Shougang Fushan Defends Coal Mine Acquisitions, Higher Margins

Shougang Fushan Resources Group Ltd. (639), a Chinese coking coal producer partly owned by Shougang Corp., defended its acquisition of coal mines and higher margins and said the company follows good corporate governance.

The acquisition was well received by investors at the time and the higher margins are due to its superior quality of coal, Chairman Li Shaofeng said today by telephone. His comments followed a report this morning from U.S. short seller Glaucus Research Group California LLC that said Shougang Fushan overpaid a related company for the mines and inflated profit margins.

“We don’t know where the information in this report came from and they never had any interaction with the company,” Li said. “The listed companies under Shougang Corp. are responsible to shareholders and abide by the law.”

Shougang Fushan shares fell 3.1 percent in Hong Kong trading to HK$2.53, the lowest in six months. Corporate governance of Chinese companies has come under scrutiny after short-sellers leveled allegations of financial fraud against Sino-Forest Corp. (TRE), Winsway Coking Coal Holdings Ltd. (1733) and Chaoda Modern Agriculture Holdings Ltd. (682)

The report published by Glaucus Research on its website named Matthew Wiechert as its research director. Short investors bet against a stock by selling borrowed shares with the expectation of repurchasing them at a lower price. Long investors buy shares betting the price will rise.

The trading volume of Shougang Fushan shares was almost six times the three-month average, according to data compiled by Bloomberg. Shougang Corp., the sixth-largest steelmaker in China by production, owns 29.4 percent of Shougang Fushan, according to the website of the Hong Kong stock exchange.

Shougang Fushan “will continue to expand production and scale and reflect the advantage of having Shougang Corp. as a major shareholder,” Li said. The company is seeking to buy coking coal assets and hasn’t secured any so far, he said.

To contact the reporter on this story: Michelle Yun in Hong Kong at myun11@bloomberg.net

To contact the editor responsible for this story: Rebecca Keenan at rkeenan5@bloomberg.net

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