Chile drought hits Anglo copper unit

The third-quarter production report from Anglo American shows a heavy fall in diamond output in the year to date, while the firm’s copper division was hit by a drought in Chile that is also expected to negatively affect production in 2020.

The third-quarter production report from Anglo American shows a heavy fall in diamond output in the year to date, while the copper division was hit by a drought in Chile that is also expected to negatively affect production in 2020.

Anglo increased third-quarter output of all its minerals 4% on a copper equivalent basis, buoyed by metallurgical coal in Australia and recovering iron ore production in Brazil.

“For us, third-quarter 2019 production was mixed, albeit leaning towards mild disappointment. Full-year guidance was largely either reiterated or tweaked down,” Shore Capital analyst Yuen Low said.

Looking at the year-to-date data, however, shows falling output across the business, with only metallurgical coal posting a small 2% increase in production.

“We remain broadly on track to deliver within our full-year production targets, with an increase in production guidance at Minas-Rio,” Anglo American CEO Mark Cutifani said.

“We expect to deliver to our production guidance for copper and thermal coal, albeit at the lower end of their ranges; with copper working to mitigate the effect of drought conditions in central Chile,” he said.

Diamonds, which come from 85%-owned De Beers, fell 12% to 23-million carats in the first nine months of 2019 as the Victor mine in Canada was closed during the second quarter of the year and mining moved underground in the $2bn Venetia project in SA.

Production from Venetia fell by half in the first nine months of 2019 to 1.49-million carats.

Sales for the year to date were flat at 23.9-million carats despite De Beers holding eight sales events compared to seven the year before. “Diamond inventory has continued to build during the third quarter due to the subdued market conditions; the elevated inventory levels are not expected to unwind until 2020,” Anglo said.

Worryingly for the copper division is the drought in Chile, where Anglo has its mines. It is building the new $5.3bn Quellaveco mine in Peru, which is expected to start production in 2022. Total copper production so far for the year was 1% lower at 479,100 tons.

“To date, 2019 has been the driest year of the longest drought ever recorded in central Chile,” Anglo said. The effect of the drought was felt in the third quarter, with copper falling 8% to 158,900 tons.

Anglo reined in the top end of its full-year guidance by 10,000 tons to 650,000 tons. The lower end remained steady at 630,000 tons. Anglo warned the severe drought in Chile remained a risk for the copper division in 2020.

Kumba Iron Ore, which is 70% owned by Anglo, noted a 7% fall in year-to-date production of 30,582 tons. Full-year production was kept steady at 42-million to 43-million tons.

At Minas Rio, the recovery in production continued after a shutdown in 2018 due to a leaking pipeline linking the mine to the coast.

Anglo bumped up its fullyear guidance by 1-million tons to between 19-million tons and 20-million tons.

The full-year thermal coal forecast was set at about 26million tons as Anglo removed the top end of the forecast, which was 28-million tons, because of weather disruptions at its Cerrejón mine in Colombia and weak market conditions.

Platinum sales for the year to date fell 6% to 1.55-million ounces while palladium sales were up 3%.