Anglo-American chief executive Mark Cutifani says the big miner is looking to invest more money into its top-tier Queensland coking coal mines and may look at adding new local operations, after a resurgent coal price allowed the company to avoid selling them last year to pay down debt.
But the Wollongong-born head of the world’s fourth-biggest miner says the company is unlikely to purchase Rio Tinto’s remaining Queensland coalmines, despite now having the balance sheet strength to again look at acquisitions.
Amid an intense energy debate, he said cleaner coal power plants had a role in Australia, depending on what could be done with the lives of the existing plants.
“There’s no doubt the country will have to move to renewables and cleaner fuels, there’s no doubt coal plays a part,” he told The Australian. “There will be new technology that is appropriate.”
Although Anglo has sold out of its Australian thermal coal operations, it still mines the fuel in South Africa. Recovering coal prices, cost-cutting and a restructure that Mr Cutifani pursued after taking the helm of a struggling Anglo in 2013 now see the company in a healthy position for growth. It is now one of the best performing of the world’s top four miners in terms of shareholder returns.
This allowed the company to pull what he says was a reluctant sale of central Queensland coking coal mines that had most of the world’s big miners circling and which would have seen Anglo leave Australia.
“The market was in dire straits in 2015. Prices were down across the board, we were still finishing projects, debt was high and we felt we needed to be more radical in getting the debt down,” Mr Cutifani said in an interview at the company’s Brisbane office, where he was visiting to commemorate Anglo’s 100th birthday.
“We always thought the coal assets were quality assets, and in many ways that if we had to find cash to get the debt down, one of the key areas to do that was the met (coking) coal assets, because they were doing well.”
Anglo received offers for the mines that were higher than analysts had them valued at, but below Anglo’s internal valuation, which meant they were not sold.
The quality of the assets shone through in Anglo’s first-half earnings, where the Queensland coking coal assets were the best performer in the group, thanks to a surge in coking coal prices to boomtime levels as high as $US300 a tonne, and were a big factor in the miner’s return to paying a dividend six months ahead of target.
Now the company is in better shape, the plan is to leverage what Mr Cutifani says is a fourfold increase in productivity to pursue incremental growth in the Queensland coking coal business, which exports about 20 million tonnes of coal a year.
“The guys have continued to improve (costs) year on year and that provides a great foundation for improvements,” he said.
“Once we’ve settled down Grosvenor, you’ve got the plant at Moranbah that could be debottlenecked, you’ve got assets in the portfolio like Aquila, which is a nice little asset, and there are other positions we have that we would consider doing something with,” Mr Cutifani added.
The Grosvenor underground mine started in May last year but has not hit targeted rates because of geological problems. Aquila is being studied as an underground longwall operation that could produce up to 5 million tonnes a year of export coking coal.
Mr Cutifani said Rio’s planned sale of its Kestrel and Hail Creek coking coal mines, following its $US2.7 billion sale of its NSW thermal coal mines this year, is not featuring strongly in his plans.
“We think what our guys have done with the assets have really positioned us well and I’m not sure doing anything with the Rio assets would enhance our position,” Mr Cutifani said, adding that he was not ruling it out and that Anglo would take a look at the assets.
He said operations that were not operating well or projects looking for strong underground mining ability were likely to provide better opportunities.
Underground longwall mines were where Anglo would focus, Anglo’s head of coal and iron ore Seamus French said.
“We’re one of the best longwall miners in Australia. And the kind of opportunities we’d be looking for would be partnering in longwall projects where we can bring in an operational competitive edge,” Mr French said.
Like his counterparts at BHP and Rio, Mr Cutifani said the outlook for China remained strong.
“The market seems to be pretty solid in China. Housing’s coming off a little but it was pretty robust, so that is not a matter for concern,” he said.
“We also think that in terms of mining production in China, there’s been a lot more discipline in managing environmental issues and also taking off high-cost, low-quality production, which means we’ve benefited a little bit in terms of having quality production.”
JPMorgan analyst Fraser Jamieson said the market was underestimating Anglo’s performance and growing flexibility.
JPMorgan has urged the company to spin off its South African business to further strengthen the balance sheet.
But Mr Cutifani said yesterday he had no plans to do this.
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