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Anglo American counts cost of Brazilian project

Company says Minas Rio project unlikely to cost less than £5 billion

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Global mining and minerals giant Anglo American has increased cost estimates for its troubled 26.5 MTPA Minas Rio iron ore project in Brazil to £5.04 billion (US$8 billion).

The project was due to commence production by mid-2014. However, it has been hit by legal, licensing and constructional impediments. In a statement on Tuesday, Anglo American said it was carrying out a detailed costs and outlay review for the project.

Prior to the latest announcement, the previous cost forecast of US$5.8 billion was already twice the original estimate published by FTSE100 miner.

"We are carrying out a detailed cost review to assess the impact of the already announced delay and the other disruptive challenges faced by the project which include high cost inflation across the construction industry in Brazil. The review includes an independent external assessment commissioned by the board," the company said.

A spokesperson said the mining major would provide further details once the cost review has been completed.

Separately, Anglo American also said its Kumba Iron Ore subsidiary in South Africa has flagged that its earnings for the current year are expected to be down by at least 20 percent on an annualised basis.

This was attributed to a drop in iron ore export prices this year, coupled with the impact on production following an illegal strike at its flagship Sishen Mine. Responding to Anglo American’s announcement, Société Générale analyst Alain William said the Kumba news is not incremental bad news on a group scale.

“Of far greater concern is the news on Minas Rio. We had capex of US$6.0 billion in our model. We also believe the project could be further delayed. Anglo American is still struggling to resolve the existing licensing challenges, with only two of the three injunctions satisfactorily removed during September 2012. The third injunction, which affects the construction of the electricity transmission line, has still to be dealt with,” he added.


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