21st Apr 2022 11:08
(Alliance News) - London's heavyweight mining contingent has kicked off the first quarter of calendar 2022 on a soft note, with shares in Antofagasta and Anglo American sinking on Thursday following production updates.
The underwhelming output reports come amid a tough time for the sector, with Covid lockdowns in China raising questions over demand from the world's second largest economy.
Data at the start of the week showed China's economic growth accelerated in the first quarter of the year to 4.8%, but the government warned of "significant challenges" ahead while stringent Covid-19 lockdowns started to crimp activity.
Industrial production growth eased to 5.0% in March, National Bureau of Statistics data showed, from 7.5% in the January-February period.
Against this backdrop, shares in miners sold-off after widespread warnings of a challenging first quarter production-wise.
Anglo American shares were down 9.0% on Thursday in London, after downgrading its full-year production guidance for its major commodities and indicating that its first-quarter performance was "challenging".
The miner reported a 10% decline in output in its "normally slower" first quarter amid Covid-related absences, high rainfall in South Africa and Brazil, and operational challenges at metallurgical coal and iron ore operations.
Copper production was down 13% year-on-year, platinum group metals production was down 6%, metallurgical coal production dropped by 32% and iron ore production decreased by 19%. The only category to see an increase was diamonds, with output up by a quarter.
Full year cost guidance has increased by 9%, with a 4% hit from stronger producer currencies and 3% from inflationary pressures. At the same time, Anglo America reduced output guidance for its PGM, iron ore and metallurgical coal operations.
Also on Thursday, BHP Group cut annual guidance for copper production as well as nickel output, as the miner grapples with Covid-19-related labour market woes.
In the third quarter ended March 31, copper production fell 6% annually to just under 370,000 tonnes. BHP now expects full-year total copper output between 1.57 million and 1.62 million tonnes, lowered from the previous guidance range of 1.59 tonnes and 1.76 million tonnes.
BHP shares were down 2.9% on Thursday morning.
It was a similar story at Antofagasta, which reported a 24% decline in copper production in the first quarter - though stressed this was in line with expectations. The company's production was hurt by an ongoing drought at the Los Pelambres mine. The mine is about 200 miles north of Chile's capital Santiago.
Antofagasta held its guidance, however, unlike BHP. But Antofagasta shares fell 8.3% on Thursday.
These three followed Rio Tinto on Wednesday reporting a "challenging" quarter from its key Pilbara iron ore operations, though the miner left annual guidance unchanged.
In the first three months of 2022, total iron ore shipments from the Western Australia-located asset fell 8% annually to 71.5 million tonnes. Quarter-on-quarter, shipments declined by 15%. Iron ore production from Pilbara fell 6% yearly to 71.7 million tonnes and 15% from the fourth quarter of 2021.
Berenberg downgraded its rating on Rio Tinto to 'hold' from 'buy' following the update.
The broker believes the iron ore market is likely to remain "fairly tight" amid Covid lockdowns in China.
"Until there is more constructive rhetoric from China from an economic stimulus standpoint (an H2 theme depending on how GDP growth plays out over the summer), we think Rio offers limited share price upside," said Berenberg.
Rio Tinto shares fell 4.8% on Wednesday and sank a further 3.2% on Thursday.
The FTSE 350 industrial metals & mining index - which houses large-cap miners - was down 4.9% on Thursday, making in the morning's worst performing sector. However, in the year-to-date, the sector is up 20% - only second to the oil, gas & coal index, which has risen 31%.
By Lucy Heming; [email protected]
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