Mining champions hard to grow

Canada's policies need to change to compete globally, AngloGold CEO says

ANDY HOFFMAN

From Thursday's Globe and Mail

July 17, 2008 at 12:05 AM EDT

Canada lacks policies to create global mining champions like those in other resource-rich countries, says the head of African gold giant AngloGold Ashanti Ltd.

Mark Cutifani, who spent five years as a top executive at Canadian company Inco Ltd., said countries such as Brazil and even South Africa, where AngloGold is based, have instituted rules and regulations designed to protect mining companies and give them an advantage over global competitors.

“One of the things I've noticed in North America and in some other countries, they are not supportive of global industry champions,” Mr. Cutifani said in an interview from Johannesburg.

His time at Inco included a stint as the nickel giant's chief operating officer before it was sold to Brazil's Companhia Vale do Rio Doce (Vale) in 2006 for $19.4-billion.

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AngloGold Ashanti CEO Mark Cutifani

He pointed out that Vale is shielded from an unwanted takeover by the Brazilian government's “golden shares,” which give the country veto power on any major changes to the iron ore and nickel miner, which has become the world's second largest mining company through aggressive acquisitions.

“Go to Brazil and look how the government has developed supportive policies in terms of its industry. I mean, quite frankly, Vale's success has a lot to do, first, with the great asset it has in the iron ore business. But second, it has a government that is looking to support the establishment of global industry champions,” Mr. Cutifani said.

An Australian now based in Johannesburg, he took over the role of chief executive officer at AngloGold, the world's second largest producer by volume (a title it shares with Denver's Newmont Mining Corp.), nine months ago.

Mr. Cutifani has initiated a major restructuring of AngloGold, aggressively reducing its hedge book, shaking up senior management and improving operational performance, including resolving safety issues that have dogged the company.

AngloGold is expected to produce about five million ounces of gold this year, roughly three million less than Toronto's Barrick Gold Corp., the world's largest producer. But with significant development projects in Australia and a 12-million-ounce gold discovery in Colombia, aptly named La Colosa, Mr. Cutifani said AngloGold is once again seeking the top spot in the gold business.

“Barrick had better look over its shoulder because we're on their tail,” he said.

As a country, South Africa has about 400,000 jobs in the mining sector responsible for about 5 per cent of national GDP. Mr. Cutifani said it is far more welcoming to the mining industry than North America.

“Generally in North America, the mining industry finds it a little tougher to have support within the political context, the bureaucratic context and also within the societal context. Whereas in South Africa we've got a stronger and supportive base over all,” he said.

Canada has watched the bulk of its iconic mining companies disappear in the past few years amid a global resource boom. Inco tried to merge with fellow Canadian miner Falconbridge in 2005, but the deal was soon trumped by respective takeover bids from Vale and Swiss-based Xstrata PLC.

Last year, aluminum giant Alcan was snapped up by London's Rio Tinto PLC in a $38-billion (U.S.) friendly takeover that was Canada's biggest ever. Vale also bid for Alcan, according to sources.

Ottawa approved all the deals, despite concerns by economic nationalists who argued that Canada was losing prized resource assets to foreign control.

Canadian companies still dominate the global gold mining sector. In addition to Barrick, Vancouver's Goldcorp Inc. is the world's second most valuable gold company based on market capitalization.

Goldcorp chairman Ian Telfer doesn't think Canada should hold “golden shares” in mining firms but said Brazil's control over Vale gives it an unfair advantage.

“Only companies that are playing under the same rules as Canadian companies should be able to take over Canadian companies,” Mr. Telfer said in an interview.