Under investigation ... Eddie Obeid and family.
Put aside the fascination and entertainment of the ICAC's hearings into colourful and outrageous aspects of the former New South Wales government for a moment and spare a thought for the suffering White Energy shareholders. No, not the extremely rich insiders' club running the thing, but the mug punters who trusted them.
Not the sort of people who might get in on a supposedly "sure thing" with a wink and a nod around the eastern suburbs, but folk who listened to the White Energy board and management in 2010 when they were talking up the Cascade Coal acquisition and the shares ran above $4 each, averaging about $3.50.
The stories being officially told even early last year, and virtually up to the day the Cascade deal was ditched, remained full of promise, without a whisper of an Obeid. The $3 of then is such a long way from yesterday's 20 cent close.
One can't help wondering if there are some ambulance-chasers taking an interest in the ICAC show with a view to a little class action, or something like that. While waiting, it is of passing interest to revisit some of the company's public announcements and the "independent expert" report on the Cascade deal in light of the ICAC's more revealing admissions and tapped phone calls.
'A rather difficult year'
White Energy seems to have nothing to say about its directors twisting and turning under the ICAC's gaze. The most recent release to the ASX concerned the company's AGM on November 23, just three weeks ago.
The chairman's address by Travers Duncan was rich with irony (no doubt unintended): "2012 has been a rather difficult year for our company, following the disappointing set-back experienced with PT Kaltim Supacoal's Tabang project in November 2011, and the legal dispute that has ensued as a result of this set-back."
But of course, 2012 isn't over yet: "Given the current macro economic climate and difficulty in raising equity and debt financing," he went on, "we are fortunate to have significant cash reserves, which provide the company with an adequate base to take our current business plans forward, and also seek to identify acquisition opportunities in the coal sector in the near term." (Very, very fortunate indeed then that the $486 million takeover of Cascade Coal didn't go ahead last year, apparently because the details of Cascade's ownership were too odious to be made public.)
"The company continues to review and improve its corporate governance framework and practices, as evidenced in our annual report." (Well it hasn't been evidenced before the ICAC hearings thus far.)
"In particular, the board of directors and management are committed to fostering a work environment in which the principals of diversity and equal opportunity are incorporated into management decisions." (But perhaps not independent directors of non-conforming views.)
"Furthermore, as mentioned in my 2011 chairman's address, and also in our 2012 annual report, due to substantial personal shareholdings in the company by a number of your directors, the company does not meet some of the ASX's best-practice guidelines." (Might be a little understatement there.)
"Notwithstanding this, I believe that the willingness of our directors to invest in White Energy is a positive endorsement of your company and its business strategy, and more closely aligns their interests with that of our shareholders."
Moving right along, it is bemusing to read the statement by chief executive Brian Flannery in July 2011 when refuting newspaper articles that "are not entirely factual and imply wrongdoing by the company".
No, it wasn't Cascade Coal then – it was about the New South Wales government granting White 70 hectares of disused mine site near Cessnock to build a trial plant for its "binderless coal briquetting" technology.
But it wasn't just NSW Labor doing White favours – the Howard federal government gave White $4.3 million in 2007 under its "commercial ready grants program". Oh, that we were all commercially ready.
What seems to have really stung was that the report got White's real political allegiance wrong: "It was claimed in the news articles that the company is a 'generous donor to the Labor Party'. The company has only ever made two donations to a political party. Both were in 2010 and both were to the Liberal Party of Australia."
The 'independent expert'
But as is so often the case with failed deals, the real fun can be found in and around the so-called independent expert report – this one by Deloitte. Deloitte also had done the "independent expert" report on White's acquisition of South Australian Coal the previous year and provided taxation advice to White, but still says it is "independent".
Like every "independent expert" report, the Deloitte job for White on Cascade found what those commissioning the report wanted it to find: the deal was "fair and reasonable".
More than that, the "independent expert" report made the $486 million price sound like a bargin: Deloitte priced Cascade in a range from $459 million to $587 million. White Energy chief executive Flannery highlighted that "bottom-of-the-range" pricing while releasing the report to the market with full fanfare on February 23.
On the other hand, Deloitte seemed not to notice what an anonymous engineer did about "capitalised mining costs of $41.8 million" that "relate to the carrying value of acquisition, rights and other mining costs relating to the Mount Penny and Glendon Brook mining sites".
The engineer reportedly couldn't see how Cascade could have spent so much and suggested to the ASX that it make further inquiries.
A matter of weeks later, the Cascade deal was dead.
The official announcement of "mutual consent to terminate" was all about touchy-feely stuff.
"Various expert consultants active in the field assessing matters such as hydrology, cultural heritage, transportation, social impact, agricultural land and other key matters" had made it too uncertain to go ahead, according to White.
It was the sort of stuff Flannery specifically ruled out as being a problem on March 1.
There have been suggestions at the ICAC inquiry that the deal was killed because there was no way buying out the Obeids could be hidden once questions began to be asked.
Shareholders come full-circle
Which brings the suffering White Energy shareholders full-circle. Turns out they could yet be very thankful for the involvement of that colourful family of Sydney politicians, business types and would-be goat farmers.
The detail of the Deloitte "independent expert" report shows the Cascade takeover could have sent White broke. Having paid Cascade's owners (mainly White directors, friends, associates and Obeids) a fortune, the now-infamous Mount Penny project required the Australian dollar to collapse to justify the price.
Deloitte's justification for Cascade Coal's price soaring to around $500 million was based on the Australian dollar averaging 95 US cents in the 2012 financial year (wrong), 91 US cents in the 2013 financial year (near the half-way mark, that sure looks like being wrong) and 87 US cents the next on its way down to 77 US cents over the longer-term life of the mine.
Without those foreign exchange assumptions, even an "independent expert" report would have trouble describing the Cascade Coal pay day as fair and reasonable.
Michael Pascoe is a BusinessDay contributing editor.