Prosperity Minerals Holdings Ltd (AIM: PMHL) announced that its wholly-owned subsidiary Sintex International Holdings Ltd has entered into a conditional agreement to purchase a 25% equity interest in Liaoning Changqing Cement Co Ltd from Liaoning Yan Zhou Zhu Xing Cement Co Ltd, for RMB100 million (approximately £10 million).
Prosperity previously owned a 75% equity stake in Liaoning Changqing - which was sold as part of the company’s recent £385 million asset sale to TCC International Ltd (TCCI). The company said that since the transaction between Prosperity and TCC, the vendor of the 25% stake decided that it did not wish to be part of a joint venture with an unfamiliar party (TCCI).
Consequently, the vendor approached Prosperity to sell its equity stake. “Given that Prosperity has a long established relationship with both the Vendor and TCCI, and the directors believe that the price sought by the vendor is attractive, the directors believe that it would be in the interests of Prosperity and its shareholders for Prosperity to initially purchase the 25% equity interest in Liaoning Changqing," company stated.
Prosperity highlighted that Liaoning Changqing has recently completed the construction of a cement and clinker production line, which has a production capacity of 2 million tonnes per annum. Subsequently, the production line began trial production in March 2010, and the start of normal production is expected in September.
Furthermore, the company believe that it will have the opportunity to sell the 25% interest in Liaoning Changqing, at a higher valuation following commencement of normal production at the Liaoning plant.
The net asset value of Liaoning Changqing, as shown in the unaudited accounts as at 30 April 2010, was RMB 218.5 million (approximately £22.29 million).
Prosperity noted that it will treat the 25% equity interest in the joint venture as an investment, and it will not participate in the management and operation of Liaoning Changqing. The consideration will be satisfied in cash out of Prosperity's internal resources, and the consideration will have no material adverse effect on the financial position of Prosperity.
Additionally, the company does not expect the 25% stake to make a material contribution to the profit or loss of Prosperity for the financial year 2010-2011.
The company sold most of its Chinese cement business interests to TCCI in April 2010 in order to focus its investment strategy on its iron ore business and seek expansion into new markets in China.