Yanzhou Coal Mining yesterday said it would pay its parent 2.56 billion yuan (about HK$2.4 billion) - in cash - to acquire a coal mine which has yet to start its commercial run. The company proposed to buy Jining III - an underground coal mine in Shandong's Zoucheng city which has been on trial and will start its commercial run in the fourth quarter of this year. The H share is exercising an option given by its parent, Yankuang Group Corp. Production is forecast at four million tonnes next year, doubling to eight million tonnes by 2005. The purchase price will be determined after accounting for Jining III's audited total asset value of 2.36 billion yuan subject to the Ministry of Finance confirmation. The consideration for mining rights will be fixed at the state-approved price of 132.48 million yuan. All consideration will be paid in cash instalments. Zhao Jingche, chairman of the H share, said the purchase would boost per-share earnings, raise annual output by up to 30 per cent from last year's 24 million tonnes and enhance long-term growth. Despite the lack of a meaningful track record, Jining III mine has been ranked one of the world's two lowest-cost producers of export steaming coal, the Yanzhou Coal Mining said. It said it would finance the purchase through internal cash sources and proceeds from the issue of 100 million A shares in the mainland. It is now debt free. The deal, conditional on regulatory and shareholder approvals, is expected to be completed by June 30 next year. The buy-out has come amid restructuring by Beijing of its coal industry, with the closure of about 30,000 unprofitable small mines; about 19,000 are expected to be shut down this year. Bigger and better managed companies will be encouraged on the other hand.