Vale, one of the main mining companies operating in Mozambique, will sell its coal operations in the country, the company announced on Thursday.
Vale has signed a principle of understanding with partner Mitsui, “allowing both parties to structure Mitsui’s exit from the Moatize coal mine and the Nacala Logistics Corridor (NLC), as a first step towards Vale’s divestment of the coal business.
“After the acquisition of Mitsui’s shares and, consequently, the simplification of the business and asset management, Vale will begin the process of divesting its stake in the coal business, which will be guided by the preservation of the operational continuity of the Moatize mine and the NLC, through the search for a third party interested in these assets”.
Coal is currently one of Mozambique’s main export products, mainly to Asia.
Vale aims to be carbon neutral by 2050 and reduce some of its main sources of such pollution by 2030.
The transaction with Japanese company Mitsui is for the symbolic price of one dollar, but all associated expenses and charges – including an outstanding balance of 2.5 billion dollars (about two billion euros) – are passed on to Vale.
Despite the announcement, Vale is continuing to implement investments that should increase production at Moatize mine in the coming years.
“The two processing units will be revamped and adapted to a new process, which has been in place since November 2020”.
After the investment is fully implemented, “Vale expects to achieve a resumption of production, reaching 15 million tons in 2021 and 18 million tons in 2022.
The Brazilian mining company currently has installed capacity to produce 12 million tons of coal per year but has fallen short of that figure: in 2018 it produced 11.5 million tons and in 2019 it produced eight million tons.
The figure is likely to have be lower in 2020 due to the drop in demand for coal caused by the global economic slowdown in the face of the Covid-19 pandemic.
From January to September 2020 (latest data available), Vale produced 4.6 million tons of coal in Mozambique.
The signing of the principle of understanding with Mitsui as “an initial step towards the divestment of Vale’s coal business, is in line with its discipline in capital allocation and portfolio simplification, and reinforces its commitment to the Paris Agreement, as well as Vale’s ambition to become a leader in low carbon mining,” it concludes.
Meanwhile, the Mozambican government has already been informed about the transaction.
The operation “should be concluded on 30 June” and the restructuring process will “safeguard the rights of workers and the communities where the company operates” and foresees “the identification of a new investor with good standing and recognised capacity to conduct the project.
Vale and Mitsui “have committed to cooperate with the various government bodies to ensure a smooth transition with the least possible impact,” the statement added, according to which the ministry “undertakes to monitor the entire process, so that it takes place in strict compliance with Mozambican legislation.