[miningmx.com] – BRIAN Gilbertson once observed in an interview that perhaps the fates had a larger role to play in the fortunes of the mining sector, and its leaders, than perhaps is generally recognised.
So it was that shareholders sent former Anglo American CEO, Cynthia Carroll, packing for – among other ‘miscalculations’ – having bought the Minas Rio iron ore deposit in Brazil at the top of the market.
At the time, there was pressure on Anglo to look sharp in the race to plug the looming deficit in mineral supply to economies such as China. Minas Rio was an expensive acquisition and then was dogged by logistical and permitting delays.
Certainly there were misjudgements in Anglo’s bid to join the race for iron ore in the same way as Rio Tinto chased coking coal in Mozambique because Vale had set up camp there. It was around this time that Vale nearly bought Xstrata at the top of the market.
Similarly, Mick Davis bought a 24% stake in Lonmin to protect a position in the platinum firm in which his Xstrata never seemed likely to capitalise upon while BHP Billiton’s Marius Kloppers failed in adding potash to the group’s profile such that his successor, Andrew Mackenzie is still unsure whether the commodity has a long-term future for the company.
Gilbertson’s point was that CEOs are paid to take the responsibility for critical judgements a board and executive committee make, but if the market or conditions turn against you then that’s just your bad luck. An extreme fluctuation in the market can make heros and villains of any CEO, regardless.
In hindsight then, it’s probably worth acknowledging that whilst Carroll was caught out by certain misjudgements, the two drivers of Anglo American’s recovery at present were both her initiatives: Minas Rio – expected to produce over $570m in earnings according to one analyst – and De Beers.
It’s questionable whether Minas Rio can actually be called a sound investment, at least in the short-term. Anglo recently trumpeted the fact that it had stayed within its budget, but this was a recalculation after having written down the investment for $4bn.
Just before Carroll left, Minas Rio had cost a total of R14bn to build, including its acquisition cost and $8.8bn of capital, equal to a cost of production of about $350/t. Still, Minas Rio is now a mine promising healthy cash flow for Anglo.
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