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UPDATE 3-Anglo braced for full impact of S.African strikes

Clara Ferreira-Marques
Thursday, 25 Oct 2012 | 5:24 PM ET

* Increases volumes in copper, iron ore; platinum flat

* Impact of S.African stoppages to be seen in Q4

* Strikes revive criticism of management

LONDON, Oct 25 (Reuters) - Miner Anglo American posted increased production in five of its seven key commodities including copper, as it braces for the full impact of crippling South African strikes that have ratcheted up pressure on a management team already under fire.

Anglo's labour woes - compounded by nagging concerns over its Minas Rio iron ore project in Brazil and operational trouble in Chilean copper - have revived long-standing worries among some investors over the group's exposure to South Africa, and over a share price that has lagged its peers.

Third-quarter production, outlined on Thursday, was still cushioned from the effect of platinum and iron ore stoppages. But Anglo did little to ease worries over its big-ticket projects, specifically Minas Rio, where a planned spend of at least $5.8 billion is still under review.

Analysts estimate fresh delays could take the price tag to some $8 billion.

Another new mine, the $1.9 billion Barro Alto nickel mine in Brazil which began producing last year, has been hit by operational setbacks and is still below full capacity. Analysts at Morgan Stanley said the repairs could take up to a year.

``While (third quarter) output was close to our expectations, Anglo continues to struggle with strikes in platinum group metals (PGMs), delays and capex overruns at Minas Rio and disappointing copper output,'' analyst Des Kilalea at RBC said in a note.

``Until there is clarity on PGMs and Minas we expect the share will lag its peers.''

Anglo's shares ended the day down 1 percent, underperforming a 0.4 percent drop in the sector. So far this year, the miner has lagged the broader sector by almost 20 percent.

Analysts at Macquarie pointed out earlier this week that on a U.S. dollar market capitalisation basis, Anglo has lost one-third of its value since Cynthia Carroll became chief executive in 2007, and is now worth some $25 billion less.

The rest of the peer group are worth at least the same as they were at the start of 2007.

STRIKE IMPACT AHEAD

Violent strikes and labour troubles across the South African mining sector spread to Anglo American Platinum, the world's top producer of the precious metal, last month, just before the end of the current reporting period.

Weeks later, they hit Anglo's Kumba Iron Ore unit, which alone accounted for almost half the group's operating profit in the first half.

Kumba's Sishen mine has since begun to ramp up operations, but Amplats workers have not yet returned to Amplats' Rustenburg, Union and Amandelbult mining operations, which include some of Amplats' most labour intensive shafts, and those that have suffered deepest compression in margins since 2008.

Anglo's iron ore production for the three months to the end of September escaped unscathed, as the illegal strike at Sishen began only at the start of October.

Benefitting from a strong performance from Kolomela mine, output for the quarter rose 14 percent to 12.5 million tonnes. Over the month so far, though, the South African iron ore miner has lost 2.2 million tonnes of finished product.

Platinum production, meanwhile, was flat. Anglo, however, cut its production target for the year, trimmed planned spending again and warned costs increased by 8 percent in the quarter.

The strike has so far caused the loss of over 138,000 ounces of equivalent refined platinum. Every extra day causes the loss of 4,500 ounces on average.

Copper, however, was a brighter spot for Anglo, despite ongoing operational trouble at Chile's Collahuasi, where it has now intervened with partner Xstrata to resolve operational, management and safety concerns.

The miner produced 157,300 tonnes of copper, up 12 percent.