Sale Day For OZ Minerals?

D-day for shareholders in troubled miner OZ Minerals today as they gather in Melbourne for a vote that will decide the future of their company.

There have been reports of two proposals to the board about a recapitalisation process that would involve the rejection of a cash offer from China’s Minmetals.

OZ said yesterday in a statement to the ASX that it hadn’t received any additional funding proposals since it revealed two days ago that two alternative recapitalization plans had been submitted.

There were suggestions yesterday that a Macquarie-led syndicate would appear with an offer of its own, but late yesterday it become known that this proposal had collapsed because Macquarie couldn’t get its act together.

But the counter proposals were made moot by a late announcement from OZ and China Minmetals which revealed the Chinese company had lifted its offer by 16% to $US1.386 billion cash, or $A1.74 billion.

That would allow OZ to repay $A1.1 billion in bank debt, due by the end of the month. The $A600 million in cash would form a nest egg to help the company operate its Prominent Hill mine, and to expand.

The lift in the price will finish all talk of counter proposals.

The problem for these competition offerors is that their deals contain a lot of debt, and after the near death experience of OZ Minerals since last November, it’s the last thing that shareholders would want.

Minmetals is offering cash, which makes the banks go away.

The RFC deal Proposal A (below) and reportedly the Macquarie deal, offer cash, debt and some new equity. But it still leaves debt in the company.

They are private equity-like deals and will be depending on the gearing and interest cost write-offs to produce returns.

The backers and financiers of the deals stand to get their money first and shareholders will rank behind them.

At least one deal looks OK on paper, but contains a big whack of debt in reality that could prove a burden to OZ Minerals and its suffering shareholders.

The Financial Review claimed yesterday that Macquarie Group may today offer OZ Minerals a $A1.4 billion ($US1.1 billion) share placement and rights proposal as an alternative to the asset sale to China Minmetals Group.

The paper claimed this was supported by some of the miner’s (unnamed) shareholders.

OZ Minerals shares rose to 92.5c on the ASX yesterday, then eased 2c to 89c after the OZ statement about other offers was released just after midday.

Shareholders would be entitled to answer where one disclosed counter offer promoter, RFC and possibly Macquarie were when OZ Minerals needed support and cash to keep the bank at bay in December to February of this year when China Minmetals appeared with its offer for all of the company (and later cut back to excise the huge Prominent Hill mine and processing business in South Australia).

From What the OZ board decided in relation to the two offers, the two offers so far received are incomplete and not really offers. From what OZ said on Tuesday, the proposals are just that, and both involve the payment of multi-million dollar fees by the company (which has little cash at the moment, with the $1 billion of bank debt due by the end of June).

In a statement on Tuesday, OZ ‘s managing director Barry Cusack said:

Subsequent to OZ Minerals’ announcement on 5 June 2009 that it had not received any recapitalisation proposals that day, the Company subsequently received two unsolicited proposals.

After thorough and detailed consideration, the Board of OZ Minerals (excluding Mr Andrew Michelmore, who agreed with the Chairman not to participate in discussions so as to ensure there was no actual or perceived conflict of interest) unanimously concluded that neither proposal offered superior value to existing shareholders compared to the proposed asset sale to China Minmetals Non-ferrous Metals Co., Ltd. (“Minmetals”) and the implementation of each proposal was less certain than the Minmetals transaction.

Further, neither proposal offered a complete solution to the Company’s refinancing issues. The Board has rejected both proposals and has advised the proposers of its decision.

We believe, that in the Minmetals transaction, we have a proposal to resolve OZ Minerals’ refinancing issues that is both highly certain and offers value to our shareholders.

As I have said on many occasion, our sole purpose is to act in the best interests of our shareholders and it is the Board’s considered view that the proposed Minmetals transaction is the best available option.”

The share price of OZ Minerals has risen 59% since the revised Minmetals transaction was announced on 1 April 2009, compared to an increase in ASX All Resources Index of 18% over the same period.

I would not normally refer to the Company’s share price, but I think it is reasonable to conclude that the market’s assessment of the outlook for OZ Minerals based on completion of the Minmetals transaction is positive.

The Company has benefited from extensive analysis of the proposals by its advisers and we wish to advise shareholders and the market generally of the basis for the Board’s decisions in respect of each of the recapitalisation proposals.

Because each proposal was presented to the Board on a confidential basis, this announcement will only identify them as Proposal A and Proposal B.