LONDON (Reuters) - Anglo American <AAL.L> will take a $4 billion writedown on its Minas-Rio iron ore project in Brazil after delays and cost overruns forced the mining group to increase expenditure on the project.
The company said on Thursday that it expects capital expenditure for the project to increase to $8.8 billion.
"We are clearly disappointed that the diversity of challenges that our Minas-Rio project has faced has contributed to a significant increase in capital expenditure," outgoing Chief Executive Cynthia Carroll said.
"Despite the difficulties, we continue to be confident of the medium and long-term attractiveness and strategic positioning of Minas-Rio and we remain committed to the project."
Minas-Rio, a leading iron ore project in Brazil, is one of Anglo's most significant capital allocation failures of recent years and was largely responsible for Carroll's fall from grace. Anglo bought its first stake in Minas-Rio in 2007, taking control in 2008 with a $5.5 billion deal with Brazilian billionaire Eike Batista's MMX - right at its peak.
The project was intended to help to diversify a company that was still dependent on South Africa for the bulk of its revenue, but has instead been a bruising top-of-the-market deal.
Anglo spent $4.8 billion buying Minas Rio - excluding the value of the Amapa mine, bought as part of the original deal but which Anglo has agreed to sell. It has spent $5 billion on developing it so far and said last year that total development costs could exceed $8 billion - more than three times original estimates.
Development costs in Brazil have been driven higher by issues such as the Olympics and the soccer World Cup, which have increased demand for labour.
Anglo is not the only company to have met with permitting hiccups in Brazil, with even Vale, the world's largest iron ore producer, being hit and ENRC's project there.
The company said it is still targeting first ore on ship by the end of 2014 despite the challenges facing Minas-Rio.
(Reporting by Brenda Goh; Editing by David Goodman)
(c) Copyright Thomson Reuters 2013. Check for restrictions at: http://about.reuters.com/fulllegal.asp