TOP 10 MINERS: A tough year, for CEOs and for stock prices – by Barry Sergeant ( – December 6, 2012)

The CEO’s of major top miners have faced relentless pressure this year, both from poor metal price performance and, increasingly demanding shareholders.

JOHANNESBURG (MINEWEB) – For listed mining companies everywhere, this year has been all about stock prices facing headwinds, along with relentless pressure on CEOs.

The benchmark stock, BHP Billiton, the world’s biggest diversified resources group, saw its stock price in US dollar terms peak out in the latter stages of 2010. Given the wobbles in the global economy, the fall from there has been relatively modest, from around US$26.00 a share to recent trades around US$19.00. Vale, the world’s No 2 miner by market value, has seen its stock price fall by just over 50%, to current levels around US$17.00 a share.

Over the past 12 months, Vale and Anglo American have underperformed, probably on the back of a heavier exposure to developing markets, where regulatory uncertainty has been on the rise, over the past two years, in particular. This week in Johannesburg, outgoing Anglo American CEO Cynthia Carroll decried a number of factors that had contributed to uncertainty in this country, and appealed, in effect, for improved leadership at all levels.

BHP Billiton, as mentioned, has performed better, on a relative basis, along with the likes of Rio Tinto and Xstrata. Freeport McMoRan, which has a stock price history that would leave any investor giddy, has done all right.

The stock price is around US$38.00 a share, from US$60.oo or so in the latter stages of 2010. No doubt some speculators and also investors will remember how this stock price plunged from over US$60.00 a share to less than US$10.00 during 2008.

At the trough, Freeport seemingly represented one of the buys of the century. The stock is characterized by its ability to generate heavy cash flows, and, in line with other most-valuable mining stocks, its strength in riding through the cycles. The most valuable mining companies own – or, more accurately, are custodians of – the world’s biggest mining assets, which are further coveted for low cost profiles and long lives.

Further top value factors can be identified in management experience and ability, and diversification. This much has been seen in the succession of CEOs that have come and gone, or are going, over the past year or so. In hindsight, Roger Agnelli, who was replaced as Vale CEO by Murilo Ferreira in May 2011, seems to have had impeccable timing; since then, the group’s overexposure to iron ore has been shown up, along with its poor record in diversification.

Vale has long ranked as the world’s biggest and lowest cost iron ore miner, at its operations in and around the famed Carajás deposits. While each US$1 drop in the iron ore price cuts about US$300m a year from Vale’s revenue, there have been several years this decade when Vale has banked untold billions of dollars. These riches triggered a strategy of diversification, which has so far produced pretty miserable results. Add to that the regulatory risks in Brazil, and the underperformance of the stock price has come as little surprise.

In some ways, Vale’s somewhat uncertain future loops back to 1997, when Anglo American was one of the preferred bidders for a controlling stake in Vale. As the bidding proceeded in Vale’s privatisation, Anglo American’s board of directors reached a point where it decided that the price was going to be too “expensive”.

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