While coal production has rapidly increased since exports in Mozam- bique started in 2011, research and consulting firm Wood Mackenzie expects the country’s marketable coal production to increase from six-million tonnes in 2013 to about ten-million tonnes this year, says coal research senior analyst Brent Spalding.

“This growth has been primarily driven by the involvement of major international mining companies Vale and Rio Tinto, with smaller producers taking advantage of the associated infrastructure developments,” he says.

Spalding adds that, although the coal industry is still in its early stages of development, there are currently four operating coal mines in the country – each with significant expansion potential – as well as five greenfield projects that could come on line over the next three to ten years.

The combined net present value of these four mines and five greenfield assets is about $5-billion, estimated at a 10% nominal discount rate.
Further, large-scale rail and port infrastructure is currently under construction, which will help facilitate exports, says Spalding.

Most of Mozambique’s coal sector is based in Tete province, in the north of the country, with total reserves estimated at about 4.7- billion tonnes, most of which are estimated to be in the Moatize basin.

Further, Wood Mackenzie forecasts that marketable production will increase to 12-million tonnes in 2015, 16-million tonnes in 2016 and to 18-million tonnes in 2017 with an exponential growth of 300% to 24-million tonnes in 2018.

However, while the firm notes a strong production growth rate for the near-term future, Spalding says the pace of expansion is slower than the company had previously expected. “This is largely a result of weaker global demand growth for coal, along with disruptions to Mozambique’s rail network in 2013, as a result of heavy rainfall,” he says.

He adds that, as metallurgical coal comprises most exports, nearly all of the thermal coal production is currently being stockpiled, owing to weak thermal coal market conditions and infrastructure constraints.

Thermal coal, which is lower in carbon content and calorific value, is primarily used for power generation, while metallurgical coal is used in the production of coke, an important part of the steelmaking process.

Infrastructure Impacts
Spalding highlights the importance of developing coal export infrastructure in Mozambique, as it is essential to the growth of the country’s coal sector.

“Export growth depends on significant upgrades to existing rail and port facilities, such as the Sena rail line and the Port of Beira, as well as the construction of a new greenfield rail line and port terminal at the Port of Nacala.”

Spalding notes, however, that, while upgrade and construction work is ongoing, the pace of progress will determine how quickly exports can ramp up over the coming years.

“Any delays in construction, or difficulties in financing capital expenditure in a low coal-price environment, could constrain coal production and exports in the near term,” he says.

Strategy and communications consultancy africapractice associate consultant Sinethemba Zonke agrees, further noting that current investment in rail and ports will ensure that Mozambique can meet global mineral demand, securing its spot as one of the top mineral exporting nations.

“Investment in transport infrastructure will be a net benefit for not only the mining sector but also a diverse range of industries in Mozambique. This will contribute to the growth of the economy, which is estimated to grow at about 8.1% this year,” he stresses.

However, the state of transport infrastructure in Mozambique could hamper the country’s efforts in growing the coal mining sector, as the current bottlenecks have resulted in the country being unable to adequately export its coal to overseas markets, notes Zonke.

“Failure to meet global export expectations could result in international markets consider- ing other jurisdictions with coal reserves,” he warns, adding that South Africa is also investing in its rail and port infrastructure to boost its coal exports.

Zonke adds that several factors will impact on the future of Mozambique’s mining sector, such as trends in global demand and the country’s legislative environment.

“The Mozambique coal sector will continue to benefit from China and India’s high demand, as the economic growth in these two Asian economies will ensure that Mozambique has a ready market that will continue to boost the sector.”

In terms of legislation, Zonke notes that, as Mozambique’s new mining law – which was expected to come into effect by the end of last month – provisions for local content, the law could have wide-ranging effects on the mining sector.

Mozambique’s new mining law was likely to be passed ahead of the new auction for coal mining concessions in the Tete and Niassa provinces taking place this month, Engineering News reported last month.

Major sections of the law focused on key issues pertaining to new mining titles, including mining treatment and mining processing; new timing requirements for exploration, prospecting and mining concession licences; restrictions on the transfer of mining rights and titles; and the new tax regime, Engineering News reported.

“If the current draft is signed into law, mining companies will also be required to procure more of their goods and services from local companies in Mozambique, which would a be a great step towards developing the local industries.

“However, pitfalls could occur if local companies cannot meet the quality standards and demands of companies. Therefore, government will have to find a way to ensure that the local-content rules benefit all stakeholders,” Zonke emphasises.

Nevertheless, he maintains that the country’s efforts at revising the mining law to ensure certain processes, such as reducing the time it takes to get a mining licence, will make Mozambique a more attractive mining jurisdiction.

Meanwhile, Mining Weekly reported in January that “the value of Mozambique’s mining sector will increase from $259-million in 2012 to $724-million in 2017”, further noting that it could have one of the fastest-growing mining sectors in the world this year, according to US market research, analysis and business intelligence company Fast Market Research.

Fast Market Research stated that “growth should happen, despite issues of inadequate infrastructure and insecurity”. It added that forecast growth would be the result of a combination of further investments in the country’s considerable coal reserves and the relatively strong business environment, while mining’s share of the national gross domestic product was likely to rise from 1.8% in 2012 to 2.9% in 2017.

Effects of Elections
International professional services firm KPMG Mozambique senior partner Filipe Mandlate says, while the Mozambique general elections – to be held in October – will impact on the candidates’ short-term conduct, depending on the scope of the victories, little is expected to happen this year in terms of its effect on the mining industry.

However, Mandlate expects that the new government will “continue on the current path – if not move forward – with more legislation and regulation in 2015”.