INTERVIEW: Leading through times of global crisis

Anglo American chief executive officer Cynthia Carroll, who joined the company at the start of 2007, had spent her inaugural months working to improve the miner’s safety record and optimize its assets. "The board recruited me as a change agent," she recalled. Safety of the company’s mining operations was a key area for her attention and one in which the company achieved major improvements under her leadership. "Anglo also wanted to add more iron ore to its commodity base, and fundamentally uplift its performance," she added.

The new approach was working. The London-listed diversified miner reported record earnings and operating profits for the first half of 2008 and had an approved project pipeline of $15 billion. By the summer of 2008, commodities prices were at record highs in the midst of a super-cycle boom. China, the engine of growth for the commodities sector, was on track to see another year of double-digit gross domestic product growth. 

"China looked as though there was no stopping it in terms of growth and development; infrastructure investment was booming, as was demand for commodities across the board – iron ore, coal, copper, nickel, even platinum group metals. We thought demand was just going to keep charging ahead – there was no end in sight, starting with China," said Carroll.

But then on September 15, 2008, the United States’ fourth-largest investment bank Lehman Brothers filed for bankruptcy protection. It was, as Carroll noted, a "big wake-up call."

Looking back, the warning signs were there. Financial institutions had been marketing mortgage-backed securities and sophisticated derivative products at unprecedented levels, but when the real estate market collapsed in 2007, these securities slumped in value. A credit crisis began unfolding and, in March 2008, Bear Stearns collapsed. 

Even then, the crisis initially seemed to be related to toxic mortgage lending in the United States and not the broader global macroeconomic economy. 

"The crisis was really something that was seen first and foremost in the financial markets. There were various financial instruments that were being discussed, I remember learning the new acronyms very quickly!" said Tom Albanese, who headed up mining company Rio Tinto for six years from 2007 to 2013. "The financial crisis was led by those financial markets as a leading indicator, and the mining sector was more of a lagging indicator," he added. 

There were nonetheless some signs of the impact. For example, Albanese recalled noticing a severe contraction in construction activity in London, where Rio Tinto was headquartered. "I remember coming in one Monday morning and from my office I could see about 14 buildings under construction, and that day, every single crane was stopped. You knew that something bad was happening, but you got a full, in your face, sense of what the extent was," he said. "It probably took another month or two before it plugged into the physical [metals] markets."

The contagion quickly spread to other economies around the world, most notably in Europe. By the end of the year, the prices of aluminium, coal and iron ore had more than halved; in the case of copper, a leading economic indicator due to its use in housing and construction, the market had collapsed from above $8,700 per tonne to $2,900 per tonne. 

Scenario-planning
It was the classic Black Swan event that mining executives, like most of the rest of the world, simply did not see coming. It also made it impossible to know when and how the situation might end. 

"Everyone was second-guessing," Albanese said. "You heard the terms 'green shoots’, 'V-shaped,’ 'U-shaped,’ 'L-shaped’ recovery, and then how long would it take – would it take two years, five years? Even, would the economy ever recover? Because some people were saying it would never recover."

So, when he was asked for his view of a future recovery on February 14, 2009, also known as Saint Valentine’s Day, Albanese suggested that the markets would see a "LUV-shaped" recovery!

"I said, 'I think it’s going to be an L-shaped recovery in Europe, a U-shaped recovery in the United States and a V-shaped recovery in China.’ [My answer] was tipped for the Valentine’s Day spirit but that’s actually how it played out," he added.

Without absolute certainty of how the 2008-09 downturn might turn out, mining executives set about scenario-planning for various outcomes. 

"Nobody knows how a crisis will play out and how long a time it will last. For us it was about trying to develop scenarios," said Svein Richard Brandtzæg, CEO of Norwegian aluminium producer Norsk Hydro for a decade from January 2009. 'We knew at that time we could extrapolate trends and try to build on history, so it was about looking at how bad could it be and how could we manage that, even in different, really bad scenarios," he added. 

Companies and their management teams sprang into action. Some set up specific names for their initiatives, some did not; but the common thread was that measures undertaken across corporations was very similar. 

Norsk Hydro commenced a three-part programme called Agenda 2010, centered on navigating the storm, staying focused, and shaping the future. Anglo American created One Anglo, designed to bring the company together and continue to drive the work that Carroll and her team had already been undertaking. Rio Tinto, which had already undertaken a One Rio Tinto programme before the crisis hit, continued its value creation strategy with a focus on strengthening the business during the downturn.

"We [at Anglo American] were preparing for all eventualities and we were thinking about multiple scenarios. I knew that we would be in a much better place because of the work that we had done over the first two years, but we couldn’t stop," Carroll reflected. 

Managing assets
As CEOs set about leading their companies through the global financial crisis, they faced challenges on multiple fronts. Managing their assets was a key test, and in particular deciding whether or not to curtail capacity as commodities prices fell and demand in key consuming industries was crimped.

"You have to go through the difficult task of determining how many of your operations should be running in this market: Where do they sit on the cost curve, what is the cost of shutdown, what is the cost of reopening, what are the other considerations that take place in that?" Albanese said.

Rio Tinto cut a substantial amount of its aluminium smelting capacity as well as rolled back iron ore shipments and production capacity at various operations around the world. 

According to Albanese, curtailment decisions are initially made based on the cost structure of assets and whether they are making money. "If the operation is making cash, how can you basically keep the costs down so that it preserves itself in case things get worse? But if the asset is not making cash flow, then you really have to think, what are your options?" he said.

It is a view echoed by Carroll, who noted that Anglo American cut or stopped really high-cost production, particularly in platinum and coal. "Every production unit, whether it was an ounce, a tonne or a carat, we analyzed. It had to be profitable or become profitable in the very short term," she said.

"We created visibility of our cost positions across the group so everybody knew where they were positioned on the cost curve, everybody knew that they had support to get to a better position, and we gave them the tools and support to help them to get there," she added.

But miners and processors considering production cuts cannot ignore safety or care and maintenance, including of associated asset infrastructure, Carroll cautioned. 

Some operations are easier to move into care and maintenance than others, with the cost of idling an energy-intensive aluminium smelter being much higher. Typically, decisions to cut aluminium smelting capacity are not taken unless the cuts are slated to last for at least a year.

"If an aluminium smelter cut is shorter than that [a year], you’d probably think, 'well, let us keep that capacity running.’ It is very much about how you believe the crisis will play out... If you think the crisis will take a long time, you take out capacity," Brandtzæg said. "But that capacity will be out for a while and it will cost a lot of money to bring it back again. In that respect you try to keep capacity going to see if the crisis will pass and things will improve," he added.

'Take or pay’ power contracts can also be prohibitive to cuts due to the cost associated with idling capacity while still having to pay for the high level of energy that smelters use.

Eventually, however, producers tend to look at their peers and see whether curtailments can be postponed because someone else will make them instead. "At some point in time there is a bit of gaming theory – whose is the first production to go to support the supply/demand picture in a lower demand environment," Albanese said. "But for the most part, it wasn’t like you see in retail and other industries, where you’re always worried about competitors. First and foremost, you’re focusing on what your operations are actually doing and whether they are sustainable in [difficult] kinds of markets or not," Albanese added.

Tackling costs
Mining CEOs had to make some difficult decisions quickly in an effort to create the resilience for what might lie ahead. One of those tough decisions was what to do about dividend policies.

Anglo American was faced with the choice of either cutting all its capital expenditure and retaining its dividend or continuing to invest in select projects that would deliver substantial value on the short- to medium-term and suspending its dividend. 

"After a lot of deliberation, we decided to suspend our dividend," Carroll said. "We cut 50% of our capex, and we suspended our final dividend, focusing on cash preservation and safeguarding the balance sheet. I can tell you, this is a terrible thing to have to do – it was a tough choice and decision to make," she added.

The move was unpopular with a couple of the company’s more vocal shareholders, but Carroll noted that Anglo American was not alone in cutting its dividend and did not undertake rights issues as many of its competitors did.

The company restored the dividend the following year as the balance sheet was strengthened; the projects it had been supporting delivered about $800 million in cash about two years later. Anglo American reported profit of $2.4 billion in 2009 and $6.5 billion in 2010. "Investors were very pleased about that performance," Carroll said.

At the same time, miners set about working to improve productivity with a focus on improving efficiency and pushing assets further down the cost curve. These initiatives were aimed at preserving value for shareholders by conserving cash flow and reducing levels of debt.

Brandztæg noted that a central tenet of Norsk Hydro’s Agenda 2010 programme was to change the company’s mindset away from focusing on long-term profitability towards focusing on short-term cash preservation. "It was about releasing working capital and cutting costs as much as we could," he added. 

Exploration, R&D
Just as some facets within mining and metals get prioritized during a downturn, others get put on the backburner.
Exploration budgets typically fall victim to being slashed during tough times as mining companies seek to preserve cash. It all too often means that some metals are faced with a dearth of projects for years to come as pipelines thin and junior exploration firms – typically the source of new future assets for bigger producers – are unable to survive. 

"Unfortunately, it’s always the case that the first thing to go is always exploration. You stop thinking about what your portfolio looks like 5-10 years from now and think about how you get through the next 90 days," Albanese said. 

And while research and development (R&D) is often also a casualty of belt-tightening measures, it can pay to keep this intact. "The real 'no regret’ I have is that we actually kept automation going in Western Australia, developing our Mine of the Future™ technology and innovation project. That was a benefit as we went forward," Albanese said. 

The project started as one of the world’s biggest private sector trials of robotics, comprising a fleet of mining equipment that loaded and hauled ore automatically. The system eventually revolutionized productivity and the way mining is conducted, creating one integrated mining processing and logistics system controlled by operators almost 1,000 miles away. 

"In 2008, people were referring to the Mine of the Future™ as being like Star Wars, and not as a compliment but in a derogatory nature! But it moved very quickly from something that one or two companies were doing to something that will become as uniform for the industry and every company as looking at an iPad or a computer," Albanese added. 

It was a similar story at Norsk Hydro, whose R&D activities fell into the "shaping the future" category of its Agenda 2010 programme. "We know from previous serious crises that innovation is sometimes accelerated – that is what we have seen during world wars but also during crises," Brandtzæg said. 

"There can be opportunities in a crisis. Norsk Hydro emphasized R&D during the 2008-09 global financial crisis because it knew it could make additional efforts and deliver even better innovation through R&D," he added.

He cited the energy-efficient aluminium production technology being used at a pilot plant at Karmøy in Norway as a good example of the value of continuing R&D even during tough market conditions. The pilot plant started operations in January 2018 and has exceptionally advanced climate- and energy-efficient aluminium production technology. The facility, located at Hydro’s existing aluminium plant at Karmøy, will add 75,000 tonnes of aluminium production per year to the existing capacity of around 200,000 tpy. The technology developed by Hydro’s researchers will substantially reduce energy consumption in aluminium production.

Mergers and acquisitions
The 2008-09 crisis also presented another inevitable opportunity for mining executives: growth in mergers and acquisitions as mining companies re-evaluated their portfolios and sought to divest non-core assets. 

Some were on the receiving end of approaches, like Anglo American, which rebuffed a merger offer from industry peer Xstrata plc. The deal did not gain any momentum with Anglo American’s shareholders, something that Carroll attributed to the fact that it was not viewed by the company’s board or its stakeholders to be the merger of equals that it was being portrayed as. 

"It was not a merger of equals. It was June 2009, we had much more valuable assets and a commodity portfolio that stretched across bulks, base and precious metals," Carroll recalled. "We pushed back very hard to say, 'this is not a merger of equals,’ and we certainly demonstrated that we were in a very strong position," she said. Xstrata eventually dropped the proposed deal four months later, ahead of a former 'put-up-or-shut-up’ deadline imposed by the United Kingdom’s Takeover Panel.

Other miners made approaches that did result in deals, like Norsk Hydro’s purchase of the aluminium business of Brazilian miner Vale. 

"As I said, in such a crisis situation there will always be opportunities!" Brandtzæg laughed. Negotiating directly with Roger Agnelli, then Vale CEO, the pair were already finalizing the details by the start of April 2010, signing the deal a few weeks later. "It was very much about securing raw materials for our aluminium production, which had been an issue for the company for several decades," he added. 

Staying visible
It is sometimes said that real leaders are not born – they are made, and very often forged in crisis. The need to be seen, to communicate and to act as a motivator became particularly clear to mining management during the 2008-09 downturn.

"In many ways, the CEO has to be a bit of a cheerleader; keep the teams motivated, encouraged, focused on what they need to do as part of the solution. You have the CEO and the executive team, but you also have an organization with tens of thousands of people, who are also wondering what this means – for their job, for family members that might have job losses," Albanese said.
"From a CEO perspective, first and foremost you’ve got to get out there, you’ve got to communicate better, you’ve got to encourage the organization to stay focused, so you have the ability to react, respond and reposition," he added.

Carroll agreed, noting that CEOs have to keep connected with their entire organization and not just the management. "You have to keep engaging, you have to be inclusive, and while maintaining the momentum, drive, focus, encouragement and the pace," she said. 

Failure to communicate with stakeholders, internally as well as externally, can be very isolating. 

"I am observing today a lot of CEOs and business unit heads acting in silos and that’s not the thing to do," Carroll noted. "CEOs should be having dialogue with a range of participants in the industry as well as those outside, in nearby jurisdictions, to learn what they’re doing and, in some cases, solve problems together."

Covid-19
The 2008-09 downturn was a financial crisis; just over a decade on, the mining industry is facing a devastating health crisis in the Covid-19 pandemic. 

While both crises severely impacted the sector, the big difference in 2020 is that, in addition to the crash in demand amid a broader economic downturn, the metals and mining industry is also currently facing a supply shock while miners curtail production and rein in project plans. 

Prices began the pandemic nowhere near super-cycle highs, and markets had already been grappling with trade wars, broader economic uncertainty and the prospect of slowing global growth.

The current reduction in supply, which previously may have given metals prices a boost, is now being met with a big hit to demand. How that supply/demand balance evolves is unlikely to be clear until the dust settles, and the coronavirus is fully under control.
"The mining industry did not drastically change the way it did business after 2008; we thought about preparing ourselves in a much more diligent way but returning to work today will be very different. We need extreme and additional controls in terms of screening, testing, increased sanitation, social distancing – this is a fundamental change that is not going to go away," Carroll said.

"The Covid-19 crisis will clearly be alleviated once a vaccine is developed and distributed, but even economic stimuli will not have a huge impact until that happens. The economic recovery period in this case will take years and years," she added. 

Near- or re-shoring is, meanwhile, likely, as companies seek to diversify their supply chains, while digitalization is likely to accelerate further, the executives said. 

At the same time, the volatility created by crises like Covid-19 is adding a layer of uncertainty to the development of large-scale projects that take a decade or more to progress and are highly capital intensive. This means that mining projects are likely to be developed over time in phases instead of over longer periods with less visibility, said Albanese. 

"We’ll hear more and more about phasing operations rather than starting with the biggest thing that can be envisaged; starting smaller and progressing the project. The trend towards phasing projects from a more modest start and then giving yourself time to develop it, not only is it capital friendly, but it’s actually more resilient in this market," he added.

If a crisis teaches anything, it is that companies should be ready to expect the unexpected. "We sometimes feel very surprised when there is a crisis, but when we look back in history there have always been crises, and you never know when they are coming. There will be Black Swan events in the future, but we have learnt through crises that companies need to have a decent financial situation and an inherent flexibility to use when a crisis hits," Brandtzæg said. 

"Most of all, this is about organization capability – to be able to develop organizational competence and capability to handle such a crisis will be crucial for any company."

Tom Albanese

Tom is the former Chief Executive of Vedanta (2014-2017) and Rio Tinto between 2007 and 2013. He has about 40 years of industry experience and is presently on the boards of Franco Nevada, a precious metals royalty and streaming company, and Nevada Copper, which owns 100% interest in the Pumpkin Hollow Copper development property in Nevada. In addition, Tom is an advisor for a number of other businesses.

For the period of 2009-2015, Tom served on the Board of Visitors of the Fuqua School of Business in Duke University. Tom also served as the co-Chair of the Confederation of Indian Industry National Committee on Mining from 2016-17. Tom was conferred with the Mining Foundation of the Southwest 2009 American Mining Hall of Fame Award.

Tom holds a Bachelor’s Degree in mineral economics and a Master’s in mining engineering, both from the University of Alaska.

Cynthia Carroll

Cynthia Carroll has spent most of her career leading global businesses in the industrial sector. Cynthia began her career as an exploration geologist at Amoco Production Company in Denver, Colorado before joining Alcan Aluminum Corporation. She held various executive roles at the company, including President of Bauxite, Alumina and Specialty Chemicals and Chief Executive Officer of the Primary Metal Group, Alcan’s core business. 

From 2007 to 2013, Cynthia served as the Chief Executive Officer of Anglo American plc. At the time, Anglo American was one of the largest and most diversified mining companies in the world, employing approximately 160,000 people with operations on 6 continents and a market capitalization of approximately $40 billion. Anglo American ranked in the top 20 companies on the London Stock Exchange’s FTSE 100 Index. 

Cynthia sits on the boards of Hitachi Ltd, American Securities, and Prince (an American Securities company). She previously chaired the boards of Anglo American Platinum Ltd, De Beers Société Anonyme, and Vedanta Resources Holdings Ltd. and has also served on the boards of BP, the International Council on Mining and Metals, the International Aluminium Institute, The American Aluminum Association and the Sara Lee Corporation. She is a fellow of the Royal Academy of Engineers and a Fellow of the Institute of Materials, Minerals and Mining.

Cynthia holds a Bachelor’s degree in geology from Skidmore College, New York, a Master’s degree in geology from the University of Kansas, and a Master’s in business administration (MBA) from Harvard University. She has also been awarded an Honorary Doctorate of Science from the University of Exeter, Honorary Doctorate of Laws from Skidmore College and an Honorary Doctorate of Economics from the University of Limerick. In 2008, Forbes magazine ranked Cynthia the fifth most powerful woman in the world; in 2009, Forbes ranked her the fourth most powerful woman in the world. She is the only woman to have held a CEO position of a major mining company. Cynthia and her husband have four children, ranging in age from 20 to 26.

Cynthia Carroll’s key points for a CEO facing crisis situations:

• Focus on people; avoid isolation.

• Seize the opportunity the crisis brings.

• Be flexible, agile and think about different operating models, scenarios, optionality.

• Be responsive and courageous.

•  Lead from the front; be inspirational.

• Keep costs variable, so they are adjusted in line with the market context as opposed to a disruptive restructuring every time there is a setback.

• Take risk and do things you never thought were possible.

• Rethink where we are and how we’re going to do business. Start planning the future off the new normal.

• Align stakeholders accordingly. Work really closely with them to get them on board and to understand what the challenges are.

• Keep connected with the entire organization. You have to keep engaging, you have to be inclusive, while maintaining the momentum, drive, focus, encouragement and the pace.

Svein Richard Brandtzæg

Svein Richard Brandtzæg is currently Chairman of the Board of Directors of Veidekke ASA (Norway). 

From 2009 until 2019, he was President & CEO of Norsk Hydro ASA (Norway), a global integrated energy and aluminium company with 36,000 employees in 40 countries. He previously held various positions at the company between 1985 and 2009, including President of Hydro Magnesium, President of Metal Products, President of Rolled Products, and Executive Vice President of Aluminium Products. 

Besides his current role at Veidekke ASA, he is a member of the Board of Directors of Eramet and Sibelco, since 2019, and recently accepted membership of the Board of Directors of Schmolz + Bickenbach.   

Svein Richard Brandtzæg holds a Master of Science degree in materials and chemical engineering of the Norwegian University of Science and Technology/NTNU in Trondheim, where he also obtained his PhD degree at the Institute of Inorganic Chemistry. Dr Brandtzæg also graduated from a foundation program in economy at the Norwegian Business School. Between 1998 and 2006 he attended several executive education programs at IMD, Harvard Business School and the Wharton and International Forum. He was a member of the European Roundtable of Industrialists from 2009 to 2019 and the Norwegian representative of the Bilderberg Meetings from 2010 to 2019.