IB Net Payout Yields Model

Puda Coal Signs Deal For Investment in 6 Mines

Finally some news from Puda Coal (PUDA), Chinese coal consolidator, on funding for them to acquire and consolidate 6 more mines in China under Phase II of the Pinglu Project. Being that PUDA has a market cap of roughly $200M, a lot of uncertainty hung over the stock due to the expected $150M needed to acquire these 6 mines and then upgrade them. Not to mention another 4 mine project in the works as well.

That's a lot of dilution feared by the market unless they found a partner so it's likely held the stock price down. Now PUDA has come to an agreement whereby the Chairman and an outside party will contribute 60% of the funds allowing PUDA to keep 40%. Considering the profitability it would've been ideal to see some type of government loan for a % of the deal, but PUDA is still obtaining these mines at very accretive levels. Not sure yet what this deal does to the targets for over $2 in EPS next year, but it shouldn't hurt.

Details on the 6 mines provided back in March:

Purchase price: $110M
Capital Expenditures: $56M
Coal reserves: 145.6M MT
Type of coal: Thermal
Current Production: 1.2M MT
Future Production: 2.7M MT

This would leave 4 additional met coal mines to be consolidated under the Jianhe Project. Considering that these mines are more attractive hopefully the company will be in a better position at that point to keep a much larger position. They should start throwing off a lot of cash that should be able to pay for a considerable portion of these mine purchases.


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