In Aug 2007 and May 2009, Abterra successfully completed upstream acquisition of two coal mines, Zuoquan Yongxing Coal Mine and Shanxi Taixing Jiaozhong Coal Mine - 15% and 49% stake respectively. This is part of the group’s vertical integration strategy.
We recently visited Abterra’s coal mines and processing plant in Shanxi, China to understand its business operation and gather insights on future development.
Restructuring of coal mines in China. The site visit to China’s coal mining province, Shanxi, allows us to verify the reality of the much discussed restructuring of coal mines in China. From our conversation with local mine managers, we understand that the Chinese government is indeed hammering hard on illegal mining and proceeding in strictness to consolidate the mining industry.
Officials plan to reduce the number of Shanxi’s coal mines from 2,598 to 1,000 by 2010, shutting down unsafe and lowproducing mines. Small mines will be taken over by large mines and authorities are targeting an annual capacity of at least 3 million tons for the remaining coal mines.
During our visit, we understand from management that Taixin Jiaozhong Coal Mine, with annual production capacity of 150,000 metric tons (MT), is in the process of obtaining final approval from the authorities on the rezoning and upgrading of their production facilities to 900,000 MT. Similarly for Zuoquan Yongxing Coal Mine, it will be upgraded from the current 900,000 MT to 1.5 million MT. Both expansions are to be completed by end 2010, in line with official’s timeline.
We believe that more is to come. Given authorities’ determination to restructure and Abterra’s internal target to grow, we could potentially be seeing more mine acquisitions from Abterra within the next one to two years.
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