Recently, Meijin Energy Co., Ltd. (stock code: 000732.SZ) announced significant developments regarding its acquisition of three coal mining enterprisesThe announcement revealed that the company intends to acquire a 51% stake in Lin County Jinyuan Coal Mine Co., Ltd. (referred to as "Jinyuan Coal Mine"), a 49% stake in Shanxi Fenxi Zhengwang Coal Industry Co., Ltd. (referred to as "Zhengwang Coal"), and a 49% stake in Shanxi Fenxi Zhengcheng Coal Industry Co., Ltd. (referred to as "Zhengcheng Coal"). This strategic move marks a pivotal step in Meijin Energy's ongoing efforts to enhance its position within the coal industry.
It is noteworthy that all three coal companies to be acquired are currently owned by Meijin’s controlling shareholder, Meijin Energy Group Co., LtdThe total verified resource reserves of these companies approximate 959 million tons, illustrating the significant addition Meijin Energy aims to make to its resource base.
In a recent interview with reporters, a representative from the securities department of Meijin Energy emphasized that this acquisition will depend on the specifics outlined in the official announcementThe official statement highlighted the deal as an opportunity for Meijin Energy to solidify its market position, bolster its core competitiveness, and realize a fully integrated industrial chain spanning "Coal-Coke-Gas-Chemicals-Hydrogen." The acquisition is anticipated to enhance the company’s quality coking coal reserves and fortify its fundamental business development.
Meijin Energy specializes in a range of activities including coal production, coking, and natural gas operationsThere has been a noticeable trend of increasing activity in terms of coal resource acquisition as part of the company’s broader strategic initiatives aimed at expanding its coal footprint.
On October 9, 2024, Meijin Energy unveiled plans to use share issuance to facilitate the purchase of stakes in the aforementioned coal enterprises
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The primary business of these targeted companies involves coal mining and sales, placing them closely in line with Meijin Energy’s upstream operations, thus presenting potential synergiesIt’s significant to note that the primary products offered by these firms are high-quality coking coal varieties, highly valued for their resource reservesSpecifically, Jinyuan Coal Mine has a verified resource amount of 790 million tons, Zhengwang Coal has 86 million tons, and Zhengcheng Coal has 82 million tons.
The announcement also detailed that the approved mining capacity of Jinyuan Coal Mine stood at 6 million tons per year; however, it is still under construction and has yet to commence operational productionThe profits recorded over the past two years were modest, amounting to 250,000 yuan, 20,000 yuan, and 40,000 yuan, reflecting minimal operational incomeIn contrast, Zhengwang Coal has reported an annual coking coal production of 1.2 million tons, while its net profits over the past two years showed a decline with figures of -164 million yuan, -98 million yuan, and a modest 4.7 million yuan in profit for the first half of 2024. Similar circumstances apply to Zhengcheng Coal, which is also at the construction phase with an approved mining capacity of 900,000 tons per year, reporting negligible profits in its recent financial history.
According to Guohai Securities, Meijin Energy plans to acquire the above stakes through a public share issuance, with an estimated price of 3.61 yuan per shareThis infusion of assets is expected to significantly expand coal reserves in its portfolio and further enhance the synergies within the coal-coke business.
Researcher Hong Qianjin from Zhongyan Puhua indicated that the acquisition of coal assets from the controlling shareholder is not just a strategic boost to resource reserves but also vital for enhancing the company's core service capabilities and competitive advantages in the long run.
Meijin Energy affirmed in 2024 that, if everything goes smoothly, the integration of the three coal mines could be completed by 2025, with an aim for all operations to be fully formalized and reported in the financial statements accordingly.
Meijin's acquisition is representative of a broader trend in the coal industry, where multiple publicly-traded coal companies are actively seeking opportunities to acquire new mining assets
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For instance, on June 6, 2024, Lanhua Kechuan (stock code: 600123.SH) announced its intention to acquire coal resources through market-driven means, intending to raise no more than 30% of the company’s most recent audited total assets or 50% of its net assets in acquisitions over a continuous 12-month periodShortly thereafter, Lanhua Kechuan entered a bidding process for a 51% stake in China Coal Science & Industry's Qinnan Energy Company to boost its coal resource base.
Additionally, on August 22, 2024, Huayang Co., Ltd. (stock code: 600348.SH) publicly disclosed that it had successfully obtained exploration rights for coal resources in the Shouyang county of Shanxi province, costing 6.8 billion yuanThis exploration area spans approximately 73.2245 square kilometers, with a reported coal resource amounting to about 629.905 million tons.
Hong underscored that coal is a non-renewable resource, and over the years of continuous extraction, its reserves have gradually diminishedThis poses an imminent challenge, as resources undergo depletionTherefore, acquiring new coal sources to supplement existing reserves is crucial for ensuring sustainable operations and extending the life cycle of companies in the coal sector.
According to Hong, resource reserves are a core competitive advantage in the coal industryBy acquiring coalmines, companies can enhance their resource inventory and production capacities, thereby consolidating their positions in an increasingly competitive landscape, improving their ability to withstand market fluctuations and evolutionary challenges in the sectorCompanies endowed with superior coal reserves gain an upper hand and are better poised to navigate both market volatility and industry transitions.
Furthermore, Zhao Li, a coal analyst with Zhuochuang Information, pointed out that while coal prices have continued to trend downward year-over-year, the coal sector remains a critical underpinner of domestic energy stability
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Given that current market coal prices still exhibit significant profit margins compared to pre-2020 levels, coal enterprises are likely to continue their pursuits in acquiring coal mines.
Meijin Energy highlighted that coking coal is not only a staple of China’s steel industry but also a strategic resource that transitions coal from a mere fuel source to an industrial raw material, a constituent of materials, and high-end productsBy deploying market-oriented strategies to allocate scarce coking resources to capable enterprises, it aids in optimizing resource configuration and facilitates the efficient, concentrated, and clean development of coking coal.
Looking ahead, the company aims to solidify the conducive dynamic of maintaining "stable and reliable power, securing foundational oil and gas, coal as a ballast, and a high-quality leap in new energy." They have laid out plans to establish a reserve system for coal production capacity by 2027, facilitating the orderly approval and construction of several capacity-reserve coal mines, thereby creating a sizeable, deployable capacity reserve.
In light of this, Hong articulated that the national policy framework aiming to enhance environmental sustainability and drive transformational development in resource-dependent regions, along with relaxed regulatory controls on coal mining licenses and strict construction requirements, presents abundant opportunities and favorable conditions for coal corporations looking to expand their resource bases through acquisitions.
Despite Meijin Energy's proactive stance in expanding its coal resource holdings, it faces a contrasting performance outlook constrained by declining market prices.
The company’s performance outlook for 2024 suggests a projected net loss attributable to shareholders of between 800 million and 1.15 billion yuan, a stark decline from its profit of 289 million yuan in 2023. The Q3 2024 financial report revealed revenue of 14.37 billion yuan for the first three quarters, a year-on-year decline of 3.2%, and a net loss attributable to the parent company of -650 million yuan, reflecting a staggering decrease of 261.3% year-on-year, with a similarly worrying drop in net profit after deducting nonrecurring items.
It was stated by Meijin Energy that this performance downturn largely stems from the overall decline in market prices for coal and coke, compounded by challenges faced within the downstream steel industry impacting revenue and profitability.
Moreover, Kaiyuan Securities noted that coke prices experienced a significant depreciation throughout the first three quarters of 2024, adversely impacting coal enterprises’ profitability
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