[miningmx.com] – SRINIVASAN Venkatakrishnan, the newly appointed CEO of AngloGold Ashanti, sought to imprint his own style of leadership on the R64.5bn company raising the prospect of production cuts that could total the 500,000 ounces due to be added to the group’s profile during its 2014 financial year.
“The job of management is to pull the lion out,” he told analysts and media at the firm’s first quarter presentation. He was referring to the firm’s logo that for all its overtones of jungle dominance has failed to dominate its own patch let alone the broader investment market. Shares in AngloGold Ashanti, like its peer group, are sharply down, especially in the last 12 months.
“I appreciate the share price has not delivered value,” said Venkatakrishnan, more familiarly known as ‘Venkat’. “We are not fixated with growing the top line; the focus is on the bottom line,” he said.
“We have got 500,000 of profitable ounces [coming into the group] and we will not hesitate to remove 500,000 of unprofitable ounces,” he said. AngloGold Ashanti will have new production from Tropicana in Australian and Kibali, a project due to be commissioned in the Democratic Republic of Congo (DRC). Both projects are expected to deliver in the 2014 financial year.
The message is clear that under-performing assets will be cut from the group. Already, AngloGold Ashanti expects to have sold Namibian gold mine, Navachab, by the end of its financial year in December, with another asset currently in the process of divestment, although Venkat would not disclose its identity.
It is ‘odds-on’ that the mine will be in South Africa as Venkat spoke of the importance of not upsetting stakeholder relations, especially relevant given the fluid nature of the country’s restive labour market currently.
Venkat’s interest in focusing on profitable gold production today echoes the sentiments of another CFO-turned-CEO, Nick Holland, who in unbundling Gold Fields’ South African assets preferred profits over production heft.
However, Venkat said unbundling was not a strategic goal of AngloGold Ashanti, adding that the performance of Gold Fields since it created Sibanye Gold in February had not borne out its investment thesis. “The value enhancement is not compelling,” he said of unbundling mines. “We think we can modify the portfolio first. You have got to fix the drivers first,” he said.
Interestingly, Venkat declined to comment on an article by Bloomberg News earlier this year in which it was speculated the South African government rejected AngloGold Ashanti’s own unbundling plans. “We read the speculation; I’m sure the government read the speculation,” said Venkat suggesting the article’s assertions were a surprise.
AngloGold Ashanti maintained the dividend at 50 South African cents per share (6 US cents/share) on the back of a reasonable first quarter performance in which the margin was restored to the operating business after capital expenditure (11% versus -13% in the fourth quarter).
But even as the dividend spoke of a steadfast attitude to returns to shareholders – notwithstanding the $200 per ounce decline in the gold price in the interim – attention has been turned urgently to the balance sheet.
Venkat said that although the balance sheet was liquid ($3.4bn), his company would not countenance operational under-performance; all mines either mercurial or below par were likely to face capital cuts. Some mines would be harvested; others sold.
It’s clear, for instance, that the group’s patience for the serial under-performer Obuasi, the Ghanaian mine and the jewel in the crown of Ashanti Goldfields while Venkat was its CFO, is nearing an end. It will be heavily restructured, shut or sold if it can’t achieve an operational turnaround this financial year.
Projects are also under scrutiny and the group would not tolerate any slippages. Mongbwalu, a project in the DRC, had been placed on hold.
“Capital allocation is a key management tool in order to direct value to the portfolio,” said Venkat. “We will have no hesitation harvesting for cash or restructuring,” he said.
