Yongye Nongfeng Signs Agreement to Secure Coal Resources Project in Inner Mongolia, PRC
BEIJING, March 12 /PRNewswire-Asia-FirstCall/ -- Yongye International, Inc. (Nasdaq: YONG), ("Yongye or "the Company") a leading developer, manufacturer, and distributor of Shengmingsu brand plant and animal nutrient products in the People's Republic of China (PRC), today announced its operating entity in China, Yongye Nongfeng Biotechnology, signed a preliminary agreement with a local supplier of humic acid to purchase an undeveloped lignite coal resources project in Inner Mongolia, PRC. Consummation of the acquisition requires the satisfaction of certain customary closing conditions, including receipt of governmental approval. Yongye Nongfeng is seeking to meet these requirements and complete the transfer as quickly as practicable.
The preliminary agreement with Wuchuan Shuntong Humic Acid Trading Company Limited ("Shuntong") provides for the acquisition of Shuntong's development rights to a currently undeveloped lignite coal resource project located in Wuchuan County, a suburb located outside the city of Hohhot, Inner Mongolia, where the company's major operations reside in the PRC. According to a third party valuation report, the project area is estimated to contain over 40 million square meters of surface level lignite coal which can supply the company's long term needs. According to the agreement, Nongfeng will pay Shuntong RMB240 million ($35.1 million) to acquire the development rights for this project. In addition to this, Nongfeng plans to build a new factory with 20,000 tons of plant nutrient product and 10,000 tons animal nutrient product annual capacity in a nearby economic development zone located near the coal resources project. According to government regulations, the acquisition will not be completed until Nongfeng makes full payment to Shuntong and receives in return the full, unencumbered title to the development rights.
"Acquiring this lignite coal resource is of great strategic importance to us and is in line with our overall plan. In our operations, humic Acid, which is extracted from lignite coal, is the most significant cost component and it is important to secure this lignite coal resource at a cost effective price. Once this acquisition is complete, Yongye's fast growing Shengmingsu business won't be subject to market price fluctuation of this key raw material," said Mr. Zishen Wu, Chief Executive Officer. "Once our new factory becomes fully operational, we expect higher gross margin due to the benefit of this vertical integration."
Yongye also plans to build a new manufacturing facility in an economic development zone which is in close proximity to the Lignite Coal Project. This new factory is expected to be capable of extracting humic acid from lignite coal and producing 20,000 tons per year of the Company's liquid plant product and 10,000 tons per year of its powder animal product.
Mr. Wu added, "Our current manufacturing facility operates at almost full capacity to meet peak season demand and inventory requirements. Our new factory will therefore help us continue to grow our business to meet the strong demand for our product in the domestic agricultural market in China. In addition, we believe that our new factory, once complete, will lead to significant cost savings by more tightly integrating the production of humic acid with our fulvic acid extraction process. We expect higher gross margins and increased profitability due to the benefits from this vertical integration."
About Yongye International, Inc.
Yongye International, Inc., headquartered in Beijing, is engaged in the development, manufacturing, distribution and sales of Shengmingsu brand plant and animal nutrient products. The Company's patented and patent pending formulas and proprietary extraction processes allow it to create products that increase crop yields and improve the health of livestock. Its sole operating subsidiary, Inner Mongolia Yongye Nongfeng Biotechnology Co., Ltd., is headquartered in Beijing with major operations located in Inner Mongolia, People's Republic of China. For more information, please visit the Company's website at http://www.yongyeintl.com .
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SOURCE Yongye International, Inc.