CHRIS Griffith, former CEO of Kumba Iron Ore, has just been appointed as the new CEO of Anglo Platinum.
SUMMIT TV: Kumba Iron Ore posted a sharp decline in headline earnings despite record export sales and revenues. In spite of rising costs, margins were quite generous. What are your views on managing costs in the quarters ahead?
CHRIS GRIFFITH: We had a great set of financial results. Revenue was up to R25bn, with headline earnings of R14bn. We saw very high iron-ore prices in the first half of last year. Prices are still high and margins higher than 50%, which can be maintained. Volumes will keep increasing and we understand where the costs are coming from, so we are able to manage that and see continued good margins.
STV: How do these margins compare with the global iron-ore industry?
CG: Major players in the global industry and ourselves are running at very good margins - very different from other mining sectors.
STV: You refer to China's high cost structure. What are the benefits to Kumba and the iron-ore markets?
CG: The margin where the price is set is in Chinese domestic production, which is at very high prices - so when we need a top-up of ore that comes in from China at high prices, that sets the floor for pricing and that is a benefit for us. When we are exporting 90% of the ore that is produced in South Africa and that is sold at high prices, it means there is substantial revenue generated in South Africa. As a result, all our shareholders, including the government, see substantial benefits.
STV: Are there concerns about the aggressive ramping-up of iron-ore supply globally? Will global growth remain strong enough to mop up the supply?
CG: We have a good understanding of where the demand for iron ore is coming from. Of course it is volatile but in the past few years we have been pretty close, and going forward we see it continue to grow. Additional iron ore will be needed and therefore the miners need to produce more, so that's not a concern for us. We have to produce more to satisfy the demand.
STV: So you are quite bullish on iron-ore prices and demand.
CG: We are bullish on prices and demand.
STV: Companies are usually vulnerable to swings in the iron-ore price. Even though you did everything right and exports were at record levels, the drop in prices hurt you. What benefits are there for investors in single-commodity stocks?
CG: Everything is relative, so if you compare everything to a record and say anything under a record is bad, then you are going to be depressed. Fact is these are very good prices and earnings for a company such as Kumba. We've just given back almost R9bn to shareholders with only six months of profit, so that is very substantial. If we look around the world, it's a scarce time for dividends and here we are giving a cover of 1,2, so almost all the cash we are generating we are giving back to shareholders. We certainly don't think shareholders should put their money anywhere else.
STV: What are your views on calls for beneficiation of South African minerals before exporting?
CG: We are beneficiating iron ore in South Africa with five steel companies here. We are taking material that previously would have been declared waste, beneficiating that and creating jobs and additional revenue for South Africa. So, all the way from mining beneficiation to steel mills and plant in South Africa we are producing beneficiated materials. It's a fallacy to think we are not. Can we do something further downstream from what we already produce? That's where the challenge lies and perhaps where the potential is - the basis of South African growth should be the mining industry.
STV: So I take it that this is quite feasible not only for Kumba but also for South Africa?
CG: It's feasible for South Africa to beneficiate, which is what we do. Whether there is space for more steel producers in South Africa, there's already debate around that, where we generally have more installed capacity for making steel than what we are making at the moment because there's only a certain amount of demand now. Outside South Africa means we would have to transport steel over long distances to get to where the markets are and compete with the likes of China, which is why we are finding it difficult. To think more steel mills could be built in South Africa might be a difficult investment case.
STV: You are moving to Anglo American Platinum. You were there before for 18 years. Anything you can tell us about that?
CG: I go with mixed feelings as Kumba has been my home for the past four years. It's been a great company, and the team and I have done some good things, but Anglo Platinum is a new challenge, and change is good for companies and individuals. Norman Mbazima will be the new CEO at Kumba - he's a great guy and we've been colleagues for many years. His style of management and values and culture will be a good fit. I have been in platinum before and I'm looking forward to the new challenge.
STV: Are you nervous going into a challenged industry? Is this about management or conditions in the industry?
CG: It's no secret the platinum industry is in a downturn at the moment - but it has been through cycles before and will again, and the mining industry too. It was only in 2008 where we saw the big downturn in the world, and people seem to have forgotten about that. We will come out of these cycles and platinum is a material that is needed. It has been through these cycles, survived and saw great years afterwards, so I have no doubt at some stage it will come through for the platinum industry and for Anglo Platinum. There are great people in the company and the assets are good, so I look forward to building on the legacy of Neville Nicolau.