Anglo's money troubles worsen

Anglo American has raised cost estimates for its Minas Rio project and warned of lower profits from South African iron ore.

The Minas Rio iron ore project in Brazil is now expected to cost at least three times the original estimate.

Meanwhile, Anglo's majority-owned - and usually lucrative - Kumba Iron Ore said yesterday that it expected full-year profit to drop at least 20%.

Kumba alone contributed almost half of Anglo's operating profit for the first half of 2012.

The double-whammy took Anglo's underperforming shares more than 4% lower in morning trade. At 1.52pm, the shares were down 3.5%.

"It is difficult to see light at the end of the tunnel for Anglo American," Citi analysts said.

Last month, Anglo announced the long-expected departure of its chief executive, Cynthia Carroll, and began the search for a replacement to take on what analysts and investors said is one of the toughest jobs in the business.

Her departure was blamed in part on Minas Rio, a 2008 attempt at diversification that turned out to be a tough, top-of-the-cycle deal.

The Brazilian project has been hit by a string of delays and cost overruns.

Anglo American said it would now carry out a cost review, including an independent assessment commissioned by the board.

The total cost is "unlikely" to be less than $8-billion, Anglo said.

Anglo did not alter its 2014 estimated production start date, but analysts expect it could run into the following year.

Anglo has also been pummelled by strikes at its platinum operation, Anglo American Platinum (Amplats), the world's largest producer of the precious metal. It warned yesterday that 70% owned Kumba was also still counting the cost of wildcat strikes. Combined with lower prices, the effect would drag down full-year profit by a fifth, the company said.