Case study: Western Areas

Independence and Market Intelligence Support Mining Company’s Treasury Operations

Challenge

Western Areas is a nickel mining company which was incorporated in Western Australia in 1999. In 2004, the company commenced the development of the Flying Fox nickel mine and approached its banks for funding. As part of the project funding arrangements, the banks insisted mandatory hedging be in place.

Western Areas’ Board wanted to ensure the hedging deals proposed by the banks were fair to their company. To achieve this, they sought impartial, third party advice to review and advise on the hedging arrangments that were being negotiated with the bank.

Oakvale Treasury was selected to provide this service.

Solution

Since Oakvale began with Western Areas in January 2005, it has been supplying a number of services. These include advice and information regarding:

• Commodities and foreign exchange
• Cash management and investment
• Hedge accounting and reporting
• Treasury policy and procedures.

Western Areas’ Chief Financial Officer Joe Belladonna commenced with the company in 2005.

“When I began, Oakvale was already providing treasury services to Western Areas,” he said. “I knew of Oakvale before I began with the company. They had a good reputation in the market for being professional and level-headed.”

In his regular dealings with Western Areas’ bank, Joe has felt well equipped with information regarding hedging that he has developed with Oakvale.

“In my experience, the people at Oakvale are good at providing an accurate price estimate on current hedging values,” said Joe. “This is valuable information for me to have when I am negotiating with the banks.”

Oakvale also does all of Western Areas’ accounting work for hedging and investments. “This gives the Board comfort that they have an independent view about the status of the hedge book,” said Joe. “The reports we receive from Oakvale provide good, reliable information.”

Because of the nature of its work, Western Areas often has large inflows of revenues to manage. Oakvale advises on investment options available to the company that manage risk and provide the company with income and liquidity to match their requirements.

“Oakvale has a large client base and they are dealing with a substantial volume of trades every day,” said Joe. “This gives them in depth market intelligence. They know which institutions are offering competitive rates so they can recommend a good deal for us whether we are conducting investing or hedging transactions. Because of their market presence, I feel they offer good information about what rates are on offer so we can make a better informed decision.”

Oakvale also develops Western Areas’ treasury policies and procedures for consideration and sign off by the Board. This includes defining strategy and procedures regarding hedging and investments, institutions’ credit ratings, and criteria that define which banks the company will transact with.

“In the normal course of events, we meet with Oakvale for a face-to-face meeting each month and we’re contacted by them several times a week,” said Joe. “In addition, they send us daily reports as well as other occasional reports that Oakvale believe may be of interest to us.”

At their monthly meeting with Western Areas, Oakvale provides an update on the markets, particularly regarding foreign exchange, metals and interest rates. They also discuss if Western Areas has substantial expenditure coming up, finance repayments to make or a large revenue inflow that needs to be invested. Oakvale provides ongoing advice and support regarding these issues to help manage financial risk and optimise Western Area’s cash position.

Result

Joe says there are several attributes he appreciates most in his relationship with Oakvale.

“The staff are very approachable and know what they’re talking about,” he said. “Independence is also vitally important to us. We know that Oakvale does not get any commissions or kickbacks on the deals they recommend. This assures us that their recommendations are in our best interests and this is key.”

The scale and specialisation offered by Oakvale is also valued by Western Areas. “Their hedging advice is really good because they’re active in the markets,” said Joe. “It’s what they specialise in and we benefit by leveraging their expertise and market knowledge.”

The outsourced treasury services provided by Oakvale are vitally important to Western Areas.

“Our job is running Australia’s second biggest nickel sulphide mining company,” said Joe. “We rely on Oakvale’s independent advice and specialist treasury services that support us, and enable us to get on with the job of running the company well.”

Western Areas uses:

Advisory

• Risk policy development and review
• Hedging strategy advice
• Funds strategy
• Treasury Management Committee Meetings and Board presentations

Services

• Market information
• Pricing and deal execution
• Portfolio analysis and valuation
• Management reporting
• Hedge accounting AASB 139 / IFRS 9 testing and compliance
• AASB 7 / IFRS 7 sensitivity analysis and compliance
• Treasury accounting support
• Transaction capture
• Confirmation generation

Contact us today for further information about how Oakvale Treasury can support your organisation in optimising its treasury capability.