Baar, Switzerland — 16 September 2013 – Glencore Xstrata plc “’ the Swiss-based global commodity trader and metals producer run by billionaire Ivan Glasenberg “’ has agreed to proceed with a study into an iron ore mine in the Republic of Congo that may cost as much as US$3 billion.
The assessment, with partner Zanaga Iron Ore Company “is now being advanced on the basis of a staged development, substantially reducing the initial capital requirement and including the potential for initial production using existing infrastructure,” said Glencore in a statement reported by Bloomberg News.
The development cost is now estimated at US$2.5 billion to US$3 billion, down from an initial US$7.4 billion, Zanaga said in a presentation on its website. Glencore’s Glasenberg has led a call for an industry-wide crackdown on over-spending on new mines, which he blames for a glut of some raw materials that has trimmed prices and profits for producers.
The revised agreement between Glencore and Zanaga “should increase the likelihood of project finance,” London-based Liberum Capital Limited analyst Richard Knights wrote in a note. “The company now has a materially more palatable project for potential investors and debt providers, given its lower and more efficient capex number.”
Glencore owns a stake of 50% plus one share in the project and Zanaga the rest. An examination of the proposed development is due to be completed in the second quarter of next year, with a decision on investment following that.
The mine may initially produce as much as 14Mtpa of iron ore, Zanaga said. The previous plan was for a mine producing 30Mtpa.
Zanaga jumped 7.1% to close at 28.375 pence in London, the highest since December 19. The stock has more than doubled in the last month, giving the company a market value of US$125 million.
Glencore, which acquired the stake in the project with Zanaga through the US$29 billion takeover of Xstrata plc in May, dropped 1.8% to 337.55 pence.
The biggest mining companies including Glencore, BHP Billiton Limited, Rio Tinto Group and Vale SA are set to spend about US$244 billion on expansions through 2015, according to forecasts compiled this month by Bloomberg from the 20 largest mining companies by market value.
Glencore is the world’s biggest exporter of power-station coal, the third-biggest producer of mined copper, third in nickel and biggest in zinc and lead.
Source: Bloomberg News. For more information, click here.