Gushan Environmental (NYSE:GU)

NEW YORK, Feb. 24, 2012 /PRNewswire/ -- Gushan Environmental Energy Limited ("Gushan" or the "Company"; NYSE: GU), a leading producer of biodiesel and manufacturer of recycled copper products in China, today announced that its Board of Directors has received a preliminary non-binding proposal letter dated February 24, 2012, from Mr. Jianqiu Yu, Chairman and Principal Executive Officer of Gushan, to acquire all of the outstanding ordinary shares of the Company not currently owned, legally or beneficially, by Mr. Jianqiu Yu (the "Buyer"), for US$1.599 per American Depositary Share ("ADS") or US$0.1599 per ordinary share in cash.  As of the date hereof, the Buyer controlled approximately 34.8% of the outstanding shares of the Company.  

According to the proposal letter, the Buyer will form a transaction vehicle for the purpose of pursuing the proposed transaction and will finance the proposed transaction with his own funds, possibly supplemented by debt financing.  The proposal letter also states that Sidley Austin LLP has been engaged by the Buyer as legal counsel in connection with the proposed transaction. A copy of the proposal letter is attached hereto as Exhibit A.  

The Company's Board of Directors has formed a special committee of independent directors (the "Special Committee") consisting of Messrs. Denny Ting Bun Lee, Kang Nam Chu and Dongming Zhang to consider the proposed transaction. The Special Committee intends to retain advisors, including an independent financial advisor and legal counsel, to assist it in its work. No decisions have been made by the Special Committee with respect to the Company's response to the proposed transaction. There can be no assurance that any definitive offer will be made, that any agreement will be executed or that this or any other transaction will be approved or consummated.  

Second Quarter 2011 Results

• Total revenues increased by 443.0% year-to-year and by 32.0% quarter-on-quarter to RMB327.1 million (US$50.6 million).
• Non-GAAP net loss attributable to the Company amounted to RMB21.9 million (US$3.4 million), compared to a non-GAAP net loss attributable to the Company of RMB57.8 million for the second quarter of 2010 and a non-GAAP net loss attributable to the Company of RMB20.9 million for the first quarter of 2011.
• Non-GAAP loss per share for second quarter 2011 was ($.24) vs ($1.00) in 2010

"Strong revenue growth in the second quarter of 2011 was driven by Gushan's diversification into the recycled copper products business with the acquisition of Mianyang Jin Xin Copper Company Limited in late 2010," said Jianqiu Yu, Chairman and Principal Executive Officer of Gushan, " We are continuing to grow our recycled copper products business, most recently through the acquisition of a controlling interest in recycled copper producer Hunan Yin Lian Xiangbei Copper Company Limited in August 2011. In relation to our biodiesel business, inflation in raw material costs remains a significant challenge and we are continuing to seek ways to control raw material costs and to restore our biodiesel business to profitability." 

Business Outlook for Fiscal Year 2011

During the second quarter of 2011, the Company's average biodiesel selling prices continued to improve over the previous quarter as demand for diesel in China continued its recovery in conjunction with the economic recovery in China and globally. Going forward, the Company expects this trend to continue so long as the global economy and China's economy continue to improve. However, inflationary pressures in China continue to be high, which continues to adversely affect the Company's raw material input costs, which are increasing at a rate higher than the rate of increase in the Company's average biodiesel selling prices. As a result, the production and sale of biodiesel in the current business environment is not profitable for the Company. In order to minimize the financial burden on the Company as a whole, the Company will evaluate the appropriateness of continuing, commencing or resuming production of biodiesel at each of its biodiesel plants and will continue, commence or resume production only if the biodiesel plant is able to operate on a positive cash flow basis. The Company does not expect each of its biodiesel plants to be able to operate, achieve and maintain positive cash flows given the current trend of raw material input costs increasing at a higher rate than average biodiesel selling prices. While the Company continues with its efforts to control its raw material input costs, it is expected that the production and sales volume of biodiesel will continue to be low in the near term until positive results are achieved from the Company's efforts in controlling raw material input costs. Meanwhile, the Company's recycled copper products business continued to contribute positively to the Company's overall financial performance and this trend is expected to continue. The Company believes that the recently completed acquisition of Xiangbei will also provide additional positive contribution. The Company continues to explore the possibility of acquiring more businesses in the recycled copper products industry that will complement its existing businesses and strengthen its overall recycled copper products business portfolio.

NEW YORK, July 28, 2011 /PRNewswire/ -- Gushan Environmental Energy Limited ("Gushan" or the "Company"; NYSE: GU), a leading producer of biodiesel in China, today announced that it has entered into definitive agreements (the "Agreements") to acquire a controlling interest in Hunan Yin Lian Xiangbei Copper Company Limited ("Xiangbei"), a PRC-based company that is currently engaged in the recycled copper business, through a series of transactions ("Transactions") in exchange for (i) RMB30,000,000 in cash, (ii) up to 20,000,000 newly issued ordinary shares of the Company, and (iii) up to a 14.17% interest in Engen Investments Limited ("Engen"), a direct, 75%-owned British Virgin Islands ("BVI") subsidiary of Gushan, subject to adjustment pursuant to an earn-out arrangement. The closing of each of the Transactions is subject to the satisfaction of, among others, customary closing conditions, including obtaining approvals from relevant PRC governmental authorities.  Full Release

In 2008, 2009 and 2010, our capital expenditures were RMB698.9 million, RMB365.4 million and RMB170.4 million (US$25.8 million). Our capital expenditures in the table below are cash outflows for the purchase of long-lived assets and land use rights, for the expansion of our production facilities. In 2008, 2009 and 2010, we funded our capital expenditures primarily through cash flows from operating activities and proceeds from the issuance of ordinary shares. We intend to fund our future capital expenditures through cash flows from operations.

We currently estimate our aggregate capital expenditures, on a cash basis, to be approximately RMB52 million for the fiscal year of 2011, which will be used primarily for construction of our new production facility in Sichuan that is expected to be completed by the end of the second quarter of 2011 and the expansion of the existing production facilities in Jin Xin. The actual amounts of expenditures may vary from the estimated amounts for a variety of reasons, including changes in market conditions and other factors. We believe that our current cash balance and anticipated cash flow from our operations will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures for the next 12 months. We may, however, require additional cash due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If our existing cash is insufficient to meet our requirements, we may seek to sell additional equity securities or debt securities or to borrow from lending institutions.

GeoTeam Note: GU means to fund its capital expenditures may be less depedent on equity than in the past.

Excerpt from 2009 20F

We believe our current cash and cash equivalents, cash flow from operations and available sources of financing will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and planned capital expenditures, for the foreseeable future.

vs. excerpt form 2010 20F

 We intend to fund our future capital expenditures through cash flows from operations.

First Quarter Results:

• Total revenues increased by 241.7% year-to-year and by 5.5% quarter-on-quarter to RMB246.9 million (US$37.7 million).
• Gross profit amounted to RMB3.8 million (US$0.6 million), compared to a gross loss of RMB34.1 million for the first quarter of 2010 and a gross profit of RMB17.9 million for the fourth quarter of 2010.
• Non-GAAP net loss attributable to the Company amounted to RMB20.9 million (US$3.2 million), compared to a non-GAAP net loss of RMB54.2 million for the first quarter of 2010 and a non-GAAP net loss of RMB40.0 million for the fourth quarter of 2010.
• Non-GAAP EPS ($0.19) vs. ($0.37).

"Gushan's recycled copper business, Mianyang Jin Xin Copper Limited, acquired in late 2010 contributed to strong revenue growth in the first quarter of 2011," said Jianqiu Yu, Chairman and Principal Executive Officer of Gushan, " While selling prices for both recycled copper products and biodiesel are rising in line with increased demand and economic growth in China, inflation in raw material prices remains a significant challenge and the Company is exploring opportunities to control raw material costs and diversify its raw material sources." 

Fourth Quarter Results:

• Total revenues increased by 223.9% year-to-year and by 463.4% quarter-on quarter to RMB233.9 million (US$35.4 million).
• Gross profit amounted to RMB17.9 million (US$2.7 million), compared to a gross loss of RMB32.1 million for the fourth quarter of 2009 and a gross loss of RMB23.9 million for the third quarter of 2010.
• Net Loss per ADS diluted: ($0.80) vs. ($0.37)

"Gushan's strong revenue growth in the fourth quarter reflects the positive impact of the Company's diversification strategy, notably its recent acquisition of Mianyang Jin Xin Copper," said Jianqiu Yu, Chairman and Principal Executive Officer of Gushan. "While both the favorable resolution of the consumption tax issue and rising diesel prices in China have improved the outlook for the Company's biodiesel business, the Company is actively exploring opportunities to directly source raw materials and diversify its feedstock to offset rising raw material costs." 

Our subsidiaries incorporated in the PRC are foreign invested enterprises that we established either through acquisition or incorporation. Certain of our subsidiaries have not obtained approval from the NDRC, for certain foreign investment related projects. PRC law requires the Ministry of Commerce, or its local counterparts, to issue final government approval as a pre-condition to foreign investment in China. Before this final approval may be granted, however, approval from the NDRC, or its local counterparts, is required for projects except for trade or services related projects that do not relate to fixed asset investment. In practice, the Ministry of Commerce, or its local counterparts, often grant final approval for foreign invested projects before such projects have first obtained NDRC approval. Our further expansion and ability to benefit from certain preferential policies that might otherwise be available to us may be adversely affected because the competent authorities for land, planning, quality supervision, safety supervision, customs, taxation, foreign exchange and the administration of industry and commerce could refuse to grant approval or consent to our future projects due to the lack of NDRC approval.

"Although China's diesel market is showing signs of a slow recovery, challenging market conditions and continued uncertainty over resolution of the consumption tax issue impacted Gushan's first quarter results," said Jianqiu Yu, Chairman and Principal Executive Officer of Gushan. "In response, Gushan continues to refocus its sales strategy to supplying the chemical industry, which now accounts for over 70% of the Company's sales in terms of biodiesel sales volume, and is continuing to seek opportunities to leverage its strong balance sheet through strategic investments in the energy and/or environmental sectors."

As of this date, the Company's situation with regards to the consumption tax issue remains unchanged from the previous sequential quarter, as the Company has not received clarification from the PRC SAT on the issue. Currently, production at Fujian Gushan remains suspended and the Company has not commenced production at its Chongqing and Hunan plants pending clarification of the consumption tax issue. To date, other than Fujian Gushan and Sichuan Gushan, none of the Company's production plants have received consumption tax assessments. However, no assurance can be given that Gushan will not receive such assessments for its other plants. If at any time such request is received, Gushan will evaluate the appropriateness of a suspension of production at additional plants on a case-by-case basis. The Company is continuing its efforts to expand alternative sales channels, including sales to the chemical industry, and to develop new products for the chemical industry to seek to mitigate the potential adverse impact from the consumption tax issue. However, no assurance can be given that these efforts will be successful.

Gushan is still on track to reach 500,000 tons of biodiesel production capacity by the first half of 2010 after the completion of the additional plant in Sichuan, which will add an additional annual production capacity of 50,000 tons. In order to operate our Sichuan production facilities more efficiently, the Company is considering relocating its existing 60,000 ton production facilities to the site where the additional 50,000 ton plant will be located. Although such relocation may result in suspending the existing 60,000 ton production facilities for three to four months and its business and operating results for 2010 may be adversely affected, Gushan believes that such relocation will be beneficial to the Company in the long term. Gushan expects that the recovery of diesel demand and hence biodiesel selling prices will continue to be slow, and that these conditions, together with the uncertainty of the consumption tax issue, are expected to continue to adversely affect Gushan's profitability and cash flow generation in the short term. As such, Gushan is continuing its efforts in seeking opportunities to invest in businesses in the energy and/or environmental sector.