Iscor’s Hans Smith discusses his dreams and aspirations for the organisation with Aspasia
Hans Jurie Smith, managing director and soon to be chairman of Iscor, describes himself as ‘a bit of a dreamer’. He has a vision of Iscor becoming a large international player in the commodities business with the potential to grow even faster than either Anglo American or Gencor did. “But I don’t want to produce golf balls and pantihose, it’s tempting, but I won’t,” he quips.
Smith’s main objective is to retain the core competencies of the organisation, and its character. His job, however, is not enviable, as he has to counterbalance this high risk vision, with the other role he has decided to play, that of the champion of the shareholders.
Smith argues that he is amply qualified to deal with all the ramifications this entails — after all, he has had extensive exposure to fields a typical chief executive would never engage in.
His training and experience as a metallurgical mining engineer, a market researcher (including a stint at the Harvard Business school), as an investment analyst at Gencor, and at Transtel, as well as heading up the chrome and titanium divisions at Gencor, prove that he is the ultimate techno- rennaisance man. It is this multi- disciplinarian approach that, he claims, puts him in the right place to do the job.
His primary product also seems to be positively situated, what with the growth in the white goods market, and the renewed economic activity in South Africa. As the market gears up for the Reconstruction and Development Programme (RDP), steel is in greater demand.
The price of shares has risen by more than 16 percent in the last year, and Smith reports that the results were not from a rise in sales, but from a rise in local demand.
Iscor produces six million tons of steel a year, a figure which it plans to cut to five million tons. He rationalises that a reduction in volume, will result in an increase in productivity, if the company can continue to sell its prime product in the local market.
Above all Smith is a pragmatist: “We have no great ambitions to produce more or cheaper steel.” His statements rise out of the present debate that was opened by Columbus chief executive Fred Boshoff’s comments that the stainless steel semis business is not really viable or profitable in the long run and that producers should rather concentrate on further beneficiating their products.
Smith’s response is complicated, but essentially illustrates his desire to ensure his shareholder’s
His first point is that Iscor has two new stainless steel semis projects on the cards. The first is a large scale conversion of the Pretoria Works from carbon to stainless steel production. It intends to be in full production of 40 000 slabs a month by July 1997.
A second smaller plant producing about 10 000 billets is envisaged for Durban. Iscor has a 50 percent shareholding with an international investor and the plant will come on stream in about 12 months time.
Clearly Iscor will continue to pursue this aspect of the business, and the argument to do so is based on market forces.
Iscor dedicates one-third of its production to black band and the rest to slabs, but the market risk is high in beneficiated products, and Iscor strives to keep the cost risk ratio steady for investors.
The difference between Columbus and Iscor is essentially one of positioning in the market place.
Iscor’s initial costs are usually nine times higher than those of Columbus, so they are in a high risk area, and have to compensate by moving stable products.
Smith points out that Columbus can in fact tolerate a lower rate of return, because they are dealing in a growing market whereas Iscor is not dealing in growth commodities when it comes to steel.
He uses a similar argument to explain Iscor’s withdrawal from the Saldanha Steel project. “I do not get paid to make popular decisions but to make the right ones. I cannot go ahead if it does not make sense to my shareholders.” Iscor was hoping that the Saldanha project would replace the tonnage that the company is now losing from the Pretoria Works conversion, but only at a decent rate of return to investors.
He rationalises that the delay in production was pushing costs to a level that was not sound for the investors risk-reward relationship.
Even though the Industrial Development Corporation has shown great tenacity and is looking at ways to restructure the project, and political pressure to continue is high, Smith is adamant,”We simply cannot go on with the project in its present form even though returns with increased costs still exceed the rate of return.”
Smith’s vision for growth, however, is followed through by the company’s proposed investment in the mining sector. The potential for volume growth is huge, but these are high risk projects with less than 10 percent chance of coming off.
It is looking at possible investments in coal mining in Australia, and titanium, ilmanite and Sishen iron-ore mining in sub-Saharan Africa.
Smith appears to be more than amply repaying the confidence Iscor showed in him as a young man when they gave him a scholarship to study at Wits. “It’s exhilarating to see the changes that have come about at Iscor in the two years that I have been here, our share was worth only 61c then and today it’s worth over R4.”
He attributes the general success to the tremendous response he has had from the staff, the continuity in management, and the respectful relationship with the unions. “People are not different to each other, they simply need opportunities to develop.” Hans Smith is trying to create just such an environment in Iscor to do so.