US CHINA MINING GROUP INC 
By CITY OF INDUSTRY, Calif., May 16, 2011 /PRNewswire/ -- US China Mining Group, Inc., ("US China Mining") (OTC Bulletin Board: SGZH) a Chinese leader in coal production and exploration in the People's Republic of China, today announced financial results for the first quarter ending March 31, 2011.
SUMMARY FINANCIALS
First quarter 2011 Results (unaudited)
Q1 2011 Q1 2010 CHANGE
Net Sales $22.2 million $12.6 million +77%
Gross Profit $8.7 million $4.8 million +80%
Net Income $4.1 million $2.1 million +92%
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EPS (Diluted) $0.22 $0.14 +54%
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First quarter of 2011 Financial Results
For the three months ended March 31, 2011, the Company generated net sales of $22.2 million compared to $12.6 million for the same period in 2010, an increase of 77%. The composition of sales for each respective period is as follows:
Q1 2011 Q1 2010
Coal Production $18.6 million $11.1 million +68%
Coal Brokerage $3.6 million $1.5 million +140%
-------------- ------------ ------------ ----
Total Sales $22.2 million $12.6 million +77%
----------- ------------- ------------- ---
Q1 2011 Q1 2010
Tons ASPs Tons ASPs
Coal
Production 382,569 $48.6 233,826 $47.55
Coal Brokerage 75,000 $48.6 30,296 $47.55
-------------- ------ ----- ------ ------
Total 457,569 $48.60 264,122 $47.55
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"We continue to benefit from strong demand for coal in China," explained Mr. Hongwen Li, President of US China Mining Group. "Production and sales were up significantly during the first quarter in Tong Gong and Xing An mines. After a slow seasonal period, we expect our coal brokerage and coal sorting business to accelerate through the second half of 2011."
Cost of sales for the three months ended March 31, 2011 was $13.5 million, an increase of $5.8 million or approximately 75% over the year ago period.
Gross profit was $8.7 million for the first quarter of 2011 compared to $4.8 million for the same period of 2010, an increase of 80%. Gross margins increased 60 basis points to 39.1% for the first quarter of 2011 due to higher selling prices.
Operating expenses were $2.9 million, up $1.4 million from $1.5 million in the first quarter of 2010. Operating income increased 74% to $5.8 million while operating margins were 26.1%. Excluding $1 million in fees and taxes levied by the provincial authorities and $0.3 million in non-cash warrant expenses, which were not present during the same period last year, operating income was $7.1 million.
Net income for the three months ended March 31, 2011 was $4.1 million compared to net income of $2.1 million for the same period of 2010, an increase of 92%. Diluted earnings per share for the first quarter 2011 were $0.22 compared to $0.14 in the same period of 2010. The weighted diluted shares outstanding increased 24% to approximately 19 million as a result of the equity financing completed in the first quarter of 2011.
Balance Sheet and Cash Flow
Cash and cash equivalents totaled $49.7 million on March 31, 2011, compared to $46.2 million on December 31, 2010. US China Mining Group had cash outflows from operations of $1.1 million, as higher income were offset by a $4.5 million advance for upgrades to a mine in Guizhou, which is a potential acquisition and by higher inventories. The Company had a current ratio of 8.1 to 1 at March 31, 2011. Working capital on March 31, 2011 was approximately $50.2 million versus $36.4 million in the year ago period.
On January 2, 2011, the Company raised $15 million through an equity offering.
Business Updates
US China Mining Company owns 3 mines in two separate locations in Heilongjiang province, which produce high grade thermal coal used in energy production. The Company currently has approximately 20 million tons of reserves. The Company continues to make solid progress toward completing the retrofitting at its mines in Xing An. These mines are approved for 600,000 tons of annual capacity. Management will submit a request to relevant provincial mining authorities to increase annual output approval to 900,000 tons once the retrofit is completed.
The Company's Coal Brokerage and Coal Sorting businesses are complementary in that they leverage the Company's close proximity to railway access and installed customer base of large Thermal Energy Power Plants to increase total tons of coal sold. The Brokerage business purchases coal from very small producers while Sorting takes low grade coal from Inner Mongolia, processes and separates the impurities to create compliant coal, which is then loaded on railcars and shipped to customers. The Coal Sorting business, which began operations in November 2010, is expected to ramp in the second half of 2011.
The retrofit at its Xing An mines to the longwall production method continues. Workers are currently building the tunnel that will allow the Company to drill further down the mineshaft. Since completing the remainder of the construction at Xing An is more ideal during the winter, the retrofit will not be completed by the second quarter of 2011 as previously anticipated. Management does not anticipate this delay to have any impact on the full year 2011 self- production target previously announced.
On January 20, 2011, US China Mining signed an advance agreement with respect to a coal mine located in Guizhou province and its potential acquisition by the Company. This mine has approximately 18 million tons of proven reserves and rights to produce 300,000 tons of coal per year. The Company made a $4.6 million advance into an escrow account, which is fully refundable if the acquisition is not consummated. To further the possibility of acquisition, the existing owner recently reorganized the legal structure of the mine to be suitable for acquisition while completing the necessary infrastructure upgrade to be compliant; testing is underway and the local mining and safety authorities are going through the approval process. The due diligence process is underway, including verification of major customers, accounting and license verification. The Company expects to determine its intent to proceed with this acquisition in the near future and, if it proceeds, to complete this acquisition in the summer of 2011.
2011 Guidance
Management reaffirmed its prior guidance of $95.7 million of revenues and $20.3 million of net income for the full year 2011.
"We continue to look for attractive acquisition opportunities that will boost our production and reserves," said Mr. Hongwen Li, President of US China Mining Group. "The opportunity Guizhou provides is geographic diversification and thermal coal with high quality heat content. Our strong capital position positions us well to be disciplined in our acquisitions. We are currently conducting due diligence in China and abroad. We also remain confident in achieving our 2011 financial targets entirely through organic growth."
About US China Mining Group
US China Mining Group is a company engaged in coal production and sales by exploring, assembling, assessing, permitting, developing and mining coal properties in the People's Republic of China ("PRC"). After obtaining permits from the Heilongjiang Province National Land and Resources Administration Bureau and the Heilongjiang Economic and Trade Commission, we extract coal from properties to which we have the right to mine capped amounts of coal, and then sell most of the coal on a per metric ton ("ton") basis for cash on delivery, primarily to power plants, cement factories, wholesalers and individuals for home heating. We do not own the coal mines, but have mining rights to extract a capped amount of coal from a mine as determined by government authorized mining engineers and approved by the Heilongjiang Department of Land and Resources. Our business consists of the operations of Tong Gong coal mine in northern PRC, located approximately 175 km southwest of the city of Heihe in the Heilongjiang Province and the Hong Yuan and Sheng Yu coal mines located in the city of Mohe in Heilongjiang Province.
Safe Harbor Statement
This press release contains certain statements that may include 'forward-looking statements' as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are often identified by the use of forward-looking terminology such as "believe, expect, anticipate, optimistic, intend, will" or similar expressions. Such forward-looking statements involve known and unknown risks and uncertainties that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of risks and factors, including those discussed in the Company's periodic reports that are filed with and available from the Securities and Exchange Commission. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these risks and other factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.
Company Contact:
Tony Peng
Chief Financial Officer
US China Mining Group Inc.
Tel: 626-581-8878
Investor Relations:
HC International
Ted Haberfield, Executive Vice President
Phone: +1-760-755-2716
Email: thaberfield@hcinternational.net
Web: www.hcinternational.net
-- FINANCIAL TABLES -
U.S. CHINA MINING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2011 (UNAUDITED) AND DECEMBER 31, 2010
2011 2010
---- ----
ASSETS
CURRENT ASSETS
Cash & equivalents $49,683,307 $46,224,944
Restricted cash 222,444 220,217
Accounts receivable 172,705 212,414
Other receivables, deposits and
prepayments 4,576,739 35,795
Inventory 2,622,322 1,117,086
--------- ---------
Total current assets 57,277,517 47,810,456
---------- ----------
NONCURRENT ASSETS
Goodwill 26,180,923 26,180,923
Prepaid mining right, net 14,835,155 15,646,300
Property and equipment, net 12,479,670 12,772,164
Construction in progress 12,979,741 6,130,861
Deferred tax asset, net 93,978 184,432
Asset retirement cost, net 2,663,325 2,796,520
--------- ---------
Total noncurrent assets 69,232,792 63,711,200
TOTAL ASSETS $126,510,309 $111,521,656
============ ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Accounts payable $1,905,329 $1,906,255
Unearned revenue 356,600 178,380
Accrued liabilities and other
payables 2,017,247 2,774,978
Taxes payable 2,820,727 3,339,830
Advance from shareholder - 3,180,338
--- ---------
Total current liabilities 7,099,903 11,379,781
--------- ----------
NONCURRENT LIABILITIES
Long-term payable 305,046 301,992
Asset retirement obligation, net
of deposit for 4,341,123 4,243,129
mine restoration of $1,175,833 and
$1,164,062, --------- ---------
respectively
Total noncurrent liabilities 4,646,169 4,545,121
--------- ---------
Total liabilities 11,746,072 15,924,902
---------- ----------
CONTINGENCIES AND COMMITMENTS
STOCKHOLDERS' EQUITY
Series A Preferred Stock, $0.001
par value, 400 400
8,000,000 shares authorized,
400,000 shares
issued and outstanding
Common stock, $0.001 par value,
100,000,000 18,852 14,932
shares authorized, 18,852,582 and
14,932,582
shares issued and outstanding at
March 31, 2011
and December 31, 2010,
respectively
Additional paid in capital 54,147,957 39,833,996
Statutory reserves 11,489,676 10,536,604
Accumulated other comprehensive
income 6,228,992 5,468,674
Retained earnings 42,878,360 39,742,148
---------- ----------
Total stockholders' equity 114,764,237 95,596,754
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $126,510,309 $111,521,656
------------ ------------
U.S. CHINA MINING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 2011 AND 2010 (UNAUDITED)
2011 2010
---- ----
Net sales $22,235,947 $12,558,119
Cost of goods sold 13,543,503 7,725,623
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Gross profit 8,692,444 4,832,496
--------- ---------
Operating expenses
Selling 359,648 565,828
General and administrative 2,523,097 935,791
--------- -------
Total operating expenses 2,882,745 1,501,619
--------- ---------
Income from operations 5,809,699 3,330,877
--------- ---------
Non-operating income
(expenses)
Interest income 51,129 10,610
Interest expense (68,704) (85,671)
Other income (expense) (187) -
Total non-operating
expenses, net (17,762) (75,061)
------- -------
Income before income tax 5,791,937 3,255,816
Provision for income tax 1,702,653 1,130,515
--------- ---------
Net income 4,089,284 2,125,301
Other comprehensive income
Foreign currency translation
gain (loss) 760,318 (213,823)
------- --------
Comprehensive Income $4,849,602 $1,911,478
========== ==========
Basic weighted average shares
outstanding 18,591,249 14,932,582
---------- ----------
Diluted weighted average
shares outstanding 18,993,637 15,360,529
---------- ----------
Basic net earnings per share $0.22 $0.14
===== =====
Diluted net earnings per
share $0.22 $0.14
===== =====
U.S. CHINA MINING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2011 AND 2010 (UNAUDITED)
2011 2010
---- ----
CASH FLOWS
FROM
OPERATING
ACTIVITIES:
Net income $4,089,284 $2,125,301
Adjustments
to
reconcile
net income
to net cash
(used in)
provided by
operating
activities:
Depreciation
and
amortization 1,542,347 1,093,693
Accretion of
interest on
asset
retirement
obligation 54,862 50,851
Imputed
interest 3,823 34,820
Warrants
expense 250,703 -
Stock option
compensation 36,340 29,085
Changes in
deferred
tax 91,942 226,904
(Increase)
decrease in
current
assets:
Accounts
receivable 41,687 (4,706,917)
Other
receivables,
deposits
and
prepayments (4,522,261) 3,733
Inventory (1,487,858) (128,483)
Increase
(decrease)
in current
liabilities:
Accounts
payable (20,000) (232,550)
Unearned
revenue 175,698 (1,041,976)
Accrued
liabilities
and other
payables (781,358) 695,491
Taxes
payable (550,626) 1,502,524
-------- ---------
Net cash
(used in )
provided by
operating
activities (1,075,417) (347,524)
---------- --------
CASH FLOWS
FROM
INVESTING
ACTIVITIES:
Change in
restricted
cash - (60)
Acquisition
of
property,
plant &
equipment - (1,863,301)
Construction
in progress (6,759,254) (720,009)
---------- --------
Net cash
used in
investing
activities (6,759,254) (2,583,370)
---------- ----------
CASH FLOWS
FROM
FINANCING
ACTIVITIES:
Advance from
shareholders - 191,539
Proceeds
from
issuance of
common
stock 13,650,500 -
Repayment to
shareholders (2,800,000) -
Net cash
provided by
financing
activities 10,850,500 191,539
---------- -------
EFFECT OF
EXCHANGE
RATE CHANGE
ON CASH &
EQUIVALENTS 442,534 8,444
------- -----
NET INCREASE
(DECREASE)
IN CASH &
EQUIVALENTS 3,458,363 (2,730,911)
CASH &
EQUIVALENTS,
BEGINNING
OF PERIOD 46,224,944 31,260,184
---------- ----------
CASH &
EQUIVALENTS,
END OF
PERIOD $49,683,307 $28,529,273
=========== ===========
Supplemental
Cash flow
data:
Income tax
paid $1,665,177 $684,868
========== ========
Interest
paid $- $-
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SOURCE US China Mining Group, Inc.
