Yanzhou halves spending amid coal downturn
Australia operations will bear brunt of cuts and Canada potash project may require share issue
Yanzhou Coal Mining has slashed its spending on future production capacity expansion by half amid weak coal market conditions, and floated a plan for its Canadian unit to fund its C$3.5 billion (HK$26.2 billion) potash mining project development via a Canadian stock market listing.
Wu Yuxiang, chief financial officer of the listed unit of the nation's fourth-largest coal producer Yankuang Group, expects the company's full-year capital expenditure to be 6.1 billion yuan (HK$7.6 billion), down from 12 billion yuan budgeted earlier this year.
Half of the cutback will be from its Australian operations, which will see their full-year budget slashed by 70 per cent.
Wu said the firm would spend only on projects that enhanced production safety and that were expected to be profitable in the next two years. Other projects will be put on hold.
The company will also "adjust" its goal to triple its output to 150 million tonnes by 2015 from 2010, he said, implying the time-frame for reaching the target will likely be deferred. Key to its future growth was the development of three coal mines in Ordos, Inner Mongolia, he added.
In late 2011 Yanzhou paid US$260 million for 19 permits to explore for potash - potassium salt that can be processed into fertiliser - in Saskatchewan, Canada. Wu said discoveries made so far required C$3.5 billion of investment to be developed into minable output, and that given Yanzhou's current financial circumstances, its Canadian unit would have to raise funds either by a stock market listing or from strategic investors.
Yanzhou's net debt-to-equity ratio surged to 92 per cent at the end of June from 62 per cent at the end of December, due to a loss in the first half.
On Monday, Yanzhou reported a first-half net loss of 2.07 billion yuan on international accounting standards, on the back of a 16.6 per cent fall in average selling price, and hefty foreign exchange and impairment losses at its Australian unit. Excluding these one-off items, net profit would have fallen 72.4 per cent year-on-year to 838 million yuan.
It projected a net loss of 1.6 billion yuan for the first nine months, based on mainland accounting standards, under which its first-half net loss was 2.35 billion yuan and said it was confident of turning in a profit for the full year.
Meanwhile, China Coal Energy, the listed unit of the nation's second-largest coal producer China National Coal Group, posted a 37.8 per cent year-on-year drop in interim profit to 3.22 billion yuan.
The company's turnover fell 11.6 per cent to 40.4 billion yuan, hurt by a 12 per cent decline in the average selling price of self-mined coal and a 20 per cent fall for third-party coal.