April 24, 2018 / 6:39 AM / a year ago

Anglo American's Minas-Rio delay hits earnings by $300-400 million

LONDON (Reuters) - Anglo American (AAL.L) will resume output of iron ore from Minas-Rio in Brazil only in the fourth quarter of 2018 after pipeline leaks, denting annual group earnings (EBITDA) by $300-400 million.

The news pushed share prices 1.2 percent lower by 0850 GMT, as analysts said the problem was more disruptive than previously thought, although overall group production was broadly in line with expectations.

As a whole, the company reported a 4 percent increase in total production on a copper equivalent basis in the first quarter of 2018, compared with the same period of 2017, citing improved efficiency.

But Minas-Rio in southeast Brazil, Anglo American’s biggest development project, has suffered repeated delays and is on hold pending an investigation into leaks in the more than 500-km pipeline that helps to deliver its iron ore to export markets.

Anglo said it expected a pick up in the last quarter and 2018 output would be an estimated 3 million tonnes - the amount produced so far this year. That represents a 30 percent fall in production compared with 2017.

Every section of the pipeline will be checked and tested and operations will resume when Brazil’s regulatory authorities have given consent.

In a statement, CEO Mark Cutifani also said Anglo was working with unions to agree “the appropriate terms for the approximately 35 percent of our employees at Minas-Rio who will be on an extended period of leave”. The total workforce is around 2,500.

Anglo American shares had risen nearly 15 percent this year, outstripping its peers, despite the issues at Minas-Rio.

It was one of the companies hardest hit by the commodities price crash of 2015-16, but has since sold some assets and improved productivity, while drawing strength from a more positive political mood in South Africa, its core territory.

Anglo American’s overall 4 percent output increase derived from a 15 percent rise in diamond production as it expanded production at its new Gahcho Kue mine in Canada, while copper production rose 9 percent.

Platinum and palladium rose by respectively 7 percent and 9 percent and its Kumba iron ore operations in South Africa increased output by 4 percent. Coking coal rose 6 percent.

Minas-Rio accounts for less than 5 percent of overall earnings as it is still in ramp-up phase.

The group reported annual underlying EBITDA of $8.8 billion, a 45 percent increase year-on-year in February.

Analysts said the shut-in did not fundamentally change their view on Anglo.

Morgan Stanley analysts, which rate the stock “overweight”, said in a note there was time to make up the small impact on full-year revenue over the rest of the year. There was “no change to the investment case” in the company, it added.

Additional reporting by Justin Varghese in Bengaluru; Editing by Louise Heavens/Keith Weir

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