Venkat’s challenge at AngloGold Ashanti

AngloGold Ashanti chairman, Tito Mboweni, succinctly captured the challenge faced by the incoming CEO of the third largest gold miner in the world.

“We’re extremely pleased to have an executive of Mr. Venkatakrishnan’s calibre to lead AngloGold Ashanti through the next phase of its development,” said Mboweni. The “next phase” is the key phrase.

AngloGold Ashanti announced yesterday the appointment of Srinivasan Venkatakrishnan (Venkant) as the new CEO with immediate effect.

Venkant has been with AngloGold Ashanti for about nine years. He was the Chief Financial Officer at Ashanti Goldfields before it merged with AngloGold to create AngloGold Ashanti. Shortly after the merger he was appointed Chief Financial Officer of the merged entity.

As such he must understand what Mboweni means when talking about “the next phase”. Again Mboweni is useful for us to unravel challenges which necessitated the next phase. In his latest annual chairman statement Mboweni said “2012 proved to be an extremely challenging one for AngloGold Ashanti and much of the rest of the extractive sector, both in our country of domicile, South Africa, and around the world”.

“After a difficult year in the global gold mining industry and, more specifically, within AngloGold Ashanti, I recently had the privilege of meeting many of our largest institutional investors and was able to hear their concerns about the company first hand. This engagement followed my desire to discuss with our shareholders the departure of Mark Cutifani and the process that the board of directors has put in place to find an appropriate successor. The views expressed covered everything from the need to “focus on the basics” and improve our production and cost performance, to reviewing our portfolio of assets and potentially undertaking more significant corporate restructuring. This is a set of insights and observations that I have discussed with my colleagues on the board and, together with the management team, we are identifying ways to improve the company’s value proposition going forward”.

AngloGold Ashanti finds itself in a tight spot, more like many other gold miners throughout the world. They are watching with horror a sliding gold price. The horror is perhaps more a factor of operating costs which are headed the opposite direction of the gold price and killing profit margins.

While the latter is a universal constrain, AngloGold Ashanti has challenges of a special kind, mainly originating from its South African operations.

Its South African portfolio is haunted by old and deep mines which are even more expensive to run. Add to that the labour factor, you have a serious challenge.

This has informed the floating of controversial ideas like quarantining the South African assets. In some quarters the South African assets are seen as a drag to the rest of AngloGold Ashanti operations. There exists an option to apply the Fields/Sibanye formula. Unbundle the South African or older operations and list them separately. This is easily said than done. It is thought that this option will not go down well with the South African government.

Off course, this is more a matter of the board but it is an area which will weigh in heavily on Venkant’s tenure.

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