Anglo American’s search for a global identity entered a new phase recently when the company announced its strategic review. It is the latest in a series of restructuring exercises the group has undertaken since 1997 and is arguably the most radical since the group listed in London in 1999.
It adds a potentially fascinating chapter to the stewardship of Tony Trahar, CEO since July 2000, when he took over from the silver-haired Julian Ogilvie Thompson, popularly known as JOT.
In his time in charge, Trahar has skilfully won over sceptics on many fronts. A London-based analyst, who declined to be named, praised him for how he took a business that was viewed with suspicion because of a complex cross-holding structure with diamond miner De Beers and turned it into a respected mining player, albeit one with work to do to catch up to its peers.
David Hall, a mining analyst at Merrill Lynch, believes that a major motivation for the restructuring is a realisation that ‘Anglo has not got as much as its peers out of this cycle”, with both BHP Billiton and Rio Tinto offering better returns on equity.
In the current round of changes, the company will return $1-billion to shareholders through a share buyback, a special dividend or both. This change was the most concrete of those announced, and quite welcome, but analysts could not help but note that Anglo is the last of the majors to embark on a capital management exercise.
The next part of the changes will see the company reduce its 51% holding in AngloGold Ashanti ‘to allow the company flexibility to pursue its strategy”. Hall expects this to mark the company’s exit from gold either by being diluted when AngloGold does a big deal or by selling the stake at what Hall expects will be a premium. The march out of gold has been under way for a few years.
In 2003, Trahar picked up a phone and gave Goldfields CEO Ian Cockerrill a courtesy call to tell him that Anglo’s 20% stake in Goldfields had been sold to Norilsk of Russia. At the time, the claim was that Anglo would house its gold interests in Bobby Godsell’s Anglogold outfit. Now, it seems, that was a step in ditching the yellow metal, ironically the genesis of Anglo’s wealth. The Anglo board then wants to realise value from its $900-million investment in Mondi before possibly divesting.
The company has also told the board of Tongaat Hulett to extract value. ‘This business has been up for sale since Anglo went to London and they have not found a suitable buyer,” says Hall, pointing to a management buyout as the most likely route of disposal. The management of the United Kingdom-based Tarmac has also been tasked with tackling underperforming divisions. Hall suggests that Anglo can keep the mine-rock and limestone divisions and sell off those with lower margins.
The company also intends to dispose of Highveld Steel, with top world steel producer Mittal Steel and Tata of India touted as likely buyers.
The announcement gave no timeframes for all these activities, but Hall expects the process to take four years to complete. By then, Anglo will have six divisions and shareholders will enjoy better margins from a ‘focused, dynamic and well positioned company”. He expects overall margins to improve from the current 13% to about 26%, and if the rand weakens, these could improve to 32%.
Platinum is acknowledged as a key differentiator for Anglo from its peers. Its 75% ownership of Anglo Platinum, the world’s largest platinum producer, will be a key driver for growth and, along with coal and iron ore, is its long-term anchor in South Africa. Anglo will invest R24-billion in Angloplats over the next few years.
Hall estimates that the immediate disposal of non-core interests will bring in $16-billion.
Trahar always tries to contain his irritation when he is asked either about BHP Billiton or the talk that he would need to lead a merger with Brazilian company CVRD, the world’s fourth-largest miner. He points out that Anglo is now the 13th-largest company on the London Stock Exchange and his project portfolio, valued at $5-billion, will drive organic growth.
If Trahar drives the process for four or five years, it will take his tenure as CEO to about 10 years, a period generally considered just about the time to be at the top these days.
His lasting influence, one analyst says, is the degree to which he has opened the company to external influences by bringing outsiders into the ‘Anglo culture”. These include Rene Medori, the financial director, to work alongside Barry Davison, Tony Lea and Trahar himself, who have spent most of their professional lives at Anglo.
Trahar runs what is arguably the most cosmopolitan executive committee of all the big mining houses and observers cannot help but note that a successor is likely to be someone from outside Anglo, or a recent appointment like Medori, who chairs the investment committee. The process of being receptive to external influences started with the appointment of chairperson Sir Mark Moody Stuart, who also took over from JOT.
But Trahar’s greatest balancing act has been with the South African government and sections of the country’s population, who associate it with mining’s exploitative history. Of all the companies that have moved their domicile to London, none has had its commitment to the country questioned more than Anglo.
Anglo’s degree of commitment to the country depends on whether it is judged by its words or actions. For the company says it is committed, with an ad campaign and sponsorship of the successful 2010 World Cup bid to prove it. It also has a country CEO, Lazarus Zim, in charge of transformation. But underlying economics tell a slightly different story. The country is declining as a contributor to profit, falling from 32% in 2003 to 24% in 2004. That will fall further with the mooted disposals of Mondi and Tongaat Hulett. If they are not sold, they have been deemed non-core anyway.
Analysts have frequently pointed out that Anglo’s higher exposure to South Africa compared to its peers proves a drag, because of the perceived associated risk. It is ironic that its exposure is declining just as the country’s rating is becoming more favourable and attracting investors such as Barclays and Vodafone.
Trahar (56) joined Anglo in 1974 after qualifying as a chartered accountant with what is now known as Delloitte. He took up his position on the executive committee at the London listing in 1999 before embarking on what has been an eventful journey.