Nearly a week after a whistle-blower publicly accused the management of China Resources Power of negligence in a major acquisition of coal assets, investors are nowhere nearer to learning the reality of what may have gone astray.
CRP denied last Thursday that its joint venture had massively overpaid for the three mines and ancillary assets it bought in 2010, saying the deal was struck after "arm's length negotiations" and that it had paid less than the assets' appraised value.
The management of another protagonist in the drama, Shanxi Borui Mining Rights Valuation & Appraisal, which CRP said was the independent valuer of the mines, remains silent and elusive.
Wang Changsheng, its "legal person" - the person responsible for the actions of the company under mainland regulations - has not been available since last Wednesday despite repeated phone calls from the South China Morning Post. Each time, the person who took the call said he was not in the office.
According to Ministry of Land and Resources regulations, each of Borui's valuation reports needs to be signed off on by Wang.
The Chinese Association of Mineral Resources Appraisers (CAMRA) lists Wang as one of four certified mining appraisers at Borui.
The mainland has more than 450 such appraisers, according to the ministry.
Adorned with red Lunar New Year good fortune rhymes, its entrance looked more like a residential unit than an office.
With no reception area, the office of about 600 square feet was poorly lit, with just over half a dozen or so work cubicles occupied.
A woman sitting closest to the entrance said Wang was not in the office and declined to answer any questions.
A joint venture 49 per cent controlled by CRP bought an 80 per cent stake in the mines and related assets from Shanxi businessman Zhang Xinming's Jinye Group for 7.9 billion yuan (HK$10 billion), according to Economic Information Daily reporter Wang Wenzhi.
That valued the assets at 9.9 billion yuan, almost double the 5.2 billion yuan value assessed by state-owned coal miner Datong Coal Mine Group, which tried to buy the same assets just three months earlier, Wang said on his microblog.
He said the transaction resulted in a major loss of state-owned assets, and that former CRP chairman Song Lin had ordered the deal to be completed.
Datong's spokesman has declined to comment since Friday, saying it has been difficult to identify and reach any official responsible for the bid.
CRP has never disclosed how much its joint venture paid for the 80 per cent stake, saying it has no duty to do so under Hong Kong listing rules, since it was bought by a unit it had less than 50 per cent control of.
Wang, who told the Post he had been tipped off, said an internal audit by CRP's parent company, China Resources (Holdings), found Borui's valuation to be massively above the actual worth of the assets.
He also said Borui had projected that the Yuanxiang mine would book pre-tax profit of between 192 million yuan and 1.2 billion yuan between 2010 and last year, but the mine actually made losses in each of those years.
China Resources said last week libellous media reports had damaged its and its management's reputation, and it reserved the right to seek redress for legal and economic losses.
The People's Daily said last week the Communist Party's anti-graft watchdog, the Central Commission for Discipline Inspection, was processing Wang's complaint about Song, now the chairman of China Resources (Holdings).
Xinhua quoted an unnamed official at the State-owned Assets Supervision and Administration Commission as saying an audit of China Resources was being conducted.
The state-backed conglomerate, involved in businesses ranging from retail to energy, ranked 187th on Fortune magazine's Global 500 list this year. It reports to the central government, making Song's position equivalent to that of a vice-minister.
A lawsuit filed by six CRP minority shareholders early this month in the High Court in Hong Kong said the Zhongshe mine's exploration rights had expired in 2007 and those of the Hongyatou mine in 2009, and no applications had been filed to renew them.
Seeking compensation for losses from the ill-fated acquisition, they said Jinye had no right to transfer the exploration rights to CRP's joint venture.
Their lawyer expects the court hearing to start before the end of the year.
It added that Zhongshe's and Hongyatou's exploration rights had been obtained in 2003, but their conversion to mining permits was suspended due to the local government's consolidation of small mines.
A visit to the three mines by the Post found their entrances sealed by gates, with no evidence of production.
Reachable by paved roads, they are between 20 and 45 minutes' drive from Gujiao, which is an hour's drive from Taiyuan.
A guard at Yuanxiang's entrance would not say when production might resume.
Hongyatou, which Wang found in a visit to have been turned into pasture for sheep, is no longer accessible. It is the furthest from Gujiao and is sandwiched between rolling hills.
A guard inside the compound threatened to call the police when questioned.
About 10 minutes' drive from the Yuanxiang mine are two coking plants that turn coal into coke, which is used in steel smelting. They form part of the basket of assets bought by CRP's joint venture.
At least one appears to be in operation, with steam being released from its facilities and coal trucks making deliveries.
A taxi driver who often ferries miners between nearby mines and Gujiao, a city of 220,000 residents, said all three mines had been in production some time before CRP bought them.
"Business has fallen quite a lot since the local government shut down the small mines these past few years and as workers have returned home," he said. "Now, most of the operating mines belong to the big firms."
He said the shut mines were loss-making, since they still had to pay workers while waiting for production to resume.
Lower coal prices have also sapped profits at producing mines.
Prices have fallen by a third since late 2011.
"Miners used to earn 5,000 to 6,000 yuan a month. Now many only earn the basic salary of about 1,200 yuan to cover living expenses as they wait for the mines to reopen," the taxi driver said.
Meanwhile, it remained unclear whether Borui overvalued the basket of assets and whether CRP overpaid for them.
A 2008 Ministry of Land and Resources circular on regulations governing the appraisal of mining rights said appraiser firms and accredited appraisers must give "objective, fair and genuine" value assessments.
A Hong Kong-based investment banker who helps clients complete acquisitions in Hong Kong and on the mainland said it was difficult for valuation firms to be objective.
"Before the deal is done, our clients often tell us how much they would pay for an asset and we will call different valuation firms to see which ones can match or exceed the amount," he said.
An energy sector analyst at a Hong Kong brokerage said: "On the mainland, the valuation does not mean much, as it is used by the asset buyers to justify their purchase prices."
It appears the ministry largely relies on CAMRA to self-regulate the industry.
"CAMRA should self-regulate by conducting annual and irregular audits of appraisal reports, to check their fairness," the circular said. "Audit results should be made public and rule-breakers should be held responsible."
While annual audit results have been posted on CAMRA's website, in all but two years since 2006 they have only named firms that passed the audit, not those that failed.
In 2006, it said Hainan Tuoxin Mining Appraisal Consultancy was asked to rectify some unspecified issue, while in 2010, it said Beijing Shanhaitian Appraisers did not pass due to its failure to deliver documents on time for audit.
No details of any irregularities have been reported in any of the audit reports and there has been no mention of whether unscheduled audits have been conducted, as required by the ministry.
Ge Peng, a Beijing-based spokesman at CAMRA's membership management department, said it was not in a position to comment on CRP's acquisition because it did not know the details of the case.
"If there are problems, relevant security or economic government departments will refer the case to CAMRA and we will look into it," Ge said. "We have not reached that stage yet."
He said the association only made cases public after conclusions had been drawn following investigations. This was to discipline any rule-breaking members.
"Until now [since 2006], we have no case of cancellation of members' certification due to irregularities," he said.
While there had been internal censuring, Ge declined to disclose the number of cases or any details.
He insisted the association's regulatory system was vigorous, because, while members were informed of upcoming audits one to two weeks in advance, the selection of reports for audits was random.
However, he was unable to say whether it had conducted any unannounced audits.
CAMRA only gave details about the size of the industry in its 2007 audit report.
There were 448 registered mining rights appraisers at the end of that year. They completed 5,648 valuation jobs in 2007, whose total value amounted to 294.1 billion yuan. Appraisal fees collected for the jobs totalled 176.58 million yuan.
Citi's head of Asia utilities research, Pierre Lau, wrote in a research note that the fact that the three mines bought by CRP were not allowed to start production three years after acquisition suggested it was a bad investment.
But he did not expect CRP to make a provision to write down the investment in its books.
Another brokerage analyst said: "CRP's inexperience and execution risks in coal [mine consolidation] are not new concerns."
Standard & Poor's said yesterday it affirmed CRP's BBB long-term corporate credit rating despite the saga, adding that coal production accounted for only 7.3 per cent of the company's total revenue last year.