US China Mining Group, Inc. Reports First Quarter 2011 Financial Results

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 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:

"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:  [email protected]
Web:  www.hcinternational.net

SOURCE US China Mining Group, Inc.

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