the story of oz

Here's the sorry story of Oz. Take the 82.5 cents and run!

Battle of a miner that nearly drowned in debt
Sarah-Jane Tasker | February 21, 2009
Article from: The Australian

OZ Minerals almost lost its battle to survive the tsunami of deteriorating commodity and financial markets, with its chief executive close to calling in the receivers three times.

Andrew Michelmore has been at the forefront of the debt-laden miner's scramble to win the war with its banks and he doesn't shy away from admitting that the $2.6 billion bid by China's Minmetals for OZ may have saved it from going under.

"We stared down the barrel at the board at least three times and asked the question, are we solvent? And if we're not, we are going to have to put ourself into receivership," he said.

To say it has been a full-on three months for the OZ chief executive would be an understatement, but he is still determined to win the battle and return some value for shareholders.

He has only had a couple of days off and not much sleep since the Melbourne-based miner's banks started playing hardball in November, but Michelmore isn't about to start complaining, and plans to keep putting in the hours to see the Chinese deal through.

"I equate it with my old rowing days. You're in the third 500 of the final, you're stuffed, the wind's against you, the other crews are out there, you get to the stage where you're absolutely rooted and then you say, these guys aren't going to beat us," he said. "It's the same situation with OZ. You're absolutely dead tired, working long hours, but you won't let this beat you and have this belief that we can get through this.

"And the key for us is that the assets are worth a hell of a lot more than the debt."

The trigger for the financial woes that has led the once promising major mining house to be taken over by China started back in July when Oxiana and Zinifex merged to create OZ Minerals.

Both companies brought their own debt to the deal and the new chief executive said the original plan was to clear up both debts and bring them all into the one facility.

Presentations were made to 10 banks in early August on proposals to refinance the debt and a group of four led the charge and conditions were agreed to and were ready for sign-off in early October.

But then the credit crunch hit and while the banks thought the debt still looked reasonable, it had to be reviewed by their respective credit committees because of the change in the global climate.

New conditions were then agreed on but the credit crisis continued to worsen and in early November the conditions had to be reviewed again, leading OZ to seek an extension for rollover of the debt. But one of the seven banks that needed to agree to the extension placed conditions on the request, which would have put OZ in breach of its other banking facilities, so the company was forced into a trading halt on November 28.

"That's when things changed totally," Mr Michelmore said.

"Suddenly the banking facilities that were coming in said they didn't want to deal with a company in a trading halt, so the facilities we had lined up disappeared."

The run on OZ's money then started, with creditors demanding bills be paid, just as its cash flow was being dramatically hit by the plunging commodity prices.

In September, the miner had forecast a cash surplus of about $300 million in its annual budget talks.

But by the end of December, based on spot prices, the company had lost about $1.4 billion from its projected revenue.

The odds were fast stacking up against the struggling miner and the only option it felt it had left was to start the sales process.

Minmetals first appeared as a potential buyer of some assets but by late January it had upped its focus and started talks about buying out the whole company and settling its debt issue.

Without the Minmetals offer, OZ would have been asking its banks for another extension when it faced them at its February 27 debt deadline and industry insiders were not confident the banks would be willing this time.

"Minmetals is a great deal -- it clears out the issue for the banks and the shareholders get something back," Mr Michelmore said.