the age 3/12/08

Michael West Copper Co excerpt -

Copperco tanned
Just one month ago, Copperco was travelling along quite nicely. It had declared a maiden profit of $11 million for 2008. Its Lady Annie copper project in Queensland was on track, it was mostly covered on the commodity front thanks to a robust hedge book over two-thirds of production. Things were good.
Next thing you know, it's vanished. Eaten. Voluntary administration. McGrath Nicol appointed. Victim of another alien monster of disclosure.
The culprit appears to be Mineral Securities, which had a nasty little $45 million debt which nobody seems to have known about. Notwithstanding the dubious logic of the deal, Copperco saw fit to take over MinSec early this year and Copperco had arrived at the threshold of compulsory acquisition of its target in September.
A month later however, in the week of October 10, Copperco shares began tanking. With nary a reverse speeding ticket, that is a ``please explain'' from the ASX, the stock dropped from 22.5 cents to close at 11.5 cents on volume of 38 million shares. In the week ending October 24, the shares fell from 14 cents to 9.9 cents on turnover of 13 million.
Still nothing.
Then came an upbeat presentation by Copperco boss Brian Rear to the Queensland Resources Conference on October 30. Quality asset, profitable company, hedging in place. All good.
Twenty days elapsed with no announcement. Then, on November 20 came ''Trading Halt'', November 24 ``Suspension from Official Quotation'', and the piece de resistance on November 27, ''Appointment of Administrator''. Horror movie.
Not-so Champion move
Early this year, Copperco's mining veterans Keith Liddell and Brian Rear had put a proposition to shareholders to buy the Robert Champion de Crespigny-chaired MinSec (de Creps had previously sold Scarborough into MinSec). Though theirs was a clean little one-mine operation with some cash and heading into profit they would merge with a company with a platinum prospect in South Africa and a gold project in China.
At the time there was nothing particularly wrong in chasing growth - you wouldn't do it right at the moment - though MinSec was more of a mining investment house and its projects required funding.
As the lady who ran the exclusive Queens Club on Sydney's Elizabeth Street is reputed to have once told her counterparts from Tattersalls Club a few doors' down the road upon the occasion of a visit from Tatts directors with a merger proposal: ''It's a marriage made in heaven. We have money, and you need money''. She politely declined their affections.
In retrospect it seems de Creps and his asset trading troops from MinSec probably had their eye on Copperco's cash and cash-positive status all along. Mind you, this was a scrip offer and it's worth considering the plight of poor MinSec shareholders whose stock was changing hands at $2.30 before they accepted an offer of 2.2 Copperco shares for every one of their bits of paper.
Also with the benefit of hindsight, and much digging, it appears that MinSec had managed to max out a $45 million credit facility. Try to find a mention of that $45 million in Copperco's disclosure material, or MinSec's for that matter, and you will have your work cut out for you.
The only mention we could manage to find - without the assistance of a forensic team - was interred in the auditor's report to the annual accounts where Ernst & Young expressed its concern over Copperco's capacity to continue as a going concern.
Digging for details
Whatever the case, and we stand to be corrected on this, two broking analysts who covered the stock knew zero about the $45 million liability and there is no doubt that the information was not sufficiently in the public domain.
''You could spend a week dredging through the releases and the presentations and not find it,'' said one. Since the debt appears to have brought Copperco undone, it was surely a material disclosure.
There is the matter of course of the banks, especially in the present environment, pulling their funding. In Oz Minerals' case, the two foreign banks mentioned above are rumoured hold-outs. In the Babcock & Brown saga it is a German bank freezing a Babcock deposit, and in the Copperco debacle it could be Macquarie, which is not only the banker but also ran the hedge book.
Unless it had laid-off its risk on the Copperco book, Macquarie would have been taking a belting on its forward positions. But it also has shares.
Mining companies with half a decent hedge book in this market are sitting pretty - as long as they are meeting their obligations. Albidon and Bass Metals spring to mind as two who have been able to cash up by closing out their forward positions.
Sadly this was not available to Copperco. It will be interesting to see who emerges with the profitable Lady Annie asset out of the administration of the company.
In the meantime, the lightning demise of Copperco presents a salutary warning to mining companies. Not only are they subject to the stock market implosion and the dramatic decline in commodity prices but now they are on a heightened alert over the risk appetite from their own bankers.