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Mining
Asian demand restarts investment scramble
Investors from Brazil, India and Dubai have joined the more traditional organisations in a scramble for stakes in Africa’s mining sector as the global economy begins its recovery. Neil Ford provides the details.
Perhaps the most high-profile new centre of mining activity is Tete Province in the far northwest of Mozambique. More than a hundred mining licences have been awarded to investors in the province, including Brazilian mining giant Vale, which is to produce 11m tonnes a year of coal once the first phase of its Moatize project comes on stream in 2011. However, the company is already undertaking a feasibility study into Phase 2, which would see output rise to 26m tonnes a year. In January, the government of Mozambique also sanctioned plans by Australia’s Riversdale Mining to produce 20m tonnes a year of coking and thermal coal on its Benga reserve in the province. Production will start at 2m tonnes a year by the end of this year and be gradually ramped up. Although most output will be exported via the east coast ports, the company also hopes to supply its own 2GW power plant.
Riversdale holds a 65% stake in the venture, with the remaining equity held by Tata Steel of India, and the Australian company believes that Benga will yield some of the lowest cost coking coal in the world. Coal India Limitd (CIL) has become the latest firm to invest in Tete. In December, the Indian firm was awarded two concessions, blocks A1 and A2, but must select a local partner to take a minimum 15% stake in the venture. CIL secured the licences in the face of competition from nine other companies from the UK, China, Portugal, India and Mozambique. The Indian firm is increasingly importing coal and so it is expected that any output will be shipped to India. Indeed, 22-35% of all South African coal is now exported to the country, mostly to supply cement and sponge iron customers.
However, power industry demand could see even more African coal marketed in South Asia. Firdhose Coovadia, the director for the Middle East and Africa at India’s Essar Group, says: “We have an expanding and growing power business in India which requires quite a bit of feedstock and we are trying to secure that feedstock from South Africa. We are largely driven by opportunity. Clearly we have a significant war chest for deployment and if the opportunity is right, we are not afraid of deploying capital.” Even with the Moatize and Benga projects, Mozambique will be a long way from challenging South Africa’s position as Africa’s biggest coal producer. Demand from Europe for South African coal has declined because of the economic crisis, but has actually increased from Asia over the past year. In addition, power utility Eskom is bringing three mothballed coal-fired power plants back on stream and constructing the giant Medupi power plant, so domestic consumption is also likely to rise.
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