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Vale looking to sell stake in Mozambican coal assets

The chairperson of the Brazilian mining giant Vale, Murilo Ferreira, told reporters at the weekend that negotiations are under way to sell off some of the company's assets in Mozambique.

According to the Brazilian financial paper “Valor Economico”, Ferreira said these negotiations were intended to find partners for the open cast coal mine that Vale operates in Moatize, in the western Mozambican province of Tete and for the logistics.

Vale is currently the sole foreign investor in the Integrated Nacala Logistics Corridor (CLN) which will operate a new mineral port at Nacala-a-Velha in the northern province of Nampula, and a railway from Moatize to Nacala running for over 900 kilometres. CLN is 80 per cent owned by Vale and 20 per cent by Mozambique's publicly owned port and rail company, CFM.

The entire Nacala rail and port project costs 4.4 billion US dollars, and the new Nacala port will be able to handle 18 million tonnes of coal a year.

CLN's initial projections were for about 20 coal trains a day. This will require a fleet of 100 locomotives and 2,700 wagons.

Vale opted for a new port and railway when it became clear that the existing Sena line, from Moatize to the port of Beira, could not possibly cope with the forecast coal exports. Even with planned upgrading, the capacity of the Sena line is no more than 12 million tonnes a year. CLN expected the first shipments of coal along the new railway to reach Nacala in September.

Ferreira declined to go into detail about current negotiations. “We are at a very delicate stage of negotiations for the stake in both the Nacala Corridor and the Moatize mine. We should not and cannot talk about what is happening and who we are negotiating with,” he said.

Ferreira noted that facilities were in place at the mine to produce 11 million tons of coal per year, but that current logistics (i.e. the Sena line) only allowed for maximum exports of four million tonnes a year. This situation would only improve, he said, when the Nacala Corridor is completed.

Vale's Mozambican subsidiary is currently running at a heavy loss. In May, the chairperson of Vale-Mozambique, Pedro Gutemberg, told reporters that the company had made an operational loss of 44 million US dollars in the first quarter of the year.

The main reason for the losses was certainly the fall in coal prices on the world market. The price of coking coal was almost 350 US dollars a tonne in 2011, but by May 2014 it had fallen to below 100 US dollars a tonne - and to move a tonne of coal from Vale's mine at Moatize to Beira, cost around 66 dollars.

However, there is no sign that Vale intends to follow the Anglo-Australian company Rio Tinto and sell off all its Mozambican coal operations.

Last week Rio Tinto announced that it had agreed to sell its coal assets in Mozambique to International Coal Ventures Private Limited (ICVL) of India for just 50 million US dollars. Rio Tinto Coal Mozambique consists of a 65 per cent stake in the Benga open cast coal mine and two other projects, not yet in production, in the western province of Tete.

Rio Tinto bought the assets for 3.9 billion dollars, when it acquired the Australian company Riversdale in 2011.

But the Riversdale purchase was one of several acquisitions which went sour, and forced Ro Tinto to write down its assets by a gigantic 14 billion dollars, leading to the resignation of the Rio Tinto Chief Executive, Tom Albanese.

The largest slice of the write-down was three billion dollars on the coal assets in Mozambique, which seem to have been wildly overvalued. Rio Tinto's woes were compounded when its logistical plans for moving the coal to market collapsed.

Rio Tinto hoped that it could take the coal on barges down the Zambezi River - but the government overruled this scheme on environmental grounds.

The logistical headaches, the collapse of the price of coal, and a reassessment of recoverable resources all led Rio Tinto to cut its losses and sell off the coal assets to ICVL.

This Indian consortium is not too worried about the coal price, since it has guaranteed buyers in the shape of Indian state companies. Indeed, ICVL was set up by the Indian government specifically in order to acquire coal assets overseas to meet the coal needs of state-owned companies.

Source: allafrica.com