US China Mining Group, Inc. Reports Fourth Quarter and Full Year 2010 Financial Results

Company generated $20.7 million in cash flow from operations

Mar 31, 2011, 07:30 ET from US China Mining Group, Inc.

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%

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     mine restoration of $1,164,062 and $980,632, respectively

4,243,129

4,060,461

        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,         8,000,000 shares authorized, 400,000 shares          issued and outstanding

400

400

    Common stock, $0.001 par value, 100,000,000          shares authorized, 14,932,582 shares issued          and outstanding

14,932

14,932

    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

2009

CASH FLOWS FROM OPERATING ACTIVITIES:

           Net income

$ 13,399,206

$ 25,086,827

           Adjustments to reconcile net income to net cash

           provided by operating activities:

           Depreciation and amortization

3,491,312

4,607,484

           Accretion of interest on asset retirement obligation

205,129

195,394

           Imputed interest

160,676

125,132

           Warrants expense

596,580

-

           Stock option compensation

147,456

77,955

           Changes in deferred tax

263,726

(405,921)

                        (Increase) decrease in current assets:

                                Accounts receivable

(207,808)

-

                                Other receivables, deposits and prepayments

3,610

35,787

                                Inventory

(1,086,263)

23,138

                                Deposit for mine restoration

(149,683)

(980,230)

                        Increase (decrease) in current liabilities:

                                Accounts payable

1,281,751

308,704

                                Unearned revenue

(1,546,262)

1,514,965

                                Accrued liabilities and other payables

1,948,252

482,847

                                Taxes payable

2,181,831

(5,628,634)

           Net cash provided by operating activities

20,689,513

25,443,448

CASH FLOWS FROM INVESTING ACTIVITIES:

                                Change in restricted cash

(247)

(244)

                                Acquisition of property, plant & equipment

(1,907,314)

(109,950)

                                Construction in progress

(5,997,910)

(10,979)

           Net cash used in investing activities

(7,905,471)

(121,173)

CASH FLOWS FROM FINANCING ACTIVITIES:

                                Due to shareholders

858,977

1,097,679

                                Increase in long term payable

-

82,180

                                Dividend to Xing An shareholders

-

(12,000,000)

                                Due from shareholders

49,042

-

           Net cash provided by (used in) financing activities

908,019

(10,820,141)

EFFECT OF EXCHANGE RATE CHANGE ON CASH & EQUIVALENTS

1,272,699

13,309

NET INCREASE IN CASH & EQUIVALENTS

14,964,760

14,515,443

CASH & CASH EQUIVALENTS, BEGINNING OF YEAR

31,260,184

16,744,741

CASH & EQUIVALENTS, END OF YEAR

$ 46,224,944

$ 31,260,184

Supplemental Cash flow data:

            Income tax paid

$   4,241,062

$ 12,411,106

            Interest paid

$                  -

$                  -

SOURCE US China Mining Group, Inc.