HONG KONG: China Shenhua Energy Co Ltd, the nation's top coal producer, plans to invest 270 billion yuan in the next four years to help double the group's annual production in five years.

The group is implementing a new expansion plan, aiming to double its production in five years, Chairman Zhang Xiwu, told a press briefing for the company's interim results yesterday, without giving exact figures.

But the company's board secretary Huang Qing told media earlier that the coal producer will significantly increase its investment, with a target of doubling the annual production to 400 million tons in the five years.

Shenhua produced 105.8 million tons of coal in the first six months ended June, the company said in its interim report released last Friday.

Based on the new expansion plan, Shenhua will spend a total of 270 billion yuan in capital expenditure through 2013, President Ling Wen told the same briefing yesterday.

As for the financing, 30-50 percent of the fund needed will be sourced internally, with the rest likely to come from bank loans, Ling added.

Shenhua will continue to expand its overseas operation through acquisitions, he said, adding that the company currently is aggressively prospecting acquisition targets.

The executive did not elaborate but said Shenhua will consider only projects that will yield an internal rate of return (IRR) of not less than 10 percent.

M&A

Meanwhile, moves to acquire assets from the parent company will proceed in a prudent way to make sure that only accretive projects will get capital injections, he said.

Shenhua is still interested in investing in Mongolia's Tavan Tolgoi, which is estimated to have a coal reserve of 6.5 billion tons and is known as the world's largest untapped coking deposit, Ling said.

The company's coal and power project in Indonesia has started construction work, while its coal mine project in Australia is proceeding well ahead of schedule, he said.

Chairman Zhang also told reporters yesterday that Shenhua's average coal price in the second half will likely remain at the same level for the first half as the coal supply and demand in the country are expected to remain in balance in general.

Coal price

The company's average coal price rose 10 percent to 389.2 yuan per ton in the first half from a year earlier.

The chairman confirmed that Shenhua will build strategic coal reserves with total capacity of 30 million tons, probably in the eastern, southern and central parts of the mainland, without giving details, such as the time frame.

Earlier in August, reports said that Shenhua, empowered by the State, will build ten strategic coal reserve bases in different parts of the country, which will be operated as part of the State's coal reserve system.

Shenhua will shoulder the costs of building the coal reserve bases, but will receive preferential incentives from the state as subsidies, reports said.

Meanwhile, Zhang also told reporters at the press briefing that the company is in the process of expanding its seaborne transportation capacity.

Shenhua reported on Friday a net profit of 16.92 billion yuan, up 14.2 percent from 14.82 billion a year ago, thanks to a 7 percent increase in coal sales to 123.1 million tons and a 10.1 percent rise in average coal price.

(HK Edition 09/02/2009 page4)