Glencore International Plc (GLEN)’s billionaire Chief Executive Officer Ivan Glasenberg criticized his recently departed mining CEO peers for swamping the industry with mines and new production that crimped profits.
“The big guys really screwed up,” Glasenberg, 56, who runs the world’s largest publicly traded commodities supplier, told investors yesterday in a presentation.
“We’ve always been wanting to keep building and keep putting the cash which we generate into new assets,” he said. “That’s what we’ve got to stop doing as a mining industry. We’ve got to learn about demand and supply.”
BHP Billiton Ltd. (BHP) and Rio Tinto Group (RIO), the world’s two largest mining companies, and Anglo American Plc (AAL) have reported lower profits this month on rising costs and waning global growth. The CEOs of those three have quit or announced plans to depart after investors criticized them for the acquisition of assets whose value was later written down.
“Now we have a new generation of CEOs; I hope CEOs have learnt their lesson,” Glasenberg told the BMO Capital Markets conference in Hollywood, Florida. “They built, they didn’t get the returns for their shareholders. It’s time to stop building.”
Glasenberg, a 28-year veteran of Glencore and the company’s largest shareholder with a 16 percent stake, took over as CEO of the Baar, Switzerland-based company in 2002 and pursued a strategy of growth by acquisition.
Since a $10 billion initial public offering in 2011, he has agreed to a $34 billion all-share deal to buy Xstrata Plc (XTA) to add mines and smelters, and completed a C$6.1 billion ($5.9 billion) takeover of Viterra Inc. in December to boost agriculture operations.
Rio Tinto’s new CEO Sam Walsh said at the same conference yesterday that he will be “taking steps to rein in capital expenditure.” Walsh replaced Tom Albanese as CEO on Jan. 17 after his predecessor quit following a $14 billion writedown on the value of takeovers.
Last year’s spending of $17.4 billion on projects by Rio will represent its peak year of investment, he said. The company estimates spending of about $13 billion this year though this may be reviewed, he said.
“I’ll be looking at existing projects with a fresh pair of eyes and considering all alternatives,” Walsh said. “These could include continuing with the current plan, slowing it down, introducing new partners or canceling projects altogether. This review has high priority.”
BHP’s newly appointed CEO Andrew Mackenzie plans to make cutting costs and boosting productivity a priority, he said in a Feb. 24 interview with the Australian Broadcasting Corp. according to a transcript.
Faced with falling prices crimping profits, BHP unveiled $1.9 billion in cost savings when it released its half-year results Feb. 20, as net income dropped 58 percent after commodity prices declined. Mackenzie, the head of BHP’s copper unit, who previously worked at BP Plc (BP/) and Rio Tinto, takes over from Marius Kloppers on May 10.
“There’s no doubt in the world that shareholders are demanding discipline in terms of the way we allocate capital now,” Cutifani said in Cape Town on Feb. 7. “As an industry, we’ve lost a bit of trust and as leadership we’ve got to regain that trust.”
Stalling development of new mines will help prolong higher prices for commodities and bolster dividends for investors, Glasenberg, a former accountant and coal trader, told the conference yesterday.
“We will get better returns on our investments, we will be able to kick out more cash to our shareholders,” he said. “We will be late to invest. So, who cares? We’ll be late and we’ll have to invest in five years’ time. It’ll take us three years to build the mine but we could hopefully have an eight-year run.”
Glencore rose 0.3 percent to 383.05 pence by the close in London trading, valuing it at 27.2 billion pounds ($41.1 billion).
After combining with Xstrata, the company will have interests in about 35 coal mines in Colombia, Africa and Australia, and make up about 10 percent of global seaborne exports of the fuel.
It also will be the world’s third-biggest producer of mined copper, the largest zinc miner, and the biggest exporter of coal burned by power stations. The company will have about 11 percent of the 13 million metric-ton global zinc market and about 40 percent of the 1.9 million tons of the metal produced in Europe.
“What we’ve got to do, when the markets do get stronger, no need to keep building a new asset and let’s keep the market tight for a while,” Glasenberg said. “Not that we’re here to create an anti-competitive nature, but we’ve got to get returns. You the investors want to get returns on our assets and it’s easily done if we just use our brains.”
Glencore hopes to get final regulatory approval for the Xstrata takeover from China by a March 15 deadline, Glasenberg said. The CEO said he doesn’t think Xstrata’s 25 percent stake in Lonmin Plc (LMI) is a “long-term asset” for the next company.
“I hope we are in a new paradigm in the mining industry,” Glasenberg said. “It’s really, I believe, catastrophic what we’ve done in this industry.”
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