[miningmx.com] – ANGLO American said it was undertaking a detailed cost review at its Minas Rio iron ore mine in Brazil and acknowledged total capital would balloon to at least $8bn from earlier estimates of $5.8bn.
This takes total investment in the mine, which has been repeatedly delayed as the UK-listed group fought through a seemingly interminable paper chase, to some $14bn since it was first announced.
Shares in Anglo fell 3.5% with analysts saying that while not a surprise, the increase in capital costs for the project would hit shareholders hard.
Anglo said in a morning announcement that since July it had been attempting to overcome injunctions which would allow the project to proceed and had received the rubber stamp for construction activities related to a beneficiation plant at the mine and land access for a 525km pipeline route.
A third injunction, related to building of an electricity transmission line, was still outstanding despite the licence having been awarded in march. Work also continues
to complete the land access programme for the pipeline, Anglo said.
It added that construction was on schedule where there hadn’t been any regulatory delays, but added that it was undertaking “a detailed cost review.
This was to “… assess the impact of the already announced delay and the other disruptive challenges faced by the project which include high cost inflation across the construction industry in Brazil,” Anglo said.
Interestingly, the review includes an external independent assessment which had been commissioned by the board.
“The current indications are that capital expenditure for the project is unlikely to be less than the $8bn upper end of the current range of analysts’ expectations,” said Anglo.
“While a blow-out was anticipated, the market will still take today’s news badly given the order of magnitude of the capex increase and limited clarity on just how far above $8bn it will go,” said Liberum Capital in a morning note.
Cynthia Carroll, the departing CEO of Anglo American, said on July 27 that first shipments from the proposed 26.5 million tonne/year Minas Rio project would be delayed until the second half of its 2014 financial year.
According to Liberum Capital, it said that “reading between the lines” it was likely the project would not come on stream before 2015.