Yahoo Finance Anglo American to take £287m profit hit from cracked pipeline in Brazil
Mining group Anglo American expects its profits for the year to be $300m to $400m (£215m to £287m) lower after being forced to suspend operations at an iron ore mine in Brazil due to a cracked pipe.
Production at Anglo’s Minas Rio mine has been halted for 90 days to allow the company to make a thorough inspection of the oil slurry pipeline that had sprung what it called two “minor” leaks.
Anglo has already been hit with two fines totalling $59m over the leaks. Authorities in Brazil are particularly sensitive to the environmental impact of mining after the disastrous collapse of a tailings dam at another mine in 2015, which resulted in 19 deaths and widespread destruction of a river valley.
Around a third of Minas Rio's workforce have been put on leave and production is not expected to resume until the end of the year.
Last year Minas Rio produced 16.8m tonnes of iron ore, used to make steel, but its output this year will now be closer to 3m. The company still hopes to produce 26m tonnes of ore there by 2020.
Earnings before interest, tax, depreciation and amortisation (ebitda) at Minas Rio were $435m in 2017, only slightly more than the amount Anglo expects to lose on the unit this year.
Mark Cutifani, chief executive, said Anglo’s priorities were to “ensure the integrity of the pipeline and the protection of the natural environment, while providing as much clarity as we can for our employees, customers and other business stakeholders”.
Anglo's earnings hit $8.8bn last year as the mining group, which also mines diamonds, copper, coal and platinum, enjoyed a rise in commodity prices.
Minas Rio has been much delayed by permitting problems and spiralling costs. Anglo has taken $11bn of writedowns on the project, on top of the $13bn cost of buying it and building it.
The broken slurry pipe runs for 529km from Brazil's interior to the coast, and 90pc of it is underground. It is made up of 12m sections, with the cracks running from top to bottom, rather than across the joins.
Alex Griffiths of Wood Mackenzie said the premium iron ore produced by Minas Rio was currently enjoying an uptick in prices, which Anglo would now miss out on.
“The halt in production comes at a time when several iron ore producers have issued downward revisions to production guidance, tightening the market," he noted.
Analysts at SP Angel said the financial hit from the Minas Rio suspension was "meaningful but... not disastrous", with "production increasing in most other major sectors of the business".
The update overshadowed a generally strong first quarter for Anglo, which reported a 4pc increase in total production across its operations, including a 15pc jump in diamond output and a 9pc rise in copper.
Anglo shares fell 1.6pc in afternoon trade to £17.47.
