Mining giant Vale has not performed that well this year in Mozambique, writes Leon Louw.
Mozambique’s coal mining sector has lost some of its luster in the past few years. Not too long ago, the country was getting a lot of attention from potential investors as new coal fields opened-up a region previously decimated by civil war. As the attention started shifting to the gas fields of the Rovuma basin instead, and one or two major coal mining companies got their fingers burned, the Mozambique coal mining story started disappearing from the front pages.
Moreover, inadequate infrastructure still hampers development, and security became a risk with the emergence of new extremist groups in the north. To make things worse, the government recently failed to honour debt responsibilities and the IMF suspended further support.
Nonetheless, according to reports, the operating environment has improved somewhat, and there might just be a glimpse of renewed interest in the country once hailed as the southern African miracle story.
Vale, the Brazilian mining giant, opened the USD1.7-billion Moatize coal mine in Tete province in north-west Mozambique in 2011, and has operated the mine ever since. One wonders, however, if all is well at Moatize. The mine hasn’t performed well this year and continues to incur losses.
In the groups production and sales report for the third quarter of 2018, Vale predicts a drop in production from 15 million to 12 million tonnes of coal this year. The report states that this downward review is due to subsidiary Vale Moçambique reviewing processes and plans at the Moatize mine.
According to Marcelo Tertuliano, CEO at Vale Moçambique, 2018 has been earmarked as ‘the year of stabilisation’ to ensure a production increase from 2019 onwards. The stabilsation actions, the company stated in May, will include the removal of unusable material, the opening-up of new mining sections and the preparation of new wells.
In August, Tertuliano announced that the mine had ended the first half of the year with debt of USD7.9-billion, an increase of USD100-million compared to the amount recorded at the end of first quarter. In addition, he announced in August, the company’s net income in the second quarter remained negative at minus USD193-million, higher than the negative result of USD139-million in the first quarter.
Bad weather, high operating costs and the appreciation of the Mozambican currency, the metical, are among the main negative influences being mentioned as causes of the disappointing performance by the company in the second quarter of 2018.
Should we start to worry about Mozambique and Moatize?