Anglo American soars on positive production report

Shares in Anglo American (LON:AAL), the world's number five diversified miner, were up more than 5% Tuesday afternoon as investors cheered the company’s third quarter results, which saw the firm increasing output across all divisions, except for copper.

Anglo, which is in the process of selling off mines and slimming down its portfolio, said production of diamonds, its largest underlying earnings driver in the first half of this year, was up 4% to 6.3 million carats in the period, compared to the same quarter last year. At the time, its majority owned diamond unit De Beers, the largest supplier of rough diamonds by value, had to lower output in response to weak market conditions.

Shares jumped more than 5% after the firm posted higher output across all divisions, except for copper, and said market conditions for its diamond business had improved.

Iron ore output, Anglo’s second largest earnings driver in the first half of 2016, increased by 14% to 16.3 million tonnes, thanks mainly to the ramp up of its Minas Rios mine in Brazil and the restructuring of the Sishen mine in South Africa.

Copper output dropped 9% in the period on the back of problems at its Los Bronces mine in Chile, which was affected by heavy snowfall and a strike.

Ironically, the divisions that have experienced the highest gains in the quarter are those that chief executive Mark Cutifani is planning to ditch, particularly iron ore and coal.

Against most predictions, prices for the steel-making material have rallied this year and they are up almost 44% to date. Similarly, prices for coal (both thermal and coking) have skyrocketed, with the one used in power generation nearly doubling to nearly $98 a tonne this week, up 27% just since the start of October. Metallurgical coal's rise has been more dramatic. It is trading at roughly $246 a tonne this week, up 15% so far in October.

Meanwhile, those units that Anglo American has decided to keep, copper and diamonds, have weakened, with the exception of platinum.

The company kept its full-year output guidance across its platinum, copper and nickel divisions and said it expects iron ore production from its Kolomela mine to slightly exceed its full-year guidance of 12 million tonnes. It also lowered this full-year production guidance for export metallurgical coal to 20.5-21.5 million tonnes from 21-22 million as it sold its Foxleigh mine in Australia at the end of August.

Anglo's share price reflects the company's much brighter prospects with the stock trading more than 5% higher in London to 1,119p at 2:31PM BST, helping to lift the European basic resources sector to its highest level since last summer.