June 2 (Bloomberg) -- Sterlite Industries (India) Ltd., the nation's biggest copper and zinc producer, rose to its highest in almost five months after agreeing to buy assets of bankrupt U.S. miner Asarco LLC for $2.6 billion.

Sterlite gained as much as 18.3 rupees, or 2 percent, to 954.8 rupees in Mumbai trading, its highest level since Jan. 15, after the company said May 31 it will buy assets including three copper mines, a smelter and a refiner in Arizona and Texas.

``We believe Asarco has high quality assets,'' Rakesh Arora and Amresh Kumar, analysts at Macquarie Group in Mumbai, said in a note today. The deal may add 16 rupees a share, or 20 percent, to Sterlite's 2010 earnings, the brokerage said, forecasting a one-year price target of 1,511 rupees for the shares.

Sterlite can use funds from Asarco's assets to pay for up to half the cost of the takeover, the biggest by any Indian company in the U.S., Vice Chairman Navin Agarwal told analysts today. The Mumbai-based company had 120 billion rupees ($2.8 billion) in net cash on March 31, according to its earnings statement.

``We expect the outflow from Sterlite's balance sheet to be minimal and in the worst case, to be about $500 million, which can be met from internal accruals,'' Macquarie said. The cost is 35 percent below the net present value of the assets, it said.

Sterlite shares closed 1.9 percent lower at 918.6 rupees as the benchmark Sensitive stock index had its biggest drop in two months. The stock has doubled in each of the past five years.

Copper Concentrate

The production life of the mines, which hold about 5 million tons of ore, can be doubled to about 40 years by more exploration, Agarwal said. Sterlite will process the copper concentrates from the mines into finished products in the U.S., instead of shipping the raw material to its smelters in India, he said.

``There's no need to sell the copper concentrate or ship it to India because it will be consumed internally,'' Agarwal said.

Asarco, the third-largest copper maker in the U.S., produced 235,000 tons of the metal in 2007.

``We aim to make it the biggest producer in the U.S.,'' he said, without specifying a time frame.

The transaction may be challenged by Grupo Mexico SA, which controlled Asarco before it filed for bankruptcy protection in 2005 because of liabilities linked to environmental damage, the Wall Street Journal reported, citing people it didn't identify.

``We are ring-fenced from Asarco's past liabilities,'' said Agarwal. ``It is totally free of liabilities. We were one of four companies bidding for the assets and the bankruptcy court decided to sell it to us. It was a very transparent process.''

The transaction may take up to seven months to be approved by the U.S. bankruptcy courts and will be concluded by the year- end, Agarwal said.

To contact the reporters on this story: Debarati Roy in Mumbai at droy5@bloomberg.net.

Last Updated: June 2, 2008 07:42 EDT