‘Anglo relationship to SA must change’: Cutifani

[miningmx.com] – ANGLO American CEO, Mark Cutifani, alluded to changing the group’s 80-year relationship with South Africa, but stopped short of identifying whether he would take any of the measures suggested by analysts which include selling Anglo American Platinum (Amplats), buying out minorities in Kumba Iron Ore, or relisting De Beers.

“You don’t change an 80-year history overnight. We need time to work through this,’ he told analysts and media at the group’s interim results presentation in London in which Anglo posted a 28% decline in earnings to $1.3bn, and 15% lower operating profits, year-on-year, to $3.8bn.

He did indicate, however, that his newly fashioned management team had begun to think about its stance on South Africa. “We have to position the business for success in South Africa and in a way that is successful for South Africa in its own right. We have to change it for the better for both parties,’ he said.

Cutifani’s comments reference the frequently made criticism of Anglo American that it is over-exposed to the regulatory and social uncertainty of South Africa – an exposure thrown into tragic relief last year following platinum industry protests which resulted in strikes, violence and political fallout.

Today’s interim results announcement evidence the reliance on South African-based assets. Roughly 90% of pre-tax earnings was derived from three divisions – iron ore, diamonds and copper – of which two have a portion of their assets in South Africa (De Beers: 18% of EBIT; Kumba, and manganese operations, 51% of EBIT).

Using the measure set down today as Cutifani’s centrepiece metric for success – return on capital employed – South Africa had provided among the best returns for the group, especially over the years. Although Cutifani said South African scepticism had been “overdone’, he added that social cohesian in the country was an issue.

“The relationship does have to change. I don’t know where the conversation will go; it is not a time-bound conversation. But a different model is required,’ he said.

Interestingly, Cutifani said he had considered breaking Anglo up into smaller parts but felt that the group’s diversity of assets was a strength.

He also suggested that the relationship between Kumba Iron Ore and the group’s offshore business would be assessed. “There are lots of synergies [between the two parts of the business] but it is too early to make a call,’ he said.

More would be known regarding Kumba Iron Ore over the next 18 months, he said, adding that the development of the massive Minas Rio iron ore mine in Brazil could help the South African establish a better sales price for its material by means of marketing synergies between the two assets.

Asked if having separately listed businesses in South Africa was awkward to manage, Cutifani said it “. added a level of complexity’ but that there hadn’t been any barriers in sharing information between parent and subsidiary. Anglo American owns about 80% of Kumba and about 78% of Anglo American Platinum (Amplats). It has a 85% stake in De Beers.

“The complexity is in managing the companies in respect to minority interests. But as the major shareholder in those companies we have a view and we expect it to be heard,’ said Cutifani.

Merger and acquisition activity was likely to be muted but Cutifani did not discount the possibility of asset closures or sales if they under-performed, measured by failing to meet budgets for two consecutive quarters.

“If an asset drains cash and there is no turnaround, and I’m talking months here, we will close it: can’t afford it; won’t accept it,’ he said.