Grupo Mexico offers Asarco creditors US$1.46 billion

Finance

Grupo Mexico SAB agreed to pay US$1.46 billion in cash plus a US$280 million note to regain control of its bankrupt copper miner Asarco LLC, the company said in court papers.

Working through one of its US units, Grupo Mexico called its proposal superior to two other offers that promise less cash up front yet might provide more money later to the biggest group of Asarco creditors, owed as much as US$2.4 billion.

"Not only does our plan provide the assurance of paying creditors US$0.97 on the dollar in cash at closing, we are prepared to close without a labor accord and are offering a higher payout on the asbestos claims," Grupo Mexico said today in a statement.

Details for all three plans were filed yesterday in US
Bankruptcy Court in Corpus Christi, Texas. To achieve a higher payout than Grupo Mexico’s offer, the other two plans require Asarco’s court-appointed managers to win an appeals court case worth US$7.48 billion against Grupo Mexico’s U.S. holding company, Americas Mining Corp, according to court documents.

Asarco’s creditors have until August 5 to vote on three competing payment plans: Grupo Mexico's offer; a proposal to sell the company to mining company Sterlite Industries (India) Ltd for US$1.1 billion in cash, plus a note worth US$309 million; and US$500 million in cash offered by an affiliate of creditor Harbinger Capital Partners.

Creditors will receive a so-called disclosure statement with details on all three plans. The document, approved by US
Bankruptcy Judge Richard Schmidt in Corpus Christi last week, is designed to help creditors decide how to vote. Schmidt will take those votes into consideration when he makes the final decision about which plan to adopt after a week of court hearings scheduled to begin in August.

In the disclosure statement, Grupo Mexico and Asarco's managers traded allegations that the competing plans were flawed from a legal perspective and would not be approved. Harbinger also attacked Grupo Mexico's plan, though it had only one minor criticism about the Asarco plan.

Grupo Mexico put Asarco into bankruptcy in 2005 and then lost control of the company’s bankruptcy when Schmidt agreed to replace the board of directors.

Analyst Rodrigo Heredia said today in an interview that Grupo Mexico has been motivated to retake control of Asarco in order to dismiss the US$7.8 billion court case.

US District Judge Andrew Hanen in Brownsville, Texas, ruled April 1 that Grupo Mexico must return Asarco's 30% stake in Peruvian copper miner Southern Copper Corp and pay
US$1.9 billion in related dividends and interest. That judgment may be worth about US$7.8 billion, should it ultimately be upheld by an appeals court, according to Asarco.

If Grupo Mexico succeeds in taking over Asarco, it would be free to drop the case.

"We believe that the offer from Grupo Mexico in the most attractive," Heredia, an analyst with Ixe Casade Bolsa SA in Mexico City said today in a phone interview. "One of the drivers to increase their offer was Grupo Mexico’s desire to deactivate the case regarding the stake in Southern Copper."