[miningmx.com] – ANGLO American CEO, Mark Cutifani, warned of headwinds, including lower production from its iron ore, copper and thermal coal assets in the 2014 financial year, and added the UK-listed group had to find $300m to $500m more in cash flow uplift in order to meet targets required for its regeneration.
“It will be heavy-going. There are some benefits from the review in the current financial year, but we want to be circumspect about that owing to the headwinds,’ he told Miningmx in a telephonic interview today.
The requirement for additional cash flow benefits was necessary owing to shifts in working capital and cash flow timing events, he said.
Speaking to media ahead of an investor update in London, Cutifani said he remained optimistic, however. The review would lead to benefits that would be demonstrable in the 2015 and 2016 financial years.
“We have identified headwinds; we’re the only group to do so. We want to be clear on the risks as well as the opportunities,’ Cutifani said, adding that “. the risks outweigh the opportunities’.
In July, Cutifani identified measures consisting of asset sales, operational improvements and improved capital allocation in an effort to lift cash flow $1.3bn by 2016. He was also critical of the group’s “constipated’ project pipeline, and identified management changes in an effor to reduce bureaucracy and speed up decision-making.
Anglo American’s share price has remained virtually unchanged in the last six months. Goldman Sachs said in a recent note that investors had already price in expected benefits from the review. The bank placed a sell on the stock especially as the metals market would continue to be troubled in 2014.
In essence, Cutifani’s message was that the asset review had been largely completed, but that its benefits would not be immediate.
All in all, Anglo had identified 85% of the incremental pre-tax earnings – operational improvements – necessary to achieve the 15% return on capital employed (ROCE), the financial ratio deemed by Cutifani as a “break-even’ for the group.
In terms of the group’s commercial targets, essentially supply chain elements, some $400m in pre-tax uplift had been identified, while on the capital allocation front, the withdrawal from below investment grade projects would generate $300m in cash flow improvement in 2014. A further $400m would be derived from non-core asset sales, he said.
Cutifani was reticient to provide details on potential asset sales, however. “There are a handful of assets which are clearly not going to be value-enhancers,’ he said. “The time to announce these is after the deal is done,’ he added. “Some assets will struggle to deliver value and the leaders know they are being looked at as a potential sale,’ he said.
One of the assets that had been identified for partial divestment was the firm’s stake in the Minas Rio iron ore mine in Brazil. Cutifani would not discount a deal on the project, but indicated it would not be a distress sale.
“Iron ore prices remain solid and the project is 70% to 80% complete. Quite frankly, I’m playing hard to get. We’ve got a quality asset and we’re heading into the final straight. We’re open to discussion if someone wants to help us, but we think we’re delivering on the project,’ said Cutifani.
A major part of the review has been on restoring its 78%-owned Kumba Iron Ore to nameplate capacity of 37 million tonnes a year (mpta) by 2016 and maintaining the firm’s newly commissioned Kolomela mine at 10mtpa of iron ore, 11% higher than its original design capacity.
The Sishen mine recovery and optimisation plan expects phased production increases from 30mt in 2013 to 35mt in 2014, 36mt in 2015 and 37mt in 2016. “Production of 37mtpa has been confirmed in several technical studies as Sishen’s life of mine production capacity,’ said Kumba Iron Ore in a separate announcement.
The company also said it would spend R4.2bn in capital expenditure relocating a community on the Sishen property. This was to make way for the Sishen Western Expansion Project (SWEP) which intends to access 283mt of run-of-mine ore.
The company is waiting on a mining licence award from the South African government which could result in restating downwards Kumba’s mineral reserves if significantly delayed.
The other major constituent of the group was its 80%-owned Anglo American Platinum (Amplats) which this year underwent a difficult, political complex and occasionally acrimonious restructuring exercise.
In an announcement to the JSE, Amplats CEO, Chris Griffith said it was making “great progress’ with the restructuring. He added that after debottlenecking at the concentrator, the firm’s Mogalakwena operation had the potential to produce 400,000 ounces of platinum a year by the end of 2017.
