The gospel according to Mark

[] — ANGLOGOLD Ashanti CEO Mark Cutifani (52) certainly has the common touch. He’s also big on signals. Soon after joining the company in 2007, he ditched the executive parking bays and in a demonstration of no-frills accessibility, took the doors off his office.

More important, however, was a conversation Cutifani had during a three day strategy session with the top 100 people early in his time at the company.

He told them AngloGold had to achieve a 10% return on capital or it wasn’t worth continuing with it in its current form. “We’re just destroying value at the moment,’ he told them in what became an important pillar of the company’s Project One turnaround strategy.

These were dark days for South African mining. The year 2007 represented the first commodities boom in a generation.

While the world’s top 20 mining companies achieved an average mining growth rate of 5% annually between 2001 and 2008, South Africa’s industry output shrank 1% every year. The gold sector, in particular, was officially in “sunset mode’. A year after Cutifani joined AngloGold and after almost a century of production dominance, South Africa was replaced by China as the world’s largest gold producer. It’s now the fifth largest behind Australia.

The way Cutifani saw it, there was a small window of opportunity to set the tone at AngloGold; months only. Three critical issues rose out of the Project One sessions: remove the hedge book; improve the balance sheet; and jack up operational performance of which safety improvements were the visceral, most difficult and probably least successfully tackled challenge to date.

The hedge book was an enormous impediment to AngloGold’s market rating. In essence, AngloGold was contracted to sell 13m ounces of gold, equal to two-and-a-half years of production, at prices that sped like a deadweight from the rocketing spot price of gold, which in 2008 was in the seventh year of its 12-year bull run. At today’s gold price and rand/dollar exchange rate, AngloGold’s loss to cash flow would be R6.7bn.

It’s hard to imagine how Bobby Godsell, Cutifani’s predecessor, was able to live with it. “You won’t find me criticising anything Bobby did,’ says Cutifani.

“He created a company that stood on its own; and a values-based culture.’ In fact, an ex-AngloGold employee says Cutifani has actually done as much to conserve features of AngloGold as change it. “In many ways, AngloGold still retains a position in society that Anglo American once had in the Seventies and Eighties: that is, the socially responsible corporate citizen,’ he says.

In any event, Godsell also had Anglo American as a shareholder, then under the sway of CEO Tony Trahar.

The London-listed group needed regular dividends out of its 41% held subsidiary and wouldn’t allow for the capital outlay required to more aggressively nuke the hedge book, which eventually cost $6bn.

Says Cutifani: “The agreement was simple, I wasn’t joining AngloGold unless Anglo agreed to get out.’ AngloGold had announced its intention to exit, anyway, but Russell [Edey, AngloGold’s chairman] guaranteed it; so did Cynthia Carroll [Anglo American’s incumbent CEO].


Cutifani’s arrival at AngloGold was largely unheralded in the sense that it was an outside appointment and no-one knew who he was or what to expect. His CV was rich in mobility with his last position at Inco CVRD, a Canadian-Brazilian firm where Cutifani ran its nickel division as COO. As AngloGold’s CEO, however, he’d hit the big time.

“There wasn’t either an explicit or implicit view that AngloGold needed a more technical CEO,’ says one AngloGold employee. “But since Bobby [who has a BA] was going, it was decided that if a technically minded person could be found, that would be good.’

Cutifani immediately took to Johannesburg, claimed to love its surrounds where he moved his family, including four children, and championed AngloGold’s town offices. Advice to avoid would-be highjackers was quickly proved hysterical. “On my first day, they were coming at me from all sides,’ he says of the ride across Nelson Mandela Bridge.


At an introductory breakfast, he surprised, if not disarmed. “I was born into a working class family,’ he said in a startling outpouring. “I educated myself while working.’ He went on to explain how it was important to parse certain cultural differences, such as how Anglo Saxons speak with the perspective of “I’ as opposed to the Latin “We’.

It was a curious piece of knowledge for a mining engineer; more extraordinary still for having expressed it.

From conversations with Anglo-Gold employees, however, knowledge,and learning seem to be both formative for Cutifani, and a way of forming his intentions. He went into underground coal mining straight from school, aged 17 years. The mining engineering degree, from the improbably named Wollongong University, he later financed himself.

He has, since then, remained non-complacent about knowledge. “I think because of this, he’s kept learning and kept studying,’ says Charles Carter, senior vice president reponsible for AngloGold’s corporate strategy. “He’s worked really hard over the years to get that style of leadership.’

As it turns out, the importance of personal address is right out of the Cutifani belief system. “He’s a remarkable guy,’ Carter continues. “I’ve never once seen him “dress down’ an employee, or lose his cool.’

This is the behavioural side of Cutifani’s belief that AngloGold was a company that had to install in only five years the manufacturing lessons that took Toyota 50 years to develop. “What we’re trying to do is to have a fully integrated process that’s supported by logic every step of the way,’ says Carter who’s also responsible for organisational effectiveness at AngloGold.

It’s worth recognising just how much can go wrong in the process of mining gold, partly because its activity is characterised by distance. Miners travel several kilometres vertically and as far underground in search of gold. It has to be blasted, extracted and processed through a series of steps that also implies physical distance, and distance between disciplines.

From geologist to metallurgist, a South African mine can be a thinly homogenised Babel. Cutifani, however, has been trying to get the people speak the same language: operational variation is bad, silos are rejected. “So is the heroic intervention of the kickass GM,’ says Carter, who adds that superhuman efforts need to be replaced by a well-oiled process.

Scheduling is important; this is not so much a “just-in-time’ approach to mining as much as having employees within each critical process understand how their activities are impacted by what goes on before as well as after them.

In order to achieve this, Cutifani used the work of Canadian psychologist Elliot Jacques, which is a profoundly sympathetic approach to work behaviour as it trusts human capability and distrusts organisations.

An ineffective organisation is a question of inappropriate structure, not because you’ve employed ineffective people.

It’s common for new appointments to flood the organisation with their own people because it’s easier to have the converted at your side than the unconvinced. Interestingly, of the 80 new appointments Cutifani made in AngloGold, half were redeployments from the old regime, as it were.

New appointments hail from all quarters; the emphasis on national diversity. Born in France, Laurent Coshe, is head of sustainability for continental Africa and was previously at the United Nations; Canadian Mike Macfarlane was poached from Inco while Michael Parker now serves as head of safety at AngloGold having looked after environment and health at GE’s oil and gas division. Former Newcrest COO, Tony O’Neil is another AngloGold convert, described by Cutifani as “the best mining engineer in the world’.


Tackling cultural differences is a concern ingrained from childhood. Cutifani describes his father, an immigrant to Australia from Sicily, as “a black Italian’, and then having to parlay this culture with his mother’s Australian identity. It’s an awareness and perspective of the outsider that’s proved to be a strength in the corporate world.

“He noticed the miners’ changing room lockers hadn’t been personalised,’ one employee remembers who asked to remain anonymous. “There were no family photographs; nothing to identify them, or remind them of what they were going home to.’

Many mining colleagues didn’t even know each others’ surnames, yet still they mined in “teams’ at risky depths of three kilometres or more, and in difficult conditions. It meant collective responsibility wasn’t part of the safety culture.

While the goal to improve return on capital has succeeded, up from 7.3% in 2007 to 20% in 2010, safety remains AngloGold’s bugbear.

In 2007, AngloGold reported 34 fatalities; a year later, 14. Most had been caused by sub-standard operations and a lack of communication. But still deaths continue – eight this year, of which four were in underground South African mines – and Cutifani declares it his single biggest disappointment.

This year, AngloGold reported an average 11 injuries of all descriptions per million man-hours worked. One hastens to add, this is a 63% improvement since 2007, and below industry average.

“Impossible comes with the territory,’ says Cutifani of doubts AngloGold will ever erase loss of life with South African gold mining. “It was once thought impossible to have a death-free quarter.

We’ve done that three times now,’ he says. But if you’re talking impossible, look no further than arguably Cutifani’s most ambitious project of all, which is to mine gold at depths of between four and five kilometres.

The sheer impact of such a feat is quite literally industry-changing. Rand Refinery and the Chamber of Mines of SA reported recently that while more than 30% of all the gold ever mined was from South Africa, a further 31 000t, or three-tenths of world reserves, still lie underground.

If Cutifani can start mining safely and profitably below 4.1km, he opens up 70m ounces for his company to mine it currently can’t reach. It sounds risky but not attempting this, plots a trajectory that will see AngloGold’s South African production drop from about 1.74m ounces to 1m ounces annually where it will limp along for 20 and 30 years until extinction.

Cutifani’s most ambitious project of all, is to mine gold at depths of between four and five kilometres.

Accessing that currently stranded gold, however, will keep production steady. Should the technology now being explored prove good, it will take costs down 40%. Some 30 companies are working in a kind of research and development kibbutz with AngloGold, each covering its own costs, in an effort to crack a means of combining existing technology. US giants GE and 3M are two of the companies working on the project which Cutifani describes as probably the most progressive across the industry. Any technological developments the partners discover are theirs to keep.

“It’s potentially a game-changer,’ says Sandy McGregor, portfolio investor for Allan Gray, which holds up to 10% of total shares in AngloGold and, after Paulson & Co, the US hedge fund, is the gold company’s second largest shareholder. “I’ve seen a few of these schemes around [for mining gold at deeper levels], but this one might work,’ he says.

Ultimately the science of behaviour and the organisational work have to lead somewhere for investors.

“We have doubled cash flow from Project One,’ says Cutifani, who adds that a further doub-ling in cash flow has been derived from the removal of the hedge book, and continued gain in the dollar price of gold. By way of comparison, cash flow in 2008 financial year totalled $600m whereas on a first half annualised basis, cash flow is $2.4bn this year. In other words, AngloGold generated more cash from operations in the second quarter of this financial year than in the whole of 2008.

Yet the share price has dragged its feet this year. Cutifani claims to be untroubled believing the market will recognise the operational improvements are ongoing at AngloGold despite the difficulties posed by what Bruce Alway, an analyst for Merrill Lynch, described as “the South African discount’ in July.

Says Allan Gray’s McGregor: “What’s six months in our lives? I think Mark has brought a holistic vision. There are so many issues that a CEO has to manage, but we think he’s among the best at dealing with them all.’

Cutifani has said in the past that if the share price didn’t respond to the operational improvements, the company might have no option but to separate the South African and non-SA assets. “We have to consider everything,’ he says of that statement, adding that combinations with other company mines are the stuff of speculation.

– The article first appeared in Finweek. If you want to subscribe to the digital format of Finweek visit