Asarco seeks to settle lawsuits ahead of Sterlite takeover

18 March 2009

Bankrupted by about $7.9 billion in asbestos-related lawsuits, US copper miner Asarco LLC, which is to be taken over by India's Sterlite Industries, said it would allow general unsecured environmental claims of about $835.7 million and give $275.3 million in cash to federal and state governments for environmental liability at about 54 sites across the United States.

The company filed a motion with a US bankruptcy court seeking approval to enter into five settlement agreements that will resolve the "vast majority" of its remaining environmental claims.

Earlier this month, Sterlite Industries (India) Ltd, a subsidiary of the London-based Vedanta Resources Plc, signed an agreement with Ascaro, a Tucson-based mining, smelting and refining company, for purchase of substantially all its operating assets. The deal is expected to become operational in four to five months.

The Anil Agarwal-promoted Sterlite Industries would acquire Ascaro, America's third largest copper producer, for $1.7 billion (Rs 8,756.6 crore). Under the deal, Sterlite will make a cash payment of $1.1 billion on closing; and a senior secured non-interest bearing promissory note for $600 million, payable over a period of nine years - $20 million per year from the end of second year for a period of seven years – as well as a a terminal payment of $460 million at the end of the ninth year, totaling $600 million. (See: Sterlite to buy US copper mining company Asarco for $1.7 billion).  

Sterlite and Asarco's parent Grupo Mexico have been fighting in court over the deal for months. Asarco, which operates three copper mines in Arizona, sought bankruptcy protection when faced with heavy environmental lawsuits.

Good for Sterlite
Analysts see Sterlite's revised bid to acquire only the operating assets Asarco as largely positive, even though the high cost structure of Asarco and low copper prices are key concerns in the short-term.

A key element in the deal is that Sterlite will only pay for Asarco's assets and not for its non-operating liabilities, mainly in the form of environmental penalty claims.