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.
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
"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.