My life was saved by a fridge magnet
(others weren't so lucky)
21 December 2009
Sean Russo
IT’S TRUE! My life was saved by a fridge magnet. Well not saved as in I was about to die but I was saved from a slow death in a life I had come to enjoy less and less, my life as an employee; a bank employee in particular.
It wasn’t John Howard’s xenophobic fridge magnet, “Be Alert, Australia Needs More Lerts” (or something like that), but one I spotted at an airport and it hit me between the eyes.
It was a quote under the heading, “happiness is a journey not a destination”, by Alfred Souza.
“For a long time it seemed to me that life was about to begin – real life. But there was always some obstacle in the way, something to be gotten through first, some unfinished business, time to still be served, a debt to be paid. Then life would begin. At last it dawned on me that these obstacles were my life.
“This perspective has helped me to see that there is no way to happiness. Happiness is the way. So, treasure every moment that you have. And treasure it more because you shared it with someone special, special enough to spend your time … and remember that time waits for no one…”.
Life was good at the bank. I wasn’t living pay cheque to pay cheque, but I was living profit share to profit share. “Just one or two more profit shares, kill the mortgage, buy the “whatever” and then I’m off to do my own thing”. Twenty years on I was still there. Don’t misunderstand me, I regret very little of what I did in my working life. The reality, however, is this life is not a dress rehearsal and I think I could have sucked a great deal more out of those years and created more balance in my life outside of work had I not been always looking just beyond the financial horizon and justifying my current actions on that basis. Simply, I had convinced myself the end justifies the means. The irony was the ‘end’ was having enough money to work less and spend more time with family!
Three hundred odd words in and the regular reader is likely wondering how is he going to segue a borderline-soppy fridge magnet into an argument for mining companies taking more responsibility for their market risk.
It’s simple really, I believe the message from the fridge magnet is we would all do better to live in the present. Equally we should operate our businesses in the present, based on present conditions and known conditions, not wishes or dreams extrapolated from the forecasts or promises of others. If the future price scenarios you imagine (hope) are out there then they will come whatever you do. The greatest possible travesty would be to “blow-up” at the first obstacle and never finish the journey.
Today you should treasure the work done by your geologists to find the orebody, or your business development guys who found it and bought it. You should treasure the work done by your army of engineers and consultants who figured out how to turn the earth into something economically saleable. You should treasure the work your brokers have done to raise your equity and you should absolutely treasure your shareholders who took the big risks early on, when your endeavour was nothing more than a geological concept or a core shed and some engineering drawings. You should even treasure your relationships with your bankers (that might be hard for some but you just chose the wrong banker, there are some very good ones out there) because it is their shareholders’/depositors’ money that allows you not to dilute your shareholders before the vision is fully priced and a big company, short of ore and vision comes along and pays overs.
If you truly treasure all that work that went before, to get you to where you are today; today where you cannot know what is going to happen tomorrow, can you really in good conscious bet that all on a forecast, on a roll of the dice?
In my opinion the answer is no and I think the demise of OZ Minerals (the former) is a perfect example of what happens when all that work and support is not treasured or respected but instead is leveraged on a dream.
When the challenges for boards, such as tough but appropriate decisions to hedge the commodity risk associated with debt service, are not addressed in the name of populist trends or a fear of missing out on the “upside”, the destination is effectively considered to have been reached before the journey has even finished.
[In late 2008 OZ Minerals had $1.2 billion in debt and no hedging, creating massive adverse leverage to falling commodity prices. Both its predecessor companies had been avowed non-hedgers. Former CEO of Oxiana, Owen Hegarty, once proudly quipped “The Mighty Ox’s hedging gene had been removed”].
When base case models are run or budgets are set, at spot/cash prices that are near record highs and/or twice the average price of the last ten years, or built on bullish forecasts of prices never before seen, the destination is effectively considered to have been reached before the journey has even finished.
[“At the start of October (2008), Michelmore ordered a review of operations based on spot price earnings rather than analysts’ still high expectations for metal prices. The projections showed OZ losing $1 billion in revenue”: BRW, December 3, The Epic Battle to Save OZ Minerals].
It’s not just true of corporate mismanagement. Most motor vehicle accidents happen 3-5km from the driver’s home. Yes, we drive there more than anywhere else but the key issue seems to be we are so familiar with the road, every twist, every turn, that we drive on remote control. Mentally we are already at the destination and we ignore the journey. We think we know the road ahead and start thinking about that first beer, seeing the kids, what’s for dinner, long before we get home and don’t see the truck parked in a place there’s never been a truck parked before.
[In OZ’s mind they were already home. “It was July 1 2008 … Michelmore sat in his Melbourne office flicking over newspaper clippings heralding the birth of a resources giant ... perhaps to stand alongside RioTinto and BHP Billiton and one day match their ability to deliver huge projects and fabulous profits ...Within four months the dream was over”: BRW, December 3, The Epic Battle to Save OZ Minerals].
AS for me, I bought that fridge magnet and I set up a company HAJNAD Pty Ltd (it was 2001 and HIAJNAD, the full anagram for Happiness Is … etc, seemed a little Al Qaeda-ish). HAJNAD is a major and founding shareholder of Noah’s Rule. Our vision was nowhere near as grand as OZ’s, it was simply, and somewhat ironically, to help companies avoid the woes that had befallen Pasminco and hundreds of others before them by helping them to recognise and manage market risk for what it truly is, and to recognise free forecasts and free advice are worth exactly what you pay for them.
At Noah’s Rule we put: time spent with family before everything, our core values before profit, our staff’s needs before our owners’ needs, our clients’ needs before our own and we are completely committed to telling them when we think they are wrong and why, even if that might drive them away. Importantly we don’t predict where markets are going and we are not embarrassed to admit we don’t know where they are going. In that sense we put common sense and experience before ego. The journey to date has been great. Happy families, staff, shareholders/owners, clients and shareholder returns to rival Rio and BHP.
As for the destination, we have no idea. I suspect we will move as the markets do and to where our skills can make the most difference for our customers. No fixed vision, but we never take our eyes off the road ahead.
Happiness is possibly harder to define in a mining business (call it success if you feel squeamish about the idea of a happy mining company) but driving for happy stakeholders has to be the starting point and longevity has to be the goal. A high degree of happiness is oftentimes related to “luck”, possibly brought about by unexpectedly surging commodity prices or a collapsing AUD or both, but as most of us have observed the harder you work the luckier you get. Much of success in mining, as in life, is simply being in the right place at the right time or just surviving the cycles (think coal right now).
Equity market spruikers like to say, “it’s not market timing, it’s time in the market”. I think that’s nonsense for equity investors. The luxury of an equity investor is they can go away and invest elsewhere when times are lean and come back when things are better. Management on the other hand have to try and run the business, deal with the obstacles, the unexpected turns, the “life” of a company so that it’s still there and running when the market gods smile on them.
Whether the road to your Oz is yellow brick, gold, copper or whatever, keep your eyes on the road, never assume you know what’s around the corner but never worry about it so much that you don’t make the most of the journey. As my wife told our son when he was learning to drive, as her father had told her before, “drive like everyone else on the road is an idiot”. I was possibly less helpful but a little more HAJNAD. Like my father had told me, I said: “Always remember a car is a liability not an asset. As a young man it will keep you poor but don’t let that put you off. There’s plenty of time for saving money and no time like your late teens and early twenties for messing about with girls and cars.” Essentially, be safe, have fun, make it home. Between us I think we nailed it.
Please drive carefully this Christmas, enjoy family, abandon predicting for your New Year’s resolution and enjoy 2010.