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Rio suspends Mozambique coal exports

Rio Tinto (ASX: RIO) has suspended coal shipments from Mozambique’s northwest province after political unrest led the country’s Renamo opposition party to threaten to disrupt the crucial Sena railway.

The railway is used by Rio and Brazilian mining behemoth Vale (NYSE: VALE) to connect coal operations to the port of Beira. Rio said that although the rail operations have been suspended, its Benga mine is continuing.

Vale has already halted shipments this year because of protests by local residents and heavy rainfall and said, “we’re alert, observing occurrences, avoiding unnecessary exposure to possible confrontation zones and working together with other companies to have the best quality of information possible”. After Rio was already denied the use of the Zambezi River to transport coal, there don’t appear to be many options available if things take a turn for the worst.

This is bad news for Rio, which yesterday said that it is hopeful it can find a suitor for a partial or whole sale of the project. “I would be hopeful that there is upside in the project”, CEO Sam Walsh said in a media briefing.

However, with coal prices low and now political unrest, the project represents a massive risk for any possible buyer and if they were to choose a partial purchase, they have to share the projects large capital expenditure burden. Even if Rio could secure a buyer for the project, it’s already written down its value since its purchase in 2011, when it acquired Riversdale Mining for $3.7 billion.

Foolish takeaway

Rio’s plans to cut costs and freshen up the balance sheet have already been stunted by a failure to sell its diamond division. In addition, the company’s dividend appears to be getting higher and the overall value more enticing but investors will be wise to keep their distance, until we can comprehend the true impact of lower commodity prices and setbacks of key projects.

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Motley Fool contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies.

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