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China Shenhua Energy

China Shenhua shares fall as mining disruption crimps earnings

The company says it expects to see a 3.08 billion yuan cut in 2017 net profit as a result of the disruption

PUBLISHED : Friday, 04 August, 2017, 7:52pm
UPDATED : Friday, 04 August, 2017, 7:52pm

Shares of coal mining giant China Shenhua Energy fell as much as 5 per cent on Friday after it revealed that production on two of its mines have been disrupted due to “land requisition” problems.

The Ha’erwusu mine was suspended from the start of this month, while its Baorixile mine is now only “maintaining minimal production.”

Both are located in the Inner Mongolia autonomous region which accounts for the majority of its output.

“The company has been proactively taking responsive measures … to minimise the impact,” the company said in a filing to Hong Kong’s bourse late on Thursday.

The company’s spokesman declined to elaborate on the circumstances on how the land requisition problems arose. Land requisition in this context referred to use of land for mining purposes.

The company has been proactively taking responsive measures … to minimise the impact
China Shenhua Energy

The company expects to see a reduction in net profit of some 3.08 billion yuan (US$458.4 million) for 2017 from the potential production cuts.

China Shenhua last week said it expected to post a net profit of 26.28 billion yuan for the first half of this year, up 143 per cent from the same period last year due to higher coal prices.

The company is estimated to attain a net profit of 35.6 billion yuan for the whole of 2017, according to the average estimate of 16 analysts polled by Bloomberg.

China Shenhua’s shares in Hong Kong Friday closed 1.3 per cent lower at HK$19.84.

It said in March that it was targeting to produce 298 million tonnes of coal and sell 407 million tonnes, including those produced by other miners.

To mitigate the impact from the two mines’ reduced output, the company said it would “push forward the progress of land requisition, broaden its sources of coal, including raising output from other mines as much as permitted by regulators.

It would also increase the procurement of coal produced by other miners for reselling, in order to limit the overall drop of coal sold and produced to 11.5 million tonnes and 20.6 million tonnes respectively.

Jefferies Jefferies analyst Laban Yu speculated that the land requisition challenges faced by China Shenhua is related to a dispute with the local government on administrative levies.

“While it is hard to pin down how long the production suspension will endure, it would not be in the local government’s interest to have a prolonged suspension,” he said.

While it is hard to pin down how long the production suspension will endure, it would not be in the local government’s interest to have a prolonged suspension
Laban Yan, Jefferies Jefferies

The mines’ production cutback comes as a merger proposal between parent Shenhua Group and fellow state-owned China Guodian Group was recently submitted to China’s cabinet for approval, news portal jiemian.com quoted Guodian’s head of production safety Guan Weizhu as saying on Wednesday.

The merged entity would be called State Energy Investment Group, which would have 1.8 trillion yuan of assets and a debt-to-asset ratio of 60 per cent, according to Guan.

Frank Yu, principal consultant of Asia-Pacific power and renewables of energy consultancy Wood Mackenzie, said the new firm would become the world’s largest power generation company, ahead of France’s EDF and Italy’s Enel.

It would have installed generation capacity of 225 giga-watt (GW), and would also be the world’s largest wind power firm with 33 GW of capacity, he added.

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