Back in the good booksOz Minerals chief executive Andrew...

Back in the good books

Oz Minerals chief executive Andrew Michelmore and group manager of external affairs Matthew Foran talk to Business Spectator's Isabelle Oderberg after the company confirmed it has a won a race to extend its debt deadlines to the end of February. They explain:

Michelmore will be relieved when the banks that want to cash out and walk away are able to do so
Parties interested in buying assets have done due diligence and site visits and are starting to come back with indications
While the miner is open to a full sale of Prominent Hill, that is not its preference, because of the negative impact it will have on the future growth profile of the company


Isabelle Oderberg: Andrew, are you relieved?

Andrew Michelmore: Hard to say on that. Relieved? It’s been a grinding process and for me this is just one more stage to it, so you would say that common sense should prevail and common sense has prevailed. In the discussions with all the parties, we’re now in the position where everyone agrees we’ve got very good assets. Some parties want some cash out. We’re all working to a positive position at the end of it, so those who want out can get their cash out, those who want to stay in can stay in and we can take the company forward.

IO: Were the lenders pretty much unanimous? I mean were they always moving towards the same conclusion?

AM: That’s a difficult question to answer.

Matthew Foran: It’s a bit like saying you’re all cats being herded in the same direction.

AM: But you’ve got four different facilities and they’ve got different assets associated with those facilities. You have different banks involved with each of those facilities and we’re the only bit of glue between them.

So, it has been an incredibly time consuming process and the work up towards Christmas was getting everyone into the same position about seeing what the future looks like and how we get there and the sensible way to do it.

MF: I think there’s been a whole lot of sort of speculation in the media around how many banks are with you, how many banks are against you and I think if nothing else the announcement today demonstrates, we’ve been given a sensible period of time to get the refinancing done. We’ve been given a good window of opportunity to carry out the asset sales as well, I think. To my mind it demonstrates that there is a good alliance between all the parties here in terms of, you know, we’re all working towards the same goal.

IO: How do you expect the relationship with the banks to be going forward?

AM: Oh look, I expected it to be very good and coming back to your question about being relieved, I’ll be relieved when those banks who do want to be out, we’ve paid them out and they’re out of the system. The banks that want to stay in are very good banks and very supportive that we have a really good platform with them and we get on growing this business.

IO: Can you say who the banks are that want to be out?

AM: No.

IO: No worries. So you’ve now got two months. Can you tell me what you plan to get done in those two months and what the priorities are in order, just very, very briefly?

AM: Yeah. Obviously we need this block of bridging finance to allow us to get Prominent Hill up and running. It’s been commissioned. The commissioning work’s on at the moment. It’ll be up and running at the end of next month, but we probably don’t get any revenue from that until March, so we need a block of cash to see us through that period and also pay out, you know, some of the final costs on Martabe and the like. So, that’s an important one and that’s that 9th of January date in the announcement.

IO: Do you foresee any problems getting the bridging finance?

AM: There shouldn’t be because the banks have gone through with us in fine detail what’s needed there and their issue is getting through their credit committees through this time of the year which is why they needed the 9th of January.

IO: Obviously the other priority would be the sale of Martabe and possibly a stake or all of Prominent Hill?

AM: We’ve had expressions of interest from a very large number of parties, serious parties, about all our assets, so we are working our way through with those parties and their interests in each of the assets through this period of time. One of the keys for us will be coming up with the optimum combination of cash generation from those asset sales and maintain a very solid base of assets going forward for Oz Minerals in the future.

IO: How far away do you think any announcement of asset sales is?

AM: Look, all I can say is the process has been going for, on a couple of the assets, well over a month and the others, they know we’ve got a timetable that has to be met within this extension and so they need to get their non binding offers in pretty quickly. So, a number of parties are well down that route, they’ve done the due diligence work in the data room, they’ve been doing site visits and they’re just starting to come back with some indications.

IO: You’ve indicated that you would consider selling all of Prominent Hill.

AM: I think what we’re sending very clearly is the message we will look at all possibilities.

IO: But wouldn’t the sale of Prominent Hill put the company’s future growth at risk?

AM: Yes and that’s why it’s not our first preference, but within the timetable if we got an exceedingly good offer for that, we would certainly have to give it very serious consideration.

IO: Please correct me if I’m wrong, but I thought that you were looking for end of January, but you’ve actually got till the end of February. Is that correct?

MF: Yeah. The original agreement had a possibility to extend it to 31 January.

IO: So how come the extra time? How did that come about?

AM: This is in working with the banks and their understanding that they realise that end of January by the time they have Christmas, new year the business cranks back up again. That’s a very tight timetable for them and for us and it was much better when they saw the process we’re going through in terms of the asset sales, the number of parties, the interest, it was clear that hey, this should be done in an orderly fashion to get a better result instead of a squeezed fashion.

IO: Just on a more general level, why do think you’re having these problems when you’ve clearly covered so many times by the value of your assets?

AM: I think it’s a real indication of the lack of liquidity in the market for funding organisations. This should be working capital for us. But you have institutions that have been backed by governments...who are under instructions to repatriate cash wherever possible and so that and the difficulties the banks are finding lending to each other just puts a real squeeze on cash and also sucking the cash back out of Australia. So, it becomes a very tight situation and I think that’s what you’re seeing elsewhere with other companies, that they just can’t raise what would be normal working capital.

IO: Does it feel quite unfair, though?

AM: Unfair is one way to describe it. I’m trying to think of how I feel about it. It’s just in some ways amazing. It’s just the confluence of all the different things, you know the low commodity prices at the moment, the bearish outlook everywhere in the market which has an impact then on the banks and then the banking liquidity issue for themselves. So, it makes it a very difficult combination to be dealing with at the moment.

IO: Unless you guys announce something in the next 24 hours, I probably won’t be speaking to you until 2009. For Oz Minerals, next year is either going to be a story about a pull back from the brink or massive failure. How do you feel going into 2009 and what’s your train of thought?

AM: Look, this is a very positive sign from the banks, the extension of the two months to give us time for all parties to work our way forward, so I think this has been a significant step forward for all of us and to get in it together and make it work.

IO: Do you feel confident going into 2009? Will you be popping champagne or going to bed early?

AM: I will wait until it’s all done and dusted and then I’ll pop the champagne.

IO: Fantastic. Thanks, guys.

The journalist owns OZ Minerals shares.