The most closely watched project in Anglo American, the $8.8bn Minas-Rio iron-ore mine, pipeline and harbour development, has shipped its first ore on time within a revised deadline.
Anglo bought Minas-Rio for $5.1bn just before the onset of the global financial crisis in late 2008, prompting criticism of then CEO Cynthia Carroll, particularly when the ambitious project ran well over budget and time.
Anglo took a $4bn write-down against Minas-Rio last year and raised the capital expenditure number to $8.8bn, far more than the $2.6bn it told the market in 2008. Securing numerous complex licences and permits as well as landowners’ permissions for its 525km pipeline to the coast, have been the key reasons.
“While Minas-Rio will forever be synonymous with capital misallocation, the first ship is being loaded and final capex will be about $150m less than $8.8bn,” Macquarie said in a recent note.
Anglo flagged the first ore shipments in a quarterly update last week but gave more detail yesterday. The first cargo bound for China was 80,000 tonnes of fine ore. It left 60,000 tonnes of stockpiled ore at the port. Anglo expects to have moved about 560,000 tonnes to the port by the end of this year and have shipped three more Panamax vessels of 80,000 tonnes each.
“We believe the outlook for our premium product remains attractive, despite the current weakness in the iron-ore price, and that the fully integrated operation of Minas-Rio, from mine to port, will enable us to sustain our low operating cost over the long term,” Anglo CEO Mark Cutifani said.
Anglo expects to produce its ore, with a high iron content of 68% and a low contaminant level, for $35 a tonne, which is the cost of delivering it onto a ship. Fine iron ore with a 62% iron content is selling for about $80 a tonne.
“It is good news that progress is now going to plan but unfortunate that the market appears set to remain weak for the foreseeable future as producers … ramp up output,” Investec said.
SP Angel’s John Meyer said Chinese mines were closing as “prices fall and foreign majors flood the market with new ore from Western Australia and Brazil”.
Minas-Rio will ramp up to full production of 26.5-million tonnes over the next 18-20 months.
Goldman Sachs estimated that at an $80/tonne price, it would generate operating profit of about $600m at full production and deliver a 5% return on capital employed. Cutifani has set a return on capital employed target for Anglo’s mines of at least 15%. - Business Day