Under a fixed fee of approximately $876,000 per year, Baoxing is allowed to operate the Ping Yi facilities of 150,000 ton annual production. The agreement allows Baoxing to operate the coal mine, to provide the necessary working capital and to collect the respective revenue, net profits and/or losses of the mine.
Under the agreement, Baoxing is the exclusive provider of advisory and consultancy services to Ping Yi related to the company’s general business operations. The mine’s revenue, profit, or loss will be consolidated in L&L financial statements as a variable interest entity. L&L expects the agreement to generate approximately $15m revenue per year, using $100 per ton coal price as a basis.
Ping Yi, with annual 150,000 tons of coal production and 31 million tons of proven coal reserves, has been in operation since 2007. It is expanding its existing coal production capacity to 300,000 tons annually. Under terms of the agreement, Ping Yi has granted Baoxing an option to acquire its equity interests. The agreement covers a period of two years starting from November 1, 2009, and can be extended by mutual consent.
Dickson Lee, president and CEO of L&L, said: “We’re confident that Boaxing’s subcontract of Ping Yi will be valuable to L&L’s growth. This new development will extend more opportunities to us in the region.”
