Anglo bleeds in Brazil

Anglo American will take a $4-billion write-down on its Minas Rio iron-ore operation in Brazil.

Delays and cost overruns have forced the mining group to increase expenditure on the project.

The company's South African subsidiary, Amplats - which is in discussions with the government about its plans to restructure operations and shed thousands of jobs - is expected to announce a massive loss in its year-end results next week.

Anglo American said yesterday that it expected capital expenditure on Minas Rio to rise to $8.8-billion.

"We are clearly disappointed that the diversity of challenges that our Minas Rio project has faced has contributed to a significant increase in capital expenditure," departing CEO Cynthia Carroll said.

"Despite the difficulties, we continue to be confident of the medium- and long-term attractiveness, and strategic positioning, of Minas Rio, and we remain committed to the project."

Minas Rio is Anglo's most significant failure of recent years and is said to be largely responsible for Carroll's fall from grace.

Anglo bought its first stake in Minas Rio in 2007, taking control in 2008 in a $5.5-billion deal with Brazilian billionaire Eike Batista's MMX - right at its peak.

The project was intended to help diversify a company that was still dependent on South Africa for the bulk of its revenue. Instead, it has been a bruising top-of-the-market deal.

Anglo spent $4.8bn buying Minas Rio - excluding the value of the Amapa mine, bought as part of the original deal but which Anglo has agreed to sell.

It has spent $5-billion developing it so far and said last year that total development costs could exceed $8-billion, more than three times the original estimates.

Nomura International analyst Sam Catalano said: "This asset has been a constant disappointment in terms of project delivery and I think it was largely expected that we would get this sort of write-down. The challenge that remains for Anglo is to deliver it on the revised timeline and at the price they've given us."

The company said it was still targeting first ore-on-ship by the end of next year despite the challenges facing Minas Rio.

Anglo's announcement follows the ousting of Rio Tinto CEO Tom Albanese on January 17 and the taking of $14-billion in impairments tied to its under-performing Mozambican coal and Canadian aluminium operations.

Other mining companies, such as BHP Billiton, are also likely to write down under-performing assets as low prices and rising costs eat into valuations.