The Business Year

Ricardo Saad

MOZAMBIQUE - Industry

A Game of Mines

Project Director,

Bio

TBY talks to Ricardo Saad, Project Director for Africa, Asia, and Australia of Vale, on the significance of East Africa, Vale's impact on the economy, and the Nacala Corridor project.

What is the significance of Vale’s Mozambique operation with respect to its global activities?

Our strategy is to grow our core businesses, such as iron ore, coal, copper, nickel, and fertilizers. With regard to coal, Mozambique is our biggest operation and it’s a very important project for us. On that account, we are happy to be celebrating one year since our first production. Besides some difficulties with the country’s infrastructure, we are happy because we are succeeding. The issues regarding a greenfield project like this are challenging, but the environment in Mozambique is very positive, and the government and society welcome us. Mozambique was our first foray into Africa. The Inco acquisition was a landmark in Vale’s international growth, and since 2007 and 2008 we have started to invest here and it has been a good learning process. It’s amazing how we are progressing. It is encouraging not only for us, but for other companies investing in the region. We are developing a copper mine in Zambia, and we are also exploring Angola and Congo, for which Mozambique is a good platform.

How can undertakings such as the Nacala Project leverage the growth of other sectors?

We are carrying out the Nacala Project in partnership with Mozambique Ports and Railways (CFM), and it will surely leverage business for everybody. Vale is investing in infrastructure in partnership with other companies. It’s an inclusive project meaning that other companies can have access to it, even in industries such as agriculture, forestry, and public transportation.

What sort of conditions will other companies face to take advantage of the infrastructure that Vale is investing heavily in?

We are basing ourselves on international benchmarking in terms of establishing a tariff system, which is important for us to make our coal operation feasible. Of course, infrastructure is linked with mining—reserves of any kind of minerals without infrastructure are worth nothing. For us at Vale, it is important to promote a system that allows us to produce our core, which is minerals, in such a way as to be able to share logistics costs with other companies fairly.

What’s the projected capacity of your operations?

At present, we have 11 million tons in capacity. The bottleneck is the Sena line and the Port of Beira. However, we are doubling our capacity at the mine to 22 million tons. The Nacala Corridor will be completed in 2014, and by 2017 we will be exporting at full capacity. In 2012 we expect to export between 2.8 million and 3 million tons, and in 2013 we will improve on that. We started construction of the Malawian portion of the Nacala-Tete railway in January 2012, since it is the most critical point of the whole corridor. In fact, the distance from Tete to Nacala Velha is 912 kilometers, and of this about 230 kilometers is greenfield.

Do you face any difficulties in crossing borders with regard to transport?

No. Malawi and Mozambique have signed treaties regarding this matter and we fully trust in them. Besides, we believe that mining operations can serve as an anchor for railways and make them profitable, creating a business lever.

What additional investment opportunities will Vale’s investment in the Port of Nacala bring to the region?

First of all, our investment in the Port of Nacala is to facilitate our coal exports. However, we know that once the infrastructure is there the door will be open to other investments. For example, if you also consider the gas that Mozambique has been discovering, the possibility to build other projects around the Port of Nacala becomes very high when both coal and gas are present. The port is geographically amazing. It is a protected bay and it is deep enough to allow the operation of large vessels. It will be completed early in 2015 in line with the rest of the Nacala Corridor. We are looking at investing about $1.1 billion in the port, while the whole corridor will cost around $4.5 billion to connect Tete to Nacala, including the port.

What is the status of the proposed 600-MW thermal power plant at the Moatize Mine?

We will probably do it in phases, implementing 300 MW in capacity over Phase I. The design is such that the capacity can be extended in modules. We are investing because it is important for our operation as well as for other demands.

How has Vale responded to calls from the government to help develop the Mozambique Stock Exchange by floating 10% of the company?

Vale, together with the government, is evaluating the possibility of selling 10% of its shares through the Mozambique Stock Exchange. However, there are other options being considered. More importantly, however, is the need to promote sustainable development. Around 85% of our manpower is hired and trained locally. Being a shareholder, an employee, a supplier, or a neighbor gives us the strength to overcome the challenges that society presents.

How has Vale worked with Mozambican companies in Tete since 2004?

As part of the first step of implementing activities in the country, we earmarked $1 billion to trade with local companies. We started with a very small number of companies, and the numbers have since been increasing. More than 500 Mozambican companies now supply us in different ways, fulfilling needs for transportation, accommodation, food and beverages, and all other kinds of service support. Also, we try to promote meetings and forums with our main suppliers and contractors and their local suppliers. It is one of Vale’s policies to develop its local supplier network.

What are your expectations for your Mozambican operations over the long term?

We are very optimistic, even though it won’t be easy. Investing $6.5 billion is never an easy task, especially with the lack of infrastructure here. However, every day we are improving and we feel more confident in the future.

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