[miningmx.com] – 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 totem as it focused attention of 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 the Sunday Times recently as “sumptious’, earmarked for rationalisation.
Actually, what’s intended according to the UK paper is for Anglo to prematurely end the lease on its St James premises – 20 Carlton House Terrace – a property near Buckingham Palace, and designed by Regency architect John Nash. It is described by the Sunday Times as among the most lavish of FTSE 100 company headquarters. 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 disappoint the South African government which has been critical of its wantaway firms (Anglo was founded in South African 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 whilst a source told the Sunday Times that: “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 South African 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.
Already, changes have been made at the offices of Anglo American Platinum (Amplats) where some up to 420 managerial and supervisory jobs in its Rustenburg Platinum Mines subsidiary will be cut.
“The consolidation of support functions are, in our view, a logical step in ensuring an appropriate reduction in overhead and ancillary costs,” said HSBC in a report on June 23.
“Ultimately these changes should result in a shorter reporting line and improved operational oversight and involvement by key executives within the group,” it said.
Said Cutifani in a recent interview with Miningmx: “We are rebuilding our business and its competitive position. Our tough reality is South Africa has a very high inflation and so to compete we have to continue to reduce our overheads and others 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, and there are risks to the dividend in the medium-term, according to a UBS report.
“We think that it will be very difficult for Anglo to maintain the dividend in the medium term given where commodity prices are,” the bank said on June 24. Already, there is talk that the dividend this year will be paid from debt or be in the form of scrip.
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, whilst it’s also possible the South African 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 significant debt, another headwind for the stock,’ said Goldman Sachs in a report.
“We’re still in our dual track process of evaluating the best way forward for Rustenburg and Union,’ said Cutifani. “There’s a lot of work we have put in to restructure these mines into a sustainable standalone business – profitable and cash generative.
“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.’
Cutifani was commenting in The Mining Yearbook published on June 26 with Finweek and due to be published online from July 6 in Miningmx.
