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SinoCoking (SCOK) Provides Update on Coal Mining Sector Consolidation in Henan Province

Feb. 19, 2010 (Business Wire) — SinoCoking Coal and Coke Chemical Industries, Inc. (NASDAQ:SCOK) (the “Company” or “SinoCoking”) today announced its plans to consolidate local area coal mines as a part of the government-directed consolidation of the coal mining industry in the Pindingshan region of Henan Province, China.

According to government sources, Henan province in central China is in the process of consolidating coal mines with a production capacity below 300,000 tons per year, and will only approve new mines with an output capacity of at least 450,000 tons per year. The Henan plan is a part of a general policy in China to consolidate its coal industry in order to improve production efficiency and reduce coal mine accidents. The plan is modeled after a pilot consolidation program in Shanxi province that was conducted last year. In 2009, Shanxi province, one of the nation’s key coal-producing regions, reduced the total number of its coal mines to 1,053 from 2,600 after consolidating all coal mines with a production capacity below 300,000 tons per year. The consolidation also caused coal output in Shanxi to decline by 6% in 2009. Smaller coal mines reportedly make up approximately one-third of China’s total coal output.

SinoCoking is a supplier of the vital commodities of thermal and metallurgical coal and coke to industrial users such as power plants, steel mills, plant and factory operators and manufacturers in China. The Company is a vertically-integrated processor that uses coal from both its own mines and that of third-party mines to provide basic and value-added coal products to its customer base. Excluding any of its planned acquisitions, SinoCoking currently holds mining rights to extract 300,000 tons of coal per year from mines located in the Henan Province in central China. SinoCoking began producing metallurgical coke in 2002, and since then has expanded its production to become an important supplier to regional steel producers in central China.

“The coking coal produced in the Pingdingshan region has particularly high agglutinating value combined with low levels of ash, sulfur and phosphor, which sets our region’s coal resources apart from other coal-producing provinces in China,” said Jianhua Lv, the Chief Executive Officer of SinoCoking. “In order to increase our annual coke production and ensure a steady supply of raw material for our coke chemical projects, SinoCoking intends to make acquisitions of local mining operations that will increase the total reserves directly available to the company. While we have engaged in preliminary dialogues with acquisition targets over the past couple of years, we believe the government’s imperative for consolidation of the coal mining sector this year has now come to fruition, and this creates acquisition opportunities for us that are strategically and financially compelling.”

SinoCoking has entered into discussions with ten distinct private companies in the region, and intends to acquire a majority interest in each of these companies, or their mining assets, within the next six months. The target companies are:

  • Baofeng Yuxiang Coal Ltd., based in Qingliangsi Village of Daying town in Baofeng County;
  • Baofeng Xingsheng Coal Ltd., based in Zhaozhuang Village of Daying town in Baofeng County;
  • Pingdingshan Shilong Zhaoling Industries Coal Ltd., based in Zhaoling Village in the Shilong area of Pingdingshan;
  • Pingdingshan Shilong Yuantong Coal Ltd., based in Dazhuang Village in the Shilong area of Pingdingshan;
  • Pingdingshan Shilong Tianyuan Coal Ltd., based in Nanzhangzhuang Village in the Shilong area of Pingdingshan;
  • Ruzhou Changsheng Coal Ltd., based in Fangwan Village of Xiaotun Town of Ruzhou;
  • Baofeng Hongjiu Coal Ltd., based in Yudong Village of Zhouzhuang Town in Baofeng County;
  • Baofeng Zhouzhuang Dinglou Dongfang Coal Ltd., based in Dazhuang Village in the Shilong area of Pingdingshan;
  • Ruzhou Xiaotun Jialingnan Coal Ltd., based in Jialing Village of Xiaotun Town of Ruzhou; and
  • Baofeng Shuangrui Coal Ltd., based in Liping Village of Daying Town in Baofeng County.

The aggregate licensed production capacity of the mines operated by these target companies is 1.5 million metric tons per year. In addition, the aggregate coal reserves of these companies is estimated to be 25 million metric tons, based on Chinese geological standards. The Company is conducting its own due diligence investigation of each prospective target.

“The opportunities presented to SinoCoking by these potential acquisitions extend beyond their licensed production capacity or reserves,” Mr. Lv added. “Assuming we can complete most if not all of the acquisitions we described in today’s announcement, SinoCoking would then directly control all of the feedstock that is necessary for both our current and planned coke manufacturing facilities. As a result, this vertical integration is expected to enable us to achieve significantly higher profit margins than previously anticipated. In the past, we relied heavily on washed coal produced by third parties for our coking feedstock.”

SinoCoking believes it can acquire each of these targets at an attractive purchase price and without the need for significant outside capital, using internally-generated cash flow and its own common stock, noting that the target companies are required to either agree to consolidate or face government-mandated closure. SinoCoking also noted that its acquisition opportunities are only one element of its expansion plan, and that SinoCoking remains focused on the financing and construction of its newly planned state-of-the-art coking plant with an expected production capacity of 900,000 metric tons per year.

“The moment has now arrived for the inevitable consolidation of the coal mining sector in Henan province, and we believe SinoCoking is very well-positioned to benefit from this consolidation,” Mr. Lv stated. “Our company is a profitable, efficient operator, with a strong record in worker safety, and a vertically-integrated business model that produces important coal products in an environmentally-conscious manner. Our common stock is listed on NASDAQ in the U.S., offering our shareholders access to liquidity while providing us an important source of currency to pursue our acquisition program. While we cannot predict with certainty the outcome of these negotiations, we are committed to prudently pursuing any opportunity that enables SinoCoking to better serve our customers, reduce our production costs and fortify our business model while creating incremental value for our shareholders. I look forward to providing updates to our shareholders of tangible progress towards these goals.”

About SinoCoking

SinoCoking Coal and Coke Chemical Industries, Inc., a Florida corporation (NASDAQ: SCOK) is a vertically-integrated coal and coke processor that uses coal from both its own mines and that of third-party mines to produce basic and value-added coal products for steel manufacturers, power generators, and various industrial users. SinoCoking currently holds mining rights to extract 300,000 tons of coal per year from mines located in the Henan Province in central China. SinoCoking has been producing metallurgical coke since 2002, and acts as a key supplier to regional steel producers in central China. SinoCoking, a Florida corporation, owns its assets and conducts its operations through its subsidiaries, Top Favour Limited, a British Virgin Islands holding company, Pingdingshan Hongyuan Energy Science and Technology Development Co., Ltd. (“Hongyuan”), Henan Province Pingdingshan Hongli Coal & Coke Co., Ltd. (“Hongli”), Baofeng Coking Factory, Baofeng Hongchang Coal Co., Ltd. and Baofeng Hongguang Environment Protection Electricity Generating Co., Ltd.

For further information about SinoCoking, please refer to the Definitive Proxy Statement of the Company (previously named, Inc.) filed on Schedule 14A with the Securities and Exchange Commission on November 27, 2009.

This press release contains forward-looking statements, particularly as related to, among other things, the business plans of the Company, statements relating to goals, plans and projections regarding the Company’s financial position and business strategy. The words or phrases “plans”, “would be,” “will allow,” “intends to,” “may result,” “are expected to,” “will continue,” “anticipates,” “expects,” “estimate,” “project,” “indicate,” “could,” “potentially,” “should,” “believe,” “think”, “considers” or similar expressions are intended to identify “forward-looking statements.” These forward-looking statements fall within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934 and are subject to the safe harbor created by these sections. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties. Such forward-looking statements are based on current expectations, involve known and unknown risks, a reliance on third parties for information, transactions or orders that may be cancelled, and other factors that may cause our actual results, performance or achievements, or developments in our industry, to differ materially from the anticipated results, performance or achievements expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from anticipated results include risks and uncertainties related to the fluctuation of local, regional, and global economic conditions, the performance of management and our employees, our ability to obtain financing, competition, general economic conditions and other factors that are detailed in our periodic reports and on documents we file from time to time with the Securities and Exchange Commission. Statements made herein are as of the date of this press release and should not be relied upon as of any subsequent date. The Company cautions readers not to place undue reliance on such statements. The Company does not undertake, and the Company specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement. Actual results may differ materially from the Company’s expectations and estimates. The Company provides no assurances that any potential acquisitions will actually be consummated, or if consummated that such acquisitions will be on terms and conditions anticipated on the date of this press release, and the Company makes no assurances with regard to any results of any such acquisitions.

Monday, February 22nd, 2010 Uncategorized
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