China Carbon Graphite (OTC BB:CHGI)

The GeoTeam is taking a closer look at China Carbon Graphite and coding the stock as a special situation play- repricing of risk premium/corporate restructuring. 

See comprehensive review of CHGI.

The company is the largest wholesale supplier of fine grain and high purity graphite in China and one of the nation's top overall producers of carbon and graphite products. Fine grain graphite is widely used in smelting for colored metals and rare-earth metal smelting as well as the manufacture of molds.  Management commented,

"During the year ended December 31, 2008, we had sales of $27.3 million , as compared to sales of $ 25.4 million for the year ended December 31, 2007, an increase of $1.9 million or approximately 7.48%. This increase resulted from our marketing efforts both to develop new customers and make follow-on sales to existing customers, although our sales decreased in the fourth quarter reflecting the effects of the global economic downturn as well as the closure of Xingyong’s plant facilities for almost two months for the Olympics in August 2008 as part of the Chinese government’s program to reduce air pollution during that period. This shutdown reduced our production in third quarter and therefore affected sales in fourth quarter 2008 because it takes about three months to six months to produce graphite products. These factors caused our sales in fourth quarter 2008 to decrease compared to both the third quarter 2008 and the fourth quarter of 2007.

We believe that our working capital, together with the cash flow from our ongoing business will be sufficient to enable us to meet our normal cash requirements for the next twelve months provided that we generate sufficient business so that we are able to generate a profit, which cannot be assured. We will require additional working capital if we are going to make any acquisitions or to purchase equipment to expand our production capacity. We will also need additional funding to make the capital payment to Yongle if we don’t receive any further extensions. Further, we expect that both revenue and the results of our operations will decline as a result of the effects of the global economic downturn. As a result, if we are not able to generate savings by making our operations more efficient, we may require additional funding for our normal operations. We cannot assure you that funding will be available if and when we require funding. Further, in the event that any of our lenders demand payment at the time the loans are due in May 2009 through July 2009, we would require additional financing in order to repay those loans, and we cannot assure you that we will be able to obtain the necessary funding either from another bank or from other sources."