Cynthia Carroll, Anglo CEO & SA mines minister, Buyelwa Sonjica
Send this article to a friend
Print this page

» Anglo's Carroll in quick-fire iron ore strike
» Pressure mounts on Anglo's Carroll
» Can Carroll grasp the nettle?
» What kind of Anglo will Carroll run?
» Alcan's Cynthia Carroll takes Anglo helm

» JSE:ANGLO AMERICAN PLC:
20705c 0%

Rewiring Anglo's DNA
David McKay
Posted: Thu, 12 Jul 2007

[miningmx.com] -- “I HEAR there are no sacred cows now,” says a banker in Johannesburg where gossip about Anglo American is pathologically consumed. “Everything could get turned upside from moving the offices from central Johannesburg to Sandton, or closing the executive canteen,” he says.

That’s a sample of the interest in Cynthia Carroll, Anglo’s new CEO, who is said to have made an early, striking impression. By July, it’s even possible to hazard the view that scepticism of an unknown North American, whose appointment at Anglo was greeted by investors with a £500m drop in the company’s share price, has given way to cautious optimism.

Analysts always felt Carroll would have to act smartly after assuming the post at Anglo, which she did in March. Failing to look decisive might have helped create the notion that management was dithering, as well as stoke more Anglo takeover speculation.

Rather than having to bat away a hostile takeover, Anglo has instead announced two major investments in copper and iron ore, and both in South America, totalling $1.5bn. The first is purchase of a 49% stake in the MMX Minas-Rio project in Brazil for $1.15bn, a venture expected to produce about 26 million tonnes of iron ore pellets a year from the last quarter of 2009. Anglo also has the option to pay a further $600m for a 50% stake in the project expected to cost $2.35bn to develop.
We believe this is a clear example of Cynthia Carroll’s more aggressive style
A week later, on April 30, Anglo unveiled a second transaction in which it will pay $403m for Michiquillay, a late stage copper exploration project in Peru which it won in public tender. Anglo says the transaction builds on Quellaveco, another copper project in Peru the feasibility of which will be established in 2008. Exploration at Michiquillay in the Seventies suggested an open pit copper mine with production of about 100,000 tonnes per year.

“We believe this is a clear example of Cynthia Carroll’s more aggressive style, without whom we believe it would not have happened,” says Simon Toyne, an analyst for Numis Securities, a UK stockbrokerage.

Says Ross Gardiner, an analyst for JP Morgan, in a recent note: “We applaud the company for being proactive in its approach to the current cost and capital.” He believes Anglo will be more aggressive and adopt an acquisition strategy that has served London-listed Xstrata well.

Carroll has also taken the knife to its management layers. The chairman roles of each business has been removed while committee structures have been simplified in order to “speed up decision-making” as Carroll described it at the Merrill Lynch Investment Conference in May. (It’s worth making the observation – without judging it - that Anglo’s move to centralise activities such as procurement is at odds with Xstrata’s strategy of devolving power to regional head offices).

Then there was also the high-profile departure of Simon Thompson, believed to have been a rival candidate for Carroll’s job, taking his leave of the group on April 13. It’s not known if this was part of simplifying the company’s structure; instead that infamous Anglo tittle-tattle is that Thompson, who looked after Anglo’s important base metals division, asked for a chief operating officer’s post that did not really exist in the group.

Or perhaps, indeed, Thompson’s departure is the start of a trend to improve Anglo’s cost base, a factor Heath Jansen, a Citigroup analyst, observed when he was quoted in the Daily Telegraph, a London paper, as saying Anglo’s salary bill topped $5.4bn last year compared to the $2.3bn at Rio Tinto.

“I’m a practical type,” says Carroll whose easier, American style couldn’t be more removed from that of her predecessors, Tony Trahar and Julian Ogilvie-Thompson. Both men were ‘financial types’, both of a defensive mould and – it’s got to be said – helped communicate a company stuck in its ways. Only in his final days, at Anglo’s Christmas party in 2006, did Trahar suggest the company hadn’t done enough to explain itself.
I’m a practical type
In contrast, Carroll describes herself as an operations person; in fact, a geologist. Swap then the keyboard tapping Trahar, an accountant, for rock-tapping. And when she talks about Anglo, the tone is less restrained, more openly enthusiastic than Trahar.

Perhaps this style helped her almost immediately grasped the nettle with South Africa’s government, traditionally suspicious of Anglo.

Carroll speaks enthusiastically of the country’s deputy minister, Phumzile Mlambo-Ngcuka, whom she describes as “outstanding”. Relations with the mines minister appear good as well. What’s more, Carroll has liaised with them pretty intensively. “Last week, the minister of mines could not be more complimentary,” Carroll says. The key matter between them is how the group handles empowerment. All soft skills to the pump.

“We have now fixed our approach on iron ore, diamonds, gold and coal. We’re very pleased with that,” she says. The key matter – as perhaps we all know – is Anglo Platinum, the world’s largest platinum producer and responsible for nearly half of Anglo’s earnings. Not to have its empowerment strategy mapped is a massive risk for Carroll. Platinum is Anglo’s outright and most singular advantage over its peer group.

Analysts recognise the risk of not tying up Anglo Platinum. Commenting on the platinum firm’s prospects, Steve Shepherd and Allan Cooke, precious metals analysts at JP Morgan in Johannesburg said: “A cloud on the horizon remains the issue of BEE, which continues to feature negatively for the group in all the local business media.”
What does another party bring to Anglo that we don’t have?
Says Carroll: “It’s been seen as a difficult relationship [between Anglo Platinum and Government] but we’ve been proactive. We’ve put a new CFO in place and we’re very pleased to have him. Ralph [Havenstein, Anglo Platinum’s CEO] have agreement on our approach. We’re not threatening legal action.”

No indeed. Anglo American publicly distanced itself from making expropriation claims against the South African government, as was its right. In terms of the Prescription Act, companies wanting to claim that land had been expropriated by the Minerals & Petroleum Resources Development Act had to do so within three years of its promulgation, which was in May 2004.

But taking up its legal right would hardly have been the best, practical route for Anglo Platinum unless stitching up its strategic future in its best, highest earning metal was the aim. The spectre of legal action is gone now, replaced by new momentum which hasn’t gone unnoticed in Pretoria, where the regulator’s pen is most powerful.

Says Sandile Nogxina, director-general of South Africa’s minerals and energy department: “They could have taken government to court. That’s the freedom I fought for. But perhaps we can start talking now”.

“We don’t see any bottlenecks,” says Carroll of the group’s empowerment strategy. At the time of writing, Anglo Platinum was finalising details of two empowerment deals. The hope is that both could be concluded at the year-end.

In a more recent development, Carroll has responded to underground fatalities at Anglo Platinum’s mines by suspending production at the Rustenburg section for a week to audit its safety systems. An extension of this strategy – which was expected to cost Rustenburg 15,000 oz in refined platinum – is expected at other Anglo Platinum mines if safety measures are proved successful at Rustenburg.

Asked to identify the key goals of Carroll’s first year, the hammer falls squarely on matters of efficiency: improving the company’s reporting structure; improving capital deployment on small as well as large projects; productivity gains. “We are going to take a hard look at all we do and how that translates into the bottom line,” she says.

She also has the restructuring programme inherited from Trahar with emphasis falling on Anglo’s non-mining assets.

On May 4, Anglo had completed the sale of its remaining shares in Highveld Steel & Vanadium. As part of the restructuring of Tongaat-Hulett, the downstream aluminium rolling business or Hulamin as it is now called, was listed on the Johannesburg Stock Exchange. There is speculation Anglo American is also to sell its UK aggregates business, Tarmac, possibly to Lefarge. And by July, the company oversaw the separate listing of Mondi, its paper and packaging company.

Some analysts believe Carroll remains a temporary change agent. “Just as Trahar was hired to slim the group down, Carroll has been hired to build it up in certain commodities,” says one. Is it justified to view Carroll as the cost-cutter and the powerless bearer of inherited strategy?

Carroll says she has complete freedom to change strategy. It so happens, she found Anglo had a strategy worth supporting. Take, for instance, the disposal of Anglo American’s 41% stake in AngloGold Ashanti: “We’ve publicly stated we would sell down the remaining shares over a period of two years. I subscribe to the restructuring embarked on last year. They’ll be no pulling away from it,” she says.

The emphasis then is to fall on iron ore, diamonds, platinum, coal and diamonds. Long-standing speculation has been Anglo is seeking a way to extract itself from its 45% stake in De Beers. But speaking in Dublin, Carroll said it remained “a fundamental part of Anglo’s future”.

Aluminium, however, is absent from the portfolio which is interesting as well as somewhat ironic since Carroll spent most of her working life at Alcoa, the Canadian aluminium producer.

According to Nick von Schirnding, who heads Anglo’s investor relations department, Anglo has no interest building a presence there. That effectively rules out Anglo making a rival bid for Alcan, another Canadian aluminium company which is the subject of a hostile takeover attempt by Alcoa.

The question of Anglo’s merger and acqusition interests in one worth asking. The commodity market is broiling with speculation of one sort of another including a private equity bid for BHP Billiton and another possible bid for Rio Tinto by Billiton. Anglo has been included in that mix as a takeover target. But Carroll is unconvinced.

“What does another party bring to Anglo that we don’t have? We have a project pipeline (worth about $7bn), and cash. There’s nothing that can be added,” says Carroll.

Well, there is scale which seems more important than ever in the current commodity market where metal prices demand the major players grab as much market share as possible. But Carroll believes much of the merger and acquisition talk is more to do with momentum and perception.

Perhaps one final difference between Carroll and her predecessor, Tony Trahar is that Carroll remains more of a market bull. “Before, mining companies didn’t really believe in the cycle. But the talk now is not about prices. They believe it’s here to stay. And there’s a greater commitment to capital expenditure at these levels, say for the next 10 years.”

Click Here to subscribe to our daily newsletter
Says Gardiner: “We perceive a significant change of direction in Anglo strategy which takes into account a materially higher price environment.” In buying Michiquillay, Anglo is thought to have bet on a much higher long-term copper price of $1.70/lb compared to consensus of $1.25/lb.

“It is the intent and the timing of the acquisition that is noticeable. It signals that Anglo intends to expand its asset base in its core commodities - copper, coal, platinum group metals and iron ore - into long life orebodies,” he says.

There’s real confidence Carroll has enough to bring about the culture change Anglo appears to be desperately seeking. As recently as June 1, London’s The Times, quoting Citigroup, was declaring Carroll was “... having a dramatic impact on redefining the DNA of Anglo”. The Citigroup team were also struck by signs she was more aggressive on acquisitions.

“The potential for Cynthia Carroll to effect significant change in Anglo American’s culture ... is a further attraction of the stock,” says Toyne who adds the group is Numis’ top pick of the large cap diversifieds.

One final twist, which has not gone unnoticed, is that Carroll is now a relative ‘old hand’ among the UK’s diversified mining stocks. This follows the appointment of Tom Albanese to the top of Rio Tinto in April, and Marius Kloppers’ yet more recent appointment as BHP Billiton’s CEO-in-waiting. Kloppers takes the reins of power in October at a time when all three new CEOs will be anxious to prove their stripes.