China Coal to start mine buying spree
China Coal Energy, the listed unit of the nation's second-largest coal producer, plans to open new mines and acquire mines from its parent to bolster profits.
The projects and acquisitions, which come as Beijing keeps a lid on coal prices to help tame inflation, are part of the state-controlled firm's strategy to raise raw output to 200 million tonnes in 2015, from 122.5 million tonnes last year.
Chairman Wang An said China Coal would start trial production at the Donglutian mine in Shanxi province at the end of next month, with output expected to reach 10 million tonnes next year.
The company is still waiting for the government to approve resumption of construction of the Wangjialing mine in Shanxi, where a flooding accident killed 38 workers. Eight to 10 months of work were needed to get the facility running, he said. The mine has an expected annual output capacity of 6 million tonnes.
In addition, China Coal plans to acquire several mines from parent China National Coal Group, which will have a combined annual capacity of 10 million tonnes by next year. The mines were consolidated from smaller ones as part of a major restructure of Shanxi's coal sector to improve production safety and efficiency.
To fulfil the 2015 target, the firm also plans to acquire mines in Inner Mongolia.
On Tuesday, the group posted a 7.8 per cent annual rise in net profit to 5.59 billion yuan (HK$6.82 billion) for the first half of 2011. That was on the back of an 8.6 per cent increase in the volume of sales of coal taken from its own mines. and a 6.7 per cent rise in the selling price. Its per tonne production cost rose 8.2 per cent.
The profit figure was 10 per cent better than analysts' forecasts, Citigroup analyst Scarlet Chen wrote in a research note. China Coal's share price rose 6.9 per cent to HK$10.04.
The better performance was due to stringent cost control and higher-than-expected sales to the spot, or cash market, which took up 43.6 per cent of total sales, compared to 30.5 per cent a year earlier, Chen said. The remaining sales are done through annual contracts, which are normally negotiated between December and March.
Beijing earlier this year ordered coal miners to freeze contract prices to control inflation, which last month hit a 36-month high.
In March China Coal's management said it planned for spot sales to account for 40 per cent of this year's total sales, to lessen the damage of Beijing's policy on its bottom-line amid rising operating costs.
President Yang Lieke expected spot coal prices to fall only slightly in the remainder of the year, after having declined 1.5 per cent in the five weeks to early August.
Chen said that if the mainland economy cooled in the second half amid weaker global growth, spot prices could suffer, noting a stronger renminbi could make imports more competitive and depress domestic prices. Yang played down the concern, saying imports accounted for less than 3 per cent of the market.
The amount of the mainland's energy generation that comes from coal-fired plants, which suffer from price controls