The market tends to agree. Shares in Anglo are up 24% over the last 12 months, which is smack in line with the performance of the shares in Rio Tinto and BHP Billiton, also both up a quarter.
According to one analyst, the sale of the platinum assets alone would add about 27% to Anglo’s return on capital employed (ROCE), the metric that Cutifani has pledged to address first and foremost. He is aiming for a 15% ROCE by 2016, which would require a doubling in 2012’s pre-tax profits to $7.3bn.
The recent rise in the price of nickel, owing to a ban on exports from the metal’s largest producer, Indonesia, also raises the chance that Anglo will dispose of its Barro Alto assets which it wrote down in February for $700m, and that Cutifani said he might sell. “It’s a good time to buy the assets when the majors think it’s not strategic, and into a rising price environment that generates the cash you’ll need to invest in the project,” said Paul Gait, an analyst for Sanford C Bernstein.
Earlier t his month, t he group announced plans to sell its 50% stake in the Lafarge Tarmac joint venture, which is expected to generate $1.5bn, funds it said it would pump into reducing debt.
Outside of restructuring and asset sales of unprofitable mines, however, there are a few other reasons to be cheerful of Anglo’s prospects under Cutifani. One is the commissioning of its Brazil iron ore project, Minas Rio.
Anglo heavily overspent on Minas Rio, having trailed its peers in finding iron ore production to satisfy Chinese industrialisation. In January 2013, Anglo impaired Minas Rio by $4bn and set aside another $600m for contingencies. It was a heavy blow to then CEO Cynthia Carroll – a turn of events many believed signalled the end of Carroll’s time at Anglo.
Minas Rio will have absorbed about $8.8bn in capital amid extensive delays and budget overruns. A new deadline for the mine was set for December, which analysts believe Anglo will meet. If it does so, it will signal the end of the group’s high capital expenditure phase, not to mention the fact that the mine will start generating much-needed cash f low.
Anglo has guided the market towards net debt of between $14bn to $15bn against liquidity of $18bn, but the intention is to take the debt figure in the medium term down to $10bn from $12bn, a goal that production from Minas Rio, as well as the commissioning of the Grosvenor coal project in Western Australia, can assist in doing.
Said an analyst: “We think that the conversation between investors and management will now shift from identifying the problems and plans to delivery and that this is the next stage for Anglo, starting with Minas Rio and platinum.”