Will Anglo cut assets?

2012-10-27 10:44

The resignation of Cynthia Carroll has led to speculation the company may abandon its platinum interests in SA

The resignation of Anglo American chief executive Cynthia Carroll could hasten a decision by the company to abandon its South African platinum assets – a division of the diversified mining giant which has for some time performed poorly in comparison to the group’s other business units.

Carroll announced her departure from Anglo American on Friday after holding the company’s reins for close on
six years, in a week during which her future was the topic of much media speculation.

“It is a very difficult decision to leave, but next year I will be entering my seventh year as chief executive and I feel that the time will be right to hand over to a successor who can build further on the strong foundations we have created,” Carroll said.

She will continue to head the group until a new chief executive is appointed.

The announcement came while Anglo American was moving towards the closing stages of a thorough review of all its platinum operations – held through its subsidiary Anglo American Platinum (Amplats) – following years of under-performance in relation to both its platinum peers and other business divisions in the company.

The platinum division has, in recent years, been hit a double blow in the form of higher costs – owing to mining at deeper levels, and increased salaries and electricity prices – as well as depressed platinum prices
in an over-supplied market.

The division’s problems have been compounded by the spate of labour-related work stoppages across the industry since August.

On Thursday, Anglo said the strikes were costing it 4?500 ounces in lost production a day, the equivalent of R61?million at the current platinum price.

Carroll had announced a review of Amplats in February with the promise it would be completed before the end of the year. On Friday, she said Anglo’s board would meet next week to discuss some of the outcomes.

“We’re looking for a fundamental shift in performance,” Carroll affirmed on Friday. “It’s not competitive and won’t thrive unless we make fundamental changes.”

London-based analyst at RBC Capital Markets, Des Kilalea, said the fixed costs associated with mining platinum have become too high and the simplest way for Anglo to solve the problem is “to get rid of it”.

Kilalea added, though, that a divestment would be easier said than done, as such a move might upset other stakeholders in a country in which Anglo continues to hold other significant assets.

These include the Venetia diamond mine via De Beers, the Sishen iron ore mine via Kumba Iron Ore, as well as major coal operations in Mpumalanga.

“Chris Griffith (the recently appointed chief executive of Amplats) must believe he’ll be able to fix it,” Kilalea said. “I don’t think he would have taken the job for any other reason.”

Ultimately, though, there were many other issues beyond South Africa that have aggravated
the pressure on Carroll’s reign.

Britain’s Sky News reported last weekend that Anglo American’s board was to discuss Carroll’s future owing to concerns over her leadership, citing a number of institutional investors who said plans for Carroll to step down could be announced within weeks.

“There have been signals from the company that there will be change at the top – and soon,” one such source was quoted.

Among the reasons cited were delays and cost overruns at a $5.8?billion (R50?billion) flagship iron ore development project in Brazil, as well as Anglo’s poor share price performance relative to peers BHP Billiton and Rio Tinto.

During the first five years of Carroll’s management, Anglo’s share price on the London Stock Exchange fell 7% while that of BHP Billiton doubled.

However, the company’s chairman, Sir John Bond, said on Friday the decision to leave was made by Carroll alone and she wasn’t pushed.

“The board always listens very carefully to its shareholders, it’s the right thing to do, but this was Cynthia’s decision,” Bond said. “There never is a good time to step down.”

London-based Numis Securities described Carroll’s departure as a “negative” for Anglo American.

“Given the challenges and pressures to the business, it may not come as a surprise to some but we believe overall she has done a good job of transforming the company since taking the helm in 2007,” Numis analyst Cailey Barker said in a note to clients.

“Only in the recent year or so have things started to falter, mainly around the platinum sector and the recent industry problems endemic in South Africa,” Barker continued.

“In our view, she should leave with her head held high.”

The market, however, viewed the announcement positively, with Anglo’s JSE-listed shares opening more than 2% higher on Friday, despite the all share index losing ground.

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