Mozambique is poised to become a significant coking coal producer within the next three to five years, with its coal sector accounting for 61% of the total value of the project pipeline, Frost & Sullivan research associate Christy Tawii said on Wednesday.
In a teleconference with mining investors, analysts, investment banks and other interested parties, she said the total value of mining projects across seven commodities was $11.6-billion, of which the coal sector accounted for $7.1-billion.
The coal industry, which is expected to produce 20-million tons a year by 2015, currently comprises 12 projects in a feasibility stage, one in a bankable feasibility study stage and five projects that are under construction.
The country’s coal production increased sharply from 25 900 t in 2009, to 35 700 t in 2010.
Tawii said the increase in capital expenditure, capex, reflected mining confidence in the medium to long term. “Capex is expected to rise sharply in Mozambique with investment directed at developing minerals, reserves, equipment purchase and upgrading mining infrastructure.”
Coal exports are also expected to overtake that of aluminium, which has traditionally dominated the country’s minerals sector. Mozambique’s coal exports will be driven by global energy demand, the rise of coal prices and industrialization growth in India and China.
“This would result in more international companies expanding and investing in facilities and infrastructure in Mozambique,” she said.
Further, the country was on its way to becoming the region’s second-largest coal exporter after South Africa, taking into consideration the production growth, as well as its strategic geographical positioning which would enable lower export costs to countries like India and China.
However, infrastructure constraints, particularly for road and rail transport, power shortages, skills deficit, and the impact on the environment, particularly its water resources, were challenges faced by the fast-growing coal sector.
For example, the Mozal smelter in Mozambique consumes 950 MW of power currently, but with future phased expansions, this is expected to increase to 1 370 MW.
“This expansion is likely to delay the expansion of existing mines and new mines,” Tawii said. However, three miners are looking to invest in own power generation of 5 900 MW.
While the country’s regulatory environment was considered time consuming, which could discourage prospective investors, Tawii said the government was showing strong signs of creating a friendly mining investment environment.
“Unlike South Africa, there are no black economic empowerment requirements, mostly no restrictions on repatriation of profits and extent of foreign investment ownership. Further, the awarding of mining rights was on a ‘first come, first serve’ basis [in accordance with the law],” she explained.
Meanwhile, foreign direct investment (FDI) in the past decade into the mining industry was $6.12-billion, comprising the largest FDI investment in the country, and it is expected mining’s contribution to gross domestic product will grow from 3% to 7% by 2015.
This is expected to spur growth of other supporting industries, Tawii concluded.