The real scandal at Oxiana in 2006

By Stephen Mayne
January 16, 2008

Stephen Mayne, small Oxiana shareholder, says the miner should just come clean about why institutions rejected its remuneration report in 2006.

After copping the second biggest protest vote against its remuneration report over the past year, booming miner Oxiana Resources has finally come out and done this mea culpa two months after the AGM took place.

However, chairman Barry Cusack and CEO Owen Hegarty have focused on issues which were not the point of the protest, and both Andrew Trounson in The Australian and Michael Pascoe in Crikey yesterday have missed the point. The issue had nothing to do with option valuations and the involvement of non-executive directors in incentive schemes.

The scandal involved changing the performance period on Hegarty's options. Hegarty was issued four million options to buy shares at $1.20 apiece at the 2004 AGM, but the notice of meeting only stated that "the options will vest on 1 June 2006, subject to the satisfaction of performance hurdles".

The subsequent 2004 annual report, released in March 2005, clarified that the hurdles were as follows:

  • 50% will vest on 1 June 2006 if the total shareholder return of Oxiana for the year ended June 30, 2005 exceeds the median of the total shareholder return of competitor companies.
  • a further 50% will vest on 1 June 2006 if the total shareholder return of Oxiana for the year ended 30 June 2005 is in the top quartile of the total shareholder return of competitor companies.
Fast forward to the 2005 annual report and suddenly we're told the hurdles are as follows for these same 4 million options:
  • 50% will vest on 1 June 2006 if the total shareholder return of Oxiana for the two years ended 31 December 2005 exceeds the median of the total shareholder return of comparator companies;
  • a further 50% will vest on 1 June 2006 if the total shareholder return of Oxiana for the two years ended 31 December 2005 is in the top quartile of the total shareholder return of comparator companies.
Oxiana has gone into orbit over the past year but, sadly for Hegarty, it under-performed in the broader market and its comparator companies over the 2004-05 financial year. Therefore, the four million options should have lapsed. Lo and behold, the 2005 annual report changed the hurdle time frame to two years, so next week Hegarty will be able to write out a cheque for $4.8 million to buy stock worth $11.84 million based on this morning's share price of $2.96.

That's a paper profit of $7 million for Hegarty at the expense of all other shareholders who will be diluted. Why the hell can't the company just confess that this is the issue rather than putting out complete smokescreens?

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