ICVL to restart operations at Mozambique mine as coking coal prices rise

ICVL acquired 65% stake in the Benga mine and two green-field coal assets (Tete East and Zambeze) in 2014 from Rio Tinto.

After suspending operations at its Benga mine in Mozambique in May last year, International Coal ventures (ICVL), the SAIL-led consortium of five state-run units, will soon restart the mine hoping that it will be able to recover variable costs and make some profits as coking coal prices are running high.

ICVL acquired 65% stake in the Benga mine and two green-field coal assets (Tete East and Zambeze) in 2014 from Rio Tinto. The assets have an estimated coal resource of 2.6 billion tonnes and huge CBM potential. SAIL, RINL and NMDC took part in the acquisition while NTPC and Coal India opted out. Tata Steel has the remaining 35% stake in Benga mine.

The Benga asset can produce 5.3 million tonne coal per annum. However, given the losses, running up to $7.5 million each month, owing to high mining & transportation costs and subdued prices of coking coal; the promoters were producing only 3 lakh tonne per month before operations were discontinued.

“We stooped operations in ICVL as prices were low. Now, the ICVL Board is reviewing whether we should resume the operations. When we stopped operations even variable costs were not recovering. However, at the current price of coking coal, a continuation of production is possible,” RINL CMD P Madhusudan, who is also in ICVL Board, told FE.

The Benga mine in Tete, Mozambique
The Benga mine in Tete, Mozambique

Sources said extensive cost-cutting measures had been implemented after takeover, which have almost halved operating costs. Since acquisition, a total of 44 shipments (around 1.5 million tonnes) of coking coal have been made by ICVL, which have accrued an earning of about $121 million.

Coking coal prices soared to a high of over $300/per tonne in November last year after remaining below $100 a tonne since 2015. The prices have now corrected to rule at $260-270 a tonne now. ICVL has also sought a global tender to sell thermal coal.

ICVL was incorporated in 2009 with an objective of acquiring coal assets with equity participation from SAIL, CIL, RINL, NMDC and NTPC in the ratio of 2:2:1:1:1. However, CIL and NTPC stopped contributions after initial payments of R2.8 crore and R1.4 crore, respectively.

As on March 2016, SAIL held 46.63% stake in the special purpose vehicle (SPV) while RINL and NMDC held 26.49% each. NTPC had 0.13% holding and CIL had 0.26%. NTPC and CIL do not have board representation either. They were reluctant to be a party because ICVL’s focus was on coking coal while the duo’s was on thermal coal.

The two also did not participate in ICVL’s maiden acquisition of Rio Tinto’s Mozambique coking coal asset in 2011 for $50 million in which SAIL, RINL and NMDC contributed in the ratio of 48:26:26.

Source: The Financial Express