July 18, 2013 2:10 pm

Anglo American results underline challenges for Mark Cutifani

A driver passes a row of Komatsu Ltd. haul trucks at Sishen open cast mine, operated by Kumba Iron Ore Ltd., an iron ore-producing unit of Anglo American Plc, in Shishen, South Africa, on Wednesday, Aug. 24, 2011. Kumba Iron Ore Ltd. may decide on the next stage of its Sishen-Saldanha expansion in 2014, the company said in a presentation on its website today©Bloomberg

Anglo American’s Kumba Iron Ore mine in South Africa, where unrest has affected platinum assets

Anglo American revealed quarterly production figures that analysts compared unfavourably with those of rivals, underlining the challenge facing new chief executive Mark Cutifani as he prepares to unveil his strategy for the underperforming mining group.

Mr Cutifani is expected next week to give his first public presentation outlining how he intends to tackle the multiple challenges facing Anglo, which include industrial unrest in lossmaking South African platinum mines and huge cost overruns at a large Brazilian iron ore project.

On Thursday Anglo said production of copper and diamonds had risen year on year in the second quarter ending June 30, but the miner’s output of coal, platinum and iron ore fell.

Iron ore from Anglo’s South African Kumba subsidiary has been a cash cow for the company, but the commodity – used in steelmaking – is an area where it has been weak relative to rivals such as BHP Billiton and Rio Tinto.

John Meyer, an analyst at SP Angel Corporate Finance in London, said Anglo’s figures “spoil[ed] a good run of production numbers” from mining companies including BHP and Rio. Both companies this week announced higher iron ore output from their low-cost Australian mines.

Iron ore output at Kumba was down 1 per cent year on year, partly because of the impact of a strike last year. Export sales volumes from the subsidiary were down 4 per cent.

Anglo’s copper output increased 14 per cent, more than analysts had expected, but the company said there was a “backdrop of continued caution around the operating performance recovery and stability” of production of the metal. It left its guidance for annual copper production unchanged.

The company’s platinum production in South Africa was hit by strikes, and Anglo said it had not had enough flexibility to redeploy its workers in the sector to mines where there was a skills shortage.

Seeking a long-term answer to the structural problems in Anglo’s South African platinum mines – where analysts say the company’s ability to restructure is restricted by government pressure – is one of the main challenges facing Mr Cutifani. However, he is seen as someone who can operate effectively in South Africa, having previously been chief executive of AngloGold Ashanti.

Anglo also cut its output of coal to be exported for use in steelmaking, partly because of a weaker market. A small coking coal mine would be temporarily shut down because of weaker prices, Anglo said.

Analysts at Liberum called the production figures a “mixed bag” with no huge surprises. Analysts at Bernstein said the results were disappointing, but added: “We cannot say that such performance is really shocking from a company embarking upon a turnround path.”

Mr Cutifani took over as chief executive earlier this year from Cynthia Carroll, who left Anglo after six years in the post, during which Anglo’s shares underperformed those of diversified mining peers.

Shares in the company were flat in midday trading at £13.56, having fallen more than 30 per cent over the past 12 months.

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