Sterlite Purchase of Asarco Copper Looks Like a Green Light

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Non-ferrous Metals

It would seem the desire to be a global player, whether for reasons of ego or strategic prescience is as widespread as ever.
Sterlite Industries, India’s largest copper producer and part of the UK listed Vedanta Resources, has agreed to pay a total of $1.7bn in cash and promissory notes for Asarco, the Arizona based copper and precious metals miner. Asarco went into Chapter 11 in 2005 after being sued for asbestos, environmental and pollution claims. Asarco faces $7.9bn in such claims from creditors, government agencies and individuals who have sued the company. Although Sterlite is only taking on the operating liabilities of the company, not the legacy liabilities, according to the Financial Times, Merrill Lynch estimates the value of the deal at $400mn, anything over that destroys value in their opinion.

Sterlite is apparently satisfied with the deal on the basis it is $1bn less than they had been prepared to pay in November of last year, but whether that was a good deal depends very much on your view for copper prices over the next 5-10 years. Operating within Chapter 11, Asarco was apparently trading profitably in 2008 but copper prices have nose-dived and 2009 may be a different story. Acquiring Asarco’s assets will put Sterlite in the world’s top ten copper miners and you have to wonder if the price paid is more a reflection of a desire to join that club than for sound strategic purposes. Still the one benefit for US consumers -  it will ensure the re-start of a major domestic copper producer capable of meeting about 25% of US production.

–Stuart Burns

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