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Mozambique’s biggest coal exporter, Vale Moçambique, has recorded much-improved results for 2016.

It transported 8.7m tons of coal along the Nacala and Sena railways to the Indian Ocean ports of Beira and Nacala last year, up from 4.1m tons in 2015. At the same time, plans for a giant coal export port have been improved, suggesting that the development of the country’s coal industry is getting back on track. At the same time, plans for a giant coal export port have been improved, suggesting that the development of the country’s coal industry is getting back on track.

Vale was able to make the most of its stockpiles in Tete Province that had built up because of a lack of transport capacity in 2015 and the suspension of rail services because of attacks on trains by Renamo rebels. As a result, it needed to mine just 2m tons of thermal coal and 3.5m tons of coking coal last year.

This translated into a loss for the year of $105m, down from $508m the previous year, as expenditure fell by $344m and revenue jumped $140m. Its financial position should improve further as production increases. It is now mining and moving coal on the Moatize project alone at a rate of about 15m tons a year and this figure is set to rise to 22m tons a year.

Vale Moçambique was previously almost entirely owned by Brazilian firm Vale, which is one of the biggest mining companies in the world. However, following two years of debate and uncertainty, it finally sold big stakes in its Mozambican assets to Mitsui at the end of March. The Japanese company has bought a 15% stake in the Moatize mine plus 50% equity in the Nacala Logistics Corridor for $770m. The price was renegotiated following the long period of low coal prices.

Aside from developments within Mozambique, Vale Moçambique’s long term prospects will depend on the financial health of its parent company. In common with almost all other mining companies, the Brazilian firm has suffered from low commodity prices over the past few years. Its recent financial results have also been below expectations, with net income of $2.5bn for the first quarter of this year.

However, this was up from $1.8bn for the same period last year, as the company brought debt levels under control and benefitted from higher prices for its most important commodity, iron ore. It produced a record 86.2m tons in the first three months of the year.

All set for Macuse

The growth of the Mozambican coal industry has been held back by the lack of transport capacity. The country’s proven, commercial coal reserves are almost entirely located in Tete Province in the far northwest and railways have had to be developed to move the coal to the coast for export. At the same time, low prices for both thermal and coking coal over the past three years have hit investors hard. However, the required transport capacity is now in place and prices have substantially recovered.

With coal export terminals being developed in phases at both Nacala and Beira, the government has now approved plans for the construction of a third terminal. The project will be built at Macuse, near the mouth of the River Zambezi and will also encompass the construction of the new railway from Tete to the port. It is to be operated by Thai Mozambique Logistics (TML), a consortium of Italian Thai Development (60%), the state owned port and rail utility Portos e Caminhos de Ferro de Moçambique (CFM) (20%) and Zambeze Integrated Development Corridor (Codiza) (20%).

Macuse had been considered a decade ago, when plans for the development of the country’s coal sector were first drafted. It had been hoped that coal could be transported to the site down the Zambezi by barge but the port plans were shelved when river transport was rejected.

A tender for the contract to build a new railway from the Tete mines to Macuse has been won by a consortium of China Civil Engineering Construction Corporation (CCECC) and Mota-Engil of Portugal. With a bid of $2.3bn, the joint venture overcame rival bids from Andrade Gutierrez of Brazil, China Railway Construction Corporation, China Harbour Engineering Company, GS of South Korea and Turkish firm Yapi.

At 500km, the railway should offer the shortest travel time to the coast. It had originally been planned that Beira and Nacala would be the two main export points for Tete coal but the government is now clearly keen to make Macuse the biggest of the three. The new port will initially be able to handle 30m tons a year, increasing over time to 100m tons a year. The port and railway are scheduled to come into operation in 2021.

Neil Ford

The post Mozambique: Vale reports increased coal output as revenues grow in 2016 appeared first on African Business Magazine.

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