[miningmx.com] – ANGLO American said first shipments from its
proposed 26.5 million tonne/year Minas Rio iron ore project in Brazil would be
delayed until the second half of its 2014 financial year, adding it had deployed more
resources to wade through a host of regulatory challenges to the $5.8bn project.
“We are assessing the cost impact,’ said Anglo American CEO Cynthia Carroll, who
was responding to questions following the release of the group’s interim results. “I
will share these [cost increases] with the market at the end of the year,’ she added.
Minas Rio has twice seen significant capital cost escalation since Anglo first bought
the project in 2007 for $2.7bn. The group calculated in 2010 that capital costs
increased $180m for every quarter the project was delayed.
There had been some 200 licence applications to build the mine involving some
1,000 conditions. Carroll said Anglo has surmounted about 60% of the regulatory
requirements, many of them technical in nature – a feat she described as
“remarkable’.
One of the interruptions was the awarding of a land permit for transmission lines by
the state authorities, and its subsequent withdrawal since such a permit can only be
issued by federal authorities.
Some 50 other projects had also been delayed or abandoned in Brazil with an
average 24-month waiting period, many of them infrastructural projects. “We’re not
alone, but we have an enhanced legal team on the ground,’ she added.
Meanwhile, Carroll said no decision had been taken with its 70% stake in Amapa
iron ore mine in northern Brazil, an asset it was speculated in December Anglo may
sell. “We’re always looking to enhance shareholder value,’ she said.
DIVIDEND REBASED
Anglo American posted headline share earnings of 138 US cents/share, which
analysts described as disappointing.
However, the group said it had rebased the dividend policy paying out an interim
dividend of 32c/share, a 14% increase year-on-year. “We are determined to build on
that base through the cycle,’ she said. This was despite market conditions that
Carroll described as challenging.
“After a promising start to the year, the US economy has weakened in response to
greater fiscal uncertainty,’ Carroll said in commentary to the results. “The major
emerging economies – notably China, India and Brazil – have also slowed.’
As a result, the company was “sequencing’ its capital projects – Anglo has $17bn in
approved projects in its pipeline, which would result in a reduction in capital
expenditure for the full-year to $5.5bn from $7bn. Capital expenditure for the
2012/13 financial year would be $6bn, Carroll said.
The dividend could not offset market disappointment with the earnings, and possibly
the setbacks with Minas Rio in Brazil. Shares in Anglo American were 4% weaker at
R245.50 on the JSE, while BHP Billiton was 0.3% stronger. Shares in Rio Tinto in
London were similarly unchanged.
In the longer term, Carroll said Anglo remained optimistic about the resources
industry owing to an expected one billion new consumers by 2025, requiring some
$80 trillion in new investment.
AMPLATS
Anglo American was continuing to assess all possible restructuring options regarding
its 80%-held listed subsidiary, Anglo American Platinum (Amplats), but reiterated
that it was a long-term holder of the business.
“No option is off the table,’ said Carroll. “But we will retain Amplats. That is the
starting point,’ she said, adding that Amplats represented a “differentiator’ for Anglo
American.
Market watchers have observed, however, that restructuring the company, which
employs about 58,000 people, will be fraught with political problems, especially
given the South African government’s focus on employment while rival unions are
competing for members, which makes engagement with business more aggressive.
“There is no silver bullet for Amplats,’ said Carroll. “Its returns are in line with the
industry but unacceptable to us over the longer term. So it [the restructuring] will
take time and it will not be easy.
“We have got to be thoughtful and decisions will not be taken alone or
independently,’ she added. A decision on potential, selling, idling or mothballing of
Amplats’ platinum production is due by the year-end.
