Mozambique: a Waking Coal Giant

Holding the fourth largest untapped coal reserves, mining in Mozambique is set to flourish.

Elisa L. Iannacone

Mozambique-BLOGA strategic gateway into the Middle East, Asia and neighboring countries, including Zambia, Zimbabwe and South Africa, Mozambique has risen from being one of the poorest countries in the world to one of its fastest growing economies. The former Arab-trading outpost and Portuguese colony gained independence in the mid-seventies, but was split by an internal civil war between the Marxist-Leninist FRELIMO and anti-communist RENAMO factions. The young nation has only known political stability for 20 years.

Despite its tumultuous recent history, Mozambique’s strategic position along some of the continent’s busiest trading routes is a major incentive for companies to invest and operate in the country. The nation has received high inflows of foreign direct investment (FDI), partially triggered by the government’s strong support for new businesses entering the country. “There is great willingness from the country leaders to do things the right way and the government is making huge efforts to attract investment into Mozambique,“ says Titos MP Munhequete, Business Manager at Golder Associates in Maputo.

Holding the world’s fourth largest untapped reserves of coal, estimated at two billion metric tons (mt), and various multi-billion dollar investments, as well as some of the world’s largest reserves of offshore natural gas at the Rovuma Basin, Mozambique has massive potential for growth. Mozambique is also “set to benefit from large coal demand from China and India and could well become one of the 10 largest coal exporters globally by 2017,” according to KPMG. The country also has vast untapped deposits of diverse metals and various precious and semi-precious stones, which are being explored by various companies such as Baobab Resources. The Mozambique-focused explorer is developing a vertically integrated pig iron and ferro-vanadium project.

Though Mozambique’s mineral wealth is undeniable, the country has seen many setbacks in the past months. Indian owned Jindal Africa has the capacity to increase production to 10 million mt at their Chirodzi Project in Tete province, but has had to limit its growth due to lack of infrastructure and favorable coal prices. “Initially, Jindal Africa’s target was 3 million mt of coal in 2014, but due to constraints on the market and softening coal prices, the Chirodzi mine is producing around 2 million mt run off mine,” said Parshant Kumar Goyal, Project Head for Jindal Africa.

Lack of proper transportation infrastructure has been a deterrent to the country’s development. Railway capacity is still well under the major players’ ability to produce, which has stagnated production. “Logistics remain a major challenge and are very expensive, which hampers our output, even though the cost of production is low. Transportation and logistics costs make it difficult for Jindal Africa to compete in the global market. The Chirodzi mine is around 120 kilometers (km) from the nearest railway station and we are sending our product via trucks. There are more bridges coming up in the near future, but currently there is no viable way to cut costs on transportation,” stated Parshant.

Once booming in the mining landscape, Tete Province has recently seen greater growth in the agriculture sector, especially in tobacco and cotton. Many service providers once eager to stock-up on yellow machines are now lined with green tractors.

Though in a transitional process, the country’s economy is still firmly grounded in agriculture. With most of the country still lacking electricity and experiencing power cuts that can last longer than a few days, power poses a great threat to the mining industry’s continued development. Lack of skilled labor is also hard to come by and many companies are left with no option other than importing employees from neighboring South Africa.

Foreign investors are still keeping an eye on the country’s political landscape, which has again proven an obstacle to progress. The looming general election that is set to be held on 15 October has caused relative instability, with various demonstrations across the country. However, a ceasefire between the government and RENAMO opposition party following two years of low-intensity clashes has been seen as a cause for optimism.

Despite the setbacks, several companies are continuing to invest heavily in the country. This will trigger infrastructure development, employment opportunities and national revenue streams. NCONDEZI ENERGY is building an integrated thermal coal mine and 300-megawatt power plant in the Zambezi Coal Basin in Tete. The company is forecast to begin commercial operations in H1 2018.

Brazilian mining giant, Vale, has been present in the country since 2004 with the Moatize Coal Project, which produced a combined 3.77 million mt of metallurgical and thermal coal in its first full year of operations in 2012. The Moatize II start-up is scheduled for 2015 and Vale has stated that in Q1 2014, it “invested $134 million in the Moatize II project and $322 million in its associated logistics structure, the Nacala corridor.” The over 900-km corridor connecting Moatize to the Port of Nacala will have a transport capacity of 18 million mt of coal per annum. The restoration of the Sena Railway is also underway, which will connect Moatize to the Port of Beira.

Jindal Africa is not lagging behind and has plans to build coal-fired power plants in Mozambique to create its own market. “We have our environmental clearance and land ready, we are just waiting for the off-take agreement from the government before proceeding with our plans. […] Jindal Africa will not directly sell into the market, but it will act via the government. Once the off-take agreement is in place, it will take about two to three years to construct the plant. Jindal Africa expects to have government clearance by January 2015,” Parshant said.

With steel plants in India, Jindal is aiming to become a major supplier of coking coal. “We are in a process of exploring other parts of the concession and if there is more coal, then we will happily stay in the country for over 25 years,” he added. The company is steadily working to fully explore the concession having drilled around 2000 meters since August 2014.

Though a country diverse in mineral wealth, coal is the major driver in the mining industry and has the potential to position Mozambique as a global production leader. According to Titos, “This is the best time to invest in Mozambique. I think we will see huge growth in the next five years.”

This article was written as part of the research being conducted by GBR for its upcoming Mining in Africa Country Investment Guide (MACIG) 2015. To participate in this report, please contact Sharon Saylor at ssaylor@gbreports.com.

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