Indian consortium struggles to find buyer for Benga coal in Mozambique

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(2015-05-06) Fears have been raised that mining consortium Indian Coal Ventures Limited’s (ICVL’s) strategic objective for its Mozambique coal investments is going awry, as production from the Benga mine has now been earmarked for domestic sales, rather than exports to India.

According to an ICVL official, with international coking coal prices below $100/t and freight costs averaging $50/t, there were no Indian takers for Benga coal product, even from the large consumers and importers making up the ICVL.

High operational mining costs at Benga, a lack of infrastructure and resultant higher evacuation costs, and the absence of an international market at a time when coal prices have slumped, were resulting in monthly losses of $7-million to $10-million for ICVL, the official said.

ICVL was promoted in 2008 as an exclusive entity to acquire coal assets overseas to meet rising Indian demand for coking coal including principal prompters of the consortium. The consortium included the country’s largest steel producer Steel Authority of India Limited (SAIL), iron-ore miner NMDC Limited, and southern India based steel mill Rashtriya Ispat Nigam Limited.

Last year, ICVL notched its maiden overseas acquisition since its inception, picking up 65% stake in Benga coal resources from mining major Rio Tinto and a 100% stake in Zambeze and Tete coal assets in Mozambique. However, with neither SAIL or Coal India Limited (CIL), the sole coking coal suppliers in the country, keen to import coking coal from the only operational Benga mines, owing to higher costs,

ICVL had no option but to reduce mine capacity from the rated 5.3-million tonnes a year to levels of around 3.6-million tonnes a year, to keep rising costs and losses in check. ICVL was currently scouting markets in Mozambique and in neighbouring African countries to ensure local sales of Benga production as export potential was severely restricted by the fall in global coking coal prices, the official said.

But with the absence of rail linkages between the pithead and ports or major consuming centers in the region, buyers of large volumes were scarce, further limiting scope for increasing production from the mines, he added. ICVL was, however, looking ahead to 2016 when the consortium would be able to take up mining operations on its own, leveraging the low-cost mining expertise of promoters like CIL and SAIL.

At present, and under an agreement signed prior to the takeover of Benga mine, operation of the mine was entrusted to a local miner, which not only restricted the scope for reducing the cost of production but also attracted a higher rate of tax applicable for production by mine developers and operators.

Source: Mining Weekly

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