THERE are certain businesses where investors and analysts turn a blind eye to what’s going on inside, so long as the profits roll in smartly.
Brad Mills, chief executive of the platinum miner Lonmin, sums it up rather neatly: “Sometimes you try to shield shareholders from what goes on in the sausage factory. They just want you to handle the stuff.”
That, says Mills, was pretty much what African miners such as Lonmin, listed in London, have done for years. Investors were happy to take the dividends, analysts tut-tutted over any rise in labour costs, and who cared what happened down a deep mine? We are all guilty of it.
Well, times are changing. Mills, whose FTSE 100 company is currently benefiting from the boom in metal prices — platinum hit a new peak last week — says the basics of running an African mining business could not continue as before.
“I can’t ask people to work where they have a serious risk of injury or dying,” he says. Colonial attitudes — plenty more workers where they came from — have to go. It is the unspoken truth that some investors have ignored for too long. And Mills, a geologist turned manager who has spent the past three years overhauling Lonmin, the mining firm spun out of Tiny Rowland’s old Lonrho conglomerate, is determined to speak the unspeakable.
Mining is a dirty, dangerous business, and firms like Lonmin can do more. In Mills’s case, it was make or break, too. Lonmin mines its metals exclusively in South Africa — where most of the world’s platinum is found — and its British board, which had spent years divesting its non-platinum interests, felt it had lost control of its managers. It knew it faced a tricky future in the country if it didn’t drag them into the 21st century.
Yet it’s been a struggle for Mills, a bluff, speak-from-the-heart American with a respected background at big mining multinationals. Lonmin managers have walked, shareholders have queried his strategy, and representatives from local communities in South Africa have been frankly disbelieving.
Now it’s payback time. This month Lonmin announced record figures, doubling full-year profits to $633m on a 64% increase in sales to $1.9 billion. Booming demand for platinum helps — car makers want it to make catalytic converters and the glass and chemical industries need it too — but the Mills approach seems to be working. Lonmin is the smallest of the three big South African platinum producers (behind Impala and Anglo-Platinum) but it has the lowest costs and is moving quickest to mechanisation. For many, it is the one to watch.
And sitting in shirtsleeves in his London base near Buckingham Palace, 52-year-old Mills backs his arguments with almost evangelical passion. Tall and preppy, with thick, side-swept hair and eyes that narrow to dark slits, he looks more banker than miner, part of the new generation of bosses who want to run their mining businesses to higher global standards. But he is also proud of his early experience as a rock-drill operator in America, so he defers to nobody on how mines should be run, and you can feel his conviction.
He surprised many when he left the vastly bigger BHP Billiton to take on Lonmin, though the platinum company’s subsequent leap up the FTSE proves it was a canny choice. Sir John Craven, Lonmin’s chairman, says Mills was just what the company needed. “Brad is as adept at mining and metallurgical issues as he is at strategy and finance,” says Craven, “and he had an understanding of what needed to be done on the South African scene.”
Mills says he was just keen to run his own show. But what he found shocked him. “Lonmin’s operations had a unreconstituted apartheid culture, and I wasn’t prepared for that.”
But how could he not know what went on in South African mines? He helped to negotiate the merger of Australia’s BHP with South Africa’s Billiton.
“Because the Billiton culture had moved to a more integrated global view. I presumed that because Lonmin was a British-owned company it would have done the same thing. It hadn’t.”
That, he says, was crippling Lonmin. “We need to compete for global capital and global talent, and we need to be seen to be operating to global standards. And speaking personally, my wife is half Chinese, and we have plenty of experience of racist backlash, especially working in Australia, where there is still a lot of anti-Asian sentiment. In my view, racism is morally and ethically wrong.”
The changes are infused with his big-company experience. Executive bonuses are now linked to reducing fatalities, a Six Sigma continuous improvement programme has been implemented, a huge capital spending programme has started, tie-ups with community leaders are encouraged, and validation for initiatives has been sought from Archbishop Tutu.
Mining companies have in the past been guilty of “cosmetic” attempts to fob off critics, he says. It won’t wash any more. Mills gestures to the framed representation of Nelson Mandela’s handprint that hangs beside his desk. “I work under the black hand of Africa,” he says. “Appropriate, don’t you think?” Mills’s passion for change has fared less well in the City. At an early meeting with analysts, he talked confidently about expanding Lonmin beyond platinum.
Some investors, who like Lonmin as a pure platinum play, wondered if he was pushing his board too fast. Others suggest Mills has a weakness for speaking too frankly. A flurry of rumours followed that he was then looking to sell the business.
Mills shrugs it off. “If you stay in platinum, you have to stay in South Africa, and there were issues around the political change there. But there is no better industry in the natural-resource sector as you have the best fundamentals.”
And the rumours that Lonmin was up for sale? “Not correct,” he says crisply. “We need to do the right things to make Lonmin a great company. It is entirely possible that a company with a bigger wallet will come along. If they pay the right price, fine.” Gold Fields, the South African miner, was reported to have entered talks with Lonmin in February. Mills is stony faced. “We have had approaches. Nothing has come of them,” he says.
That rational stance typifies a career straddling science and business. Born into a Long Island banking family, and brought up in New Jersey, Mills says he gets his business nous from his investment-banker father, and his love of mining from his maternal grandfather, a celebrated mining engineer. His personal life has also been touched by tragedy. His first wife died young. That may account for his restless determination to get things done.
Mills worked in America and Peru before helping to turn around Magma Copper, later bought by BHP in 1995. He describes BHP in the mid-1990s as “the worst company that I ever worked for”, and was astonished when its chief executive invited him to run business development from head office. “I told him, ‘I really hate this place’, and he said, ‘That’s why I want you to come; you’re the only guy who’s been telling me the truth’ .”
Mills went on to run its base-metals division after the BHP Billiton merger, but left after missing out on the top slot to Charles “Chip” Goodyear, the group’s current chief executive. Insiders say that Mills will take the boss’s chair at a big diversified miner within three years — either when Lonmin is bought or when the right job comes up. Did he turn down an offer from Anglo-American recently? He smiles. “I have really made a commitment to the business here. What excites me about Lonmin is how we can transform the company, and that can become a model for transformation in South Africa.”
When he has sorted out how to do that, he implies, he may look elsewhere. And if his criticisms of how mining used to be offend some old-timers, so be it. “Good, they’re not helpful,” he says. “I have many allies and we want to change this industry.”
Vital statistics
Born: September 12, 1954
Marital status: married twice, with three children
School: St Andrews, Middleton, Delaware
University: Stanford
First job: exploration geologist, Felmont Oil
Salary package: £2.1m
Homes: London and Houston
Car: silver Porsche Cayenne
Favourite book: The Killer Angels, by Michael Shaara (an American civil war epic)
Favourite music: Beatles and Rolling Stones
Favourite film: Star Wars series
Favourite gadget: ultralight Orvis fishing rod
Last holiday: Paris
Brad Mills's working day
THE Lonmin chief executive wakes at his house in Eaton Square, Belgravia at 6.30am. Brad Mills takes his daughter to school before walking to Lonmin’s head office in Grosvenor Place before 8.30am. “I live close because I’m committed to spending as much time with the family as I can, because I travel to South Africa for at least a week each month.”
Mills checks messages from South Africa and then goes straight into meetings, deals with reports or sees customers and investors.
He entertains contacts at Zafferano restaurant for lunch, and will work until after 6pm. He tries to avoid industry functions in the evening.
Downtime
BRAD MILLS has involved his whole family in community projects in South Africa. “We have taken on a couple of schools, and the kids are involved as children-to-children ambassadors: it’s interesting for them.”
The family also skis in winter and goes on safari in Africa. To relax, Mills enjoys flyfishing. “I’ll take a couple of weeks a year to fish when I am boondoggling. I usually go to Iceland. Last year I took my older boy to Guatemala fishing.”
Mills invests his money in art. “We have a modest collection of Impressionists and some Modernist, surreal stuff – it’s an eclectic mix.”
