CAPE TOWN, South Africa -- Next month, American aluminum executive Cynthia Carroll will take over as the head of Anglo American, one of the world's oldest and most prestigious mining companies. Her biggest challenge: going it alone.
Anglo is often cited, along with aluminum giant Alcoa, as the next big takeover target in a resources sector undergoing a huge wave of consolidation. Big mining companies are awash in cash after five years of robust commodity prices. Now, many of them are looking to cement their positions by gobbling up their rivals.
Anglo could be a particularly juicy target. As the industry's third-largest mining company by market capitalization, it holds a full deck of assets, including large platinum and coal operations as well as investments in copper, zinc, nickel and diamonds. But compared with bigger industry giants such as BHP Billiton and Rio Tinto, it has struggled to find the right strategy to capitalize on China's soaring demand for raw materials.
In 2001, for example, Anglo and Rio Tinto reported roughly the same earnings: about $1.5 billion each. By 2005, Rio Tinto earned $5 billion, compared with about $3.5 billion at Anglo, in part because of its relatively high costs and higher inflation in some of its key countries.
Carroll, previously a senior executive at Alcan, based in Montreal, was unavailable for an interview, a company official said. The official at Anglo said she was still trying to get her arms around the business and develop her own strategic priorities. Still, "Cynthia's stated intention has been to drive Anglo forward, focusing on its core mining businesses," said Nick von Schirnding, Anglo's head of investor affairs. "What she isn't doing is dressing [the company] up for sale."
Founded in 1917 by Ernest Oppenheimer, a German-born industrialist, Anglo made its initial fortunes in gold, diamonds and platinum. But because of its iconic role in apartheid-era South Africa, the company found it difficult to invest its growing cash pile overseas. So it diversified into other domestic industries, including banking, brewing, paper and steel. When apartheid ended, the strategy had left Anglo with a grab bag of businesses that didn't complement its mining core.
In late 2005, the outgoing Anglo chief executive, Tony Trahar, unveiled the latest of many restructuring efforts that called for Anglo to abandon some remaining steel and paper operations. It also reduced its stake in AngloGold Ashanti, the world's third-largest gold producer, and plans to reduce it further.
The plan, which hasn't been completely implemented, has nonetheless helped Anglo to focus but also made it a more attractive takeover target. Analysts cite a number of potential bidders, including BHP Billiton, Rio Tinto, Xstrata, a Swiss firm, and Citic Group, a Chinese state-backed conglomerate.
Anglo has sources of strength. It reported a 76 percent jump in full-year profit to $6.19 billion, boosted by the partial sale of its AngloGold Ashanti stake, increased production across most of its businesses and higher prices. Revenue rose 12 percent, to $33.07 billion.
Even so, Carroll has her work cut out for her. Anglo employs about 195,000 people, compared with about 32,000 at Rio Tinto, and is regarded by some investors to be far less efficient and cost-conscious than its competitors. In a report last year, Citigroup Global Markets estimated that Anglo could slash between $560 million and $1.1 billion in annual costs by trimming staff and raising productivity, among other measures.
Many analysts and investors questioned the ability of Carroll, who they felt lacked experience running a mining company, to handle these and other challenges. The company's stock fell after her appointment.
But it has since recovered as investors have become more familiar with her résumé. At Alcan, where she headed the company's primary-metals division, Carroll earned a reputation as a cost-cutter who was able to streamline complex operations.
"She's certainly what Anglo needed in terms of instilling a culture of cost reduction and best management," says Heath Jansen, an analyst at Citigroup in London. Even so, "it's going to take two to three years at least" to get the company's focused-mining strategy fully on track.