Market Overview

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

TAMPA, Fla., Nov. 15, 2012 /PRNewswire/ -- US China Mining Group, Inc., ("US China Mining") (OTCQB: SGZHE) a Chinese leader in coal production and exploration in the People's Republic of China, yesterday announced financial results for the third quarter ending September 30, 2012.

SUMMARY FINANCIALS

Third Quarter 2012 Results (unaudited)


Q3 2012

Q3 2011

CHANGE

Net Sales

$2.0 million

$ 6.3 million

-69%

Gross Profit

$0.4 million

$2.1 million

-80%

Net Income (Loss)

$(2.1) million

$2.2 million

N/A

EPS (Diluted)

$(0.11)

$0.11

N/A

Third Quarter of 2012 Financial Results

For the three months ended September 30, 2012, the Company generated net sales of $2.0 million compared to $6.3 million for the same period in 2011, a 69% decline. The Company sold 32,469 metric tons of coal in the three months ended September 30, 2012, down 71% from 113,474 metric tons sold in the third quarter of 2011. Our total production for the three months ended September 30, 2012 was 27,469 tons, compared to 21,341 tons produced for the 2011 period, an increase of 6,128 tons. The average sales price per ton ("ASPs") increased 13% year-over-year, from $54.08 to $61.07. At September 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


Q3 2012

Q3 2011


Xing An

--

$2.0 million

-100%

Tong Gong

$2.0 million

$4.3 million

-53%

Total Sales

$2.0 million

$6.3 million

-69%


Sales in tonnage


Q3 2012

Q3 2011


Tons

ASPs

Tons

ASPs

Xing An

--

--

42,133

$48.40

Tong Gong

32,469

$61.07

71,341

$59.54

Total

32,469

$61.07

113,474

$54.08

The decreased sales was to due to decreased sales of Tong Gong, as a result of brokerage sales, as a result of local weaker market and economic condition, 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 Third quarter of 2012.

"We are not pleased with the financial result of this quarter," said Mr. Hongwen Li, President of US China Mining Group. "In anticipation of Xing An's resuming its production and potential easing up of local market conditions in the fourth quarter of 2012, the Company is looking forward to some rally up in our business, so as to be able to recover some loss in the upcoming quarters."

Cost of sales for the three months ended September 30, 2012 was $1.5 million, a $2.6 million decrease, or down approximately 63% over the year ago period, due to lower production and sales.  

Gross profit was $0.4 million for the third quarter of 2012 compared to $2.1 million for the same period of 2011, an 80% decline. Gross margins decreased 13% to 21% for the third quarter of 2012 from a year ago period, due to higher labor, materials costs, increased mining fees and higher depreciation and amortization cost per ton on average.

Operating expenses were $2.5 million, down $0.7 million from $3.2 million in the third quarter of 2011. The decrease was attributable to decreased environment fee which decreased $0.4 million for three months ended September 30 2012 compared to the same period of 2011.

Operating loss was $2.1 million for the three months ended September 30 2012, compared to operating loss $1.0 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 expenses totaled $155,548 for the three months ended September 30, 2012 compared to $3.0 million other income for the 2011 period. The decrease in non-operating income was mainly attributed to decreased non-cash non-operating income from $3.0 million in the three months ended September 30, 2011 compared to expense $0.14 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 September 30, 2012 was $2.1 million compared to net income of $2.2 million for the same period of 2011. Diluted loss per share for the third quarter 2012 was $0.11 compared to diluted earning per share of $0.11 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 (loss) as a percentage of sales decreased from 35% for the third quarter of 2011 to (108)% for the same period of 2012, resulting from significant decreased non-operating income from change of the fair value of the warrant derivative, and decreased sales but increased percentage of cost to sales.

Nine months 2012 Financial Results

Nine months 2012 Results (unaudited)


YTD 2012

YTD 2011

CHANGE

Net Sales

$21.6 million

$39.9 million

-46%

Gross Profit

$5.9 million

$14.9 million

-60%

Net Income (loss)

$(6.5) million

$12.3 million

N/A

Adjusted Net Income(*)

$(6.3) million

$ 2.8 million

N/A

EPS (Diluted)

$(0.35)

$0.64

N/A

Adjusted EPS(*)

$(0.34)

$0.15

N/A


(*) Adjusted Net Income and EPS for the nine months ended September 30, in 2012 and 2011 respectively, exclude $0.2 million non-cash non-operating expenses in 2012 and $9.5 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 nine months ended September 30, 2012, the Company generated net sales of $21.6 million compared to $39.9 million for the same period in 2011, a 46% 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

$20.9 million

-58%

Tong Gong

$12.9 million

$19.0 million

-32%

Total Sales

$21.6 million

$39.9 million

-46%


Sales in tonnage


YTD 2012

YTD 2011


Tons

ASPs

Tons

ASPs

Xing An

184,495

$46.77

460,120

$45.38

Tong Gong

211,480

$61.07

326,934

$58.18

Total

396,975

$54.41

787,054

$50.71

In the nine months ended September 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 nine months ended September 30, 2012 was $54.41 as compared to $50.71 for the 2011 period.  Our total sales volume was 396,975 tons for the nine months ended September 30, 2012, compared to 787,054 tons for the 2011 period, a decrease of 50%, resulting primarily from the difficulties in logistics in Xing An, such as limited access to railway cargoes resulting in shipment difficulties, and the decrease of coal brokerage in Tong Gong, due to recent decrease of local demand.  In addition, Xing An had 194,558 tons of coal in stock at September 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 nine months ended September 30, 2012 was $15.7 million, a decrease of approximately 37% compared to $25.0 million in the comparable period last year.  

Gross profit was $5.9 million for the nine months of 2012 compared to $14.9 million for the same period of 2011, a decrease of $9.0 million. Gross margins decreased 10% to 27% for the first nine months of 2012.

Operating expenses totaled $11.5 million for the nine months ended September 30, 2012 compared to $10.5 million for the 2011 period, an increase of $1.1 million or 10%. 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 $1.9 million for the nine months ended September 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 $0.5 million in the nine months ended September 30, 2012 compared to the same period of 2011. However, certain other operating expenses have decreased during the nine months ended September 30 202, such as transportation construction fee and environment protection fee, which decreased $1.1 million in the nine months ended September 30 2012. 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 $253,209 for the nine months ended September 30, 2012 compared to $9.5 million other income for the 2011 period. In the nine months ended September 30, 2012, we had interest expense of $208,820 compared to $176,319 in the 2011 period. We had non-cash non-operating expense of $165,338 in the 2012 period compared to $9.5 million non-cash non-operating income in the 2011 period, resulting from the change of fair value of the derivative warrant we issued to approximately 200 investors and agents through the January 2011 Private Placement.

Our net loss for the nine months ended September 30, 2012 was $6.5 million compared to net income of $12.3 million for the 2011 period, a decrease of $18.8 million. This was mainly attributed to the noncash income of $9.5 million from the changes of the fair value of warrants derivative in the 2011 period while it was $0.16 million non-cash loss of change of the fair value of warrant derivative during 2012 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 31% for the nine months ended September 30, 2011 to (30)% for the 2012 period. Diluted earnings (loss) per share for the nine months of 2012 were $(0.35) compared to $0.64 in the same period of 2011.

Adjusted Net Income (loss) and EPS, which exclude non-cash, non-operating income or expenses resulting from the change of fair value of warrant derivative, was $6.3 million loss and $0.34 loss per share for the nine months ended September 30 2012, compared to $2.8 million net income and $0.15 earning per share for the comparable period of 2011.

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

Balance Sheet and Cash Flow

Cash and cash equivalents totaled $32.6 million on September 30, 2012, compared to $44.5 million on December 31, 2011. US China Mining Group had cash outflows from operations of $6.5 million, as compared to net cash used in operating activities of $8.6 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 7.8 to 1 at September 30 2012. Working capital on September 30 2012 was approximately $36.2 million versus $45.8 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: 813-5142873 or Email: tony.peng@uschinamining.com

 

– FINANCIAL TABLES –

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


CONSOLIDATED BALANCE SHEETS


SEPTEMBER 30, 2012 AND DECEMBER 31, 2011











2012



2011




(Unaudited)





ASSETS














CURRENT ASSETS







     Cash & equivalents


$

32,569,566



$

44,543,696


     Restricted cash



-




3,000,000


     Accounts receivable



-




2,308,888


     Other receivables



5,043




5,613


     Taxes receivable



604,561




200,188


     Deposit for coal trading



2,085,585




2,935,530


     Inventory



6,291,834




915,873











        Total current assets



41,556,589




53,909,788











NONCURRENT ASSETS









     Deposits for mine acquisition



4,731,115




4,761,225


     Goodwill



26,180,923




26,180,923


     Prepaid mining rights, net



13,627,482




14,734,143


     Property and equipment, net



13,638,578




12,926,991


     Construction in progress



16,623,421




13,506,677


     Deferred tax asset, net



593,420




393,643


     Asset retirement cost, net



2,419,858




2,626,262











        Total noncurrent assets



77,814,797




75,129,864











TOTAL ASSETS


$

119,371,386



$

129,039,652











LIABILITIES AND STOCKHOLDERS' EQUITY


















CURRENT LIABILITIES









     Unearned revenue


$

270,590



$

527,241


     Accrued liabilities and other payables



1,030,690




1,184,912


     Taxes payable



2,044,706




1,556,379


     Loan payable



-




3,000,000


     Warrant derivative liability



2,010,583




1,845,245


     Advance from shareholder



2,000




2,000











         Total current liabilities



5,358,569




8,115,777











NONCURRENT LIABILITIES









     Asset retirement obligation, net of deposit for

     mine restoration of $1,294,627 in 2012 and $1,223,513 in

     2011, respectively



4,758,379




4,689,114











         Total noncurrent liabilities



4,758,379




4,689,114











         Total liabilities



10,116,948




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 in 2012 and 2011, respectively



18,852




18,852


     Additional paid in capital



41,190,993




41,115,578


     Statutory reserves



13,395,925




11,905,411


     Accumulated other comprehensive income



9,036,222




9,576,877


     Retained earnings



45,612,046




53,617,643











         Total stockholders' equity



109,254,438




116,234,761











TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY


$

119,371,386



$

129,039,652








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


CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)


(UNAUDITED)






























NINE MONTHS ENDED SEPTEMBER 30,



THREE MONTHS ENDED SEPTEMBER 30




2012



2011



2012



2011















Net sales


$

21,598,196



$

39,910,559



$

1,958,496



$

6,287,276


Cost of goods sold



15,693,553




25,020,365




1,544,301




4,152,030



















Gross profit



5,904,643




14,890,194




414,195




2,135,246



















Operating expenses

















     Selling



5,269,695




2,774,940




659,816




859,380


     General and administrative



6,272,491




7,680,107




1,816,101




2,313,871



















     Total operating expenses



11,542,186




10,455,047




2,475,917




3,173,251



















Income (loss) from operations



(5,637,543)




4,435,147




(2,061,722)




(1,038,005)



















Non-operating income (expenses)

















     Interest income



120,949




132,111




41,275




44,678


     Interest expense



(208,820)




(176,319)




(59,089)




(65,615)


     Warrant derivative income (expense)



(165,338)




9,504,876




(137,734)




3,041,292



















     Total non-operating income (expenses), net



(253,209)




9,460,668




(155,548)




3,020,355



















Income (loss) before income tax



(5,890,752)




13,895,815




(2,217,270)




1,982,350


Income tax expense (benefit)



624,331




1,593,020




(93,537)




(194,023)



















Net income (loss)



(6,515,083)




12,302,795




(2,123,733)




2,176,373



















Other comprehensive income (loss)

















     Foreign currency translation gain (loss)



(540,657)




3,358,750




(213,980)




1,532,117



















Comprehensive income (loss)


$

(7,055,740)



$

15,661,545



$

(2,337,713)



$

3,708,490



















Basic weighted average shares outstanding



18,852,582




18,766,428




18,852,582




18,852,582



















Diluted weighted average shares outstanding



19,252,582




19,166,428




19,252,582




19,252,582



















Basic net earnings (loss) per share


$

(0.35)



$

0.66



$

(0.11)



$

0.12



















Diluted net earnings (loss) per share


$

(0.35)



$

0.64



$

(0.11)



$

0.11








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


CONSOLIDATED STATEMENTS OF CASH FLOWS


NINE MONTHS ENDED SEPTEMBER 30, 2012 AND 2011


(UNAUDITED)











2012



2011









CASH FLOWS FROM OPERATING ACTIVITIES:







            Net income (loss)


$

(6,515,083)



$

12,302,795


            Adjustments to reconcile net income (loss) to net cash









            used in operating activities:









            Depreciation and amortization



2,417,166




2,671,842


            Changes in fair value of warrants



165,338




(9,504,876)


            Accretion of interest on asset retirement obligation



178,445




166,757


            Imputed interest on shareholder's loan



-




3,874


            Stock warrants compensation



-




250,703


            Stock option compensation



75,415




236,488


            Changes in deferred tax



(203,033)




(36,780)


                         (Increase) decrease in current assets:









                                 Accounts receivable



2,303,003




216,507


                                 Other receivables and deposits



570




(5,228,206)


                                 Deposit for coal trading



849,945




(2,935,530)


                                 Inventory



(5,402,199)




349,741


                                 Deposit for mine restoration



(79,151)




-


                         Increase (decrease) in current liabilities:









                                 Accounts payable



-




(1,919,345)


                                 Unearned revenue



(254,281)




370,504


                                 Accrued liabilities and other payables



(148,764)




(2,182,563)


                                 Taxes payable



92,883




(3,334,796)











            Net cash used in operating activities



(6,519,746)




(8,572,885)











CASH FLOWS FROM INVESTING ACTIVITIES:









                                 Change in restricted cash



3,000,000




(2,775,539)


                                 Acquisition of property, plant & equipment



(2,004,988)




(1,046,276)


                                 Construction in progress



(3,214,325)




(6,848,999)











            Net cash used in investing activities



(2,219,313)




(10,670,814)











CASH FLOWS FROM FINANCING ACTIVITIES:









                                 Loan advance (repayment)



(3,000,000)




3,000,000


                                 Proceeds from issuance of common stock



-




13,650,500


                                 Repayment of 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



(235,071)




1,873,433











NET DECREASE IN CASH & EQUIVALENTS



(11,974,130)




(3,519,766)











CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD



44,543,696




46,224,944











CASH & EQUIVALENTS, END OF PERIOD


$

32,569,566



$

42,705,178











Supplemental Cash flow data:









             Income tax paid


$

812,936



$

3,011,184


             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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