Anglo sees output fall in core products

Anglo American reported declines in output in 2016 of the key commodities that it intends hanging onto as it restructures its business away from bulk commodities.

Output of refined platinum, diamond and copper — the three core products Anglo has identified — all declined year on year for a variety of reasons including inclement weather, labour unrest, processing difficulties and market-related issues. The two standout annual performances were in nickel, which Anglo had identified for sale, as well as its Minas Rio iron ore mine in Brazil, which is ramping up to full production.

Some analysts expect that a “small surprise return to dividends is possible” because of a cash windfall in SA and forecast a payment of $0.10 per share.

Looking at just the fourth quarter numbers, JP Morgan Cazenove said: “Anglo American’s production is strong in diamonds, iron ore and coal, which together account for 81% of our FY’17E [financial year 2017 estimate] and ebitda [earnings before interest, tax, depreciation and amortisation] ($8.4bn). We believe the impact of strong output and pricing across these commodities should positively outweigh slightly weak output in copper, nickel and platinum.”

Anglo American CEO Mark Cutifani said at the end of 2016 the increase in a range of prices for commodities produced at mines it wanted to sell and which caused some analysts to ponder the wisdom of the asset sale strategy, meant the urgency of the disposals had been removed. He said significant cost reductions had boosted profitability across a range of assets, meaning Anglo could realise better value for those assets it wanted to sell to sharply cut debt, which he said should be well below the $10bn target set for the end of 2016.

In its full-year and fourthquarter production numbers, Anglo noted refined platinum production from its 80%-held Anglo American Platinum subsidiary had fallen 5% year on year during 2016 to 2.335million ounces because of a problem at a furnace at its Waterval smelting complex.

While mined production was 2% higher, the furnace problem, which meant it leaked molten metal last September, stripped 65,000oz of final metal from the world’s largest platinum producer’s output for the year. The furnace has since been repaired and is operating at full capacity.

At De Beers, output fell 5% to 27.34-million carats. The firm shut its perennially loss-making Snap Lake mine in Canada in 2016. De Beers, however, grew diamond sales during the year by 55% to 32-million carats, flushing out inventory built up during a tough 2015.