Anglo American production report

This morning Anglo American released their production report for the third quarter ended 30 September 2012. I promise I am not being lazy here but the overview from the release really does summarize it all very well so I will do a copy paste and then we can analyze it in more detail.

"Overview

Solid operational performance with production increases across five of the seven commodities

Kumba Iron Ore production increased by 14% to a record 12.5 million tonnes, driven by fasterthan planned ramp up of Kolomela mine. Kolomela is expected to produce at least
7 million tonnes in 2012

Export metallurgical coal production increased by 12% to 4.5 million tonnes

Export thermal coal production from South Africa increased by 10% to 4.6 million tonnes

Copper production increased by 12% to 157,300 tonnes, reflecting the full ramp up of the Los Bronces expansion project

Nickel production increased by 38% to 9,000 tonnes, with production from Barro Alto offsetting the lack of production from Loma de Níquel in Venezuela

Refined platinum production of 649,000 ounces was flat, while equivalent refined platinum production decreased by 6% to 626,300 ounces. Production and costs were adversely impacted by illegal industrial action which caused production loss of 42,000 ounces of equivalent refined platinum in the quarter

Diamond production decreased by 31% to 6.4 million carats, largely in response to market conditions and the Jwaneng slope failure

On 16 August 2012, Anglo American completed the acquisition of a 40% shareholding in De Beers from CHL Holdings Limited for a cash consideration of $5.2 billion

On 24 August 2012, Anglo American completed the sale of a 25.4% shareholding in Anglo American Sur to a Codelco and Mitsui joint venture company for a cash consideration of $2.0 billion

During the quarter, Anglo American issued corporate bonds with a US dollar equivalent value of $2.3 billion in the US and European markets"

In the latest results release the company made 50% of its profits from Iron Ore so let's look at that one first. 14% is a solid increase bringing in
12.5 Million tonnes. Again the faster ramp up of Kumba's Kolomela mine having a positive impact. In Fact Sishen production decreased 7% due to quality constraints which means Kolomela was vital in this growth. The strikes took place after the quarter end so we will see the 2.2Mt of lost production reflect in the next quarter. That is much bigger than I thought.


Minas Rio is still sucking cash. They say that production could begin in the second half of 2014 but the expected capex of $5.8bn is being revised for a further increase. Some analysts reckon the number could be close to $8bn. Ouch.


The better quality higher margin metallurgical coal grew 12% from this quarter last year. The Brownfield project in Queensland Australia is making good progress.


Copper which was responsible for 26% of profits in the first half showed some decent growth (12%) thanks to Los Broncos growing 84% off a low base.


Platinum decreased 6% to 626 thousand ounces which already saw the affects of the strike action which started on the 18th of September. Expect the numbers to be heavily hit in the next quarter. The company states that 96,300 ounces lost production is the figure for the next quarter. They also state that due to the strikes there will be an 8% increase in unit costs just for this quarter. It will probably be worse in the fourth.


The big dive in Diamond production is obviously not good, especially when they cite demand as one of the main reasons now and going forward. They have just forked out $5.2bn to buy the rest of De Beers.


This production report again reminds me why we buy BHP Billiton. There are so many issues here. Especially with the iron ore asset in Brazil. They have long ago reached a point of no return there while it keeps on sucking money. Not to mention the strike issues in SA, a forced sale of a very good copper asset in Chile and no exposure to energy (other than coal). In a world of choices we will stick with BHP.