Mark Cutifani on the decisions that define a career

MC: So, it's a great time to be in mining, in my view. The fact that we have this term “critical minerals” is at least putting us on the front page in terms of we need the products of mining to navigate the energy transition. 

So, it's the greatest opportunity. It's also the biggest risk because in the next 30 to 40 years, we'll see the greatest migration of people into the middle class, and the only thing that will stop them in terms of ultimately eliminating poverty is the supply of mined materials, and that's a big game to play for.

Voiceover:

Welcome to Investec Minds, a video podcast series on Investec Focus Radio SA. In each episode, analysts from the equity research team at Investec Corporate and Investment Banking sit down with a former chief executive who helped define their industry at a critical point in its history. Together, they revisit the decisions that shaped companies and markets, reflect on the leadership choices made under pressure, and examine how the industry has evolved since.

NM: Hi, I'm Nkateko Mathonsi, head of equity research at Investec. I am also a mining analyst covering precious metals. 

PM: I'm Patrick Mann, equity research analyst here at Investec. I cover the diversified miners.

NM: Our guest for this episode is Mark Cutifani. He is an ex-CEO of a number of corporations, with the most recent ones being AngloGold Ashanti and Anglo American.

Mark is one of the most respected leaders in the global mining industry. I could spend the next few hours just reading his accolades. So, we are very excited, very honoured to have this opportunity to reflect with Mark on some of the critical moments on his leadership journey, and also just his insights on the world and the mining industry at present.

So, Mark, welcome to our podcast. 

MC: It's great to be here. 

NM: Before we dive into the big themes, let's start with life after stepping down as CEO of Anglo American. You've remained very active in the mining industry and business at large. Where are you these days, and what are you occupying your time with?

MC: When I talk about what I'm doing now, I've retired from many of the things that I don't like doing, which are the daily drudgery-type things. Whereas today, I get to focus on the things that really interest me. 

So, I live in Italy. I'm half Italian. My wife is Italian, so there are family roots this part of the world.

It also keeps me in the same time zone as Africa, which for a mining guy is actually really helpful. I'm still only a short hop to the UK, and I have four children in the UK. I've also got three children in Australia, so I sort of have to split my time between them. 

But in terms of work life, I'm still or most recently had a couple of years with Vale Base Metals, helping them with their transformation.

I just recently announced taking up a board role with Woodside in the energy sector. I’m safety chair for Laurentian University in Canada. I'm advising Cambridge University in the UK around revamping its undergraduate program and a whole range of other bits and pieces that are all good fun and keep me in touch with a whole range of wonderful people.

NM: That's a long list, Mark, for someone that is retired. It looks like retirement is just a concept. But the other question I actually have is: What has stepping out of the hot seat, the CEO role, what has it allowed you to see more clearly about leadership in general and also about yourself? 

MC: Probably the most important thing I learned from both AngloGold and Anglo American is sometimes when you're the leader and you're walking through your vision or your perspectives on things and people are nodding, you're assuming they understand.

And what became clear to me both after leaving AngloGold Ashanti and Anglo American is that sometimes people nodding didn't necessarily mean they actually understood what you were saying. 

So, I think the first thing as a leader is always be sensitive and aware of the fact that you constantly need to test their understanding or their interpretation of what you said to make sure you're aligned.

And then secondly, you've really got to dig as hard as you can to make sure there is alignment through the organisation. And being the leader, it can be a little bit lonely at times, and people tell you what they think you want to hear, and that's not terribly helpful. 

So, however you can unearth and surface their real feelings, I think it makes you a better leader, and that's something I think you gotta keep learning.

PM: If I look at the parts of your career that we're most familiar with, so AngloGold Ashanti and Anglo American, both of those periods when you were at those companies, it was major transformations underway of those organisations. I wanted to ask, was there, like, a particular philosophy or maybe a framework or a playbook that you used to focus that transformation?

MC: Firstly, I always made the point that it is about people. Leadership is not granted as a function of the position you have. It's earned. It's earned through the way you connect with people and how you lead people, and for me, that's the starting point. 

So, if I start in any organisation, that first three months is listening to as many people as I can give their perspectives on the business, what’s working, what's not working, what frustrates them.

Second point is connected to that. When I was with Rio Tinto many years ago, we were trained on a new approach to leading and setting up the organisation to be more productive, and it was around people, and it was called the Requisite Model, Stratified Systems – the way you set up an organisation, making sure you've got the accountabilities properly structured.

And then the last point, which again connects to people – the systems and the structures you put in place are about people and about behaviours with a view to ultimately changing culture because you don't just, you know, wiggle your nose or wave a magic wand and hope culture changes. 

Culture ultimately becomes a function of the systems, the structures, and the people that you put in place to try and create new approaches, new conversations, bring everybody into the game, and make them all part of something different, and that in and of itself creates a new culture.

PM: Great. I mean, my next question was going to be, it's great to have a plan and a playbook, but again, if I look at your career, you had to lead through major crises. What did those periods teach you about leadership and having to adapt, I suppose? 

MC: And we probably created a couple of our own crises as well.

But I remember a really important change moment at Anglo. In 2007, AngloGold or Anglo American had reported 70 fatalities. Half of those fatalities were at AngloGold, and, uh, we lost four colleagues at Mponeng in the end of September 2007. 

We called the team in, and we were talking about what were we going to do to make a difference because safety had become such a big issue.

And for a long period of time, we'd been improving, but we were still killing one person every five days. And a young guy got up and presented, and he started off with a conversation around values, and the first value he presented was business profitability, and safety was number three. 

And I said, "We're sitting here today. We've just lost four colleagues. Do you think it's right to have safety as the third value?" 

And at that moment was exactly the right time for us to talk about who we were, what do we think about people, did we really care about people? I asked the question, "Would you have any of your family members go underground at this mine?"

And I said, "Put your hand up if you would." And no one put their hand up. And I said, "Until we can say we'd have our family work in any one of our mines, the job's not done." 

In terms of the financial crisis, we had a hedge book. It was the biggest out-of-the-money hedge book. This is AngloGold Ashanti in 2008. Financial crisis coming at us in 2008, and we'd put to the board that we felt we needed to get rid of the hedge book, and people were saying, "Well, you, you're trying to pick the gold price." 

But as the financial crisis came at us, we said, one, if the price of gold keeps going up, instead of being $6 billion out of the money, we could be 10, 15 or $20 billion out of the money. And if that occurs, there is no AngloGold Ashanti. 

And the board members said, "Oh, yeah, but we get that. If the price of gold goes up, then, you know, you can still deal with it and it's an opportunity cost." 

However, what we're also able to point out, if the price of gold went down from where we were, because we had so many ounces hedged, we would also not be able to create enough money from the non-hedged gold to actually keep the company operating.

So, we presented them with different perspectives on what might happen if the gold price went up, if it went down, or if it stayed the same. 

And I said, "If we want our share price to go anywhere, we're gonna have to make that decision." And ultimately, we got them to make the decision. The fact it cost us $6 billion was a massive decision. You know what that decision is worth today? $58 billion, as much as AngloGold Ashanti's current market cap at $5,000 an ounce gold price. 

So, my general view's been for organisations navigating crises, try and make sure you're in a good place to deal with crises before you get there. 

NM: Mark, if we can talk about safety a little bit more. You've for a very long time spoken about zero harm. What do you think still needs to be done, especially in relation to deep level conventional mines?

MC: Each year we mine about 40 metres deeper. But as mines progress, a general rule of thumb is they become deeper, more complex, and the risks go up. So, first thing is we have to continuously improve both our understanding of the risks and our management of the risks. And it's about 5% a year on average that we need to improve just to stay equal because of the added risks. 

New technologies are going to be key. And the commitment that we made at Anglo American was our innovation would be focused on key safety issues, environment, and productivity. And they were all around technologies that we felt could change the game and make step changes and reduce the risks but also have productivity improvements as well.

So, it was a holistic approach, and this is where I probably differ with some of the guys who said, "Oh, well, that's an overhead." And I used to always say, "No, it's not." Innovation driving those types of improvements is an allocation of capital. It's an investment in value. It's an investment in the future, and you shouldn't think of it as an overhead, even though there's a lot of work done at the centre.

That continuous improvement and the fact we doubled productivity went along with those safety performance improvements. 

NM: And if we can just shift a little bit into talent, which is the other long-term challenge for the mining industry. You have previously spoken about the great tsunami of retiring talent. So, I also just wanted to get your thoughts on what the industry needs to do to attract and retain the new generation.

MC: Most people don't understand that in the mining industry we create all the materials that we all need to live our lives.

Mining is everywhere, and most people don't appreciate. You know, they say it's an old-world industry, that one day we won't be doing it. Well, we might be recycling more material, but there'll always be a need for mining in some form or another, whether it's cleaning water, buildings, the houses that we live in, the materials we use, the 76 minerals that make up an iPhone. All of those things come from mining. 

So, helping people understand it's the most important industry along with agriculture on the face of the planet. 

Secondly, it's the most important industry in reducing our human footprint. And people say, "Well, what does that mean?" And I said, "Well, you look at agriculture, it takes up 40% of the earth's surface."

If we didn't have fertilisers and we didn't have mechanised agricultural systems, we could only feed half the people on the planet. And so given the fertiliser issue, and because grazing and cropping is a bit different, we would need 50 to 60% of the earth's surface to feed the planet. Could you imagine how many biodiverse environments would be destroyed if that had to be the case?

Mining is the thing that shrinks that footprint, and building up requires mining products. And if you look in Africa, there are many communities that have spread low rise, big footprints. Our urban environments take up 15% of the earth's surface. They would take up 25 to 30% without the products of mining.

We are the most environmentally net positive industry on the face of the planet, yet nobody knows. So, how do we change the dialogue around our industry to help people understand how important we are to their daily lives and give them a sense of all of the career opportunities they have in our industry?

So, we've got to get young people interested. We've got to try and attract the best, the brightest, to then help us with these new technologies that we're going to need to be successful as we go deeper and work in more complex environments. 

NM: Yeah, I agree. 

PM: I love that comment about the most environmentally friendly industry. I think that's turns it completely on its head to what people usually think about it. 

PM: I want to change tack a little bit, and as a mining analyst, I'm quite excited to ask you more industry-based questions. So, from where you sit now, where do you see the biggest opportunities and the biggest risks for the mining industry over the near term, five, 10 years?

MC: So, it's a great time to be in mining, in my view. The fact that we have this term “critical minerals” is at least putting us on the front page in terms of we need the products of mining to navigate the energy transition. The only thing that makes a mineral critical is if demand outstrips supply, then it becomes critical.

I make the point that the most important metal for the energy transition is steel. And people go, "Where'd you get that from?" And I said, "Well, think of all the infrastructure you have to put in place. The solar, windmills, and all the other new structures, they've gotta sit on something." So, the construction industry that goes with the creation of all the new energy systems and processes and structures requires steel.

And so, I said iron ore remains a critical mineral. And it wasn't on the original list, but it's now on most lists, in particular high-grade steel. And in South Africa you've got Kumba, and that's a high-grade iron ore producer which has high value. 

You asked me about opportunity. There's an opportunity to help people understand how we can make a difference and go back to my conversation around the role of minerals in society.

Helping people understand that broader context with critical minerals being a current issue that people consider because of the energy transition. 

I think we should do our best to use that opportunity to help people understand the fact that the US is now talking about critical minerals and fast-tracking mining approvals, even though that's a lot tougher because you've really got to continue social engagement.

The biggest risk is we can't supply, and that is a real risk. And prices are going up, and so the risk to society is the cost of those minerals and other products becomes so prohibitive it impacts the standard of living of people across the planet. And so if we can't deliver, it means the poorest suffer again because they can't afford those products that will change their life. And so, we get this disparity again. 

And so, the role of those major mining groups is actually critical in supply. And we need to work with artisanal miners in terms of environmental standards and those approaches so that we continue a blend of supply that is safe, environmentally friendly, and socially acceptable.

It's the greatest opportunity. It's also the biggest risk because in the next 30 to 40 years we'll see the greatest migration of people into the middle class, and the only thing that will stop them in terms of ultimately eliminating poverty is the supply of mined materials. And that's a big game to play for.

PM: So that dovetails quite nicely into my next question, which is that, you know, for most of my career, which is almost 15 years now, the industry has been laser-focused on capital discipline, and that's been the message from investors and the market, is that we don't necessarily trust your capital allocation, you know, efficiency, productivity, and return cash. 

Now we're seeing a shift back towards growth. What do you make of that shift? 

MC: Well, first point, investors can reasonably complain, I think, in terms of the mining industry's record, in terms of returns on capital. And, you know, with Anglo American, we were averaging 9% return on capital employed in 2013 when we took over.

And the imperative was we needed to get to at least 15% to be able to reasonably grow shareholder value over time. We ended up averaging about 25% when we were finished, so we'd shifted the game materially, which was partly about understanding the opportunities we have, doing a lot better work on the project planning and execution.

And Quellaveco ultimately was probably one of our best stories at the end of our time there. First time in 20 years, a major copper project in the Andes was delivered on time and under budget in terms of cost. 

And that discipline is absolutely key. But if I go back to talent and doing the work necessary to deliver those outcomes, as an industry we haven't been very good at doing that.

So, the risk of growth is you get unfettered capital being thrown everywhere, and so you lose the discipline and you lose the returns. 

So, it really is a matter of discipline. It's about experience and making sure that you're putting money in the right places. 

PM: To follow on from that, we're also seeing more M&A activity. Is this being driven by the difficulty in building new assets, or is something more structural changing? What are your thoughts on that? 

MC: Yeah. So, I would say yes, yes, and yes. Firstly, harder to find. In the last 20 years, for the same effort, we're discovering half the minerals. Now, there are still lots of minerals in resources, so resources meaning, yep, we found lots of copper but getting it to a reserve which is demonstrating that it's economically feasible to mine, a lot tougher.

That innovation is a story that in my view the industry is really lagging on. It's been carried by prices at the moment. The innovation work has been let go across the board and it needs work. 

The other point that I think is quite relevant in our industry is we're becoming a much smaller entity compared to other players in terms of capital markets. Compared to what mining companies trade at – our biggest mining company, BHP, is probably, you could tell me, but probably 160 billion – whereas we're now talking trillions for the bigger groups. 

And so, attracting capital and then using that capital well requires, I think, a different approach. And I would like to see some more consolidation on the basis that mining companies could more reasonably allocate funds to innovation within a portfolio approach.

And just to explain it, at Anglo American I would always argue for innovation as being a use of capital, and we talked 300 to 500 million on innovation as part of that free cash flow. We'd put it back into innovation because that's what we felt we were getting the best bang for our capital dollar.

Whether it's coarse particle flotation, whether it was the changing configuration at Kumba, whether it was the headwinds cost reduction program, we had a range of different opportunities we were working on. That delivered a 40% cost reduction, so we outperformed everybody.

What we found at the centre, we tried to pick the best brains in the industry to build step changes, and they then worked with the sites on how to implement step change.

So, the sites would focus on continuous improvement, 3 to 5% year on year, and the step change was identified and then we'd bring the two together to implement a second level of change that didn't occur 3 to 5% every year. You'd get a chunky change which would be 20%. 

The bigger the balance sheet, the more potential and capacity you had to make that type of change. And in my view, the industry will not compete with the Apples and others of this world unless it has a true innovation culture. 

That innovation culture and approach is not getting oxygen in the industry today, and that will be to our detriment, and I think that'll be one of the key drivers of consolidation in the industry because we're gonna need to.

That was long-winded, but it's one I'm passionate about. 

PM: No, it's super interesting. Thank you. 

NM: Yeah. So, I wanna take you back a little bit on attracting capital and just focusing on Africa and the opportunity related to the critical minerals. 

If we maybe focus on what governments need to do in order to attract increased investment into the African continent, what would be your advice on what they should be focusing on at this point in time?

MC: So, I would make the standard observation, policy certainty over time will attract more investment. Key point, everybody understands it. Unfortunately, we don't practice it as well as we should in Africa, and I understand that imperative. 

And in fact, I was coaching a young executive in the industry, and he was saying that in a particular country, the price of gold goes up, and we keep getting increased royalties.

And I said, "Well, you gotta remember what the minister's probably solving for in terms of poverty.” So, there's gotta be some sort of understanding that they've got a challenge. Why not sit with them and say, “Look, I understand what you're doing. Let's structure this in a way that allows us to be certain in terms of our investments and help you with what you need when the price is going up and we're doing more than X.”

Then let's work that out beforehand. Don't do it after the event because in the end, I don't know whether these investments are gonna make money if you don't tell me what the rules are. So, let's get the rules, make them transparent, so people can be confident investing, number one. 

Number two, the push for downstream is, in many cases but not all, a bit of a red herring, and I use South Africa as a good example.

The importance of building mines and creating a broader base of infrastructure comes when you're investing in the primary mining operation plus with a concentrator which allows you to export product if it's an exportable product. 

The importance is that 90% of the social infrastructure comes with those investments. So, roads, water, energy, IT infrastructure, education, health facilities, are funded and are best funded in those primary investments. 

In terms of smelters and refineries, high capital cost, low margin, low employment. You don't get a lot of extra jobs for a lot of capital. That capital would be better spent in the community developing agriculture and other opportunities to employ more people.

And that's how the major continents have been developed. They've graduated their investment on the downstream, but built broader commercial bases – agriculture, other commercial activities that could be supported in those local communities to build a much broader and more resilient economic base. 

NM: I think maybe, Mark, the other thing to also address is attracting smelters or downstream processes further down the line can be very difficult.

If you look at Indonesia and how they needed to ban exports in order to get smelters coming in, it means down the line you may actually struggle to get that investment coming into the country. 

MC: Yeah. Indonesia's a really interesting case in point, and I was the chief operating officer of INCO, and we were the largest mining group along with Freeport in Indonesia.

And they'd negotiated agreements with the Chinese which effectively pushed the price of nickel low because they overproduced against demand, which gave China access to lower priced nickel. And because they were using the products in their products, it allowed them to make a higher profit on the downstream side.

So, if you're pulling demand such that the resource-based country gets a reduced price, you're effectively transferring profits to China. And I'm not being critical of China per se, I'm being critical of the strategy that allows that to occur. 

And so one of the things that countries have to think about is in bringing groups in to exploit their resources, and I use those words, the social benefits and the return to the communities and governments in terms of taxes does rely on the resource company being responsible in the market, not driving the price of the products down.

And that's a harder issue to, if you like, police or monitor. And to Indonesia's credit, they're pulling back those volumes now because they can see the value transfer that's occurring as a consequence of the overproduction, because it means they're depleting a finite resource and selling at a very low cost compared to what one would expect the long-term price should be. 

PM: So, Mark, as sort of one of our closing parts of this, can I ask you a quick-fire round of questions, and then just answer with the first thoughts that come to your mind?

MC: Yeah, sure. No problem at all. 

PM: Okay. One commodity you're most bullish on right now?

MC: Copper. 

PM: One leadership habit that you swear by?

MC: Always be open to the possibility that you're wrong. 

PM: A decision you're glad that you made early?

MC: People will remind me of this, but I would say the Anglo pivot. When we were in the middle of restructuring Anglo and commodity prices in 2015 kept dropping, we needed to buy 12 months' time.

And so, pivoting early, even though I copped a fair bit of tough feedback, it was the right call. And so, within six months, we were able to then swivel back to the original strategy. But it bought us enough time for people not to, um, do anything silly, and we averaged a 50% return for the next seven years.

So, uh, it ended up being a good call, but it was the right call. 

PM: Any piece of advice you ignored that you now think you shouldn't have? 

MC: I had an opportunity years before I actually left Australia. And I had an opportunity probably about seven or eight years beforehand to do a job overseas, and I was still too attached to Australia to take the opportunity, and it, it was an opportunity missed, I think.

PM: One word to describe the future of mining. 

MC: Innovation. 

PM: And the last one... The toughest part of being a CEO that we don't see from the outside?

MC: Most chief executives do have a heart, and so when you're making tough calls that impact people, it's probably a lot tougher than many people appreciate. 

NM: Mark, thank you so much. It's been absolutely enlightening. You have achieved things that most leaders never come close to achieving. You have transformed safety. You have built communities. You have reshaped an industry. 

I think for me, some of the key takeaways is leadership is about people. Innovation is a big deal for the mining industry, that's where we need to be focusing at. And for everybody watching this, copper is the metal. Mark has said it. 

PM: I think what really came through for me is everything else is fairly replaceable, but the people are not. The thing that stuck with me also is that people can tell whether you genuinely care about them as part of the organisation, and I think that's sort of unique to you. I get it a lot stronger from Mark Cutifani than most, is that that's genuinely a core value of yours. So thank you very much. It's a very human leadership trait.