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Yanzhou Coal to invest up to US$602m
(China Daily/HK Edition)
Updated: 2004-07-09 15:26

The company will pay 3.4 billion (US$411 million) to 5 billion yuan to buy controlling stakes in two new coal mines and a methanol project, Chief Financial Officer Wu Yuxiang told a news conference. The price will depend on the size of Yanzhou's stakes.

Yanzhou Coal, China's largest listed coal mining firm, this week placed a total of 204 million new shares at HK$8.30 each for US$217.1 million.

The company said it will use proceeds from the placement as well as bank loans and cash on hand to pay for the acquisitions.

Yanzhou, based in northeastern Shandong Province, was expected to sign acquisition contracts later this year.

Yanzhou Coal shares ended yesterday down 5.41 per cent at HK$8.75 but still above the placement price, which was at a discount of 10.3 per cent to the stock's Tuesday close of HK$9.25.

Trading in the stock was suspended for one day on Wednesday pending the acquisition announcement.

Shares of Yanzhou Coal have risen more than 127 per cent in the past 52 months on surging coal prices fuelled by keen demand in China and other part of the world.

Wu expected coal prices to remain high on the back of China's strong economic growth.

Analysts said news of the share sale and acquisitions was positive, although the company will not see significant output growth until production at the new mines starts to come onstream from the second half of 2005.

The new mines will have a production capacity of 13 million tons a year in 2008, or about 31 per cent of Yanzhou Coal's forecast output of 41.41 million tons in 2004, Wu said.

Output of the new mines was expected to rise to 28 million tons in 2010, he added.

"The acquisition is surely positive in clearing concerns by investors about tight production capacity," said Geoffrey Cheng, an analyst at Daiwa Institute of Research.

Yanzhou Coal's existing coal mines are relatively mature with output forecast to grow only about 3.5 per cent this year from 40 million tons in 2003.

"Despite the fact the acquisition takes place at the peak of the commodity cycle, we view the move as positive, as it would address our key concerns on the use of excess cash," said Merrill Lynch analyst Trina Chen said in a research note.

The company has more than 3 billion yuan (US$362 million) cash on hand, Wu said.

China's mostly coal-fuelled power output rose more than 16 per cent in the first five months of the year from the same period a year ago.

With demand growth outpacing supply, the country is plagued by widespread outages and rising coal prices.

Wu also said the methanol project would form a new investment trend for Yanzhou Coal as China's demand for methanol was rising faster than production growth.

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