interview with michelmore ( nickeless), page-9

For those who haven't seen the Busines Spectator article:

The world's second-largest zinc maker, Oz Minerals Ltd, is scrambling to refinance its debt and is facing a deep downturn in the resources sector, but chief executive Andrew Michelmore believes the miner will be stronger when the sector turns around, and says it is far from falling into administration.

Oz Minerals, formed this year through the merger of Oxiana and Zinifex, is currently in a trading halt having entered negotiations with its banks to refinance its debt as sharp falls in selling prices take its toll on the company.

In a market update on Thursday, the miner said it was working to resolve its financial position as quickly as possible.

But in an exclusive interview with Business Spectator, Mr Michelmore said Oz Minerals would have called a default on the company's loans if it thought it was going to have to, and the miner has reasonable expectations that it will be able to survive this period.

"If we thought we were going to default now, we would’ve called that," he said.

"We have reasonable expectations from the discussions we’re having with the banks and all the other components, the process we’re in, the stage we're at in terms of some of the asset sales, that we should be able to get through this period."

Mr Michelmore would not name the one bank which held out in October on extending its credit facilitates for so long, but said the extension on the facilities forced the miner to go into a trading halt.

"So, that forced us to go into a trading halt which then we worked all weekend on to get the extension to the end of December with conditions if they’re met to go to the end of January," he said.

"That’s when we went for a voluntary suspension because with those conditions and the negotiations, we would not be able to keep the market properly informed of what’s going on."

Mr Michelmore said that as the market keeps dropping, Oz Minerals has seen $1.4 billion from the end of September to now wiped off its revenue for next year, the miner is chasing every dollar it can.

"In the space from the end of September to now our revenue for next year has come down by $1.4 billion," he said.

"We have been going absolutely flat strap chasing every dollar in this place through our operations, not only for next year, but currently and that’s how we’re operating."

Oz Minerals is also looking at ways to ease liquidity issues, considering offers to buy some of its assets or further capital raisings.

Mr Michelmore said that if the company sold all of its assets it would have more than enough to pay for it's debt, but the problem is with short term cash because current projects, including the start of production at Prominent Hill and the cutback at Century Mine, rely on cash.

"It’s not like the value of our assets won’t pay for our debt," Mr Michelmore said.

"We just have a short term cash squeeze because the other part of the sort of the three pronged attack is that we’ve got a couple of projects that we need to spend the money on over the next three to six months that are absolutely key to our business.

"Even in the current market where the prices are low, you know, the rest of the place is square, we’ve got this cash going out.

"So, that’s where we’ve got a cash squeeze issue in an environment where under normal credit finance availability banks would be jumping all over us to lend us the working capital we need," he said.

Oz Minerals has earmarked a number of assets for sale, but Mr Michelmore dismisses suggestions that Oz Minerals is close to going into administration and the assets will be easy buys.

He said any group that is waiting to buy Oz Minerals assets after it has gone into administration will be waiting a long time.

"They (buyers) might be waiting a long time for that (administration)," Mr Michelmore said.

"If these guys think they’re going to get it cheaply, then you know we know from the amount of interest that’s been shown, if someone can act faster they’ve got a better chance now than if they are actually put up to a formal auction," he said.

On a disclosure that Oz Minerals made earlier this month, Mr Michelmore said it was a combination of a number of things that made the company burn through $200 million cash in less than a month.

"All the actions we were taking actually incur initial cash costs, so where we were shutting projects you have contracts, you have suppliers delivering stuff ... we just put a stop on those and ... so we were going to be paying those down the track," he said.

"You’re not paying the full amount in most cases, but suddenly you have to pay them and so while this is stopping cash flow outflow for next year, you actually incur that immediate cash flow now.

"Similarly on redundancies, as we stopped all these projects, laid people off, cut back on some of our production in areas, we were immediately up for a redundancy cost on those people," he said.

Mr Michelmore's comments came as the company closed its Avebury mine in Tasmania, shedding 189 jobs, citing financial challenges facing the company.

Mr Michelmore said no other operations earmarked for closure at this stage, but that cash remained an issue, especially with its Century mine.

"In Century the last declared C1 cash cost was 61 cents for the September quarter, but that was with exchange rates of 89, 84 and 80 cents for each of the three months," Mr Michelmore said.

"We’re obviously at a much lower exchange rate now and the bulk of the costs in that mine are Australian dollars, so that one its C1 cost has come down considerably.

"The issue at Century is really having the cash to pay for the capital," he said.

Mr Michelmore said that the he still believes the merger between Oxiana and Zinifex was the right decision for both companies, especially given Oxiana's debt levels.

"If anything both companies would’ve been under far, far more stress now in this financing environment, particularly Oxiana with its debt would’ve had huge troubles being able to continue with the Prominent Hill project," he said.

"As we come through this we will be a much stronger, leaner company, far more efficient and able to take the benefits of the upside."

Oz Minerals shares were suspended from trading on November 28 and last traded at 55 cents.

The miner is facing a potential class action suit over its disclosures before the merger earlier this year.