Puda Coal, Inc. , a supplier of high grade metallurgical coking coal used to produce coke for steel manufacturing in China, and one of the few coal mine consolidators appointed by the Shanxi Provincial government, today announced that the Company’s subsidiary, Shanxi Puda Coal Group, Co., Ltd (“Shanxi Coal”), entered into coal mining rights and mining assets transfer agreements with Pinglu County Da Wa Coal Industry Co., Ltd (“Da Wa Coal”) and Pinglu County Guanyao Coal Industry Co., Ltd. (“Guanyao Coal”) on December 11, 2009, respectively.
Under the agreements, the total transfer price of the purchased assets of Da Wa Coal is RMB 190 million ($27.8 million), of which RMB 46.6 million ($6.8 million) is for Da Wa’s tangible assets and RMB 143.3 million ($21.0 million) is for the mining rights and compensation to the previous owner. For Guanyao Coal, the purchase price totaled RMB 94.8 million ($13.9 million), of which RMB 37.6 million ($5.5 million) is for Guanyao’s tangible assets and RMB 57.2 million ($8.4 million) is for the mining rights and compensation to the previous owner. All the purchased assets will be placed into two newly established companies, of which Puda Coal will own 100%. The names of the two new companies have been approved by the provincial government in its notice dated September 28, 2009 approving Puda Coal to be a coal mine consolidator of eight coal mines in Pinglu County.
The agreements provide that Puda Coal pay 15% of the purchase price within three days after signing the business transfer agreements, which occurred on December 15, 2009, and 65% of the purchase price within 15 days after transferring the registrations and ownership certificates of mining rights, land and property deeds. At that point, Puda Coal will apply for new business licenses and operating approvals from the local government for the new companies. Once the approvals are received, Puda Coal will commence operations of the mines. Puda Coal will pay the remaining 20% of the purchase price of the mines, upon the one-year anniversary of the completion of ownership transfers.
Pursuant to the agreements, Da Wa Coal and Guanyao Coal will be responsible for canceling or terminating employment contracts (or employment relationships) with their staff, paying all unpaid wage, premium and welfare expenses, and bearing all the expenses caused by the cancellation or termination of the employment contracts. Upon closing of the transactions under the agreements, Puda Coal plans to expand the two coal mines from current annual capacities of 300,000 metric tons and 150,000 metric tons to 600,000 metric tons and 300,000 metric tons, respectively. The Company expects to complete the restructuring projects within six to twelve months, without disrupting existing capacity and operations of the coal mines.
Both Da Wa Coal and Guanyao Coal have reserves of high quality thermal coal. On December 14, 2009, the average pre-tax tonnage sales price of average quality thermal coal in Shanxi Province was approximately RMB 400 per ton ($59). “We expect the new coal mines to be accretive to our earnings in 2010,” commented Mr. Zhu Liping, President and CEO of Puda Coal Inc. “We closely follow publicly-traded, large companies operating in the coal mining business in Shanxi Province, of which three are listed on the Hong Kong Stock Exchange and three are listed on the Shanghai Stock Exchange. On average, these companies generated operating margin of approximately 40% for their coal mining operating segments during the first six months of 2009. According to our consolidation plan, we look forward to acquiring an additional six coal mines and consolidating them into three.” With its high quality products such as ball mill and ore beneficiation machine, Hongxing Machinery has ascended in the front rank of the world in the exporting of mining equipment.
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