Anglo American delayed the start-up British’s largest new mine for decades, until 2027. It also revealed that the cost of first production has risen to more than $6Billion.
The FTSE 100 miner recorded a $1.7 billion writedown on the Woodsmith fertiliser mine’s value in North Yorkshire. This was due to an “extended project” and “higher capital costs than anticipated at the time of acquisition”.
Woodsmith is a project that involves the extraction of polyhalite, a type nutrient-rich fertilizer, from about a mile below North York Moors National Park near Whitby, and its transportation on a conveyor belt through an 23-mile tunnel to Teesside.
Anglo purchased Woodsmith in 2020 via the PS405million takeover of Sirius Minerals. The company, which had failed to raise the $3 billion it required to bring the mine into operation, was nearing collapse. Sirius had hoped to start production in 2021, and would be increasing production to 10 million tonnes per year by 2024.
Since the Sirius acquisition, Anglo has invested $1.3 billion in Woodsmith and expects to invest $800 million this year. Yesterday, Anglo presented its cost estimates for the project and stated that it expected to spend $1 billion more each year. This would bring the total spend since acquisition to $6.1 billion.
It stated that it would continue to invest to increase production to 5 million tonnes annually by 2030. The design has been modified to allow for a final capacity of 13,000,000 tonnes per year by 2030, an increase from the 10 million tonnes it had previously.
Yesterday, Anglo stated that 13 miles of tunnel for the conveyor belt were completed and was moving quickly. It is currently sinking the service shaft of the mine, which is over 360m deep. Last month, it began sinking 120m below the surface the main mine shaft. It stated that the schedule would be affected by ground conditions as sinking activities progress.
Anglo’s chief executive Duncan Wanblad stated that while the four-year cost estimate was “reasonably solid”, the final design of Anglo’s project was still “not entirely clear” due to the fact that it was still acquiring data through the shaft-sinking. He said that he now knows enough about the subject to be able to say, “We are at the point where we know enough to continue.”
Woodsmith was described by him as a “very rare, tier one asset” with an “incredibly unique ore body”, second to none in this world. He also added: “This asset is 50 years plus. These resources are enormous.
“We have taken a written down on it now because budgets and timelines have been extended due to the long-term value decisions that we’re making given the asset’s very long-life. Woodsmith will generate substantial cashflows for many, if not many decades.
Polyhalite is a less-used substitute to potash, which has been questioned by some skeptical scientists. Wanblad stated that its Poly4 product was “uniquely placed to address three key farming challenges: yield, decarbonisation, and soil health”.
It was a high-value product, and it would be “reflected in our final price”. He stated that Anglo had been pricing the project at $190 per tonne, but similar projects were selling for well over $300 per tonne.
Sirius Minerals was once a stock market darling, worth nearly PS2 billion in its peak. It attracted investment by Gina Rinehart (Australian mining tycoon), and thousands of retail shareholders. Some of these investors put their life savings into this project. However, it suffered massive losses when its shares crashed and was bought over by Anglo.
Anglo shares closed down 76p or 2.46 percent at PS30.09 1/2
Profits fall as production costs rise
Anglo American’s profits nearly halved last year to $4.5 Billion, as commodity prices dropped and production costs rose.
As a result, the FTSE 100 miner lowered its dividend to 74c per share from $1.18 a previous year.
Anglo, listed in London or Johannesburg, mines diamonds, copper and nickel as well as iron ore and gold.
According to the report, net profits dropped by 47% to $4.5 Billion, while underlying earnings (ebitda), before interest, taxation and amortization (ebitda), fell by 30% to $14.5 Billion.
Chief executive Duncan Wanblad stated that “we continued to feel the impacts of dislocations within the global economy on business, in energy and across supply chains, labour markets. Many of our operations were also affected by exceptional rainfall.
According to him, the underlying ebitda was second after last year’s record. The decrease is due to “inflationary headswinds and higher oil prices, combined with lower production volumes which together raised our production costs amid dampened price for many of our goods”.
Anglo offered mixed views for the remainder of the year. It stated that “continued weakening in global macroeconomic conditions could lead to a contraction of consumer spending and demand in diamond jewellery.”
The copper mining industry in Chile is also facing severe drought conditions.