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GKE Corp to gain stable income stream from limestone mining JV
LOGISTICS solutions company GKE Corporation expects to gain a "stable and sustainable" income stream from limestone mining via a new joint venture, extending its infrastructural materials operations upstream, the Catalist-listed company said on Friday after market close.
Its wholly-owned unit, Wuzhou Xing Jian Readymix Co, has obtained mining rights in Cangwu county in China, for the mining and production of up to 500,000 tonnes of limestone each year for 9.5 years, at a consideration of 5.05 million yuan (S$1.01 million).
Wuzhou Xing Jian is mainly engaged in the manufacture and supply of ready-mix concrete products, with limestone being an ingredient in cement and concrete. To monetise these rights, Wuzhou Xing Jian has formed a joint venture with unrelated third parties Cangwu County Wanfu Trading Co and Wuzhou Xing Zhan Investment Co, for the mining and production of limestone products.
Wuzhou Xing Jian shall transfer its mining rights to the joint venture, in which it will hold an 18 per cent stake, and contribute 540,000 yuan to its paid-up capital.
Under a separate agreement with Wuzhou Xing Zhan, Wuzhou Xing Jian will receive a fixed income of 3 yuan per tonne of output produced and sold, with a 15 per cent increase every three years. The agreement is valid for the duration of the mining rights or until an aggregate output of 4.75 million tonnes of limestone is reached, whichever is earlier. Upon successful extension of the mining rights, the joint venture will continue and the terms with Wuzhou Xing Zhan will be subject to renegotiation.
"While we are focused on steering the group back to profitability, we are mindful of not committing excessive resources," said GKE chief executive officer and executive director Neo Cheow Hui. He noted that the first phase of collaboration will limit GKE's capital commitment to the cost of mining rights and its portion of paid-up capital, amounting to about S$1.12 million, while the company will receive "a stable and sustainable income contribution".
"We believe that this joint venture will be an added booster to our net earnings once mining commences," he said. The proposed mining will be funded through internal resources and is not expected to have any material impact on GKE's net tangible assets and earnings per share for the financial year ending May 31, 2019.
"As limestone is one of the key feed stocks for ready-mix concrete manufacturing, our participation in limestone mining could further enhance our competitive edge in the cities where we operate," added Mr Neo.
GKE Corp shares closed unchanged at 6.8 Singapore cents on Friday before the news.