Page last updated at 15:18 GMT, Friday, 27 March 2009

Vale in Mozambique coal project

Mozambique will become Africa's second-largest coal producer

Brazilian mining company Vale has launched a $1.3bn (£908.5m) coal mining project in Mozambique.

The new plant is expected to produce 11 million tonnes of coal a year, to be exported to Brazil, Europe, Asia and the Middle East.

It is thought Mozambique will now become the continent's second-largest coal producer behind South Africa, which holds most of Africa's reserves.

Mozambique has attracted increasing numbers of foreign investors recently.

In total, the project is expected to generate 8.5 million tonnes of metallurgical coal, which is used for the production of steel. It will also produce 2.5 million tonnes of thermal coal, which is used for electricity generation, every year.

Speaking at the inauguration of the project, Mozambique's president Armando Guebuza said he hoped it would better the situation of the country's people.

"We want these resources to continue contributing in a sustainable way to the improvement of the living conditions of our marvellous people," said President Guebuza.

Mozambique, which traditionally relies on agriculture, is one of the Africa's poorest countries.

Vale is the world's second-largest mining company and the largest producer of iron ore.

Losing confidence

The news is a boost for African commodities, which have been hit hard as consumers abroad continue to shun high-end purchases in the economic downturn.

Commodity prices have also been badly affected by the reduction in demand from China, which once had an insatiable appetite for buying raw materials in order to fuel its now-fading economic boom.

Countries such as South Africa, Congo and Botswana have particularly felt the effects of cooling trade in raw materials.

Last month, Debswana, a diamond producing firm jointly owned by Botswana's government and luxury jewellery company De Beers, closed two mines for the rest of the year as demand continued to fall.

Meanwhile, Anglo American's South African unit, Anglo Platinum, announced some 10,000 job cuts in February.

Scaling back

Because of soaring mineral prices, Congo's economy had been projected to grow by up to 12% last year, a target which now seems unlikely.

In Congo's Katanga province, the authorities estimate that 300,000 people have lost their jobs virtually overnight as several miners, including BHP Billiton, close down mines or scale back their activities in the country.

Zambia, which garners some two-thirds of its export revenue from copper, has also felt the effects of a slowdown for commodities.

Having enjoyed the benefits of copper trading at more than $8,000 (£5,584) a tonne only last summer, it is now asking for a $200m (£139.6m) loan from the International Monetary Fund after prices plummeted to about $3,900 a tonne.

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