Profit fall, reshuffle underscore Anglo challenges

LONDON/JOHANNESBURG (Reuters) - Falling profits at Anglo American's (AAL.L) diamond and iron ore subsidiaries and a major reshuffle at its key South African units on Friday pointed up the challenges for the global miner which launches the reporting season for mining heavyweights next week.

Analysts welcomed the departure of the boss at Anglo American Platinum (AMSJ.J), or Amplats, after the group warned of sharply lower earnings at the sector bellwether.

Its turnaround efforts could blaze the path for an industry battered by rising costs, militant labor and weak demand.

"Clearly, fixing Anglo Platinum is a difficult and probably lengthy job, because it has some seemingly intractable issues to resolve in its structure and its costs," analyst Des Kilalea at RBC Capital Markets said.

He and others welcomed the appointment of Chris Griffith, currently at sister unit Kumba Iron Ore (KIOJ.J), to replace Neville Nicolau at the Amplats' helm as "encouraging".

Kumba reported an 18 percent drop in interim earnings on Friday because of low prices but Anglo regards the asset as one of the most promising in its South African stable and just spent $950 million to raise its stake in the company to 69.7 percent from 65.2 percent.

Amplats is a different story as costs soar while the spot price of platinum, used to build emissions-cutting catalytic converters in automobiles, wallows near 2012 lows. The group said this week its interim earnings would fall about 80 percent.

"The scale of the challenge at (Amplats) is huge, with a larger workforce in a lower margin, structurally disadvantaged industry," JP Morgan Cazenove analysts said.

Anglo is the only mining major with a big exposure to platinum and is undertaking a strategic review of its operations in South Africa, home to 80 percent of known reserves.

Anglo has denied Nicolau resigned in a disagreement over strategy, though analysts say he was said to have opposed cuts most see as essential to turning around the platinum sector.

South Africa's powerful and often militant labor unions, key to any effort by Anglo to cut back in platinum, welcomed the arrival of Griffith, but the National Union of Miners has already warned there was "no way" it would accept cuts.

Griffith could lead a charm offensive as unions applauded a Kumba ownership scheme for workers last year that saw thousands of lower-paid employees reap over 500,000 rand ($61,100) each.

"Chris is highly respected. He has driven transformation at Kumba very aggressively. We hope he will apply the same methods at Amplats," Frans Baleni, General Secretary of the National Union of Mineworkers, told Reuters.

"Transformation" in South Africa is normally taken to refer to efforts to spread ownership and equity to previously disadvantaged blacks.

PRODUCTION

Iron ore, a key plank of the miner's growth strategy, was up 12 percent at 12.9 million tonnes, due to the ramp up of Kumba's Kolomela mine that offset operational issues at Sishen, and improvements at Anglo's Amapa operation in Brazil.

Copper production was helped 7 percent higher by Chile's Los Bronces, though increases there were partly dented by lower grades and adverse weather, as well as lower recoveries and a ball mill failure at the Collahuasi operation, the world's third largest copper mine.

Diamonds followed a drop in the first quarter with a further 11 percent decline in the second as De Beers, which separately reported earnings on Friday, focuses on maintenance and waste stripping while it waits for demand to recover.

(Additional reporting by Ed Stoddard in Johannesburg; Editing by David Cowell)