Anglo American Regulatory News (AAL)

20 July 2016

Anglo American plc

Production Report for the second quarter ended 30 June 2016

Overview

Mark Cutifani, Anglo American Chief Executive, said "The Q2 2016 operating results are in line with the equivalent period of 2015 on a copper equivalent basis(8). We are building upon the improving operational trend from the first quarter as we recover refined platinum production and continue to ramp-up Minas-Rio, Grosvenor and Barro Alto. We also continue to demonstrate discipline in our key markets, particularly diamonds and platinum, in line with our focus on higher margin and lower cost assets. The decisive actions taken by De Beers last year led to more normal trading conditions in the first half of 2016 with sales volumes increasing as a result, but we maintain a cautious outlook."

· Diamond production decreased by 19% to 6.4 million carats, reflecting the decision to reduce production in response to prevailing trading conditions in H2 2015.

· Platinum production (expressed as metal in concentrate)(2) increased by 1% to 585,700 ounces, whilst refined platinum production increased by 33% to 747,600 ounces, reflecting the recovery at the Precious Metals Refinery after a planned stocktake and safety stoppage in Q1 2016.

· Copper production from the retained operations (excluding the AA Norte assets sold effective 1 September 2015) decreased by 8% to 144,200 tonnes. Expected lower grades and significant snowfall impacted operations at Los Bronces, albeit partly offset by plant stability improvements at Collahuasi.

· Nickel production increased by 76% to 11,100 tonnes following the successful completion of the Barro Alto furnace rebuilds in 2015.

· Iron ore production from Kumba decreased by 15% to 8.9 million tonnes as Sishen restructured (downsized) and transitioned the operations to a lower cost pit configuration.

· Iron ore production from Minas-Rio increased by 91% to 3.5 million tonnes (wet basis) as the operation continues its ramp-up.

· Export metallurgical coal production increased by 4% to 5.5 million tonnes due to first longwall production at Grosvenor in May and a longwall move at Grasstree in the prior year, partially offset by ramp-up at Moranbah after the completion of the longwall move in the prior quarter.

· Export thermal coal production decreased by 6% to 8.1 million tonnes due to ramping down production at Drayton where mining activities will cease in late 2016 and planned production cuts at Cerrejón, partly offset by higher production at most South African Export operations.

(1) De Beers production on 100% basis; (2) In keeping with industry benchmarks, production disclosure has been amended to reflect own mine production and purchases of metal in concentrate. Previous disclosure of own mine production and purchases of metal in concentrate was converted to equivalent refined production using standard smelting and refining recoveries; (3) Copper production from the Copper business unit; (4) Copper production shown on a contained metal basis; (5) 2015 Copper production normalised for the sale of Anglo Norte; (6) Nickel production from the Nickel business unit; (7) Wet basis; (8) Copper equivalent production is normalised for the sale of Anglo American Norte and the Kimberley mine, and to reflect Snap Lake being placed on care and maintenance.

DE BEERS

De Beers - Diamond production decreased by 19% to 6.4 million carats, reflecting the decision to reduce production in response to prevailing trading conditions in H2 2015.

At Debswana (Botswana), production decreased by 12% to 5.2 million carats with Orapa reduced by 27% and the placing of Damtshaa on care and maintenance from 1 January 2016.

Production at DBCM (South Africa) decreased by 26% to 0.8 million carats due mainly to the completion of the sale of Kimberley Mines in January 2016.

Production at Namdeb Holdings (Namibia) decreased by 31% to 0.3 million carats with reduced production at Debmarine Namibia because of extended planned in-port maintenance of the Mafuta vessel and lower grades at Namdeb's Land operations.

Production in Canada decreased by 71% to 0.1 million carats due to Snap Lake being placed on care and maintenance in December 2015. Production at Victor was in line with Q2 2015.

Consolidated rough diamond sales in Q2 2016 were 9.6 million carats (from three Sights) compared with 4.9 million carats (from two Sights) in Q2 2015. Apart from the additional Sight in 2016, this increase reflected higher midstream restocking from lower inventory levels in 2015. Consolidated sales volumes for H1 2016 were 17.2 million carats, compared with 13.3 million carats for H1 2015 (from five Sights, in each case).

The De Beers rough price index was on average 16% lower in H1 2016 compared with H1 2015. The average realised price at $177/ct was 14% lower than H1 2015.

Full Year Guidance

Full year production guidance (on a 100% basis) remains unchanged at 26-28 million carats, subject to trading conditions. 

PLATINUM

(1) Copper and nickel refined through third parties is shown as production of copper matte and nickel matte.

(2) In keeping with industry benchmarks, production disclosure has been amended to reflect own mine production and purchases of metal in concentrate. Previous disclosure of own mine production and purchases of metal in concentrate was converted to equivalent refined production using standard smelting and refining recoveries.

Platinum - Production (metal in concentrate) increased by 1% to 585,700 ounces.

Mogalakwena production decreased by 3% to 98,800 ounces. Whilst milled volumes increased by 6%, a return to normalised lower grades in Q2 resulted in the 3% decrease.

Amandelbult production increased by 1% to 106,200 ounces. Strong mining performance was mostly offset by a fatal incident on 26 April 2016 which resulted in a mine stoppage and a loss of 18,000 ounces of production.

Unki production increased by 12% to 17,800 ounces. Improved underground mining efficiencies, which resulted in increased milled volume were complemented by a 9% increase in grade.

Independently managed production (mined and purchased, but excluding third party purchase of concentrate) increased by 9% to 203,200 ounces, driven by strong production performances from Mototolo, Modikwa, BRPM and Kroondal, partly offset by Bokoni.

Platinum production from Rustenburg operations including the Western Limb Tailings Retreatment was 8% lower at 112,300 ounces. Production was impacted by a fatal incident, the impact of mining through difficult ground areas and marginally lower grade. This was partly offset by an increase in tailings retreatment production.

Following the significant restructuring at Union, the mine continued to improve performance against its optimised mine plan with production 31% higher at 41,200 ounces mainly due to improved underground mining efficiencies and increased stability at the concentrator plant.

Refined platinum production increased by 33% to 747,600 ounces. The increase is a result of refining the backlog of product not delivered in Q1 2016 as a result of a planned stock take at the Precious Metals Refinery (PMR), together with a Section 54 Stoppage which closed the PMR for 12 days and materially impacted production for a further 37 days. The remainder of the shortfall in refined production is expected to be caught up in Q3 2016. 

Full Year Guidance

Full year production guidance (metal in concentrate) remains unchanged at between 2.3-2.4 million ounces.

COPPER

(1) Copper production shown on a contained metal basis

(2) Anglo American Norte excluded for all periods

Copper - Copper production from the retained operations (excluding AA Norte assets sold effective 1 September 2015) decreased by 8% to 144,200 tonnes and by 2% compared to Q1 2016.

Production from Los Bronces decreased by 22% to 75,600 tonnes primarily due to expected lower grades, as well as unseasonal and extremely high levels of snowfall which hampered operations at the mine during Q2 restricting access to high grade ore zones (0.62% vs. 0.98%). This was partially offset by no further water restrictions which impacted production in the first half of 2015.

At Collahuasi, attributable production increased by 14% to 56,200 tonnes due to improved plant stability and operating times following rectification work undertaken in 2015, combined with higher grades (1.21% vs. 1.15%).

El Soldado production increased by 24% to 12,400 tonnes due to the increasing availability of higher grade ore, in line with the revised mine plan. On the 8 July 2016 the unionised workforce at El Soldado went on strike after rejecting the offer made by the company as part of the collective bargaining process.

At the end of H1 2016, Anglo American had 155,300 tonnes of copper provisionally priced at 220c/lb. The final price of these sales will be determined in H2 2016. The realised copper price for the first half to 215c/lb.

Full Year Guidance

Owing to the severe winter weather experienced at Los Bronces during the quarter, which limited mine extraction and the ability to mine the higher altitude, higher-grade phases, full year production guidance has been revised down to 570,000 - 600,000 tonnes for 2016 (previously 600,000 - 630,000 tonnes), and 570,000 - 600,000 tonnes for 2017 (previously 590,000 - 620,000 tonnes).

 NICKEL

Nickel - Nickel production increased by 76% to 11,100 tonnes following the successful rebuild of both Barro Alto furnaces, which are now producing at close to nameplate capacity. Production from Codemin remained in line with Q2 2015 at 2,300 tonnes.

Full Year Guidance

Full year production guidance remains unchanged at 45,000 - 47,000 tonnes.

NIOBIUM

Niobium - Niobium production decreased by 25% to 1,200 tonnes due to a planned stoppage in May to implement a downstream metallurgy project. Subsequent plant performance has been strong, with an all-time production record achieved in June.

PHOSPHATES

Phosphates - Concentrate production increased by 18% due to softer material feed to the plant. Fertiliser production increased by 4%, mainly due to strong performance at the granulation plants and good plant conditions allowing a combination of the January and March maintenance programmes. Phosphoric acid production increased by 18% due to increased plant stability and higher equipment availability at both sites. DCP production increased by 7% following stable process and phosphoric acid availability.

IRON ORE AND MANGANESE

(1) Wet basis

(2) Saleable production

(3) Production includes medium carbon ferro-manganese

Kumba Iron Ore - Iron ore production decreased by 15% to 8.9 million tonnes.

Sishen production decreased by 21% to 5.7 million tonnes, whilst waste removal decreased to 31 million tonnes compared to 58 million tonnes in Q2 2015. The reduction in production and waste volumes was consistent with the mine's lower cost pit configuration, although run rates for the quarter were lower than expected due to the significant restructuring and ~31% reduction in the workforce at Sishen. Production was further exacerbated by higher than normal levels of rainfall and a safety related stoppage. Solutions have been implemented which have already shown improvements in mine flexibility and run rates on key operating parameters during June in line with full year production guidance of ~27Mt. 

Kolomela production increased by 10% to 3.2 million tonnes, due to increased plant throughput.

At Thabazimbi there was no production in the quarter after mining activities ceased on 30 September 2015 and processing activities ceased on 31 March 2016. Closure of the mine is proceeding according to plan.

Export sales decreased by 26% to 8.7 million tonnes due to lower production. Total finished product stocks were 2.3 million tonnes, compared with 4.7 million tonnes at year end as stocks were drawn-down further.

Full Year Guidance

Full year production guidance for Sishen remains unchanged at ~27 million tonnes and waste volumes of between 135-150 million tonnes. Kolomela remains on track to produce ~12 million tonnes and waste volumes of 46-48 million tonnes.

Iron Ore Brazil - Iron ore production from Minas-Rio increased by 91% to 3.5 million tonnes (wet basis) during Q2 2016, a 4% increase compared to Q1 2016, as the operation continues its ramp-up. The constrained pit and ongoing licence processes have resulted in lower than anticipated quality run-of-mine material. On 7 July 2016 a provisional approval was granted for the next phase of licensing, which has allowed immediate access to the next tranche of reserves.

Full Year Guidance

Due to the pit constraint, full year production guidance for Iron Ore Brazil has been revised to 15-17 million tonnes (previously 15-18 million tonnes) (wet basis).

Manganese ore - Manganese ore production was broadly in line with Q2 2015.

Manganese alloy - Manganese alloy production decreased by 45% following the restructuring of South Africa Manganese operations due to market conditions. In May 2015, operations were suspended at three of the four furnaces at Metalloys in South Africa.

COAL

Australia - Export metallurgical coal production increased by 4% to 5.5 million tonnes due to first longwall production at Grosvenor in May and a longwall move at Grasstree in the prior year. These increases offset lower production at Moranbah which was ramping-up after the completion of the longwall move in Q1 2016.

Australian export thermal coal production decreased by 17% to 1.1 million tonnes as Drayton ramps down to cease mining operations in late 2016 following the NSW Planning Assessment Commission recommendation not to approve the Drayton South Project.

South Africa - Export thermal coal production increased by 8% to 4.7 million tonnes. Production increased across nearly all operations due to productivity improvements.

Eskom related production was broadly unchanged.

Domestic non-Eskom production increased by 15% to 1.8 million tonnes mainly due to Zibulo and Landau export production re-directed to the domestic market generating a higher margin.

Colombia - Cerrejón's attributable production decreased by 21% to 2.3 million tonnes due to heavy rainfall in May and June, and ongoing planned production cuts to take out the highest cost capacity in response to market conditions.

Full Year Guidance

Full year production guidance for export metallurgical coal remains unchanged at 21-22 million tonnes. This is subject to the completion of any asset disposals.

Full year production guidance for export thermal coal from South Africa and Colombia remains unchanged at 28-30 million tonnes.

EXPLORATION AND EVALUATION

Exploration and Evaluation expenditure for the quarter totalled $45 million, a decrease of 35%. Exploration expenditure for the quarter totalled $24 million, a decrease of 31%. Evaluation expenditure for the quarter totalled $22 million, a decrease of 40%.

NOTE

This Production Report for the second quarter ended 30 June 2016 is unaudited.

PRODUCTION SUMMARY

The figures below include the entire output of consolidated entities and the Group's attributable share of joint operations, associates and joint ventures where applicable, except for De Beers' joint ventures which are quoted on a 100% basis.