Anglo CEO Seeks $1.3 Billion Cash Gain From Business Review

Anglo American Plc, the mining company that is reviewing its operations from Australia to Brazil, will target a $1.3 billion gain in annual cash flow and the sale of some assets during an overhaul.

Chief Executive Officer Mark Cutifani, who is seeking to complete the study in the next three months, has visited 40 percent of the company’s assets since taking over from Cynthia Carroll in April, he said on a conference call.

The company may consider seeking buyers for some of the 15 Anglo assets identified for potential divestment when markets offer “good value,” Cutifani said from London. “I’ve got recommendations to sell some assets, today isn’t a good time to sell,” he said. “We’ll work to fix them and be opportunistic to sell when there’s value. It’s a tough market now.”

Anglo’s first-half underlying earnings dropped 28 percent to $1.25 billion from a year earlier, it said, because of lower metal prices. Profit at mining companies has fallen as economic growth slows in China, the largest commodity importer. Anglo last week booked a charge of $189 million for the six months after the price it got for its copper slumped 14 percent.

“Decent interim results with ambitious cash uplift plans,” Liberum Capital Ltd. said in a note to investors. “We remain cynical of any massive cost savings management hope to achieve, until they become more identifiable.”

Cash ‘Uplift’

Anglo gained 0.1 percent to 1,391 pence by the close in London. It has dropped 26 percent in the past six months, compared with an 11 percent decline for BHP Billiton Ltd., Rio Tinto Group’s 17 percent retreat, and Glencore Xstrata Plc’s drop of 28 percent.

Cutifani seeks to achieve the $1.3 billion annual cash flow “uplift” by 2016 through $300 million savings from capital allocations on early stage projects, about $500 million from commercial business and $500 million from organizational restructuring.

“There are projects that will be pushed back,” Cutifani said on the call. “The $300 million is not fluffy stuff. It’s been kicked back because they won’t deliver the sort of returns I expect to see in the business. And that reduction will be an ongoing reduction because we’ve changed the way we look at and think about projects.”

Anglo has reduced the number of business units to six from 10, it said in a separate statement. “It’s about getting our structure down to something that’s much more manageable, effective, and cut out the bureaucracy,” Cutifani said.

Brazil Process

Anglo has started a process to sell less than a 50 percent stake in its Minas-Rio iron ore project in Brazil, according to the CEO. “We are open, we are in conversation,” he said. “The next 12 months will demonstrate that we de-risk the project.”

The metals producer hired Goldman Sachs Group Inc., Morgan Stanley and UBS AG to sell as much as 49.9 percent of the project, two people with direct knowledge of the matter said last month.

The plan to sell a stake in Minas-Rio follows the company’s writedown in the value of the $8.8 billion mine, processing plant, pipeline and port terminal by $4 billion. First shipments are scheduled to start late in 2014 after years of delays and budget increases.

Even with the review, Anglo will still be a diversified mining company a year from now, Cutifani said.

“We like the commodity spread that we have and see potential to make good returns across the business,” he said on the conference call. “At the asset level, that’s where the issues are.”

South Africa

Anglo’s platinum operations, chiefly in South Africa, are an undervalued business, Cutifani said in an interview with Bloomberg Television. Anglo, which has 45 percent of its business in the country, including Anglo American Platinum Ltd., the biggest producer, needs to “reframe” its relationship with South Africa after operating there for 80 years, Cutifani said in the interview.

“The thing for us going forward is how do we make sure we both do the right thing by our stakeholders, and certainly that will be the central point of what I’ve got to do over the next 12 months in working with the government -- making sure we’ve got the balance right.”

Amplats, as the Johannesburg-based platinum producer is known, plans to cut 6,000 jobs, idle three shafts and reduce annual output by 350,000 ounces.

About 5,600 South African workers at unit Anglo American Platinum Ltd., the world’s biggest producer of the metal, this month went on strike demanding that suspended union officials be reinstated.

Anglo’s current operating model isn’t effective and needs to change to a more industrial approach, he said during the interview. The company will have to increase the rate at which it meets budget targets to 80 percent, from just 11 percent now, he said earlier. “That’s the minimum we should be expecting,” he told reporters. “To go from 11 percent to 80 percent or better than 75 percent success rate means we have to run the operations differently to what we’ve been doing.”

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