Carroll’s Anglo Successor to Face Platinum Turnaround Task

Anglo American CEO Cynthia Carroll
Cynthia Carroll, chief executive officer of Anglo American Plc. Photographer: Scott Eells/Bloomberg

Anglo American Plc’s replacement for Cynthia Carroll, the mining company’s departing chief executive officer, will have to confront its unprofitable platinum unit as the most pressing challenge.

“Platinum is the single-biggest issue,” Des Kilalea, an analyst at RBC Capital Markets, said by phone from London yesterday. “It’s got too many risks that global investors don’t like, including deep-level mining, very high labor component of costs, and there’s strong and quite well organized unions, political and empowerment issues.”

Losses at Anglo American Platinum Ltd., known as Amplats and the source of 40 percent of global supplies of the metal from its mines in South Africa and Zimbabwe, have heaped pressure on Carroll. She ordered a review of Amplats, which posted a record first-half loss of 464 million rand ($54 million) and on Oct. 25 cut its 2012 output forecast following wildcat strikes in South Africa.

Chairman John Parker has begun a global search for a replacement for Princeton, New Jersey-born Carroll, 55, who said yesterday she will stay on until the London-based company finds her successor. Anglo’s market value has slumped by about $14 billion in Carroll’s more than five years as the company’s first woman, external hire and non-South African CEO.

Carroll’s replacement may have to consider giving Anglo’s 77 percent stake in Amplats to shareholders, said Matt Brenzel, an analyst at Cadiz Financial Services Group in Cape Town.

’Elegant Solution’

“One way they could get rid of the platinum problem is to unbundle Amplats” by handing shareholders Anglo’s Amplats shares and leaving the decision to sell or hold the stock to them, Brenzel said. “It’s a fairly elegant solution to quite a complex problem. Platinum will be the most pressing issue.”

Amplats has had to absorb South African electricity and labor costs that have risen faster than inflation in the past three years, while platinum prices have stayed flat.

The business has come under threat as governments pursue a larger share of earnings for local people. South Africa’s ruling party is studying raising taxes, while Zimbabwe’s government wants companies to transfer control to locals.

The platinum unit’s poor performance has weighed on Anglo’s stock, down 19 percent this year in London. BHP Billiton Ltd., the largest mining company, has gained 5.5 percent, while Xstrata Plc has advanced 2 percent and Vale SA has lost 15 percent.

Platinum Mentality

“Anglo has had this mentality that platinum is core to the business, that, because it is the biggest producer in the sector, it made sense to keep it,” Brenzel said. “But the market hasn’t played ball.”

Aquarius Platinum Ltd. shut most of its mines this year while Lonmin Plc, the third-largest producer, has curbed spending plans and may hold a rights offer, according to Societe Generale SA and SBG Securities Ltd.

Anglo “should look at unbundling platinum,” Johan de Kock, a money manager at Momentum Asset Managers Ltd., which has the equivalent of about $8.1 billion of fixed-income assets, said by phone from Cape Town. “It’s quite a cyclical industry and it’s a difficult industry with large numbers of workers.”

Amplats had 52,000 employees as of Dec. 31, data compiled by Bloomberg show. It fired 12,000 miners this month for failing to report for work, before rehiring them yesterday. The company offered workers a one-time payment of 2,000 rand ($231) if they return to work during the Oct.30 morning shift.

The company lost an average 4,500 ounces of daily production during the disruption, it said Oct. 25.

CEO Candidates

Parker may need six months to find Carroll’s replacement, RBC said yesterday, and whoever he homes in on will have more to contend with than just platinum. Anglo said this week it is a preparing a new cost estimate for its biggest project, the Minas-Rio iron ore venture in Brazil. The $5.8 billion project’s projected costs have already been increased at least four times.

Alex Vanselow, a former BHP chief financial officer, “seems the most obvious candidate,” Deutsche Bank AG said in a note to clients. While Chris Griffith, made CEO of Amplats in July, is the strongest potential internal successor, his critical new role may remove him from contention, the bank said.

Xstrata Plc’s CEO Mick Davis, set to leave after Glencore International Plc’c proposed $33 billion takeover, may be a candidate, John Meyer, a Fairfax IS Plc analyst in London, said in an interview on Bloomberg Television yesterday.

Mark Cutifani, chief executive officer of AngloGold Ashanti Ltd., and Doug Ritchie, strategy chief at Rio Tinto Plc, are also candidates for Carroll’s job, the Financial Times said today without citing anyone.

Seven Products

“On the search process, which will start from today, our aim will be to secure the best candidate,” Parker said on a conference call yesterday. “I wouldn’t really want to comment on any individual, except I think it wouldn’t be unreasonable for me to say that we couldn’t afford Mick Davis.”

During her tenure, Carroll reorganized Anglo around the mining of seven core metals and minerals: iron ore, metallurgical coal, thermal coal, copper, nickel, platinum and diamonds, with a plan of putting Anglo in a position to double output across these areas by 2020.

South Africa’s Public Investment Corp., Anglo’s biggest investor, yesterday criticized Carroll for investing in poorly performing companies. It has demanded “a serious refocus of the company” and will push Parker and Anglo executives before the end of this year to identify lasting turnaround strategies, a statement from PIC showed.

The question of what to do with the platinum business may arise in those discussions.

“How you would handle an unbundling financially and politically, I’m not sure,” Kilalea said. “You’d need shareholder approval for that -- how would the South African shareholders feel about that, I don’t know.”

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