Coking coal constitutes roughly one-third of the estimated coal reserves in the Zambezi basin. Used in steel production, coking coal yields much more profit than thermal coal, which is used primarily for energy generation. With proper infrastructure, shipping coal from the Moatize mines in the Zambezi basin to the port city of Beira would cost an estimated $58.50 per ton, including royalties and wages. Coking coal would fetch roughly four or fives times the cost of shipping. In China, one of the foremost export destinations for southern African coking coal, imports are expected to increase by 37 percent in 2012 alone. Though less profitable, thermal coal is still economically viable since it can be sold to coal-fired power plants in southern Africa, especially in South Africa.

The Value of Rail

Currently, the most economically viable ports for coal mined in Moatize mines are located in Beira and Nacala. But inadequate infrastructure makes transportation daunting. The first truckloads of Moatize coal were transported to Beira in July 2011 but were not exported until December 2011. The shipment was also costly; transportation alone cost $55 per ton. At such a rate, coking coal still is profitable, but the margins for thermal coal are thin.

This profit structure has led the Mozambican government and mining companies to focus on transportation costs and the need to improve transportation infrastructure. The best way to do so is to overhaul rail transportation, which can transport coal for just $25 per ton.

Several companies already have launched infrastructure projects. In fact, upgrades and repairs to the Sena railway line, which connects Moatize to Beira, are currently under way. Poorly maintained for some time, the rail line fell into complete disrepair during the Mozambican civil war in the 1970s and 1980s, but upgrades are scheduled for completion by mid-2012. In late 2011, trains ran nonstop from Moatize to Beira for the first time since 1983. In February 2012, Brazilian mining company Vale exported from Beira its first batch of coal shipped via the Sena line. In March 2012, British-Australian mining company Rio Tinto Group finished a delivery of 200 rail cars to Beira, where the cars will deliver coking coal from Rio Tinto-owned mines in Moatize. Vale and British mining company Beacon Hill Resources are negotiating for space on the rail line with hopes of securing a deal by the end of 2012.

Once completed, the Sena line will boast a capacity of 6.5 million tons per year. By the end of 2012, planners expect the line to have a capacity of 12 million tons per year. Estimates suggest Mozambique could eventually rival South Africa in coal exports, with 40 million tons per year exported by 2015 and 100 million tons per year by 2020.

However, the Sena line alone cannot handle such production, so additional rail lines will be necessary. Two mining companies are considering other ways to bring coal to port at Nacala, but most of the necessary infrastructure will still need to be constructed from scratch. Vale has agreed to spend $1 billion to build the Malawian section of a 900-kilometer (560-mile) railway from Tete, a province in central Mozambique, to Nacala. (The overall project, which includes the construction of a new coal terminal, is projected to cost $4.4 billion.) That portions of this line already exist in northern Mozambique should expedite the construction process.

London-based Eurasian Natural Resources Corp. (ENRC) has offered to build its own Moatize-Nacala rail line circumventing Malawi. The proposed line would have a maximum capacity of 40 million tons per year. Initially, ENRC expects to export 20 million tons per year.

The companies' interest in Nacala is understandable. Nacala is regarded as potentially the best deepwater port in East Africa. It can facilitate large volumes of coal, unlike the much smaller and shallower ports at Beira and Maputo. However, Mozambique's overall potential export capacity could exceed the combined capacity of all three ports. Thus, mining companies are looking to expand coal export capabilities at the port of Quelimane as well. Projects involving Botswana and South Africa may help develop southern ports, such as Maputo, into alternatives for Mozambican coal if the northern ports cannot sufficiently handle the export volume.

Limited Integration

The abundance of coking coal will keep mining companies interested enough in Mozambique to finance its infrastructure improvements. But these companies — indeed, all companies — concern themselves with their own affairs, and virtually all infrastructure development projects will be limited to the mining sector. The projects will help link central Mozambique to the eastern coast, but they will not integrate Maputo, located in the southernmost section of Mozambique.

Maputo hopes that royalties from the coal trade can later be directed toward a rail system that integrates the north and the south, but mining companies are unlikely to help directly with such a project. However, they will help Mozambique realize its coal production potential within the next decade.