Mozambique Mining Industry: Indian acquisition is losing money and the Gov wants it taxed

Coal Mining
Coal Mining

The financial director of the Steel Authority of India Limited (SAIL) has revealed the losses currently being borne by the Benga coal operation in Mozambique’s Tete province. Anil Chaudhary reported that Benga’s production costs were $165/t while the current market price was around $130/t, meaning that Benga was losing about $35 on every ton it produced. The Mozambique operation has reserves of 2.6- billion tons, 70% of which is metallurgical coal, used in making steel.

SAIL is one of the State-owned companies that is a partner in International Coal Ventures Limited (ICVL), which is a special-purpose vehicle created at the initiative of the Indian Ministry of Steel, with the purpose of obtaining metallurgical and thermal coal assets in foreign countries in order to assure the supply of coal to India. The other companies that are partners in ICVL are Coal of India Limited, Rashtriya Ispat Nigam Limited (RINL – a steel company), the National Mineral Development Corporation (NMDC) and NTPC (India’s largest power producer), all of them wholly or predominantly State-owned.

ICVL has agreed a deal with mining major Rio Tinto to acquire its 65% share in Benga for $50-million. The transaction is meant to be concluded within a few weeks. (The other 35% of Benga is owned by private-sector Indian enterprise Tata Steel.) According to news agency Macauhub, SAIL will hold nearly half of ICVL’s equity in Benga – 48% to be precise – while RINL will have 26% and NMDC the remaining 26%. Initially, all the coal from Benga will go to RINL, as the NMDC is not yet making steel. Currently, RINL imports 100% of the coal it uses and SAIL has to import 85% of its metallurgical coal requirements.

Earlier, Mozambique’s Mineral Resources Ministry and the Mozambique Tax Authority stated that they would investigate the sale of Benga by Rio Tinto to ICVL. Eyebrows have been raised in the country because the mine is being sold for only one-eightieth of the price Rio Tinto originally paid for it. (But, since then, the global mining group has had to write down $3.47- billion of its original $4.1-billion investment in Benga.) Anyway, such a low price for the asset would greatly reduce the capital gains tax that Rio Tinto will have to pay. Some in Mozambique even suspect that the cost of the deal has been misrepresented.

Consequently, the purpose of the Mozambique investigation is to confirm the deal. “Rio Tinto informed us that it was going to sell the assets it has in Mozambique,” said Mineral Resources Minister Esperança Bias. “We are waiting for them to inform us about the entire process – then the government will have the opportunity to approve the transaction.”

The Mozambique Tax Authority had not yet been informed of the agreed price of the assets concerned. Authority President Rosário Fernandes commented that he had no doubts regarding the sale of the Rio Tinto assets in Mozambique to ICVL and that he had the power to tax the transaction. Nevertheless, the Authority had recently been maintaining contacts with both companies. The next such meeting would be in September with Rio Tinto.

“We are now asking the two companies to supply precise data relating to the transaction,” he said. “We have confirmation that there will be room for the transaction, but we still don’t have confirmation of the assets which are going to be traded.”(By Miningweekly)

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