IAN KIRKWOOD:Pasminco’s rocky road

 WHEN BHP’s Newcastle steelworks shut in 1999, the writing was appearing on the wall at Pasminco’s Cockle Creek smelter.

For some years, concerns had been raised about the blood lead levels of smelter workers and those living nearby – especially young children – and Pasminco had agreed to a series of pollution reduction programs as part of a state government approval to increase production by about 30,000tonnes a year.

In 1999, approval was given for Pasminco to build the giant earthwork bund that eventually ran up the side of the smelter along First Street – a barrier that was supposed to somehow stop airborne lead venting out across the surrounding landscape.

Still, there were more trees growing there than when I first saw the place as a youngster in the 1970s, when I reckon you could count the number of shrubs on the hill behind the smelter on one hand.

Unfortunately, however, the growing political and community pressure to get Pasminco to clean up its act coincided with a substantial downturn in the prices of its main products, lead and zinc.

To add to Pasminco’s woes, something went wrong with the company’s hedging position – the quasi-insurance that resource companies often take out to protect themselves against large currency movements – losing it a lot of money.

The smelter had existed since 1896 but in modern times was only one part of a larger business formed in 1988 by a merger of lead and zinc assets owned by Conzinc Riotinto of Australia (CRA) and North Broken Hill Ltd.

By the late 1990s, the company’s very existence was being called into question.

Heavily in debt and with its shares shot to pieces, Pasminco called in Ferrier Hodgson as voluntary administrators in September 2001.

On day one, Ferrier said the smelter was a ‘‘key’’ asset that would continue to operate, but there were no long-term guarantees for the 380workers.

To be kind to Pasminco, other companies including Ansett Airlines, HIH Insurance and One.Tel also hit the wall in 2001.

At the time, finance journalist Alan Kohler described 2001 as ‘‘one of the most expensive and damaging waves of corporate collapses in Australian history; something approaching 1974, 1989 and 1990 rolled into one year’’.

Just weeks after they were appointed, Ferrier Hodgson partners John Spark and Peter McCluskey found Pasminco owed about $500million more than initially announced, taking its total debts to $3.4billion.

As administrators, Ferrier Hodgson were able to trade the company on if the banks were willing to extend more credit, and that’s precisely what happened, with a plan to ‘‘restructure’’ and to ‘‘sell whole or part of the business as going concerns’’.

By mid-2002, there was talk of Pasminco being relisted on the stock exchange, with the banks owning most of the company, but the existing 45,000 shareholders were wiped out and by now the Cockle Creek smelter was regarded as ‘‘not material to Pasminco in the long term’’.

The restructuring took longer than expected and the 39 banks that Pasminco had borrowed from reportedly agreed to an $800million ‘‘haircut’’. In the year to June 30, 2003, Pasminco earned revenues of $1.77billion, although asset write downs and currency movements turned that into an operating loss of $22.5million.

It had to sell four mines and close a smelter – that would be the ‘‘under-performing’’ Cockle Creek smelter at Boolaroo – but it kept its profitable Rosebery mine in Tasmania and its Century mine in Queensland, allowing it to return to the stock exchange in April 2004 as Zinifex.

In 2008, it merged with Oxiana to form Oz Minerals, with shares that peaked that year at more than $35, although they have been under $5 for about 18months and were trading at about $3.50 last week.

In the meantime, Ferrier Hodgson told the Herald this month that remediation of the site was almost complete and that Pasminco’s creditors – the banks owed $2.6billion – would get 22¢ in the dollar, or about $670million.

That’s a bit more than the $45million the NSW Department of Planning predicted the smelter clean-up would cost in 2007.

Lead sandwich, anyone?