[miningmx.com] – CYNTHIA Carroll is in the unenviable position of having
to tolerate retrospectives of her Anglo American career even while she’s still in the
position and making crucial decisions about the firm’s future.
For instance, the asset review at Anglo American Platinum (Amplats), a company she
also chairs, is an important swansong for Carroll, if not one of the most important
decision-making moments of her entire six-year career at the group.
The challenge has a surgical nature to it and given the fact Carroll acknowledged that
Amplats is a complex company, you’d have to believe we’re talking delicate brain
surgery here. As Sir John Parker said at the announcement of Carroll’s resignation
today: “The Board owns the strategy and the CEO formulates it’. Will she formulate it
well?
Giving form to strategy is probably the area where Carroll has faced the most
criticism. The cost and time overruns at Minas Rio, for instance, is the biggest stick
she has faced over time. But on the whole, one has to think that Carroll has done
okay.
Anglo’s operating and financial performances statistics, set down recently in a
research note by Kieran Daly of Macquarie Research, would suggest that Carroll did
better than okay; in fact, she made Anglo competitive during the last five years,
notwithstanding the share price performance which belies some of the operational
victories.
Since 2007, the compound average growth rate (CAGR) of Anglo’s earnings was 4%,
which is not terribly short of the 5% average of the UK extractive industries peer
group (BHP Billiton shows a CAGR of 7% in earnings). Costs fell 3% over the period,
while the peer group saw costs increase; and pretax earnings rose 16% to 37% in the
period, a performance only bested by BHP Billiton (47%). Returns to shareholders
since 2007 totalled $20bn, again below BHP Billiton’s $47bn in returns, but in line with
Rio Tinto’s.
Anglo reported less impairments than any of the peer group and wasn’t the only
company to run into project capital overruns with budgets expanding at BHP Billiton’s
Worsley project, Rio Tinto’s Argyle project and Xstrata’s Koniambo. As Carroll today
noted, the biggest challenge facing her successor will be implementation of capital
projects in new and existing mining districts, especially as expectation about economic
benefits among governments and their citizenry escalate. The challenge is true of any
CEO in the mining industry, irrespective.
Volume growth wasn’t Anglo’s strong point under Carroll, however. Production grew
only 1% against the 10% volume growth for BHP Billiton – the metric that possibly
informed the shareholder backlash against her, particularly this year. That, and the
effects of South Africa’s remarkable downturn in fortunes.
There are some mitigating circumstances on the volume side. As Parker remarked,
Carroll presided over an $11bn divestment programme as Anglo shucked its legacy
investments in South Africa. That was a challenge the peer group didn’t have.
Still, there are valid shareholder grumbles: they didn’t like the deal that Carroll cut
with Chile’s Codelco, nor the poorly rationalised increase in the stake in Kumba Iron
Ore. The underperformance of the copper assets this year has, one understands, been
another bone of contention among shareholders.
All in all, however, it’s the role of Anglo American’s South African assets that one
feels has hurt her most. Without understating the other weaknesses in the
organisation, it’s arguable that nothing undid Anglo’s share price performance more
than the volatilities of policy change and, latterly, labour disruption in South Africa.
Notwithstanding the statistics mentioned above, Anglo’s share price declined 7%,
while BHP Billiton’s share price doubled and Rio Tinto’s increased 40% over the last
five years. For the year-to-date, however, shares in Anglo are some 20% weaker
relative to the peer group. In some respects, it’s a pity that Carroll’s best
achievements, which include the improvement in safety and government relations in
South Africa, should have counted for so little in the eyes of investors. Carroll has
exogenous conditions in South Africa to thank for that.
So, then, the question falls as to how Carroll’s successor will view “the South African
problem’?
Parker declined to comment on potential strategy changes in the future. He couldn’t
say what changes there will be. But, surely, they’ll be a mighty discussion about
investing in the country, especially at the final interview stage. “Can I exact major
South African reorganisation if I take the post?’ might be one possible point of
discussion.
One thinks of the New Largo coal mine, the project so crucial to supplying Eskom’s
Kusile power station, and whether it’ll be the last large scale capital spent in the
country by its most valuable of progeny.
