Anglo American suspends troublesome Minas-Rio iron ore mine for three months
Anglo American suspended its controversial Minas-Rio iron ore mine in Brazil for up to three months, to conduct checks on the pipeline that is the sole method for delivering the highly abrasive iron ore slurry to the port 530km away.
A small leak that resulted in suspended operations for 15 days in March was followed by another small, eight-minute leak near the same place.
As a result, Anglo took the decision to check the entire pipeline for potential faults, a process that will take up to 90 days.
“Minas-Rio is working closely with its employees and unions and all the relevant authorities in Brazil, both locally and nationally, and Anglo American’s marketing business is engaging with its customers in relation to product delivery schedules,” Anglo said in a brief statement.
The Minas-Rio mine has cost at least $13bn to buy and build, missing production targets with difficulties in securing permits and permissions, particularly for land servitude for the pipeline.
Anglo CEO Mark Cutifani has described Minas-Rio as an example of how not to buy and build a project, saying there have been “many errors”.
The $13bn price tag contributed to the massive debt levels in Anglo that Cutifani and his team tackled by selling and closing assets.
Anglo has yet to update the market on whether it has stockpiles at its export facility at the port, which it can supply into contracts, and what the cost would be of the 15-day shutdown followed by the 90-day suspension.
The risky nature of a single system to deliver iron ore from the opencast mine, 530km away over rugged terrain, was highlighted by the closure.
Trucking is simply not an option and there is no railway nearby.
“Specialised technical equipment will now be used to identify any other areas of potential weakness within the pipeline,” Anglo said.
“Due to the length of the pipeline and the priority of ensuring the protection of the natural environment, the current expectation is that it will take approximately 90 days for the full inspection to be completed, during which time operations at Minas-Rio will remain suspended,” it said.
“The impact is difficult to judge considering any remedial actions are as yet unknown, which could hamper restart and ramp-up timing, as well as any associate costs,” said RBC analyst Tyler Broda.
RBC had expected Minas Rio to generate earnings before interest, tax, depreciation and amortisation of $224m in 2018 based on forecast production of 16.5-million tonnes of ore.
“At about 1.3-million tonnes per month, this high-grade material is likely to be missed as a source of pellet feed. However, we would not expect a significant impact to the iron ore market at this point. Although a high-quality product, this mine is less than 0.5% of global supply,” Broda said in a note.
It takes four days for the slurry to travel from the mine to the terminal, with the highly abrasive sludge moving at 6km/h down the only link to the port and a dedicated terminal. The concentrate has a high 67% iron content.
Difficulties in securing permits meant Minas-Rio will reach full production of 26.5-million tonnes only from 2020, a full three years behind schedule.
In 2015, Anglo said the mine would reach 24-million to 26-million tonnes of production in 2016. Minas-Rio delivered 16-million tonnes that year and 17-million tonnes in 2017.
The 2018 forecast is for 13-million to 15-million tonnes, a drop caused by licensing delays. Minas-Rio will reach 24-million to 26.5-million tonnes from 2020.
Anglo sold the ore for $65 a tonne during 2017, delivering it to ships at a cost of $30 a tonne, just shy of Kumba Iron Ore’s cost of $31 a tonne for sought-after lumpy, high-grade ore that realised $71 a tonne.