China Shenhua Energy, the nation's largest coal producer, plans to acquire four coal companies from its parent, which could boost its reserves by 31 per cent and output by 39.5 per cent. Chairman Chen Biting yesterday confirmed the acquisition plan that was referred to in a JP Morgan research report on Wednesday. 'We are in talks with the companies to be acquired,' he said. 'As we have not reached an agreement, I cannot tell [the size].' The report said Shenhua aimed to buy Xisanju, which has an annual coking coal output of about 17 million tonnes in Inner Mongolia, next year. It is estimated to have 872 million tonnes of coal reserves. Also in the acquisition pipeline are Baorixile in Inner Mongolia with 234 million tonnes of reserves and five million tonnes of annual output; Shenhua Ningxia Coal with 1.3 billion tonnes of reserves and 20 million tonnes of output; and Shenhua Xinjiang with 2.08 billion tonnes of reserves and six million tonnes of output. The parent has a 70 per cent stake in each. Their total reserves came to 4.5 billion tonnes based on mainland estimation standards, and equivalent to about 2.25 billion tonnes when converted into international standards, the report quoted Shenhua management as saying. China Shenhua had about five billion tonnes of net attributable reserves valued by the market at US$6 a tonne, JP Morgan estimated. Total production was 121.4 million tonnes last year. This compared with the 80 US cents per tonne of reserve valuation in China Shenhua's recent acquisition of parent Shenhua Group's 70 per cent stake in coal and power firm Jinjie Energy, JP Morgan said. The difference in valuation represents value created for China Shenhua's shareholders. JP Morgan estimated that acquiring the Baorixile, Ningxia and Xinjiang assets would add $3 to China Shenhua's share price. It closed yesterday at $15.65. The brokerage assumed that the parent would sell the assets to China Shenhua at the same valuation as the Jinjie deal. At 80 US cents a tonne, acquiring the reserves of the four coal firms would cost at least 14.3 billion yuan. China Shenhua had 18.71 billion yuan of cash at the end of last year.
