Judge: Grupo Mexico committed fraud in Asarco case

But lawyers for Mexico City-based Grupo Mexico and its U.S. subsidiary Americas Mining Corp. are already drawing up appeals to the ruling by U.S. District Court Judge Andrew S. Hanen in Brownsville, Texas.

In his 190-page ruling issued Saturday, the judge found Grupo and AMC committed fraud when they transferred Asarco’s majority interest in Peruvian mining operations and left Asarco to wither.

Although Hanen said the sale of Southern Peru Copper Corp (SPCC) was “a legitimate means by which to restructure Asarco” he noted that Asarco’s claim “is not based solely on the fact the transfer took place, but that there were elements of the transaction that were unfair . . . leaving Asarco with less liquidity than it had before the transfer.

“Even though there was a legitimate business purpose for the transfer, when the court considers all of the circumstances surrounding the transaction as a whole, the court finds that the presumption of fraud has not been adequately rebutted,” the judge ruled.

“We are delighted with Judge Hanen’s decision,” Houston attorney Irv Terrell, the lead trial attorney for Asarco, said Tuesday.

Attorneys have until Sept. 15 to submit legal briefs to the court regarding damages. Asarco originally requested $11.3 billion in damages, but with the drop in the stock market (and value of the Peruvian operation) since the lawsuit was filed in February 2007, that amount is closer to $8 billion, Terrell said.

Hanen ruled the transaction was not done with malice on the part of the parent company, thereby denying Asarco punitive damages.

In a statement released early Tuesday, AMC said it was pleased with that as well as the part of Hanen’s ruling that found Asarco was paid “reasonable equivalent value” for the operations in Peru.

“AMC . . . is surprised by and intends to appeal that part of the decision adverse to AMC’s interests,” the statement said.

Both AMC and Grupo declined to make additional comments through a New York City-based spokesman. AMC’s lead trial attorney, Houston-based Brian Antweil, could not be reached for comment.

Asarco was purchased by Grupo Mexico in 1999. Facing a cash shortage and low copper prices, Asarco fought but lost when Grupo moved to sell its 54 percent interest in the lucrative Peruvian mines and related facilities, the company argued at trial.

Asarco went on to halt some operations and lay workers off. The copper giant was faced with a strike at its three Arizona mines, smelter and Amarillo, Texas, refinery in July 2005. The following month, Asarco filed for Chapter 11 bankruptcy protection.

In his 190-page ruling issued Saturday, Hanen disagreed with Grupo’s defense that the SPCC transfer did not cause Asarco’s bankruptcy because the company filed for bankruptcy more than two years later.

“Asarco survived for over two years primarily because it took drastic measures to do so,” such as mining only high-grade ore, cashing out insurance policies and ceasing some operations, the judge wrote.

Among Hanen’s other findings:

∫ The companies involved were affiliated and not independent as all decisions Asarco made had to be approved by Germán Larrea, chairman and CEO of AMC and Grupo.

∫ Grupo’s concern that unpaid, unsecured creditors might force Asarco into involuntary bankruptcy to challenge the transfer supported Asarco’s claim of fraud.

∫ The Peruvian operations were Asarco’s “crown jewel” and the transfer was done “so that AMC/Grupo could have this asset unencumbered by the claims of others.”

∫ Asarco may have benefitted from a third-party bid for SPCC and Grupo’s claim of tax consequences of a third-party sale were not legitimate.

∫ AMC knew that payments to some creditors would be “hindered and delayed as a result of the transaction, but it closed the transaction anyway.”