Brazilian mining giant Vale (VALE5.SA: Quote) on Friday launched the construction of a $1.3 billion coal project in northern Mozambique, with the capacity to produce 11 million tonnes of coal per year.

The plant will be located in Moatize in the Tete province, and the coal produced will be exported to Brazil, Asia, the Middle East and Europe, the company said in a statement.

The project is expected to produce 8.5 million tonnes of metallurgical coal and 2.5 million tonnes of thermal coal, the company said.

This is our first big project in Africa ... from here we will go to other countries, the Democratic Republic of Congo, Zambia and Namibia for copper and nickel, Vale Chief Executive Roger Agnelli said.

South Africa holds most of Africa's coal reserves, but experts say Mozambique is expected to become the second-ranked coal producer in the continent with the development of the Moatize project by Vale, formerly known as CVRD, the world's largest iron ore producer.

The Moatize mine, which suffered extensive damage during Mozambique's civil war in the 1970s and 1980s, is believed to hold about 2.4 million tonnes of coal reserves, making it one of the largest untapped deposits in the southern hemisphere.

Vale's executive director of non-ferrous metals, Tito Martins, said the company was confident about the outlook for coal prices.

The outlook for the coal price is great ... in 2009 we expect to have the second-highest price in years, Martins told journalists.

The commodities boom driven by Chinese and Indian demand pushed coal prices to record highs in 2008. Since then prices have fallen by 60 percent but analysts expect the next commodities boom in 3-5 years time will see an even sharper rise than in 2008.

Mozambique, one of Africa's poorest countries and still largely dependent on agriculture, has become popular with foreign companies and investors interested in staking a claim to Africa's vast mineral and energy resources.

Martins said the company would invest $500 million in Mozambique this year, of which $444 million would go to Moatize.

Mozambique's President Armando Guebuza used the launch of the project to appeal to other investors, saying Vale's involvement showed that Mozambique was a secure investment destination, even in the context of the global financial crisis.

Vale takes to the world a message that, despite the crisis, Mozambique is a country for the future and a country to establish longstanding and sustainable partnerships, he said.

(Editing by James Jukwey, Giles Elgood and Maytaal Angel)

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