John Parker interview. Part Two

Allan Seccombe | Wed, 04 Nov 2009 14:55
[miningmx.com] -- Anglo chairman John Parker says Xstrata has been successfully seen off and it’s now time for the company to deliver on value and promises to shareholders.

He sounded an interesting note on his relationship with CEO Cynthia Carroll, with whom he’s been forging since joining the company as a non-executive director in July 2009 ahead of his appointment as chairman a few weeks later.

“The chairman and the chief executive have to have a close relationship, in the sense that a good chairman should be a good mentor, an advisor, you should be a confidante. You should be the natural person to go talk things over with. That’s the relationship I’m building with Cynthia. So far it’s been extremely positive,” Parker told Miningmx.

Some analysts have suggested Xstrata is biding its time, ready to pounce on the company if it fails to deliver on promises to save $2bn in cutting procurement costs and optimising its assets, using shareholder dissatisfaction as a lever to get hold of Anglo. Parker said he thinks that threat has been seen off.

“That certainly doesn’t keep me awake at night and we’ve done what we had to do with Xstrata. Anglo is well capable of standing on its own feet,” he said. Measuring the delivery of shareholder value will be easy, he said.

“If we deliver those [the $2bn in savings], if we deliver the disposal programme, if we deliver our major new projects and if we’ve brought the performance of some our businesses up -- we’ve a clear route ahead to improve the cost position of platinum over the next two to three years -- clearly we’ll have delivered enormous value to shareholders.”

Anglo has narrowed its core business interests down into seven units comprising iron ore in South Africa and Brazil, coal in South Africa and Australia, copper, nickel and platinum. It is not looking outside those minerals for growth.

“We’ve got a full plate of opportunities so, very fortunately, we don’t really have to look out into M&A (mergers and acquisitions) markets at this time in the cycle,” Parker said.

Asked if Anglo would need to raise capital towards developing it major projects in iron ore and elsewhere in its portfolio, he said: “Our balance sheet is in reasonably good health right now and the disposals that we’ve put in the market would of course make a huge impact on the balance sheet.”

“In addition we are still, even at the bottom of the [commodity cycle] trough, creating significant cash generation. So, if you take that, with the sale of assets, our balance sheet in three or four year’s time should be in good shape.”

LEAN AND MEAN

The retrenchment of the 2,700 people from the management level, while causing some uncertainty within the group, was the best thing for Anglo, he said. Carroll and the board had already formulated plans for reorganising the business ahead of his arrival but she had held off any announcement until talking it over with him and stress-testing the strategy, he said.

“Of course there will be some uncertainty in the minds of people but in reality a more nimble and lean organisation is being created. It’s released a lot of energy. It’s brought through a younger generation of managers now who of course are really enthused about the opportunity of sitting around the executive committee table,” he said.

“They’re enthused about running their own show. They’re enthused they’ll be able to have straight line into corporate headquarters,” he said. “A criticism of Anglo was that there have been too many people between head office and the mining operations and I think that has been dealt with very firmly indeed.”

One of the underperforming assets in the Anglo stable has been Anglo Platinum, which has missed expansion targets and for years had rising costs. A major restructuring is underway of that business in which Anglo owns a 78% stake.

Anglo Platinum will tell the market in February 2010 about its plans to restructure its balance sheet, which will reflect debt of R21bn by year-end, after having laid off nearly 12,000 people this year and shut down production totalling 140,000 oz at three shafts.

One of the perennial questions is whether Anglo will mop up minorities, an exercise that will cost around R32bn at today’s share price. Parker said Anglo didn’t see the need to do that right now given it could better deploy capital towards its growth projects.

Anglo Platinum should be within the right cost profile in the next two to three years, Parker said. He declined to be drawn on what was happening regarding the balance sheet restructuring. “It’s a separate company. Our board not make the decision whether they should raise capital or not. We’d be a more than an interested observer, so we’d exert influence.”