Anglo American's Grosvenor fire adds to operational woes, says Berenberg

9th Jul 2024 09:55

(Sharecast News) - Berenberg has repeated its 'sell' rating on Anglo American, saying that the recently announced fire at its Grosvenor metallurgical coal mine in Australia comes at a bad time for the miner, which continues to "struggle operationally".

Anglo said on 1 July that it was forced to suspend production at Grosvenor after a coal gas ignition incident, with operations expected to take "several months" to get back up and running.

Grosvenor is expected to contribute 3.5m tonnes of steelmaking coal to Anglo's 15-17m total in 2024 - though the company said it will update the market with guidance "once more information is available".

In a research report on Tuesday, Berenberg highlighted press reports on 8 July citing that the fire appeared to be still burning.

The broker said it see two clear impacts to Anglo's business. "First, there will likely be a cut in coal production guidance, despite a strong H1 at Grosvenor that saw the mine outperform our estimate of 1.7mt, with disclosed H1 production of 2.3mt - we expect full details of the guidance impact to be disclosed in due course," Berenberg said.

"Second, the fire has the potential to frustrate and delay the planned sale of the metallurgical coal business, which is a core part of Anglo's simplification strategy."

The broker pointed to another gas ignition at Grosvenor in May 2020, which caused the mine to be halted for roughly a year, impacting production for 12 to 18 months. As such, it predicts that Grosvenor will be offline "for much of 2025, similar to the 2020 situation", which will reduce next year's metallurgical coal production estimates to 13.8mt compared with the 17-19mt guidance.

"The company continues to struggle operationally, which we think is a key risk to consensus estimates. Management has had difficulty delivering on guidance, which we think it due to the previous management setting overly-optimistic and unachievable targets. We believe that the onus is on management to turn the story around and, without signs of progress, we expect market pressure."

Berenberg has maintained a 2,000 target price for the stock, which was trading broadly flat at 2,415.5p by 1008 BST.