Sichuan Hongda, Tanzania Sign $3 Billion Coal, Steel Accord

Sichuan Hongda Co., a Chinese zinc producer, and Tanzania signed a $3 billion agreement to jointly develop coal-mining and steel-production projects in the East African country, according to the National Development Corp.

Tanzania will own a 20 percent stake and Sichuan Hongda the balance, Mlingi Mkucha, company secretary of the country’s NDC, said in an interview from Dar es Salaam, the commercial capital.

China has been bankrolling mines in Africa as it seeks to secure resources to feed the country’s economic growth, while reducing its reliance on foreign commodity exporters such as BHP Billiton Ltd. and Rio Tinto Group. In August, Shandong Iron & Steel Group Co. agreed to buy 25 percent of African Minerals Ltd.’s Tonkolili project in Sierra Leone for $1.5 billion.

“We will have the opportunity to increase our shareholding up to 49 percent once Sichuan has recouped its investment,” Mkucha said by telephone today. Sichuan Hongda may have to wait “5 or 10 years before the company recoups the investment.”

The project will dig coal from the Mchuchuma mine in south- western Tanzania that will fuel a planned electricity plant to power the new steel mill, the state-run NDC said.

“Target output is 3 million tons of coal per year, and 600 megawatts of power,” Mkucha said. “But we want to generate at least 300 megawatts by 2013, which will be used to run the steel production plant.” The mill will use iron ore from Liganga in the south, about 900 kilometers (560 miles) from Dar es Salaam.

NDC estimates iron-ore reserves of between 200 million and 2 billion metric tons. “The target is to mine 1 million tons of iron ore a year,” Mkucha said. “But we will start with 500,000 tons, then upgrade over a couple of years,” he said.

Power output may be raised further if Tanzania Electric Supply Co., known as Tanesco, boosts capacity. “Tanesco will have to upgrade and expand its supply network,” Mkucha said.

To contact the reporter on this story: David Malingha Doya in Dar es Salaam at

dmalingha@bloomberg.net

To contact the editor responsible for this story: Paul Richardson at pmrichardson@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.