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Mining operations must be wary of community impact – consultancy

7th June 2013

By: Chantelle Kotze

  

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Although significant mining operations impacts on the environment, the opportunities to develop a country, its local communities and its infrastructure are far greater.

“A country can benefit from and attract crucial foreign investment, which will lead to the eventual expansion of infrastructure and growth in its gross domestic product (GDP),” global management consulting firm AT Kearney tells Mining Weekly.

AT Kearney principal Tim Dröge points out that the mining foreign direct investment (FDI) dominated total FDI in Mozambique last year. “FDI for 2012 more than doubled, from the $2.6-billion achieved in 2011, to $5.2-billion – 78% of which was within the natural resources sector,” he notes.

Further, the bulk of the capital expenditure of coal mining operations in Mozambique, in particular, is being invested in construc- tion and development projects, accounting for 61% of the total value of mining projects there.

Mozambique’s economic growth rate is expected to increase to 8.4% this year, as a result of ramping up coal exports, executing major infrastructure projects and elimi- nating transport bottlenecks – particularly an increase in the capacity of the railways linking the inland coal-producing Tete region with the coast, says Dröge.

Projections made by international financial institutions, including the International Monetary Fund (IMF), the World Bank and the International Finance Corporation (IFC), suggest that the mining industry in Mozambique should generate revenues of nearly R6.24-billion during this year.

“The minerals sector accounted for 1.4% of the country’s GDP in 2011, rising to 3.4% in 2012 and is predicted by the IMF to reach 4.3% this year,” says Dröge.

The IFC has further identified the mining and gas sectors in Mozambique as two of the strategic sectors on which it will focus its funding.

He adds that if all of the stakeholders in Mozambique-based mining operations could benefit appropriately from the operation – as opposed to being part of the operation only for financial gain – Mozambique’s mining operations could show how mining resources can uplift a nation.

“However, if operations are not con- ducted in this way, the mining operation can do the opposite,” says Dröge.

Mining Activity
Mining activity in Mozambique has increased over the past ten years as a result of several companies investing in coal and liquefied natural gas (LNG) operations throughout the country. “While the largest investment and exploration activities have taken place in the coal sector, other minerals such as gold, iron-ore, titanium and bauxite are also being explored,” says AT Kearney partner Dario Gaspar.

However, mining should not be at the expense of the environment. Gaspar emphasises that mining houses should ensure that they do not impact negatively on the country and its citizens when undertaking an operation to ensure the future sustainability of the operation.

Mozambique is benefiting from its mining industry through the establishment of infrastructure and business development surrounding mining operations, which will improve the overall economic and social environment in the country.

“While most governments no longer allow mining houses to merely take from the country without adding value to the economy in return, mining companies have also realised that they have a social responsibility towards the communities they disrupt. This usually manifests in infrastructure development around the mine, such as schools, healthcare facilities, housing, transport and power infrastructure, water reticulation and the development of services and goods industries.

“By not doing this, the operations could suffer, as communities may lose respect and trust in the mining house and become disgruntled,” says Gaspar.

In addition, Mozambique is benefiting from the investment by multinational support-service providers, which have followed the mining companies into Mozambique. “Miners are not only driving investment in infrastructure but other sectors, such as finance and telecommunications, are also gaining confidence to enter Mozambique,” adds Gaspar.

Mining companies in Mozambique will establish local training centres and develop local expertise and skills, not only in the country but also in the entire Southern African region.

Challenges
With Mozambique’s coal resources located in the interior of country, large volumes of coal need to be transported to the coast for export. “As a result, the infrastructure needed to handle and transport the coal needs to be built or the capacity of the existing infrastructure needs to be increased,” says Gaspar.

Challenges exist, such as congestion at overloaded ports and the insufficient availability of vessels and containers at the ports, while road and rail infrastructure is in poor condition.

The inability to track trucks and trains and the improper alignment of resource availability also constrict the country’s development.

Mining Weekly reported in April that the Mozambique Ports and Railway Company, or CFM, reopened the Sena line on Feb- ruary 28, after the 575-km-long line had to be closed as a result of serious damage caused by torrential rains, which washed away three culverts and some 800 m of track and ballast. The line links Tete with the Port of Beira and conveys coal to the coast for export.

CFM suffered damages of about $10- million, including lost-traffic revenues, while Brazilian mining giant Vale declared force majeure on several coal shipment contracts at its Benga coal project, in Mozambique, following the closure of the Sena railway line.

Vale has since had to reduce the 2013 export target from its previous estimate of 4.9-million tons to 3.4-million tons for its Mozambique coal mine after heavy floods temporarily shut a railway line.

“Economic activities, such as the services needed to supply the operations, and the training of labour to execute the new infrastructure builds and undertake mining in the region, also need to be established to support mining operations,” notes Gaspar.

Infrastructure Investment
He notes that the larger mining houses, with an already established presence in Mozambique, are committed to investing in the country. Mining companies account for 17.1% of all infrastructure investments, ensuring that infrastructure is sufficient to support their coal exports, while the private sector, in general, supports 65.6% of all infrastructure projects.

Mining major Rio Tinto is one of the six preferred bidders for a new $3-billion railway and port development to boost coal exports. The tender is for a 525 km rail line from Tete to Macuse, in Mozambique’s Zambezia province, including a new port that will initially handle 25-million tons a year of cargo, with the potential of doubling that in future.

Further, about $23-billion is being spent over the next decade on the construction of several trunk roads destroyed during the civil war, along with the development of the Nacala–Beira–Maputo corridor.

Vale is investing $4.4-billion to revamp a railway line in Tete that extends through Malawi to the deep-water port at Nacala, in the north.

Edited by Megan van Wyngaardt
Creamer Media Contributing Editor Online

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