(Agencies)
Updated: 2007-10-29 11:00

CHARLESTON, W.Va. - As China's appetite for coal is booming, American investors and businesses are cashing in.

American pension and mutual fund money is being invested in the Chinese coal industry.

The biggest Chinese coal company is China Shenhua Energy Co. of Beijing, which produces about 170 million tons of coal a year from 21 mines and builds power plants. While about 80 percent of the company's stock is owned by Shenhua Group in Beijing, the rest of its shareholders reads like a who's who of US investors: Fidelity Investments, OppenheimerFunds, Merrill Lynch, even the Teachers Retirement System of Texas.

The performance of Shenhua's Hong Kong-listed shares explains why US investors love Chinese coal. Shenhua gained almost 65 percent from July through September, while Peabody -- a favorite of analysts who follow US coal companies -- lost more than 3 percent over the same period. Shenhua's initial public offering in Shanghai in September raised $8.9 billion, a record for Chinese mainland.

Along with investors, US coal companies are salivating over China because of the promise of things they haven't seen much of lately: Rising prices and the opportunity to increase exports.

Massey Energy Co. of Richmond, Va., and International Coal Group of Scott Depot, W.Va., recently told investors they plan to increase metallurgical coal production to take advantage of rising world demand caused by China's transition from a coal exporter to an importer this year. And St. Louis-based Peabody spent US$1.51 billion last year to buy its way back into Australia, a country it left several years ago, to export to China.

"In general, they're doing a very smart thing," said Mike Tian, an analyst with independent investment research company Morningstar. "That's where the money is."

The most recent US government data illustrates the lure of China clearly. Exports from the US -- the third-largest exporter of metallurgical coal in the world -- were up 25 percent from 2002 through 2006, and an estimated 19 percent just through July.

"There will be opportunities for US metallurgical coal companies to export more," said Jim Truman, who follows the coal industry for consulting firm Hill & Associates.

Iron ore pellet maker Cleveland-Cliffs Inc. recently jumped into the coal business, buying West Virginia and Alabama mine operator PinnOak Resources. Cleveland-Cliffs said the US$610 million purchase is squarely aimed at exporting metallurgical-grade coal. Peabody has gone a step further and opened a business development office in China.

The National Mining Association's Leslie Coleman said both companies are positioning themselves to be bigger players in the metallurgical coal businesses because of the demand coming from China and the rest of Asia. Metallurgical coal is used to make coke, a fuel.

Faced with increasing opposition from environmental groups, US coal companies have begun pushing technology designed to reduce pollutants, including the greenhouse gas carbon dioxide. They've also been working with electricity producer China Huaneng Group on FutureGen. The planned US$1.5 billion experimental coal-fired power plant would serve to test carbon capture and underground storage, among other things.

Cal Kent, who follows the industry at Marshall University's Center for Business and Economic Research, sees the beginning stages of US coal companies trying to turn into global companies.

"Where markets are growing, you want to be near them," Kent said. "It's generally good in a global market to be a global company."