America West Resources Inc., a Salt Lake City-based coal company, said Wednesday it has signed a binding letter of intent to purchase a coking coal facility in China.
After the deal is finalized, America West expects to invest $70 million into the Luxin coal plant in Shanxi Province in northeastern China.
In return, company chief executive Dan Baker said 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."
The coking plant has been owned by the Shanxi Jiexiu Luxin Coal Gasification Co., which also has nearby coal mines that supply metallurgical coal used to produce steel.
Baker said the coking plant also generates electricity using synthetic gas produced through coal gasification, a technology important to efforts to capture carbon emissions after combustion.
Under terms of the agreement, America West will spend $40 million to acquire a 70 percent interest in an offshore company through a 30-year "Contractual Joint Venture," an approved form of foreign investment in China. Shanxi Jiexiu's current management will retain the remaining 30 percent.
America West also will contribute $30 million in "working and expansion capital" to the joint venture, which will have contractual rights to Shanxi Jiexiu's estimated
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coal reserves of 100 million tons. The Chinese company will still manage the plant, with America West's oversight.
While Chinese coal will supply the plant's short-term needs, Baker noted that America West has purchased metallurgical coal reserves in the Book Cliffs field in Carbon County. That Utah coal, still in the early stages of development, could be exported to Luxin when Chinese sources are used up.
"This acquisition is ideally aligned with our company's long-term metallurgical coal-export strategy," he said.
For the first six months of 2009, Baker said Luxin reported revenues of $60 million and earnings of $9 million.
Last year, the Luxin had earnings of $22 million on revenues of $140 million.
Financial data will be verified before the transaction closes, he added.
America West also operates the Horizon mine north of Price. Its coal is burned in power plants.
Source: Salt Lake Tribune
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