Vedanta's coup shocks in more ways than one
Published by MAC on 2008-06-02This week, one of the most significant takeovers in recent mining history looked like becoming a reality. India's largest corporate miner, Vedanta, agreed a bid for the US's third biggest copper producer, Asarco, through its subsidiary, Sterlite Industries. While the coffee cups are doubtless being raised high at Vedanta's London headquarters, and champagne corks popping at Asarco's offices in Arizona, spirits will be far more subdued at Grupo Mexico ,the US company's nominal owner.
Asarco is, historically, one of the most damaging of US mining and refining companies, as well as being former operator of one of Peru's biggest metals polluters, SPCC. (For a summary of Asarco's liabilities see the Wikipedia summary below).The company was bought out in 1999 by the huge Mexican conglomerate, Grupo Mexico, which claimed to be saving Asarco from bankruptcy. Asarco counter-claimed it was in fact being "asset stripped", and left to face massive claims for damages relating to its asbestos mining and widespread environmental destruction. See:
http://www.minesandcommunities.org/article.php?a=4366
http://www.minesandcommunities.org//article.php?a=8422
In mid-May this year, Asarco sued its south-of-the-border nominal parent, in order to meet these bills and pay off its creditors, which include the many victims of its former operations. To some, the US company's contention that Grupo Mexico is the true villain in the piece is distasteful, if not downright self-serving.
This is not, however, to deny that Grupo Mexico is itself mired in accusations of pollution, sacrificing the lives of workers, and a virulently anti-union stance. See:
http://www.minesandcommunities.org/article.php?a=8447
Vedanta's prospective takeover of Asarco would rescue Asarco from bankruptcy, while providing the UK company with a lightning springboard to becoming one of the world's top copper producers. That's if Grupo Mexico doesn't successfully torpedo the transaction - which seems unlikely, though not impossible.
The deal is both cash-free and debt-free: Vedanta/Sterlite will not assume any "legacy liabilities", either for ongoing asbestos-related claims, or claims associated with Asarco's other appalling operations. It's noteworthy that Vedanta struck similar exculpatory deals when it bought out Tanzania's Mt Lyell copper mine in 1999, and took control of Konkola Copper Mines of Zambia in November 2004.
Over the past two decades and more, numerous workers and residents have suffered egregiously from the operations of all three of these contending copper companies. It is hard to find any worse examples anywhere, of pollution (with the notable exception of Freeport-Rio Tinto's Grasberg mine in West Papua), damage to health, and endangerment of workers' safety.
[Comment by Nostromo Research, London, 2 June 2008]
Vedanta's Sterlite buys Asarco out of Chapter 11 for $2.6 billion
By Robert Daniel, MarketWatch
1st June 2008
TEL AVIV (MarketWatch) - An Indian subsidiary of Vedanta Resources Plc definitively agreed to buy the assets of Asarco LLC, the No. 3 U.S. copper miner, in a bankruptcy-court auction for $2.6 billion cash, the companies said on Saturday.
Vedanta is the London mining concern. Its Sterlite Industries (India) Ltd. unit, bought the Tucson integrated mining company.
Asarco LLC filed for protection from creditors under Chapter 11 of U.S. bankruptcy law in August 2005. The company's restructuring-information Website says that in April 2005, five subsidiaries had made similar filings "as a result of massive asbestos litigation filed against them."
While two of the units had not been producing asbestos or products containing asbestos for some years, "by the late 1990s, [they] had been named in thousands of asbestos lawsuits around the country," the site says.
If the U.S. Bankruptcy Court in Corpus Christi, Texas, approves the deal, Asarco, founded in 1899 as American Smelting & Refining Co., will emerge from Chapter 11, the companies said.
The Wall Street Journal reported that Asarco's former parent, Grupo Mexico, plans to challenge the sale to Sterlite. Grupo Mexico had bought Asarco in 1999, then lost control in the bankruptcy proceedings. It contends that the court-ordered auction was flawed.
And the Journal reported, citing Thomson Reuters statistics, that the deal would be further evidence of how merger activity is rising in emerging-market countries like India and Brazil.
Asarco produced 235,000 tons of refined copper in 2007, and its mines have reserves currently estimated at 5 million tons of copper. For 2007, Asarco reported revenue of $1.9 billion.
Using debt and cash on hand, Sterlite is buying three open-pit copper mines and a smelter in Arizona and a refinery, rod-and-cake plant and precious-metals plant in Texas. Copper cake is fabricated into plates, sheets, strips and bars, Asarco's corporate Website says.
The deal is cash-free and debt-free. "Sterlite will assume operating liabilities but not legacy liabilities for asbestos and environmental claims for ceased operations," the companies' statement said.
The restructuring Website said that by making the Chapter 11 filings, the company expected to "channel all asbestos-related claims against the debtors to a trust."
Sterling said it would build value for holders by increasing efficiency at Asarco's mines and plants. The deal geographically diversifies its North American presence and provides "attractive mining assets with long life," the statement said.
Lehman Brothers advised Asarco and Royal Bank of Scotland's ABN Amro Corporate Finance advised Sterlite on the deal.
Robert Daniel is MarketWatch's Middle East bureau chief, based in Tel Aviv. Community
Vedanta deal in US shows growing reach of Indian cos
Mint
2nd June 2008
The firm outbid other groups including Grupo Mexico and entered the $2.6 bn deal as one of the largest foreign buys
Highlighting the growing global clout of companies from emerging markets, India's Vedanta Resources Plc. reached a $2.6 billion (around Rs11,000 crore) deal to purchase the assets of a bankrupt US copper miner, Asarco Llc.
The deal would be one of the largest foreign purchases ever by an Indian company. The Mumbai-based metals conglomerate outbid three other groups, including Grupo Mexico SA, which first bought Asarco in 1999 but later lost control in a bankruptcy case. Grupo Mexico has said it will challenge the sale.
The sale would mark a turning point for the world's mining giants, creating a showdown between a powerful Latin American group and an Asian rival for control over a historic US corporation.
Flush with cash after years of torrid economic growth and surging commodity prices, companies in developing economies are striking deals that would have been unheard of just a few years ago.
In many cases, these companies are snapping up established Western companies that have fallen on hard times. Often, the goal is to create a national champion that will eclipse competitors elsewhere in the world. As the US credit crunch slows deal-making in the developed world, emerging-market countries such as India and Brazil are taking a larger piece of the mergers and acquisitions (M&A) pie.
Emerging-market M&A activity so far in 2008 is up 17% over last year at this time, to $218 billion, while for the rest of the world it is down 43%, to $991 billion, according to Thomson Reuters.
South Africa's MTN Group Ltd and India's Reliance Communications Ltd are in talks to merge, potentially creating one of the world's biggest cellphone firms. Brazilian miner Cia. Vale do Rio Doce earlier this year came close to a $90 billion purchase of Anglo-Swiss miner Xstrata Plc., before the talks broke down over price. In Russia, discussions are under way that could lead to a three-way tie-up between OAO Norilsk Nickel, OAO Metalloinvest and United Co. Rusal. Such a deal would create a Russian national metals and mining champion with a value of as much as $160 billion.
Indian firms have been particularly active. Tata Motors Ltd, part of the Tata group of companies, earlier this year agreed to purchase the Land Rover and Jaguar brands from Ford Motor Co. for $2.3 billion. Last year, Tata Steel Ltd bought the Anglo-Dutch steel company Corus Group Plc. for about $12 billion. The sale of Asarco, which will be part of an overall settlement of creditors' claims against Asarco, remains subject to approval by the US bankruptcy court in Corpus Christi, Texas.
Though Vedanta shares are listed on the London Stock Exchange, the bulk of the company's assets are in India. Chairman Anil Agarwal and his family control the company, whose share price has surged about 70% in the past year. The company had sales of $8.2 billion in the 12 months ended in March. Vedanta produces aluminium, copper, zinc and lead, with copper operations in India and smelting and refining operations in Zambia. The firm has generally shied away from acquisitions, but the few it has made-including the 2004 purchase of a majority stake in Zambia's Konkola copper mines-have paid off quickly.
Mining firms are searching the world for new deposits at a time of rising prices. Acquisitions are a quick way to add to their stores. Indian companies are especially vying for a piece of the world's minerals, as India's economy grows. The country is already having trouble finding enough iron ore to fuel its busy steel mills.
The battle for control of Asarco began in 1999. That is when Grupo Mexico, a family-owned Mexican construction and mining conglomerate, surprised Wall Street by outmanoeuvring a US rival, Phelps Dodge Corp., to grab Asarco in a hostile takeover. Asarco was facing outstanding claims by federal and state governments involving environmental damage after a century of mining across the western US.
In the years after it bought the company, Grupo Mexico shifted Asarco's profitable mining interests controlled by its US unit into the Mexican parent's other corporate holdings. In 2005, Grupo Mexico placed Asarco in Chapter 11 bankruptcy.
Asarco's court-appointed management sued the Mexican company, alleging that it stripped Asarco of assets to avoid paying the clean-up bill. That civil suit is currently being heard in a Texas court and could lead to damages of as much as $10 billion. Jorge Lazalde, vice-president and general counsel for Asarco Inc., the Grupo Mexico entity that is the nominal owner of Asarco Llc., denied the asset-stripping claim and said the suit is a legal tactic designed to damage Grupo Mexico.
Grupo Mexico contends the court-ordered auction for Asarco was flawed. The company insists it offered to pay Asarco creditors in full when initial bids were submitted in April and says that should trump any outsider's attempt to buy Asarco's assets. "The bottom line is we're offering full payment, and they never even read our proposal," said Lazalde. Asarco's attorneys say Grupo Mexico can't know the value of what "paid in full" will be until all environmental litigation is settled, which could take years. Today, Asarco runs refineries and mines in Texas and Arizona only. Former Asarco sites across the West have been the subject of disputes involving potential contamination.
Earlier this year, New Mexico challenged the reopening of an Asarco smelter in El Paso, Texas, near the New Mexico border. It was closed in 1999, but Asarco wanted to reactivate it due to high global prices for copper.
US mining company seeks billions from Mexican parent to pay creditors
International Herald Tribune
12th May 2008
BROWNSVILLE, Texas: A U.S. mining company accused its Mexican parent company Monday of stripping it of its most valuable assets and forcing it into bankruptcy as it launched its $10.5 billion federal lawsuit against the company.
Asarco, which is operating under bankruptcy protection, was left with no way to pay thousands of creditors and a huge environmental bill for mines it owned throughout the U.S.
In his opening statement, G. Irvin Terrell, attorney for Asarco, described parent Grupo Mexico as a greedy company that did all it could to strip Asarco of its "crown jewel," a controlling stake in Southern Peru Copper Corp.
Asarco is suing Americas Mining Co., a subsidiary of Grupo Mexico, for $10.5 billion Grupo Mexico is owned by one of Mexico's wealthiest families, headed by German Larrea.
Terrell said the leaders of Grupo Mexico knew that transferring Asarco's controlling stake in two Peruvian copper mines to Americas Mining Corp. would leave the company with a gaping hole in its cash flow. But rather than sell it through a competitive auction to the highest bidder, it made an insider transfer to its own subsidiary.
Grupo Mexico kept Asarco on life support, he said, until the transfer was complete. Its leaders resigned from its board and left Asarco to flounder into bankruptcy, Terrell said.
The U.S. Department of Justice initially moved to block the transfer, but eventually negotiated an agreement with Grupo Mexico that required it to pay $765 million including $100 million, to set up an environmental trust fund to pay claims.
Defense attorney Brian Antweil made it clear that the federal government's approval will form the foundation of his defense. Americas Mining paid a fair price and the deal would not have happened without the Justice Department's approval, he said.
AMC sold Asarco's shares in the Peruvian mines because Asarco was desperate for cash. "The sale of SPCC was in the best interest of Asarco," he said.
On the line in this trial will be a chance for a long list of Asarco's creditors - western states struggling to clean up polluted sites, asbestos victims, bond creditors and more - to get paid.
In addition to mining interests from Mexico to Chile that make it the world's third-largest copper producer, Grupo Mexico also controls the country's largest railroad. Forbes ranked Larrea at No. 127 on its list of the world's billionaires with a fortune estimated at $7.3 billion.
The trial has been scheduled for four weeks before U.S. District Judge Andrew Hanen.
Asarco claims Grupo Mexico, which acquired Asarco in 1999, knew that it faced potential liabilities exceeding $1 billion over asbestos claims as well as environmental cleanup of 20 Superfund sites around the U.S.
So Grupo Mexico transferred the Peruvian copper mines to AMC to protect it from being used to pay thousands of creditors.
Grupo Mexico to block US buy of Sterlite
TIMES NEWS NETWORK
2nd June 2008
CHENNAI: A day after Sterlite announced that it was acquiring Asarco, owner of Asarco and copper miner - Grupo Mexico has said that it will do "absolutely everything" in its power to block the sale of its bankrupt subsidiary, which could also be a legal tangle.
Grupo Mexico says it was denied key information that would have allowed it to properly value Asarco. Sterlite officials, while expressing optimism over their stand however said that every party had a right to appeal. "We need to get only one clearance, that of U S Bankruptcy Court in Texas," a Sterlite spokesperson said.
Sterlite, part of London-listed Vedanta Resources, on Saturday said that it had agreed to buy the entire operating assets of Asarco for $2.60 billion in an all cash deal, also making it the largest deal by an Indian company in 2008.
The deal catapults, Anil Agarwal-controlled, Sterlite into the world's third largest copper producer from the present fifth, with estimated reserves of 12-13 million tonnes. Besides, it also gives the metal major a global footprint and a key foothold in North America.
Asarco filed for bankruptcy protection in 2005 after it was sued for $1 billion over environmental cleanup and asbestos claims.
"The asset acquisition is on cash free and debt-free basis. Sterlite will assume operating liabilities, but not legacy liabilities for asbestos and environmental claims for ceased operations," a company statement said.
Sterlite said the deal would be funded through debt and existing cash. "We will decide on how much we raise as debt at the appropriate time," the Sterlite spokesperson said.
"The USP of the group is to buy high cost under-utilised assets and turn them around. Take a look at Balco or Hindustan Zinc. Can't comment if the price paid is more or not," an analyst tracking metals said.
Tucson-based Asarco, the third largest copper maker in United States, had revenue of $1.9 billion in 2007, Sterlite, a unit of Vedanta Resources said. "Asarco is a strategic fit with Sterlite's existing copper business," the Indian firm said in a statement.
Indian firms coming of years of strong profitable growth and clean balance sheets that aid easy access to capital have been snapping up overseas firms to expand their presence globally.
Cellular firm Reliance Communications Ltd has started talks with South Africa's MTN that could culminate in the creation of a $66 billion telecom group. Tata Steel last year engineered India's biggest takeover to date, a $13 billion purchase of Anglo-Dutch steel maker Corus Group.
Wikipedia's entry on Asarco [as of May 1 2008]
ASARCO LLC is a mining, smelting, and refining company based in Tucson, Arizona that mines and processes primarily copper. The company, a subsidiary of Grupo México, is currently in Chapter 11 bankruptcy. ASARCO plans to emerge from bankruptcy in 2008, and opposes calls for it to totally liquidate its mining and industrial assets.[1]
Its three largest open pit mines are the Mission, Silver Bell and the Ray mines in Arizona. Its mines produce 350 to 400 million pounds of copper a year. ASARCO conducts solvent extraction/electrowinning at the Ray and Silver Bell mines in Pima County, Arizona and Pinal County, Arizona and a smelter in Hayden, Arizona.
Before its smelting plant in El Paso, Texas was suspended in 1999 it was producing 1 billion pounds of anodes each year. Refining at the mines as well as at a copper refinery in Amarillo, Texas produce 375 million pounds of refined copper each year.
ASARCO has 20 superfund sites across the United States, and it is subject to considerable litigation over pollution.
India based Sterlite Industries announced the acquisition of Asarco on 31st May, 2008. Post the deal, Sterlite will become the world's third largest copper miner with a combined capacity of 650,000 tonnes a year.
1 History
2 Pollution and environmental issues
3 Litigation history
4 References
5 See also
6 External links
History
ASARCO was founded in 1899 as the American Smelting And Refining Company by Henry H. Rogers, William Rockefeller, Adolph Lewisohn and Leonard Lewisohn. In 1901 Meyer Guggenheim and his sons took over the company. In 1916, 17 ASARCO employees were killed and mutilated by Pancho Villa's men, one of the incidents that sparked the US Military's Punitive Expedition against Villa.
In 1975 it officially changed its name to ASARCO Incorporated. In 1999 it was acquired by Grupo México, which itself began as ASARCO's 49%-owned Mexican subsidiary in 1965, and on August 17, 2005, the company filed for Chapter 11 bankruptcy in Corpus Christi, Texas under then-president Daniel Tellechea.
Pollution and environmental issues
ASARCO has been found responsible for environmental pollution at 20 Superfund sites across the U.S. by the Environmental Protection Agency. Those sites are:
Interstate Lead Company, or ILCO, labeled EPA Site ALD041906173, and located in Leeds, Jefferson County, Alabama[2]
Argo Smelter, Omaha & Grant Smelter, labeled EPA Site COD002259588, and located at Vasquez Boulevard and I-70 in Denver, Colorado[3]
Lowry Landfill, labeled EPA Site COD980499248, and located at 4200 South Gun Club Road in Aurora, Arapahoe County, Colorado[4]
California Gulch mine and river systems in Leadville, Colorado; Summitville Consolidated Mining Corp., Inc. (SCMCI), now bankrupt, EPA Site COD983778432, in Del Norte, Rio Grande County, Colorado;
ASARCO Globe Plant, EPA Site COD007063530, Globeville, near South Platte River, Denver and Adams County, Colorado;
Bunker Hill Mining and Metallurgical, Coeur d'Alene River Basin, Idaho; Circle Smelting Corporation in Illinois;
NL Industries/Taracorp lead smelter in Illinois;
Cherokee County lead and zinc mine and surrounding area in Kansas; Oronogo-Duenweg mining belt in Missouri;
East Helena smelter and surrounding residences in Montana;
Kin-Buc Landfill in New Jersey;
Tar Creek (Ottawa County) iron and zinc operations and surrounding residences in Oklahoma;
Tonolli Corporation smelter in Pennsylvania;
Ross Metals smelter and surface water in Tennessee;
Murray smelter in Utah;
Richardson Flat tailings in Utah;
Commencement Bay, Near Shore/Tide Flats smelter, groundwater, and residences in Tacoma and Ruston, Washington.
Former location of South side Park in Chicago, old home of the Chicago White Sox
Litigation history
The first environmental lawsuit was brought against Asarco in 1910 by a group of farmers in Solano County, California for the sulfur dioxide emissions from the company's San Francisco Bay smelter. The court granted an injunction that shut down the smelter, and the decision was upheld by the California Supreme Court.
One of Asarco's lawyers then got a committee appointed, which included a company-appointed chemist, which led to a settlement that limited the smelter's release of sulfur dioxide to 30 tons per day. The settlement did not address lead, and scores of horses died of chronic lead exposure in the area in the following decades.
United States v. Asarco rulings have been unfavorable to the company in Arizona, Colorado, Idaho, Kansas, Montana, Tennessee, Texas, Utah, and Washington.
In the 1970s, the Centers for Disease Control found the ASARCO smelter in El Paso, Texas was responsible for abnormally high lead levels in children who lived nearby. The city won a lawsuit against the company and, although denying guilt, ASARCO agreed to strict monitoring for lead, zinc, cadmium, and arsenic releases as well as to provide medical exams and blood therapy to children with lead poisoning.
After the Colorado Department of Public Health and Environment sued ASARCO for damages to natural resources in 1983, the EPA placed the ASARCO Globe Plant on its National Priorities List, with ASARCO to pay for the site's cleanup.[5]
ASARCO consolidated several plants at the corner of 5th & Douglas Streets in Downtown Omaha on April 4, 1889. Within 25 years it was the largest lead refinery in the world. In 1972 the plant was found to be releasing high amounts of lead into the air and ground surrounding the plant. In 1995 ASARCO submitted a demolition and site cleanup plan to the Nebraska Department of Environmental Quality for their impact on the local residential area. Fined $3.6 million in 1996 for discharging lead and other pollutants into the Missouri River, Omaha's ASARCO plant was closed in July, 1997.[6] After extensive site cleanup, the land was turned over to the City of Omaha as a 23-acre park. All of North Omaha, comprising more than 8,000 acres (32 km²), was declared a Superfund site, and as of 2003, 290 acres (1.2 km²) had been cleaned.[7]
In January 2003, ASARCO and the Environmental Protection Agency set up a trust fund of $100 million to help pay for the company's environmental clean-up costs. Actual estimated costs for clean-up were between $500 million and $1 billion, as of 2006.
One stated reason for declaring bankruptcy was the number of pending lawsuits (Daniel Tellechea identified "numerous environmental-related lawsuits brought by governmental authorities and private parties"). Asarco had more than 100 civil environmental cases pending against it when it filed for bankruptcy.
In January 2003, nearly 3 years prior to the bankruptcy filing, Asarco sold its interest in Southern Peru Copper to Grupo México for $765 million. This transaction was reviewed and approved by the U.S. Department of Justice. $100 million of the proceeds from this transaction were used to establish the aforementioned environmental remediation fund. Due to the historically low copper prices prevailing in late 2002, contemporary independent valuation reports show that Grupo México paid a 20% premium to fair market value to acquire the Southern Peru Copper interest. Following the ASARCO bankruptcy, Grupo México's profits rose sharply (along with ASARCO's and every other copper mining firm in the world), due primarily to the 500% rise in the market price of copper from January 2003 to today. Half of this increase occurred in the 18 months immediately following Asarco's bankruptcy filing.
In 2007, the Environmental Protection Agency released the results of soil and air tests in Hayden, Arizona taken adjacent to the ASARCO Hayden Smelter. The results showed abnormally high amounts of pollutants that violate prescribed health standards. Arsenic, lead and copper were among the most egregious pollutants found in Hayden. As a consequence of the contamination, the EPA proposed to add Hayden, Arizona to the list of Federal "Superfund" sites. This action would provide funding to clean up the contamination.
ASARCO is presently fighting this action, supported by Democratic Gov. Janet Napolitano, who said: "I am asking that the EPA delay final decision on listing until March 31, 2008. This would provide ample time for the EPA, in close coordination with ADEQ,[8] to enter an agreement with ASARCO to conduct remedial actions..."
ASARCO has a long history of polluting in the Hayden-Winkleman-Dudleyville area from their smelter and mining operations.
The local workers at the Hayden smelter call windy, stormy nights "Smelting Weather", referring to the company's intentional night-time violations of pollution laws facilitated by windy conditions. The company has been known to willingly pay for repainting employees' cars parked at the smelter and damaged by airborne acids, while claiming no significant emission of sulphuric acid fumes. While the top of the smokestack at the plant seldom shows visible emissions, most of the airborne contaminants are released at ground level (termed "fugitive gases").
ASARCO has sometimes put pressure on their employees to ignore health, safety and environmental issues. In August 2007, after the proposed Superfund action by the Environmental Protection Agency, David Romero (a salaried foreman) called the hourly workers together and told them: "I know that there are guys here who are trying to get pictures of the pollution clouds in the plant to give to the EPA. You might think that's funny, but we could all lose our jobs if they can prove things."
References
1) Asarco Gets Ch 11 Plan Extension-Forbes.com-February 8, 2008
2) ILCO EPA. Retrieved 4/10/08.
3) Argo Smelter, Omaha and Grant Smelter, EPA. Retrieved 4/10/08.
4) Lowry Landfill, EPA. Retrieved 4/11/08.
5) ASARCO Globe Plant, Colorado
6) Early Omaha: Gateway to the West: American Smelter and Refining Company Omaha Public Library. Retrieved 2/3/08.
7)(2003) National Priorities List Site Narrative for Omaha Lead. United States EPA. Retrieved 2/3/08.
8) Arizona Department of Environmental Quality
See also
List of Superfund sites in Alabama
List of Superfund sites in Colorado
List of Superfund sites in Illinois
[t] External links
Grupo México history :
Marilyn Berlin Snell, "Going for Broke" Sierra Club Magazine, May/June 2006.
Michael E. Ketterer, The ASARCO El Paso Smelter: A Source of Local
Contamination of Soils in El Paso (Texas), Ciudad Juarez (Chihuahua, Mexico), and Anapra (New Mexico), 2006.