JOHANNESBURG (miningweekly.com) – Anglo American CEO Mark Cutifani, who has charted the company’s progress and pathway forward, has stated his intention to restore the company to the iconic status that it enjoyed in the past.

"Anglo American in my 37 years in this industry has been an icon. We intend to put it right back up there," he said in a media conference call from London.

On the day of the company's major investor update, Anglo American opened higher on the London Stock Exchange, after investment banker Canadian Imperial Bank of Commerce set a “sector outperform” rating on the shares the day before and investment management company Sanford C Bernstein reiterated the “outperform” rating the next day, American Banking & Market News reported.

Analysts at Deutsche Bank earlier reiterated a “buy” rating on the stock in a research note to investors, Analyst RN reported.

Hosting a presentation to update investors on the London- and Johannesburg-listed company’s strategy, Cutifani said he knew of no other mining major that was in the process of doubling its earnings before interest and taxation (Ebit).

He told Mining Weekly in a media conference call from London that more than 60 of the company’s assets had been studied in the last six months.

“To be quite frank, what needs to be done is not complex work. It’s basic stuff,” Cutifani said, adding that the potential value unlock for shareholders was “demonstrable”.

“We have to get on and get it done,” he said of the company’s turnaround through delivering a 15% return on capital employed (ROCE), and by extracting savings of $0.9-billion worth of Ebit from new projects, $1.2-billion from operations and another $1.3-billion from value leakage in overheads and supply opportunities.

Cutifani reported that $500-million in overhead leakage had already been plugged, 60% of the commercial opportunities had already been locked down and a $300-million project improvement would come through next year.

Anglo American has probably been the least aggressive of the diversified majors in optimising sales prices and by exercising more of it, 20% of the $3.5-billion savings targeted have already been achieved.

“We’re showing a $500-million gap to get to the 15% ROCE and we’ll be working through the detail to get there in the next 6 to 12 months,” he added.

Capital expenditure is set to rise from $6.4-billion this year to up to $7.5-billion next year.

More than 97 000 of Anglo American's 120 000 employees are employed in South Africa.

Overall, Cutifani is focusing on improving profits by running mines better and being more choosy about new projects, Investec Securities has observed in a note.

COMPANY TAILWINDS

He identified company tailwinds as subsidiary Kumba Iron Ore restoring Sishen mine to a production capacity of 37-million tons a year by 2016 and sustaining production at Kolomela mine at 10-million tons a year, an 11% increase above the mine’s original design capacity.

“Basically what we are going to do is swing the operation through 90 degrees and mine much shorter face lengths, which will provide much more flexibility in the pit and improve the basic processes by 30% to 50%,” he said, shortly after the Constitutional Court of South Africa gave its blessing for Kumba to own 100% of the Sishen mining right, which minnow Imperial Crown Trading had unsuccessfully sought to deny it in a series of marathon court cases.

A second tailwind is blowing in from the 80%-owned Anglo American Platinum’s ultra-low-cost Mogalakwena opencast mine, which is being rejigged to allow for a production rate of 400 000 oz/y by the end of 2017, compared with just over 300 000 oz/y currently.

Company headwinds include lower grades in copper, managing the transition from opencast to underground at Venetia diamond mine and furnace work at the Barro Alto nickel operation.

“Each one of the businesses has a turnaround plan,” Cutifani added in response to Mining Weekly Online.

Anglo American Iron Ore Brazil CE Paulo Castellari told analysts at the company's investor day that the company had secured two long-term offtake agreements for most of Minas Rio's expected 26.5-million tons yearly capacity.

Castellari said one of the deals, for the Middle East, had secured a pricing mechanism for iron-ore shipments, and the other, for Asia, was still negotiating the pricing of shipments.

The delayed Minas Rio project is 85% complete with only three out of 400 licences still outstanding, having now received its licence to start up its electricity line.

ENERGY COAL BEE

He said the company had held discussions with South Africa's Department of Mineral Resources and the Public Enterprises Ministry on the domestic supply of thermal coal from New Largo to Eskom's Kusile power station, which is under construction in Mpumalanga province.

In those talks, the company had made it clear that it would be “very open” to negotiating a change in the black economic-empowerment (BEE) component, in the interests of greater transformation of the South African economy.

“This would mean that we would drop our ownership on domestic supply contracts,” he disclosed.

The Public Enterprises Ministry is targeting a BEE percentage of 50% plus one share for companies that supply coal to Eskom under new contracts.

“But we would still need to see a capital return above all our hurdle rates. That's the minimum standard we expect across the portfolio. But it’s a conversation with the government so that we all come out winners.”

REVIEW PROGRESS

The company has identified 85% of the incremental Ebit necessary to achieve the level of return it expects from the business and its exercise of increasing Ebit is delivering margins that are greater than expected.

The capital allocation process has been rebuilt to enforce more stringent criteria and controls, resulting in the withdrawal from the Pebble copper project in Alaska and enlarging the Quellaveco copper project.

The company hosted the five-hour investor presentation with full Internet transparency, detailing findings of its asset review and progress made towards realising Anglo American’s value potential through a number of revenue-enhancing and cost-reduction opportunities.

Anglo American Platinum’s chief executive Chris Griffith said: “We are making great progress with our restructuring plans and remain optimistic that we will achieve our goal of creating a sustainable and profitable business for the benefit of our stakeholders.”

The presentation, which began 14:30 and ended at 19:00 UK time, also featured finance director René Médori, technical director Tony O’Neill, strategy director Peter Whitcutt and CEO base metals Duncan Wanblad.

The South African-created company, which is headquartered in London, is the global leader in platinum and diamonds, the world’s fourth-largest producer of iron-ore and it also mines manganese, metallurgical coal and thermal coal, copper, nickel, niobium and phosphates in nine business units.

Its 2012 operating profit was $6.2-billion and its earnings $2.8-billion.

Anglo American postponed the analyst and investor strategy event from Tuesday to December 12, in deference to the passing of Nelson Mandela and to allow Anglo American’s many South African stakeholders to participate in the memorial service in Johannesburg, attended by 91 heads of State including US President Barack Obama.

South Africa’s national anthem, Nkosi Sikelel’ iAfrika, was played to herald the media conference call, ahead of the investor conference.

Cutifani stated soon after taking over from previous CEO Cynthia Carroll in April that the company would strive to move from the 8% ROCE inherited to 15% ROCE through finding $3.5-billion in savings.

When he took over, the company’s operations had delivered on their budgets only 11% of the time over eight quarters and it was said to have a “constipated” project pipeline.

RISKS AND OPPORTUNITIES

While CEOs tend to emphasise the strong points of their mining businesses, Cutifani has promised, in future, to also be far more transparent about the risks that the company faces.

“What we’re going to try and do is to let you know where the risks are and what we’re doing to minimise the potential disruptions to the business,” he promised.

The company has introduced a risk scorecard in the company’s bid to increase pretax earnings to $3.5-billion by 2016.

Goldman Sachs, which foresees the turnaround of Anglo American requiring time, has reportedly put a sell signal on the stock.

Anglo American has appointed former Paulson Europe investor relations head Paul Galloway - a former Rio Tinto investor relations manager - to head its own investor relations thrust under Medori.

Galloway also worked previously for Sanford C Bernstein and UBS AG of Switzerland.