How WMC delivered BHP an even bigger resources stage
Summary: Three people can keep a secret, if two of them are dead. This was the maxim to which two of Melbourne’s leading mining company executives held fast as they quietly parleyed the final, inevitable stages for one of Australia’s prime resources companies.....
One, BHP Billiton’s Charles “Chip” Goodyear, a Yale-educated and determined American with a deep family business pedigree, met covertly with WMC’s Andrew Michelmore, an equally well-credentialed Oxford-educated businessman steeped in the establishment ways of Melbourne.
For good measure, both were accomplished oarsmen.
During a three-month period in late 2004 to early 2005, alone and without interruption, they privately discussed, and ultimately resolved, the future of WMC Resources Ltd, a company that had, throughout its evolution, been embedded in the course of Australian mining’s highs and lows.
Death, however, doesn’t normally feature in corporate boardrooms. And no one, of course, needed to be killed. But in the modern-day business environment in civilised Melbourne, secrecy was paramount.
A deal, once struck by the pair, would deliver into the fold of one of the world’s largest diversified resources outfits the assets and resources of one of the nation’s most successful exploration, mining and minerals-processing companies. It was neither an epic story nor a dark chapter for WMC.
But it marked the final turning point for a company steeped in the ambition, optimism, gritty realism, endeavours and successes and failures of its ranks of thousands of employees across more than seven decades.
It is widely acknowledged that WMC was built on gold, underpinned by nickel and made famous by copper and uranium, but integral in the mix in the early and later years was the evolution that surrounded its ventures in bauxite, alumina and aluminium, not to mention oil and gas.
So it was that Goodyear foresaw the main chance to buy a big chunk of Australia’s and the world’s uranium industry in one fell swoop.
A successful takeover of WMC would give the resources colossus under his aegis an estimated 30 per cent of the world’s uranium reserves (and the potential to contribute more than 30 per cent of Australia’s uranium exports).
And he was quietly determined — without a bidding war of attrition — to see off previous and current potential suitors to achieve this. It was agreed between Michelmore and Goodyear that they would meet in person — not via telephone — at appointed times and at a location arranged in such a way as to ensure secrecy and confidentiality.
Michelmore would leave his all-glass office in the postmodern IBM Tower and take a brisk, short stroll along the Southbank Promenade abutting Melbourne’s murky Yarra River; Goodyear would be dropped by his driver in the centre of the CBD and cross the river on foot to reach the Southgate precinct.
Both executives were headed to a plush first-floor boardroom in The Sheraton Towers, one of the city’s stylish five-star hotels. Hunkered down alone, away from the relentless management and push of their respective companies, the pair held informal talks to search for a beneficial outcome for both and for their shareholders.
Goodyear had called Michelmore in late 2004. The pair knew each other well enough. Hugh Morgan had also been approached much earlier by former BHP CEO Paul Anderson for potential takeover discussions ahead of BHP’s merger with Billiton. Michelmore — then in a senior business development role — had had talks with Goodyear and Marius Kloppers, at the time also in a senior business development role and eventually Goodyear’s successor, about the virtues of WMC’s nickel assets and Olympic Dam’s bold future.
BHP was seen as a potential solid joint venturer for the southern section of Olympic Dam as a potential open cut mine.
Because of the exploratory discussions the pair had had in 2003-04, there was common ground, plus Goodyear understood the WMC assets.
And it helped that Michelmore happened to respect Goodyear: “He’s of the Goodyear family. Tall, urbane, hellishly bright, tough.”
It was agreed that nothing was to be discussed with WMC’s recently appointed advisers, UBS, and BHP’s Deutsche Bank advisers (formerly in the WMC camp). Even the united pair’s respective reliable personal assistants were kept out of the loop; Michelmore’s PA, Helen Floyd, simply knew he “was out”.
The upshot of the conversations was that Goodyear was interested in WMC, was not going to put in an offer for the company and wanted to joint-venture on Olympic Dam. He didn’t give any indication of value or that he was desperately keen. He was matter of fact and made no promises.
As far as Michelmore could tell, the BHP boss was not playing poker. But Goodyear didn’t want any inkling of BHP’s position to reach the marketplace, and he and Michelmore continued their private dialogue.
Switzerland-based mining conglomerate Xstrata was also known to be circling. The CEO of Xstrata’s 45 per cent shareholder Glencore, Ivan Glasenberg, had been on the sidelines identifying bidders for WMC — including Rio, which was highly interested in Olympic Dam; and Inco, which coveted WMC’s nickel business. Could these two do a deal, Rio taking the uranium prize and Inco taking the nickel assets?
Michelmore’s business development executive, Mike Nossal, arranged to meet with Bob Adams, Rio’s key director of planning development, in the company’s London office in January 2005. With former chairman Bob Wilson, Adams was part of the “two-Bobs” team that guided Rio Tinto through its merger of the then RTZ with Australia’s CRA in 1995.
Adams, an excessive smoker who needed his personal assistant to keep him constantly supplied with cigarettes, told Nossal he was “extremely interested” in Olympic Dam, declaring it a 50- to 100-year asset.
Adams, 59, was found dead in his London apartment three days later. Rio’s aspirations for WMC, or more particularly Olympic Dam, died with him.
As early as 2000, Goodyear’s predecessor at BHP, Anderson, had talked with WMC executives and attended a WMC board meeting to explore potential synergies and possible collaborations for the two high-profile mining houses.
In the wake of a first attempt at merging with Billiton, BHP reassessed its options and reportedly “became serious about buying Western Mining … moving in and out of Western Mining shares and talking to the WMC board”.
The impetus behind these early conversations was the tough environment in which the resources industry found itself during the 1990s.
A series of mergers within the global mining industry ensued as companies sought economies of scale in a bid to stem declining profitability. While the China boom may have been foreseen by some, it was still only a glimmer for most. The resources industry was considered by some to be a dinosaur in the making
Having ridden that troubled decade, businesses were looking to secure savings via optimum size and scale.
This was BHP’s elemental strategy: create critical mass via acquisitions and manage them with fewer, more widely spread overheads. Goodyear had read the resources tea leaves and figured that BHP, via this route, would be better able to weather the storms likely to buffet the resources industry.
This is an extract from Mandarins & Mavericks, Remembering Western Mining by Martin Summons. Published by Hardie Grant Books, Melbourne