Mark Cutifani’s $6bn hedge move that led to a $58bn boon for AngloGold

Former AngloGold Ashanti CEO Mark Cutifani has reflected with fondness on his time at the gold mining major, particularly his decision to spend $6bn to close its hedge book in 2008-10, which at the time had become an enormous impediment to the group’s market rating.

The group had contracted to sell 13-million ounces of gold, equal to about two-and-a-half years of production.

About $6bn was invested over three years in closing out the hedge book, generating significant value, which Cutifani puts at nearly $60bn 16 years later.

“It was the biggest out-of-the-money hedge book. This is AngloGold Ashanti in 2008. A financial crisis was 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’re trying to pick the gold price’,” Cutifani told Investec Minds.

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

“Ultimately, we got them to make the decision. The fact it cost us $6bn was a massive decision. You know what that decision is worth today, $58bn, as much as AngloGold Ashanti’s current market cap at a $5,000/oz gold price.”

The company was formed in 2004 by the merger of AngloGold — formerly the gold portfolio of Anglo American — and Ghana’s Ashanti Goldfields Corporation.

Cutifani, a celebrated mining executive, took over the helm at AngloGold in October 2007, serving in the role until he stepped down in 2013 to join Anglo American.

Much has changed at AngloGold since Cutifani stepped down. It sold its last South African asset, the Mponeng mine, to Harmony Gold in 2020, ending an era that dates back more than a century when it was part of the Anglo American stable.

Ultimately, we got them to make the decision. The fact it cost us $6bn was a massive decision. You know what that decision is worth today, $58bn, as much as AngloGold Ashanti’s current market cap at a $5,000/oz gold price.

—  Mark Cutifani

The group in 2023 moved its headquarters and primary listing to the US in a bid to close the gap with larger rivals in North America such as Newmont Corporation and Barrick Gold.

At the time, the group, led by Alberto Calderon, was worth R206bn on the JSE, where it maintains a secondary listing. On Monday, the group was worth R638bn – up 200% over the past three years.

Looking at the broader industry, Cutifani said he would like 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 about [spending] $300m to $500m on innovation as part of 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,” he said.

“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. I think that’ll be one of the key drivers of consolidation in the industry because we’re going to need to.”

Business Day