Mark Cutifani, CEO – Anglo American plc

On the group’s preliminary results.

HANNA BARRY: Mining giant Anglo American plc releasing preliminary results for the 2014 financial year today, Anglo reporting a $2.5bn net loss and underlying EBIT of $4.9bn, that’s around R58bn, down 25% from the previous year, due of course to sharply weaker commodity prices.

Anglo American CEO, Mark Cutifani joining us now. Mark thanks for your time today.

mark cutifani: Thanks for having me Hanna.

HANNA BARRY: These results as I had mentioned in my intro really reflecting, as with so many other miners, the weight of those slumping commodity prices.

mark cutifani: Yes certainly. From our point of view we also had the impact of the platinum strike. If I back out the impact of the strike, we’re down about 14% which would put us at the top end of the range in terms of those being impacted by price. So a solid performance underpinned by the operating side. A pretty tough market to be in.

HANNA BARRY: Absolutely and you mentioned that platinum strike, of course that disrupting operations for five months last year. Anglo is looking to sell its platinum assets in South Africa, any more guidance on when that might happen or whether you are leaning more towards a listing at this stage?

mark cutifani: Yes, we’ve actually been in the market and we’re starting to get expressions of interest so we would expect to have a pretty good idea of the track we will go down by the middle of the year. Based on if it was a listing or reverse into a listed vehicle, it would probably take beyond the end of 2015, more into 2016 before that would be completed. So we would hope that whatever we do would be completed, which requires the regulatory approvals before the middle of 2016.

HANNA BARRY: In terms of assets elsewhere, Anglo taking a $3.5bn post-tax write-down in the carrying value of Minas-Rio, in other words, that mine has lost essentially $3.5bn of its value on paper at least, but Anglo is not pulling back in its iron ore production. Why not?

mark cutifani: Firstly at Kumba we’ve been doing very well even with prices. We’ve put in a credible performance, we’re improving our operating costs, hopefully opening up our margins to try and help compensate for the price pressure. So Kumba is a good business and we want to make it better albeit prices are tough.

  In terms of Minas-Rio we won’t hit our full production commissioning the project until second quarter 2016. So what we have to do is finish the project off, get it to that point, we will assess the market at that time. I guess the most important point to make about Minas-Rio, is 12 months ago we were talking about a delivered price in Asia of about $55/ton. Based on current prices or based on the current market, exchange rates, fuel costs, meaning freight, we’re down to about $44-$55/ton delivered in Asia so, as long as we can keep those projects competitive we’ll continue to operate at the target levels. We should, we won’t be putting too much more capital into the business until we see a bit of upside on the price, but we will run them properly, effectively at the current prices. We’ll see it through and remain a very strong business.

HANNA BARRY: Let’s talk about De Beers, your diamond mine here, that contributing more than a quarter to underlying EBIT last year, the second largest contributor to the group’s total, its own underlying earnings before interest and tax up 36% to $1.4bn, doing really well – do you expect that solid performance to continue?

mark cutifani: Well certainly there’s no doubt that the market has become a little bit tougher in diamonds particularly towards the end of the fourth quarter and into the first quarter, so we’re certainly looking for operating improvements to continue and I think we need to wait for another month or two just to see how the market picks up after Christmas before we’re definitive or take a stronger view of the market. So we’ve seen a little bit of a pullback but the good thing about being De Beers, the quality of the product with 30% of the world’s market, we are the go-to brand in the industry and we certainly aren’t reporting similar declines in prices that others have seen. It’s been pretty solid but we need a little bit more time before we make a full…or take a full view on the year.

HANNA BARRY: And, opening more stores as well in the last year, I think one in London in Selfridges and also one, a concession store at least in Saks Fifth Avenue, are you planning to open up any more stores, De Beers now with 35 I believe in 12 markets across the world? Where’s next?

mark cutifani: Look we do have a program of focusing on key market areas, there are a couple in other areas that we’ve pulled back on, but the Forevermark brand has been very successful, it really is the premium end of the market and certainly a product that people value so we’ll continue on with that program. But we will also keep an eye on the market and not get ahead of ourselves.

HANNA BARRY: Our Investec analysts were saying earlier today, I read somewhere that De Beers is rapidly developing into Anglo’s flagship business, do you agree with that view?

mark cutifani: Well I’d call it one of our flagship businesses. By the time we’re finished restructuring our platinum business, I’d like to think that it will be a flagship. Our copper business is certainly very strong and certainly Kumba and Minas-Rio will still be good players in the iron ore space, albeit prices will be a bit tougher so, we’ve got a good few strings to our bow. We’re certainly focused on making sure all of the pillars are working to their potential.

HANNA BARRY: Let’s talk about the environment a bit more affecting those pillars, we have already touched on the weak iron ore prices, currency weakness is another factor influencing a lot of businesses, is that a net positive for you in terms of rand weakness, and of course we’ve seen depreciation in Brazilian Real as well, how does that impact your operations?

mark cutifani: The reduction in the rand, the Australian dollar, and the Real have all helped us in terms of our competitive position. The oil price is also giving us a bit of help so each of those things have helped, so if I looked at prices before Christmas, we’ve seen a 3% – 5% reduction against our main commodity group, but it’s been offset by currency declines. So we are getting some back but it’s still a tough environment.

HANNA BARRY: You spoke earlier about just really improving the efficiency of operations, stressing that Anglo does have good assets, it’s still a strong company despite some headwinds in the sort of external environment, from a business point of view and in this environment, where is Anglo’s focus going to be in this year?

mark cutifani: Very much…well firstly I agree with the assessment it is a strong business, we’ve got a good portfolio of business. We had certainly fallen away in our operating performance. I think pretty clearly with these set of results, that each business has outperformed its target, so we are starting to get predictability and reliability back, we’re building our capacity and we’ve reduced our costs on a real basis, in US dollar terms down 5% but we’ve still got too must cost inflation, particularly in South Africa that we’ve got to work on. We’ve got 15 to 20 assets that are world-class and we’re really going to put the focus in. our disposal programme is about pulling capital from those assets that we don’t think have the same long-term potential, put that capital in the largest, more competitive assets and on a long-term basis really drive the portfolio hard, which you should see emerge 2016, 2017 absolutely critical for us, but as you can see we’re on track for all of our … targets.

HANNA BARRY: Lastly Mark, looking at South Africa, a lot of negativity here at the moment. We are having power supply problems and a number of other issues relating to just sort of infrastructural development in the country. How is Anglo feeling towards its South African assets and more generally towards its investments in this country?

mark cutifani: I’ve got to say that we’ve been optimistic, we’ve been positive on the country, we remain engaged but I will say, and I’m going to be very clear about this, the minute somebody mentioned development pricing the rand started to drop, which was a serious message to those that may be considering interfering in the market for our products. That would be very bad news for the country. Certainly the markets saw it as terrible news so I just hope the people get the message that you can’t have the mining industry and for us to remain competitive by putting another tax, or changing our structure to support an industry that is not competitive. You may end up with the worst of both worlds if you try and do those sorts of things.

   So my very clear message, if anyone talks about development pricing, watch what the rand does, we saw it the other day. It will be a disaster for the country! I hope my message is clear and certainly as an industry we will fight hard to make sure that the industry doesn’t have to cross-subsidise non-competitive industries. That would be a disaster throughout the industry, the country and I certainly hope they got the message when the rand tanked as quickly as it did the other day.

HANNA BARRY: There we go, that’s Mark Cutifani, Anglo American CEO.


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