The long tussle between mining giant Grupo Mexico and Sterlite Industries (India) Ltd to buy bankrupt US copper miner Asarco could culminate in a major setback for Sterlite. A Texas federal bankruptcy judge late on Monday endorsed the reorganisation plan offered by Asarco parent Grupo Mexico over the latest Sterlite offer. Although the case now moves to the US district court, which will take a final decision on the matter, the judgement strengthens Grupo Mexico?s case in the race for Asarco. The process is expected to take about four to six weeks.

The US bankruptcy court said the Grupo Mexico bid is more likely to pay off Asarco?s creditors in full, resulting in the recommendation moving towards Grupo Mexico. Rahul Singhvi, an analyst with Sharekhan, believes the aborted bid would have legal implications for Sterlite. Grupo Mexico had earlier said that if it wins Asarco, it would sue Sterlite for backing out of the initial $2.6 billion offer that it had made in 2008. Hence, it is difficult to ascertain how much Sterlite, a subsidiary of the London-listed Vedanta Resources Plc, will have to pay to Grupo Mexico. The possibility of some arrangement between Sterlite and Grupo also cannot be ruled out, Singhvi said .

Sterlite Industries refused to comment on the development.

The transaction was seen strategic for the Vedanta group and was expected to catapult it into the copper big league, along with a foothold in the US mining industry. Anil Agarwal, chairman of Vedanta, had earlier said that the company would become the third largest copper producer in the world if the Asarco deal goes through. In 2008-09, Sterlite produced 340,000 tonnes of copper. Asarco?s key facilities have a production capacity of 200,000 tons of copper per year.

?The stocks are expected to react sharply as this news comes as a big setback for Sterlite,? said Singhvi. Shares of Sterlite Industries slipped 2.88% on Tuesday to close at Rs 655.85 on the Bombay Stock Exchange.

However, Vipul Prasad, an analyst with Morgan Stanley Research, feels Sterlite would be better off without the Asarco assets than having bought them at a price higher than $2.2 billion. ?Further, we believe that a possible case against Sterlite to hold it liable for its original bid of $2.6 billion may be weakened now as the winning bid is just $100 million short of the amount,? he said in a report.

Grupo Mexico?s plan offers $2.2 billion in cash to Asarco?s debtors and a $280-million promissory note, besides $200 million working capital to fund reorganised Asarco?s operations after bankruptcy. It would also release Grupo Mexico?s claims against Asarco.

Sterlite Industries had last month sweetened its bid by increasing its cash component by $500 million to nearly $2.1 billion that almost matched Grupo Mexico?s cash component. Sterlite was confident of winning the bid with the support it received from the US government, unsecured creditors and trade unions.

A key issue in the bankruptcy proceedings is a separate, over $6-billion civil conviction against Grupo Mexico, in which Grupo fraudulently transferred stock in Southern Copper Corp, a Peruvian mining company, away from Asarco. Grupo Mexico had been appealing that decision. But now, the stock will remain with Grupo Mexico?s subsidiary, Americas Mining Corp, and Grupo Mexico will not have to pay the $6 billion in damages to Asarco and won?t pursue the appeal.

Asarco is expected to officially emerge from bankruptcy by the end of 2009, should Judge Hanen accept the bankruptcy court`s recommendation, Grupo Mexico said.

Groupo Mexico expects to operate Asarco?s Amarillo, Hayden, Ray, Silver Bell and Mission facilities. These operations will contribute 200,000 tons per year into its copper production, resulting in a global production capacity of 870,000 tons per year and 78 million tons of copper ore reserves, ranking it as the world?s leading company in copper ore reserves and the No. 3 copper producer.

Asarco, an integrated copper mining, smelting and refining company, has about 2,600 employees on its rolls.