Rio Tinto ends Mozi excursion in $50m sale

[miningmx.com] – RIO Tinto brought the curtain down on its disastrous investment in Mozambique’s coal sector announcing today it would sell Rio Tinto Coal Mozambique for $50m to India’s International Coal Ventures (ICVL).

Rio Tinto Coal Mozambique comprises a 65% stake in the Benga coal mine, which produced 733,000 tonnes of coal in the first half of Rio Tinto’s financial year, and 100% holdings in two projects Zambezi and Tete East.

The assets were bought from Riversdale Mining in 2011 for $3.9bn, but were later written down in two separate tranches of $3bn – a development that is thought to have cost former Rio Tinto, Tom Albanese, his job, and then $470m in February.

That means that the Anglo-Australian mining company is out of pocket by an additional $350m on the initial acquisition price.

International Coal Ventures was established in 2009 and consists of state-owned Steel Authority of India, Coal India and the country’s power producer, NTPC.

“During the transition to the new owner, Rio Tinto will continue to manage the mine to the highest safety and environmental standards,” the group said in a statement. “Rio Tinto’s other assets in the country are unaffected by this transaction,” it said. The deal is expected to be closed in the third quarter of this calendar year.

It was speculated last week that the assets would be sold for about $105m.

Rio Tinto invested in Mozambique on the heels of rival Vale, the Brazilian iron ore and coal producer. At the time, Mozambique was considered hot property amid sky-high coal prices, but by 2012, with the market cooling, Rio encountered difficulties.

It announced a $3bn write-down partly owing to its failure to secure a permit to barge coal from the properties down Mozambique’s Zambezi river. The quality of the coking coal was also questioned.

Jan du Plessis, Rio Tinto chairman, dubbed the write-downs as “unacceptable” at the time, and it resulted in the resignation of Doug Richtie, head of Rio Tinto’s energy business as well as Albanese.

Rio Tinto said in the past it hoped to produce 1 million tonnes (mt) of coal from the $500m Benga mine in its 2012 financial year, growing to 1.5mt in 2013. A second stage development would see output expanded to 6mt a year (mtpa) of coking coal and a further 4mtpa of thermal material from the mine.

At Zambeze, first production was targeted for 2015 with some 10mtpa of coking coal and 6mtpa of thermal coal forecast by 2018.

Rio Tinto may still have some unfinished business in Mozambique in respect of the coal assets, however, as the country’s government said it was chasing the group for unpaid tax on capital gains.

“The Riversdale-Rio Tinto business is still on the table,’ Bloomberg News cited Mozambique Tax Authority President Rosario Fernandes to have said in a briefing with reporters in Maputo on March 27.

“At some stage they have to follow local law’ as the acquisition involved mining assets in Mozambique, she said.

Rio Tinto spokesman, David Outhwaite said at the time that the company had complied with Mozambique’s applicable tax legislation having paid $4m in tax last year.

Mozambique expects to more than double the $1.3bn it raised from capital gains tax on five deals since 2012 with another 10 transactions pending, said Fernandes.