Coal news and updates

Chinese companies are on the hunt to buy overseas coal mines as Beijing’s switch to cleaner fuels stokes demand for higher-quality coal produced in countries such as Australia, according to people familiar with the firms’ strategies.

 

A renewed appetite for acquisitions by the world’s biggest coal consumer will be a big boost for miners who are trying to dispose of assets worth billions of dollars to boost shareholder returns.

 

These include Rio Tinto, which has put Australian and Mozambique coal operations on the block, and Linc Energy , which is selling its New Emerald Coal business.

 

The Chinese, however, are not rushing to buy.

 

They see asset values coming under further pressure as coal prices remain depressed amid a supply glut that has already driven prices down about a third since 2011.

 

“We have clients who are interested in taking stakes in coal assets. But the view is the market’s not going to get any better for two years,” said Sam Farrands, a Hong Kong-based partner at law firm Minter Ellison.

 

“So why buy something today when it’s going to be a lot cheaper in eight months’ time?”

 

Plans to curb air pollution have raised the prospect of a long-term decline in China’s need for thermal coal, with Beijing aiming to reduce coal’s share of the energy mix to 65 per cent or less by 2017 from 73 per cent this year.

 

The lower share, though, will be within an expanding base, and it will take a long time to wean China away from coal, as it is the cheapest source of fuel for power.

 

As part of new cleaner-energy policies, China will push the use of better-quality coal.

 

This will lead to a split in coal markets, with high-energy coal set to attract a greater premium, which could favour better-quality Australian coal, said Michael Elliott, global head of mining and metals at consultants EY.

China’s thermal coal imports are forecast to rise 17 per cent over five years to 281 million tonnes, and metallurgical coal imports by 23 per cent to 107 million tonnes in 2018, according to Australia’s Bureau of Resources and Energy Economics.

 

“I don’t think [coal use] is going to fall off a cliff. It’s not possible yet,” said Ken Su, China metals and mining leader at consultants PwC in Beijing.

 

Chinese firms hunting for buys include state-owned enterprises, miners, power firms and traders, targeting thermal coal for power stations and coking coal for steel mills, legal and financial advisers in China and Australia said.

 

Though they declined to name their clients, state-owned Shenhua has looked at assets in Australia, including Whitehaven Coal and Rio Tinto’s stakes in the Clermont Coal mine and Coal & Allied.

 

Yanzhou Coal Mining has already set the ball rolling, seeking to buy out its Australian unit Yancoal Australia, following a one-third slide in Yancoal’s share price this year. The deal, announced in July, still needs Australian government approval.

 

Aluminum Corp of China (Chalco) has long eyed coal assets in Mongolia, though it ended up dropping a US$926 million bid for SouthGobi Resources last year owing to political opposition there.

 

“There’s probably been a pullback in looking at Mongolia after that. Everywhere else is still in the game,” said Su.

 

Chinese buyers would prefer to pick up operating mines rather than projects, as that removes the risks of developing a mine from scratch, said Elliott.

 

Source: Reuters in Melbourne