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Carroll radically reshapes Anglo management
Brendan Ryan
Posted: Mon, 05 May 2008
[miningmx.com] -- THE executive body count is rising at Anglo American, with Anglo Coal CEO John Wallington the third top executive to leave since new CEO Cynthia Carroll took over in March last year.
The first departures were former executive director Simon Thompson (who ran Anglo’s base metals division) and Ralph Havenstein (who was CEO at Anglo Platinum).
Thompson quit almost immediately after Carroll was appointed, probably because he felt he should have got the top job himself. So his departure didn’t result from any difference in management opinion with Carroll.
Havenstein quit in August 2007 after a bust-up with Carroll over the practical implications of her demand for a “zero harm” safety campaign. He has yet to be replaced. However, a recent report by JPMorgan has highlighted the lack of a top CEO at Angloplat as a critical area costing Angloplat – and Anglo
itself – dearly.
Wallington, according to Anglo American, is leaving “to pursue his own interests”.
But his departure has again left some industry observers puzzled. Wallington has a good reputation in South Africa’s mining industry and opinion is split over just how bad Anglo Coal’s performance has been, although it and Angloplat are clearly the underperforming assets in Anglo’s overall portfolio.
A lot of what went wrong last year looked largely beyond Wallington’s control.
Anglo’s 2007 results statement (published in February) reported it resulted mainly from railway and port infrastructure bottlenecks in Australia, which hit export levels. On top of that the Aussie dollar appreciated 11% against the US dollar, which hit the group’s US dollar-denominated revenues.
But there have been operational problems with the expansion at the Dawson mine and Anglo Coal had to take an impairment charge of US$153m “against certain Australian operations”.
In South Africa, the statistics show Anglo Coal was on the ball. The group’s South African production level-pegged at 59,2m t (2006: 59,3m t) and, most importantly, Anglo Coal met its export quota commitments through the Richards Bay Coal Terminal.
The group also has all its empowerment credentials in place, which, says Carroll, are good enough to pass muster
with South Africa’s Minerals & Energy Department, given her statement that Anglo would soon have conversion granted for all its “old order” mining rights.
Those empowerment deals were put in place before Carroll joined Anglo, unlike the subsequent deals announced by Angloplat, in which she had a large hand.
Anglo Coal is also poised for significant domestic growth. Next up in electricity provider Eskom’s construction programme is “Project Bravo” – a 4,000MW coal-fired power station to be built near Witbank. Neither Eskom nor Anglo Coal will confirm it but coal should be supplied by New Largo, near Ogies, which is owned by one of Anglo Coal’s empowerment ventures: Anglo Nyosi Coal.
Overall, plans are to boost Anglo Coal’s South African production by 50% to around 90m t/year by 2015. Expansions are also under way at Anglo’s Cerrejon mine in Colombia as well as in Australia.
That sort of growth profile doesn’t happen overnight but is the
result of teamwork sustained over decades, with the process led by Wallington and his predecessors, such as Tony Redman, David Rankin and Graham Boustred.
Wallington declined to comment when approached. Given the critical shortage of skills in the resources industry worldwide, he’s unlikely to be short of job offers.
At Angloplat there’s a lot more riding on who Carroll eventually picks to run the group, which is the world’s largest platinum producer but has fallen horribly short on its stated expansion plans since 2000.
Angloplat has been managed by “joint acting CEOs” Duncan Wanblad and Norman Mbazima over the seven months since Havenstein left, during which the search has been under way for a full-time replacement. Both Wanblad and Mbazima have applied for the position. Carroll, when questioned about Angloplat at Anglo’s results presentation in February, was effusive in her praise of their efforts.
But JPMorgan says Angloplat is simply not
cutting it. In a hard-hitting research report, a team of the firm’s analysts – Steve Shepherd, Ross Gardiner, Allan Cooke and Jon Bergtheil – climbed into Angloplat for its underperformance against rival Impala Platinum (Implats).
They calculated that, had Angloplat performed as well as Implats had since 2000, then Angloplat’s market cap would currently be R93bn higher than it’s now.
Linking that back to parent Anglo American, they calculated the cost to the top company at R71,6bn – almost R53/Anglo share, which was 10% of Anglo’s closing price on 9 April.
The analysts demanded that Anglo act “decisively” and “as a matter of urgency” to turn Angloplat around. They stated: “Delivery on Angloplat might be a pre-requisite for Anglo to reverse its underperformance relative to its peers” and show that it “truly is a global mining leader capable of delivering organic growth”.
The analysts were highly critical of Angloplat’s management, stating: “Our
impression of Angloplat, the corporate entity, is one of world-class quality but that has lost its way in terms of management. This may seem harsh, but we believe the facts speak for themselves. The way we see it is that, as Angloplat has evolved, the central structures (head office) have taken on a life of their own.
“Despite earlier attempts to cut them back, we believe they have grown back. What suffers at the end of the day is efficiency, profitability and cash flow and this translates into sub-par performance and value destruction.”
JPMorgan wants the appointment of a “respected and hard-hitting CEO”. It feels that without such an appointment “the radical change we consider necessary may be extremely difficult”.
Given that background, it’s understandable many observers thought Gold Fields CEO Ian Cockerill was going to take the Angloplat job when he first announced he was leaving. They were surprised to learn subsequently that he was headed for
Anglo Coal, where it seems he’ll face a far easier task than whoever eventually steps up to the plate at Angloplat.
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