Asarco's Bankruptcy Leaves Environmentalists Wondering about Cleanups

Tucson-based Asarco LLC's recent filing for bankruptcy protection has environmentalists ruing a 2-year-old court settlement that created what now appears to be a paltry environmental trust fund.

Tucson-based Asarco LLC's recent filing for bankruptcy protection has environmentalists ruing a 2-year-old court settlement that created what now appears to be a paltry environmental trust fund.

The $100 million fund created as part of a settlement with the U.S. Justice Department allowed Asarco's parent company, Grupo Mexico, to spin off Asarco's most profitable arm.

Last week, Asarco CEO Daniel Tellechea said environmental liabilities of $1 billion are a major factor in the company's bankruptcy filing.

"Certainly, the trust fund is nowhere near enough to cover the extent of Asarco's environmental obligations, and in the end, Grupo Mexico has successfully stripped this company of its assets and left enormous financial and environmental liabilities for state and federal governments to deal with," said Bonnie Gestring, northwest circuit rider for Earthworks, a Washington, D.C.-based mining watchdog group.

By the Justice Department's own accounts, the trust fund was never intended to cover all of Asarco's potential liabilities, Tellechea said.

"It's important to recognize that if the department hadn't allowed Asarco to sell (subsidiary) Southern Peru, Asarco would have filed Chapter 11 several years ago, without any trust fund," Tellechea said.

The deal that created the trust fund and allowed Asarco to pay off $550 million in short-term debt by selling its Southern Peru subsidiary to another subsidiary of Grupo Mexico was brokered in January 2003. The federal government had earlier blocked the sale, fearing that without Southern Peru, Asarco would be fiscally unable to meet its U.S. environmental obligations.

A 5-year-old law that requires mining companies to set up reclamation bonds -- money held by the state to cover environmental cleanup if a company defaults -- could help offset some of the bill for cleanup, were it not for the fact that Arizona's version of the law is one of the most toothless of the 50 states, said Roger Featherstone, the Tucson-based southwest circuit rider for Earthworks.

"Alaska and Arizona are basically in a dead heat as far as the least effective reclamation bonding," Featherstone said. "The Asarco example just points out the fact that the U.S. taxpayer is going to end up holding the bag on some of these cleanups because they're so under-bonded."

Asarco, for example, has about $7 million in reclamation set aside for sites in Arizona that could potentially cost anywhere from $73 million to more than $1 billion to clean up, said Arizona State Mine Inspector Doug Martin.

In addition, Arizona is one of the few states that allows corporations to avoid actually seeking surety bonds by allowing corporate guarantees, which are effectively meaningless "IOUs," and smelters are exempt from reclamation bonding.

Martin said reclamation bonds cover only environmental cleanups for mining that has occurred since the law's passage, but the state can still seek compensation for previous environmental obligations through the EPA's Superfund program.

"If we do find hazardous material for a site like that, it can be deemed a Superfund site that requires the company to be responsible for cleanup," Martin said. "There are also a lot of situations where a company can cooperate with us on cleaning a site up, and there have been some good examples of that."

But Superfund status has yet to hold Asarco's feet to the fire for the cleanup of a 100-year-old smelter near Tacoma, Wash. Removal of contaminated dirt at the site to make way for a townhouse development was stalled last week week after Asarco's bankruptcy filing.

About 1,500 union workers at Asarco operations in Arizona and Texas have been on strike since July 2.

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Source: Knight Ridder/Tribune Business News