18 August 2014

Mozambique: Vale-Mozambique Announces More Heavy Losses

Maputo — The Brazilian mining company Vale has announced heavy losses for its operations in Mozambique, for the second quarter of the year.

The managing director of Vale-Mozambique, Pedro Gutemberg, told reporters that in the April-June period the company made operational losses of about 77.3 million euros (about 103.5 million US dollars), despite increasing its sales to 833,000 tonnes of coal.

Production at the Vale open cast coal mine at Moatize, in the western province of Tete, rose to 1.17 million tonnes in the quarter, which was 161,000 tonnes more than in the first quarter. Sales were up by 183,000 tonnes.

Cited in Monday's issue of the independent newsheet “Mediafax”, Gutemberg said Vale's revenue for the quarter was 63.7 million euros. The company paid the Mozambican government 9.5 million euros in taxes, which raised the company's tax payments for the first six months of the year to 24.4 million euros.

When the operational losses for the first two quarters are added together, Vale has lost about 110 million euros since January.

Nonetheless, Vale has continued to invest in Mozambique - particularly in the new coal terminal at Nacala-a-Velha, on the coast of the northern province of Nampula, and the railway that will link Moatize to Nacala.

Vale investments in Mozambique in the first half of the year amounted to 501.1 million euros.

Gutemberg said the reasons for the heavy losses in the second quarter were much the same as in the first quarter - the high costs of taking coal to the port of Beira (about 65 dollars a tonne), and the low world market price of coal.

Gutemberg said Vale has been “raising the awareness” of the Mozambican government and of the publicly owned port and rail company, CFM, to the problems of competitiveness faced by coal mining companies. He hoped to obtain “a sense of urgency” about the need to respond to the company's concerns, particularly for a reduction in the taxes and fees it pays.

The government in fact owes large sums to Vale in unpaid Value Added Tax (VAT) rebates. According to an investigation undertaken by the anti-corruption NGO, the Centre for Public Integrity (CIP), the government owes a total of 4.3 billion meticais (about 141.5 million dollars) in VAT rebates.

Most of this sum - 3.4 billion meticais - is owed to just four large companies, namely Vale, the Anglo-Australian mining company Rio Tinto, Texas-based Anadarko (which has discovered huge natural gas deposits in the far north), and Mozambique Leaf Tobacco.

Gutemberg said that, if the government were to pay the VAT rebates, that would come as a considerable relief to the company. The VAT rebates used to be paid every month, he said, but so far this year Vale has received nothing which led the company to demand an explanation.

Gutemberg said that work is now underway on reconciling the accounts. “I think this is a very sensitive point”, he said, “but we were surprised with the delay in paying the VAT rebates”.

The government tried to put the rebates into the amended budget submitted to the country's parliament, the Assembly of the Republic earlier this month, but the Assembly rejected the government's proposal. The government wanted to spend 3.05 billion meticais on VAT rebates, but the Assembly simply took this money (derived from windfall capital gains tax payments), and redistributed it among the “priority sectors” - infrastructure, public transport, education, health and agriculture.

As for the nearby mine at Benga, sold last month by the Anglo-Australian company Rio Tinto to the consortium International Coal Ventures Pvt Ltd of India (ICVL) for a mere 50 million dollars, it too is running at a heavy loss.

According to Anil Chaudhary, financial director of the Steel Authority of India, the lead company in ICVL, the cost of production at Benga is 165-166 dollars a tonne, and the average sales price is 130 dollars a tonne.

So the company makes a loss of 35 dollars for every tonne mined.

ICVL seems prepared to tolerate such losses, because the expanding Indian steep industry is entirely dependent on imported coking coal.

Indian steel mills are thus a guaranteed market for Benga coal.

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