Many mining staff who rise up the ranks to the position of CEO are promoted on the basis of their operational strength.

But when they hit the top spot, they are incentivised to increase the share price.

With the help of investment bankers, they do transactions which grow the company, lift the equity and put them in line for share bonuses.

Investors at the Joburg Indaba spoke out strongly against this form of incentive and called for CEOs to be given far more meaningful operationally linked incentives that play to the operational strengths that put them there in the first place.

For instance, instead of being incentivised to lift the share price, they should be incentivised to cut unit costs, extend the life of the mines they are managing and boost operational metrics in general.

Boards of directors also came in for a hammering for simply rubber- stamping the merger and acquisition deals that CEOs bring to the board table instead of guiding them towards operational excellence that will bring returns to shareholders.

Investors complained of shareholders being the only stakeholders that have failed to reap rewards from mining.

They painted a scenario of bankers making a killing, fund managers doing fine, mining CEOs making a ton of money and shareholders being the only losers over a six-year streak in South Africa – and for five consecutive years globally.

Those doing the analysing and the attacking of CEO incentivi- sation and board rubber-stamping included Regarding Capital Management chairperson Piet Viljoen, Public Investment Corporation listed investments executive head Fidelis Madavo, Allan Gray portfolio manager Sandy McGregor and Coronation Fund Managers analyst Henk Groenewald.

The industry was chastised for short-term incentivisation for what is a very long-term industry, which allowed CEOs to become the soft targets of investment bankers and resulted in the injudicious allocation of capital.

With commodity prices well down from their highs and little optimism that the market is about to see any sustained rebound in the short term, the mining industry itself has entered the downturn with extremely stretched balance sheets that are forcing the companies to dispose of assets that they spent too much on and horrendous restructuring is taking place in an attempt to cope with the new ‘weaker forever’ phase.

An examination of global commodity price scenarios has led some to conclude that commodity prices will remain low for long and not return to the high supercycle levels of the past.
Some estimate, for instance, that, at the current rate of consumption, it will take six years to deplete China’s iron-ore stocks.
“We’re not going to go back to where we’ve come from,” Randgold Resources Dr Mark Bristow told a pre-Joburg Indaba lunch.
Even if that proves incorrect, it will do the industry the world of good to rewrite its script to allow realism to return.