any whispers?, page-6

Not again, he doesn't give up. Poor shareholders

February 04, 2009

Michael Kiernan’s Comeback Trail Will Almost Certainly Lead Him Back Through London Within The Next Twelve Months


By Our Man in Oz



Fat profits indeed were made by any investors who followed Michael Kiernan in his 1998 rescue of the failed Australian manganese miner Valiant Consolidated, a business which then changed its name to Consolidated Minerals (ConsMin). Late-comers also did well when ConsMin became a high-priced target in a bitterly contested 2007 takeover battle. The middle years were not so happy, and culminated in Kiernan quitting the business he had rescued. Remember that history - or dig up the media cuttings from the time - because Kiernan is plotting a return to corporate life, in conditions remarkably similar to those which killed Valiant and launched ConsMin.
Stirling Resources, listed on the Australian Securities Exchange under the code SRE, is the company that’s been chosen by Kiernan for the rebuilding of his mining interests, and while not too many people are watching yet there is no doubt that the seeds for something interesting are currently being sown. The challenge for Kiernan is to convince prospective followers that (a) this time it will be different, and also that (b) this time it will not be different.

The first part of the challenge involves convincing non-believers that Kiernan has learned the lessons of his former impetuosity, that this time round he won’t bite off more than he can chew, and nor will he bite the heads off anyone who doubts his ability to deliver. The second part of the challenge involves taking a look back at how Valiant was rescued, re-named, and re-vitalised at a time when no-one else in the mining world had the slightest interest in manganese, or, for that matter, in just about any other mineral. In other words, Valiant was a deal done at the bottom of the cycle, at a brilliant time for bargain-basement shopping, and at a time that may just bear certain similarities to our own.

To discover what Kiernan is doing Minesite’s Man in Oz decided to beard the lion in his den, and took a drive out to 150 Hay Street, Subiaco, an inner suburb of Perth. The address, somewhat curiously, is important, because it’s a stone’s throw from one of the locations from which Kiernan’s grandfather, James Kiernan, ran a transport business early in the 20th century. That transport link (horse and dray early, and trucks later) is one key to unlocking Kiernan’s interest in manganese, iron ore and titanium minerals, because the secret of success in the production and profitable sale of these “bulk commodities” is the cost of transport, arguably a factor more important even than geology.

“I know I made a lot of mistakes last time round”, Kiernan says from his small inner office which features a curious collection of wall decorations. As well as map of Australia showing “hot base metal plays”, there is rustic painting of horse and rider in a classic Australian bush, and a picture of St Mark’s Square in Venice. Try joining the dots between that lot! The art work is, however, secondary to Kiernan’s message. He is a reformed man, right down to his having spent 10 days writing a personal assessment which listed his 18 major mistakes, and which was then vetted by his wife and children. “I ran too fast and too hard,” he starts to read from his list of errors, and adjoining list of “35 rules of the game”, before Minesite’s Man politely suggests that we’ll take the rest of the errors as read, and move along to what’s afoot today.

Kiernan has just reported, in a statement filed at the ASX on Tuesday, the injection of A$2.6 million into Stirling. The money comes from the Austrian-based steel-alloy specialist, DCM Decometal, and the investment gives the Austrians a 20 per cent stake in Stirling. Back in the Valiant/ConsMin days the same Austrian company was one of the first to invest in Kiernan’s ability to get things done. After acknowledging his pleasure in securing a valuable partner in the hunt for mineral investment opportunities in Australia Kiernan explains thus: “Now is a great time to acquire projects cost effectively in preparation for a rebound in markets and a return to strength in commodities over the coming years.” The key focus of Stirling, he says, will be zircon, copper, gold and coking coal.

First cab off the rank in terms of deal flow is a move on the financially-stretched Australian Zircon, the operator of the Mindarie mine in South Australia. Kiernan has just been appointed to the Australian Zircon board in a non-executive capacity. At that very moment DCM entered into a debt-for-equity swap with Australian Zircon which will leave it with a 70 per cent stake in the company. The message is clear. DCM is backing Kiernan to the hilt, and wants him to be the man to clear up Australian Zircon and possibly build it into a much bigger business. The next target will be another financially-stretched zircon producer, Matilda Minerals.

Until the boom came to an end last year, Matilda was part of a gaggle of companies under Kiernan’s wing. ConsMin was the leader of a flock which included Territory, Monarch Gold and Matilda. But that was before events in the boardroom at ConsMin, - events which feature in Kiernan’s list of 35 rules of the game - led to an ill-tempered showdown, his departure, and the dissolution of the Kiernan stable. ConsMin was acquired by Ukrainian billionaire, Gennadiy Bogolyubov, Monarch collapsed, as did Matilda, and Territory was left struggling to survive. Yet Kiernan rejects a question about him wanting to re-write history. “What I’m doing is looking for unwanted assets which contain hidden value,” he says. “It’s exactly what we did at Valiant all those years ago. It worked then, and it will work now.”

If there are to be differences this time round, the first will be in Kiernan putting his size 12 boots on enough of the capital in Stirling so as not to be so easily ejected. “I have 25 per cent now, and we have a plan to go to 40 per cent through options”, he says. “We will then develop a series of associated investments into which we will retain a controlling position, and inject capital.”

How he gets the capital in these, the early stages of “Kiernan, The Sequel” will also be slightly different. Going to the public via the stock market is not high on the agenda. “We’ll start with the backing of high net worth people and possibly by working with major end-users of minerals”, he says. “There is the potential to strike a deal with a large Indian company interested in coal and iron.” But, as this new phase of Kiernan unfolds it ought not to be a surprise for investors in London to learn that they might be hearing and seeing more of this larger-than-life Aussie before too long. “I’ll be off to London later this year, or in 2010, when I have some runs on the board, and a story to tell. London was strong supporter in the ConsMin days and I think it will understand and like what we’re doing this time round.”