THE ANC should not be discussing ideology, it should be discussing how to develop the country, Mark Cutifani, said to applause on Thursday.
Cutifani, former CEO of Anglo American and now a director and consulting business executive, was delivering the keynote address at the two-day Joburg Indaba in Sandton. After Minerals and Energy Minister, Gwede Mantashe sent his excuses at the last minute, conference organiser Bernard Swanepoel asked Cutifani to deliver the speech he would have liked Mantashe to make.
Cutifani said if you look at the way China’s ruling party has uplifted its people – how it is organised; how it develops its leaders; its five-year plans; and how it measures progress against those plans – it performs like a business. “A focus on a development state has got China from A to B,” Cutifani said. “There is no ‘Left’ or ‘Right’ anymore – the world has moved on”.
When governments pursued short-term policies, investors would seek short-term payback periods.
“With 46 years of experience in this industry, I can tell you that if you are not delivering 10% free cash flow (FCF) through the cycle after allocating money to retaining your resource base, you are probably not sustainable. You need to pay dividends to your shareholders, and reinvest in the business for innovation and growth.
“To get 10% FCF, your return on capital employed, which is a pre-tax number, has to be 15%. If you’re getting 10% FCF, and your weighted average cost of capital is 7%, your profit margin is 3%, which is pretty tight. That is the minimum an investor would expect from a relatively low-risk investment. In a jurisdiction like the DRC, your return should be 30-40%.”
At the same time, mining companies have to deliver seven critical sustainability pillars, Cutifani said. These are: health and safety for employees; protecting the environment; connections with communities; building a talent pipeline; resources and production (which requires exploration, investment and innovation); staying in the bottom half of the cost curve; and keeping debt levels low. It was only after satisfying all those criteria that exceptional returns could become available.
“Government’s mindset needs to be development around the country for us all to be successful in lifting people out of poverty. We need to grow the economy in a way that everyone shares. So our businesses have to be profitable. If you don’t invest in Eskom so it is profitable and can reinvest in its assets, you won’t have energy, and that is exactly where we are now.”
Asked whether mining companies could be trusted, when the public sector was no longer capable of fulfilling its enforcement obligations, Cutifani said corruption was an issue in all businesses and governments. But what had happened in South Africa, as the government put more processes in place to try to limit corruption in the tendering process, was that it had slowed procurement by months.
“Tendering with the South African government is now painful. There needs to be more trust in the system. We have to take out the bureaucracy and slow processes to get things done. It is a bigger issue than anyone is prepared to say.”