Brazilian mining major Vale believes that the conclusion of the project finance for the Nacala Logistics Corridor, in Mozambique and Malawi, will be an important step in increasing the competitiveness of its Mozambique coal operation. This was affirmed by the group’s investor relations head, André Figueiredo, in a presentation at the BM&F Bovespa, São Paulo’s Stock Exchange and Commodities and Futures Exchange, late last month. Vale has developed the Moatize coal mine, in Mozambique’s inland province of Tete. The mine produces mainly metallurgical, or coking, coal.
He pointed out that, on June 7, the contract documents for the railway concessions for the Nacala Corridor, as well as for the Port of Nacala, had been approved by the Mozambique Cabinet. This was an “important advance”. The next steps are to obtain the equivalent approval from the Malawi government, the signature of agreements directly with the financial institutions providing the project finance and the signature of intergovernmental agreements. Further, the financial agreement must be signed, and various other matters must be dealt with, such as the approval of an amendment that would allow the alignment of four concession contracts for railways and the port.
Vale is expecting to receive some $3-billion from developments involving Moatize and the Nacala Corridor. These are the sale of equity in both to Mitsui, of Japan; the reimbursement of investments (proportional to the share Mitsui has bought in Moatize and the Nacala Corridor) made by Vale since July 2014; and the repayment of a loan granted by Vale to Nacala.
On the operational side, operational improvements (“optimisations” was the word he used) were opening the way to better results for the group’s coal business (for which Moatize is by far the biggest asset). The ramp-up now taking place with the Nacala Corridor was going to result in a cut in the cost of the coal sold by some 60%, compared with last year.
The development of the Nacala Corridor has involved the laying of new track, mainly in Malawi, and the refurbishment of existing lines in Malawi and Mozambique, and the construction of a coal export terminal at the Port of Nacala. The line from Tete/Moatize to Nacala runs for 912 km. It has been developed as an alternative to the inadequate and flood-prone 575 km-long Sena line from Tete/Moatize to the port city of Beira. The development of the Nacala Corridor was budgeted at $4.444-billion.
The new route is necessary, as production at Moatize has been increasing significantly. From 3.8-million tons (Mt) in 2013, it rose to 4.9 Mt in 2014 and 5 Mt in 2015. Or, in other words, the mine’s output increased by 30% from 2013 to 2015.
Vale does not expect global metallurgical coal prices – indeed, the global prices for all the commodities its produces – to show any dramatic increases in the coming years. “Despite the recent price increases, commodity prices are returning to a historical baseline,” said Figueiredo. For metallurgical coal, prices increased by 56.4% from January 4 to August 23.
His caution is despite expected improvements in the Chinese market. As a consequence, across the group, the focus is on management discipline aimed at reducing costs and expenses, while increasing production volumes.