Rio Tinto Coal Mozambique

Rio Tinto Coal Mozambique (RTCM) is a wholly owned subsidiary of Rio Tinto. In April 2011 Rio Tinto took control of Riversdale Mining, which had the title to the Benga coal mine, the Moatize mine and other coal tenements. However, in the wake of taking a $2.8 billion writedown on its Mozambique assets in early 2013, by mid year Rio Tinto had appointed UBS to advise it on selling its Mozambique operations.

The Benga mine, which started production in late 2011, can only export its coal via the 660 kilometre-long general cargo Sena railway to Beira port. Vale also uses the railway for its coal exports. However, the railway has limited capacity and is subject to flooding. In February 2013 flooding resulted in the railway being shut down for several weeks forcing Vale and Rio Tinto to suspend exports. Beira port has limited capacity and also requires constant dredging to remain operational.

Coal exports via the railway line have also been disrupted following violent clashes between the ruling Front for the Liberation of Mozambique (Frelimo) and its former civil war combatants, Renamo. The Sena railway runs near Renamo's stronghold in the Gorongosa area. In June 2013 Renamo threatened to block the railway line following government troops moving into the area near Beira Port following an attack on a government arms depot in which six soldiers were killed. Following the clashes Rio Tinto stated that it had "paused our operations on the rail line while we assess the current situation in Mozambique."

Background
In December 2010 Rio Tinto proposed a $A3.9 billion takeover of Riversdale Mining. The company stated that the "acquisition provides Rio Tinto with a substantial tier one coking coal development pipeline in the emerging Moatize Basin in Mozambique, in line with Rio Tinto's strategy of developing large, long-life, low operating cost assets to grow shareholder value."

At the time Doug Ritchie, Rio Tinto chief executive Energy, stated that "Rio Tinto's extensive experience in infrastructure and large project development combined with our significant financial capacity means that we are well placed to take Riversdale's asset base through its next phase of development. We believe Rio Tinto is one of the few groups in the world with the capabilities, values and incentives to develop the projects quickly and to a world-class standard, bringing considerable benefit to the people of Mozambique."

Rio Tinto gained a majority of the company's shares in April 2011. At the time Rio Tinto stated that the "the growth prospects for the Riversdale assets are considerable. We remain optimistic about the outlook for the global coking coal market. This is a great opportunity for our business to deliver on the development of a large-scale coking coal resource". Rio Tinto stated that the Benga project had been granted a mining concession "with initial coal for export scheduled before the end of the year."

Coal projects
On its website Rio Tinto States that RTCM "Rio Tinto Coal Mozambique holds mining and exploration licences in the Moatize Basin in the Tete province of Mozambique."

The company states that RTCM manages:


 * the Zambeze Project (100 per cent);
 * Tete East Project (100 per cent);
 * Benga Mine (65 per cent); and
 * the Zululand Anthracite Colliery (74 per cent).

2012 writedown
In its 2012 annual report Rio Tinto reported that:


 * "An impairment charge of $2,860 million post-tax was also recognised relating to Rio Tinto Coal Mozambique (‘RTCM’). The development of infrastructure in Mozambique to support the undeveloped coal asset is more challenging than initially anticipated which, combined with a downward revision to estimates of recoverable coking coal volumes, have led to a reassessment of the overall scale and ramp up schedule of RTCM and consequently to the assessment of its FVLCS" [Fair Value Less Costs to Sell].

The company also stated that:


 * "However, sales volumes will be constrained by coal chain infrastructure in the near term. The development of infrastructure to support the coal assets is more challenging than Rio Tinto originally anticipated. Rio Tinto sought to transport coal by barge along the Zambezi River, but this option did not receive formal approvals. These infrastructure constraints, combined with a downward revision to estimates of recoverable coking coal volumes on the RTCM tenements, have led to a reassessment of the overall scale and ramp up schedule of RTCM, and consequently to the impairment. Rio Tinto continues to engage with the Government of Mozambique on all transport infrastructure options."

As a consequence of the writedown on its Mozambique assets, Rio Tinto sacked Doug Ritchie. In a media release the company stated that Ritchie had "who led the acquisition and integration of the Mozambique coal assets in his previous role as Energy chief executive." The company stated that the the "Rio Tinto Board fully acknowledges that a write-down of this scale in relation to the relatively recent Mozambique acquisition is unacceptable."

Asset sales
In February 2013 Rio Tinto's chief executive, Sam Walsh, stated that divesting the company's Mozambique assets was not a part of the company's plan. "I would be hopeful that there is upside in the project," he said. "I should just confirm that Mozambique is not part of the divestment [program]."

However, in late June 2013 it was reported that the company was "seeking to sell part or all of the assets amid growing political turmoil in the region and the need to develop a long-term infrastructure solution." The Australian Financial Review reported that "the Sena rail line is not considered a long-term solution" for the company which "has been searching for an Indian or Chinese partner on its Mozambique coal assets since the write-downs in January to reduce its risk and funding burden."

Related SourceWatch articles

 * Mozambique and coal

External resources

 * CCFB, "Beira Rail Concession", Workshop on Large Project Finance, Maputo, Mozambique, February 7, 2008. (Powerpoint Presentation).
 * Andrew Woodley, Executive Director, Riversdale Mozambique Limitada, "Riversdale – a new supply of hard coking and thermal coal", Rio Tinto, June 5, 2011.