Anglo American warns of earnings impact as pipeline inspection continues

The FTSE 100 mining giant had said on 3 April that it was progressing with a full inspection of its pipeline at the Minas-Rio iron ore operation, which was expected to take approximately 90 days to complete.

It said the inspection included an internal scan of every section of the pipeline, followed by a detailed analysis of the data and an assessment of required remedial action.

Mining operations would then resume once any repair work was completed, the pipeline been tested, and the regulatory authorities provided their consent to the resumption of pipeline operations.

On that basis, Anglo American said the current expectation was that the operation would begin to ramp up in the fourth quarter of 2018, resulting in a $300m-to-$400m reduction in Anglo American's EBITDA for 2018.

“Our priorities are to ensure the integrity of the pipeline and the protection of the natural environment, while providing as much clarity as we can for our employees, customers and other business stakeholders,” said chief executive Mark Cutifani.

“Our own technical teams are working alongside two specialist teams in Brazil, from the Institute of Technological Research and the Federal University of Minas Gerais, to identify the specific causes of any weakness in certain sections of the pipeline.

“Following the full inspection, there will inevitably be a period of analysis and remedial work, prior to testing and restart of operations upon receipt of regulatory consent.”

Cutifani said the company was currently working with its unions to agree the appropriate terms for the approximately 35% of our employees at Minas-Rio who would be on an extended period of leave, including providing training during that time, in addition to a pay and benefits package.

“The majority of our Minas-Rio employees continue to be deployed across our operations in Brazil, including on the construction work required to secure our Step 3 operating licence in the first half of 2019 to enable the full ramp-up of Minas-Rio to 26.5mtpa.”

Anglo American also released its first quarter production report on Tuesday, revealing that total production was still ahead for the period, although prodution at Minas-Rio was down 30%, primarily as a result of the pipeline issues.