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What Led Anglo American to Lower Production Guidance?

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Lower diamond production

Anglo American’s (AAUKY) management mentioned during a conference call that the company will pull back its production of diamonds in 2016. This is mainly in response to midstream challenges.

Anglo American will reduce its production in Botswana by 20 million karats in 2016. It will also put Snap Lake on care and maintenance and curtail production at its Venetia tailings plant. In Namibia also, Anglo and its partner have decided to reassign mining vessels to lower-grade areas to curtail production.

As a result of all of these actions, Anglo’s diamond production for 2016 is now expected to be 29 million karats, down from 32–34 million karats at the beginning of the year.

On the demand side, AAUKY’s management commented that a stronger US dollar (UUP) and the macroeconomic slowdown in China (FXI) (MCHI) have been impacting the diamond jewelry market. However, management was hopeful about demand from the US (SPY) (DIA) market.

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Revised mine plan at the Sishen iron ore mine

Anglo American is also revising its mine plan at the Sishen iron ore mine, which will lower production to 26 million tons per year. Waste movement of 135 million tons is also below its previous guidance of 230 million tons. This would mean a ~40% reduction in material moved and only a 15% reduction in saleable tons.

Slower ramp at Minas-Rio

Anglo has reduced its production guidance for 2016 from 24–26 million tons to 18–21 million tons. The company mentioned that its production outlook at Minas-Rio has been affected by a confined mining area resulting from licensing constraints.

The company’s management mentioned that the permitting process in Brazil could take longer now due to the Samarco incident. Samarco is jointly owned by BHP Billiton (BHP) (BBL) and Vale (VALE).

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