Anglo American may have lost $1.7bn on disposal of stake in Amapa

Asset was part of ‘signature’ Minas-Rio deal Carroll brought to group in 2008

ANGLO American Corporation has taken a bath on the disposal of its 70% stake in the Amapa ironore operation in Brazil.

Amapa was part of the “signature” Minas Rio deal that thennew CEO Cynthia Carroll brought to the group in 2008.

A source close to the deal, who spoke on condition of anonymity, estimated that the group has lost around $1.7bn (R17bn) on the sale, based on the original acquisition price, although Anglo American will not officially confirm this. The asset has been written down since acquisition through impairments.

As of end-December, Amapa sat in Anglo’s accounts as being worth $462m, after a $400m loss was taken in transferring it to “assets held for sale.”

The group has traditionally combined the cost of Amapa with that of Minas-Rio because both assets were acquired together. An Anglo spokesman yesterday declined to provide the exact acquisition cost of Amapa.

At the time the deal was done, it was touted as key to Ms Carroll’s brief to bring a new, more aggressive management strategy to Anglo American. The group had been criticised for not being proactive enough under previous “old school Anglo” CEO Tony Trahar, who had failed to close two deals in Australia aimed at expanding the group’s exposure to iron ore.

It was Ms Carroll’s first deal after taking over as CEO in March 2007. Anglo paid $1.5bn to take a 49% stake in Minas-Rio in April then followed up in January 2008 by taking outright control for a total cost of $5.5bn. Analyst estimates are that Amapa accounted for about $2bn of that total.

“We believe this is a clear example of Cynthia Carroll’s

more aggressive style without whom we believe it would not have happened,” Numis Securities analyst Simon Toyne said in April 2007.

“The potential for Cynthia Carroll to effect significant change in Anglo American’s culture at a time when strong operational performance, in particular good volume growth, will be particularly rewarded, is a further attraction of the stock.”

That was then. Now, however, Ms Carroll’s replacement, Mark Cutifani, has just agreed to sell Amapa for an effective maximum consideration of $266m, of which Anglo will receive only $136m up front, with the balance to be paid over a fiveyear period “calculated on the basis of the market price of iron ore”.

This is despite Anglo’s assessment in January that “Anglo American has transformed the operational performance of Amapa since acquisition in 2008 increasing production from 1.2-million tonnes in 2008 to 4.8-million tonnes in 2011”.

The ultimate success or failure of Ms Carroll’s Brazilian iron-ore foray now rests with the remaining MinasRio project, targeted to make its first shipments by the end of next year.

The project is running about two years behind the original schedule and the capital cost had ballooned to an estimated $8.8bn in January this year when Anglo took a $4bn posttax impairment against the project.

According to the project description on the Anglo American website, “as with other complex greenfield mining projects, a number of irregular issues, such as the discovery of caves at the beneficiation plant site which require specialist assessment, continue to cause delays to the work scheduling, in addition to outstanding land access and an evolving permitting environment”.

The project is expected to produce 26.5-million tonnes of iron ore a year in its first phase and has made good progress in the last two years.