EXIT INTERVIEW

Mark Cutifani and the great Anglo turnaround Come April 19, Anglo American CEO Mark Cutifani will hand the keys of the 105year-old mining major to Duncan Wanblad. In the nine years he’s been at the helm, he’s overseen a 214% stock rise, taking Anglo from

David McKay

Anglo American nearly didn’t reach its centenary anniversary in 2017. Just two years prior, at a capital markets presentation on December 8 2015, CEO Mark Cutifani was fighting for the group’s survival, and for

his career.

Anglo was about to end the year as the worst performer on the FTSE 100 index, amid speculation that it had become easy prey for takeover or dismemberment.

“It was like an impala on the plain with a missing leg,” says Standard Bank Group Securities analyst Tim Clark. “From the market’s perspective, it didn’t even seem that interesting a kill.”

Cutifani turned up at the capital markets presentation under slightly comical circumstances,

with a large rose in his buttonhole. “I’d just lost a bet that Australia’s rugby team would beat England’s,” says Cutifani. “I was supposed to wear an English rugby jumper, but Sir John [Parker, Anglo’s then chair] thought that was a bit too much. So I wore an

English rose.”

The presentation was brutal. Jason Fairclough, an analyst at BoA Merrill Lynch, likened Anglo to “a zombie company” that required urgent shoring up. “If we look at it, the market’s concern is not liquidity but rather solvency,” he said. “The question is: when are you going to raise equity?”

Others were hostile. To a ripple of disquiet, Deutsche Bank analyst René Kleyweg commented: “We all make mistakes. Ours has been so far to continue with the buy recommendation of Anglo.”

The darts and brickbats aside, tapping shareholders for funds was never an option, says Cutifani in an interview with the FM, a month before he steps down. “That would have been like hoisting up a white flag.”

In any event, Anglo was contending with sterner issues. “Our concern was that someone would come in and have a ping at us,” he says. Cutifani’s gamble was for Anglo to stay intact long enough to show that his tactics were having an effect. And for mineral and metal prices to recover.

Cutifani had been walking this tightrope since his appointment in 2013 when he told Parker he needed to “buy time” — two to three years. Over that period, Anglo announced a plan to halve the number of its mines to 38 in an effort to increase its margin by 20%-30%. As China’s growth slowed quicker than expected, a second strategy was hatched — the “pirouette”, Cutifani calls it — in which Anglo would become an even more slimmeddown, late-cycle mining company producing only copper, platinum and diamonds.

At the time, it looked like clutching at straws. Yet it proved a critical juncture for the group.

“If we hadn’t announced the pirouette we would have been done for,” says Cutifani.

There had been a major restructuring throughout 2014 — a process that was more bloody than Cutifani imagined. “When we did the copper, diamonds and platinum strategy, it bought us 12 months. The market thought this was different. It prevented an actor coming in and doing something.”

Anglo was also emboldened by the fact that it was making operational headway, even as Cutifani was being slaughtered by analysts. “Jason [Fairclough] couldn’t see what I could see,” says Cutifani. That was that year-end numbers would demonstrate a 15% cost reduction — early signs that Anglo was clawing its way back.

By mid-2016, Anglo had sold a niobium and phosphates business to China Molybdenum for $1.5bn (eventually $1.7bn) — funds it put into reducing debt. Meanwhile, commodity markets were stirring. Copper futures gained 20% in 2016, nickel was up about 15% and aluminium 12%.

One moment, ratings agency Moody’s was forecasting that weak metal prices would continue to hobble miners through 2016. The next, the market began to recover.

China’s prospects improved, fears about US interest rates diminished and there were healthier market balances in metals. Shares started to run ahead.

After five years of consecutive material losses in commodity shares, it all looked rosier.

That meant Cutifani could close the book on the late-cycle minerals narrative and retain the coal and iron ore mines that would go gangbusters in 2021, delivering Anglo’s best numbers yet. He’d made it through the rain — but only just.

“[Cutifani] proved the sceptics wrong and deserves to take a victory lap now, as he is leaving Anglo on a high note,” say Christopher LaFemina, Patricia Hove and Tilly Galbraith, analysts at investment company Jefferies.

Six years after getting existential over Anglo, Merrill Lynch’s Fairclough said at the close of Anglo’s 2021 results in February:

“For me and for most of us here, you’ve

been a breath of fresh air, quite honestly.”

At a sumptuous farewell, staged at Anglo’s Somerset West wine estate Vergelegen, industry, religious and political leaders acknowledged Cutifani for having taken Anglo from sector prodigal to bellwether, and much else besides. A dab hand at government relations, he lifted the quality of the conversation with political leaders and hit all the high notes on issues ranging from the environment to human rights.

Had the market saved his bacon? “It was a bit of both,”

Cutifani responds. “We had a little bit of luck, but we took costs out of about 40%. That’s a fact.”

A corporate wildcard

Asked for his view of the farewell event at Vergelegen, Cutifani seems a tad embarrassed by the fuss. In addition to the accolades, he was presented with his own blend of wine, about 400 bottles of the stuff. That’s thanks, perhaps, to the fact that Vergelegen was one of the few corporate fripperies Cutifani didn’t jettison over the years, unlike the corporate jet and the fancy Regency offices in London, near Buckingham Palace.

Yet it’s hard to imagine Cutifani struggling with the attention. He is gregarious and has the common touch baked in from his humble roots in Australia’s Wollongong, south of Sydney. This produces interesting dividends from time to time. When it’s necessary to invoke the wildcard nature of this background, Cutifani does so.

He tells, for instance, of how he was once visited by SA government representatives during the proposed sale of Anglo’s coal assets.

For political backdrop to that event, look no further than Jacob Zuma’s administration. “All the [coal] assets were being flipped around, and there was pressure on us to do all sorts of things,” says Cutifani.

In the visitor briefing, set up and deliberately scripted to head off the embarrassment of a possible bribe, Anglo executive Anik Michaud said: “You know [Cutifani is] Australian and he’s a bit of a nutter. If you make any inappropriate suggestions or requests, he will immediately go to the public protector; he will go straight and declare.”

As Cutifani tells it, “when we finally had the conversation, we only talked about the weather.

“It was one of the most bizarre meetings I’ve had.”

He declines to say who exactly the visitors were. But the thermal coal mines were eventually sold to Seriti Resources in a bidding process that numbered 70 applicants. These days, Cutifani is especially positive about SA’s fortunes — notwithstanding President Cyril Ramaphosa’s difficulty in stamping out corruption and nailing those suspected of perpetrating it in the past. His optimism might be partly to do with the fact that 60% of Anglo’s 2021 earnings before interest, tax, depreciation

and amortisation (ebitda) was generated in the country.

Nonetheless, finance minister Enoch Godongwana’s cutting of the corporate tax rate in February, and the abolition of forex constraints a year earlier, represent “a big tick” for SA at a time when leftist movements in South America are talking about hiking tax.

Globally, however, there’s a storm going on. Just as the generation-defining Covid pandemic recedes, the prospect of a new Cold War rises.

According to commentators, today’s geopolitics have the potential to rewire trade and economic lines entirely. Larry Fink, founder and chair of US fund BlackRock, commented last week that Russia’s invasion of Ukraine spells the end of globalisation. It has also unseated expectations of how commodity markets might pan out.

Cutifani isn’t surprised Fink has called time on a future of unfettered global trade. “To be honest, we’ve been saying that for a while,” he says.

China’s emergence and the coalescence of economics into a bipolar world is the most important political and economic development of our times, Cutifani says. He considers Russia, however, to be “riding on China’s coattails”, as it simply doesn’t have the same economic power, despite its unsettling war.

Still, he thinks companies such as Anglo can “work both sides” of the equation, provided they can open their minds to the bipolarity of the system.

“I’m not advocating China’s system of government and governance, but I would argue [the country has] done a lot of things we can learn from,” he says. China’s political executive, for example, runs the country like a business.

“I believe in democracy, but I’m not so cemented in my views that we have all the answers,” says Cutifani. “And, by the way, businesses aren’t run as democracies either.”

Life beyond Anglo

As for Anglo’s business, the question is how the new guy will be in the role. This is Duncan Wanblad, appointed last year to no great surprise after news leaked that he was on the short list to replace Cutifani.

“We spent considerable time with Mr Wanblad during a tour of Anglo’s South American copper assets in 2018 and find him to be thoughtful and knowledgeable, and an excellent communicator,” says Merrill Lynch’s Fairclough in a recent note.

After running Anglo’s base metals division, Wanblad, a South African, ran strategy and new business for the group. He’s thought to be behind the purchase in 2020 of fertiliser project Woodsmith from UK firm Sirius Resources for £405m. The project, which lines up behind the $5.3bn Quellaveco copper mine in Peru as Anglo’s next big capital outlay, is a year delayed. Cutifani says the market shouldn’t read too much into that. But if it works out, it’s a genius acquisition, given Russia and Ukraine are two of the world’s largest phosphate fertiliser exporters, leaving global supply in doubt at present.

Wanblad will also have to pick up the government relations baton at a fluid time. “That’s maybe his biggest challenge,” says Standard’s Clark.

There may also be a refreshing of senior executives at Anglo following Cutifani’s

Duncan knows where we come from, he knows where we are and I think he’s got a good idea of where to go

Mark Cutifani

departure on April 19. Finance director Stephen Pearce is 58 this year, while Anglo technical director Tony O’Neill is at even bigger risk of departure, age-wise.

Cutifani and O’Neill are something of a double act, tailing each other’s careers. It’s O’Neill who helped form and implement Anglo’s FutureSmart Mining operating methodology.

Bruce Cleaver, CEO of Anglo subsidiary De Beers, and another senior head, is 56. “Bruce [has] got another CEO role in him at the moment,” says Cutifani. “Tony and Stephen will be a bit different, but Duncan has to refresh the organisation anyway. So it will come, but we have laid a new set of foundations.”

In Cutifani’s mind, the DNA for Anglo has an analogy in the 2011 movie Moneyball. In it, a small-time baseball coach working with a limited budget assembles a winning team by matching the right players to the right roles. He relies on data rather than feel.

“We don’t have the Pilbara [iron ore deposits on which Rio Tinto’s minerals wealth stands], we don’t have Escondida [BHP’s copper mine in Chile], but we have an acute understanding of what the equation needs to be,” says Cutifani.

“Most people running mining companies don’t understand the equation for their company, in my view.”

For Cutifani, this is about keeping Anglo at the 37th percentile in costs to deliver a 40% ebitda margin, which yields a 10% return. Half the return is paid out as a dividend and the other is reinvested in the capital base.

“If I’m investing in the quality of the assets on a year-onyear basis, I’m either growing at 5% or I’m improving our operating cost by 3%-5%,” he says. “That means improving the margin and you’ve delivered 15% of total shareholder return.”

For Cutifani, there’s no way of preparing for life without Anglo.

He’ll hand over the keys to Wanblad on April 19. Then he’ll walk away.

“Duncan knows where we come from, he knows where we are and I think he’s got a good idea of where to go,” he says.

In large part, that will involve managing perception. In Cutifani’s view, Anglo’s transformation has been 20 years in the making. Having closed the 40% discount to rivals BHP and Rio Tinto in the past five years, it will now take a similar amount of time to convince the market that Anglo should command a premium.

“Shareholders have to see a performance … for 10 years before it commands a premium,” he says. That’s possible “as long as SA is seen as a good place to be”.

As for the future, Cutifani will retain his board post at French energy firm Total — a company he admires for its ability to listen to its business partners, wherever it might be. The company will stop buying oil from Russia

this year, but it intends to retain its LNG assets there. It’s a strategy Cutifani supports. But he’s not desirous of becoming the group’s chair, and thinks that would be impossible anyway. “You have to be Frenchspeaking,” he explains. “It’s France’s largest company.”

Intriguingly, however, he doesn’t dismiss out of hand the idea of eventually taking up a post at an Anglo rival. “I would have to think hard about working on another major [mining company]. But the industry changes quickly and so you never say never.” He’s also interested in getting involved “in the equity side of things, project stuff”. Cutifani cites a recent memorandum between Anglo and energy provider EDF to build a solar and wind renewable platform that will supply Anglo’s SA operations by 2030.

“I don’t want to be locked in,” he says,

“but if someone in SA wants help ...?”

mining sector already under stress.

The sector is in a desperate race, said Anglo American CEO-designate Duncan Wanblad at the Financial Times Mining Summit in October. Metals are hard to find — and even harder to access, as government sanction for projects becomes more difficult to achieve.

The single-largest reason government authorisations are slower to come is because mining companies haven’t done enough to prove they are a social good. Never before has the link between a hole in the ground and society been so clearly circumscribed.

No mining company sleeps easily knowing a supply squeeze could be on the horizon, said Wanblad. Prices for metals will vault — but they’ll do so in a disorderly way, making capital planning difficult.

And even if the contribution from the circular economy — in the form of scrap — were to double, the world will still need the equivalent of 30 new Quellaveco mines to meet future demand for copper, he said, referencing Anglo’s $5.3bn project in Peru.

Copper is critical to global decarbonisation. According to former Glencore CEO Ivan Glasenberg, copper production of 60Mt a year will be required by 2050. That’s double current output. Yet Quellaveco is one of the few new copper projects in the world.

Of the 29 elements used in the manufacture of your common mobile phone, 28 are directly or indirectly produced by mining activities, says Sietse van der Woude, senior executive for modernisation and safety at the Minerals Council SA. Copper is one of them. “Society can’t do without mining,” he tells the FM. “What’s important is how we modernise and futurise in a world that is socially just and keeps us [with]in our ecological models.”

To achieve this, new mining projects will become more complex, as they’ll depend on the buy-in of communities and host governments.

Wanblad said the current lead time from drilling the first hole on an exploration site, to mine construction, to marketing of metal supply will move from about 15 years to 17 years, and perhaps even 20 in the near future.

New projects can’t look like the projects of old, said Wanblad. “They need to be far more empathetic to the environment in which [they] operate. This means having much lower footprints in terms of their emissions, and their land and water usage.”

The same is true in SA. “There needs to be much more collaboration between mining companies, governments and labour,” says Andries Rossouw, team leader of mining at auditing firm PwC.

In the local context, this means doing some of the work usually required of local government, as some municipalities are failing.

“It will certainly lead to longer lead times in order to get mines going. Environmental authorisations take much longer,” he says.

Increasingly, the world needs more metals for public-sector decarbonisation goals to be met. If solar power is to grow from 9% of total power to 70% by 2050, for example, the world will need more copper now. Similarly, nickel supply must grow by 250,000t a year — another doubling — while annual nickel demand is expected to rise to 9.2Mt from 2.5Mt, according to Glencore data.

Demand is burgeoning because governments have made things like the adoption of electric vehicles a ticket to election. But expectations may have to be pruned.

Meanwhile, the jury is out on how war in Europe will affect uptake in renewable energy. Fink believes it will accelerate, as higher energy prices close the gap of the green energy premium. But in the short term, European utilities are returning to thermal coal.

The war could have the short-term effect of blunting metal demand this year as economic growth declines from the shock. This will “be felt most acutely in the second half of the calendar year”, says a report by investment bank BMO Capital Markets.

But in the longer term, geopolitical shocks such as a new order in Europe, and the likelihood of redirected trade flows from Russia to China, will be positive for minerals. This may trigger policy changes by Western governments, implying a return to strategic stockpiling as well as buying “through the cycle”, beyond what fundamentals would dictate, says BMO.

Even before the Russian invasion of Ukraine, relationships between shareholders and mining companies were changing. In order for the world to get the metal it needs, shareholders have to become comfortable with greater capital spending simply because it will cost more for miners to reach social compliance.

The numbers are staggering.

Consultancy Wood Mackenzie told The Economist last week that about $2-trillion must be spent on green metal exploration and production by 2040. Recent projects suggest that merely digging out enough copper and nickel would require $250bn$350bn in capital expenditure well before 2030, it said.

As Wanblad put it: “Mining has a long way to go in respect of demonstrating it can do the right thing, which is why capital will be slow to come. But come it will.”