Macquarie Alchemists Turn Debt Into Gold
Sydney Morning Herald
Saturday August 31, 2002
Two banks rode to the rescue in Beaconsfield but the outcomes were quite different, reports Brian Robins.
It is a long way from No1 Martin Place to Beaconsfield, Tasmania.
At Macquarie Bank's head office on the site of the former Sydney GPO, the workers in the so-called ``millionaires' factory" have a well-earned reputation for aggression.
It is all light years away from the sleepy town of Beaconsfield, about an hour's drive north of Launceston. Unemployment is above the national average, and there is only one big employer in town the goldmine. Beaconsfield grew up around the mine, with the head frame in the middle of the main street, just along from the ventilation shaft.
With just 1300 residents, the mine employs around 130. In its heyday, it paid a daily dividend. But flooding and difficult mining saw operations cease soon after the start of World War 1.
Now Macquarie Bank effectively controls half of the mine. No-one in the town seems to realise Alan Moss, the head of Macquarie Bank, and not the mayor, Barry Easther, is the most important man around town.
For the past few years Sydney businessman Pat Scott had controlled the town's fortunes. Scott was managing director of Allstate Explorations, which owned the mine half and half with Beaconsfield Gold, which also was listed on the Australian Stock Exchange.
In a deal in mid-March, creditors of Allstate Explorations agreed to a proposal to receive $300,000 5c in the dollar owed in return for signing over to Macquarie debts of $77.5 million.
By any stretch, the deal has more than protected Macquarie's $21 million exposure to Allstate and, should the mine be made to work, which now seems likely, will ensure long-term profits for Macquarie and its shareholders.
For Allstate creditors, as operations at the mine continued to improve and impressive drill results emerged, the deal has been anything but a happy one.
A century ago, Beaconsfield was one of the richest goldmines in Australia, producing 854,000 ounces of gold worth upwards of $500 million in today's prices.
Allstate Explorations in a joint venture with Beaconsfield re-opened the mine in 1998. It was planned to produce 100,000 ounces of gold annually, with a limited eight-year life. As often occurs, engineering difficulties caused production targets to be missed, putting the partners under financial pressure.
In late May, 2001, Macquarie (banker to Allstate) and BankWest (banker to Beaconsfield Gold) said they intended a review of their exposure, which could affect the rollover of facilities the banks had extended to the partners.
On June 7, Macquarie told Allstate it would provide no further financial support unless an administrator was appointed. The next day, Perth-based Taylor Woodings was appointed. Allstate's board was removed but mine management was retained. If Allstate had been put into receivership, Beaconsfield Gold would have gained control of the management.
On June 25, BankWest put Beaconsfield Gold into receivership. A report to creditors on September 24 laid out the reason for Allstate's financial difficulties primarily failure of the gold treatment plant. A $20 million claim is being pursued against Bateman Brown and Root over the treatment plant design and construction contract, although resolution is not expected for at least six months.
A report in December said it was intended to trade on, to repay secured creditor debts and then unsecured creditors, if funds were available. By March this year, that had changed, with creditors informed of a plan by Macquarie Bank to buy the liabilities of two of Allstate's wholly owned subsidiaries, totalling $77.5 million. Macquarie says it decided to pursue its proposal after offers to buy the mine received by the administrator proved to be inadequate.
The administrator supported the Macquarie proposal, with a series of scenarios put forward under which it was assumed gold output would run at 77,000 ounces a year (a figure never clearly spelt out to creditors) which is well under design levels, with limited chance of any payout to unsecured creditors. As it turned out, March quarter production topped an annualised 93,000 ounces of gold, slipping slightly in the June quarter to an annualised 89,496 ounces.
Just a week prior to the March 19 creditor meeting, the minimum notice period permissible, creditors were told they would be voting on the Macquarie Bank proposal, not just discussing it.
Creditors were told only that drilling was under way. By early March, results showed gold intersections of well over 20 grams a tonne had been presented to the joint venture partners.
Joint receiver Michael Ryan said creditors were not informed of the drill results because the program was only partly finished by March. It ran until June.
``Experts tell me you need to have the full results" to make the data meaningful, he said.
The drilling results were so impressive that Beaconsfield said subsequently they were fundamental to its plans to restructure and recapitalise. Mid-year, Beaconsfield Gold reversed an earlier $39 million write-off of its half interest in the mine, expressing optimism that it could be out of receivership by year end.
BankWest now views its Beaconsfield Gold exposure as a ``loan work-out". ``We're confident of recovery, in due course," a BankWest spokesman said.
In the course of the Beaconsfield receivership, BankWest has watched its exposure to the company rise from an initial $32 million to more than $36 million, with little public concern.
As Beaconsfield Gold has turned increasingly optimistic on its recovery prospects a fund raising is being pursued that has fuelled the ire of Allstate creditors about the deal agreed to with Macquarie Bank.
On April 30, a quarterly report from Beaconsfield signalled a major improvement in mine operations, which has continued.
No creditors contacted by the Herald were willing to discuss the situation publicly, for fear of losing ongoing work with the mine, which for many is their livelihood.
And following the recent successful drill results, Macquarie Bank's Mr Morris said partners to the project were ``looking at a longer life of mine".
© 2002 Sydney Morning Herald