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Coal Mining in Mozambique: Dig It
By Paul Baiocchi | December 11, 2008 | 11:13 AM | 0 Comments
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While in Sydney last week I met with executives from Riversdale Mining, one of Australia's more promising Coal companies. Interestingly, the company's potential is the product of a little-followed, resource-rich economy on the southeast coast of Africa: Mozambique, where coal, for example, in many instances is literally available above-ground. The company's base development in Moatize is a joint venture in which Indian industrial titan Tata owns a 30% stake. The project itself is a monster in a country that has an estimated 10 billion ton coking coal endowment. With a lower country risk rating than other popular coal exporters like Indonesia and South Africa, Mozambique offers an attractive investment destination. A $1.3 billion investment by Vale, on top of the Tata Steel stake, shows that the country has caught the attention of emerging economies looking to secure resources.

Riversdale is no stranger to Africa, with a producing anthracite mine in South Africa generating cash flows to fund expansion of the Mozambique development. With that said, the infrastructure in South Africa is far superior to that of Mozambique, meaning the one main hurdle to the project will be rail and port development and expansion. A major rail upgrade scheduled to be completed in 2009 will allow for the transport of 20 million tons of Coal, while Beira port renovation is being negotiated further with heads of state. As a result, Riversdale's clients, currently European and South African, will eventually be expanded to satiate appetites in Brazil, India and the Middle East.

After the drubbing taken by resource stocks worldwide in the second half of this year, value-oriented investors with a longer-term horizon could take a peek at Mozambique and, more specifically, Riversdale as an interesting coal play."