(Refiles to fix dateline and byline)
* Rio's exit frustrates Mozambique's coal ambitions
* Asset sale price implies further writedown
* Vale also looking to sell stake in Mozambique coal assets
* Mozambique bets on India's growing demand for coal
By Silvia Antonioli and James Regan
LONDON/SYDNEY, July 30 Rio Tinto
has agreed to sell coal assets it bought through a $4
billion acquisition of Riversdale in 2011 for just $50 million
to an Indian joint venture, ending its ill-fated venture in
Mozambique's coal sector.
The sale of Rio Tinto Coal Mozambique to International Coal
Ventures Private Limited (ICVL), includes the Benga coal mine
and other projects in Tete province, assets that had a value of
$71 million as of March 31 in Rio's books.
In 2013, Rio Tinto sacked its chief executive and other
executives directly involved in the acquisition of Riversdale
and wrote off about $3.5 billion of the purchase price, partly
owing to a failure to secure a permit to move coal by barge down
Mozambique's Zambezi River.
Rio Tinto is only retaining one of the assets it got from
the Riversdale acquisition: the Zululand Anthracite Colliery, a
small coal mine in South Africa.
"It has clearly been a horrible experience for Rio Tinto,"
said Liberum analyst Richard Knights, saying that the sale price
was lower than he expected and implied a further writedown.
"The assets clearly weren't as good as they thought but in
order for them to be written down that aggressively they must
have seen very little scope in the foreseeable future for the
profitable export of coal from Mozambique."
A source familiar with the sale said Rio Tinto had been
reviewing the division for the past 18 months.
"The sale is not overly surprising given the new management
team has little interest in major greenfield projects where they
don't have much experience and coal in general has also fallen
out of favour," Nomura analysts said.
The buyer, ICVL, was set up by the Indian government to buy
coal assets overseas to meet the needs of state-owned companies
such as Steel Authority of India Limited, Coal India
Limited, Rashtriya Ispat Nigam Limited IPO-RASH.NS,
National Minerals Development Corporation Limited and
National Thermal Power Corporation Limited.
This is the first acquisition by ICVL, some six years after
Rio Tinto's decision to quit the Mozambique coal sector is a
blow to the country's ambition to become a major coal exporter.
Rival mining company Vale is also looking to sell a
stake in its coal operations, which include its Moatize mine in
Mozambique and some assets in Australia.
In an interview at the weekend, Mozambique's transport
minister Gabriel Muthisse said the government remained committed
to developing the coal industry as a driver of economic growth.
With global prices for metallurgical and thermal coal in the
doldrums because of oversupply and sluggish demand, major coal
producers and analysts have been warning that Mozambique's coal
sector, hurt by a shortage of railway and port infrastructure,
is not competitive.
A source in the mining industry in Mozambique put Rio
Tinto's decision down to the difficult business environment, the
high cost of logistics and pending issues with the government,
such as the tax payment for the Riversdale acquisition.
"The country needs to face reality and understand that they
will not attract neither hold investments in coal if they are
not competitive," he said.
While the global coal price outlook is seen remaining
depressed for at least the next two years, India's expanding
steel industry is expected to boost demand for coal in the
medium term. Mozambique is counting on the Indian market to help
its fledgling coal industry grow.
Apart from ICVL, state-owned Neyveli Lignite Corp
is also looking to buy assets in Mozambique. Tata Steel
, Coal India, Essar, JSW Steel and
Jindal Steel and Power already own coal mines or
stakes in coal mines there.
"Everybody in Mozambique views India as a logical market
because of its proximity and the coal quality that is suited for
India," Ajay Mathur, chief executive of ICVL, has said.
Jindal Steel and Power has been sending about 50,000 tonnes
of coal a month to India from its Mozambique mine and hopes to
raise it once port and other infrastructure are ramped up by
2016, deputy managing director VR Sharma said.
Rio Tinto said the sale to ICVL is subject to certain
conditions and regulatory approvals and is expected to be
completed in the third quarter this year.
(Additional reporting by Pascal Fletcher and Krishna Das;
Editing by Jason Neely and David Clarke)