The Benga coal mine, in the Tete province of Mozambique, 65%-owned by Indian State-owned company International Coal Ventures Limited (ICVL) and 35%-owned by Indian private-sector group Tata Steel, is effectively losing $7.5-million a month. This has been revealed by the Indian newspaper Financial Express.
“We are losing $9- [to] $10-million per month. This is inclusive of a refundable VAT [value added tax]. Minus VAT, the effective loss would be $7.5-million a month,” ICVL Mozambique MD and CEO Nirmal Chandra Jha told the newspaper. “We have taken various measures to reduce the cost or production. However, the cost of mining will come down when we start doing it on our own. Doing that, we can also get rid of the service tax. To reduce the transportation cost, we are mulling slurry transport.”
Reportedly, Benga has been suffering these losses since October last year. The main causes are high costs for mining and for transporting the coal. (The mining is currently done by a contractor, South African company MCC, which is a division of Eqstra Holdings.) The coal has to be carried 590 km to the port for export.
“Transportation and loading alone costs around $50/t now,” explained Jha. “From January 2016, we will go for a different mode of mining and this will bring down our costs substantially.” ICVL and Tata Steel have already put in place a number of initiatives to reduce costs at the operation. These include production cutbacks. But no reduction in the losses is expected until next year.
Benga has an annual production capacity of 5.3-million tons, with reserves estimated at 2.6-billion tons. But, currently, production is running at just 300 000 t/m (or 3.6-million t/y). It is reported that some 35% of this is coking (or metallurgical) coal, 10% is thermal coal and 55% is rejected material. The coking coal is being exported to India to supply the Steel Authority of India Limited (SAIL) and Rashtriya Ispat Nigam Limited (RINL – another steel company). The thermal coal is currently being stockpiled at the mine, as is the rejected material.
SAIL and RINL are both partners in ICVL, which is a special purpose vehicle created at the initiative of the Indian Ministry of Steel, with the purpose of obtaining metallurgical and thermal coal assets in foreign countries, in order to assure the supply of imported coal. Apart from SAIL and RINL, its founder partners were Coal of India Limited, the National Mineral Development Corporation (NMDC) and NTPC (India’s largest power producer). All of these are State-owned. However, Coal India has announced that its board had directed the company to withdraw from ICVL, reportedly because it regarded ICVL as a financial burden that did not bring in sufficient benefits. And NTPC is not involved in the Benga acquisition and operation.
SAIL and RINL are both currently expanding their production capacity. In the case of SAIL, this will be to 23-million tons/year (Mt/y) and, for RINL, to 6.3-Mt/y. Furthermore, NMDC is building a 3-Mt/y capacity integrated steel plant.
ICVL bought its share of Benga off major global mining group Rio Tinto in July last year, reportedly for $50-million. The Indian business took control of the mine in October. Under the deal, ICVL also obtained 100% the Zambeze and Tete East coal projects. As for Tata Steel, it announced in February that it would make no further investments in the Benga operation and that it was planning to sell its shareholding in the mine. As of last month, Tata Steel had not taken any of its share of the mine’s coal.