Shanxi Coal Mergers on Track, Output Yet to Rise

SHANGHAI, Jan. 6 -- Coal industry consolidation in China's Shanxi Province, the country's top coal producing region, is on track but may not lead to a boost in output any time soon.

Ninety-eight percent of merger and acquisition contracts have been signed between small mines and bigger mining companies, and more than 80 percent of mining licences have changed ownership, a statement on the website of the National Development and Reform Commission said on Tuesday (www.ndrc.gov.cn).

The number of coal mine shafts has been cut down to 1,053 from 2,600 and more than 70 percent of the shafts have annual production capacity over 900,000 tonnes, the statement said.

Small mines with annual capacity lower than 300,000 tonnes have all been phased out, it said.

Shanxi aims to cut down the number of mines to 1,000 by end of 2010 and to 800 by 2015. It also plans to increase annual production capacity of individual shafts to 900,000 tonnes by 2010, and to 1.2 million tonnes by 2015.

Analysts said completing the task of merging the mines does not necessarily mean Shanxi's coal production will jump soon.

"Once the contracts are signed, mines still need to go through technical upgrading in order to return to production. In some cases, it probably only takes 2 to 3 months. In others, it may take up to a year and a half," said Wang Ye, an analyst at CITIC Securities.

Some analysts expected Shanxi's coal production not to fully return until next year.

"Not even half of the small mines have started negotiations with their buyers on details of the deals yet," said an analyst with a large fund house, who declined to be named citing company policy.

"But they are done deals -- small mines have few options. It's just going to take some time for buyers and small mines to close the deals and eventually start producing coal again, which might be as late as end of 2011."

Shanxi produced 656 million tonnes of coal in 2008, and was expected to produce about 620 million tonnes in 2009, down 5 percent on year.