Iron ore disappointment hits Anglo despite copper boost

* Copper hits quarterly record, up 32 percent at 207,300 tonnes

* Pit constraints at Sishen hold back iron ore

* Cuts iron ore export sales guidance, to be lower than 40 million tonnes

* Shares dip in early trade, down 2.5 percent

By Clara Ferreira-Marques

LONDON, Oct (KOSDAQ: 039200.KQ - news) 18 (Reuters) - Anglo American (LSE: AAL.L - news) posted a steeper than expected drop in iron ore production and cut its sales target on Friday, hit by trouble at the division's largest mine and offsetting a record quarterly copper output.

Anglo, the fifth-largest diversified mining group, is wrestling with a turnaround effort under Chief Executive Mark Cutifani, after years of sector-lagging returns.

Cutifani has focused on curbing platinum losses and completing Anglo's costly Brazilian iron ore project, but Friday's quarterly numbers showed he also faces challenges elsewhere.

At around 0820 GMT, shares in Anglo were registering the sharpest drop among its peers, down 2.5 percent at 1,515 pence, underperforming a 0.5 percent rise in the sector.

Analysts blamed the drop on the underperformance and continued production constraints in iron ore, a division which accounted for almost half of Anglo's profit last year, and overshadowed improvements in copper.

Weakness at South African unit Kumba Iron Ore (Other OTC: KIROY - news) 's main Sishen mine - only partly offset by increased output at Kolomela, one of Anglo's expansion projects - meant production for the whole division fell by almost a quarter to 9.47 million tonnes. That compares to analyst estimates of closer to 12 million tonnes.

Anglo, hit by a damaging strike at Kumba last year, said production at Sishen was limited by ongoing pit constraints and regulatory safety stoppages in August, and the mine is still operating below full capacity.

Anglo plans to present a longer-term strategy for the mine by the end of the year, but it warned on Friday it could miss its sales volume target of 40 million tonnes for the year.

Copper, meanwhile, proved a brighter spot.

"Weak iron ore production and reduced sales guidance will likely weigh on the stock, although we see signs of improvement through improving copper production," analyst Des Kilalea at RBC said.

The red metal accounted for just over a quarter of Anglo's profit last year and is the second-most important contributor after iron ore. Output and revenue had been hit by troubles at its giant Collahuasi mine in Chile, a venture with Glencore Xstrata, which has been plagued by lower ore grades, extreme weather and accidents.

Anglo said on Friday that production at Collahuasi more than doubled, helping the group's third-quarter copper production rise 32 percent year-on-year to 207,300 tonnes.

In platinum, where Anglo is planning to cut back jobs and mothball mines to bring Anglo American Platinum back to profit, equivalent refined platinum production was virtually flat compared to last year at 623,000 ounces.

Amplats lost around 44,000 ounces as a result of a strike between the end of September and the start of October, but says it is sticking to a production target of 2.3 million platinum ounces for this year.

Export metallurgical coal, used in steel-making, increased 9 percent, while export thermal coal production in South Africa dipped 1 percent in the quarter.

Diamonds, meanwhile, saw production increase by more than a fifth to 7.7 million carats, as operations at its Jwaneng mine were fully restored after a slope collapse last year, and thanks to higher production from its Canadian mines.

Anglo is due to update the market on its turnaround efforts in December.