Dangote’s turnaround Tiger’s embarrassment

It could have been worse for Tiger Brands. News of an almost miraculous turnaround in the fortunes of its Nigerian folly could have been released ahead of the group’s annual general meeting at the end of February. That Dangote Flour Mills, which soaked up billions of rand of shareholder money and untold hours of management time and energy, reported its first profit in five years must be deeply embarrassing for Tiger management.

For four long years the South Africans just couldn’t get their exciting Nigerian project to come right. As was to be expected, CEO Peter Matlare, who had championed the acquisition, resigned from Tiger in December 2015 when it seemed shareholders would no longer tolerate promises of a recovery.

Motlare’s position wasn’t helped by the fact that for much of his time as CEO he was also on the boards of Kumba and Absa, duties which would have required much of his time.

Soon after his departure, the Dangote nightmare was offloaded for the princely sum of $1.

Making matters a lot worse was that executives who had been involved in the Dangote period were awarded generous remuneration packages. Even Matlare scored. For his fourmonth stint in financial 2016 he was paid a generous R8.7m. Remarkably, the nonexecutive directors also benefited from their own largesse.

At the annual meeting in February, shareholders got an opportunity to vent their displeasure. An unprecedented 46% of those who voted, voted against the nonbinding resolution on remuneration. If Dangote’s just-released results had been known the no vote might have been even higher.

All that said, and without wanting to detract from an excellent performance by the Nigerian-controlled management or without wanting to sound jingoistic, it’s difficult not to believe Tiger played some role in the turnaround in Dangote’s fortunes. But will we ever know precisely how much?

The fall in iron-ore prices to levels last seen in November was hardly unexpected. You might say the recent high price was a false dawn. Commentator after commentator and iron-ore producers themselves have warned that the price of $80 a tonne or more was unsustainable and that it would correct.

That correction is now under way — it has pulled back 30% in one month and iron-ore producers’ share prices reflect the retreat to less than $65/tonne for ore with a 62% iron content delivered to Chinese ports.

Stocks at Chinese ports are at record levels of more than 133million tonnes, according to a Umetals survey of the country’s 42 harbours.

Kumba Iron Ore, SA’s largest producer of iron ore, has said prices of $50 to $60 a tonne are more realistic. In January, Mark Cully, the chief economist at Australia’s department of industry and innovation, forecast a fall in the iron-ore price to an average of $53/tonne for this year and $49/tonne next year.

The retreat in ore prices has dragged down companies with iron-ore exposure, with Kumba, African Rainbow Minerals and Assore all taking pain. In the past five days the shares have shed 18%, 15% and 17% respectively.

This year’s high ore price gave Anglo American, the majority owner of Kumba, a boost, but if the price stays low and margins thin, it could affirm Anglo’s plan to sell its stake.