The Spectators Gottliebsen: OZ Minerals' new direction Negative thoughts Gottliebsen, Bartholomeusz: China's tense slowdown KGB INTERROGATION: Guy Debelle RICH PICKINGS: Pearls of wisdom
The OZ Minerals game changed dramatically last Saturday morning when Commonwealth Bank chief executive Ralph Norris’s historic statement to Business Spectator was published (Giving OZ a chance, June 6).
OZ Minerals directors are now in a position of strength that could not have been conceived even a few days ago. My hope is that they are not so punch drunk from their long battle that they blow the opportunity to get a really good deal for their shareholders. (They must not let bad legal advice override the interests of shareholders).
I must emphasise that to date the board of OZ Minerals has done a wonderful job for their shareholders. Indeed so good has been their work that they now have two bids before them. Both bids have clear imperfections but they are firm commitments from people with money so it’s time for OZ Minerals directors to do what every board must do when they have two proposals - negotiate with both sides for the best bid for shareholders.
The big breakthrough came via the Norris statement because every week for the past 12 weeks OZ Minerals has been submitting their cash generation to the banks. At any time any one of their banks could have pulled the plug and blown the whole company up. I have never personally experienced such pressure so I can only imagine what it would be like. And OZ Minerals might say that even if the Commonwealth Bank wouldn't pull the plug, what about the two renegade foreign banks? I think that given the Norris statement, it is now time for a little more flexibility to get the best bid for shareholders. And maybe I can help.
Let’s start with Minmetals. What was a very fair bid is now inadequate because the market has moved. Grant Samuel has the bid $400 million below the worth of the company. It was a very fair estimate but since they made that report the game has moved even further. Pan Australian’s Laos copper mine is probably not worth as much as the OZ Minerals Seppon mine in Laos, yet the market value of Pan Australian approaches the total Minmetals bid for a wide suite of OZ Minerals assets.
When you have two bids you can play hard ball with the first bidder in the interests of shareholders.
The same applies to the RFC Group-Royal Bank of Canada (RFC-RBC) bid. Just as we recognise the change in the market with Minmetals, so we must recognise the incredible difficulty in preparing a binding unsolicited bid for a company without the help of the directors. Now RFC-RBS have got this far, if they are given help by directors it is likely that their bid can be vastly improved.
In all, the RFC-RBS bid involves about 1.7 billion in shares or convertible bonds to be issued to the institutions and about 500 million to retail shareholders. OZ Minerals currently has about 3.1 billion shares on issue so we talking about huge issues at very deep discounts. It looks to me like they were prepared (like the Minmetals deal) when the market was lower. The job of the OZ Minerals board is to try and negotiate a lesser discount, clearer terms of conversion and try and have some of the securities without any conversion i.e. a straight loan.
When the very best bids from Minmetals and RFC-RBS syndicate are on the table, then they can be evaluated and a recommendation made to shareholders.
As it was before, the job of OZ Minerals is to do the best for shareholders and the task now involves negotiating with both bidders and with Ralph Norris. Don’t make a final recommendation until you have had that negotiation and it is likely that the shareholder meeting must be adjourned a week or so to give time.
OZL Price at posting:
$8.85 Sentiment: None Disclosure: Held
