Miners after Marikana: We all have to do stuff differently – Mark Cutifani
Will AngloGold Ashanti want to diversify away from South Africa in the next couple of years?
We remain open to the possibility of splitting the portfolio, but it’s not a plan. Whatever we’ve got to do to get at shareholder value, we’ll do it. We have two core assets in South Africa that we think are high value in any quality in any portfolio and that’s our West Wits operation and our Vaal River operations. They’re both potential long-term contributors and so we’d expect to keep them within the portfolio. We’ll keep the options open.
Marikana is one of those things, that if you don’t learn the lessons, you’re bound to make the same mistakes
How is your review of your South African operations at the moment?
Good. We have a target to improve our gold produced per person in the next 5-7 years by better than 30%. That’s critical, we think, in making sure we remain long-term competitive. There are areas of the business that are low-grade, poorer quality, the productivities are down, so those areas are coming under very close scrutiny. Whatever we decide to do, the first people to know will be our employees and we’ll work with them on how we might deal with some of those challenges in the next 12-18 months. I’d expect [a decision] by the end of the first quarter 2013.
Some people believe that mine-life is decreasing in some places in South Africa. Do you recognise that?
There are some people who believe that we’ve found most of what there is to be found. I don’t believe that to be true. Based on what we know from a technical point of view, we are still literally scratching the surface. Given that we’re mining at 4,000m, the deepest mines in the world, I would hazard a guess that the average mining depth taking open-cut and underground into account would be less than 700m, I think we’ve still got a lot of scope to explore the earth’s crust. There’s no doubt that we’ve probably covered a lot of the surface area and the shallow stuff, there’s a lot more of that gone than there is at deeper. But there’s so much underground the potential across the globe. We’ve been mining minerals at increasing rates for the last 200 years. I expect in 200 years we’re still be sitting here having this same conversation.
In South Africa, can AngloGold Ashanti dig deeper?
Absolutely. The new mining technologies we’ve developed will actually take people out from the high-risk areas and allow us to go to 5,000m. Those new technologies will be revolutionary, and I think provide an opportunity for a step-change in cost-structures in the industry.
I think the mining industry is 20-30 years behind the engineering [and] automative sectors. The difference between the two in my book is at least 30% in productivity.
Are you planning to link productivity agreements to annual wage negotiations?
What we’d like to do is restructure our operations in South Africa so we go from working 270 days a year, to 340 [by working weekends]. We would change rosta systems such that people should get more time with families… so we address the productivity of the asset, and the social life of the workers, which I think is important, because it’s not been done since 1994, since apartheid. That restructuring for us would give us half of that 30% that we’re looking for. With that, it provides us with the ability to do better on wages on an annual basis. If we don’t do anything different, then it’s going to be a tough set of conversations. We have to do stuff differently, all of us have to do stuff differently.
Marikana is one of those things, that if you don’t learn the lessons, you’re bound to make the same mistakes. For us, it really is about what have we learnt in terms of our connection with the government, local communities, workers, their social circumstance, what we need to do, how do we create a more productive work force.
You’re going to be going into the June wage negotiations, off the back of your review of your operations. Are you going to be able to give wage increases next year?
Since 1994, the mining industry has provided pay increases 40% above CPI. The workers in the mining industry, and I’m talking about drillers… are in the top 20% of salary recipients in the country. Our commitment, as long as we continue to improve productivities, is to continue to pay competitive salaries to the people in our industry. We would anticipate doing something around CPI next year. But at the same time, we’re going to make sure we stay competitive. This time next year there will be less people working in our business, because our resources at the margins are becoming tougher.
There is a myth that mines bring jobs, but we’re moving into an area where innovation is starting pushing down the number of jobs necessary. Have you been shedding jobs already?
In the last seven years we’ve shed about 12,000 jobs. We’ve reduced production by 30% and employment’s dropped by 30%. There is a direct relationship in terms of affordability, production and productivity. If you don’t do it, you don’t survive. If we do nothing else, then that sort of trend in job reduction will continue. That’s why the restructurings are so important. If we can create more days, it means we’ll need more people to man those days. The answer is somewhere between where we are now and we would be.
Are you bullish about the commodities market?
China still buying, India still strong. Exchange-traded funds have been growing in demand in the last 12 months. The US, with Obama being elected, you’re probably going to see fairly consistent fiscal policies. Europe, still a lot of questions. So the prognosis for gold is still pretty good. I’ve got a view that off a $1,700/oz base, I’d expect to see increases ranging from $100-200 a year for the next three or four years on average. That also reflects the input cost inflation that we’re seeing in the industry as well.
Is Africa seeing bigger cost inflation that other places?
Probably bigger wage in local currencies, but what tends to happen is that the currencies depreciated quicker against gold and other major currencies. In South Africa, we’ve been doing better than the global industry average in cost inflation because of our new productivity model.