Power giant snatching up coal mines

By Chen Yang

Power companies are stepping up investments in coal mines to ensure supply for their plants and increase profit inflows.

Huadian Power International, a State-owned power producer, will buy a 35 percent stake in Inner Mongolia Fucheng Mining for 498 million yuan ($73 million) from Xinkuang Inner Mongolia Energy and a 25 percent stake in Inner Mongolia Ertuokeqianqi Changcheng Mine for 180 million yuan ($26.4 million), the company said in a statement Wednesday.

The double-listed company's stock price was up 0.19 percent to close at 5.35 yuan ($0.78) Wednesday on the Shanghai stock market, and increased 1.8 percent to 2.2 yuan ($0.32) on the Hong Kong market.

Fucheng Mining, which recorded a loss of 366,000 yuan ($53,667) in the first six months of the year, has 1.2 million tons of annual production capacity that have yet been put to profitable use.

Changcheng Mine, which has realized a net profit of 10.91 million yuan ($1.6 million) since going into operation in 2008, has a production capacity of 600,000 tons per year.

According to the deal, Fucheng Mining and Changcheng Mine together will provide Huadian Power with approximately 2 million tons of coal.

Earlier this year, Huadian Power bought 70 percent stakes in two Shanxi mines, with a combined annual production capacity of 1.35 million tons, and in September it acquired a 45 percent stake in Ningxia Yinxing Coal, with an annual production capacity of 5.8 million tons.

Huadian Power's invested coal mines could satisfy 7 percent of demand for its coal-fired power plants by the second half of 2010, said Zhou Lianqing, secretary to the chairman of the board.

The company plans to acquire more coal mines across the country and realize an annual production capacity of 30 million tons, which could satisfy 30 percent of its coal demand by 2013.

Analysts said power companies' moves into the coal industry could help them take control of price negotiations with mining outfits, reduce costs and realize increased profits by diversifying their holdings.

Huadian Power singed a coal supply contract with Heilongjiang Longmay Mining in September at a price of 344 yuan ($50.6) per ton, a 17 percent increase year-on-year. The 8.95 million ton contract coal accounts for 84.2 percent of the company's annual demand.

'Running mines has become a profitable business due to surging coal prices, and power companies want to share mine operators' profits," said Li Chaolin, an analyst at Anbound Group, an industrial research firm.

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