Tuesday September 1, 09:10 AM

Judge recommends Grupo Mexico bid in Asarco case

By Phil Wahba and Chelsea Emery

NEW YORK (Reuters) - A federal judge recommended that Mexican miner Grupo Mexico be allowed to take control of U.S. copper miner Asarco LLC as it emerges from bankruptcy.

Judge Richard Schmidt of the U.S Bankruptcy Court in Corpus Christi, Texas, said Grupo Mexico's was the better of two plans, the other submitted by India's Sterlite Industries, as it was more likely to pay Asarco's creditors in full.

"Ultimately, the parent plan pays $2.4799 billion for the assets of the debtor, while the debtor's plan pays only $2.1675 billion," Schmidt wrote in his 27-page recommendation, which also noted that both plans "raised feasibility questions".

Judge Schmidt made the recommendation, which is not binding but widely expected to followed by Judge Andrew Hanen of U.S. District Court in Brownsville, Texas, who will make the final decision of which of the two bidders can take control of Asarco.

Grupo Mexico, the largest copper miner in Mexico, acquired Asarco in a leveraged buyout in 1999 but lacks board control because of the bankruptcy.

Asarco sought bankruptcy protection in 2005 amid a strike and more than $1 billion in environmental damage and asbestos claims. Bankruptcy cases involving large asbestos liabilities are usually referred to the higher District Court.

At the center of the case are Asarco's copper mines in Arizona and $7.5 billion in damages related to a piece of Peruvian miner Southern Copper Corp that had been owned by Asarco.

Judge Hanen found in April that Grupo Mexico had made a "fraudulent transfer" of Asarco's "crown jewel" stake in Southern Copper in 2003 and ordered Grupo Mexico to return the stake along with a cash payment. Grupo Mexico is appealing.

If Grupo Mexico wins the bid, that liability is effectively extinguished. If the final judgement favours Sterlite, whose bid had the backing of most creditors, Asarco itself, and Asarco union workers, would get the settlement.

Grupo Mexico's most recent offer included paying creditors $2.2 billion in cash to cover in full any liabilities and a $280 million note to asbestos claimants. Sterlite, a unit of Vedanta Resources PLC, also offered to pay Asarco creditors in full in a bid it had estimated to be worth $2.1 billion.

Still, the judge raised concerns about Grupo Mexico's bid, citing its inability to reach a collective bargaining agreement that could lead to a "crippling strike."

"Our Board will consider the court's recommendations and findings and then, in consultation with our advisors, major creditor constituencies, and Sterlite, will determine the next steps," said Asarco's President and Chief Executive Joseph Lapinsky in a statement.

Asarco said its production capacity is up to about 200,000 tons per year of copper year from its U.S. mines, including three in Arizona.

Grupo Mexico declined to comment pending closer review of the judge's recommendation.

The Asarco case has attracted much attention in the legal world as much for its length as for its international implications.

"This case is at the epicenter of cross-border insolvencies," said Richard Mikels, a partner at the law firm Mintz Levin, who is not involved in the case.

"You'll see more and more insolvency proceedings that have very important international economic implications."

The case is In re: Asarco LLC, U.S. Bankruptcy Court, Southern District of Texas, No. 05-21207.

(Additional reporting by Noel Randewich in Mexico City)