Read that article too; here it is in case you have problems with...

Read that article too; here it is in case you have problems with the other one.

Resources: next-gen CEOs dig miners out of a hole


Fortescue’s reinvention was arguably the most startling

• • Paul Garvey
  • The Australian
  • 12:00AM February 11, 2017

For years, they were the problem children of Australia’s mining industry — stocks that were blighted by underperforming assets, debt-laden balance sheets or questionable management.
Now, however, the likes of Fortescue Metals, Newcrest Mining, Whitehaven Coal, St Barbara and OZ Minerals are readying to cap their remarkable turnarounds by unveiling bumper financial results in the weeks and months ahead, cashing in on their new found consistency.
While the tailwinds of improved commodity prices, a weaker Aussie dollar and cost deflation have played a big part, a new generation of disciplined CEOs focused on squeezing the best out of historically difficult assets has also been crucial.
The big share price gains in many Australian resource stocks over the past year reflect a new level of operational consistency and conservative management that bodes well for increased dividends now and into the future, burying the all-too-recent tendency to blow windfall profits on overpriced acquisitions.
GRAPHIC — Heavy metal
Shaw and Partners analyst Peter O’Connor, a keen follower of Australia’s mid-tier mining sector, told The Weekend Australian that the likes of OZ, Newcrest, Whitehaven and Fortescue had all been rewarded because of their ability finally to deliver on their promises. “All these companies were perennial disappointers, and they’ve all under their current CEOs done a really good job of turning that around. It’s not a one-off,” he said. “Clear tailwinds in the last year helped everybody, but it’s also about the new CEOs. Don’t underestimate how much a good CEO can change culture and the way things work.”
In some ways, the commodity price downturn of 2013 forced the higher-cost, more debt-laden miners to overhaul their operations as a matter of survival.
Fortescue’s reinvention was arguably the most startling.
It entered the downturn with a heavily overstretched balance sheet, and an asset at the wrong end of the cost curve. It’s startling now, with the company in rude health and its stock price soaring, but without a meaningful change in its operations there was a real danger it could have been sunk by the iron ore price fall. Instead, under chief executive Nev Power, Fortescue revolutionised the way it mined its ore, installing huge processing plants that took the low-grade material it was previously discarding as waste and upgraded it into a saleable product.
That change, combined with other sweeping cost-cutting initiatives, has helped its basic cash costs fall from more than $US44 a tonne in 2013 to less than $US13 a tonne at present.
At the same time, Power and his recently departed chief financial officer Stephen Pearce showed tremendous discipline in throwing almost every spare cent of money at reducing its debt load, retiring more than $US7 billion in debt in recent years. Fortescue’s many critics thought the downturn was going to sink it; instead, it has emerged impregnable.
Forager Funds Management chief investment officer Steve Johnson said Fortescue’s cost improvement had been startling.
“There were a lot of sceptics out there, including myself, and I just find it extraordinary,” he said. “They’re putting pressure on the big guys on a cost per tonne basis, so it’s been amazingly successful.”
The Australian gold sector has had a far more amenable macro backdrop in recent years, with prices holding strong, but has still produced strong examples of operational turnaround.
For years, Newcrest’s Lihir mine in Papua New Guinea had been a sore for the company. Since its acquisition by Newcrest in 2010 for $9.5bn, Lihir had been consistently inconsistent in its underperformance over several years.
Fixing Lihir was a clear top priority for Newcrest chief Sandeep Biswas when he took on the job in 2014, and the task is almost complete. In January, Newcrest announced Lihir had reached a record throughput rate of 13 million tonnes a year — almost double where it was at back in 2013.
One analyst who could not be named — who has been a regular visitor to Lihir over the years — said the mine had been transformed under Biswas and his team.
“It is strikingly improved to what it looked and felt like two years ago,” the analyst said.
“The guys you talk to on site are very confident about their outlook; they’ve been empowered by their success and they’ve moved from firefighting to strategic planning. They’re now thinking about the 15 to 20-year schedule and the opportunities there.”
There is a common thread among the CEOs behind three of the most impressive turnarounds.
Newcrest’s Biswas, OZ Minerals’ Andrew Cole and St Barbara chief Bob Vassie all hail from mining giant Rio Tinto, a company that has delivered its own impressive turnaround in recent years.
That shared background, says Shaw’s O’Connor, is reflected in the way they run their businesses.
“They’re all entirely different personalities, but they’ve got the same process and drive. Each independently turned around those companies methodically, systematically with this incredible process-driven mentality, which is just amazing to watch,” he said. “Rio is an incredible training ground; you get these really high quality execs that come out of there — not all of them, but a lot — and they’re trained in a really similar way with a consistent process method, and they’ve got the right culture of how to run a business.”
With the market clearly turning for the better, the key question is whether the companies can maintain their discipline of recent years and not slip back into the exuberance that led to the bad deals of the last boom.
Forager’s Johnson has seen the cycles before, and knows that the conservative, dividend-focused management approach can quickly turn when markets are flying.
“All the language is still conservative,” Johnson said.
“But if this goes on for another 12 months, and the cash is still flowing and the companies have paid off their debt and they’re much more stable, you’re going to start to see more hubris coming back into the market and more marginal projects put forward. That would not be a good thing.”