Leyshon Resources Limited has completed a preliminary technical and legal due diligence review on a PRC entity that holds an exploration licence over a thermal coal project in the Western Chinese province of Xinjiang.
More detailed review of the technical data collated during the June quarter has confirmed that the asset has the potential to meet Leyshon’s investment criteria.
The company’s main focus during the quarter has been on advancing the commercial negotiations in the relation to the proposed transaction. These discussions are ongoing.
In addition, the company and its advisors have continued discussions and negotiations with a large state owned enterprise on joint venture arrangements which, in the event of a successful completion of the transaction, would become the company’s joint venture partner on the project.
Whilst the company believes that the asset is attractive in that it has the potential to meet its demanding internal investment criteria, it can give no assurance that these due diligence investigations, approval processes and/or discussions will lead to the successful completion of the transaction.
The Board is aware that the process is taking some time to reach a conclusion. It notes that in the current competitive environment the acquisition of high quality assets can be expected to take time to complete.
Management is firmly of the view that, notwithstanding the current slowing of the growth in China’s economy, the demand for energy minerals and metals will continue to be underpinned by the urbanization of over 400 million people in the coming decade. China’s latest Five Year Plan emphasizes “Inclusive Growth” which entails the planned urbanization of a large number of Western China’s rural population into second and third tier cities.
This is resulting in significant increases in coal fired power consumption and infrastructure spending such as railways and new city development in these regions. Thermal coal prices have remained strong despite the recent falls in prices for other commodities.
The company remains of the view that in light of the forecast expanding demand for all types of coal within China over the next ten years, high quality coal assets located close to infrastructure and within transport distance to market will become increasingly valuable over time.
Leyshon also remains diligent in its assessment of project investment opportunities at all times and is therefore prepared to commit significant time and expenditure to due diligence and approvals and other studies before committing to a transaction.
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