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SinoCoking Coal and Coke Chemical Industries, Inc. Message Board

  • digginthebear digginthebear Jan 7, 2011 3:24 PM Flag

    Hsu States: no added dilution~

    January 6, 2011
    An Update on SinoCoking Industries
    Company Updates

    Shares of SinoCoking Industries (NASDAQ: SCOK) have been soaring lately. The stock is up a cool 50% in less than two weeks. Towards the end of last year, more investors started to understand the coal mine consolidation thesis behind the company, and bought stock aggressively.

    Then earlier this week, severe flooding in Australia caused the Asia-Pacific region's largest coking coal producers to shut down. This caused the stock to further spike higher in the past two days.

    As I have consistently said since my initial recommendation of this promising company, I'm expecting big things from this stock. And what I learned over breakfast this morning with Jianhau Lv, chairman and CEO of the company, is continued confirmation of our long-term investment thesis.

    Here is what I learned regarding the latest developments from the company:

    New coking plant: The plant is now 70% completed and should be fully operational in June. This plant will more than triple the company's current coking coal production capability. It will also increase the company's product line from three products to nearly 20 products. Price of coking fuel has surged from 550 yuan to 850 yuan per ton in the past year, sharply increasing the company's profit margin, and the latest supply shock in Australia is likely to drive prices even higher.

    New mine acquisition: The company's acquisition plan is on schedule. Lv expects to acquire nearly 20 new mines at forced-sale prices by year-end 2011. Between bank loans and the company's existing cash flow, Lv expects to be able to complete the new acquisitions without any dilutive new share offering.

    Mine reopening: Because of a major mining accident last summer, all coal mines in Pingdingshan were shut down for safety inspections. The government did allow SCOK to partially operate its mines because of the company's strong safety records. Currently, SCOK's coal mine is running at 50% capacity. This shutdown is expected to end in the next couple of months, which will return SCOK's mines to full capacity.

    Overall, the company is right on schedule in executing its growth strategy. I believe that the company will experience strong growth in the second half of the year. With this in mind, I want to raise our buy limit. Continue to buy SCOK below our raised buy limit of $14.

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