Anglo American takes $4bn hit over Brazil mine delay

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Anglo American (LSE: AAL.L - news) becomes the latest mining giant to write off billions of dollars in value, after delays at its Minas-Rio iron ore mining project in Brazil send costs soaring.

Anglo American, the FTSE 100 (FTSE: ^FTSE - news) mining group, wrote $4bn (£2.5bn) off its troubled Brazilian iron ore project, continuing the balance sheet pain seen across the sector.

Previously valued at $9.6bn, the flagship Minas-Rio expansion has been hit by delays and budget increases, contributing to the exit of Cynthia Carroll, Anglo’s outgoing chief executive .

The company has faced major headaches over accessing land to build a massive pipeline to carry the iron ore mined to the coast, as well as over regulatory hurdles.

The mining group bought the project, controlled by Brazilian billionaire Eike Batista, for $5.2bn in two deals over 2007 and 2008, when commodity prices were at their highest.

On top of the purchase price, Anglo has spent $3.8bn on Minas-Rio’s development so far, with another $5bn planned, it said yesterday. That represented its sixth increase on the original $2.6bn spend forecast five years ago.

Anglo blamed the revised capital spending needs and a rethinking of the project’s early-stage potential for the $4bn impairment charge it will book.

“We are clearly disappointed that the diversity of challenges that our Minas-Rio project has faced has contributed to a significant increase in capital expenditure,” said Ms Carroll. “Despite the difficulties, we continue to be confident of the medium and long-term attractiveness and strategic positioning of Minas-Rio and we remain committed to the project.”

The market had been braced for a writedown, as the mining sector faces disappointment over various ambitious expansion plans initiated at the top of the market. Since then commodity prices have eased back, while costs have continued to rise.

Earlier this month, Rio Tinto’s chief executive Tom Albanese suddenly resigned over a $14bn writedown of its own assets following bad deals.

Analysts said the hit to Anglo’s balance sheet was at the bottom end of City expectations, but some warned that further writedowns might be necessary. Ben Davis at Liberum Capital saw “plenty” of risk still surrounding the execution of the project, and said Anglo was the “least preferred of the [mining] large caps” in his eyes.

Some have suggested that Anglo should consider walking away from Minas-Rio, but the company argues that it is a long way down the road to completion. Of the 300 licenses it needs, it now has just 17 yet to acquire, and it has obtained the relevant permissions for 95pc of the land needed for the pipeline.

Separately, Anglo is mired in controversy in South Africa, where its platinum arm Amplats is in talks with government and unions over plans to cut 14,000 jobs, as part of a massive restructuring it says is needed to save the business.

Late on Monday, Amplats said it has agreed to postpone the redundancies in order to allow a “detailed” consultation process” to take place.