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South Africa: Anglo American CEO digs deep to rescue fortunes

By Brendan Peacock
Posted on Tuesday, 6 August 2019 15:05, updated on Wednesday, 7 August 2019 18:31

Mark Cutifani, CEO of Anglo American, has been trying to turn the mining company around. REUTERS/Mark Wessels/

Diversified miner, Anglo American has delivered an impressive set of half-year results for 2019. CEO Mark Cutifani has led the company through an aggressive turnaround strategy, reviving a struggling business.

When Cutifani took over as group CEO in April 2013, he announced radical restructuring plans.

  • Targeting nearly two-thirds of the workforce and at least 15 businesses.
  • Consolidating core assets, improving operational cost controls and increasing volume.

Anglo has significantly reduced its debt and operating costs, while raising dividend payouts, revenue and productivity levels.

  • Since 2012, operating costs are down 45%, productivity per worker is up 80%, profit attributable to shareholders has risen 46% and revenue is up 8%.
  • Since 2017, Anglo has paid down more than $10bn in debt and declared shareholders dividends of $2.6bn.
  • Anglo’s share price is up nearly a third in 2019.
  • Earnings are expected to rise $3bn-$4bn by 2022, largely due to its FutureSmart Mining programme.
  • A $1bn share buyback scheme is under way.

“Since 2012, we have halved the number of assets, significantly upgrading the performance of remaining assets, and are now delivering 30% more product from each retained asset, translating into 10% more physical product in aggregate across the portfolio at a 26% lower unit cost in nominal terms, and we’ve also doubled the productivity per employee. It’s quite a contrast from where we were,” Cutifani said at the April annual general meeting.

Cutifani put several non-core assets on the chopping block in 2016, including a major contributor to Anglo’s 2019 interim results: Kumba Iron Ore. Anglo’s coking coal assets – also previously for sale – have created a noticeable boost for the global mining group this year.

Commodity upswing

The last five years have witnessed a substantial rally in commodity prices. The tailwind to Anglo’s results from commodity price surges has outstripped many of Cutifani’s decisive actions, according to analysts.

  • Mining margins have improved from 30% in 2012 to 42% at the end of 2018. It can be pushed further, reaching 50% with a 20% increase in volumes, according to Cutifani.
  • Anglo’s improvement in returns and medium-term growth remain “deeply undervalued by the market”, with peer-leading structural EBITDA growth by 2022/23, according to Deutsche Bank.
  • Credit Suisse has also rated Anglo to outperform the sector with a technological focus that is broader and better than its peers.

However, several challenges also lie in wait for the group.

  • Growing uncertainty about commodity prices due to US-China trade relations.
  • South Africa’s new Mining Charter is a bone of contention between miners and the government.
  • Years of losses at Anglo’s Brazilian Minas Rio iron ore operation.

Big plans

Anglo American’s press office says the Venetia project, which got under way in 2013, is the largest single investment in diamond mining in South Africa in the last two decades.

  • “This is a massive undertaking – which will extend Venetia’s life to 2046 by moving it to an underground operation – and is scheduled to begin production in 2022, climbing to full production in 2025. Over the course of its life, the underground mine will treat about 132 million tonnes of material containing an estimated 100 million carats,” according to Anglo American.

Anglo American says Africa will benefit from mining for the foreseeable future.

  • “We have a massive presence in South Africa, generating 50% of all mining EBITDA in the country, and we are the largest investor in mining by a country mile with R72bn ($5bn) in the next five years. Part of this includes a landmark $2bn investment in diamonds, through the Venetia underground project in Musina, and our $200m venture capital fund with the Public Investment Corporation,” says Anglo American.

In Peru, Anglo is making progress at its Quellaveco copper mine since announcing the project last year. Cutifani has overseen a shared-risk investment in the mine alongside Japan’s Mitsubishi. Anglo’s in the process of retooling the company for high-tech mining. It’s committing to a capital expenditure programme of some $100m-$500m per year from 2020 to 2022, and expects to be paid back in just 4-5 years.

  • “We have a rare opportunity to add a further world-class copper operation. Copper is one of the most attractive metals of the future. Beyond Peru, we have growth opportunities that span our copper interests in Chile, metallurgical coal in Australia and diamonds in Botswana, Namibia and South Africa, to name a few,” says Anglo American.

The bottom line: After strong half-year results, Anglo American is poised to deliver a more technologically advanced mining group that’s hoping to outperform its peers over the next decade.

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