Government has selected a handful of companies to buy mining assets at significant discounts to the market

Back in August, I told you to buy China's "consolidators."

You see, the Chinese government has selected a handful of coal companies to buy up small mining assets at significant discounts to the market. The country calls these companies "consolidators." And they'll help China regulate a fragmented industry that claims thousands of deaths each year.

China is the largest consumer of coal in the world. It generates about 80% of its electricity from coal-fired plants. And power-generating capacity is expected to increase another 10% this year. The International Energy Agency says it will be at least 20 years before coal's share of electricity generation in China falls below 75%.

In other words, China's demand for coal will last for decades, not just a few years. And these consolidators will be some of the biggest players in the coal industry.

My best "consolidator" play on China's appetite for coal is Puda Coal (AMEX: PUDA, Stock Forum). The government gave this small company the right to purchase mining assets for 20 to 30 cents on the dollar.

The thing is, the stock is up over almost 100% since my recommendation in August. My Penny Stock Specialist subscribers are cashing in. But after Puda's breakout, I wouldn't suggest buying the stock at these levels.

Fortunately, several other "consolidators" are attractive at current prices.

For example, L&L Energy (NASDAQ: LLEN, Stock Forum) is trading at $11. That's about a 30% discount to its 52-week high. It's also buying small mines at cheap prices. It trades for less than eight times earnings. And revenue growth year over year is nearly 400%.

Another consolidator is SinoCoking Coal (NASDAQ: SCOK, Stock Forum). This under-$10 stock is down about 50% over the past four months after a few weak quarters. But the stock is starting to trend higher. SinoCoking is trading at just five times 2011 earnings. It's expected to grow those earnings by more than 40% in the same timeframe.

Yanzhou Coal Mining (NYSE: YZC, Stock Forum) is the conservative play in the "consolidator" space. It has a market cap of $13.7 billion and pays a small dividend. Shares are trading at their 52-week high. But with over $1.5 billion in cash, the company won't have to raise money to purchase coal-mining assets.

China's demand for coal is growing – and will for decades. These "consolidators" chosen by the Chinese government have a huge competitive advantage. And every company I mentioned has incredible earnings upside.

It's not too late to jump on this long-term trend.

Disclosure: The author does not own positions in any of the stocks mentioned