MMX 0.00% 4.7¢ murchison metals ltd

the new mis enrichment plan

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    It will be interesting to see what sinosteel and all the other shareholders who can't participate say about this plan and the huge dilution in their shareholding

    From West Australian

    Midwest counts options
    Print Kevin Andrusiak | February 28, 2008
    WHAT'S the best way of treating yourself after working hard leaning against the door to keep the Chinese out of your data room?

    A nice frothy cup of nil-consideration options.

    How else would you relax after batting away two takeover predators while trying to make progress and, at the same time, trying to prove up your iron ore tenements?

    A shaker-full of options complete with one of those little umbrellas and a slice of cumquat. Welcome to Hotel Midwest Corporation.

    Come the company's annual general meeting in Perth in May, shareholders will vote on whether to approve the company's share option incentive plan, first floated way back on June 25, 2007.

    Truth be known, the June 25 plan looks a whole lot different from the February 27, 2008 version.

    Back in 2007, Midwest proposed that two directors, Francis Ng and Steven Lee Chang Chong, get 4 million options each of nil-consideration exercisable at $1.46 each.

    The senior executive team was to get 7.5 million options with the same conditions. All options were to be subject to vesting hurdles over five years “aligned to annual strategic commercial milestones”.

    Some employees were also to be offered a share in 625,000 options, issued for nil-consideration with varying exercise prices.

    Midwest wasn't able to make much of the option issue as it batted off successive takeover plays from both Murchison Metals and its joint-venture partner, Sinosteel. But now that they have retreated to their trenches, Midwest has revealed its upscaled plans for dishing out the largesse.

    The new vision is for the executive directors and senior management to share in 15 million options for nil-consideration exercisable at $1.46 a share. Details are sketchy on who gets what and shareholders won't know until details of the AGM are released one month before the vote.

    But Midwest has outlined five commercial milestones for developing the company into an iron ore miner of repute, which you would have to imagine would be the “vesting hurdles over a period of five years” that Midwest reported to shareholders.

    The first one, pre-feasibility for the Weld Range project, is scheduled for completion in the September quarter; Bankable Feasibility Study, another possible hurdle, is expected to follow 12 months after that.

    There are some tricky hurdles that the directors and management have to overcome; namely, hard rock mining approval for the Koolanooka/Blue Hills project, where the WA Government has already flagged it is not predisposed to hematite mining in the environmentally sensitive region.

    As we said before, shareholders will get more details when notice of AGM is released.

    But the key difference between the June 2007 proposal and the upscaled version of the option giveaway is the plan to give non-executive directors 13 million options.

    Chairman Jesse Taylor will get 3 million, David Law 4 million and Roger Tan and Stephen de Belle, 3 million each.

    The options are all nil premium, exercisable at $5.60 and can only be vested when the Midwest share price gets over $7 – that’s the key figure.

    It is really the first time that the Midwest board and its dominant Malaysian backers have put a figure on what they think the company is worth - $7 a share or $1.5 billion.

    Remember the Midwest board rejected both Murchison's scrip offer and Sinosteel's indicative play of $5.60 a share as being inadequate, but wouldn't detail what they really thought the company was worth.

    All options for management, directors and non-exec directors automatically vest if there is a change in control of the company. The $7 shares vest when the share price reaches that value.

    Midwest says the option giveaway is designed to “incentivise” the people driving the company forward. (What's wrong with a good, old fashioned “do your job, or you're out the door”?)

    Instead, is the board preparing the company for sale at $7 a share, which would “incentivise” their bank balances to the tune of an extra few million dollars each?

    And is this the right environment to be going through with such a generous plan?

    The kicker, in Daily Assay's eyes, is this comment from Midwest: “The company has been operating since this date (June 25, 2007) on the basis that these share options would be put to and approved by the Midwest shareholders.”

    That tells you that the board expects it to be fait accompli - that shareholders will fall into line and vote the plans through.

    We all know that Tan and his crew speak for a very big portion of shares, some say even up to 60 per cent. Now they can't vote on the issue of options to themselves, but they can certainly vote for the issue of shares to their buddies
 
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