Once Valued at $4 Billion, Mozambique Coal Assets to Be Sold by Rio Tinto for $50 Million

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Global mining major Rio Tinto plc (NYSE:RIO) (London, England) has announced it will sell Mozambique coal mine assets and other projects to International Coal Ventures Private Limited (ICVL) (New Delhi, India) for $50 million. Rio Tinto had acquired the assets for $4 billion in 2011.

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Rio Tinto Coal Mozambique comprises the Benga coal mine and other projects in the country's Tete province. It will be purchased by ICVL, an Indian consortium consisting of state-owned companies Steel Authority of India (SAIL), Rahtriya Ispat Nigam, NMDC, Coal India and National Thermal Power Company (NTPC). The consortium was formed six years ago to acquire coking coal mines overseas. The Mozambique project is its first acquisition.

There has been no shortage of good news over the past few years on the future potential for Mozambique's vast coal resources, but it has been no secret that the development of the country's rail and port infrastructure has been made a priority to realize the coal export potential.

Rio Tinto gained control of the coal assets when it acquired Riversdale Mining (ASX:RIV) (Sydney, Australia) for $4 billion in 2011. But in 2013, the company wrote down the asset value to $3 billion. The company said that the asset impairment was due to the necessity of building infrastructure to bring the project online. Added to this is the fact that hard coking coal is currently at record low prices, caused by oversupply and sluggish demand.

Rio Tinto has said that it will continue to operate the mines to the highest safety and environmental standards until the transaction is completed. The deal is subject to certain conditions and regulatory approvals, and is expected to be finalized in the third quarter of this year.

Other major global miners are feeling the pressure in Mozambique. In 2013, Anglo American (NYSE:AAL) (London) extricated itself from the Revuboe project. Vale S.A. (NYSE:VALE) (Rio de Janeiro, Brazil) recently invested $2 billion in a second open pit mine in Tete and has scheduled $4.4 billion in a transport/rail corridor to the Indian Ocean coast. With Mozambique as its largest destinations for investment after Brazil, the company is committed, but is currently looking for partners to share the load.

For related information, see May 29, 2014, article - Vale Posts $44 Million Loss in Mozambique for First Quarter of 2014 after Plunge in Coal Prices and April 14, 2014, article - Mozambique's Rail and Port Network Expansion Aims to Unlock Coal Export Potential

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