Li Xiyong: coal to stay top of energy heap in China

Li Xiyong is so confident of the future of Australia’s coal industry that he is investing $2bn in it.

Li Xiyong leads workers through a Yancoal mine.

Li Xiyong is so confident of the ­future of Australia’s coal industry that he is investing $2 billion in it.

He is also so assured of the industry in China that he told The Australian the size of the coal market there would not fall in 30 years.

China is the largest producer and consumer of coal in the world, and this year is relying on coal for 60 per cent of its energy.

This proportion will fall as other energy sources, including renewables, grow. But overall ­energy demand will also keep increasing.

The country appears set to rely on coal for its main source of base­load energy for several ­decades.

It is Li’s job to make sure that his company is efficient and environmentally alert, with access to strong sources of supply, to join China’s top four coal corporations — and is the most internationally focused of those leading coal companies.

He is the executive chairman of Yankuang, a state-owned enterprise in Shandong, a province of 92 million people and the home of Confucius.

This holding company owns about 57 per cent of Yanzhou, a coalmine operator listed in Hong Kong and Shanghai. Yanzhou in turn owns 65 per cent of Yancoal Australia, which is listed on the ASX. Yankuang operates 20 Chinese mines.

Between them, the companies employ about 100,000 people. About a third of its annual production of 100 million tonnes comes from Shandong, a third from mines in Shanxi and Inner Mongolia, and a third from Australia.

Li, speaking at his company headquarters in the industrial city of Jining, also chairs Yanzhou and Yancoal Australia, the latter running 10 mines in Queensland and NSW including the Hunter Valley mines it bought from Rio Tinto three months ago.

Yancoal will run the Hunter Valley Operations mine as a joint venture with Glencore, which bought into the operation after losing its own bid to acquire the Coal & Allied assets from Rio.

After fully consolidating the new mines, Australian production will become the largest of the company’s three main areas of operation.

He praised Yancoal’s “very excellent” Australian management team, and “highly qualified workers”. And the company had built a strong relationship with its Australian shareholders after operating there for 10 years.

Yankuang’s revenue in the first nine months of 2017 was about $32bn, 42 per cent up on the same period the previous year, returning a net profit of about $400 million, 70 per cent up on 2016.

Li has worked for 36 years in the industry, his experience ranging from coal production and safety controls — an area where the Chinese industry has made extraordinary progress, albeit from a shockingly poor base — to enterprise management.

Aged 54, he is a graduate of Shandong University in applied engineering and of the elite Nankai University in Tianjin with an MBA.

He said the initial motivation for investing in Australia was to take and test Yanzhou’s technology there, especially its long-wall mining system that it believes to be highly efficient as well as fireproof, potentially solving one of the biggest hazards for Australian underground mines.

“Introducing our technology in Australia,” he said, “enables us to demonstrate that it is the most advanced.”

He said Yankuang targeted Australia because the scope for investment in China had nearly dried up, while the reserves in Australia were very rich. Also Australia was well regulated, its political system was steady, and it had in place an “almost perfect coalmining production system”.

Li said other Chinese investors had contacted Yanzhou to ask advice about investing in Australia.

He said Yankuang was already transferring to its wider operations some of what it had learned from its activities in Australia.

Li said: “From my own perspective, the coal industry still has a very good future. It remains the safest and most reliable source of energy.”

China is using about 3.7 billion tonnes of coal annually out of global production of 8 billion tonnes.

“Other types of energy including solar will now grow faster, but overall that coal figure will not come down significantly,” he said.

The country was also enforcing the clean use of coal. “As technology improves, we believe it will become a blue-sky energy, on a par with natural gas.

“A revolution is under way in China to change the way coal is used — not a revolution to kill coal itself.”

If China’s economic growth was to persist at 6.5 per cent per year, as the central government planned, then demand would double in a decade, Li said — requiring a massive increase in energy.

He also highlighted the rapid growth in energy demand in South Asia, especially India. “Given Australia’s closeness to Southeast Asia, as well as India’s economic rise, its coalmines need not be concerned about markets,” he said.

In recent years there had been two revolutions in the coal industry in China, he said: greatly improving safety for the workers, and in “clean coal” generation, about which he was “very excited”.

Power stations were being developed in China whose emissions were no greater than those from natural gas, but whose fuel costs only about 20 per cent of the price, and less than a 10th of the price of the petrol equivalent.

Li said he anticipated a good partnership with Glencore, “based on management and resource co-ordination”.

The exchange visits and study teams travelling between Australia and China in both directions would now include managers and workers at the newly acquired mines, he said.

He said that Shandong had a history of especially friendly relations with Australia, including a number of sister cities. It also has a sister state relationship with South Australia.

“And as a coastal province, the outlook of our people has always been an open one.”