How Mark Cutifani plans to reshape Anglo American – by Charlotte Mathews (Financial Mail – September 12, 2013)

Sculpting new shapes

New Anglo American CEO Mark Cutifani says its new strategy will capitalise on future shortages of food, water, energy and the commodities needed for infrastructure development. Charlotte Mathews assesses the challenges faced by the miner.

Big mining companies are groping for their hangover remedies after the long commodities supercycle party. Anglo American had less fun than the rest but still got the hangover. Between 2001 and 2008 BHP Billiton’s share price on the JSE rose almost 10 times — to R300. Anglo American’s rose fivefold to R550. Now Billiton’s share price is R303 and Anglo’s is R255.

The supercycle was a theory put forward in 2004 by Chip Goodyear, then CEO of Billiton. He argued that as China and India played catch-up with the rest of the world in infrastructural development, demand for commodities would stay “stronger for longer” for at least a decade or more.

In fact the supercycle lasted only another two years. A 10-year graph of “Dr Copper”, a proxy for demand for industrial metals, shows prices flattened from mid-2006 and, apart from the dip after September 2008, have tracked sideways ever since. To some analysts, this represents only a “mid cycle correction”.

Price uncertainty has forced serious introspection among the big five resources groups that had geared up for a supercycle. Big new projects are out of fashion. In favour are smaller projects that deliver returns more quickly. Cost-cutting is a byword in every mining company. And the knife has fallen on top management at BHP Billiton, Rio Tinto, Vale, Anglo American and Xstrata. Past CEOs were blamed for expansionary policies even though expansion was what excited shareholders in the mid- 2000s.

In the past 10 years Anglo American has had three chief executives. Under Tony Trahar, the group unbundled or disposed of several local businesses that it had accumulated during the decades of exchange control restrictions and sanctions. But Anglo was disposing of assets while other resources companies were building up base metals capacity to serve growing infrastructure demand.

Trahar’s successor, Cynthia Carroll, had to try to reshape Anglo American to benefit from the boom, when prices of acquisitions were higher and good projects harder to find. Under Carroll, the group increased its stakes in Anglo Platinum, Kumba Iron Ore and De Beers, and bought the problematic Minas-Rio iron ore project in Brazil (see box).

Mark Cutifani, who succeeded Carroll this year, is having to adapt to another changed operating environment. His first action on taking over in April was to review all 95 operations and projects. But he is not signalling another round of disposals.

“Preliminary feedback indicates that we do not require wholesale changes to our portfolio. But we do need to become much more disciplined, more effective and more efficient, to drive a step change in delivery to extract greater value and returns for our shareholders,” he said at the end of July, when discussing Anglo American’s interim results and portfolio review with media and analysts.

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