Football managers have always been in a league of their own when it comes to media scrutiny. Form, strategies, sales and purchases, and certainly their private lives — no self-respecting football writer leaves a move unturned. Now they’ve been joined by the top mining managers.
This is an even tougher world, where numbers come with nine noughts and competition is commensurately fiercer. It is all about the race for the world’s resources, and the prime managerial quality is "aggression." Found wanting and their jobs as well as share price will be on line.
No less than three of the world’s top Western mining firms have new CEOs — Marius Kloppers at BHP Billiton, Tom Albanese at Rio Tinto and Cynthia Carroll (yes, a woman!) at Anglo American. What investors and the media have been asking is: Do these new mining chiefs have the balls to beat the emerging South American, Russian, Indian and Chinese mining giants in take-over battles?
Western investors want to put money in local companies, if they are winners. Pitched against them the Chinese are smoothing their way into Africa’s resources with billion dollar infrastructure project sweeteners, such as motorways in Nigeria. (The Western companies have complained about China freezing them out to the United Nations and World Bank.) Russia’s Norilsk Nickel outmanoeuvred Swiss-based giant Xstrata in June for Canadian nickel and gold producer LionOre in a tough battle.
Buyers not builders
There is no time for new mines to supply insatiable customers in China and India’s booming economies. "Better to buy than to build" is how top stockbroker Nomura’s strategist Eric Betts sums up the mining industry’s frenzied merger activity over the last eighteen months. Last year deals totalled $140 billion, five times that of 2005. Now 2007 is expected to deliver at least the same. A third of the world’s top mining companies have been swallowed up in the past four years, according to consultants PricewaterhouseCoopers.
Miners can’t dig fast enough. It takes up to seven years to get a new mine up and running. Anyway, there is a global shortage of qualified geologists, mining engineers and equipment.
Goading them on are the likes of major US-based investment group Goldman Sachs. Its Australian arm lashed into BHP and Rio with typical bluntness. They’d settled for a "comfortable" life, and were being too inhibited by the money lost in the mining doldrums of the 1990s, it roared. They were not actively out there acquiring to protect their core positions (and implicitly Western investors’ future earnings).
Xstrata, who’d spent $23 billion buying up other mining companies in the last year, and Brazil’s giant CVRD, with its $19 billion takeover of Canada’s Inco and major non-core sales, were described as making a better fist of it.
So, it’s very tough indeed! Nor will this month’s credit market crisis help, strong though mining balance sheets may be after months of high commodity prices. Neither banks nor private equity financiers are going to rush to fund mergers now. Against this background, what has the media made of the new managers?
No risk aversion at Rio
Rio Tinto’s appointment of Tom Albanese in May was welcomed on the grounds that he had a praiseworthy lack of "risk aversion". An American geologist and engineer, now 50, he is an "inside" choice, having held a succession of senior jobs with the Anglo-Australian group. He’s broadcast confidence in the Chinese and Indian led mining "super cycle.
He promises to deploy the group’s vast resources, $1billion in free cash a month, to leverage investments. All the same, Rio Tinto was being muted as a bid candidate itself when he moved in.
Well, he lost little time in confounding Goldman’s sneers in no uncertain terms, with a knock-out $44 billion cash bid last month for Canada’s Alcan. That blew the $31 billion cash-and-share hostile bid for Alcan made by its rival Alcoa out of the water. So there is little doubt that under Albanese Rio will be more adventurous.
Changing Anglo’s DNA
Dismissed initially as "no heavyweight", over at Anglo American, Cynthia Carroll has also come out fighting. After everyone got over the shock that an outsider and a woman had broken the glass ceiling, US investment giant Citigroup says she has already had "a dramatic impact on redefining the DNA of Anglo". The strawberry-blonde (a media comment, of course), American, 50-year old, mother of four, who previously spent 18 years running Alcan’s primary metals group, immediately made it clear that she meant business.
Very bullish on the Asian demand outlook for commodities, she picked up on what is wanted very smartly. She has promised "a more aggressive acquisition strategy", plus cost savings and higher shareholder returns. She has already floated off one non-core business, timber subsidiary Mondi, and construction group Tarmac is also for the exit. The question posed by the media now is can she maintain momentum and avoid a bid from the likes of acquisitive Brazilian giant CVRD?
Vision at Billiton
That leaves the biggest of them all, BHP Billiton, which has not made an acquisition since 2005. It will now find the new Rio too large to swallow, as was previously rumoured. Chemical engineer Marius Kloppers doesn’t take on the CEO mantle until October, but is also on tune and has already said he is unhappy with the stock market’s valuation of the group. With the reputation of a "wheeler dealer", the 44-year old South African, but naturalised Australian, joined Billiton in 1993 and has worked in a variety of its subsidiaries. A volatile character, big on action and ideas, who does not suffer fools gladly, his appointment surprised the press. But, despite question marks over his maturity, he won for his vision, energy and executive skills to drive Billiton in this once-in-a-life-time resources boom.
Billiton watchers say his style will be to concentrate on building the revenue end of the company — that means growth. His introductory presentation maps for the media suggested that Billiton would focus their exploration efforts in Africa. Only time will tell if this is what he will go for.
So, keep digging — for acquisitions!
Erin and Isabel
