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Eric Ng

China Shenhua Energy aims to buy all of its parent firm's assets in two to three years and acquire coal assets in Indonesia, Australia and Mongolia, as it seeks to maintain growth  as profit margins shrink amid rising costs.
Shenhua president Ling Wen yesterday said its parent Shenhua Group would gradually complete its 'overall flotation' plan.
'We don't have a concrete timetable, but we strive to complete this goal in two to three years,'  Mr Ling said.
Chairman Chen Biting said the parent firm had six coal mines in the Inner Mongolia and Xinjiang provinces that were not yet part of the listed unit.
The mines have a combined marketable reserve of 5.98 billion tonnes based on mainland appraisal standards and annual output capacity of 55.72 million tonnes.
Analysts said the reserve would be roughly half that using international standards.
Shenhua had 7.32 billion tonnes of marketable reserves at  the end of last year based on the international standard called Australasian Joint Ore Reserve Committee Standard, up 22.9 per cent from a year earlier.
Mr Chen also said  Shenhua was in talks on more than three potential investments in Indonesia, Mongolia and Australia.
The National Development and Reform Commission  last month approved plans by the company's subsidiary, Guohua Electric Power,  to invest in  a project with 300 megawatts (MW) of annual power generation capacity and 1.5 million  tonnes of annual coal mining capacity. The project is scheduled to come on stream in 2010.
Mr Ling would not say whether it will be the sole investor in the project.  A company official said an investment agreement was still being ironed out.
Mr Chen said  Shenhua had targeted  sales of 224 million tonnes of coal this year, up 26.55 per cent from 2006, of which its self-produced volume is projected to grow 32.27 per cent to 209 million tonnes.
He expected coal prices to rise further to offset  increasing costs this year so that profitability could be maintained.
Driven by tight supply,  Shenhua's domestic annual contract price for this year has been settled at 50 yuan (HK$54.86) a tonne higher than last year, or a 16 per cent increase, beating market expectations and the industry's rise of 8 per cent to 10 per cent.
CICC analyst Han Yong said in a  report that  mainland coal output would be 300 million tonnes, or 1.1 per cent less than demand this year.
However, analysts said Shenhua's cost pressures remained high after production costs surged 13.9 per cent to 75.3 yuan per tonne last year.
That helped squeeze last year's coal production gross profit margin to 31.73 per cent from 35.15 per cent in 2006.
'We believe Shenhua faces higher [cost] pressure given its [more] efficient base,' wrote Credit Suisse analyst Trina Chen in a research report.
Meanwhile, Mr Ling said  Shenhua expected to be able to export a similar amount of coal to last year's 24 million tonnes, as regulators had verbally committed to keep this year's industry export volume at last year's actual export of 53 million tonnes.
Shenhua shares  yesterday dived as much as 12 per cent before ending 8.85 per cent lower at HK$32.95 against a 5.18 per cent drop in the Hang Seng Index.  The firm  on Sunday said net profit for last year rose 16.6 per cent  to 20.58 billion yuan.



Shenhua on acquisition trail to shore up waning profitability