oz boss less than a wizard

OZ boss less than a wizard
Ian Verrender
April 2, 2009
Andrew Michelmore, the harried chief of mining debacle OZ Minerals, has become the butt of a series of cruel jibes in the rough and tumble world of mining.

Specialist resources websites have been lampooning the OZ boss for weeks over his role in the demise of the company, formed from a merger of the "growth-rich Oxiana and cash-rich Zinifex" less than a year ago.

As a Rhodes scholar, resources industry stalwart and wealthy executive, Michelmore no doubt should be man enough to rise above the petty schoolyard taunts of "Michelmore, Makeuspoor" that have been circulating the industry. And, if industry speculation is correct, and the boss of the almost failed miner is recruited to run the rump of OZ's assets for China Minmetals, it will be Michelmore who has the last laugh - again.

Still, there are a series of unsettling and potentially worrying aspects to the demise of OZ and Michelmore's role in its downfall that give some credence to those particularly cruel taunts.

Andrew Michelmore took over as Zinifex's chief after the departure of Greg Gailey, who had overseen the company's rise from the ashes of the failed Pasminco into a bull-market darling.

Almost from the outset, however, questions were being raised about the new boss's business acumen.

Within a month of his joining, Zinifex had launched a hostile takeover bid for Allegiance, a Tasmanian nickel miner, and upped the price to secure control, even as global credit markets began to freeze over.

That adventure cost the company $850 million. But its Tasmanian mine was a loss-maker from the start. It was estimated to be tipping $5 million a month down the drain.

Six months after the takeover, Michelmore decided to turn off the tap and shut the mine down, thereby squandering up to $1 billion of the company's capital. Had that folly not taken place, OZ may not be in the precarious position in which it now finds itself.

But there were other worrying decisions. Putting aside its complete lack of hedging, either on currency or metal prices, and the accusations that debt levels were not properly disclosed at the time of the Oxiana and Zinifex merger, the decision to delay crucial debt refinancing in the hope the credit crisis would ease now appears foolish, at the very least.

Hindsight is a wonderful thing and no one can ever be expected to get everything right. But to be so consistently wrong indicates a talent few executives would like to emulate.

Immediately before Zinifex, Michelmore toiled for the Russian billionaire Oleg Deripaska, who owns large slices of Rusal and Norilsk. Deripaska since has fallen on hard times, due to the global crisis.

But Michelmore is best known as the former head of WMC Resources, a company that was at best a lacklustre performer and which became the subject of an international bidding war.

In 2004, just as the resources boom was gathering steam, Swiss-based Xstrata launched a hostile bid for WMC in the hope of gaining control of the world-class Olympic Dam copper, gold and uranium deposit.

BHP eventually trumped the secretive Swiss group in what, at the time, appeared to be a full price. But as commodity prices took off, the WMC deal clearly became a cut-price purchase and a master stroke for BHP. Again, that's with the benefit of hindsight.

Michelmore did fabulously well from the takeover. At the time, it was estimated he walked away from the company with about $11 million once his contract was paid out and his WMC shares were purchased.

Good with a whiteboard and better with concepts than delivering on strategies, he was accused by some at WMC of wasting time and more than $1 billion on a Queensland phosphate project that was a chronic underperformer.

OZ may been saved by the bell. But it will go down as one of the worst mergers ever in history, in a chapter in which no one will emerge unscathed. Now for the court action.