Lagging Freight Transport Network Risk To Mining Projects
The risks inherent in frontier mining are being highlighted in Mozambique, where majors attracted by the massive coal reserves in Tete Province are having to contend with dilapidated, insufficient and simply lacking freight transport network for taking goods to market. While we continue to believe that Mozambique will be one of the key drivers of growth in global coal production over the coming years, the lag in infrastructure development will continue to weigh on volumes.
Huge coal reserves discovered in Mozambique have led to the involvement of two of the largest mining firms in the world in developing mines there. Brazil's Vale has the Moatize project, while London-headquartered British-Australian firm Rio Tinto has the Zambeze project and Benga mine. However, both are learning to their cost that frontier markets such as Mozambique bring with them considerable challenges beyond the simple extraction of the commodity from the ground.
|Head To Tete for Coal Reserves|
|Mozambique - Coal Mines|
In Rio Tinto's case the company has announced that it has been forced to reduce the number of its workers in Mozambique as its operations there made a loss in 2012 and are expected to see another loss in 2013. A statement by subsidiary Rio Tinto Coal Mozambique (RTCM) read: 'Due to a drop in prices of raw materials and constraints created by coal transport and logistics infrastructure, RTCM posted losses in its operations in 2012 and, in anticipation of difficulties in the remaining months of 2013, steps are being taken to ensure the business is profitable by the end of 2013 and sustainable for the future.'
Rio Tinto's massive 2012 loss of US$3bn at its Benga mine was a result of both a downward review of coal reserves, and the effect that the paucity of freight transport infrastructure was having on operations. The Sena railroad, the railway line from the mines to the port of Beira, does not at present have sufficient capacity to transport coal volumes, and the Mozambican government has refused Rio Tinto permission to utilise barges on the Zambezi River due to environmental concerns.
In order to ensure a route to market, the mining companies are being forced into considerable outlays in freight transport infrastructure themselves, investing in the country's ports and rail links between them and the mines. Vale is developing a railway that will run from its Moatize mine to the northern port of Nacala. This will utilise existing rail networks, including one that runs through Malawi, but Vale will also have to construct and rehabilitate a 268km line itself, from the eastern shore of Lake Malawi to the Mozambican province of Niassa, connecting to the mining region. The total project will cost the company US$4bn, and Vale has announced that US$48mn has been approved for the eastern section of the line, with work scheduled to begin later in May.