From the Editor - Indian Firm Vedanta Purchases Asarco in Bankruptcy Deal

- Demonstrating the strength of emerging economies, India’s Vedanta Resources has struck a $2.6 billion deal for Asarco. The American Smelting and Refining Co. has been a fixture in the U.S. copper industry for more than 100 years. It is the third largest copper producer in the U.S. With mounting problems from environmental litigation and labor issues, the company filed for Chapter 11 bankruptcy protection in August 2005. The U.S. bankruptcy court set up an auction for the Asarco assets and the Vedanta Resources subsidiary Sterlite Industries bid was selected as the best. Sterlite was bidding against several other companies, including Grupo Mexico, which owns Asarco.

The deal still needs the approval of U.S. Bankruptcy Court. If it’s allowed, it will be remarkable from several aspects. It will conclude Asarco’s Chapter 11 case. The deal would be one of the largest foreign acquisitions made by an Indian company. And, an Asian firm managed to out-maneuver a Latin American mining company bidding on its own properties.

Vedanta Resources listed on the London exchange in December 2003. It’s a diversified metals and mining group with annual sales of $1.9 billion. The company’s principal operations are located in India, where it has a major market share in aluminum, copper, zinc and lead. Vedanta also holds copper interests in Zambia (Konkola Copper Mines) and Australia. The aluminum division of Vedanta is divided between two companies, MALCO and BALCO. The zinc business of Vedanta is managed within Hindustan Zinc Ltd., which is India’s only integrated zinc company.

The Asarco assets that Sterlite purchased include: three open-pit mines and a copper smelter in Arizona, and a copper refinery, rod and cake plant and precious metal plant in Texas. Asarco produced 235,000 mt of refined copper in 2007 and its mines have reserves estimated at 5 million mt of copper. The asset acquisition is on a cash free and debt free basis, according to a statement from the company. It will assume operating responsibilities but not the legacy liabilities for asbestos and environmental claims for ceased operations.

Not everyone is thrilled with the deal, especially Grupo Mexico. The familyowned Mexican company plans to contest the sale, which it contends was flawed. In September 1999, Grupo Mexico outbid Phelps Dodge in a takeover deal that valued Asarco at more than $1 billion. Grupo Mexico merged Asarco’s stake in Southern Peru Copper into its Grupo Minero Mexico. Critics said that move was an attempt to shift assets and avoid having to pay for the environmental liabilities. Asarco actually sued its parent in February 2007 alleging that the parent had stripped Asarco of its assets. The civil suit, according to the Wall Street Journal, is currently being heard in a Texas court and could lead to damages as high as $10 billion.

As the economy slows in the developed world and credit becomes tight, mergers and acquisitions will become more frequent in the mining business. More of these BRIC companies will emerge to compete for mining properties. Tragically, they see more value in American mining assets than Americans do. By the way, the name Vedanta refers to the philosophy of “self-realization,” which originates from Hindu beliefs of ancient India.

Steve Fiscor, Editor-in-Chief, E&MJ

As featured in Womp 08 Vol 5 -