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CORRECTED-India group to nearly triple coal output from mine bought from Rio Tinto
August 1, 2014 / 6:40 AM / 3 years ago

CORRECTED-India group to nearly triple coal output from mine bought from Rio Tinto

(Corrects transportation cost in penultimate paragraph to $60/T, not $60 mln)

By Krishna N Das

NEW DELHI, July 31 (Reuters) - An Indian group that has agreed to buy Rio Tinto’s Benga mine in Mozambique plans to nearly triple production from there to up to 13 million tonnes per year in three years, the group’s chairman told Reuters on Thursday.

Rio Tinto said on Wednesday it would sell the Benga mine and other projects in Tete province it bought via a $4 billion acquisition of Riversdale Mining in 2011 for just $50 million to the group, International Coal Ventures Pvt Ltd (ICVL).

In 2013, 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 Mozambique’s Zambezi River.

But C.S. Verma, chairman of ICVL that had lost out to Rio Tinto in buying Riversdale, said the venture will be able to profitably bring in coal to India using a “secret recipe”.

“I will not be able to tell you what the recipe is but we will have an operational control that will provide us coal security in a cost effective way,” Verma told Reuters by phone.

He said ICVL would use existing infrastructure in Mozambique to optimise its operations and would participate in the development of projects such as railways and ports if needed.

Verma expects the deal to be closed in two months.

The Benga mine, 35 percent owned by India’s Tata Steel Ltd , currently produces 5 million tonnes. It has a reserve of 2.6 billion, with 70 percent of that steelmaking coking coal.

Once production is ramped up to 12-13 million tonnes, ICVL will bring in 60 percent of the production to India. The rest will be used by Tata Steel under an offtake deal, Verma said.

This is the first acquisition by six-year-old ICVL, comprising state-owned firms such as Steel Authority of India Ltd, Coal India Ltd, Rashtriya Ispat Nigam Ltd IPO-RASH.NS, National Minerals Development Corp and National Thermal Power Corp Ltd.

Apart from ICVL and Tata Steel, Coal India, Essar, JSW Steel and Jindal Steel and Power already own coal assets in the southern African country.

Mozambique exports most of its coal through the port of Beira, on its central coastline with a capacity of 6 million tonnes a year. But the facility rarely reaches its potential and suffers from high maintenance costs as it is prone to flooding and requires constant dredging.

Coal rail capacity is around 6.5 million tonnes a year yet rarely reaches even this due to frequent disturbances, mainly due to technical faults and flood damage.

All these makes transportation of coal and expensive affair.

The cost of transporting 1 tonne of coal from the mine of India’s Jindal Steel and Power Ltd in Mozambique to the port is about $60 a tonne, its Chairman Naveen Jindal said.

In Australia, the mine to port cost is just about $10 per tonne, he said on Thursday on the sidelines of a conference. (Editing by Alison Williams)

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