The forecast reduction comes against a number of setbacks suffered by Mozambique as it chases its own earlier target of producing 100Mtpa in coking coal by 2022, including Rio Tinto’s US$3B write-down on assets. The view of the Mozambican government is that its coking coal prospects remain robust.
Speaking at an investment conference in Mozambique, Mozambique’s mines minister, Esperanca Bias, said that some 4.9Mt had been produced in the country last year, an all-time record. Furthermore, she remained confident that Mozambique would mine as much as 50Mtpa of coking and thermal coal by 2020.
Foreign investors had ploughed $5B into the coal mining sector in the past five years and had raised coal resource confidence to some 20Bt.
Wiggill, however, thinks that investors monitoring Mozambique may have to adjust their sights. “People have got to get back to reality,” he said when asked about the prospects of further impairments being suffered by operators in the region. “There are many issues around assumptions made. There is a tough time coming for Mozambican producers.”
Interestingly, of the $1B in coal asset write-downs announced by Vale last week, none related to its investments in Mozambique. Declining metal and mineral prices have triggered more than $60B in write-downs in mining and steel companies since early 2012, reported Bloomberg News.
Wiggill added that Mozambique’s problems were long-standing and unless solutions were found, the country would struggle to attract the scale of capital necessary for it to flourish.
“Vale has been involved in Mozambique for eight years, but to my mind the original problems it faced are exactly the same ones it is facing today,” he said.
Mozambique denied Rio Tinto the option of barging coal down the Zambezi River while the refurbishment of the Sena rail line to 6.5Mtpa has been delayed by nearly two years.
Heavy rains in Mozambique last month washed away part of the line and resulted in Rio Tinto and Vale declaring force majeure on coal deliveries.
Presently, the only two viable rail-routes are the Sena line and Vale’s refurbishment and new build out of the Tete to Nacala line, a deep water port in northern Mozambique. The Nacala port is expected to traverse more than 800km at a capital build of $4.4B to $6B.
This capital cost includes a doubling of capacity to 22Mtpa, although in a further demonstration of the heightened risk of operating in the region, the expansion would now be delayed to the second half of 2015 rather than 2014, Vale said in its recent results announcement.
Meanwhile, the company that is contracted to manage Beira Port said it would always struggle to attract Panamax vessels ow.ing to shifting sands that required constant dredging at the port
Seamus French, CEO of Anglo American Metallurgical Coal, said at the Pacific Basin Coal Conference that there had to be substantial investment in rail and port infrastructure in Mozambique to secure supply growth in coking coal. There were also risks to resource definition and quality of Mozambican coal.
Asked whether a new model of infrastructure sharing was being considered by Anglo American in Mozambique, French responded: “Infrastructure is a question of scale. Anyone wanting to send 40Mtpa over a distance of 1,000km cannot go it alone. It is not something people can do alone.”
Anglo American said in July, 2012, that it would buy a 59.4% stake in Minas de Revuboe from the Talbot Estate for A$555M (US$567M), a transaction that hasn’t been consummated as Anglo waits for permits from the Mozambican government. Anglo shares the project with Nippon Steel which has a 33% stake and Korean steelmaker POSCO (7.8%).
However, in its full-year results announcement in February, outgoing Anglo American CEO, Cynthia Carroll, said the group would stick to capital austerity amid a climb-down in commodity prices and write-downs elsewhere in the business, including some $4B on the Minas Rio iron ore project in Brazil.
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