By Kishori Krishnan Exclusive To Coal Investing News

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China is in the news again. And this time with coal.

Chinese coal trader China Qinfa Group is planning an US$ 81 million (HK$630 million) Hong Kong IPO, for investment in new production facilities, sources said on Tuesday. The company is set to sell 250 million shares at a range of HK$2 to HK$2.52 per share, representing a 2008 price-to-earnings multiple of 7.5 to 9.5, the sources with direct knowlege of the deal said.

The Chinese coal trader plans to kick off its public offering on Friday with trading in shares expected to begin on July 3. China Everbright Capital is handling the deal, sources added. China Qinfa is involved in the purchase, processing and transport of coal in the mainland, according to the company’s website.

The Hong Kong IPO market has shown signs of revival recently as investor appetite for risk has improved on a stronger stock market.

Meanwhile, China Shenhua Energy Co, China’s top coal producer, expects Japanese and South Korean clients to pay at least as much as Chinese customers for this year’s annual contract prices, its board secretary, Huang Qing, said on Monday.

The firm plans to invest more than 400 billion yuan (US$ 58.53 billion) over the next decade in facilities to convert coal to oil, methanol and gas, the Xinhua news agency reported. Its target is to have the capacity to convert 100 million tonnes of coal into about 30 million tonnes of oil and chemical products by 2020, it added.

A coal-to-liquids plant of Shenhua Group in Inner Mongolia went through a successful trial run earlier this year, producing naphtha and diesel, among other products.

China last year suspended all but two coal-to-oil projects because of high investment risk. China, the world’s largest coal producer and consumer, a few years ago began encouraging coal-to-oil projects to help ease its dependence on imported crude oil.

Earlier Chinese media reports had said Shenhua had offered lower prices to overseas clients, but Huang denied this.

“We treat our domestic and overseas clients fairly. It’s impossible that we would offer lower prices to overseas clients than domestic clients,” Huang told Reuters. “The negotiation has not concluded yet and therefore the price is still unknown.”

Huang also said a local newspaper report that Shenhua expected the term price with Japanese and Korean clients to be 540 yuan, or $79, a tonne was wrong.

“Overseas clients are still negotiating what grades of coal they would buy. One can’t simply take the price, 540 yuan, that we’ve reached with domestic clients on annual supply contracts for coal with 5,500 kcal/kg at ports, divide by 6.8 and come to the conclusion that we wanted to sell to overseas clients at $79. It’s definitely wrong.”

Huang added that he was unaware when the negotiation would end.

All-stock deal

If you are under the impression that coal prices have slumped and demand for electricity and steel — the two biggest customers for coal — has dropped off, here’s some good news.
Alpha Natural Resources Inc (ANR.N) said Tuesday it will acquire Foundation Coal Holdings Inc  (FCL.N) for $1.5 billion in an all-stock deal to create the third-largest U.S. coal producer, signaling an expected wave of consolidation in the fragmented industry.

The deal also assumes US$530 million of Foundation’s debt.

Both sides said the strategy behind the acquisition is to position the merged company to benefit from an expected rebound in demand from steelmakers and power plants for coal.

Alpha offered a 35 per cent premium, based on Monday’s closing price, for Foundation in what was seen as the first in an anticipated spate of deals to allow smaller players in the industry to better compete.

Foundation Coal’s stock was up $4.39 or 18.9 per cent at $27.63 on the New York Stock Exchange after reaching $31.53 earlier in the session. Alpha was down $2.36 or about 8.2 per cent at $26.50.

“It is unequivocally positive for Foundation as they are very hedged on production,” said analyst Jeremy Sussman of Natixis Bleichroeder. “They would have had a hard time with potential upside, even if (coal) prices rise.”

Sussman said Alpha would benefit from greater production and geographic diversity by acquiring coal deposits in the western United States as well as in the Appalachians.

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