How did it happen? One day you’re a boy wonder, the next you’re publicly struggling to hold onto your job. Marius Kloppers, BHP Billiton’s man of iron, is suddenly reduced to a rubbery figure sitting atop an increasingly dull-looking corporation.
Of course there are issues no chief executive can control — a 30% price slide in BHP’s key profit maker, iron ore, is shaking the miner to its core. But there are the seven sins for which Marius Kloppers may never be forgiven. Crucially they are each of his own making and consequently may well prove to be insurmountable for the company — at least while he stays in the top job …
1. The opportunity cost of serial M&A failure
The failure of Kloppers to conquer and muzzle arch-rival Rio in the depths of the GFC or his inability to seduce the Canadian government to allow the purchase of Potash Corp are well established. But it’s the enervating — if intangible — effect on thousands of BHP managers who wasted time and money on ultimately worthless projects that now undermine the authority of future Kloppers’ initiatives.
2. The one bad deal
Earlier this week BP fessed up to its shale gas follies and announced on Wednesday it had taken a write down of $US2.1 billion on shale gas assets in the Fayetteville region of central US. One of Kloppers’ very few acquisitions was the surprise — and surprisingly expensive — $US5 billion Fayetteville-based shale gas assets from Chesapeake Energy in 2011. Gas prices are actually recovering since halving a few months ago, but BP clearly believed it had to take a hit on shale gas. The BHP Lafayette field is literally next door to BP’s holdings and analysts expect a $3 billion-plus writedown coming for BHP as early as results day on August 22.
3. Side-stepping an IR showdown in the coalfields
The BHP-Mitsubishi coalfields in central Queensland have become a byword for all that is wrong in the field of mining industrial relations in this cycle. A year-long industrial dispute cost the company more than a million tonnes in lost coking coal exports, according to BHP’s last production report. In July the dispute was settled, but the damage was well and truly done by then. It happened on Kloppers’ watch. No doubt he saw ongoing production as a trade-off for the trauma of a showdown but the price has been too high.
4. Over-promising
We might never know why BHP only nine months ago let it be known it intended to go ahead with the “biggest ever mine in Australia” — the Olympic Dam project in South Australia. But the company did little to quell the wild enthusiasm — especially in South Australia — which followed a flood of media reports last October. Now the company is backtracking on the timetable and again it’s a confidence sapper.
Promise too much in a tough market and a company will be hammered — under promise and over-deliver and the market will eat out of your hand (witness the Wesfarmers story).
5. A lack of income
BHP’s share price at $31 is down from more than $40 just a few months ago. It’s meant to be one of the world’s greatest mining companies but that’s cold comfort for those looking at a price-to-earnings ratio that has slid to eight times earnings — in other words, as a stock it has been a sleeper. But unlike other sleeping blue chips, which are trading on equally subdued price-to-earnings, the income from BHP is also subdued, with a dividend yield of 3.25% — roughly half the dividend yield offered by, say, any of the big four banks.
Kloppers has run a tight divided payout policy and resisted endless entreaties for capital payouts. The result for the big fund managers who are bad-mouthing Kloppers in surveys is that the stock offers neither attractive income nor capital appreciation.
6. Micro-management
The association of Kloppers with an uninspiring memo to staff to keep desks tidy and keep one single photo of a set measurement on the desk each evening should not matter– but it does. Kloppers runs a company which appears increasingly beset with huge problems and he is regularly identified with highly debatable micro-management tendencies which would seem to border on the neurotic.
7. Never apologise, never explain
For so long Kloppers has appeared as a cool and cerebral chief executive gliding above BHP as it enjoyed a splendid isolation from GFC-wracked markets. During the depths of the mining tax row he stayed silent while his peers loudly complained, yet BHP fared well in the end. In recent days Kloppers’ attempt to justify his tenure by citing a six-month share price performance that was less worse than his rivals had the exact opposite effect of instilling confidence.
With a share price turnaround highly unlikely in the short term, Kloppers has one outstanding chance at extending his tenure — a publicly supportive chairman. Not long ago at arch-rival Rio Tinto chairman Jan du Plessis saved the skin of then-struggling chief executive Tom Albanese.
So far BHP chairman Jac Nasser has stayed silent as the Kloppers criticism has mounted. But every day Nasser remains mum Marius Kloppers sinks a little further in the market’s estimation. If Nasser does not explicitly support his chief executive at BHP’s results announcement in three week’s time the story is over for Marius Kloppers.
*This article was originally published at Business Spectator
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