LONDON — Glencore Xstrata, the multinational commodity trader and metals producer run by billionaire Ivan Glasenberg, agreed to proceed with a study into an iron-ore mine in the Republic of Congo that may cost as much as $3bn.
The assessment, with partner Zanaga Iron Ore Company, “is now being advanced on the basis of a staged development”, Baar, Switzerland-based Glencore said on Friday.
This had substantially reduced the initial capital requirement and included the potential for initial production using existing infrastructure.
The development cost was now estimated at $2.5bn to $3bn, down from $7.4bn, Zanaga said in a presentation on its website. Mr 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 analyst Richard Knights wrote on Friday 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,” he wrote.
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.
Zanaga said that the mine might initially produce as much as 14-million tonnes of iron ore a year.
Glencore, which acquired the stake in the project with Zanaga through the $29bn takeover of Xstrata in May, dropped 1.8% to 337.55p at the same time.
The biggest mining companies including Glencore, BHP Billiton, Rio Tinto and Vale are set to spend about $244bn 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. It is the third-biggest producer of mined copper, third in nickel and biggest in zinc and lead.
The company this week estimated savings of $2bn next year through the takeover of Xstrata by closing 33 offices, firing workers and reducing costs at existing operations.
Glencore reviewed 88 projects acquired from Xstrata and decided to suspend 44 of them, it said last Tuesday. It also raised the cost estimate for its Koniambo nickel project, inherited from Xstrata, by $1bn to $6.3bn.