Markets & Minerals

Geography

Mozambique is in south-eastern Africa, located primarily between South Africa, Zimbabwe and Malawi to the west, Tanzania to the north and bordering the Mozambique Channel on the eastern coast. Its other western neighbours include Swaziland and Zambia. The country is 801,590km² and has the longest coast line of any country in Africa with a sea boundary of 2,470km along the Indian Ocean.

Political backdrop

Mozambique won its independence on 25 June 1975 and the Front for the Liberation of Mozambique (‘‘Frelimo’’) established a one-party Marxist state. The first decade of Mozambican independence was marked by civil unrest and economic instability. An estimated 1 million Mozambicans perished during the civil war between an armed rebel movement in central Mozambique called the Mozambican National Resistance (‘‘Renamo’’) and Frelimo. In 1983, President Samora Machel conceded the failure of socialism and the need for major political and economic reforms.

President Samora Machel died in 1986 and his successor, Joaquim Chissano, continued the reforms of his predecessor and began peace talks with Renamo. The new constitution enacted in 1990 provided for a multi-party political system, market-based economy and free elections. The civil war ended in 1992. In 1994 the country held its first democratic elections and Chissano was elected President. In 1995 Mozambique became the first country which had never had any constitutional link to the British Empire to join the Commonwealth. Chissano was re-elected in the elections in 1999. Following presidential elections in December 2004, Armando Guebuza was inaugurated as President on 2 February 2005.

While the country still faces residual tension between Frelimo and Renamo, it has sustained over 10 years of relative political stability with an increasing government focus on promoting economic strength and foreign investment.

Climate

Climate varies from tropical and subtropical conditions in the north and central parts of Mozambique to dry semi-arid steppe and dry arid desert climate in the south. The rainy season extends from November to April, with the peak rainfall from December to February. The country has experienced a number of droughts, the most recent of which occurred in 1974-1984, 1991-92 and 2008-10. The country also experiences cyclone storms moving down the Mozambique channel. The Marropino-Morrua-Mutala region is covered by eastern Miombo woodlands, which are characterised by deciduous tropical dry woodland interspersed with broad grassy, seasonally waterlogged areas.

Regional infrastructure

Mozambique’s infrastructure varies substantially throughout the regions of the country. The civil war left much of the original infrastructure established by the Portuguese and British in disrepair. The government in partnership with international business and aid groups has gradually attempted the construction and reconstruction of its infrastructure, predominantly focusing on Maputo and other key business areas.

Transport infrastructure remains fairly basic and at times difficult to negotiate with a vast majority of the roads simply made of dirt or sand especially in rural regions.

Telecommunications and internet access remain very limited with almost no fixed line access, although limited cellular coverage and remote coverage via satellite is available. Information technology infrastructure remains at a very basic level although the government has made an effort to push forward a programme to computerise all government records and management systems as well as land registry and electoral registers.

The distribution of electricity throughout Mozambique is limited due to the lack of power line infrastructure. The regional power network was extended to the Marropino area at the end of 2009 with the Marropino Mine connected to the power grid from then onwards.

The provincial capitals of Quelimane (Zambezia Province) and Nampula (Nampula Province) can be reached by commercial flights from Johannesburg, either directly or via Maputo. A dirt strip runway maintained by the Group is located at Morrua some 40km north of Marropino. A 1,400m long gravel runway at the Marropino Mine has been approved by the Mozambique authorities and Noventa is reviewing the timing for its construction.

Port facilities capable of handling containers are available at Nacala some 200km east of the town of Nampula and at Quelimane. A tarred road links Quelimane and Nampula, but is badly pot-holed in places. This road is being completely rebuilt with Chinese aid funds. Marropino, Morrua and Mutala are connected by accessible secondary gravel / dirt roads.

Economy

The Mozambique economy continues to grow rapidly, with 6.6% real GDP growth in 2010 and estimated 7.25% for 2011. Comparable GDP growth is expected to continue in the short to medium term with target real GDP growth for 2012 at 7.5%. Inflation is decreasing with 2011 inflation registering 6.14% down from 17.44% in 2010. The economy continues to be heavily dependent on imports, particularly food, fuel and manufactured products and the inflation rate has been positively impacted by the rapid appreciation of the Mozambique Metical during 2011 relative to its major trading currencies of the South African rand and the United States Dollar. Over 2011 the Metical registered gains against the United States Dollar of around 17.3%. The medium term target is inflation at around 6%, subject to international food and fuel price developments and the relative strength of the Mozambique Metical. The short term 2012 target is 5.6%. Recent growth has been driven primarily by foreign-financed ‘‘mega-projects’’ in mining, energy and infrastructure, supplemented by large donor aid inflows. While this model continues to be applied, the spill-over benefits from the mega-projects to the wider economy are not yet proven and donor aid inflows remain necessary to support human development. The need to develop stronger internal industries has led to recent investment in agriculture which now contributes more to economic growth with greater production of cash crops such as cashew nuts, cotton, sugar and tobacco despite recent severe droughts in the southern part of the country. Mozambique’s foreign debt has been reduced through cancellation and rescheduling under the Heavily Indebted Poor Countries initiatives. Donor aid continues however to support the Mozambique Government budget, accounting for an estimated 50% of revenues in 2010. External aid is expected to be phased out as the Mozambique economy strengthens internally.

Fiscal policy

Over recent years, substantial progress has been made in macroeconomic stability in Mozambique through a number of agreements with the International Monetary Fund. Expenditure is now focused on priority sectors such as urban transport, education, health, HIV/AIDS, infrastructure development, agriculture, rural development, governance and the judicial system. Subsidy systems remain in place where necessary to contain the rising world price of fuel and food in particular. Where possible general subsidies are being removed in favour of targeted subsidies to protect low-income workers, students and the elderly.

Monetary policy

Since 2004, the Bank of Mozambique has undertaken reform of its major policy initiatives to strengthen monetary management through daily liquidity forecasting and the use of foreign exchange and Treasury Bill sales. During 2011 it has actively intervened in financial markets to strengthen the Mozambique Metical to achieve its inflation targets through a combination of controlling reserve money supply and making available foreign currency to importers, in particular to fuel importers.

Examples of key foreign investment projects

Foreign investment in Mozambique continues at a notable pace with investors from all over the world taking interest in its industrial, mineral, agricultural resources and tourism opportunities.

Investment in industry within Mozambique has contributed significantly to the country’s growth over the past several years. One of the largest investments to date has been made by BHP Billiton, Mitsubishi, the Industrial Development Corporation and the government of Mozambique who committed US$2.1billion to build the Mozal aluminium smelter project. Mozal is the largest industrial project ever created in Mozambique accounting for half of Mozambique’s manufacturing output and making the country one of the world’s leading exporters of aluminium.

The mining industry has grown significantly as foreign investors have accelerated exploration activities in base and industrial minerals and coal. A number of known companies are now present in Mozambique including Vale, Rio-Tinto, ENRC and Kenmare Resources.

Mining in Mozambique

Investment in the mining industry has grown substantially in recent years, in particular in the coal sector. The Moatize basin in Tete is considered the largest unexplored coal province in the world. It is a world-class deposit estimated to have 2.4 billion tons of coking and thermal coal. Vale currently has production capacity from its interests in the Moatize area of around 11 million tonnes of coal per annum and commenced exports in December 2011. Further investment of $6.0 billion has recently been approved to expand its Moatize operation to produce 22 million tonnes per annum. Rio-Tinto has also recently invested $3.4 billion in the purchase of Riversdale Mining Ltd and its coal interests in Moatize and anticipates 25 million tonnes per annum output. Many other companies are either at, or near, production stage for Mozambique coal. The rapid expansion in this sector has led to significant improvements in port handling capacity throughout Mozambique and in particular at Nacala, Maputo and Beira.

Outside of the coal sector, Kenmare Resources of Ireland is the lead investor in its heavy mineral sands Moma Mine. Phase 3 was initiated in 2011 with further planned investment of $280 million.

The mineralised pegmatites in the Alto Ligonha Pegmatite Field were probably first exploited by the local populace for semi-precious stones – beryl, tourmaline and aquamarine. Exploitation of tantalite was sporadic through the 1950s and 1960s. The tantalum price collapse in 1962-63 forced the closure of many of the mines. The three principal mines (Morrua, Muiane and Marropino) were taken into Mozambique government control in 1979.

Past open pit mining operations, mainly by the Portuguese and former Eastern Bloc countries, have significantly altered the topography over many of the pegmatite deposits. Mining took place in the weathered soporific zone (as at Morrua, Marropino and Mutala), which was more easily worked often using hydraulic monitoring.

There are a number of small scale operations in the area, where pegmatites are also mined for gemstones, semi-precious stones, rose quartz and tantalum.

Pure tantalum is characterised by its high melting point, its exceptional resistance to chemical attack, its capacity to store and release electrical charge and its corrosion resistance. These unique chemical properties have led to its widespread use in the electronics industry, mainly as powder and wire for capacitors in telecommunications devices and implantable medical devices. Tantalum also goes into the manufacture of super alloys, imparting strength and high-temperature resistance against cracking, for use in aerospace and energy generation.

The main use of tantalum is in the manufacture of electrolytic capacitors, used in mobile phones, computers and automotive electronics. Additional uses are found in super alloys for turbine engines, precision optical lenses and high temperature applications.

Key uses for tantalum

Source: Tantalum – Niobium International Study Centre

Aluminium and ceramics may be used as a substitute for tantalum, but normally at the expense of performance. Niobium is used to a very limited extent in ceramic capacitors for electronics, whereas its primary use is as an alloying element to strengthen high-strength low-alloy steels. The use of niobium as an alternative to tantalum in capacitors is still under evaluation.

Demand and Supply

There is currently a shortage of tantulum supply and stock levels in the industry are being run down. Noventa is in a unique position to expand production to meet the industry’s needs.