Bloomberg News

Yanzhou Coal Falls Most in 3 Years After Potash Acquisition

October 03, 2011

(Updates with size of permit area in fifth paragraph.)

Oct. 3 (Bloomberg) -- Yanzhou Coal Mining Co. fell the most in almost three years in Hong Kong trading after it obtained government approvals to acquire Canadian potash exploration permits for $260 million.

China’s fourth-biggest coal producer dropped as much as 15 percent to HK$14.62, the steepest decline since Nov. 6, 2008. Yanzhou traded at HK$14.84 as of 2:50 p.m. local time, down 13 percent. The benchmark Hang Seng Index fell 4.4 percent.

“Investors certainly do not like it when Yanzhou said it’s entering a field that the company is not familiar with or has experience in,” said Lawrence Lau, a Hong Kong-based analyst at Bank of China Ltd. “Potash is not even remotely part of Yanzhou Coal’s core business.”

Yanzhou is seeking to purchase assets in countries including Australia and Canada after buying Felix Resources Ltd. for A$3.1 billion ($3 billion) in 2009 to expand coal reserves. The Chinese and Canadian governments have approved the acquisition of 11 potash exploration permits from Devonian Potash Inc. and eight permits from North Atlantic Potash Inc., Yanzhou said on Sept. 30.

The permits cover a total area of about 1.3 million acres (5,364 square kilometers) in Saskatchewan province. Initial data show the permits may hold “abundant” resources of the crop nutrient, Yanzhou said. The company needs to conduct further exploration to produce a formal reserves estimate, according to its statement.

“The company will be able to fully leverage its mining expertise and to enhance commercial benefits,” the Shandong- based coal producer said.

Coal in Australia

Yanzhou, through its unit Yancoal Australia Ltd., said on Sept. 28 it may spend more than $1 billion buying additional mines in Australia as the global market turmoil makes assets cheaper. The Chinese coal producer last month agreed to acquire two units of Wesfarmers Ltd. for A$297 million, after purchasing Syntech Resources Pty Ltd., a coal developer, for A$202.5 million in August.

China Shenhua Energy Co., the listed unit of the nation’s biggest coal producer, fell 7.9 percent to HK$28.60. China Coal Energy Co., the second-largest producer, dropped 1.1 percent to HK$6.99.

--Editors: Ryan Woo, Amit Prakash.

To contact the reporter on this story: Guo Aibing in Hong Kong at aguo10@bloomberg.net

To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.


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