Anglo American ADR’s trading in New York (PINK:AAUKY, LSE:AAL) has now lost more than 7.5% in value since Monday when the company announced costs at its massive Minas Rio iron ore project in Brazil would be $2bn higher than expected.
Minas Rio has long been said to have been the main concern of the board with the performance of outgoing CEO Cynthia Carroll, but the latest blowout indicates just how seriously project management was lacking.
Initial project capex of $3.6bn has been revised on more than one occasion since Minas Rio was acquired in 2007 and now the mine’s final bill is predicted to come in at a whopping $8bn.
Some analysts put that figure at $8.8bn thanks in part to the fact that Anglo has to compete with Brazil’s infrastructure projects associated with the Olympics and Soccer world cup in 2014 and 2016.
Add the acquisition cost of $6bn and Minas Rio turns into a minimum $14 billion project, becoming the world’s most expensive iron mine with costs of $350 per tonne according to SBG Securities. Compare that to today’s iron ore price of $120.
Miningmx reports Anglo American may sell off parts of the project to try to recover its investment, but at least one analyst has said that “they’ll ever get their money back.”
Falling profitability and worries about Minas Rio has weighed heavily on Anglo’s stock.
The $39bn counter is down 30% this year, compared to peers BHP Billiton, Rio Tinto and Xstrata which have been trading mostly flat in 2012.
Anglo’s has also been struggling with ongoing strikes at its South Africa platinum mines which so far has cost it $275 million in lost production or more than $5.5 million per day.
Another blow to the London-based company has been its legal battle with Chilean copper giant Codelco which in August resulted in Anglo reducing its stake in the Los Bronces copper complex to 50% from 75% before.