The Curse of the Mining CEO

Management changes are an oddly reliable contrarian indicator for commodities.
At Closing, June 20th
4121.50 GBp
At Closing, June 20th
1686.20 GBp

Mining executives, like the commodities they manage, tend to go in and out of fashion according to long, hard-to-predict cycles. So you could take Rio Tinto's decision to appoint Jean-Sebastian Jacques as chief executive officer as a bad sign for copper, the metal he's spent most of his recent career digging up.

Goodbye to All That?

LME copper has risen almost 5 percent this year. Now there's a new Rio Tinto CEO...

Source: Bloomberg data

Looking back on the previous six appointees at the traditional big three London-traded mining companies, one could be forgiven for imagining that their boards attracted some sort of ancient curse while looking for mineral reserves in the rougher corners of the planet. Why? Because the background of a new chief executive is a weirdly reliable contrarian indicator of commodities that might head south over the next few years 1 .  Traders who drove copper up to $5,062 a metric ton today might heed that warning.

At Rio Tinto, Jacques is replacing Sam Walsh, a former General Motors executive who took charge of Rio's iron ore division in 2004, just as China's industrialization began propelling the metal toward a peak of $192 a metric ton in 2011. Walsh, who started in 2013, replaced Tom Albanese, who took on the job in 2007 after running Rio's copper group as the metal more than tripled in price between 2004 and 2006. 

With a background overseeing divisions that delivered such outsized returns to shareholders in recent years, both executives must have seemed like safe pairs of hands to look after the company as a whole. It didn't work out: in each case, the past outperformance eventually looked like the market bidding up prices that it was about to start bidding down.

Sell Signal

When a mining company appoints a chief executive with a background in a particular commodity, the price tends to head down

Source: Bloomberg data, company reports

Note: Rebased. Day of new CEO commencing work=100

There are parallels at Anglo American and, more tentatively, at BHP Billiton. While she was in charge of Alcan's primary aluminum division, former Anglo American CEO Cynthia Carroll had watched aluminum double in price. The commodity was seen as so attractive that Rio Tinto's Albanese, only a few months in the job, launched a $38 billion takeover bid for Alcan, from whose shadow he never really escaped. Mark Cutifani, who replaced Carroll in 2013, had been the boss of AngloGold Ashanti during the period when the yellow metal rose to an all-time record $1,921 a troy ounce.

At BHP, the current CEO, Andrew Mackenzie, came with a long career at BP on his resume at a time when Brent crude had averaged more than $100 a barrel over three years. We all know what's happened to oil since then. Only Mackenzie's predecessor, Marius Kloppers, appears to be an exception: with a background in manganese and the company's marketing division, Kloppers's  main recommendation for the top job was his vision and skill in integrating acquired businesses, at a time when takeover fever was in the air. His big acquisition, of U.S. shale assets, resulted in a $4.9 billion writedown, but since manganese isn't widely traded he appears to have escaped the curse. 2

These are light-hearted comparisons, but there's a serious point: Mining executives, analysts, board members -- even business columnists -- are often bad at picking the direction of commodity prices. The tendency to believe that past performance is a guide to the direction of future returns appears to be almost irresistible. However much care we take in making predictions, we should expect to be wrong more often than not. If boardroom experts can err so consistently, what hope is there for the rest of us?

In the meantime, Mackenzie and Cutifani may have cause to be nervous. Mining chief executives tend to come in threes. In 2007 and 2013, when the first of the big three miners switched bosses, their counterparts didn't last more than seven months.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
  1. Here are the dates when the six chief executives mentioned started work. Cynthia Carroll (Anglo American): March 1, 2007. Tom Albanese (Rio Tinto): May 1, 2007. Marius Kloppers (BHP Billiton): Oct. 1, 2007. Sam Walsh (Rio Tinto): Jan. 17, 2013. Mark Cutifani (Anglo American): April 3, 2013. Andrew Mackenzie (BHP Billiton): May 10, 2013. 

  2. For what's it's worth, spot prices for manganese on the Shanghai Changjiang Non-Ferrous market fell 34 percent over Kloppers's first two years in the job, though the metal isn't widely traded. 

To contact the author of this story:
David Fickling in Sydney at

To contact the editor responsible for this story:
Paul Sillitoe at

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