The deal was made for a fixed fee of $US876,000 (6 million yuan) annually, payable in cash or L&L common shares, and permits Baoxing to produce 150,000 tons from the facilities. The subsidiary will also provide the needed working capital for production and collect the respective revenue and net profits and any applicable losses.
L&L said the agreement should generate about $15 million in revenue per year based on a basis coal price of $100/ton.
Baoxing is the exclusive adviser and consultant to Ping Yi, and the mine’s financial results will be consolidated into L&L’s financial statements as a variable interest entity.
“Under terms of the agreement, Ping Yi has granted Baoxing an option to acquire Ping Yi's equity interests,” L&L noted.
“The agreement covers a period of two years starting from November 1, 2009, and can be extended by mutual consent.”
L&L president and chief executive Dickson Lee said the producer was confident the subcontract deal would be valuable for growth.
“This new development will extend more opportunities to us in the region."
Opened in 2007, the Ping Yi mine has a 150,000 ton per annum capacity and a proven reserve of 31 million tons. It is working to increase its capacity to 300,000tpa.