US CHINA MINING GROUP INC 
By CITY OF INDUSTRY, Calif., March 31, 2011 /PRNewswire-FirstCall/ -- 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 fourth quarter and full year ended December 31, 2010.
SUMMARY FINANCIALS
Fourth Quarter 2010 Results (audited)
2010 2009 CHANGE
Net Sales $28.7 million $10.8 million +165%
Gross Profit $12.1 million $4.1 million +194%
Net Income $5.6 million $0.9 million +490%
---------- ------------ ------------ ----
EPS (Diluted) $0.36 $0.06 +500%
------------- ----- ----- ----
Full Year 2010 Results (audited)
2010 2009 CHANGE
Net Sales $69.0 million $65.0 million +6%
GAAP Gross Profit $28.6 million $37.8 million -24%
Adjusted Gross Profit $29.4 million(1) $39.4 million(2) -25%
GAAP Net Income $13.4 million $25.1 million -47%
Adjusted Net Income $14.5 million(3) $27.1 million(4) -46%
GAAP EPS (Diluted) $0.87 $1.63 -47%
------------------ ----- ----- ---
Adjusted EPS (Diluted) $0.94(3) $1.76(4) -47%
---------------------- ------- ------- ---
(1) Excludes non-cash expense of $0.8 million related to the
difference in 2010 GAAP and PRC standards for amortization in mining
right and depreciation in mining shaft for the Company's Xing An and
Tong Gong mining operations.
(2) Excludes non-cash expense of $1.6 million related to the
difference in 2009 GAAP and PRC standards for amortization in mining
right and depreciation in mining shaft for the Company's Xing An and
Tong Gong mining operations.
(3) Excludes non-cash expense of $1.1 million related to the
difference in 2010 GAAP and PRC standards for amortization in mining
right, amortization in asset retirement obligation, and depreciation
in mining shaft for the Company's Xing An and Tong Gong mining
operations.
(4) Excludes non-cash expense of $2.0 million related to the
difference in 2009 GAAP and PRC standards for amortization in mining
right, amortization in asset retirement obligation, and depreciation
in mining shaft for the Company's Xing An and Tong Gong mining
operations.
Fourth Quarter of 2010 Financial Results
For the three months ended December 31, 2010, the Company recorded revenues of $28.7 million compared to $10.8 million for the same period of 2009, an increase of 165%. The composition of sales for each respective period is as follows:
Q4 Revenues
2010 2009 % CHANGE
Coal Production $19.6 million $7.7 million +155%
Coal Brokerage $9.1 million $3.1 million +194%
-------------- ------------ ------------ ----
Total $28.7 million $10.8 million +165%
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Q4 2010 Q4 2009
Tons (000's) ASPs Tons (000's) ASPs
Coal Production 395 $49.7 173 $44.6
Coal Brokerage 183 $49.7 69 $44.6
-------------- --- ----- --- -----
Total 578 $49.7 242 $44.6
----- --- ----- --- -----
"We are pleased to report a strong increase in our fourth quarter operating results, which provides confirmation of our embedded growth plan and solid momentum as we move into 2011, said Mr. Hongwen Li, President of US China Mining Group. "The quarter benefitted from increased production at our Xing An mines while overall coal production increased 136.4% to 606,747 tons."
Cost of sales for the three months ended December 31, 2010 was $16.6 million, an increase of $9.9 million or approximately 148% over the year ago period.
Gross profit was $12.1 million for the fourth quarter of 2010 compared to $4.1 million for the same period of 2009, an increase of 194%. Gross margins increased 40 basis points to 42% for the fourth quarter of 2010 due to higher production volumes as a result of the Xing An mines coming back online in November 2010.
Net income for the three months ended December 31, 2010 was $5.6 million compared to net income of $0.9 million for the same period of 2009, an increase of 490%. Diluted earnings per share for the fourth quarter 2010 were $0.36 compared to $0.06 in the same period of 2009.
Full Year 2010 Financial Results
Sales for the full year of 2010 were $69.0 million, a 6% increase from the $65.0 million reported in the same period in 2009. Average selling price per ton for 2010 was $47.30, a 4% decrease from 2009 resulting from lower average selling prices to large utility plants in the Heilongjiang Province. Total sales volume increased 10.3% to 1.46 million tons for 2010, and benefitted from growth in the coal brokerage business.
Revenues
2010 2009 % CHANGE
Coal Production $33.7 million $45.2 million -25.4%
Coal Brokerage $35.3 million $19.8 million +78.3%
-------------- ------------- ------------- -----
Total $69.0 million $65.0 million +6%
----- ------------- ------------- ---
2010 2009
Tons(000's) ASPs Tons (000's) ASPs
Coal
Production 713 $47.3 920 $49.1
Coal Brokerage 747 $47.3 404 $49.1
-------------- --- ----- --- -----
Total 1,460 $47.30 1,324 $49.10
----- ----- ------ ----- ------
Beginning at the end of 2009, Xing An Mines commenced mine maintenance and retrofit projects that were necessary under new safety regulations and resulted in decreased production. The Company expected the projects to take from 12 to 21 month to complete; production partially resumed in November of 2010 and will fully resume when the retrofit is complete by the year-end 2011. These mine improvements will enhance profitability by increasing output yields and lowering extraction costs. In addition, with enhanced production capabilities, management plans to request approval to increase the annual output by 50% to 900,000 MT per year.
Cost of sales for the year ended December 31, 2010 was $40.5 million, an increase of approximately 49% from 2009. The cost per ton in 2010 increased to $27.71 from $19.79 in 2009, due to higher labor and energy costs.
GAAP gross profit was $28.6 million for the year ended December 31, 2010, compared to approximately $37.8 million for the same period in 2009. Adjusted gross profit, excluding non-cash charges related to the difference in 2010 GAAP and PRC standards for amortization and depreciation, reached to $29.4 million, representing gross margins of approximately 42.6% and 60.6%, respectively. The decrease in gross profit margin was mainly attributable to the decreased saleable production volume, decreased average selling price per ton and increased average cost per ton.
Operating expenses totaled $9.4 million for the full year 2010 compared to $5.8 million for 2009, an increase of $3.5 million or approximately 61%. Operating expenses were negatively impacted by increased payroll and welfare expenses, and electricity fees as a result of overall price inflation in China. In addition, the increase was attributable to three new fees ranging from approximately $1.50/ton to $3/ton levied by the provincial government and local authorities, which totaled $1.4 million for the year. Although the fees are expected to be temporary, the Company expects to pass these to customers if they become permanent. Deducting the fees, operating expenses would have been $8.0 million.
GAAP Net income for full year 2010 was $13.4 million compared to $25.1 million in the same period in 2009, a decrease of $11.7 million. Diluted earnings per share for the full year of 2010 were $0.87 compared to $1.63 in the same period of 2009. Adjusted net income, excluding non-cash charges related to the difference in 2010 GAAP and PRC standards for amortization and depreciation, increased 8.2% to $14.5 million, or $0.94 per diluted share compared to $27.1 million or $1.76 per share for the same period last year. Diluted earnings per share were calculated using weighted average shares of 15,342,139 and 15,348,088 for the years ended December 31, 2010 and December 31, 2009, respectively. (See "Reconciliation of GAAP Gross Profit and Net Income to Adjusted Gross Profit and Net Income, respectively" table below.)
Balance Sheet and Cash Flow
Cash and cash equivalents totaled $46.2 million on December 31, 2010, compared to $31.3 million on December 31, 2009. US China Mining Group generated approximately $20.7 million in cash flows from operating activities in 2010. The Company had current ratio of 4.2 to 1 at December 31, 2010. Working capital on December 31, 2010 was approximately $36.4 million versus $24.8 million in the year ago period. On January 2, 2011, the Company raised $15 million through an equity offering, which is not reflected on the year-end balance sheet.
Business Update
US China Mining Company owns 3 mines in two separate locations in Heilongjiang province which produces high grade thermal coal used to produce energy. The Company currently has approximately 20 million tons of reserves. Production will ramp throughout 2011 and management anticipates 830,000 tons will be mined and sold generating approximately $40 million in revenues. While the Xing An mine is currently approved for 600,000 tons of annual capacity, once the retrofit is completed management will submit requests to relevant provincial mining authorities to increase annual output approval to 900,000 tons.
The Company's coal brokerage and coal sorting are complementary in that they leverage a key asset, which is close proximity to railway access and an 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, consolidates and ships by railcar to the end customer. Management expects to generate over $33 million in revenues by selling 680,000 tons through coal brokerage. Sorting takes low grade coal from Inner Mongolia, processes and separates the impurities to create compliant coal, and then ships it by railcar to customers. The coal sorting business is expected to contribute $22.5 million in revenues for 2011, or approximately 25% of the total forecast, by processing 500,000 tons through this method.
The Chinese government is pushing industry consolidation throughout China and has set minimum production thresholds in order to remain as a stand-alone operator. This is creating numerous acquisition opportunities at attractive valuations for the company to evaluate.
"We have ramped production at the Xing An Mines and are now operating at full capacity, a move which in combination with sorting and brokerage will enable us to meet our 2011 forecast for $95.7 million in revenues and net income of $20.3 million," said Mr. Hongwen Li, President of US China Mining Group. "Our strong cash balance and positive cash flow provide enhanced flexibility when negotiating for acquisitions, especially with under-capitalized producers. We are currently in due diligence with assets both in China and abroad. Our 2011 goals including expanding both our coal reserves and production capabilities as enhance our position as an established operator."
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 in 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.
About Non-GAAP Financial Measures
This press release contains non-GAAP financial measures on annual basis. The Company believes that these non-GAAP financial measures are useful to investors because they exclude non-cash charges that our management excludes when it internally evaluates the performance of the Company's business and makes operating decisions, including internal budgeting, and performance measurement, because these measures provide a consistent method of comparison to historical periods. Moreover, management believes these non-GAAP measures reflect the essential operating activities of US China Mining Group. Accordingly, management excludes expenses related to the difference in 2010 GAAP and PRC standards for amortization in mining right, amortization in asset retirement obligation, and depreciation in mining shafts for the Company's Xing An and Tong Gong mining operations when making operational decisions. The Company believes that providing the non-GAAP measures that management uses to its investors is useful to investors for a number of reasons. The non-GAAP measures provide a consistent basis for investors to understand the Company's financial performance in comparison to historical periods. In addition, it allows investors to evaluate the Company's performance using the same methodology and information as that used by our management. Non-GAAP measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from the non-GAAP financial measure. However, our management compensates for these limitations by providing the relevant disclosure of the items excluded.
The following table provides the non-GAAP financial measure and the related GAAP measure and provides a reconciliation of the non-GAAP measure to the equivalent GAAP measure on yearly basins.
Reconciliation of GAAP Gross Profit and Net Income (Loss) to Adjusted Gross Profit and Net Income, respectively (Unaudited)
(In thousand US dollar) Full Year Ended December 31
2010 2009
---- ----
Gross Profit 28,577 37,806
Net Income (loss) 13,399 25,087
Difference in
Amortization of Mining Rights 760 1,355
Depreciation of Mining Shafts $52 263
Amortization of Assets Retirement
Obligations 241 361
Adjusted Gross Profit 29,389 39,424
Adjusted Net Income 14,452 27,066
Diluted Weighted average number of shares
(shares) 15,342,139 15,348,088
----------------------------------------- ---------- ----------
Diluted Adjusted earnings per common share $0.94 $1.76
------------------------------------------ ----- -----
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
DECEMBER 31, 2010 AND 2009
2010 2009
---- ----
ASSETS
CURRENT ASSETS
Cash & equivalents $46,224,944 $31,260,184
Restricted cash 220,217 213,345
Accounts receivable 212,414 -
Other current assets 35,795 25,359
Inventory 1,117,086 6,542
--------- -----
Total current assets 47,810,456 31,505,430
---------- ----------
NONCURRENT ASSETS
Goodwill 26,180,923 26,180,923
Prepaid mining right, net 15,646,300 16,805,753
Long term prepaid expense - 13,669
Property and equipment, net 12,772,164 12,014,244
Construction in progress 6,130,861 -
Deferred tax asset, net 184,432 440,339
Asset retirement cost, net 2,796,520 3,025,929
--------- ---------
Total noncurrent assets 63,711,200 58,480,857
TOTAL ASSETS $111,521,656 $89,986,287
============ ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Accounts payable $1,906,255 $579,307
Unearned revenue 178,380 1,705,981
Accrued liabilities and other
payables 2,774,978 974,519
Taxes payable 3,339,830 1,076,240
Advance from shareholder 3,180,338 2,321,360
--------- ---------
Total current liabilities 11,379,781 6,657,407
---------- ---------
NONCURRENT LIABILITIES
Long-term payable 301,992 82,213
Asset retirement obligation, net
of deposit for 4,243,129 4,060,461
mine restoration of $1,164,062 and
$980,632, respectively --------- ---------
Total noncurrent liabilities 4,545,121 4,142,674
--------- ---------
Total liabilities 15,924,902 10,800,081
---------- ----------
CONTINGENCIES AND COMMITMENT
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 14,932 14,932
shares authorized, 14,932,582
shares issued
and outstanding
Additional paid in capital 39,833,996 38,929,284
Statutory reserves 10,536,605 8,988,637
Accumulated other comprehensive
income 5,468,673 3,362,044
Retained earnings 39,742,148 27,890,909
---------- ----------
Total stockholders' equity 95,596,754 79,186,206
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $111,521,656 $89,986,287
============ ===========
U.S. CHINA MINING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2010 AND 2009
2010 2009
---- ----
Net sales $69,030,412 $64,998,456
Cost of goods sold 40,453,630 27,192,191
---------- ----------
Gross profit 28,576,782 37,806,265
---------- ----------
Operating expenses
Selling 1,605,698 1,100,681
General and administrative 7,777,818 4,744,293
--------- ---------
Total operating expenses 9,383,516 5,844,974
--------- ---------
Income from operations 19,193,266 31,961,291
---------- ----------
Non-operating income
(expenses)
Interest income 88,890 34,969
Interest expense (365,805) (320,527)
Other income (expense) (423) 111,269
Total non-operating
expenses, net (277,338) (174,289)
-------- --------
Income before income tax 18,915,928 31,787,002
Provision for income tax 5,516,722 6,700,175
--------- ---------
Net income 13,399,206 25,086,827
Other comprehensive income
Foreign currency translation
gain (loss) 2,106,631 (213,823)
--------- --------
Comprehensive Income $15,505,837 $24,873,004
=========== ===========
Basic weighted average shares
outstanding 14,932,582 14,932,582
---------- ----------
Diluted weighted average
shares outstanding 15,342,139 15,348,088
---------- ----------
Basic net earnings per share $0.90 $1.68
===== =====
Diluted net earnings per
share $0.87 $1.63
===== =====
U.S. CHINA MINING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2010 AND 2009
2010
----
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $13,399,206
Adjustments to
reconcile net income
to net cash
provided by operating
activities:
Depreciation and
amortization 3,491,312
Accretion of interest
on asset retirement
obligation 205,129
Imputed interest 160,676
Warrants expense 596,580
Stock option
compensation 147,456
Changes in deferred tax 263,726
(Increase) decrease in
current assets:
Accounts receivable (207,808)
Other receivables,
deposits and
prepayments 3,610
Inventory (1,086,263)
Deposit for mine
restoration (149,683)
Increase (decrease) in
current liabilities:
Accounts payable 1,281,751
Unearned revenue (1,546,262)
Accrued liabilities and
other payables 1,948,252
Taxes payable 2,181,831
---------
Net cash provided by
operating activities 20,689,513
----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Change in restricted
cash (247)
Acquisition of
property, plant &
equipment (1,907,314)
Construction in
progress (5,997,910)
----------
Net cash used in
investing activities (7,905,471)
----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Due to shareholders 858,977
Increase in long term
payable -
Dividend to Xing An
shareholders -
Due from shareholders 49,042
Net cash provided by
(used in) financing
activities 908,019
-------
EFFECT OF EXCHANGE RATE
CHANGE ON CASH &
EQUIVALENTS 1,272,699
---------
NET INCREASE IN CASH &
EQUIVALENTS 14,964,760
CASH & CASH
EQUIVALENTS, BEGINNING
OF YEAR 31,260,184
----------
CASH & EQUIVALENTS, END
OF YEAR $46,224,944
===========
Supplemental Cash flow
data:
Income tax paid $4,241,062
==========
Interest paid $-
===
2009
----
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $25,086,827
Adjustments to
reconcile net income
to net cash
provided by operating
activities:
Depreciation and
amortization 4,607,484
Accretion of interest
on asset retirement
obligation 195,394
Imputed interest 125,132
Warrants expense -
Stock option
compensation 77,955
Changes in deferred
tax (405,921)
(Increase) decrease in
current assets:
Accounts receivable -
Other receivables,
deposits and
prepayments 35,787
Inventory 23,138
Deposit for mine
restoration (980,230)
Increase (decrease) in
current liabilities:
Accounts payable 308,704
Unearned revenue 1,514,965
Accrued liabilities
and other payables 482,847
Taxes payable (5,628,634)
----------
Net cash provided by
operating activities 25,443,448
----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Change in restricted
cash (244)
Acquisition of
property, plant &
equipment (109,950)
Construction in
progress (10,979)
-------
Net cash used in
investing activities (121,173)
--------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Due to shareholders 1,097,679
Increase in long term
payable 82,180
Dividend to Xing An
shareholders (12,000,000)
Due from shareholders -
Net cash provided by
(used in) financing
activities (10,820,141)
-----------
EFFECT OF EXCHANGE
RATE CHANGE ON CASH &
EQUIVALENTS 13,309
------
NET INCREASE IN CASH &
EQUIVALENTS 14,515,443
CASH & CASH
EQUIVALENTS,
BEGINNING OF YEAR 16,744,741
----------
CASH & EQUIVALENTS,
END OF YEAR $31,260,184
===========
Supplemental Cash flow
data:
Income tax paid $12,411,106
===========
Interest paid $-
===
SOURCE US China Mining Group, Inc.
