Guanghui Co., Ltd.’s coal chemical project approved by the National Development and Reform Commission

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Guanghui Co., Ltd.’s coal chemical project has been approved by the National Development and Reform Commission. Recently, the coal chemical project that Guanghui Co., Ltd. (600256) plans to invest in has received approval from the National Development and Reform Commission and has entered the preliminary preparation stage. According to a announcement released by Guanghui Co., Ltd. earlier this year, the company plans to issue up to 300 million shares through a private placement, raising a total of no more than 2.5 billion yuan. Of this amount, 2 billion yuan will be used to fund the construction of a project capable of producing 1.2 million tons of methanol and 800,000 tons of dimethyl ether per year, as well as 550 million cubic meters of LNG (coal-based). The investment will be made by contributing capital to the project company, Xinjiang Guanghui New Energy Co., Ltd. (hereinafter referred to as “Guanghui Energy”), with the contribution representing no less than 51% of the project company’s registered capital. A relevant official from the company stated that the total investment in this project amounts to 5.76 billion yuan. The project is located in Naomaohu Town, Yiwu County, Hami Region, Xinjiang, 18 kilometers away from a coal mine. This coal mine is of high quality; it has a shallow depth and thick coal seams, making extraction straightforward. The construction period for the project is 3 years, with completion expected in June 2009. The main products of the project are 1.2 million tons of methanol, 800,000 tons of dimethyl ether, and 550 million cubic meters of LNG; the by-products include naphtha, tar, crude phenol, middle distillates, sulfuric acid, and liquid ammonia, totaling 210,000 tons. Analysts at Ping An Securities noted that, against the backdrop of rising resource prices, Guanghui Shares’ strategy focused on the energy industry will drive long-term and stable value growth. By making full use of the abundant local resources in Hami, Xinjiang, the 1.2 million tons of methanol/0.8 million tons of dimethyl ether production facility boasts significant cost advantages. Additionally, this project generates 600 million cubic meters of natural gas as a by-product, which will serve as a valuable supplement to the company’s LNG supply. Coal chemical projects are expected to become the source of the company’s future growth. Due to the recent record-high international crude oil prices, domestic dimethyl ether and LNG prices have risen sharply. The company’s market research report shows that the current market prices of dimethyl ether and LNG are 42.86% and 66.67% higher, respectively, than the prices estimated in the project feasibility study report. The recent market prices of the project’s by-products—naphtha, liquid ammonia, crude phenol, and sulfuric acid—have also increased to varying degrees compared to the estimates provided in the feasibility study report. Based on the current market prices of the main products, if the project achieves an operational rate of 80%, its annual sales revenue will exceed 5 billion yuan, with pre-tax profits reaching 3.4 billion yuan per year. The coal chemical project has been progressing smoothly since its official commencement on May 28, 2007. To date, the construction of the staff dormitories and cafeteria has been largely completed, and the foundation work for some workshops and heat exchange stations has also been finished. At the same time, the process design, bidding, and equipment procurement for the main units are also in progress. Among these, the contracts for the introduction of technology and procurement of equipment for overseas-supplied units such as air separation, dimethyl ether production, sulfur recovery, methanol synthesis, and methane separation have been signed; similarly, contracts for domestically sourced equipment such as cranes, gasifiers, grates, start-up boilers, 4×600t/h coal-fired boilers, 3×50MW turbines, as well as the technical agreement for the LNG storage tank with a capacity of 30,000 cubic meters for methane separation, have also been finalized. As of October 31, 2007, Guanghui Co., Ltd. had signed a total of 2.5 billion yuan worth of contracts for domestic and international equipment as well as construction projects. Currently, Guanghui Co., Ltd.’s application for a private offering is under review by the China Securities Regulatory Commission.