UPDATE 2-Anglo's overhaul starts to pay off with sharp output rise

Wed Jan 29, 2014 7:02am EST

* Solid production could lead to earnings forecast upgrades

* Iron ore output climbs but some constrains remain at Sishen pit

* Copper division benefits from higher grades than expected

By Silvia Antonioli

LONDON, Jan 29 (Reuters) - Anglo American on Wednesday produced a forecast-beating rise in fourth quarter iron ore output and a new quarterly record for copper, a sign efforts to improve performance at its major mines are starting to pay off.

Anglo, the fifth-largest diversified mining group, has embarked on an overhaul plan under chief executive Mark Cutifani, after years of sector-lagging returns.

Cutifani said in December the plan would focus mainly on improving operations of major mines but did not envisage immediate asset sales.

Anglo has long lagged rivals in returns and share performance. Its shares have lost about 60 percent of their value in the last three years compared with a 40 percent decline for the sector.

In the past two years, it has been hit by labour troubles in South Africa, operational hiccups at copper mines and multibillion-dollar cost overruns in Brazil.

The fourth-quarter production figures helped to boost Anglo's shares which were one of the top gainers in the FTSE 100 index. They rose as much as seven percent and were up almost 5 percent at 1,410.5 pence by 1146 GMT, outperforming a 1.3 percent increase in the sector.

"Such strong Q4 production will drive 2013 earnings upgrades but whether this translates into 2014 earnings upgrades will remain to be seen," Nomura analysts said in a note.

Production of iron ore - the largest contributor to Anglo's profit in 2012 - at its Kumba Iron Ore business rose by 25 percent to 11.3 million tonnes in the fourth quarter from the same period a year earlier when it was hit by a strike. This beat analysts forecasts and the company's own guidance.

It was also an improvement on the third quarter, when production dropped due to pit constraints at Kumba's Sishen mine in South Africa's Northern Cape Province and regulatory safety stoppages in August.

Anglo said Sishen was still constrained by waste material, which reduces the availability of material supplied to processing plants. There is a plan underway to address this and improve the long-term operations, it said.

"We continue to warm up to the company despite the significant operational headwinds it faces over the next year," Barclays said in a note.

COPPER RECORD

Copper, the second largest contributor to Anglo's profits last year, achieved a quarterly output record, up 24 percent to 214,400 tonnes.

The increase reflected a production rise at the Los Bronces mine in Chile and a doubling of production and higher grades at the Collahuasi mine, a joint venture with Glencore Xstrata , which offset a decline at El Soldado also in Chile.

"The copper performance was particularly strong because grades remained very high at the two main mines. I think this could translate in 300-400 million in additional EBIT for the company," another analyst said.

In platinum, Anglo is battling strikes over wages and also a margin squeeze due to higher costs and lower prices. The company is planning to cut jobs and mothball unprofitable operations.

A strike by platinum miners in South Africa, which has cut output at the world's three top producers, is costing Anglo's platinum business Anglo American Platinum about 4,000 ounces of platinum production a day resulting in 100 million rand ($9.11 million) of lost daily revenue.

In the fourth quarter, equivalent refined platinum production increased by 25 percent to 520,300 ounces from the same period last year. The increase was helped by higher production from the Mogalakwena mine in South Africa.

Anglo's diamond output also beat forecasts, up 13 percent in the fourth quarter to 9.1 million carats, mainly due to a recovery at Jwaneng operations in Botswana.

Anglo American will announce its 2013 preliminary results on Feb. 14.

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