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Where There Is An Export Dollar There Is A Way

Published 9 years ago
By Forbes Africa

It is one of the great stories of African mining—a small nation scrapping, against the odds, for its place at the table. Mozambique is forging ahead with its nascent coal mining industry, yet it is haunted by problems. It needs patience, nerve, a mountain of foreign investment and more railways.

Experts say Mozambique could mine up to 100 million tons (mt) of coal in the next five years—enough to make it a serious player in the world market.

The heart of this fledgling coal industry is the Moatize basin—in a remote north western pocket of the country, bordered by Zimbabwe, Zambia and Malawi—one of Africa’s last great untapped coal reserves with tens of billions of tons of coal. It holds export quality coal and some of the finest coking coal in Africa.

Moatize is far from the nearest port; the only way to export coal efficiently is via the rickety 600km Sena line to Beira—a line that flooded in February rains and was threatened by armed Renamo rebels in June. Otherwise, coal has to move on trucks along crumbling and congested roads. This has hobbled Mozambique’s coal exports.

The good news is that Vale, the Brazilian resources giant, says a new railway to the deep water port of Nacala, on the north coast, will be complete by 2015. The line will run through Malawi and speed coal on its way to the power stations of China, Korea and Japan.

Ricardo Saad, the CEO of Vale Mozambique, said the joint venture—owned 60% by Vale and 40% by Mozambique’s freight company, CFM—will transport 9.7mt in its first year, ramping up to 16.9mt in 2016 and 22mt in 2017. For coal exporters, it will be manna from heaven and could help the fledgling coal industry in Malawi.

“I believe we have overcome the main concerns locally and it is encouraging because the government is supporting the implementation we have here in Mozambique… The country can become a major player in the African coal business,” says Saad.

Not so encouraging is that a large Chinese investment appears to be passing Mozambique by. When I was in Maputo, in July, I heard from a source close to the government that the Chinese had abandoned a $12 billion investment in ports rails and roads, promised in 2010, despite President Armando Guebuza’s attempts to revive the deal during his seven day visit to China in May. In return, Mozambique was to supply coal and help set up a Chinese-run processing plant. To get an idea of the scale of this investment, the World Economic Forum believes it’ll cost around $93 billion per year until 2020, to fix the entire continent’s infrastructure problems.

“One reason is, there is an oversupply of coal at the moment so China doesn’t have to worry about securing supply from Mozambique, we just got the impression that the deal was not for now,” says the source.

There’s better news for Africa’s fifth largest coal exporter next door. It appears India is likely to buy more steam coal from South Africa this year as it attempts to prop up its flagging national grid. The coal-fired power stations that line its coast are designed to cope with the low quality coal mined in South Africa’s northern Mpumalanga coalfields. India burns more than 530mt of coal a year and yet, according to government figures, falls 9% short of peak electricity demand.

The High Commissioner for India to South Africa, Virendra Gupta, said at a press briefing in Johannesburg, in June, that he expected his country to import between 20 and 25mt from South Africa in 2013. He said the imports from South Africa fell slightly last year, but uncertainty over supply from Indonesia means they are almost certain to rise.

Gupta believes that companies from his country will be looking to secure supply for its hungry power stations. In 2011, India set up a branch of the state mining company, MMTC, in Johannesburg.

“The companies in India will be in a scramble over the next two to three years to buy into South African mines, but you have to remember that after agreements have been signed it takes four to five years before you see regular deliveries of coal,” says Gupta.

The next few years could be very interesting and lucrative for the coal producers of Africa.

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Related Topics: #August 2013, #Foreign, #Government, #Mining Industry, #Moatize, #Mozambique, #Railways.