Transformational Project for Anglo's Copper Line

We expect Anglo American's relative cost position to improve following a major expansion project at Los Bronces

Daniel Rohr, CFA 5 January, 2011 | 2:59PM
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Like many mining companies, Anglo American (AAL) has big plans to expand its copper business (20% of revenue for the trailing 12 months ended June 30, excluding operations management expects to sell). Its 1.5 billion pounds of production in 2009 made Anglo the world's sixth-largest producer, behind Codelco (4.4 billion pounds), Freeport-McMoRan (4.1 billion), BHP Billiton (2.6 billion), Xstrata (2.0 billion), and Rio Tinto (1.6 billion). Management aims to raise output to 2.5 billion pounds by 2015, a 72% increase.

Anglo's current production profile is Chile heavy, with five mines in the country representing nearly all output. The most important assets in Anglo's copper portfolio, measured by current production and mine life, are Los Bronces (526 million pounds in 2009, 39-year life) and Collahuasi (520 million pounds attributable production, 33-year life). Other assets, including Mantos Blancos (199 million pounds, 6-year life), Mantoverde (136 million pounds, 5-year life), and El Soldado (91 million pounds, 18-year life) are less important for Anglo's prospects owing to their lower output and shorter mine life.

Los Bronces and Collahuasi also occupy more favourable cost curve positions than their smaller counterparts: The two big mines sit in the second quartile of the industry supply curve, whereas the other three are in the fourth quartile. Anglo's copper business occupies a fairly middling cost curve position on a consolidated basis, with average cash costs in 2009 around $1.00 per pound (the firm did not report an exact value), compared with Codelco's $1.15, Freeport's $0.76, BHP's $0.91, Xstrata's $1.07, and Rio Tinto's $0.46.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Anglo American PLC2,812.50 GBP0.00Rating

About Author

Daniel Rohr, CFA  is a senior equity analyst at Morningstar.