Things beginning to look up for Brazilian miner in Mozambique

In a recent presentation to the NYSE, Brazilian major mining group Vale reported on progress at its Mozambique operations. These comprise the Moatize coal mine and the Nacala Logistics Corridor. Moatize is primarily a metallurgical, or coking, coal mine, while the Nacala Logistics Corridor is composed of new and refurbished railway lines linking Moatize (and the city of Tete) to the port of Nacala, via Malawi, as well as a coal terminal in that port.

Overall, the group’s Mozambique operations saw their costs and expenses, net of depreciation, fall by 14% during the first nine months of this year, compared with the first nine months of last year. Their adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) increased by more 30%, from minus $366-million to minus $247-million over the same periods.

Production Up Again, during the first nine months of this year, Moatize’s production was up 4%, compared with the same period last year. Production in the third quarter for this year jumped by 40% in relation to the second quarter of this year. In September, as a result of improved availability and use of equipment and an increased throughput, the mine set a new monthly production record of 756 000 t.

The mine’s Phase 2 coal handling and processing plant started operation in August, and produced 129 000 t of coal that month, increasing to 169 000 t in September. This latter figure marks a run-rate that would produce 2-million tons/year (Mt/y). Vale expects the plant to reach an 18-Mt/y run-rate by 2018.

Production of coal by the mine will also, of course, ramp up. The production for the whole of this year is estimated at 6 Mt, expected to increase to 13 Mt next year, 18 Mt in 2018, 19 Mt in 2019, staying at 19 Mt for 2020 and increasing again to 20 Mt in 2021. Cost Cutting This production ramp-up is expected to help further cut costs and increase cash generation.

Regarding the Nacala Logistics Corridor, this started operations during the last quarter of last year and has since transported 4.6 Mt of coal (the corridor railway is not exclusively a coal line). During the first nine months of this year, 54 ships were loaded with Moatize coal in Nacala port.

Already, the Moatize Phase 2 and Nacala Corridor ramp-ups have improved Ebitda and provided major cuts in costs. The adjusted Ebitda of the group’s Mozambique operations have improved from minus $112-million during the first quarter of this year to minus $100-million in the second quarter to minus $35-million during the third quarter. During October, their adjusted Ebitda became positive $31-million. Their cash costs and expenses, free-on-board at Nacala port, fell from $110-million in the first quarter to $91-million in the second quarter to $80-million in the third quarter – a fall of 27%.

Production cash costs in Mozambique, measured in dollars per ton at the port, are forecast to continue to fall. Vale divides its costs in Mozambique into production costs and the “Nacala tariff”. The production costs encompass mine, plant, railway (the company has also used the Sena railway to the port of Beira), port and royalties but excludes the movement of inventory and accountancy adjustments. The Nacala tariff is composed of debt service and other costs, including taxes.

Production costs came to $122-million during the first nine months of this year. For the whole of next year, they are forecast to be in the range $70-million to $75-million, for 2018 from $55-million to $60-million, for 2019 $52-million to $57-million, for 2020 the same as 2019 and for 2021 in the range of $50-million to $55-million. There was no Nacala tariff for the first three quarters of this year. For next year, it is estimated in the range $27-million to $30-million, for 2018 $24-million to $27-million, with the same range also applying in 2019, 2020 and 2021.