Coal Mining Rights
The company’s mining rights are based on appraisals of in place resources conducted by the appropriate PRC authorities and are expressed as a maximum number of metric tons of coal in each mine which the company is entitled to extract under the related mining rights. Rights to legally extract coal do not guarantee reserves or the amount that may be economically extracted.
Our expected mining recovery is about 65-70% of the in-place resources, and our process / screening recoveries are about 95-97% of the run-of-mine output (the amount resulting from the mining recovery amount).
Tong Gong Mining Rights
We have the legal rights to extract coal based on 6,149,700 metric tons (“tons”) of in-place resources from Tong Gong coal mine, provided that the coal underlying the mining rights is fully paid for by a certain period of time. Having rights to legally extract the stated amount of coal does not guarantee reserves or the amount that may be economically extracted. For mining rights granted prior to September 1, 2006, we are generally required to make full payment within five years unless specific good cause exists for extension. Effective September 1, 2006, under the authority of the Heilongjiang Geology and Mineral Exploration Office, the due date is ten years from the grant date for mining rights granted on or after September 1, 2006. The price is determined on a per ton basis, and is subject to change based on the prevailing market price as determined by the Heilongjiang Department of Land and Resources. As of December 31, 2009, we have paid for 5,383,495 tons out of the 6,149,700 tons to which we have mining rights.
The amount of coal underlying our mining rights is determined based on PRC standards which differ from those of Guide 7 of the Securities Act Industry Guide (“SEC Industry Guide 7”). As such, coal that is deemed extractable in China, where we operate, may not be deemed proven or probable reserves under SEC Industry Guide 7. Because our coal is mined and sold entirely in China, we believe it is helpful to understanding our business for us to provide the measurements of coal reserves used by the company in its operations and evaluations. The amount of coal underlying our mining rights in Tong Gong is based on PRC guidelines and presents a different valuation of our mining reserves from Tong Gong mine’s proven and probable reserves as such terms are defined in SEC Industry Guide 7 specifically.
Xing An Mining Rights
We may extract coal based on 19,781,800 tons of in-place resources from Xing An coal mines, provided the coal underlying the mining rights is paid for by a certain period of time. As of December 31, 2009, we have paid for all mining rights at the Xing An coal mines based on PRC reserve guidelines.
As with Tong Gong coal mine, we also commissioned JTB to assess both Xing An coal mines in accordance with SEC Industry Guide 7. Based on the JTB report dated April 15, 2008, as of June 30, 2007, Hong Yuan coal mine had proven product (salable) reserves of 2.53 million tons and probable product (salable) reserves of 2.81 million tons, and Sheng Yu had proven product (salable) reserves of 0.81 million tons and probable product (salable) reserves of 2.73 million tons. The Xing An coal mine's proven and probable product (salable) reserves as reported by JTB presented here comply with SEC Industry Guide 7. They are based upon and do not reflect reserves as described in the PRC appraisal on which our mining rights are based, and which establish the amount of coal we are entitled to extract pursuant to those rights. The JTB report (dated March 24, 2010) provides updated information and estimates. As of December 31, 2009, the estimated product reserves for Hong Yuan and Sheng Yu under Industry Guide 7 was approximately 8.65 million tons, of which, 5.77 million tons was probable product reserves and 2.88 million tons was proven product reserves.
The JTB report as of December 31, 2009 employed assumed recoveries for mining and processing/screening in developing estimates for Hong Yuan coal mine as follows: mining recovery - 60% area recovery; vertical recovery - 100% of first 2.5 meters of coal column, 65% recovery of coal column greater than 2.5 meters thickness; coal processing recovery - 90% of coal in the run-of-mine output for seams 4, 5 and 6, 80% of coal in the run-of-mine output for No. 3 seam; and parting / OSD removal - 97% removal of the parting / OSD material in the run-of-mine output.
The JTB report as of December 31, 2009 employed assumed recoveries for mining and processing/screening in developing estimates for Sheng Yu coal mine as follows: mining recovery - 60% area recovery; vertical recovery - 100% of coal column; coal processing recovery - 90% of coal in the run-of-mine output for seams 4, 5 and 6, 80% of coal in the run-of-mine output for No. 3 seam; and parting / OSD removal - 97% removal of the parting / OSD material in the run-of-mine output.