Global miner Anglo American has received a licence from Brazil’s environmental agency Ibama to start production at its long-delayed and three times more expensive than originally expected Minas Rio iron ore project.
Anglo is spending $2.2 billion in 2014 on the project, with another $1 billion marked for next year, which will take the total capital cost of the project to $8.8 billion, way over its original $3.6 billion budget.
During its first year of production, Anglo anticipates an output of around 11-million tonnes to 15-million tonnes.
The miner plans to raise the capacity to 26.5-million tonnes a year in 2016 and continue till the end of its mine life of 28 years, reported Reuters.
Last week the company was granted an operating license for the 525-kilometer pipeline that will carry the iron ore, mixed with water in a slurry, to the company’s ore docks at the Port of Ac in Rio de Janeiro.
The company is expected to incur approximately $9 billion for the works at the mine, pipeline and port.
Minas-Rio was purchased by Anglo American from Brazilian billionaire Bike Batista for around $5.5 billion in 2007 and 2008.
Minas Rios, Anglo’s major capital allocation fiascos of recent years, forced the company to take a $4 billion writewown in 2013 and it was largely responsible for former CEO Cynthia Carroll’s deteriorating image, according to reports.
Despite logistical headaches that caused a five-year start-up delay Anglo has remained committed to the project.
Iron ore price decline
A decline in iron ore prices driven by low demand from China forced the company to delay the start-up of the mine, which was originally scheduled for 2009.
Further, iron ore prices have plunged 40% this year, the worst performance across metals and bulk commodities in 2014, throwing miners’ strategies into doubt and threatening an industry shakeout.