Anglo American updates on their iron ore business

Anglo American are taking a few body blows this morning. This was coming I guess, the company released a press release, giving us an update on (the) Minas-Rio iron ore project. Yech. I read a note that suggested that the Capex guidance was around more than 8 billion Dollars, which was near the top end of the range, hence the selloff. The wording is a bit strange: "the current indications are that capital expenditure for the project is unlikely to be less than the $8.0 billion upper end of the current range of analysts' expectations."


Unlikely to be less than? Which means it will be more than 8 billion, but how much more? Well, they say above that we need to wait for more details: "Anglo American is carrying out a detailed cost review to assess the impact of the already announced delay and the other disruptive challenges faced by the project which include high cost inflation across the construction industry in Brazil." It does not matter which way you slice this, the stock is down over three percent in London, folks showing their dissatisfaction. Over budget, much later than they originally thought, and now the stumbling block related to environmentally sensitive area. Some caves, yes, you read that right.


But wait there is more here, Kumba Iron Ore released a trading update which looks more than iffy. "HEPS and EPS are ... likely to be at least 20% lower than those of the comparative period." And what was the comparative period numbers? Well, according to the SENS release: "headline earnings per share ("HEPS") and earnings per share ("EPS") reported for the comparative period were R53.13 and R53.11 respectively." But some of this is as a result of illegal strikes, Kumba have said that they have lost 2.6 million tons of finished product at Sishen. Which explains why Exxaro is down nearly four percent here. So, it is an easy conclusion to come to that Anglo are suffering from an iron ore headache today. Kumba trumps Minas-Rio in terms of finished project production, the grades are better, the great unknown of course is the iron ore price. Nobody wants to stick their neck out longer than 24 odd months.