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Yanzhou Coal mulls overseas acquisitions

By Lan Lan (China Daily)
Updated: 2010-01-08 08:06

Yanzhou Coal Mining Co, China's third-largest coal producer, is scanning the market for additional coal acquisitions in overseas markets after becoming the new owner of Australia's Felix Resources Ltd.

Analysts say that while the time is right to snap up foreign energy companies, some domestic coal firms may lack the drive to venture into overseas markets.

Coal reserves in Shandong, where Yanzhou is based, are not as abundant as those in Shanxi province or Inner Mongolia autonomous region, where most Chinese coal firms are based.

State-owned Yanzhou is seeking to acquire new "coalmines as well as stakes" in coking or thermal coal companies in Australia, said a company insider, who preferred not to be named.

Yanzhou had completed the legal footwork to take over Felix by the end of last year at a price of about $3 billion, and ranking it China's biggest takeover of an Australian firm.

As a prerequisite of the deal, both sides had said that they will re-list 30 percent of merged assets on the Australian Stock Exchange by 2012.

The Yanzhou insider would not confirm whether 30 percent was the exact amount to be listed, adding that the exact amount has yet to be determined.

Annual production capacity of Felix is slated to exceed 20 million tons when it hits full capacity in the next three years. Felix Resources is expected to generate an annual net profit of 4 billion yuan within three years, Wang said.

Yanzhou has gained more than 1.5 billion tons of approved coal reserves in Australia via the purchase, while its domestic mines hold about 1.8 billion tons, according to the company.

Expanded production capacity is key for the company to compete with its peers as coal companies in Shanxi are growing in size following recent industry consolidation, Lian Wei, an analyst at First Capital Securities, said.

Coal produced by Yanzhou in Australia will be exported to China, as well as Japan, South Korea and several European countries.

Even with the extra cost of freight from Australia, prices of the imported coal will be competitive in China, said Lian.

The price of imported thermal coal from Australia was about $85 or 578 yuan per ton, while the price of similar quality domestic coal sold at around 800 yuan per ton in China.