Datong Coal Industry, a unit of Datong Coal Mine Group, the mainland's second-largest coal producer, is paying 682.6 million yuan in cash for an 80 per cent stake in two coal mines in Inner Mongolia.
The Shanxi-based coal miner said in a filing with the Shanghai stock exchange yesterday that the deal was aimed at sustaining development and increasing its coal reserves.
Datong Coal said the two privately owned coal producers, Zhaofu Coal and Huafu Coal in Zhungeer, had combined reserves of 134.6 million tonnes of thermal coal, mainly used in generating electricity.
With an annual production capacity of 1.2 million tonnes each, neither of the two open-cut mines has started production. Datong Coal said it could spend an additional 442.66 million yuan to upgrade the technology of the two mines. It did not say when production will begin.
Coal prices have soared recently. Snowstorms disrupted production and transportation on the mainland while floods in Australia and power cuts in South Africa crimped imports. Coal accounts for 70 per cent of total energy output on the mainland.
'We believe the factors that have driven thermal coal prices higher in recent weeks will have a profound impact on 2008-09 contract negotiations,' Goldman Sachs JBWere's resource analyst Malcolm Southwood said in a research report.
Spot prices for thermal coal have shot up 37 per cent so far this year to US$130 a tonne last week.
Last month, Datong Coal unveiled plans for a private share placement. It is to use the proceeds to buy assets from its parent firm.
Its website says the firm, which produces coal, has coal reserves of 37.58 billion tonnes. In the first nine months of last year, it produced 12.7 million tonnes of coal.
The firm said in May it planned to list in Hong Kong within a year to raise funds for further acquisitions.
Trading in its shares remained suspended yesterday.