Anglo American falls after cutting output forecasts

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By Geoffrey Smith 

AiVIF.com -- Anglo American (LON:AAL) stock slipped in early trading in London on Friday after the mining giant revised down its production forecasts for the next two years.

By 05:10 ET (10:10 GMT), Anglo American stock was down 1.2%.

The news means that the company is less likely to cash in on what is expected to be a generally strong period for its core commodities businesses, but also reflects uncertainties over the outlook for Chinese demand for steel as the economy shifts to a lower and less materials-intensive growth trajectory.

AA cut its forecast for production of iron ore next year by over 10% to a range of around 59 million tons, while output of metallurgical coal, the other key ingredient for the steelmaking process will total around 17.5 million tons, nearly one-quarter less than originally forecast. 

It also cut its copper output forecast by some 8% to a range around 885,000 tons, citing the likelihood of lower ore grades. The company has upgraded copper in its strategic priorities in recent years, hoping to take advantage of the trend toward the electrification of mobility. Its Quellaveco mine in Peru produced its first ore this year and the ramp-up there next year will represent a large part of a 5% rise in overall production. Quellaveco's output is expected to reach full capacity by the middle of next year.

Overall output this year is likely to decline around 3%, due to problems in the first half with COVID-19 that hit its operations in South America and South Africa particularly badly. COVID has contributed substantially to an overall rise of 16% in unit operating costs in the year. The group sees that moderating to only 3% next year, helped by the ramp-up at Quellaveco.

COVID-related problems eased in the second half, allowing the company to raise production by some 19% in the second half of the year.  Even so, the company has scaled back in South Africa, deferring investments in new facilities at its platinum group metals (PGM) mines. As a result, AA trimmed its output forecast for PGMs by half a million ounces in both of the next two years, a cut of around 11.6% from the previous baseline.

By contrast, it is set to invest around $1.3 billion in a new potash mine in England over the next two years, the centerpiece of a shift into crop nutrients. Potash prices have skyrocketed this year due to uncertainty over the outlook from key suppliers Russia and Belarus.