Minas Rio iron ore mine in Brazil. Picture: ALLAN SECCOMBE
Minas Rio iron ore mine in Brazil. Picture: ALLAN SECCOMBE

Anglo American has signed a $15bn contract to supply Bahrain Steel with iron ore from its Minas Rio mine in Brazil. 

Minas Rio is arguably the most controversial asset within Anglo, having cost more than $13bn to buy and build but has yet to come close to its design capacity, with further concerns around whether the mine will secure tailings dump permits, which, if not granted, will lead to a halt in production.

The existing dam’s licence expires at the end of 2019 and Anglo CEO Mark Cutifani has stressed at both the full-year results presentation and this week’s AGM that the company was working closely with the Brazilian authorities to put in place a new permit.

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The 20-year agreement with Bahrain Steel signed with Anglo American Marketing on Thursday gives the mine a large and important client, taking 8-million tonnes a year at an approximate cost of $15bn.

“Deliveries under the contract have already started, sourced exclusively from Anglo American’s Minas-Rio mine in Brazil,” Bahrain Steel said in a statement on Thursday.

Bahrain Steel said its iron ore pelletising operations at Hidd in Bahrain needed 12-million tonnes of iron ore a year and that the Anglo deal was important in its “strategy to maintain full production capacity and the uninterrupted delivery of high quality iron ore pellets to steel producers it supplies around the world”.

The transaction was equally as important for Anglo, said Peter Whitcutt, CEO of Anglo American Marketing, noting it would allow the company to extend its market in the Middle East and North Africa markets. Those markets are expected to have 46-million tonnes of iron ore pellets by 2027, according to a McKinsey report.

The fine iron ore that is pumped 530km from the mine to the Brazilian east coast is ideal for making pellets. It has an iron content of 67%.

Bahrain Steel has about 26% of the iron ore pellet market in the Gulf Co-operation Council, a collection of Arab Gulf countries, where demand is about 22-million tonnes a year and expanding, said Bahrain Steel chair Khalid al-Bassam.

Minas Rio is forecast to produce between 18-million and 20-million tonnes of iron ore this year. The mine will reach up to 24-million tonnes by 2021, still shy of its full capacity of 27-million tonnes.