It was a “this wouldn’t have happened to the other guy” moment for Duncan Wanblad, CEO of Anglo American.
Speaking remotely from South Africa to delegates at the Financial Times’s Mining Summit in London, he said the country was as secure an investment destination as could be found. He was then abruptly plunged into darkness, his face spectrally lit by a laptop’s glare. “Sorry my lights seem to have gone out here, and that could be load-shedding,” he said. Cue audience laughter.
The “other guy” is, of course, former Anglo CEO Mark Cutifani, who left the group to wide acclaim after nine years. Lest it be forgotten, however, about half of that time was a slog. In fact, Cutifani was ridiculed in the early years at Anglo for flip-flopping on strategy as he sought a way out of the commodity meltdown at that time.
In contrast, the Anglo that Wanblad has inherited is in good shape. Goldman Sachs rates the UK group as having the best prospects for growth of all diversified miners in its European coverage. Anglo’s copper production is set to grow 50% thanks to the recently commissioned Quellaveco project in Peru. There’s also a shift in production from bulk materials such as iron ore and coal — which comprised half of ebitda in 2010 — to metals used in green mobility.
“We view this as a positive catalyst,” says the bank, which has tipped Anglo for a rerating as Quellaveco kicks in. Minerals such as iron ore are heavily exposed to global property and construction whereas green demand and decarbonising technologies are set to consume significant amounts of copper, nickel and platinum group metals (PGMs).
But it was freight problems of the group’s bulk minerals in South Africa that appeared to be most on Wanblad’s mind at the time of his address. The two-week Transnet strike was one reason he’d aborted a live appearance at the mining summit so that he could attend meetings with senior government figures in South Africa.
Anglo’s hope is that industry can negotiate, with Transnet, a liberalisation of the country’s ports and rail network in the same way it helped influence the government’s decision to abandon licensing for independent electricity producers earlier this year. “Quite a lot of work still needs to be done in improving capacity of the line and we are doing that with the department of public enterprises as well as the Minerals Council,” Wanblad said.
The performance of the coal line that connects mines in Limpopo and Mpumalanga provinces with Richards Bay and Durban ports has been lamentable. The Minerals Council thinks last year’s disappointing coal delivery volumes will be even lower this year. Transnet Freight Rail (TFR), the business unit responsible for railings, disputes this. Ali Motala, head of TFR’s “North Corridor”, says the company is “resolute” in meeting its targets.
Then the Minerals Council upped the ante by saying it was disappointed to see no mention of infrastructure public/private partnership in the National Treasury’s mini-budget. A day later Anglo’s Kumba Iron Ore cut its export target for the year by up to 4Mt because finished stock levels were dwindling at Saldanha Port. This was contrary to TFR CEO Siza Mzimela’s comments only days before that the “ore line” linking the Northern Cape with the Western Cape was “the best in the world”.
South Africa’s infrastructure is a mess. But Wanblad was eager to put this into perspective. “For the industry, disruption is the new normal,” he said referring to similar problems in the group’s other mining districts. Chile, where Anglo operates the Los Bronces copper mine, has recast its royalty bill in such a way that the effective tax rate increases to 40%-45%, from 38% (including dividend tax).
While companies such as Anglo have stability agreements that protect the status quo, Chile’s fiscal changes are another example of the increasing difficulty mining firms face securing supply, especially in the battery metals to which Anglo is now pointed. This is why Goldman Sachs and other investment banks are bullish on mining companies that have new sources of supply to meet the expected increase in metals deficit. Says Wanblad: “Supply of these minerals is severely constrained and this is pretty much global, and not in any one country, and not just in developing countries.”
In contrast, South Africa has a benign fiscal regime; in fact, it lowered the corporate tax rate this year. Then the lights pinged on again.
“And to the second the lights have come back on,” burred the FT convener to renewed laughter. Bathed in light, Wanblad raised his arms as if he’d willed it to happen. It may require a lot more than willpower, though, if Anglo is to extract a deal from the government on its ailing infrastructure.
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