[miningmx.com] — THERE’S no doubt Mozambique’s Maputo is feeling the positive effects of accelerated investment in the country.
One somewhat counter-intuitive sign is that the city centre’s cash machines run dry. While there’s lots that doesn’t work in Maputo – the roads are heavily broken and susceptible to flooding – running out of cash means that Mozambicans have only to better serve the more important existence of a growing consumption.
That’s certainly true of the international coal mining industry that is positioning itself to become a major driver of Mozambican economic growth, estimated to be 7.4% next year, according to the International Monetary Fund.
Coal mining CEOs presenting at the Coaltrans Mozambique conference earlier this week generally agreed that between 100 million tonnes/year (Mtpa) to 120Mtpa of coal will be produced in Mozambique by 2020, the majority of which would be exported.
Therein lies the challenge, however. Infrastructure development is struggling to keep up with the pace of the mining development.
There are multiple plans to establish railway lines from Mozambique’s inland coalfields in Tete province’s Moatize district to the coast: Beira, Maputo and the undeveloped Nakala port in the north of the country. Plans, too, to expand the capacities of the ports themselves, including establishing new terminals. There are at least six different proposals for a new terminal that would complement/rival the Grindrod-controlled Matola Coal Terminal in Maputo.
The two issues with these, doubtless exciting, proposals is the timing risk associated with them, and whether investment in them comes with a price the Mozambican government would be unwilling to pay.
The first issue is obvious. The Sena line, with links Moatize to Beira, is more than a year late in its upgrade. New plans to have it accommodite rolling stock carrying 6Mtpa by mid-June and 12Mtpa by year-end are questionable.
That’s troublesome for the likes of Beacon Hill Resources, a £100m, UK-listed coal exploration firm that has CEO and former banker, Justin Lewis, at its head. Lewis is currently aiming at putting 100 trucks down Mozambique’s roads in order to deliver 500,000 tonnes of coal to the port. He hopes – and is confident – Sena will be delivered in time to accommodate the more serious tonnes he’s hoping to mine. In the meantime, however, trucking coal has hazardous social risks for Mozambique, as well as economic ones for Beacon Hill.
The second issue is more speculative. If major mining companies are going to plough huge capital into infrastructure development in Mozambique, they will want to control those investments.
So it’s no surprise – though it was slightly enjoyable – to witness the discomfort of Vale’s coal sales and marketing GM, Marcelo Matos, when questioned on whether the Brazilian firm would open up its planned Moatize/Nakala rail line.
Vale is going to spend $6bn doubling its Moatize mine to 22Mtpa of coal of which the larger portion of capital will actually be on extending the capacity of the line to 18Mtpa. “There are conditions in the contract,” he said that would “have to negotiated” before the line could have other users. “It’s for our expansion,” he added.
That’s a ‘no’ then? Well, not exactly gushing….
The problem is that Mozambique’s mine minister, Esperança Bias, wants international coal investment to open up the economy, not close it. Allowing major mining companies to establish monopolies over key lines of transport – rail and port – shuts the industry down to new entrants and existing juniors, and threatens the “creation of industries”, which she told the conference Mozambique wants. In other words, it sterilises mineral rights – and we all know how governments hate that.
Beira port is another example. Allocation of its coal exporting facilities is controlled in a 68::32 split between Vale and Rio Tinto, which bought out Riversdale Mining for $4bn for the Benga project earlier this year. As mentioned Grindrod controls entitlement through Matola Coal Terminal which it recently expanded to 6Mtpa. It is investigating spending up to $800m more taking the port to 20Mtpa.
The infrastructural monopolies may make the Mozambican government’s fair-minded approach to foreign investment seem naive. For instance, there are no plans to lift royalties, impose windfall profit levies, or force through local ownership of foreign-listed companies.
As for Beacon Hill Resources, which is planning a fairly modest 2.5Mtpa mine, Minas Moatize, its days may be numbered, ultimately. (In any event, its property is surrounded by Rios and Vale and has already received one buy-out offer. Surely, its disappearance is a matter of time?). Even Indian company Jindal, which is operating in the northern part of Mozambique’s coalfields, access to infrastructure is a major worry.
At least the Mozambicans are aware of it. Aided by Columbia University’s Jeffrey Sachs, it is aiming to have “… all of the upstream and downstream linkages in the coal chain”, as that academic, who’s consulting with the government, termed it. The question is, however, having committed itself to a stable fiscal and regulatory environment, does the government have any leverage over the behemoths investing in its economy?
