A ‘very conservative’ Anglo banks on quality assets
● Anglo American is well on its way towards a growth trajectory again, after a commodity downturn and fire sale of noncore assets left the century-old diversified mining house a shadow of its former self.
The company made decisions under pressure in 2016 when shareholders clamoured for it to cut its $12.5-billion debt, then scrapped this sell-off strategy halfway in the face of the improving commodity cycle. It was left with copper, diamonds, platinum and bulk commodities in its portfolio.
CEO Mark Cutifani said the strategy for the future was a focus on high-quality assets, and aiming to be at a point where it did not worry about individual commodities.
“We don’t have to go out there and make big acquisitions. We have a great pipeline of opportunities and if there is something outside that we see value in, we are not shy about looking at it. But the big part will come from what we have,” Cutifani said.
Problem child
The company is investing in the huge Quellaveco copper project in Peru. The $5.3billion (about R69.8-billion) project is a 60/40 partnership with Mitsubishi, with Anglo holding the bulk of shares.
The company said it would fund the development of the mine from its balance sheet. In its 2018 interim results to end-June, Anglo American registered an adjusted profit of $1.6-billion and earnings before interest, tax, depreciation and amortisation of $4.6billion.
Cutifani said capital allocation for projects would depend on the size of the project. If small, the business would fund it, but for big projects “we would like to share that and be very careful with capital allocation”.
He added: “We want to keep our balance sheet very conservative.”
It was Anglo’s substantial investment in the Minas Rio iron-ore project in Brazil in 2008 that led to the mining house’s debt reaching unmanageable levels when the commodity downturn hit in 2015 — and the mine is still a problem child.
The iron-ore mine was acquired by Anglo American in 2008 under the leadership of Cynthia Carroll, with the promise that Minas Rio, combined with Kumba Iron Ore, would be producing 150 million tons of iron ore by 2017.
Said Cutifani: “For those who made this promise in 2008, we have not delivered . . . in my view Minas Rio at full capacity is 26.5 million tons and there’s certainly potential towards 30 million tons, but we are certainly not investing more beyond that. We would have to be convinced on the market.”
Minas Rio has been closed until the end of the year due to a pipe leak that requires the replacement of 4km of pipeline.
So far $14-billion has been spent acquiring and constructing the mine. The pipeline issues will cost the company $400-million.
Cutifani said at the moment the company had not found any major issues that would require the mine to continue to be shut down for a longer period than anticipated, but “if we find that there are additional pipes that will need to be replaced, we will extend the time”.
Cutifani said he anticipated that the group would produce about 70 million tons between Kumba and Minas Rio in the early 2020s.
Despite the fact that he believed Anglo
We don’t have to go out there and make big acquisitions
Mark Cutifani
Anglo American CEO
American had overpaid for the asset and it had not yet delivered, “it’s still an important asset for the portfolio so we are not looking to sell the asset”, he said.
Kumba Iron Ore was also experiencing a few issues, in its case with Transnet, due to railway infrastructure that has not been upgraded.
Railing problems had cost the company R2-billion in its six months financials to end June 2018, and it is sitting with a stockpile of 2.4 million tons that it has been unable to ship to some of its clients.
Kumba Iron Ore CEO Themba Mkhwanazi said a derailment in March had led to the business not being able to honour its delivery commitments.
He said the company was in talks with Transnet to resolve the issue.
Cutifani said Anglo had a good relationship with Anil Agarwal, the Indian billionaire who grew his shareholding to 20% in the space of a year to become its biggest shareholder.
He said talks of a possible merger between Anglo American and Agarwal’s mining company, Vedanta Resources, had not resurfaced since 2015.
However, “if any of our shareholders come up with ideas that make sense, we would always listen to the conversation”, Cutifani said.