Changing of the guard in mining industry

After Marius Kloppers' exit, a new generation has to deal with the legacy of the rush by FTSE 100 miners to expand in boom times

The FTSE 100 mining industry completed its changing of the guard as BHP Billiton's Marius Kloppers became the fourth chief executive of the big-four blue-chip miners to resign in a matter of months.

Mr Kloppers will hand the reins to his Glaswegian head of base metals and coal, Andrew Mackenzie, in May after running the business for more than five years – about the same time as the other departing chief executives: Anglo American's Cynthia Carroll, Rio Tinto's Tom Albanese and Xstrata's Mick "the miner" Davis.

"There has been a bit of a changing of the guard, which may be a coincidence, but I don't think so," said Tom Gidley-Kitchin, an analyst at Charles Stanley. "They all arrived about five years ago, brought their companies through the financial crisis and are now entering a new phase.

"The market was racing when they joined, then it tanked, and we are now post-crisis and getting used to a new world," he added.

The big challenge for the next generation of mining chiefs in the new world will be to keep costs down in an industry suffering from high inflation and a weak outlook for commodity prices with new capacity still coming online and demand remaining weak. The miners are under pressure from shareholders to shun big acquisitions, to cancel or postpone major new projects and return cash to investors.

In addition to Mr Mackenzie, the new generation of chief executives are Mark Cutifani at Anglo American, Sam Walsh at Rio Tinto and Ivan Glasenberg, who will take over the company created out of Glencore and Xstrata, following the expected completion of their merger in the next few weeks.

Bolstering the sense of a generation handover, BHP's chief financial officer Alex Vanselow retired from the company about a year ago, while his opposite numbers Guy Elliott at Rio Tinto and Xstrata's Trevor Reid have also left recently.

The lethal cocktail of rising costs and falling prices facing the miners stems from an industry-wide stampede into new projects in the salad days just before the financial crisis, which has sent wages and equipment costs soaring.

Since then, the global economy has nosedived, taking demand for raw materials such as copper and iron ore with it. This has saddled the industry with an oversupply that is hard to reduce given the long-term nature of mining projects, exacerbating price declines and forcing a series of multi-billion dollar write-downs across the industry.

In the new world of mining, companies seem to be favouring staff with strong operational credentials, such as Mr Mackenzie, to focus on capital discipline rather than dealmakers. Rio Tinto has also recently appointed an "operational guy" for the top job, promoting its head of iron ore, Mr Walsh, to replace Mr Abanese last month. Anglo American's Mr Cutifani, meanwhile, is a former coal miner.

On top of his operational experience, Mr Mackenzie has another string to his bow that will serve him well in this new, tough world of mining – oil and gas experience.

BHP may be better known as a major producer of copper, aluminium, nickel, coal and iron ore, but it has become a significant oil and gas company in the past five years, with that division now accounting for about a third of the group's profits. Mr Mackenzie, 56, worked at BP for 22 years before joining Rio Tinto in 2004 and BHP in 2008 and is a non-executive director at Centrica, the owner of British Gas. A geologist by training, he pioneered new extraction techniques in the North Sea. He grew up in the industrial town of Kirkintilloch, near Glasgow, and has published more than 50 scientific papers.

"He's a rare executive because he has experience in both the oil and gas, petrochemicals and minerals area of this business. And that fits us perfectly," said BHP chairman Jac Nasser.

Investors and analysts welcomed Mr Mackenzie's appointment.

"I think it will be well received by the market," Mark Taylor, a senior resources analyst at the Morningstar investment firm, said.

But despite Mr Mackenzie's popularity, BHP's shares fell by 52.5p to 2,183.5p as the group accompanied the announcement of his appointment with its worst drop in profits for more than a decade.

It revealed a 43 per cent slump in profits to $5.68bn (£3.7bn) for the six months to 31 December.

BHP's bottom line suffered as the group took $3bn of writedowns relating to the declining value of its aluminium assets.

The profit decline comes in the week after Rio Tinto and Anglo American reported full-year losses of $3bn and $1.5bn respectively.

BHP also cautioned that the outlook for commodities such as iron ore is unlikely to improve for a while.

"In iron ore, substantial new supply from the low-cost basins of the Pilbara (Australia) and Brazil is either in construction or planned, while demand growth rates are expected to decelerate as the Chinese economy matures following a period of steel-intensive, infrastructure-led growth," a spokesman said.

Mr Kloppers is likely to leave a mixed legacy. For some, he is the architect of not one, not two, but three major failed deals – deals which, with the benefit of hindsight, may well have proved more trouble than they were worth, but which nontheless add up to an embarrassment.

They include an attempted tie-up with Rio Tinto, abandoned in 2008 as markets sank, and an unsuccessful, hostile bid for Canada's Potash Corp of Saskatchewan in 2010.

That same year, BHP and Rio scrapped a planned iron ore joint venture after objections from the European Commission.

But others say Mr Kloppers deserves significant credit for his reign, pointing to the outperformance of his company's shares over his competitors as evidence. Unlike Rio, BHP did not make a disastrous top-of-the-market acquisition, while the company also managed to avoid an Anglo American-style situation of project costs spiralling out of control.

It was Rio's disastrous acquisition of the Alcan aluminium company that prompted chief executive Mr Albanese's resignation.

Likewise, at Anglo American, the troubled Minas Rio iron ore mine in Brazil ultimately did for Ms Carroll, as it runs billions of dollars over budget and years behind schedule.

BHP's shares have actually risen by nearly a quarter since Mr Kloppers took over in October 2007, while Rio Tinto's have fallen by 18 per cent, Xstrata's are down by 38 per cent and Anglo American has declined by 41 per cent.

That's not a bad legacy.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Mortgage Advisor - OTE £95,000

£40000 - £95000 per annum: Recruitment Genius: This is an exciting opportunity...

SThree: Trainee Recruitment Consultant

competitive: SThree: Are you passionate about sales?Do you have a keen interes...

Recruitment Genius: Loan Adviser - OTE £30,000

£17000 - £30000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Day In a Page

Isis in Syria: Influential tribal leaders hold secret talks with Western powers and Gulf states over possibility of mobilising against militants

Tribal gathering

Influential clans in Syria have held secret talks with Western powers and Gulf states over the possibility of mobilising against Isis. But they are determined not to be pitted against each other
Gaza, a year on from Operation Protective Edge: A growing population and a compromised and depleted aquifer leaves water in scarce supply for Palestinians

Gaza, a year on from Operation Protective Edge

A growing population and a compromised and depleted aquifer leaves water in scarce supply for Palestinians
Dozens of politicians, bureaucrats and businessmen linked to Indian bribery scandal die mysteriously

Illnesses, car crashes and suicides

Dozens of politicians, bureaucrats and businessmen linked to Indian bribery scandal die mysteriously
Srebrenica 20 years after the genocide: Why the survivors need closure

Bosnia's genocide, 20 years on

No-one is admitting where the bodies are buried - literally and metaphorically
How Comic-Con can make or break a movie: From Batman vs Superman to Star Wars: Episode VII

Power of the geek Gods

Each year at Comic-Con in San Diego, Hollywood bosses nervously present blockbusters to the hallowed crowd. It can make or break a movie
What do strawberries and cream have to do with tennis?

Perfect match

What do strawberries and cream have to do with tennis?
10 best trays

Get carried away with 10 best trays

Serve with ceremony on a tray chic carrier
Wimbledon 2015: Team Murray firing on all cylinders for SW19 title assault

Team Murray firing on all cylinders for title assault

Coaches Amélie Mauresmo and Jonas Bjorkman aiming to make Scot Wimbledon champion again
Wimbledon 2015: Nick Bollettieri - Vasek Pospisil must ignore tiredness and tell himself: I'm in the quarter-final, baby!

Nick Bollettieri's Wimbledon Files

Vasek Pospisil must ignore tiredness and tell himself: I'm in the quarter-final, baby!
Ashes 2015: Angus Fraser's top 10 moments from previous series'

Angus Fraser's top 10 Ashes moments

He played in five series against Australia and covered more as a newspaper correspondent. From Waugh to Warne and Hick to Headley, here are his highlights
Greece debt crisis: EU 'family' needs to forgive rather than punish an impoverished state

EU 'family' needs to forgive rather than punish an impoverished state

An outbreak of malaria in Greece four years ago helps us understand the crisis, says Robert Fisk
Gaza, a year on from Operation Protective Edge: The traumatised kibbutz on Israel's front line, still recovering from last summer's war with Hamas

Gaza, a year on from Operation Protective Edge

The traumatised kibbutz on Israel's front line, still recovering from last summer's war with Hamas
How to survive electrical storms: What are the chances of being hit by lightning?

Heavy weather

What are the chances of being hit by lightning?
World Bodypainting Festival 2015: Bizarre and brilliant photos celebrate 'the body as art'

World Bodypainting Festival 2015

Bizarre and brilliant photos celebrate 'the body as art'
alt-j: A private jet, a Mercury Prize and Latitude headliners

Don't call us nerds

Craig Mclean meets alt-j - the math-folk act who are flying high