ASARCO INCORPORATED
Address:
180 Maiden Lane
New York
New York
10038
United States
Telephone: (212) 510-2000
Fax: (212) 510-1835
Statistics:
Public Company
Incorporated: 1899 as American Smelting and Refining Company
Employees: 9,300
Sales: $2.21 billion
Stock Index: New York
Company History:
ASARCO Incorporated is a world leader in the production of nonferrous metals, including copper, lead, zinc, silver, and gold. Among the mines operated by ASARCO or its associated companies are the Mission and Ray open-pit copper mines in Arizona; the Silver Bell Mine in Arizona; the Continental Mine in Montana; four zinc mines near Knoxville, Tennessee; the West Fork and Sweetwater lead mines in Missouri; the zinc, lead, silver, and gold mine at Leadville in Colorado; the Troy silver-copper mine in Montana; and two silver mines in Idaho, at Galena and Coeur. Processing facilities operated by ASARCO include copper smelters in Hayden, Arizona, and El Paso, Texas; a copper refinery in Amarillo, Texas; a lead smelter in East Helena, Montana; and a lead refinery in Omaha, Nebraska.
In 1990 ASARCO and its associated companies in Australia, Mexico, and Peru accounted for 12% of free-world mine production of copper, 14% of silver, 14% of lead, and 9% of zinc. Through its subsidiaries, ASARCO is heavily involved in the manufacture of specialty chemicals for electroplating, metal finishing, and electronics applications. In addition to processing the products of its own mines, ASARCO acquires ore from other companies, either to process for a fee or to process and then sell on the open market. Consumers encounter these refined metals in many forms, including zinc in the form of flashlight batteries, copper in the form of car radiators, lead in the form of automotive batteries, and silver in the form of coatings on photographic film. ASARCO has entered into hazardous-waste recycling as well.
Founded in 1899 as American Smelting and Refining Company--known informally as ASARCO--the company was a giant from the start. Henry H. Rogers was a 19th-century financial baron who had collaborated with John D. Rockefeller in constructing the huge Standard Oil Trust. ASARCO was his attempt to similarly dominate the nonferrous metals industry. In that era of corporate consolidation and combination, the smelting and refining business seemed to be a perfect candidate for monopolization. Rogers--along with William Rockefeller and the copper-rich Lewisohn brothers, Adolph and Leonard--had formed the United Metals Selling Company in the 1890s. This trust was so successful that they launched the even larger American Smelting and Refining Company in 1899. At its creation ASARCO consisted of 23 different smelting companies. Conspicuously absent from the ASARCO roster were concerns controlled by the Guggenheim family. In 1899, Rogers invited the Guggenheims to become part of ASARCO. They turned down his offer. The Guggenheims were not interested in being part of an organization that was not under their family control. Over the next couple of years, the Guggenheims took the matter into their own hands and gained control of ASARCO through aggressive business tactics.
Meyer Guggenheim, the patriarch of the family, had emmigrated from Switzerland in 1848. He amassed his fortune through an extremely diverse variety of business ventures, from manufacturing and peddling stove polish, to wholesale spice sales, to importing fine laces and embroideries. By 1879, at the age of 51, Meyer Guggenheim was nearly a millionaire. His entrance into the metals industry came in 1881, when he bought a one-third interest in the A.Y. and the Minnie lead and silver mines in Leadville, Colorado. By 1888 these two mines were making about $750,000 a year, and the Guggenheim metal empire had been born.
Meyer Guggenheim soon determined that more profits were being taken in by the middlemen of the industry--the smelters--than by the miners. He bought a controlling interest in the Holden Smelter in Denver, Colorado, where his ore was refined, started the Philadelphia Smelting and Refining Company, and began building a new smelter at Pueblo, Colorado. Next he consolidated the various businesses, including his share of Philadelphia Smelting, under the firm M. Guggenheim's Sons, which until then was just a lace importing firm. He delegated various duties among his seven sons. The Pueblo smelter at first was a financial disaster. The Guggenheims's inexperience in the industry and the mine workers' strikes against the 12-hour day brought the company to the brink of ruin. It was saved, in part, by the Sherman Silver Purchase Act, passed by Congress in 1890, as a consequence of which the U.S. Treasury Department agreed to buy four million ounces of silver every month, producing a sharp rise in silver prices.
By 1890 the Guggenheims had for some time imported lead and silver ores from Mexico for their Pueblo smelter. The McKinley Tariff Act of 1890, would have made this a more expensive activity. The Guggenheims, however, built two smelters in Mexico, thereby taking advantage of cheap Mexican labor and avoiding the tariff. By 1895, the Guggenheims were reaping over $dollar;1 million a year from their smelters at Pueblo, Monterrey, and Aguascalientes, and were one of Mexico's greatest industrial powers. This was the healthy state of the Guggenheim enterprise at the time Rogers was assembling American Smelting and Refining Company.
In 1900 ASARCO was hit with two months of worker strikes and Daniel Guggenheim increased production at his family's operations, flooding the market with cheap lead and silver and driving prices downward. He also lured mine owners throughout the West into selling their ore to the more stable Guggenheims. As ASARCO stock fell in price, Daniel Guggenheim bought it up. ASARCO officials, now worried, tried again to buy out the Guggenheims. A deal was negotiated: Guggenheim properties and working capital in exchange for $45.2 million in ASARCO stock, a controlling interest, and board positions for the Guggenheim brothers. In April 1901, the merger was completed. Daniel Guggenheim became chairman of the board and president of ASARCO; Solomon Guggenheim became treasurer; Isaac, Murry, and Simon Guggenheim, members of the board. ASARCO would be headed by a member of the Guggenheim family until 1957, when Roger Straus, son-in-law of Daniel Guggenheim, retired.
The first decade of the 20th century was a time of great growth and diversification for ASARCO under Daniel Guggenheim's leadership. By 1903 ASARCO had acquired stock control of the United States Zinc Company, contracted with the National Lead Company for the sale of its lead requirements, and purchased rights from the Federal Mining and Smelting Company to all silver-lead ores mined from its Coeur d'Alene, Idaho, properties.
In 1905 the American Smelters Securities Company (ASSC) was organized. ASSC was a public company but was controlled by the officers and directors of American Smelting and Refining Company. Since expansion further into mining would cost much more than ASARCO possessed in cash resources, ASSC offered securities guaranteed by ASARCO in order to finance new and expensive projects. The officers were essentially the same as those of ASARCO, and the floating of these securities made several purchases possible, including a Tacoma, Washington, lead and copper smelter; the Selby lead smelter and refinery at San Francisco, California; and a Baltimore, Maryland, copper refinery. The securities also paid for construction of a new copper refinery at Tacoma and a huge copper smelter at Garfield, Utah. Five mines in Mexico were purchased as well, plus the Flat River mines of the Federal Lead Company.
Expansion and acquisition continued during the years prior to World War I. The building of the Amarillo, Texas, smelter in 1915 marked the company's plunge into zinc refining. In 1916, ASARCO began operating in Chile, with the purchase of the Caldera Smelter. This era of continued growth progressed in spite of obstacles. Mine owners in Colorado, believing that smelters were charging excessive rates for processing ores, attempted to pass a bill through the state legislature making smelters public utilities under control of the state. This action failed. Farmers in California and Utah filed lawsuits against ASARCO charging crop damage from sulfur dioxide, a chemical released when zinc, lead, and copper ores are processed. This issue was neutralized somewhat by the creation of an ASARCO research division to address environmental concerns.
The outbreak of World War I created a huge need for metals, including copper, zinc, and lead. ASARCO benefited even before the United States entered the war, since Europe was largely dependent on the United States for its copper supply. Between 1914 and the U.S. entry into the war in 1917, U.S. copper production had nearly doubled, and copper prices had nearly tripled before government price limits were initiated.
Once the war ended, there was a backlash. Mines were urged to continue producing in order to avoid unemployment and recession. Demand for copper products was down, yet American Smelting and Refining Company was still under contract to buy huge amounts of copper. Mining and smelting companies found it necessary to borrow millions of dollars to cover their growing inventories, and in 1920 ASARCO found itself $12 million in debt to various banks.
In 1919 Daniel Guggenheim resigned as president of American Smelting and Refining Company, and Murry and Solomon Guggenheim gave up their board positions. Simon Guggenheim assumed the leadership of the company. This was a period of some turmoil at ASARCO. Karl Eilers, son of Anton Eilers, a member of Henry Rogers's original ASARCO combination, attacked the way ASARCO was being managed, and sought Simon Guggenheim's resignation as president. At the annual stockholders meeting of 1921, Eilers unsuccessfully attempted to have a slate of directors elected that was outside of the Guggenheim influence. Allegations were made that the Guggenheims were diverting ASARCO funds for their non-ASARCO family business interests. These suspicions were fueled in part by the existence of a secret stairway used by Daniel Guggenheim that connected his ASARCO office with his Guggenheim Brothers office a floor below in the same building. Although a committee of stockholders officially cleared the family of any wrongdoing, 1922 marked the end of the Guggenheims's overpowering control of ASARCO, although they were still well represented.
During the 1920s, the direction of ASARCO's growth was toward fabrication of products made of the metals it produced. In 1923 a rod and wire plant was built at the company's Baltimore refinery. The rod and wire business was soon combined with several other wire and cable companies to form the General Cable Company, which began operating in 1927, with ASARCO holding about an 11% interest. ASARCO would later increase its share considerably. In 1928, ASARCO entered a similar arrangement with its Baltimore copper and brass rolling mill. In that year, Revere Copper and Brass Company was formed, with ASARCO holding a 19% share, a percentage also destined to grow.
By 1929 American Smelting and Refining Company was the largest refiner of nonferrous metals in the world, but it was not unharmed by the Great Depression. After earning a net income of nearly $22 million in 1929, ASARCO's business declined, resulting in a $4.5 million deficit in 1932. In spite of the hard times, ASARCO continued to expand, purchasing the Federated Metals Corporation, a huge source of scrap metal, in 1932. The company's recovery was aided by President Franklin D. Roosevelt's silver-purchase plan and his devaluation of the dollar, which caused the prices of precious metals to rise.
During the 1930s ASARCO introduced two innovative methods of inventory accounting, the "last in, first out" system in 1935, and the "normal" system in 1939. These systems addressed the question of whether money was actually being made from smelting and selling or on mere speculation of future metal prices. Both of these systems tended to reduce the effects of profits resulting from price fluctuations by setting the value of excess metal stock lower than the price was expected ever to drop.
ASARCO's involvement with the mine at Mount Isa in Australia began in the 1930s. Mount Isa began as a lead and silver mining effort by an English group, the Mining Trust Ltd. In 1930 the trust needed money, and ASARCO invested a small sum. After numerous mining catastrophes, money shortages, and subsequent bailouts by ASARCO, by 1934 the investment amounted to more than $8 million. Mount Isa made its first profit in 1937. Shortly after that, copper was discovered there, boding well for Australia's soon-to-come war needs. During World War II the mine was used to supply copper, but it was not until 20 years later that it was known to be a phenomenal copper strike.
The effects of World War II on ASARCO were not as great as those of World War I. Because mines in Canada, South America, and South Africa had been developed, Europe's reliance on U.S. copper was not as great. The price of copper did not rise, therefore, until 1941, when the United States entered the war and needed its own supply. Then the government put ceilings on prices at the levels that existed. These ceilings lasted until 1946. The government also adopted a premium price plan, under which each mine that produced copper, lead, or zinc was paid enough to earn it a fixed profit. This way, the necessary amounts of metal were produced, and mines were not stuck with huge excesses when the war ended.
Simon Guggenheim died in 1941. After his death, American Smelting and Refining Company's by-laws changed so that the chairman of the board, rather than the president, was the chief executive officer. Francis H. Brownell, already chairman, was thus in charge until 1947, when Roger Straus, son-in-law of Daniel Guggenheim, took over.
After World War II, secondary products became increasingly important for ASARCO. Often eight or nine different metals are found in tiny amounts from a single charge of ore, and ASARCO took advantage of this diversity as much as possible. The company became a market leader in selenium, used in electronic parts; a leading supplier of cadmium, used for metal plating; and a supplier of germanium, used in transistors. Its Garfield, Utah, copper smelter began to produce more sulfuric acid than copper. ASARCO recovered bismuth and antimony from lead refining, indium from zinc smelting, and arsenic and tellurium from copper processing.
By the 1950s it became clear that ASARCO's future expansion needed to focus on mining. As large mining companies began to do their own smelting, ASARCO adjusted by seeking to become its own best customer, assuring a steady source of raw ores. ASARCO had obtained full rights to the rich copper property of Toquepala in southern Peru in 1948. By the mid-1950s the company had teamed with Phelps Dodge, Cerro de Pasco Corporation, and Newmont Mining to form the Southern Peru Copper Corporation, with ASARCO controlling a 57% share. Southern Peru borrowed $120 million from the Export-Import Bank to develop an open-pit mine at Toquepala, and the mine was still productive in 1990.
In 1952, ASARCO further diversified by entering the asbestos field at Black Lake in Quebec. The 1950s were not particularly profitable for ASARCO. Income from the Mexican properties, which were crucial to the company's survival through the Depression, was cut into by an increase in the export duty and devaluation of the peso in 1954. Lead and zinc prices declined around this time as well. Kenneth Brownell, chairman since Roger Straus's retirement a year earlier, died in 1958, and John D. MacKenzie took over as chief executive. The same year, the Kennecott Copper Corporation, a huge source of copper for ASARCO's smelters for over 50 years, ended its contract, and finally bought ASARCO's Garfield smelter in 1959. The year 1959 also brought the longest copper strike in history, which kept ASARCO's 13 U.S. smelters and refineries shut down for 113 production days.
American Smelting and Refining Company entered the 1960s still the world's leading custom smelter. As lead and zinc prices continued to decline, the company's emphasis was turned toward copper mining. With the Mount Isa and Toquepala properties beginning to pay off well and the addition of the Mission copper mine in Arizona, ASARCO was the fourth-largest copper producer by 1963, behind Kennecott, Anaconda, and Phelps Dodge. Under MacKenzie, efforts were made to cut costs, including a 20% decrease in payroll, and more importantly, the use of inexpensive strip mining techniques at the Peru mines. At the time Edward Tittman assumed the chairmanship in 1963, ASARCO was continuing to integrate downward into mining while many of its major customers integrated upward into ore processing. Secondary metals remained important, with the construction of a plant to process molybdenum, a copper by-product, at the Mission site in 1964. In 1965, with profits from the Mexican operations drying up, the Mexican mines and plants were reorganized as ASARCO Mexicana, S.A., and a majority interest was sold to Mexican investors. The San Xavier North mine adjacent to Mission began operating in 1967.
By the early 1970s copper was accounting for nearly two-thirds of ASARCO's earnings. The company remained active in other areas as well, purchasing the American Limestone Company and four zinc mines in Tennessee in 1971. ASARCO continued to expand in copper production under chairman Charles Barber, opening the Sacaton copper mine in Arizona in 1974. In 1975 American Smelting and Refining Company officially changed its name to ASARCO, and the obsolete copper-refining plants in Baltimore and Perth Amboy, New Jersey, were replaced by the new facility in Amarillo, Texas.
During the period from 1974 to 1978, ASARCO's growth was impeded by labor problems and market fluctuations. Wall Street observers voiced concern that the Peruvian government might expropriate ASARCO's properties there, expropriation having been a problem for Anaconda and Kennecott in Chile. Between 1977 and 1978 ASARCO borrowed more than $200 million from nine banks, including Chase Manhattan, where Charles Barber was a director.
Throughout the 1970s antipollution regulations caused problems for ASARCO. The copper smelter in Tacoma was a long-standing source of controversy over its arsenic emissions. Compliance with Environmental Protection Agency regulations was difficult both because of the plant's age and the fact that ASARCO was producing arsenic there as a commercial by-product. The Tacoma smelter was finally closed in 1985, after many variances from compliance, because adapting the smelter to meet emissions standards was considered too costly.
ASARCO recovered somewhat in 1979. Construction began on the Troy silver mine in Montana that year. The Eisenhower Mining Company, a partnership of ASARCO and the Anamax Mining Company, began to gain benefits from the Palo Verde copper deposit near the Mission mine.
The early 1980s were not good years for the mining industry. The price of copper was dropping although demand was up, caused in part by the flooding of the copper market by state-owned companies, particularly in Chile. In 1984 ASARCO lost $306 million. Chairman Ralph Hennebech's only recourse was to cut costs. In 1985, with ASARCO losing $20 million a quarter, Hennebach retired. Richard de J. Osborne, then chief financial officer, became CEO and chairman of the board. Osborne laid off several layers of managers, renegotiated wages and transportation contracts, and cut pension costs. Between 1981 and 1985 annual expenses were cut by more than $200 million. While other companies were selling off assets, ASARCO used its newly replenished cash flow to buy new mines and reserves, such as Kennecott's Ray copper mine, to assure business for its smelters. By the end of 1987 ASARCO was making money again.
Through the late 1980s ASARCO continued to diversify. The company's acquisition of OMI International Corporation in 1988 and the Imasa Group in 1989 helped establish it as a major force in specialty chemicals, metal finishing, and electronics. By 1989 ASARCO was on track toward its goal of becoming a fully integrated, self-sufficient producer of copper and lead. With the 1989 purchase of 49.9% of the Montana copper mining business of Montana Resources, Inc. and the expansion of capacity at the Mission and Ray mines, it was estimated that ASARCO would be able to supply the entire capacity of its own copper-smelting facilities by 1992.
Since its creation just before the turn of the century, ASARCO has survived by adapting. In an industry at the mercy of both historical and geological forces, the company has managed to adjust during every cycle, often by going against the tide of the rest of the industry. If it is able to adapt to the greater environmental and higher technological needs of the metal industry's future, ASARCO's prospects remain good.
Principal Subsidiaries: Enthone-OMI, Inc.; Imasa Group; Southern Peru Copper Corporation (52&percnt); Mexico Desarrollo Industrial Minero, S.A. de C.V. (34&percnt); M.I.M. Holdings Limited (Australia, 19&percnt); Asarco Australia Ltd. (60&percnt).
Further Reading:
Marcosson, Isaac, Metal Magic, New York, Farrar, Straus and Company, 1949.
"Asarco Bids to be a Giant in Mining," Business Week, November 24, 1956.
McDonald, John, "The Big New Kicker at Asarco," Fortune, January 1963.
Davis, John, The Guggenheims, New York, William Morrow and Company, 1978.
Asarco: The Metal Maker,New York, ASARCO Incorporated, 1981.
Source: International Directory of Company Histories, Vol. 4. St. James Press, 1991.
