* Expects Brazilian project's capex to reach $8.8 bln
* Targeting first ore on ship by end-2014
* Analysts says writedown in line with expectations
* Shares up 2 percent
By Sarah Young and Brenda Goh
LONDON, Jan 29 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
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
Anglo, for which South Africa still accounts for more than
half its forecast earnings, owns 80 percent of Amplats, a
company in the midst of a restructuring plan that could lead to
14,000 job cuts.
Analysts at Citi warned that more bad news could precede
Cutifani's start date, with concerns also lingering around its
copper operations. They warned that the company could choose to
clean house by taking action on other legacy problems before
Cutifani takes the helm.
Anglo's announcement is the latest in a spate of writedowns
on miners' misjudged investments, serving as a reminder of the
sector's poor record in creating value through deals. The result
for the incoming generation of mining bosses is likely to be far
Rio Tinto ousted its chief executive, Tom
Albanese, on Jan. 17 and took $14 billion in impairments tied to
its underperforming Mozambican coal and Canadian aluminium
Other mining companies, such as BHP Billiton
, are also likely to write down underperforming
assets as low prices and rising costs eat into valuations.
Among Minas Rio's various problems has been a string of
delays and costs overruns, partly linked to Brazil's permitting
Carroll, speaking to journalists in a call before she hands
the reins to Cutifani on April 3, was confident that the company
would not receive any more surprises on Minas Rio.
"The issues we face going forward have much lower risk than
the issues that we were facing in the past," she said, adding
that of the 300 permits and licences the project required, there
are only 17 remaining.
The $8.8 billion capital expenditure figure for the project
includes an additional $600 million risk contingency sum to
cover a potential escalation of land costs and mining inflation,