I can't remember the last time investors in the west got excited about coal mines. Nevertheless, Chinese investors who have snapped up shares in China Shenhua Energy's IPO, the largest IPO ever in China, clearly think the company has stuck gold — black gold.
China Shenhua Energy, the country's largest coal producer, attracted a record 2.7 trillion yuan in subscriptions for its IPO, so surpassing the 2.3 trillion yuan received by China Construction Bank (CCB) in its IPO last week.
Needless to save the shares were heavily oversubscribed and China Shenhua Energy raised 66.6bn yuan by pricing the shares at the top of the estimated range. The new shares account for 9% percent of the company's capital.
Rival China Coal Energy, the country's second-largest coal producer, is now awaiting regulatory approval for its IPO.
China is the world's biggest producer and consumer of coal, which accounts for two thirds of the country's total primary energy consumption. It became a net importer of the fuel for the first time this year, which has pushed coal prices to record levels on international markets.
Analysts expect Shenhua Energy's net profit to rise more than 20% annually in the next three years, given China's strong demand for energy and the dominant role played by coal in China's energy strategy, despite the growing international concern about global warming and the pollution caused by coal-burning power stations — see this New York Times story, for example.
Coalbed methane offers a potentially “greener” method of turning coal into energy and this is an area where China is making some progress.
China United Coalbed Methane has found a CBM field in Hancheng, northwestern China's Shaanxi province, with proven reserves of 5bn cubic metres. The field is expected to have an annual capacity of 150m cubic meters.
In April, China United Coalbed signed a production sharing contract with Hong Kong's Longmen Hui Cheng Investment covering joint exploration for coalbed methane in the Hancheng block.
China's coalbed methane output is expected to reach 10bn cubic metres by 2010.
More on CBM in these stories.