By intern reporter Zhou Lingling

China Shenhua Energy Co. (SSE: 601088), China's largest coal producer, will pay US＄ 261 million for a coal exploration license in Australia in an effort to expand overseas.

This will be Shenhua's first foreign exploration permit, which allows the company to explore shallow thermal coal resources in a 190-square kilometer area near Gunnedah in the state of New South Wales.

According to Bloomberg, the exploration will last for several years, and the investment may top more than AU＄ 670 million.

The report cited the New South Wales Minister for Mineral Resources Ian Macdonald as saying that the exploration license will be awarded to Shenhua on the recommendation of an expert assessment panel. The license is for exploration only, not mining.

According to Shenhua, whether or not the company will get mining rights will be decided when exploration work is complete.

The bid was opened in October and closed in February. Shenhua has beat out rivals including Anglo American PLC's coal unit, Griffin Coal Mining Co., Xstrata PLC, Donaldson Coal Pty and White Mining Ltd.

Facing increasing power shortages nationwide, the Chinese government has encouraged coal producers to boost production to secure supply for coal-fired power generation, which accounts for 80 percent of the country's overall power generation.

Beijing-based Shenhua reported a coal production of 16.2 million tons in July, up 17.4 percent year-on-year. The company said in April it intended to buy overseas assets, including mines in Australia, Indonesia and Mongolia. Shenhua posted revenue of 82.1 billion yuan (US＄11.97 billion) in 2007.