With the exception of its diamonds, Anglo American trimmed the upper end of its production targets for 2022 in a operational guidance that partly underscored the pain of extended rolling power cuts and poor rail capacity in SA.
Anglo, a global mining giant whose fortunes are intertwined with SA’s history and economy, said in an operational guidance on Friday that production for the 2022 financial year is likely to drop by 3%, joining a host of global mining companies that have issued trading updates that show the industry is struggling to meet its production goals and keep costs in check.
But Anglo, which owns Kumba Iron Ore, Anglo American Platinum (Amplats) and De Beers, is taking additional strain from bottlenecks in the country’s rail network and the rolling power cuts that have sapped business confidence in a country whose biggest industries depend on reliable access to electricity.
Forecasts for the output of platinum group metals were hit especially hard, with Amplats CEO Natascha Viljoen telling reporters in a conference call on Friday that power cuts had shaved 3%, or 105,000 oz, off its 2022 annual production.
“We have a hierarchy of controls that we use to take the load off, to minimise the impact on operations,” Viljoen said. “The curtailment that we have seen over the last number of weeks, though, is more than what we have the flexibility on the system for and we have seen more impact on the operations.”
The update from Anglo and a global parts shortage also exposed the impact of a strike at Transnet, which was already operating below capacity because of a shortage of locomotives as well as poor maintenance, vandalism and theft of its infrastructure.
Kumba, which is reliant on Transnet’s 861km rail line from its Northern Cape operations to Saldanha Bay, cut its total output to 37-million tonnes from a range of between 38-million and 40-million tonnes.
“Rail constraints throughout the year have led to a significant build-up of iron ore stockpiles at our mines and this has necessitated a decrease in production given the lack of available storage space,” CEO Mpumi Zikalala said in a statement.
Anglo’s operational challenges are bad news for finance minister Enoch Godongwana, who has used a tax windfall from the commodities boom to plug holes in the budget, which is facing constant spending pressures.
However, Anglo expects production to increase 5% in its 2023, 2024 and 2025 financial years, driven by Peruvian copper project Quellaveco in 2023 and led by copper, iron ore and steelmaking coal in 2024.
Unit costs rose 16% in 2022 but the expense growth is forecast to slow to 3% in 2023, helped by moderating inflation, while capital expenditure is projected to amount to at least $16.5bn (R284bn) over the financial years.
CEO Duncan Wanblad said the ramp-up of its Quellaveco operation alone will increase Anglo’s global production base by a 10th.
“The fundamental demand picture for mined metals and minerals is ever stronger as most of the world’s major economies accelerate their decarbonisation efforts and as the global population increases and continues to urbanise,” Wanblad said.
Momentum
The focus over the past year has been returning operations to normal after the disruptions of the Covid-19 pandemic despite economic volatility — largely because of the war in Ukraine causing high inflation leading to interest rate hikes — along with extreme weather.
“As we have built operational momentum in the second half, we have also moderated our near-term production growth plans with a clear priority to deliver a stable platform from which to build strengthened and repeatable performance,” Wanblad said.
The company aims to become carbon neutral by 2040. To help with this, Anglo launched a renewable energy business in partnership with EDF Renewables, a British energy company that is wholly owned by French state-owned EDF, in October.
Through this partnership, the London- and JSE-listed miner wants to install up to 5GW of renewables not only to meet its own operational power requirements in SA, but also to support “the wider decarbonisation of energy in the country” and “catalyse economic activity in SA’s renewable energy sector”.
With Tiisetso Motsoeneng
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