LME WEEK 2016 – INTERVIEW: Anglo staying disciplined as asset sales continue, ceo says

Anglo American plans to continue to exercise discipline in its asset disposal programme and remains in negotiations for further sales, the company’s ceo said.

Mark Cutifani told Metal Bulletin in an interview during LME Week that Anglo has said throughout its asset disposal process that it plans to exercise discipline, and that this situation remains unchanged.

Anglo American ceo Mark Cutifani

The company has moved from 68 assets to 40 assets, and Cutifani said that there has been no push back that Anglo sold assets under value.

“We’re going to hold that discipline,” he said.

“The good news is that in the current market we’re probably getting a little bit of a tailwind and where some said, ‘why don’t you wait until the markets are in a good condition?’ Well, the markets are in a good condition, but we’ll see if we get our value target,” he added.

Cutifani said the company has opted to allocate capital to diamonds and platinum due to their positive prognosis, and that it also aimed to develop the business to being a top five producer from the top ten currently.? It also has a number of quality, non-core assets that it plans to retain with restructured overheads.

“People still recognise quality assets and they know how rare they are,” Cutifani noted.

Some of the less core assets the company has identified for sale include coal, which has seen a rise in prices of late.

Earlier on Monday October 31, the company announced it had completed the sale of its Callide mine in Australia.

Noting that while the company was “absolutely thrilled” in the rally in metallurgical coal prices, Cutifani said that unfortunately Anglo did not believe that was the longer-term outlook for prices.

He cited a number of specific short-term issues that were boosting met coal prices and said it was probably a good time to secure a positive price for any assets it planned to sell.

“We’re in negotiation. We have seen offers in the last twelve months; they have not met our value expectations and therefore no deal has been done,” he said.

“We are continuing in the process, and the values that have been put on the table have improved so we’ll continue to evaluate and if they meet our valuation hurdles then ?we would continue to go forward with a sale,” he added.

The company plans to update the market on how much further it will go with its disposal programme in February.? But Cutifani said that the “current pricing in the markets has allowed us to hold strongly to our value criteria, and that has been important in allowing us to hold back”.

“We are either going to dispose, or run the assets for cash. We’re sticking to that position, but we are quite happy to say ‘no, we won’t sell this asset, it’s a great asset and we’re happy to keep running it as long as it works for us’,” he added.

Cutifani noted that Anglo has $15 billion worth of liquidity, and dropped its operating costs by 15% last year and by at least a similar amount in 2016 so far.

“That’s been a key part of Anglo’s cash flow improvement, along with ?a 50% cut in capital from our peak spend. All of that has made a difference,” he said.

“Publicly we’re getting more credit for our disposals and it’s actually been the self-help work that has been the biggest contributor to cash flow at this stage,” he added.

?The company is balancing the industry-wide desire from some shareholders to sell assets when prices are low and retain them when prices rise. Cutifani said Anglo has consistently said it would prefer to sell in a better market but that it managed this by structuring deals with price participation.

“So you do an underlying value where you can both agree on a long-term pricing formula to get a value, and the way you then deal with the vagaries of the market is to put in a price participation,” he told Metal Bulletin.

This is easier in coal, niobium and phosphates on a “no regrets” basis because the resources are well known, and much harder for a large 50-year copper asset which is much harder to price.

“We think three-dimensionally about ?each sale, trying to get the right price package,” he added.

The company is “less likely” to spin-off its Kumba iron ore assets without getting? some value.

Over the past year, Kumba has moved from having $1 billion of debt to being debt-free. It has also taken costs from $77 per tonne landed in China to less than $34.

“Kumba is a new business from where it was three years ago, and with the technologies we are introducing, ?it has 15 years’ good life,” Cutifani said.

?Future M&A is mining is likely to be driven by smaller junior companies that do not have the balance sheets or capacity to develop assets to their potential, he noted.

“People who bought assets for ten years got a ride from China’s development, and all power to them for recognising the opportunity, but there is a lot of global macro uncertainty now,” ?he said.

He cited a need to restructure in China as it moves to a consumer-led economy, the presence of vast amounts of global debt, the uncertainty of Brexit and the US elections, as well as a move away from the free trade and globalisation that has helped so many nations prosper.

Technology and innovation are critical to staying at the leading edge of the mining sector, Cutifani said, and ?that the majors as well as the broader industry has failed to be better at keeping costs under control.

Cutifani tipped diamonds as a long-term favourite pick, along with speciality metals which are technology-enabling, such as lithium and platinum. He said that iron ore and coal have seen massive investment which has created a sizeable supply that still needs to be worked through.

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