--Clyde Russell is a Reuters market analyst. The views
expressed are his own.--
By Clyde Russell
MAPUTO, Nov 22 If Asian buyers expect
significant quantities of coking and thermal coal to come to
market from Mozambique within the next few years as scheduled,
they are likely to be disappointed.
The southern African nation has ambitious plans to export as
much as 100 million tonnes a year, much of it high quality
coking coal, providing steel makers in China, India, Japan and
elsewhere in Asia a lower-cost alternative to current suppliers,
dominated by Australia, Canada and the United States.
But it's clear from talking to miners, rail and port
operators and contractors at the Coaltrans Mozambique conference
in the capital Maputo this week that the plans are still a long
way from reality, and are extremely unlikely to be delivered on
time or even on budget.
There is no doubt that the coal reserves in Tete province
are extensive and relatively easy to mine at costs competitive
with other producing nations.
But similar to Australia and Mongolia, the real challenge is
getting the coal long distances through often harsh terrain to
the coast, and then Mozambique is doubly challenged by a lack of
suitable deepwater ports capable of handling capesize vessels.
Mozambique will likely export somewhere between 3 and 4
million tonnes of coal this year from mines in Tete, where
virtually all of the new planned mines will be located.
The country does ship coal from Maputo, in the south, but
this is sourced from South Africa, Zimbabwe and Botswana.
Currently coal from Tete's mines, operated by Brazil's Vale
and Rio Tinto, undertakes a fairly torturous
journey of almost 600 kilometres (360 miles) by a combination of
truck and rail to the port of Beira, in the central region of
Even when it gets here, the logistic challenges continue, as
the port is shallow, meaning that coal is barged out to a sea to
be transhipped onto larger vessels.
The Sena railway that links the coal area of Moatize in Tete
to Beira is currently being upgraded after being damaged and
neglected during a lengthy civil war that ended in 1992.
The restoration of the line was supposed to have been
completed by now, but has been delayed, showing if nothing else
the challenges of working in a remote part of Africa, where
roads are poor and the many rivers subject to flooding in the
It is hoped that the line will be able to transport 6
million tonnes of coal per annum from the start of 2013, and
double that within five years.
But even a capacity of 12 million tonnes a year is a spit in
the bucket of what Mozambique wants to export, and there are
plans for two more rail lines to link the mines to the port of
Nacala in the nation's north.
One rail line, which goes through the part of Malawi that
juts into Mozambique, already exists but is in need of extensive
Vale is currently planning on doing this work, while ENRC,
the London-listed Kazakh miner, aims to build a second line
around the bottom of Malawi to Nacala with a capacity of 40 to
60 million tonnes per annum.
The existing line is just under 1,000 km while the proposed
second line would be more than 1,000 km.
While Nacala is a deepwater port, a coal-export terminal
capable of handling the planned volumes still has to be designed
While the engineers at the conference were confident that
these infrastructure projects can be built, the major question
mark has to be over the funding.
Company executives are generally reluctant to be pinned down
on capital expenditure, but the upgrading of the two existing
rail lines and the building of a third would cost at least $12
billion, according to Rosario Mualeia, the president of
state-owned rail company CFM.
That figures doesn't include the billions more needed for
port infrastructure, mine construction and the provision of
services necessary to keep the whole chain running.
All this money can be found, but only if the economics stack
up, and here the recent price declines for coal are making the
project finance providers considerably more cautious.
One executive at an Indian steel company with interests in
Mozambique coal mines said that unless the coal can reach the
ports at a free-on-board cost of under $100 a tonne, then the
mines aren't currently viable.
Another contractor at the conference, speaking off the
record, said that getting the coal to port at less than $130 a
tonne will be a challenge in Mozambique.
This means that coking coal is just viable, given its
current price around $150 a tonne, but the slim margin means
financing in the current climate is going to be hard, if not
What this all adds up to is delays and more delays, making
Mozambique very similar to Australia, where ambitious plans to
develop new basins such as the Galilee in Queensland state have
been quietly placed on the back burner.
There is no doubt Mozambique has the potential to become a
major supplier of coking coal, and its geographical proximity to
India in particular, as well as a government that is seemingly
more investment and tax friendly that Australia or Indonesia,
stand it in good stead.
But the infrastructure challenges are significant and
expensive to overcome. As one engineering contractor put it:
"There is no way these projects will be done on time and on