Yongye Nongfeng Biotechnology (Nongfeng), a Chinese operating entity of Yongye International (Yongye), has signed an agreement with a local supplier of humic acid to purchase an undeveloped lignite coal resources project in Inner Mongolia, China.
The preliminary agreement with Wuchuan Shuntong Humic Acid Trading (Shuntong) provides for the acquisition of Shuntong’s development rights to undeveloped lignite coal resource project located in Wuchuan county, a suburb located outside the city of Hohhot, Inner Mongolia.
According to a third party valuation report, the project area is estimated to contain over 40 million sqmt of surface level lignite coal, which can supply the company’s long term needs. Under the agreement, Nongfeng will pay Shuntong RMB240m to acquire the development rights for this project.
In addition to this, the company plans to build a new factory with 20,000 tons of plant nutrient product and 10,000 tons animal nutrient product annual capacity in a nearby economic development zone located near the coal resources project. According to government regulations, the acquisition will not be completed until the company makes full payment to Shuntong and receives in return the full and unencumbered title to the development rights.
Zishen Wu, CEO of Nongfeng, said: “Acquiring this lignite coal resource is of great strategic importance to us and is in line with our overall plan. In our operations, humic acid, which is extracted from lignite coal, is the most significant cost component and it is important to secure this lignite coal resource at a cost effective price.
“Once this acquisition is complete, Yongye’s fast growing Shengmingsu business won’t be subject to market price fluctuation of this key raw material. Once our new factory becomes fully operational, we expect higher gross margin due to the benefit of this vertical integration.”
Yongye also plans to build a manufacturing facility in an economic development zone, which is in close proximity to the lignite coal project. This factory is expected to be capable of extracting humic acid from lignite coal and producing 20,000 tons per year of the company’s liquid plant product and 10,000 tons per year of its powder animal product.