* Beijing's new environmental policies to boost demand for
* Companies wait for valuations to fall, see coal prices
* Tough to wean away China from coal, say consultants
By Sonali Paul
MELBOURNE, Dec 2 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
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. So why buy something today when it's going to be
a lot cheaper in eight months' time," said Sam Farrands, a Hong
Kong-based partner at law firm Minter Ellison.
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 percent
or less by 2017 from 73 percent 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 cleaner energy policies announced this week,
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 Ernst & Young.
China's thermal coal imports are forecast to rise 17 percent
over five years to 281 million tonnes, and metallurgical coal
imports by 23 percent 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 Group Corp Ltd 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 Co 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
$926 million bid for SouthGobi Resources last
year due to political opposition there.
"There's probably been a pullback in looking at Mongolia
after that. Everywhere else is still in the game," said PwC's
Su, referring to Chinese appetite for coal assets.
Chinese buyers would prefer to pick up operating mines
rather than projects, as that removes the risks of developing a
mine from scratch, said Ernst & Young's Elliott.
Operating assets up for sale include a minority stake in Rio
Tinto's Coal & Allied assets, potentially worth around $1.7
billion, and Peabody Energy's $500 million Wilkie Creek
mine in Australia.
Linc Energy wants to spin off its New Emerald Coal arm,
which was recently valued at A$440 million ($400 million),
including the mothballed Blair Athol mine.
Several undeveloped projects are on the block, including
Brazilian giant Vale's Degulla project in Australia's
untapped Galilee Basin and a minority stake in its Belvedere
metallurgical project in Australia.
"There definitely is Chinese appetite for coal assets,"
Andrew Lawson, managing director of Cockatoo Coal Ltd,
told Reuters last month after lining up funds from three Asian
firms for a coal expansion. "That's the main area we would
expect to see demand come from."