This Massive Gold Project Is Doomed

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Perhaps Anglo American saw the writing on the wall. After the Environmental Protection Agency opposed the massive Pebble copper project in Alaska that Anglo owns with Northern Dynasty Minerals Ltd. (USA) (NYSEMKT:NAK), the miner probably reasoned it was foolhardy to put more of its limited capital at risk. This week, it announced the decision to pull out of the project.

Ternium S.A. (ADR) (NYSE:TX)

As commodity prices have collapsed, Anglo has been hard-pressed to justify how it has been spending its money. While in 2012 it inked a 10-year deal to supply Ternium S.A. (ADR) (NYSE:TX) with iron ore from its Minas Rio project in Brazil, delays and skyrocketing costs are sapping the miner’s performance. The project is three years behind schedule and more than $6 billion over budget, and that alone was enough to give shareholders leverage to oust Anglo’s former CEO earlier this summer. Her replacement has donned his green eyeshades looking for ways to cut costs.

Developing Pebble would take another $5 billion, and Anglo and Northern Dynasty have already spent about $680 million since 2007 on moving the project to its current stage. But environmental opposition is mounting, with the usual activists and celebrities joining together, along with also others groups you wouldn’t expect to weigh in, such as jeweler Tiffany and gun manufacturer Sturm, Ruger.

Pebble sits on Bristol Bay, at the headwaters of a major spawning ground that sees 40 million salmon swim in every year. The EPA spent $2.4 million to fund a study saying the project would wreak catastrophic damage to the area even before the partners had brought the matter to the regulatory agency. Such action suggests there will be a systemic impediment to obtaining the necessary permits, which in this period of depressed commodity prices makes moving forward uneconomical.

Anglo’s not alone in pulling back the reins on far-flung expansion projects. Across the industry, companies are either shelving plans, cutting capital expenditures to finance them, or laying off workers. Glencore Xstrata has called for a new “age of austerity for miners,” which are rising to the challenge, with BHP Billiton Limited (ADR) (NYSE:BHP) suspending a $30 billion mine expansion in Australia as well as delaying a $14 billion potash expansion in Canada. Rio Tinto plc (ADR) (NYSE:RIO) sold its nickel Eagle Mine project in Michigan, and Vale SA (ADR) (NYSE:VALE) has walked away from projects in Argentina and sold assets in Chile.

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