Does the new Implats CEO have what it takes?

The appointment of Nico Muller as CEO of Impala Platinum (Implats) has drawn mixed reaction from the investment community with the focus falling on his lack of experience in top-flight management.

Muller was previously head of operations at Royal Bafokeng Platinum before moving to Gold Fields in 2014 where he was appointed vice-president of the firm’s South African operations. In effect, this was to manage a single asset in South Deep, a daunting job nonetheless given the mine’s track record.

There have been improvements in South Deep’s performance. In the six months ended 30 June, gold production was 87% higher year-on-year at 140 000 ounces, suggesting Muller was making some strides. It led Gold Fields to lift production guidance for the mine for the year to 289 000 ounces from 257 000 ounces previously.

But analysts worry that Gold Fields’ active participation in merger and acquisition activity – it has spent $1.7bn on developing new sources of gold production and has another $1bn waiting in the wings for the possible takeover of a North American gold miner, Kirkland Lake – is an indication it is making up the lower gold production guidance that may flow from the result of a 12-month review of South Deep, due to be published in February.

In any event, Muller isn’t sticking around too long to manage South Deep after the review findings are made public. He leaves Gold Fields in March and joins Implats in April – and has his work cut out there too.

“The priority has got to be the Lease Area,” said Hanré Rossouw, a portfolio manager for Investec Asset Management, referring to the relative underperformance of Implats’ main Rustenburg mine – an operation Muller’s predecessor, Terence Goodlace, said could reach 830 000 ounces/year in platinum output by 2020, but which will not meet that deadline partly owing to a fire at its 14 shaft in February in which four miners died.

Nonetheless, Rossouw is relatively happy regarding Muller’s performance. “I’d rather have someone with strong technical skills, someone who has run a mine before rather than the appointment of an accountant,” he said.

Said JP Morgan Cazenove: “We view this appointment as a positive for Implats resolving a key strategic overhang on the company, namely the identity and experience of its next CEO. Muller brings significant underground mining experience from his 27-year mining career and his significant role in revitalising productivity at South Deep is testament to his solid leadership credentials.”

Not all analysts agree, however. Johann Steyn at Citi believes Muller doesn’t have the experience for the role. “In our view Implats’ board had three main issues to consider in appointing a new CEO, including (i) a strong track record of operational delivery, (ii) a track record of negotiating and delivering on M&A, and (iii) a track record for capital allocation.

“Though Mr Muller is a respected individual within the South African mining industry, we view the news of his appointment as providing little additional short-term comfort to investors on issues (i), (ii) or (iii),” he said.

Without being as condemnatory, JP Morgan did hint at “Impala’s strategic challenges” and that they were “broad-based” including managing stakeholder relations, specifically government in South Africa and Zimbabwe. One immediate challenge – yet to materialise – will be to Muller himself from government, which could wonder aloud why Implats’ board hadn’t selected a black manager from its shortlist.

As for Gold Fields and its South Deep challenges, the departure of Muller is viewed by JP Morgan as “a minor negative” especially as the mine accounts for 33% of Gold Fields’s net present value in the bank’s assessment.

Perhaps former Implats CEO, Goodlace, could come in handy again.

Goodlace announced during the year that he would take a non-executive board position at Gold Fields, the company where he built most of his career as operations head of its SA mines, including South Deep.

“Yes, I suppose they could change places – Muller and Goodlace,” said Rossouw. “That would be an irony,” he added.-Fin24

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