Mining giant Anglo American will write down the value of Minas Rio, its iron-ore project in Brazil, by $4.4bn. The mine will now be valued at just $5.6bn on the group’s balance sheet, and has now cost the company over three times the original 2007 budget of $2.6bn. It will not ship iron ore until 2014, five years later than originally expected.
Last year, injunctions affecting construction held development up for months, while more recently securing permits has proved especially difficult. Anglo still needs to acquire 17 of the 300 permits and licences the project requires.
There has been a spate of recent write-offs in the mining sector, with Rio Tinto taking a $14bn hit on coal and aluminium projects and Brazil’s Vale taking a $4.2bn charge on nickel and aluminium assets.
What the commentators said
This is a reminder of the risks inherent in the industry and in emerging markets, said Stefan Wagstyl on FT.com. Miners have always had to get deposits out of the ground in areas that “present technological, social, environmental and political challenges”.
The commodity boom of the 2000s led to rapidly rising cash piles, “eagerly eyed by governments in mining jurisdictions”, said Helen Thomas in the FT. This prompted expensive mergers and acquisitions or “ambitious multibillion-dollar projects”. Now that the projects have started and raw materials prices have slid, “problems have inevitably emerged”.
At Rio and Anglo, “a CEO shake-up is rightly underway”, said Andrew Peaple in The Wall Street Journal. But “changes at the top shouldn’t end there”. The boards have lacked the “requisite practical and political nous”. In Anglo’s case, for instance, nobody on the board is Brazilian, and only one is a former miner. Management needs to wake up.