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Anglo American's Minas Rio Project Costs May Climb by 20% to $4.6 Billion
Anglo American Plc, owner of stakes in the biggest platinum and diamond producers, may see the cost of a Brazil iron-ore development, the company’s largest project, surge by 20 percent because of delays in getting permits.
“This is somewhat of a moving target,” Chief Executive Officer Cynthia Carroll told reporters on a conference call from London today. Anglo, which initially planned to begin mining in 2010, now says the earliest possible start date is in 2013.
Licensing and design changes at Minas Rio, one of four key projects Anglo needs to boost output of commodities in demand in expanding Asian economies, will add $210 million in costs, while another $180 million a quarter may be incurred from “schedule- related costs,” the company said today in a statement. Anglo said the costs will probably be incurred over nine months.
“While the delay was largely anticipated, the magnitude of the capital increase will likely come as a surprise ” at more than “$750 million,” UBS AG said in a note. The result is the “key disappoint” in today’s interim earnings, it said.
Development charges at Minas Rio, which Anglo bought for $5.5 billion near the top of a six-year commodity boom, may jump to $4.55 billion, based on the increased costs.
Anglo American, which today resumed dividends it halted 18 months ago for the first time in more than 60 years, fell as much as 1.9 percent and was down 0.1 percent at 2,538.5 pence by 12:20 p.m. in London trade. It slid 1.6 percent in Johannesburg.
The mine operator said underlying earnings climbed to $1.84 a share from $0.91 a year earlier, beating the $1.79 median of seven analyst forecasts compiled by Bloomberg.
Tougher Licenses
The company plans to produce 26.5 million metric tons at Minas Rio, which Anglo says suffered from delays because tighter regulations are making it harder to win government licenses. In February, Anglo estimated the cost of the project at $3.8 billion, up from an earlier figure of $2.7 billion.
“The tone of progress at Minas Rio is not reassuring,” Liberum Capital Ltd. said in a note. “Key permits remain outstanding and Anglo American lack certainty on when construction can begin.” Sanford C. Bernstein analysts yesterday forecast a cost overrun of less than $500 million.
“Ever since its purchase in 2008 Minas Rio has been a problem,” Credit Suisse AG said in a note this week. “Timing at the peak of the market in first half 2008 did not help.”
Carroll last year suspended dividends and cut more than 23,000 jobs after metal prices plunged in 2008. She is selling zinc, steel and phosphate assets to focus on the iron ore and copper that’s in demand in Asian economies.
Anglo agreed this year to sell its zinc mines for $1.34 billion, parts of its Tarmac construction materials unit for $400 million and Australian coal assets for about $450 million.
“These assets sales could fetch up to $6-8 billion and coupled with the potential $2-3 billion stake sale in Minas Rio could raise up to $10 billion,” Credit Suisse said this week.
Underlying earnings is profit attributable to equity shareholders and adjusted for the effect of special items, re- measurements and related tax and minority interests.
To contact the reporter on this story: Carli Lourens in Johannesburg at clourens@bloomberg.net
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