RIV 0.00% $16.20 riversdale mining limited

time to take some profits......no

  1. 1,605 Posts.
    “The Riversdale Romp”, Or: What Happens When Government Meets Business In Africa

    By Our Man in Africa

    Business and government rarely mix well. In Africa is no exception and out on the dark continent the combination can actually produce some bizarrely amusing moments as government struggles to deal with the speed at which business wants to move. In Mozambique late last week Minesite’s Man in Africa had one of those “laugh or cry” experiences when Australian-listed Riversdale Mining hosted a tour to show off its promising coal discovery at Benga, near the remote north-west town of Tete on the banks of the Zambezi river. What should have been a day of triumph turned into a day of frustration as a government official, of a standing unknown to Minesite, refused to issue visas for the visitors. If it had been just journalists that the official objected to, not a problem, perhaps even par for the course in Africa. But the man with the rubber stamp hidden behind his back also barred entry to two representatives of the Singapore Government’s investment arm, Temasek, a Goldman Sachs banker, a respected London fund manager, and the director of the Australian Government’s overseas risk management division, the Export Finance and Insurance Corporation. In all, a marvellous exercise in kicking multiple own goals. Mozambique, incidentally, is not one of the finalists in the African Cup of Nations.

    To his credit, Riversdale chief executive Michael O’Keeffe soldiered on. Plans were shuffled. Food parcels delivered. Rather than technically enter Mozambique the show-and-tell exercise was held at Tete airport, a place of dubious distinction. In a room without air conditioning, and with the further inconvenience of a power outage during the powerpoint presentation, O’Keefe rolled out his plans for Benga, a project in which Indian steel giant Tata has bought a 35 per cent stake. He then sent everyone on helicopter tours of the discovery area over Tete, and down the Zambezi. All that was missing was the promised bus tour of the area, and no-one was complaining about that, given the state of the roads as seen from the air. In a way, no-one entered Mozambique. In a way we all did.

    The purpose of this little anecdote is not to be rude to anyone in Mozambique. It is to illustrate the difficulty of doing business in a part of the world which is trying hard to embrace foreign direct investment, but which still struggles with the clash of that novel concept and the old ways of making life hard for foreigners. However, having excused the man with the rubber stamp someone really ought to give him a kick up the backside because in one silly non-action, despite months of preparation by Riversdale, he demonstrated to some of the world’s most important investors, bankers, risk managers, insurers, and to the media, that Mozambique is not yet fully open for business.

    We move on - to the good news of what Riversdale has, and how it plans to become an African coal powerhouse. Essentially, the resource being drilled at Benga is a mix of several coal types. There’s the high-grade coking coal of that’s very much in demand from steel makers around the world – which is why Tata handed over a cheque for A$100 million late last year for a minority stake in just one single area held by Riversdale. There’s thermal coal for export to overseas power generating customers. And there’s low-grade coal for use, eventually, in a local power station. At the last count the resource at Benga stood at an inferred 1.225 billion tonnes of coal, of which 720 million tonnes ought to be mineable by opencut. More coal ought to be proved up as drilling continues, and while some naysayers have raised doubts about the coal quality, its depth, and the lack of local infrastructure, O’Keeffe has a much bigger conceptual target. “A billion tonnes is a massive number, but what we’re talking about in this area, of what we own, is something like 20 billion tonnes,” he said at Tete. Raw numbers and blue-sky like that explains why Riversdale shares have risen from A$1.80 to close to A$10 over the past 12-months.

    How to convert the coal into cash? For followers of Riversdale who know the background of the discovery, ongoing exploration, and the Tata deal, this is the real challenge. There are three options. Plan A has to date been the favourite, and may yet be implemented. It involves getting the coking coal down the re-conditioned railway to Beira, and on to small Panamax sized ships. Issues with that option include competition for rail space with the big Brazilian Vale, which is also proving up a coal discovery on adjoining leases, and capacity constraints at the port of Beira. Plan B, which is an interesting twist, is to take the coal down the Zambezi on barges to offshore loaders which would then fill bigger, Cape sized, ships. But the latest plan to emerge, plan C, involves bringing forward the construction of a 500 megawatt power station. This would burn low-grade coal to generate electricity for sale into the southern African electricity grid managed by the South African government’s power utility, Eskom.

    Time will tell which way Riversdale jumps, but O’Keeffe’s open discussion about the fast-start on power generation is an example of (a) a work in progress, and (b) how a true entrepreneur seeks to maximise his advantage in changed circumstances, because right now South Africa is crying out for electricity. O’Keeffe told his captive guests at Tete airport (the government chap kept the passports until we left) that the until mid-year the focus will be to continuously work the four drilling rigs on site, and to gain a better understanding of the geology of the three main coal seams, which are faulted in part, but which are generally shallow dipping, and thus far look easy enough to mine. At the same time infrastructure options are being explored with a focus on investigating the relative merits of the rail as against the barge route.

    “I believe that by mid-year we will have completed all of the drilling,” O’Keeffe said. “By June, we’ll be shutting all of that off, and we’ll have a measured resource. It’ll be somewhere between 1.5 and 2 billion tonnes, big enough for us to go on and complete the feasibility study which we’ll have by the end of the year.”

    No-one who has had a look at the Benga project site – even if only from the air – can doubt that Riversdale, and Vale, are sitting on potentially world-class coal resources. Monetising is now the game and that means resolving infrastructure questions, and striking fast while South Africa flops about looking for electricity supplies. “The seriousness of this power crisis in southern Africa is just blowing out further than anyone could believe,” O’Keeffe said. For anyone wondering exactly how this positions Riversdale, he went on to add: “A lot of the coal we’re going to be taking out is mine-mouth power station coal. We have a joint venture agreement with a company called Elgas, which is the power and gas authority for Mozambique, and is 25 per cent owned by Eskom. The agreement is that we’re going to bring in a third party to build a power station and that’s now moving into a feasibility study, and it has the blessing of the government.” Pity a similar blessing wasn’t bestowed by the border guard with the rubber stamp!

    And then, at the exact moment that O’Keeffe was getting into his stride about the power station options, and the potential to move quickly, the lights went out, and the projector went fizz, leaving the Riversdale boss pointing at a white screen. “Isn’t that a shame!” he said, to loud guffawing from the audience. Playing to the crowd, O’Keeffe then turned to the blank screen, drew imaginary lines with a biro, leaving no-one in any doubt that there’s a ready market for coal and power in southern Africa – governments permitt

    At $8.00 it's a TO target......
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