Rio Tinto Finds Success In Tete Province
BMI View: Rio Tinto has re-launched its coal mining operations in the Tete province of Mozambique following a US$3bn write down in January 2013. This is in line with our view that the miner will eventually find success and press ahead with the development of the Benga project in the country. With a string of projects on the horizon, we expect coal output in Mozambique to reach 41.8mnt by 2017, a near sevenfold increase from 2011 levels.
In line with our view , mining giant Rio Tinto has re-launched its coal mining operations in the Tete province of central Mozambique. A part from the government 's assurances , a n evaluation by Portos e Caminhos de Ferre de Mocambique (CFM), the owner of the Sena railroad, had given Rio the go-ahead following the release of an official statement in early March 2013. According to CFM, the railway line has been r epaired and is geared to handle rail traffic for transporting coal again. Rio had earlier flagged a US$3bn write-down to its coking coal assets in Mozambique due to a significant cut to recoverable coal estimates , as well as the relative paucity of sound infrastructure . The reduction in coal volumes at the Benga mine in the Tete province has significantly undermined the economic viability of constructing multibillion dollar rail an d port upgrades. Indeed, much of the transport system in Mozambique is in disrepair, a legacy of a 15-year long civil war that ended in 1992. While the miner has earlier proposed a plan to boost its annual shipments to 12mnt (million tonnes) by transporting coal down the Zambezi River from 2014 onwards, this has been struck down by the Mozambique government in March 2012.
We have previously highlighted that Rio will eventually find success with the Benga project and press ahead with its plan to develop the mine despite the challenges involved ( See our online service, 'Rio Tinto's Move To Diversify Not Without Challenges' ). Mozambique has become increasingly amenable to foreign investment over the last decade as the government adopts a pro-business approach. We expect Mozambique to remain open to foreign investment as the nascent mining sector looks set to provide a significant boon to the country's GDP in the years ahead. At present, the vast majority of mining companies operating in Mozambique are foreign and there has been no indication that the government is seeking to restrict this in the future. Furthermore, t he development of the Benga mine was crucial towards the diversification of Rio's operations from iron ore, which generated 85 % of its revenue in H112 . The miner remains optimistic that demand from China will continue to support the company's operations over the long run and do not foresee a sustained downturn in coking coal prices. We believe a string of mining projects on the horizon will continue to propel growth in Mozambique's mining space. We expect the country to witness one of the fastest growth rates in global coal production and will be a key driver of increases in global coal output over the coming years. We forecast coal output to reach 41.8mnt by 2017, a near sevenfold increase from 2011 levels.
|Heading To Tete For Coal Reserves|
|Mozambique - Coal Mines|