Rio Tinto to sell Mozambique coal assets for $US50m

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Argyle3 rdax
Argyle3 rdax

Global miner Rio Tinto has agreed to sell the coal assets it bought through a $4 billion acquisition of Riversdale in 2011 for $50 million to an Indian joint venture; pulling the plug on its ill-fated venture in the coal sector of Mozambique.

Image credit: www.riotinto.com. Photographer: Christian Sprogoe PhotographyDate: 27 July 2009
Image credit: www.riotinto.com. Photographer: Christian Sprogoe PhotographyDate: 27 July 2009

According to the article on The Wall Street Journal, Rio Tinto disclosed a $2.9 billion impairment charge against the business after building the required infrastructure has proved more challenging than originally expected.

The sale is subject to certain conditions precedent and regulatory approvals, the company said in a media release. The transaction is set to be completed in the third quarter of 2014.

The buyer, International Coal Ventures Private Limited (ICVL), will have full possession of Rio Tinto Coal Mozambique, which includes the Benga coal mine and other projects in Tete province, and assets that had a value of $71 million as of 31 March, according to Rio Tinto’s books.

“During the transition to the new owner, Rio Tinto will continue to manage the mine to the highest safety and environmental standards. Rio Tinto’s other assets in the country are unaffected by this transaction,” the company stated in the media release.

Rio Tinto initially planned to ship the coal from Mozambique along the Zambezi River; however, the company encountered numerous problems related to the dredging process of the river, as well as securing the needed government approvals. Another obstacle was the high processing cost of the coal, which had high ash content.

International Coal Ventures was set up in 2009 to buy assets abroad by government-run companies including Steel Authority of India Ltd, Coal India Ltd and power producer NTPC.

Rio Tinto’s other assets in Mozambique will not be affected by the deal.

In the first half of this year, Rio Tinto Coal Mozambique produced 733,000 tonnes of coking and thermal coal, according to Rio Tinto Coal’s latest quarterly report.

The company has been seeking to raise money by selling non-core and poorly performing assets, and is set to release its half-year results this week.