Tackling growth a challenge for mining cos
TRACKING | TRENDS As austerity cycle nears an end, firm chiefs tread carefully on targets
Sydney/London, Aug. 31: Global mining heads may have thought they’d seen it all in the last five years, navigating a recovery after a commodities boom turned to bust. As the cycle turns, it brings a new challenge: tackling growth in an industry still scarred by its excesses.
It comes just in time for Ken MacKenzie, who starts as chairman of BHP, the world’s biggest miner, on September 1.
Like peers Rio Tinto and Glencore, BHP has just racked up its best profit and cash flow in years on rising global demand for staples likes iron ore and coal.
But this time, amid the cash piles, investors are reminding miners of messy mega-deals that cost previous executives their jobs. With activists like Elliott Management in their ranks, those investors want miners to balance investment in new and existing deposits with decent dividends, and a pledge to keep debt under control.
“Greater returns are warranted to some degree, and it’s what everyone ultimately wants,” said Bennelong Australian Equity Partners manager Julian Beaumont, who manages shares in BHP.
“But at the same time there has to be discipline with enough capital available to grow and control debt.”
Sober investment may be familiar territory for MacKenzie, a 53-year-old Canadian veteran of the packaging industry, who was hired in June to succeed former Ford Motor Co head Jac Nasser.
But close scrutiny of how he, BHP CEO Andrew Mackenzie (no relation) and their peers at Rio and Glencore spend profits will be a test in mining’s brave - lean - new world.
BHP, Rio and Glencore declined Reuters’ requests for comment for this story.
Just a few years ago, with China’s economy surging, miners went on a buying spree: the high water mark was Rio’s acquisition of aluminium producer Alcan for $38 billion. About the same time, former BHP CEO Marius Kloppers was lining up an $80 billion spending budget.
Now, investors want cleaner balance sheets. Big projects are necessary — reserves must be replenished and are ever tougher to find.
But ambitious ones like BHP’s Jansen potash mine in Canada need to be tackled with partners - hence efforts to sell a $2 billion stake.
“Commodities prices have helped with cash and we’re seeing dividends, but things can turn very quickly, so I’d expect to see some prudence on their part,” said Jason Beddow, chief executive at Argo Investments, which holds BHP and Rio shares. ”I’d like to see them focus on paying down debt.
BHP’s MacKenzie held around 100 meetings with shareholders, including Elliott, to sound out concerns before his official start as chairman, BHP has said.