Coal mining – Problems and potential

China, the world's largest coal producer, accounts for one-third of the world's total production.  However, it has only exported approximately 30 million tons of coal annually for years, a mere 6 per cent of the world total.  The average coal production a year is around 1 billion tons every year, leaving a total of over 100 million tons unsold annually.  Four-fifths of domestic coal mines failed to generate profits last year.

Occupational hazards are reported at over half a million industrial plants and mines, and more than 25 million employees are exposed to dust, noise or toxic chemicals.  Despite the huge extent of the problem, preventive measures have been slow in coming.  Steps taken so far include the closing of 12,000 small mines and the upgrading of safety equipment at 81 mostly large state-owned coal mining companies.

Last year, 17 Chinese miners died for each 1 million tons of coal extracted from small mines and just under two deaths were recorded for every million tons at large state-owned mines.  By contrast, the United States, the largest coal producer after China, had just 0.039 deaths per million tons. Australia had a total of just five coal mining deaths last year.

In a bid to alleviate the coal glut on the domestic market, China is continuing to support coal exporters by extending its charge-slashing policy on exports for another two years.  These policies include the reduction of port charges, and exemption from railway construction tolls on four major transportation routes, including the railway from Datong, the major coal production base in North China's Shanxi Province, to Qinhuangdao, the major port in Hebei Province.

Growing coal exports

Increasing exports is vital for the coal mining industry, which has been seriously affected by overproduction for years. 

China is expected to export a record amount of 85 million tons of coal this year, about 27 million tons, or 31 percent, more than last year, according to coal industry officials.

Experts attribute China's rapid increase in coal exports to increased coal import by the Republic of Korea and Japan from China and the policy made by the Chinese government to encourage coal exports.  Improved quality of the exported coal has also contributed to the increase.  After years of redundancy reduction and closing down thousands of small coal mines, China's coal mining industry has turned deficit into profit for the first time in years.

Sources said the China National Coal Import and Export Corp. whose exports accounted for two-thirds of the national total, its exports increased by 55 per cent, 11.1 million tons, and expects to export 47.4 million tons this year, compared with 39.2 million tons in 2000.

The Latest Moves

Joint venture of Rio Tinto and Baosteel:

Rio Tinto has forged a deal with China’s largest steel maker, Shanghai Baosteel Group Corporation (Baosteel), to form an unincorporated iron ore joint venture operation in Western Australia.

The agreement has been reached by Hamersley Iron (100% owned by Rio Tinto) in Shanghai on 20th December with Baosteel.  Under the agreement, Hamersley will supply Baosteel with 200 million tonnes of products, averaging ten million tonnes of ore per year over the 20-year life of the joint venture. Hamersley will hold a 54 per cent equity share with the remaining 46 per cent held by Baosteel.

Initial capital outlay by the joint venture will be A$124 million (US$64 million) to develop a new mine, 10 kilometres east of the Paraburdoo mine in the Pilbara region of Western Australia.

“The joint venture with Baosteel continues Hamersley’s tradition of working in partnership with major Chinese customers for the mutual benefit of both sides. We are delighted to have secured this agreement in the fastest growing market for imported iron ore. The joint venture will consolidate Hamersley’s position as the leading supplier of iron ore to China,” according to Mr Chris Renwick, Chairman of Hamersley Iron.

Investment Opportunities

Gold Mining

China will bring in more investment and up-to-date technology from abroad to mine for and collect its gold resources, according to a senior Chinese trade official.  The country will open more fundraising channels to help pay for the mining of gold and adopt a multi-outlet investment system. 

In a process of establishing a gold market in the country, adapting to the global gold market as well as the influence of the operation, laws and industrial framework of the global gold market on the reform of its gold market, China will shift its emphasis of mining for gold in the east and central areas to the western part of the country. 

Opportunities in China's Western Region

Efficient utilization of mineral resources is playing an important role in the development of China’s western region.  At the same time, the Chinese government is encouraging, yet regulating foreign investment to participate in the process.  For foreign investment to benefit from the opportunities that created by the mining industry, understanding of the Chinese government policy in the region is crucial and fundamental to move forward and monitor the future development.

Mining rights in the west that are created by State-funded prospecting and the price for the mining rights can, if they meet the relevant conditions, be partly or wholly turned into State capital of the State-owned mining enterprises or land prospecting units.  Application for tax exemption or a fee waiver in respect of use of prospecting or mining rights can be made for prospecting and mining minerals resources in the western regions. 

Foreign invested prospecting, if not for oil and gas, will have the fee for using the prospecting and mining right waived for one year and halved for two years, in addition to all the other relevant preferential treatment specified by the State.  Foreign capital engaging in mining resources other than oil and gas as listed in the “Investment Directory for Foreign-Invested Enterprises” will be exempted from paying the mineral resources compensation fee for five years.   The Chinese Government is also extending the scope for foreign investment.  Resources mining is to be included as areas to attract foreign investment. 

Potential projects attracting direct foreign investments

There are in fact a series of major projects that have been put forth by the western region for attracting direct foreign investments.  Examples of projects concerning or related to the industry with total investment exceeding US$100 million include the following:

• Hong’en coal mine gas prospecting in Yunnan;
• Coal mining at Zhongling in Guizhou;
• Underground mining pipe-laying project at Dahong Mountain, Yunnan; 
• Natural gas project in Qinghai;
• Titanium white project at Jinhong, Sichuan