For those who claim that corporate governance is an irrelevance, look no further than the sordid tale of Oz Minerals (nee Oxiana). The struggling zinc and copper miner, which was formed in June after the merger of Zinifex and Oxiana, has seen its market value slump from $12 billion at the time the merger was announced, to around $1.6 billion now — a drop of almost 90 percent. If things couldn’t get any worse, the company is now being investigated by the Australian Securities Exchange over the controversial margin-call related sale of 10 million shares by colourful former CEO, Owen “Stronger Forever” Hegarty.

On Monday 24 November, Oz Minerals disclosed that Hegarty had sold 10 million OZL shares for an average of $0.62 each between Tuesday 18 November and Thursday 20 November 2008. One day after Hegarty started offloading shares, Oz Minerals (of which, Hegarty is a non-executive director) told the ASX that it was “not aware of any information concerning it that has not been announced which, if known, could be an explanation for recent trading in the securities of the company.” On 25 November, the ASX sent Oz Minerals a “please explain” letter, questioning why the company felt that Hegarty’s trades were immaterial.

In response , Oz Minerals claimed:

Mr Hegarty’s entire shareholding (not including options) prior to the disposal of the shares comprised 27,271,224 shares. This represented approximately 0.87 percent of the company’s total shares on issue. Further, only a portion of Mr Hegarty’s shareholding needed to be sold as a result of the call under the margin lending arrangements. For these reasons, the company did not consider the information as to the call under the margin lending arrangements…in addition, on 18 November 2008, a total of 44,282,838 shares in the Company were traded.

Several questions must be asked of Oz Minerals directors. First, given that they were aware of Hegarty’s margin loan (as indicated by its response to the ASX) — why was this not disclosed to the market? Especially given Oz Minerals’ precipitous share price collapse (from more than $4.00 earlier this year to around $0.60), the likelihood of Hegarty being margin called was high. Perhaps the Oz Minerals board did not consider the fact that its high-profile non-executive director (and the former CEO of Oxiana) having a leveraged interest was relevant to shareholders? Or more likely, Oz Minerals weren’t overly concerned at what shareholders might think (which wouldn’t be exactly out of character for the company — having paid Hegarty $8.35 million a couple of months after shareholders rejected a $10.66 million golden goodbye).

Second, given Hegarty received the aforementioned $8.35 million termination payment several months ago, why did he not apply those funds to reducing the margin requirement attaching to his shares? Courtesy of the ASX and ASIC’s reticence, it appears that Hegarty has joined the likes of Eddy Groves who have avoided falling foul of insider trading provisions due to selling shares pursuant to a margin call. One week after Hegarty sold 10 million shares, Oz Minerals announced that it would “cut annual production of zinc from [its] Century [mine] by 20,000 tonnes per annum” and defer capital expenditures of approximately $495 million. As a non-executive director, it would be surprising if Hegarty did not have knowledge of the production and cap-ex cuts — therefore, had he not been subject to that unfortunate margin call, Hegarty would most likely not have been able to sell the 10 million shares due to the insider trading provisions in the Corporations Act .

Based on Oz Minerals’ closing price of $0.52 yesterday, Hegarty saved himself a cool $1,000,000 by selling 10 million shares.