T his month, straight-talking Aussie, Mark Cutifani, will have been at the helm of Anglo American for seven years, a year longer than at AngloGold Ashanti which he joined in 2007, and outlasting the ‘generation’ of CEOs who joined Anglo’s most commonly cited competitors – BHP and Rio Tinto – in 2013.
Cutifani may even see off Ivan Glasenberg provided the Glencore boss backs up recent hints that 2020 will be his last year in charge at the Swiss minerals trading and mining firm. “I’m young and feeling energetic,” said Cutifani when asked by Miningmx in an interview in February if retirement had crossed his mind.
“I have a good relationship with the board. We continue to think about the future, but there are no plans for me to go in the immediate term.”
Cutifani’s longevity is a remarkable achievement for a CEO at a major mining company, especially one that’s been on the Anglo’s kind of rollercoaster. Shares in the company slumped to R55/share in 2016 as commodity prices bottomed out, following a decade of unsaddled, head-over-heels supply growth that burdened balance sheets and earned the world’s mining sector a reputation for wasteful capital spending. Until the COVID-19 pandemic struck, however, Anglo’s stock was challenging five year highs.
Analysts like the fact Anglo has delivered on its promises. Despite an 18-month stutter during 2015/16 in which Cutifani toyed with the sale of the firm’s South African iron ore and thermal coal producing companies – Kumba Iron Ore and Anglo Coal – before changing his mind, the company has done what it said it would.
Return on capital employed, a metric favoured by Cutifani because it shows what shareholders are getting for their money, was 19% in the group’s most recent financial year. This is better than the 15% ROCE Cutifani promised in 2013 which, at the time, seemed like a stretch target of note.
“Anglo remains one of our top picks on valuation, growth and medium term re-rating potential,” said Deutsche Bank analsyts Liam Fitzpatrick, Bastian Synagowitz and Nick Snowden in a report authored on February 20, just as COVID-19 was extending its tentacles into the European mainland.
“Despite delivering a substantial improvement over the past three years, market-implied returns are conservative and we believe Anglo has the most compelling and undervalued growth profile from the majors,” it said, anticipating a 30% uplift in structural earnings before interest, tax, depreciation and amortisation (EBITDA) by 2022/23.
In an interview with Miningmx last year, Cutifani acknowledged that had he not acted, Anglo would barely have seen out its 100-year anniversary in 2017. Yet having survived the 2011 to 2015 turndown in the commodity market, the challenge was to take Anglo from survival to prosperity, and after that, establishing, if it could, industry-defining pre-eminence.
“We came to the end of the first phase in 2018 and we redefined our ambition; we reset our drive towards quality,” he told Miningmx. “In this second phase, in terms of what I want to do as a leader: I hope to have made significant ground on Quellaveco and have improved group margins. That will give the next person [his successor] a running start.”
Quellaveco, a $5bn to $5.3bn copper project in Peru, has a kind of totemic relevance for Anglo American. Firstly, it’s a large, high quality copper resource, and those are becoming increasingly rare globally. Secondly, however, it has a scale that is exactly the kind of asset Anglo in its pomp used to develop. As such, the project looks back as much as it looks forward: a cultural affirmation for Anglo as well as a signpost of future direction.
I’m young and feeling energetic
Bank of America Merrill Lynch analysts Jason Fairclough and Patrick Mann think Quellaveco is Anglo’s best ticket to future earnings. It also helps overcome a common problem for the largest mining houses which is finding ventures that are larger enough to make a difference to the bottom line.
“We’ve written extensively about the difficulties of growing a Big Miner,” the analysts said. “A key challenge for Big Miners is deploying enough organic capital, fast enough, to make an appreciable difference to production volumes. On this front, Anglo’s relative smallness means that, for example, a $5bn copper project does make a difference.”
Not all projects have worked out well, especially in Anglo’s recent past. The Minas Rio iron ore mine in Brazil cost the group hundreds of millions of dollars in write-downs. It was bought at the top of the previous commodity cycle and headed a pipeline of other growth-orientated enterprises that was so clogged and disordered Cutifani described it as “constipated”.
How then, was Anglo able to get from an over-burdened, capital efficient behemoth on the verge of extinction to the favoured mining stocks it is today? The answer is quite simply (not merely) attracting the right people able to fit into a strategy Anglo dubs ‘FutureSmart’. The name does smack of a highly-paid consultant on too much coffee, but the idea behind it is ingenious.
Visit any good mine and you tend to see just how cleverly integrated the process is. FutureSmart is that, but on speed. And realising it, it has to have people at the heart of it.
M ark Cutifani has a way with people. At AngloGold Ashanti, he did away with reserved parking for senior management. Managers do this kind of thing all the time now, but its impact can’t be under-estimated in 2007; that’s how far South Africa’s corporate culture has changed in 13 brief years.
He’s also a dab hand at handling the press. He told an SA Chamber of Mines (now Minerals Council) annual general meeting once, when he was its president, that the industry got the press it deserved. Handle the press correctly, and you might get better coverage.
No respectable journalist will agree to mollycoddling, but the point is Cutifani has a winning type of personality. In Johannesburg, he waxed lyrical about the city’s polyglot vibrancy rather than its crime risk; now in Anglo’s London HQ, he quips about the fortunes of his adopted football team – Chelsea – and lightly mocks Watford FC, the team adopted by compatriot and CFO, Stephen Pearce. UK analysts probably find the sporting banter passé, but it makes Cutifani’s presentations an event for the mind and heart.
And it was the issue of people that he considered a key risk when first joining Anglo; or to put it more clinically, the lack of people with the right skills. What followed was a 250-person strong rehiring strategy filling key technical positions that had steadily exited the group under previous management. The re-skilling process was led by Cutifani’s long-time collaborator and ally, Tony O’Neill, who is also Anglo’s technical director.
In addition to know-how, Cutifani and his board set about installing the right methodology, hence the development of its FutureSmart strategy.
To hopelessly simplify, what’s going on in FutureSmart Mining is to change operating practices in such a way that there’s real cost improvement, about $1bn has been conservatively pencilled in for end-2022. The next element of the strategy is innovation, or to “… change the way the molecules flow through the process”, as Cutifani describes it. The third part is project and de-bottlenecking implementation. It’s like a complete retooling of the organisation.
For instance, FutureSmart works on reducing energy and water consumption and improving capital intensity. There’s also more focus on optimising processing and orebodies than automation. Cutifani says Anglo likes to keep its intellectual property open but bespoke technology in coarse particle flotation and novel leaching technologies are playing their part. A new take on bulk sorting is also being piloted at El Soldado, a copper mine in Chile, which could be implemented in the platinum assets if successful, according to Myle Allsop, a UBS analyst.
“In our opinion, Anglo is a technology leader in mining and this positions it well medium-term,” said Allsop in a report last year. “However, we expect the market to be sceptical with the financial targets as in the past these are often lost to cost inflation or outweighed by moves in commodity prices,” he said. It could take competitors three to four years to catch up, he added.
In order to make the strategy stick, O’Niell, chairs an operating committee every two months. “Every one of the people that runs a business looks at every chart and all the big gear and the productivities … So it’s sharing: De Beers sharing its good and bad with copper [division] and Kumba [Iron Ore, the Johannesburg listed company] and sharing the global information and helping each other ratchet up performance,” says Cutifani.
O ne of the other reasons to mark out April in Anglo American’s calendar, other than to register its CEO’s work anniversary, is that it’s the month in which it’s much-anticipated Sustainability Report is issued – one of society’s and the mining sector’s pressing issues, until the advance of COVID-19.
It hasn’t perhaps been a report to raise headlines in the past, but this year all eyes will be trained on Cutifani’s response in making swifter changes to the group’s net zero carbon plans. Cutifani isn’t convinced by some long range commitments undertaken by his resources peer group.
“We are working through Scope 3 and we know this is very complex,” said Cutifani. This is the new layer on corporate responsibility that asks mining companies to monitor and control emissions by its customers. Scope 1 and scope 2 measures have been focused on mine emissions and those of suppliers.
“We won’t throw a date or target until we understand the consequences or the unintended consequences,” he said. “There are too many companies throwing targets out there that don’t seem to understand them or aren’t that serious about meeting them.”
Quite apart from the environmental responsibility companies such as Anglo has towards society, there’s also the question of how Anglo intends to deal with its extant South African thermal coal mines. It sold its domestic and Eskom mines in 2018 to Seriti Resources for about R3bn, including the New Largo coal project that will eventually supply Eskom’s Kusile power station.
There are too many companies throwing targets out there that don’t seem to understand them or aren’t that serious about meeting them
Selling the export mines, however, seems more of a challenge. Cutifani is talking about “a just transition” insofar as protecting jobs and transferring assets to a buyer that will manage the mines responsibly.
There’s also the question of getting value. Prospective buyers are likely new entrants or smaller players with limited budgets who may not have the opportunity to publicly list the assets given the way investment markets shun big carbon emitters.
This, in turn, raises the question of whether the ‘balance sheet’ is leaving the South African thermal coal sector at a time when Eskom needs fresh investment in the fuel to safeguard the country’s electricity supply. Bear in mind that other companies with suitably large balance sheets such as Glencore and South32 are exiting the thermal coal market in South Africa over the short to long-term.
Said Cutifani: “The investment proposition won’t disappear [for thermal coal], but it will certainly change. I think they’ll always be thermal coal production from South Africa especially when you look at India and China which need to buy it for power generation. There’s also the need for poverty alleviation: that is the biggest issue for Africa, not climate control”.
“Anglo streamlined itself many times before,” he says of selling the thermal coal mines. And it continues to do so. The £400m cash purchase of Sirius Minerals, a UK business developing a mine aiming to produce specialist fertiliser is a clear example that Cutifani isn’t entirely satisfied with the commodity mix of the company.
In previous periods, all our resources were committed to a single project. That’s not a mistake we will make again
Speaking to Miningmx at the Mining Indaba conference in February, Cutifani said his group’s new investment approach was to make decisions around the asset first, rather than have a view that these are the commodities to which it’s stuck hard and fast.The way he describes it, Woodside, the polyhalite product Sirius is developing, can benefit from the technical skills Anglo has at its centre, and certainly from its balance sheet (the Sirius chairman said in January the company was facing bankruptcy). But it’s also an asset that has potential.
Time will tell with Sirius: polyhalite fertilisers are relatively untested in the market and there’s a range of competitors developing potash and phosphates that could fill the market demand as well, or better.
One consequence of having added Sirius Minerals to the mix is that the special dividend paid this year is unlikely to be repeated, even in the absence of COVID-19. Cutifani however, says the acquisition of Sirius Minerals doesn’t represent a new period of growth for Anglo.
“In previous periods, all our resources were committed to a single project. That’s not a mistake we will make again,” he said in clear reference to Minas Rio in Brazil. “Now, we prefer incremental capital projects across a number of platforms.”
T he world doesn’t stop turning and Cutifani is facing a new raft of challenges. Until this year, it was climate change, and whilst those pressures continue to be age-defining, the proliferation of COVID-19 is a new, barely understood problem for Cutifani, as it is for the rest of society.
Already, it has hit hard where Anglo would least like it. At the time of writing, Anglo had embarked on the first day of a 15-day national quarantine by the Peruvian government which has seen construction on Quellaveco all but shut. Anglo’s view is it was tracking ahead of the project’s budget anyway, and that it thinks the closure as currently planned can be accommodated in its 2020 budget.
Anglo won’t be drawn on where markets will land amid the COVID-19 contagion, especially on how long society will be in lockdown. Officially, Anglo’s preference is to focus instead on measures intended to protect employees. But with its exposure to consumers through diamond and platinum jewellery, it has obvious risks, like any other mining company.
Cutifani certainly wasn’t alone in under-estimating COVID-19. “We think it’s a more short-term issue,” he said in February at the firm’s annual results presentation. “We have a broader customer base than most of our competitors so the virus is not as significant for us.” Then again: less than a month ago, about 20,000 delegates gathered in downtown Toronto for the Prospectors & Developers Association Conference where hand-shaking was much in evidence. Few could have anticipated the impact of the virus.
For Cutifani, it’s clear Quellaveco is a project he wants to see bedded down before thinking of moving on.
A number of potential successors to Cutifani have been identified: Bruce Cleaver is one, the CEO of De Beers, the diamond producer in which Anglo has an 85% stake. The other is Duncan Wanblad, head of Anglo’s base metals division which has direct control over Quellaveco. The recent resignation of Chris Griffith, CEO of Anglo American Platinum (Amplats) removes his name from the hat.
So who will be the new ‘mini-me’?
“I think the last thing is to have a clone of the last person,” said Cutifani. “All organisations have to evolve in different ways and the board is prudent enough to chose a person with a strategic mindset but who might also be a bit different.
“In terms of background, I’m less worried about their certificate but it’s their ability to connect resources, develop industrial processes, reach financial outcomes. The next CEO has to anticipate the world and where it’s going in terms of climate change, the circular economy, material sciences and digitalisation. They have to be part of that, have that understanding and see that trajectory.”
THE COVID-19 CONUNDRUM
It seems hard to absorb what only 12 weeks ago looked like a passing phenomena is now threatening to derail whole economies and put the globe into recession. Thus, COVID-19 makes most western societies nostalgic for the careless, halcyon airs of February.
For Anglo American, a society in lockdown is a consumer base not buying luxury goods in either platinum or diamond jewellery. It’s a hammer blow for De Beers, the 85%-owned Anglo miner and marketer which has just come off a 50% decline in 2019 of $558m.
UK bank Barclays, however, offers words of hope. It says China has convincingly “beaten” the virus while its economy is recovering – a process that will be boosted by a stimulus package and aided by the low oil price.
China represents 70% of global seaborne iron ore demand and up to 55% of demand for copper, aluminium, nickel and zinc. A China in recovery is a crucial underpin to commodity price recovery. It’s also a net importer of oil having only 15% of the world market’s supply. That’s also good news.
“We expect an extended, relatively slow pace of recovery particularly given ongoing travel restrictions, but the trend is positive,” said Barclays in its note.
