December 10, 2010 / 9:26 AM / 7 years ago

Anglo to start building Brazil mine, gets licence

<p>A mine worker is seen underground in South Deep mine outside Johannesburg June 4,2010. REUTERS/Siphiwe Sibeko</p>

LONDON (Reuters) - Miner Anglo American Plc will start building early next year one of its biggest growth projects, the Minas Rio iron ore operation in Brazil, after getting a key licence from the government.

Initial works on the project, which had been hit by delays and cost increases, will kick off in March, Anglo said in a statement on Friday.

Anglo’s London shares gained 1.3 percent to 3034 pence by 1058 GMT, outperforming a 0.5 percent rise in the British mining index.

They have underperformed the mining index by nearly 10 percent so far this year, partly weighed down by worries about Minas Rio, analysts said.

“We see this news as a big positive for Anglo, with the project now underway and significantly de-risked. In particular we see the risk of further capex overruns which have plagued the project as much reduced from here,” said Liberum Capital in a note.

The group, the world’s fourth-biggest iron ore producer, said in July that costs to build the mine would likely rise by about $750 million from the existing estimate of $3.8 billion.

It did not provide an update on costs on Friday.

Minas Rio, located in Minas Gerais state, will produce 26.5 million tonnes of iron ore pellet feed per year.

That level of production will generate about $3.3 billion per year in earnings before interest, tax, depreciation and amortisation (EBITDA) based on current iron ore prices, Liberum said.

“(The licence) marks a major achievement on the critical path for delivery of the Minas Rio project,” Anglo said.

“(It) enables Anglo American to begin the civil construction works for the beneficiation plant and the tailings dam and begin the construction of the mine.”

First output would be in mid to late 2013 since Anglo said construction is due to take between 27 and 30 months.

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