Top cement maker faces $558 million lawsuit

Published by MAC on 2009-07-07
Source: Reuters, El Paso Times

Texas sues Mexico's Cemex for $558 million

By Robin Emmott, Reuters

23 June 2009

MONTERREY, Mexico - The U.S. state of Texas said on Tuesday it filed a lawsuit against Mexico's Cemex SA for $558 million in royalties owed in the United States, the latest headache for the debt-laden cement maker.

Texas Land Commissioner Jerry Patterson said Cemex, the top cement maker in the United States, was mining a quarry near El Paso, Texas, without paying royalties to the owner, the state's Permanent School Fund. "Since the 1940s, Cemex and its predecessors have mined and extracted the minerals in McKelligon Canyon mine," Patterson said in a statement. "Texas never authorized Cemex to take its minerals."

Patterson, who presented the suit in the district court of El Paso on Monday, said the state is also seeking an injunction to stop Cemex working at the site in the Franklin Mountains.

Texas says Cemex, which operates in more than 50 countries, owes royalties on 100 million tons of "valuable rocks and building materials" amounting to at least $558 million.

Monterrey-based Cemex denied the accusations and said it was not required to pay royalties on aggregates, limestone and other rocks used to make cement. "We are led to believe that this lawsuit is purely a tactic, as the suit itself is completely lacking in merit as the materials extracted by Cemex and its predecessor companies do not meet the legal definition for a royalty obligation," the company said in a statement.

Patterson, who is running for political office in Texas next year, said he was defending "school kids' assets."

The suit is the latest worry for Cemex, which took on large debts just before the U.S. housing crisis and ensuing global financial debacle and is refinancing $14.5 billion in debt.

Cemex, which bought Australia's Rinker in 2007 using big short-term loans, needs to repay $4.1 billion in debt by the end of the year and has more loans maturing in 2010 and 2011.

The company, which competes with France's Lafarge SA and Switzerland's Holcim Ltd, is also struggling with slumping sales in its key U.S. and European markets, cutting its cash flow.

Cemex, once a darling of emerging markets for its acquisitive growth, is under investigation for possible collusion between big building materials companies in Mexico and Europe. The company denies any wrongdoing.

Cemex lost its lucrative Venezuelan operations last year when socialist President Hugo Chavez ordered the nationalization of its assets. It is fighting to win compensation at an international tribunal.

(Additional reporting by Gabriela Lopez, editing by Gerald E. McCormick)

---

Cemex accused of failing to pay $550M in fees

By Brandi Grissom, Austin Bureau - El Paso Times

23 June 2009

AUSTIN -- Texas Land Commissioner Jerry Patterson sued Cemex in El Paso on Monday, alleging the company failed to pay more than $550 million in royalty fees on millions of tons of rock extracted from McKelligon Canyon. "We believe that Cemex and its predecessors have unlawfully extracted the mineral wealth in this area," Patterson said.

Cemex, a Mexico-based cement and concrete company with a mining operation in El Paso, and its predecessors have illegally mined rock in McKelligon Canyon since the 1940s, according to the lawsuit filed in state District Court in El Paso.

A Cemex spokeswoman said the company was shocked by the lawsuit.

"We are led to believe that this lawsuit is purely a tactic, as the suit itself is completely lacking in merit as the materials extracted by Cemex and its predecessor companies do not meet the legal definition for a royalty obligation," Jennifer Borgen said in an e-mailed statement.

While Cemex and its predecessors own the land the quarry is in, the state owns the rights to minerals in the land.

Texas owns the mineral rights to more than 50 million acres statewide. Property owners are generally required to lease the mineral rights if they want to extract oil, gas, rock or other materials from the ground. Then, they pay the state royalties, or a percentage of the market value of what is removed from the land.

Those dollars go into the Permanent School Fund to support public education in Texas.

Patterson said he had been trying to negotiate a deal with Cemex over the El Paso quarry operation since 2006. The company, he said, did not agree that it was taking minerals the state owned.

"Attorneys for Cemex have not been responsive, so we figured we might as well go to court," Patterson said.

State attorneys estimated that since the 1940s Cemex and its predecessors took about 100 million tons of rock and mineral out of the McKelligon Canyon. Patterson said they estimated the value of that material to be about $558 million.

The lawsuit asks the court for an injunction to stop the company's mining and for repayment of the value of the rocks and minerals.

"This is a starting point, but frankly, we've not made any progress in almost three years," Patterson said.

Cemex spokeswoman Borgen said Patterson was the unresponsive one in the dispute. The company, she said, had been waiting more than a year to hear from the land commissioner.

"A simple call would have continued the discussions," she said.

She said Cemex was surprised Patterson spoke to the news media before discussing the lawsuit with company officials.

"Cemex calls upon Commissioner Jerry Patterson to withdraw the lawsuit and to return to the negotiating table to resolve this issue," she said.

Cemex acquired the quarry and plant in March 2005 when it bought RMC Group, which bought the operations from Stanley Jobe in 1999. Jobe continued to manage the El Paso operation until Cemex bought it.