General Steel Holdings Inc announced it has signed a 20 year unified management agreement with Shaanxi Coal and Chemical Industry Group Co Ltd and Shaanxi Iron and Steel Group Co Ltd.

Under terms of the agreement, General Steel will provide daily management of operations and operate production equipment constructed by Shaanxi Steel at a facility owned by General Steel's subsidiary Shaanxi Longmen Iron and Steel Co Ltd in Hancheng Shaanxi province, China.

The agreement was signed during a ceremony held on April 29, 2011, which included executives from General Steel, Shaanxi Steel and officials from the Shaanxi provincial government.

At its designed efficiency levels, the new equipment, including two new 1,280 cubic meter blast furnaces constructed by Shaanxi Steel, is expected to add 3 million tonnes crude steel production capacity per year. Up to now, General Steel has 4 million tonnes of crude steel annual production capacity, plus 3 million tonnes of crude steel annual production capacity jointly managed with Shaanxi Steel.

This agreement follows the completion of a two year construction and installation process and four months of testing of Shaanxi Steel's equipment at the Longmen JV. The testing of the equipment was completed in April 2011, and the Company launched full scale production in May 2011. On an initial basis, the equipment is expected to run at 85% of its capacity, with total output at the facility expected to be approximately six million metric tons of crude steel annual production per year.

Under the agreement, Shaanxi Coal has committed to providing Longmen JV with raw materials, including coke and coal, at favorable pricing, as well as providing access to its nation wide transportation system to reduce General Steel's overall transportation costs. In addition, the agreement includes provisions under which both Shaanxi Coal and Shaanxi Steel are expected to provide financial support, including credit guarantees, as needed for the operation.

A supervisory committee has been established to monitor general operating efficiency at the facility. With the expanded capacity and production at Longmen JV, it is expected the unit management fee will decline accordingly. Shaanxi Coal has agreed to consider forming a strategic partnership with Longmen JV in the future beyond what is outlined in the formal agreement aimed at supply chain optimization, efficiency improvement and profitability raise.

For the first two years under the agreement Longmen JV will receive 60% of the pre tax profit on the sale of products manufactured at the Longmen JV facility, with the remaining 40% distributed to Shaanxi Steel. Profit distributed to Shaanxi Steel will be classified as an operating expense on General Steel's consolidated statements of operations.