The advantage of investing in a country like Mozambique with an...

The advantage of investing in a country like Mozambique with an overall desire to benefit from the mining industry shows why RIV is uniquely positioned and why RIO had better hurry up and ante up.

I would not be disappointed if RIO did not get across the line as RIV a great long term investment and worth holding onto IMO.

The article below is at:

http://www.moneyweb.co.za/mw/view/mw/en/page292523?oid=532891&sn=2009+Detail&pid=287226

Barry Sergeant 07 March 2011 18:17

IN ANOTHER COUNTRY

How are the world?s mining majors ?voting? on South Africa?

JOHANNESBURG ? In November 2010, Coal of Africa Ltd (COaL), a firm listed in Johannesburg, London and Australia, announced that it was buying Rio Tinto?s South African coal mining assets. What caught the attention of specialists is that CoAL, which operates in South Africa, was paying just $75m for the assets.

The cherry among these, for now at least, is Chapudi, which holds a proven resource of 1bn tonnes of coking coal. Coking coal is not only relatively rare in South Africa; it ranks as one of the world?s most profitable minerals, along with iron ore, and copper.

Rio Tinto, the world?s No 3 mining company, seemed to have something else in its sights: on December 23, it announced a bid of A$3.9bn for Australia-listed Riversdale Mining. One of Riversdale?s main interests is its 65% stake in Benga, a coking coal project in Tete, a far northern western province of Mozambique. Tata Steel owns the balance of 35% in Benga.

Riversdale also owns the nearby Zambeze project, where China?s Wuhan Iron & Steel Corp has an option to acquire 40%, for $800m. Seaborne coking coal sells for more than $200 a tonne, yet Rio Tinto was prepared to sell off its South African Chapudi coking coal asset for less than a dollar a tonne, and bid billions for a coking coal project in an adjoining country.

Early in February, BHP Billiton, the world?s biggest diversified resources group, announced ?its decision to divest some of its currently undeveloped {South African] coal prospecting rights and invite potential bidders to participate in a public tender process for the sale of these rights?.

Mines Minister Susan Shabangu reacted by saying that Anglo American, the transnational miner, and South Africa?s biggest miner, should follow BHP Billiton and ?shed? some coal rights, so encouraging ?new entrants?. Rio Tinto is probably not to be counted among the possible names.

Last week, the highly influential Toronto-based Fraser Institute released its 2010-2011 survey of global mining. The overall ranking showed that South Africa?s position had slipped, once again, to 67 (of 79 mining jurisdictions), from position 37 five years ago.

One Johannesburg-based mining CEO named three main reasons for South Africa?s woeful ranking: security of tenure issues, longer-term concerns over infrastructure, such as power and water, and a chronic lack of skills.

To take but one example: the Richards Bay Coal Terminal has expanded to handle 91m tonnes of coal a year, but Transnet, the state-owned rail monopoly, continues to perform horribly below capacity; indeed, at levels seen a decade ago. Transnet Freight Rail indicated a target of 70m tonnes of railed coal for 2011, yet is currently running at an annualised rate of just 54m tonnes.

For some miners, the South African government?s interventions in the mining sector have gone too far, aggravating deep underperformance by parastatals such as Transnet and Eskom. Regulatory risks may have risen to intolerable levels. BHP Billiton, for instance, applied as early as 2004 for conversion of its old order coal mining rights. These are yet to be converted; BHP Billiton is in discussion with the relevant authorities and ?expects that the process will soon be concluded with a positive outcome?.

Meanwhile, billions of dollars are pouring into the province of Tete in Mozambique.

Brazilian supergroup Vale, the world?s No 2 mining group, will soon commission the $1.7bn Moatize coal mine, alongside Riversdale?s deposits. Moatize holds resources of more than 1bn tonnes; Moatize I has a nominal production capacity estimated at 11m tonnes of coal, 80% coking.

The coal will be transported along the Linha do Sena railway to the historic Beira port. A month ago, the first train seen in 25 years arrived at Moatize town. At Beira, the Mozambique government is building a new facility to handle an additional 18 to 24m tonnes of coal a year. Other transnational companies with a presence in Tete include ENRC, Nippon Steel, Jindal and ETAStar.

Vale has bought a 51% stake in Sociedade de Desenvolvimento do Corredor do Norte SA (SDCN), which controls the Corredor de Desenvolvimento do Norte (CDN) and the Central East African Railways (CEAR). CDN holds a concession over 872km of railroad in Mozambique; CEAR holds a concession over 797km of railroad in Malawi.

Riversdale and Tata earlier this year bought the balance of shares in Benga Power Project, a $1bn investment progressing to initial production in 2013-2014, to produce around 550MW of power, with the objective of increasing to 2 000MW. The miners are also looking at barging along the Zambezi River, following precedents from decades ago. In South Africa, the idea of private investment in power stations and rail is scorned.