Lucky Dragon owns the entire equity interest in Tongliao City Heng Yuan Mining Company Limited ("Heng Yuan") which in turn owns (i) the mining rights and operation facilities of the Huanghuashan Coal Mine and (ii) the exploration rights of the Bayanhushuo Coalfield.
Huanghuashan Coal Mine is located in Tongliao City of Inner Mongolia of the PRC. Heng Yuan owns the mining license (certificate no.1500000720617) and related operating facilities of the coal mine. According to a technical report compiled by SRK Consulting China Limited ("SRK Consulting"), Huanghuashan Coal Mine has estimated coal reserves of approximately 7.85 million tons in a site area of 1.71 km2. The coal type of Huanghuashan Coal Mine is semi-anthracite coal and the current at-pit market prices of the coal are approximately RMB250-260 per ton (pre-washing) and RMB550-560 per ton (post-washing). It is estimated that the unit production cash cost of the coal mine will be approximately RMB77 per ton of coal (include the cost of coal washing).
Bayanhushuo Coalfield is located in Xilinguolemeng of Inner Mongolia. Heng Yuan owns the exploration license (certificate no. 1525000510130) of the coal mine. According to a technical report compiled by SRK Consulting, Bayanhushuo Coalfield has estimated coal reserves of approximately 434.76 million tons in a site area of 51.34 km2. The coal type of Banyanhushuo Coalfield is high quality thermal coal and the current at-pit market price of the coal is approximately RMB190 per ton. It is estimated that the unit production cash cost of the coal mine will be approximately RMB63 per ton of coal.
Mr. Joseph Hui, Chairman of Kiu Hung International, said, "Coal mining business is a highly profitable and an indispensable business in China. Kiu Hung is well positioned to diversify into this promising business with huge coal reserves of over 570 million tons."
"We will expand the production capacity of Huanghuashan Coal Mine to 600,000 tons per annum and construct an underground coal mine with annual production capacity of 3 million tons for Bayanhushuo Coalfield. We will also construct coal-washing facilities for Huanghuashan Coal Mine in order to further improve the profit margin," added Mr. Hui.
Assuming no adjustment has to be made, the total consideration of HK$840 million shall be satisfied by (i) HK$160 million of cash, (ii) HK$420 million by the issue of 600 million consideration shares and (iii) HK$260 million by the issue of convertible notes with a conversion price of HK$0.70 per conversion share. -- Kiu Hung International Holdings Limited
