Logistics issues scupper Rio Tinto's Moz plans

A major mining group is currently singing the blues as the hook it slung into the Mozambique coal mining pool has been ripped off the line by the sharp teeth of the logistical truth about actually getting the coal to its market. Our story in an issue of last week’s FTW Online, titled “Tough times for Moz coal export industry”, has borne truth, with Anglo- Aussie mining giant, Rio Tinto, slinking off from the Mozambique coal extraction industry with a lost investment of billions of US dollars. Rio originally paid US$3.7 billion for a concession for a coal-bearing area of land in Tete Province – with grand plans to make a mint in exporting the coking coal it mined to the energy-hungry Chinese industrial sector. But the logistics difficulties and distances involved in getting the Tete coal some 600 kilometres or so to an export port on the Mozambique coastline have turned out to be another massive cash drain – again running into many billions of greenbacks. Not only that, but the money had to be sunk into yet-to-be completed rail line and port developments, meaning a slow start to the millions of tonnes of annual exports needed to just break even on the massive investments. Just one rail and port project, for example, needs to operate at an initial 25 million tonnes per year capacity just to be economically viable. And you can add to that the fact that international coal prices are currently – and expected to continue to be – at a low ebb, which has raised serious doubts about whether Mozambican coal can actually be competitive. Adding insult to injury is the woeful recent finding that Mozambique coking coal deposits just aren’t as high quality as was optimistically predicted only a couple of years back. All this has added up to being a knock-out blow for Rio Tinto. It has now resold its Tete coal concession for a meagre US$50 million – which works out to be 1.35% of what it originally paid. And it has slunk off out of the market with its tail very firmly tucked beneath its legs – leaving a pretty major hole in Mozambique’s aspirations for a coal mining bonanza from its estimated reserves of at least two billion tonnes. An amount which made these the world’s fourth-largest untapped, recoverable coal reserves. INSERT $3.7 bn What Rio Tinto paid for the Tete coal-bearing concession CAPTION Rio Tinto has resold its ‘Benga’ coal mining concession in Tete province in central Mozambique for 1.35% of what it originally paid.