NEW Anglo American CEO Mark Cutifani has committed the mining giant to South Africa, in spite of growing calls in some quarters for it to divest from the country.
Some investors and analysts are worried about the unsettled and violent nature of labour relations at Anglo’s South African operations, ballooning costs, power constraints, and political and regulatory uncertainty.
In his maiden address to Anglo shareholders at the company’s annual general meeting in London on Friday, Mr Cutifani said South Africa remained important to Anglo.
"Our share price is languishing compared to our peers and we are not being rewarded for the potential we have embedded in the asset portfolio," he said.
"In that context, let me say that I recognise that South Africa remains critical to our shareholder value proposition. Likewise, we remain important to South Africa’s longer-term development prospects."
At a function to mark his departure as AngloGold Ashanti CEO last month, Mineral Resources Minister Susan Shabangu sounded a warning about any thoughts Anglo might have about withdrawing from South Africa.
"Mark, this Anglo American plc, it’s ours. It’s a South African company," she said. "We hope you’ll make sure that it remains South African."
Ms Shabangu launched an unprecedented attack on Anglo’s 80%-held subsidiary, Anglo American Platinum (Amplats), this year after it proposed retrenching 14,000 workers and shutting three shafts to restore profitability and take excess platinum off an oversupplied market.
During her tenure as Anglo CEO, Cynthia Carroll was repeatedly quizzed by analysts and investors about its high exposure to South Africa, with some calling for the company to exit the country. Mr Cutifani officially replaced her on April 3.
Gold companies with assets in South Africa have come under pressure to split their international assets from those in South Africa, with Gold Fields becoming the first to do so by unbundling three labour-intensive, deep-level mines in South Africa into a separately listed company, Sibanye Gold, in February.
The hedge fund owned by US billionaire John Paulson, which holds 7% of AngloGold, estimated that the gold miner’s shares could increase in value by up to 68% if it split its mines into South African and international businesses.
Bloomberg reported that the South African government had rebuffed the world’s third-largest gold producer earlier this year when it raised the prospect.
Investors are watching Mr Cutifani’s first few months at Anglo closely, given the volatile global commodities markets.
"Anglo, like other miners, has seen tremendous pressure on its share price, given poor investor sentiment towards the metals and mining sector," Macquarie Securities said. "With numerous challenges and opportunities in front of him, we believe investor sentiment towards Anglo will increasingly hang on … Cutifani’s strategy for the company."
Anglo had made progress in streamlining its portfolio, selling a number of assets including a stake in AngloGold Ashanti and paper group Mondi. It also merged its construction materials business with that of Lafarge to create a new, listed entity. "While many things have been achieved, we cannot continue to do business as usual," Mr Cutifani said.
Hours after he spoke, a worker was stabbed at AngloGold’s Moab Khotsong mine near Orkney, which, together with Mponeng mine near Carletonville, have been hit by a labour dispute.
Anglo’s high level of exposure to South Africa relative to its peers and the challenges of completing its Minas Rio iron ore project in Brazil were among the factors that made the company a less compelling investment option, UBS Investment said last week. These were issues Mr Cutifani would have to tackle.
"We expect him to focus on turning around the underperforming assets in the group, to undertake further cost-cutting, and to reassess the portfolio of commodities," UBS said.
One of Mr Cutifani’s first tasks as Anglo CEO will be overseeing a detailed strategic review of the company over the next three months.
"As a major diversified company, we need a more focused articulation of the value proposition that will guide our strategic positioning," he said.
It will scrutinise capital allocation and, where projects do not meet investment hurdles, cash will be returned to shareholders, he said.
"We will be more open to joint ventures where we can partner with others to tap broader operating or other experiences along with lowering our incremental capital risk on specific projects," he said.
A lack of capital discipline and focus on returns contributed to "the difficult issues we have seen in the industry over the last five years". This sounds similar to the approach Mr Cutifani took in turning around the fortunes of AngloGold Ashanti from 2007.
Analysts have suggested that Anglo could take a further write-down on the Minas Rio project after impairing it by $4bn earlier this year, with a view to bringing in a partner.
Costs on the project have roughly trebled to $8.8bn.
Ms Carroll said in one of her final interviews as Anglo CEO that the time was right to seek a partner for Minas Rio to expand it to 90-million tons from the 26.5-million tons in phase one.
Anglo chairman Sir John Parker said last week that Minas Rio was making progress and was on line to ship its first iron ore at the end of 2014.
Sir John also pointed to the changes that lay in store for Anglo, especially after the company’s slew of difficulties in building Minas Rio and the fierce criticism it attracted.
"Given the increased challenges involved in developing large and complex greenfield sites, the board will apply a highly disciplined approach to the allocation of capital, with smaller, lower-risk brownfield expansion projects more likely to find favour in the short term," he said.
"We will also explore the merits of seeking suitable partners in large greenfield projects.
"We aim to return it to sustainable profit and a more secure future for the 45,000 employees who would remain in that business," Sir John said.
Amplats employs about 60,000 people and will enter a formal 60-day restructuring process once consultations with the government and labour conclude at the end of this month.
UBS said it expected Amplats to reduce the number of workers it will retrench, and scale back the production it intends taking off the market.