In order to improve production and workplace safety and to reduce coal mine accidents, the Shanxi provincial government issued a policy last year, which requires mergers and consolidations of coal mining companies in Shanxi province. Pursuant to the government policy, coal production enterprises are given the opportunity to acquire, consolidate and restructure smaller coal mines through mergers, acquisitions and asset or share transfers.
Shanxi Puda Coal (Shanxi Coal), a 90% subsidiary of Puda Coal, was appointed by the Shanxi provincial government as a consolidator of eight thermal coal mines located in Pinglu county in southern Shanxi province.
Shanxi Coal has received an approval by the Shanxi provincial government to consolidate four additional coking coal mines into one coal mine. After the completion of the consolidation, the Jianhe project is expected to increase the total annual capacity from 720,000 metric tons to 900,000 metric tons.
Among the four target coal mines, Shangxi Huozhou Leijian Coal and Shanxi Huozhou Fengshen Coal are the smaller ones, and Shanxi Huozhou Jianzhuang and Shanxi Jianhe Coal Industry (Jianhe Coal) are the larger ones. Jianhe Coal is the largest one among the four.
The company purchased an 18% equity interest in Jianhe Coal at a purchase price of RMB100m. Leveraging its status as the corporate shareholder of Jianhe Coal (the 82% equity owner is an individual shareholder) and a consolidator in the Pinglu project, it received approval to be the consolidator in the Jianhe project.
Pursuant to the plans for the Jianhe project, the four existing coal mines will be consolidated into one mine. The assets of the four coal mines will be transferred to Shanxi Lituo Coal Industry (Shanxi Lituo), a newly registered company that will be wholly owned by Shanxi Coal. The company has received approval from the Shanxi provincial government for the registration of Shanxi Lituo.
