Asarco Can't Back Cleanup Cost

Asarco Can't Back Cleanup Cost

By Eve Byron, I R Staff Writer - 16th June 2002

Company violates consent decree; negotiations continue. Asarco has notified the Environmental Protection Agency that the company no longer can guarantee its financial ability to pay for the continuing costs of cleaning up contamination from its lead smelter in East Helena.

Asarco's inability to provide financial assurance puts the company in violation of the consent decree it established with the EPA to cover the cleanup costs in East Helena, according to EPA officials. But the only type of enforcement action the federal agency can take against Asarco is to fine the company - a tack the EPA realizes is like trying to smelt gold out of lead.

Susan Zazalli, who is overseeing the on-site cleanup at the Asarco smelter for the EPA, said discussions are taking place with Asarco on a national level to try to remedy the situation. Asarco has assured the EPA that once the company's "complex debt restructuring negotiations are complete, we will again be able to use the financial test to demonstrate assurance at East Helena," according to a letter from Douglas McAllister, Asarco's vice president, general counsel and secretary.

He writes that the discussions with the EPA and the Department of Justice include possible extensions of deadlines for cleanup work and other environmental projects, as well as allowing Asarco to defer some payments of past cost reimbursement.

Bonnie Gestring with the Mineral Policy Center in Missoula believes the company is rearranging its corporate structure so it can walk away from costly remediation efforts. She also is seeking some kind of assurance that Asarco will pay for cleaning up the mess left from more than 100 years of mining and smelting in Montana, and is pressing the state, along with the EPA, to take some type of action.

"The state has the wherewithal to really reduce the liability to the state if they take immediate, aggressive action," Gestring said recently. "Both the state and federal government need to take action immediately to make sure we get the money to cover liabilities, rather than wait with their hat in hand as other states get the money. The clock is ticking." Gestring and Anne Hedges of the Montana Environmental Information Center point to Washington State, where the EPA recently ordered Asarco to begin $22 million worth of restoration work immediately at its defunct Tacoma area smelter, or face fines as high as $27,500 per day.

"The writing is on the wall," Hedges said. 'They're taking action in Washington State because they don't want to get burned, but Montana hasn't done anything about it yet. We plan to talk to the attorney general's office and ask if they'll pursue Asarco like they did to W.R. Grace in Libby." Asarco has been on shaky financial ground for years. The company has between 30 and 40 contaminated sites around the country that Asarco says may cost around $160 million to clean up; other published reports peg the amount closer to $1billion. Of the 16 facilities listed on its web site, operations are suspended at seven plants, one of which is the East Helena lead smelter. The company reported a debt totaling $1 billion at the end of 2001, including $450 million in outstanding loans, according to Clay Allen, Asarco's manager of corporate communications.

Asarco - originally known as the American Smelting and Refining Company - was bought out in 1999 by Grupo Mexico, one of the world's largest mining conglomerates. Grupo Mexico reported a $245 million loss last year and has a debt load of $3.2 billion. About one-third of that debt is being attributed to Asarco, according to a report by the Seattle Times.

Grupo Mexico reorganized in December 2000, lumping its Asarco interests, a Peru copper corporation and some Mexican mines into a subsidiary operating under the name of Americas Mining Group. Grupo Mexico sold off Asarco's specialty chemicals division earlier that year, as well as its aggregates division.

Gestring sees these activities as moves by Grupo Mexico to bleed Asarco of its profitable aspects, then declare bankruptcy and walk away from its costly liabilities.

"They're reorganizing their assets so revenue generating ones are not among Asarco any more," she said. "So if Asarco declares bankruptcy, there's nothing to go after. They've suspended operations at many of their plants, so they have only five production companies left. It just doesn't bode well for the future of the company in the state of Montana, in terms of being able to obtain any assets from the company should they declare bankruptcy."
Allen scoffs at that theory. He said the reorganization should show people the opposite - that this subsidiary is an American corporation based on American soils, not in a foreign country, with tangible assets.

"Grupo Mexico also realizes that an intentional bankruptcy, if you will, would completely harm their chances and odds of longer-term financing," he said. "They plan to grow that company and need access to U.S. companies to do that. That wouldn't happen by letting Asarco fall into bankruptcy." Allen quickly adds that Asarco has no intention of packing up and leaving this country.

"Nothing could be further from the truth," he said on Friday. "There's no doubt that we are carrying a heavy debt load, but we are working on a plan to meet all those obligations and get our company on firm financial footing. I know that speculation has been raised about bankruptcy, but Grupo Mexico has stated unequivocally that it isn't their intention."

Asarco has interest in five sites in Montana. Mining and smelting activities have ceased at all the sites. The state has bonds for three of the properties, and recently raised two of those to cover expected cleanup costs. But Gestring and Hedges say more is needed.

"So with these five pieces of Asarco property in Montana, there's a substantial liability - which the state doesn't have funds to cover," Gestring said. "That will translate into either a slower pace of cleanup or no cleanup at all."

She cautions against relying on the federal Superfund program to cover reclamation costs. The Superfund trust was created in 1980 using money from chemical, oil and similar companies to cover the costs of cleaning up sites contaminated by their activities. However, Congress failed to reauthorize the funding mechanism for the program, and it is expected to run out of money by 2004.

"So a good portion of this will fall on the taxpayer and translate into environmental degradation in Montana that will not get cleaned up, or won't get cleaned up in a timely fashion," Gestring said. "The state has a lot of authority here to get some funding in place from Asarco now. They just have to be aggressive."

Locations and status of Asarco operations:

• Amarillo Plant - A copper and precious metals refinery in Texas. Production is off, but the plant is still operating. Coy Unit - A zinc mine in Tennessee whose operations were suspended in October 2001.
• East Helena Plant - A lead smelter whose operations were suspended in April 2001.
• El Paso Plant - A Texas copper smelter where operations were suspended in 1999, prior to Asarco being acquired by Grupo Mexico.
• Encycle/Texas, Inc. - A metal recovery plant. Operations are suspended, but some staff remain on site.
• Globe Plant - A specialty metals facility that produces high-purity metals for its electronics operation.
• Hydrometrics, Inc. - An environmental engineering firm. It's been sold and reorganizes as Asarco consulting, and a much smaller staff does consulting work for Asarco.
• Immel Unit - A zinc mine in Tennessee. Operations were suspended in October 2001.
• Mineral Discovery Center - An educational facility.
• Minto Explorations Ltd. - A Canadian facility that looks into potential new businesses.
• Mission Complex - An open pit and underground copper mine that still operates in Arizona.
• Montana Resources - The Continental open pit copper mine in Butte. It suspended operations in July 2000.
• Ray Complex - An open pit copper mine in Arizona. It is still operating.
• Silver Bell Unit - An open pit copper mine and production plant in Arizona. It is still operating.
• Asarco Technical Services Center and Asarco Technologies - Similar to Hydrometrics and did testing for that company. It also has been scaled back in light of Hydrometrics' lay offs.
• Young Unit - A zinc mine in Tennessee; operations were suspended in October 2001.

Montana properties Asarco has an interest in include:

• The Black Pine Mine near Phillipsburg, which has been closed for some time. The initial reclamation bond was $70,000, but the state has notified Asarco that it will be increased to $8 million to cover the cost of long-term water treatment of acid mine drainage. Lisa Peterson, spokeswoman for DEQ, said Asarco had no opposition to the increase.
• The Troy Mine near Noxon. Asarco sold the property to Sterling Mining in 1999, shortly before Asarco was purchased by Grupo Mexico. However, Asarco's name is on the bond still, so it retains financial liability for treatment. The bond was $2.7 million, but was increased to $10.5 million in August 2000, and may go up further after hydrological research is completed.
• The Mike Horse mine near Lincoln. This is a state Superfund site, but cleanup activities were funded by Asarco and Arco. According to Peterson, Asarco has satisfied the state's requirement, but is still working with the Forest Service on some issues.
• The Continental Pit in Butte. Asarco owns 49 percent interest, with the rest owned by Montana Resources. The state holds a $26 million bond, which is meant to cover cleanup of the entire permitted area; that bond many be increased after new research is completed.
• The East Helena smelter. So far, Asarco has paid $108 million in cleanup costs. Currently, Asarco and the EPA are working out a final remediation plan. There is no reclamation bond for the site; if Asarco declares bankruptcy, the federal Superfund program would pick up the cost, with the state contributing 10 percent. Unlike mining operations, smelting companies are not required to put up a surety bond to cover cleanup costs in case of bankruptcy. The EPA only requires Asarco to put together a financial assurance plan each year. That plan, known as a consent agreement, discloses the financial well being of the company in an effort to prove whether Asarco can complete EPA-required cleanup measures for the year.

Reporter Eve Byron can be reached at 447-4076 or by e-mail at eve.byron@helenair.com