Vale SA in talks to sell stake in Mozambique coal and logistics assets

Brazilian mining giant Vale SA yesterday confirmed media reports that it is in talks with an investor over the sale of a stake in its Mozambique coal and logistics assets.

Media reports had earlier said that Vale was in talks to sell a 15-per cent stake in its Mozambique coal assets, the Moatize Coal Project, to Japanese trader Mitsui & Co for about $450 million and a 50-per cent stake in the project's rail and port in exchange for future investments.

Vale has long said it was planning to sell a stake in the project.

Vale, the world's second-largest mining company, had said in late 2011 that it would spend $6 billion in expanding its Moatize coal project from the second half of 2014 in the former Portuguese colony of Mozambique.

The investment was aimed at increasing production from 11 million tonnes to 22 million tonnes per year.

With the expansion, the Moatize coal project would produce 70 per cent of coking coal, a key ingredient in making steel, and the remaining 30 per cent thermal coal used in power generation.

Vale started mining at Moatize in May 2011 and put up a processing plant, in July. Moatize is Vale's biggest project in the coal sector and the Rio de Janeiro-based company has already invested over $2 billion in the project.

The $6.5-billion investment includes $2.07 billion through 2015 for digging a second coal pit at Moatize, and $4.4 billion for upgrading a 900km rail corridor from the mine to Nacala port and a new maritime terminal able to handle Capesize vessels without transshipments.

The Nacala Corridor project has an estimated nominal capacity to handle 18 million mt/year of coal, with potential to reach 30 million tonnes per year in the future.

It is currently transporting coal through a single 500-km railway line from the mine to the shallow-sea port of Beira.

Present in Mozambique since November 2004, Vale holds concession for one of the biggest coal reserves in the world in Moatize, Tete Province, in the northwest of the country, Vale has estimated proven reserves of over 1-billion tonnes.

The Moatize coal mine has a nominal capacity of 11 million metric tons per year of metallurgical and thermal coal. In its second year of operations, the mine produced almost 4 million metric tons, of which 3 million, while in the third quarter of 2014, the mine produced 1.296 million metric tons.

The production capacity of the mine will be doubled to 22 million metric tons at the end of 2015, which is when the expansion project will be concluded.

Vale plans to become a major global player in the coal sector through its Moatize Coal project. The company already has coal operations and exploration projects in Australia Colombia and Mongolia, as well as minority stakes in two joint ventures in China.

But the massive investment in the Moatize project was announced in 2011 when coal prices were at around $350 a tonne, which have since snce fallen by 64 per cent to $113 a tonne. It currently costs Vale around $66 to transport a tonne of coal from its mine to Beira port.