Mozambique Continues to Frustrate Coal Miners

Recent heavy rains have resulted in damage to infrastructure and declarations of force majeure by major coal mining companies operating in Mozambique. South African Coal Report looks at some of the challenges facing miners in this developing nation.
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Feb. 28, 2013 - PRLog -- Recent heavy rains have resulted in damage to infrastructure and declarations of force majeure by major coal mining companies operating in Mozambique. South African Coal Report looks at some of the challenges facing miners in this developing nation.

The mining contractor operating on Rio Tinto’s Benga mine in Mozambique estimates recommencement of mining by the middle of March following heavy rains that washed away part of the Sena railroad.

Walter Hill, CEO of Johannesburg-listed Eqstra Holdings, said in a telephone interview with the South African Coal Report (SACR) that he would be in negotiations with Rio Tinto this week after Rio had earlier asked his company to suspend mining at the operation until further notice.

“They asked us to suspend mining and not to stockpile coal as this would negatively affect the company’s cash flows,” said Hill. “So we’ll be in negotiations for the next five days and we’ll also send a team down to Beira as we are receiving conflicting indications as to what has happened.”

Hill’s comments come after Rio Tinto declared a force majeure in Mozambique. Hill added that the flooding problems had been more than 400km away from the Benga mine, closer to Beira. All mining operations were suspended from February 20 and followed an earlier FM announcement by Vale, the Brazilian mining firm on February 18.

“There’s nothing wrong at the mine,” said Hill of Benga. “It’s a case of ballast having been washed away and some culvert bridges which were also damaged.”

Wilson Bayley Holmes, a South African civil engineering company, was one of the companies drafted in to help with repairs.

“We are currently assessing the impact of this event and will keep the market informed of developments as they arise,” said Hill in an earlier statement to the Johannesburg Stock Exchange.

“We have a senior assessment team on the ground evaluating the damage to the transport infrastructure to ascertain the likely duration of the force majeure and the potential impact this will have to our mining operations,” he said. “We are also engaging with Rio Tinto to chart the best way forward.”

The force majeure at Benga caps a miserable six months for Rio Tinto which announced in January that it would write down its investment in its Mozambican metallurgical assets by US$3B.

This was after it became apparent that the company would not be permitted to barge coal down the Zambezi River owing to local authority fears that the dredging required for barging would increase the likelihood of flooding during summer. The coal recoveries at the Benga and Zambeze projects were also lower than expected. Rio Tinto invested $4B buying the two mining projects in 2010.

The write-down led to the resignation of Rio Tinto CEO, Tom Albanese and Doug Ritchie who was head of Rio Tinto’s energy division at the time of the Mozambican investment.

The flooding also further hammers home the infrastructure problems Mozambique has before it can even start on meeting ambitions of one day becoming a 100Mtpa export coal producer. Coal volumes transported down the Sena coal line, which runs from Tete province to Beira, were about 4.35Mt in 2012.

There are hopes for capacity of 6.5Mt being met this year following refurbishment of the rail line which was first constructed in 1899, Hill told SACR. The lack of flexibility in the event of a flooding incident is also notable.

“You can’t use the roads; not for the volumes Rio Tinto is hoping to mine. It is too costly and the damage to the road network would be too extensive,” said Hill.

There is also the risk that heavy seasonal rains are not yet over and further damage could be incurred.

According to online publication, AllAfrica, persistent rainfall was expected to continue in central and northern Mozambique with some 100 to 250mm of rain expected to fall in the Cabo Delgado, Niassa and Zambezia provinces from February 18 to February 23 most of which would make its way into the Zambezi basin.

As a result, Mozambican transport utility, CFM, sounded a note of caution regarding getting the Sena line operational again.

“Although we are carrying out emergency work, we cannot say when the line will be re-opened because weather conditions remain threatening and that is something we cannot control,” a spokesman for CFM was quoted to have said.

The low-lying nature of the Sena rail route, which runs from a natural floodplain in the Zambesi basin, heightens the need for alternative routes such as the one being refurbished and expanded by Vale which runs from Tete to Nacala in northern Mozambique.

Regularly occurring sand deposits in Beira also make that port’s ability to accommodate Panamax vessels an ongoing problem. Even the port authorities at Beira say its potential to become a major export hub is a problem.

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