Rio Tinto makes massive loss to exit Mozambique’s coal sector

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Silvia Antonioli and Jim Regan London and Sydney

RIO TINTO has agreed to sell coal assets it bought through its $4 billion acquisition of Riversdale in 2011 for just $50 million (R233m) to an Indian joint venture, ending its ill-fated venture in Mozambique’s coal sector.

The sale, to International Coal Ventures Private Limited (ICVL), includes the Benga coal mine and other projects in Tete province.

Last year, Rio Tinto sacked its chief executive and other executives directly involved in the acquisition of Riversdale and wrote off about $3.5 billion of the purchase price, partly owing to a failure to secure a permit to move coal by barge down the Zambezi River.

“It has clearly been a horrible experience for Rio Tinto,” Liberum analyst Richard Knights said, adding that the sale price was lower than he expected and implied a further write-down.

“The assets clearly weren’t as good as they thought but in order for them to be written down that aggressively they must have seen very little scope in the foreseeable future for the profitable export of coal from Mozambique.”

A source familiar with the sale said Rio Tinto had been reviewing the division for the past 18 months.

Nomura analysts said in a note: “The sale is not overly surprising given the new management team has little interest in major greenfield projects where they don’t have much experience and coal in general has also fallen out of favour.”

Rio Tinto’s decision to exit the venture is a blow to Mozambique’s ambitions to become a major coal exporter.

In an interview at the weekend Mozambican Transport Minister Gabriel Muthisse said the government remained committed to developing the coal industry as an economic growth driver.

With global prices for metallurgical and thermal coal in the doldrums because of oversupply and sluggish demand, major coal producers and industry analysts have been warning that Mozambique’s developing coal sector, hamstrung by a shortage of railway and ports infrastructure, is uncompetitive.

Brazilian mining rival Vale is also looking to sell a stake in its coal operations, which include its Moatize mine in Mozambique and some assets in Australia.

While the global price outlook is seen remaining depressed for at least the next two years, India’s expanding steel industry is expected to boost demand for metallurgical coal in the medium term.

Mozambique is counting on the Indian market to help its fledgling coal industry grow.

ICVL was set up by the Indian government for the acquisition of coal assets overseas to meet the raw material needs of some state-owned steel and power companies, such as Steel Authority of India, Coal India, Rashtriya Ispat Nigam, National Minerals Development Corporation and National Thermal Power Corporation.

Rio Tinto said the sale was subject to certain conditions and to regulatory approvals and was expected to be completed in the third quarter this year. – Reuters


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