Vale Posts $44 Million Loss in Mozambique for First-Quarter 2014 after Plunge in Coal Prices

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--The new chairman of Vale-Mozambique, Pedro Gutemburg, has cast doubt on whether Mozambique could export 100 million tons of coal annually in the medium term. This figure has been quoted by a number of sources in recent months. Vale-Mozambique is a subsidiary of the global mining major Vale S.A. (NYSE:VALE) (Rio de Janeiro, Brazil).

Gutemburg said that 100 million tons was an extremely ambitious target. What would determine how much coal the country mines and exports is whether Mozambique is competitive in an existing market.

"The world market for coking coal is 300 million tons a year," he said. "Australia, which is the biggest producer, has 160 million tons, and there are other producers such as Canada, the U.S. and Russia, with about 40 million tons."

"It's no good producing 100 million tons of coal if you have nowhere to sell it." He added that the fact that Mozambique had large coal reserves did not mean very much if Mozambican coal was unable to compete on the world market.

Last Friday, Vale-Mozambique announced that it saw an operational loss of more than $44 million in the first quarter of 2014.

This did not mean that Vale is about to abandon coal mining in Mozambique. The company has "very large" investments, and Vale was a company that took into account long term commitments.

"The entire world is looking at the results Vale has in Mozambique. If they see every time there is a quarterly report we post losses, that could hold back investment in the country," said Gutemburg who said that Vale should lead a discussion of the coal production system in Mozambique.

The main reason for the losses was a drop in coal prices. The price of Australian coking coal, regarded as the best in the world, was almost $350 per ton in 2011, but last week the price fell below $100 a ton, said Gutemburg.

For related information, see April 1, 2014, article - Mozambique's Rail and Port Network Expansion Aims to Unlock Coal Export Potential.

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