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Investor’s eyes will be closely trained on Anglo American’s Minas Rio iron ore project following revelations by Cynthia Carroll, the company’s chief executive, on Friday that the project was experiencing challenges.

Carroll was delivering the company’s 2009 annual results presentation to an audience in London and via live video link to South Africa.

Concerns raised by fund managers and analysts included rising capital expenditure on the project, delays in obtaining the necessary environmental licences and permits from the Brazilian government and scoping agendas for the entire project.

Anglo said its forecast of the post acquisition capital expenditure for the first phase had increased from $2.7 billion (R20.8 billion) to $3.8 billion owing to scoping changes at the mine, pipeline and port as well as foreign exchange movements.

Minas-Rio, one of Anglo’s four key growth projects, in Brazil comprises a mine and beneficiation plant producing high grade pellet feed which will be transported through a slurry pipeline to the Port of Acu which is being constructed in Rio de Janeiro state with the potential for further pipelines and rail access.

It is due to begin production in the first half of this year.

Anglo’s expansion at Minas-Rio, Amapa and Kumba would increase the parent body’s participation in the seaborne iron ore market to approximately 150 million tonnes per annum by 2017.

Des Kilalea, an analyst at RBC Capital Markets, said Minas Rio “was a complicated project” and that any “delays cost money. Minas Rio is definitely what people are going to watch carefully to check that it delivers on time and budget.”

Henk Groenwald, a resources analyst at Coronation Fund Managers, said the increased capital expenditure on the Minas Rio project was a concern as Minas Rio would mine a lower grade ore.

“An increase in capital expenditure is not good as returns will be lower in future.”

Groenewald suggested the company consider sourcing a partner to reduce Anglo’s exposure to the associated risks in the project.

Carroll said the escalation of costs was among other things due to the strength of Brazil’s real currency and the fact that Anglo was forced to lengthen pilings at the port as the depth of water was greater.

“Anglo American continues to work with local, state and federal authorities and landowners to ensure that the timing of the licence and permit receipts and land acquisitions does not further impact the overall timing of the project.”

Carroll said Anglo’s other growth projects like the Barro Alto nickel project, also Brazil, the Los Bronces copper expansion project in Chile and Kolomela iron ore were on track.

Barend Ritter, a resources analyst at Sanlam Investment Managers, also expressed concern over Minas-Rio saying he thought Anglo had initially overpaid for the Minas Rio project “but that is behind us. One needs to look past that.”

He said the likelihood that Anglo would receive the necessary permit was high but it “slower than the market would like. The bigger issue is that they are producing a product that is fine iron ore and that needs to be pelletised.”

“How that will be done and by who they haven’t shared with the market,” he said.

“Part of the excalation is due to extraneous factors like currencies and general inflation but they have to own up to some scope changes and the delays that have taken place.”

Anglo is due to undertake R6 billion capital expenditure in the new financial year. About R4.2 billion of that amount is dedicated to its growth projects.

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