Mining venture out to unearth HK$1.6b
Kinetic Mines and Energy, controlled by Guangzhou developer Zhang Li, aims to raise up to HK$1.61 billion through an initial public offering to develop a coal mine, cut debt and fund acquisitions.
The company owns an underground mine in Erdos, Inner Mongolia, which has 201.2 million tonnes of coal reserves.
It began trial production in January and expects to start commercial production in June, with an annual capacity of 2.4 million tonnes. Next year, it plans to ramp it up to 5 million tonnes.
The company has signed non-binding long-term framework agreements to sell 2.9 million tonnes of coal annually to three power producers, in Shanghai, Shandong and Guangzhou.
A binding agreement with price was expected to be signed this month, said chief executive Wang Changchun, a former chairman of state-owned China National Coal Industry Import and Export Group.
Wang said the market price of coal of similar quality, after processing and washing, fetched about 900 yuan (HK$1,100) a tonne.
Estimates for when the mine achieves full capacity of 5 million tonnes a year put mining costs at 101.79 yuan a tonne, coal-washing costs at 12.91 yuan a tonne and transport costs at 139 yuan a tonne - leaving gross profit at about 646 yuan per tonne.
The company has set up a joint venture with China Shenhua Energy, the listed unit of the nation's largest coal producer Shenhua Group, to build and operate a 15-million-tonne-a-year coal-loading station.
China Shenhua has a 55 per cent stake in the venture and Kinetic the rest. The venture would help secure rail capacity to move Kinetic's coal to the nation's largest coal port, Qinhuangdao, although China Shenhua has no legally binding commitment to do so.
Kinetic is offering 930 million new shares to investors at HK$1.26 to HK$1.51 each. If demand exceeds the offered amount, it may sell 15 per cent more shares.
HSBC is the sole global co-ordinator of the deal.
Kinetic plans to use 35 per cent of the proceeds to build mining and coal-washing facilities, a loading station and rail spur lines. A further 30 per cent has been earmarked for retiring a short-term bank loan, 25 per cent for potential acquisition of small miners in Inner Mongolia and Guizhou provinces, and the remainder for working capital.
Li, the chairman of Guangzhou R&F Properties, the largest developer in Guangzhou, has granted Kinetic an option to buy Fuliang Coal Mining from him. It has an 85 per cent stake in a coal mine in Guizhou, which is expected to start commercial production in the first half of 2014 with an annual capacity of 600,000 tonnes.
Hong Kong-listed Sany Heavy Equipment International has committed to buy US$30 million worth of Kinetic shares, about 18 per cent of the shares on offer, and a 2 per cent stake after Kinetic's listing.
The share offering begins today and the stock is expected to debut on the exchange on March 23.
Inner Mongolia's total coal output in 2011. It is the country's top coal-producing region