Brazilian major mining group Vale has revealed that it will, in the near future, announce the sale of a share in its Moatize coal operation, in Mozambique.

This was stated by group CEO Murilo Ferreira in a recent teleconference about Vale’s financial performance during the third quarter (3Q14). He indicated that the sale would see the group dispose of between 15% and 25% of the Moatize mine, in the Tete province. Further, Vale could also sell half of its share in the Nacala corridor, which will connect the mine through a railway line to the coast. Vale currently owns 70% of the corridor project, so such a sale would reduce its share to 35%. Ferreira, however, still cited Moatize as one of the “great [or large] projects” that Vale was implementing.

Moatize Phase I has a nominal capacity of 11-million tons/year (Mt/y), but has not yet been able to achieve this owing to limitations in the railway and port infrastructure. Currently, coal from Moatize has to be carried by the Sena railway line to the port city of Beira. According to Vale’s previously released 3Q14 Production Report, Moatize’s output during 3Q14 was 1.296-million tons, divided into 828 000 t of metallurgical or coking coal and 468 000 t of thermal coal. As for the Nacala corridor, this will comprise a 912 km railway from Tete, through Malawi, to the Mozambique port of Nacala, where a coal export terminal is being established. This line (most of which already exists but is being significantly upgraded) will have a nominal annual capacity of 18-million tons. The corridor should be opened by the end of this year and will thereafter “gradually eliminate” (Vale’s words) the infrastructural bottlenecks.

Despite these problems, Vale has driven forward with the development of Moatize Phase II. According to the group’s 3Q14 Earnings Release, it invested $179-million in Moatize Phase II during the 3Q14. “Moatize II achieved 70% physical progress, enabling the passage of the first train in the rail loop and the start of the assembly of the steel structure on the secondary crusher,” stated Vale. “In September, we achieved a record of three years without any major injury in the project.”

Capital expenditure on Moatize II during the first nine months of this year came to $464-million and, since the project began, to $1.303-billion. The predicted total cost of the project is currently $2.068-billion. Moatize II is expected to start up during the second half of next year. It will double Moatize’s production capacity to 22 Mt/y.

The Nacala corridor received investments of $503-million from Vale during the third quarter. “The port and railway reached 85% and 71% of physical progress, respectively. The concrete work in the port has been finalised. Vale reached 92% of physical progress in the greenfield sections of the Nacala railway, which will allow the start-up in the next, [that is, fourth], quarter.” Over the period January to September (inclusive) this year, Vale invested $1.219-billion in the corridor. Total investment (to end September) has been $2.56-billion. The estimated total investment required for the programme is $4.444-billion.

Regarding earnings, in 3Q14 Vale’s coal business (which comprises operations in Australia as well as Moatize) had earnings before interest, taxes, depreciation and amortisation of –$149-million, an improvement of $5-million over the –$154-million of the second quarter. This improvement was largely due to lower costs and expenses (down $40-million), partially countered by lower sales volumes and prices ($34-million).

“Prices for metallurgical coal have remained relatively weak since the beginning of the year,” noted Vale. “In 3Q14, spot prices for the premium hard coking coal have been around US$110/t FOB (free on board) Australia. The fundamentals of the market continue to be weak, as oversupply persists and is due to last longer, finding no support from additional demand, which has been increasing only modestly . . . Overall, global coal production remains in an upward trend in the year, outpacing demand. As a result, the market is not expecting any material price rise without a serious supply shock . . . For the coming years, the market is expected to move sideways, with more closures and still sluggish demand.”