Fushan acquiring Shanxi coal mines to lift capacity

PUBLISHED : Thursday, 07 January, 2010, 12:00am
UPDATED : Thursday, 07 January, 2010, 12:00am

Fushan International Energy Group, a major producer of coal used by mainland steel mills, has inked a preliminary agreement to buy coal mines in Shanxi province estimated by an analyst to cost more than HK$20 billion.

The company, which already has three operating coal mines with combined annual output capacity of six million tonnes, could double the capacity by the end of this year by buying the mines from its major shareholders and other parties.

The mines to be acquired have combined recoverable reserves of 442 million tonnes, Fushan said in a statement.

Its three existing mines have a total of more than 200 million tonnes of reserve, according to executive director Jimmy So Kwok-hoo.

The target mines are owned by Power State, which is 52 per cent owned by Xing Libin, who has an 8 per cent stake in Fushan, and 17 per cent owned by Wong Lik-ping, who has an 11 per cent stake in Fushan.

'By further increasing its reserve and output capacity, the group will firmly position itself as a sizeable metallurgical resources supplier [on the mainland],' Fushan said.

Fushan has been designated by the Shanxi government to be one of the companies to consolidate the province's fragmented coal industry through acquisitions. The government wants to halve the number of coal mines to 1,000 by the end of this year from last year.

The mines to be acquired are located at the periphery of Fushan's existing three mines in Liulin, Shanxi, So said.

Liulin has some of the mainland's best-quality coking coal, used to make steel.

A letter of intent has been signed on the potential deal. A final agreement will depend on the results of due diligence and a valuation of its assets by an independent valuer. So said the process could take two to three months.

UOB Kay Hian analyst Karen Chan estimated the potential acquisition to be worth about HK$20 billion, based on an estimated cost of 40 yuan (HK$45.43) to 45 yuan per tonne of reserve.

Fushan said it planned to pay for the acquisition by cash and by issuing shares at HK$7.80 each. The company's shares rose 1.4 per cent yesterday to HK$8.43.

At the end of June last year, it had HK$437 million of cash, HK$506 million of pledged bank deposits and HK$1.23 billion of receivables due from connected parties. Long-term borrowings and other payables amounted to HK$256 million. So says the company plans to raise syndication loans for the acquisitions.