MINEWEB: A real pleasure to talk with Sir Mark Moody-Stuart and to give South Africa a preview of the session that we're going to be together in tomorrow – looking at the commodity cycle. We are going to talk there about whether the commodity cycle, the supercycle is over, or whether the recent retracement in commodity prices is the end of it. I'm sure you've done a lot of preparation and homework for that tomorrow. Maybe let's talk about the supercycle to start with. Are you a believer in it – that we're in this long-term upswing?

MARK MOODY-STUART: I was a cautious comer to this belief. But I'm gradually beginning to be somewhat convinced. I'm not sure whether you would call it a supercycle, but quite clearly the base has been lifted for many commodities.

MINEWEB: Mainly because of China and India?

MARK MOODY-STUART: Well, because of China and India, because of a variety of other factors. I think the fact that the costs have also gone up, of course, because of the demand and pressure on mining equipment, on people, the shortage of people. The reaction to the high prices, I think. The growth in production has been much slower than most people would have thought – partly because of that. Of course, in many parts of the world, there is also quite a reaction in much of Latin America. It's becoming quite tough to start new mines; it's a very long process. So I think the supply-side response is much more muted than I would have thought. But a lot of it, of course, is actually psychology.

MINEWEB: But what about the prices? There's much talk – for instance on the oil side, and Anglo isn't in the oil business so we can talk about that for a moment. It is suggested that $15 of the oil price is through speculators. Now in all the areas that Anglo is involved in – copper, zinc, chrome, platinum – there are huge increases, have been huge uplifts in the price of the commodities. Do you think much of that is speculation?

MARK MOODY-STUART: I wouldn't call it speculation. I mean, I have spent most of my life worrying about the oil price rather than about the metals' prices. And it's quite clear that you get a kind of psychological floor which varies, and which underpins people's view of what is likely to happen in the long term. And I believe that as a result of the experience we've had in this enormous run-up, that psychological floor has quite clearly lifted. That too, of course, is another matter. But it's higher than it was before.

MINEWEB: And in the short term do you think that the pull-back that we've seen has been a "healthy correction", as some people are calling it?

MARK MOODY-STUART: I think the run-up in prices has been absolutely extraordinary. and I think so extraordinary as to actually be very worrying in a number of commodities. So I think some dampening of bullions. And although it's a pull-back, it's been fairly modest.

MINEWEB: How do you manage in a business like this? Of course, your oil background will give us an opportunity to touch on that in just a moment. But how do you manage in an organisation, when you are seeing the cost of your product rising at such a dramatic rate?

MARK MOODY-STUART: The real worry in this sort of situation is trying to assess what a reasonable long-term floor price is, because if you underestimate it, if you set it too low, you are going to under-invest, and if you set it too high, then it comes down and you are going to be very uncomfortable. So you have to steer between these two evils, because you have an evil of under-reaction, under-investment and, equally attractive, of over-investment. Most, I think, major mining companies, because of experience over the last 15 years or so, are probably still pretty cautious, as are oil companies. They are very cautious about lifting their real long-term stress-testing price, because that's what allows you to sleep easy at night. You know that, never mind if the prices go down, the mine or oil field is still going to wash its face.

MINEWEB: How much lower would that stress-test price be than the current level of commodity prices? 20, 30, 40, 50%?

MARK MOODY-STUART: No, I mean in the case of some
it's much, much lower than that – much, much lower than that. I mean, if you compare current prices in some commodities with what most people would have thought were long-term, which two years ago, the industry, the analysts and everyone thought were reasonable long-term prices, you are in multiple territory at the moment. Now the question is: how much has it gone up by? Do you just ease it up by 25%, 50%? And for how long? Because, of course, if you are reasonably confident that it will last for several years, then you will be able to get the investment in and on, and maybe hedge it a bit and cover your costs and have it in production and in good fit times for when the prices go down. As Warren Buffett said, we don't know when they'll go down, but they will go down.

MINEWEB: And do you think that Warren Buffett's analogy of this being Cinderella's party – that the mice and the pumpkins will return after midnight, but no-one knows when the clock is going to strike – that it could be quite close.

MARK MOODY-STUART: Cinderella is probably a bit of an exaggeration. I always say, when the last bear comes out of his cave and thinks that Spring has come, it's probably about autumn, fall time. I think Anglo is somewhat in the category of the last bear. So we have been quite cautious on prices.

MINEWEB: Specifically on Anglo, we've had the chief executive, Tony Trahar, announcing his retirement a year hence. It's been disappointing to some people. Are you, as a board of Anglo, going to be looking globally for a successor, or is there someone within the organisation that stands out?

MARK MOODY-STUART: Well, first of all, this is Tony's wish. It's a wish that he has been quite clear on, and we were convinced that by the middle of next year, by next year, the bulk of our restructuring will be in place and it will actually quite a good time then. If he's going to go, it's not a bad time to go. Never a good time to go. But no, we are looking completely globally, internally and externally, and we talk to the internal candidates and they know who they are, and we talk to the external world. One of the advantages of having it public is at least we can do it quite openly – it's not something that we have to keep very quiet because of market sensitivities.

MINEWEB: And when might you be in a position to announce Tony's successor?

MARK MOODY-STUART: Well, I would hope in two or three months, something like that. It's very difficult to tell, because it depends on whether it's internal or external. And if it happened to be external – and of course any corporation has to look at what's available externally, to compare it with internal, even if you are reasonably convinced that you have the very best person in the organisation.

MINEWEB: That was Sir Mark Moody-Stuart, the chairman of South Africa's biggest company, Anglo American. We still call you South African – I know you're now listed in London, with a head office in London. But you are still our number one stock on the JSE.

MARK MOODY-STUART: We are quite happy to be called South African, certainly in South Africa.

MINEWEB: Indeed you are. Before we close off here, Ian Liddle, you have an investment in Anglo American. You heard what Sir Mark had to say about commodity prices. Did it instil you with fear, or are you comfortable that he's put perhaps a sober outlook on the situation?

IAN LIDDLE: It certainly doesn't fill me with fear at all. I think it's a very balanced outlook. If you don't mind I would like to ask a question, and that is: in which of the commodities that you produce do you think is current prices are most sustainable?

MARK MOODY-STUART: Hmm. You have to split, I think, into the precious metals and the non-precious metals. I think both gold and platinum are – and I heard Ian Cockerill just now – I mean I think there are strong arguments for the gold price being very sustainable. The platinum price is a question of supply. It's uncomfortable, I think, the present price. You are worried about substitution and so on. We always used to think that if it went much above $900 this would cause problems. We can't say we're unhappy, but it's certainly quite high. Again, I think the general price, the floor price has gone up. On the bulk commodities, copper reaction – I think there again the floor price probably gone up significantly. Iron ore – I mean it's a question of time and demand and I think that the Chinese are aware of the impact that they have, and they are doing their best to reduce the impact. And we've all heard the stories about them trying to manage the price down. Well, they are a group of people busy, and we are a fourth- or fifth-ranker in iron ore. But I would have thought that maybe iron ore would be – it's not that there is a shortage of the stuff.

MINEWEB: Incidentally, there was an article in the Wall Street Journal today, focusing on exactly that point – that the Chinese are not too happy with the recent decision by some of the other iron-ore importers to settle at 19%, I think it was, with the major iron ore producers. And in fact they are not participating in it, and they want to do their own negotiations.

MARK MOODY-STUART: I've attended government meetings in China where they've talked about what they need to move towards a more resource-efficient economy. I mean they are really working at it, and they know exactly what they need to do. The problem in China is actually, strangely, implementation. You wouldn't have thought, given the political situation, given the market freedom that's a result, that implementation of regulations is actually a big problem.

MINEWEB: Just a reminder, we will be back here again tomorrow with some fascinating insights from some of the people who are attending the World Economic Forum.