Tangled Webs of Copper Meet in Bankruptcy Court

Bankruptcy courts stage some of the most complicated and exotic dramas imaginable. Have you heard the one about the Mexican mining company that is being sued by its own subsidiary while simultaneously trying to buy it back? It’s a tale that could only be told in bankruptcy court.

The story begins in 1999 when Grupo Mexico bought an American mining company, Asarco. There is apparently some irony in this because, the Wall Street Journal advises, Grupo Mexico’s core holdings in Sonora, Mexico, were once Asarco’s. At any rate, one of Asarco’s gems was a controlling stake in Southern Peru Copper. In 2004, Grupo Mexico moved the Peruvian interests to another subsidiary.

Unfortunately, within a year, Asarco ended up in bankruptcy. American bankruptcy courts have a funny way of second-guessing company owners sometimes. In 2005, the bankruptcy court appointed an independent board to manage Asarco for the benefit of creditors.

In 2007, the court-appointed managers sued Grupo Mexico alleging that the transfer of the Peruvian assets was a “fraudulent transfer.” They argued that Grupo Mexico had failed to consider alternative options to get the best price for the stock and underpaid Asarco for it, among other things. In other words, they allege that Grupo had removed a crown jewel and left only coal to help repay Asarco debts — including about $1 billion in federal and state environmental clean-up costs.

In the meantime, Asarco has held an auction to sell itself to the highest bidder. The auction closed this week. Who bid for the company is not yet fully known but one likely bidder would be, yep, Grupo Mexico. Why would Grupo Mexico want to put even more money into something that seems to have been nothing but trouble?

Well, one possibility is obvious. If Grupo Mexico can take back real control of Asarco, it will also be a beneficiary of any recoveries of fraudulent transfers made. Which transfers? Perhaps some Peruvian mining interests transferred to none other than Grupo Mexico’s other subsidiary?

By the way, the value of the Peruvian stock — after years of increasing commodity prices? Perhaps as high as $10 billion, according to the Wall Street Journal. No doubt the taxpayers and property owners who have had to deal with environmental fallout from Asarco’s mining operations look forward to some of this trickling down their way too. But it may take a little more time to see if this story has a happy ending.