Minas Rio costs soar to $4.5bn

Brendan Ryan | Fri, 30 Jul 2010 14:01

[miningmx.com] -- THE capital cost of Anglo American’s Minas Rio iron ore project is likely to jump by another $750m (R5.6bn), taking it to about $4.5bn (R33.7bn).

This is the second surge in the capital cost announced this year, and the latest revised figure is about 67% higher than the original estimate of $2.7bn.

In February, Anglo CEO Cynthia Carroll announced that the cost of Minas Rio would increase by $1.1bn to $3.8bn as a result of exchange rate movements, scoping changes, time delays and a 35% increase in contingency funds.

On Friday, in her presentation of Anglo’s interim results for the six months to end-June, she said there would be a further $210m increase “relating to changes in scope and licensing conditions”.

On top of that, it was likely there would be a nine month delay from June while the group secured a number of outstanding licences and permits which affected the critical path for project construction.

So far, the group had secured 23 of the 33 required permits and licences. Carroll said there were “no guarantees” that the outstanding licences would be obtained within the nine-month period, which was a “best estimate”.

The estimated cost of the delay amounted to $180m per quarter, or a total of $540m for the three quarters.

Carroll said: “It is clear that the environmental permitting processes and standards in Brazil have become increasingly rigorous and more complex in recent years.

“Considerable resources have been deployed to resolve these issues, in addition to ongoing constructive high-level dialogue with local and federal authorities in Brazil.”

In reply to questions from financial media and analysts at briefings held on Friday, Carroll said the quarterly costs related to “people on the ground and inflationary effects of the delays on contractors and services”.

She indicated Anglo had not anticipated that it would take so long to obtain the necessary permits.

Carroll said: “The situation in Brazil concerning the conditions required to be met to obtain these permits and licences has changed substantially since we bought into the Minas Rio project in 2007.

“It has become one of the most challenging environments in this regard.”

Despite this, Carroll said she remained positive about doing business in Brazil.

She said: “The Barro Alto nickel project in Brazil is a world class development which has been delivered on schedule and on budget.

“The challenge with Minas Rio has been arranging the permits in sync with the construction of the project, which is made up of multiple pieces including the mine, the port, the 500km long pipeline and the beneficiation plant.”