Croesus crisis avoided thanks to Macquarie's heart of goldRobin...

Croesus crisis avoided thanks to Macquarie's heart of gold
Robin Bromby
April 08, 2006
MICHAEL Kiernan gave himself a welcome gift for his 57th birthday yesterday - a fighting chance that his Croesus Mining will survive.

The West Australian gold producer yesterday said Macquarie Bank had agreed to support a restructure of the company even though Croesus was not meeting its commitments to deliver 10,000ounces a month to the bank under hedging contracts.

The bank - not known for being a soft touch - has recognised that Croesus's Norseman operations can manage only 8500oz a month until a new mine plan is worked out. Not only that, but it will let Croesus sell some of that production at the spot price, now about $815, against the hedging contract of $580.

The heady mixture of Macquarie's letting Croesus off the hook - calling in the administrators was the most likely other option - and a relaxed birthday lunch had Mr Kiernan in warm and fuzzy mood yesterday.

"Macquarie have been wonderful," he purred. But just how wonderful he has yet to find out: he wants half that 8500oz a month for spot selling to pay for exploration, but has yet to hammer out details with the bank.

After that he wants to ditch the name: it now has ugly connotations and many mispronounce it.

Just as he changed his manganese-chrome success story from Valiant Consolidated to Consolidated Minerals, and watched Anaconda Nickel ditch that stinker of a name for Minara Resources, so a new name will, he hopes, signal a new future.

And, as well as making himself executive chairman, he will bring in his ConsMin team: Allan Quadrio as managing director and David Macoboy, ConsMin's finance director, will sit on the Croesus board.

The shares will remain suspended until the documents are signed by Macquarie by April 28.

Two weeks ago, Mr Kiernan, who took over as non-executive chairman in November, put Croesus's survival at 50-50.

But yesterday it had firmed to 85-15 even though a deal has to be made by the second and smaller hedging counterparty, Mitsui, who Mr Kiernan described as being "a bit tough".

He is still scornful of the former management.

But the signs Croesus was in trouble were evident before November. The company reported a $17million loss for fiscal 2005 and the company had announced the closure of its Davyhurst operations due to soaring costs.

One analyst yesterday said Croesus had long run down its reserves and not spent enough to replace them: "This was clear to the market for years."

The latest crisis was triggered by Croesus not being able to deliver the 10,000oz a month that was due to Macquarie.

The best it could manage was about 7000oz a month. And, apart from the drama with Macquarie, that meant Croesus had no exposure to 25-year highs in the gold price.

Productivity was another problem. The industry standard for underground mining is that between 200m and 250m of drive is completed each month. At the Norseman underground operations, they were managing 50m.

Mr Kiernan said yesterday that in the past two weeks the underground teams had lifted the rate to at least 150m a month.

The other challenge was to find more ore either through its own exploration success or doing a joint venture.

But the worst was over, Mr Kiernan said: "We can now build a company."

the australian