Anglo American May Impair Assets as Iron-Ore Output SoarsAndre Janse van Vuuren
Anglo American Plc plans impairments because of low commodity prices even after the company with operations from Australia to Chile raised annual iron-ore production to a four-year high.
Anglo produced 48.9 million metric tons of the steelmaking ingredient in 2014, a 4.7 percent increase from the previous year, the London-based company said Wednesday. This includes 688,000 tons from its Brazilian Minas-Rio project, which shipped its first consignment in October, and a 14 percent increase in production from its Kumba unit in South Africa, it said.
The new output from Minas-Rio comes as prices have fallen more than two-thirds since peaking in 2011, entering a bear market as producers including Rio Tinto Plc, the world’s largest, expand supplies. Anglo raised capital expenditure for Minas-Rio to $8.8 billion after an original estimate of $2.6 billion and wrote down $4 billion of the asset’s value in 2013.
“Given the sharply lower commodity-price environment, particularly for the bulk commodities, Anglo American expects to record certain non-cash impairment charges” for 2014 when it releases earnings on Feb. 13, Anglo said.
Anglo shares climbed 2.3 percent to 1,115 pence at the close in London. Iron ore with 62 percent ferrous content delivered to China’s Qingdao port fell 0.7 percent to $63.09 a ton, according to data by Metal Bulletin Ltd. That’s the lowest price on record going back to May 2009.
Minas-Rio’s book value may exceed its current worth, or net present value, by more than $5 billion by the end of the year assuming a long-term price for iron ore of $90 a ton, Credit Suisse Group AG said in a research report published in December.
“Continued weak commodity-price performance may lead to other impairment charges,” Investec Securities (Pty) Ltd. said in a client note on Wednesday.
At the Anglo American Platinum unit, the world’s biggest producer of the metal, group equivalent refined production increased 14 percent to 593,900 ounces for the quarter after operations returned to normal following a five-month strike by the largest union that ended in June. Annual output was 1.84 million equivalent platinum ounces.
Amplats, as the Johannesburg-based producer is known, closed a loss-making decline section at its Union operations, one of four mines that the company earmarked for sale, it said in a separate statement.
Anglo’s fourth-quarter copper production decreased 18 percent to 174,800 tons from the same period a year earlier. The company produced 748,100 tons in 2014, exceeding its forecast of 745,000 tons even though annual output of the metal was 3 percent lower than in the previous year.
Export metallurgical coal, used in steelmaking, increased 4 percent to 4.9 million tons from a year earlier. It produced 20.9 million tons of the fuel for the year, in line with its forecast of about 21 million tons.
Production of the thermal variety for export, used for power plants, climbed 2 percent to 9.7 million tons in the fourth quarter.
Anglo’s De Beers unit, the diamond producer with operations in southern Africa and Canada, reported an 8 percent drop in fourth-quarter production to 8.4 million carats from the previous year. Annual production rose 5 percent to 32.6 million carats, in line with the forecast of about 32 million tons. Anglo owns 85 percent of De Beers.