Can Rio Tinto Maintain Mozambique Operations Amid Unrest?

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Coal

Rio Tinto (NYSE:RIO) has faced numerous problems with its coal operations in Mozambique, but the latest rash of violence from rebel military forces is pushing the company to pull foreign workers’ families from the country, Reuters reports, calling into question the company’s ability to continue operating. Rio Tinto’s attempt to exit coal production in Mozambique may get a renewed focus following this tense period.

Company spokespeople announced that Rio Tinto was assisiting in the withdrawal of the families of company employees who are not Mozambique nationals as kidnappings and widespread violence increase, Reuters reports. The two sides engaged in a protracted war from 1975 until 1992, with the current president, Armando Guebuza, also the leader of Mozambique at the time. Any outbreak of major clashes would create troubles for companies operating in the country and discourage further investment.

Rio Tinto’s Mozambique holdings have not been a source of encouragement for the company. Back in June, Rio Tinto signaled it was exploring options in selling its Mozambique business by talking to investment banks about packaging assets. In mid-October, DealCurry reported Rio Tinto had a buyer for its Riversdale Mining, which it had acquired in 2011. It’s unclear if the current turmoil will have an impact on that transaction.

Brazil-based Vale SA (NYSE:VALE), which also operates a coal business in northern Mozambique, announced it was watching the situation closely but that it would not follow Rio Tinto in spiriting the families of employees out of the country, Reuters reports. There was no evidence to suggest the shipments of coal out of the energy-rich north of Mozambique would be disturbed by the fighting between Renamo forces and the government.

Mozambique has national elections scheduled for November 20, which may take place without a peace accord between the two camps. According to the BBC, the accord was abandoned following the October 21 raid by government forces on the leader of the Renamo camp. Though rebel forces may consists of only 1,000 troops, the long-standing animosity and lack of political solution could keep the country embroiled in violence throughout the month. An estimated one million people died during the 17-year civil war.

Despite the precautions taken by Rio Tinto, the escalation may prove just as damaging as the company tries to sell its Mozambique holdings. Neighboring countries, religious figures, and other world leaders are all imploring both sides to forge a truce.

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