Ed Eshuys may have set some ambitious performance goals but he may have been too ambitious.
ED ESHUYS may have set some ambitious performance goals over the four years that he was chief executive of the gold producer St Barbara Ltd, but in the tumultuous year of 2008 he may have been too ambitious.
St Barbara's production and budgetary targets were not met, cash was tight, and with a global crisis of confidence paralysing the banking sector there were grim prospects of refinancing the company's facilities. As the Victorian Supreme Court heard yesterday, disappointment followed disappointment at St Barbara in 2008.
A five-year management budget did not meet Mr Eshuys' standards, so was deferred; a multimillion-dollar accounting error emerged in October; and there were difficulties mining ore at the company's West Australia operations.
By November 2008, the court heard, Mr Eshuys' fellow directors had become ''alarmed'' by a further deterioration in the cash position. By mid-December, St Barbara's board found a replacement for Mr Eshuys.
When he left in March 2009, the company paid its outgoing chief executive various entitlements plus a sum of $150,000, ostensibly for hitting some performance targets.
But Mr Eshuys is suing St Barbara for up to $1 million, which was the most he could receive for reaching performance-based goals.
He argues that while St Barbara under his management fell short of stated operating cost targets and gold production targets, the board did not fairly and reasonably take into account other factors.
Mr Eshuys yesterday told Justice Stephen Kaye that by December 2008, despite the setbacks and cash-flow figures being below budget, he believed the company's position was improving and that by February 2009 it would have gone ''close to, if not exceed'' the budgeted cashflow forecast.
A letter from Mr Eshuys' lawyers to St Barbara's lawyers in December 2008, which was tendered in court, contended Mr Eshuys ''is meeting the milestones'' set out in his performance contract, namely gold production targets and the company's cash position.
Asked by counsel for St Barbara, Philip Solomon, SC, what he meant by ''is'' meeting the targets, Mr Eshuys told the court that at the time he ''fully believed that we would achieve them [the targets] by the end of February''.
Later he told Justice Kaye that in January 2009, ''we were short of budget but we were improving''.
The court heard St Barbara in mid-2008 raised $120 million through a rights issue, but some St Barbara directors and some of its shareholders were concerned about the suddenness of the raising. In February 2009 St Barbara again tapped the market to raise $75 million.
The court also heard that St Barbara's woes in late 2008 and early 2009 coincided with rapidly rising Australian dollar prices for gold. Under cross-examination, Mr Eshuys conceded it was a ''poor'' outcome that gold production fell 16 per cent short of budgeted figures between September 2008 and February 2009.
St Barbara, which is expected to begin calling witnesses today, argues it was not obliged to pay Mr Eshuys more than $150,000.
Frequently Asked Questions about this Article…
What is the lawsuit between former CEO Ed Eshuys and St Barbara about?
The article says Ed Eshuys is suing St Barbara Ltd claiming he should receive up to $1 million in performance-based pay. He argues the board did not fairly or reasonably take into account other factors when deciding not to pay him the maximum amount for meeting performance targets.
How much did St Barbara actually pay Ed Eshuys when he left the company?
When Mr Eshuys left in March 2009, St Barbara paid his contractual entitlements plus a sum of $150,000 that was described as payment for hitting some performance targets. St Barbara argues it was not obliged to pay him more than that amount.
Why does Ed Eshuys say he deserved the full performance payment?
Eshuys told the Victorian Supreme Court he believed the company’s position was improving and that by February 2009 they would have come close to, if not exceeded, budgeted cashflow forecasts. His lawyers also argued in a December 2008 letter that he ‘is meeting the milestones’ in his performance contract, namely gold production targets and the company’s cash position.
What operating and financial problems did St Barbara face in 2008–2009?
The article reports St Barbara missed production and budget targets, faced a multimillion-dollar accounting error in October 2008, had difficulties mining ore at its Western Australia operations, and experienced tight cash flow with grim refinancing prospects because the global financial crisis was paralysing the banking sector.
How big was St Barbara’s capital raising during the crisis?
According to the article, St Barbara raised $120 million through a rights issue in mid-2008 and later returned to the market in February 2009 to raise a further $75 million. The mid-2008 raising reportedly alarmed some directors and shareholders because of its suddenness.
Did gold prices help St Barbara during its troubles?
The court heard that St Barbara’s problems in late 2008 and early 2009 coincided with rapidly rising Australian-dollar gold prices. However, despite higher gold prices, the company still missed production targets and faced cash-flow and operational issues.
What production shortfalls does the article mention?
Under cross-examination Mr Eshuys conceded that gold production fell 16% short of budgeted figures between September 2008 and February 2009, which he described as a ‘poor’ outcome.
Where is the dispute being heard and what stage is the court case at?
The dispute is being heard in the Victorian Supreme Court before Justice Stephen Kaye. The article says St Barbara was expected to begin calling witnesses after the initial evidence presented about the company’s performance and the circumstances around Mr Eshuys’s departure.
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