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WorleyParsons tapped for Mozambique rail project

A new project located in Mozambique was awarded to professional service provider WorleyParsons (ASX: WOR) to plan and oversee the management of the Nacala Rail Corridor Project being constructed by Corredor Do Desenvolvimento Do Norte.

In addition, Corredor Logístico Integrado de Nacala awarded the company with the contract to design the maintenance complex and rail facilities at Nacala. Both awarding companies were established by Vale Mozambique, a subsidiary of Vale (NYSE: VALE), and are working together with the parastatal authority known as Portos e Caminhos de Ferro de Moçambique, which oversees the country’s railway system and connected ports.

A great amount of mining development is occurring in southeast Africa for coal and iron, but the infrastructure to carry ore to the ports is not developed enough to handle the expansion, so many mining companies like Vale and Rio Tinto (ASX: RIO) have to build rail lines over hundreds of kilometres to deliver it to waiting ships.

This new project will span 584 km from Vale’s Moatize coal mine to the port of Nacala, located in northeast Mozambique.  It is projected to have the capacity of transporting 18 Mt/annum.

Worley Parsons is diversified across the seven continents, offering engineering design and maintenance services to the industries of oil and gas, mining, infrastructure and environment. Its revenues are for the most part divided equally across the world regions except for a larger proportion in Canada, and 68% of its earnings are from the oil and gas industry.

In August, it released its 2013 annual report showing an 8.8% drop in net earnings of $322.1 million on $8.81 billion in revenue. The profit decrease came mostly from the infrastructure and environment, as well as power business segments.

Foolish takeaway

As mining companies search for regions rich with natural resources like iron and coal that also offer low cost production, they have to contend with the  problems of non-existent or underdeveloped infrastructure in those countries. Australia has well-developed infrastructure, but the high cost of mining ore in a time of weak commodity prices makes regions like southeast Africa appealing.

The Mining Resource Rental Tax started under the previous Labor government was another hindrance to miners and explorers because the total cost of how much they would pay was not clearly set out. That uncertainty makes them looker harder and longer at doing business overseas in cheaper regions.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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