terrible stock performance ...imay sell., page-78

Youve gotta have a laugh at this espc the last statement in italics,except if you hold OZL of course!

Not the messiah, just a very bullish boy

Michael Quinn

ANDREW Michelmore came up with all the right answers about the debacle he’s presided over, right down to his very own OZ Minerals’ shareholding being underwater. Pity the answers weren’t arrived at earlier because the bottom line is that the company that was supposed to be the new champion of the Australian resources sector has ended up amounting to a fraction of the rhetoric.

Owen Hegarty, Michelmore, the boards at Oxiana and Zinifex, the phalanx of investment bankers and advisors involved from Morgan Stanley, Gryphon Partners, UBS, and Lazard Carnegie Wylie, as well as just about everyone else involved in at the pointy end of the merger deal, can all put their hands up and shuffle away muttering that unprecedented market conditions were the reason why this ambitious company fell over - or at least into the outstretched hands of the Chinese Government.

Michelmore mentioned this once or twice during his briefings yesterday, with the insinuation being that these unprecedented events absolved all involved of any guilt.

And on the surface it’s hard to argue otherwise – though of course it’s always interesting witnessing how the kudos and bonuses paid to management and boards when things are going well thanks almost entirely due to fabulous commodity prices are happily accepted as the rightful rewards of a job well done.

Everyone knows the Zinifex-Oxiana story. One company had cash, the other had development projects. Too easy … let’s get together. Shareholders of Zinifex agreed, and onwards the good ship OZ ploughed.

There are some observations to be made if not questions posed.

Firstly, Melbourne, the head office home of Zinifex and Oxiana is a very cosy little club in the world of mining … and we’re talking capital C-O-S-Y. This was a classic marriage of locals.

Second, both sets of shareholders weren’t consulted in this company-changing transaction – unlike that that has begun happening in Canada (refer Lundin Mining- Hudbay Minerals). This is, or should be, a non-negotiable situation in the future for other prospective unions.

Third, Zinifex enjoyed the benefits of the zinc price and a balance sheet revitalised by the corporate and accounting surgery performed after the company went into administration back in 2001. The point that needs to be made is that zinc as a commodity has long been a miner’s graveyard. It always seems to be just a matter of time.

Which leads to the fourth point. Oxiana’s $A265 million acquisition of the Golden Grove copper-zinc mine from Newmont Mining Corp back in 2005 was met with plenty of scepticism on account of the price tag. Owen Hegarty mentioned as much a year or so later when he said the likes of then-Oxiana chairman Barry Cusack and others on the board had ‘chewed long and hard’ over getting involved in the zinc sector – given past experiences.

Hegarty was happy mentioning this because by that time the Golden Grove transaction was now recognised as perhaps deal of the decade. The operation was printing cash by the truckload. Did the success of the deal blindside the Oxiana board to the dangers of zinc, dangers they previously knew well?

Fifthly, while Hegarty was a tremendous company builder (Sepon being an outstanding achievement), perhaps with the positives that came in creating a can-do culture came the negatives of a cult personality. No one shouted ‘stronger for longer’ louder than Owen Hegarty (did he coin it?), and so it was that hedging didn’t appear to register with the other experienced miners on the Oxiana board despite fabulous (spot) metal prices. Seemingly everyone put their faith in the enthusiastic Hegarty, and at the end of the day it’s been shown that ‘he wasn’t the messiah, he was just a very bullish boy’.

Finally, Zinifex’s Allegiance nickel acquisition was commonly seen as very expensive by outside analysts and observers, while the earlier Wolfden Resources deal never looked much chop either. Balancing those questionable transactions, Michelmore was recognised as having done a pretty good job with the WMC auction involving BHP and Xstrata. In any case, Zinifex was clearly a company on the prowl.

Disclosure: The reporter expects to get 82.5c per share from President Hu Jianto for his meagre OZ Minerals’ holding