Brazilian major mining group Vale has reported, in its publication ‘Vale’s Performance in 2Q16’, that its subsidiary in Mozambique produced negative earnings before interest, taxes, depreciation and amortisation (Ebitda) of $100-million during the second quarter of this year (2Q16). However, this was an improvement on the negative Ebitda of $112-million during the first quarter. This improvement was largely the result of a reduction in costs and expenses (after accounting for variations in volumes and the exchange rate).

“Production cost per ton at the Nacala port decreased by 39% to $103/t in 2Q16 from $168/t in 1Q16, and should further improve in the coming quarters as Nacala and Moatize [Phase]II ramp up,” states the performance report. “Mozambique costs and expenses, net of depreciation, amounted to $215-million in 2Q16, compared with $213-million in 1Q16. After adjusting for the impact of higher volumes ($60-million), costs and expenses decreased $58-million in 2Q16 vs 1Q16 mainly as a result of the ramp-up of the Nacala Logistics Corridor.”

Vale’s Moatize coal mine is located in the inland province of Tete, so its output has to be transported to the coast for export. The Nacala Logistics Corridor has been developed as a more capable alternative to the existing 575 km Sena line linking Tete with the port city of Beira. The Sena line has suffered from inadequate capacity and disruptions caused by storms and flooding during the rainy season, as well as, more recently, sporadic political violence. The railway from Moatize to Nacala-à-Velha (to give the port city its full name) runs, via Malawi, for 912 km. Of this total, 684 km is existing track that was refurbished and 228 km is new track, most of it laid in Malawi. According to a Mozambique media report late last year, the intent is to run 1.5kmlong trains, composed of four locomotives and 120 wagons each, on the Nacala line (at that time, trains on the Sena line seemed to comprise just over 40 wagons each).

Vale reports that the ramp-up of the Nacala Logistics Corridor is going according to plan. During 2Q16, the line carried 1.655-million tons (Mt) of freight, a sharp increase on the 761 000 t conveyed during 1Q16. There were 19 coal shipments from Nacala totalling 1.567-Mt during the second quarter, compared with 13 shipments totalling 982 000 t in 1Q16 (these figures presumably including coal already stockpiled at the terminal).

There have also been improvements at the Moatize mine itself. Moatize Phase II should now have started, or be about to start, operation (the report states that it will start up “in early August”). “Total mine movement in Mozambique reached a new monthly record of 12.7 Mt in June due to higher equipment productivity and the development of new mining areas to supply the Moatize II coal handling and processing plant,” it adds.

Moatize is primarily a metallurgical or coking coal operation. Vale is hopeful that the recent increase in prices for this commodity will continue. “Prices for low-volatility premium hard coking coal quarterly benchmark FOB (free on board) Australia increased by 3.7% from $81/t in 1Q16 to $84/t in 2Q16. PCI [pulverised coal injection] benchmark prices also increased by 5.8% from $69/t to $73/t. “The recent increase in coking coal prices was mainly driven by an improvement in China’s import demand and constraints on global supply . . . Confidence in continued price strengthening in the coming quarters gained momentum, as price indices for premium hard coking coal were strong in the beginning of July – in excess of $92/t . . . The sustainability of this scenario will largely depend on the production cuts at Chinese domestic mines.”