Vale SA, the Brazilian mining leader has announced the revision of its production plans in its Mozambican coal operations. It has decided to shift the focus to producing more metallurgical coal and less of the lower-value product. In a statement announcing US$3.2 million in impairments, the mining leader stated that that Moatize mine operations will undergo maintenance in 2020 for a period of three months, and a new operating model will be applied to increase productivity and yield.
The temporary suspension of production for three months could upset the financial health of Mozambique which depends on coal for its biggest source, almost one-third of export earnings. Mozambique exports of coal stood at $1.7 billion last year, with Vale operations accounting for the lion share.
The company after completing a review of its Mozambican coal mines decided to shift the focus to producing more metallurgical coal — used to produce steel — and less of the lower-value product that power stations burn. Under the new plan, the company will produce at a rate of 15 million tons per year by the end of 2020, against less than 12 million tons last year. However, it will still not be able to reach Vale’s target to export 22 million tons from the mines in central Mozambique. The company according to its statement, will have to write down the assets by $1.6-billion, to be recorded in the accounts for the fourth quarter of 2019.
The Brazilian group said that its expectation of metallurgical and thermal coal income has changed since the project’s conception, mainly due to technical problems. As a result, the production plan and the price scenarios for metallurgical and thermal coal used in the valuations have been revised.
