Anglo American gives green light to £4bn Peruvian copper mine
Anglo American will press ahead with a giant new copper mine in Peru, marking the end of a long period of retrenchment that saw it focus on paying off debt and shoring up its balance sheet.
The FTSE 100 miner will pay 60pc of the up to $5.3bn (£4bn) cost of building Quellaveco, with its partner Mitsubishi picking up the rest of the bill. Quellaveco, in southern Peru, has an estimated 30-year life span and will provide much-needed copper for use in wiring and electric cars.
Mark Cutifani, chief executive, admitted Anglo had been “baking this cake for a while” as it sought partners to shoulder the cost of the mine, but insisted it was the “best prepared project I’ve been involved in in my career”.
Mining companies have been wary of giving the green light to major projects after spending heavily at the height of a boom earlier this decade and then writing off the value of mines.
Anglo itself came unstuck with Minas Rio, an iron ore project in Brazil, which overran its budget and suffered delays. Earlier this year a leaky pipeline forced Anglo to suspend production at Minas Rio; it confirmed today that it was on track to restart by the end of 2018.
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Anglo’s revenue rose 13pc to $13.7bn in the six months to June 30, while pre-tax profits were broadly steady at $2.4bn.
Since a sharp downturn in commodity prices in 2015 rocked the global mining industry Anglo has worked hard to pay off its debt, allowing it to restart dividends last year. Net debt fell to $4bn in the six-month period, down 11pc from the end of 2017. Chief financial officer Stephen Pearce indicated he wanted to shave another $1bn off the pile.
The cost of building Quellaveco will come from Anglo’s free cashflow, which is the money left over after covering its costs. The mine should begin producing in 2022.
Anglo, which also mines diamonds, platinum and coal across the world, with a heavy presence in South Africa, insists it can remain profitable even if commodity prices fall back again. Metal prices have slipped this year as trade tensions between the US and China have risen.
Mr Cutifani said: “We’re always concerned by things that may constrain trade. We think [a trade war] is negative, unhelpful. But our job is to make our business as impervious as we can to those type of external shocks and that’s what we’re doing.”
At the height of the downturn Mr Cutifani unveiled a sweeping plan to sell off mines and focus the company on copper, platinum and diamonds - the latter through its De Beers business. But a recovery in prices of its unloved commodities - specifically coal and iron ore - forced a retreat on that scheme.
Mr Cutifani said today: “We’re not particularly bothered by what commodities we’re in, it’s all about quality of the asset. But copper looks strong… We think the world is going to be short of copper.”
“Anglo American is a very different business to five years ago,” he added.
Analysts hailed a “solid” set of numbers from Anglo, which more or less met City expectations. The miner’s shares were down 1.3pc at £16.78 in morning trade.
