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Vale sounds alert over Mozambique coal sector

Published May 23, 2014


Maputo - Brazil's Vale warned Mozambique's coal sector is losing ground to international competitors Friday, calling on the government to help reduce operation costs by lowering taxes.

Announcing a first quarter loss of $44 million for local operations, the company said it had decided to “sound an alert” over competitiveness in Mozambique's coal industry.

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That's “what I am left with after paying the costs of shipping and rail” said Vale's new country manager for Mozambique, Pedro Gutemberg, saying that it was five times cheaper to transport coal to China from Australia.

Ten years after investing in one of the world's largest untapped coal fields, Vale said a slump in global coal prices had forced it to re-think the profitability of Mozambican coal.

Not only does Australia have a geographical advantage, but coal fields in Mozambique are much further from the coast.

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Mozambican coal producers are forced to compete for space on a single 500-kilometre (300-mile) railway line from coal-rich Tete province to the shallow-sea port of Beira.

Several operators have been forced to truck their coal to the coast and some have even considered creating a network of barges.

The sub-Saharan African country is still struggling to rebuild itself after a civil war that ended in 1992.

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Vale is in the process of building a $6 billion alternative, 900-kilometre rail link to the northern deep water port of Nacala to be able to double its export capacity.

Gutemberg warned that Vale's experience could scare off other investors.

When new investors look at Mozambique and see Vale “they realise the results everyone is getting are negative and everyone is losing money,” said Gutemberg.

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“Logically this will discourage them from making new investments.

“If Vale has these kinds of losses, I think other companies have it worse. Vale is big enough to be able to manage for two or three years but other companies are not in the same position. Mines in Tete are shutting down,” Gutemberg said.

The Brazilian major has a 25-year mining concession and is sitting on what it says is over one billion tonnes of proven reserves.

Gutemberg said Vale had entered talks with the government about temporarily lowering taxes.

“It is a mechanism some countries use, to reduce taxes for a certain period, until the situation on the market improves and they can recover their taxes,” he said.

“We still have confidence in Mozambique without doubt but we want certain questions to be treated in a concrete fashion,” Gutemberg said.

Vale declined to say how much tax it paid the Mozambican state but indicated that the $18 million payment in the first quarter did not reflect all the direct and indirect taxes it was subject to. - Sapa-AFP

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