PREPAID MINING RIGHTS

6 Months Ended

Jun. 30, 2012

6. PREPAID MINING RIGHTS

Prepaid mining rights are the portion of the mining rights for which the Company previously paid. The price is determined by the local mining bureau from which the Company acquired its mining rights, based in part on market price set by HPNLARB and in part on negotiations with the local mining bureau. The price is established at the time of payment, regardless of when production of the underlying coal occurs. The price for Tong Gong was RMB 8 ($1.26) per ton for 2008 through 2012; the price for Xing An was RMB 9 ($1.42) per ton for 2008 through 2012. Xing An paid in full for the mining right in June 2008. Tong Gong needs to pay the remaining balance of $897,589 by September 30, 2017. For any mining rights granted prior to September 1, 2006, the Company is generally required to pay for the entire amount of coal underlying such mining rights within five years from the date such right is granted unless specific good cause exists for extension. Effective September 1, 2006, under the authority of the Heilongjiang Geology and Mineral Exploration Office, the Company has 10 years to pay for the coal underlying any mining rights granted on or after such date.

If the Company decides to cease mining at a particular property, and the Company has already extracted all the coal underlying its mining rights, the government will take back that coal mine. If the Company decides to cease mining but has not extracted all coal it has already paid to extract (i.e., its prepaid mining rights), while the Company will not be entitled to a refund of the corresponding prepaid mining rights from the government, the Company can sell such unused prepaid mining rights to a third party.

The following table illustrates the grant dates of the Company's mining rights and corresponding payment due dates:

Grant Date of Mining Rights (1)		In Place Resources to which Mining Rights Relate (in metric tons)(2)			Corresponding Due Date for the Payment of Mining Rights
Xing An	Tong Gong	Xing An	Tong Gong		Xing An	Tong Gong
	12/30/2004			4,649,700		12/30/2009
4/1/2005		816,300			12/30/2010
10/15/2005		13,520,700			9/30/2010
3/1/2007		5,444,800			3/1/2017
	9/30/2007			1,500,000		9/30/2017
Total		19,781,800		6,149,700

(1) Grant date is the date the reserves appraisal report by government authorized mining engineers is filed with Heilongjiang Department of Land and Resources and the Company is approved for the total tons of coal it is legally allowed to extract based on the PRC reserves appraisal report.

(2) The Company's mining rights are based on appraisals of in place resources conducted by the appropriate PRC authorities and are expressed as a maximum number of metric tons of coal in each mine which the Company is entitled to extract under related mining rights.

The Company's prepaid mining rights consisted of the following at June 30, 2012 and December 31, 2011:

	2012			2011
Prepaid mining rights	$	27,217,872		$	27,321,545
Less: Amortized portion		(13,450,997	)		(12,587,402	)
Prepaid mining rights, net	$	13,766,875		$	14,734,143

The Company amortizes the mining rights by using total cost of mining rights (the sum of those for which the Company has paid and those for which the Company is still committed to pay) divided by total salable reserves determined under SEC Industry Guide 7, multiplied by production during the period. The cost of unpaid mining rights is assumed to be the same as the most current price per ton paid by the Company (RMB 8 ($1.26) per ton). Amortization was $913,800 and $1,203,600 for the six months ended June 30, 2012 and 2011, respectively. Amortization was $149,100 and $238,200 for the three months ended June 30, 2012 and 2011, respectively.

As of June 30, 2012 and December 31, 2011, the total quantity of coal the Company is allowed to extract under the mining rights of Xing An and Tong Gong was 25,931,500 tons (as per above table); however, as noted in the table above, this amount reflects the in place resources on which the mining rights are based and to which those mining rights extend. But these amounts, determined by the appropriate PRC authorities, do not coincide with the definition of proven and probable product reserves of SEC Industry Guide 7, which would be 8.32 million tons as of June 30, 2012. The Company paid for 25,165,295 tons at June 30, 2012, and is committed to pay for 766,205 tons of coal at RMB 8 ($1.26) per ton, or $965,418, which must be paid by September 30, 2017. The prepayment of mining rights is accounted for similar to a royalty agreement as neither the payment terms nor the price per ton is fixed.

- Definition

The entire disclosure for all or part of the information related to intangible assets.

+ References+ Details

U.S. China Mining Group, Inc. 10-Q/A