Chris Griffith on leading mining through crisis

Nkateko: Hi, I'm Nkateko Mathonsi, I am head of equities research team here at Investec. I'm also an equity analyst covering the precious metal stocks.

Welcome to Investec Minds. In each episode, analysts from the equity research team at Investec Corporate and Investment Bank sit down with a former chief executive who helped define their industry at a critical point in its history.

Our guest for today is Chris Griffith. He is one of mining's most versatile leaders, having been CEO covering various commodities; bulks, precious metals and base metals. He is the former CEO of Kumba Iron Ore, Anglo-American Platinum, which is currently Valterra, Gold Fields, as well as Vedanta Base Metals.

Chris has led through some very unique complexities and environment, and I am very excited to reflect with him on those moments. Chris, thank you very much for joining us.

Chris: Thanks, Nkateko, and thanks very much for the opportunity to be part of the Investec Minds podcast.

Nkateko: So, I have a very standard question for every guest that comes to the podcast as an opening question. We want to know how life is post stepping down from the chief executive role. I am hoping you'll tell me you are now a man of leisure.

Chris: The plan was when I stepped down from official business at the end of last year, it was to be a man of leisure. I certainly have been able to spend more time in some of the passions that I have outside of work. So, I'm a passionate saltwater fly fisherman, and my wife and I are very keen birders. And my wife is a fanatic diver, so Carolyn has been able to squeeze a lot of holidays out of us in the very short time that we've been off.

But very soon I was contacted by a private equity team that are starting up. So, I'm part of a private equity team now, seeking to raise a billion dollars to invest in African critical minerals. We're in the early stages of raising the funds for that. I'm working closely with Colin Coleman, ex Goldman Sachs banker, Sam Jonah and some colleagues of ours in Ghana and here in South Africa.

So, we've put this team together and I'm spending quite a lot of time at the moment helping to set up this private equity business.

Nkateko: Chris, I want us to start right from the beginning. You started your mining career from a graduate trainee level and worked your way up to a CEO level, a very true Anglo-American success story. The question for me is that how did those early operational years impact and shape the way you later led as a CEO?

Chris: I think I was very fortunate like most mining engineers in training, to follow the programs that were set out. Most mining engineers that later become CEOs start at the very bottom and work through the ranks. So, I've pretty much done every single mining job there is to do. I was a night shift cleaner. I was a miner, so a developer and a stopper. I was able to then work through the ranks in the junior management levels.

Up until when I was in my early 30s, I was running the largest Anglo platinum mine at the time. I was running Amandelbult when it had 15,000 people. I then quickly transitioned to start a new mine called Bafokeng Rasimone Mine, which became a joint venture with the Bafokeng.

In those early years, I think the things that I really learnt was, number one, to understand what it takes to mine an ounce of platinum or an ounce of gold or a ton of iron ore. There are so many complexities and so many incredible people that it requires to do their jobs well on a daily basis to make that happen. I was able to learn from some incredibly experienced people. 
I think early on I was also able to develop a deep skepticism of people that said, "Hey, this is the very best that can be done. We've always done it like this, and it can never be done better." I was very fortunate to learn from some amazing people, some great role models and mentors, and I think later on I was able to apply that knowing that people coming up the ranks need that same role model and the same sort of mentorship.

Very early on, I learnt the importance of delivery on your promises, so doing what you say you're going to do and making sure you deliver on your targets. That became an important part of the way that I led businesses. But also, it was incredible to see the difference that individuals could make. So even as a, a young person, I was part of many improvement projects, both productivity on the mining side, but also on the safety side. Very soon I got to know in the mining industry in South Africa that very junior people can make a difference not only in mining but also outside of mining in the local communities.

I think those were the kind of things that from my formative years in my career certainly helped me be perhaps a better leader as a CEO of different mining companies.

Nkateko: And I want to move on to you landing your first CEO role during the global financial crisis, and at that point in time it looked like delivering on Kolomela was your biggest task. But then you found yourself at arbitration on mineral rights, both domestically and internationally. How was it leading Kumba through a period where the stakes were significantly higher than the usual commercial risks?

Chris: When I got my first CEO role, I was in my early 40s. To say that I was new in this was an absolute understatement. But I joined Kumba in 2008, and that was on the back of massive Chinese demand for iron ore. The iron ore price peaked at just under US$200 a ton. At the end of 2008 to into 2009, the global financial crisis, the price went down to US$60. That was a big part of what shaped me as my first leadership role.

At the same time, we were growing the Kumba business. We were expanding the business with the Sishen expansion project and the development of a new mine, Kolomela. And then lastly, this massive onslaught that we faced, both domestically and internationally, on the mineral rights of the company. It looked like nothing could go wrong. Kumba was in an absolute sweet spot.

The iron ore price tanked during the global financial crisis to US$60 a ton. We sketched a scenario with global management consultants as to what could potentially happen. We sketched a scenario called “crash and burn”, which meant that you couldn't sell a ton of iron ore and you had investments that you would have to perhaps curtail.

A couple of weeks later, we hit the scenario of “crash and burn”, and then saying, “now what do we do?" So, we got to a situation where we couldn't stockpile any more iron ore. Globally, there was no place to stockpile iron ore. We couldn't sell a single ton of iron ore to any of our customers. We were faced with the dilemma of what to do because we'd commenced the investment in the Kolomela mine. We were saying how do we survive this period? Because none of us knew what a global financial crisis was and how to get through it and when it would all come to an end.

I think what we were able to do was to vigorously focus on costs and absolutely reduce costs to the bare minimum. But we were also successful, I think, in maintaining the stripping, so securing still the future of the mine.

At first, we would try with everything that we had to try and keep the future mine going by continuing that stripping. We were also able to convince our shareholders that investing in Kolomela through this period was still a good thing to do when everyone was shutting down projects. And we just knew that if we delayed Kolomela until things got better, that would be the time when we needed to have the Kolomela ore.

We managed to convince our shareholders. We continued investing in Kolomela through this through this crisis, and we indeed delivered a mine and a company that was in much better shape to benefit when it actually did improve beyond the global financial crisis, and we had another mine and we'd expanded the Sishen expansion project.

So, we had a company that was in great shape. And I guess that was part of the learnings of the global financial crisis. We did get through it, and we were in much better shape afterwards.

But what was happening both globally in Senegal and here in South Africa is that there was this massive onslaught against the mineral rights of the company. In Senegal, the government took away our mineral rights and gave them to a competitor we know with an exchange of cash happening. It was a very difficult time and the board decided that this was an important message to send both to the government of Senegal at the time, but also in more general to governments in Africa that you can't do that and that you need to follow the rule of law.

We followed an international arbitration against the government of Senegal, not to everyone externally to Kumba, not to their support. There was thought that you're trying to sue a poor African government and even if you are successful, will you ever get the money? We were successful in that arbitration against the government of Senegal. We were awarded US$100 million and we did actually manage to, over a period of time, get that money, which we reinvested into NGOs in Senegal.

Much more importantly here in South Africa, we had ArcelorMittal who were arguing that they could have on any other project the same rights that they had at Sishen. And from the days when we split up Iscor, ArcelorMittal were granted 21% of the Sishen's right in lieu of the iron ore that we supplied them for the steel mills in South Africa.

They argued that they could have the same relationship on any other mine, including Kolomela, which was called Sishen South at the time. So clearly, we disagreed with their ability to do that, and we were in a massive arbitration with ArcelorMittal as a result of that.

At the same time, it was in 2009 during the global financial crisis, you may recall, is that was the time to convert your mining rights in South Africa to the new order mining rights. ArcelorMittal, during this financial crisis, chose not to convert their rights. And because the new order meant that you can't have divided rights anymore, the right could only come to Kumba, notwithstanding that we decided to apply for that 21% in any event, just as a belts and braces to make sure nothing could go wrong. Our application was fraudulently given to a company called ICT. It was fraudulently given to them, and the Department of Mineral Resources at the time granted that mining right to them.

We engaged very seriously and heavily with all the different spheres of government to say that this was both fraudulently given and shouldn't be done, and actually, Kumba were the only company that could hold that right in any event. We saw everybody in government, including the president at the time, explaining why this was a bad thing for South Africa, that the government is seen to be acting fraudulently and granting mineral rights in an incorrect way.

We said to the government, "we are going to have to take you to court," and clearly, we wanted to avoid that. Ultimately, it meant that we had to take our government to court. We went through all the spheres of government until eventually this was successful in the Constitutional Court in of South Africa.

We understood at the time that we were going to face massive pressure from government, both at an operating level, but at a company level, at a board level of Kumba and Anglo American. It was incredible the way that the boards, the chairman all supported the management.

This was a watershed moment in South Africa in the way that government was dealing with business in what we saw as a slippery slope, that if you give in here and we just accept this, of course it would've been a very bad outcome for Kumba, but it would've been a dreadful outcome for South Africa and for doing business in South Africa. And for the rule of law that South Africans had always prized to say that South Africa, irrespective of how difficult life has sometimes become in South Africa, we could always rely on the rule of law.

We did face that kind of pressure, including personal safety issues. The boards of both Anglo-American and Kumba were under massive pressure. The mine was under huge pressure. But we prevailed, and I think ultimately did the right thing for South Africa and for business in South Africa. We were successful against ArcelorMittal in the arbitration, and so we saved Kumba billions and billions of dollars worth of value over time. And I think did the right thing for the country and for doing business and doing mining business in South Africa.

Nkateko: I guess that experience prepared you for the big restructuring that eventually happened at Anglo-American Platinum, and that was during a very tense period with labor and government and employees. It was after the Marikana incident. So, when a decision is essential for the sustainability of the business, but then carries a dire cost for human and also for governments, how do you go about approaching such a decision?

Chris: It’s important to take perhaps a small step backwards to answer that question, Nkateko. You're right in that this was a very difficult time for South Africa, and particularly for platinum mining in South Africa. Most of commodities after the global financial crisis recovered, and prices recovered, and demand recovered. That was not the case for PGMs.

Towards the end of 2012, when most things were recovering, we had the Marikana tragedy. That was very bad for morale amongst the workforce, it was very bad for the morale around mining of PGMs in South Africa, and it was also very bad for the morale of our customers who were buying our products.

At that time, I was asked by Cynthia, who was the CEO of Anglo, to come back to Anglo-Platinum to be the CEO. So, we've got the mining crisis. Anglo-Platinum in 2010 had to go for a rights issue, for a R10billion rights issue, and by 2012 we were fast on our way to needing another rights issue.

Anglo Platinum was basically bankrupt. Sixty percent of the PGM industry was loss-making. We were oversupplying the market with loss-making production. So, I was asked to come back to Anglo Plat at the time with that as its backdrop. We did a lot of work to really understand if this was just one of the normal cycles that you see in mining or was there fundamental and structural changes to demand for PGMs?

At that time, we were very clear that's indeed what had happened. Rhodium had gone from US$10,000 an ounce to US$600 an ounce, and even post the global financial crisis, that never recovered. That alone, just the rhodium price collapse, took 20% margin off Anglo Platinum; US$2300 TO US$1200, so it halved the platinum price. There was a big switch taking place at the time in the auto catalysts from platinum and rhodium to a much more palladium based.

So, palladium demand increased but palladium went from US$400 to US$800. So, you can see the price, the whole price mix changed. The auto sector globally was in a massive depression, so the demand for PGMs had collapsed. It was clear to us that we needed to take demand off the table, something that had never happened in the PGM industry in South Africa, that actually we shut down production to reduce supply, so that supply eventually could match demand.

That was exactly what we had to do. But this was in the backdrop of Marikana huge demand for wages. We were oversupplying the market, as I mentioned, with loss-making production. We needed to shut down production, and we engaged with everyone, including with labor. But labor, of course, said there's no ways that they're giving up on those demands that they had at Marikana.

We were losing production demand, so we couldn't give in to these massive wage demands, and we entered the longest strike in the mining history in South Africa, six-month strike, which was important for us to hold the line to be able to reset relationships with labor. At the time, of course, we wanted to take metal off the market, so it wasn't the worst outcome for the platinum miners. But ourselves, Anglo Platinum and Lonmin and Impala, had stood firm at the time saying, "this is the time that we have to reset those relationships."

We engaged very diligently and extensively with all stakeholders, government, labor and communities. I remember taking my executive team around, driving around in a minibus around some of the places where our employees resided and showing them that these are our people, and we're going to put 14,000 people out of work. We looked hard for solutions to provide alternative employment for those people but ultimately, we needed to shut down a number of mines.

We followed a huge restructuring process at Anglo Platinum. We savagely cut our overhead costs. We saved R3.6billion at the time per year of costs out of Anglo Platinum. We shut down two mines; 14,000 people have eventually left. We didn't retrench all of those, but we had voluntary separation, all other ways to soften perhaps the impact of the way the people left.

But we needed to reduce the amount of metal that we put onto the market. We also fixed every single mine that we kept open so that it was profitable. For example, we doubled the production at Mogalakwena, our most profitable operation by just fixing the operation and focusing on productivity. A year or two down the line as, as things normalised, we had produced more platinum with 15,000 less people in the business, showing how much we'd improved productivity.

But that was a very difficult time. A six-month strike, we needed to put people out of work, and we restructured the business of Anglo Platinum. After that, we went into what we called a repositioning of the portfolio. So, what we wanted to do then, given that 40% of the world's resources of PGMs were in the hands of Anglo Platinum, and we said, "why are we hanging on to operations that are very low margin at best? They're unsafe, they're labour-intensive." And we said, "we don't need to hold on to those assets."

We announced that we'd be selling the Rustenburg business and the Union business. There were some other mines that we also wanted to put on care and maintenance. Now, of course, there were many naysayers. Many people said, "you'd never be able to do that. You'll never sell this," just like they'd said we'd never shut down mines and retrench people. We were able to successfully do that. I think we entered into a very good deal with Sibanye, who we sold the Rustenburg assets to. We then subsequently put Bokone on care and maintenance.

We also bought the other 50% of Mototolo, a mechanised mining operation, much higher margin from Gencor at the time. We repositioned Anglo-American Platinum during that time after the restructuring to be the assets that Valterra own today. I think it was a particularly successful period for the company. We think we did the right thing for the whole industry which eventually recovered, and I think is the industry that we see today.

Nkateko:  Chris, I also want to talk about your time at Gold Fields. The big job there was was Yamana. The proposed transaction eventually did not close, and subsequently after that you stepped down.

In my view, I think the deal in hindsight was the right call. So maybe take us through your decision-making process during that time and your reflection of that period.

Chris: When I joined Gold Fields, it was just at the back end of Covid. And my first almost a year of joining Gold Fields, I almost met no people. I was working remotely. It was a very difficult time, to get to know the people in the company and the board.

But nevertheless, this Yamana opportunity came along. This is a Canadian-listed gold mining company that had assets in Canada, Argentina, Chile, Brazil. And so, the portfolio of assets we thought would be an incredible addition to the Gold Fields portfolio. Gold at the time was US$1,700 an ounce. Remember where it is now, it's over US$4,000. The Gold Fields share price was R150 a share, roughly. We saw the underlying value of those assets joined with Gold Fields was substantially greater than the value that we were paying, including the premium. Of course, nobody likes to pay a premium.

But we looked at the gold price and at the underlying value and at the Gold Fields share price, and saw that paying a premium was actually the right thing to do and more fairly valued the assets that we would buy, although we still saw massive upside value from those assets.

Ultimately, two Canadian companies joined together to outbid us. So, the fact is, whilst perhaps some shareholders were complaining that this was not a good deal and it was not a good deal for Gold Fields, there was a competing bid that completely outbid us, and it was an offer we couldn't match.

One of the things I also did as part of the deal is to arrange for a US$300 million break fee. If they chose to go with another company, we would get US$300 million. US$300 million was our prize for losing out on the bid to Yamana. So ultimately, we were outbid. That happens. But you ask for my reflections. I think it was probably too early in my tenure for such a big deal. The time of the deal was the time of the deal. That's when it came, and we had a strong feeling that if we didn't act then, we would lose the deal anyway.

With hindsight, as you say, it was actually a good time in the cycle because it was quite a low point in the cycle, and there was quite a lot of negativity around gold and gold shares at the time, and it's difficult to do deal in a time of negativity and of sort of the low point in the cycle. Of course, with hindsight, it turned out to be a brilliant time to have done that deal.

Nkateko: It didn't look like it was a low point in the cycle. It's just that now when we look back, we think that was a low point.

Chris: You can't predict exactly what point of the cycle you were. But the underlying issue was the assets were valued, we believe, much higher than we were prepared to pay for it. There was always going to be value irrespective of what happened to the gold price at the time.

I think it was probably too early in my tenure to have chased such a big deal. The deal was also big. It was US$6.7 billion, and I think ultimately, in particular Gold Fields shareholders were spooked by a deal of that size. Third big reflection, I think a Canadian company, they were always going to fight against, some African little company coming to buy Canadian assets, and I think there was a lot of internal pressure to say, they must come up with a better deal than we were prepared to do. The Gold Fields shareholders, I think, to be fair, weren't universally supportive. Had this come maybe a year or two later, perhaps it would've been a better deal. But timing is everything. Ultimately, it was the right timing, I think, but it was probably my tenure not the right timing to have done that deal.

Nkateko: Very interesting. I also want to get your reflection on the industry that is mostly criticised for chasing after M&A and growth at the top of the cycle and not necessarily prioritise returns to shareholders or extraordinary returns to shareholders that have supported companies during the down cycle. Do you think that is fair criticism, and how does one find that common ground?

Chris: I think it is fair criticism. There are enough examples that we are frequently, as CEOs, reminded of - companies making deals at the top of the cycle that turn out to be the top of the cycle or that have destroyed value. I think that's fair criticism. At the same time, it's jolly difficult to do deals at the bottom of the cycle because that's normally the time when your balance sheets are under pressure, when companies don't have the funds.

So yes, shareholders support them, but it's a difficult time to do deals. So intuitively, we all know, buy low prices or low valuations and then you'll be ready at the top of the cycle. We all know that's the right time to do it. But when your balance sheets are under pressure, when you don't have cash, and at the bottom of the cycle, everyone is incredibly negative. The sentiment is against you doing deals at the bottom of the cycle, even though you know it's the right thing to do. Often your balance sheet isn't capable to do those deals there.

What we're seeing now, I think is much better, that over the last number of years and through cycles, what we have been seeing is companies holding back some cash, improving their balance sheet positions, while still providing returns and perhaps extraordinary returns, but still holding back some cash. So, you keep your powder dry then to invest through the cycle and to do deals perhaps when there's opportunities come for more distressed assets and distressed valuations.

I think that looks like a better model, and I think we're seeing more and more companies do that, increasing holding amounts on the balance sheet. If over a period of time that there's nothing to do with that cash, you're seeing that cash being returned to shareholders. That feels a better way to manage the cycle than trying to do deals at the top of the cycle or trying to do deals at the bottom of the cycle when balance sheets are not in great shape.ies.

Nkateko: You started your career right at the bottom as a graduate trainee. You worked your way up to the top. What has mining personally given you that you would not have expected when you started this journey?

Chris: I guess there's two things. I never expected to see the range of opportunities. Perhaps I just didn't know the mining industry well enough. But the industry has got so many incredible opportunities that were provided to me and so many other people around me. The second thing is the people that I met in this business are just some of the most fantastic people. From the people that I met on the face that were willing to teach a new young white guy coming through the system, all the way to the CEOs that I've worked for.

I've worked for some incredible CEOs, Cynthia, Mark, Barry Davison and Philip Boehm. Some amazing people. Some incredible boards that I've had the privilege of working for and chairmen of the boards. Those opportunities were incredible. But the mining industry in South Africa has got incredible people. For example, working alongside many other CEOs in the South African mining industry, seeing the quality of professionals that the mining industry in South Africa produces that the rest of the world gobble up.

It's been such a, a privilege for me to be able to have met all those people and have, enhanced my life in ways that I never would have envisaged. I had an incredible amount of fun. Of course, sometimes it was difficult, but I just loved working and I loved being in the mining industry, and it's such a dynamic industry. And not just the people in the industry, but around the industry. The analysts that are incredibly knowledgeable, the shareholders that are knowledgeable. From all these people you learn, and I had a huge amount of fun. And perhaps something, at the beginning of my career where you think, I have to go work now. For a large part of my career, it wasn't work, it was a huge amount of fun, and I just loved the dynamics of the mining industry in South Africa. 

Nkateko: If the new generation of mining leaders were to take one lesson from your career, what would you want it to be?

Chris: I think it's about making a difference. I think in some small shape or form I've made a difference to the companies that I've worked for and for the mining industry in South Africa. I'd like to be remembered as someone who did the right things when it mattered. 

Nkateko: Chris, some quick-fire questions in closing. Platinum or gold?

Chris: Platinum.

Nkateko: Most misunderstood commodity?

Chris: Platinum group metals.

Nkateko: Hardest decision to explain to shareholders?

Chris: The acquisition of Yamana.

Nkateko: Best lesson from underground?

Chris: You can mine safely.

Nkateko: Chris, thank you so much for joining us. Chris is truly the CEO for the hard times. And you have made a difference. I worked with you as an analyst in Plats, and you have made a difference for the industry, so thank you so much.

Part of the reason we have this podcast is to celebrate and thank your contribution in the industry in South Africa as a whole. Thank you, Chris.

Chris: Thanks very much. It was a great privilege and a pleasure to be with you.