Anglo Will Flourish Under Cutifani Or Be Bought, Bernstein Says – by Firat Kayakiran (Bloomberg News – June 10, 2014)

Anglo American Plc (AAL) will either be successful at reorganizing its platinum business and starting production at the Minas-Rio iron ore mine in Brazil or be acquired, research company Sanford C. Bernstein Ltd. said.

The metals producer is reviewing global assets to shore up earnings after Chief Executive Officer Mark Cutifani took over last year amid cost overruns and delays at Minas-Rio. Cutifani set a goal of improving Anglo’s return on capital employed to at least 15 percent by 2016 from 8 percent in July.

“There is a free option on offer for Anglo,” Paul Gait, a London-based Bernstein analyst, said in a note today. “Either the company outperforms under Mark Cutifani’s leadership, and demonstrates the value of tons in the ground, or it fails to do so and is put out of its misery in fairly short order.”

Anglo, which controls the world’s largest platinum producer, has seen the output disrupted by a strike since January in South Africa. The Association of Mineworkers and Construction Union has called out more than 70,000 miners, including employees at Anglo American Platinum Ltd. Government-led talks yesterday failed to end the impasse.

Anglo plans to switch to mechanized open-pit mining from labor-intensive underground excavation, Cutifani said in April. The company, which is downsizing its platinum business, excluded the more mechanized Mogalakwena mine from the review.

‘Unlock Billions’

“Successful implementation of this strategy could unlock billions of dollars of value for shareholders and mark a step change in the profitability of one of Anglo American’s biggest single commodity exposures,” Gait said.

Minas-Rio, scheduled to ship its first ore by the end of the year after $8.8 billion of capital expenditure, was 88 percent complete at the end of March and was projected to reach full annual capacity of 26.5 million tons in 2016.
“We believe that the fundamental basis of the value of any mining company is the quality of its geological endowment,” Gait said. “In this regard, Anglo American is on a scale comparable to Rio Tinto Group Plc yet has a market value two-thirds below that of Rio.”

Anglo shares declined as much as 1.9 percent to 1,443 pence and traded at 1,451.50 pence as of 10:57 a.m. in London. Rio fell 0.2 percent to 3,166.5 pence.

“We believe that Cutifani is leading a change program unprecedented in Anglo American’s history,” Gait said. “We think he is the right man to lead this change and see considerable upside to current stock valuation if the company can successfully execute on its restructuring efforts.”

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