Anglo American responds to weak diamond price with output cut


Global mining company [DATA AGL:Anglo American] said it planned to cut diamond production this year in response to lower prices, signalling reduced confidence in a prompt rebound.

Anglo also said its iron ore output rose in the first three months of 2015 thanks to improved productivity. However, copper production fell because of limited water supplies at its Chilean operations.

The London-listed company, which has lagged rivals for much of the past decade, is trying to improve its mining operations and is selling less profitable assets.


Its turnaround efforts though have so far been overshadowed by a rout in prices of metals such as iron ore and copper, which make up almost half and about a quarter of its earnings respectively.

Some respite came last year from higher margins at its diamond subsidiary De Beers, which became the second-largest earner for the company after iron ore.

But diamond demand has slowed since late 2014 as middlemen who buy rough stones struggle with a stronger dollar and liquidity problems. De Beers, the largest producer of rough diamonds by value, has said it would produce sufficient quantities to match demand.

On Thursday, Anglo reduced its 2015 diamond production forecast to 30 to 32 million carats from 32 to 34 million carats, “in light of current trading conditions.”

Nomura analysts forecast each 1 million carat cut in diamond production implies a 1.5 percent drop in Anglo’s 2015 earnings per share.

Iron ore output from Anglo’s Kumba division rose 7 per cent in the first quarter from the same period a year ago to 12.2 million, thanks to some operational improvements at its South African assets.

However, copper output fell 15 per cent to 171,800 tonnes due to water supply problems which prompted the company to temporarily shut a processing plant in Chile.

Platinum, a troublesome divisions for Anglo, hit by recurrent labour strike and stubbornly weak prices, saw output rise by 50 percent in the first quarter to 536,000 ounces. Last year’s production was heavily affected by industrial action.

The company is trying to divest its most labour-intensive platinum mines in South Africa and boost production at its newer Mogalakwena mine.

“We continue to support Anglo’s attempts to dispose of Rustenburg and Union. Even though we doubt whether it will be able to sell or list these assets, it is by far the best decision management can make to improve long-term economic value accretion for shareholders,” Citi analysts said in a note.