Cutifani Will Have No One Else to Blame After Writedowns

Anglo American Plc’s Mark Cutifani will have no one left to blame if he fails to meet his goal of turning the company around as early as next year after writing down former Chief Executive Officer Cynthia Carroll’s deals.

The London-based producer of metal and minerals from Africa to Brazil today said profit last year fell 7 percent, while it wrote off an extra $1.9 billion from assets partly inherited from the prior management. Cutifani, who took over from Carroll in April, says better performance will mostly appear next year, and in 2016 when return on capital will double to 15 percent.

“Anything going forward will represent Cutifani’s strategy and his decisions, particularly given that’s the last of the projects written off that are associated with the previous management,” said Paul Gait, an analyst at Sanford C. Bernstein Ltd. in London. “That’s basically clearing the deck so from here on, Cutifani is putting his name behind it.”

Anglo wrote off $700 million at its Barro Alto nickel unit in Brazil and $200 million at South African platinum operations, it said today in a statement. It posted an impairment charge of $300 million on the Michiquillay copper project in Peru, $200 million on the Foxleigh coal mine in Australia and $300 million on the Pebble project in Alaska, which it abandoned last year.

At the same time, Anglo American can expect to recoup value from some of the former CEO’s projects, with Cutifani saying the $8.8 billion Minas-Rio venture in Brazil, its biggest iron-ore project, is set to begin production by the end of the year. The company wrote down Minas-Rio by $4 billion on cost overruns after Carroll left. About 84 percent of the work is now done.

Expand Spending

“Michiquillay is Carroll’s, Barro Alto Carroll’s, Foxleigh, Minas Rio all Carroll’s,” Gait said. “That’s basically clearing the deck.”

Anglo will expand spending this year to $7 billion to $7.5 billion, from $6.3 billion, before cutting it again in 2015 and 2016, Cutifani said. Anglo sees value in investing in copper and thermal coal, where supply is under pressure, he said.

“While I expect headwinds to continue in 2014 as we reset the business, the benefits of much-improved operational processes and performance will flow through largely in 2015 and 2016,” the CEO said in a statement. He plans to raise earnings before interest and taxes by as much as $4 billion by 2016.

Net borrowings rose to $10.7 billion by end-2013 from $8.5 billion and may reach $14 billion to $15 billion by the end of 2014, Chief Financial Officer Rene Medori said today on a call.

Underlying earnings at Anglo in 2013 slid 7 percent to $2.7 billion. That beat the $2.38 billion average of 17 analyst estimates compiled by Bloomberg. It posted a net loss of $961 million after a loss of $1.49 billion in 2012.

Anglo raised the share of its assets delivering on budget to 53 percent in the second half from 11 percent, Cutifani said in a presentation in London. Of its 10 top assets, accounting for about 70 percent of earnings, the company increased the number meeting budget targets to eight from two, he said.

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