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On June 5, Lords cricket ground played host to the good and great of the mining industry as the venue for the Melbourne Mining Club’s annual London (UK) dinner. The event provides the opportunity for members to mingle with key clients, peers and investors while enjoying a three course meal and a presentation from an industry leader, in this case,Anglo American’s chief executive, Mark Cutifani.
This year, all 560 tickets sold out in just five hours, testament perhaps to the profile of the keynote speaker and the level of interest in his company’s current affairs. The evening opened with a speech from British female cricketer and Marylebone Cricket Club member Isa Guha who welcomed everyone to Lords and recounted some of her experiences at the venue.
Thanks to a fair amount of sporting banter, the atmosphere in the room was jovial but all ears pricked up when Cutifani took the floor. Anglo American has taken a bit of a battering in recent years. The company, which was once the world’s number one miner, now ranks fifth behind competitors BHP, Rio Tinto, Glencore and Vale, and Cutifani inherited anything but an ideal operation from his predecessor Cynthia Carroll.
Since his appointment in April 2013, there has been much talk of restructuring and reform from the top down, reigning in spending and improving operating performance across the company’s asset portfolio.
There is no doubt that the expectation of a revival is heaped on Cutifani. However, he must also tackle the labour strikes which have been plaguing theSouth Africanplatinum industry for nearly 20 weeks now, and there have been rumours that the company may be preparing to sell its platinum interests, as it did with its gold assets nearly two decades ago.
There was talk that Cutifani may open his speech with an apology; both for the problems which he inherited and the lack of results so far. However, he was resolute: “There will be no apologies,” he told the room. “I’m going to let the numbers do the talking.” He then proceeded to fire off a series of impressive statistics detailing the progress his team has made over the past year.
“Twelve months ago, only 50% of our management team were doing what they needed to deliver, that figure now stands at 70%” Cutifani said. “Across our top three levels of management, we have cut numbers from 141 down to 99 so that there is clear accountability.
“When you take on this kind of role, not only do you have to see what is possible, but in order to rebuild a business you need to be able to leverage the potential and resources that are available across the group and, most importantly, have the>best people working for you.”
He added that there has now been a step change: “We come to work to deliver results, and I want to establish a business that delivers continuous improvement on budget.”
When Cutifani took the helm at Anglo, only 11% of the business was delivering its objectives within budget. He claims that this has now risen to 48%. “In just six months, we have halved the number of fatalities at our sites and, even taking into account mine closures, year on year production to April is up 18%,” he stated.
He went on to detail the progress which the company has made at its Minas Rio iron ore project in Brazil- it has just completed the installation of a 512km slurry pipeline and is on track to deliver first concentrate next year.
He also explained the ongoing review programme which the company’s 69 assets are all subject to. “We’re looking at every asset and asking, how can we do things differently?” Cutifani explained. Around 50% of Anglo’s operations have now been reviewed and restructured with a focus on executing planning and production in a similar way to a manufacturing company.
Review and reform
Cutifani used Mogalakwena platinum mine in South Africa’s Limpopo province as an example; the operation is the world’s second largest platinum mine and has resources sufficient to meet current global demand by itself for the next 40 years.
Rather than just look to increase production at Mogalakwena, Anglo has also concentrated on reducing waste development at the operation. The quantity of waste generated has now been slashed by 50% from 200Mt/y to 100Mt/y which, over the next 15 years, is expected to save the company US$1.7 billion dollars.
“This exercise took just two months for one asset- that’sreal value generation,” said Cutifani. He also mentioned that there is potential to continue developing the resource at Mogalakwena and room for further operational improvements.
It seems this approach is one that Cutifani will be taking across the board. “Once the basics are in place, we will be looking at the operating model for each mine and the way in which it is run,” he said, adding that the ideal scenario would be similar to the Toyota operating model. Anglo will be using concepts such as lean manufacturing, Six Sigma and Integrated Asset Planning to transform its mines.
Moranbah coal mine in Australia has also received a revamp; through implementing a better operating model (with no extra capital) the mine has seen nearly a 100% increase in production in 18 months; the mine produced 3.5Mt/y in 2012, 5.5Mt/y in 2013, and production in the March quarter of 2014 has it on track to produce 7Mt in 2014. The mine also broke the world record for longwall production earlier this year.
Additionally, Cutifani cited Barro Alto nickel mine in Brazil as having seen huge improvements. The new operating strategy implemented in 2013 has resulted in a 30% production increase and a 20% reduction in operating costs. Equipment utilisation currently stands at 92%, all of which has helped to keep the mine running through tough times- a competitor operation nearby recently suffered a 12 month shutdown.
Disruptive innovation is another key theme for the company. “The face of mining is changing,” Cutifani told the audience.
“Mining is significantly lagging behind other industries when it comes to innovation. For example, our total R&D spend is probably 10% of what theglobal petroleum sector is spending this year.
“If we don’t make step changes in technology, leadership practices and production, someone else will. The organisation is the starting point for change”
For the past three years, Anglo has been working on a new method for mining narrow vein deposits. The company now has three units operating successfully at the deepest mines in the world. “This method will allow us to mine safely and productively at 5,000m below sea level,” said Cutifani. “This sort of change is imperative to the future of the mining industry. Because this concept has been developed on an open partner platform, there are over 30 companies working to achieve a common goal and no one will get to keep the intellectual property. Initially, it was a painful process to establish this, but it has yielded huge gains and going forward, this type of approach will be key.” Cutifani added: “leading change in the mining industry is a high stakes game.”
A fight in SA
Finally, Cutifani touched upon the South African platinum strikes. “Five months of strikes is a fight, and one that we had to have. Blame lies with both parties,” he said. “Something is missing. Productivity will be key to changing this situation and we are promoting this in our talks with the South African government. It’s important that we follow up the national development plan with changes in the field.”
Cutifani added that if constructive conversation with the workforce can be had and a solution reached, then the South African platinum sector has a very bright future. “We need to stand our ground, make sure our engagement is constructive and move forward together,” he said. “We’ve made a commitment to the government; we won’t allow the sector to fold.”