Aug. 21 (Bloomberg) — Glencore Xstrata Plc Chief Executive Officer Ivan Glasenberg said mining-industry peers are responding to his call to restrain spending and shelve expansions in a bid to buoy prices and boost investor returns.
“CEOs are now under pressure from shareholders and they are doing the right thing, it’s clear,” Glasenberg said in a phone interview from London. “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 industrywide clean-out this year saw some of the largest mining companies, including BHP Billiton Ltd., replace CEOs with new executives tasked with cutting costs and spending.
“He’s a hard guy to please,” BHP CEO Andrew Mackenzie said yesterday of Glasenberg. Mackenzie, 56, took on the top role at the world’s biggest miner in May as the company and its peers grappled with falling revenue following a decade-long boom in demand for minerals.
“Most CEOs now have got to live with the past errors and they have to resolve the past errors,” Glasenberg, who owns 8.3 percent of the company where he’s been CEO since 2002, said yesterday.
At an investor conference in February, Glasenberg said he hoped the new generation of CEOs had learned lessons from the past and urged them to stop building mines. Glasenberg “set the tone for the new ‘age of austerity’ for miners,” Bank of America Corp. 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.” Speaking on a conference call, the BHP chief said he’s engaging in “full- frontal capital discipline.”
BHP didn’t approve any major new projects during the past fiscal year, it said yesterday. The Melbourne-based company is building 18 major projects with 70 percent of them due to start output by end of the 2014 fiscal year, when it estimates spending of $16.2 billion.
Glencore in May estimated spending on new projects at $29 billion over the next three years. After 2015, investment will “materially decline” to $4 billion to $5 billion, 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, who oversees about 4.2 billion pounds ($6.6 billion) as 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 whilst at the same time shepherding value through for shareholders?”
The response to date has been to increase dividends, with Rio Tinto Group, Glencore and BHP all raising payouts this month. Those three companies and Anglo American Plc, the four biggest miners on the London bourse, boosted their combined payout to about $5.8 billion for this earnings period from $5.2 billion a year earlier.
Glencore Xstrata yesterday reported an $8.9 billion net loss in the first half after taking a $7.7 billion charge on the value of assets acquired in the all-share takeover of Xstrata Plc in May. BHP also yesterday joined Rio, Anglo American and Vale SA in posting lower profits with a 30 percent decline in fiscal 2013 to $10.9 billion.
Rio said this month it had cut costs and reduced employees by 2,200 since June 2012. Spending on projects is estimated at $14 billion this year, 20 percent below the 2012 peak. Anglo’s new CEO Mark Cutifani is seeking to add $1.3 billion in annual cashflow as part of an operational overhaul, he said last month.
Glencore rose 1.3 percent to 300.9 pence at 11:49 a.m. in London trading, paring its decline this year to 13 percent. BHP fell 2.3 percent to 1,879 pence and is down 12 percent this year. Both have outperformed the 25 percent decline this year in the 115-company Bloomberg World Mining Index.
Since Glencore started trading in London following its $10 billion initial public offering in May 2011, the stock has slumped about 44 percent. BHP has dropped about 19 percent in London over the same period.
Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a non-executive director of Glencore Xstrata.
– Jesse Riseborough, Copyright 2013 Bloomberg.