THE proposed demerger of Anglo American’s South African thermal coal assets in May is probably the last of the major deep vein corporate surgery required of Mark Cutifani, eight years group CEO this month.
Appointed in 2013 on the back of the disappointing performance of Minas Rio, the firm’s Brazilian iron ore project – then impaired for about $9bn – Cutifani is now riding the crest of a wave. By most accounts, that wave as reflected solely in commodity prices, is far from done.
Once the South African coal assets are demerged, Anglo will have reduced its net carbon emissions by about a fifth. Other factors are moving in the group’s favour. It is experiencing a recovery in the diamond market which will see De Beers’ contribution to underlying EBITDA improve in the current financial year.
In addition, Anglo has continuing benefits from structural supply deficits in platinum group metals, and it is the only diversified mining company with meaningful copper production growth in the form of its $5.3bn, 300,000 tons a year Quellaveco project in Peru, due to be commissioned in 2022.
Goldman Sachs said in an investment report in February that Anglo had the strongest earnings momentum with an EBITDA compound average growth rate of 26% against its peer group of 9%. The bank set a target price of £37/share for Anglo, although Cutifani thinks £40/share is appropriate, predictably. The group is currently trading at £30.52/share.
“If you go back over the last 100 years the great mining companies did better than a 15% TSR [total shareholder return] for more than 10 years,” said Cutifani. “We are currently sitting at 18% for seven years.
“That’s not suggesting I’m staying for another three years, but we are well on track to continue that type of performance through 2030 and beyond.” Cutifani’s comment begs the question, however, whether he feels most of the corporate heavy-lifting – the structural, strategic repositioning, as well as the operational improvement, – he was drafted in to perform is now complete?
“It’s an organisation that’s going to keep doing stuff and so whether I’m doing it for another one, two, three or four years I think is a bit academic,” he said, adding that “… keeping Kumba [Iron Ore] stepping forward” and the positioning of the group’s $405m fertiliser minerals project held in Sirius Minerals, were important milestones along with Quellaveco’s commissioning.
“Quellaveco, in my view, is quite an important milestone for us as a group because it is a bit of unfinished business,” said Cutifani, a reference to the technical deficits Anglo was said to have had under its former CEO, Cynthia Carroll.
“You know how I got to start here, to clean up Minas Rio,” he added. “We’re making probably $250m free cash flow per month at the moment [from Minas Rio]. The iron ore price has held up well and they’ve done a wonderful job on costs which are 20% below design numbers,” said Cutifani.
“We’re making good returns and I still think we’re underpriced compared to our peers, and I think in the next year or two we’re in a position to get that benefit back,” he said.