Coal Logistic Challenges in Mozambique

RSV ENCO Consulting (Pty) Ltd

20 Anderson Street, Johannesburg

P.O. Box 61511, Marshalltown, 2107,

South Africa

Tel: (+27) 11 498 6010

Fax: (+27) 11 498 6210

www.rsvenco.com

Coal Logistic Challenges in Mozambique

2nd Coal Transportation Annual Summit

20 May 2015

THE OF COMPANIES

Project Management and Design Capability Across the Full Project Lifecycle

A collective of Linked Enterprises providing end to end solutions for Mining & Industrial clients

Concept Market

OUR ENGINEERING CAPABILITIES

Coal

Mining

• Geological

exploration

management

• Resource to

Reserve

• Competent Persons

Report

• Mine Design of

open pit, open cast

and underground

mines

• Shaft System

Design

• Pumping and

Piping Systems

• Financial Modeling

Energy

• IPP Interface

management

• Thermal Power

Generating Plants

management

• Balance of Plant

Engineering Design

• Energy efficiency &

optimisation

studies

Coal

Processing

Supporting

Infrastructure

• Metallurgical Test Work

Supervision

• Mass, Water & Energy

Balances

• Equipment Sizing,

Process Data Sheets

• Plant Audits and Plant

Optimization

• Problem solving / De-

bottle Necking /

Optimisation

• Dense Medium Separation

• CHPP Design

• Washability Simulations

• Flow Sheet Development

• Provincial Roads

• HV Power Supply &

distribution

• Rail link / Rapid Load-

out Systems

• Industrial Buildings &

Workshops

• Water Management

Supply and Storage

Facilities

Clean & Dirty Water

Separation

Treatment solutions

• Mine Closure

1. Introduction

2. Geology

3. Mining

4. Coal Preparation

5. Logistics

5.1 Alternative solutions

5.2 Rail

5.3 Port

6. Infrastructure: Power supply

7. Legal and fiscal framework

8. Marketing

9. Cash Cost

10. The Future

11. Conclusion

Strategic Focus Areas for Africa

Infrastructure

Logistics

Skilled People

CONTENTS

STRATEGIC CORRIDORS

5

Trans-Kalahari

23 million people

2500km of

coastline

STRATEGIC CORRIDORS … continue

MINING COMPANIES IN TETE

7

GEOLOGY

TETE COAL BASIN

GEOLOGY IN TETE PROVINCE

MULTIPLE COAL SEAMS – HIGHLY FAULTED

COAL PREPARATION

Coking Coal yield

19 – 23%

For a 10.5% ash

Thermal yield

(5400Kcal) 22 –

25%

COAL PROCESSING OF TETE COAL FIELDS

10.5% ash

5400kcal

Ave Yield

Primary Cyclone 36%

Secondary Cyclone 32%

Reflux 50%

Spiral (Thermal) 44%

Flotation Cells 68%

Coarse Coal 15-3mm

Small Coal 3 – 1mm 1mm- 0.25mm

15% of Feed to plant

120 t/hr

15% of Feed to plant

60 t/hr

0.25mm<

Average fines

about 36%

POSITIVES

• High CSN (8-9)

• Very High CSR (60-64)

• Low CRI (22 -24)

NEGATIVES

• High Sulphur ( >0.8%)

• High Phosphorous (> 0.055%)

• Lower Fluidity

COKING COAL PROPERTIES IN TETE

• Mozambique coke cell at a slight discount to HCC (± 8%)

• “Making Coke is a blending game and there are some natural advantages to

coke manufacturers sourcing Chipanga Coking Coal. It is Ideal for making

good quality coke” – Dr D Ojha from Global Coke, India

Notes:

CSN – Coke Strength Reactivity

CSR – Crucible Swelling Number

CRI – Coke Reactivity Index

MINING

Run of Mine 3.2 Mtpa

Saleable Products per annum

588 000 tons of Coking Coal

627 000 tons per annum of export Thermal (5400 Kcal)

On mine cash cost US$ 22 / saleable ton Strip ratio 0.55 BCM: ton

FOB cash cost in Beira (all-in)

US$110 /saleable ton

Capital US$ 22.9 mil for 2014

Life of Mine 15.4 years

PRODUCTION (Steady State)

64%

INDICATIVE MML PROCESS COST

US$ 110 / ton FOB Beira (3.2 Mtpa)

ALTERNATIVE LOGISTIC SOLUTIONS

Dredging Data:

• Approximately 180km (from the total 540km) will

require dredging

• Capital dredging estimated volume : 19 million m3

• Cost about $10 m-$12 /m3

• Maintenance dredging: 25% of capital dredging

per year

• Dredging will effect 7.1% to 11.7 % of the active

channel

• The Zambezi is a very dynamic river: main channel

is known to shift over time and the flood episodes

can quickly modify the position of the navigable

channel

• After capital dredging you will need permanent

maintenance dredging

BARGING DOWN OF THE ZAMBEZI

Delta environmentally

very sensitive

Features of a Proposed Coal Slurry Pipeline (ARUP)

• Use fresh water from Zambezi river or sea water from the ocean

• Closing loop system, minimise water loss.

• Particle size of at least 4 to 7 mm for fresh water transport and up to 50mm for seawater

(dense medium) transport.

• Pipeline slurry of 50 to 60% solid by weight.

• One main pump station and one booster pump station to overcome friction.

• Dual pipeline principle can be followed large pipeline for coal slurry, small pipe line for water

return 70% of water recycled.

• Capital Cost per km : US$ 9. 2 Million.

• Operational Cost: Assume 35 MW power.

Fixed Cost (pa) US$ 30 million

Variable Cost (per ton) US$ 0.5

• Expected Transportation tariff : US$ 20/ton

COAL SLURRY PIPELINE

Return recycled

water

Length: 912 Km

Capex: $ 4.4 Billion

$3.4 Billion Railway

$1.0 Billion Port Terminal


MOATIZE / NACALA RAIL LINE

Existing Line:

• Rehabilitation / strengthening of substructure

• Replacement of superstructure



• 33 bridges rehabilitated and or strengthened

• 65 new bridges



SENA LINE


SENA LINE 570km - Narrow Gage


Mining Companies supply own rolling stock (MML paid $22/t)

Companies has entered into an Interim Rail Access Agreement with Portos

e Caminhos de Ferro de Moçambique („CFM‟) on the Sena Rail Line for an

allocation

Most Company‟s intention to use the Sena Line capacity to commence exports

of coking coal to maximise return on investment

Companies pay CFM a monthly line access fee

of plus minus $18/ton

• Normal rates are 4.7 US cent /t/km which equals

$26.80/t

SENA RAIL ALLOCATION

CFM PLAN TO INCREASE SENA RAIL

6Mtpa 2014 20Mtpa 2020

12 Mtpa (2017)

Photo: Warehouse no 4 in Beira

THE WAY FORWARD ON THE SENA LINE

32

TECHNICAL

• Minimise the speed constraints on the line ( especially section that

flooded early 2013)

• Break up critical sections with by-pass loops

• Once a homogeneous system is in place increase the length of the by-

pass loop.

• Introduce on-board computers with Telecom system

FUNDING

• Creative funding options with private investors


Specifications of rolling stock

Five „new‟ Grindrod RL30SCC-3

“As new “ locos, GM and GE (good control

and traction systems)

90 new Gondola-type coal wagons fitted

with the patented Sheffield bogey system

(narrow gauge)

ROLLING STOCK SELECTION

MACUSE LINE



MACUSE RAIL LINE

LOGISTICS - PORTS

LOGISTICS – PORTS

BEIRA

QUAY 11A &B 2014/15

QUAY 9 (2MTPA CAPACITY)

QUAY 8 (6MTPA CAPACITY)

VALE / ICVL ARE USING

VALE / ICVL

FACILITY

Shallow port – Handy Max Ships

PORT OF BEIRA (CORNELDER)

BEIRA PORT FACILITIES (Indico Site/ Quay 9)


Quay 9

New Dry bulk

terminal

NEW DRY BULK TERMINAL


COSTS:

Straddle Offloading $1-50

Coal to Stockpile $2-50

Skip Loading $6-00 (not paid by Vale & ICVL)

$10-00

Cornelder $14-00

Total $24-00/t

STRADDLE OFF-LOADING

QUAY 11A & B BEIRA (Q1 2017) - CORNELDER

44

Position of future

Quay 11A &B


BEIRA QUAY 13

46

Concessionaire with ESSAR of India

Capital: $600 million

• Support from CFM

• JINDAL

• International Coal venture

Partners (ICVL)


QUAY 13 – PROPOSED LAYOUT

CFM/COLNELDER PLAN TO INCREASE BEIRA

PORT CAPACITY

5Mtpa 2013 20Mtpa 2020

2014

Vale 3 587 471

ICVL 806 492

Jindal 439 224

Traffi 40 633

Total 4 393 830 ton

Quay 11A & B

1.8 Mtpa

(6000t/d)

ESSAR

6-10Mtpa

Shortfall of 3 – 8 Mtpa

Realistic number

12 Mtpa

TRANSHIPMENT SOLUTION

Not for juniors that load a ship every 3 weeks

LOGISTICS – PORTS

NACALA

INITIAL CONSTRUCTION OF THE KEY SIDE

BARGES AND CRANES USED FOR

CONSTRUCTION OF KEY SIDE

CONSTRUCTION OF THE SUPPORT STRUCTURE

FOR THE CONVEYOR TO TRANSPORT

COAL FROM THE STOCKPILES TO

THE SHIP LOADER TRANSHIPMENT SOLUTION

VIEW OF CONVEYOR BELT SYSTEM

THAT WILL FEED THE SHIP LOADERS

SPECIAL DESIGNED FENDERS

Stacker and

reclaimer site

NACALA PORT

CONVEYOR TRANSFER POINTS ON THE

LAND SIDE

NACALA PORT (18 Mtpa – VALE)

LOGISTICS – PORTS

MACUSE

Mozambique Reappraises Rail Costs

Mozambique‟s transport ministry lifted the estimated cost of a railway and

port project to boost coal exports to $5bn, almost twice as much as its initial

projection, Reuters reports.

The Mozambique government chose Bangkok-based Italian-Thai

Development as preferred developer to construct the 525km rail line from

Tete province to Macuse in Mozambique‟s Zambezi a province and a port

able to handle 25mtpa of coal.

The project was initially pencilled in at $3bn but the figure has been revised.

The total value of both contracts is estimated at $5bn, with the

construction planned for 2016,”Ministry of Transport spokesman Verlopes”.

Biggest challenge is off-take agreements before project can start

MACUSE PROJECT

INFRASTRUCTURE: POWER

SUPPLY

Source: Investment Promotion

Centre - Mozambique

Gas

Coal Hydro

Interim need generators for

wash plant

POWER SUPPLY PROJECTS

Completed

Vilanculos 400MW

LEGAL AND FISCAL

FRAMEWORK

Government Participation: The initial phase of the Mining

Contract allows the Government a 5% stake in MML which

aligns Governments interests with that of the company.

The signing of this contract represents a milestone in the process of stabilising the BHR

subsidiary by providing following advantages:

• Security of tenure through this 25 years contract and a predictable long term legal frame

work of investment.

• Fiscal incentives and exemption from custom duties.

• Ability to employ sufficient skilled foreign professionals required to implement planned

development and if required hire international contractors for the term of the contract. (Ex-

pats : 30% project , 20% operations 5yrs , 10% steady state ).

• Training and Employment Programme : Challenge is the Skills shortage.

• Community development programme: MML needs to spend $1 mil in next 5 years and

$4mil over life of mine.

BEE (SA)

SOCIAL AND LABOUR PLAN / EMP / H & S Strategy

MINING CONTRACT

MARKETING

Source: Argus – Coal Trans Maputo

AUSTRALIA vs MOZAMBIQUE COKING COAL

• Latest forecast 10Mt (coking exports) by 2020

• Major potential: Brazil and India (making up nearly 50% of the global

coking coal growth)

• India‟s steel output up 6% (April – Sept 2013)

• Brazil steel output around 40 Mt in 2015

Source: Argus – Coal Trans Maputo

MOZAMBIQUE COKING COAL -

AN OPPORTUNITY

• India chronically short of power, 25% of

populations has no access to power

• Indian domestic coal reserves in the North

East and new power capacity being built in

the South and West, will be better serviced

by imported coal

• Indian domestic coal production has increased at CAGR 4% since 2008

• Indian coal imports have increased at CAGR 21% over the same period

• Ultra Mega Power Projects (UMPP) in the Government 11th five year plan

(2007-2012) envisages the creation of an additional 62 000 MW generating

capacity, not just coal. Each UMMP will have a capacity of

+- 10 Mt/a coal

MOZAMBIQUE THERMAL COAL

Source: World bank, World Coal Institute, Coal Issues Portal, Salva Report on India’s Thermal Coal

Imports and Hatch

CASH COSTS

50.00

70.00

90.00

110.00

130.00

150.00

170.00

190.00

210.00

Co

st /

USd

/ t

on

Business Costs Corporate Costs

FOB cash cost ($/t)

Source: report from CRU London

LONG RUN MARGINAL COST CURVE

Coking and

thermal coal

Coking coal

only

Note: US$ / saleable ton

$108/t

$147/t

“Tier 3”

“Tier 1”

THE REALITY OF THERMAL CREDITS

ROM Saleable Product (Mt) SENA line Ncala line

(Mtpa) Coking Coal Thermal Coal Beira (Mt) (Mt)

Vale Moatize 52 10.92 12.48 4 19.4

ICVL Benga 12 2.52 2.88 5.4

Beacon Hill Resources Minas Moatize 3 0.63 0.72 1.35

Jindal 15 3.15 3.6 6.75

Revuboe Talbolt/ Nippon/Posco 10 2.1 2.4 4.5

Bullish commodity cycle Coke &Thermal 22.0 19.4

Bearisth commodity cycle Coking Coal Only 12.4

(Vale 4Mt included)

Assumptions: 1) Mine ROM Capacity

2) 21% coking coal practical yield

3) 24% thermal coal practical yield

Bullish Commodity Cycle Bearish Commodity Cycle

RAIL CAPACITY ON SENA LINE – A FACTOR

OF WHERE THE COMMODITY CYCLE IS

Witbank-RBCT ($/t) Yield Tete- Mozambique ($/t) Yield Waterberg Coal Field ($/t) Yield

Product Price ($/t)

Coking Coal $110 $110 21%

5900 $60 $60 30%-55%

5400 $52.80 $52.8 30%-55% $52.8 25% $52.8 21%

Eskom 19CV $26.6 20%-30% $26.6 22%

Mining Cost $35 $28 $15

Rail Cost $13.5 $40 $32

Port Cost (RBCT allocation) $4 $23 $4

or Other Ports or $8

Total $53 $91 $51 to $55

Notes

1) US$ = R10

2) Yields are pratical yields

3) $/t is US$ per saleable ton

4) Witbank Coal fields yields are typical for Multi product operations

Eskom dedicated mine mouth operations yields will be > 70%

COMPARING THE THREE RAIL CORRIDORS

THE FUTURE

Coking Coal in Tete Province (medium term)

• SENA line capacity to 20 Mtpa ( outsource operator,

CFM control)

• Development of Quay 13 in Beira

• Need a Professional dredging company in Beira

• Tax regime to follow commodity cycle

• Mining Contract

• Skills Development

“Mozambique has got the potential to become a role

model for Mining in AFRICA”

HIGH ROAD FOR MOZAMBIQUE COAL

“If the Government manages the process

wisely, Mozambique can become a second

Qatar in the future”

“Rovuma has got major potential for LNG ,

GTL and Power. Why do the Grand INGA

project in the Congo if there is 20% of all

worlds gas reserves in East Africa”

Total project value next 5 -20 years over

$200 billion”

Revuma will replace shale gas in the Karoo,

RSA

ROVUMA HYDROCARBON BASIS

Coal Logistic Challenges in Mozambique

Business

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