The reserves of metallurgical coal in Rio Tinto’s Benga project in the Tete province of Mozambique are smaller than originally believed, reported local media on Friday. Benga is operated by Rio Tinto Coal Mozambique (RTCM) and, in a press release to the Mozambican media, it reported that it had undertaken extensive prospecting on its mining sites since 2011, when it bought them from Australian junior Riversdale Mining.

The analysis of the data gathered by this prospecting has resulted in “a downward revision of the estimates of the recoverable volume of metallurgical coal in the mining areas ... and also a re-evaluation of the scale that the turnover can reach”.

Inadequate transport infrastructure for the mined coal is also a problem. Originally, RTCM planned to ship the coal on barges down the Zambezi river, but this did not win the necessary government approvals. There were reportedly also problems with dredging the river.

“The combination of smaller volumes of recoverable metallurgical coal and the impossibility of increasing production as originally projected due to the limitations of infrastructure resulted in a reduction of the book value of Rio Tinto Coal Mozambique and was recorded as an impairment in the accounts of Rio Tinto,” stated the company.

The impairment totalled $4-billion, and resulted in the resignation of Rio Tinto group executive: strategy Doug Ritchie, who had overseen the acquisition of Benga. (The Mozambique impairment formed part of total Rio Tinto impairments of $14-billion which led to the resignation of group CEO Tom Albanese.)  

“[T]he production of coal by Rio Tinto Coal Mozambique is, currently, limited by the lack of transport infrastructure capacity,” admitted the company. It is in the “process of identifying alternative supply routes” and, in this regard, is “continuing to work with the Mozambican government”.

Nevertheless, RTCM is still seen by the group as “in the last analysis, a valuable metallurgical coal business”. It will “continue to increase the production of metallurgical coal at Benga”, because “it is a rare geological resource and without substitute in the steel industry”. Rio Tinto expects the metallurgical coal price to rise in the future because it expects a strong future demand for steel.