China National Coal, a unit of the mainland's largest exporter of coal, is in talks with some of world's largest coal firms to take strategic stakes as it plans to file an initial public offering application in Hong Kong this month to raise US$1 billion, people familiar with the situation said. Potential investors include Peabody Coal, the largest coal miner in the United States, and Arch Coal, the country's No2 producer. Some of Europe's largest producers have also expressed interest, sources said. 'They're not saying it's essential but if they can come to terms on price investors may be brought in,' a source said. China National Coal plans to sell 25 per cent of its enlarged share capital with a roadshow tentatively scheduled for October, and a listing in November, sources said. Morgan Stanley, China International Capital Corp and Citigroup are arranging the sale. The banks declined to comment. 'There's just a couple of things left in the audit which might push the filing back to July,' a source said. The audit was complicated by a complex restructuring. The firm scrapped a listing last year saying it needed more time to prepare. 'The market expects coal prices to go still lower in the second half and investors are quite cautious about resource stocks in general on volatile commodities prices,' said Kenny Tse, associate director at Tung Tai Securities. 'They'll need to price it attractively to get a good response, as we've already got Shenhua Energy and that's the biggest coal company in China.'' Shenhua, which raised US$3.3 billion in a public offer last year, trades at 12 times forecast 2006 earnings while Yanzhou Coal Mining, a unit of the mainland's fourth-largest coal producer, trades at eight times forecast earnings. Yanzhou's average selling price in the first quarter dropped 7.2 per cent to 331 yuan a tonne from a year earlier, according to the company. Parent firm China National Coal Group produced a record 72 million tonnes of coal last year and plans to boost output to 150 million tonnes by 2010. The company made four billion yuan in profit last year as sales rose 29 per cent to 50 billion yuan, according to the State-owned Assets Supervision and Administration Commission. China's local and export demand for coal this year may total 2.25 billion tonnes, while supply will come in at a slightly larger 2.26 billion tonnes, according to the National Development and Reform Commission.