Asarco looks to implement $50 million hedging program to protect against potential copper-price decline

By Caroline Salls

Pittsburgh, March 24 - Asarco LLC requested court approval to implement an up to $50 million strategic hedging program designed to protect the company's liquidity position should market prices decline, according to a Friday filing with the U.S. Bankruptcy Court for the Southern District of Texas.

According to the motion, Asarco's revenue and free cash flows are affected dramatically by market movements in the price of copper and without adequate protection against declines in the market price, the company's liquidity depends entirely on the continued strength of the copper market.

Asarco said the proposed strategic hedging program will help it maintain sufficient liquidity through the end of 2007 and will create a more stable cash flow environment in which to reorganize.

The company said the current copper market is exceptionally strong, as copper prices are at all-time highs. However, the current copper prices were not the result of a gradual increase or sustained plateau, but rather the prices have increased almost exponentially over the last 24 months.

While these high copper prices are good for Asarco today, the company said history has shown that it cannot rely on high markets to continue forever.

Asarco said the current market presents an opportunity to guarantee copper selling prices for a portion of its production, above production cost, and by hedging a portion of production through the end of 2007, the company will be in a position to reorganize in a significantly more stable revenue environment.

If copper prices were to drop to $1.20 or below by or before the end of 2007, Asarco said its liquidity would be severely impaired and its ability to maintain operations would be at risk.

Under the hedging program, the capital used for the program will never reduce the company's available liquidity below $60 million.

Asarco's board of directors and senior management will oversee implementation of the hedging program with advice from a hedging committee.

Asarco, a Tucson, Ariz., mining company, filed for bankruptcy on Aug. 9, 2005. Its Chapter 11 case number is 05-21207.

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