Development of Export Product
The recently completed Mine DFS confirmed the technical and economic viability of a large scale, integrated thermal coal mine and 1800MW power plant producing 7.2Mtpa domestic and up to 3Mtpa 25CV export grade coal over a 25 year life of mine.
Since initiating the Mine DFS in Q3 2010, the macro-economic environment has changed considerably with capital constraints for mine development projects and the weakening of seaborne thermal coal prices. The developing coal basin around Tete has not been immune to these changes and the large, capital intensive export rail and port infrastructure projects primarily for coking coal projects are developing more slowly than originally envisaged.
Production of an export thermal coal product and associated capital expenditure will be initiated only when rail and port infrastructure in Mozambique is sufficiently advanced.
Infrastructure Options for Export
Ncondezi is considering four potential routes for exporting its thermal coal products, with the short-term strategy focused on gaining access to one of the two existing rail corridors to the ports of Beira or Nacala to meet the first phase of production.
Sena railway to Port of Beira
The Sena railway is located approximately 25km from Ncondezi’s proposed plant site and runs approximately 600kms to the Port of Beira. The Mozambican parastatal authority, Portos e Caminhos de Ferro de Moçambique (“CFM”) is refurbishing the Sena railway line to increase coal capacity to 6.5Mtpa, which it expects to complete by November 2012. Further upgrades are planned and CFM is targeting a 12Mtpa rail capacity in 2013 and up to 20Mtpa rail capacity by 2017.
Tete railway to Port of Nacala
In November 2011 Vale announced an investment of US$4.4Bn to upgrade the railway line and build a new coal terminal at Nacala, which is a natural deep water port. This includes the construction of additional rail from Moatize across Malawi. Earthworks have already started on the Malawian portion of the railway line. The railway and port will be multi-user and has an estimated capacity to handle 18Mtpa, with the potential to reach up 30Mtpa with additional expansions. Start-up is expected in 2015 and the port will be able to handle Handymax, Panamax and Capesize vessels.
Zambezi Barge to Port of Chinde
Technical studies conducted by Rio Tinto have confirmed the economic viability of barging coal down the Zambezi River to the Port of Chinde. Environmental studies are now underway examining the potential to barge an initial 3Mtpa, ramping up to 20Mtpa, which are being led by Rio Tinto.
The Integrated Transport Development (“ITD”) Project
The ITD is a multi-user greenfield rail and port project and has the potential to be a low cost rail transport option for exporting coal from the Tete Province as it is expected to be the shortest rail distance to port and will utilise new and modern infrastructure to maximise economies of scale. The ITD Project is believed to be the best solution for the development of the Zambezi Coal Basin and will also benefit and encourage the development of other industries in the Zambezia Province.
In 2011, Ncondezi co-funded an Infrastructure Order of Magnitude Study, with Rio Tinto and Minas de Revuboe, to assess the logistics options available for the large scale export of coal from Tete to the coast, between the existing ports of Beira and Nacala. This study identified a preferred port option located north of the Zambezi River mouth, less than 500kms from Tete, and would include a deep water port which could be expanded from an initial 25Mtpa to 100Mtpa and capable of handling up to Capesize vessels.
Based on the positive outcome of the Study, in January 2012 Ncondezi signed a new rail and port infrastructure study agreement with Rio Tinto and Minas de Revuboe to further study the feasibility of the ITD Project. This study is being led by Rio Tinto.
The agreement entitles Ncondezi to an export allocation on the ITD Project for its export thermal coal production with an option to negotiate take-or-pay agreements with the ITD Project operator once a decision is made to implement the ITD Project. Furthermore Ncondezi will not be required to contribute capital to the ITD Project feasibility study or fund any portion of the development capital costs.
The Export Thermal Coal Market
The growth in demand for seaborne thermal coal is being driven by the power generation industries of Asia, particularly China and India and Mozambique is ideally positioned to supply these markets. By 2016 it is predicted that more than 370GW of additional coal fuelled power generation will come on stream in Asia, this represents more than 1 billion tonnes of additional annual coal demand.
The long-term fundamentals for the seaborne thermal coal market remain strong, underpinned by the economic growth in Asia as the two giants, India and China, continue to modernise and urbanise.
Ncondezi’s Export Thermal Coal Products
Ncondezi commissioned a coal quality study by Wood Mackenzie, one of the world’s leading energy and mining research and consulting firms. The report confirms the marketability of Ncondezi’s thermal coal export products for Asian customers in the seaborne coal market, particularly China and India.
Ncondezi is targeting the production of an export thermal coal product that is ideally suited to these markets and which will be comparable to international benchmark thermal products, particularly Australia’s Newcastle high ash export product and China’s Shanxi blend.