Mitsui invests in coal, rail and port infrastructure projects in Mozambique

Out-Law News | 16 Dec 2014 | 5:10 pm | 3 min. read

Japan’s Mitsui has announced plans to take part in a major coal, rail and port infrastructure programme in Mozambique.

Mitsui president and chief executive officer Masami Lijima said the firm has signed an agreement with Brazilian-based mining group Vale SA, part to take part in the Moatize coal mine project and the Nacala rail and port project which Vale has been operating and developing in Mozambique.

Mitsui will own a 15% equity interest in Vale’s wholly-owned investment subsidiary that holds a 95% equity interest in the Moatize project. Mitsui will also hold a 50% equity interest in Vale’s investment subsidiaries that have been promoting the Nacala project.

Mitsui said its upfront payment amount for investment and loans will be $450 million for the mine and $313m for the infrastructure. “The amount for the mine will be adjusted based on the future actual performance results of the Moatize project, so the final payment amounts could vary based on the conditions of the contracts,” Mitsui said.

The completion of the transaction is subject to various regulatory and local governmental approvals.

According to Mitsui, the Moatize mine is “one of the largest and cost-competitive operating coal mines in the world”. The firm said the mine has a “huge coal reserve amounting to 690m tonnes of metallurgical coal and thermal coal, and its coal seams are relatively near surface, which enables the large-scale open-cut operation”.

Vale began its production at the mine in August 2011 and now exports coal via the Sena railway from the Port of Beira, which is about 600 kilometres south of the mine. The annual production in 2013 was 3.8m tonnes, Mitsui said. “Vale has now been expanding the annual production capacity of the mine up to 22m tonnes, which is expected to be reached in 2016.”

Mitsui said the expected expansion cost is around $2.1 billion, part of which Vale has already paid. Mitsui’s future payment for the expansion cost on a pro rata basis is expected to be $190m.

Mitsui said plans for new infrastructure at Nacala have been drawn up to handle the mine expansion, which will produce more coal than the existing Sena rail and port capacity can manage. The new infrastructure will enable shipments from the Port of Nacala, which is 912 km east of the mine.

“Moatize is the first mine that Mitsui has participated in since 2004, and it is a durable and excellent resource asset that will provide the diversification of our supply sources and enhancement of our coal business revenue base,” Mitsui said. “Moatize-Nacala is an integrated project that covers the development of the transportation and port infrastructure, which is essential for the whole coal business operations, from mining development to the shipments of the coal.”

Mitsui said the Nacala project requires an upgrade of the 682 km existing rail line, which runs across Mozambique and Malawi, and the construction of a new 230 km rail line and coal terminal in the Port of Nacala, in addition to “development of general commodities terminals”. “By managing such infrastructure effectively, its railway transport annual capacity is planned to increase gradually up to 22 million tonnes, the port’s coal shipping capacity is designed to be 18 million tonnes annually and general commodities shipping capacity is expansible to four million tonnes annually,” Mitsui said.

The total construction cost is expected to be around $4.4bn. Part of the cost is expected to come from project finance from overseas public financial institutions and Japanese banks, Mitsui said.

The Nacala project will handle a large part of the coal transportation of the expanded Moatize mine based on a long-term contract. In addition, Mitsui said part of the transport capacity of the rail line is planned to be used for “general cargo other than coal, such as other minerals and agricultural products as well as by passengers”. The rail line and port shipping capacities “have room for further expansion should there be a future increase of the demand”, the company said.

Mitsui said it regards Mozambique “as a corporate priority region because of its potential growth as one of Africa’s leading resource-producing nations”.

“Our policy toward Mozambique emphasises business activities that contribute to national development and economic growth that are mutually beneficial,” Mitsui said. “We are already implementing a large-scale gas field development in Mozambique. We will continue to contribute to development and growth, not only in Mozambique but throughout Africa, by using infrastructure created through these projects as the foundation for efforts to develop related business activities in this region.”

Mozambique has been among “star performer” countries for attracting foreign direct investment (FDI) in sub-Saharan Africa in recent years, according to Ernst & Young’s (EY) third ‘Africa Attractiveness Survey’ published in 2013. EY said FDI projects into the region grew at a compound rate of 22% from 2007.