Social responsibility, standout projects and a year of promise
Another year has passed, and with it streams more great news from Riversdale Mining Limited (ASX: RIV), the Sydney, Australia-headquartered exploration and project development miner behind much of the coal and wider mining industry’s headlines to date. On Dec. 62010, Riversdale Mining advised shareholders that the company had been in early discussions with mining conglomerate Rio Tinto regarding Riversdale’s business creating increased market speculation that Rio was interested in the company’s Benga and Zambeze tier one coking coal projects in Mozambique. More recently, on Jan. 11, Rio announced a bid of A$16 per share. These moves alone have triggered mass reporting and interest in the potential takeover, especially in Riversdale’s joint venture Benga project with India’s mining major Tata Steel Limited (Riversdale 65 per cent and Tata Steel 35 per cent) and the potential for Mozambique’s Tete region to be a future coal province. Steve Mallyon, Managing Director of Riversdale, updated AUBJ on Riversdale’s commitment to social responsibility as a key element of the company’s experience and approach to bringing landmark projects into operation, and how both Benga and Zambeze, joined by nearby projects such as Vale’s Moatize mine, point to big things for Tete in the coming year.
Behind the headlines: partners and power
Mallyon says that the announcement of Rio Tinto’s bid in late 2010 has served as an endorsement of the quality of the coking coal resources at both the Benga and Zambeze projects, and behind the clear and present successful development of Benga to date, Riversdale’s relationship with joint venture partner Tata has been pivotal to progress.
“They’ve been an excellent partner; we’ve had a good relationship with not only the management team but also the board under Muthuraman and Nerurkar. As a result, I think it’s been a pretty good start to the development of the Benga project,” Mallyon says.
“Tata has assisted in the development of the coal prep plant that we’re building there at Benga, with the Australian group Sedgman—mainly because their focus is on delivering a hard coking coal of a quality that can be utilized at their European plants, particularly their Dutch plant, as well as the Jamshedpur steelworks in India.”
And in turn, particularly regarding the success at Benga, Riversdale has proved vital as Tata goes about expansion of Jamshedpur—another development garnering plenty of attention from the media to date. Mallyon says that Tata has also assisted Riversdale with coal quality issues as part of its big test programme which uses approximately eight smelters around the globe, and they have also provided useful insights into key logistical challenges, including getting ships in and out of the Beira port and working towards first exports later in 2011.
“It’s been a good working relationship overall and they’ve been rewarded for their very early investment. They were one of the first investors in the Benga project, putting $100 million in back in 2007 when Riversdale probably had a market cap of about $200 million, and these days we’re a $4 billion entity and they’re a major shareholder.”
On Jan. 7, it was announced that a deal had been struck for Riversdale and Tata to fully own the $1 billion Benga power plant which, in its initial configuration, will be capable of producing up to 600 megawatts. Mallyon says that having been working away steadily on this since late-2007, and completing the feasibility study early last year, the environmental impact study last year, and securing all of the approvals necessary to develop the Benga power plant throughout 2010, this marks another great step forward for the project.
“The power plant is a very attractive proposition to us because Benga, and eventually Zambeze, will be quite large power consumers in their own right. Most of the equipment on Zambeze is electric-driven and as a result we need to have a secure source of power. The fact that we will have an ample and immediate source of thermal coal for the plant literally next door will make the commercial case a compelling one,” he says.
“That being said, one of the interesting things about our projects is that we source all of our power off the grid, we’ve not had to resort to onsite generators. We’re blessed by having grid access, and actually between ourselves and Vale we’re building a new transmission line so that we can get larger capacity power onto our projects.”
True to form, as Riversdale works on building the Benga power plant, its efforts continue with mine development at Benga, rail, road and port development, and yet more promising results stemming from the Zambeze project.
An update from Benga
The wet season has just come to an end in Mozambique. Riversdale worked through this up until the week before Christmas, returning its full teams to site as of Jan. 10.
“We’re 50 per cent through construction at the moment and the coal preparation plant that we designed with Sedgman and Tata is essentially a pre-fabricated plant that is being hauled up from South Africa where much of the construction took place,” Mallyon says.
“we’ve done a lot of planning on the coal prep plant because it’s the biggest single piece of equipment we’ve got. What we’re doing is based on similar designs on other plants, mostly in Australia.”
Built based on tried and tested technology, and drawing from the expertise of the Riversdale team packed with ex-BHP Billiton employees with extensive regional experience, Riversdale has elected to keep this sort of work offsite in order to ease control of health and safety and minimise the number of individuals onsite at any given time. Mallyon says that the onsite works, such as building the construction camp, a lot of the roads and the water reticulation, were largely completed within the 2008-2009 year.
“It’s interesting at the moment with the floods in central Queensland, and many of our team being very aware of flood events coming from the Bowen Basin, because all of our project works are designed around the 100-year flood event,” he explains.
“We are very conscious of the need to prepare for such events.”
Following completion on the Sena rail line in Jan.2010, which is now in its final phase of preparation for the haulage of not only coal but passengers and other goods during the course of this year, Riversdale is now building a haul road to lead out to a rail sighting which is also under construction.
“Down at Beira [port] we’re in a construction programme with the engineering group Sandwell, an Australian-controlled company, and we’re basically refitting or rebuilding an existing stockyard, putting in a new ship-loader, a new stacker reclaimer and new conveyors,” Mallyon says.
“We plan to operate some time during the second half of this year, eventually shipping out to customers in India, Brazil, Europe and eventually China.”
Adjacent to Benga sits Riversdale’s nine billion tonnes Zambeze project, where promising results from the coal quality testing programme currently underway have only served to further bolster investor interest in the overall Riversdale Mining story.
An update from Zambeze
At five to six times the size of the Benga lease, covering 25,000 hectares with approximately 150,000 metres of drilling complete and plenty more planned, of Zambeze’s 22 coal seams, Mallyon says that Riversdale will likely look at half of them to be used in a production scenario.
“We started up pre-feasibility study last year and we’re hoping to present that to the board early this year. Obviously things have been delayed a bit with the Rio bid, and it would be inappropriate to finalize the study before the outcome of the bid is finalized,” he says.
“It looks exciting and it’s potentially a much larger project as startup, somewhere between 30 and 45 million tonnes is the plan. Subject to completion and approval by the board we will move to initiate a full feasibility study by mid-2011.”
Over the years of experience amassed amongst the Riversdale board, the company has learned of the benefits in running coal quality testing in parallel with exploration and mine planning so they are almost perfectly coordinated. The coal quality testing resulted in going to a coking test in September2010, and Mallyon says that the team had expected that those results would be somewhat lower than Benga.
“We thought it was younger coal, but when we tested it—and we do all of our testing in Queensland, Australia, because there are so many benchmarks to use with other mines there—the higher coking coal test came in with a Coke Strength after Reaction (CSR) of between 67 and 71 which puts it firmly into another tier one coking coal similar to others in the Bowen Basin,” he says.
This has put Riversdale in an even more enviable position—with excellent coking coal potential at Benga and the nine billion tonne resource at Zambeze—and Mallyon says that it is exciting to potentially have two tier one projects coming online in this decade. Unsurprisingly, Riversdale eagerly awaits the results from the coking coal testing and more testing is planned to take place in early 2011.
The potential Rio Tinto takeover offer
Mallyon says that from Riversdale’s perspective, the company was prepared to talk to Rio Tinto because they are one of the most highly regarded mining groups in the world with significant presence in Australia—Riversdale’s home country.
“We have a lot of respect for the company and the original rationale for talking to them was to learn from them how they’ve developed a number of systems specific to coal mining, particularly in pit crushing and conveying which we now intend to use at both Zambeze and Benga,” he explains.
“I’m sure that Rio has looked at good coal opportunities around the world. They have very good credentials in the developing world, such as developing the Grasberg copper project in Indonesia. They’re developing a copper project in Mongolia, and they were one of the early participants in copper in Chile, and have also worked on coal projects in the U.S., Australia, Indonesia and other parts of the world.”
With a mind to Mozambique’s ‘use it or lose it’ policy that makes for a finite development timeline on projects such as Benga and Zambeze, Mallyon believes that Rio Tinto would enhance the ability of Riversdale to get Benga and Zambeze going more quickly, and potentially the Tete East development too. “When we met Rio Tinto our team was very impressed by what we saw,” Mallyon says.
“We’re very comfortable with their technical capability, and also their financial, marketing and systems strengths—particularly environmental and health and safety which are second to none.”
People and social development: A mutual must
Social development is a critical aspect of successful project development in the third world.
“It was interesting to learn how Rio approaches projects. In Mozambique, the first thing they wanted to see was not the mine or the exploration camp. They wanted to go and visit the resettlement village, where we’ve resettled 30 families from the Benga area last year,” Mallyon says.
“It’s been a very successful resettlement and I think that if it hadn’t been so, we would not have seen Rio express such a strong interest. The second thing they wanted to see was the training centre. For people like us that’s very important—we are extremely strong on the social development side.”
Riversdale’s firm goals to foster economic prosperity and controlled growth in the Tete region have been considered at various stages of its project development at Benga, beginning with the power plant under construction. Fed by a conveyor and adjacent to the Benga mine, the plant utilizes a domestic thermal coal which is very high energy, low moisture and ideal for power generation. It is also close to the Zambezi River, providing a much-needed water source and avoiding any need to build intrusive water containment or water cooling dams, and just 25 kilometres from Matambo sub-station which is the connection to the transmission line down to South Africa.
“The site is ideal, it doesn’t involve moving people, and of course what it does do eventually is provide a steady state source of power for not only South Africa and our mines, but also for local businesses and one of the things we are very conscious of is that mines tend to generate lots of spin-off businesses that are often quite power hungry,” Mallyon explains.
“They are all going to be power consumers so to some extent we are building for the future, but we have a great product with the thermal coal that we’re going to produce as a by-product of the coking coal production and this is really another way of selling coal, or electrons rather than coal.”
On Jan. 7, Riversdale and Tata secured the full rights to build Benga’s power plant. Mallyon says that this was a great step because Riversdale had a local partner—ELGAS—that it worked very closely with, particularly on the community consultation and the EIS.
“We’re very receptive about the need to have local representation and the power station will be a huge employer of local people,” he adds.
There has been much talk of forecasted and achieved mining production rates for the past year in the Tete province, and Mallyon says that Riversdale’s hopes and expectations for the region’s future are bright.
“The most interesting sign that there’s a major development going on, not only with our Benga operation but also with Vale’s Moatize, is that the township of Tete, which is 250,000 people, has six banks,” he says.
“They are on the opposite side of the river to the mines, yet Standard Bank has built its latest branch right on the 946 Zambeze site with an automatic teller.”
In what looks to be the shape of things to come, it appears Standard has selected this location based on its expectations for future business being generated by the mines. Mallyon sees banks, car dealerships, petrol stations, service centres for light engineering works and food outlets developing too. With Benga set to eventually employ some 1,500 individuals, and Vale’s operations planned to take on 2,000 to 2,500 staff, such an influx of people surely warrants such industrial development.
“One of the things we have been very conscious of is the need to integrate our developments. We work very closely with the municipality and the Mayors and Administrators of Tete and Moatize. We’ve contributed to their town planning activities because the last thing we want is uncontrolled development when the mines grow going forward,” Mallyon highlights.
“The people aspect is really important for us, as it is for groups like Rio looking at our assets. One of the biggest structures you see from the road into the town is the Riversdale training ecentre which we set up in 2008. It was an old mattress factory which we acquired and completely refurbished, but with a difference.”
All of the refurbishments made, including putting up a new building for the training centre, are done by trainees under the supervision of skilled electricians, plumbers, artisans and other building experts. This training centre has already up-skilled around 1,500 people in the locality, aimed at both the Benga projects and the needs of Riversdale’s contractors. As a result of that early stage activity Riversdale has been able to start work at Benga on the operation in the second half of this year with some confidence that it now has operatives trained up to the equivalent of those in Australia. It is by all accounts, a strong start for the project, but the best looks yet to come within 2011.
The year ahead
The next milestone at the Benga project, and pivotal to subsequent goals throughout the year, is getting the port redevelopment completed. Mallyon says that the company expects to do this in the third quarter of 2011. Also between now and August, the company targets completion of the rail and roll out of rolling stock. Riversdale has purchased its own rolling stock for stage one of about 11 locomotives and 200 wagons.
“Allowing for commissioning of the plant, we fully expect to be producing coal by the end of the calendar year. An exact date is subject to the commissioning of the port and finalization of the rail line. They are the key dates for us. Our philosophy is to try and do things in a logical way and try to keep the number of people and construction personnel onsite to an absolute minimum,” Mallyon says.
“We’re coming up to full strength next week with people returning from holidays, and one of the good things about the Benga development is that we’ve had what seems like quite a long time to get all of the systems in place, including the construction camp that holds about 450 people at the moment.”
The wet season has brought with it some slow down for drilling planned—particularly the infill drilling and mine development at Benga and Zambeze, but once again the moves made by Riversdale to put the right people in place on time to meet demand are coming through.
“We’ve been blessed with this year is new drilling companies coming into Tete. Mitchell Drilling has just started, and we have much more drill capacity than we did previously so that helps too,” Mallyon says.
By examining the drivers behind the flurry of recent headlines regarding Rio’s latest bid, it is possible to gain a better understanding of the various levels where Riversdale is an attractive option—beginning with its focus on social development, throughout its efforts to prepare people, facilities and even coal quality testing along the way, and its resultant readiness and excitement about the coming year.
“The perception of Riversdale used to be that we’re an aggressive explorer, but we’re not really. We’re in that niche between explorers and big companies. The philosophy of this company is on project development and operations,” Mallyon says, noting the company’s big company-board background.
And on success too—as every new story about Riversdale today attests, their projects and the company’s joint ventures are a bright future for international and third world mining development—and 2011 is just the beginning as the company looks to bring two tier one coal projects into operation, with another potentially in waiting.
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