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Riversdale Mining

Riversdale
Logistics and local development

Riversdale’s Mozambique projects continue down the path to production

According to Steve Mallyon, managing director at Mozambique coal impresario, Riversdale Mining (ASX: RIV) of Sydney, Australia New South Wales, the much-talked about miner isn’t half as newsworthy as it was in AUBJ’s February issue—so few shares are traded each day now, with mining major Rio Tinto’s (LON:RIO, ASX:RIO, NYSE:RIO) portion now standing at approximately 73.42 per cent of all RIV shares.

“But nobody has taken their foot off of the accelerator here, I assure you, and we’ve got some great people helping us. Most of those people have a Rio badge on their pocket and we’re comfortable with that,” he says.

“It’s been a very good transaction from Rio’s perspective and our own.”

Rio has managed to get in on some very significant projects for its shareholding too, particularly the Benga and Zambeze projects in Mozambique’s Tete province, capable of delivering up to 10 per cent of the world’s coking coal market. Zambeze, with a coal resource of nine billion tonnes identified, is on course to move into a full feasibility study around mid-this year. Benga, with a coal reserve of 502 million tonnes, is set for initial operation in the second half of 2011 also. Riversdale and Rio are also eyeing a potential Benga power station in the region of $1.3 billion—an increasingly favourable option for the needs of both its operations and wider in-country energy needs—and identifying the ideal export solutions, beginning with barging on the Zambezi River.

“It’s all about logistics now. The coal quality is proven, the technology we’ve used is too and we’ve pioneered it on Benga,” Mallyon says.

“What we really need to do is find the optimum logistics solution and we think that river barging will be it.”

Today’s objectives centre on firming up the right logistics framework, as Mallyon says, and maintaining what has already proved to be a wholeheartedly committed approach to social development and environmental awareness in operations planning. It has been about five years since the Riversdale team first began work on Benga, and it looks as if some pretty poignant days are on the way.

The strong team strengthens again

In supporting the ongoing development of Riversdale’s projects in Tete, specifically Benga, Zambeze and the associated infrastructure, environmental, social and logistics works, Rio has begun to offer input on a number of different fronts, particularly rail and river barging; two areas of expertise it is already renowned for success on. This has been done through a number of new arrivals on the Riversdale board.

“We have Doug Ritchie who is now our chairman, he’s the head of Rio Tinto Energy. His number two Darren Yeates, who looks after a lot of coal operations, has just come onto the board, and so has Matt Coulter, chief development officer for Rio Energy,” Mallyon says.

“David Peever, the managing director of Rio Tinto Australia and head of Rio Marine is on our board too—which probably shows the importance of river barging to Rio—and the head of Rio HR, Rosemary Fagen, has come onto our board as well.”

Riversdale’s former chairman, William M O’Keefe, and former-CFO Niall Lenahan have both retired (Mallyon says that the team have near enough recovered from the celebrations held in their honour) and non-executive directors Gary Lawler and Tony Redman remain on board alongside Mallyon himself.

“Last time we spoke I said that we have a very strong board. Now it’s even stronger with the sort of skills we have, particularly with the calibre of people like Doug and David,” he says.

“It’s a signal that Rio regards the Riversdale investment as a very high opportunity for them. They’ve put some of their best people into it.”

Of course this transaction benefits all parties, particularly given Rio’s role in rail and barging at this point. The group operates the world’s best rail line from Hammersley into Port Hedland, and its rail and marine people, who have been out in Mozambique for the past month, report that they are very pleased by the input this new majority shareholder has had.

“Our original study was based on a Rio Tinto feasibility study for a project called Caramba in Brazil. A lot of the technology we’re using and a lot of the consultants come from that study, so for Rio it was very easy to pick up on what we’ve done; the same consultants, marine architects and environmental people,” Mallyon says.

“That’s really helped us now that we’ve submitted the barge environmental and social impact study, as of April. It’s in front of the Mozambique government for review, and I think that process will take around six months. It’s a first-class study, endorsed by Rio who is now looking at the implementation.”

The team are also looking at how they might expand the Sena rail line, which links Tete coal mines in with the port of Beira, in order to accommodate the Benga expansion study, also underway. In the case of Zambeze, Mallyon says, some initial work may require use of rail, but planning indicates that the majority of coal will be intended for barging down river.

Barging, plants and expansion: Putting Mozambique first

Reports suggest that dredging for barging on the Zambezi River could be a $100 million undertaking, and of its environmental impact assessment, which has taken the last two-and-a-half-years, the miner has carried out several thousand interviews with the communities nearby, aided by South Africa’s ERM and Mozambique’s Impacto.

“[Our] view was that before we spend massive amounts on the study, we need to know whether local people want barging to take place on the river,” Mallyon says.

“The answer was yes, and our philosophy as a group has always been that if people don’t want us there, we don’t want to be there. We’d rather go and do something else if that’s the case.”

In completing this work to World Bank standards, the trio has weathered its fair share of challenges and local scepticism and conveyed how much lower impact barging would be than other means of transport, and what it will mean for the local people and environment.

“Dredging on the river will not negatively impact the local population or environment. The dredging material does not leave the river, and the fish population will not be affected, which was a big concern for the government,” Mallyon says, noting his appetite for the Mozambique prawn.

“We’ve looked at the impact on communities—a lot of people live along the river—and that will only be positive. Most people are welcoming barging as a means of communication with the coast which otherwise, as a very remote community, they wouldn’t have.”

Work already orchestrated, particularly at the mouth of the Zambezi, has created jobs and allowed Riversdale to utilise various small towns and hubs for the crafts it has on the river. Approximately 70 per cent of the company’s barging team is made up of local employees, and the next step in moving forward is discussing with the Mozambican government to allay any concerns they may have about the process.

“The key benefit to the country is that we create a new transport corridor, and when you compare river barging to rail or trucking, it’s less than one third of any other alternative form of transport in carbon emissions,” Mallyon says.

“From an environmental perspective we think it’s the best option to transport those large amounts of coal out of Mozambique.”

Reiterating Rio’s uncompromising take on strong commitments to environmental and social betterment in the region, Mallyon says that the training centre—now in operation for two-and-a-half years offering everything from bricklaying to farming—and the successful stage one of resettlement, have been pivotal milestones for Riversdale.

“That centre has trained around 1,600 people. Many of them are getting jobs not only with ourselves, but with contractors and subcontractors on the operation, and also other projects that are developing in Mozambique,” he explains.

“We have had plans for some time to lease out part of the training centre to other mining companies, and I’m pleased to say that two have taken up on that. It’s a massive piece of community development that has come along at exactly the right time, and Riversdale’s standing in the community in a relative sense is very good.”

Having resettled 54 families to the village of Mwaladzi, built by the company some 55 kilometres north from Tete, Mallyon says there is a lot more work left to be done. The first stage of resettlement was completed on time and by all accounts those involved are delighted with the results; from the residences, entirely hand made from coat hook to chicken coop, to the many local jobs generated by the build.

“We’ve learned from what all of the other mining companies have done there, and benefitted from those that have gone before us by doing better. We have a community that has been part of the design process for the housing and layout, services provided and training,” Mallyon says.

“People like to be involved in the construction of their own housing, and the next phase that we’re looking at is to build a technical training college. We’re looking at where to locate that, likely near the village, and that will roll out next year.”

The Benga and Zambeze projects proper, have enabled Riversdale and Rio to do a lot more than put together a top tier mining operation or two; They have brought, and will bring industry, prosperity and community development to the wider region.

Updates from projects

At Benga, where the coal preparation plant is on track for operation by the end of 2011, by October/November subject to weather, Riversdale is focused on its rail permits, currently finalising the access agreement with the government of Mozambique and TFF, the rail authority.

“The mining side—which we thought would be the most problematic—is now ahead by around three months. Subject to the coal prep plant completion, we’ll be looking to handle some coal late in the calendar year, which is not bad for one of the first projects to kick off in coal in Mozambique for the past 30 years,” Mallyon says.

At Zambeze, a draft feasibility study is complete and undergoing review at Rio, and and with the government of Mozambique a definitive feasibility study is expected to be completed in the second half of 2012.

“Our expectation now is that construction, including moving some infrastructure such as the airport, will allow us to commission in early 2015,” Mallyon says.

“Initially, production probably around 15 million tonnes per annum both coking and thermal coal, largely being carried to a Port Beira barging, although are plans are to initially use some rail as well as river barging while barging ramps up.”

From this huge project, already holding a great resource, the company will look at refining some of the indicated category with new drill data later this year, and Mallyon says that will only apply to what is needed for the first phase of mining. At this point, it looks as if the project will commence at around 40 million ROM tonnes a year; a far larger start up than Benga.

“One of the challenges for us is that we’ll be looking at the Benga expansion project as soon as it’s commissioned this year. That will aim to take it from five million ROM tonnes to 20 million ROM tonnes by late 2013,” Mallyon says.

“We’ll be running both projects concurrently, and hence people (including our own) are very pleased with the outcome of the takeover. It would have stretched Riversdale as a single entity, and we always thought that we’d need a partner on Zambeze, as we had great success with our Tata Steel our partner on Benga.”

With Rio as a partner, and majority owner, it looks like the combination of Rio and Riversdale will be one of the top three producers by 2020, and as close consideration is paid to potentially taking on the Benga power station project too, it appears like a pivotal year is about to take shape. Riversdale’s story of logistics, local level commitments and overwhelmingly impressive projects is about to culminate in one of the most exciting resource stories seen for quite some time, and you can bet that success for Benga and Zambeze spells great things for Mozambique too.

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