Finance director Bronwen Constance appeared to take the wrap for this a few weeks ago and then popped up as finance director of Austrim, another teetering Melbourne company. There ain’t much depth in the management talent pool here in Melbourne.

The reputation of Pasminco chairman Mark Rayner is taking a battering and he is also chairman of Mayne Nickless and the NAB.

And CEO Dave Stewart is not looking like the best value CEO in Australia as BRW told us in a cover story two years back although the stock did bounce 7c to 29c on Thursday after falling from almost $2 a couple of years ago.

You’d think someone like Rayner who was schooled at Rio Tinto/CRA – which has a policy of not hedging – and is also chairman of a bank would know something about risk management.

Rayner is up there with Stan Wallis and John Ralph as the three most powerful professional directors in Melbourne. Rayner was a long-time deputy of Ralph’s at Rio Tinto/CRA but was passed over for the top job for Leon Davis in 1995 and given a $1.8 million retrenchment package on the way out the door.

He is an effective chairman at AGMs because he drones critics to death with his long-winded answers and that sleep-inducing sonorous voice. He also tends to try and shut Crikey’s questions down faster than almost any other chairman.

Pasminco was his attempt to build another major Melbourne-based mining house but if it goes broke it will join Gutnick’s stable on the scrap heap. Melbourne was once one of the great mining cities of the world but Alcoa and Woodside moved to Perth, Rio Tinto went to London, North was taken over by Rio and now Pasminco looks like it is going broke.

That just leaves WMC and Newcrest as the last two majority Australian-owned Melbourne-based specialist mining houses of any substance. We have, of course, got the world’s biggest mining company in BHP-Billiton based here which is some consolation as long as it remains that way.

Have you noticed how the WMC share price has risen about 20 per cent in recent weeks yet the BHP price remains stagnant. That’s because the BHP board led by Don Argus gave away $5.5 billion in value to Billiton in their merger of unequals.

Crikey’s old flat mate Mr G used to work for Gutnick’s Centaur group and has pinpointed some of the real villains in the various hedging debacles that have hit Australian mining houses. Over to you Mr G who filed from Central America:

More hedging mishaps…big slap on the hand Pasminco

The majority of blame must go to the companies (eg Pasminco, Centaur, BHP, Woodside, MIM just to name a few) but let’s not forget the greedy, commission starved investment banks who for so long have been down various mining houses throats enticing them to hedge and “lock in their profits” with above and below board tactics. Just how many of senior management at all mining houses have enjoyed activities recently from the grand prix to the aussie open to those invaluable olympic tickets…you would think that company senior management should be more than well equipped to tackle the trickiest of risk management decisions with the amount of “off site” courses that have been held recently. Or do these grossly overpaid persons only improve their golf game and refresh their oversized bellies at Australias’s premier resorts?

Wake Up! Not too many shareholders may know what a floating metal forward is but neither may many senior executives. Who takes the blame? Most likely middle management (while senior management walks quietly out the back door with a whopping retrenchment package) and the shareholders pocket nothing!

Extremely disgruntled former Pasminco and current Centaur shareholder, Mr. G.

NB: And are the gurus at the top investment banks still predicting the aussie peso at $0.70 in a few months? Heaven help us backpackers.

A subscriber has emailed in bagging the Fin Review’s Street Talk column of Tuesday for talking up the prospect of an MIM-Pasminco merger.

“Pasminco today closed down another 20% to almost 20c on a WHOPPING 66 million share turnover …… what did i say a few months ago on this thing looking like HIH….. either it’s a another collapse or a bargain !!!!!!

That’s a market cap of close to $300 million for the world’s largest zinc producer against a debt of 1.4 billion (as reported in a shocker of a column in afr street talk today) ……. yes not even an afr column suggesting takeover by MIM could save passies today. How responsible was that column …… i mean i understand the synergies operationally as i myself (as an old miner) have previously contemplated operation synergies between these two in the nw qld gulf country ……. but fair dinkum both are debt burdened badly which makes the column irresponsible bunk (was beating up a jp morgan merger idea) ……. the market spoke …… street talk tried to get the merger line up …… and passies got sold off like a tidal wave !!!!!!!

We’re not afraid to point out our mistakes at Crikey because as this colorful account of last year’s AGM demonstrates, we reckoned they were a screaming buy at 80c a share.

If the company goes broke, all those class action claims for lead poisoning will end up going nowhere fast, just like a whole raft of litigation based around HIH as the insurer who would have paid up at the end of the day.

Fireworks at Pasminco

First published October 2000

The Pasminco AGM last Wednesday was the toughest I’ve ever seen small shareholders treat a board of a major company.

It was a ripper and we didn’t say a word, partly because we didn’t have a proxy and partly because we didn’t need to say anything as the accountability system was working beautifully.

Former English investment banker Paul Hickey led the charge in his first outing at a big Australian AGM and it was an excellent blend of facts, rhetoric and bluster.

He quoted from an analyst describing a recent profit result as a shocker and also managed to make some sense of the disastrous hedging strategy of Pasminco which is currently about $400 million out of the money.

Hickey spoke aggressively throughout the meeting demanding answers and some accountability which appears to be sorely lacking given the lack of personnel changes on the board or at senior management level.

We then had this beefy Greek guy who looked like a panel beater and got very aggressive with the board, demanding to know how far the shares were going to slip and whether they were worth buying at current prices. Maybe this was why all these burly security guards were standing around.

This poor sucker had bought 20,000 at about $1.60 and they’re now worth just 79c.

Chairman Mark Rayner tried to mollify him by pointing out that he’d recently bought 20,000 shares as he chased it down from $1 to 90c and then lastly to 82c.

Establishment fellow delivers coup de grace

But the finest performance came from a nice fellow with a slightly plummy accent who introduced himself as John Vercoe-Cocks. At first I thought he was going to be an establishment defender of the board but nothing could be further from the truth.

He summarised the financial figures from the past 10 years and it was very ugly. A total of $2.7 billion had been invested in 10 years, but the group recorded accumulated losses of $93 million and a rise in shareholder funds of $600 million so the net amount “lost or mislaid somewhere” was $2 billion.

In his clipped and softly spoken voice, this urbane gentleman guided the board in the right direction as he told them:

“Surely that must be one of the most appalling records of any reasonable-sized public company in Australia. The only hope we have is that someone may make a takeover for this company and we get a figure somewhere over 80 cents. The reality is that no one’s really interested,” he said.

“After 10 years do you think it’s time to gracefully move over and give someone else a go?”.

Yes, we call cheered. His coup de grace came when he read out the directors’s shareholdings. David Brydon and David Macfarlane had been on the board for 10 years getting their $45,000 whack yet they both owned just 2157 shares. How pathetic is that.

Rayner appeared to get the message and told reporters after the meeting that these two were approaching retirement and he was looking for replacements.

Crikey is more than happy to hold him to this and if either of them is till there in 12 months time we’ll either find a candidate or stand ourselves for the Pasminco board at next year’s AGM. There you go lads, that’s 12 months notice to get your shop in order.

The hedging stuff-up across the mining sector

I felt more than a tinge of sadness watching proceedings at the Pasminco AGM. Afterall, the company was the world’s largest lead and zinc producer, it had just brought the massive Century zinc deposit on stream in record time and the low dollar should be sending its profits soaring.

Instead, the share price has plunged from $1.80 to 79c in 12 months, mainly because the company has completely ballsed up its hedging. Terry McCrann had a good article in the Weekend Australian about all the Australian mining companies that have completely got it wrong on commodity and currency hedging.

Pasminco and Newcrest are both about $400 million out of the money and Woodside Petroleum have completely got it wrong and blown about $2 billion by taking huge and wrong bets on the oil price and currency. Can you believe they locked in a US68c dollar and a $US18 a barrel oil price. That has got to be one of the greatest hedging blunders of all time and means they’ve effectively selling oil at half price. That’s what you call management adding value.

McCrann is spot on when he says that companies have attempted to hide their mistakes and failed to keep the market properly informed about these exposures. Hugh Morgan’s WMC is another outfit that cost its shareholders hundreds of millions by punting on a higher dollar and then attempted to hide it in a sea of complex tables.

Similarly, Joe Gutnick might have hung onto his empire if he hadn’t locked his hedging in way too early in the currency cycle.

The sad thing here is that we are meant to be an expert commodity nation with sophisticated risk-managers. Yet if all these boards had done precisely nothing on hedging, Australia as a nation would be several billion dollars better off. In other words, we’re not getting the full earnings benefit of the cheap dollar and this is contributing to it going even lower .

Any board that has a hedging policy is taking a view that they are smarter than the market. You see currency flows and hedging is a zero sum game yet global investment banks make billions of dollars out of it each year. You can now see where their profits come from. Yep, you guessed it! Dopey Australian mining companies that wouldn’t know if their arses were on fire are the gullible counter-parties to all these global investment banks like Goldman Sachs and CS First Boston.

Why has no-one been beheaded

You then get to the question of accountability. Surely, dozens of people should be sacked for costing the punters all this money. If the chairman wants to hang onto his job then surely the CEO should go and if that is somehow not acceptable then the finance director must get the bloke for the chop.

It would be very interesting to know if anyone at Newcrest, Pasminco, Woodside or WMC have lost their job for all these cock-ups. Pasminco chairman Mark Rayner certainly wasn’t admitting so. He just offered platitudes about the company taking lots of advice and it all being very easy to say with the benefit of hindsight.

Rayner’s legal blues

With the benefit of hindsight, maybe it was a mistake that he was appointed chairman in the first place. That was certainly the view of the vociferous guy with the thick European accent who kept standing up and calling him “dishonest” because of a dispute he’s having with the National Australia Bank, which Rayner also chairs.

In fact, poor old Rayner is becoming something of an expert on legal matters. He chairs three companies, the third being Mayne Nickless, and all of them are embroiled in big court cases. NAB,of course, has the $50 billion clanger from John Maconochie JMG group. Mayne Nickless has just copped a $28 million claim over its UK parcel business and Pasminco is fighting class actions from people who claim to have suffered lead poisoning.

Pasminco looking cheap

There is no doubt that this Pasminco litigation has depressed the share price, but there clearly has been an over-reaction. Rayner points out that absolute worst case scenario is that is could cost the company 20c a share – that’s a hefty $230 million – yes the stock has seen $1 billion wiped off it over the past 12 months.

Frankly, after considering all the facts presented at the meeting, I reckon Pasminco is a screaming buy at anything below 80c. Look at the way Ashton Mining was trading at 85c and is now being taken over at $2.20 and that North was trading at $2.85 and then got taken over at $4.75. I sold Paula’s holdings in both those stocks just before the bids were launched so I know all about it.

It might be another year before you see a dividend because debt has blown out to $1.5 billion, but the whole company is surely worth something north of $1 a share, especially given the highly successful ramp up of Century, something Rio Tinto proved unable to do thanks to their hard-nosed approach to the local communities.

Here ends the lesson.

Peter Fray

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