The falling Australian dollar erased profits at Yanzhou Coal Mining ( YZC , quote ) last quarter, leaving net income 70% below the previous year. However, strong coal sales and a rebounding dollar suggest better results over the next few months. 
Yanzhou is the only Chinese coal mining company available on the Hong Kong, New York and Shanghai exchanges. Phillip Securities Research analyst Kevin Au says that operating income was up 30.7% year-over-year for the first nine months of 2011. Au attributes this increase to a mix of high volume and higher prices, but notes that cost of coal sales and employee wages caused gross margin and operating margin to slip 2.2% and 1%, respectively. Rising costs at home were less of a headache than unfavorable currency market activity for assets abroad, though. The Australian dollar ( FXA , quote ) fell 15% in the third quarter of 2011, causing translational losses in the company's Yancoal Australia subsidiary. The Aussie has since recovered, and Au notes that if the Australian dollar remains at roughly its current level, the company will record a positive translational gain this year. In other words, YZC now has an upside surprise baked into its next quarterly results. The stock reflects this, being up nearly 30% since the commodity markets turned around at the beginning of October -- a little better than the broad coal fund KOL ( quote ), but well ahead of broad Chinese funds like FXI ( quote )
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
