09/27/2005, 00.00
CHINA
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Chinese mines to open to foreign investments

The world's largest coal mining company is interested in Chinese coal. Without radical overhaul of safety measures, thousands of mines will close.

Beijing (AsiaNews/SCMP) – Foreign investments can help China improve safety in its coal mines and Peabody Energy, the world's largest private coal company, plans to invest in mainland mines and coal firms to establish itself as an importer and exporter in the Chinese market.

"Our initial goals are to improve our understanding of the Chinese coal and energy markets and foster better relationships with government agencies and potential business partners," Peabody chief financial officer Richard Navarre said on September 20. "Long term, we are looking to invest in assets, probably through joint ventures."

And the timing is promising since the Chinese government is shutting down many of the country's 28,000 coal mines for failing to respect safety regulations.

Chinese collieries are the most dangerous in the world and deadly accidents are frequent. This year alone, 60 per cent of all accidents occurred in mines set to close because of inadequate safety measures. For instance, in Guangdong, local authorities announced last week they would close all mines in the province following the Daxing disaster that killed 123 miners last month.

Many small mines have been kept open because of nationwide brownouts and surging demand for coal-fired energy, which makes up 75 per cent of China's total electricity generation.

Along with a 10 per cent increase in mainland coal production in the first half of this year, imports continued to rise, especially from Australia.

Richard Whiting, Peabody head of sales, marketing and trading, said Chinese coal demand should grow 70 to 80 per cent in the next 15 years, while United States demand should increase about 50 per cent.

"Because of coal's abundance and low cost, global consumption has risen 25 per cent in just the last three years while natural gas and oil have not kept up," Mr Navarre said.

Most of Peabody's 9.6 billion tonnes of coal reserves are in the US, with some in Australia and Venezuela. But it plans large scale investments in China if it is allowed to take important stakes in reserves and possibly get a larger share in coal mining operations. The company is also looking to invest in Mongolia.

The experience of Occidental Petroleum in the 1980s is however a cautionary tale for Peabody. In 1985, Occidental bought a 25 per cent stake in China's largest open-cast coal mine at the time. After experiencing massive losses, the company eventually sold its share back to the Chinese government sustaining losses for the same amount.

But Peabody executives are unfazed and remain optimistic since China is looking for new capital and emission-reduction technology to reduce pollution.  (PB)

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