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China miner Yanzhou seeks Australia buys

April 22, 2008 - 11:52PM

Yanzhou Coal Mining Co Ltd, China's No.3 coal producer by market value, aims to buy mines in Australia to ramp up its annual coal capacity there to 10 million tonnes in the next few years.

The miner is part of a wave of Chinese mineral and resource firms buying up foreign assets to fuel a fast-growing economy, using the cash generated by years of breakneck economic growth.

Yanzhou, which vies with bigger rivals Shenhua Energy Corp and China Coal Energy Co, is looking at coal mines in Australia's east as well as alumina and iron ore in Western Australia, chief financial officer Wu Yuxiang said.

"The conditions (for acquisitions) are ripe now. First, our Austar coal mine will make a fairly large contribution to our profit and cash flow this year," Wu said.

"Second, our provincial government is supporting us in our effort to buy more coal mines and other resources in Australia. They asked us to reach 10 million tonnes capacity in Australia in the short term."

In 2004, Yanzhou bought Southland Coal Mine in Australia - now called the Austar Coal Mine - marking China's first overseas coal mine purchase.

But the Austar mine is unlikely to reach its designed capacity of 3 million tonnes per year over the next two years because of serious port congestion, he said. The firm plans to sell 1.6 million tonnes of coal from Austar this year.

Yanzhou Coal's Hong Kong-listed shares rose 7.4 per cent, outpacing a 0.9 per cent rise in benchmark Hang Seng Index.

China, the world's top coal producer and consumer, became a net importer of the fuel for the first time during the first half of 2007. Now, with Asian prices near records, the country's miners have been competing against each other to ship more abroad.

But Yanzhou, based in the eastern province of Shandong, plans to cut its own exports sharply to 500,000 tonnes of coal this year from 1.7 million tonnes last year.

"Under the current circumstances, it's not necessary for us to take the initiative to negotiate exports, because we face strong demand from a big domestic market."

Wu said the firm's actual export volume would depend on prices, which he added should exceed the $125 per tonne benchmark price decided between Australian mines and Japanese power generators.

"$125 is not acceptable. We are not willing to export at this price," he said.

Yanzhou is targeting sales volume of 34.4 million tonnes in 2008, down slightly from 35.1 million tonnes last year.

But its net price on domestic sales contracts jumped 38 per cent in 2008, while its contract thermal coal price grew 25 per cent in the first quarter of this year, higher than its peers as the firm sold more high quality coal.

"I don't think there is much room for domestic coal prices to rise significantly, since so many power firms are in the red, but there is also little chance for prices to fall sharply this year."

"Coal is not a windfall industry in China," he added.

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