Mine Shaft

While Asarco workers fight for a new contract, parent company Grupo Mexico turns millions in profits

Tucson attorney Jesus Romo is well acquainted with Grupo Mexico, the notoriously anti-union Mexican conglomerate and parent of Asarco, whose 1,500 workers are on strike. In 1999, Romo represented striking mineworkers in Cananea, Mexico, at a mine owned by a Grupo Mexico unit, Minera Mexico. In retaliation, the company shut down the community's electricity and water.

"I have very little regard for their leadership," Romo said. "It's a morally bankrupt organization with no credibility in Mexico. They've always been characterized as moving into an opportunity and reaping the profits, with no regard for workers or the local environment. They attempt to get away with whatever they can."

Around the time of the 1999 strike in Cananea, Herman Arballo, a Mexican environmentalist and organizer, described the copper giant to the Weekly as "a pulpo (octopus)." He said, "They're trying to strangle this community so they can bring in workers from the outside and pay them less."

That theme weighs heavily on the minds of Asarco workers at its Ray Mine, who voted to strike July 1, after six days of fruitless negotiations before their contract expired at midnight June 30. Asarco's Copper Group--its Mission and Silver Bell mines, its Hayden smelter and its refinery in Amarillo, Texas, which had been working without a contract for a year while labor unions unsuccessfully tried to hammer out a deal--quickly followed suit. The striking workers, represented by the United Steelworkers of America and at least five other labor unions, are angry that Asarco wants to freeze wages, slash or drop pensions and shift health care costs to employees and retirees at a time when copper prices are at a 15- to 20-year high.

"When Grupo bought the company (in 1999), they told us we're going to be making what they pay their guys down in Mexico. They're making us into a Third World company," said striker Ernest Robles, 59, a 39-year veteran of Asarco's Ray Mine. "Grupo Mexico is trying to demean us or punish us for being Americans. They have no respect for the union. They're trying to make Mexicans out of us."

Arizona still produces a little less than two-thirds of the nation's copper. The last large unionized copper company in the state, Asarco employs about a third of Arizona's copper workers. Phelps Dodge, which employs most of the rest, crushed its labor unions during the Morenci Strike of 1983.

Copper prices have soared since the most recent copper slump in 2002, more than doubling from 71 cents per pound in that year to $1.64 per pound, as of July 11. Grupo Mexico attributes this windfall to a price increase brought on by a weaker U.S. dollar, lagging copper production during the lean years and increased demand from China.

Business is so good that Grupo Mexico reported a consolidated net profit increase to $250.6 million for the first quarter of 2005, 51 percent higher than the $165.6 million posted for the same quarter in 2004.

Since the company indebted itself to acquire Asarco in a hostile takeover in 1999, "it successfully restructured billions of dollars of debt and is now a huge money-making machine," said Mexico City-based Georgina Gatsiopoulos, a reporter for the financial news agency Debtwire.

Like many mining companies, Asarco came with significant environmental cleanup obligations. Three years ago, Asarco cut a deal with the Department of Justice and the Environmental Protection Agency to put a $100 million cap on its environmental liabilities, absolving it of another $4.5 million owed to the EPA, according to an agency press release. Just this spring, a group of dormant Asarco subsidiaries filed for Chapter 11 bankruptcy protection, which may allow the company to duck a rising number of asbestos lawsuits related to those old facilities.

Grupo Mexico could not be held responsible for Asarco's debt if the company went bankrupt, Gatsiopoulos said. But when it comes to business decisions at Asarco, "the buck stops at Grupo Mexico."

Last year, the company, controlled by the billionaire Larrea family, brazenly engineered a $3 billion marriage between mining giants on two continents, creating "the world's second-largest copper company (behind Corporacion National del Cobre of Chile) and Latin America's largest asset-backed mining group--with a New York Stock Exchange listing to boot," according to the Wall Street Journal. "In what amounts to marrying within the family, Grupo Mexico relied on its 54 percent ownership of Southern Peru (Copper Corporation) to push the acquisition of its own Mexican copper unit, engaging in a stock-for-stock transaction that not only appears to give the Mexican copper mines an optimistic valuation, but also increases the Larrea family control of Southern Peru."

As worldwide copper supplies increase, Wall Street analysts predict a fall in copper prices to a low of $1.15 or $1.20 by 2007, still well above the company's target of an 85-cent break-even point.

Meanwhile, Asarco's Ray Mine workers are hardly raking it in. Robles, who earns $20 an hour as an equipment inspector, lives in house built in 1967 in nearby Kearny, a dusty blip along the Copper Corridor between Hayden and Superior. "I make it all right, but a lot of guys have families. Most people don't have new cars anymore. Insurance on a new car is sky high to begin with. And the price of fuel ... ."

Asarco's cash operating costs are more than triple those of Mexico Minera's mines, where mineworkers earn about $10 a day, and the government takes care of social security, pensions and health care. U.S. wages and benefits are hefty in comparison, making the Ray Mine a "high-cost" mine, said Daniel Tellechea, formerly Grupo Mexico's CFO, who left Mexico a year-and-a-half ago to head up Asarco's operations in Tucson.

"We need to reduce operating costs in order to survive in the long term," he said, pointing to Asarco's reduced profits in the first quarter of 2005, which shrank to $2 million from $16.4 million the same quarter the year before.

"You can't count the first quarter," countered Troy Ramirez, a heavy equipment operator at the Hayden Smelter. "We were down for two months."

Tellechea acknowledged that Asarco shut down the smelter in January and February to rebuild the furnace, which, Ramirez said, "was ready to fall down."

Over the past several years, Asarco has also been conducting stripping operations at its Ray and Mission mines to move waste rock and uncover the ore--needed maintenance that yields little or no profit in the short-term.

"When copper prices are low, all mining companies minimize activities (like stripping) that don't generate revenue," Cary Burnell, a Washington, D.C., research analyst for the USW, told the Weekly. "When prices and cash flow go up, they have to pay the piper."

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