SUNDAY TIMES - Power struggle threatens to derail Anglo's big plan
Sunday Times Business By LUTHO MTONGANA, 2017-03-26 00:03:00.0

Power struggle threatens to derail Anglo's big plan

Anglo American Chief Executive Officer Mark Cutifani, at Ghallager Estate in Midrand, Johannesburg. File photo.
Image: Kevin Sutherland BUSINESS TIMES

Anglo American CEO Mark Cutifani and his management team have a huge task ahead of them in persuading shareholders to stick with their strategy of focusing on three core commodities of copper, diamonds and platinum after last week's surprise announcement that Indian billionaire Anil Agarwal had acquired the second-biggest stake in the group.

Agarwal, whose proposal to merge his struggling Vedanta Resources with Anglo was rebuffed last year, has said that he prefers the miner's portfolio as it is.

If Agarwal wins the support of the Public Investment Corporation (PIC) - Anglo's biggest shareholder, which has voiced its disapproval of Anglo's strategy of selling assets - there could be a power struggle between Agarwal and Cutifani. The PIC owns a 14.5% stake in the miner, according to Bloomberg data.

Last month, Cutifani scaled back the pace of the asset sales because commodity prices had improved, but then said the strategy to sell assets remained unchanged.

Ben Davis, equity researcher at Liberum Capital, said it "certainly doesn't help backtracking on his strategy". "A lot of people saw [the] upside" to the strategy.

Davis said that until Agarwal acquired a stake in Anglo it looked as if Cutifani "was getting away with" backtracking on the strategy.

"Now I'm sure shareholders aren't happy", referring to the uncertainty over what move Agarwal could make. Agarwal was "not holding Anglo as an investment - it's about power", Davis said.

A source close to the company said shareholders were concerned about the Indian billionaire's influence. It was not known what he would do next, and that had put Anglo management under pressure to emphasise again to shareholders that Cutifani's strategy had delivered.

Asked about the impact of the Agarwal stake on the company's strategy and Cutifani's future, an Anglo spokeswoman declined to comment, but did say that the company continued to be focused on delivering despite lower average commodity prices. "We don't want to miss a step in hitting our next targets," she said.

Anglo American's debt declined from more than $12-billion to $8.5-billion (R150-billion to R106-billion) in a year. But despite improved debt levels, the source said that Cutifani remained in a vulnerable position.

In an interview with Business Times a day before the surprise announcement of Agarwal's investment, Cutifani defended his strategy.

He said that Anglo needed to improve in copper, diamonds and platinum as they were the best assets in the business.

The other assets "are still doing extremely well, so we don't need to sell those assets, we can continue to operate and run them as part of a broader portfolio", said Cutifani.

Assets that were potentially up for sale included Kumba Iron Ore.

"We [Anglo] said we would sell, or run these assets for cash, the assets that were outside those three commodities."

Cutifani understands all too well what is at stake, given the nature of his predecessor's departure. The board pressured Cynthia Carroll to step down after the company's balance sheet became constrained by the Minas Rio purchase and redevelopment of the iron-ore project in Brazil.

Makwe Masilela, portfolio manager at BP Bernstein, said that going back on his strategy did not bode well for Cutifani.

He said that Agarwal could threaten his strategy moving forward and that could have a bearing on his future as CEO of the company.

Ian Cruickshanks, an independent analyst, said: "Markets don't like uncertainty and uncertainty in strategy is the worst of all." He said that there could be pressure on the share price in the short term.

Agarwal's influence "will force some change. Consolidation of assets must surely be one of the aims." Agarwal is contract bound for six months not to make any formal bids for Anglo, which ends around the middle of September.

On September 25, the mining group founded by Ernest Oppenheimer will celebrate its 100th anniversary.

Anglo has about 25% of its capital assets based in South Africa, a proportion that Cutifani believes will shrink further as the country implements transformation plans.

The Department of Mineral Resources promised to release the revised Mining Charter by the end of this week.

"It's not a complaint, it's simply a fact of life that over time, as new companies emerge in South Africa, Anglo American has less opportunities to develop," said Cutifani.

Although its South African footprint was shrinking, Anglo was still likely to remain a player in the country's mining sector through its platinum interests.

Cutifani said that the future of platinum group metals was solid due to its flexibility and the wide variety of its applications in industry, automotive exhaust-emission control, fuel cells and jewellery.

Despite talk of a platinum-group metals deficit, platinum prices have not rallied as much as other commodities during the past few years. The metal's price is almost 60% off its 2007 highs.

Of Anglo's other core metals, Cutifani said that copper - which is used in the new generation of electric-powered vehicles - was proving to be resilient as the economy shifted. As for diamonds, "demand will outstrip supply", he said.