17 January 2013

Mozambique: Rio Tinto Coal Mozambique Explains the Write-Down

Maputo — Rio Tinto Coal Mozambique (RTCM), the Mozambican subsidiary of the London-based mining company Rio Tinto, on Thursday explained that the company’s three billion US dollar write-down of its Mozambican coal assets resulted from a re-assessment of the coking coal that could be recovered from the Rio Tinto concessions in the western province of Tete.

Rio Tinto’s head office announced, earlier in the day, that it expects a total write-down (referred to technically as a “non-cash impairment charge”) of around 14 billion dollars on the company’s 2012 results.

Most of this is a write-down of assets in the company’s troubled aluminium sector, and was not unexpected. The Rio Tinto board was much more alarmed at the three billion dollar write-down in Mozambique, since those assets had been acquired less than two years ago, when Rio Tinto took over the Australian company Riversdale Mining.

Rio Tinto chairman Jan du Plessis described such a write-down on recently acquired assets as “unacceptable”. Heads therefore rolled, with the sacking of the Rio Tinto Chief Executive Office, Tom Albanese, and of the man in charge of acquiring Riversdale, the former Rio Tinto Energy chief executive, Doug Ritchie (both dismissals were disguised as “stepping down by mutual agreement”).

The RTCM Thursday release said that, since the acquisition of Riversdale in 2011, RTCM had undertaken “a vast programme of exploration and assessment”, which led the company to revise downward the estimates of recoverable reserves of coking coal in its concession areas, and hence the scale of mining that RTCM could achieve.

Furthermore, RTCM faces logistical bottlenecks in moving the coal to port, since its original idea of using barges to take the coal down the Zambezi River was vetoed by the Mozambican government on environmental grounds.

“Rio Tinto is continuing to work with the Mozambican government in developing alternative transport infrastructures”, RTCM said.

Despite the re-assessment, Rio Tinto “continues to believe that RTCM can, in the final analysis, be a valuable coking coal business, and it will continue to increase the production of coking coal at Benga” (this is the gigantic RTCM open cast mine in Moatize district).

The RTCM release stresses that coking coal “is a rare geological resource and has no substitute in the steel industry. Since future demand for this product is strong, the long term forecast for the price of coking coal is favourable”.

It adds that RTCM is currently focused on “increasing the production capacity of the Benga mine” – but only when additional transport capacity becomes available – and on “concluding the exploration and assessment work on its extensive portfolio of coal projects”.

It pledges “to work with the government and other partners in identifying a long term transport solution consistent with the size and quality of the RTCM resources”.

RTCM also promises to employ “a work force consistent with the needs of the business” and to ensure that as many of its staff as possible are Mozambican nationals.

The release concludes with a pledge to continue dialogue with the government “in order to develop a business which brings value to the Rio Tinto shareholders and long term social and economic benefits to Mozambique”.

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