Puda Coal Provides Updates on Coal Mine Consolidation Projects

TAIYUAN, China, Aug. 10 /PRNewswire-Asia-FirstCall/ -- Puda Coal, Inc. (NYSE Amex: PUDA) ("Puda Coal" or the "Company"), a supplier of high grade metallurgical coking coal used to produce coke for steel manufacturing in China and a consolidator of twelve coal mines in Shanxi Province, today provided additional updates on the status of Company's coal mine consolidation projects.

Background: Coal Mine Consolidation Program in Shanxi Province

In order to improve production efficiency, workplace safety and reduce coal mine accidents, in early 2009, the Shanxi provincial government (the "government") adopted a policy requiring mergers and consolidations of smaller coal mines in Shanxi Province. Pursuant to the government policy, Shanxi Puda Coal Group Co. Inc. ("Shanxi Coal"), a subsidiary that is 90% owned by the Company, was appointed as a consolidator of eight thermal coal mines located in Pinglu County in southern Shanxi Province (the "Pinglu Project"). Under the Pinglu Project, Shanxi Coal will acquire and consolidate eight thermal coal mines into five mines with approximate reserves of 163.9 million metric tons ("MT"), based on government records. Importantly, the government approved an increase in post-consolidation annual production of the Pinglu Project to 3.6 million MT from a pre-consolidation annual production of 1.56 million MT. In early 2010, Shanxi Coal received the government's approval to consolidate four metallurgical coal mines into one large metallurgical mining operation representing total recoverable reserves of 23.7 million MT (the "Jianhe Project"). The government has approved an increase in post-consolidation annual production at the Jianhe Project from to 900,000 MT from a pre-consolidation annual production of 720,000 million.

Coal Mine Consolidation Process

The coal mine consolidation process is administered by the government and has four stages. Certain steps in those four stages can proceed in parallel, but the overall process is as follows:

    -- Stage I: Purchase of coal mine assets and mining rights - As the
       appointed consolidator Shanxi Coal will acquire the mining assets and
       mining rights of the target coal mines, and then place the acquired
       assets and mining rights into newly established project companies, with
       names pre-approved by the government. Shanxi Coal will be the
       registered principal shareholder of each project company.
    -- Stage II:  Permit applications - Two permits are needed for the target
       coal mines to resume operation and begin construction after being
       acquired by Shanxi Coal: (i) a transitional production permit for the
       transitional period, during which production of the mines can resume at
       the pre-consolidation level while the coal mines undergo upgrade and
       construction; and (ii) a coal mine upgrade construction permit. The
       transitional production permit requires Shanxi Coal to form production
       safety, technology and management teams to upgrade existing mining
       technology and operating safety. The coal mine upgrade permit requires
       Shanxi Coal to complete the coal mine geological reports and submit the
       required documents to the government, including workplace safety
       analysis reports, environmental assessments, and preliminary
       construction design for the coal mine. The coal mine upgrade permit can
       be granted following the government's review of the above mentioned
       documents.
    -- Stage III - Upgrade construction period - Shanxi Coal will engage in
       construction upgrades as per the construction design approved by the
       government.
    -- Stage IV - Project inspection and business registration - Upon
       completion of the upgrades, the government will inspect the
       construction quality, environmental and safety practice at these coal
       mines. Upon approval, the new project companies will be granted
       certificates of business registration and production permits.


    Coal Mine Consolidation Project Status

Pinglu Project Phase I

In June 2010, Shanxi Coal acquired 100% of the assets and mining rights of Da Wa Coal Industry Co., Ltd. and Pinglu County Guanyao Coal Industry Co., Ltd., ("Dawa Coal and Guanyao Coal") located in Pinglu County, for an aggregate purchase price of $41.7 million. Shanxi Coal's on-site team has begun necessary coal mine maintenance and construction in the permitted areas while awaiting the remaining permits. Shanxi Coal has obtained necessary approvals from both the county and municipal governments for the transitional production permit and is waiting for final approval from the provincial government, which it expects to obtain in the near future.

Once the transitional production permit is granted, the coal mines can resume production under their current capacity of 450,000 MT per year. The actual utilization will be subject to the physical condition of Dawa Coal and Guanyao Coal. Meanwhile, Shanxi Coal has submitted the required documents to the government for the coal mine upgrade permit. Shanxi Coal is awaiting further comments or formal approval for the coal mine upgrade permit. Upon receipt of the coal mine upgrade permit, Shanxi Coal will begin expanding production capacity of the mines to 900,000 MT per year.

Pinglu Project Phase II

The remaining six coal mines of the Pinglu Project will be consolidated into three larger thermal coal mining operations. The production capacity of the six mines is 1.2 million MT per year prior to consolidation and will be expanded to 2.7 million metric tons following consolidation. Shanxi Coal is in active discussions with each of the six coal mine owners and expects to finalize definitive acquisition agreements in the near term.

On August 1, 2010, Shanxi Coal signed an investment cooperation agreement to co-develop Phase Two of Pinglu Project with Mr. Ming Zhao, Chairman of the Company, and Mr. Jianping Gao, an unrelated party. Pursuant to the investment cooperation agreement, Shanxi Coal is responsible for 40% of the total investment in the Phase Two of Pinglu Project, Mr. Zhao is responsible for 30% and Mr. Gao is responsible for the remaining 30%. Shanxi Coal estimates the total purchase price for the six Pinglu mines to be $130 to 160 million, with additional funds required to construct the target coal mines. Shanxi Coal will control and manage the Phase Two of Pinglu project.

Shanxi Coal has begun the necessary steps to apply for the transitional production permit. It has assigned employees on site, formed the safety management team and is actively verifying asset status and has begun drafting the safety and operational policies. Concurrently, Shanxi Coal is preparing the required documents to apply for the coal mine upgrade permit, including the safety analysis reports, environmental assessments, preliminary construction and expansion proposals and geological exploration and data collection.

Jianhe Project

Shanxi Coal will consolidate four metallurgical coal mines in Huozhou County into one large metallurgical mining operation. Production capacity of the four mines will be increased from 720,000 MT to 900,000 MT. Similar to the Pinglu Project, Shanxi Coal has begun the necessary steps to apply for the transitional production and coal mine upgrade permits. Shanxi Coal is actively engaged in negotiations with the current mine owners and expects acquisition agreements to be finalized this year. Although it is early in the process, Shanxi Coal expects total investment required for the target mines assets purchase to be between $130 million to $150 million.

Mr. Liping Zhu, President and CEO of the Company commented, "We are very supportive of the Shanxi government's mandate to enhance safety of coal mines and improve production efficiency and output. Given a large number of projects to be approved by the provincial government, it is taking longer than anticipated to obtain the transitional production and coal mine upgrade approvals. However, we believe that Puda Coal has strong execution capabilities and we expect to complete all permitted work while waiting for approvals from the government. We are pleased with our progress thus far and believe that we will continue to make substantial progress following approval."

About Puda Coal, Inc.

Puda Coal, through its subsidiaries, supplies premium high grade metallurgical coking coal used to produce coke for steel manufacturing in China. The Company currently possesses 3.5 million metric tons of annual coking coal capacity. The Company has recently moved upstream into coal mining, as a consolidator and acquirer of coal mines in Shanxi Province, including the Pinglu projects and the Jianhe projects. On September 30, 2009, Shanxi Coal, a 90% indirect subsidiary of the Company, was appointed by the Shanxi provincial government as an acquirer and consolidator of eight thermal coal mines located Pinglu County in southern Shanxi Province. Shanxi Coal plans to consolidate the eight coal mines into five, increasing their total annual capacity from approximately 1.6 million to 3.6 million metric tons. Shanxi Coal received another approval by the Shanxi provincial government to consolidate four additional coking coal mines into one coal mine in Huozhou County. After the completion of the consolidation, the Jianhe project is expected to increase the total annual capacity from 720,000 metric tons to 900,000 metric tons, according to the Shanxi provincial government's approval. For more information, please visit http://www.pudacoalinc.com .

FORWARD-LOOKING STATEMENTS

The information contained herein includes forward-looking statements. These statements relate to future events or to our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. You should not place undue reliance on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could, and likely will, materially affect actual results, levels of activity, performance or achievements. Any forward-looking statement reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. For example, our ability to acquire and consolidate the target coal mines are subject to, among other things, the risks and uncertainties relating to the market and geological condition, timely receipt of government permits, due diligence, negotiation for definitive agreements, etc. which are beyond our control, as well as our management's ability and capacity to execute our coal mine acquisition strategy and manage the coal mine operations. We assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

    For more information, please contact:

    Investor Relations Contact:
     Crocker Coulson, President
     CCG Investor Relations
     Tel:   +1-646-213-1915
     Email: [email protected]

    Elaine Ketchmere, VP of Financial Writing
     Tel:   +1-310-954-1345
     Email: [email protected]
     Web:   http://www.ccgirasia.com

    Company Contact:
     Laby Wu, Chief Financial Officer, Director of Investor Relations
     Puda Coal, Inc.
     Tel:   +86-10-6439-2405
     Email: [email protected]
     Web:   http://www.pudacoalinc.com

SOURCE Puda Coal, Inc.