After huge cost overruns for a project that prompted their CEO’s departure, officials at Anglo American plc have written down their Brazilian Minas Rio iron ore operation by $4 billion.
To achieve 26.5 million metric ton per year (mt/y) phase one capacity, capital costs are anticipated at $8.8 billion—three times more than the initial 2007 projection of $2.6 billion—after signing a $5.5 billion deal with Brazil’s MMX. This increase includes $800 million over November 2012 guidance; forthcoming full-year results will also be impacted.
Anglo American officials, for their part, sounded optimism, noting future expansion of 90 million mt/y remains on track, while only 17 licenses out of some 300 remain outstanding. “We are clearly disappointed at the diversity of challenges,” said outgoing CEO Cynthia Carroll, adding “despite the difficulties, we remain committed to the project.”
Complications included a first ore on ship date change from late 2013 to late 2014, while enacting a $600 million deadline contingency. In all, Anglo has had a difficult year, with strikes in South Africa hitting platinum production.
Intended to diversify Anglo’s assets from its strong dependence on turbulent South Africa, Minas Rio has been one of the company’s more highly criticized investments, leading to Carroll’s exit. In April, she will be replaced by AngloGold Ashanti Chief Executive Mark Cutifani.