Anglo American iron ore division earnings fall, but beat estimates

Anglo American iron ore division earnings fall, but beat estimates

Sishen mine contains one of the largest iron ore reserves in South Africa and in the world.

Anglo American’s (LON:AAL) Kumba Iron Ore Ltd. said Tuesday market demand for the steelmaking ingredient will absorb growing supply from the largest producers as the highest-cost output in China becomes unprofitable.

The company, which owns Africa’s biggest iron-ore mine Sishen, posted a 16% decline in interim headline earnings due to iron ore prices 17% drop. However, it said it expects the commodity to pick up in the fourth quarter of the year.

“Restocking by steel mills and a slowdown in Chinese domestic iron ore production in the winter will support prices towards the end of the year," said Norman Mbazima, Kumba’s chief executive officer.

“The majors will continue to increase their production, but now at a much slower pace than the 25% we’ve seen in the first half,” he added.

Pretoria-based Kumba said first-half profit fell 16% after the average price of the mineral declined. Iron ore prices have dropped 19% on average in the first half of the year $111 per ton from $137 a ton in 2013. The indexed price of iron ore by the end of June was $93 per ton from $134 registered at the beginning of the year.

"Looking good"

Profit excluding one-time items declined to 6.5 billion rand ($613 million), or 20.28 rand a share, in the six months ended June 30 from 7.8 billion rand, or 24.13 rand a share a year earlier, the company said. Iron-ore output went up by 5% to 22.8 million tons, it said. Kumba declared a dividend of 15.61 rand a share.

“We’re looking good,” Mbazima said. “We’re in the lower half of the cost-curve and even at these levels we’ve got margins that are quite healthy.”

Iron ore producers, including mining giants Rio Tinto (ASX:RIO) and BHP Billiton (ASX:BHP), are expanding supply, betting the rise will more than offset falling prices, which hit the lowest since September 2012 last month.

Kumba plans to almost double production by 2030, with new sites in western and central Africa potentially accounting for more than 20% of volumes.

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