The road ahead for Anglo American’s troubled Brazilian Minas-Rio iron-ore project would be much smoother than in past years, outgoing CEO Cynthia Carroll said last week, as the group announced it would record a $4-billion impairment charge following the revision of the project’s capital expenditure (capex) requirement.

The diversified miner revealed that, following a review, the capex requirement for the project increased to $8.8-billion, if a centrally held risk contingency of $600- million was used in full.

Nevertheless, despite the challenges facing the project, the group was targeting getting first ore on ship at the end of 2014. The group had previously planned to get first ore to ship at the end of this year.

Carroll noted during a conference call that Anglo American had cleared many bottlenecks at the project in 2012.

“We have built up a lot of momentum on this project and we understand the regulatory framework, which has been changing. We also have huge support from government at all levels,” she stated.

Carroll added that the company’s Brazilian subsidiary, Anglo Brazil, had come a long way in securing the required licences and permits to deliver the Minas-Rio project, with only 17 out of close to 300 such documents outstanding.

She noted that her confidence in the project, which was the largest single mining project in Brazil and the largest foreign investment in the country, persisted, despite a number of injunctions imposed by Brazilian authorities, which included the recalling of a licence to construct a transmission line.

Anglo American assured shareholders that these injunctions had all been lifted.

Carroll stated that the injunctions precipi- tated the company’s decision to revise its delivery schedule and budget for Minas-Rio.

Carrol explained that the contingency funds would be used to mitigate the impact of, besides others, potential rises in land costs and mining inflation.

This, together with an assessment of the full potential of Phase 1 of the project, resulted in Anglo American taking the decision to impair the project value by $4-billion on a post-tax basis, which
Anglo American FD René Médori pointed out would reduce the project’s value from $9.6-billion to $5.6-billion.

Meanwhile, with interruptions cleared up, construction was on schedule with 92% of the earthworks having been completed at the beneficiation plant and the first of two grinding mills having been installed.

Almost one-half of the roughly 247 km slurry pipeline had been laid, with the filtration plant on schedule for completion by June.

“This [Minas-Rio] will be one of the most competitive operations in the world when it is up and running. I think the government has recognised the critical nature of the mine . . . it represents a massive injection of cash and long-term employment into an under- developed part of Brazil. It cuts across 31 municipalities . . . about 350 000 people are positively impacted on by this project,” Carroll indicated.

She added that at the current iron-ore price of $140/t and at a 26.5-million-ton-a-year capacity, the mine would generate earnings before interest, taxes, depreciation and amortisation of about $2.5-billion a year.

Carroll admitted that, although some challenges remained, these would be much lower risk than those faced in the past, as the company had the right systems in place to overcome them.

She said future challenges would, in addition to land costs, relate to land access and labour availability, given the Soccer World Cup and the Olympic Games that would be hosted in the country in 2014 and 2016 respectively.

Carroll highlighted that significant potential existed to expand Minas-Rio’s output to 90-million tons a year, stating that the project’s resource had increased more than fourfold to 5.77-billion tons since its acquisition.

“And we believe that further resource potential exists through our ongoing explor-ation. The first phase of the project will begin its ramp-up at the end of 2014, with operating costs expected to be highly competitive in the first quartile of the free-on-board cash cost curve, averaging about $30/t over the life of mine and generating significant free cash flow,” she said.

Meanwhile Anglo American had agreed to a fixed 25-year iron-ore port tariff with port partner LLX SA in relation to their jointly owned terminal at the Açu port that was dedicated to Minas-Rio. The tariff was established to be between $5.5/t and. $6/t

“This is extremely competitive, compared with ports around the world,” Carroll pointed out.