Amid already dampened sentiment for mining stocks, investors in Anglo American (AAL) returned from their Easter break to learn of the lengthy possible suspension of the group’s Minas-Rio operation in Brazil. Production from the iron ore mine, which has been steadily ramping up since 2014, was halted on 29 March, and will be offline for up to three months, after a “minor leak” was identified in a pipeline that carries iron ore in slurry form to an export terminal.
No injuries or disruption to local water supply were reported, but Anglo will need to conduct a full inspection of the pipeline, which connects the mine to Rio de Janeiro. Based on previous forecast production of 13m tonnes (Mt) to 15Mt, already down from an initial target of 15Mt-18Mt, more than 3.5Mt of output is likely to be hit in 2018.
Shares in the company fell 2 per cent on the announcement, and a further 4 per cent to 1,580p in the following trading session, amid a broader sell-off in mining equities sparked by escalating fears of a US-China trade war.
Minas-Rio is one of Anglo’s key expansion projects, and one of the principal sources of projected earnings growth in the coming years. Although iron ore prices are widely expected to soften in the next few years, Anglo is confident that the 67 per cent iron-content of Minas-Rio’s output will continue to attract a premium over peers’ lower-quality feedstocks. In January, Anglo was awarded a licence for an upgrade to the mine, as part of efforts to reach annual nameplate capacity of 26.5Mt by 2020.
That would be more than three times’ last year’s sales volumes, which generated underlying earnings before interest and tax of $201m, a figure that Anglo may now struggle to match in 2018.
Minas Gerais, the state where Minas-Rio is located, was the site of the Samarco disaster in 2015, when a tailings dam at a mine operated by BHP Billiton (BLT) and Vale ruptured, killing 19 people and sending millions of gallons of sludge into a river valley.
