Anglo American Plc’s chief executive officer expects diamond subsidiary De Beers to beat a group target for return on capital even after his predecessor paid top dollar for a majority stake.
“The acquisition is not delivering what we would expect it to deliver,” CEO Mark Cutifani, hired about a year ago, said in an interview in New York. “But in 2016, in my view, they will be delivering better than 15% of capital employed.”
His predecessor Cynthia Carroll bought the Oppenheimer family’s 40% for $5.1 billion in 2012, increasing Anglo’s stake to 85% and ending the dynasty’s 80-year ownership. Botswana holds the rest of the business, formed by the British imperialist Cecil John Rhodes more than 120 years ago. Anglo wants units to deliver a 15% return on capital by 2016.
“We certainly paid at the top of the market, there’s no doubt about that,” Cutifani said. “But I do think the one good thing about buying a quality business that you know is that even if you pay top dollar at the time, you’ll probably be right.”
Cutifani, the former head of AngloGold Ashanti, is reviewing projects from Australia to Brazil in search of savings and ways to improve cash flow. De Beers, the world’s biggest diamond company, returned about 10% on capital last year, CEO Phillipe Mellier said this month.
De Beers is overhauling how it sells diamonds by allocating them based on the financial strength and track records of buyers at earlier offerings and has raised rough diamond prices about 5% this year. Mellier, hired in 2011, has been cutting the discount between rates it sells at and secondary-market prices.
The gem producer makes up a substantial chunk of Anglo operations, with diamonds contributing about 19% of the parent company’s $33 billion of revenue last year.
“De Beers is an important part of the portfolio,” Cutifani said. “When people look at our consolidated portfolio De Beers is part of our differentiation. If we are not getting value from De Beers inside that structure, I think we’ll have to review and revisit that conversation, but that’s in 2016.”
©2014 Bloomberg News