Using local talent the key to MMG’s success in China: Michelmore

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As the US under Donald Trump is pulling back from international economic leadership, China’s business culture is advancing to fill the gap, according to the most senior Australian yet to head a Chinese corporation.

Andrew Michelmore, one of Australia’s most prominent mining executives, said China was becoming both the main price-setter and leader of global trade.

Michelmore was for eight years the chief executive of Hong Kong-listed, Melbourne-based MMG, the key globalising arm of giant state-owned enterprise China Minmetals.

It was important now, he said, to see the development of “more MMG-type models, to show how to operate in local regions, and to show why communities and protesters need to be handled differently from those in China, whose approach to such matters doesn’t necessarily work for the rest of the world”.

The context for such reflections includes a visit to Australia last year by the chairman of China’s Export Import Bank, one of the pillars of the Belt and Road Initiative, who remarked that Australia’s minimum wage was unsustainable and needed to be dropped so Australia could export more effectively to China — or else China would bring its own, cheaper workers into Australia.

One of Mr Michelmore’s tenets has been to use local talent where possible. He made this point to the Chinese ambassador when visiting MMG’s $10 billion Las Bambas copper mine in Peru.

He said the ambassador asked in response: “How many Australians do you have in Las Palmas?”

“I could see what the ambassador was thinking, and passed the question on to Gus Gomes (MMG’s general manager in Peru), who answered ‘during construction, five, and ultimately during production, two or three’. The ambassador was shocked. He had been expecting me to say 100-plus.”

He said that is the difference between the MMG way and the way business has previously been conducted by Chinese firms overseas.

“I said if we bought something in China, no way would we send a team from Australia to run it. We would find local people we trusted who understood our culture. Ultimately we want locals. They’re the people who have to cope with the legacy.

“The perceived step back by the US (from global leadership) is having a lot more ramifications than people think. But give me China dealing with it rather than Russia.’’

China wanted to be a superpower, he said, but it lacked a template of international business values.

“But they’re working on it.”

In contrast, “Russia doesn’t give a damn about such things — they just march in.”

His successor at MMG — which uses English as its main language, even at board meetings — is Jerry Jiao, who was previously the company’s chairman and has been on the board for eight years.

“It’s fantastic he has committed,” Mr Michelmore said. “He understands the model and what makes it successful, including giving managers skin in the game.”

Many other Chinese state-owned enterprises had kept on some Western managers only as a token, he said, within a much larger pool of Chinese managers. “One told Jerry they had 50 managers from China and 10 interpreters.”

Mr Michelmore gained a first class honours degree in chemical engineering from Melbourne University, won a Rhodes scholarship and got a Master of Arts in Politics, Philosophy and Economic at Oxford.

He began working with ICI Australia, “and thought I would end up in a company like that for life”.

In that job, while collecting facts to present to the government about how to reduce smog in the Sydney basin, he discovered that 750 tonnes of hydrocarbons were emitted in the area daily, of which only 50 came from industry.

“The other 700 came from dry cleaners and paint shops and similar operations, and couldn’t be touched. I learned early on about politics, that if there is an easy hit, you get hit. All the attention was on the 50 tonnes that came from the five industrial producers.”

ICI, he said, had five levels of management, “and you had to have experience across four streams before you could go up one. It wasn’t enough to be a specialist — you had to broaden out.”

He said: “The downside for ICI UK was the model was so successful it bred clones who all thought the same way, so at the top all agreed and followed themselves over the cliff.”

He shifted after six years there to CRA (now Rio Tinto), then led by Rod Carnegie. “That got me into the mining industry, and the training I received there I have used for the rest of my career.”

From running a ceramics business in CRA with $40 million turnover, he became chief executive of Swiss Aluminium Australia, running a $400m company with 1000 people at Gove in the Northern Territory.

He sought to restructure the company, which involved tackling union and environmental issues, “getting the place back to a level of passion and commitment. But changing the relationship with indigenous communities was the main reason they put me in the job.

“There were 13 communities and I used to go to the meetings with those elders and sat and listened. They were a very impressive group in terms of business planning and allocation of key areas across the different communities — water, transport, power, food, airstrips.

“I learned to keep my mouth shut and listened to the local communities.”

Then he became chief executive at Western Mining, involved in industries including nickel, gold, talc, aluminium, uranium, and fertilisers.

He chased efficiency and shareholder value, and was committed to honesty about the state of the business.

“A director said he would never have shown his board the information I did, and I said we all know things are not perfect, and I said I wanted to be judged by what I did about it.”

Unfortunately, he said, “Xstrata then put us on the block for sale. The price started at $6.35 per share and we managed to get Xstrata to bid $7.20 against themselves. We were doing a massive amount of work with shareholders, staying passionate that there was more value there.

“Ultimately BHP came in and paid $7.85 with a dividend of 20c. We got fantastic value for the shareholders, which is the job of management — not just to protect themselves.”

He learned a lot from his ensuing two years in Russia with En+ Group, “and I don’t need to do that again. I started to understand what goes on behind the facade, and the disinformation generated there, and where to find the real information”.

He was chief executive of Zinifex, then of Oz Minerals (formed from its merger with Oxiana) for a year before it became MMG after being acquired by China Minmetals.

“I had worked with very good Chinese colleagues before. The ability to work with a Chinese SOE involves being able to stand in their shoes and help them understand things from our side.”

His career has involved a lot of that, he said — seeing relations from two sides.

This includes “getting Australians to see the value of foreign direct investment in our country. We can’t survive without it. But in a way that meets Australian requirements and concerns.

“My job has also been to help the Chinese operate outside China in a successful way. To understand respectfully the differences between cultures, and how to build together.”

This, he said, had enabled him “to survive eight years running the place, not only building up MMG but helping lift Minmetals from low in the pecking order of top SOEs in the minerals sector but to be selected” as the leading such company to go global.

He has been involved from its start in 2000, alongside WMC’s Hugh Morgan, with the International Council on Metals and Mining, which he has chaired for a year. This brings together executives from the world’s top 23 mining companies which control 60 per cent of the world’s production.

It has a challenge, he said, since the industry works a long way from its biggest critics: “We operate in remote locations, so people don’t visit us, and when they do, they’re really surprised.”

Critics of mining had a better case in past decades, he said. “Like fatalities. When I was growing up as a kid, 30 or 50 people were killed every year in coalmining. You had it on your mind that if you went into mining, there was a good possibility you’d end up getting killed.”

WMC suffered three fatalities per year for 17 years, “and finally we said that’s it. We believed we could operate without any. The same with tailings dam breakages and the like”.

In Peru today, he said, mining was changing lifestyles for much the better, “improving sanitation, health and education for local people. But the most amazing negative claims are made, including through social media so far away, to an audience that effectively wants to believe that, so we are often on the back foot”.

Politicians, when put in front of a camera, “usually take the easy out, and have a go at the mining company”, he said.

For instance, it was often said the mining industry didn’t pay appropriate taxes. “We represent 1 per cent of companies, 10 per cent of GDP, and 20 per cent of the company tax take in Australia. But if you ask someone, they would say we pay just 1-2 per cent because we dodge it all.

“The ground has been taken away from us over decades and we’re now in catch-up mode. There is no silver bullet for this.”

He described a Minerals Council meeting where Resources Minister Matt Canavan thanked the industry for continuing to generate jobs for semi-skilled Australians between 25 and 45. “Without you, these people would be out of work, and that would be a huge problem,” the senator said.

Mr Michelmore said: “High fallutin’ stuff is talked all around the world about a shift towards hi-tech industries, but there is no actual planning about moving from here to there. The best country at doing that is New Zealand. Smaller countries tend to address these issues better.”

And mining was already hi-tech, he said, “using amazing technology” in its logistics, equipment, monitoring, processing and instrumentation control. “But we still need to employ a lot of people, compared with oil and gas.”

The mining construction boom was over but the production boom was still on, he said.

“A country needs a business base-load, and Australia is lucky that its mining industry provides that.”

By ROWAN CALLICK
The Australian

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