Business

Anglo American: The house that Oppenheimers built, now led by Mark Cutifani

By J Brooks Spector 10 January 2013

Following its axing of Cynthia Carroll as its CEO, the troubled Anglo American Corporation reached out to another major mining house, AngloGold Ashanti, to pick its CEO, Mark Cutifani, as its own new chief executive. J BROOKS SPECTOR examines the board’s decision.

Late last year, the Daily Maverick described the giant company’s travails in its story, “Anglo American: A giant corporation between a big rock and a very hard place”, and this week Anglo’s board took its decision to end the uncertainty about its new leadership.

For decades, Anglo was South Africa’s pre-eminent industrial and mining enterprise. At one point more than half the value of listed shares on the JSE were Anglo American-controlled enterprises. After the end of Apartheid’s isolation, Anglo began to spin off many of its enterprises that were not part of its core focus on mining. In 1999, Anglo changed its primary listing from the JSE to London. More recently still, Anglo American spun its gold mining interests into a separate corporation that merged with Ghanaian mining interests into AngloGold Ashanti – the same company Cutifani now heads.

Overall, reaction to Cutifani’s selection, so far at least, is generally optimistic. Many analysts are saying plainly Cutifani is probably the best person around for this job, based both on his broad international mining experience and his knowledge of South Africa’s specific social-political-economic circumstances. There are doubters, of course. The National Union of Mineworkers (NUM) was publicly disappointed that Anglo’s board couldn’t find a single black or female South African to head the multinational. A deeper,  and so-far unanswered, question is why, given the government’s obvious interest in, and the company’s frequently expressed support for, South Africa’s economic transformation, there seems to have been no visible, organised process for grooming a local, black successor generation for Anglo’s top management spots.

For its part, the NUM said it was “disappointed at Anglo American’s decision to appoint Mark Cutifani as its new chief executive officer. Anglo has missed yet another opportunity to appoint either a black or even white South African woman to lead the global entity. The NUM is particularly disappointed at Anglo’s continued resistance to transformation as well as its commitment to hire only foreigners for the top job.”

Putting down what might well become a marker for any future wage negotiations, NUM’s head, Frans Baleni, added, “We urge the newly appointed CEO to show commitment to transformation as well as introduce the global framework agreement with our global federation IndustriALL to ensure the standardisation of conditions of service.” In that regard, there has been some recent public discussion that while it is true that the circumstances of mining operations are often very different, nevertheless, the wages and conditions of employment for South African miners are significantly at variance with – and much lower than – those in other major primary minerals producers like Canada and Australia.

Meanwhile, while it applauded Cutifani’s appointment, one of Anglo’s key institutional investors, South Africa’s Public Investment Corporation (PIC), added in a tone a tad curmudgeonly that Cutifani fits the profile of the right person to head the company “fairly well”.

Cutifani’s appointment to head up Anglo starts on 3 April. He’s spent his entire working life in the mining game. Prior to his time at AngloGold Ashanti, where he gets good marks for having carried out a successful restructuring and development of operations in 10 countries, he was chief operating officer at the Canadian company, Vale Inco, where he was responsible for Vale’s global nickel business. Prior to mining giant Vale’s takeover of Inco, he was Inco’s chief operating officer. Before that, Cutifani was at the Normandy Group, Sons of Gwalia, Western Mining Corporation, Kalgoorlie Consolidated Gold Mines and CRA (Rio Tinto). Cutifani’s academic background was in mining engineering. In addition to his role at AngloGold, Cutifani is the current president of the South African Chamber of Mines. And he is an Aussie with seven children.

Anglo American’s chairman, Sir John Parker, commenting on Cutifani’s appointment, praised him as “an experienced listed company chief executive with a focus on creating value. He is a seasoned miner, with broad experience of mining operations and projects across a wide range of commodities and geographies, including South Africa and the Americas. Mark is a highly respected leader in the global mining industry, with values strongly aligned to those of Anglo American. We look forward to welcoming him as our chief executive.”

In turn, in praising Carroll’s accomplishments, Parker said she had been “an inspirational leader who has had a transformational impact on Anglo American. Among many other things, her legacy will include a step change improvement in safety, sustainability and the quality of our engagement with stakeholders.” Noticeably absent, however, were any thanks for adding to share value, probably the biggest reason she felt she had to resign, before being pushed.

And for its part, the PIC pointed to the on-going challenges for Anglo’s new head, looking forward, that were around “capital allocation, project management as well as operational (particularly the copper mine in Chile) in nature. These challenges dictated a CEO that is strong in these areas, particularly in operations” for Anglo’s activities around the world and in South Africa. South Africa accounts for about 50% of Anglo’s operations.

In his new position, for his troubles, Cutifani will be harvesting a cool £1.2 million (about R16.5 million) a year in base pay, plus a hefty bonus share plan, lots of enhancement shares in Anglo, a very generous long term incentive plan, and a very nice, very tidy compensation package in the form of restricted shares as a way of making up for any loss of incentives he might be foregoing from his current position. Oh, and in case he forgets to put a little something away for a rainy day, the company will also be making an annual contribution of 30% of his base pay as a pension, in cash or in the company’s retirement plan, at Cutifani’s discretion. Not bad for embracing the huge but troubled company.

Taken together, a cynic might even try to argue that Cutifani, by himself, will contribute to increasing the Gini coefficient ( a measure of inequality of wealth or income) of whatever country serves as his primary tax domicile. It also seems a reasonable presumption someone in the platinum industry unions will take note of this pay packet – in comparison to the average miner’s wages.

To earn this pay in exchange for dealing with Anglo’s challenges, analysts say Cutifani will need to draw on all of his varied experience in the mining sector around the world. Right off the bat, Cutifani will have to carry out an urgent review of Anglo American Platinum –  80% owned by Anglo American. On this key issue, Anglo chairman Parker said, “Given the extent of his experience around the world, we will be very keen to have his input and we’re unlikely to ignore anything he comes up with that can be incorporated.”

The markets have already bumped up Anglo’s stock following Cutifani’s appointment and they are already anticipating closure of Anglo’s loss-making platinum mines and other asset sales. Parker commented, “The whole industry, if we do nothing, is rather endangered. We have a strong commitment to South Africa. We’ve made that clear and it is part of our strategy at this stage. Until we’ve something else to say there’s no need to say anything,” even though no one has actually asked about Anglo’s commitment to South Africa.

Although she obviously had her critics about her handling of the operational end of the business, Cynthia Carroll received high marks for rebuilding Anglo’s relations with the South African government after the bristling coolness in that relationship on the part of her recent predecessors. As a result, even though Cutifani will need to look closely and quickly at the problems with its platinum operations and its money-gobbling investment in its Brazilian iron ore mine, he is also going to have to stay on course with keeping in sync with the government. Peter Davey, of SBG Securities, observed, “In the short term, his success as CEO rests on his ability to finalise and implement the review of Anglo American Platinum, maintaining good relations with the South African government and delivering Minas Rio.” Minas Rio is that Brazilian iron ore project that is way, way over budget and behind schedule. Big time.

Summing up Cutifani’s challenges, the Financial Times noted, “Anglo missed the last [commodity] supercycle, so Ms Carroll’s tenure was devoted to plugging gaps in its commodity line-up – with development projects in copper, iron ore and nickel. The most ambitious of these is Minas-Rio, the iron ore mine in Brazil beset by cost overruns and bureaucratic delays. As total costs head towards $8 billion, it is time for decisive action to complete or quit the project. Another conundrum is how to fix Anglo’s rating, held back by northern hemisphere investors’ dislike of its South African bias. The issue is what to do with separately listed Anglo Platinum. Ms Carroll’s review of it is due out this month. Given Pretoria’s job-creation agenda, Anglo cannot exit its mined-out, overmanned mines in Rustenburg. With subdued platinum demand, selling AngloPlat would wreck value. Unbundling it to Anglo shareholders would give them more lowly-rated paper – though Anglo could re-rate.” And that’s why Cutifani is going to get the big bucks.

Unpacking how the larger politics and business issues interact for Anglo and Cutifani’s new tasks, a leading South African business commentator explained to the Daily Maverick he felt Cutifani actually was a good compromise candidate whose selection ticks the boxes. “He knows South Africa well (which government will like) but he isn’t South African (which the British fund managers will like). He is definitely adept, and is energetic and engaged. He has assiduously won the begrudging respect of the SA mining world – very understanding of SA problems but not a retiring wallflower. He has the Anglo character set in the sense that he is a nice guy; he’s considerate, worldly, a bit of a renaissance man. He doesn’t have the thumping ego of some of mining okes, which in some ways might be a problem.”

However, gold mining is just different than most other mining and Anglo is trying to focus, like every other mining house, on the open pit operations because they come in at the bottom end of the cost curve. “Anglo’s big challenge, and the reason why Carroll got fired, is in fact nothing to do with mining; it’s keeping costs under control. Anglo’s huge new mines in South America are hopelessly, hopelessly over budget; like billions and billions. The main reason is that South America is a complicated legal and social environment in a different way to South Africa.”  

Ultimately, it is just a different world for Anglo now than it was back when it was one of the biggest of the big guys. Now it is around seventh or eighth on the list. Cutifani’s biggest – and perhaps ironic – problem might even be what happens if he is judged as succeeding. If he does really well, by that view, Anglo becomes “takeover meat, especially after the merger of Xstrata and Glencore”.

Some might even argue the board liked Cutifani because his Australian background might facilitate a merger with Anglo-Australian mining giant, Rio Tinto.  Down the road, that might just be the deal that needs to happen for Anglo if it is to have a chance of staving off being gobbled up – whole or piecemeal. Now this may really be why Cutifani is going to get those big bucks. DM

Read more:

  • Mark Cutifani appointed new CEO – Anglo American, in PoliticsWeb
  • Cutifani appointment a lost opportunity – NUM, in PoliticsWeb
  • Anglo American to name Cutifani as chief, in FT
  • Anglo American: on your marks -Any new boss needs three main qualities, in FT

Photo: Mark Cutifani, then CEO of Anglogold Ashanti, speaks during an annual African mining conference in Cape Town, 7 February, 2012. REUTERS/Mark Wessels

Gallery
0