China Coal shares dip as mines told to close

PUBLISHED : Tuesday, 20 September, 2011, 12:00am
UPDATED : Tuesday, 20 September, 2011, 12:00am

China Coal Energy, the listed unit of the nation's second largest coal miner, saw its share price plunge as much as 17.2 per cent after the Shanxi provincial government ordered a shutdown of all its parent's underground mines following a mine accident that has killed nine workers so far.

A flooding accident at its parent China National Coal Group's Yuanbao Bay mine, which is under an upgrade, took place on Friday.

By noon yesterday, of the 21 miners working at the mine, 10 were rescued, nine were dead and two were still trapped underground, China Coal said.

Its shares yesterday last traded 16.8 per cent lower at HK$8.26, before trading was halted half an hour after it started. The Shanxi government on Saturday ordered all underground mines operated by China National Coal, including five operated by listed China Coal, to suspend production.

CCB International mining sector analyst Karen Li said industry executives believed it may take three to four weeks for production to resume, since the Expo Central China investment conference next week and the golden week National holiday early October mean government officials may only conduct mine safety inspection after October 7.

'I hope the stoppage will not last more than a month,' she said, adding that her worst-case expectation was that China Coal's output for the year may be cut by 4 per cent and its net profit slashed by 5 per cent.

Lower output could result in a disproportionally higher cut in profit as more of a company's fixed costs - those that will be incurred regardless of the level of sales volume - will be higher on a per-unit-of-sales basis.

Li noted that what could be more damaging than production suspension was a delay in approval for new projects because of the poor safety record. China Coal has been expecting a government approval to resume construction of the Wangjialing mine in Shanxi, where a flooding accident killed 38 workers in March last year.