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Anglo takes $4bn hit on Minas Rio

Jan 29 2013 11:02 Reuters
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Company Data

ANGLOGOLD ASHANTI LIMITED [JSE:ANG]

Last traded 0
Change -1,39
% Change 0
Cumulative volume 1002615
Market cap 53.72bn

Last Updated: 02-10-2014 at 04:09. Prices are delayed by 15 minutes. Source: McGregor BFA

ANGLO AMERICAN PLC [JSE:AGL]

Last traded 0
Change -6,03
% Change 0
Cumulative volume 2295317
Market cap 340.12bn

Last Updated: 02-10-2014 at 04:10. Prices are delayed by 15 minutes. Source: McGregor BFA

BHP BILLITON PLC [JSE:BIL]

Last traded 0
Change -3,12
% Change 0
Cumulative volume 2277603
Market cap 648.91bn

Last Updated: 02-10-2014 at 04:09. Prices are delayed by 15 minutes. Source: McGregor BFA

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London - Anglo American [JSE:AGL] will take a $4bn writedown on its Minas Rio iron ore operation in Brazil after delays and cost overruns forced the mining group to increase expenditure on the project.

The company also said on Tuesday that it expects capital expenditure for the project to increase to $8.8bn.

"We are clearly disappointed that the diversity of challenges that our Minas Rio project has faced has contributed to a significant increase in capital expenditure," outgoing Chief Executive Cynthia Carroll said.

"Despite the difficulties, we continue to be confident of the medium and long-term attractiveness and strategic positioning of Minas Rio and we remain committed to the project."    

Minas Rio, a leading iron ore project in Brazil, is Anglo's most significant failure of recent years and was largely responsible for Carroll's fall from grace.

Anglo bought its first stake in Minas Rio in 2007, taking control in 2008 with a $5.5bn deal with Brazilian billionaire Eike Batista's MMX - right at its peak.

The project was intended to help to diversify a company that was still dependent on South Africa for the bulk of its revenue, but has instead been a bruising top-of-the-market deal.   

'Constant disappointment'

Anglo spent $4.8bn buying Minas Rio - excluding the value of the Amapa mine, bought as part of the original deal but which Anglo has agreed to sell. It has spent $5bn on developing it so far and said last year that total development costs could exceed $8bn - more than three times original estimates.

"This asset has been a constant disappointment in terms of project delivery and I think it was largely expected that we would get this sort of writedown," Nomura International analyst Sam Catalano said.

"The challenge that remains for Anglo is to deliver it on the revised timeline and price that they've given us."

The company said it is still targeting first ore on ship by the end of 2014 despite the challenges facing Minas Rio.

Anglo's announcement comes after Rio Tinto ousted its chief executive, Tom Albanese, on January 17 and took $14bn in impairments tied to its underperforming Mozambican coal and Canadian aluminium operations. 

Other mining companies, such as BHP Billiton [JSE:BIL] are also likely to write down underperforming assets as low prices and rising costs eat into valuations.

Minas Rio is one of the biggest challenges facing Anglo's incoming chief executive Mark Cutifani, a former coal miner who will join the company from Johannesburg-based AngloGold Ashanti [JSE:ANG] in March.

Development costs in Brazil have been driven higher by forthcoming major events such as the Olympics in 2016 and next year's soccer World Cup tournament, which have increased demand for labour.

Shares in Anglo American were down 0.6% at 1 862 pence at 08:02 GMT, valuing the company at $41.2bn.

Elsewhere in the sector, Anglo Platinum [JSE:AMS], the world's largest platinum producer, said on Tuesday that it had conducted "constructive" consultations with the South African government about a company restructuring that could lead to 14 000 job cuts.  

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