Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Anglo American (PINK:AAUKY, LSE:AAL) will reportedly slash the value of its massive Minas Rio iron ore project in Brazil by $5 billion, possibly as soon as this week, reports The Telegraph.
The London-listed miner apparently wants to get the bad news out of the way ahead of its full year results to be released on February 15.
Anglo in November announced the project costs would be $2bn higher than expected and Minas Rio has long been said to have been the main concern of the board with the performance of former CEO Cynthia Carroll.
Initial project capex of $3.6bn has been revised on more than one occasion since Minas Rio was acquired in 2007 from Brazilian billionaire Eike Batista and now the mine’s final bill is predicted to come in at a whopping $8bn.
Some analysts put that figure at $8.8bn thanks in part to the fact that Anglo has to compete with Brazil’s infrastructure projects associated with the Olympics and Soccer world cup in 2014 and 2016.
Add the acquisition cost of $6bn and Minas Rio turns into a minimum $14 billion project, becoming the world’s most expensive iron mine with costs of $350 per tonne according to SBG Securities. Compare that to today’s iron ore price of $120.
Anglo American may sell off parts of the project to try to recover its investment, but at least one analyst has said that “they’ll ever get their money back.”
Falling profitability and worries about Minas Rio has weighed heavily on Anglo’s stock.
The $39bn counter is down just under 30% over the past year, compared to peers BHP Billiton, Rio Tinto and Xstrata which have been trading mostly flat.
Anglo last week announced sweeping changes to its platinum business in South Africa with plans to mothball two mines, sell another and cut 14,000 jobs.
Another blow to the London-based company has been its legal battle with Chilean copper giant Codelco which in August resulted in Anglo reducing its stake in the Los Bronces copper complex to 50% from 75% before.
