Mexico’s largest mining company ordered to pay Asarco $6 billion

U.S. judge rules for Asarco in $6-bln stock case

Reuters

2 April 2009

NEW YORK/MEXICO CITY - A federal judge in Texas has ordered a Grupo Mexico unit to return as much as $6 billion in stock and dividends to bankrupt U.S. copper miner Asarco LLC, sending shares in the Mexican parent company tumbling. U.S. District Court Judge Andrew Hanen, in the southern district of Texas in Brownsville, made his ruling on Wednesday in the fraudulent transfer case, according to court records. "Justice has ultimately prevailed," Asarco's President and Chief Executive Officer Joseph Lapinsky said in a statement.

"This award is for the benefit of Asarco's creditors in the bankruptcy and should assist the company in its efforts to successfully emerge from Chapter 11 in the coming months."

Asarco brought the case against Americas Mining Corp, a subsidiary of Grupo Mexico, accusing it of fraudulently transferring to itself Asarco's then 54.18 percent controlling interest in Southern Copper.

Shares in Grupo Mexico tumbled 15 percent to 9.30 pesos in Mexico City before trading was halted by the stock exchange. The ruling to hand over the shares and cash to its bankrupt unit is bad news for Grupo Mexico and Thursday's stock tumble leaves it at around fair value, said Inigo Cossio, an analyst at Actinver brokerage in Mexico City.

"If the judge had told Grupo Mexico they don't have to return it to Asarco, really, Asarco would have had to sort things out themselves with their creditors," Cossio said.

Grupo Mexico said in a filing it was studying the ruling.

Asarco, formerly a Grupo Mexico subsidiary, said that Americas Mining paid it around $747 million for the Southern Copper stake. After Asarco went into bankruptcy in 2005, it sued Americas Mining, saying it was not paid fair market value and seeking to get back the stock as well as dividends.

Judge Hanen ruled in favor of Asarco and ordered Americas Mining to give back over 260 million shares of Southern Copper stock, which based on Wednesday's closing price is worth approximately $4.68 billion.

Americas Mining must also pay damages of about $1.35 billion, comprising of dividends AMC received of $1.94 billion and prejudgment interest of $329 million, less the $747 million that AMC had paid for SPCC and interest of $164 million, Asarco said.

Asarco said it will own an approximate 30-percent equity interest in Southern Copper as a result of the ruling.

Asarco, which operates three copper mines in Arizona, filed for bankruptcy protection in 2005 after it was sued for $1 billion over environmental cleanup and asbestos claims. Last month, it filed a bankruptcy reorganization plan to reorganize itself under a $1.7 billion deal with India's Sterlite Industries.

Grupo Mexico acquired Asarco in a leveraged buyout in 1999, but lacks board control of the company due to the bankruptcy. It has said it was still interested in taking back control of Asarco.

On Wednesday, Grupo Mexico said it had raised its stake in Southern Copper to 80 percent from 75.1 percent.

The case is: Asarco LLC, Southern Peru Holdings, LLC v Americas Mining Corp, Civil No. 1:07-CV-00018.

(Additional reporting by Noel Randewich and Robert Campbell in Mexico City)

(Reporting by Steve James and Matt Daily; Editing by Derek Caney, Phil Berlowitz and Bernard Orr)

Grupo Mexico Told to Pay About $6 Billion to Asarco

By Steven Church and Sophia Pearson, Bloomberg

2 April 2009

Grupo Mexico SAB, Mexico’s largest mining company, was ordered by a U.S. judge to pay Asarco LLC about $6 billion in damages over a lawsuit related to Asarco’s bankruptcy case.

U.S. District Judge Andrew Hanen in Brownsville, Texas, yesterday ruled that Grupo Mexico must return Asarco’s 30 percent stake in Peruvian copper miner Southern Copper Corp. and pay $1.9 billion in related dividends and interest.

Hanen found Aug. 30 that Grupo Mexico’s Americas Mining Corp. unit harmed Asarco creditors by stripping the company’s stake in Southern Copper. The stake, which stood at 54 percent in 2003, has since been diluted by transactions including stock splits and buybacks, said G. Irvin Terrell, an Asarco lawyer. “It’s a complete victory,” Terrell said today. “We are extremely pleased for Asarco and its creditors.”

Grupo Mexico may appeal Hanen’s ruling, company spokesman Juan Rebolledo said today in an interview. The Mexico City-based company hasn’t yet estimated how much the judgment may be worth, he said. “I don’t think that would be the final amount,” Rodrigo Heredia, an analyst with Ixe Casa de Bolsa SA in Mexico City, said of the $6 billion figure. “It represents even more than the market value of Grupo Mexico.”

Trading was halted in Grupo Mexico’s stock at 12:25 p.m. New York time, after the shares plunged 1.64 pesos, or 15 percent, to 9.3 pesos in Mexico City, the press office of the Mexican Bolsa said. The shares dropped steadily after news reports of the ruling.

Market Value

The drop cut the company’s market value to 70.8 billion pesos ($5.15 billion). The shares gained 26 percent this year through yesterday.

Southern Copper rose 62 cents, or 3.4 percent, to $18.64 in New York Stock Exchange composite trading, valuing the company at $15.9 billion. “That’s a lot of money,” said professor Peter Alces of the College of William and Mary School of Law. Alces has written an academic text cited by judges and bankruptcy lawyers called “The Law of Fraudulent Transactions. “I’ve never heard of anything larger than that.”

Hanen ruled in August the Americas Mining unit was liable for the “actual fraudulent transfer” of the Southern Copper stake away from bankrupt Asarco. Hanen at the time rejected Asarco’s request for punitive damages that it said came to $8.18 billion.

Southern Copper Shares

The Asarco stake now translates into more than 260 million Southern Copper shares, valued at about $4.9 billion. Phoenix- based Southern Copper had 853.8 million shares outstanding as of Jan. 31. Americas Mining owns about 680 million of them, according to data compiled by Bloomberg.

Asarco’s court-appointed directors sued Tucson-based Americas Mining in 2007, claiming it wrongly pushed Asarco into bankruptcy after buying the Southern Copper shares at an artificially low price of $727.8 million. Hanen ruled the stake was actually worth as much as $853 million.

Hanen subtracted $747.4 million from the damages to offset the present value of what Americas Mining paid. The judge also ruled that it would be fairer to have Americas Mining return the stock instead of requiring the company to pay Asarco for the value of the shares.