China Coal Energy, the country's second-largest coal miner, said yesterday that it plans to purchase a coal mining company from its parent group for 1.3 billion yuan.

The target company, Shanxi Dongpo Coal, like China Coal, is owned by China National Coal Group Corp. And Shanxi Dongpo Coal is expected to start mining in the second half of this year with an annual production capacity of 1.5 million tons, and it plans to double its capacity.

At a time when the domestic market's growing hunger for energy urges coal producers to expand their capacities while the government strictly controls the coal prices, China Coal's takeover of its sibling group is an effective move, analysts said.

"Nowadays, the country's growing thirst for energy makes coal miners strive to lift production," said Dick Lee, a corporate finance officer at Phillip Securities.

"However, it might come at too high of a cost for the coal companies, given that higher production doesn't guarantee better profitability due to the price controls by the central government," he said.

China Coal said the purchase will help increase coal reserves and production, strengthen its competitiveness and generate profitability.

China Coal produced 90.5 million tons of coal in 2007, up 14.5 percent from a year earlier, according to its annual report.

Lee said the purchase is also in line with a central government policy that encourages big energy companies to merge with their small rivals in an effort to save energy and reduce carbon dioxide emissions.

"It is an inevitable trend that small coal miners will be either closed or bought by their big-scale competitors," he said.

Through mid-April, China had closed 83 small, coal-fired generators with an aggregate capacity of 4.7 million kilowatts this year, according to the country's top industry planning body, the National Development and Reform Commission (NDRC).

The closed capacity accounted for 36 percent of the 13-million-kilowatts target set this year to save energy and reduce greenhouse gas emissions, the commission said last week.

The closures will help China save 7.1 million tons of coal and reduce carbon dioxide emissions by 14.2 million tons annually, since the closed capacity will be replaced by larger, more efficient plants.

China is executing its plan to close small, energy-intensive coal-fired units - with a total capacity of 50 million kilowatts - between 2006 and 2010. The closed capacity will save 14.5 million tons of coal, cut sulfur dioxide emissions by 247,000 tons and reduce carbon dioxide emissions by 29 million tons annually.

(HK Edition 04/29/2008 page2)