The plunging iron ore price has seen Sphere Minerals (SPH), Glencore’s Australian-listed iron-ore play, take a $US240.7 million writedown (around $A330 million) and end its plan to develop an iron ore mine in West Africa.
Sphere Minerals, which is 88% owned by Glencore, said in a belated filing with the ASX yesterday that for the 12 months to the end of December it could not develop the Askaf project in Mauritania profitably at current low iron-ore prices even after intensifying efforts to reduce operating costs.
Sphere shares ended unchanged and untraded on $3.10 yesterday. No one wants to buy a company whose assets consist of a West African iron ore mine (and two other prospects) and nothing else.
“All construction commitments are being closed out, expenditure minimized, and employment numbers reduced,” Sphere said in its report for the year.
Spot iron ore prices have almost halved in the past year to $US58 a tonne (they are down 18% so far in 2015 alone) as a combination of slowing demand from China and growing world oversupply (from the likes of BHP and Rio Tinto) pressure prices lower.
Glencore has effectively controlled the Askaf project since its $US7 billion takeover of Xstrata in 2013. Three years earlier, Xstrata had fended off competition from Chinese steelmakers to acquire a majority stake in Sphere, but wasn’t able to secure enough shares to delist the company from the Australian Securities Exchange.
Sphere had announced last October that it was slowing work on the $US900 million project because of the fall in iron ore prices up to then. Askaf North had been expected to begin output in early 2017 and was forecast to produce around 7.5 million metric tonnes of ore a year – hardly world scale.
Sphere said the impairment charge includes a $US192.5 million writedown of exploration and evaluation spending that has already occurred on Askaf. The rest of the charge comprises writedowns associated with the nearby El Aouj and Lebtheinia prospects.
