Anglo American confirms $5 billion Peru copper project

30 July 2018

Anglo American is going ahead with the $5 billion development of its Quellaveco project in Peru, one of the world’s largest untapped copper resources with the potential to transform the company’s business outlook.

The company also announced its first-half earnings had risen 11 percent year-on-year, driven by stronger commodity prices and greater efficiency.

After being one of the miners hardest hit by the commodity crash of 2015-16, Anglo American has made one of the strongest recoveries, although all the major miners have pared gains as concerns of a possible trade war hit metals markets.

CEO Mark Cutifani said in a call with reporters that Anglo American’s aim was to have projects resilient enough to cope with “whatever the market throws at us”.

The Quellaveco project is a low-cost, long-life asset, he said, with the potential to be expanded beyond an initial 30-year lifespan. The development is expected to cost between $5 billion and $5.3 billion.

Initial capacity is expected to be 127,500 tonnes per day, with first production in 2022.

Anglo American had been expected to announce the project was going ahead after it said in June that Japan’s Mitsubishi Corp would increase its stake in Quellaveco to 40 percent. Anglo holds 60 percent.

Mitsubishi’s increased share reduces the development risk for Anglo American, although copper is one of the most sought commodities because of its relevance to the old economy and to rising demand from the renewable and electric vehicle sectors.

Copper last year accounted for about 17 percent of Anglo American’s underlying earnings, with the biggest shares provided by the iron ore and coal divisions, which contributed respectively 27 and 32 percent.

The mining world’s other headline copper project to date is Rio Tinto’s underground extension to an existing copper mine in Mongolia, which is expected to be onstream early in the next decade.

Anglo’s first-half 11 percent rise in underlying EBITDA (earnings before interest, tax, depreciation and amortisation) to $4.6 billion was roughly in line with analyst forecasts.

Its share price was nearly 1 percent lower by 1030 GMT.

Cutifani said performance had been driven by higher commodity prices and by Anglo American’s ongoing quest for efficiency. It said earlier this month output across its assets had risen 6 percent.

Anglo American’s biggest problem this year has been a leak at its Minas Rio iron ore project in Brazil, which forced the shut-in of operations still in ramp-up mode.

An issue for all the miners as they have repaired their balance sheets following the downturn is how to grow without the kind of reckless acquisitions that characterised the commodities boom and helped lead to the bust.

Anglo American has announced small acquisitions in platinum and diamonds.

Cutifani said he was not looking for big deals, but the company was exploring especially in copper in Brazil and around the Quellaveco project.