Mozambique Remains a Magnet for Coal Developers

BRISBANE, Australia - Aug. 15, 2013 - PRLog -- Andrew Woodley, MD of Rio Tinto Mozambique, said developers had to “do the hard yards” in order to understand the coal potential in the southern African country to “ensure aspiration turns into realistic outcomes”. He was speaking at the Mining & Metals coal conference held in Maputo in July.

The future of Rio Tinto’s coal projects in Mozambique turned on establishing an appropriate transport strategy, the group said, adding that shareholders had to earn a positive return on their capital.

“It is critical to Mozambique that an important strategic decision must be made by all stakeholders,” said Woodley who gave his presentation in Portuguese before it was translated for conference delegates.

“Future expansion will [turn on] additional coal chain capacity. Resource quality and scale, productivity rates, support costs, skills and leadership, infrastructure [were also factors],” said Woodley.

It was perhaps the clearest signal yet of how the Anglo-Australian mining group views the feasibility of its investment in Mozambique which it wrote down earlier this year by $3b. Rio Tinto spent just under $4b establishing a beachhead in Mozambique after buying the Benga and Zambesi coking coal projects from Riversdale Mining.

The implication is that developing the Benga and Zambesi prospects further would depend on a single strategy, involving the Mozambican government in which a combined rail solution was found for Tete province. This would be over and above Vale’s $3.5b, 900km rail route which it is building to Nacala in northern Mozambique.

At the moment, there are a number of rail route plans from Tete, including a proposal by Rio Tinto to build its own line. ENRC also expressed a wish to build a line while the Mozambican government has floated yet another plan of its own. Rio Tinto’s proposal to barge coal down the Zambezi River was rejected by government last year.

Asked if the barging proposal could be resuscitated, Woodley said: “Barging was a key feature [of Rio Tinto’s development of Benga]. We respect the government’s view that it doesn’t prefer it.

“There are a number of solutions and we’re not getting too focused on barging. We are focused on a competitive coal chain solution that supports the capacity,” he said. It is thought Rio Tinto believes the minimum scale to support the feasibility of a rail route from Tete to the coast is about 20mtpa.

It has recently been suggested that Rio Tinto could either divest of its Mozambican projects (unlikely as the buyer would discount for the infrastructure capital that is still required) or enter into a joint venture with a strategic partner. Woodley would not be drawn on which option the group would take.

“We have partners in almost all of our business around the world. There is nothing new in that,” said Woodley.

“We have a positive opportunity here to make the right decisions. It’s a cyclical industry so we have to be strong in these times, make wise decisions, and not get caught up in the froth of the peak, or too despondent. But we must be wise.”

Woodley’s references to shareholder value has become a mantra for mining firms following the decline in commodity prices which has left investors with little to show for their money, especially since so much was promised at the height of the super-cycle.

Mozambique mines minister, Esperanca Bias, however, said there was plenty of evidence to suggest Mozambique remained a promising investment destination, notwithstanding recent headwinds such as politically-motivated violence between the Frelimo-dominated government and its once foe, Renamo.

“I would say that Mozambique remains an attractive country and that is shown by the interest of companies coming to operate,” she said in response to South African Coal Report questions.

One of problems, however, has been community-related protests near the Minas Moatize operation owned by Vale. The protests relate to former inhabitants of the site now occupied by the mine who said they have not been sufficiently compensated for loss of land, as well as occupation.

Maurio Neves, global coal director and MD of operations for Vale’s Mozambique and Australia operations, acknowledges the group could “have done better” in dealing with community issues, but said the group was invested in Mozambique for the long haul.

Asked if the group might follow the lead of Rio Tinto and impair some of its assets in Mozambique, especially given the weakness in the coking coal market and huge investments it has made to date, Neves said: “The project has got its challenges like any other mining project”.

“The price is the price for everyone. But an investment of this nature is not made focusing on the short term price; that would be a mistake,” he said.

“It is a cyclical industry. We are not here for the next three years but for the next 50 years and on that vision we want to be careful on things like price volatility,” he said.

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