Anglo American Sees 20% Returns After Rejigging Assets

Anglo American Plc (AAL) Chief Executive Officer Mark Cutifani contends he’ll double profitability once he cleans up his sprawling company in the coming years -- and then he’ll be able to increase it again.

“A company like ours should be delivering 20 percent return on capital through the cycle,” Cutifani said in a May 16 interview at Bloomberg headquarters in New York. “We haven’t put a time on that, but we believe 20 percent is doable.”

The coal miner turned CEO started a review of assets a year ago after joining London-based Anglo, the world’s fifth-largest mining company with iron-ore, platinum, diamond, copper, nickel and coal operations from Australia to Brazil. He has set a goal of improving Anglo’s return on capital to at least 15 percent by 2016 from about 8 percent in June, and he’ll consider disposing of any asset that pulls down the average.

Out of 69 Anglo assets, 31 are delivering just 2 percent of earnings before interest and taxes, Cutifani said. The new management team has seen signs of improvement in 15 of the 31 assets in the past year, while 16 “still have a lot of work to do,” Cutifani said.

“We told them if you can’t deliver, you won’t survive in the portfolio,” he said.

Photographer: Scott Eells/Bloomberg

Anglo American Plc Chief Executive Officer Mark Cutifani said out of 69 assets in the sprawling company, 31 are delivering only 2 percent of earnings before interest and taxes. Close

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Photographer: Scott Eells/Bloomberg

Anglo American Plc Chief Executive Officer Mark Cutifani said out of 69 assets in the sprawling company, 31 are delivering only 2 percent of earnings before interest and taxes.

Anglo already has identified some of the assets it will sell, the former CEO of Johannesburg-based AngloGold Ashanti Ltd. said, declining to elaborate.

London Stock

Anglo plans to cut senior-level jobs at its South African office, the Johannesburg-based Sunday Times reported yesterday. Employees at the office were asked to apply for voluntary severance or early retirement, the newspaper said.

Anglo has declined 48 percent in London trading in the past three years, compared with a 32 percent drop in the five-company Bloomberg Industries Global Diversified Mining Competitive Index. The stock fell 0.4 percent to 1,555.5 pence at 9:30 a.m.

Before he joined Anglo, the company had already lost its market credibility, missed operating targets and lost shareholders because it couldn’t deliver on time and on budget, Cutifani said.

“The first thing to demonstrate is that we can turn around this business,” he said.

The 56-year-old Australian, who replaced Cynthia Carroll after she quit amid cost overruns and delays at the Minas-Rio iron-ore project in Brazil, said he isn’t planning to invest additional funds in the mine.

CEO’s Priorities

Minas-Rio, scheduled to ship its first ore by the end of the year after $8.8 billion of capital expenditures, was 88 percent completed at the end of March and is projected to reach full annual capacity of 26.5 million tons in 2016.

Production at Minas-Rio could be increased to 30 million tons, Cutifani said.

“I want to see that done with that capital and better margins,” he said. “Then we’ll look at how the prices are before making the call.”

Cutifani listed his priorities as reducing debt, continuing to pay dividends and investment. He said he prefers to invest in copper, niobium and phosphate expansion projects instead of Minas Rio’s iron ore.

Anglo, which increased nickel output by 40 percent since July and cut $1 per pound of production costs at the Barro Alto nickel project, may consider selling the Brazilian mine in the long term because of surplus supply, Cutifani said.

Nickel Options

“Short-to-medium-term prognosis for nickel is very, very good,” he said. “However, it is probably one of the least optimistic commodities in our portfolio in the longer term because I still think on the supply side there’s still a bit of nickel around.”

Anglo may offer Barro Alto to Brazil’s largest miner Vale SA (VALE), Deutsche Bank AG said last week.

“I think we’ll be able to talk with people about possibilities in our nickel business,” Cutifani said. The company is planning to fix the mine’s furnaces -- which interfered with the company reaching output targets in 2012 -- and benefit from rising nickel prices, he said. Nickel on the London Metal Exchange reached $21,000 a ton on May 13, the highest since February 2012.

Anglo also is facing setbacks at its platinum operations in South Africa. The Association of Mineworkers and Construction Union called more than 70,000 miners out on strike on Jan. 23, including employees at Anglo unit Anglo American Platinum Ltd. (AMS) The company has lost about a third of its production since then.

A key issue to ending the strike is resolving the intimidation of workers who wish to report for their shifts, Cutifani said.

“Our view, based on talking to most of the employees, is that the majority of people want to come back to work,” he said. “That’s the tragedy.”

To contact the reporter on this story: Firat Kayakiran in London at fkayakiran@bloomberg.net

To contact the editors responsible for this story: John Viljoen at jviljoen@bloomberg.net Tony Barrett

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