Anglo American Plc’s Brazilian iron foray was fraught with misfortune from billion-dollar overruns to a global glut. As the $8.4 billion mine finally ramps up, it’s catching a break from China’s greener approach to making steel.
The Minas-Rio iron-ore mine, the largest project in Anglo’s 98 years, is scheduled to reach output capacity pace by mid-2016. And while the start of operations coincides with a price rout of the steelmaking ingredient, the London-based miner is betting the higher quality of its product will help shield the venture from the malaise affecting the industry.
Minas-Rio produces pellet feed, an ultra fine type of ore containing about 68 percent iron. That allows Anglo to sell at a premium over the benchmark because steelmakers — including those in China, the biggest buyer — find it more productive and less polluting.
“China is more and more focused on the environmental impact of consuming the iron ore at the steel mills,” Andreas Bokkenheuser, an equity analyst at UBS Group AG, said by telephone from New York. “The lower silica content means they will consume more of it in the future,” he said, referring to the most common impurity.
Bokkenheuser said pellet feed with 68 percent iron can get a premium of as much as $10 a metric ton over the 62 percent benchmark price.
Anglo, which expects to ship as much as 14 million tons this year and reach full-year capacity of 26.5 million tons in 2017, declined to say how much it prices its product over the reference.
The benchmark rose 2.6 percent to $62.78 a dry ton on Tuesday, according to an index compiled by Metal Bulletin. Prices are down 67 percent since a 2011 peak amid supply expansions in Australia and Brazil, the top exporters.
“For this type of iron ore, we don’t have oversupply,” Rodrigo Vilela, the chief operating officer of Anglo’s project, said during a visit to the mine this month. “We don’t have any problem in placing this material around the world thanks to its high quality.”
Minas-Rio includes a mine and processing plant in Conceicao do Mato Dentro, in the heartland of Minas Gerais, connected to a dedicated iron-ore terminal at the Acu port in Rio state through a 529-kilometer (329-mile) pipeline. The rolling hills of this Brazilian state, once a major gold-producing region, contain deposits with higher levels of iron on average than in the vast deserts of Western Australia.
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