Johannesburg - Anglo American’s platinum unit was the star performer for the group in the second quarter after its recovery from the five-month platinum belt strike last year, but it is not out of the woods yet as the platinum price continues to weaken.
Anglo American Platinum (Amplats), which accounts for about 38 percent of the world’s annual platinum supply, posted 60 percent improvement in total equivalent refined platinum. Production rose to 572 000 ounces in the quarter to June from 358 000 ounces in the same quarter last year. The June quarter refined platinum output was almost 7 percent higher than the amount achieved in the March quarter.
It said its refined platinum production had risen 33 percent to 561 000 ounces after production returned to normal following the strike.
Anglo American expects to write down between $3 billion (R37bn) and $4bn on its iron ore operations in Brazil and some of its Australian coal assets as declining bulk commodity prices weighed heavily on the global diversified miner in the first half of the year.
Weaknesses
“The first six months of 2015 have seen further weaknesses and ongoing volatility in the prices of bulk commodities, particularly iron ore and metallurgical coal,” the company said in its production report for the second quarter of the year released yesterday.
“Anglo has reviewed its near- and longer-term commodity price assumptions at the mid-year, while also noting the gradual and ongoing reduction of consensus prices within what remains a wide range of forecasts,” the company added.
“The writedowns shouldn’t be a great surprise,” Stephen Meintjes, an analyst at Imara SP Reid in Johannesburg, said.
“The best you can do now is to get damn efficient. That includes trimming fat and headcount wherever you see it.” Anglo shares yesterday rose 1.98 percent to R172.35.
Anglo had acquired the Brazilian Minas-Rio iron ore project for $5.1bn in 2008, with Cynthia Carroll, Anglo’s former chief executive, attracting criticism for ballooning costs of the operation. Anglo overspent on the Rio project with capital expenditure reaching $8.8bn more than three times the initial estimate of $2.8bn.
The mining group is bringing it to full output as prices of the steelmaking ingredient fell 37 percent in the year to June. The firm wrote down $4bn on the value of Minas Rio in 2013.
Credit ratings agency Moody’s Investors Service said yesterday that the subdued commodity price environment had hit Anglo harder than Glencore, the world’s biggest diversified mining company.
Moody’s said the softening prices would delay the company’s growth plans.
“The decline in iron ore prices earlier this year hit Anglo American’s performance, leaving its plan for debt reduction and for funding negative free cash flow in 2015 dependent on divestment of coal and copper assets in 2015 to 16,” Moody’s said.
“Falling metal prices will delay the execution of these plans. Also, Anglo American is ramping up its strategic iron ore project in Brazil, which we think will limit its ability to further cut development capex,” Moody’s added.
Ramp up
In terms of production, Anglo said Minas-Rio produced 1.8 million tons of iron ore, a 55 percent increase in the second quarter compared with the first quarter, reflecting the ongoing ramp up of the operation.
Minas-Rio made its first shipment in 2014. Volumes were “marginally behind plan” due to adjustments at a filtration plant, Anglo said.
The impairment of some Australian coal operations comes as contracts for the fuel loaded at the Newcastle Coal Terminal declined 16 percent in the year to June. Australian export thermal coal production increased by 38 percent to 1.3 million tons due to Callide producing an export coal product and a change in mix (to thermal coal) at Dawson due to the impact of Cyclone Marcia on the mine sequencing.
Production from Kumba Iron Ore decreased by 9 percent to 10.4 million tons. Its Sishen mine produced 7.2 million tons, a 14 percent decline compared with the same quarter last year, and 19 percent lower compared with the previous quarter, largely due to mining feedstock constraints.
Production at De Beers, the diamond producer 85 percent owned by Anglo, declined 6 percent to 8 million carats.
Copper production declined by 5 percent to 184 500 tons, compared with the same period last year in line with expectations. It was 7 percent higher than in the first quarter of the year.
* Additional reporting by Bloomberg
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