Rio Tinto has agreed to sell coal assets it bought through its $4 billion acquisition of Riversdale in 2011 for just $50 million to an Indian joint venture, ending its ill-fated venture in Mozambique's coal sector.
The sale, to International Coal Ventures Private Limited (ICVL), includes the Benga coal mine and other projects in Tete province.
In 2013, Rio Tinto sacked its chief executive and other executives directly involved in the acquisition of Riversdale and wrote off about $3.5 billion of the purchase price, partly owing to a failure to secure a permit to move coal by barge down Mozambique's Zambezi River.
"It has clearly been a horrible experience for Rio Tinto," said Liberum analyst Richard Knights, adding that the sale price was lower than he expected and implied a further writedown.
"The assets clearly weren't as good as they thought but in order for them to be written down that aggressively they must have seen very little scope in the foreseeable future for the profitable export of coal from Mozambique."
A source familiar with the sale said Rio Tinto had been reviewing the division for the past 18 months.
"The sale is not overly surprising given the new management team has little interest in major greenfield projects where they don't have much experience and coal in general has also fallen out of favour," Nomura analysts said.
BIG AMBITIONS
Rio Tinto decision to exit the coal sector in Mozambique is a blow to Mozambique's ambitions to become a major coal exporter.
Rival mining company Vale is also looking to sell a stake in its coal operations which include its Moatize mine in Mozambique and some assets in Australia.
In an interview at the weekend Mozambique's transport minister Gabriel Muthisse said the government remained committed to developing the coal industry as an economic growth driver.
With global prices for metallurgical and thermal coal in the doldrums because of oversupply and sluggish demand, major coal producers and analysts have been warning that Mozambique's developing coal sector, hurt by a shortage of railway and ports infrastructure, is uncompetitive.
While the global price outlook is seen remaining depressed for at least the next two years, India's expanding steel industry is expected to boost demand for coal in the medium term. Mozambique is counting on the Indian market to help its fledgling coal industry grow.
ICVL was set up by the Indian government for the acquisition of coal assets overseas to meet the needs of some state-owned companies such as Steel Authority of India Limited, Coal India Limited, Rashtriya Ispat Nigam Limited, National Minerals Development Corporation Limited and National Thermal Power Corporation Limited.
The sale is subject to certain conditions and to regulatory approvals and is expected to be completed in the third quarter this year, Rio Tinto said.
Copyright: Thomson Reuters 2014
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