Anglo American reported on Friday impairments of US$3.9bn from the assumed worth of assets, including its Brazilian flagship iron ore project, Minas-Rio.
"The steep drop in the iron ore price has resulted in a US$3.5bn post-tax write-down in the carrying value of Minas-Rio," CEO Mark Cutifani said in the company's latest quarterly earnings release.
Minas-Rio was valued at US$5.6bn at the end of 2014, the release said.
"The impairment was predominantly for Minas-Rio. We have completed the project ahead of the revised schedule and we also announced that the total capex would be US$400mn lower than the revised number," Cutifani said in a conference call to discuss the earnings release.
"So [we expect] no change from an operations standpoint, it's all driven by lower commodity prices, lower iron ore price in the short term but also our expectation in the medium to long term."
LOWER COMMODITY PRICES
Anglo is the first of the major global diversified miners to announce asset impairments due to lower commodity prices.
"There is always a risk that further write-downs from mining companies could occur if commodity prices trend lower," Jessica Fung, commodities and equity research VP at BMO Capital Markets, told BNamericas.
"However, this only applies to those assets that were developed and/or acquired during a higher commodity price environment, so legacy operations won't be impacted as greatly as Minas-Rio."
Iron ore assets, she added, "are particularly vulnerable right now because the price decline is relatively recent. Aluminum assets were written down a number of years ago, and coking coal assets were also already written down in the last couple of years."
Anglo bought Minas-Rio from Brazilian tycoon Eike Batista for US$5.1bn just before the onset of the global financial crisis in late 2008.
But Minas-Rio faced trouble up from the start. Massive permitting risk was – or should have been – visible from the beginning, insiders say, but the pressure on Anglo at the time to make acquisitions was so great that they went ahead with it anyway.
In early-2013, amid markedly weaker commodity prices, ongoing cost pressures and an operating loss at its platinum business, Anglo took a US$4bn write-down on Minas-Rio, followed by a capex increase to US$8.8bn compared to the US$2.6bn it told the market in 2008. The obtaining of several environmental licenses and permits as well as landowners' permission for its 525km iron ore pipeline linking the project to Rio de Janeiro's coast were the key reasons.
Meanwhile, the company reported that the Minas-Rio ramp-up schedule continues and is expected to hit design capacity during the second quarter of 2016.
"Minas-Rio is a world class asset benefiting from long life, high quality iron ore saleable product, and a favorable cash cost, and is expected to be in the bottom half of the cash cost curve," according to the Anglo release.
Minas-Rio's first shipments were made in late October.
"Since then, we've loaded eight ships. The feedback we've had on the ships that we have to lease has been very good, very high quality," Cutifani said. "Remember it's a 67% [high quality iron content] product, low deleterious elements, and the quality has certainly been ahead, and very pleased with the progress in terms of the operation."
Source: BN Americas
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