America West Resources, a coal producer with mining operations in Central Utah, has signed a binding letter of intent (LOI) to acquire coking coal operations (Luxin) of Shanxi Jiexiu Luxin Coal Gasification Company, a diversified holdings company based in Shanxi Province, China.

Luxin operates a coking coal plant in Shanxi Province with annual production capacity of 600,000 metric tons. Built in 2005 to the modern environmental standards, the plant utilizes technology that in addition to producing coke, generates electricity using synthetic gas produced through coal gasification.

Dan Baker, CEO of America West Resources, said: “Through the acquisition of the majority interest in Luxin and the vertical integration of its coking coal plant into our operating platform, America West effectively diversifies our business, establishes a critical gateway to China, and materially strengthens our financial profile.

“As such, we believe we are much better positioned to pursue a listing on a national exchange on an accelerated timetable. Moreover, because this acquisition is ideally aligned with our company’s long term met coal export strategy, America West looks forward to optimizing our met coal assets while further strengthening ‘westward’ coal export to Asia through US west coast channels.”

The transaction will be structured as a 30-year contractual joint venture (CJV), an approved form of foreign investment in China. The terms of the proposed transaction provide for America West to acquire a 70% equity interest in an offshore company, which will hold 80% interest in the CJV, for a total combined stock and cash deal valued at $40m.

Shanxi Jiexiu’s current management will retain the remaining 30%. In addition to the stock issued in the transaction, America West will contribute $30m in working and expansion capital to the CJV in tandem with the closing of the transaction, while Shanxi Jiexiu will contribute the coking plant assets.

The CJV will have contractual rights to metallurgical coal production from Shanxi Jiexiu’s coal mining subsidiary to ensure a steady low-cost raw materials supply. The coal mining subsidiary is engaged in mining metallurgical coal deposits in the prolific coal producing region of Shanxi Province. Following the closing of the transaction, Shanxi Jiexiu will manage the day-to-day operations at the Luxin plant with oversight from America West Resources.

In addition to conducting full due diligence and signing definitive CJV documents, the completion of the transaction is subject to America West raising required working and expansion capital for the CJV. The transaction is anticipated to close in the first quarter of 2010.