An­glo Amer­i­can

Finweek English Edition - - COMPANIES & INVESTMENTS - David Mckay

Last week may have been Mark Cu­ti­fani’s first as the CEO of An­glo Amer­i­can, but it’s likely he was ex­er­cis­ing his man­age­ment judg­ment over the UK-listed group some weeks be­fore.

The ex­ten­sion of the con­sul­ta­tion pe­riod be­tween An­glo Amer­i­can Plat­inum (Am­plats), unions, and Government re­gard­ing re­struc­tur­ing of the plat­inum unit sounds like some­thing Cu­ti­fani would sanc­tion given his pen­chant for ‘con­ver­sa­tions’ with stake­hold­ers, es­pe­cially the com­bustible SA Government.

And the 28 March with­drawal of An­glo Met­al­lur­gi­cal Coal from Mozam­bique’s Re­vuboé cok­ing coal project where it had last year an­nounced in­vest­ment plans worth $555m, pre­fig­ures com­ments he gave in an in­ter­view to a UK PR com­pany – his first as An­glo CEO – in which he spoke about “… look[ing] at the port­fo­lio, the com­modi­ties we’re in – do they make sense?” In that in­ter­view, he also spoke about a three- to four-month pe­riod in which he’d seek “to draw the pieces” of An­glo to­gether.

Cu­ti­fani may have 36 years of in­dus­try ex­pe­ri­ence, in­clud­ing in di­ver­si­fied min­ing at the Cana­dian firm Inco, but An­glo Amer­i­can and its pieces is his largest re­mit yet, es­pe­cially since in the past six years he could fo­cus on gold min­ing alone.

Since it was the work of PR, t he i nter v i e w t a kes a widean­gle per­spec­tive of Cu­ti­fani ’s ap­proach to An­glo. Yet there were some sig­nal take­aways. He ob­served, for in­stance, that mem­bers of An­glo’s peer group were not as di­ver­si­fied as they once were, sug­gest­ing that An­glo’s com­pet­i­tive ad­van­tage is its ex­po­sure to late-cy­cle min­ing as­sets in Am­plats and De Beers.

Un­for­tu­nately, Am­plats is also the big­gest drag on An­glo’s val­u­a­tion given the labour and Government op­po­si­tion to plans to re­struc­ture some 400 000 ounces a year of pro­duc­tive ca­pac­ity from the sub­sidiary, pos­si­bly af­fect­ing 14 000 jobs.

“While the mar­ket has wel­comed a new hand at the helm of An­glo, we be­lieve that there are still sig­nif­i­cant un­cer­tain­ties fac­ing the com­pany, which will take time to re­solve; the ma­jor ones are right-siz­ing Am­plats in the face of labour and po­lit­i­cal hos­til­ity, and bring­ing Mi­nas Rio into pro­duc­tion on time and within the higher re­vised capex bud­get,” said Des Ki­lalea, an an­a­lyst for RBC Cap­i­tal Mar­kets in a note dated 26 March.

Mi­nas Rio is the Brazil­ian iron ore mine the pur­chase of which Cu­ti­fani’s pre­de­ces­sor, Cyn­thia Car­roll, sanc­tioned. Un­for­tu­nately, her team ran over bud­get on the project, re­sult­ing in a $4bn write-down ear­lier this year. As Cu­ti­fani seems to sug­gest that An­glo’s com­peti­tors are not as di­ver­si­fied as they once were – largely ow­ing to the pre­pon­der­ance of iron ore projects i n which Rio Tinto and BHP Bil­li­ton are pro­gress­ing – there is the like­li­hood he will seek to re­coup some of the in­vest­ment by sell­ing p a r t of R i o Mi­nas’ sec­ond- phase ex­pan­sion.

An­glo re­cently spent $5bn buy­ing a fur­ther 40% in De Beers, tak­ing its over­all in­vest­ment to 85%. Although the longterm fun­da­men­tals for the di­a­mond in­dus­try are good, there are short-term con­cerns. Build­ing the Jwa­neng, Vene­tia and Gah­cho Kue mines will pres­sure the group’s bal­ance sheet while the re­la­tion­ship with an­other South­ern African government – Botswana – will have to be nav­i­gated as the sales agree­ment with Deb­swana ex­pires in 2021.

Stan­dard & Poor’s credit rat­ing agency last week down­graded An­glo to BBB from BBB+, cit­ing neg­a­tive dis­cre­tionary cash outf low as cap­i­tal ex­pen­di­ture and div­i­dends to share­hold­ers. For­tu­nately, the out­look re­mained sta­ble be­cause of the di­ver­si­fied na­ture of its as­set base and liq­uid­ity.

It’s co­in­ci­den­tal that on ar­riv­ing at An­gloGold Ashanti six years ago, Cu­ti­fani found him­self faced with sim­i­lar bal­ance sheet pres­sure, a con­di­tion he solved by re­mov­ing the hedge book and thus im­prov­ing the cash gen­er­at­ing abil­ity of the com­pany. Bal­ance sheet is­sues ex­plain the ret­i­cence to ap­prove the $555m in­vest­ment in Mozam­bique with per­haps other project sus­pen­sions or aban­don­ments to fol­low. (Quite what An­glo plans with the New Largo coal project, so cru­cial for coal sup­ply to Eskom’s Kusile power sta­tion is a mat­ter for se­ri­ous con­jec­ture.)

Per­haps di­vest­ments may fol­low. Car­roll presided over most of the non-core di­vest­ments at An­glo, a process her pre­de­ces­sor, Tony Tra­har, ini­ti­ated. An­a­lysts ex­pect Cu­ti­fani may seek to cut away An­glo’s nickel as­sets – Codemin and Barro Alto – which com­prise only 3% or $1.3bn of An­glo’s net as­set value, ac­cord­ing to Ki­lalea.

Mark Cu­ti­fani

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