China Shenhua Coal - InfoMine

OPERATION FOCUS
China Shenhua Coal
John Chadwick examines the largest producer in China, which is spearheading
the restructuring of China’s coal industry and growing at a phenomenal rate
China’s large coal mining groups are
developing apace to fill the production
gap left by the closure of some 2,650
small mines in 2006, with another 2,200 or so
to be closed in 2007. These small but dangerous
mines (the reason they are being closed)
produce about 40% of Chinese coal. Examples
of the difficulties of administering the mines of
China are that by the end of September 2006,
the Ministry of Land and Resources (MLR) had
investigated and dealt with 960 cases of
exploration without a license and 65,313 cases
of mining without a license (not just coal but
all mined products). Over 8,000 mines of all
types were shut down in that period! In
Shanxi, the total number of coal mines was
reduced by 30% and in Henan Province the
number of small coal mines was reduced by 62%.
In February, China’s MLR issued a notice to
suspend the application for coal mine exploration
licenses for 2007 and 2008, attempting to
“stabilize the market by avoiding the overcapacity
of the coal sector caused by overinvestment.”
Meanwhile, the State Administration of Coal
and Mine Safety (SACMS) indicated that it
would refuse any approval of new coal mines
12 International Mining MAY 2007
with capacity below 300,000 t/y, in the effort
to control the total number of small coal mines
below 10,000 t/y by 2010. SACMS also
requires the phasing out of all coal mines with
capacity below 30,000 t/y by 2007.
To compensate for the closure of small
mines, a great deal of investment is being put
into installing new longwalls. China Shenhua
Energy Co (CSEC) is the largest coal company
in the country with mines that produce up to
12 Mt/y from one longwall. Indeed, last July
CSEC claimed it had become the largest coal
company in the world, as measured by its sales
volume, 112.52 Mt for the first half of 2006.
Policies of the national coal industry
restructuring, which involves closing these
thousands of small mines where the accident
levels are so high, include adopting marketoriented
power tariffs and coal prices, and
encouraging the signing of mid/long-term coal
supply contracts. This is to be accomplished
while maintaining the overall supply/demand
balance. Establishing five to seven coal
enterprises, each with a production capacity of
above 100 Mt/y is key to this, along with
consolidation of the small coal mines over the
next three years. The government wants 75%
of total national production to derive from
large coal enterprises in 2010.
Other policies foresee the minimum coal
recovery rate rising to 40% nationally and
environmental cleanup around mining areas.
There is also the very important goal of
reducing the fatality rate on mines by 25%.
For the first half of 2006, the National
Development and Reform Commission (NDRC)
set minimum annual production requirements
of 300,000 t in Shanxi, Inner Mongolia and
Shaanxi provinces, 150,000 t in Northeastern
and Northern and Northwestern areas
(excluding Shanxi, Inner Mongolia and Shaanxi
provinces) and Henan Province and 90,000 t in
other areas of China. Smaller operations
should close.

China’s total run-of-mine (ROM) coal
production in 2005 was 2,190 Mt, and in the
first nine months of 2006 was 1,478 Mt. In
2005, what the MLR describes as ‘large and
super-large coalfields’ were discovered at
Qingyang (Gansu Province), Yuzhou (Henan
Province), Hengshui (Hebei Province), Changji
(Xinjiang Autonomous Region) and Yushe
(Shanxi Province). During the year a number of
new coal development projects were initiated
or came on stream, undertaken by CSEC,
Huaneng Group, Pingdingshan Coal Group,
Yanzhou Coal Group and others.
NDRC says total production will be capped
at 2,600 Mt/y by 2010, and it forecasts demand
in 2007 will rise 4.2% to 2,500 Mt, fuelling
about 70% of China's power output. “The key
missions are to control output, form big
players, consolidate small and medium-size
suppliers and eliminate those with low recovery
rates and poor safety,” the commission said in
its outline of the 11th Five-Year Plan (2006-
2010) for the coal industry. The 2,600 Mt/y
cap would mean limiting the average annual
rate of increase in production to 2%, which
seems unlikely with recent annual increases of
up to 11%. By 2010, these planners also
expect small mines to provide only 700 Mt
(27%), while large complexes produce 1,450
Mt (56%) and medium size mines produce
450 Mt (17%).
CSEC the leader
CSEC’s biggest production group, China
Shenhua Shendong Coal, exemplifies the huge
achievements of the company. Shendong’s
eight mines last year produced 107 Mt, but
only 12 years before, in 1994, there was
nothing. Last August Shendong’s Bulianta mine
(one of the world’s biggest underground
operations) produced 2.1 Mt of raw coal in the
month (2 Mt clean), breaking its own coal
production record. In 2006, it became the first
underground coal mine in the world to
produce over 20 Mt.
Despite its rapid growth, Shendong has not
forsaken environmental management and in
2005 was a winner as one of China’s best
enterprises for environmental protection. Even
more important, CSEC is a leader in mine
safety. For the first half of 2006, its fatality
rate/Mt was 0.028, compared with 0.6 for the
key state-owned mines and the national
average of 2.2.
As well as being the largest coal producer,
CSEC is also the largest export coal producer in
China, and has the largest reserves of quality
coal reserve in China. In 2005, CSEC’s
marketable coal reserves were 5,740 Mt. CSEC
owns dedicated rail lines and ports, being the
only coal company in China that owns and
operates a large-scale integrated coal
transportation network. It controls one of the
two primary dedicated eastbound coal freight
rail lines in China, which not only helps solve
the transportation bottleneck that faces
Chinese coal companies, but also provides
great synergy as well as transportation cost
advantages. CSEC also has a sizeable and
rapidly growing power generation business,
complementary to its coal business.
China’s Ministry of Railways is also working
to improve coal transport. Its priorities for this
year are the construction of rail lines for
passenger transport, coal transport and
inter-regional connections. It has allocated
RMB332 billion to construct new lines and the
purchase of rolling stock this year.
CSEC currently operates through four
mining groups – Shendong, Wanli, Zhunge’er
and Shengli – with a total of 21 operating
mines in western and northern China.
Shendong and Wanli are primarily underground
mines while the Zhunge’er and Shengli
mines are open pits. Shendong is the largest of
the 13 large-scale coal bases in China.
In 2005, CSEC's commercial (clean) coal
production exceeded 121 Mt, representing a
year-on-year increase of 20.1 Mt, or an
increase of 19.8%. Coal sales volume amounted
to 144 Mt, representing a year-on-year
increase of 17.45 Mt, or an increase of 13.8%.
In 2006, clean coal production rose over 15
Mt, to 136.6 Mt and sales rose to 171.1 Mt.
Exports were 23.9 Mt. During the year, CSEC
benefited from a steady increase in coal price.
Its average production cost was RMB57.3/t in
2005 and for the first half of 2006 it was
05/07
RMB56.3/t (when the costs broke down as
RMB10.3/t for raw materials, fuel and power;
RMB7.7/t for labour; RMB8.9/t for maintenance
and RMB14.1/t, others). Adding in transportation
costs, the totals were RMB131.7/t and
RMB125.1/t, respectively. Those same unit
costs including third party coal purchases were
RMB145/t and RMB149.8/t, respectively.
In 2005, CSEC’s raw coal production
accounted for 6.2% of national production and
12% of the national thermal coal production,
and its export sales accounted for 33% of
national exports.
CSEC plans to achieve a clean coal output
level of 170 Mt by next year, and to exceed
200 Mt by 2010. Longer term, the goal is 800
Mt by 2020. The annual rail capacity of CSEC
is targeted to reach 200 Mt/y and port
shipment capacity 140 Mt/y by 2008. Total
installed power generation capacity is to reach
20,000 MW by 2010.
Capital expenditure between 2006 and
2008 will be split between the coal mines
(40%), power generation (38%) and railways
and ports (22%). CSEC intends to invest
RMB30.4 billion in its coal mines, mainly for
technology upgrades, equipment replacement
and the construction of key projects such as
the Buertai underground mine in the Wanli
Coal Group and the Ha’erwusu open pit. It
was November 2005 that CSEC announced
the start of construction at the Ha’erwusu
A Bucyrus 8750 dragline like this is the first large
dragline of any manufacture to be sold into China. It
is also the first dragline to be entirely powered with a
Siemens AC static drive system and with a direct
(gearless) drive system for hoist and drag motions.
MAY 2007 International Mining 13

OPERATION FOCUS
mine, located in the Zhunge’er coalfield near
Hohhot, Inner Mongolia, and adjacent to
Heidaigou mine. Coal transport from
Ha’erwusu will use the Da-Zhun rail line, which
is one part of CSEC’s dedicated rail system.
The estimated probable reserves are some
1,585 Mt under the China national standard.
The coal characteristics are favourable for
power generation. The design capacity is 20
Mt/y and will include a processing plant.
As part of the Ha’erwusu development,
Terex is delivering a large number of Unit Rig
trucks. The trucks are being delivered and
on-going service and support provided by Terex
NHL Mining Equipment Co, a new joint
venture company established between Terex
and Inner Mongolia North Hauler Joint Stock
Co, located in Baotou, Inner Mongolia. The
joint venture company will also participate in
certain aspects of the fabrication and
component manufacturing for these trucks.
The Terex contract, valued at some $150
million, covers 18 MT4400AC 240-t class
dump trucks and 37 MT5500B 360-t class
trucks. They are to be delivered to the mine
between January and September this year. In
January 2006 Bucyrus International was the
successful bidder to supply four electric rope
mining shovels to Ha’erwusu. The public bid
release indicated that the scope of supply
would include four 55-60 m3 shovels.
Neighbouring Heidaigou is the second
largest open-pit coal mine in China. The mine
uses what CSEC describes as ‘the truck and
Joy Mining is delivering a 7LS shearer and the AFC for a new
longwall at Shendong’s Yujialiang mine. These machines will
operate on the longest face thus far developed in the world,
at 413 m.
14 International Mining MAY 2007
conveyor mining method’ but is in the process
of introducing dragline mining. It achieved
clean coal production of 19.77 Mt, with a
resource recovery rate of 98%, in 2005.
It was Bucyrus that won the Heidaigou
dragline contract which, the company said,
“marks the start of a new era in dragline
technology. The dragline, a model 8750 with a
90 m3 bucket, is the first large dragline of any
manufacture to be sold into China. It is also
the first dragline to be entirely powered with a
Siemens AC static drive system and with a
direct (gearless) drive system for the hoist and
drag motions.”
The mine also chose to have the productivity
enhancing, maintenance reducing “D3 ”(Direct
Drive for Draglines) technology. Stuart Cotterill,
Vice President and General Manager for China
Operations, highlighted the selection of
Bucyrus, “We are truly appreciative of the
approach taken by Zhunge’er in the selection
of this dragline following considerable
technical discussions and visits to several
mining operations. The recognition of the long
term benefits of the machine's features is a
tribute to their appreciation of the latest
technological advances.
Bucyrus and Siemens worked closely together
to make D3 a reality. The application of D3 is
made possible through the use of Siemens'
AFE (Active Front-End) AC electrical technology.
The maximum achievable production improvement
that can be gained by using D3 is a function of
the specific dragline configuration and its use
in the mine plan. An analysis of several existing
dragline operations has identified significant
productivity increases, well in excess of 20%.
Substantial productivity increases such as this
provide opportunities to further reduce mining
costs by optimizing overburden removal
methods. Tim Sullivan, President and COO of
Bucyrus commented at the time, “Thirty years
ago Bucyrus machines were the first western
manufactured shovels and drills to be sold to
the China market and many of those units still
operate today. We are extremely pleased to
follow that tradition by supplying the first large
walking dragline.
In November last year CSEC announced that
the construction of a new coal processing plant
at the Zhunge’er Heidaigou open-pit mine had
been completed. Now, the coal processing
capacity at Zhunge’er has been upgraded to
20-25 Mt/y, making it the largest such facility
in Asia.
Coal infrastructure
The RMB16.6 to be invested by CSEC in railways
and ports between 2006 and 2008 is mainly to
increase the capacities of the Shen-Shupo
and Da-Zhun railways, and to construct key
projects such as the Huang-Wan railway and
the Tianjin coal terminal. Most of the RMB28.6
billion in power generation spending is for
new capacity at the Ninghai, Huanghua,
Taishan and Jingjie power projects.
CSEC’s coal mine merger and acquisition
plans include gradually completing the acquisition

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OPERATION FOCUS
of Xi Sanju, Baorixile of Inner Mongolia, Ningmei,
China Shenhua Xinjiang, Hungyuchuan Coalfield,
Mengxi Coal Chemical, Wuhai Coking Coal
Chemical and the Jinshen project. Overseas,
CSEC is looking at coal business opportunities
in Vietnam, Mongolia and Australia.
The Shendong giant
The Shendong mines use fully-mechanized
longwall mining technology and centralized
production management and safety systems.
The longwall panels range from 240 to 360 m
(and now going to over 400 m) in width and
from 4,000 to 6,000 m in length. Among the
Shendong mines, there are three working
faces each with an annual output of at least
10 Mt. Shendong’s commercial coal production
rocketed from 47.1 Mt in 2002 to 94.95 Mt in
2005. With the commencement of operations
of Halagou’s longwall system at the end of
2004, Shendong had built five 10-Mt/y mines
– Daliuta, Bulianta, Yujialiang, Halagou and
Shangwan. In 2005, Shendong’s coal production
accounted for 78.2% of CSEC’s total output.
Mining efficiency at Shendong’s underground
mines has seen steady and significant
improvement. In 2004 it was 28,320
t/y/employee, and then rose to 29,813 t in
2005 and for the first half of 2006 was up at
31,502 t. Joy Mining is a major supplier to
Shendong, where its fleet includes 25 shearers,
24 AFCs and five PRS. The majority of the Joy
units are 7LS or 6LS shearers.
Joy Mining is delivering a 7LS1A shearer
and the AFC for a new longwall at Shendong’s
Yujialiang mine. These machines will operate
on the longest face thus far developed in the
world, at 413 m.
In January this year, Poland’s Kopex also
signed a $33.15 million contract for this
project that covers the delivery of Tagor (part
of the ZZM-Kopex Group) longwall
mechanized roof supports together with an
electro-hydraulic monitoring and control
system to be supplied by Marco, to be
completed by the end of October this year.
Shendong’s future plans include expansion
into adjacent areas to further enhance
exploration of resources in the southern area
of Shendong. The coal group is also promoting
its own equipment manufacturing and recently
developed the first Chinese built 40-t shield
mover, together with the Taiyuan Branch of
China Coal Research, which has now gone to
work underground in the Shendong mines.
CTL and more
CSEC is set to become the world leader in
coal-to-liquids (CTL). It started developing its
CTL programme at a pilot plant in Shanghai,
16 International Mining MAY 2007
which now has successfully achieved
sustainable output of diesel oil and gasoline
from a feed of 6 t/d of coal. This facility has
allowed CSEC to become comfortable with the
technology and to accumulate know-how on
cost control and operations management.
Shendong is developing the first commercial
project in Inner Mongolia. Project construction
was 50% complete at the beginning of 2006,
with the coal liquefaction reactors (each
weighing 2,250 t) successfully installed. Full
production is expected by the end of this year,
some 20,000 barrels/d (b/d) of oil from coal.
However, the plans go far beyond this one
plant. CSEC plans to operate eight liquefaction
plants by 2020. Together they will yield in
excess of 30 Mt/y of CTL oil, which is estimated
to be sufficient to replace over 10% of
China’s projected oil imports.
These CTL plans are not only fascinating in
their sheer size; they also involve very
interesting technology. Up to now, all the
world’s CTL has involved the Fischer-Tropsch
(FT) process, which requires coal to be turned
into synthetic gas, and then to be liquefied.
CSEC is using a process developed by Friedrich
Bergius, a decade before the FT process, which
takes the coal directly to liquids. It is certainly
not unproven as it was well used in Nazi Germany.
The China Coal Research Institute in Beijing
estimates the Bergius process yields significantly
more fuel from each tonne of coal. It expects
the process to capture more than 55% of the
coal’s energy, compared to just 45% for FT.
Basically; the bulk of the coal is pulverized and
blended with CTL oil. It is then exposed to
hydrogen and heated to 450°C.
The benefits of Bergius do not come
without some downsides. Direct liquefaction is
far more complex than FT, requiring separate
power and gasification plants. Also, a great
deal of recycling of oil, hydrogen and coal
sludge is necessary, between different sections
of the plant. CSEC is bravely taking a massive
engineering and economic risk with this first
$1.5 billion CTL plant. Thus far the signs are
promising. If CSEC has got it right, which
seems likely, it will be a great boost for China,
and for the world, as its success would surely
lead to more projects that can harness the
energy potential of coal so cleanly. Also, CSEC
says the cost of its synthetic oil will see it make
a profit at a price of about $30/barrel.
However, water could be the ultimate
spanner in the works of these CTL plans. The
Berguis process needs large quantities of water
and China has great water problems.
To be safe, the company is also working
with the established FT technology, in partnership
with both Shell and Sasol in northern China.
For example, in the Nindong coalfield – one of
13 major coal centres approved for construction
by the Chinese Government, Shenhua Ningxia
Coal Group (SNCG) and Shell are jointly studying
the technical and commercial feasibility of a
CTL plant with a production capacity of
70,000 b/d of oil and chemical products.
SNCG also, in January, signed a contract for
Siemens Power Generation (PG) Group to
supply key gasification equipment for a
coal-based dimethyl ether project with a
planned output of 830,000 t/y. Siemens PG
also signed a Memorandum of Understanding
to provide equipment for SNCG’s coal-based
propylene project that when completed will be
one of the largest in the world.
In June 2006, in Cape Town, South Africa,
Sasol signed a co-operation agreement with a
consortium led by CSEC for proceeding with
the second stage of feasibility studies to
determine the viability of an 80,000 b/d CTL
plant in Shaanxi Province, about 65 km west of
Beijing. Sasol signed a similar agreement for
another 80,000 b/d CTL project in the Ningxia
Hui Autonomous region, about 1,000 km west
of Beijing, with SNCG the previous day.
Sasol noted, “the drive towards coal for
energy security has been endorsed at the
highest levels in China and CTL conversion
technology, in particular, has been earmarked
as having the potential to reduce dependence
on the importation of crude oil and refined
products. Coal utilization technologies have
been flagged in the 11th Five Year Plan as an
area for policy intervention and support.”
Having produced more than 1,500 million
barrels of oil equivalent fuel in South Africa,
Sasol is recognized as the world leader in
producing fuel from coal, with an unparalleled
track record of more than 50 years of proven
commercial CTL experience. But, Sasol may yet
lose its crown to CSEC if its Bergius projects
take off.
The combined capacity of these two
proposed Sasol projects, each with a nominal
capacity of delivering 80,000 b/d of liquid fuel,
is roughly equivalent to that of Sasol’s existing
Secunda facility in South Africa.
Sasol reported, “the initial pre feasibility
studies confirmed all key drivers are in place
for establishing a viable CTL business in China
using Sasol’s low-temperature FT technology.
Each plant is expected to cost more than $5
billion. Should these projects go ahead, they
could be brought into operation as early as
2012. The second stage feasibility studies will
go into more detail in determining capital cost,
feedstock cost, water supply and market conditions
and will also determine most of the
major commercial and funding issues.” IM