In the heart of Anglo’s operation – the proverbial jewel in the crown – Anglo American’s deputy chairman Norman Mbazima traces a historic timeline that reaches back to the company’s inception in 1917 up until now – the year in which the global mining giant celebrates its milestone centenary.
As singular as Anglo American’s size is its legacy and company culture. For many years, Anglo American’s been run by a coterie of men cut from the same expensive cloth.
Harry Oppenheimer led the company to the top of Africa’s economic and corporate landscape, thanks to the solid foundation laid out by his father, Sir Ernest Oppenheimer, the company’s founding father. The name Anglo American reflects the initial backing received from US banking giant, JP Morgan and UK investors.
The first 50 years saw Anglo American expand into coal, iron ore, gold, platinum and copper that reached deep into the Zambian copper belt and various international diamond trades around the globe, thanks to its deep-rooted and complex ties with De Beers.
Anglo American quickly became a multinational mining empire with operations in almost every continent in the world. It also became a major producer of precious minerals like diamonds, copper, nickel, iron ore and metallurgical and thermal coal.
With listings on both the Johannesburg and London Stock Exchanges, Anglo American employs more than 82 000 people around the world and has invested an incredible R233.2-billion in capital expenditure since 1999.
Furthermore, Anglo American contributed R100.4-billion in 2015 to South African foreign earnings through export revenues generated and R11-billion to the South African fiscus through direct and indirect taxes, including a R160-billion contribution in market capitalisation on the JSE.
But the global meltdown took its toll. In December 2015, the company announced a $3-billion loss in the first half of the year and that it would undergo a significant restructure, including several job cuts.
The biggest mineral boom in mining ended with 2016’s commodity crash. Mineral and metal prices – from iron ore to platinum – fell hard, which meant executives had to take a long, hard look at the businesses, divesting and ‘streamlining’ several of its domestic and international operations. Resilience, however, is undoubtedly at the heart of Anglo American’s business.
Having survived World War I, the Great Depression of 1930, World War II and the 2008 financial crisis, it’s clear that one of the world’s biggest mining companies will remain standing for centuries to come.
The Zambian-born Mbazima’s move to Anglo American was strategic. Last year he stepped down as CEO of Anglo American’s 70%-owned Kumba Iron Ore to give greater impetus to the restructuring of the global mining company’s interests in South Africa.
Mbazima managed to steer Kumba through a similar restructuring programme in which the mining plan for its flagship Sishen mine in Northern Cape province was profoundly altered and its Thabazimbi mine closed. Under Mbazima, Kumba reduced its total staff complement by 31% and wiped out net debt of R4.6-billion at the end of 2015 to a net cash position of R548-million in June 2016.
He joined Anglo American in 2001 at Konkola Copper Mines and was subsequently appointed CFO for Anglo Coal SA before becoming finance director of Anglo American Platinum in 2006 and later stepped in as joint acting CEO. He was CEO of Scaw Metals from 2008 and later CEO of Thermal Coal from 2009 until 2012.
Anglo American managed to weather the storm by bumping up production across the board in the first quarter of 2017. To steer Anglo SA toward calmer waters and further strengthen its resilience and competitive position, Mbazima and his peers are steady at the helm. We get the specifics from Mbazima…
Q&A with Norman Mbazima
Congratulations on Anglo’s centenary. What do you regard as key to the company’s resilience, particularly in light of the recent commodity and financial crisis?
NM: From the company’s establishment in 1917, we’ve often had to make tough choices and persevere in the face of enormous change around us. Resilience is the single quality that has held us in good stead. All resilient companies have one characteristic in common and that’s a relentless focus on innovation, matched with a firm commitment to sustainability while investing with the future in mind, even during tough times.
I think it’s the hard work and commitment of our employees and solid leadership that helped us survive these headwinds. But our resilience is not only about how we’ve persevered as a business, but also how we have managed to contribute to solving some of the country’s most intractable problems during challenging times.
If I had to think of a defining moment in history, which illustrates how we’ve built our past as a reputable and resilient company, I would single out our HIV/AIDS programme. We were the first miners to launch treatment schemes and one of the first major employers to offer free anti-retroviral treatment to our employees and their families.
How has Anglo American’s community involvement evolved over the years?
NM: Our commitment to our communities is evidenced by the Chairman’s Fund, the first professionally managed corporate social investment (CSI) fund in South Africa, and through the Social Labour Plans (SLPs) – a legal requirement that enables us to contribute to the socio-economic development of the communities in which we operate.
Since its founding in the late 1950s – later transformed by Harry Oppenheimer into a dedicated department in 1974 – the Chairman’s Fund applies the resources at its disposal to solve the most urgent social needs across the length and breadth of South Africa.
Notable contributions include providing funds for the establishment of the Mangosuthu University of Technology, the Teacher Training College in Soweto, Uthongathi School in KwaZulu-Natal and All Saints College in Eastern Cape. We’re also active contributors to the development of our local mine communities through the Social and Labour Plans (SLPs) framework and in 2015, we expended R891-million on community-development programmes across health, education, supplier and enterprise development and housing.
Reflecting on Anglo American’s 2016 results, what are some of the key takeaways for you?
NM: Looking back at Anglo American’s 2016 results, there are two important figures that really stand out for me. Firstly, Anglo American’s earnings before interest, tax and depreciation stood at $6.1-billion, which is a fantastic figure for us.We expected the earning figure to be around $4.5-billion for the year. Secondly, our net debt figure fell from $12.9-billion to $8.5-billion – a 34% decrease.
While we managed to sell off some of our assets, which really helped, more importantly, it was the amount of work each of our business units did in reducing their costs, managing and restructuring their capital expenditure and ensuring that the unit cost of production is at a level that can be sustainable, even in a low-price environment.This has paved the way for us to withstand low commodity prices in the future.
How has Anglo American managed to gain value through the divestment of its non-core South African business?
NM:In order to get value from divestment, you have to ensure you obtain the correct value from the market of whichever business you’re selling off. For example, we recently announced the sale of our domestic coal assets – a R2.3-billion deal that we expect to close by the end of the year.
In addition to us running the numbers and calculating the value, it’s important to find the right buyer of those assets, and to ensure that the buyer has the ability to pay for, and effectively manage them, including the ability to invest in them going forward. If you can do that, you’ll eventually get the correct value for it.
You’re referring to the sale of your Eskom-tied domestic thermal coal operations to Seriti Resources. Can you explain your reason for this move?
NM: Government requires a level of empowerment (51%) of companies who supply coal to Eskom, and we saw this as an opportunity to find a credible black-owned buyer for our Eskom-tied domestic operations. in Seriti Resources, we found the perfect buyer for these assets.
Not only are they 79% black-owned, they consist of people with the experience in building and managing collieries. Seriti also has the necessary access to funds to not only pay us, but to invest in these collieries and continue to supply Eskom in the future. It was a good move for us.
This transaction will result in Seriti becoming the second-largest provider of thermal coal to Eskom, supplying almost a quarter of Eskom’s current annual coal requirements.
In 2017, Anglo American published its 16th annual Sustainability Report. Can you explain Anglo American’s FutureSmart™ Mining innovations with particular reference to the environment?
NM: Innovation plays an important role for us to remain competitive in the market. In the realm of the environment, one of the biggest issues in our country is water. Most of our operations, approximately 80%, are based in water-stressed areas.
The biggest amount of our water usage comes from our concentrators. Completing this process without the need for water will be a big win for us, including the communities and countries we operate in.
Many say that the mining industry has been slow in utilising technology in order to grow the sector. Do you agree?
NM: I agree. I think mining is lagging behind, especially when compared to manufacturing – a sector that’s moving at the rate of knots when it comes to adopting technology. We’re still playing catch up. But we simply have no choice. Adapt or die.
In our line of work, it’s essential to bring down unit costs of production. In the future, we’ll move into areas where the grade of mines will be lower and the minerals will be deeper. We need to find new ways to make it work; otherwise unit costs will become exorbitant.
We’ve already started to streamline our operations and as mentioned, our innovations will concentrate largely on utilising technology.
What impact will Anil Agarwal’s purchase of $2.4-billion of Anglo American shares have on the company, particularly in light of the debt built up through the previous CEO’s expansion programme?
NM: With a 12.4% buy-in into the business, Anil Agarwal, and his holding company Volcan Investments, is the second-biggest shareholder in Anglo American after the Public Investment Corporation.
We have a shareholder engagement plan in place where we sit and talk to shareholders about our long- and short-term strategies going forward. We’ve already had those discussions with Mr. Agarwal and will continue to have those discussions with him going forward.
One of the drivers of government’s nine-point plan to boost the economy is focusing on beneficiation and manufacturing. What’s Anglo American’s position regarding the importance of this driver?
NM: I often speak to government about how beneficiation can have a positive impact on the country. As miners, beneficiation is a core part of our business. Once we have the metal, we want to sell it to companies who can turn it into jewellery or fuel cells or use it for industrial purposes. It is in our interest to help those companies, because it helps us sell more minerals. If we can keep beneficiation on our doorstep and make the process better, it’ll help the community and increase employment and GDP.
But companies who want to beneficiate need to ensure that they have security and supply of raw materials, when and where they need it and the right quality and quantity at an appropriate price. It’s something Anglo American prides itself in doing.
We want to help beneficiation companies be competitive in their own business too. In the platinum industry, we assist with bursaries and training (to make jewellery) and we’re heavily invested in the fuel cell business to help grow the industry. I remember sitting on the board of a company that uses palladium in a product that can be used in your fridge to keep fruit from ripening too quickly.
We’re looking at developing platinum as an investment commodity (just like gold’s been in the banking world), including many other interesting beneficiation innovations. It’s good for us, our customers and the country.
How does a company like Anglo American, with a legacy in South Africa, help address the current challenges of poverty, inequality and unemployment?
NM: Anglo American is a corporate citizen and it’s imperative for us to address those challenges in order to remain resilient and be here for another 100 years. To address those issues, we need growth in the GDP and economy. If we can mine better (and more), we can actively contribute to GDP growth.
More mines employ more people, and this addresses poverty and unemployment at the same time. If we can produce more at a lower cost, and be more profitable, it’ll mean that our contribution to the fiscus and National Treasury will be much bigger. In 2016, we contributed R11-billion to the fiscus, and we’ll continue to contribute more in the future.
But the most important thing is that government has money to put safety nets in place to provide education and health services. At the micro-level, we run supply development programmes, where we assist people in becoming a supplier to Anglo American.
We’re very proud of Zimele, probably one of the most successful SMME development initiatives in South Africa. We also have numerous CSI and CSR initiatives across our business units, aimed at alleviating those three challenges.
In addition, one of our most impactful initiatives to address economic hardship is a financial wellness programme designed to assist employees in understandng and managing debt. In October 2014, our Platinum Business Unit first launched the programme, and the results were positive.
Nearly 9 000 employees have signed up for the programme and we’ve managed to save more than R33.2 -million in annual debt installments for our employees.
Is South Africa’s current economic environment still conducive for foreign investment?
NM:/strong> There are good business opportunities in South Africa. In the mining industry, we have loads of minerals in the ground (chrome, ore, gold, diamonds). The trick is to make the investment to extract them from the ground at an appropriate cost and sell them into the market.
Not only does South Africa consist of a good legal and justice system, but also one of the best financial systems in the world. We have a large labour force, eager for work and we’re very competitive with the rest of the world.
We also have a thriving democracy with several political parties. Our drawback is the current political and regulatory which negatively affects the investment environment. But I believe that it’s a passing phase. The political environment just needs time to sort itself out and restore confidence in investors.
There has been a need to transform South Africa’s economy in recent times, and mining is always singled out as a sector in which more black participation in needed. What is your view on this?
NM: It’s a no brainer. Given the history and legacy of South Africa, we – as a large mining company – have to contribute to the creation of sustainable black wealth and ownership of mining assets. Anglo American has been a pioneer in black empowerment in South Africa, long before the talk of BEE and empowerment was fashionable.
I can draw you to the early 90s and 2000s, when we spearheaded the first wave of empowerment deals with black entrepreneurs in a range of industries like paper, industrials, packaging, sugar and media – in addition to mining.
Through our BEE partnerships, we have been instrumental in the creation of several of South Africa’s most significant and successful empowerment companies, like Exxaro Resources, African Rainbow Minerals (ARM), Royal Bafokeng Platinum, Anglo American Inyosi Coal and many others. Most of the companies that have acquired our assets have flourished, not only in mining, but in their diversification into other parts of the South African economy.
Transformation is both a journey and business imperative for us, and through our sterling contributions to the economic empowerment of black South Africans, we have learnt a lot of valuable lessons that have helped to shape our approach to empowerment more broadly.
Who or what inspires you?
NM: People inspire me. The people I work with, the suppliers and the customers. In the end, it’s all about people. You can’t extract minerals from the ground if you don’t have people who want to work with you. I’ve always been fascinated with what makes people tick.
That’s what has made my career as satisfying as it has been. My father is also a great source of inspiration to me. He was born in the late 1800s and faced a lot of adversity in his life. He was born in the rural, eastern parts of Zambia then moved to Zimbabwe to go work for a farmer. By the time my father retired, he was managing several farms.
Any interesting books on your bedside table?
NM: I’m reading Heroic Leadership by Chris Lowney, a former Jesuit who served as managing director at JP Morgan in New York, Tokyo, Singapore and London for 17 years. The Jesuit order is 450 years old, and in addition to being religious and pious, pioneered a unique formula for moulding leaders and in the process, built one of history’s most successful companies.
What’s your current golf handicap?
NM: It actually changed yesterday. It went from 16 to 15 after I shot an 88 the week before. I’m not entirely happy with it. I told Mark Cutifani, Chief Executive of the Anglo American Group, that my handicap should be 18 so he can assume that I’m not spending too much time on the course, but that I am also good enough to play with anyone I need to talk to and maintain stakeholder relations!