London Calling - September 15 2004

London Calling! September 15 2004

The Gilbertson wagon train hits South Africa

The annual general meetings of BHPBillton, the world's biggest "natural resources" company, aren't far off. This year sees Melbourne as the first stop (October 22nd) followed a few days later by London (October 25th).

And what a set of results chairman Chip Goodyear and his crew will be able to announce! They're the best of any year, with the company's market capitalisation now almost that of Rio Tinto and Anglo American combined (US$ 58 billion against US$34 each for its two closest rivals); its first six months income for 2004 a whopping two billion greenbacks.

Earlier this year the Anglo-Australian company was cited by Deutsche Bank as among the best anywhere in terms of its corporate governance. In light of this we might well consider the term "corporate governance" to be meaningless. After all, a month ago, BHPBilliton announced its intention to "construct" new iron/steel and bauxite-alumina projects on tribal and protected forest lands in the Indian state of Orissa. (This, despite the fact that Goodyear at the 2003 AGM faithfully promised his company wouldn't mine in protected forests). Many Indians are justifiably outraged.

Meanwhile even Brian Gilbertson - certainly the world's most dynamic and colourful mining magnate (what happened to Robert Friedland you might ask? And well you might!) - is waxing effusive over BHPBilliton's dynamism. This, despite Gilbertson's unceremonious departure in 2003 from the Anglo-Australian conglomerate he'd sculpted. "Get on your bike!" he was told by Don Argus, the then-chair, as he tried to take the company into South Africa rather than confirm its deeply Australian character.

Serving at BHPBililton was "a huge amount of fun", Gilbertson recently told Mineweb. Could the bluff South African now be chummying up to his erstwhile employers in the hope of getting back in? Not for the short-term. As the recently-appointed head of SUAL, Russia's second biggest aluminium enterprise, it's quite clear who the Big G will be serving over the next few months, if not years. First - himself (as demonstrated by his untimely departure from Vedanta this summer, after only six months in the job). Second, his new found oligarchical comrades to the east of Oxford.

However, Gilbertson's experience in exploiting South Africa's resources - bringing capital into, and ferrying profits out of, the former apartheid state - is unparalleled and may well interest BHPBiliton at a later date. As pointed out by London Calling December last year, he not only served the mining industry very well during the last years of apartheid rule. He also recently ended up as "temporary" chair of the BEE (Black Economic Empowerment) outfit, Incwala Resources, as well as being the chief advisor to Lonmin, the London-listed South African platinum company. Quite an achievement for someone who served with Gencor, an enterprise so clearly identified with the oppression of black workers and a legacy of appalling ill-health, especially in the asbestos sector.

If you fondly believe that, as head of SUAL, Gilbertson will temper the excesses of the Russian oligarchy - notably Viktor Vekselberg who seems to exert an iron grip on the company - a recent interview he gave to Mineweb puts such naivety to flight. He may mouth platitudes ("ultimately great resource assets do not remain in the hands of individuals, or very small groups of individuals. I mean, ultimately they settle out in an industry-type pattern. And that process is underway...").

But, to Gilbertson, Russia is essentially a market "where the final ownership structures have not quite crystallised out. It is a bit like South Africa. The BEE legislation has changed ­ the ice floes have broken up, they are moving around, and who knows what is going to end up where. Russia is actually very similar."

Indeed, one of the biggest attractions to SUAL seems to have been Gilberston's unrivalled knowledge of how to make way - and hay - on his Natal stamping ground. "I mean, there is a lot of Russian interest in South Africa. If you go around the bars of Johannesburg you will find a lot of Russians hanging out there", he told Mineweb.

Just how the majority of South African miners will view the prospect of those Russians emerging from a vodka haze to take up managerial or "advisory" positions at the mines, is another matter.

Certainly the National Union of Mineworkers (NUM) isn't happy with either Incwala, or Lonmin, over both of which Gilbertson wields considerable clout. The NUM declares the so-called "black empowerment" deal, cut between 20,000 of its Incwala members and Lonmin early this month, to be "fake...because the so-called stake is a debt that will only be liquidated in seven years."

According to Gwede Mantashe, the NUM's general secretary, "Our members are expected to work now and liquidate the debt for the benefit of future generations."

While the NUM wants Lonmin to liquidate that debt now and be able to work for the future, through a proper share-ownership scheme, Ian Farmer, Incwala's Interim CEO, has simply has " taken notice of the NUM statement", adding: "Clearly we do not agree. The NUM is entitled to its opinion."

Such a patronising retort surely has no place in post-apartheid South Africa.

But does Gilbertson himself?

[Sources: Deutsche Bank survey on corporate governance: FT 20/2/2004; Indians hopping mad : Adhikar, Ranchi, August 2004; Gilbertson interview with Mineweb 7/9/2004; NUM slams Lonmin's broad-based BEE; FT 9/9/2004; Mineweb 7/9/2004; see also Mineweb 13/9/2004; series of articles posted on MAC on this issue can be seen here]

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