19 July 2011

Infrastructure finance the big opportunity in Mozambique's lucrative coal basin



Mozambique's Moatize coal basin in the country's remote Tete province is considered the last untapped great coal reserve in the world, but the first great investment opportunity will be financing the infrastructure needed to get the coal to market.

This is the view of Rajat Kohli, Standard Bank Group's Global Head of Mining and Metals, who spoke at the Mozambique Coal II conference in Maputo last week.

Standard Bank Group has begun assessing opportunities and structures for financing the development of infrastructure required to mine the Moatize coal basin.

The importance of developing infrastructure quickly was further highlighted by news that the Mozambican government is expected to take steps to bring greater amounts of coal to market in a relatively short timeframe.

Recentreports indicate that the Mozambican government plans to amend current legislation which allows those holding coal mining rights up to 15 years before mining actually begins. New legislation is anticipated to require exploring and mining companies to begin mining within two years.

Kohli told the conference that the key challenge facing Mozambique and mining companies is not the capital to finance mine developments, but coming up with an appropriate investment infrastructure model to unlock the lucrative basin.

"Moatize is potentially the largest reserve of coking coal in the world. About 100-million tonnes per annum of coal could be produced within the next five years, and that figure couldeven go further," says Kohli.

"There is a lot of enthusiasm about it, but the challenge relates to moving the coal. As mining in the basin expands, coal output will exceed railway capacity, even with further upgrading. Miners want to get the product out quickly and the Mozambican government wants development.

"Hence finalising the financing package and structure for the required roads, rail and ports remains the primary opportunity," he said

According to the IMF, Moatize holds an estimated 2,5-billion tonnes of coal, enough to keep producing for decades to come and is fast shaping Tete as a coal province of global importance. The resource base for identified projects is said to have an estimated value running into the hundreds of billions of dollars.

Kohli says the issue for mining companies is not capital expenditure required to develop the basin, because they have the balance sheets to fund developments of any size.

The Moatize basin hosts Australian miner Riversdale's (now owned by Rio) tenements as well as coal deposits owned by Brazilian giant Vale. The total current estimated mine capital expenditure stands at US$3.5-billion.

Vale has begun to produce coal at its open-cast mine, and has rescheduled the start of exports from July to September. By 2014 Vale's output is expected to be around 11-million tonnes a year, and a second mining phase, beginning in 2014, will double that figure.

"Collaboration is needed between miners and the Mozambican government on an appropriate model. One option is for miners to part-own the infrastructure, but this raises the key question of how much capacity will the miners be willing to allocate toother commodities and goods," says Kohli.

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