UK Edition
'We took an awful beating': Anglo American boss Mark Cutifani on steering a turnaround
Mark Cutifani, chief executive of Anglo American, looks cheerful. Having just presented the mining giant’s full-year results, in which it posted a first pre-tax profit in five years, he has reasons to smile. “I’ve certainly had a better week than 12 months ago,” he quips. But he has also been busy explaining himself: specifically, why Anglo is now set to row back on a radical plan to sell off dozens of mines, which it unveiled with great fanfare just over a year ago.
“I reserve the right to change my opinion if the facts change. And that’s what we did,” the Aussie executive says, adding that he has had “good feedback” so far.
Cutifani, a mining engineer to his core, took the reins at Anglo in 2013, with a remit to improve efficiency at its mines and help the venerable mining group - 100 years old this year - make up ground it had lost against its rivals. But then commodity prices fell off a cliff, bringing the industry to its knees; Anglo in particular looked vulnerable. In December 2015, with the share price collapsing, Cutifani announced he was going to exit a raft of commodities to focus on three areas where the company was strongest: diamonds, platinum and copper.
But 2016 confounded expectations. The price of bulk metals, such as coal and iron ore, rallied on the back of economic stimulus in China, the world’s biggest consumer of metals. The mines Anglo had put up for sale suddenly became profitable, forcing Cutifani to admit last week that he would keep them after all.
Perhaps unsurprisingly, Cutifani doesn’t see a contradiction in “pivoting” back to where the company was. “We haven’t changed,” he insists. “We are still diamonds, platinum and copper. In the bulks, we’ve got good assets but none of them in their own right are good global assets.”
Cutifani points out that in diamonds, through its De Beers arm, Anglo is the industry leader. Its diamond mines are “bigger than the sum of their parts”, offering products across the spectrum. This is not the case with iron ore, used to make steel, where it cannot compete with its FTSE-listed peers BHP Billiton and Rio Tinto. “I can sell any one of those assets and I don’t change the dynamic for the whole. It’s a different philosophy,” he says.
The mining boss “understands the point” that some observers may be confused by the reversal. But this comes from conflating portfolio with strategy: “Portfolio is an important part of strategy, but it’s not the only part.” Cutifani’s strategy all along has been to run Anglo’s mines better. “Today we’re producing more product than we were three years ago,” he says. “We’re doing it with 40pc less assets and 40pc less people. That’s why our costs are down 30pc.”
Looking back now, Cutifani recalls December 2015 as his “lowest point”. “Three months earlier we were forecasting $1bn positive cashflow in 2016,” he recalls. “Then commodity prices dropped about 17pc in three months and we went to being in negative $1bn cash flow. I had to get up and say, ‘Remember we said this..?’” Grim economic data from China and a flatlining diamond market didn’t help. “Some say I shouldn’t have laid out the story. I don’t regret it because at least people understood what we were doing. But we took an awful beating.”
Sentiment began to turn the following February, Cutifani believes, with an improvement in sales at De Beers. But he disputes the notion that Anglo’s turnaround has been down to luck. Commodity prices were 3pc lower in 2016 than the year before, he argues, because a poor first half outweighed a recovery in the second. “We delivered more than 40pc improvement in margin for the year, despite lower prices,” he says.
Jump forward to 2017, and the debt pile that threatened to crumple Anglo’s balance sheet has been hacked back to $8.1bn. The job is not quite done: Cutifani is targeting $7bn by the end of 2017. He wants a further $1bn in cost savings and to “hold discipline” on capital. “We don’t have plans to go and splash out and do anything new,” he says, pointing out shareholder returns must come first. Anglo, which cancelled its dividend in 2015, plans to bring it back next year.
“Discipline” is a word Cutifani repeats. “The mining industry and discipline are not words that usually go together,” he says, drily. The industry has been tarnished by giant, expensive white elephants commissioned in the boom years. Anglo itself sank billions into its Minas Rio iron ore project in Brazil, which is only just starting to make money.
Cutifani says he has commissioned just one $100m project in his three-and-a-half years at Anglo, but is proud of his track record before that. “I’ve done about $40bn of transactions and I’m one of the few chief executives who can say those transactions are in the money today,” he says.
Untangling some of Anglo’s operations in South Africa is also high on Cutifani’s to-do list this year. Anglo was founded in South Africa by Ernest Oppenheimer, but has reduced its presence there over time. It now wants to sell off its domestic thermal coal mines there, and seek a way of divesting its Kumba iron ore division. But the matter is complicated by local ownership requirements, which seek to have 26pc of a company owned by historically disadvantaged groups. The Zuma government is considering raising this threshold - causing a headache for Anglo.
“We are concerned that if they dial up ownership requirements, then shareholders who’ve bought in in the belief that 26pc was where it would stop, would see that as not being consistent with the promises they were given,” Cutifani says. Conversations with the government have been “tough” but “constructive”, he adds.
After Cynthia Carroll, his immediate predecessor, Cutifani is the second non-South African to lead Anglo. Born in Wollongong, New South Wales, Cutifani is from a working class background. “I started off as a miner, physically mining product. I went to university part time,” he says. He is known for his attention to the operational detail of mining, during a career that took him to Kalgoorlie Gold Mines, Vale, Inco and AngloGold Ashanti. When Anglo American came calling in the wake of Carroll’s departure, Cutifani says: “It probably wasn’t highest paying job I could have got at time, but it was the most interesting.”
Pay is a sensitive topic at Anglo, which has redrawn its remuneration policy after a wounding shareholder revolt at the AGM last year. “I understand why people look at those salaries and say, gee, they’re pretty high,” Cutifani says. At the same time, Anglo has to compete to hire people all over the world: “When I recruit a mining person, there aren’t a lot of them in London, therefore I’m competing on a global basis.”
Cutifani insists his appetite for the job is undimmed. He will keep Anglo’s costs low so that it can withstand any change in policy whims from China, which could tip commodity prices back the other way. He thinks President Trump’s talk of spending on infrastructure such as roads and airports in the US will be good for commodities. “I don’t think the policy stuff is clear yet, but I’m hopeful. America’s infrastructure is crumbling, it’s critical for the future of the country.”
With a turnaround largely under his belt, Cutifani’s focus is already on what lies ahead. “For guys in my role we’re paid to deliver and to continue to evolve and create a better company,” he says. One such project may be a new $5-6bn copper mine in Peru, which Anglo will assess in 2018. Cutifani is keen to take a leaf out of the oil and gas industry’s book, by finding a partner for the Quellaveco project to share the risk. To this end, Anglo would sell down its 80pc stake to 51pc, and use the proceeds from that to fund its part of the start-up costs.
This approach may be exactly what long-suffering investors want to hear. “The mining sector has over many years tried to take on things too big for their balance sheets,” Cutifani says. “We certainly wouldn’t do that. We’ve learnt a lot of lessons the hard way.”