LONDON, Jan 29 (Reuters) – Anglo American took a $4 billion hit to its Minas Rio project on Tuesday, clearing the decks for new boss Mark Cutifani and indicating that the delayed Brazilian operation will eventually get off the ground.
Minas Rio, which is now costing Anglo more than three times its original estimates, has been seen as Anglo’s most significant failure of recent years and is partly responsible for costing outgoing chief executive Cynthia Carroll her job.
The writedown to the valuation of the huge iron ore project and a jump in the bill for its development to $8.8 billion, alongside a planned overhaul for the company’s troubled platinum business, are as near to a clean slate as new CEO Cutifani is going to get.
Shares in Anglo American gained 2.2 percent to 19.14 pounds ($30.06), topping Britain’s blue-chip leader board in midday trading after the announcement of the impairment charge. “The Minas Rio impairments give the incoming CEO a clean slate, creating a degree of positive sentiment,” Bernstein analyst Paul Gait said.
“The greater detail and clarity on the progress of Minas Rio can only increase the confidence around the executability and delivery of the project.”
Designed to help to diversify a company that was still dependent on South Africa for the bulk of its revenue, Minas Rio was bought by Anglo for $5.5 billion in two stages in 2007 and 2008.
But the project, which had been valued on Anglo’s balance sheet at $9.6 billion before the writedown, has turned out to be a bruising top-of-the-market deal, hit in part by inflationary costs linked to Brazil’s hosting of the soccer World Cup next year and the Olympics in 2016.
The company said it still aims to ship its first iron ore by the end of 2014 and gave further details on the project’s progress, confirming that two grinding mills had been installed and 50 percent of a pipeline had been laid.
“This asset has been a constant disappointment in terms of project delivery and I think it was largely expected that we would get this sort of writedown,” Nomura International analyst Sam Catalano said.
However, delivering on Minas Rio is not the only challenge facing Anglo’s new boss.
Cutifani, a former coal miner who joins the company from Johannesburg-based AngloGold Ashanti, must also grapple with the difficulties of executing Anglo American Platinum’s (Amplats) overhaul.
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