China Shenhua Seeks M&As; Pursuing Mongolian Reserves

By John Duce

March 16 (Bloomberg) -- China Shenhua Energy Co., the nation’s biggest coal-mining company, said it’s looking to expand production through mergers and acquisitions and has been bidding to develop the Tavan Tolgoi deposit in Mongolia.

The Hong Kong-listed company, which reported last week a record annual profit for the second year, will pursue any prospective deals in a cautious manner, President Ling Wen said at a media briefing in Hong Kong today. They must demonstrate “strong returns,” Ling said.

Chinese companies spent last year a record $32 billion on resource acquisitions in Asia, Africa and Australia to sustain the world’s fastest-growing major economy. China Shenhua has yet to explore for coal overseas, lagging behind domestic rivals such as Yanzhou Coal Mining Co. that completed its A$3.5 billion ($3.2 billion) purchase of Felix Resources Ltd. in December.

“Shenhua’s main focus, increasing production, will remain in China as assets there are cheaper to develop, although it’s also increasing its interest in countries like Australia and Mongolia,” said Anna Yu, an analyst at Taifook Securities Group Ltd. in Hong Kong.

The Tavan Tolgoi holds an estimated 6 billion metric tons of coal, making it one of the world’s largest unexploited reserves of the resource. China Shenhua has withdrawn from bids to develop the deposit, Mongolia’s Ardyn Erkh newspaper reported on March 2, citing unnamed officials.

“We have followed the Tavan Tolgoi project for seven years,” Ling said. “We have the edge and we are actively bidding for it.”

In Australia, the Beijing-based company agreed in 2008 to pay A$300 million for a coal exploration license, its first overseas permit, in New South Wales. The location agreement has been signed and the project is progressing well, Ling said.

Rising Production

China Shenhua shares doubled in the past year in Hong Kong trading, outpacing the 62 percent gain the main Hang Seng Index. The stock fell 2.7 percent to HK$32.45 today.

The coal producer increased output by 13 percent last year to 210.3 million tons as China’s economic growth gathered pace, spurring demand for energy, China Shenhua said on Jan. 20. Sales rose 9.3 percent to 254.3 million tons.

Chinese coal imports more than tripled last year to 125.8 million tons, the customs department said on Jan. 21. Use of the fuel will probably climb 3.3 percent to 3.15 billion tons this year, the National Development and Reform Commission, the country’s top economic planner, said on March 5.

China Shenhua had marketable coal reserves of 6.9 billion tons as of the end of 2009, it said on March 12. About 70 percent of revenue last year came from coal production and 27 percent from electricity generation.

Buying windpower assets from its parent Shenhua Group Corp. will be a focus in the company’s merger and acquisition projects as China Shenhua expands into renewable energy, Ling said.

China Shenhua will push forward the pace of asset injections from its parent, he said.

--Editors: Ryan Woo, Alex Devine.

To contact the reporter on this story: John Duce in Hong Kong at jduce1@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.

Source:Bloomberg news services