Anglo American Regulatory News (AAL)

http://www.rns-pdf.londonstockexchange.com/rns/1478T_1-2020-7-15.pdfAnglo American plc

Production Report for the second quarter ended 30 June 2020

Mark Cutifani, Chief Executive of Anglo American, said: "Anglo American has shown resilience in addressing the challenges posed by Covid-19, acting quickly to help safeguard the lives and livelihoods of our workforce and host communities. Our comprehensive response supported the continuity of the majority of our operations during varying degrees of lockdown in different jurisdictions, albeit at reduced capacity in many cases. Continued strong performances from our Minas-Rio iron ore operation in Brazil and the Collahuasi copper operation in Chile helped mitigate our overall decrease in production to 18%(1), as we also addressed operational issues at our metallurgical coal and PGM operations. Building up from a production level of around 60%(1) of total capacity in April, we continue to increase and had reached about 90%(1) of production capacity by the end of June.

"Beyond the current business imperatives, we continue to ensure that our business is well positioned for the long term, including the nature of our portfolio evolution and societal responsibilities. During the quarter, we have confirmed our plans to work towards an exit from our remaining thermal coal operations in South Africa, in line with our overall trajectory towards later cycle products. And, benefiting from the ongoing transformation of our physical processes through our FutureSmart Mining™ programme, we set out our clear aim of achieving carbon neutrality across our operations by 2040 - an ambitious and important commitment for us as a business, for our employees and our diverse stakeholders."

Q2 highlights

• Minas-Rio in Brazil continued its strong operational performance, with 6.2 million tonnes of high quality iron ore production, reflecting ongoing P101 productivity improvements.

• Collahuasi in Chile increased copper production by 38% due to strong performance.

• Metallurgical coal production decreased by 32% to 4.0 million tonnes due to two incidents underground, at Moranbah and Grosvenor, as well as longwall moves at Grosvenor and Grasstree.

• Covid-19 lockdowns across southern Africa affected De Beers, PGMs, Kumba and Thermal Coal, with lower refined PGMs production due to the repairs and ramp-up of the ACP.

(1) Copper equivalent production is normalised to reflect closure of Victor (De Beers) and Sibanye-Stillwater Rustenburg material that has transitioned to a tolling arrangement (Platinum Group Metals).

(2) De Beers production is on a 100% basis, except for the Gahcho Kué joint venture which is on an attributable 51% basis.

(3) Contained metal basis. Reflects copper production from the Copper business unit only (excludes copper production from the Platinum Group Metals business unit).

(4) Produced ounces of metal in concentrate. Reflects own mine production and purchases.

(5) Volumes are reported as wet metric tonnes. Product is shipped with ~8-9% moisture.

(6) Reflects export production from South Africa and attributable export production (33.3%) from Colombia.

(7) Reflects nickel production from the Nickel business unit only (excludes nickel production from the Platinum Group Metals business unit).

DE BEERS

Rough diamond production decreased by 54% to 3.5 million carats, primarily due to the Covid-19 lockdowns in southern Africa. Mining operations resumed following regional lockdowns with Covid-19 measures in place to safeguard the workforce; with production at lower levels reflecting reduced demand for rough diamonds due to the pandemic.

In Botswana, production decreased by 68% to 1.8 million carats, principally due to a nationwide lockdown from 2 April to 18 May and the implementation of Covid-19 measures to safeguard the workforce. Operations restarted from mid-May, with production targeted at levels to meet the lower demand.

Namibia production increased by 7% to 0.4 million carats as the Mafuta crawler vessel was under planned maintenance in Q2 2019. With targeted regional lockdowns in Namibia in response to Covid-19, marine operations implemented measures to enable operational continuity while safeguarding the workforce. This more than offset the decrease in production from Covid-19 at the land operations.

South African production decreased by 3% to 0.6 million carats primarily due to Covid-19 measures. The production shutdown was partly offset by higher grades from the open pit material prior to transition to the underground. The treatment plant restarted mid-April ramping up to normal capacity by the end of April.

Production in Canada decreased by 27% to 0.8 million carats, primarily due to Victor reaching the end of its life in Q2 2019. At Gahcho Kué, production decreased by 11% to 0.8 million carats due to Covid-19 measures.

During Q2, the demand for rough diamonds was significantly impacted by a combination of Covid-19 restrictions impacting consumer demand and access to southern Africa, as well as severely limited midstream cutting and polishing capacity due to lockdowns, particularly in India. Rough diamond sales totalled 0.3 million carats (0.2 million carats on a consolidated basis)(2) compared with 9.0 million carats (8.3 million carats on a consolidated basis)(2) in Q2 2019. The third Sight of 2020 was cancelled due to Covid-19-related travel restrictions and, in response to the unprecedented industry conditions, De Beers also offered Sightholders the option to defer up to 100% of their allocations at the fourth and fifth Sights. Rough diamond consolidated sales(2) in Q2 2020 decreased to $56 million (Q2 2019: $1.3 billion), driven by lower volumes and prices.

The H1 2020 average realised rough diamond price decreased by 21% to $119/carat (H1 2019: $151/carat), driven by a higher proportion of lower value rough diamonds sold and an 8% reduction in the average rough price index.

Full Year Guidance

Production guidance is unchanged at 25-27 million carats (100% basis), subject to continuous review based on the disruptions related to Covid-19 as well as the timing and scale of the recovery in demand.

(1) De Beers Group production is on a 100% basis, except for the Gahcho Kué joint venture which is on an attributable 51% basis.

(2) Consolidated sales volumes exclude De Beers Group's JV partners' 50% proportionate share of sales to entities outside De Beers Group from Diamond Trading Company Botswana and the Namibia Diamond Trading Company, which are included in total sales volume (100% basis).

(1) De Beers Group production is on a 100% basis, except for the Gahcho Kué joint venture which is on an attributable 51% basis.

(2) Orapa constitutes the Orapa Regime which includes Orapa, Letlhakane and Damtshaa.

(3) Consolidated sales volumes exclude De Beers Group's JV partners' 50% proportionate share of sales to entities outside De Beers Group from Diamond Trading Company Botswana and the Namibia Diamond Trading Company, which are included in total sales volume (100% basis).

(4) Sight 3 in Q2 2020 was cancelled due to COVID-19-related restrictions on the movement of people and product.

COPPER

(1) Copper production shown on a contained metal basis. Reflects copper production from the Copper business unit only (excludes copper production from the Platinum Group Metals business unit).

Copper production increased by 5% to 166,800 tonnes due to continued strong plant performance at Collahuasi, partially offset by expected lower production at Los Bronces due to lower water availability resulting from the unprecedented drought conditions in central Chile. Current Covid-19 measures to safeguard our people and communities, including reductions in workforce, while preserving the longer term integrity of the assets are not expected to significantly impact production in 2020.

Production from Los Bronces decreased by 12%, to 80,700 tonnes, as a 15% reduction in plant throughput (10 million tonnes vs 12 million tonnes) due to lower water availability was partially offset by planned higher grades (0.85% vs 0.81%).

At Collahuasi, attributable production increased by 38% to 75,700 tonnes, a historical record for the operation, driven by higher throughput (14 million tonnes vs 12 million tonnes) and record copper recovery (92.0% vs 87.3%), reflecting plant improvement projects implemented during 2019, as well as planned higher grades (1.31% vs 1.21%).

Production from El Soldado decreased by 21% to 10,400 tonnes as a result of lower grades (0.76% vs. 0.92%).

Sales volumes of 293,800 tonnes in H1 2020 were impacted by temporary port closures in Chile due to heavy tidal swells limiting vessel availability in June. The average realised price of these sales was 250c/lb ($5,512/t), broadly in line with the average LME price.

Full Year Guidance

Production guidance for the year remains unchanged at 620,000-670,000 tonnes, subject to water availability and the impact of the Covid-19 pandemic.

(1) Excludes copper production from the Platinum Group Metals business unit. Units shown are tonnes unless stated otherwise.

(2) Anglo American ownership interest of Los Bronces, El Soldado and the Chagres Smelter is 50.1%. Production is stated at 100% as Anglo American consolidates these operations.

(3) TCu = total copper.

(4) Anglo American's share of Collahuasi production is 44%.

(5) Copper contained basis.

(6) Total copper production includes Anglo American's 44% interest in Collahuasi.

(7) Relates to sales of copper not produced by Anglo American operations.

PLATINUM GROUP METALS (PGMs)

(1) Ounces refer to troy ounces.

(2) Includes managed operations and 50% of joint venture production.

(3) Includes 50% of joint venture production, and the purchase of concentrate from third parties.

(4) Refined production excludes toll material but includes in comparative periods material now transitioned to tolling.

Metal in concentrate production

Platinum and palladium production decreased by 41% to 307,400 ounces and 34% to 228,400 ounces, respectively.

Own mined platinum production decreased by 45% to 188,700 ounces and palladium production decreased by 33% to 173,300 ounces. This was largely driven by Covid-19 lockdowns with Mogalakwena operating at c.50% through April before ramping up to normal levels by the end of the quarter. Amandelbult was not operating during April but ramped up to c.50% production at the end of the quarter and is expected to reach 85% production levels by the end of the year.

Purchase of platinum in concentrate decreased by 33% to 118,700 ounces and purchase of palladium in concentrate decreased by 36% to 55,100 ounces, largely due to the impact of Covid-19 lockdowns.

Refined production and sales volumes

Refined production for platinum and palladium decreased by 73% to 160,600 and 66% to 147,400, respectively. This was largely driven by a force majeure incident at the ACP (Anglo Converter Plant) on 10 February, which led to the closure of both Phase A and Phase B units from 6 March, with Phase B returning to steady state on 12 May. Following a subsequent closure during the first two weeks of June, the ACP Phase B has since ramped-up and is operating at full capacity. Repairs to Phase A are ahead of schedule with completion estimated at the end of Q4 2020.

Platinum sales volumes decreased by 67% to 195,700 ounces and palladium sales volumes decreased by 66% to 160,800 ounces due to lower refined production in the period, which was partially offset by a drawdown in refined metal inventory to supplement sales.

Full Year Guidance

Production guidance (metal in concentrate) is unchanged at 1.5-1.7 million ounces of platinum and 1.0-1.2 million ounces of palladium, subject to the extent of any further Covid-19 related disruptions.

(1) Ounces refer to troy ounces.

(2) The joint venture operations are Modikwa and Kroondal. Platinum owns 50% of these operations, which is presented under 'Own mined' production, and purchases the remaining 50% of production, which is presented under 'Purchase of concentrate'.

(3) Refined production excludes toll material but includes in comparative periods material now transitioned to tolling.

(4) Sales from own mined and purchased concentrate, excludes refined metal purchased from third parties.

(5) Relates to sales of metal not produced by Anglo American operations.

(6) 4E: the grade measured as the combined content of: platinum, palladium, rhodium and gold, excludes tolled material.

IRON ORE

(1) Volumes are reported as wet metric tonnes. Product is shipped with ~8-9% moisture.

Kumba - Total production volumes decreased by 20% to 8.5 million tonnes. This reflects lower workforce levels in response to the Covid-19 lockdown, the subsequent re-opening of operations with reduced workforce levels of c.50% and the ramp-up in production to normal run-rates in June.

Sishen production reduced by 21% to 5.8 million tonnes and Kolomela's by 17% to 2.7 million tonnes.

Sales volumes decreased by 23% to 8.1 million tonnes(1) due to Covid-19 logistics constraints affecting Transnet and poor weather conditions, as well as no domestic offtake.

Finished stock levels increased to 6.2 million tonnes(1) from 5.6 million tonnes(1) as at 31 March 2020 due to the impact of the Covid-19 restrictions at the port.

In the first half of 2020, the average lump to fines ratio in the Kumba product was 65:35 (H1 2019: 68:32), while the Fe content averaged 64.4% (H1 2019: 64.3%).

Minas-Rio - Production increased by 5% to 6.2 million tonnes, reflecting a continued strong performance, with P101 productivity initiatives supported by robust operational stability. Current Covid-19 measures in place to safeguard the workforce and communities are not expected to significantly affect 2020 production.

In the first half of 2020, the Fe content of Minas-Rio pellet feed product averaged 67.2% (H1 2019: 66.9%).

Full Year Guidance

Kumba production guidance is unchanged at 37-39 million tonnes, subject to the extent of further Covid-19 related disruption.

Minas-Rio production guidance is unchanged at 22-24 million tonnes, subject to the extent of further Covid-19 related disruption. The planned one month production stoppage to carry out routine internal scanning of the pipeline, originally scheduled for Q2, has been postponed to the second half of the year due to Covid-19 related constraints.

(1) Sales volumes and stock differ to Kumba's standalone results due to sales to other Group companies.

(1) Sales volumes differ to Kumba's standalone results in H1 2020, Q2 2020, Q1 2020 and Q4 2019 due to sales to other Group companies.

COAL

(1) Anglo American's attributable share of production.

(2) Includes export primary production, secondary production sold into export markets and production sold domestically at export parity pricing.

(3) Anglo American's attributable share of Cerrejón production is 33.3%.

Metallurgical Coal - Export metallurgical coal production decreased by 32% to 4.0 million tonnes, principally due to two incidents underground as well as longwall moves at Grosvenor and Grasstree. In January, a fall of ground at Moranbah delayed the completion of a longwall move with the operation restarting ahead of schedule in mid-May. At Grosvenor, operations have been suspended since the beginning of May following a gas ignition incident underground. The investigation into the incident at Grosvenor is under way and mining operations will restart only when it is safe to do so, with any additional safety measures in place. Disruption to operations from Covid-19 has been limited, with measures in place to help safeguard the workforce and local communities. Open cut operations have been scaled back at Dawson and Capcoal in response to reduced demand for lower quality metallurgical coal.

As a result of the lower volumes following these operational issues, the H1 2020 unit cost is expected to be circa $97/tonne.

The ratio of hard coking coal production to PCI/semi-soft coking coal was 81:19, lower than in Q2 2019 (85:15), due to a lower proportion of product coming from the underground operations.

Thermal Coal South Africa - Export thermal coal production decreased by 22% to 3.6 million tonnes due to Covid-19 lockdown restrictions, as well as sections at Goedehoop that reached their end of life.

All mines operated at c.50% at the start of lockdown in late March, with open pit operations ramping up to 70% as lockdown measures were eased in May. Since June, all mines have been operating at circa 80% due to the impact of Covid-19 measures to safeguard the workforce. Similar measures in the logistics chain have affected the loading of volumes onto trains resulting in higher stockpiles at operations.

Thermal Coal Colombia - Attributable export thermal coal production decreased by 62% to 0.8 million tonnes as a result of the impact of the local Covid-19 lockdown and planned lower production in response to demand. Mining operations recommenced in early May and are expected to progressively ramp-up over the course of Q3.

The H1 2020 weighted average realised price for export thermal coal from South Africa and Colombia was $56/tonne. This was 7% lower than the weighted average quoted FOB price from South Africa and Colombia principally due to discounts for energy content of coal.

Full Year Guidance

Following the temporary suspension of operations at Grosvenor since the start of May, production guidance for metallurgical coal is revised to 16-18 million tonnes (previously 19-21 million tonnes), subject to the extent of further Covid-19 related disruption.

Production guidance for export thermal coal is revised to c.21 million tonnes (previously c.22 million tonnes) due to the impact of Covid-19 related restrictions and lower production in response to demand at Cerrejón and remains subject to the extent of further Covid-19 related disruption. 

(1) Anglo American's attributable share of production.

(2) Includes export primary production, secondary production sold into export markets and production sold domestically at export parity pricing.

(3) Anglo American's attributable share of Cerrejón production is 33.3%.