The American Smelting & Refining Co. (Asarco) has been the subject of contention ever since 1899, when it was established to consolidate William Rockefeller’s U.S. mining interests. In 1901, Meyer Guggenheim wrested control of the company from Rockefeller, merged Asarco with his established operations, and built one of America’s greatest industrial fortunes, mining silver, lead, diamonds, and especially copper in the United States, Latin America, and Africa.
A century later, amid steadily falling copper prices and a $54 million net loss for the six months ended June 30, 1999, Asarco was sold for $817 million to Grupo Mexico S.A. de C.V. The Mexico City-based company announced that to help pay down the acquisition debt, it would begin to divest Asarco of assets. The most valuable, a mining operation in Peru, would be sold to another Grupo Mexico subsidiary, American Mining Corp.
The sale was blocked, however, by the U.S. Department of Justice, which claimed the deal was a fraudulent transfer of lucrative assets at below-market prices. The DoJ’s main concern was that Asarco — stripped of its most productive revenue-generating assets — would be unable to fund the cleanup of at least 27 polluted mining sites in 13 states. According to recent estimates, that tab will run between $500 million and $1 billion.
Someone else may need to pick up that tab, though; on August 10, Asarco filed for Chapter 11 bankruptcy protection. There’s no evidence that the company was trying to sidestep its liabilities, but environmental groups as well as state and local politicians cite Asarco as one of an increasing number of companies that exploit the bankruptcy system to avoid cleanup responsibilities. (Asarco officials have not returned CFO.com phone calls seeking comment.)
“The bankruptcy was not unforeseen,” says Stan Cummings, the executive director of the Tacoma, Washington-based environmental group Citizens for a Healthy Bay. “The only way federal agencies could have stopped the bankruptcy was to tie up the [Peruvian] assets, and they did not do that adequately.”
The deal that the DoJ made with Grupo Mexico, in January 2003, approved the asset sale for $765 million, more than $100 million higher than the price the department had originally contested; $550 million was used to pay down short-term debt. Asarco also earmarked $100 million for a trust fund whose proceeds would pay for environmental remediation of the U.S. mining sites over the next seven years.
The DoJ and Grupo Mexico also agreed that Asarco would pay an additional $2 million per year, for three years, during which time the Environmental Protection Agency would not enforce any other cleanup mandates on the company. Since then, EPA officials have located other contaminated sites; in February 2006, the agency will be free to pursue Asarco and, possibly, raise the level of funding that the company must provide for remediation. That may be moot, however, after the bankruptcy filing.
Indeed, it’s unclear whether the assets in Asarco’s remediation trust fund are part of the bankruptcy proceedings. The EPA and the trust contend that the funds, which have been under agency control for two years, reside outside the bankruptcy.