Beheadings are putting the mining world through something akin to the French Revolution. Mining bosses who landed their jobs in the bubble era – 2006 and 2007 – or did their signature top-of-the-market deals in those years are being fired with alacrity. Or they are announcing their retirements, much to the delight of shareholders grown weary of the value destruction borne of stunningly overpriced takeovers and soaring costs.
The changing of the guard started in the autumn, when Cynthia Carroll said she would quit as chief executive officer of Anglo American. Not long after, BHP Billiton, the world’s top mining company, revealed that it would replace Marius Kloppers, the man who made a wrong bet on shale gas and botched the attempted takeover of Potash Corp. of Saskatchewan (the new CEO is Scotsman Andrew Mackenzie). Last month, it was Rio Tinto boss Tom Albanese’s turn. The biggest sinner of them all, he was knocked off for his boneheaded purchase of Montreal’s Alcan in 2007 for $37-billion (U.S.), most of which has now been written off.
Canadian mining bosses have been frog-marched to the guillotine too – Tye Burt of Kinross Gold and Aaron Regent of Barrick Gold were two of the late 2012 victims. A year earlier, Roger Agnelli was pushed out of Vale, the Brazilian company that paid an eye-watering price for Canada’s Inco.
The last man standing is Ivan Glasenberg, the Glencore International CEO who is about to become the head of the mining and trading colossus to be formed by the merger of Glencore and Xstrata, the Anglo-Swiss miner that owns Falconbridge.
When the merger is done in March, Mr. Glasenberg will run the world’s fourth-largest mining group. The trading businesses alone, which include Canadian grain handler Viterra, give Mr. Glasenberg more market intelligence than any resources boss on the planet. With Xstrata at his side, he is the man to watch. Rapid change in the mining industry will bring upheaval that can be exploited.
Mr. Glasenberg was a student of Marc Rich, the infamous “combat trader” who exploited turmoil and political instability to earn fortunes trading oil and other commodities. Mr. Rich became one of the most wanted fugitives in U.S. history in the 1990s, but was pardoned by president Bill Clinton on his last day in office in 2001.
Mr. Glasenberg, who is from South Africa, an accountant by training and a champion race-walker, was part of the management buyout of Mr. Rich’s company in 1994. The new private firm was renamed Glencore and evolved into a trading powerhouse with no equal. It also developed a mining business whose assets included a 34-per-cent stake in Xstrata, which floated on the stock market in 2002. Then valued at $500-million (U.S.), Xstrata is now worth $54-billion.
Glencore joined the London Stock Exchange in 2011, a blockbuster event that turned Mr. Glasenberg, who was Glencore’s biggest shareholder, into one of the world’s richest men (the latest estimate puts his fortune at about $7-billion, which is well off his peak, thanks to 20-per-cent share-price fall since the initial public offering).
Mr. Glasenberg is the great white shark of the commodities industry. He practises the art of “strategic opportunism” and never shies away from an asset that would give Glencore a commanding presence in a sector, whether that asset is the hottest thing on the block or unloved and ready for a makeover.
He supported Xstrata’s 2006 purchase of nickel miner Falconbridge, one of the most competitive takeover battles ever. He also backed Xstrata’s attempted takeover in 2009 of Anglo American, which was rejected.
But he and Mick Davis, the equally ambitious boss of Xstrata, were not always co-conspirators. In the spring of 2008, just before the financial collapse, Mr. Glasenberg refused to back Vale’s effort to buy Xstrata in a deal that would have been valued Xstrata at lofty $85-billion. He feared losing the marketing rights to commodities produced by Xstrata. But perhaps he knew at the time that he wanted to make Xstrata his own.
The new mining bosses will not be the same as the old bosses. The focus will not be on acquisitions built on the belief that Chinese demand will drive up commodity prices forever – the “supercycle,” which was super for a while. It will be on cost control, shareholder returns, efficient use of capital and not digging holes in the ground for the hell of it.
That means projects will be delayed or shelved and assets sold, serving up a potential feast for Glencore. So might the depressed values of some of the bigger companies. Take Anglo, whose enterprise value (market value plus debt, minus cash and preferred shares) has fallen by half in the last couple of years. There is little doubt that Anglo is on Mr. Glasenberg’s wish list.
Analysts think Glencore might take a run at some smaller companies, among them Vancouver’s First Quantum Minerals (market value $9.6-billion Canadian) whose projects include a copper mine in Zambia, and ferroalloys and iron ore company Eurasian Natural Resources, which has a similar value.
Together, Glencore and Xstrata will have sales of $209-billion (U.S.) and a market value of almost $100-billion. Mr. Glasenberg will be the ultimate boss and won’t have Mr. Davis, who is to leave the combined company after six months, to second-guess him. Unless Chinese demand collapses, Mr. Glasenberg stands ready to shake up an industry under careful, maybe timid, new management.