US China Mining Group, Inc. Reports Second Quarter 2012 Financial Results

CITY OF INDUSTRY, Calif., Aug. 31, 2012 /PRNewswire/ -- US China Mining Group, Inc., ("US China Mining") (OTCBB: SGZHE) a Chinese leader in coal production and exploration in the People's Republic of China, yesterday announced financial results for the second quarter ending June 30, 2012.

SUMMARY FINANCIALS

Second Quarter 2012 Results (unaudited)


Q2 2012

Q2 2011

CHANGE

Net Sales

$5.1 million

$ 11.4million

-55%

Gross Profit

$1.4 million

$4.1 million

-65%

Net Income (Loss)

$(4.0) million

$0.5 million

N/A

EPS (Diluted)

($0.21)

$0.02

N/A

Second Quarter of 2012 Financial Results

For the three months ended June 30, 2012, the Company generated net sales of $5.1 million compared to $11.4 million for the same period in 2011, a 55% decline. The Company sold 84,021 metric tons of coal in the three months ended June 30, 2012, down 61% from 216,011 metric tons sold in the second quarter of 2011. Our total production for the three months ended June 30, 2012 was 39,021 tons, compared to 42,959 tons produced for the 2011 period. The average sales price per ton ("ASPs") increased 17% year-over-year, from $52.37 to $61.25. At June 30, 2012, the Company had 194,558 metric tons of coal in Xing An's inventory. The composition of sales for each respective period is as follows:

Sales in US Dollar


Q2 2012

Q2 2011


Xing An

--

$4.5 million

-100%

Tong Gong

$5.1 million

$6.9 million

-27%

Total Sales

$5.1 million

$11.4 million

-55%


Sales in tonnage


Q2 2012

Q2 2011


Tons

ASPs

Tons

ASPs

Xing An

--

--

98,052

$46.04

Tong Gong

84,021

$61.25

117,959

$55.26

Total

84,021

$61.25

216,011

$52.37

The decreased sales was to due to decreased sales of Tong Gong, as a result of decreased production and brokerage sales, and no sale of Xing An mines, caused by logistical difficulties of Xing An, and stockpiling the coal inventory for selling at a higher price in the future, as well as ceased production in Xing An mines due to seasonality and mine upgrading during the second quarter of 2012.

"With China's economy slowing down during 2012, many industries like energy and mining were feeling obviously slowing paces in terms of suppressed demand and reduced price. Our coal business was not spared as well, facing more than ever challenges in daily operation and financial results," said Mr. Hongwen Li, President of US China Mining Group. "However, we didn't want to speculate the downward market condition for fast cash. Instead we maintain ourselves in long position. During the second quarter, the Company kept focus on improving mining facilitates and continuing in capitalizing Xing An's retrofit project while held position in coal inventory, as we anticipated that coal industry would rally up in the coming quarters along with China's continuing efforts to stabilize economy. We believe that these efforts can help heap in gains some days."

Cost of sales for the three months ended June 30, 2012 was $3.7 million, a $3.6 million decrease, or down approximately 49% over the year ago period, due to lower production and sales.  

Gross profit was $1.4 million for the second quarter of 2012 compared to $4.1 million for the same period of 2011, a 65% decline. Gross margins decreased 9% to 27% for the second quarter of 2012 due to higher labor, materials costs, increased mining fees and higher depreciation and amortization cost per ton on average.

Operating expenses were $5.2 million, up $0.8 million from $4.4 million in the second quarter of 2011. The increase was attributable to increased supplies and machine accessories expenses including expenditures for materials used to fix machines and mining assets which increased $0.2 million for the three months ended June 30, 2012 compared to the same period of 2011; and increased payroll of approximately $350,000 and welfare expenses and electricity and gas fees as a result of overall price inflation in China.

Operating loss was $3.8 million for the three months ended June 30 2012, compared to operating loss $0.3 million in the same quarter of 2011. The increased loss was mainly due to decreased sales and increased percentage of cost and operating expenses to sales.

Other income totaled $82,136 for the three months ended June 30, 2012 compared to $0.90 million for the 2011 period. The decrease in non-operating income was mainly attributed to decreased non-cash non-operating income from $0.9 million in the three months ended June 30, 2011 compared to $0.1 million in the 2012 period, resulting from the changes of the fair value of the warrant derivative issued to approximately 200 investors and agents through the January 2011 Private Placement financing.

Net loss for the three months ended June 30, 2012 was $4.0 million compared to net income of $0.5 million for the same period of 2011. Diluted loss per share for the second quarter 2012 was $0.21 compared to diluted earning per share of $0.02 in the same period of 2011. The decrease in net income and diluted earning per share was mainly attributed to the increase in our operating expenses and decrease in sales and non-cash other income. Net income as a percentage of sales decreased from 4% for the first quarter of 2011 to (78)% for the same period of 2012, resulting from significant increased operating expenses, decreased sales but increased percentage of cost to sales.

Six months 2012 Financial Results

Six months 2012 Results (unaudited)


YTD 2012

YTD 2011

CHANGE

Net Sales

$19.6 million

$33.6 million

-42%

Gross Profit

$5.5 million

$12.8 million

-57%

Net Income (loss)

$(4.4) million

$10.1 million

N/A

Adjusted Net Income(*)

$(4.4) million

$ 3.6 million

N/A

EPS (Diluted)

$(0.23)

$0.53

N/A

Adjusted EPS(*)

$(0.23)

$0.19

N/A

(*) Adjusted Net Income and EPS for the six months ended June 30, in 2012 and 2011 respectively, exclude $27,604 non-cash non-operating expenses in 2012 and $6.5 million non-cash non-operating income in the 2011, resulting from the change of fair value of warrant derivative in the 2012 and 2011 period, respectively.

For the six months ended June 30, 2012, the Company generated net sales of $19.6 million compared to $33.6 million for the same period in 2011, a 42% decline. The composition of sales for each respective period is as follows:

Sales in US Dollar


YTD 2012

YTD 2011


Xing An

$ 8.7 million

$18.8 million

-54%

Tong Gong

$10.9 million

$ 14.8 million

-36%

Total Sales

$19.6 million

$33.6 million

-42%


Sales in tonnage


YTD 2012

YTD 2011


Tons

ASPs

Tons

ASPs

Xing An

184,495

$46.77

417,987

$45.10

Tong Gong

179,011

$61.25

255,593

$57.80

Total

363,506

$53.88

673,580

$49.92

In the six months ended June 30, 2012, our total sales volume primarily decreased since the sales volume from both our Xing An and Tong Gong mines decreased compared to the comparable period of 2011. The average selling price per ton for the six months ended June 30, 2012 was $53.88 as compared to $49.92 for the 2011 period.  Our total sales volume was 364,506 tons for the six months ended June 30, 2012, compared to 673,580 tons for the 2011 period, a decrease of 46%, resulting primarily from the difficulties in logistics in Xing An, such as limited access to railway cargoes resulting in shipment difficulties. In addition, Xing An had 194,558 tons of coal in stock at June 30, 2012. The Company anticipates that the logistics difficulties for the Xing An mines will ease up and local coal prices will rise in coming the winter season.

Cost of sales for the six months ended June 30, 2012 was $14.1 million, a decrease of approximately 32% compared to $20.9 million in the comparable period last year.  

Gross profit was $5.5 million for the six months of 2012 compared to $12.8 million for the same period of 2011, a 10% decrease. Gross margins decreased 10% to 28% for the first six months of 2012.

Operating expenses totaled $9.1 million for the six months ended June 30, 2012 compared to $7.3 million for the 2011 period, an increase of $1.8 million or 25%. The increase was attributable to 1) increased supplies and machine accessory costs including the expenditures for materials used to fix machines and mining assets, which increased $2.6 million for the six months ended June 30, 2012 compared to the same period of 2011; and 2) increased payroll and welfare expenses, and electricity and gas fees as a result of overall price inflation in China which increased approximately $0.14 million in the six months ended June 30, 2012 compared to the same period of 2011. The Company anticipates it will seek to offset some of the increased expenses relating to the new government fees and taxes through increased sales prices and increased sales of its production coal.

Other expenses totaled $97,661 for the six months ended June 30, 2012 compared to $6.4 million other income for the 2011 period. In the six months ended June 30, 2012, we had interest expense of $149,731 compared to $110,704 in the 2011 period. We had non-cash non-operating expense of $27,604 in the 2012 period compared to $6.5 million non-cash non-operating income in the 2011 period, resulting from the change of FV of the derivative warrant we issued to approximately 200 investors and agents through the January 2011 Private Placement.

Our net loss for the six months ended June 30, 2012 was $4.4 million compared to net income of $10.1 million for the 2011 period, a decrease of $14.5 million. This was mainly attributed to the noncash income of $6.5 million from the changes of the fair value of warrants derivative in the 2011 period, and decreased sales volume but increased percentage of costs and operating expenses in the 2012 period. Net income (loss) as a percentage of sales decreased from 30% for the six months ended June 30, 2011 to (22)% for the 2012 period. Diluted earnings per share for the first six months of 2012 were $(0.23) compared to $0.53 in the same period of 2011.

The shares outstanding count was approximately 18.9 million as of June 30, 2012.

Balance Sheet and Cash Flow

Cash and cash equivalents totaled $35.2 million on June 30, 2012, compared to $44.5 million on December 31, 2011. US China Mining Group had cash outflows from operations of $4.0 million, as compared to net cash used in operating activities of $7.8 million in the 2011 period. The decrease in cash outflow resulted primarily from timely collection of accounts receivable despite increased inventory on hand, more cash contributed from account payable and accrued liabilities, less non-cash adjustment in change in fair value of warrants, and net loss for the 2012 period. The Company had a current ratio of 7.9 to 1 at June 30 2012. Working capital on June 30 2012 was approximately $42.6 million versus $53.1 million in the year ago period.

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. For more information about the Company, please visit: www.uschinamining.com.

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

-- FINANCIAL TABLES –

 

U.S. CHINA MINING GROUP, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS


JUNE 30, 2012 AND DECEMBER 31, 2011






2012



2011


ASSETS


(Unaudited)












CURRENT ASSETS







     Cash & equivalents


$

35,181,972



$

44,543,696


     Restricted cash



-




3,000,000


     Accounts receivable



-




2,308,888


     Other receivables and deposits



4,746,202




4,766,838


     Taxes receivable



464,026




200,188


     Deposit for coal trading



2,085,585




2,935,530


     Inventory



6,292,216




915,873











Total current assets



48,770,001




58,671,013











NONCURRENT ASSETS









     Goodwill



26,180,923




26,180,923


     Prepaid mining rights, net



13,766,875




14,734,143


     Property and equipment, net



14,071,126




12,926,991


     Construction in progress



16,665,736




13,506,677


     Deferred tax asset, net



551,452




393,643


     Asset retirement cost, net



2,450,104




2,626,262











Total noncurrent assets



73,686,216




70,368,639











TOTAL ASSETS


$

122,456,217



$

129,039,652











LIABILITIES AND STOCKHOLDERS' EQUITY


















CURRENT LIABILITIES









     Unearned revenue


$

1,329,892



$

527,241


     Accrued liabilities and other payables



2,481,459




1,184,912


     Taxes payable



487,575




1,556,379


     Loan payable



-




3,000,000


     Warrant derivative liability



1,872,849




1,845,245


     Advance from shareholder



2,000




2,000











Total current liabilities



6,173,775




8,115,777











NONCURRENT LIABILITIES









Asset retirement obligation, net of deposit for mine

restoration of $1,297,923 in 2012 and $1,223,513

in  2011, respectively



4,711,083




4,689,114











Total liabilities



10,884,858




12,804,891











CONTINGENCIES AND COMMITMENTS


















STOCKHOLDERS' EQUITY









Series A Preferred Stock, $0.001 par value,

8,000,000 shares authorized, 400,000 shares                    

issued and outstanding



400




400


Common stock, $0.001 par value, 100,000,000 shares

authorized, 18,852,582 shares issued and

outstanding



18,852




18,852


     Additional paid in capital



41,170,202




41,115,578


     Statutory reserves



13,398,194




11,905,411


     Accumulated other comprehensive income



9,250,200




9,576,877


     Retained earnings



47,733,511




53,617,643











Total stockholders' equity



111,571,359




116,234,761











TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY


$

122,456,217



$

129,039,652


 

 

U.S. CHINA MINING GROUP, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATION AND OTHER COMPREHENSIVE INCOME


(UNAUDITED)

















SIX MONTHS ENDED JUNE 30,



THREE MONTHS ENDED JUNE 30,




2012



2011



2012



2011















Net sales


$

19,639,700



$

33,623,283



$

5,146,286



$

11,387,336


Cost of goods sold



14,149,252




20,868,336




3,740,820




7,324,833



















Gross profit



5,490,448




12,754,947




1,405,466




4,062,503



















Operating expenses

















     Selling



4,609,879




1,915,559




2,624,221




1,555,911


     General and administrative



4,456,390




5,366,236




2,607,126




2,843,139



















     Total operating expenses



9,066,269




7,281,795




5,231,347




4,399,050



















Income (loss) from operations



(3,575,821)




5,473,152




(3,825,881)




(336,547)



















Non-operating income (expenses)

















     Interest income



79,674




87,433




31,647




36,304


     Interest expense



(149,731)




(110,704)




(73,096)




(42,000)


     Warrant derivative income (expense)



(27,604)




6,463,585




123,390




901,838


     Other expense



-




-




195




187



















     Total non-operating income (expenses), net



(97,661)




6,440,314




82,136




896,329



















Income (loss) before income tax



(3,673,482)




11,913,466




(3,743,745)




559,782


Provision for income tax



717,868




1,787,043




290,677




84,390



















Net income (loss)



(4,391,350)




10,126,423




(4,034,422)




475,392



















Other comprehensive income (loss)

















     Foreign currency translation gain (loss)



(326,677)




1,826,633




(420,161)




1,066,315



















Comprehensive income (loss)


$

(4,718,027)



$

11,953,056



$

(4,454,583)



$

1,541,707



















Basic weighted average shares outstanding



18,852,582




18,722,637




18,852,582




18,852,582



















Diluted weighted average shares outstanding



19,252,582




19,122,637




19,252,582




19,252,582



















Basic net earnings (loss) per share


$

(0.23)



$

0.54



$

(0.21)



$

0.03



















Diluted net earnings (loss) per share


$

(0.23)



$

0.53



$

(0.21)



$

0.02


 

 

U.S. CHINA MINING GROUP, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS


SIX MONTHS ENDED JUNE 30, 2012 AND 2011


(UNAUDITED)















2012



2011









CASH FLOWS FROM OPERATING ACTIVITIES:







            Net income (loss)


$

(4,391,350)



$

10,126,423


            Adjustments to reconcile net income (loss) to net cash









            used in operating activities:









            Depreciation and amortization



1,892,499




2,217,405


            Changes in fair value of warrants



27,604




(6,463,585)


            Accretion of interest on asset retirement obligation



119,145




110,430


            Imputed interest on shareholder's loan



-




3,848


            Stock warrants compensation



-




250,703


            Stock option compensation



54,624




125,528


            Changes in deferred tax



(159,744)




112,574


                         (Increase) decrease in current assets:









                                 Accounts receivable



2,306,509




215,064


                                 Other receivables and deposits



2,570




(5,837,870)


                                 Deposit for coal trading



849,945




(2,950,000)


                                 Inventory



(5,394,745)




(951,931)


                                 Deposit for mine restoration



(79,272)




-


                         Increase (decrease) in current liabilities:









                                 Accounts payable



-




(1,929,786)


                                 Unearned revenue



806,882




756,189


                                 Accrued liabilities and other payables



1,303,653




(1,515,178)


                                 Taxes payable



(1,331,179)




(2,083,922)











            Net cash used in operating activities



(3,992,859)




(7,814,108)











CASH FLOWS FROM INVESTING ACTIVITIES:









                                 Change in restricted cash



3,000,000




(2,777,036)


                                 Acquisition of property, plant & equipment



(2,008,040)




(1,040,215)


                                 Construction in progress



(3,219,217)




(6,803,347)











            Net cash used in investing activities



(2,227,257)




(10,620,598)











CASH FLOWS FROM FINANCING ACTIVITIES:









                                 Loan advance (repayment)



(3,000,000)




3,000,000


                                 Proceeds from issuance of common stock



-




13,650,500


                                 Repayment to shareholder's advance



-




(2,800,000)











            Net cash (used in) provided by financing activities



(3,000,000)




13,850,500











EFFECT OF EXCHANGE RATE CHANGE ON CASH & EQUIVALENTS



(141,608)




1,038,905











NET DECREASE IN CASH & EQUIVALENTS



(9,361,724)




(3,545,301)











CASH & EQUIVALENTS, BEGINNING OF PERIOD



44,543,696




46,224,944











CASH & EQUIVALENTS, END OF PERIOD


$

35,181,972



$

42,679,643











Supplemental Cash flow data:









             Income tax paid


$

812,936



$

2,414,172


             Interest paid


$

30,375



$

-


The accompanying notes shown in the 10Q are an integral part of the consolidated financial statements.

SOURCE US China Mining Group, Inc.



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