Low-ranked diversified major Anglo American has the potential to become a cash flow engine, Anglo American CEO Mark Cutifani has said.

Cutifani, who took over as CEO three-and-a-half months ago, told Mining Weekly after reporting 28%-lower $1.3-billion underlying earnings for the first half and 15%-lower underlying operating profit of $3.3-billion, that at the top of his current to-do list was to lift the current 11% success rate on delivery of operational targets to a better than 75% success rate.

“We have a business that I think can be a real cash flow engine,” he said.

The company was currently running on an 8% return on capital employed while 15% was breakeven, which meant the company needed to find $3.5-billion in the business.

“We’ve outlined $1.3-billion in the areas outside of the operations. What we’ve now got to find is the balance plus more in the operations, and that’s where the focus of our work will be over the next few months as we finish off the operating reviews,” Cutifani added.

He said operations had delivered on their budgets only 11% of the time over eight quarters and the company was looking for a 75%-plus success rate on a quarter-by-quarter basis.

Delivery at operational level across the business virtually guaranteed budget attainment at the top-line level.

“That’s the minimum we should be expecting,” he added.

Rising to a better than 75% success rate demanded a different way of running the operations.

That difference in performance would deliver more than $1.3-billion to the bottom line.

“It’s a big number, it’s important and it’s the most fundamental thing we can do to deliver on our potential,” Cutifani added.

The second critical step was to deliver on major projects – work in progress – that were taking up 30% of the balance sheet but not delivering commensurate returns.

The current 8% on the “lazy capital” would be 16% without it.

The project pipeline had become “con- stipated” as a result of several projects being advanced to prefeasibility stage too quickly, which then required a high level of commitment of resources to optimise.

A number of those projects would have to be pushed back to the concept phase, with a far lower, ongoing commitment towards determining their profitability or their elimination.

“We see a $300-million improvement available to us there,” Cutifani said.

Operations delivering to their budgets, capital working to potential and allocating capital correctly had the potential to turn the lagging company into a significant cash generator.

South African Collaboration

Cutifani, who is also the president of the Chamber of Mines, believed Anglo also needed to work collaboratively with the South African government.

“There is also absolutely no doubt that I need to spend time with the South African government. I need to understand what they’re looking for from Anglo American and I need to make it very clear what we expect in terms of a partnership with the government so that we can deliver value to our shareholders.

“If we can get that right, then the South African mining industry will go a long way towards improving its position and performance in the global mining industry.

“If we don’t get it right, then, in my view, South Africa won’t get it right,” Cutifani added.

Commercial and Marketing

Anglo has probably been the least aggressive of the diversified majors in optimising sales prices.

It is now estimated that there is a $500- million improvement opportunity that should be implementable by 2016, which would be a direct profit uplift.

Reduction of duplication in parts of the business is expected to reduce costs.

Anglo has up to 16 levels of management in some parts of the business and steps are being taken to simplify structures by 2016 and reduce costs by another $500-million.

In the areas outside of the operating business, an improvement of at least $1.3-billion is anticipated, again by 2016.

The company has already reduced its direct reports from 15 to 11 after consolidating nickel, copper, niobium and phosphates under Duncan Wanblad in the base metals division and consolidating metallurgical and thermal coal under Seamus French.

Risks and Opportunities

While CEOs tend to emphasise the strong points of their mining businesses, Cutifani will, in future, also be far more transparent about the risks that Anglo faces.

“What we’re going to try and do is to let you know where the risks are and what we’re doing to minimise the potential disruptions to the business,” Cutifani promised.

The company has introduced a risk scorecard that it will discuss more fully in November as it completes the asset reviews and outlines risk and opportunity perspectives.