Infrastructure

Ncondezi Group plans to export its coal product from Mozambique onto the seaborne market.

At this point, there are three primary options being considered by the Ncondezi Group:

Source: Company

Export from Port of Beira using Sena Railway line

The first option considered is the use of the Sena Railway line, which runs approximately 575 km from Moatize to Beira, and is in the final stages of a major refurbishment. Once completed, this railway is likely to have a potential capacity of 8 to 12 Mtpa. The railway line between Moatize and the port of Beira passes approximately 10 km from the eastern limit of the Ncondezi Project held by the Ncondezi Group, and if this option is considered optimal, the Ncondezi Group could construct a rail spur (approximately 20 km of rail) to connect to the line. From the rail terminal in Beira, the product would be loaded into ships at the Port of Beira. An existing government owned multi-user coal terminal which has initial capacity of 2 Mtpa ramping up to 6 Mtpa is due to be refurbished for export of coal by the middle of 2011. The government of Mozambique is also currently investigating further refurbishment of the rail link between Moatize and Beira and a new coal terminal with approximately 20 Mtpa capacity.

Export using the Nacala railway and port

The second option is to utilize the Port of Nacala, which is a deep-water port and its upgrade is part of a strategic development between Mozambique, Malawi and Zambia. During October 2009, the Mozambique government announced that it had secured US$500 million of funding from the Danish and Dutch governments as well as the European Union. The government has also signed an agreement with Vale and the consortium that operates the Nacala railway and port (the Northern Development Corridor) to upgrade the port and rail links for the purposes of exporting coal from Tete. The objective of upgrading the port ties into plans to link the town of Moatize to the Nacala railway through Malawi in what would be a US$1.6 billion upgrade. The railway to Nacala is considered the most likely high-capacity haul route for coal from the Zambezi basin due to its natural advantages in terms of deep water access (which allows capesize vessels to service the port). The construction of this railway line is forecast to be completed and operational during 2015. The Nacala port needs to be developed and sections of the connecting railway to Moatize need to be upgraded or built to cater for the forecast export production from companies developing the Zambezi Basin coal fields. The upgrade is expected to have a capacity of 20 Mtpa, although it is believed that this can be further expanded.

Barge down the Zambezi River

The third option is to barge the coal down the Zambezi River. This option is being investigated by other potential coal producers in the Moatize area, particularly Riversdale. There has been successful small-scale barging on the Zambezi in the past, but this was discontinued in favour of the more reliable railway service. If this option is to be considered then a substantial amount of investigation is required and environmental approvals from the Mozambican Government will be key. In summary, it would appear that the Company will have the option of exporting coal through either Beira or Nacala depending on the timing of production of coal from the Ncondezi Project and the demands of other producers in the Tete area. The Ncondezi Project is targeted to begin exporting coal in the latter half of 2014 at the earliest and so will be in a good position to utilise infrastructure upgrades assuming they develop as planned.

The Ncondezi Group is also a member of the Mozambican Coal Development Association, together with Vale and Riversdale and other coal exploration companies, to promote the interests of coal companies in Mozambique. Its objectives include promotion of the development of competitive transportation and handling options, integration of the whole coal production chain for both export and domestic markets and promotion of the sustainable use of resources. The Directors expect the government to support open access to rail and port facilities for producers in the Tete Province.