21/11/2006 - 21:00

Aquila, Paladin cash in

21/11/2006 - 21:00

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Aquila Resources and Paladin Resources provide stunning examples of the huge value that can flow from share options when companies achieve large and sustained increases in their share price.

Aquila, Paladin cash in

Aquila Resources and Paladin Resources provide stunning examples of the huge value that can flow from share options when companies achieve large and sustained increases in their share price.

Low-profile Aquila executive chairman Tony Poli has been one of the biggest winners from the resources boom; last financial year he exercised 12.5 million options that delivered a profit of $72 million.

On top of that, he was granted five million options worth at least $12 million.

Paladin managing director John Borshoff has also been a big winner from the resources boom, though not on the same scale as Mr Poli.

He exercised 3.5 million options last financial year that delivered a profit of $15.8 million.

These examples throw up several issues for company directors and regulators.

One is the question of whether companies should reprice options if the profits far exceed the gains that were originally and reasonably expected.

The options issued by Aquila and Paladin were ‘out of the money’ when they were originally approved but the big rise in their share prices have delivered extraordinary windfall gains for the fortunate recipients.

A second question is whether the rewards flowing from share options correspond to the returns delivered by the company.

Aquila, which is developing several coal and iron ore projects in Australia and southern Africa, has lifted its share price from about 25 cents in 2001 to $6.40 currently.

Paladin, which is close to completing its first uranium mine in Africa, has performed even better, with its share price soaring from about two cents in 2003 to $6.30 currently.

Hence, Messrs Borshoff and Poli, who have been paid relatively modest cash salaries in the past, have both presided over very successful companies.

But does that justify the massive windfall they have received, especially when the strong share price gains also reflect the current boom in commodity prices?

A third issue is the quality of disclosure by listed companies.

Remuneration reports disclose the total income received by directors each year. As such, they include cash income, bonuses, superannuation, and the value of options that have been ‘vested’ during the financial year.

Mr Poli was granted five million options last year but Aquila’s remuneration report only included the 2.5 million options (worth $6.3 million) that were vested during the year.

More significantly, the annual report did not disclose (nor was it legally required to disclose) the value of the 12.5 million options that he exercised during the year.

These options were issued in 2000, when Mr Poli sold several exploration tenements into the float of Aquila.

He exercised the options on December 22, buying 15.125 million shares at 25 cents per share, compared with the market price of about $5 per share.

In contrast, Paladin was one of the few listed companies surveyed by WA Business News that disclosed both the number of options exercised by each director and the value of those options.

Mr Borshoff, Paladin chairman Rick Crabb and company secretary Gillian Swaby all exercised options worth more than $11 million last financial year.

 

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