Renowned corporate head kicker and Consolidated Minerals boss Michael Kiernan has positioned ConsMins for some healthy profits over the next few years, but it has been at a cost. Mark Mentiplay reports.
Consolidated Minerals Ltd managing director and Monarch Resources Ltd chairman Michael Kiernan has had a tough year.
Having taken a “dead-in-the-water company” from a 1998 market capitalisation of $15 million to $824 million in seven years, Mr Kiernan’s pride in new and expanded production was overshadowed by the controversy that exploded over the axing of his multi-million dollar incentive package.
The furore wiped nearly $220 million off the company’s market capitalisation and provoked its share price plunge from $4.33 in October to about $2.71 this week.
Mr Kiernan has some typically blunt advice for those with a beef about the company’s recent performance and share price.
“If you have a six-month view, sell. If you take a one- to two-year view, you should be buying with your ears back.”
The pain is happening now, with significantly lower-than-forecast prices for ConsMins’ principal manganese product expected to chop about $38 million off the company’s projected $88 million 2005-2006 after-tax profit.
This $50 million is a figure way down on the previous year’s $70.3 million net profit, however.
The good news is that the Chinese are back in the market and prices for manganese ore from ConsMins’ Woodie Woodie mine in the Pilbara are returning to normal.
That, and recently expanded production, is expected to push 2006-2007’s after-tax profit out to about $100 million, with the production of new commodities increasing that to $150 million the following year, mostly on a Chinese boom Mr Kiernan sees lasting long past 2010.
In the next couple of years, ConsMins’ revenue base will expand from producing 10 per cent of the world’s manganese, 2.5 per cent of its chromite and nickel from the recent $80 million acquisition of Reliance Mining Ltd, to include zinc/copper from Jabiru Metals Ltd’s Jaguar project near Leonora and iron ore from the 50/50 Mindy Mindy joint venture in the Pilbara.
The latter project is some recompense for Mr Kiernan, who had Gina Reinhart’s big Hope Downs iron ore project in the Pilbara snatched from him at the 11th hour earlier this year by Rio Tinto, largely because of Rio’s existing infrastructure.
Mr Kiernan told WA Business News he expected the company would lift its 20 per cent stake in Jabiru to between 40 and 50 per cent “over the next couple of months”.
ConsMins is underwriting 47 million shares of Jabiru’s $28 million, 156 million share rights issue.
Under Mr Kiernan’s guidance, the careful build of ConsMins’ commodities portfolio was approaching its zenith in 2004. During that year Mr Kiernan was hit by three hammer blows: the death of his father, Laurie, transport company operator and former managing director of Swan Television (Channel 9) in Perth; a prostate cancer scare; and a marriage break up.
Although not admitting it directly, it was a time of deep reflection.
“I told (non-executive chairman) Colin Smith I wanted to hang my boots up and we should get a new managing director,” Mr Kiernan said.
That international search is continuing and when completed, “I’ll slip into the background and ConsMins should have the best of both worlds”.
However, Mr Kiernan was persuaded to stay and offered a profit-based five-year incentive package worth up to $20 million, depending on ConsMins’ share price at its conclusion.
“If I didn’t make a profit, or was not there in five years, I’d get zip,” he said.
But in October, the package was withdrawn in the face of mounting institutional investor objections. Mr Kiernan announced his intention to resign and ConsMins’ share price plunged from $4.33 to $3 in a week.
“Despite all the media hype, I was relaxed and suggested the proposition be withdrawn,” said a now more sanguine Mr Kiernan.
“I would go back to my original contract and remain as managing director to June 30 2006 and as long after that as required, until a new MD is found.”
However, he warned that there was going to be “a revolt by CEOs over the interference of the institutions in company affairs. They [the institutions] are overreacting”.
In the meantime, Mr Kiernan has remained very much the company’s driving force, a role he plays down.
“The most demanding part of my job at ConsMins is the international marketing of our commodities. It takes up about 75 per cent of my time. The operational side I can do in my sleep,” he said.
In the wash-up of his divorce, Mr Kiernan and his family hold about four million ConsMins shares, about 2 per cent, worth about $10.8 million.
However, the ConsMins share melt down was followed by a jump in Monarch Resources shares – in which Mr Kiernan has 30 per cent and floated in 2003 with the aid of son James and others – from 20c to 34c, where they have remained.
“A few years ago I thought ConsMins would be taken over and no-one was ever going to give me a job, so we floated Monarch just in case. It’s still a home to go to and will focus totally on gold,” he said.
After treading water for the past couple of years, Monarch made its move last month, a happy, even cosy, chain of events that began on November 8 with Monarch’s agreement to buy the Davyhurst gold project, 120 kilometres north-west of Kalgoorlie, from Croesus Mining for $5 million. The deal included a decommissioned 1.2 million tonnes a year gold plant and an 808,000 ounce-in-ground gold resource.
Two days later, Mr Kiernan was appointed Croesus Mining NL chairman, taking over from and anointed by WA mining icon Ron Manners, who founded the company 20 years ago.
Mr Kiernan holds a million shares in Croesus.
On November 16, Monarch and the Andrew Forrest-backed Siberia Mining Corp Ltd announced a friendly $60 million off-market merger that consolidated ownership of the two companies’ Davyhurst gold assets.
The deal adds Siberia’s large regional holdings, containing about 1.4 million ounces in the ground, taking group gold resources to over two million ounces.
Mr Kiernan is scathing in his criticism of Croesus’ recent past performance.
“The board was seriously let down by some of the previous management. As a result, the company has drifted badly off the rails,” he said.
He expects a difficult six months ahead for Croesus before it turns the corner.
“It’s a challenge,” Mr Kiernan said.
And that statement pretty much sums up the man. It was a challenge that led him to mount the 1997-1998 rescue operation of Valiant Consolidated Ltd, initially to get back $2.5 million owed to his contracting company, then turn it into a successful, diversified mid-tier metals producer.