Glencore Xstrata Plc (GLEN), the global commodity trader and metals producer run by billionaire Ivan Glasenberg, agreed to proceed with a study into an iron ore mine in the Republic of Congo that may cost as much as $3 billion.
The assessment, with partner Zanaga Iron Ore Co., “is now being advanced on the basis of a staged development, substantially reducing the initial capital requirement and including the potential for initial production using existing infrastructure,” Baar, Switzerland-based Glencore said today in a statement.
The development cost is now estimated at $2.5 billion to $3 billion, down from $7.4 billion, Zanaga said in a presentation on its website. Glencore’s Glasenberg has led a call for an industrywide crackdown on over-spending on new mines, which he blames for a glut of some raw materials that has trimmed prices and profits for producers.
The revised agreement between Glencore and Zanaga “should increase the likelihood of project finance,” London-based Liberum Capital Ltd. analyst Richard Knights wrote today in a note. “The company now has a materially more palatable project for potential investors and debt providers given its lower and more efficient capex number.”
Glencore owns a stake of 50 percent plus one share in the project and Zanaga the rest. An examination of the proposed development is due to be completed in the second quarter of next year, with a decision on investment following that.
The mine may initially produce as much as 14 million metric tons of iron ore a year, Zanaga said. The previous plan was for a mine producing 30 million tons a year.
Zanaga jumped 7.1 percent to close at 28.375 pence in London, the highest since Dec. 19. The stock has more than doubled in the last month, giving the company a market value of 79 million pounds ($125 million).
Glencore, which acquired the stake in the project with Zanaga through the $29 billion takeover of Xstrata Plc in May, dropped 1.8 percent to 337.55 pence.
The biggest mining companies including Glencore, BHP Billiton Ltd. (BHP), Rio Tinto Group and Vale SA are set to spend about $244 billion on expansions through 2015, according to forecasts compiled this month by Bloomberg from the 20 largest mining companies by market value.
Glencore is the world’s biggest exporter of power-station coal. It’s the third-biggest producer of mined copper, third in nickel and biggest in zinc and lead.
The company this week estimated savings of $2 billion next year through the takeover of Xstrata by closing 33 offices, firing workers and reducing costs at existing operations.
Glencore reviewed 88 projects acquired from Xstrata and decided to suspend 44 of them, it said Sept. 10. It also raised the cost estimate for its Koniambo nickel project, inherited from Xstrata, by $1 billion to $6.3 billion.
Peter Grauer, the chairman of Bloomberg LP, the parent of Bloomberg News, is a non-executive director of Glencore Xstrata.
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