Anglo American: is the mega-miner running out of ideas?

Top mining executives may be plain shy of joining an overburdened Cynthia Carroll as Anglo American continues its internal remodeling.

JOHANNESBURG - 

Has Anglo American, the transnational miner, run short of ideas over its continuing remodeling, a process that has been underway for more than a decade? Its latest move may be a sideways one, in the appointment of Anglo American CEO Cynthia Carroll as chairman of 80% subsidiary Anglo Platinum, and the promotion to deputy chairman of Anglo Platinum one Valli Moosa, a somewhat controversial South African politician.

During the early 1990s, Anglo American experienced ongoing pressure to reconstruct. It had emerged from apartheid South Africa as a conglomerate with a haphazard portfolio, ranging from mining to media, from financial services to construction, and so on. Investors literally demanded that it refocus, and remove all possible elements of pyramid-type structures, not least the infamous cross holding between itself and De Beers; each held about a third in the other.

At the time, Gencor, a rival mining house, led by Brian Gilbertson, unleashed a torrent of transactions loosely known as "unbundling". A string of stand alone entities, such as Impala Platinum, were cut loose, to follow their own focused destinies, which could, of course, include acquisitions. The remnant Gencor structure acquired London-listed Billiton, which would in due course merge with BHP to form BHP Billiton, the world's biggest diversified resources group.

Anglo American largely resisted the unbundling route, seemingly jealous of its size and clout. In 2008, it disposed of its remnant stakes in AngloGold Ashanti, one of the world's biggest gold miners, but kept the cash for itself, rather than unbundling shares to its own shareholders. During 2007, however, London- and Johannesburg-listed Mondi was demerged, in the form of an unbundling. Anglo American has sold off a good number of other non-core assets, mainly for cash that has been returned to the group's core. Just this week, Anglo American sold off certain undeveloped Australian coal assets for USD 500m in cash.

In the past few years, however, Anglo American's asset sales have become more motivated by repairing liquidity damage at its core. Relative to its size, Anglo American ranks as one of the world's more indebted mining companies, with net debt of USD-11.1bn at end-2009, comprising nearly a quarter of its current USD 48bn market value.

There has been cash pressure from various parts of the Anglo American group. Anglo Platinum on 29 March 2010 completed a ZAR12.5bn (about USD 1.7bn) rights issue, fully supported by Anglo American, retaining its stake of just short of 80%. The troubled phase at Anglo Platinum, which commenced after platinum prices peaked early in 2008, saw the appointment of a new CEO, Neville Nicolau, in June 2008.

Carroll is also a director of De Beers, in which Anglo American holds 45%. De Beers has experienced a rough few years, and on 23 March 2010 completed a USD 1bn rights issue, mainly debt for equity swaps with its three shareholders.

Anglo American has been relatively cautious with acquisitions, but during cyclical highs in the iron ore market, during 2007 and 2008, spent USD 6.7bn on iron ore assets in Brazil, including 100% of Minas Rio, and 49% of LLX Minas Rio (port of Açu). The build at Minas Rio is set to absorb around USD 4bn for phase I, which proposes first production in 2012, with full ramp-up to 26.5m tonnes a year of iron ore in 2013.

Seaborne iron ore, the world's most profitable mining franchise, has become a serious focus for Anglo American. It holds a controlling stake in South Africa's 63%-held Kumba Iron Ore, which, together with Anglo American's stake in South Africa's Hotazel Manganese (managed by BHP Billiton) rank as major contributors to Anglo American's group profits, along with platinum (although 2009 was a very poor year), and copper.

Carroll stepped into the CEO position at Anglo American on 1 March 2007, during a year when Anglo Platinum would pay cash dividends of USD 1.7bn. The same amount was paid in 2008; in 2009, Anglo Platinum passed its dividend, as did Anglo American, infamously, for the first time in its history. This year, profits and cash flow for Anglo American and most of its underlying interests will be far better.

While Anglo American may relieve some shareholder concerns by restating its dividend, possibly this year, it seems that only time will tell whether Carroll is running out of ideas. She has had a busy enough year; as a non-executive director of BP since 2007, and a member of BP's safety, ethics and environment assurance committees, she must have been as horrified as anyone else at the oil spill in the Mexican Gulf.

But by moving up the ranks at Anglo Platinum, along with an equally media-shy Moosa, Carroll may be indicating an inability to attract the talent that Anglo American could do with. Simon Thompson, erstwhile CEO of Anglo Base Metals, announced his resignation within weeks of Carroll's arrival as group CEO.

Just days ahead of Carroll's maiden results presentation, Ralph Havenstein announced his resignation as CEO of Anglo Platinum. One day later, Bobby Godsell, long serving CEO of AngloGold Ashanti, announced his resignation. Ian Cockerill, erstwhile CEO of Gold Fields, was later hired to head Anglo American's coal division, only to fall casualty to yet another round of Carroll's group reorganisations. Notable departures from Anglo American's 2007 executive committee include Russell King, Tony Redman, Philip Baum, and John Wallington.

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Dear Barry I find it incredible that a journalist can suggest that the CEO of one of the largest companies in the world is running out of ideas. Barry, if you a tenth of the responsibility and pressure Cynthia has in your simple line work, you would have . .more cracked long ago. What is your obsession with debt to market cap? Why dont you rather focus on debt to assets? . .less by Haydn Ellwood on July 08 2010, 03:14 Find this comment inappropriate? Report it

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