Occidental Signs Final Contract in China Coal Mine Deal

After more than five years of negotiations with Chinese officials, the Occidental Petroleum Corp. signed the final contract Saturday for development of one of the world’s largest surface coal mines in a joint venture worth $650 million.

The coal mine will be built 220 miles west of Peking in Shanxi province and will supply an estimated 15 million tons of coal a year after production starts in 1987. Approximately two-thirds of the coal will be exported, and the remainder will be used within China.

Ranking behind an aviation co-production agreement signed in April involving McDonnell Douglas Corp., the Occidental contract is the second-biggest joint venture signed to date between a U.S. enterprise and the People’s Republic of China.

The final contract was signed in ceremonies at the Great Hall of the People here by Armand Hammer, chairman and chief executive officer of Occidental, and officials of the China National Coal Development Corp. and the Bank of China, the two Chinese partners in the joint venture.

Over the last half-decade, Occidental has taken part in four previous ceremonies here to sign or initial preliminary agreements involving the coal mine project. Each time, the proposed deal stalled because of problems in arranging financing.

“I guess you are wondering whether this is just another signing and there will be another,” Hammer said Saturday. “There will be no other signing. This is it.”

Under the contract signed Saturday, Occidental will have a 25% interest in the coal mine project. Another 25% will be held by a wholly owned subsidiary of the Bank of China, and the remaining 50% will be held by the China National Coal Development Corp.

In April, 1984, during President Reagan’s trip to China, a tentative deal was signed under which Occidental had an American partner, the Omaha construction firm of Peter Kiewit & Sons, Inc. Under this proposed arrangement, Kiewit was to hold 25% of the Chinese coal venture and Occidental another 25%, with the Chinese mining corporation holding the rest.

However, Kiewit dropped out of the project last fall after the price of coal sank to $40 a ton. Its 25% share was taken over by the Bank of China, and as a result, China’s share of the investment increased from 50% to 75%.

Hammer said Saturday that his company’s total investment in the mining project will be $175 million plus $25 million in interest, for a total of $200 million. The length of the contract is 30 years.

Chinese and Occidental officials are scheduled to travel to the project, called the Pingshuo Antaibao Mine, for further ceremonies Monday to make the first cut for the digging of the mine. Occidental officials said they expect to start bringing up coal by June of 1987, and to begin shipping it by September, 1987.

Chinese officials have already begun work on the infrastructure for the mine, including a town for 18,000 Chinese coal miners and a rail line connecting the project with the coastal port of Qinhuangdao.

China is the third largest producer of coal in the world after the Soviet Union and the United States, and coal accounts for as much as 70% of the country’s energy. However, in the face of a severe energy shortage, China is aiming to increase its coal production to nearly twice the current level by the year 2000.