Los Bronces puts chill into Anglo’s Q2 production numbers

Los Bronces

ANGLO American downgraded its copper output forecast for its 2016 financial year owing to “severe winter weather” at Los Bronces mine in Chile, and said iron ore output at Minas Rio, its Brazilian mine, would also be lower than forecast for the year.

However, Kumba Iron Ore was making good progress following the restructuring of its Sishen Iron Ore pit whilst production and sales were also on plan at the group’s 85%-owned diamond producer, De Beers.

Anglo American Platinum (Amplats) and the group’s thermal and metallurgical coal operations were also tracking production guidances, the company said.

Commenting in its second quarter production report, ahead of its interim results on July 28, the R198bn group said full year copper production guidance had been revised to between 570,000 to 600,000 tonnes from 600,000 to 630,000 tonnes previously owing to “… the severe winter weather experienced at Los Bronces during the quarter”.

Copper production for the second quarter came in 8% lower year-on-year at 144,200 tonnes with good production at Collahuasi helping to partially offset losses at Los Bronces.

“We are building upon the improving operational trend from the first quarter as we recover refined platinum production and continue to ramp-up Minas Rio, Grosvenor and Barro Alto,” said Mark Cutifani, CEO of Anglo American in a statement.

Minas Rio, the much-maligned iron ore project, produced 91% more of the steel-making mineral in the quarter year-on-year, and some 4% more than in the first quarter. However, there was some disappointment.

The constrained pit and ongoing licence processes resulted in lower-than-anticipated quality run-of-mine material, Anglo said in its production report.

Full year production guidance at Minas Rio had therefore been revised down to between 15 million and 17 million tonnes, a slight reduction on previous production guidance of up to 18 million tonnes.

The painful restructuring at Kumba Iron Ore, the listed subsidiary in which Anglo has a 70% stake, resulted in a 21% fall in production to 5.7 million tonnes.

In a separate announcement to the Johannesburg Stock Exchange, Kumba said that restructuring of its operations – which include a 31% reduction in employees – had been largely completed.

Improvements in “run rates” had improved in June with total tonnes handled increasing 28% from May to June. As a result, Kumba expected to produce 27 million tonnes of iron ore as previously forecast.

FATALITIES

Goldman Sachs said that the production figures were “disappointing”, adding that copper and iron ore were “… a miss with guidance for copper reduced”. It has a sell on the stock.

Macquarie analyst, James Oberholzer said shares in Anglo would come under pressure owing to the figures published. “We consider this to be a fairly weak set of numbers and expect the stock to come under pressure with the potential for earnings downgrades on the back of the result,” he said in a note.

Shares in Anglo traded nearly 7% weaker in the first few hours in Johannesburg.

Cutifani said the group continued to rein-in production in diamonds and platinum in line with the firm’s focus on higher margin, lower cost assets.

Production at Amplats was tracking guidance at 2.3 million to 2.4 million ounces but the company’s quarterly performance was heavily affected by mine accidents which interrupted production.

In total, three lives were lost: two at Amandelbult in April and one at Rustenburg Platinum Mines (RPM). An economic consequence of accidents is that the South African government issues Section 54 notices which interrupt production whilst an inquiry into the events are undertaken.

Amandelbult produced a strong mining performance but the fatalities resulted in the loss of 18,000 ounces of platinum while production was 8% lower at 112,000 ounces at RPM which was also affected by mining through difficult ground areas, and marginally lower grade.

Total platinum production was up 1% to 586,000 ounces as a result of improved performances during the quarter at Unki, Union and the joint venture operations, said Amplats.

Said Cutifani of De Beers in the quarter: “Decisive actions taken by De Beers last year led to more normal trading conditions in the first half of 2016 with sales volumes increasing as a result, but we maintain a cautious outlook”. The diamond firm said production guidance remained unchanged at 26 to 28 million carats “subject to trading conditions”.

The De Beers rough price index was on average 16% lower in the first half of Anglo’s 2016 financial year compared with the first half of 2015. The average realised price at $177/ct was 14% lower than the first half of 2015.

Australian export thermal coal production decreased by 17% to 1.1 million tonnes as Drayton ramps down to cease mining operations in late 2016, Anglo said.