EX-99.1 2 ex99-1.htm EXHIBIT 99.1 ex99-1.htm
SinoCoking Coke and Coal
Chemical, Inc.
SinoCoking Coke and Coal Chemical, Inc.
Management Presentation
September 2010
 
 

 
SinoCoking Coke and Coal
Chemical, Inc.
Legal Disclaimer
CONFIDENTIAL INFORMATION. This information is published solely for informational purposes
and is not to be construed as a solicitation or an offer to buy any security or related financial
instrument. This presentation may include “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934 and are
intended to be covered by the safe harbor provisions for forward looking statements. This
information is supplied from sources we believe to be reliable but we can not guarantee
accuracy. This document and the information contained herein is confidential.
The agents and the agents’ counsel assume no responsibility or liability of any nature
whatsoever for the accuracy, adequacy or completeness of the publicly available information or
as to whether all information concerning the Company required to be disclosed by the
Company has been generally disclosed. The agents’ counsel and the Company's counsel are
acting as counsel to the agents and the Company, respectively, and not as legal counsel to the
subscriber. The agents have not engaged in any independent investigation or verification with
respect to any of the information concerning the Company. Prospective purchasers are
responsible for their own due diligence investigation in respect of any investment in the
Company.
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SinoCoking Coke and Coal
Chemical, Inc.
Company Profile
SCOK: NASDAQ
 
Fiscal Year End
June 30
Last Price (9/3/10):
$15.08
Fully Diluted Shares Outstanding (9/3/10):
20.6 million
Market Cap:
$310.6 million
Management Ownership:
39.8%
FY09 Revenues:
$51.4 million
FY09 Gross Margin:
46.4%
FY09 EBITDA:
$26.2 million
FY09 Net Income:
$17.0 million
FY09 Diluted EPS:
$1.29
Cash and Cash Equivalents (3/31/10)*:
$30.4 million
Cash Flows from Operations (9 months ended 3/31/10)*:
$10.2 million
3
*Unaudited
 
 

 
SinoCoking Coke and Coal
Chemical, Inc.
Company Overview
4
§ SinoCoking is a non-state-owned, vertically integrated producer and marketer of coal products, including coke, raw
 and washed coal, and certain byproducts
§ Coal Mine
 Operates a coal mine located in Baofeng County, a part
 of Pingdingshan Prefecture south of the provincial capital
 of Zhengzhou
 Mining rights to extract approximately 2.5 million metric
 tons of coal from Baofeng mine
§ Washing Facility
 Extracted Coal is processed at SinoCoking’s coal-
 washing facility for washing and sorting
 Washed coal is sold to customers as washed coal and
 portions of washed coal are used by the Company to
 manufacture coke
§ Coking Facility
 Produces and sells two types of coking coal (“coke”):
 metallurgical coke primarily used in steel manufacturing
 and chemical coke used mainly for synthesis gas
 production
Raw Coal
246,000
Coke
155,000
Washed Coal
244,000
Coal Tar
7,600
Coke
155,000
Raw Coal
73,000
Washed Coal
55,000
Coal Tar
7,600
Production and Sales (FY June 30, 2009)
Production (metric tons)
Sales (metric tons)
 
 

 
SinoCoking Coke and Coal
Chemical, Inc.
§ 1996 : Mr. Jianhua Lv leaves Henan Province Pingdingshan Coal Group to start Hongli using his own capital
 § Trader / Distributor of coal products
 § Acquired a coal washing facility
§ 2002 : Hongli acquires the Baofeng Coking Factory
§ 2007 : Baofeng Hongchang Coal organized as a subsidiary of Hongli to operate SinoCoking’s mining operations
§ 2008: Top Favour estasblished as a BVI holding company, which through its wholly owned subsidiary Pingdingshan
 Hongyuan Energy Science and Technology Development Co., Ltd. (“Hongyuan”), controls Henan Pingdingshan Hongli
 Coal & Coke Co., Ltd. (“Hongli”)
§ 2009 : Hongyuan, a subsidiary of Top Favour is approved as a “WOFE”
 § Top Favour enters into a merger agreement whereby Top Favour becomes a wholly owned subsidiary of Ableauctions.com
 Inc. in exchange for a majority of the equity ownership of the pro forma combined entity
 § December receive shareholder approval for the merger
§ 2010: Raised approximately $44 million through the sale of 7.3 million shares of common stock and 4.0 million warrants
 to finance new 850,000 metric ton coking facility
 § Complete reverse merger and listing on national exchange
 § Only private coal company to receive consolidator status from Baofeng and Pingdingshan government authorities
 § Announced acquisition of two coal mining companies in Baofeng with 300,000 MT of combined annual production capacity
Corporate History
5
 
 

 
SinoCoking Coke and Coal
Chemical, Inc.
Operational Overview - Vertical Integration
Coal Mining and
Open Market
Purchases
Coal Washing and Processing
Coking
Process
Customers
 
 

 
SinoCoking Coke and Coal
Chemical, Inc.
Benefits of A Vertically Integrated Model
SinoCoking optimizes the product mix for profit potential
 § 2008. We sold more coke when coking prices reached record levels.
 § 2009. We sold less coke and maximize profits by trading more washed coal when coking prices dropped.
*Unaudited
*
 
 

 
SinoCoking Coke and Coal
Chemical, Inc.
Coal Mining Operations
SinoCoking operates an underground coal mine
  Permitted to extract 2.5 million metric tons of coal from
 Baofeng mine
  Extracted approximately 246,000 metric tons using the “room
 and pillar” method in FY09
  Coal extracted is bituminous coal
  Approximately 8% typically possesses properties that meet the
 requirements for coking coal
The coal extracted from the mine generally has a sulfur content of
 less than 0.6% and energy content of 5,200-6,200 kcal/kg
The extracted coal is transported to SinoCoking’s plant located
 two miles from the mine site and processed at the
 Company’s coal-washing facility
Given management’s expertise, the Company also engages in
 coal trading for profit.
  SinoCoking brokers coal from small independent mine
 operators in its surrounding areas
  If purchased coal meets requirements for coking, SinoCoking
 will generally use it to produce coke; otherwise, it holds and
 sells the coal when market conditions are favorable
 
 

 
SinoCoking Coke and Coal
Chemical, Inc.
Coal Washing Operations
750,000 metric tons of coal washing capacity per year
Coal is washed through a water-based jig washing process
Sorting machines that can process up to 600 metric tons of
coal per hour sort the washed coal according to size
Approximately 1.33 - 1.38 metric tons of raw coal generally
yields 1 metric ton of washed coal
The bulk of the washed coal currently produced is reserved
for SinoCoking’s coking plant
Company has option to sell washed coal on the open market if
prices are favorable
Coal-washing process produces two byproducts:
  “Medium” coal. Does not have sufficient thermal value for
 coking; mixed with raw coal and coal slurries and sold for
 home and industrial heating purposes
  Coal slurries are the castoffs and debris from the washing
 process; sold “as is” or mixed with “medium” coal
 
 

 
SinoCoking Coke and Coal
Chemical, Inc.
Coke Manufacturing Operations
Current factory
  The Company produces two type of coke: metallurgical coke and chemical coke
  SinoCoking’s metallurgical coke has typical characteristics of 85% fixed carbon,
 less than 12% ash, less than 1.9% volatile matter and less than 0.7% sulfur
  Coke is produced onsite from a series of three WG-86 Type coke ovens lined up in
 a row
  An annual capacity of 250,000 metric tons
New coking factory
  Plans to complete construction and start production by Q2 calendar 2011
  Annual theoretical capacity of 900,000 metric tons; practical capacity of 850,000
 metric tons
  Will be equipped with new technologies that make it capable of processing lower-
 grade, less expensive washed coal that can be acquired from third-parties
  New factory will produce other high-margin coal byproducts: crude benzol, sulfur
 and ammonium sulfate
10
 
 

 
SinoCoking Coke and Coal
Chemical, Inc.
11
Sales & Marketing
Product
Distribution
Coke
 Sold to distributors and the state-owned trading company Wu Han Tie Ying Trading Corporation
 Non-binding annual letters of intent that set forth current year supply quantities, suggested
 pricing, and monthly delivery schedules.
Raw Coal
 Primarily sold to distributors who then resell to power plants
 Per purchase order basis; payment on delivery or prepay
Washed Coal
 Primarily sold to a trading company who then resells to Wu Han Tie Ying Trading Corporation
Coal Tar
 Sold to traders who resell to end users
 Pre purchase order basis; payment on delivery or prepay
Coal Gas
 The Company coal gas from coking factory for internal electricity needs, and the extra power
 generated sold to the local power generation companies
Coal byproducts sales
 Sold to trading companies who resell to end users
Four customers collectively accounted for 65 percent of SinoCoking’s total revenue in fiscal year 2009
  Wu Han Tie Ying Trade Ltd, 29% of total sales
  Hu Nan Lou Di Zhong Yuan Trade Ltd, 13% of total sales
  Wu Han Zheng Tong Industrial Trade Ltd, 12% of total sales
  Heng Yang Shi Guan Xiang Material Ltd, 11% of total sales
 
 

 
SinoCoking Coke and Coal
Chemical, Inc.
12
Growth Strategy
Build new state-of-the-art coking facilities to expand production and product line
  Expects to expand coking facility production from 250,000 to 1,100,000 metric tons
  Approximately $78 million total cap ex and working capital costs
  Project $100-$110 million of annual revenues and $20-$25 million of net income once at full capacity (1)
  Spring 2010 - commence construction of facility
  Q2 calendar 2011 - to complete construction
Continue to integrate vertically to improve margins
 Optimize mix of raw coal, washed coal, coking coal and byproducts based on market conditions
 New coking facility produces more higher-margin byproducts and improves coking yields
Acquire mines in Henan Province at favorable prices
 Already announced two acquisitions in August 2010 for a total price of approximately $12.4 million
 Conducting due diligence on another 20 potential targets with ~3.0 million MT combined annual licensed capacity
 Will fund acquisitions with cash on hand, bank lines, and internally-generated cash flows
(1) Assuming coking prices as of August 24, 2010
 
 

 
SinoCoking Coke and Coal
Chemical, Inc.
Attractive Consolidation Opportunity
Henan Provincial & Coal Markets
 Henan Province produced 195 million MT of coal in 2006, approximately 8.4% of China’s total production
 making it China’s fourth most prolific coal region*
 Henan’s coke production in 2008 totaled 19.5 million MT
 Henan has five major coal producing regions: Pingdingshan, Jiaozuo, Hebi, Yima, and Zhengzhou
 The market is highly fragmented with several large state-owned coal groups and hundreds of smaller
 producers
Government Backed Consolidation
 Henan provincial authorities are pushing consolidation of a the coal industry with a preference for vertically
 integrated producers that capture the most economic benefit from the resources and do so with worker
 safety and environmental considerations
 Developing the coal chemical industry is a key provincial focus for Henan, thus a preference for vertically
 integrated coal producers than can capture chemical by-products
 In February 2010, provincial authorities issued the following consolidation guidelines:
v Single mine producing under 150,000 metric tons will be shut down by year end
v Only four types of companies can be consolidators: state-owned coal groups, power companies, chemical
 companies and vertically integrated coal companies that are listed on major stock exchanges
v Provincial government is planning on reducing total mines in the Pingdingshan area to 40 from 140
v Under the provincial consolidation guidelines, smaller private companies must pursue mergers or they will
 be shut down by default
13
*China Knowledge
 
 

 
SinoCoking Coke and Coal
Chemical, Inc.
14
Mining Acquisition Strategy
One of the mining co’s in
Pingdingshan Province awarded
consolidator status: July 6, 2010
Only private co with designation
Mining transfer expected by March 2011
Announced 1st two acquisitions on
August, 17, 2010
$12.4 million cash paid for 60% equity
interest
~300,000 MT combined licensed capacity
Financed with cash on hand
20 potential acquisition targets
~150,000 tons/year licensed capacity/co;
3.0 mill MT total
Similar margins to SCOK’s mining
operations
Mining moratorium creates more
pressures on small mines to sell
Funding Strategy
Fund with bank lines and internal cash
flows
Acquire 60% equity interest
50% of purchase price due within 6
months of close
Minimal cap ex to upgrade equipment
 
 

 
SinoCoking Coke and Coal
Chemical, Inc.
Long Term Growth Drivers
Chinese economy expected to grow at 7%+ annually for next 5 years
  Economy has grown over 10% annually over the last thirty years
  Hundreds of millions of new middle class consumers expected to drive consumption in the next decade
Demand for coke follows growth in steel demand
  Metallurgical coke is a major input into the steel production process
  Estimated consumption of coke per year in China is approximately 4.5 billion MT
  China is the largest producer and consumer of coking coal in the world
Possible coke supply shortage from government leading consolidation of small sized mines
  Provincial governments, notably in Shanxi and Henan, are promoting consolidation of smaller mines
  Larger operators are expected to be more efficient, environmentally responsible, and safety conscious
 Coal mining consolidation reduces excess supply
  From approximately 140 to 40 by December 31, 2010 in Pingdingshan
15
 
 

 
SinoCoking Coke and Coal
Chemical, Inc.
Recent Events
Local authorities announced temporary mining moratorium in Pingdingshan
 All coal mines shut down pending safety inspections
 None of SinoCoking’s mines have ever had an accident or been in violation of safety standards
 Company’s non-coal mining operations continue to generate revenues and cash flows
Management provided corporate update on August 24, 2010
 Preliminary FY10 revenues of approximately $58 million and net income of $16 million (1)
 Strong liquidity: $16 million cash and cash equivalents, $40 million potential credit facility, positive cash
 flows from operations (1)
 New coking facility on track for completion by end of 2nd quarter calendar 2011; expects to expand total
 coking production capacity from 250,000 MT to 1,100,000 MT per year and enhances margins
Signed coal supply agreement with Zhengyun Coal Distribution Co.
 Zhengyun Coal will provide up to 2 million MT of raw coal and 1 million MT of clean coal
 Signed monthly purchase orders of August and September deliveries of raw coal at $87 per MT
 Orally agreed to purchase clean coal at $141 to $151 per MT
 Both prices are below current market prices and at levels enjoyed by large state-owned enterprises in
 China
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(1) Unaudited financial results for period ended June 30, 2010
 
 

 
SinoCoking Coke and Coal
Chemical, Inc.
Financial Summary
* The Company’s fiscal year ends June 30; all values in millions (USD).
*Unaudited
*Unaudited
*Unaudited
*Unaudited
*
*
*
*
 
 

 
SinoCoking Coke and Coal
Chemical, Inc.
Management Team
Name
Title
Age
Current & Previous Experience
Jianhua Lv
Founder, CEO
and Chairman
41
 Executive Director and Chairman of Hongli since 1996, when he founded the company
 From 1989 to 1996 Mr. Lv held a number of positions at the Henan Province Pingdingshan Coal Group, where
 he has developed many years of experience in the coal and coking industries
 Standing committee member of the Chinese People’s Political Consultative Conference of Baofeng, Henan
 Province
Liuchang Yang
Director and Vice
Chairman
54
 Served as a Director of Hongli since 2003, and as its Vice Chairman since January 2006
 Held various offices at the Company’s predecessors from 1983 to 2005, including secretary, deputy director,
 director and general manager of human resources
Zan (Sam) Wu
Chief Financial
Officer
32
 Chief Financial Officer of Hongli since July 2009
 Chief representative of Global American, Inc. from 2006 - 2009
 Assistant manager and financial manager at Domino Scientific Equipment Ltd. from 2004 - 2006
Hui Zheng
Vice Manager of
Human Resources
37
 Manager of Human Resources at Henan Province Pingdingshan Hongli Coal & Coke Co., Ltd. (SinoCoking)
 since 2006
Hui Huang
Director
42
 CEO of Wuhan Pingdingshan Coal and Wuhan Steel Unification Coking Company
 Served as Director of Sales and Administration, and as Director of the Economics and Technology Cooperation
 Center of the Pingdingshan Coal Group
 Vice-Director of the Henan Institute of Coal
Yushan Jiang
Director
55
 CEO of the Pingdingshan Coal Group Shoushan Coking Co., Ltd
 Served as the CEO of the Pingdingshan Coal Group Shoushan Coking Co., Ltd. since February 2007
 Vice-Director and member of the Coking Committee of the Henan Province Metals Association
 Vice-Secretary of the Henan Province Institute of Coal & Coke
Jin Yao
Director
61
 Vice-Chairman of the China Division of the Asia Pacific CEO Association
 Vice-Chairman of the China Division of the Asia Pacific CEO Association since 2003
 Served as General Manager at the Beijing Gaoping Technology Development Company from 1989 to 2003
18
 
 

 
SinoCoking Coke and Coal
Chemical, Inc.
Investment Summary
19
Experienced leadership
 § Mr. Lv successfully bootstrapped his coal mining business, taking an underperforming company and creating a
 vertically-integrated, profitable regional player that is well-regarded by the local and provincial governments
 § Despite the challenging economic environment, SinoCoking remained highly profitable in 2009 and is well
 positioned for 2010
 § Capital will allow the Company to build a new facility, diversify its product mix, use lower quality coal as an input
 in the coke manufacturing process, and improve its margins
Consolidation play
 § Provincial government is planning on reducing total mines in the Pingdingshan area to 40 from 140
 § Provinces interested in building vertically integrated mid-size coal companies
 § SinoCoking is being positioned by the government as a leading consolidator in city level
 § New coking facility called “important economic goal of 2010” by Henan provincial officials
 § Projections assume future input washed coal is purchased from third parties; acquisitions can further catalyze
 margin expansion
Scalable business model
 § Vertical integration allows for profitable expansion
 § Scale creates more opportunity for acquisitions and an increased ability to access capital
Access to capital to fund future growth
§No comparable-sized entity private China-based integrated coal company in the U.S. or Asian capital markets
 
 

 
SinoCoking Coke and Coal
Chemical, Inc.
20
Company Contact Info:
 
Sam Wu,
Chief Financial Officer
SinoCoking Coke and Coal
Chemical, Inc.
Pingdingshan, China
wuzan@vip.sina.com
PRC +86 3752882999
Investor Relations Contact Info:
 
Ted Haberfield,
Executive Vice President
HC International, Inc.
San Diego, CA
thaberfield@hcinternational.net
Direct +1 (760) 755-2716
Cell +1 (858) 204-5055