Vale may strike deal to quit Moatize coal operation by year-end

London — Miner Vale expects to strike a deal to divest its Moatize coal operation in Mozambique by the end of this year, as it moves towards exiting the coal business, a Vale executive told analysts on a Q1 results call April 27.

"Over 20 NDAs (non-disclosure agreements) have been signed with interested parties... with a firm intention to bid," said company CFO Luciano Siani.

The company hopes to receive bids or intentions for the coal property by the start of the second half and to sign a deal before year-end "if we're a little lucky," Siani said.

Vale has just finalized a revamp of Moatize, which has started to ramp up, the executive said. It expects Moatize to reach production at a rate of 15 million mt/year at the start of H2, and to receive equipment to upgrade to 18 million mt/year by the end of the year, he said. The mine produces both metallurgical and thermal coal.

Moatize, which Vale brought on stream in 2011, has a total capacity of 22 million mt/year of coal.

Currently the Moatize mine pays a tariff for the Nacala logistics corridor to repay project finance which is punitive, the CFO said. However this cost will eventually become consolidated, with Vale taking on the project finance debt, he said.

Could become cash-flow positive

With metallurgical and thermal coal prices just a little higher than at present, around $130-140/mt, Moatize could become cash-flow positive at the start of next year, according to Siani.

S&P Global Platts heard premium metallurgical coal traded at prices of and around $116/mt FOB Australia in the spot market April 27.

Currently, the China-Australia dispute on coal trade is "weighing on metallurgical coal prices" while the COVID-19 crisis in India, which is a big importer of thermal coal, is depressing prices for thermal brands too, Siani said.

Vale signed an Investment Agreement with Mitsui & Co. last week for the Japanese company to exit Moatize. "The completion of Mitsui´s exit from the Moatize coal mine and the Nacala Logistics Corridor, which is expected throughout 2021, is an initial stage towards Vale's divestment of the coal business," Vale stated.

Divestment from coal will simplify Vale's portfolio and reinforce its commitment to the Paris Agreement, as well as Vale's goal to become a leader in low carbon mining, it said at the time of the accord with Mitsui. Vale is a major iron ore, nickel and copper producer.

Vale has committed to becoming carbon neutral by 2050 and reduce 33% of its Scope 1 and 2 emissions by 2030.