Mines, Transport and power needed

By Nicholas Norbrook in Maputo
Posted on Monday, 23 March 2009 01:44

The mining industry is a major earner of foreign

exchange, but energy and transport constraints will hold back the

sector during a time of international financial crisis

Last year, Mozambique witnessed a stampede for prospecting licences, and there was much fanfare around the deals concluded. Coal, titanium sands, gold and gemstones have drawn Australian, Brazilian, Chinese, Indian, Irish and South African miners to try their luck. In fact, there are less than ten mining projects in production in the country, but the potential of what lies beneath is still drawing international attention.

When Australia, which supplies two-thirds of the world’s coking coal, failed to invest in expansion projects, the Zambezi basin rose to prominence. Key to business strategies of companies operating in the Zambezi region was supply for Indian and Chinese steel makers. In November 2007, Tata Steel signed a joint venture with Riverside Mining (the highest climber on the Adelaide Stock Exchange in 2008), gaining a 35% stake in Mozambique’s Benga and Moatize coal deposits to supply Tata Steel’s foundries in Europe and Asia. The Moatize area is thought to hold between 3-4bn tonnes of coal.

Riverside’s chief financial officer, Steve Thomas, told the Cape Town Mining Indaba that his company hopes to export 6m tonnes of coking coal and 2m tonnes of thermal coal by the second half of 2010. Gremach Infrastructure is the latest Indian company to have struck coal and claims to have a deal with a “big private-sector steel maker”. In 2006, Mittal Steel South Africa bought two ruined Mozambican steel companies, re-opening a rod mill in May 2008. Brazilian miner Vale is also planning a $1.2bn export facility. Needless to say, the falling price of commodities has meant several projects have now to be re-evaluated, but given South Africa’s power crunch, coal will likely be spared.

Infrastructure remains a key constraint to the sector’s development, as seen along the 600km trip from Moatize to the port in Beira. Though the Sena railway that was destroyed during the civil war is being rebuilt, it will only be able to carry about 2m tonnes, well below the 8m tonnes that Riverside wants to export, and that does not include the massive amounts Vale hopes to bring on stream in late 2010/11. Possible ways around this might be barges floated down the Zambezi or another railway line to the deepwater port at Nacala.

?Lights are off, everyone is home

Electricity is an issue for the industry. Although the dam at Cahora Bassa has provided cheap energy since the late 1990s, demand from industrial projects like the Mozal smelter, and now the electricity deficit in South Africa, mean that mines do not get the steady supply their equipment needs. “We have installed protection for most of our motors and drives, which insulates us to some extent from some of the shorter dips in voltage, but not from the longer dips and outages. We would always welcome more power; we’ll need it to be able to expand,” says Gareth Clifton, Mozambique manager for Ireland’s Kenmare Resources. The company has a large wet-mining project for titanium sands in Moma, near Nampula. Around 350,000 tonnes were mined in 2008, with about 20m tonnes of concentrate in the deposit, split into 75% ilmenite, 12% zircon and the remainder rutile. With another 150m tonne deposit 6km away, there is enough mining potential for at least 100 years.

A 500 MW coal-fired power station is planned by Riversdale in Tete, in partnership with Elgas, and it could be expanded to 2,000 MW over time. The extension to Cahora Bassa and a new dam project at Mpanda Ncua will not come online before 2015.

For many of these ‘mega-projects’, financing in the current global credit environment will not be easy, especially given the continuing commodity-price slide. Mining may well have a bright future in Mozambique, and investors praise the computerised system at the mines ministry that allows quick and easy access to which plots are being worked by whom. Getting over the short-term hump and keeping vital infrastructure projects alive will be key to a quick bounce-back.

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