May. 9, 2013
However, there is a limit to Mozambique's meteoric rise in coal production. While the country's 2,500-kilometer coastline has numerous deep and natural ports suited to export coal, the challenge to transport the coal to the developing terminals is monumental. Transportation and infrastructure development could be the defining feature of Mozambique's potential to benefit from vast coal wealth in the coming decade.
The vast majority of Mozambique's coal mining activity is based around the three basins in Tete Province: Moatize, Lower Zambezi, and Mucanha-Vusi. The Zambezi Coal Basin, which lies under the city of Tete, is believed to hold some 23 billion tons of coal. Its Moatize sub-basin reserves are estimated at 750 million tons, and the Muchana-Vusi sub-basin is said to contain as many as 600 million tons in coal reserves. Mozambique's coal production is projected to increase to 110 million tons per year when projects for other mining companies such as Jindal Steel, Nippon Steel, Eurasian Natural Resource Corporation, Eta Star, and Coal of India come onstream. A considerable amount of the coal resources are coking coal, which sells at over double the price of thermal coal.
According to Vale's Project Director for Africa, Asia, and Australia, Ricardo Saad, the company currently has 11 million tons of capacity in Mozambique—70% coking coal and 30% thermal coal—with ongoing work to double the mine's capacity to 22 million tons. Integral to the Brazilian company's export strategy is the infrastructure project known as the Nacala Corridor, to be completed in 2014. Exports are anticipated to run at full capacity by 2017. Ricardo Saad told TBY, “In 2012 we expect to export between 2.8 million and 3 million tons, and in 2013 we will improve on that." Vale is investing approximately $1.1 billion in building the Port of Nacala to facilitate coal exports to be completed early in 2015, in line with the rest of the Nacala Corridor.
Mozambique, which began commercial coal production in 2010, boosted output to about 5 million tons in 2012 from 600,000 tons in 2011, according to the IMF. About 280 million tons of coking coal used in steelmaking are traded annually on the seaborne market. Should Mozambique reach its potential of boosting output to more than 20 million tons, it will become the world's fifth largest exporter. Without reliable transport and infrastructure options, however, Mozambique's coal aspirations could slow dramatically. A misjudgment regarding the serious implications of logistic costs will make or break future projects, whether they are large or small.
The Sena line is the country's most realistic hope for quick coal-to-sea transportation. Vale was the first to begin exports from its Moatize coal mine in 2012, and the company already uses the Sena line to move coal to Beira. Mozambique's railway company Mozambique Ports and Railways (CFM) was asked to complete the upgrade of the Sena line after the government cancelled a contract it had with India's Rites and Ircon (RICON), when the consortium failed to deliver the project despite delays. The upgrade is due to finish in 2013 and is anticipated to bring the total capacity of the Sena line to 20 million tons per year.
Minas Moatize, which is owned by Beacon Hill Resources (BHR), a subsidiary of BHR Coal, is expanding its open-pit mine and plans to produce 2.8 million tons per year. The company is one with a firm eye on its route to the sea and has negotiated a 7.7% share of the coveted Sena line to ensure initial exports of 500,000 tons per year. As Managing Director Rowan Karstel summed it up aptly in an interview with TBY, “If you are not on the rails, you're not going to make money in Mozambique."
MORE THAN COAL
With a moratorium on coal exploration licenses, miners are turning their sights to Mozambique's plethora of other minerals. Artisanal miners in the country have produced small amounts of gold for years, but now the industry is taking on a more commercial scale. Pan African Resources' Manica Gold Project is situated in central Mozambique, approximately 4 kilometers north of the town of Manica, which lies approximately 270 kilometers inland of the port city of Beira. The project is in the pre-feasibility stage and has a production forecast for a heap-leach surface mining operation of 410,000 tons per annum of 2.36 grams per ton grade with a content of 30,000 ounces. The southern African country has also garnered the attention of gemstone and precious metal-hungry Thailand, a country that signed an MoU with Mozambique at the beginning of 2013. Thailand lacks a supply of raw materials in the local jewelry sector, while Mozambique remains short of knowledge about mineral and gem certification, cutting technology, and value adding. Thailand imports about THB30 billion ($1 billion) worth of raw materials for the sector each year. With gold included, the import value reached THB406 billion ($13.17 billion) in 2012. Mozambique is now Thailand's largest provider of raw materials for gems and jewelry, followed by Madagascar, Sri Lanka, and India.
Gold was what first attracted Australian company Baobab Resources to explore in Mozambique, but the company quickly got side-tracked by the discovery of significant volumes of iron ore immediately adjacent to the mega coal projects. The company's reserves stand at 725 million tons of iron ore grading 35% Fe, 500 million tons of which underlies a very small footprint of just 2.5 square kilometers.
While Mozambique's total tantalum reserves are unknown, Mozambique produced 260 metric tons in 2011, or 34% of the world's total. Major end uses for tantalum capacitors include automotive electronics, pagers, personal computers, and mobile devices.
Mozambique also has 16 million tons in reserves of ilmenite, 1.2 million tons of zirconium, and a more modest 480,000 tons of rutile. A large portion of production of ilemite comes from the Irish company Kenmare Resources' Moma Sands project. According to Mozambique Manager Gareth Clifton, the mine will produce 1.2 million tons of ilmenite and about 75,000 tons of zirconium. The company is optimistic for its future world market share. Clifton told TBY, “When the expansion comes online, we will have about 10% of the world ilmenite market and 6% of the zirconium market."
Also key to the mining sector in 2013 will be the confirmation and ratification of the new mining law, making the first revisions since 2002. Of most interest to investors are the changes to the terms of exploration licenses and the entrenched interests of the government in mining companies operating in Mozambique.
One of the main changes introduced concerns the period of validity of mining licenses. Currently, Mozambican artisanal miners can obtain a mining pass valid for one year, which is renewable. The government's proposal raises the period of validity to five years. Under the current law, once a mining concession has been granted (usually the next step after work under an exploration license has confirmed the existence of commercially viable reserves), the owner of this title has 90 months to begin production. The new bill reduces this period to 48 months. The same will be true for mining certificates, which are currently valid for two years. The government wants to increase this period to 10 years. Both the mining pass and the mining certificate are exclusively for Mozambican nationals, and extending the period of validity is intended to give greater security to those who hold these mining titles.
The second key change is the intention to levy a tax when permits are traded between companies incorporated under Mozambique law and transactions abroad between foreign companies. In an interview with TBY, Minister of Natural Resources Esperança Bias reassured investors that the changes benefit both investors and Mozambicans alike. She said, “The legislation ensures that the assets are here in Mozambique; it is a question of a balance of benefits, both to the Mozambican people and the investors."
A further innovation in the government proposal would oblige all holders of mining titles to obtain goods and services through public tenders announced in the Mozambican media. This measure seeks to ensure that Mozambican citizens and companies can compete in providing the goods and services required for mining. The new bill also criminalizes illicit mining activity, which is set to cover prospection and exploration and the circulation of minerals without due authorization.