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Mining giant Anglo American plc (LSE:AAL) is to write down the value of its Minas-Rio iron ore project by US$4 billion two years before the project is expected to produce its first shipment, the company reported today.
The announcement came alongside an increase in capital expenditure to the tune of US$8.8 billion, a figure the diversified mining firm had already expected due to delays that increased the cost of its 100%-owned project in Brazil.
In a statement, outgoing Chief Executive Cynthia Carroll said: “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, leading to the impairment we have recorded.”
The projected total capital expenditure, over three times the original estimate, includes US$600 million contingency on several factors including price escalation and other civil works requirements to achieve shipment by 2014.
Bought in 2007 for US$4.8 billion, the costly Minas-Rio project had been attributed as one of the factors why Carroll is to step down as CEO of one of the world’s largest mining group.
The US$4 billion impairment will be charged on the company’s profit in 2012 on a post-tax basis, Anglo American stated.
Three injunctions affected progress in the implementation of civil works to start the 26-million tonnes per annum iron ore project, soon to be one of the world’s largest, but were finally cleared in December 2012, making the company hopeful it will be able to push for the first shipment by the second half of 2014, as announced in July 2012.
“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,” Carroll affirmed.
In London, the market did not seem to mind the result of the cost and schedule review, as the capex had earlier been anticipated in November 2012. Anglo American shares were up 47 pence, or 2.5%, to 1,919.50 pence 10:30 AM GMT.
