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Sterlite Industries signs fresh pact to acquire Asarco

A view of the Sterlite plant in Tuticorin, Tamil Nadu.

CHENNAI: Sterlite Industries (India), a subsidiary of the London-based metal and mining group Vedanta Resources, has initialled a fresh pact with ASARCO LLC (‘Asarco’), a Tucson-based mining, smelting and refining company, for acquiring substantially all the operating assets of Asarco.

The fresh deal has a two-part purchase consideration.

For one, it provides for a cash payment of $1.1 billion on closing. For another, it comprises a senior secured non-interest bearing promissory note (the ‘Note’) for $600 million, payable over nine years.

The agreement, however, is subject to the approval of the U.S. Bankruptcy Court for the Southern District of Texas, Corpus Christi Division.

The component relating to promissory note provides for a payment of $20 million a year from the end of the second year for seven years. Also, it provides for a terminal payment of $460 million at the end of the ninth year, totalling $600 million.

Should the annual average of daily copper price in a particular year increase beyond $6,000 a tonne, the annual payment in that year will be proportionately increased. This is, however, subject, to a maximum of $66.67 million. The terminal payment in the ninth year, as a consequence, will be correspondingly reduced, keeping the total payment at $600 million.

According to a Sterlite release, the principal amount of the Note will be adjusted for any variations in working capital on closing. The obligations under the Note are secured against the assets being acquired and are without any recourse to Sterlite, the release adds. “We are happy that we have reached an agreement with Asarco on these new terms,” the release quoted Anil Agarwal, Chairman of Sterlite, as saying.

The integrated assets to be acquired include three open-pit copper mines and associated mills and SX-EW in Arizona, U.S., a copper smelter in Arizona and a copper refinery, rod and cake plants and a precious metals plant in Texas, U.S.

The asset acquisition is on a cash and debt-free basis. Sterlite will assume operating liabilities but not legacy liabilities for asbestos and environmental claims for ceased operations.

Asarco (formerly known as American Smelting and Refining Company) is a 110-year-old firm. It is currently the third largest copper producer in the U.S. It sold about 2.37 lakh tonnes of refined copper in 2008. Asarco’s mines now have estimated reserves of five million tonnes of contained copper. The company, it may be recalled, had filed for bankruptcy protection in 2005 after it was sued for $1 billion over environmental clean-up and asbestos claims. The ongoing lawsuit at Brownsville in Texas, it is feared, could cost Asacro very heavily.

In May last year, the Indian arm of the London-listed mining major had inked a definitive pact to buy-out Asarco. Developments since then have sort of created uncertainty over the buy-out move. The latest announcement of a fresh deal is expected to end the stalemate over Asarco acquisition.

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