Firms agree to buy Inner Mongolia mine stakes

The Global Emerging Market Group and Tomorrow International Holdings (0760), which manufactures electronic products and printed circuit boards, said they have entered into a memorandum of understanding to acquire stakes in a coking coal mine in Inner Mongolia.

They aim to spend US$60 million (HK$468 million) to build the underground mine and a coking coal plant.

Due diligence is expected to be completed by the middle of next month, the companies said yesterday, and a formal deal is to be signed by December.

TIHL will own and operate the coal mine with Inner Mongolia Mengxi High-Tech Group. The mine is estimated to have a reserve of 99.6 million tons and capable of producing 1.2 million tons of raw coal annually.

Under the agreement, a subsidiary of GEM will have 49 percent ownership in the reserve through the joint venture with Mengxi and rights to receive 70 percent of the distributions and profit from the operation.

Earlier, TIHL acquired an interest in a coal mine in Inner Mongolia from GEM, which would subscribe to 600 million new shares of TIHL at 37 HK cents each and has an option to acquire 310 million shares at 80 HK cents.

Construction of the coking coal project is expected to be completed in 18 months. Trial production is set to start early next year and 500,000 tons would be produced and sold initially.

"We will sell our coke to China Shenhua Energy Company (1088)," said Jonathan Yeap, chairman and chief executive of GEM subsidiary Joy Harvest Investment.

He added that 50 percent to 70 percent of construction costs would be financed by local banks and the remainder by GEM. "We are focusing on expanding our coking coal business and this is the first project," Yeap said.

GEM is also negotiating the acquisition of four operating coking mine assets in Shanxi, northern China, and Inner Mongolia, Yeap said.

Shares in TIHL closed yesterday at HK$1.20, down 13 percent.