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Back at the beginning of 2011 coal was in very high demand, especially from steelmakers who were struggling to find supplies on the market as heavy flooding at Australian mines had slowed exports from the country. The drop in supplies on the global market, as well as the strong demand from China meant that many companies were buying coal at double the previous year’s price. New discoveries in Mozambique led the UN to announce the African nation as having some of the world’s richest deposits; demand was hot.
The coal explorer Riversdale Mining found a sizeable coal deposit in the Zambezi region, and managed to draw the attention of several large mining and energy companies, including Rio Tinto.
Riversdale chairman, Michael O’Keefe, watched in delight as the high demand for his company’s coal saw its stock rise from just A$1 a share in 2004, to A$16.50 a share in 2011.
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Rio Tinto, led by its CEO Tom Albanese, declared their interest in Riversdale and made a $4 billion offer for the mining company which was readily accepted.
Less than two years later Albanese had been fired and Rio Tinto was facing $3 billion in unforeseen impairments for its purchase of Riversdale.
Rio Tinto’s problem was thinking that it’s tried and tested model for developing coal mines in Australia would work in Mozambique, but Mozambique is one of the world’s poorest countries and lacks the infrastructure to set up major mining projects. It was also not helped by the fact that in two years the price of coal used by steelmakers had fallen by 50%.
By. Joao Peixe of Oilprice.com
Joao is a writer for Oilprice.com