China Shenhua Energy Company

Mainland encouraging coal firms in search of foreign mining projects

PUBLISHED : Friday, 30 November, 2007, 12:00am
UPDATED : Friday, 08 May, 2015, 9:51am

Beijing has set an official industry policy for the first time on supporting coal companies investing in overseas resources, as part of efforts to enhance the nation's long-term energy security.

'Companies will be encouraged to invest in overseas mining projects,' the National Development and Reform Commission said in a circular.

Analysts say as coal is expected to remain the main power generating resource for the nation until at least 2020 and domestic reserves are relatively limited, it is essential for the government to secure stable supply from other nations.

The mainland has the world's third-largest coal reserves of 114.5 billion tonnes or 12.6 per cent of the global total at the end of last year. However, on a per capita basis, it amounted to only 60 per cent of the world average.

It has only 10 per cent of the global per capita oil reserves, 5 per cent of global per capita natural gas reserves but is the world's fastest-growing major economy.

Mainland investment abroad is scant despite considerable efforts to secure projects in the past few years, as spiralling coal prices widened the gap between perceived valuations of buyers and sellers.

Among the listed companies, only Yanzhou Coal Mining, which faced declining output in its home province of Shandong, has clinched an overseas investment. In late 2004, it bought a 90 per cent stake in the Austar mine in Queensland.

It spent more than 1.5 billion yuan to restore the mine which was damaged by a fire.

China Shenhua Energy, the nation's largest coal producer, has been in talks for more than three years to form a consortium to invest in a large coking coal project in Mongolia to feed steel industry demands. But progress has been delayed by frequent political changes in Mongolia.

Shenhua is also exploring opportunities to buy into coal firms or mines in Indonesia and Australia.

Zhou Dongzhou, company secretary of China Coal Energy, the second-largest producer, is also looking at investing in the two major coal exporters in Asia.

Nomura Securities analyst Donavan Huang said the government should co-ordinate the state-controlled producers' overseas efforts so that they would not outbid each other on assets.