michelmores speech today

9% demand in china
not a big reliance on exports

good medium to longterm


SPEECH BY ANDREW MICHELMORE TO THE
AUSTRALIAN-BRITISH CHAMBER OF COMMERCE
FRIDAY, 10 OCTOBER 2008
Thank you for inviting me here today. It’s a great pleasure to be addressing the Australian-
British Chamber of Commerce.
I’ve been CEO at OZ Minerals now for just 8 months although I can assure you sometimes it
feels a lot longer than that.
It is great to be back here in Australia after having spent the previous two years as CEO of the
EN+ Group - a Russian energy and aluminium company.
EN+ was created in 2005 and includes Rusal and other Central European aluminium assets
making it the world’s 2nd largest Aluminium producer.
But it is also is a major energy supplier with interests in oil, gas, coal and uranium and
manages 20,000 MW of power supply.
For me, the two years at EN+ provided not only a great insight into one of the world’s major
emerging economies and resource regions, but also the challenge of heading up a very fast
growing company.
I learned many lessons during these two years offshore and I have brought these lessons
home with me. They are even more relevant in the current economic climate
As you are all no doubt aware, OZ Minerals was formed on 1 July this year when Oxiana and
Zinifex merged. This brought together two companies with complementary assets, growth
profiles and management teams.
We currently have six mining operations located in Australia and Asia, two new mining
projects under development and a large portfolio of advanced and early stage exploration
projects throughout Australia, Asia and North America.
Importantly though, it also created a company with a strong cash position which is enabling us
to fund our organic growth and development ambitions.
Now 3 months is a long time in business and it’s been an interesting ride for our new
company.
As you would no doubt be aware, OZ Minerals’ share price has fallen substantially in recent
months.
There are a variety of reasons why this has occurred but it is in no small part due to the
extreme market volatility currently being experienced, depressed metal prices and high oil
prices which are driving increased costs.
02
There has been some speculation that the performance of the share price of OZ Minerals has
been a direct result of the merger that created us – a message from the market that somehow
this was an ill-conceived marriage.
I would like to dispel that here today.
All the compelling reasons for putting these two companies together in the first place still exist
today and in fact are probably more compelling given the market conditions we find ourselves
in.
> Combining the companies diversified our commodity base and improved our risk
profile while the new portfolio of assets gives us tremendous leverage to
continue our global growth.
> We have great quality assets with good scale, grade, mine-life and cost
competitiveness.
> We have access to capital to fund development projects in a time where raising
capital through traditional channels is increasingly difficult if not cost prohibitive.
> And we have the scarcest of resources - a combined team of highly skilled and
experienced people.
Now I would like to show just one slide today as I think this puts OZ Minerals share
performance in some context.
This is not about who is doing better or who is doing worse, but it does demonstrate that, to
varying degrees, the whole resources sector is suffering the impact of the current market
upheavals and OZ Minerals plight is not a lot different to any other resources company.
Look at BHP Billiton and Rio Tinto – two venerable Australians - who have seen their market
cap reduced by 39% and 46% over the past 5 months – in total approximately $125 billion
collectively.
There is no fundamental change to their business or their operations and so no reason why
their stock should be treated this way.
Now I am not going to play down the current financial crisis and the impact that this will have
on the global economy. We are in for some tough times.
However, I think the impact is going to be felt more keenly by OECD countries and so our view
on demand for commodities for the mid to longer-term remains optimistic.
Countries like China will undoubtedly feel the impact and their economies will slow.
However, this has to be put into some context. For example, China’s Real GDP growth for the
past 5 years has been consistently over 10% and, some will argue, overheated.
Experts are predicting this to fall to around 9% next year. Still an impressive rate of growth.
03
The prospect of recession in key OECD countries will undoubtedly put further pressure on the
Chinese economy.
However, it has to be remembered that the export sector is a relatively small component of
the overall Chinese economy which has big development and infrastructure requirements and
sustainable, growing demand for metals and commodities.
So what do you do in these circumstances?
You focus on the fundamentals and get on with the business of creating a great resources
company. And that is exactly what we are doing.
> Our newly acquired Avebury mine on the West Coast of Tasmania delivered its
first nickel concentrate to market in August. This represented the first steps in the
further diversifying of the company’s commodity base.
> Prominent Hill - Australia’s next great copper and gold mine – is currently being
commissioned and we are on track for first production by the end of the year.
When in full swing, it will more than double OZ Minerals’ copper production.
> We are in the final stages of a feasibility study of the Dugald River deposit - a
significant undeveloped lead zinc and silver resource in northwest Queensland.
> Responding to prevailing commodity prices, we have taken steps to reduce zinc
production at Golden Grove in Western Australia for 2009 by between 35% and
40% and have increased copper production by almost 15,000 tonnes.
> And we are in the final stages of a comprehensive review of OZ Minerals
exploration portfolio with a view to better focussing our efforts and our dollars.
I’d like to talk now about the job of actually putting the two businesses together to create OZ
Minerals. In this process there are two distinct streams.
> aligning the business operations; and
> aligning and developing the culture of the new organisation.
Delivering on the first stream is about finding the operational leverage points. Or, put more
bluntly, delivering on the benefits you believed could be derived from putting the two
companies together in the first place.
I have already talked about these benefits – the complementary assets, the diversification of
the commodity base, the access to cash, and the depth of talent in the company.
But how do you ensure you capture these?
Establishing a proper, logical and formal integration process and having someone directly
responsible for it has been absolutely critical.
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There are a lot of moving parts in a merger like this and extracting all the benefits from it is a
complex business.
I don’t believe we have done everything perfectly in the past 3 months, and there is still a lot
to be done, but I think the formal structure we created involving people and teams from both
companies went a long way to identifying and capturing these benefits.
This was never a merger based on synergy savings. However, through the integration process
we have already identified annual synergy cost savings of $27.5 million and there is more to
come.
I am absolutely confident that we can get a pay back on the $41 million one-off integration
costs within one year or better.
And then we have the second stream - cultural alignment.
Now as engineers, traditionally we find it difficult to get our heads around this issue. But how
successfully you develop the new culture of the organisation will ultimately determine how
successful your company is.
This is not an easy task. There are no two companies which have the same culture or that can
be easily or seamlessly put together.
In many ways a merger is like a grieving process and comes with the full range of emotions -
denial, anger and finally acceptance and opportunity.
I think first and foremost you need to recognise this; acknowledge the differences, and
understand how your people:
> perceive the new company;
> perceive their own situation; and
> even how they perceive you as a leader and manager.
Then you need to get them to understand the process we’re all going through
To this end, we are undertaking an extensive staff perception survey across our entire
organisation to do exactly that – ask them how they feel and what their issues are.
Importantly, we will be reporting back the findings to each group and using the feedback to
develop and refine our organisational and change management strategies.
I think it is also important that the new organisation connects around a vision and is guided by
values - the behaviours of which they can see everyday in the way their executives and senior
managers operate.
We are working our way through this process presently.
These are tough times for a lot of companies and undoubtedly the current market
environment makes the process of creating a united culture all the more difficult.
The uncertainties which always accompany transforming business environments are only
compounded by negative market pressures and concerns.
05
However, we need to focus on why we pursued the merger in the first place – to create a great
resources company – and to create a sense of purpose and understanding of how each
individual contributes to the company’s goals and objectives.
These are, ultimately, simple concepts but are critical to the way the business performs.
Thank you for your time today.
Ends
For media inquiries contact:
Matthew Foran
Group Manager – External Relations
Tel 03 9288 0456 or 0409 313 637
For investor relations inquiries contact:
Richard Hedstrom
Group Manager – Investor Relations
Tel 03 9288 0376 or 0400 580 043