This article was published in the Post-Dispatch on Dec. 29, 2004.
BY PETER SHINKLE and SARA SHIPLEY
OF THE POST-DISPATCH
(c) 2004, ºüÀêÊÓƵ
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With the price of lead rising, Doe Run Resources Corp. has reported healthy profit and paid increased dividends to its owners, but says it can't afford environmental cleanups at its lead smelter in Peru.
Maryland Heights-based Doe Run, one of the world's largest producers of lead, has said that it will shut down its business in Peru if it doesn't get a five-year extension on its obligations to reduce contamination from the smelter.
Doe Run's threat has provoked turmoil in Peru, as smelter workers have blocked highways and clashed with police in protests supporting the company's demands. Meanwhile, health and environmental groups have denied that Doe Run is too impoverished to clean up the smelter and called upon it to perform the work.
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It's a familiar scenario for Doe Run and other companies owned by Renco Group Inc., the New York holding company of wealthy financier Ira Rennert. Other natural-resources businesses owned by Renco, including a major magnesium producer in Utah, have fought environmental requirements by claiming they cannot afford them.
Doe Run's most recent financial report shows that the company posted a profit of $14.7 million in the quarter ended July 31, 2004, as compared with a loss of $12 million in the year-ago period.
In October 1997, when Renco Group bought the lead smelter near the Peruvian town of La Oroya, the price of lead hovered near $600 a metric ton on the spot market operated by the London Metal Exchange. In the next years, the price fell gradually, hitting a low of $400.80 in May 2000.
Late last year, the price began rising steadily, a trend that carried through this year. It reached a high of $1,014 a ton in July, and it closed at $980 on Friday before the market shut down for the holidays.
In an interview published last week in El Commercio, a Peruvian newspaper, Doe Run President Jeffrey Zelms said competition from China had hurt the company financially. "You can't spend what you don't have, and you can't get blood out of a stone," he said.
Indeed, Doe Run's auditors have warned that the company is under financial stress. In the reports for both of the last two fiscal years -- ending Oct. 21, 2002 and 2003 -- auditing firm KPMG reported that Doe Run "has suffered recurring net losses, has a net capital deficiency, and has liquidity concerns that raise substantial doubt about its ability to continue as a going concern."
In July, Doe Run announced without explanation that it had dismissed KPMG and retained another firm, Crowe Chizek, based in Indianapolis.
Despite its troubles, Doe Run has continued to pay dividends to its shareholders, which includes Renco, and has increased the payments. In the nine-month period ended July 31, Doe Run paid shareholders $2.1 million, up from $1.9 million a year ago.
Meanwhile, Peruvian critics have pointed out that Doe Run drained cash from its Peru-based subsidiary, Doe Run Peru, by charging it for acting as a sales agent. The deal was terminated, but Doe Run Peru still owes $22.6 million, according to the quarterly financial report.
Doe Run spokeswoman Barbara Shepard declined to comment Tuesday.
The smelter in Peru releases significant amounts of lead and other toxic materials to the environment near the neighboring Andean town of La Oroya. The company's tests in 2000 found that children up to 3 years old had an average blood lead level three times above what's considered acceptable in the United States.
Doe Run wants an extension on an environmental cleanup plan it signed when it bought the smelter from the Peruvian government in 1997.
Peru's government proposed a framework earlier this month that would allow an extension of up to four years on individual environmental projects. The government proposal also called for studies to be performed on each request, and it required Doe Run and other mining companies to put 20 percent of the cost of each project into escrow. Zelms told El Commercio that the 20 percent requirement is "totally counterproductive."
Peruvian officials, who've met with Zelms on the issue, are expected soon to publish a final version of the government order.
Doe Run also pleaded poverty when it negotiated with Missouri officials about a cleanup at the company's smelter in Herculaneum, about 30 miles south of ºüÀêÊÓƵ. The company resisted making changes quickly, but later agreed to take certain cleanup actions and to buy the homes of some families living closest to the smelter.
Steve Mahfood, who resigned Tuesday as secretary of the state Department of Natural Resources, said Doe Run should be doing much more to protect the people of Herculaneum, such as expanding the buyout zone and increasing buyout offers.
"Right now the price of lead is at a point where I believe the Doe Run Co. ought to be able to meet their obligations," Mahfood said. "Now is an opportunity for them to shine, and get away from using the financial issue as a screen."