Right place, right time for miner
Date : 12/02/2006
Reporter: Luisa Saccotelli
LUISA SACCOTELLI: When it comes to gold digging, there are few Australian mining outfits which have grown as fast as Oxiana. The company alchemy is a mix of right place, right time but also boss Owen Hegarty's preparedness to go where others haven't - in his case, a remote Communist controlled valley without roads or access to reliable communication to the outside world.
OWEN HEGARTY: I have been in this fortunate position of being in charge of a company that has grown very substantially from a few million dollars up to a small number of billions, I suppose. People talk about going from about 10 cents to $2 so that is a 20 bagger in the last three or four years.
LUISA SACCOTELLI: Owen Hegarty was a 20-year career mining man with Rio Tinto up until the late 1990s when the company passed up on gold and copper deposits in Laos. Judged too small, that wasn't the only problem.
OWEN HEGARTY: You had Asia falling over, you had copper gold prices falling over and the world was going into recession. Investment dollars were very hard to come by. Here we were it was a somewhat isolated area, very little infrastructure, a monsoonal climate. There was no mining industry. The first question about Laos was, where is it? And then, of course, who is in charge up there?
LUISA SACCOTELLI: The answer to the reluctant money men was the Communists in a government of former freedom fighters.
OWEN HEGARTY: The leaders of the present government, some of those people were the cave-dwelling freedom fighters nationalists who saw off the Americans and others during the second Indo-China conflict. So that has been their heritage.
LUISA SACCOTELLI: None of the country risk issues deterred Hegarty.
OWEN HEGARTY: The Sepon project is amazing in that whole mineral field is something I have never seen before in my life. A combination of copper and gold at the surface, very high grade, oodles of upside and one of the things I suppose that we did was ensure that we had a consistent story, consistent people and meet up with all the district chiefs and so on, understand their position, respect the fact that it's their property, it's their valley, it's their livelihoods that you are changing forever.
LUISA SACCOTELLI: Hegarty credits that approach with earning Oxiana its social licence to work in the valley. But first came the hunt for $20 million to buy a 80 per cent stake in the mine.
OWEN HEGARTY: Wearing out shoe leather, running around looking to put money together up and down Collins Street here and across in London and in New York and various other places. You pack your bag, you put your presentation away and move on to the next one. That is I say to people as we left the building, there was not a lot of difference between being shown out and left out.
LUISA SACCOTELLI: Two years later with gold and copper coming out of the ground, Oxiana bought out the rest of the deposits for $US80 million.
OWEN HEGARTY: Plenty of people told us we would never be able to raise the money to build the Sepon under any circumstances and, not only that, to finance these operations, these mines, you are going to have to hedge your copper or hedge your gold. We are anti-hedgers. We believe we have had that gene removed from our DNA. We think we have seen too many companies go broke, go belly up by hedging. We think it's far too complicated for us anyway. We like to keep it nice and simple.
LUISA SACCOTELLI: Gold is now at its highest price in 25 years. Oxiana has been lucky. As commodities have boomed so have its market appeal. Full-year earnings are tipped to hit 75 million, up from a loss of 2 million the year before. Oxiana is trading on a price to earnings ratio of eight. There is also a second mine, Western Australia's Golden Grove, with a third still in feasibility, South Australia's Prominent Hill. The idea is to fill the mid-cap market gap. It is all going Oxiana's way now but it could all unravel.
OWEN HEGARTY: As soon as commodity prices pop up you find there are plenty of analysts out there looking for them to pop down very soon. So there is a few of them out there crying wolf. But our strategy is to be in low cost, high yield, high margin operations.
LUISA SACCOTELLI: But perhaps a bigger threat is another symptom of the current gold fever - a rash of hostile takeovers has broken out and the big and inquisitive miner Xstrata is said to be scratching around. With a healthy personal stake in Oxiana worth upwards of $50 million, Hegarty would walk away wealthy either way but he has invested a lot of emotional capital as well.
OWEN HEGARTY: Of course we have our defences there, but the best defensive against takeover is optimising your share price.
ALAN KOHLER: Luisa Saccotelli reporting.
http://www.abc.net.au/insidebusiness/content/2006/s1567944.htm
http://www.abc.net.au/reslib/200602/r72167_201099.asx