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, David McKay says on www.miningmx.com.
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 [Oct. 26]: "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 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 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 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.
