Yanzhou Coal gets ‘thumbs up’ from analysts who flag new mine output, rising prices

Yanzhou Coal Mining, the listed flagship of China’s fourth-largest coal miner, has seen its Hong Kong share price tumble 21 per cent from this year’s high, on the back of profit-taking and slumping coal price. But the pummelling in the share price could offer investors an ideal entry point, according to some analysts.

They cite the company’s strong production growth outlook, powered both by domestic and overseas mine development as well as an impending acquisition of a major producer in Australia, which will likely help it weather any further weakness in coal prices.

“Yanzhou is one of very few A-share coal miners that still have high production growth,” wrote China Merchants Securities lead analyst Lu Ping in a recent report. “The current coal price correction is normal given seasonal weaker demand ... once summer demand comes, prices are likely to rebound.”

He had a “strong buy” recommendation on the miner’s Shanghai-traded A-shares, which have fallen 13 per cent from this year’s high of 11.97 yuan in mid-April, citing an attractive valuation of 6.5 times this year’s estimated earnings.

Shandong-based Yanzhou’s management said in March it aimed to raise coal output by 29.2 per cent to 78.6 million tonnes this year, thanks in part to its new mines in Inner Mongolia and Australia.

An additional 12 million tonnes of output is expected to be added when the US$2.5 billion acquisition of mines from Australian global mining giant Rio Tinto is completed.