A red day for Anglo

In a classic case of commentator’s curse, I wrote yesterday about how outgoing CEO Mark Cutifani is bidding farewell to Anglo American on a high note. The last financial year was a winner of note, with great results across key metrics.

Not a day later, Anglo and its related companies traded deep in the red based on an update for the first quarter of 2022 that left the market shaking its head.

I’ll start with Kumba Iron Ore, which closed a whopping 12.6% lower. Average realised prices may have been 38.5% above benchmark prices but that only gets you so far when production and sales volumes fell by 21% and 8% respectively year-on-year. The company blamed the weather and equipment reliability constraints (a global shortage of certain spares), which I’m afraid sounds horribly like an Eskom “we are going to Level 4” press release. Of course, participants in the broad energy sector face similar external conditions at any point in time.

Full year production and sales guidance have been lowered, which means unit cost guidance has been increased. To add insult to the production issue injuries, inflationary pressures in diesel and explosives are evident. The announcement even noted the negative impact on rail lines of the plague of locusts in the Northern Cape region. Operating in South Africa is no joke whatsoever and being in the mining industry is even harder.

Moving on from the locusts, we arrive at Anglo American Platinum which closed 6.4% lower yesterday. In a production report for the first quarter, the company noted a 6% drop in production. Again, heavy rainfall and COVID-19 impacts on equipment and related parts were to blame. Refined production dropped by a substantial 26% and sales volumes dropped by the same percentage.

As with Kumba, Anglo American Platinum’s production guidance for the year has been lowered and unit costs per ounce have been increased. The company is planning significant maintenance this year, which is contributing to the production pressures.

We now move to the mothership: Anglo American. It closed 6.6% lower yesterday.

At Anglo American level, production in this quarter was down 10% year-on-year. Naturally, the commentary around the decrease reflects the challenges faced by other group companies i.e. rainfall and COVID-related supply chain issues.

On the plus side, rough diamond production by De Beers increased by 25%, mainly attributed to lower rainfall in Botswana. This really is the only sparkling part of the update, with production decreases across all other metals (including a 32% drop in metallurgical coal production). With exceptionally strong coal prices in the market, this really wasn’t a good time for a production drop.

The net impact is a 9% increase in full year cost guidance.

If you are a shareholder in one or more of these companies, you deserve to knock off early today to recover.