The new arm will source raw coal from inner Mongolian producers via railcar, and will then clean and sort the coal at the facility at Xing An, located in the northern region of the Heilongjiang Province near the Russian border.

“The coal from inner Mongolia has a high level of impurities when compared to the coal produced at Xing An directly,” the company said, comparing the output to its own high-quality thermal coal.

“Therefore it needs to be cleaned and sorted to yield prevailing market prices, which are currently $US47.50 per ton for thermal coal and similar to those the company receives for internally produced coal.”

US China Mining Group anticipates it will sort at least 500,000 metric tons during the 2011 fiscal year, with gross profits estimated at about $15/t, a gross margin of more than 30%, and net profits of $12/t.

Company president Hongwen Li said the launch of the new business would help US China Mining to leverage its coal business.

The company has invested $800,000 in equipment and the facility will have an annual capacity of 600,000t. Since the launch in November, 40,000t has already been sorted and another 20,000t monthly is expected through this June, when volumes are expected to rise significantly.

“During the winter months, availability of railway cars for coal from inner Mongolia is limited as food and timber take government priority for shipping,” Hongwen Li said.

“However, as the summer approaches we expect these transportation restrictions to be mitigated and anticipate operating at full capacity during the second half of the year. We are also evaluating the feasibility of expanding our sorting capabilities directly in inner Mongolia."

US China Mining operates the Tong Gong coal mine in the northern region of China, about 175 kilometers southwest of Heihe in the Heilongjiang Province. It also runs the Hong Yuan and Sheng Yu coal mines in the city of Mohe in the same province.