Bloomberg News

Mozambique Ports Grow With Rio Tinto Appetite for Coal: Freight

December 15, 2011

Dec. 14 (Bloomberg) -- Roads were little more than rubble and there was barely enough working equipment to load cargo at Maputo port in 2003. Then Mozambique brought in Grindrod Ltd. and DP World Ltd. to operate the harbor.

Since then, a coal-mining boom has fueled expansion at the southern African nation’s harbors. Rio Tinto Plc bought Sydney- based Riversdale Mining Ltd. for A$3.4 billion ($3.4 billion) in July to add 25 million tons of Mozambican coal to its annual output.

“Rio Tinto has been buying up a lot of assets in Mozambique, and they stand to be one of the significant beneficiaries there,” Clinton Duncan, resource analyst at Avior Research (Pty) Ltd. in Johannesburg, said in a phone interview.

The number of ships docking at Maputo has almost doubled to 1,030 a year since 2003, while coal exports have climbed from 1.5 million metric tons to more than 4 million tons and chrome shipments are set to reach about 2 million tons, a five-fold increase, said Ricardo Roberts, commercial manager of the port.

Mozambique is attracting exporters, such as Rio Tinto and Sappi Ltd., from neighboring South Africa, which is burdened with high port costs and a lack of rail capacity.

Grindrod, Africa’s largest shipping company, has gained 9.5 percent since Aug. 15, paring its drop this year to 23 percent, compared with a 0.3 percent increase in the benchmark FTSE/JSE Africa All Share Index. The median estimate of four analysts surveyed by Bloomberg is for the shares to gain 5.5 percent to 15.40 rand in the next 12 months.

Coal Boom

“If you look at the infrastructure development in Mozambique, Grindrod is directly involved and will benefit from any developments at the port and the area around it,” said Patrice Rassou, head of equities at Sanlam Investment Management, in a phone interview from Cape Town. Sanlam, the country’s third-largest private money-manager, holds the stock.

Exxaro Resources Ltd. and Coal of Africa Ltd. are bringing shipments from mines in northern South Africa to Maputo as the miners face restrictions in using South Africa’s Richards Bay port.

A coal-mining boom is fueling development in the southern African nation after a 16-year civil war that ended in 1992 destroyed infrastructure. Durban, South Africa-based Grindrod is spending as much as $800 million to boost capacity by 20 million tons at the coal terminal in the next four years.

Cargo-handling capacity at the Maputo port, 286 miles north of Durban harbor, is set to climb to 50 million tons by 2030 from about 13 million tons currently, according to David Rennie, Grindrod’s executive director of ports and terminals. Grindrod and DP World of Dubai have a 25 percent stake each in the port and the government owns the rest.

‘Unlock Potential’

“It’s important for Mozambique to maximize capacity at the ports to be trade enablers,” Rennie said. “If we do our job properly, it will unlock potential for exporters and generate economic growth and jobs.”

Rio Tinto and Rio de Janeiro-based Vale SA are investing in Beira and Nacala ports, north of Maputo, to serve their mines in the central region of the country.

A former Portuguese colony, Mozambique has stabilized its economy since the end of a civil war that killed almost 1 million people, benefiting from debt relief and investment in large projects. The Mozal aluminum smelter, for instance, is 47 percent owned by BHP Billiton Ltd., the world’s largest mining company. The economy has expanded an average 8 percent a year in the past decade and is forecast to grow 7.2 percent in 2011, according to the International Monetary Fund.

China Power

India and China are ramping up power and steel production to meet demands of growing populations, driving coal production in Mozambique. Annual output of the fuel in the southern African nation is forecast to reach 20 million tons by 2015, about 8 percent of South Africa’s output, from 35,700 tons last year, according to Frost & Sullivan, a San Antonio research firm.

Foreign investment in mining is set to reach $14 billion in the next four years, $9.5 billion of which is earmarked for coal.

“Economic reforms, attractive mining sector policies and increasing infrastructure development have generated sustained economic growth rates in Mozambique,” Christy Tawii, research associate at Frost & Sullivan in Cape Town, said on its website.

Rio Tinto declined to comment on its plans, Johannesburg- based spokesman Gugulakhe Lourie said in an e-mail. The stock has gained 13 percent in London since the beginning of October, paring its decline this year to 29 percent.

Sappi Exports

Coal production in landlocked Botswana and Zimbabwe is also helping to drive the expansion of Mozambique’s harbors. Hwange Colliery Ltd., Zimbabwe’s largest coal miner, plans to ship 30,000 to 50,000 tons of coal through Maputo early next year, Oliver Maponga, business development manager, said on Oct. 18.

For South African coal miners, Maputo has become an alternative to get their exports to the east. South Africa’s Richard’s Bay Coal Terminal, Africa’s biggest export facility for the fuel, restricts access to smaller producers because it’s operated by shareholders including Anglo American Plc and Xstrata Plc.

“Recent developments with Grindrod for the future development of the Maputo port are encouraging and our volume growth is aligned to the planned expansion in the rail and portside capacity,” Coal of Africa Chief Executive Officer John Wallington said in an e-mail.

The improvement at Maputo is not just benefiting miners. Johannesburg-based Sappi, the world’s largest maker of glossy paper, is considering using Maputo for shipments from its Nelspruit mill, located in South Africa’s northeastern Mpumalanga province bordering Mozambique. That’s cheaper and more efficient than South African ports, which are owned and operated by the government, Glenn Adriaanse, Sappi’s export manager, said in a phone interview from Durban on Nov. 21.

“We are seriously looking at ramping up production at our Nelspruit mill for export purposes,” said Adriaanse. “Mozambique is a serious option.”

--With assistance from Fred Katerere in Maputo. Editors: Nasreen Seria, Anne Swardson

To contact the reporter on this story: Jana Marais in Johannesburg at jmarais@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net


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