Communities

Embattled Mining Company Asarco Enters Into Settlement Talks

Published by MAC on 2007-02-07
Source: Knight Ridder Washington Bureau

Embattled mining company Asarco enters into settlement talks

Knight Ridder Washington Bureau (KRT)

7th February 2007

WASHINGTON _ One-time mining giant Asarco has talked with federal regulators and a dozen or so states about the possibility of settling the more than $6 billion in environmental claims it faces in a federal bankruptcy court in Texas.

But with the discussions still in a preliminary stage and pressure increasing for the company to file a reorganization plan, Asarco _ once a major producer of copper and other metals headquartered in Tucson _ asked the court last week to sort out how much it may actually owe to clean up the toxic legacy of its mining, smelting and other operations at nearly 100 sites nationwide.

The court is already set to review more than 95,000 asbestos-related claims that could be worth between $500 million and a $1 billion. Asarco has turned over more than 2 million documents to the lawyers representing the asbestos claimants and a court proceeding, known as an estimation hearing, is scheduled to this fall.

While bankruptcy proceedings are often dry and dull featuring lengthy court briefs written in obscure legalese, Asarco's case has enormous implications for both federal and state taxpayers, who could be left with the multibillion-dollar bill.

The federal Environmental Protection Agency is seeking more than $1.3 billion to clean up a number of Superfund sites.

Fifteen states have also filed claims, led by Oklahoma's $2 billion claim and Washington state's $600 million claim, according to lawyers involved in the case. Other states with major claims include Missouri, Colorado, Arizona, New Mexico and Texas. No state-by-state breakdown is available.

Various Indian tribes and private parties have also filed environmental claims against Asarco.

The possible settlement talks, which began last fall, have taken on a new urgency amid reports that a major Swiss multinational corporation, in partnership with a Montana firm, wants to buy most of Asarco's remaining assets. Other international mining companies are also reportedly interested in Asarco.

The talks come as Asarco's current Mexican owner, Grupo Mexico S.A. de C.V., recently has sought to reassert control over its subsidiary, asking the bankruptcy judge to expand its current three-member board by two members to be chosen by Grupo.

Earlier court filings alleged Grupo Mexico stripped Asarco of its most valuable assets _ two Peruvian copper mines _ and then let the company slip into bankruptcy to avoid environmental cleanup costs and asbestos-related claims. Grupo Mexico has denied the allegations.

"Everyone is sort of circling right now," said John Tate, a Dallas lawyer representing some of the asbestos claimants.

Asarco is facing an early April deadline to submit its reorganization plan to the court. The company repeatedly has insisted it wants to reorganize and emerge from bankruptcy intact.

In a brief filed last week, Asarco, however, warned that its reorganization plan will be "unduly delayed and at risk of failure" if the bankruptcy court doesn't sort out the environmental claims.

If a settlement can't be reached, Asarco said, the court has no choice but to come up with an estimate of the environmental claims before it could move forward with reorganization.

"There are a lot of balls in the air," said Elliott Furst, a senior counsel in the Washington state attorney general's ecology division.

Asarco's lead lawyer in the bankruptcy, Jack Kinzie of Dallas, acknowledged talks had taken place, but he added few details.

"In a bankruptcy, you are always talking," Kinzie said. "You litigate if necessary, but you also talk about settlement."

Originally the federal government, the states, local governments, Indian tribes and private parties had filed nearly $11 billion in environmental damage claims. But that was whittled down to $6 billion after "obvious and not so obvious" duplicate claims were eliminated, according to court documents.

Furst also indicated the states had talked with Glencore AG of Switzerland and the Montana-based Washington Corp., which have formed a joint venture and expressed an interest in purchasing most of Asarco's assets.

"They said they were interested," said Furst. "If they are serious they are going to have to come up with an offer if they want our support."

Furst said Glencore and Washington Corp. indicated they too were considering the possibility of establishing an environmental trust fund, but no dollar amounts were discussed.

Asarco, a century-old mining and smelting company, was once listed on the Fortune 500 but had fallen on hard times by the late 1990s as the price of copper plummeted. Grupo Mexico's takeover of Asarco in 1999 set off alarm bells at the EPA and the U.S. Department of Justice.

The Justice Department initially sought to block Grupo Mexico from transferring Asarco's interest in the Peruvian mines to another of its subsidiaries. But after Grupo Mexico agreed to pay an additional $125 million for the mines and establish a $100 million environmental trust fund, the deal was allowed to proceed.

Thirty-two months later, in September 2005, Asarco filed for bankruptcy protection.

Grupo Mexico, through a web of subsidiaries, continues to own 100 percent of Asarco. But because it is in bankruptcy, Asarco is beholden to its debtors, not its stockholders. And Asarco is considering suing Grupo Mexico for the "fraudulent conveyance" of its Peruvian mines to its parent company. The money it could potentially recover would be used to pay off creditors and a portion of the environmental and asbestos-related claims.

Here is a look at some of those who have filed environmental claims:

The states: Arizona, California, Colorado, Idaho, Indiana, Kansas, Missouri, Montana, Nebraska, New Jersey, New Mexico, Ohio, Oklahoma, Texas and Washington.

The federal government: The Department of Justice has filed on behalf of the Environmental Protection Agency, the Interior Department and the Agriculture Department.

Local governments: The Tacoma Metropolitan Park District, the Port of Everett, the Everett Housing Authority, the cities of Omaha, Los Angeles and Denver, and the Utah Transit Authority.

Tribes: The Coeur D'Alene Tribe in Idaho and the Quapaw Tribe of Oklahoma.

Private entities: The Corporation of the Presiding Bishop of the Church of Jesus Christ of Latter-day Saints, Atlantic Richfield Co., BNSF Railroad Corp., Murray Pacific Corp., Union Pacific Railroad Co., Phelps Dodge Corp. and Louisiana Pacific Corp.

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