Brazil, India will spur coal output: Mozambique, blessed with plentiful natural resources, will soon be able to exploit its large coal reserves through a deal with a Brazilian company. India's Tata Steel is also poised to follow suit. Neil Ford reports

African Business, Oct, 2007 by Neil Ford

Mozambique's success in re-establishing a viable economy since the end of the civil war in 1992 has been well documented. A decade of 10% growth annually enabled the country to rebound from the years of devastation.

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Improvements to port, rail and power sector infrastructure have helped the country resume trade with neighbouring states, while investment in the gas, aluminium and titanium sectors is helping the Southern African state to develop a relatively diverse economic base.

Now, a Brazilian company has revealed that it is to add another string to Mozambique's bow through a commitment to greatly expand coal production in the country.

Rio Doce Mocambique Ltd, the Mozambican subsidiary of Companhia Vale do Rio Doce (CVRD), has agreed to invest $1.5bn in developing the Moatize coalmine in the Moatize Basin in the western Mozambican province of Tete. The government estimates that the basin contains around 2.4bn tonnes of coal.

The minister of mineral resources, Esperanca Bias, says that mining will begin in 2010, with exports quickly reaching 8m tonnes a year; although CVRD could produce up to 26m tonnes of coal a year at Moatize in the longer term to supply its steel production plants in Brazil.

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The mine was established during the colonial era but was badly damaged during the civil war and large-scale investment in the site has failed to materialise over the past 15 years.

Mozambique already exports some coal from Matola Coal Terminal at Maputo and by rail to the neighbouring state of Malawi but the government believes that output could be much higher. Apart from export, it is possible that the coal could be used as a feedstock for domestic industrial consumers and thermal power plants.

Government spokesperson Luis Covane said: "Under the terms of the contract we have just approved, the area granted to this company will be exploited for a period of 25 years, renewable.

"The company has guaranteed that the training of technical staff, mobilisation of equipment and the construction of infrastructures will be completed in 36 months. That means exploitation of the Moatize coal will begin in 2010." CVRD will remain in control of the project but a 10% stake will be sold to Mozambican private sector investors and the government of Mozambique will take a further 5% share.

Boost for infrastructure

The investment will also boost demand for the port of Beira and the 670km railway that runs from Zimbabwe through Tete to the port. The railway is operated by the Beira Railroad Corporation (CCFB), which is mainly owned by two Indian companies, Rites and Ircon.

At present, Matola is the country's main coal handling terminal but new facilities must now be added to Beira. The first section of the Beira railway between Beira and Dondo is due to open at the end of this year. Aside from carrying coal, it is expected that the line will transport sugar, timber from Cheringoma and limestone from Muanza in the first instance, while copper, gold and diamond mining companies could also make use of the line in the longer term.

Like the mine, the railway was damaged in the war and services were halted in 1984 but it is gradually being brought back into use. The US provided a $13m grant to fund the removal of mines along the railway between 2002 and this year and the track infrastructure is being overhauled.

Sources in Mozambique indicated that the spur line in the Zambezi Valley will also open as far as Marromeu at the end of this year, providing an outlet for the valley's sugar plantations. The railway is scheduled to be open as far as the Moatize mine by 2009, and the final section to Zimbabwe, plus a spur line to Malawi, shortly thereafter.

Tata to follow CVRD

Further investment in the Mozambican coal sector is to come from Indian firm Tata Steel. In August, the company signed a memorandum of understanding with Riversdale Mining, an Australian mining finance company, for a 35% stake in a mining venture in Mozambique.

The company paid the equivalent of $844,000 for the asset and the two companies now plan to jointly develop the planned mines at Benga and Tete. Riversdale is on the verge of completing its final feasibility study for the venture and the final investment decision is due to be taken at the end of November.

The managing director of Tata Steel, Mr B. Muthuraman, says that the Riversdale agreement was in line with his firm's strategy of improving its raw material security. He commented: "This partnership gives Tata Steel an opportunity to jointly explore part of a large coal basin which would prove to be a potential source to meet part of the raw material requirement and enhance the long-term competitiveness of the global operations." The Benga and Tete concessions cover a total of 24,960 hectares.

Tata has set up a mineral exploration group to acquire coal and iron ore assets around the world to feed its huge expansion programme. The Indian firm has taken over Corus steel company in the UK and the Netherlands, and hard coking coal from the Mozambican mines will be shipped to Corus steel manufacturing plants in the UK, as well as in India.