Bankruptcy is not only protecting Tucson-based Asarco LLC from its creditors but helping to shield it from the influence of its corporate parent, Grupo Mexico.
Arizona's second-largest copper producer is working to restore its operations after years of operating under Grupo Mexico hampered its ability to produce metal and cash in on historic high prices, observers said.
The bankruptcy court process designed to satisfy creditors could even wipe out Grupo Mexico's interest in what remains of the century-old mining firm it purchased in 1999 for $2.2 billion.
A serious turnaround is under way at Asarco operations, including the Mission Mine west of Sahuarita, executives and workers said. Mission has added 140 workers since a four-month companywide strike ended last November. Asarco aims to increase copper production by one-third this year to 400 million pounds.
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There are even some signs that labor-management relations are improving.
The company's rebound started on Dec. 15, 2005, the day a bankruptcy court judge in Corpus Christi, Texas, put Asarco's fate in the hands of its creditors.
"Essentially, Dec. 15 was independence day for Asarco," said CEO Doug McAllister, named to his post by the same judge who appointed two independent directors to Asarco's three-member board.
Today, Grupo Mexico exercises "no influence" on the company, McAllister said. "To my knowledge, there is no communication between Grupo and Asarco," he said.
"My fiduciary responsibility is to maximize the value of Asarco's assets for the creditors," said McAllister, who practiced law in Phoenix before joining Asarco's New York office in 1996. He is the fourth CEO for Asarco since Grupo Mexico bought the company.
What it will take
The way McAllister sees it, that means getting ore out of the ground and sending metal to markets when copper prices are near all-time highs. Copper soared above $4 a pound in recent weeks and closed Friday on the spot market at $3.66 a pound. Strong global demand coupled with supply problems and the influence of speculators made prices soar this year after steady increases since 2003.
"McAllister's made a difference," said mining industry analyst George Leaming of the Western Economic Analysis Center in Marana. "He knows what he's doing."
Under Grupo Mexico, "there was not a consistent pattern of management," Leaming said. "When they first took over and copper prices were low, they neglected things and cut costs by not doing development work" to assure a consistent flow of ore from a mine while stripping away waste rock.
The problem was particularly acute at Mission, Leaming said.
Asarco today is making enough copper to pay its ongoing bills, and bankruptcy protection is making it possible for the company to buy new equipment to improve efficiency and increase production. The giant Ray Mine, 60 miles north of Tucson, has nine monster 400-ton haul trucks on order, each costing about $3 million.
"Of course the copper price has really helped us. We wouldn't be talking about saving the company otherwise," McAllister said.
The company got a new $75 million line of credit in December, but strong cash flow from operations has left the available credit untouched. The company reported gross profits of nearly $107 million from its August 2005 bankruptcy filing through March 2006.
Company, union talking
Union-management dialogue is improving weekly, said Mark Kalmi, the Mission Mine's general manager. That helps with the central task for Asarco workers.
"At these copper prices, we need to make as much as we can."
The union leader for Asarco workers also sees improved relations.
"Old Asarco wouldn't roll over and play dead, but you could work out an agreement with them," said Terry Bonds, District 12 director for the United Steelworkers and head of the union bargaining committee.
He blames Grupo Mexico for last year's strike.
"Grupo was calling the shots," Bonds said. "Asarco was just the puppet on a string."
Bonds called McAllister "a sincere guy who wants to make Asarco work" and said he expects a better climate for negotiations this year. Contracts expire at the end of December.
Henry Montaño, business representative for the International Union of Operating Engineers Local 428, agreed.
"Everybody is making a concerted effort to bring the company out of bankruptcy and make it profitable again," said Montaño, the local agent for one of four unions representing Asarco workers. The atmosphere at the company's properties has "totally changed" since last year's strike, he said, to one of "mutual cooperation."
Mission's 13-year target
At McAllister's side in implementing the turnaround plan is John Low, vice president for mining operations, a 37-year company veteran who knows the layout of the Mission Mine like his own back yard.
Mission is gearing up to process 35,000 tons of copper ore a day in a single mill, a rate of production that could last 13 years under the mine plan, Low said.
Asarco is on track to produce 400 million pounds of copper this year, up from 300 million pounds last year, at Mission, the Ray Mine near Kearny and the Silver Bell Mine west of Marana, Low adds.
"Employees have done a great job. Everybody has pitched in. We are actually a little ahead of plan," Low said.
The company employs 1,830 workers in Arizona, including its Hayden smelter, its headquarters in Tucson at 1150 N. Seventh Ave. and a Phoenix office, and another 345 at its Amarillo, Texas, refinery.
Mission now has 370 workers. With the resolution of the strike and the implementation of the mine's recovery plan, there's been "a big-time turnaround" in the attitude of people working at Mission, Kalmi said.
"I'm very optimistic we're in the middle of a good thing," he said.
Grupo Mexico outbid PD
Grupo Mexico purchased Asarco in 1999 after outbidding Phelps Dodge, Arizona's largest copper producer. Later, Grupo Mexico subsidiary Americas Mining Corp. paid $765 million to Asarco for its majority interest in Southern Peru Copper Corp. Asarco paid off $550 million in debt and dedicated another $100 million to a trust fund to cover environmental liabilities.
Tucson bankruptcy attorney Skip Wood is not a participant in the Asarco case, but he said that generally unless all debts are paid in full, with interest, stockholder equity disappears. Thus it's possible Asarco LLC could emerge from bankruptcy with no relationship with its former owner, Grupo Mexico.
Calls to Grupo Mexico at its Mexico City offices were not returned.
McAllister is optimistic that Asarco could emerge from bankruptcy early next year — as an independent company with new financial backing, up for sale to another company or split up and sold in pieces.
He said the wrenching process of bankruptcy is serving its intended purpose in this case.
"It will help us keep the company operating, keep jobs alive and keep the economy going."