Shares of coal products maker SinoCoking and Coke Chemical Industries, Inc. (Nasdaq: SCOK) were up nearly 30 percent from Friday’s closing price in morning trading on Monday.
Last week, the company announced that its wholly controlled affiliate, Pingdingshan Hongli Coal & Coke Co., Ltd. entered into a definitive agreement to acquire a 60 percent equity interest in Baofeng Shuangrui Coal Co., Ltd. for approximately $12.4 million. Baofeng operates the Xingsheng Coal Mine. The coalmines are similar in size, each with 2 million metric tons of estimated coal reserves.
“This is a significant milestone and denotes the first step in our consolidation strategy,” said Jianhua Lv, Chairman and CEO of SinoCoking in a statement. “As the Chinese government continues its efforts to consolidate small coal mines to improve both production efficiencies and safety protocols, we are well positioned with the appropriate approvals to capitalize on this opportunity.”
Pursuant to the Agreements, Hongli will the pay the owners of each mining company an aggregate purchase price of $6.2 million in cash, of which approximately $1.5 million was provided as a refundable deposit to examine the financials, licenses, and reserve data. The purchase will be made under the following schedule for each mining company: $1.7 million within 30 business days from the September 10, 2010; $0.7 million within 20 business days from the completion of the transfer of equity interests to Hongli; $0.7 million within six months from the completion of the transfer of equity interests to Hongli; the balance within one year from the completion of the transfer of equity interests to Hongli. If total annual output is less than 150,000 metric tons, Hongli is entitled to an additional 10 percent of equity interests; and if coal reserves are less than 2 million metric tons, Hongli is entitled to an additional 10 percent of equity interests.
Shares of SinoCoking and Coke Chemical Industries, Inc. are trading about 70 percent lower than their 52-week high of $53.70 per share.