Anglo American has announced a whopping $4bn (£2.54bn) writedown in its Minas-Rio iron ore project in Brazil as a result of escalating costs of mine development and associated infrastructure. The delays in the Brazilian iron-ore project also led to the resignation of chief executive Cynthia Carroll. Minas-Rio is Anglo American’s biggest growth project, which was expected to see a writedown in value by $3bn (£1.9bn)-$5bn (£3.18bn).On paper, the iron ore project was valued at $9bn (£5.7bn).
The setbacks plaguing the Minas-Rio project included licensing injunctions taken out by Brazilian regulators, which have now been lifted, and construction cost inflation. Also, the project’s projected first ore on ship (FOOS) date changed from late 2013 to late 2014 and the company has allocated $600m (£382m) contingency fund to complete the project on time. Even now, Anglo American is unsure about reaching the deadline on time saying that it depended on number of development milestones being achieved over the next twelve months.
The stepping down CEO Cynthia Caroll said that Anglo American was disappointed with the problems in the Minas-Rio project while reiterating that it remained a “world-class iron ore project of rare magnitude and quality.” Mark Cutifani, who is currently placed as the chief executive of AngloGold Ashanti, the South-African based gold producer, will replace Cynthia Caroll.
Anglo American said that the capital expenditure on the Minas-Rio project was now expected to hit $8.8bn (£5.6bn), more than three times the $2.6bn (£1.6bn) it had envisaged in 2007. Anglo American had warned investors two months ago that the cost would be more than $8bn (£5bn). Anglo American is expected to publish its annual results on February 15. Shares in Anglo American remained unchanged this morning, trading at £18.75.