Launching the "save Owen Hegarty" campaign at last Oxiana AGM

February 2, 2010

Dear Mayne Reporters,

the campaign to have Owen Hegarty installed as CEO of the combined $10 billion Oxiana-Zinifex outfit kicked off in earnest today at the Oxiana AGM in Melbourne when we vox popped shareholders, including AFL legend Ronald Dale Barrassi.

The final Oxiana AGM was a bitter-sweet affair as Owen Hegarty's large shareholder cheer squad enjoyed a vintage upbeat performance but lamented his shafting in favour of Zinifex CEO Andrew Michelmore as part of the so-called "merger of equals".

Both boards are clearly aware of the precedents at Tattersall's-Unitab and ASX-SFE Corp when the annointed CEO of the combined businesses was overturned by protesting institutional shareholders.

This sent Tattersall's CEO Duncan Fischer and ASX CEO Tony D'Aloisio out the door with egg on their faces and ridiculously large payouts, so the key line of attack today was to establish exactly what contractual arrangements were in place with both Hegarty and Michelmore.

Oxiana chairman Barry Cusack did use the word "terminated" which means Hegarty will be getting beneficial tax treatment for the seven-figure lump sum he will collect for being dumped from a 3 year contract after just 18 months. However, Cusack was coy about Michelmore's contract suggesting that his current Zinifex arrangement will be adjusted and include the normal golden parachutes.

Given that Oxiana shareholders aren't being given a vote (see AAP coverage) on the merger and the Zinifex board clearly made Michelmore's ascension a condition of the deal, I simply suggested that shareholders would be happy if the board changed its mind after the merger was consummated and installed Hegarty as CEO. It might cost a few million but the share price would probably go up.

It was Cusack who did all the talking about Hegarty wanting to slow down, although Mrs Hegarty did come up after the meeting and stress that she wanted more of Owen's time and they had 10 grandchildren now.

Have a listen to the full audio exchange about Hegarty's shafting.

Why not make Hegarty chairman?

When it came to Cusack's re-election, I cheekly asked Hegarty if he felt comfortable filling in as acting chairman before asking a serious question about Cusack's age and his intention to serve a full three year term, all of which was couched in that familiar John Howard language about "being in the party's interests". Have a listen here.

Cusack would only proffer that he was "mid-60s", but given that Hegarty is being urged to retire because he's 59 and older than Michelmore, the obvious solution would be to install Hegarty as chairman, rather than just head of a merger-implementation sub-committee of the board. As the founder of Oxiana and one of the 10 largest shareholders, this would keep Hegarty fully engaged into the future. The man is a brilliant and inspirational orator who can open doors the world over by pointing to Oxiana's superb operational and community achievements. He could keep doing all that as chairman.

Cusack didn't quite promise to serve a full term but he certainly professed to be fit and keen to keep warning the chair into the future.

In all honesty, this deal would be a lot more popular if Hegarty had been allowed to serve out his contract with the clear intention that Michelmore would succeed him at the end of 2009. Michelmore has runs on the board as the last CEO of WMC and someone who worked on big restructurings in Russia, but he's got 10 years left in him yet so why the rush to depose Hegarty?

Accommodating two CEOs for a short period is common place. It happened when BHP and Billiton came together and it seems to be working fine with Fairfax and Rural Press. This is an issue that will dog the merger debate right through until the Zinifex shareholder vote and the Oxiana EGM in mid-July to change its name. Even the name change seems silly, given the great brand that Oxiana has built up. Zinifex has poisoned plenty of kids with lead over the years and having shed the tale of those liabilities with that James Hardie-esque float of the smelters in Europe last year, you certainly wouldn't want to keep that name.

Why are Oxiana shares underperforming?

After 70 minutes of presentations, only four shareholders spoke over 15 minutes during general questions at the meeting which was held in the same Latrobe Theartre inside Jeff's Shed that the last Pasminco and most recent Zinifex shareholder meetings were held in.

One eloquent professional in a suit mounted a good argument about the weakening share price, blaming the Hegarty decision and the terms of the merger for the 24% share price plunge since March 3. It has risen more than 5% over the past two days so the damage is slightly reduced.

Duncan Seddon from the Australian Shareholders Association opened the batting wanting to know if any of the recent chaos with margin lending and the like had affected the company given the names which popped up on the top 20 shareholders list. Cusack talked about some shareholders being margin called but didn't quite seem to comprehend the question so I followed up with this blunter version which can be summarised as follows:

Given that Merrill Lynch is the largest shareholder with 10.25% or 159 million shares and ANZ Nominees features with 4.6% or 72 million shares, has the recent share price weakness been caused by some of these 230 million shares or 15% of the company being dumped on the market due to the chaos flowing from the $5 billion-plus that ANZ and Merrills had lent to the besieged clients of Opes Prime, Tricom, Lift Capital and Chimaera?

Apparently not, said Cusack and the Oxiana spindoctor later counselled that the vast majority of the Merrills stake was held as part of its normal funds management business.

On the question of director and executive margin calls, Cusack pre-empted the inevitable questions by saying that only 3 of the 13 largest shareholders at board and executive level had margin loans and none were material. Given that the big 13 own about 50 million shares worth $160 million, this suggests the Mighty Ox has indeed created some serious wealth for the key players, with none bigger than Hegarty who owns almost 30 million shares.

Eulogy to Owen Hegarty

Chairman Cusack played hardball when it came to questions at the end of the formal business, so the eulogy to Owen Hegarty had to be couched in the context of the proposed increase in maximum board fees from $800,000 to $1.4 million.

Given that the board is being doubled to 10 with the Zinifex merger, it seemed bizarre to not go for a bigger increase to accommodate this. After all, as a humble non-executive director, Oxiana shareholders would be happy to pay Hegarty alone more than $300,000 a year.

Have a listen to the comments about board pay, plus the final eulogy which pointed out how appallingly Australia's great resources bounty had been managed and what a contrast Oxiana was to the previous generation of major Australian mining houses.

BHP blackened Australia's name with Ok Tedi, Rio Tinto should be ashamed of what Freeport McMoran does at Grasberg, Santos has been up to ears in Indonesian mud and even Newcrest has battled away with controversies in Indonesia.

The contrast with the exemplary way that Oxiana has developed the Sepon copper-gold deposit in Laos using best practice community engagement there to open doors elsewhere in places like Thailand, Indonesia, China and Mongolia is a credit to Hegarty and his team.

The fact that it is majority Australian-owned with a wholly Australian board is another feather in the cap when you compare Rio Tinto's 15-strong board with just two Australian-based directors and BHP-Billiton which has recruited four expat CEOs ever since flicking John Prescott in 1998.

The fact that Australia has more than 50 $1 billion-plus resource projects that are majority foreign owned and we have zero equity interest in the great mines of Mt Isa and the Kalgoorlie Super Pit, along with just 10% of the North West Shelf, it is an indictment on generations of Australian boards, managers and politicians.

Owen Hegarty came out of Rio Tinto to launch Oxiana in 1996 and has built an impressive $5 billion company in just 12 years. Given this record, it really is a crying shame that he's being turfed out prematurely just to get the Zinifex merger over the line.

Audio summary

Finally, here's a summary of the 13 minutes of audio exchanges.
Merrill Lynch and ANZ Nominees

Chairman re-election

Pay rise for directors

Eulogy to Owen and Australia's woeful mining record

Full audio exchange

Do ya best, Stephen Mayne

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