Rio Tinto Bids to Take Over as Mozambique's Benga Projects Power Up

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Researched by Industrial Info Resources(Sugar Land, Texas)--The $1 billion Benga power project in Mozambique will become wholly owned by the joint venture between Riversdale Mining (ASX:RIV) (Sydney, Australia) and Tata Steel (BSE:500470) (Mumbai, India) when the purchase of the 50% stake in the project held by Elgas SARL is completed. Riversdale will have a 65% stake in the project, and Tata will have 35%. Elgas is a subsidiary of South Africa's state-owned power utility Eskom (Johannesburg).

Parallel to this move, Rio Tinto plc (NYSE:RIO) (London, England) has sent its first Bidders Statement to shareholders in relation to the takeover bid Rio is making for Riversdale Mining, after offering $3.9 billion for the mining company in December 2010.

The Benga joint venture was formed in 2007 to develop the Benga hard coking and thermal coal project. Tata paid Riversdale more than $88 million at that time for a 35% stake in the project and a 40% share of the coking coal off-take. In May 2010, it was reported that tests had confirmed the quality of the hard coking coal, and the coal reserve was increased to 502 million tons that represented an increase on initial estimates of 84%.

Construction on the first stage of the project is scheduled for the second half of 2011, which will allow a production capacity of about 5.3 million tons per year run-of-mine (ROM). The first coal will be produced in the third quarter of 2011. The feasibility study for the second stage envisages a production rate of 10.6 million tons per year ROM. After the upward revision of the reserve figure, Tata will complete a third-stage feasibility study to confirm the viability of a 20 million-ton-per-year production capacity, which would provide 10 million tons per year of export-quality thermal coal and coking coal, and provide for a thermal coal feed to the Benga power station.

The 20 million-ton-per-year target has been supported by a further upgrade in the coal resource to a total of 4 billion tons, with 710 million tons categorized as measured and 362 million tons as indicated. There are 2.96 million tons in the inferred category. Tata Steel managing director H.M. Nerurkar said that the coal mine had the potential to be a major producer of premium coking coal products in global markets, including India.

The Benga power project is scheduled to begin producing power in 2013-14, with an initial output of 500 to 600 MW, which will be expanded to 2,000 MW in parallel with the development of the Mozambique Backbone Transmission project.

Currently, commercial discussions are taking place with potential power off-takers, which include South African and Mozambican companies and equity investors. It is planned to send 220 MW of power from the first phase to South Africa through the existing transmission lines and infrastructure of the Electricidade de Mocambique grid and sold to Eskom. Riversdale's Benga and Zambeze projects and the Mozambique domestic network will receive the balance of available power.

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