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The real oil on Macraes below
NZ Herald - Business Pages Sat 28 August
Gaynor: Plunderer deserves no sympathy
25.08.2001 By BRIAN GAYNOR

This week's media coverage of the Reefton goldmining issue has been unbelievably one-sided. Perth-based Gold and Resource Developments (GRD) has been painted as the good guy who is being frustrated in its efforts to create jobs and wealth on the West Coast.

Are our memories that short? Less than three years ago GRD showed little concern for New Zealand's interests when it plundered Macraes Mining and its shareholders.

The insidious acquisition of Macraes resulted in a huge transfer of wealth from New Zealand to Australia and ended New Zealand ownership of the country's premier goldmining company.

Macraes Mining was listed on the New Zealand Stock Exchange on January 17, 1990, following the issue of 42.5 million shares to the public at $1 each. Before the issue, The Union Gold Mining Company (now called GRD) was issued 45 million shares, or 51.4 per cent of the company, credited as fully paid. The new listing's main operation was the Macraes gold project 60km north of Dunedin.

The timing was dreadful. In 1990, the New Zealand sharemarket was in the throes of the post-1987-crash depression and the NZSE40 Capital Index (then called the Barclays Index) plunged 39.7 per cent to close at 1203. Macraes was caught in the tsunami; its share price started falling from day one and was only 70c at year-end.

The following year was more successful. Gold production increased from 11,000 oz to 81,600 oz, a pretax profit of $11.3 million was reported and the share price rose to $1.80.

During the year Macraes acquired the New Zealand gold interest of CRA, including the Reefton Goldfield.

Macraes took an optimistic view of the acquisition: "Within the package of tenements to be acquired from CRA no mining licences exist. However, we are confident that we will be able to obtain such licences given the experience we have gained at Macraes over the past few years." The company hoped to have planning permission in four years and have the Reefton mine operating in 1995, producing 80,000 oz of gold a year.

Macraes prospered in the mid-90s. By the December 1996 year, gold production had increased to 138,500 oz, a pretax profit of $23.7 million was achieved and the share price peaked at $3.80. But the Reefton development was running into problems. In 1994, the company complainedabout the delay in receiving consents and the following year it suspended development of the mine because there was no "guarantee that the project would achieve the performance criteria demanded by management and the board".

Macraes' annual report for the year ended December 1997, its last as a New Zealand-owned company, painted a bleak picture. Earnings were hurt by a lower gold price, higher New Zealand dollar and a $111 million assetwritedown. The writedown included the Reefton project, on which the companyhad spent $32.3 million to date.

The poor performance continued into the 1998 year and the company reporteda small loss for the six months ended June 30. GRD's shareholding hadfallen to 35 per cent but it still dominated the board with four of the sixdirectors. The small Perth-based company was in financial difficulty andits only significant assets were the Macraes shareholding and 32 per centof Minproc, a project design company with total losses of $A45 million inthe previous three years.

On September 7, the day Macraes share price closed at an all-time low of48c, GRD announced a proposed merger with the New Zealand company.Effectively, this was a takeover.

Macraes shareholders would receive one GRD convertible redeemablepreference share, paying a dividend of 8.4Ac a year, for every two of theirown shares. The preference shares can be converted into GRD ordinary shareson the basis of 1.25 shares for every preference share or be redeemed for$A1.20 cash on March 31, 2006.

Macraes, which had shifted its primary stock exchange listing to theAustralian Stock Exchange (ASX) but was still a New Zealand-registeredcompany, had to take the following steps before the merger was implemented.-* An independent report had to be prepared under New Zealand Stock Exchangerules.* Approval of 75 per cent of shareholders, including GRD, was requiredunder New Zealand's Companies Act 1993.* Approval of 50 per cent of shareholders, excluding GRD, was mandatoryunder ASX rules.The New Zealand Stock Exchange granted a waiver from an independent reporton the understanding that a meeting of minority shareholders would be heldunder ASX rules and an independent report by KPMG's Perth office had beencommissioned. This report was woefully inadequate as it did not containmany of the items that are required under a Stock Exchange-commissionedanalysis.

In an extremely acrimonious meeting in Dunedin, from which the media werebarred, shareholders approved the merger under the Companies Act 1993 by76.6 million shares to 24.1 million. The motion would have been defeatedhad GRD not been allowed to vote.

GRD knew it was in trouble if the Australian meeting went ahead becauseunder ASX rules, only minority shareholders could vote. The ASX insistedthat this meeting be held but GRD took its case to the West AustralianSupreme Court which ruled in its favour. The court decided that ASX rulesdid not cover a merger under New Zealand company legislation.GRD spotted a loophole in the regulations and vigorously exploited thissituation at the expense of New Zealand shareholders.

The Perth-based company has done extremely well out of Macraes and its NewZealand shareholders. From 1990 to 1997, Macraes paid more than $72 millionfor services to companies associated with GRD and its directors.

The merger has resulted in a massive transfer in wealth from New Zealandshareholders to the Perth-based company. Macraes' share price, as reflectedby GRD's preference shares, has risen by just 69 per cent, from $A0.40before the merger announcement to $0.67, whereas GRD's ordinary share pricehas increased by 488 per cent, from 17Ac to $A1 over the same period.

Not surprisingly, the Australian-owned Macraes has experienced a dramaticincrease in production and earnings since the merger. Output has increasedfrom just 93,800 oz in the December 1998 year to 173,200 oz last year andthe project reported a record pretax profit of $A22.6 million last year.Former Macraes shareholders have received almost none of the benefits ofthis big improvement. The Reefton project has also sprung into life, havingbeen abandoned just before the merger proposal. KPMG valued the Reeftonproject at between $2.4 million and $5.7 million, yet less than 18 monthslater the GRD annual report stated: "The Reefton Gold Project has potentialto add substantial value to GRD, representing 100,000 ounces of goldproduction per annum and over $A100 million of net present value."

Many former Macraes shareholders have been amazed at the outpouring ofsupport for GRD following Conservation Minister Sandra Lee's rejection ofan application to extend the Reefton project's licence area. The experienceof the company's North Otago mine indicates that most of the majorengineering work will go to Perth-based GRD Minproc, the top jobs will goto Australians, huge fees will flow across the Tasman and profits will bedistributed to Australian shareholders.

The role of Labour MP Clayton Cosgrove also comes into question. MrCosgrove was corporate affairs manager for the GRD group of companies inPerth and took a hardline approach towards Macraes shareholders who werelooking for a better merger deal. At the time he showed no sign of concernfor New Zealand's national interest.

The low-profile MP has taken a very public stance in favour of GRD'sReefton mine and has criticised the objectivity of one of Ms Lee's staffmembers. Mr Cosgrove is in no position to make these accusations.Normally, share investors would be appalled by Sandra Lee's decision andwould unequivocally support Mr Cosgrove's stance. But GRD's calloustreatment of New Zealand shareholders is still fresh in their minds and thePerth-based company has received far less support over the Reefton issuefrom the investment community than it has from the media.* Disclosure of interest: Brian Gaynor owns GRD convertible redeemablepreference shares.

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