After flogging off the majority of its assets to the Chinese government for $1.73 billion in a fire sale at the peak of the GFC last year, Melbourne-based OZ Minerals scurried off to Adelaide for its 2010 AGM yesterday.

But that didn’t stop the board copping an absolute shellacking as you can hear from these audio files:

Do you accept the fire-sale was a huge blunder?

Why we’re vulnerable to the IMF class action.

After six years on the board Brian Jamieson should go.

A reminder of why Owen Hegarty’s $8.3 million payout really hurt.

The four most responsible parties, namely the former chairs and CEOs of Zinifex and Oxiana  — Owen Hegarty, Peter Mansell, Barry Cusack and Andrew Michelmore — have now all departed the scene.

New Oz Minerals chairman Neil Hamilton did a reasonable job yesterday but is over-committed given he chairs two other public company boards (Micelyn and Mt Gibson Iron) while also sitting on the Metcash board.

He didn’t seem across much of the detail yesterday, failing to explain what happened to the much-trumpeted $2 billion of cash that was sitting on the Zinifex balance sheet when it merged with Oxiana Resources to create a so-called $12 billion mining power house in 2008.

The final insult from former Oxiana and founding OZ Minerals chairman Barry Cusack came in the last paragraph of his letter to the embittered 105,000 OZ Minerals shareholders when he wrote:

“It has been a pleasure and a privilege to have served as chairman of OZ Minerals and predecessor Oxiana over the last eight years, during which the market capitalisation has grown from around $200 million to $3.6 billion.”

While Oxiana was indeed a good ride for investors in the early years after it picked up the Seppon copper-gold project in Laos from Rio Tinto for a song, the story in recent years was one of enormous value destruction.

Zinifex shareholders paid $960 million or an average $1.90 a share in the 2004 float and saw the stock peak at more than $21 in 2007.

The terms of the merger saw Zinifex shareholders receive 3.193 shares in Oxiana for each share they owned, so with OZ Minerals shares today at $1, Barry Cusack’s wonderful merger sees Zinifex shareholders holding stock worth the equivalent of $3.19 — a calamitous 85% below the record high. Thanks for nothing, Barry.

By way of comparison, BHP-Billiton shares are today only 25% below their record peak of $50 in early 2008.

The most nauseating thing about Cusack’s claims to have created enormous value, is that former Oxiana CEO Owen Hegarty received his $8.35 million ex-gratia payout using assumptions that the OZ Minerals share price would today be worth close to $5.

This timeline summarises all that was wrong with the situation:

June 16, 2008: Zinifex shareholders approve merger while Oxiana shareholders not given a vote.

July 18, 2008: 57% of votes cast at OZ Minerals EGM vote down proposed $10.6 million payout to Owen Hegarty.

August 21, 2008: board defies shareholders and approves $8.35 million ex-gratia payout to Owen Hegarty.

September 23, 2008: CEO Andrew Michelmore and chairman Barry Cusack send a letter to OZ Minerals shareholders, which included the following claim: “We have a strong balance sheet, no net borrowings and the ability to generate healthy cashflows. At a time when the world’s financial system is in so much turmoil, this is an enviable position to be in. We have a strong pipeline of growth projects stretching out over the next decade, and we have the financial capability to finance the pipeline without being beholden to the financial market.”

December 1, 2008: just 10 weeks later, OZ Minerals announces suspension due to inability to refinance $US560 million in debts.

February 16, 2009: board approves cash offer from Chinese Government at just 82.5 cents a share.

July 11, 2009: shareholder approve $1.73 billion sale of all assets to Chinese government except Prominent Hill after Wayne Swan’s intervention.

If Oz Minerals had followed the lead of many over-leveraged companies during the GFC and simply raised equity through a pro-rata rights issue, the company would today be worth more than $4 billion.

Instead, the Chinese government picked up an absolute bargain because OZ Minerals shareholders were so enraged about the Owen Hegarty payout and misleading statements to the market that they didn’t have the confidence to recapitalise the company.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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