MARK Cutifani, Anglo American’s boss, materialises on the other side of a Teams meeting. He’s his normal self, obviously: buoyant and friendly. Working sans office is okay, he says; in fact, some work processes have improved Still, it must be frustrating for a people person like him.
“We’re planning work more effectively … we’ve learned how to get smarter in certain areas.” What’s less certain are the long-term effects of COVID-19 on the mining sector, and what adaptations will take place.
According to a report by the World Bank, there’s an immediate risk to global value chains (GVCs). These are the trading economics and logistics that connect miners to customers and consumers. The bank says they are showing signs of unravelling. For instance, national security concerns regarding the reliability of supply of critical equipment, such as personal protective equipment, may start to favour local production, it says.
This would potentially lower transport demand as it would reduce average distance of imports. “All else equal, this would result in permanently lower oil demand as GVCs are more transport-intensive than other forms of trade,” the bank said. “It could also lead to shifts in the source of commodity demand as manufacturing hubs shift.”
Cutifani thinks economic shifts of this character were in the global mining sector already, and that mining firms have been adapting to them long before the pandemic. In the case of Anglo, there’s been a strategic shift in an effort to become a “materials solutions company” rather than mining, or even a metals and minerals company.
This article was first published in the Mining Yearbook 2020 which is available here: https://www.miningmx.com/the-mining-yearbook-2020/.
“We’ve got to get out there, get closer to our customers and, in fact, get closer to the consumers,” he says. Anglo established a concerted marketing business in 2012 with this purpose in mind. “By 2035, about 50% of the world’s steel will be sourced from scrap returns. So there’ll be less metallurgical coal, and the type of coal that will be in the system will be very different. Iron ore will change in terms of its quality requirements and it will be a much more aggressive and competitive industry,” he says.
There’s a similar push to market platinum group metals (PGMs) and become increasingly involved in the downstream application of the metals. Eventually, Anglo will be involved – to some extent – in recycling PGMs. For De Beers, the diamond firm in which Anglo has an 85% stake, its branded retail stores are less about becoming a jeweller and more about responding to the consumer.
Despite COVID-19 being described as a global pandemic, the effect has been for dispersion and the reversal of globalisation – Perrott-Humphrey
Anglo’s marketing office is headquartered in Singapore, described by Cutifani as a natural sales hub because it doesn’t produce its own resources. Being a conduit, polarisation of interests, be they political or economic, don’t work for it, he says. Yet this is exactly what’s going on in the world; in fact, the isolating forces of COVID-19 are accelerating an existing political narrative of de-globalisation, says Fiona Perrott-Humphrey, a senior adviser to Rothschild & Co, a bank.
Commenting in a webcast hosted by the law firm Herbert Smith Freehills in May, Perrot-Humphrey said: “Despite COVID-19 being described as a global pandemic, the effect has been for dispersion and the reversal of globalisation.”
This had been borne out in certain political developments: the US, China’s trade war, and increasing bilateralism, such as the withdrawal of the US from the World Health Organization and Brexit.
“If political relationships are difficult, it puts additional barriers in place, but we don’t let barriers get in the way,” says Cutifani. The mining sector, and business in general, had to do more because of the political vacuums that had been created. “We don’t work through the politicians.”
SHAPE OF THINGS TO COME
In terms of how the world economy will respond, it’s been popular to talk in visual terms: an immediate rebound or V-shaped recovery, for instance. The International Monetary Fund (IMF) has forecast a pronounced global recession, or L-shaped economic future.
Cutifani thinks the world economy will be volatile, bouncing and then retracing, possibly perilously, before a gradual recovery. He doesn’t think the industry will be on an even keel until well into 2021. For the short term, he forecasts recovery as supply and demand respond reflexively, assisted by fiscal stimulus.
“We shouldn’t underestimate how crazy people will be coming out of lockdowns,” he says. “Governments have inappropriately terrified communities; governments of all types. So people who should be out there, businesses that should be operating, aren’t.”
Mining firms will respond – Anglo expects to take its current 75% – 80% run-rate to 90% by the second half of its financial year – but much depends on consumers. “Implementing the lockdown was able to prevent populations from doing what they normally do,” says Andrew van Zyl, director and principal consultant to SRK, a mining engineering firm. “But there is no saying what they will choose to resume doing when the restrictions lift.”
Governments have inappropriately terrified communities; governments of all types. So people who should be out there, businesses that should be operating, aren’t – Cutifani
There may be less inclination to buy cars, which would have a knock-on effect for the PGM industry which supplies catalyst converters to the car-making sector, says Perrott-Humphrey.
Says Cutifani: “The bigger problem will ultimately be getting economies working and feeding people. There will be more deaths through nutrition issues than there will be from COVID-19.”
SOUTH AFRICA NOISY, BUT STABLE
From a South African perspective, there’s huge pressure on the economy. Debt has spiralled and is expected to continue to do so. “Join the club,” says Cutifani. “Debt has risen everywhere.”
The pressure is continental, in fact, and could affect lending and donor patterns and, ultimately, politics – according to Peter Attard Montalto, global lead, capital markets research at Intellidex.
“Zambia and Tanzania are seeing long-standing fiscal problems coming to the surface. But capital markets are closed off and this is coming to a head. So structural relief will be tied to reforms,” he says.
I keep telling banks and others, in my 13 years that I’ve been going to South Africa, it has been the noisiest jurisdiction I’ve ever worked in, and probably the most consistent jurisdiction in terms of policy – Cutifani
According to Peter Leon, an attorney for Herbert Smith Freehills, some 26 African countries have sought $10bn or more in IMF support, and others are sure to follow. “The IMF will cost this support on the ability of countries to repay the loan and its transparency, which will surely mean a decline in resource nationalism,” he said.
Interestingly, South Africa’s well-documented wrangling over the Mining Charter has been completely obscured by the larger economic crisis afoot in the country. Cutifani thinks, however, President Cyril Ramaphosa’s administration is doing a decent job. He’s optimistic.
“I keep telling banks and others, in my 13 years that I’ve been going to South Africa, it has been the noisiest jurisdiction I’ve ever worked in, and probably the most consistent jurisdiction in terms of policy.
“My only hope is the ANC aligns and supports its leadership because if it undermines its leadership, then it undermines the country.”
