OZL - Oz Minerals

[Front Runner]

In my opinion, it simply comes down to management incompetence. They failed to manage simple market risk. I agree with old blue that few people predicted such a sell off in commodities, however how easy would it have been for OZL to buy way waaay out of the money puts? With a strike either equal to or greater than the point in the metals price in which the company becomes unprofitable? Or if this too hard, would it be too much to ask that management inform the market when druming up support for the ZFX-OXR deal that the combined entity would be worthless if Cu/Ni goes below X price (post their capex)? Sure there would be some assumptions to make, but to me this is kind of disclosure would give investors more confidence and hence have a positive influence on the SP.

 

[oldblue]

In my opinion, it simply comes down to management incompetence. They failed to manage simple market risk. I agree with old blue that few people predicted such a sell off in commodities, however how easy would it have been for OZL to buy way waaay out of the money puts? With a strike either equal to or greater than the point in the metals price in which the company becomes unprofitable? Or if this too hard, would it be too much to ask that management inform the market when druming up support for the ZFX-OXR deal that the combined entity would be worthless if Cu/Ni goes below X price (post their capex)? Sure there would be some assumptions to make, but to me this is kind of disclosure would give investors more confidence and hence have a positive influence on the SP.

The question of whether or not to hedge is a vexed one and certainly not costless. While I agree that out of the money puts would have been a great idea, in hindsight, it could also have been seen by the market at the time the puts were bought as a great waste of money.
I'm told that, generally speaking, investors in mining companies don't like to see much, if anything, in the way of hedging, preferring to take their chances on the unlimited upside. Buying put options is certainly a different matter but, as noted above, still has a cost and therefore diminishes the upside. This attitude has probably changed in the last year or so but you can see its effect in the current search for and popularity of unhedged gold producers.

I can't see a board ever agreeing to try to achieve a merger by divulging a point at which a company would be "worthless" and don't agree that this would have a beneficial effect on the SP. In fact, more likely to have the opposite effect. At the time, no-one was foreseeing the slump in metals prices so it wouldn't have been a consideration.

I agree that management doesn't come out of this business smelling of roses but still incline to the view that in the end they, and OZL, were overwhelmed by circumstances.

 

[Front Runner]

The question of whether or not to hedge is a vexed one and certainly not costless. While I agree that out of the money puts would have been a great idea, in hindsight, it could also have been seen by the market at the time the puts were bought as a great waste of money.
I'm told that, generally speaking, investors in mining companies don't like to see much, if anything, in the way of hedging, preferring to take their chances on the unlimited upside. Buying put options is certainly a different matter but, as noted above, still has a cost and therefore diminishes the upside. This attitude has probably changed in the last year or so but you can see its effect in the current search for and popularity of unhedged gold producers.

I can't see a board ever agreeing to try to achieve a merger by divulging a point at which a company would be "worthless" and don't agree that this would have a beneficial effect on the SP. In fact, more likely to have the opposite effect. At the time, no-one was foreseeing the slump in metals prices so it wouldn't have been a consideration.

I agree that management doesn't come out of this business smelling of roses but still incline to the view that in the end they, and OZL, were overwhelmed by circumstances.

Agree that disclosing the point in the underlying where the company becomes worthless will have a negative impact in the SP in the short term, but in the long term I thought it might demonstrate that management dont indulge in BS, and are conscious of and managing risks to the business.

But maybe youre right, investors in miners might not care about that. They may just price the stock as a straight call option on the underlying metals and ignor all risks. Which might create a nice arb for us risk adverse types

 

[bigdog]

http://www.businessspectator.com.au...-the-land-of-OZ-pd20090603-SMS8L?OpenDocument

Published 7:07 AM, 3 Jun 2009

Robert Gottliebsen
Pillaging the land of OZ

The big rise in both metal prices and mining shares means that Australian superannuation funds and other investors in OZ Minerals are being taken to the cleaners.

They are being asked to approve the sale of prime, highly profitable mineral assets to the Chinese owned Minmetals group at a fraction of their worth. Unbelievably, we are seeing a duplication of the terrible series of events that took place in 2003 when MIM, which was also a prime Australian mineral asset, was sold to Xstrata for a fraction of its worth.

In the MIM catastrophe it was the directors and their advisors who had to take much of the blame. With OZ Minerals I have no criticism of the directors or the Grant Samuel independent expert’s report. Indeed it is Grant Samuel’s excellent report that provided the figures that show just how far below market value OZ Minerals shareholders were selling the asset. The 2009 OZ Minerals disaster is simply about deplorable banking. At least three of our four big bank chief executives should hang their heads in shame for what they are doing to Australian investors at OZ Minerals.

There is a lot of history in this matter and the banking events that took place at OZ Minerals in 2008 are in a totally different basket to the situation in June 2009, so let's not look back.

Right now, according to Grant Samuel, OZ Minerals owes local and foreign banks about $A1.2 billion and the company is generating cash in excess of $300 million a year (KGB INTERROGATION: Andrew Michelmore, May 8). The total value of the OZ Minerals assets is several times the amount owing to the banks so these are loans covered by cash flow and asset values.

However, the bank chief executives are effectively telling OZ Minerals shareholders that unless they sell key OZ Minerals mining assets to the Chinese at a fraction of their worth then "we will pull the plug on the company and effectively ruin you by flogging the assets off at low prices". No one uses those words, but in crude terms that will be the message from the Australian government's guaranteed banks to OZ Minerals' shareholders at the meeting on June 11.

Faced with that terrible banking stance, OZ Minerals' directors have no choice but to recommend that shareholders sell a series of mining assets which Grant Samuel says are worth about $US1.6 billion at current metal prices, for just $US1.2 billion. We are handing the Chinese an immediate paper profit of $US400 million simply because of bad banking. I have no criticism of Minmetals. When they made the offer it was a fair one. If Australians are stupid enough to sell assets at a fraction of their worth then we can’t blame the Chinese.

News this morning is also important to the deal (Rio sees downside copper risk, costs fall, June 3) – metal prices will fluctuate but it will take a huge collapse to wipe out the Minmetals discount.

The matter is made more complex because OZ Minerals CEO Andrew Michelmore is going to manage Minmetals and the assets being sold, plus a new CEO is coming to manage the Prominent Hill mine and the remaining assets of OZ.

Despite this, surely there are a couple of bankers prepared to lend the company, say, $600 million (at high interest rates) which could be repaid in two or three years by advanced sales at today’s prices subject to a firm equity underwriting of, say, $600 million. Because the banks are saying to OZ Minerals directors that they will pull the plug on this highly profitable company unless there is firm proposal on the table, OZ Minerals shareholders have an awful dilemma.

Surely there is someone in the banking and underwriting industries who realises the damage this sort of unnecessary shareholder mutilation has on confidence in our markets.

 

[oldblue]

OZL seem to have made a complete hash of announcing approvals to the Minmetals deal today.
An announcement, a clarification and a further clarification!

Hate to say it, but it looks like management can't wait to move on.

 

[YELNATS]

Based on today's news, it may be premature to put a vote to accept Minmetal's offer to shareholders.

http://www.thebull.com.au/articles_detail.php?id=3614

 

[YELNATS]

Specifically, the statement:

"It hasn't gone to them (OZ Minerals) yet, that is why they can put out that statement," one source said.

 

[GumbyLearner]

Michaelmore looks done like a dinner.

Goodbye Michael-LESS. You are done! My vote is NO
You're done, goodbye!!!!!!!!!!!!!!!! Incompetence?? Purposelessness? Uselessness? Moronicness?? There is a more workable offer on the table from RBC Canada, but your DONE!!!!


Debt-laden miner OZ Minerals is expected to be handed a recapitalisation proposal on Friday that would avoid the need to sell key assets to a Chinese state-owned company.

New suitors have emerged, with OZ Minerals just days from finalising a deal with China Minmetals Non-ferrous Metals Company Ltd (Minmetals) that would get the Australian company out of debt.

It is believed the new proposal would avoid a huge sell-off of the company's key assets and is intended to be handed to OZ Minerals directors before the start of trade on Friday.

Under the plan, $US1 billion ($A1.25 billion) in fresh equity and convertible bonds and another $US200 million ($A249.94 million) in a working capital facility would be provided.

Such a move would mean OZ Minerals retains all its current assets and repays bankers the $1 billion it owes them by June 30.

It would not need to be voted by shareholders.

 

[GumbyLearner]

I don't agree with the OZ Minerals takeover by Minmetals.

All I can think of him is that he is a TOOL! Michaelmore is a TOOL! A Complete Tool.

Here's a TOOL video!

 

[nioka]

With all the action on OZL today I had expected to read about it on ASF. For those interested there has been a refinance arrangement offered as per the press release below.

SYDNEY, June 5 (Reuters) - Australian investment advisory firm RFC Group and Royal Bank of Canada (RY.TO) have submitted a fully underwritten, $1.2 billion recapitalisation proposal to Australia's OZ Minerals Ltd (OZL.AX), the banks said on Friday.

The proposal would involve $1 billion in equity and convertible bonds, as well as $200 million in working capital, and would be in competition to a $1.2 billion offer for most of the debt-laden miner's assets from Chinese firm Minmetals.

Moments earlier, OZ Minerals said it had received "indicative" and "non-binding" approaches but added there was no firm, alternative proposal worth pursuing.

OZ Minerals needs to raise money to repay A$1.1 billion in debts that are due by June 30. ($1=A$1.25) (Reporting by Sonali Paul and Denny Thomas

 

[JTLP]

WOW...I wonder how the Chinese are going to feel with Aussie Co's fleecing them at the last minute for better or different deals??? That is potentially billions of investment gone from their accts (OZ + RIO)...wonder if they will play hardball with other things or come out swinging and buying juniors?

I still think OZL is a bit of a shambles co. I sold out a few years ago but to watch this demise of such a promising company is quite saddening. Shareholders are getting taken for a ride here imo...

 

[Eloise]

I already voted no online last week - but thought this might be of some interest...

http://www.businessspectator.com.au/bs.nsf/Article/OZ-CBA-pd20090606-SR2H8?OpenDocument&src=sph

Published 11:03 AM, 6 Jun 2009
Last update 11:03 AM, 6 Jun 2009
Robert Gottliebsen

Giving OZ a chance

Late yesterday Commonwealth Bank chief executive Ralph Norris and I made contact over OZ Minerals and I have wonderful news for the OZ Minerals shareholders and board.

Ralph Norris understands that the mining and economic environment has changed dramatically since the dark days of a few months ago. He is NOT, repeat NOT, going to pull the plug on any reasonable proposition that is better for OZ Minerals shareholders than the Minmetals proposal. Top marks to Ralph Norris. This is a big break through for OZ Minerals shareholders.

Let me take you through the background. Next Thursday (June 11) OZ Minerals shareholders will be asked to approve the sale of a series of prime minerals assets to Chinese owned Minmetals for $US1.2 billion ($A1.5 billion), when Grant Samuel valued the assets, based on current metal prices, at around $1.6 billion, a $400 million transfer of wealth from Australian superannuation fund and private investor pockets to Minmetals. When Minmetals originally made the offer it was fair, but a lot has happened since.

OZ Minerals directors, led by chairman Barry Cusack and chief executive Andrew Michelmore, are recommending the ridiculously low Minmetals offer to OZ Minerals shareholders because they are frightened that the banking consortium, led by the Commonwealth Bank, will appoint an administrator if they fail to approve the sale on Thursday.

I described this problems in two commentaries, (Last chance for OZ Minerals, June 4) and (Pillaging the land of OZ, June 5). The June 3 commentary did not mention any bank by name, but the June 4 commentary mentioned Ralph Norris and the Commonwealth Bank. Both articles made it clear that there was no criticism of past actions by banks, directors or Minmetals in the previous climate.

By Thursday afternoon I heard that Ralph Norris wanted to contact me, but because of two close family funerals on Thursday and Friday I did not actually make contact with him until late Friday. We lost 24 hours and I apologise to OZ Minerals shareholders, however there may have also been an earlier conversation between Norris and Barry Cusack. .

OZ Minerals directors have The Royal Bank of Canada’s proposal before them to raise $US1 billion in fresh equity and convertible bonds. While at this stage, understandably, the Canadian proposal is non-binding, OZ Minerals directors now know that, and as long as they act properly, the rug will not be pulled from under them after the meeting on Thursday by the CBA. There are two renegade foreign banks in the consortium which are a danger but I think that is manageable.

In my view this is what OZ Minerals directors must do:

1) Forget the banks, and decide which is the best proposal for OZ Minerals shareholders. There is plenty of time to do that before the meeting.

2) If the best proposal is the Royal Bank of Canada plan then negotiate a clear timetable for the underwriters, which Barry Cusack and Andrew Michelmore must submit to the CBA.

3) I am not a lawyer and at this point I might get shot down, but I would consider adjourning the meeting to tighten the new proposal. That might risk the Minmetals deal but I don’t think Minmetals will walk away from a $400 million bonanza paper profit. They will hang in there. If they were smart they would lift their bid.

Ralph Norris was at pains to point out to me that he is not the “grim reaper” and wants to look after clients like OZ Minerals. There is actually now, theoretically, a potentially deeper problem at OZ Minerals.

Andrew Michelmore plans to go with Minmetals, so he is now being asked to act against the interests of his future employer. I have 100 per cent confidence that he will play this game in the interests of OZ Minerals shareholders, even though it might not be in his own personal interest.

Both Andrew Michelmore and Barry Cusack have done a wonderful job in getting OZ Minerals to this point.

But remember, my first point is important. Leaving aside bank pressure, what is the best deal for OZ Minerals shareholders?

 

[oldblue]

I'd be surprised if the OZL board isn't doing some overtime this weekend on the "new offer".
Whether it will come to anything or not, we'll just have to wait and see.

 

[laurie]

Why do people here think what's voted at the AGM is going to affect the board opinion, our vote was not taken into consideration when OH remuneration was passed by the board you could have an 90% NO vote and it's not binding

cheers laurie

 

[cheeyeen]

I think the Oz Minerals board put it quite nicely in rejecting the so call new proposal to help existing shareholders from RBC.
"The board concluded that the structure of Proposal A was not in the interests of shareholders, that new investors in the proposed convertible bonds would be the principal beneficiaries of the proposal and that the certainty of the proposal being able to be completed was lacking,"
The convertible notes and placement are not going to existing shareholders anyway but rather to the "new investors". So in short it sounds like RBC said OZ Mineral board should let them make the profit rather than Minmetals? Who say the new proposal is better for existing shareholders? Existing shareholders are the losers no matter what since the sharp drop in the metals price, and the threatening of the 3 banks to pull the plug. More interesting is the valuation of the assets. So the independent experts say all the Oz Minerals' assets excluding the most valuable Prominal Hill mine are worth 1.6B. But the banks actually feel so unsecured about their 1.1B loan on these 1.6B assets + Prominal Hill mine that they want to withdraw their loan to OZ Min? I wonder what is the valuation of the "experts" from the 3 banks for OZ Min's assets?
Proposal B is also very nice. I will do a capital raising for you from the market so you won't loss out on that 400M in valuation different. But you will have to pay me a bit over 20% of that "saving" in real cash. OZ Min has about 3B of shares issued at the moment, to raise 1.1B @40c u need close to 3B rights (to cover the fees for the merchant banks as well). I wonder how many percent of this 3B shares will go to existing shareholders? Lets face it, a company that needs fund urgently would not count on existing shareholders. This is especially true if the shareholder base are not mainly big institutions who can come out with the cash right away. We have seen the majority of the raising in the last few months where most of the raising come in the form of placements to the so called "sophisticate investors" and retail shareholders only provides a fraction of the money raise. So if existing shareholders "loss" 2B of the rights to someone else at 40c, how much money have they loss? If you value the share at 60c/share, that's 400M. Given the OZ share is near 90c and everyone think it is still undervalue. I wonder how much in theory is existing shareholders loss out?
And these are all good when the market looks good at the moment. To quote what JTLP said before "What happens if the market keels over again and metals prices slump?? Who is going to be left holding the baby then?". If we look at research by IMF about the amount of money that the US and UK banking system need to come up in the coming two years, everything is possible.
I actually think the OZ Min board has done a pretty good job given the tough situation that they are facing in the last few months. To actually say they are not looking after existing shareholders is not fair to them in my opinion.

 

[nioka]

I actually think the OZ Min board has done a pretty good job given the tough situation that they are facing in the last few months. To actually say they are not looking after existing shareholders is not fair to them in my opinion.

Apart from the OZL board and the CEO there are not many that would agree with you. Do you speak for them or MM. I voted NO,NO,NO to the MM take over. It is stealing. There is no other way to explain it.

 

[prawn_86]

It is stealing. There is no other way to explain it.

LOL, sounds like any other form of business to me. When you buy something at a reduced price or at an auction is that also stealing?

 

[oldblue]

LOL, sounds like any other form of business to me. When you buy something at a reduced price or at an auction is that also stealing?

Exactly.

The Minmetals offer was the best around at the time ( and since, on the evidence at this point ) and infinitely preferable to a receivership in the hands of the banks.
There's been plenty of time for better offers to emerge and that hasn't happened.

 

[haunting]

I voted YES YES YES for MM because it is very clear that the second proposal is opportunistic, ad hoc, designed to enrich the hedge funds and take the small share holders for a ride. Voting for these leeches will not do OZL share holders any good.

 

[nioka]

I voted YES YES YES for MM because it is very clear that the second proposal is opportunistic, ad hoc, designed to enrich the hedge funds and take the small share holders for a ride. Voting for these leeches will not do OZL share holders any good.

I voted NO. Even in administration,if it came to that, we should be able to get a better deal than any on the table at this stage.Probably an administrator could arrange refinance,after all this is a profitable company. The MM deal is a steal because it was made under circumstances that do not exist now. The CEO is now working for MM as their CEO and has no interest in getting a better bid up. Even now the fat lady hasn't sung and before she does one of the offers could advance. If there is a genuine "auction" then a fair price would be set,no a particular bid would be accepted,and there would be no "steal". I do not see that is what is happening at this point in time.