End of Tete coal boom?

Rio Tinto has virtually given away the Benga coal mine in Tete it bought from Riversdale for $3.8 billion just two years ago. And the Brazilian company Vale has confirmed it wants to sell part of its mine and the railway to Nacala in order to "reduce the risks." Vale owns 80% of the Nacala Logistics Corridor (CLN) which will operate a new mineral port at Nacala-a-Velha and the railway from Moatize to Nacala. CLN is 20% owned by the publicly owned port and rail company, CFM.

Coal prices have plummeted since their peak in 2011. Thermal coal is half what it was then ($70/t at the port of export compared to $140/t) and the coking coal price is down to one-third of its 2011 peak ($350/t down to $120/t). Reuters columnist Clyde Russell (5 August) predicts thermal coal prices will continue to fall while coking coal has reached a bottom, but it unlikely to rise very much in price. This is bad news for miners in Tete, which is 600-1000 km from the nearest port; Vale estimates it costs $66/t to ship coal to Beira port by rail, making it unprofitable to export thermal coal. But the profitability of the mines depends on exporting both thermal and coking coal which are mined together.

India and China are the two biggest coal importers, and only India seems interested in Tete coal. The Indian company International Coal Ventures (ICVL) bought the former Riversdale mine for just $50 million. Tata steel of India already owns 35% the Benga mine. The plan is to triple production to 13 million tonnes per year within three years, of which 60% will be exported to India. AIM (4 Aug) reports that ICVL was set up by the Indian government specifically to acquire coal assets overseas to meet the coal needs of state-owned companies, and thus has guaranteed buyers.

On 7 August, the Sol Mineração signed an exploration contract for coal in Mutarara, Tete. Sol is owned by the Kenyan company Sunflag, which according to O Pais is in turn owned by Indian capital.

Comment: For three decades, the international financial institutions and donors have been lecturing Mozambique about how private companies are always better managed than state companies. Private managers at Rio Tinto threw away an incredible $3.8 billion. If that had been a state company, there would be a huge scandal with talk about greed, rent seeking, corruption, and the need from private management. At the very least, Rio Tinto should serve as an example that private is not always best. 

Derived from: MOZAMBIQUE 268
News reports & clippings

Country: 
Sectors: