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Home >> Business
UPDATED: 08:07, March 14, 2006
Shenhua buys coal firm to reduce costs
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China's top coal producer, Hong Kong-listed China Shenhua Energy Co Ltd, yesterday said it would pay about US$143 million to buy a power and coal company controlled by its parent.

The transaction marks Shenhua's first acquisition since it went public last June and will boost the firm's coal reserves by almost a tenth.

In a statement filed to the Hong Kong Stock Exchange, Shenhua said that it would pay 1.16 billion yuan (US$143 million) for 70 per cent of Jinjie Energy Corp, based in Shaanxi Province, from a firm owned by China Shenhua Group.

Although China Shenhua Group will technically still own Jinjie Energy Corp, its assets have now been transferred to the listed China Shenhua Energy.

This will reduce production costs for Shenhua Energy and expand its capacity.

The remaining 30 per cent of Jinjie will go to power producer Shandong Luneng Development Group Co.

Jinjie Energy plans to have an installed generating capacity of 3,600 megawatts (MW) and coal production of 3 million tons a year, when facilities under construction are completed by 2010, the company said.

Jinjie's coal mines have marketable reserves of about 525 million tons, about 9.1 per cent of Shenhua's total reserves of 5.74 billion tons, Shenhua said.

Industry analysts said the purchase would increase Shenhua's reserves and further boost investors confidence.

Shenhua's shares this year have rose more than 40 per cent to close at HK$12.25 (US$1.6) yesterday on the Hong Kong Stock Exchange.

The Beijing-based coal producer, which unveiled a 75 per cent increase in its 2005 profit last week, said it was constantly seeking opportunities to buy high-quality coal and power facilities, and remained bullish about the coal industry's outlook.

Shenhua's acquisition ambitions are in line with the government's long-term plan to encourage the building of large-scale coal mines, while shutting down small and inefficient ones to increase production efficiency and ensure safety.

The country plans to build 13 coal-producing bases across China, which will account for 78 per cent of the country's total coal production by 2010, compared with the current level of 57 per cent, industry statistics show.

Shenhua, whose operations include coal, ports, rail and power generation, reported a net income of 15.63 billion yuan (US$1.9 billion) last year, up from 8.94 billion yuan (US$1.1 billion) the previous year.

"Demand for thermal coal (coal used for power generation) is expected to continue on a steady increase as a result of growing global economic growth and rising electricity demand in China," Shenhua Chairman Chen Biting said.

The country's top economic policy planner, the National Development and Reform Commission, has projected domestic demand for coal in China this year will reach 2.17 billion tons, of which thermal coal will account for about 56 per cent.

Shenhua sold 144.4 million tons of commercial coal last year, up 13.8 per cent from a year earlier. Its average coal price last year increased by 24 per cent to 305 yuan (US$37.6) a ton.

The company plans to achieve an annual increase of coal production and sales of more than 15 million tons, and expects to have an annual coal production capacity of 200 million tons by the year 2010.

Source: China Daily

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