London - Glencore Xstrata chief executive Ivan Glasenberg said yesterday that mining industry peers were responding to his call to restrain spending and shelve expansions in a bid to buoy prices and boost investor returns.
“Chief executives are now under pressure from shareholders and they are doing the right thing, it’s clear,” Glasenberg said in an interview. “They are following the mantra.”
Six months earlier the 29-year veteran of commodities trader Glencore said mining chiefs had “screwed up” by swamping the world with raw materials that eroded prices and profits.
An industry-wide clean-out this year has seen some of the largest mining companies, including BHP Billiton, replace chief executives with new bosses tasked with cutting costs and spending.
“He’s a hard guy to please,” BHP Billiton chief executive Andrew Mackenzie said yesterday of Glasenberg. Mackenzie took on the top role at the biggest mining firm in May as the company and its peers grappled with falling revenue following a decade-long boom in demand for minerals.
“Most chief executives now have to live with the past errors and have to resolve the past errors,” Glasenberg, who owns 8.3 percent of the company where he has been chief executive since 2002, said yesterday.
At an investor conference in February, Glasenberg said he hoped the new generation of chief executives had learnt lessons and urged them to stop building mines. Glasenberg “set the tone for the new ‘age of austerity’ for miners”, Bank of America analysts wrote in May.
Yesterday the billionaire accountant turned coal trader said he saw “tentative signs” in the first half that the industry was entering a period of “increased capital discipline”.
In response, Mackenzie said: “If he’s talking about me then I’d agree, but I hope it’s not tentative,” adding that he was engaging in “full-frontal capital discipline”.
BHP Billiton had not approved any major new projects during the past financial year, it said yesterday. The company is building 18 major projects, with 70 percent of them due to start output by the end of the 2014 financial year, when it estimated capital spending would be $16.2 billion (R166bn).
In May Glencore estimated it would spend $29bn on new projects over the next three years. After 2015, investment would “materially decline” to $4bn to $5bn, it said.
“The problem is the miners back in 2009 were challenged to increase production, to invest heavily in order to be able to address demand,” James Bevan, the chief investment officer at CCLA Investment Management in London, said on Bloomberg Television.
“Supply response was much, much more substantial and much quicker than the markets had expected and we now have too much,” he said. “How can that be reined back while at the same time shepherding value through for shareholders?”
The response has been to increase dividends, with Rio Tinto, Glencore Xstrata and BHP Billiton all raising payouts this month. Those three firms and Anglo American, the four biggest mining houses on the London bourse, boosted their combined payout to about $5.8bn for this earnings period from $5.2bn a year earlier.
On Tuesday Glencore Xstrata posted an $8.9bn net loss in the first half after taking a $7.7bn charge on the value of assets acquired in the all-share takeover of Xstrata in May. On the same day BHP Billiton joined Rio Tinto, Anglo and Vale in posting lower profit with a 30 percent decline in financial 2013 to $10.9bn.
Rio Tinto said this month it had cut costs and reduced staff by 2 200 since June last year. Spending on projects is estimated at $14bn this year, 20 percent below last year’s peak.
Anglo’s new chief executive, Mark Cutifani, said last month he was seeking to add $1.3bn in annual cash flow as part of an operations overhaul.
Glencore shares rose 2.2 percent by 2.30pm in London, paring its decline this year to 12 percent. – Bloomberg