Global Copper Mining Leader Grupo Mexico, S.A.B. DE C.V. (GMBXF.PK) announced Sunday the U.S. District Court has approved the full payment reorganization plan for Asarco LLC, in order to reintegrate the U.S. copper operations of both the companies into one of the world's most competitive, low-cost copper producers. The decision, handed down by Judge Andrew Hanen late Friday, would enable Grupo Mexico subsidiary Americas Mining Corp. to regain control of Asarco. The transaction is expected to close by mid-December.
The proposed plan calls for Grupo Mexico to make a $2.2 billion cash contribution to Asarco for distribution to creditors, along with the disbursement of an estimated $1.4 billion in cash on hand from Asarco's balance sheet. Further, Grupo Mexico would guarantee Asarco's issuance of a one-year promissory note for $280 million payable to the asbestos creditors, and forgive $161 million worth of Asarco upstream tax obligations to AMC. It would also release AMC's claim to a $60 million tax refund which will instead remain with Asarco's operations.
The proposed plan has received committed finance from a syndicate of internationally recognized financial institutions to deliver up to $1.4 billion in financing to Americas Mining. This is in addition to the $800 million contribution from Grupo Mexico, in order to fund the $2.2 billion cash contribution on the closing date.
The ruling was a ratification of the decision made by the U.S. Bankruptcy court Judge Richard Schmidt in August, wherein the Grupo Mexico's offer to repay Asarco's creditors and take it out of bankruptcy was approved. This is seen as an end of a case that is now in the fifth year of bankruptcy proceedings, barring appeals. However, Grupo Mexico has been battling with Sterlite Industries for control of Asarco only since last year.
On September 1, Judge Richard Schmidt of the U.S. Bankruptcy Court for the Southern District of Texas, Corpus Christi Division, issued a formal recommendation to confirm the reorganization plan sponsored by AMC. The judge's recommendation proposes that the federal district court approve the parent companies' plan rather than the one filed by the debtor, Asarco LLC and its sponsor, Sterlite (USA), Inc. As per earlier announcement, any deal is subject to the approval of the U.S. Bankruptcy Court for the Southern District of Texas, Corpus Christi Division.
Putting an end to the year-long battle for control over bankrupt copper mining giant Asarco, the district judge in Brownsville, Texas favored Grupo Mexico's $2.4 billion bid over that of Indian miner Sterlite Industries India Ltd.'s (SLT) $2.5 billion bid, that was backed by Asarco and its main union, the United Steelworkers. Sterlite is a unit of U.K.-listed mining group Vedanta Resources Plc (VDNRF.PK, VED.L).
In July 2008, Sterlite Industries reached a deal with unions representing the workers of Asarco LLC on the terms of the collective bargaining agreement that would have come into effect once the proposed acquisition was approved by the bankruptcy court overseeing Asarco's Chapter 11 case. The bargaining agreement ensures that Asarco's operations would be improved and made more competitive. The parties have also agreed that the term of the current agreement expiring in 2010 will be extended by three years to 2013.
Tucson-based Asarco is an integrated mining, smelting and refining company in the U.S. and Peru. The assets to be acquired include three open-pit copper mines and a copper smelter in Arizona, U.S. and a copper refinery, rod and cake plant and precious metals plant in Texas, U.S. The company also has operating liabilities, but not legacy liabilities, related to asbestos and environmental claims for ceased operations.
Asarco, formerly known as American Smelting and Refining Co., is a 110-year-old company, and has about 2,500 employees. For the year 2008, the company had reported total revenues of nearly US$1.9 billion and profit before tax of US$393 million for the year 2008. Asarco sold about 237,000 tonnes of refined copper in 2008. Its mines have estimated reserves of 5 million tonnes of contained copper.
The struggle to determine control of Asarco as it emerges from its 2005 Chapter 11 bankruptcy filing has involved legal and financial maneuvers with offers and counteroffers rising and falling with global copper prices.
Asarco filed for chapter 11 bankruptcy protection on August 9, 2005, due to asbestos claims. Its main creditors include government agencies seeking environmental claims and asbestos claims from individuals. Mexican miner Grupo Mexico SAB de CV, which acquired Asarco in a leveraged buyout in 1999, lost control of the copper miner when a judge appointed an independent board, after the company was placed in bankruptcy. At one point of time, Grupo Mexico was ready to pay the creditors to win back the company, but lost interest later with the fluctuation in copper prices.
Last year, Vedanta had made a $2.6 billion cash offer for the miner through Sterlite, but withdrew it later citing the price was too high amid weaker copper prices and tighter credit markets. But, in March this year, Sterlite signed a new agreement with Asarco to buy the operating assets for $1.7 billion. The consideration comprised a cash payment of US$1.1 billion on closing and a senior secured non-interest bearing promissory note for US$600 million, payable over a period of nine years.
Meanwhile, in early June, Americas Mining announced submitting an amended and improved reorganization plan to secure control of Asarco, in connection with Asarco's Chapter 11 proceedings, that was approved in August by the U.S. Bankruptcy Court.
GMBXF closed Friday's regular trading session at $2.25, up $0.04 or 1.81% on a volume of 13,364 shares.
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