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General Steel Holdings Acquires Controlling Interest in Tongxing

01/15/2008 - General Steel Holdings obtains final government approval to acquire a controlling interest in Hancheng Tongxing Metallurgy, with core operations in coking coal production and rebar processing.

General Steel Holdings, Inc. has obtained final government approval to acquire a controlling interest in Hancheng Tongxing Metallurgy Co., Ltd. (''Tongxing'').
 
General Steel Holdings, one of China's leading non-state-owned steel products producers, will carry out the acquisition through its joint venture, Shaanxi Longmen Iron and Steel Co., Ltd. Contributing to General Steel’s revenues, the acquisition is expected to be accretive to earnings.
 
According to the agreement between the Shaanxi Longmen Joint Venture and Tongxing, the Joint Venture will contribute 217,487 square meters (approximately 53 acres) of its own land at the appraised value of RMB 30,227,333 (approximately US $4.1 million). Pursuant to the agreement, the land will be converted into shares valued at approximately RMB 22,744,419 (US $3.1 million). The deal would provide the Joint Venture with a 22.76% stake in Tongxing and make it Tongxing's largest and controlling shareholder.
 
“'We are extremely happy to attain a controlling interest position in Tongxing,” said Henry Yu, CEO and Chairman of General Steel. “As a fully-integrated steel-producing facility, we are keenly interested in gaining greater control over both the supply of and costs of our raw materials. Tongxing's operations in coking coal, power generation and, most importantly, iron ore are key in enhancing our ability to control input costs and bolster gross margins.''
 
Hancheng Tongxing Metallurgy has two core operating areas: coking coal production and rebar processing. Its coking coal operations have an annual production capacity of 250,000 tonnes, and its rebar processing facility has an annualized yield of 300,000 tonnes. Both operations provide products and services exclusively to the Joint Venture.
 
Tongxing also owns a 38% share in the Shaanxi Xinglong Power Plant Co., Ltd. ('Xinglong). This subsidiary has two 25-mW power-generating units that produce electricity from gas emitted from the Joint Venture's blast furnaces. Last year, the power plant generated over 300 million kW of power. Xinglong's electricity is sold exclusively to the Joint Venture.
 
Tongxing’s mining interests include an 11% ownership of the Daxigou iron ore mine. Located 200 km from the Joint Venture, this mine has 300 million tonnes of proven iron ore reserves. Controlling ownership of the mine is held by the Shaanxi Longmen Iron and Steel Group Co., Ltd., the Joint Venture's strategic partner. The Joint Venture has first rights of refusal for all sales from the mine as well as future development rights. Approximately 240,000 tons of iron ore were mined from the site in 2007. The mine is expected to yield 800,000 tonnes in 2008 as it moves toward an annualized goal of 3 million tons in 2010. At current market prices, similar-quality iron ore would cost approximately RMB 809 per ton (US $111).
 
Headquartered in Beijing, General Steel Holdings operates a diverse portfolio of Chinese steel companies. With 3 million tonnes aggregate production capacity, its companies serve various industries and produce a variety of steel products including reinforced bar (rebar), hot-rolled carbon, and silicon sheet and spiral-weld pipe. The company has steel operations in the Shaanxi province (central China), the Inner Mongolia autonomous region (northwest China), and the Tianjin municipality (northeast China).