Shareholders smile as Anglo sorts out sweet iron ore deal
A $15bn, 20-year deal to supply iron ore from Minas Rio in Brazil marks a turnaround for the troubled mine
The signatures put to a $15bn, 20-year deal to supply iron ore from Minas Rio is telling – apart from being a most welcome development for Anglo American shareholders.
Anglo bought and built Minas Rio in Brazil for more than $13bn. It was a controversial mine from the start and has never attracted much love from analysts and investors, being enormously over cost and time.
The mine is yet to hit its steady-state production levels, running into delays with permits and then leaks in a 4km long section of the 530km pipeline that links the operations to the coast. The fine iron ore pumped in a slurry all that distance and dried at the loading facility is of good quality and shouldn’t struggle to find a home.
This is where the eight million metric tonnes-a-year deal with Bahrain Steel, an iron ore pellet maker, comes in.
The mine is forecast to produce up to 20 million tons of ore this year after standing idle for most of 2018 because of repairs to the leaking pipe. Anglo predicts the mine will generate 24 million tonnes by 2021. To have a third of production safely tucked up in a supply agreement must be tremendously comforting for Anglo.
It also speaks to a more pressing matter. Analysts have flagged their concerns that Minas Rio will brought to a halt in 2020 if Anglo does not secure a fresh licence for its tailings facility at the mine. The licence expires later this year.The fact the company has signed such an important iron ore off-take deal for Minas Rio speaks volumes about Anglo’s belief that it will secure its permit in good time.