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Anglo Will Raise Copper Production to Counter ‘Headwinds’

Dec. 12 (Bloomberg) -- Anglo American Plc, a mining company that’s reviewing its global operations, is trying to identify ways to raise its annual copper output by 150,000 metric tons to counter the effects of falling ore grades and delays in developing projects.

While Anglo estimates its copper production will rise as much as 14 percent to 755,000 metric tons this year, it will drop to as little as 690,000 tons in 2014, Chief Executive Officer Mark Cutifani said today on a conference call with reporters. Its copper operations face “headwinds,” including a decline in ore grades at its Los Bronces mine in Chile, he said.

The London-based mining company has identified 15 assets that are underperforming and is assessing options including selling some of them. It withdrew from the Pebble copper project in Alaska in September to cut costs.

“Our asset review has identified a range of opportunities which will enable us to better utilize the installed capital across our operations, driving improved margins and returns,” Cutifani said today in a statement before an investor meeting.

The company may sell some assets in the next three to four years, he said at the meeting in London. Anglo is “undervalued” and it won’t “destroy” the asset values in disposals, he said.

Earnings ‘Uplift’

The CEO, who this year replaced Cynthia Carroll, plans to expand earnings before interest and tax by as much as $4 billion as part of a plan to double Anglo’s return on capital to 15 percent by 2016. Duncan Wanblad, head of base metals, said currently 75 percent of the company’s assets aren’t operating at acceptable levels compared with about 90 percent in July.

“While I expect headwinds to continue in 2014 as we reset the business, the benefits of much-improved operational processes and performance will flow through largely in 2015 and 2016,” Cutifani said. The company, targeting a $400 million annual “uplift” in earnings from its commercial activities by 2016, is already seeing improved profit margins, he said.

Anglo today announced a $300 million cut in its annual “run-rate” spending on exploration and early-stage projects. That matches a charge it took on abandoning the Pebble venture.

“Our capital allocation process has been rebuilt to enforce more stringent criteria and controls,” Cutifani said.

Anglo fell 1.4 percent to 1,275 pence by the close in London, bringing its decline this year to 33 percent.

Iron Ore

The company has divested businesses in its other mineral divisions, selling its Amapa iron-ore mine in Brazil this year to Zamin Ferrous Ltd. for $134 million in cash and as much as $130 million in additional payments over five years.

Its biggest iron-ore project, the $8.8 billion Minas-Rio venture in Brazil, is set to begin output in the second half of 2014 after delays. Cost cuts in the country include relocating some Rio de Janeiro and Sao Paulo-based employees to Belo Horizonte, which will become its administrative hub.

Minas-Rio was subject to a $4 billion writedown after cost overruns before Carroll’s departure. While the company is “very happy” with progress, more is needed, according to Cutifani, who said Anglo remains open to offers from potential partners.

Anglo needs to focus on improving margins and returns in platinum operations, he told investors. The company, focused on open-pit and highly productive operations while shrinking assets, has completed 96 percent of its 2013 plans, he said.

The company’s Anglo American Platinum Ltd. unit in South African this year implemented plans to improve profit by idling three shafts and reducing annual output by 350,000 ounces of metal. Amplats, as the platinum-maker is also known, said today that earnings this year will probably climb by more than 20 percent from last year because of higher sales and a weaker South African currency.

To contact the reporter on this story: Firat Kayakiran in London at fkayakiran@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net

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