Anglo American cuts diamond production forecast

Anglo American has cut its full-year diamond production forecast by 6 per cent after a weaker than expected first quarter in terms of demand and prices.

The miner, which owns 85 per cent of De Beers, the world's biggest diamond miner by value, on Thursday reduced its forecast from 32m-34m carats to 30m-32m because of "current trading conditions".

Production increased 2 per cent to 7.7m carats in the quarter, driven mainly by higher quality stones from the Venetia mine in South Africa, but that follows soft demand in the run-up to Christmas and the Hindu festival Diwali that continued into the new year.

A weaker diamond market would add to the problems facing Anglo as a result of softening in other commodity markets, although De Beers said it expected a recovery in the coming months.

Last year diamonds were a bright spot for the diversified mining group, generating a 36 per cent increase in underlying earnings and helping to mitigate the impact of falling prices for other commodities.

Global consumer demand for diamonds last year reached a record $81bn, up from $79bn in 2013, according to De Beers. It is forecasting continued growth for 2015 despite the slow start to the year, with lower oil prices and high consumer confidence, especially in the US, driving demand.

Like its competitors Rio Tinto and BHP Billiton, Anglo also reported increased iron ore production in the first quarter of 2015 compared with the same period last year.

Production increased 7 per cent to 12.2m tonnes at its Kumba mine in South Africa, which the company attributed to improved productivity and lower than usual production levels in 2014.

Its Minas-Rio mine in Brazil produced 1.2m tonnes, a 71 per cent increase on 2014, which Anglo said was "broadly in line with ramp-up plans".

Despite plunging iron ore prices, Anglo has little choice but to continue to ramp up Minas-Rio after investing heavily in the project during the recent commodity boom. Minas-Rio was brought into production years late and over budget.

Despite reining in expectations for diamond output, Anglo said overall first-quarter production performance was "solid" and in line with expectations.

Copper production fell 17 per cent compared with the first quarter of 2014 to 171,800 tonnes, and nickel was down 27 per cent. Anglo said both these declines were expected.

BHP said on Wednesday that it was slowing the pace of its planned expansion in iron ore production as it sought to conserve cash.

Rio's trading update this week showed its iron ore production climbed 12 per cent to 74.7m tonnes in the three months to the end of March from a year earlier.

Heath Jansen, a mining analyst at Citi, described Anglo's production report as "a touch light, but OK". Anglo shares initially fell but were up 1.04 per cent at 1024.5p at lunchtime in London.

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