[miningmx.com] – ANGLO American CEO, Mark Cutifani, is due to face investors on Thursday (December 12) in an update on ambitions announced in July to lift pretax earnings $3.5bn by 2016, and slash costs.
Analysts, however, said they were not expecting immediate results whilst big ticket restructuring announcements would be kept to a minimum.
“We see the … investor day as a second step towards outlining the elements of the plan rather than the complete answer, which may disappoint some investors,” said Goldman Sachs in a report dated December 4.
“Overall, the turnaround Anglo is seeking will take time. The CEO is aiming to change the way the business has been run, and to re-align the management style and organisational model,” said Goldman Sachs.
However, shares in Anglo were pricing in improvements already which had led Goldman Sachs to put a sell signal on the stock. At R223.90, shares in Anglo are virtually flat since Cutifani took over from predecessor Cynthia Carroll in April, although they increased to R251/share in November.
Goldman Sachs said the mining sector was due for another difficult year in 2014 with depressed iron ore and copper prices likely. There was also little sign of a recovery for platinum or diamonds, it said. It added that Anglo had not met previous targets on cost-cutting exercises suggesting that Cutifani faces some deep-seated scepticism about Anglo’s future following years of under-performance.
At the interim results presentation in July, Cutifani outlined plans for a $1.3bn cash flow uplift by 2016 and identified a minimum 15% return on capital employed (ROCE) as his key gauges of success.
“We believe that Anglo needs to add $2bn of attributable operating profit to our 2016 estimates on attributable capital employed of $55.5bn to hit its 15% ROCE target, which is a 34% improvement assuming GS commodity price estimates,” Goldman Sachs said.
In pursuit of his target, Cutifani said he would cut low quality projects against which some $300m could be saved, while a further $500m could be extracted in cash by improving the group’s commercial and marketing efforts.
A further $500m would be saved in other group costs including cutting back on management and by consolidating the group’s operating divisions across commodity types and geographies.
In compiling a list of what to expect, and what not to expect, Macquarie Research analyst, Kieran Daly, said organisational improvements were likely to top Cutifani’s agenda. “Do expect more on the organisation,” said Daly.
“Organisational efficiency and effectiveness are key for Cutifani and, with his top team now in place, we expect the focus to be firmly on process, scorecard metrics and measurement,” he said.
Anglo’s iron ore assets will form the centre-piece of specific operational updates at Cutifani’s presentation tomorrow including how it intends getting Kumba Iron Ore back on track. There will be little news on the possiblity of finding an equity partner for Minas Rio, Anglo’s high-cost Brazilian iron ore mine, however.
As for the big ticket items speculated to be on Cutifani’s list – such as the unbundling of Anglo American Platinum or the relisting of De Beers – Daly says these initiatives, while they may add value, would be on the backburner.
However, there is speculation that Anglo is preparing to unveil more black economic empowerment deals in respect of its coal assets as well as other ‘tidying-up’.
“At the fringes there have been murmurings about a re-structuring of the South African coal business (to include more BEE) and a “tidying-up’ of Anglo’s manganese exposure (Samancor 40%) makes sense,” said Daly.
In terms of the Department of Public Enterprises (DPE) mandate, suppliers of coal to Eskom are required to have 50% plus one share empowerment – a requirement that has been applied to New Largo, Anglo’s proposed 12mpta coal mine due to supply Eskom’s 4,800MW Kusile power installation.
Anglo, which has a 27% empowerment loading at New Largo in the form of the Inyosi Coal Consortium, has been in dispute with Eskom, however, about altering its empowerment stake which it says is guided by the Minerals & Petroleum Resources Development Act.
Brian Dames, CEO of Eskom, said last week that an agreement would be reached with Anglo American. The UK-group declined to comment when approached by Miningmx.
Anglo American postponed the investor day from its planned December 10 schedule following the passing of former South African president, Nelson Mandela.
“Anglo American announces that it has decided to postpone its analyst and investor strategy event from Tuesday 10 December to Thursday 12 December following the passing of Nelson Mandela and out of respect for Anglo American’s many South African stakeholders who may wish to participate in the planned memorial service due to take place in Johannesburg on Tuesday 10 December,” it said.
