NEW coal projects in the resource-rich Tete province, in Mozambique, may stall due to infrastructure constraints, says a leading coal-mining analyst.
Tete holds substantial thermal and metallurgical coal resources but its small rail infrastructure — which links the Moatize coal basin to the port in Beira — can handle only about 3-million tons of coal a year.
The country’s ports and rail authority plans to invest $12bn to upgrade its infrastructure.
"Being so small and the prospects of a sizable increase being so remote, companies, other than Vale — that has the lion’s share — are not going to develop their coal mine assets because although they could produce soon, they cannot sell their coal as they cannot rail to port," XMP Consulting analyst Xavier Prevost says.
Diversified resources mining giant Rio Tinto was the first to announce it was reviewing its coal assets in the region, after incurring a $3bn write-down on its Riversdale project.
In March, London-based Anglo American also announced it was pulling out of its $555m plan to buy a 58.9% stake in the Revuboe mine project.
Anglo announced its maiden move into Mozambique in July last year, trumpeting a deal that would have given it a majority stake in Minas de Revuboe, a deposit sandwiched between a Vale mine and a Rio Tinto project. The group argues its decision against proceeding with the transaction was "characterised by the lack of sufficient" information it required.
"Anglo American has committed significant resources to working on this potential transaction over the last nine months," the miner said. "Our decision not to proceed with the transaction is the result of the conditions not being satisfied within the required time frame," Anglo corporate communication head Pranill Ramchander said, without going into detail.
He said the company’s opinion of the opportunities in Mozambique had not changed, and "the company continues to be interested in establishing a position in metallurgical coal".
Nippon Steel & Sumitomo Metal Corporation — which owns a third of Revuboe — received the go-ahead to start developing what is stated to be a 5-million-ton-a-year coking coal mine.
It was intended that production would start in 2016.
For Mr Prevost, most coal prospecting and mining companies in Mozambique are probably wondering how long it will be before infrastructure development catches up with coal-mine development.
"Some might decide they cannot wait too long and quit the country ; others, hopefully many, might decide to stay," he said.
"Since the country is not industrialised enough to absorb more electricity and there are no deals with South Africa or Eskom to buy that extra power from them, they cannot generate more," Mr Prevost said. "In my view, Eskom needs extra power, but has not signed any deals with countries like Mozambique, Botswana, Zimbabwe or any other to agree to buy electricity from them. Why? I don’t know."
Another option could include miners in Mozambique signing off-take agreements with Eskom to ensure ample supply of coal once the Medupi and Kusile power stations come on line. This will add another 9,500MW to the national grid.
Over the past year, coal miners have not been glad to bear the brunt of a weak price, which continued in recent months as a result of coal from Colombia being dumped in Europe and Asia.
Coal stock levels remained high in both Europe and Asia, with China’s weak domestic prices causing a lack of interest in imports, an analyst note released last week by London Commodity Brokers showed.
"Coal prices appear to have bottomed for now at around $81 a ton. However, we are not at historically oversold levels and price could continue to grind down from current levels," the note read.