BHP: No drama as Scotsman Andrew Mackenzie takes top job in mining

While professional headhunters were hired to look for external candidates to rival those inside the company, the field narrowed to four: Mr Mackenzie and his colleagues Mike Yeager, BHP’s Texan petroleum chief; its ferrous and coal head Marcus Randolph; and corporate development head Alberto Calderon.

Mr Mackenzie, however, was judged by the board to have the edge due to the breadth of his experience, with years at oil giant BP before stints at Rio Tinto and BHP leaving him with an in-depth knowledge of the energy sector, as well as the staples of iron ore, copper and the rest.

That was of crucial importance for a diversified group like BHP, which has aggressively entered the shale oil and gas arena in the US.

As Jac Nasser, BHP’s chairman, put it, the new CEO is “one of the few executives out there who has an experience profile that matches our business.”

He had also “attended every board meeting since he joined us and he ran one of our biggest groups, the non-ferrous groups, so over 50pc of the workforce was under his leadership.”

In terms of the act Mr Mackenzie has to follow, Mr Kloppers does not boast an unblemished record. Chief among the disappointments was BHP’s failed $39bn (£26bn) bid for fertiliser giant Potash Corp which was blocked by Canadian regulators – demonstrating the difficulties in pulling off such megadeals.

Nonetheless, out of this wave of exiting mining CEOs, Kloppers is seen as “the one who, how do I put it nicely, destroyed the least amount of value,” in the words of one fund manager.

The 2.35pc fall in BHP’s shares on Wednesday following the news, down to £21.83½ in London, underlined the market regard for Mr Kloppers, rather than pointing to significant qualms about his replacement.

Mr Mackenzie’s oil experience inevitably means there will now be speculation BHP will move further into that area.

But the company argued the new boy did not represent a change in strategy, having already been shifting its focus – like the rest of the sector – to efficiency and extracting value from existing mines, rather than fresh growth projects and M&A, given weaker commodity prices.

“There are many things that will not change under my leadership,” said Mr Mackenzie.

Investors will be hoping that means the lack of drama will continue.

Scottish scientist turned industry captain now leads BHP

A scientist turned captain of industry, Andrew Mackenzie, 56, once named his science and language skills – he speaks five – as his “secret weapons”.

So far, they have helped him along a stellar trajectory. As a schoolboy growing up in the Scottish town of Kirkintilloch, he won science prizes donated by the local Miners’ Welfare group before graduating as top student in geology at St Andrew’s.

An academic career attracted the attention of the oil giants, before he joined BP’s research arm in 1983. There, he ended up running its chemical businesses in the US.

He moved to mining giant Rio Tinto in 2004 to head its industrial minerals division, where he oversaw the building of a $5bn titanium mine in Madagascar .

In 2007, BHP’s Marius Kloppers hired him to run the group’s non-ferrous arm, positioning him as a prime contender to take the top job.

Mr Mackenzie and Liz, his wife of 35 years whom he met at university, have two daughters.

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Cash returns are on the horizon as mining investors call the shots

However, most of these charges have already been anticipated by the market and investors are expecting that cash piles will grow as spending slows.

Liam Fitzpatrick, an analyst at Credit Suisse, said: “The sector is past peak capex [capital expenditure] and margins are improving on higher prices and reduced cost pressures.” But he said company cashflows will not see a major uplift until 2014 and beyond because significant investment is still needed this year.

Things are looking fairly bright in a sector that spent 2012 coping with soaring costs and falling commodity prices. But prices have recovered from lows and miners are producing more of their product than they ever have before.

Paul Bloxham, an economist at HSBC, said: “The death of the mining boom has been greatly exaggerated, as the pick-up in exports illustrates.”

Shipments of iron ore to China from Australia’s Port Hedland climbed by a quarter in December on a month-on-month basis, rising 21pc over 2012. Production of iron ore from the Pilbara region of Western Australia is expected to rise 17pc this year. Coal exports are expected to jump 10pc.

Andrew Keen, a mining analyst at HSBC in London, sees a new, prudent approach to spending from mining executives, leading to an improvement in their companies’ financial positions.

“We are entering a period of more conservative capital allocation to which all will conform,” Mr Keen said. “This means cuts in capital spending, deferral of the approval of major projects and financial consolidation. Balance sheets are likely to look healthy at the end of 2013.”

However, he said this trend was not going to be driven by the new management teams. “We think capital discipline is improving, but more because this is the prevailing demand of investors, rather than because this crop of CEOs is changing,” he said. “In our view, rather than personalities, strategy is driven more by market circumstances, and the whims of investors, than either CEOs or investors are probably comfortable to admit.”

So investor pressure is likely to lead to what investors want – a cash return. Special dividends over the next few years seem likely, as do buybacks.

However, “maverick” chief executives could still carry on spending. There is talk that once Glencore completes its merger with Xstrata it is considering making a bid for Anglo American.

Then there’s Mr Davis, who has M&A in his blood. Speculation is that he could join a private equity house and go on a spending spree that isn’t scrutinised by the public markets. Then he really would be in the driving seat – and could ignore the short-term whims of the City. The spending may not be over yet. GW

Copper prices received a fillip at the end of last week after car sales hit a record in China. January passenger vehicle sales in the Asian nation jumped 45pc year-on-year to 1.7m units. The figure is 9.2pc higher than in December. Copper is an economically sensitive metal because of its use in wiring and pipe. A conventional car contains between 20kg and 25kg of copper, according to research by the European Copper Institute.

Hybrid cars have not yet taken off in China, but US manufacturer Tesla Motors recently revealed plans to open a shop in Beijing. Should they take off, copper demand will soar, as hybrid vehicles contain about 33kg of the metal. GW

A tasty Texan steak just got a little rarer, after the size of the US cattle herd hit a 61-year low.

Farmers have been slaughtering their herds as feed costs soar due to drought in grain growing regions in the US Midwest and Russia.

This is the sixth-consecutive year that the cattle herd has shrunk, hitting 89.3m head, an annual fall of 1.6pc. The number of animals being reared for beef has slumped by 11pc since 2007. This is despite US cattle prices being at historically high levels at about $125 per animal. US beef output may drop 2.4pc in 2013, as the pace of slaughter slows down, according to industry researcher CattleFax.

Scott George, incoming president of the National Cattlemen’s Beef Association, told Reuters: “It’s rather bleak but we’ve never seen such high prices for the cattle, so, there are opportunities out there if a guy has grass and moisture and can run cattle.”

He remains “cautiously optimistic” that the country’s beef sector will recover.

Beef production this year could suffer its second largest year-on-year decline in the past 35 years, according to Derrell Peel, a livestock specialist at Oklahoma State University. He believes US domestic beef production could fall 4.8pc this year.

Such a fall has only been outdone once, in 2004, when the US herd shrunk by 6.4pc following the discovery of BSE. GW

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