Anglo American has launched a $5.3bn copper project in Peru and is drawing on its experiences at the troubled Minas Rio iron ore mine in Brazil to avoid repeating costly mistakes.
Unlike the $13bn Minas Rio project, Anglo has a large partner in the Quellaveco mine, with Mitsubishi holding a 40% share after the Japanese company bumped up its stake in the project in August 2017 by paying Anglo $833m.
Anglo is putting the money towards developing a 300,000-tonnes-a-year copper mine that will pay for itself four years after starting production in 2022.
Anglo CEO Mark Cutifani said the company would pay for the project from cash flows, while chief financial officer Stephen Pearce said net debt, which fell by $500m to $4bn in the interim period, would remain under tight control.
Anglo had learnt tough lessons in the decade it has owned Minas Rio, due to cost and time overruns, Cutifani said, adding that Quellaveco, the first big new mine to be built from scratch on his watch, was as derisked as possible.
“This is the best-prepared major project I’ve seen in my 43 years in the industry. We’ve had a fair while to bake this cake and apply those lessons from Minas Rio,” Cutifani said.
Key lessons Anglo was bringing to Quellaveco included spreading the financial burden with a partner and keeping financial flexibility in the group to continue investing in other commodities, something it had been unable to do when dealing with Minas Rio’s massive cash demands, he said.
“We have local stakeholders on board and we have all our key permits in place.
“We have much more certainty on our numbers because we’ve done about 80% of the work on the detailed engineering and we’ve done early preparation work on diverting a river and geotechnical work.
“We’ve got $500m of pre-investment work done that really does reduce the risk on the project significantly,” he said.
Analysts welcomed the project that will deliver copper at $1.05/pound in the first decade of production, with Goldman Sachs saying the $5bn to $5.3bn price tag shared 60-40 between Anglo and Mitsubishi was lower than it had feared.
The copper price is trading at $2.80/pound.
“The Quellaveco mine project has been on the cards for a number of years and, given the potential future demand for copper as well as Mitsubishi’s participation and prefunding of some of the capital expenditure, it makes for a compelling investment case,” Abdul Davids, portfolio manager at Kagiso Asset Management, said.
Minas Rio ultimately led to the departure of Cynthia Carroll as Anglo CEO, who fell out of favour as Anglo’s net debt ballooned to $13bn and put the future of the company in doubt, but Davids said the mine was worth keeping.
Anglo, one of the world’s large diversified mining companies, reported an interim dividend of $0.49 per share, returning $630m to shareholders, compared with the $0.48 it paid at the same time last year.
Attributable profit for the six months to end-June fell to $1.3bn from $1.4bn a year earlier, with revenue rising to $13.7bn from $12bn before.
Higher operating costs and income tax were a feature of the first half of the year compared with a year earlier.
Net debt fell by about $500m to $4bn and chief financial officer Stephen Pierce said he wanted a net debt figure by the end of the financial year to have a "nice 3 in front of it", depending on the commodity price cycle, but Anglo was "very comfortable" with the prevailing net debt level.