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Summary

  • In response to recent mining accidents, the Yunnan Provincial Government issued a suspension order listing 992 coal mines (including DaPuAn and SuTsong) with less than 90k metric tons annual output.
  • Chinese government websites disclose much lower production capacity figures for the DaPuAn and SuTsong mines than reported by L&L Energy.
  • We conclude that L&L has exaggerated the historical production and capacity of the DaPuAn and SuTsong mines.

As GeoInvesting originally reported here, two major coal-mining accidents recently occurred (April 7, 2014 and April 21, 2014) in Qujing, Yunnan, resulting in the deaths of 35 people. Both accidents occurred in the vicinity of the DaPuAn and SuTsong mines that L&L Energy (NASDAQ:LLEN) purports to own, as shown below:

Following a major accident, safety inspection checks and mine shutdowns in China could last for a year or more. This was the case following the November 2011 Shizong Sizhuang mine disaster that led to the 2012 closures of the Hong Xing coal washing facility and the ZoneLin coking plant. Only after May 2013 did the coal production in the area recover.

Following the first accident, on April 15, 2014 the Yunnan Provincial Government ordered the suspension of mining at 992 coal mines (the published list can be found here.) The Yunnan Coalmine Safety Inspection Bureau summarized the suspension order as follows:

"On April 15, the Yunnan Provincial Government ordered all provincial coal mines under 90,000 metric tons annual output are suspended for rectification, and also published a list of the 992 coal mines suspended."

The DaPuAn and SuTsong Coal Mines are on the Suspension List

According to LLEN's SEC filings, the legal names of the DaPuAn and SuTsong coal mines are "Shizong HengTai Coal Mining Co., Ltd. DaPuAn Mine" and "Luoping County A'ang Town SuTsong Coal Mine." The full legal names of the two mines appear on page five of the suspension list, as shown in the snapshot below:

(click to enlarge)

LLEN Current Management Using The Same Playbook As Old Management?

According to the list, the Yunnan Provincial Government ordered the suspension of production for both DaPuAn and SuTsong on April 15, 2014. Yet almost a month later LLEN's management team still has not disclosed any 8-k filing regarding this issue.

Even more disturbing, since the government list contains coal mines with annual output below 90,000 metric tons, LLEN's reported annual historical coal production of more than 90,000 metric tons from the DaPuAn and SuTsong mines is called into question.

The following table shows the coal production LLEN reported for each of the two mines for the fiscal years ended April 30, 2009 through April 30, 2013 in its 10-K filings to the SEC:

DaPuAn

SuTsong

Fiscal Year Ended April 30,

Annual Production (tons)

Fiscal Year Ended April 30,

Annual Production (tons)

2009

121,159

2009

83,852

2010

255,994

2010

115,623

2011

245,545

2011

122,081

2012

129,505

2012

95,456

2013

228,298

2013

131,707

LLEN's management needs to explain why the DaPuAn and SuTsong mines appear on the government list of 992 suspended mines with <90,000 metric tons annual output.

Yunnan Coalmine Safety Inspection Bureau Website Reports the Capacity of the DaPuAn and SuTsong Mines

Ever since its purported acquisition of the DaPuAn and SuTsong mines on May 1, 2008, LLEN has repeatedly reported the production capacity of the two mines in its annual reports as follows:

Mines

Production Capacity (tons)

DaPuAn

150,000

SuTsong

90,000

LLEN's capacity figures are contradicted by recent reports published by the Yunnan Coalmine Safety Inspection Bureau.

On March 18, 2014 the Yunnan Coalmine Safety Inspection Bureau published a table titled "2014 Special Inspection of Coal Mine Safety Permit Holders with a List of Coal Mines" that can be found by clicking the Chinese link provided on the Yunnan Coalmine Safety website.

According to the table, excerpted below, the DaPuAn and SuTsong mines' designed capacities are 90,000 and 30,000 metric tons, respectively.


序号

分地区
序号

名称

生产能力(万吨/年)

瓦斯
等级

设计
生产能力

核定
生产能力

颁证日期

到期日期

Main No.

Sub Regional No.

Name

Designed Capacity (ten thousand metric tons/yr)

Effective Capacity (ten thousand metric tons/yr)

Gas Level

Certification Date

Expiry Date

21

9

师宗恒泰矿业有限公司大普安煤矿

9

6

高瓦斯

8/31/2011

8/31/2014

21

9

Shizong HengTai Coal Mining Co., Ltd. DaPuAn Mine

9

6

High gas

8/31/2011

8/31/2014

49

9

罗平县阿岗镇树冲煤矿

3

4

瓦斯

8/1/2011

8/1/2014

49

9

Luoping County A'ang Town SuTsong Coal Mine

3

4

gas

8/1/2011

8/1/2014

Note: "Designed Capacity" is the theoretical annual capacity of the coalmine for engineering purposes. "Effective Capacity" is the practical annual capacity of the coalmine.

On November 22, 2013 the Yunnan Coalmine Safety Inspection Bureau published a table titled "Yunnan Province Newly Built Expansion Projects Record Documents (until 2014.4.16)." The table can be found by clicking the Chinese link provided on the Yunnan Coal Mine Safety Inspection website.

The SuTsong mine, No.45 on the table (excerpted below), had an original designed capacity of 30,000 metric tons per year and was later approved to expand to 90,000 metric tons per year. According to an announcement on the Qujing City, Luoping County, Ministry of Commerce website, the SuTsong mine planned to begin its expansion construction at the end of 2012. According to the table set forth below from the Yunnan Coal Mine Safety Inspection website, the construction period should take 17 months.

According to the Qujing Environmental Bureau, the SuTsong mine's environmental approval date was January 14, 2014. Therefore we conclude that the SuTsong mine's production capacity was still only 30,000 metric tons per year until early 2014.

序号

项目名称

建设
性质

能力

初步设计审查文号

安全专篇审查文号

煤炭工业建设工程
质量监督书

备案时间

建设
工期
(月)

原有

核定

设计

新增

No.

Project Name

Project Type

Original Capacity

Effective Capacity

Designed Capacity

Added Capacity

Preliminary Design Review Document No.

Safety Inspection No.

Coal Construction Engineering Quality Check

Record Time

Construction Period (Month)

45

罗平县阿岗镇树冲煤矿

扩建

3

9

6

云能源煤炭〔2009〕11号

曲煤监〔2009〕85号

YN-MJD(注册)-2010-002

2010年2月5日

17

45

Luoping County A'ang Town SuTsong Coal Mine

Expansion

3

9

6

Yun Energy Coal〔2009〕No.11

Qu Coal Inspection〔2009〕No.85

YN-MJD(Register)-2010-002

Feb 5th, 2010

17

Note: The DaPuAn mine did not appear on the government list of mine expansions.

GeoInvesting is aware that LLEN claims to exceed the production capacity of its mines. Per LLEN's 2013 10-K:

"According to Chinese government regulation, a coal mine can produce up to the production capacity set forth in the mining production permit. However, depending on the market demand for coal, especially during the high demand season in the winter, the local government does allow coal mines to produce more than the production capacity that year or use the unused capacity from previous years without giving specific written approval."

So just how much more coal production did LLEN report to the SEC compared to the Chinese government reported capacity? Using the capacity for the DaPuAn and SuTsong mines found on the various Chinese government websites, LLEN's overproduction was as follows:

DaPuAn

Fiscal Year Ended April 30,

Capacity (tons)

Annual Production (tons)

Overproduction (%)

2009

90,000

121,159

35%

2010

90,000

255,994

184%

2011

90,000

245,545

173%

2012

90,000

129,505

44%

2013

90,000

228,298

154%

SuTsong

Fiscal Year Ended April 30,

Capacity

Annual Production (tons)

Overproduction (%)

2009

30,000

83,852

180%

2010

30,000

115,623

285%

2011

30,000

122,081

307%

2012

30,000

95,456

218%

2013

30,000

131,707

339%

Conclusion:

As we have shown, the Yunnan Provincial Government reacted to the recent major mining accidents by issuing a suspension order listing 992 coal mines (including DaPuAn and SuTsong) with <90k metric tons per year output. Various Chinese government websites confirm lower production capacity figures for the DaPuAn and SuTsong mines than reported by LLEN. Given these latest events we are left with the conclusion that LLEN has exaggerated the historical production and capacity of the two mines.

Aside from the tragic circumstances that have brought to light yet additional misrepresentation by LLEN, we continue to wait for the current management of LLEN to step forward to give timely, accurate, investor-responsive information. Instead what we have seen is a steady pace of more of the same. Against all of our hopes it appears clear to us that the current management of LLEN is no better than the former management.

Source: L&L Energy's DaPuAn And SuTsong Mines Shut Down, Historical Production Called Into Question