Puda Coal, Inc. (NYSE Amex: PUDA), a supplier of high grade metallurgical coking coal used to produce coke for steel manufacturing in China and consolidator of nine coal mines in Pinglu County Yuncheng City and four coking coal mines in Huozhou County Linfen City in Shanxi Province, today provided additional updates on the status of the Company's coal mine consolidation projects.
Background on coal mine consolidation
As previously disclosed, pursuant to the policy of the Shanxi provincial government, Shanxi Puda Coal Group Co. Inc. ("Shanxi Coal"), a 90% subsidiary of the Company, is approved by the government to acquire nine thermal coal mines in Pinglu County and consolidate them into five mines. The coal mines under the Pinglu Project have aggregated reserves of approximately 163.9 million metric tons (MT), based on government records, which were filed by original mine owners and will be expanded from pre-consolidation production capacity of 1.1 million MT to post-consolidation annual production capacity of 3.6 million MT. Shanxi Coal also received the government's approval to acquire four metallurgical coal mines in Jianhe County and consolidate them into one large metallurgical mining operation. The Jianhe project has total recoverable reserves of 23.7 million MT, based on government records filed by original mine owners, and annual production capacity will be expanded from 720,000 MT to 900,000 MT once consolidation is complete.
The coal mine consolidation process is administered by the government and has four stages, which can proceed in parallel, but the overall process is as follows: (1) Shanxi Coal purchases coal mine assets and mining rights of target coal mines; (2) the government reviews and approves all comprehensive pre-construction design reports on geology, preliminary construction design, safety and environmental protection prepared by Shanxi Coal; (3) Shanxi Coal engages in construction upgrades, technological enhancements and capacity expansion. Since the technological upgrades and capacity improvements are carried out on existing coal mines with good operating records, coal will be produced during the construction period but will be produced at a reduced level; and (4) the government inspects the construction quality, environmental and safety practices at the improved coal mines and issue operating licenses.
Pinglu Project Update
Pursuant to the government's approval, Shanxi Coal established five project coal companies to hold the mining assets of nine target coal mines and consolidate the nine coal mines into five mines. Shanxi Coal is developing the Pinglu Project in two phases: Phase I is being developed solely by Shanxi Coal; Phase II is co-developed by Shanxi Coal, Mr. Ming Zhao, Chairman and a significant shareholder of the Company and Mr. Jianping Gao, an unrelated party. For Phase II of Pinglu Project, Shanxi Coal is responsible for 40% of the total investment, Mr. Zhao is responsible for 30% and Mr. Gao is responsible for the remaining 30%. Shanxi Coal will control and manage both phases of Pinglu Project. The pre- and post- consolidation capacity of the coal mines are presented below:
Under Phase I of the Pinglu Project, the government has approved the designed production expansion of Dajinhe Coal, which began construction on January 1, 2011. The Company estimates that Dajinhe Coal will produce approximately 150,000 to 290,000 MT of thermal coal during the construction period, which Shanxi Coal expects to be eight to twelve months. In addition, the government has approved the geological technical report and preliminary construction design of Dajinhe Wujin. Shanxi Coal's next step is to secure the government's approval to begin construction of the designed production expansion of Dajinhe Wujin.
Under Phase II of the Pinglu Project, Shanxi Coal has completed the acquisition of coal mining rights and assets of four coal mines: Xuhutuo Coal, Daqi Coal, Renling Coal and Donggou Coal. Shanxi Coal has also entered into coal mining rights and mining asset transfer agreements with the remaining three coal mines: Anrui Coal, Chuntouao Coal and Xiapingcun Coal. Shanxi Coal has paid approximately $34 million, representing 50% of the purchase prices, for the mining assets of the three remaining mines and expects the acquisitions to close in January 2011. Shanxi Coal has received approval on the geological technical report for project company Dajinhe Anrui and aims to receive construction approval for project companies Dajinhe Anrui and Dajinhe Jinyi by May 2011 and for Dajinhe Jinmen by July 2011.
The Company estimates that in fiscal year 2011 raw coal produced during the construction period of the Pinglu Project will be about 849,000 MT.
Jianhe Project Update
Pursuant to the government's approval, Shanxi Coal established a project coal company, Shanxi Huozhou Lituo Coal Industry Ltd ("Lituo Coal") to hold the mining assets of the four target coal mines upon acquisition and consolidate these mines into one.
Shanxi Coal will develop the mines under the Jianhe Project and intends to enter into mining asset purchase agreements with the four target coal mines by February 2011. Shanxi Coal has completed a geological technical report on Lituo Coal, which is currently being reviewed by the government and Shanxi Coal expects to receive construction approval by June 2011. Shanxi Coal anticipates that it will take about eight to ten months to complete the construction upgrades and consolidation of the mines under the Jianhe Project after receiving construction approval.
Shanxi Coal plans to retain international geological prospecting firms to conduct geological technical prospecting on the reserves of the mines under the Pinglu Project and Jianhe Project based on international standards.
Source: Puda Coal, Inc.