Japan's Mistui & Co. Ltd. has bucked a global slump in coal sector investment by stumping up $763 million to join Brazil's Vale SA in a Mozambique coking coal project.
Mitsui said late Tuesday, Dec. 9, it will acquire a 15% stake in a Vale subsidiary that owns 95% of the Moatize coal mine for $450 million in cash and assumed debt, and will take a 50% stake in the associated transport assets for $313 million.
"The partial sale of the troubled Moatize mine and logistics project appears to be at a very attractive price for Vale," noted BMO Capital Markets analyst Tony Robson.
Metallurgical coal prices slumped to six-year lows in recent weeks amid a slow down in Chinese demand. Falling prices have prompted coalmines to slash about 30% of production, equal to about 10% of the global seaborne trade, St. Louis-based producer Peabody Energy said in September.
Vale will use the cash from Mitsui to fund the expansion of the Moatize mine, and also plans to negotiate a new $2.7 billion non-resource project financing loan for the mine's logistics operations, called the Nacala Logistic Corridor, or NCL, from the strengthened financial footing. The loan would fund about $1.7 billion of capital expenditure needed to complete the logistics project, while $1 billion would be returned to Vale to repay bridging loans from its shareholders.
Vale said that Mitsui's investment and the refinancing will save it a total $3.65 billion in expenditure on Moatize and the logistics operation. Mitsui has incentive to support Vale as it owns a 15% stake in Valepar SA, a holding company that is the controlling shareholder in Vale.
Moatize is one of the world's largest metallurgical coalmines, with reserves of a about 690 million tons. The mine produced 1.3 million tons of coal in the third quarter of this year, about two-thirds of which was metallurgical coal, used to make steel, while the remainder was lower grade thermal coal that is burned in power stations.
Output from the coalmine, which will have a production capacity of 22 million tons per year by 2016, has been limited by transport bottlenecks. NCL needs to upgrade 682 kilometers of existing rail and build 230 kilometers of new rails as well as a coal terminal to match the mine's capacity.
"Mitsui regards Mozambique as a corporate priority region because of its potential growth as one of Africa's leading resource-producing nations," Mitsui said.
Shares in Mitsui closed Wednesday at ¥1,598.5 ($13.43), down ¥18, or just over 1% on their Tuesday close. Shares in Vale traded Wednesday at 17.47 reais ($6.74), down less than 1%.