SinoCoking Coal and Coke Chemical Industries Announces 2011 Third Quarter Financial Results

16 May, 2011, 17:55 ET from SinoCoking Coal and Coke Chemical Industries, Inc.

PINGDINGSHAN, China, May 16, 2011 /PRNewswire-Asia-FirstCall/ -- SinoCoking Coal and Coke Chemical Industries, Inc. (Nasdaq: SCOK) (the "Company" or "SinoCoking"), a vertically-integrated coal and coke processor, today announced its financial results for the third quarter and nine month period ended March 31, 2011.  

Third Quarter 2011 vs. 2010

  • Revenue increased by 30.3% to $19,872,461 from $15,247,494 due to higher prices of coke and coal products largely driven by the coal supply shortage, as well as increased coal tar and washed coal sales, although sales volumes of coke and raw coal decreased.
  • Revenue from the sale of coal products increased by 66.8% to $11.1 million while total metric tons sold decreased by 3.7%.
  • Revenue from the sale of coke products increased by 2.7% to $8.9 million while total metric tons sold decreased by 4.9%.
  • Average selling prices for raw coal, coal tar and coke increased by 20.9%, 10.91% and 7.76%, respectively.
  • Gross margin decreased to 36.4% as compared to 37.0%.
  • Pre-tax income increased to $18,360,914, as compared to a loss of $35,592,355.
  • Including the change in fair value of warrants, net income was $17,138,441, or $0.81 per diluted share, as compared to a net loss of $36,876,262, or $2.39 per share.
  • Excluding the change in fair value of warrants, net income increased to $4,947,206, or $0.23 per diluted share as compared to $2,993,400, or $0.17 per diluted share.

Optimizing Product Mix to Maximize Third Quarter Results

  • We increased our washed coal sales significantly and took advantage of higher selling prices created by the tight coal supply.
  • Conversely, raw coal sales declined as we had a limited amount available to sell, even after the limited resumption of operations at our Hongchang Mine in late 2010.
  • We reduced coke sales as a response to the tight working capital situation of China's steel industry due to the country's inflationary control policies.
  • 32,041 metric tons were extracted from the Company's Hongchang Mine, which represent less than 3% of the mine's total estimated recoverable coal.  

Nine Months 2011 vs. 2010

  • Revenue increased by 3.1% to $49,626,255 from $48,140,913 due to increased selling prices for coal and coke products as well as increased sales volumes for coke, coal tar, and washed coal, although raw coal sales decreased.
  • Gross margin decreased to 38.3% as compared to 43.1%.
  • Pre-tax income increased to $29,080,790 as compared to a loss of $21,379,557.
  • Including the change in fair value of warrants, net income was $25,630,716, or $1.22 per diluted share as compared to a net loss of $25,595,586, or $1.82 per share.
  • Excluding the change in fair value of warrants, net income decreased to $11,967,338, or $0.57 per diluted share as compared to $14,277,076, or $0.95 per diluted share.

SinoCoking's Chairman and CEO, Mr. Jianhua Lv noted, "Our operating results for the third quarter were again impacted by the government's plan to consolidate small- and mid-sized coal mines and the related temporary moratorium of mining operations.   As this has been a massive undertaking and the deadline to complete the consolidation has been extended to the end of 2011, we believe that we, along with other consolidators, now have the time needed to work through governmental administrative procedures."

Mr. Lv added, "The most important development for SinoCoking thus far this year is the April 28th issuance of the business license for our joint-venture with the state-owned conglomerate Henan Province Coal Seam Gas Development and Utilization Co., Ltd. ("Henan Coal Seam Gas")."

Through this joint-venture, named "Henan Hongyuan Coal Seam Gas Engineering Technology Co., Ltd." ("Hongyuan CSG"), SinoCoking will be able to:

  • Complete previously announced coal mine acquisitions as well as pursue other potential acquisition opportunities;
  • Secure coal requirements and control its cost of coal as the Company moves forward to complete acquisitions;  
  • Utilize the strengths of Henan Coal Seam Gas, including its strong technical resources, skilled mine-safety management team and track record of safe coal mine operations, to improve overall mining efficiency and safety; and,  
  • Reduce potential disruptions that future coal mining government policy changes may have on its operations.

The Company will also be able to explore new business opportunities, as Hongyuan CSG's business parameters under its business license include:

  • Research and development of and technical consulting in coal and coal bed methane ("CBM") extraction;
  • Research and development in CBM-related engineering;
  • Investment and management of coal, CBM and coke enterprises; and,
  • Sales of mining facilities.

Mr. Lv noted, "Additionally, just a month ago, we secured a RMB 360 million medium-term loan which has significantly improved our financial position and has provided us with the funds needed to accelerate our growth strategy including the completion of the construction of the new coke facility and the purchase of raw materials needed to start production at the new coke facility once construction is completed.  The new facility, which has a projected annual production capacity of 900,000 metric tons, is expected to generate approximately $100-$150 million of revenue and contribute $20-$25 million to our net income per year.  Additionally, our cost estimate for construction of the facility has been reduced from $70 million to $60 million."

Concluding, Mr. Lv commented, "Through the implementation of our ambitious business plan, we are positioning the Company to be able to meet and adapt to changing demands for coke and coal products.  We remain committed to profitably growing our Company and in so doing, enhancing shareholder value."

Conference Call

SinoCoking's Chairman and CEO, Jianhua Lv and CFO, Sam Wu will host a conference call on Thursday, May 19, 2011 at 9:00 am ET to discuss these results as well as recent corporate developments.  After opening remarks, there will be a question and answer period.  

Interested parties may participate in the call by dialing: (201) 689-8354.  Please call in 10 minutes before the conference is scheduled to begin and ask for the SinoCoking call.  After opening remarks, there will be a question and answer period.  Questions may be asked during the live call, or alternatively, you may e-mail questions in advance to lcati@equityny.com.

The conference call will also be broadcast live over the Internet.  To listen to the webcast, please go to www.sinocokingchina.com and then to the Event Calendar where the conference call is posted. Please go to the website at least 15 minutes early to register, and download and install any necessary audio software.  If you are unable to listen live, the conference call will be archived and can be accessed for approximately 90 days.  We suggest listeners use Microsoft Internet Explorer as their web browser.

About SinoCoking

SinoCoking and Coke Chemical Industries, Inc., a Florida corporation, is a vertically-integrated coal and coke processor that uses coal from both its own mines and that of third-party mines to produce basic and value-added coal products for steel manufacturers, power generators, and various industrial users. SinoCoking currently has mining rights and capacity to extract 300,000 metric tons of coal per year from its own mines located in the Henan Province in central China. SinoCoking has been producing metallurgical coke since 2002, and acts as a key supplier to regional steel producers in central China. SinoCoking also produces and supplies thermal coal to its customers in central China. SinoCoking owns its assets and conducts its operations through its subsidiaries, Top Favour Limited, a British Virgin Islands holding company, Pingdingshan Hongyuan Energy Science and Technology Development Co., Ltd., Henan Province Pingdingshan Hongli Coal & Coke Co., Ltd., Baofeng Coking Factory, Baofeng Hongchang Coal Co., Ltd. and Baofeng Hongguang Environment Protection Electricity Generating Co., Ltd.

For further information about SinoCoking, please refer to our periodic reports filed with the Securities and Exchange Commission.

Forward Looking Statement

This press release contains forward-looking statements, particularly as related to, among other things, the business plans of the Company, statements relating to goals, plans and projections regarding the Company's financial position and business strategy. The words or phrases "plans", "would be," "will allow," "intends to," "may result," "are expected to," "will continue," "anticipates," "expects," "estimate," "project," "indicate," "could," "potentially," "should," "believe," "think", "considers" or similar expressions are intended to identify "forward-looking statements." These forward-looking statements fall within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934 and are subject to the safe harbor created by these sections. Actual results could differ materially from those projected in the forward-looking statements as a result of a number of risks and uncertainties. Such forward-looking statements are based on current expectations, involve known and unknown risks, a reliance on third parties for information, transactions or orders that may be cancelled, and other factors that may cause our actual results, performance or achievements, or developments in our industry, to differ materially from the anticipated results, performance or achievements expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from anticipated results include risks and uncertainties related to the fluctuation of local, regional, and global economic conditions, the performance of management and our employees, our ability to obtain financing, competition, general economic conditions and other factors that are detailed in our periodic reports and on documents we file from time to time with the Securities and Exchange Commission. Statements made herein are as of the date of this press release and should not be relied upon as of any subsequent date. The Company cautions readers not to place undue reliance on such statements. The Company does not undertake, and the Company specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement. Actual results may differ materially from the Company's expectations and estimates. The Company provides no assurances that any potential acquisitions will actually be consummated, or if consummated that such acquisitions will be on terms and conditions anticipated on the date of this press release, and the Company makes no assurances with regard to any results of any such acquisitions.

Contact:

SinoCoking

Investor Relations Counsel:

Sam Wu, Chief Financial Officer

The Equity Group Inc.

+ 86-375-2882-999

Lena Cati / lcati@equityny.com / (212) 836-9611

sinocoking@sina.com

Linda Latman / llatman@equityny.com / (212) 836-9609

www.sinocokingchina.com

www.theequitygroup.com

See Accompanying Tables

SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)

(Unaudited)

For the three months ended

For the nine months ended

March 31,

March 31,

2011

2010

2011

2010

REVENUE

$

19,872,461

$

15,247,494

$

49,626,255

$

48,140,913

COST OF REVENUE

12,636,751

9,605,889

30,635,815

27,411,765

GROSS PROFIT    

7,235,710

5,641,605

18,990,440

20,729,148

OPERATING EXPENSES:

Selling

75,894

96,549

231,808

400,544

General and administrative

870,284

1,369,063

2,541,924

1,823,661

Total operating expenses

946,178

1,465,612

2,773,732

2,224,205

INCOME FROM OPERATIONS

6,289,532

4,175,993

16,216,708

18,504,943

OTHER INCOME (EXPENSE), NET

Finance expense, net

(119,311)

(8,666)

(689,367)

(124,629)

Other income (expense), net

(542)

109,980

(109,929)

109,791

Change in fair value of warrants

12,191,235

(39,869,662)

13,663,378

(39,869,662)

Total other income (expense), net

12,071,382

(39,768,348)

12,864,082

(39,884,500)

INCOME (LOSS) BEFORE INCOME TAXES

18,360,914

(35,592,355)

29,080,790

(21,379,557)

PROVISION FOR INCOME TAXES

1,222,473

1,283,907

3,450,074

4,213,029

NET INCOME (LOSS)

17,138,441

(36,876,262)

25,630,716

(25,592,586)

OTHER COMPREHENSIVE INCOME

Foreign currency translation adjustment

2,680,710

29,304

2,680,710

81,976

COMPREHENSIVE INCOME (LOSS)

$

19,819,151

$

(36,846,958)

$

28,311,426

$

(25,510,610)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES

Basic

21,043,206

15,441,258

20,927,453

14,086,729

Diluted

21,057,332

15,441,258

20,941,252

14,086,729

EARNINGS (LOSS) PER SHARE

Basic

$

0.81

$

(2.39)

$

1.22

$

(1.82)

Diluted

$

0.81

$

(2.39)

$

1.22

$

(1.82)

SINOCOKING COAL AND COKE CHEMICAL INDUSTRIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

March 31,

June 30,

2011

2010

ASSETS

(Unaudited)

CURRENT ASSETS

Cash

$

5,122,863

$

17,403,008

Restricted cash

19,297,500

22,902,000

Loans receivable

2,075,125

2,513,308

Notes receivable

3,048,700

       1,045,830

Accounts receivable, trade, net

15,836,081

5,304,684

Other receivables

3,307,921

479,121

Other receivables - related parties

                     -  

477,052

Inventories

7,419,285

2,261,816

Advances to suppliers

5,136,004

4,995,703

Total current assets

       61,243,479

     57,382,522

PLANT AND EQUIPMENT, net

27,591,252

20,930,413

OTHER ASSETS

Prepayments for land use rights

8,852,625

       5,074,485

Prepayments for mine acquisitions

17,406,705

       8,858,398

Prepayments for construction of new operating plant

7,919,053

     17,303,883

Intangible - land use rights, net

1,909,286

       1,892,292

Intangible - mineral rights, net

1,576,441

       2,629,437

Investment in cost method affiliate

1,220,000

                    -  

Other assets

116,083

          103,110

Total other assets

       39,000,193

     35,861,605

Total assets

$

     127,834,924

$

   114,174,540

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES

Accounts payable, trade

$

433,107

$

          291,750

Notes payable

                     -  

       2,946,000

Short term loans - bank

       15,250,000

     14,730,000

Short term loans - others

                     -  

          515,550

Other payables and accrued liabilities

591,180

       1,433,121

Other payables - related party

380,622

            51,381

Customer deposits

158,252

          106,830

Taxes payable

1,646,746

       1,229,019

Total current liabilities

18,459,907

21,303,651

OTHER LIABILITIES

Warrant derivative liability

15,041,496

     30,436,087

Total other liabilities

15,041,496

     30,436,087

Total liabilities

       33,501,403

     51,739,738

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY

Common shares, $0.001 par value, 100,000,000 authorized, 21,090,948 and 20,871,192 issued and outstanding as of March 31, 2011 and June 30, 2010, respectively

21,091

20,871

Additional paid-in capital

         3,442,083

67,269

Statutory reserves

         2,049,654

       1,837,395

Retained earnings

       85,004,442

     59,373,726

Accumulated other comprehensive income

         3,816,251

1,135,541

Total shareholders' equity

       94,333,521

     62,434,802

Total liabilities and shareholders' equity

$

     127,834,924

$

   114,174,540

SOURCE SinoCoking Coal and Coke Chemical Industries, Inc.