UPDATE: Month-Long Asarco Trial Comes To Close

BROWNSVILLE, Texas (AP) – An Arizona mining company was broke and forced to cannibalize property and equipment after its Mexican parent company stripped away its most valuable asset, lawyers alleged in closing arguments of a monthlong trial Thursday.

Asarco LLC is asking a federal judge to order Americas Mining Corp. to return that asset – a controlling stake in two Peruvian copper mines – and the dividends it has provided. The combined value is estimated to exceed $10 billion.

A long list of environmental and asbestos-related claims could hinge on the outcome. Closing arguments are scheduled to last through the day.

Asarco alleges that shortly after Grupo Mexico bought the company in 1999, it began preparing to isolate the Southern Peru Copper shares from Asarco’s extensive liabilities. That transfer drove Asarco into bankruptcy, its attorneys argue.

Grupo Mexico’s top executive and attorneys for Americas Mining say that selling the shares to their subsidiary was a way to get Asarco desperately needed cash.

But Asarco contends it was actually insolvent.

“It’s not just a cash shortage,” Asarco lead attorney G. Irvin Terrell said. “It is chronic, it is deep, it is severe.”

The mining company could not pay vendors to bring fuel for mining operations and began to “cannibalize” its assets. It had $30 million in stopped checks, a ballooning deficit in working cash and liabilities dwarfed its assets, Terrell said.

But to start his closing argument, defense attorney Brian Antweil denied the judge had heard any evidence linking what he termed a corporate “restructuring” with Asarco’s bankruptcy two years later.

Instead, Asarco has tried to demonize German Larrea, chief executive and chairman of Grupo Mexico, portraying him as a powerful and scheming Mexican boss, Antweil said.

“It is not a case about an evil empire,” Antweil said. “This is not a case about a Godfather sequel.”

Under Larrea’s command, “They (Asarco) plowed through a copper trough and were poised for a comeback” when a labor strike ultimately pushed them into bankruptcy, Antweil said.

The insolvency question is critical because Asarco argues that insolvency puts greater onus on the parent company to act in a manner that most benefits the insolvent company and its creditors.

The case has been of a scale only reached when billions of dollars are at stake, crowded with lawyers and crates full of documents. It’s fortunate it is not a jury trial because there would be no place for the jurors.

So far, much of the case has been buried deep in financial minutiae and questions of solvency and fiduciary responsibility.

The testimony of German Larrea, one of Mexico’s richest men and chief executive and chairman of Grupo Mexico, parent company of Asarco and Americas Mining Corp., was to be the trial’s highlight.

But even Larrea’s five hours of subpoenaed grilling Tuesday were in large part a mind-numbing string of “I don’t knows” and “I don’t recalls,” mingled with the repeated assertion that he never wanted Asarco to go into bankruptcy and the denial that his only desire was those copper mines high in the Andes.

The case could hinge in large part on cash questions, including whether Americas Mining paid a fellow subsidiary a fair price and whether Asarco was already broke.

Americas Mining had brought its own expert to testify the company was solvent and notes that the Department of Justice signed off on the price it paid for the shares. Asarco counters that the Justice Department did not have all the available information.

Tuesday, Larrea repeatedly denied that Asarco was insolvent. Rather, he said, Asarco suffered from a cash crunch similar to any mining company when the price of their copper is low.

It was more than two years after the 2003 sale of the shares of Southern Peru Copper – renamed Southern Copper Corp. in 2005 – that Asarco filed for bankruptcy.

Hanen raised that question Thursday about how Asarco could be insolvent but not enter bankruptcy for more than two years.

But Terrell countered that the company survived because Grupo Mexico worried that it could be exposed to legal problems if Asarco went bankrupt too soon after the Southern Peru Copper transfer.

“There is no question this company was lying flat on its back,” Terrell said.

(Copyright 2008 by The Associated Press. All Rights Reserved.)