Shares of mainland coking coal producer Shougang Fushan Resources gyrated yesterday after the company denied allegations by US-based short seller Glaucus Research, that it had overpaid a related company for a mine and inflated its profit margins. The stock closed the lowest in six months at HK$2.48, down 2 per cent. At one stage it dipped 10 per cent. The Hang Seng Index rose 1.84 per cent. The Shanxi-based, Hong Kong-listed company is 29.4 per cent owned by Shougang, a major Chinese steel mill. The company said an article published in Hong Kong claimed that 'an institution issued a report on 11 April 2012' on its 'affairs and financial conditions'. Fushan 'would like to clarify that the allegation in the report is untrue', it said in a filing to the Hong Kong stock exchange yesterday. Glaucus Research Group California LLC said in a report published on its website that Fushan overpaid a related company for three mines in 2008. It said Fushan paid HK$10.5 billion for the mines, 'overpaid by roughly HK$8 billion', as its competitors acquired other similarly sized mines for much less. Helen Lau, an analyst of UOB-Kay Hian, said the claims were 'all wrong'. 'If there is a point in their report, the share price would not have rebounded today,' she said. 'Glaucus uses enterprise value (including debt) and the reserves number (which is smaller than resource), resulting a higher acquisition cost,' a UOB research note issued yesterday said. The Glaucus research also said Fushan's margins were fabricated through suspicious connected transactions. 'The numbers show that this company is twice as profitable as all the other major coal miners in the entire world. It is impossible to be as profitable as this,' a video on its website claims. The UOB report said the lower cost of production was 'mainly due to the increasing machination and favourable mining conditions'. 'We do not find Fushan's high gross margin (70 per cent in 2011) dubious, especially when it sells higher-priced quality primary coking coal,' the note said. Fushan chairman Li Shaofeng told analysts by phone that the listed companies under Shougang were responsible to shareholders and abided by the law. 'We don't know where the information in this report came from and they never had any interaction with the company,' Li said. Glaucus claimed in December that another Chinese company, Nasdaq-listed China Medical Technologies, had defrauded investors. The loose corporate governance and accounting standards of Chinese companies have made them targets of short sellers. A number of Chinese firms including Sino-Forest and Chaoda Modern Agriculture were accused of fraud last year and trading in their shares has been suspended.