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 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:

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

(*) 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:

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 –

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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