Anglo’s Cutifani intent on cost-cutting spree
One of the first steps taken by Mark Cutifani on joining Anglo American as its CEO in 2012 was to sell the group’s fancy $64m corporate jet – a trademark Cutifani move, as it focused attention to the kind of strategy he wanted to run at the company.
Two years down the line, and with Anglo’s share price still underperforming its peers BHP Billiton, Rio Tinto and Glencore, Cutifani has embarked on a new wave of cost-cutting with the group’s offices, described by UK newspaper The Sunday Times as “sumptuous”, earmarked for rationalisation.
Actually, what’s intended according to the paper is for Anglo to prematurely end the lease on its St James premises – 20 Carlton House Terrace – a property near Buckingham Palace designed by Regency architect John Nash. The lease for the offices runs until 2020.
There is no planned return of Anglo’s head office to South Africa, however – a development that would no doubt delight government, which has been critical of its wantaway firms (Anglo was founded in SA with UK and US money 98 years ago). This is notwithstanding the fact that Cutifani has had himself elected to the chairmanship of Anglo American South Africa.
“It is clear that Anglo is pursuing all options to cut costs,” said Investec Securities, while a source told The Sunday Times: “The message is that the civil service-style days of Anglo are over.”
Relocating the UK head office is but the tip of the iceberg for the cost-cutting at Anglo.
Should Anglo American divest of its non-core Rustenburg platinum mines, as planned, and dispense with many of its Eskom-dedicated coal mines, as stated by Cutifani, the group’s SA corporate costs will also have to be cut back as it will have hundreds of people employed for only about nine mines in the country.
Said Cutifani in a recent interview with Miningmx: “We are rebuilding our business and its competitive position. Our tough reality is SA has a very high inf lation and so to compete we have to continue to reduce our overheads and other costs.
“Yes, as we do reshape the portfolio, there will be implications for the support structures required to support those mining operations, so an element of ‘right-sizing’ will be required,” he said. “Of course, any changes to the shape of the organisation will be undertaken in full consultation with all relevant stakeholders.”
The ability of Cutifani to take costs out of the system at Anglo is becoming more crucial than ever because net debt is challengingly high at $13bn. The sale of the group’s 50% stake in industrial firm Lafarge Tarmac is intended to take some pressure off the debt pile, but it looks increasingly likely that it won’t be able to divest of 100% of its Rustenburg mines and that a listing for the mines is being prepared.
But a listing is somewhat problematic because Anglo will have to retain a stake in the company, exposing itself to potential short-term losses, while it ’s also possible government could request the entity be debt-free as it did when AngloGold Ashanti attempted to demerge local mines into a separate company. “This would require Amplats retaining signif icant debt, another headwind for the stock,” said Goldman Sachs in a report.
Cutifani said: “We’re still in our dual track process of evaluating the best way forward for Rustenburg and Union. There’s a lot of work we have put in to restructure these mines into a sustainable standalone business − profitable and cashgenerative.
“We’ve received expressions of interest and as I said earlier we’re only interested in selling for value. We are still evaluating which route to take and will make an announcement by mid-year.”
AND SO TO COMPETE WE HAVE TO CONTINUE TO REDUCE OUR OVERHEADS AND OTHERS COSTS.”