Mozambique's coal revival

Published June 2018 by Barry Baxter, Reporter, World Coal Magazine

 

Over the years, the headlines on World Coal’s reports on the re-establishment of Mozambique’s coal industry after almost 20 years of civil war have moved from the optimistic ‘Coal Fires Peace and Prosperity’ (2008), to the warning ‘At the Crossroads As Logistics Threaten Coal Developments’ (2009), ‘Going Somewhere, Slowly’ (2013) and ‘A Game of Risk As Rebels Threaten Rail Operations’ (2014), to the reminder in 2015, ‘Getting There Too Slowly’. This report shows that a major move to re-establish suitable logistics for the newly-emerging coal industry has, at last, achieved considerable success.

This report signals a long-awaited change in those headlines. A major move to provide improved logistics for the export-based industry has, at last, put it firmly on track to meet an immediate 100% increase in exports and, over the longer-term, a further 100%.

On 12 May 2017, President of Mozambique Filipe Nyusi joined celebrations at the deepwater port of Nacala to mark the formal completion of a project to develop an ‘integrated logistics corridor’ to move export coal of up to 22 million tpy of coal from Mozambique to buyers around the globe. 

The project is the biggest ever investment outside of its home country made by Brazilian mining group Vale, which, in 2008, started developing Mozambique’s largest ever coal mine over the country’s Moatize coalfield. At the completion ceremony, Brazil’s Foreign Minister said Vale was in Mozambique to stay – and noted that was the meaning of the word ‘Nacala’ in the local Macula language.

The 912 km ‘corridor’ will serve northern Mozambique, southern Malawi and the Moatize coalfield. It includes a coal terminal at Nacala with a storage yard of 1 million t, which will be able to load 150 ships a year. A 906 km railway links the coalfield via Malawi to Nacala, which is on the east coast of Mozambique, close to the border with Tanzania.

The first coal trains began to use the route in November 2014 and by April 2016 the line had carried its first million tonnes of coal. Operations have steadily expanded from two 20 wagon trains per day to 22 trains each carrying 120 wagons.

With the country still recovering after a debt scandal (see sidebar) that led the World Bank to label its economy ‘fragile’, the International Monetary Fund to withdraw standby credit facilities and the subsequent sacking of four cabinet ministers and appointment of a new Minster of Energy and Mineral Resources on 12 May 2017, will certainly be remembered as one of the most significant to date in the economic development of Mozambique. Revenues from coal, already number two in the export revenues mix, will become even more important – at least in the medium-term.

Production and reserves

Mozambique’s total proven coal reserves at the end of 2016 were 25.6 billion t. The reserve ranks nine out of the 49 active producer countries of the world currently listed and is predicted to contain enough coal for a further 200 years of mining given the most optimistic forecasts of growth in the country’s coal industry.

The coking coal reserve at its potentially second largest mine Benga, owned and operated by the International Coal Ventures of India consortium (ICVL) is reported to be the largest in Africa. That and the 6.7 billion t of the Tete coalfield – said to be one of the world’s largest – and over which are Mozambique’s five largest mines, led to a government statement that the country could be exporting 25% of the world’s coking coal by 2025 driven mainly by exports from Vake’s Moatize mine, the country’s largest, to China and from the Benga mine to India.

Over 2015 total coal production was 6.6 million t, of which 4.8 million t (72.9%) was exported. That production was 4.2% up over the previous year. It is impossible to reasonably compare production before then as the industry was in the initial stages of development – for example, in each of the years 2008 and 2009 only 38 000 t of coal were produced, with 28 000 t exported.

Significant growth is expected with the coming into operation of Nacala which will initially handle 11 million tpy of coal, increasing to 18 million tpy, then 22 million tpy. Although reliable detailed 2016 figures are not yet available, production of 23.3 million t of coal over the year has been reported, which would indicate a year on year growth rate of 250%, with the reports also claiming production over 2017 of 27.2 million t. This suggests a growth rate of 16.7% over that year.

Vale has reported production at Moatize of 11.3 million t over 2017, an increase of just over 100% on 2016. The Brazilian company, which from 2008 became instrumental in re-establishing the Mozambique coal industry has – with the support of its shareholder Mitsui Corp. of Japan, the African Development Bank and several South African banks – been the prime mover in the development of the construction and development of the railway and coal terminal building that comprise the ‘logistics corridor’. Vale, and other miners, had long complained that they could not further develop the country’s coal industry without significant improvement in export logistics. The then sole route for export coal was via the port of Beira, which can handle only 6 million tpy of coal and is connected to the coalfields by the 660 km Sena railway, which has proved extremely unreliable in spite of various ‘upgrades’ and refurbishment.

The Nacala line will also carry general freight and passengers. Funding for the entire US$4.5 billion Nacala project has been secured by Vale and Mitsui, both long‑established multi-billion dollar international groups, and Japanese banks. The loans will be recovered over 14 years through a levy on coal and other freight not in any way dependent on government debt repayments which remain under pressure after the debt scandal.

Firming up

There are several forecasts of growth in the production of coal in Mozambique over the next 10 - 12 years. A mid-term (2020) forecast based upon statements by the various mines is 89 million tpy. This is close to a 100 million t forecast by the government and based upon projects it considers ‘firm’ – existing mines and those in development by established companies.

A longer-term statement also based on mine reserves is 115 million tpy, which is close to another forecast by the government of 116/120 million t by 2030. This is based on existing mines and all proposed projects, some as yet with no clear or confirmed funding. At best there must be some uncertainty in this forecast.

The ‘firm’ group of mines are topped by Moatize which is now 80% owned by Vale, 15% by Mitsui Corp. and 5% by the State. It is targeting 18 million tpy in the medium-term, 22 million tpy in the longer-term. There is also a development listed by the government as Vale-linked, Mucanha Vuzy with an 11 million tpy potential, but there have been no comments from Vale.

Number two is Benga; now owned by Indian consortium ICVL, which bought 65% of the mine from Rio Tinto in 2014. The Indian group Tata had a 35% interest which it held onto, but now wants to sell, having decided not to make any further investments in the mine. Benga went through a difficult time in 2015 when it could not find enough customers for its thermal coal and was experiencing considerable difficulty in getting the coal it was producing for export to Beira. On grounds of safety, the Mozambique Government vetoed plans to use barges to move it down the Zambezi River.

Benga then scaled back its mining operations and decided to try and partner with developers of power plants to take over the mine and burn its thermal coal. However, the company was not successful and, in 2017, decided to restart mining. It is now in a three-phase development programme initially aimed at 2.4 million tpy run of mine, ramping up to 5.3 million t and, finally, to 20 million t.

ICVL also bought the Zambezi project, which is adjacent to Benga, from Rio Tinto in 2014. It is listed as having the potential to mine 12 million tpy from 2023.

Positions three and four must go to the Chirodzi mine owned by the Indian Jindal group, and Revuboe. Chirodzi is targeting 6.5 million tpy in the medium-term, 10 million t in the longer-term. Revuboe, which is not operational, claims a potential of 17 million tpy in the medium-term. It was owned by the Talbot group of Australia (58.9%), Nippon Steel/Sumitomo Metal (23.3%) and Nippon Steel/Sumitomo (10%), and POSCO, Korea, (7.8%). In 2014 the chairman of Talbot was killed in an air crash. The other shareholders are now seeking a new joint venture partner.

Not a potential coal export development, the Ncondezi mine is a project for a 1.5 million tpy mine and a mine-mouth power plant which will initially generate 300 MW for domestic use, and subsequently, a further 1500 MW for sale into the regional Southern African Power Pool. The project would be over a 1.5 billion t resource. A mining concession was granted and Heads of Power Agreements agreed in 2013, with development to start in 2014. That is now scheduled for 2018, but the company recently issued a statement pointing at bureaucratic delays and said: "There is no certainty that the transactions will occur."

Not so firm

Other projects are Minas Moatize (same name as Vale’s Moatize mine, over the same coalfield, but no financial connections). ASX-listed Beacon Hill started the mine as the country’s only underground operation. It was later changed to an opencast operation. It hit difficult times in 2013 when metallurgical coal prices fell significantly below the cost of production. By 2014 it was facing bankruptcy and placed in administration. There was no production during the second half of 2014. Coal trader Vitol S.A. became involved in the project, but operations remain suspended. Details of the present situation have not been disclosed, but the mine is still at least nominally owned by Beacon Hill Resources. The company claims it has the potential to produce 15 million tpy of coal in the longer-term through phases of 2.8 billion t and 4 million t.

Mid-West Africa is an Indian company that was given a mining licence in 2013 to produce 7 million tpy of coal from 2019. It has two development assets and two exploration assets.

Government lists shown that Sunrise Mining (formerly Osho Gremach Mining), has a 640 million t reserve within a 880 ha area of the Moatize basin, which was last surveyed in 2008. There has not been any development of the area.

Eurasian Natural Resources Group (ENRC) has the proposed US$170 million Estima project which targets production of 50 million tpy and was due to start operations in 2014. There are no recent reports except that Wood Mackenzie of Australia, acting on behalf of the mine, has ‘withdrawn all dates because of uncertainties’.

Volt Resources (formerly Mozambi Coal and Mozambi Resources) and Sol Mineracao Mining have shown interest in Mozambique over some years, but have not followed up.
There was also an approach from a KingHo Investment Company, which was found to be at the centre of a fake US$8 billion investment scam involving, amongst others, a corrupt mining minister in Sierra Leone.

Number one

In April 2017, the Economist Intelligence Unit forecast that coal would become Mozambique’s number one source of export revenues within the medium-term, and over 2018 overtake aluminium as the biggest source of export revenues for the country. It forecast that the revenues from coal exports would rise from 1.3% of GDP at end 2016 to 1.7% over 2017 and keep on rising. But, echoing the sentiment expressed by Ncondezi Energy the politicians and bureaucrats will have to move faster and in a more positive manner for that to happen. It is now the time for them to act and follow the example of the planners and developers of the Nacala project.

The government is now banking on Nacala having considerably shortened shipping distances to the major export destinations against the distances from Beira – to Japan and China by 6.5%, eastern India by 12%, western India by 12% and the Netherlands by 5%. Mozambique now has shipping distance advantages over Colombia to those same destinations of 14% to 68%, over Indonesia (excluding the Netherlands and western India) of 23% to 68%, over Australia to Japan of 38% and to China of 26%.

A recent survey by the Japanese Coal Energy Sector concluded that coal from Mozambique which had a calorific value of 6000 kcal/kg was ‘competitive to that from Australia, equal to that from Colombia, ranked marginally below that from Russia, higher than that from South Africa, Indonesia and the US. Except for its 10% ash content, coking coal from Mozambique was excellent. At close to 70% coke strength after reaction it was better than that from Australia, Canada, Russia and the US’.

There is a proposal to improve the movement of coal through Beira by building a second terminal to increase capacity to 16 million tpy, but with most coal production being in the region of the Tete-Moatize coalfield which is now directly linked via a reliable railway to a high capacity terminal at Nacala with adequate stacking facilities, any further development of Beira could be overshadowed – even side-stepped.

To that must be added concerns over the temperament of the Zambezi River, ships have to await berthing beyond the bar, the draft is limited and the port, prone to silt up.

More corridors

There are proposals for three more ‘logistical corridors’. It is unlikely they would serve any of the existing mines, but might come within the scope of some of the newer potential start-ups, and adjacent or nearby countries.

The first is Quelimane/Macuse – a US$5 billion, 25 million tpy terminal linked to the coalfields by a 525 km railway. It was suggested some years ago when it was indicated that construction, which would take five years, should start sometime during 2016. The developers were an Indian-Thai consortium (60%), the Mozambique Railway and Ports Authority (20%) and local investors (20%). There have been no further statements or developments. The railway line would not link to the Tete coalfields, but the government has suggested it might build a 120 km link for it to do so.

Another is the Zambesia corridor. This would terminate at Techobanine, a port close to the north of the capital, Maputo. It would be developed into a 12 million tpy port with a coal terminal and be jointly developed by the governments of Botswana, Zimbabwe and Mozambique, each putting US$200 million on the table. Botswana has suggested that private investors should take up the baton and put up funds for an initial feasibility study.

The ‘corridor’ would start in Botswana from where a 1500 km railway, which would essentially be the result of the refurbishment and upgrading of existing lines in the three countries to be able to take heavier loads, would run through Zimbabwe to Mozambique.

This project was first suggested in 2016 and has recently come back to the table. Zimbabwe has recently claimed that with the removal of President Mugabe international investors have already pledged US$300 million to revive its coal industry.

Botswana has a very small coal industry, one mine which produces enough to supply its one and only coal-fired power plant. However, it does have a huge coal reserve which, some years ago, was to be developed along with a power plant that would have exported power to neighbouring South Africa. Coal would have been exported once suitable rail and port logistics were in place. There were proposals for a port in Namibia and ‘fast-tracking’ a 1000 km plus railway to connect to it. Techobanine in Mozambique was also mentioned as the export outlet for Botswana coal, as was South Africa’s existing Richards Bay Terminal, with that country’s railway authority creating a link from the Botswana coalfield to its dedicated coal line which terminates at a mine close to the Botswana-South Africa border.

That proposal was abandoned when South Africa decided to stop coal-fired power generation and turn to renewables and nuclear. That has not yet fully happened and with the current investment climate in that country no one is quite sure what the outcome will be. However, it is very unlikely that South Africa would import coal although it might import power – it already imports some from Mozambique’s Cahorra Basa hydro project.

As has been recently reported, there are also proposals by investors in Botswana to produce LNG and exploit coalbed methane although none of these are at the moment in any stage of development. At least two new companies operating in that sphere have listed on the Botswana Stock Exchange. 

 

 

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