Delusional Cossie, Oxiana scandal and protests against remuneration reports

1. Peter Costello's delusionary debt free day

By Stephen Mayne

Whilst British Prime Minister in waiting Gordon Brown last night delivered his latest impressive big picture speech at the UN overnight, his Australian equivalent is running around making silly statements about oil prices and releasing even sillier studies about the federal government's debt position.

A cosy interview on Channel Nine's Today Show yesterday opened as follows:

KARL STEFANOVIC: Well today, you get to do what many Australians only dream of and that is to pay off the mortgage.

COSSIE: Yes, we started with $96 billion. That was the Labor debt when the Government was elected in 1996 and over 10 years we have been working to pay it off and today we go debt free. And what that means for people is that no longer do we have to raise taxes to pay the interest bills or to re-pay the Labor debt, that we have gone debt free and we have got a lot more options and a lot more freedom for the future.

It is amazing how many other supposedly credible commentators have fallen for this stunt when the Federal Government still has more than $50 billion in bonds outstanding. It literally hasn't "paid off the mortgage" or "retired all debt". To make the stunt stack up, Cossie then has to try and claim that the government has more financial assets than debts.

But in doing this he should reveal that the government has one of the smallest foreign reserves in the developed world, largely because almost $20 billion has been raided from the Reserve Bank since 1996 - all to help make this bogus debt claim.

And if you are going to start trying to negate certain assets with liabilities, it is only fair to bring in all assets and liabilities and look at the government's overall balance sheet. When you do this, Cossie's outrageously reckless $29 billion blowout in unfunded federal superannuation liabilities to $98 billion over the past decade makes a mockery of the exercise.

And what about the $12 billion-plus of debt sitting inside Telstra. Remember this press release from April 1997 when the Government announced Telstra would borrow $3 billion to make a special contribution to the budget before privatisation. That's in addition to the $8 billion-plus in dividends that have been ripped out by the government since privatisation.

The real figure to consider is net worth and this is what the government's own budget figures show it has presided over:

Negative net worth of Federal Government

1996-97: -$74.35bn
1997-98: -$68.54bn
1998-99: -$76.15bn
1999-00: -$40.55bn
2000-01: -$43.30bn
2001-02: -$48.32bn
2002-03: -$53.25bn
2003-04: -$39.59bn
2004-05: -$31.98bn
2005-06: -$27.78bn

Costello should shut up until he can come out and say the government is actually worth something - anything. At the moment, rather than being debt free, the Federal Government remains Australia's most insolvent institution, albeit one with a taxing power that allows it to continue meeting its obligations.





22. Inside the Oxiana options scandal

By Stephen Mayne, owner of 190 Oxiana shares

A big corporate governance story unfolded at the AGM of emerging mining company Oxiana Minerals yesterday but, amazingly, not a word of it appeared in either The Age or the Herald Sun this morning.

And it wasn't as if hundreds of people didn't know about it. When Oxiana chairman Barry Cusack revealed that the company – which has performed better than any other over the last five years – received a staggering 46% (it was actually 46.9%) against vote on its remuneration report, I started jumping up and down and demanded to know what the issue was.

What followed was some of the most outrageous obfuscation I've ever seen at an AGM. Cusack claimed to not know but the meeting was told the protest was led by the emerging corporate governance kingmaker, Institutional Shareholder Services, which advised its clients to vote against the remuneration report.

As The Australian's Andrew Trounson reported today, Cusack said the message "hasn't been consistent" and then cited "hurdle rates (for option grants), retirement benefits, length of time measuring performance" as having been "mentioned in discussions".

John Durie was diplomatic in The AFR's lead Chanticleer item today as he cited the possibility of "a conspiracy or a stuff-up" because the issues are cut and dried. The Oxiana board has quite outrageously changed the performance period of some options issued to managing director Owen Hegarty so that rather than lapsing they are in the money.

The 2004 report said the performance period expired on 30 June 2005 and, based on this, some of Hegarty's six million options would have lapsed. Lo and behold, the 2005 annual report changed this to December 2005, meaning the hurdle was met and Hegarty is about $2.7 million richer. You just can't change the rules like that on something which requires shareholder approval.

Oxiana refused to clarify the situation or make a public statement explaining the change, so its major shareholders such as Barclays had little choice but to follow the advice of ISS and vote against the remuneration report.

Hegarty also owns 27 million shares worth $91 million at yesterday's record close when the company reached its goal of cracking the top 50 with a market capitalisation of $4.6 billion, so he's hardly in need of the extra donated equity from the other shareholders.

A separate issue related to the valuation of Hegarty's six million options at just $77,282. Given they have a strike price of $1.25 and the stock closed at $3.38 yesterday, this is patently absurd and has the effect of understating Hegarty's pay and over-stating profit. If ever we've seen an argument for fully expensing options grants, this is it.

Just because Oxiana is making a fortune mining gold and copper in Laos, doesn't mean it has to adopt the accounting standards of third world countries. The major shareholders were absolutely right yesterday and the board and management have emerged looked greedy and deceptive.

Let's hope the media don't allow the company to bunker down until the storm passes. We need some detailed public explanations rather than the "we'll try to understand the issue" bluster that was offered up in response to my questions at yesterday's AGM.

Check out the full voting results lodged with the ASX this morning. Interestingly, the issue of another two million options for Hegarty was only opposed by 13.2% of the directed proxies.


23. The biggest protests against remuneration reports

By Stephen Mayne

No amount of spin from Oxiana or standing ovations from a few retail shareholders can hide the fact that the company has just faced the biggest revolt of any top 200 company against a remuneration report since the new non-binding vote came into effect for all AGMs after 1 July last year.

Chairman Barry Cusack brazenly misled shareholders yesterday with his claim that no votes of 35-45% are normal. This is where Oxiana sits on the league ladder of "against" votes after about 1,500 AGMs, but you should note that Novogen is a tiddler with a market capitalisation of just $347 million:

Novogen: 72.5%
Oxiana: 46.9%
Sims Group: 35.6%
Investa Property Group: 35.14%
Valad Property Group: 29.8%
Spotless 24.2%
Jubilee Mines: 24.4%
Centennial Coal: 22%
Amcor: 21.38%
Rinker: 19.6%

And just to further demolish Cusack's bunkum about comparable companies, this is what has happened at the AGMs of the other resources companies in the top 150 when it came to voting on the remuneration report:

AGL: 10.75%
Paladin Resources: 10.59%
Rio Tinto: 5.28%
Woodside Petroleum: 4.62%
Minara Resources: 3.52%
Newcrest Mining: 2.28%
Origin Energy: 1.83%
BHP Billiton: 1.82%
Excel Coal: 0.4%

In my view, Barry Cusack is not fit to chair a major public company based on yesterday's performance. You simply can't refuse to properly explain an issue and then completely mislead shareholders about the scale and importance of the protest vote. This was a major revolt which he attempted to portray as normal.

Sadly, the cheer squad of deliriously happy retail shareholders and assorted company hangers-on chose to ignore the issue and I was the only person of about 300 in the room who voted against the remuneration report on the show of hands. Some other chairman of a listed company sitting in the front row launched a typical attack on "corporate governance box-tickers" whilst not actually addressing the specific issue.

The remuneration report vote really should have gone to a poll because the raw votes were as follows:

For: 279.4m
Against: 246.3m
Discretionary: 3m
Abstain:17m

The non-controversial resolutions passed yesterday with an abstain vote of under 1 million, so if you add the 17 million abstained proxies we're talking 48%. I pointed out that it probably would have gone down without the support of shares held by management, but company secretary David Forsyth then claimed "certainly the management would not be voting, we're not that sort of company".

Given that every director has an equity play of more than 1 million shares, I would be most interested to see if that claim stacks up. Why wouldn't they vote the stock to save the embarrassment of being the first $1 billion-plus company to have their remuneration report defeated?

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