China Shenhua Energy Co Ltd, the nation's top coal producer, yesterday said it was negotiating with the Mongolian government to purchase a coal mine in the country.

Tianjin Port is processing a container of Shenhua Group, a major?energy company?[CFP]

The company will see some progress on its bid for the Tavan Tolgoi mine in Mongolia this year, company Vice-President Wang Jinli said yesterday.

The deal still depends on the Mongolian government's offer, he said, without elaborating.

Shenhua is among several miners including BHP Billiton and Peabody Energy that have expressed an interest in the Tavan Tolgoi coal mine.

The thermal and coking coal mine currently has small-scale coal operations. It is worth more than $5 billion, a source with Shenhua told China Daily yesterday.

Shenhua earlier this year started building a 4.7-billion-yuan railway line to transport coal and copper from Mongolia.

The 354-km rail link starts at Shenhua's Wanshuiquan station in Baotou city in the Inner Mongolia autonomous region, and ends at the border town of Ganqimaodu. It will be able to transport 60 million tons of coal and copper from Mongolia each year when completed by 2011.

The railway forms part of plans by China and Mongolia to develop the Tavan Tolgoi mine, sources with the company said.

Analysts said that Shenhua could improve its product mix by making some overseas mergers and acquisitions.

Last year, the company won a bid for a mining lease in Australia's Watermark exploration area, taking its first step in developing coal resources overseas.

The company has also invested in a coal and power project in the South Sumatra province of Indonesia, comprising a mine with an annual capacity of 2.3 million tons and a 300-megawatt coal-fired power plant.

Shenhua earlier said it would cut capital spending by 16 percent this year because of falling power demand amid the global financial crisis.

The company has earmarked 29.9 billion yuan for capital expenditure in 2009, down from 35.8 billion yuan a year ago.

Shenhua earlier said its commercial coal production rose 16 percent in the first quarter but sales were steady.

The company produced 51.8 million tons of commercial coal in the first three months of 2009, up from 44.6 million tons in the same period last year, it said in a statement. But coal sales rose just 0.5 percent to 57 million tons, as exports fell 13 percent in the three-month period, to 4 million tons.

(China Daily April 21, 2009)