Well - the hands-on Aussie, Mark Cutifani, is already making his mark on AngloGold Ashanti! He’s certainly got something to prove to those South Africans. After all, Australia was kicked out of the rugby World Cup pretty early on in the tournament.
As my other half (a Brit) put it, for an Aussie rugby supporter to be surrounded by smug South Africans must be unbearable. And that is putting it mildly.
Jokes aside though, AngloGold’s new CEO seems willing to tackle some of South Africa’s tough issues head on. A mining engineer by training, his instinct will be to get right in there and get his hands dirty.
Sharing the workload signals better operational efficiency
His first move has been a top-tier restructuring exercise. So what does the top management structure look like now? Well the three regions, the Americas, Africa and Australia will have separate high level execs who report directly into Mark. The objective of this being to renew the emphasis on safety, improve productivity and of course enhance shareholder value. This seems like a good idea. One person, no matter how good, can’t properly oversee 21 operational mines!
Mr Cutifani has a slightly different approach to former CEO Bobby Godsell. He was a politics, philosophy and economics man. Good at labour negotiations and a shrewd political operator, Bobby was on decent terms with government. Months ago though, one of my insiders suggested that, technically, Bobby knew far too little to run a mining company.
And Anglo’s somewhat patchy operational performance has proved this point. Take the Obuasi gold mine in Ghana. As one analyst put it "they need to get Obuasis working properly!" (More on detail on this in another diary).
Described as "pretty brutal" but "necessary", casualties were expected. The first to go was chief operation officer Neville Nicolau. After a career spanning 29 years at both AngloAmerican and AngloGold Ashanti, Mr Nicolau has decided to hang up his boots. Apparently, he was in race to be ANG’s new CEO, but pulled out before the Aussie was appointed. Perhaps he realised that he wasn’t up to the job.
More heads to roll...what, or who, is driving the change?
There are bound to be more casualties as the new chief makes his way around the company’s operations to assess where to go next. AngloGold has certainly made it clear that this is just the beginning.
At investors Metropolitan Asset Managers, one manager came out quite vociferously on the subject of Anglo’s hedge book. At the end of September ANG had one of the industry’s largest hedge books at 10.58m ounces. The company sold the yellow metal for some 9% below the spot price last quarter. The next quarter it gets worse — the gold will earn 10 to 12% less than the spot price.
The MAM manager reckons someone responsible for the company’s treasury operations should be sacked for allowing this to continue for so long. Shock and horror! Could she mean a finance director?
Competitors Barrick, Newcrest, Goldfields and Newmont, on the other hand, have all closed out hedge positions in recent years. A major vote of confidence that the run on the gold price is not over yet!
Commenting at the third-quarter results presentation, Mr Cutifani - "not a big fan of hedging" - said he did want more exposure to the gold price. Who knows, Anglo may even buy out those contracts before they expire. About half the company’s hedges come to an end three years from now. But at current levels of over $800/oz that is going to be pretty expensive.
So de-hedging for the sake of it is simply not on the cards. Strategy is about returns, says the CEO. If there is more value in assets, then that is where the cash will go. An example was the decision to buy out the 15% minority interest in the Iduapriem mine in Ghana.
We have to wonder how much former parent Anglo American has had to do with some recent management decisions? The new strategy echoes that over there. Cynthia Carroll axed the role of divisional chairperson and simplified structures to "speed up decision making".
But why should they care? Last month former AngloGold parent sold off 67.1m shares, reducing its stake from 41.6% to 17.3%. Still, it remains the gold company’s biggest shareholder!
Energy boost for the yellow metal
So, where to now?
Well we’ve said that changes are afoot. But our interest really has been piqued when we hear that a dedicated uranium division may be on the cards. If you’ve been with us since we started, you’ll recall that our first ever diary touched on how the uranium may be the boost South African gold stocks are after. (Uranium is a byproduct of gold!)
Mr Cutifani has already confirmed that this is the case. He is positive about the energy market and will certainly be examining ways to boost uranium production. (Ironically, a thread he’ll be picking up from Mr Nicolau.) ANG currently produces around 1.5m lb of uranium a year.
But it only realises $20/lb of uranium (with costs of $15/lb) because it is tied into forward contracts. The good news is those contracts expire in 2010. With spot prices at around $75/lb mark that will be good news for margins.
So interesting time ahead! The new Anglo chief could just be what is needed to shake up South Africa’s mining sector! And at least he knows how to mine.
Keep mining...
Erin and Isabel
