Datong Coal eyes H shares for expansion
Datong Coal Industry, the mainland's second-largest coal producer by output, plans to list in Hong Kong in the next 12 months to raise funds for further mine acquisitions.
The Shanxi-based miner, which already has Shanghai-traded A shares, said in an announcement to the Shanghai stock exchange that the Hong Kong listing would involve a maximum of 300 million H shares, or 15 per cent of its share capital. That could raise 7.17 billion yuan, based on its 23.90 yuan closing price yesterday.
Sources earlier said the company, which raised 1.89 billion yuan in its initial public offering in Shanghai in June last year, had been hoping to float its shares in Hong Kong since the end of last year.
The listing plan was postponed as Beijing began charging fees for coal prospecting and mining in eight key coal-producing provinces and regions including Shanxi in November last year, industry sources said.
Before the Hong Kong listing, the company would reach a non-compete accord with its parent firm, the unlisted Datong Coal Mine Group, that would include the priority rights to buy its mines, the subsidiary said.
Brokerage Macquarie Research expected that would include the acquisition of four mines under development, each with a planned output of 10 million tonnes annually.
Another key asset might be the rights to the Tashan coal mine, the largest underground mine in Asia and owned 51 per cent by Datong.
The mine, which started operation in October last year, is designed for five million tonnes of capacity annually, which will be expanded to 15 tonnes next year.
Macquarie valued the right at 1.6 billion yuan, and if bought, would make Datong the mainland's largest coal company in terms of reserve, at 3.4 billion tonnes.
China Shenhua Energy is currently No1.
Despite the nationwide policy of shifting to cleaner fuel natural gas to combat pollution, coal remains the main fuel in the country, especially for electricity generation and heavy industries.
China was a net importer of coal in the first four months of this year.
Imports rose 50.5 per cent to 19.22 million tonnes in the first quarter, while exports shrank 28.6 per cent to 15.87 million tonnes, leaving a net import of 3.35 million tonnes.
Analysts at Macquarie and KGI Securities widely anticipated that as a result coal prices would drift higher this year.
Macquarie said Datong's selling prices would rise 7 per cent to 354 yuan per tonne this year, estimating that every 1 per cent rise in coal price would push up the company's net income 7 per cent.
This will sufficiently offset any negative impact from higher production costs.
The bank forecast a 1 per cent increase in production cost would cut about 3 per cent of Datong's net income.
A Thomson First Call poll showed a profit consensus of 581.7 million yuan this year, or 21 per cent growth from last year.