Anglo’s chief shares his optimism

Independent Newspapers.

Mark Cutifani, the incoming chief executive of Anglo American and outgoing chief of AngloGold Ashanti. Source: Independent Newspaper.

Straight talking was top of the menu when Mark Cutifani, the incoming chief executive of Anglo American and outgoing chief executive of AngloGold Ashanti, was the guest of honour at a farewell dinner hosted by the Chamber of Mines in Johannesburg this week.

While Mineral Resources Minister Susan Shabangu lavished praise on Cutifani, who is also the president of the chamber, as “an Australian who has committed himself to advancing the interests of South Africa”, she also implored him to remember that even though only 50 percent of Anglo American’s assets were in South Africa, “that company will always belong to us”.

As if to demonstrate his reputation for plain speaking, Cutifani rattled off a list of reasons why investors should be positive about the the local mining industry, despite the sector experiencing value destruction of 30 percent at the same time as the JSE increased in value by 60 percent – since 2007.

In that period, mining volumes had fallen by 10 percent and the value of mining shares had remained flat.

“We must all draw a line in the sand – and 2013 is the year to take that stand!” was his parting rallying cry.

Cutifani’s list of reasons to be cheerful:

- “Eskom tariff rates – after five years of dealing with a 2 785 percent increase in rates, shareholders around the world needed to see enough is enough. Thankfully the National Energy Regulator of South Africa committee members understood the plea from industry and pulled the increase back to 8 percent, something more reasonable.

- “Transnet rates – the recent call indicating the mining industry had had an easy run was a disturbing comment and had also worried global investors. The recent regulator’s decision to not agree to a 22 percent increase in rates was also encouraging. We must all look for efficiencies and this message goes well with the Eskom message.

- “The words ‘strategic minerals’ strikes fear in the hearts of all investors, given what has happened in other mining jurisdictions. Investors have seen this used as a way of nationalising assets. The minister has been at pains to point out South Africa is looking to identify resources that are needed in terms of its long-term interests. Nothing wrong with that – and something that happens all round the world. The key here will be to understand what it means. The quicker this is done the better.

- “Threats to licences has been topical given the Anglo American Platinum (Angloplat) announcements. I think we all have to acknowledge we could have done better on this one – the good news is there is a constructive dialogue and the threats have been holstered.

- “Mineral and Petroleum Resources Development Act (MPRDA) changes are a little worrying. The MPRDA is a good document that needs some “tweaks”. However, changes around ministry discretion and the somewhat arbitrary reference to licence limits and pricing scare many investors in relation to what can be stipulated around strategic minerals. Again, the minister has engaged and we are being given an opportunity to input our concerns. While we would prefer to be consulted earlier, there is no doubt we are given a decent opportunity to air our views – which is better than many or most mining jurisdictions.

- “Mining taxation structures have every one worried at present. South Africa is a mid-ranking mining tax jurisdiction, but when one adds our social spending obligations, we are one of the highest cost mining jurisdictions in the world. In the past five years shareholders have received 7 percent of revenues against 93 percent of revenue spending on costs and capital. South Africa sees 85 percent of that 93 percent spent in the country. People don’t seem to be getting the maths, and they don’t seem to understand why our industry is contracting – these numbers tell the story. The good news is the minister of finance sees the problem and has been prudent in his budget approach.

- “The upcoming gold/platinum wage negotiations will be a pivotal moment in our country’s history. Difficult and protracted negotiations will see a further erosion of investment trust and possibly more serious consequences for development and jobs for the country. We cannot allow this issue to destroy what could be a turning point in our country’s history. Again I am encouraged with the minister and her leadership. Her quick actions after the recent events at Angloplat was pivotal in getting the key parties to sign a peace accord. A small step, but an encouraging one

.”

Cutifani takes up his new post in London next month.