Puda Coal Inc (OTC:PUDA)

As disclosed in the current Report on Form 8-K on April 12, 2011, on April 9, 2011 the Audit Committee of Puda Coal, Inc. (the “Company”) was authorized by the Company’s Board of Directors to investigate the allegations raised in an article published online by a short seller of the Company’s stock, Alfred Little, on April 8, 2011. In the article, Alfred Little alleged that Ming Zhao, the Chairman of the Company’s Board of Directors, engaged in a number of undisclosed transactions involving the ownership of Shanxi Puda Coal Group Co., Ltd. (“Shanxi Coal”), the Company’s operating subsidiary in China. On August 30, 2011, the Audit Committee presented its interim findings to the Company’s Board of Directors.

The investigation has been constrained by certain limitations, including, among other things, the lack of cooperation by key individuals, limited access to individuals in China who have knowledge of the allegations, and restrictions on evidence gathering in China. Subject to these and other limitations, below is a summary of the findings of the Audit Committee to date. These findings are interim in nature, do not reflect all of the matters examined in the context of the investigation or all of the conflicting evidence obtained with respect to the matters under investigation, and are subject to revision if additional facts are uncovered.

(1) Allegations Concerning the Transfer of 90% Ownership of Shanxi Coal to Ming Zhao in September 2009.
 
The Audit Committee has found that Ming Zhao arranged for Shanxi Putai Resources Limited (“Putai”), another subsidiary of the Company and the parent company of Shanxi Coal, to transfer its 90% ownership (and thereby the Company’s indirect 90% ownership) of Shanxi Coal to himself in September 2009 (the “90% Transfer”) and that Yao Zhao, Ming Zhao’s brother and the legal representative of Putai under Chinese law, authorized the transfer. The Audit Committee has also found that Liping Zhu, the Company’s CEO, President and director on the Board, was aware of the 90% Transfer but did not disclose it to any other director. Ming Zhao contends that this transfer was pursuant to a “Trusted Shareholding Agreement” that granted him merely nominal ownership of Putai’s 90% equity interest in Shanxi Coal but reserved beneficial ownership for Putai, and also states that he effectuated this transfer for a legitimate business purpose — to help Shanxi Coal obtain government approval to become a consolidator of coal mines.

See more

Unless the Exchange's determination is appealed, the Company expects that the Exchange will file a Form 25 with the SEC to remove the Company's common stock from listing and registration on the Exchange and that the Company's common stock will be delisted from the Exchange shortly. The Company is considering its response to the Exchange. Trading in the Company's stock has been halted by the Exchange since April 11, 2011.

On July 13, 2011, the Independent Committee of the Board received a draft merger agreement from Chairman of the Board, Mr. Ming Zhao, pertaining to the preliminary buy-out proposal made by Mr. Zhao on April 29, 2011. Although it is expected that evaluation and negotiation of the draft agreement will take at least several weeks, neither the Company nor the Independent Committee can provide any assurances that a definitive agreement will be executed or approved or that a transaction will be consummated or the timing of such. The Company will provide no other updates regarding the proposed buy-out until there is a material development.

TAIYUAN, China, July 13, 2011 /PRNewswire-Asia-FirstCall/ -- By letter dated July 7, 2011, the independent registered public accounting firm of Puda Coal, Inc. (NYSE Amex: PUDA) (the "Company"), Moore Stephens, resigned, effectively immediately. Moore Stephens served as the Company's auditor since July 19, 2005. Moore Stephens also advised the Company that further reliance should no longer be placed on its previously issued audit reports relating to the Company's financial statements for fiscal years 2009 and 2010. The resignation and non-reliance advice by Moore Stephens are based on its conclusion that it is no longer able to rely on the representations of the Company's management received in connection with its audits of the Company's financial statements for the last two fiscal years. Moore Stephens believes such management representations are materially inconsistent with the alleged unauthorized transfers of subsidiary ownership by the Company's Chairman, Mr. Ming Zhao, which are currently subject to the investigation by the Audit Committee. The Company's Audit Committee will continue its investigation into the alleged unauthorized transactions.

On June 24, 2011, the Company announced that it received a notice from NYSE Amex (the "Exchange") regarding the Company's failure to satisfy certain of the Exchange's continued listing standards and that it was required to submit a plan of compliance by July 5, 2011 to help regain compliance. Such submission deadline has been subsequently extended by the Exchange to July 15, 2011. The Company is currently considering its responses to the Exchange.

On April 29, 2011, the Company announced that it has received a preliminary buy-out proposal from Chairman of the Board, Mr. Ming Zhao and that an Independent Committee of the Board was authorized by the Board to review and evaluate Mr. Zhao's buy-out proposal and, if appropriate, negotiate its terms and take any other actions in connection therewith. In addition, the Independent Committee has retained financial advisors in connection with the proposed buy-out. Mr. Zhao has reiterated his desire to proceed with his proposed buy-out of the Company and has indicated that he will provide a draft merger agreement to the Independent Committee later in the week. Mr. Zhao has also provided certain documents to the Audit Committee in support of its internal investigation, and has indicated that he will provide additional documentation in the coming days. Neither the Company nor the Independent Committee can provide any assurances that a transaction will be formally proposed, or that if proposed, a definitive agreement will be executed or approved or that a transaction will be consummated or the timing of such.

TAIYUAN, China, June 13, 2011 /PRNewswire-Asia-FirstCall/ -- Puda Coal, Inc. (NYSE AMEX: PUDA) ("Puda Coal" or the "Company) announced today that its Independent Committee has retained Cowen and Company, LLC and Morgan Joseph TriArtisan LLC as financial advisors in connection with the previously-announced proposed preliminary buy-out offer made by Ming Zhao, the Chairman of Puda Coal, to acquire all outstanding shares of common stock of the Company. In response to the offer, the Board of Directors of the Company authorized the Independent Committee to review and evaluate the proposal and, if appropriate, negotiate its terms, and take any other action in connection therewith.

In a series of conference calls and e-mail communications over the past several weeks with lawyers from Shearman & Sterling, Mr. Zhao's legal counsel, the Independent Committee has requested a draft Merger Agreement and information and documentation from Mr. Zhao, including documentation relating to all Mr. Zhao's transactions involving Puda Coal and its subsidiaries, that will enable the Independent Committee to evaluate Mr. Zhao's preliminary proposal. Since the proposal was announced, lawyers from Shearman & Sterling have indicated to representatives of the Independent Committee that they were working to provide this information to the Independent Committee, although, to date, this information has not yet been provided. Last week, lawyers from Shearman & Sterling indicated to representatives of the Independent Committee that they hope to provide substantial additional information by June 22nd, but have not yet indicated a date by which they propose to deliver a first draft of the Merger Agreement. The Independent Committee will continue to communicate with Shearman & Sterling regarding the proposed transaction. Neither the Company nor the Independent Committee can provide any assurances that a transaction will be formally proposed, or that if proposed, a definitive agreement will be executed or approved or that a transaction will be consummated.

Rodman and Renshaw on PUDA                 4/12/2011

Termination of Coverage

Termination of Coverage Effective immediately, we are terminating coverage of Puda Coal Inc. (“Puda”) to allocate resources more efficiently within our coverage universe. Upon termination of coverage, any of our prior financial projections on Puda should not be considered reliable.

Rating Puda was last rated Market Outperform.

Company Description and Recent Development Puda Coal Inc., through its operating subsidiary, Shanxi Puda Group Co., specializes in providing high-grade cleaned coking coal to the steel manufacturing industry in China. Its primary geographic markets include Shanxi, Inner Mongolia, and Hebei. The company currently has three coal washing facilities and is one of the largest non-state owned coal washing companies in Shanxi province. Assisted by the regional consolidator status granted by the Shanxi provincial government, the company has recently ventured into coal mining business by acquiring assets and coal mining rights within Shanxi province. Puda became a public company in the U.S. through a reverse merger in 2005. Since September 2009, the company’s common stock has been trading on AMEX under the ticker “PUDA.”

On March 14, 2011, the company announced its 4Q10 financial results. Revenue for the quarter was $90.5 million. Gross profit came in at $9.2 million. Non-GAAP net income was $4.1 million, representing diluted EPS of $0.18. As of the end of 2010, Puda had $156.2 million of cash and cash equivalents, $151.1 million of working capital, and $42.9 million of long-term debt (including the current portion). Shareholders’ equity stood at $250.9 million.

Puda announced this morning that its Board of Directors unanimously ratified its Audit Committee’s decision to launch a full investigation into allegations raised by some market participants pointing to various unauthorized transactions in the shares of the company’s subsidiary, Shanxi Coal, by the company's Chairman of the Board, Ming Zhao. The company’s press release also stated that “Although the investigation is in its preliminary stages, evidence supports the allegation that there were transfers by Mr. Zhao in subsidiary ownership that were inconsistent with disclosure made by the Company in its public securities filings. Mr. Zhao has agreed to a voluntarily leave of absence as Chairman of the Board of the Company until the investigation is complete.”

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

UPDATE: PUDA's initial investigation supports our findings from last week. The Chairman has voluntarily taken a leave of absence.

TAIYUAN, China, April 11, 2011 /PRNewswire-Asia-FirstCall/ -- Puda Coal, Inc. today announced that its Board of Directors has unanimously ratified the Audit Committee's decision to launch a full investigation into the allegations raised in a recent article alleging various unauthorized transactions in the shares of a subsidiary company, Shanxi Coal. The Audit Committee has retained professionals in the United States and China to assist it in its investigation. The full board, including Mr. Ming Zhao, the Chairman of Puda Coal, has agreed to cooperate in the investigation.

Although the investigation is in its preliminary stages, evidence supports the allegation that there were transfers by Mr. Zhao in subsidiary ownership that were inconsistent with disclosure made by the Company in its public securities filings. Mr. Zhao has agreed to a voluntarily leave of absence as Chairman of the Board of the Company until the investigation is complete. The New York Stock Exchange has halted trading in the Company's stock.

This is a reprint of the Report on PUDA, released last week.

Supportive Documents:

TAIYUAN, China, April 7, 2011 /PRNewswire-Asia-FirstCall/ -- Puda Coal, Inc. today announced that Shanxi Puda Coal Group Co. Ltd ("Shanxi Coal"), a 90% subsidiary of Puda Coal, entered into separate coal mining rights and mining assets transfer agreements with three coal mines located in Huozhou County, Shanxi Province, on April 6, 2011, Shanxi Huozhou Jianzhuang Coal Industry Co., Ltd ("Jianzhuang Coal"), Shanxi Huozhou Leijian Coal Industry Co., Ltd ("Leijian Coal") and Shanxi Huozhou Fengshen Coal Industry Co., Ltd ("Fengshen Coal").

In March 2010, Shanxi Coal was approved by the Shanxi provincial government to acquire and consolidate four coking coal mines in Huozhou County, Shanxi Province, known as the Jianhe Project, which, once completed, should increase the total annual capacity of target coal mines from the current accumulated 720,000 metric tons to 900,000 metric tons per year.

Pursuant to the coal mine acquisition agreements signed on April 6, 2011, Shanxi Coal agreed to pay an aggregate purchase price of RMB 98,000,000 (approximately $14.98 million) for Jianzhuang Coal, RMB 92,000,000 (approximately $14.06 million) for Leijian Coal, and RMB 87,000,000 (approximately $13.29 million) for Fengshen Coal.

Under each agreement, Shanxi Coal agreed to pay 90% of the purchase price within five days of signing and the remaining 10% of the purchase price three months after the signing if Shanxi Coal confirms there is no claim against respective seller with respect to the transferred assets. Jianzhuang Coal, Leijian Coal and Fengshen Coal will be responsible for canceling or terminating their respective employment contracts (or labor relationships) with their employees, paying all unpaid wages, insurance premiums and welfare expenses, and bearing all of the expenses caused by the cancellation or termination of the employment contracts. The tangible assets and related documents of the three coal mines will be transferred to Shanxi Coal within seven business days upon signing of the agreements.

Shanxi Coal is in the final stages of negotiations with the owner of the last Jianhe Project mine and expects to sign a definitive agreement to acquire Shanxi Jianhe Coal Industry Limited Company ("Jianhe Coal") in the near future. Jianhe Coal is the largest mine of the four target coal mines to be consolidated under Jianhe Project. In May 2009, Shanxi Coal acquired an 18% interest in Jianhe Coal for RMB 100,000,000 (approximately $15.27 million). Leverage on its status of 18% equity owner and the sole corporate shareholder of Jianhe Coal, Shanxi Coal applied and received approval to be the consolidator of Jianhe Project.

Shanxi Coal plans to place all the acquired assets of Jianzhuang Coal, Leijian Coal, Fengshen Coal and Jianhe Coal into Shanxi Huozhou Lituo Coal Industry Co., Ltd. ("Huozhou Lituo"), a newly established project company approved by the Shanxi provincial government. The geological technical report on Lituo Coal has been completed. Based on the construction plan, the three small mines will be closed, one of their mine shafts will be changed as gas emission shaft, Jianhe Coal facility will become the operational mine of Huozhou Lituo to explore the coal reserves, including reserves underground of the three mines. Shanxi Coal expects to receive construction approval by June 2011.  Shanxi Coal anticipates that it will take about eight to ten months to complete the construction upgrades and consolidation of the mines under the Jianhe Project after receiving construction approval.

"We are making a solid progress in executing our growth plan and have now entered into agreements to acquire three of the four coal mines under the Jianhe Project. We expect to finalize the agreement with Jianhe Coal in the near future and are preparing to execute our consolidation and expansion plans under the Jianhe Project. In the meantime, we are preparing the required reports for coal mine design, consolidation and restructure process for submission to the government. The primary reserve of the Jianhe Project is metallurgic coal, which provides an attractive opportunity to take advantage of China's growing infrastructure and demand for steel. It also allows us to benefit from synergies between our coal washing and coal mining operations," commented Mr. Liping Zhu, CEO of Puda Coal.

"Jianhe Coal is in excellent condition, and a new, larger mine shaft has been completed by its original owner before it was shut down by the government under the coal mine consolidation program. In addition, we have already commenced the comprehensive construction designing work at the Jianhe Project. We expect our Pinglu and Jianhe projects to gain further momentum and anticipate our coal mining business to make a solid contribution to our financial results in the second half of 2011 and beyond," Mr. Zhu concluded.

Fourth Quarter 2010 Highlights and Recent Events

• Fourth quarter revenue totaled $90.5 million, up 50.3% year over year
• Gross profit increased 73.6% year over year to $9.2 million
• Gross margin increased to 10.2% from 8.8% for the fourth quarter of 2009
• Operating income totaled $6.7 million, up 37.7% year over year
• Net income was $4.4 million or $0.18 per fully diluted share, as compared to $2.3 million, or $0.15 per fully diluted share, in the fourth quarter of 2009
• Excluding the $0.3 million in non-cash gains related to the fair value of derivative warrants, adjusted net income rose 9.8% to $4.1 million, or $0.18 per fully diluted share vs. $0.23 in the prior year quarter.
• Sales of cleaned coal increased 20.6% year-over-year to 645,000 metric tons (MT)
• Average selling price of cleaned coal increased 23.9% year over year to $140 per MT
• In December 2010, the Company closed a public offering of common stock for aggregate net proceeds of approximately $101.5 million, including the underwriter's over-allotment
• Effective January 1, 2011, construction began at Dajinhe Coal, one of two project companies under Phase I of the Pinglu Project
• As of February 2011, Shanxi Coal acquired the coal mining rights and assets of all seven mines under Phase II of the Pinglu Project
• In March 2011, Shanxi Coal was granted a transitional business license for Dajinhe Coal

Full Year 2010 Highlights

• Net revenue was $324.8 million, up 51.7% from 2009
• Gross profit totaled $41.2 million, up 126.8% from 2009
• Operating income was $34.1 million, up 134.7% from 2009
• Net income totaled $23.5 million, or $1.15 per fully diluted share, compared to $5.5 million, or $0.36 per fully diluted share in 2009
• Excluding the $0.2 million in non-cash expense related to the fair value loss of derivative warrants, adjusted net income was $23.3 million, or $1.15 per diluted share, up 121.7%, as compared to $10.5 million, or $0.68 per diluted share from 2009
• Sales of cleaned coal increased 24.4% year over year to 2.4 million MT
• Average selling price of cleaned coal increased 21.6% to $135 per MT

"We ended 2010 on a positive note generating approximately $20 million cash flow from our legacy coal washing business driven by strong revenue and net income growth. Our well established customer relationships and the continued recovery of the steel industry fuelled double-digit year-over-year growth in sales volume and average selling prices of our high quality cleaned coal," commented Mr. Liping Zhu, CEO of Puda Coal. "With our strong balance sheet and solid financial position, we are well prepared to execute our coal mine consolidation projects in 2011. We have achieved significant milestones in this area in recent months and are confident in our ability to transform Puda Coal into an integrated coal washing and mining company."

Business Outlook

"In 2011, we anticipate another solid year of performance from our coal washing operations, as we expect demand for steel to remain high.  More importantly, we expect our coal mine consolidation projects to make a solid contribution to our financial results. We have already commenced construction of the designed production expansion of the first project company under Pinglu Phase I and began producing a small amount of thermal coal during the construction period.  By the end of first quarter, we expect to receive construction approval for the second project company under Pinglu Phase I, and we anticipate receiving construction approvals by July 2011 for all three Pinglu Phase II project companies. In the near term, we expect to enter into asset purchase agreements with the owner of the coal mines under our Jianhe Project."  

"In the longer term, as we successfully execute our coal mine consolidation projects, we will find the right balance between our coal washing and coal mining businesses to generate optimum return on investment and value for our shareholders," concluded Mr. Zhu.

TAIYUAN, China, Feb. 28, 2011 /PRNewswire-Asia/ -- Puda Coal, Inc. (NYSE AMEX: PUDA) ("Puda Coal" or the "Company"), today announced that Shanxi Puda Coal Group Co. Ltd ("Shanxi Coal"), a 90% subsidiary of Puda Coal, recently completed mining assets acquisition of the remaining coal mines under Phase II of the Pinglu Project: Pinglu County Anrui Coal Industry Co., Ltd., Pinglu County Xiapingcun Coal Mine and Pinglu County Chuntouao Coal Mine.

As previously announced by the Company, pursuant to the acquisition agreements, the purchase price is RMB 250,000,000 (approximately $37.43 million) for Anrui Coal, RMB 61,200,000 (approximately $9.16 million) for Xiapingcun Coal, and RMB 140,000,000 (approximately $20.96 million) for Chuntouao Coal. Shanxi Coal paid 50% of the purchase price within three days of execution of each agreement and paid 40% of the purchase price on February 17, 18 and 22, 2011, respectively, after mining rights of those coal mines were transferred to the Company. The remaining 10% of the purchase price under each agreement, as a deposit, will be paid six months after the mining permits and property deeds are transferred.

TAIYUAN, China, Jan. 3, 2011 /PRNewswire-Asia/ -- Puda Coal, Inc.announced that Shanxi Puda Coal Group Co. Ltd ("Shanxi Coal"), a 90% subsidiary of Puda Coal, entered into coal mining rights and mining assets transfer agreements with three coal mines located in Pinglu County, Shanxi Province, on December 28, 2010, Pinglu County Anrui Coal Industry Co., Ltd., Pinglu County Chuntouao Coal Mine and Pinglu County Xiapingcun Coal Mine.

On September 28, 2009, Shanxi Coal was approved by the Shanxi provincial government to consolidate certain coal reserves in Pinglu County, Yuncheng City, Shanxi Province ("Pinglu Project"). The assigned coal reserves are owned by eight coal mines with good operating track records prior to their mandatory shut down under the Shanxi province Coal Mine Consolidation Program and Xiapingcun Coal, a permanently closed small mine with a mining area of 0.7 square kilometers.

Pursuant to the agreements, Shanxi Coal will pay an aggregate purchase price of RMB 250,000,000 (approximately $37.43 million) for Anrui Coal, RMB 140,000,000 (approximately $20.96 million) for Chuntouao Coal, and RMB 61,200,000 (approximately $9.16 million) in cash, of which RMB 18,530,000 ($2.77 million) for Xiapingcun Coal.

Under each agreement, Shanxi Coal agrees to pay 50% of the purchase price within three days of signing, 40% of the purchase price within 30 days after assets transfer is completed and the mining permits and property deeds are transferred, and the remaining 10% of the purchase price six months after the mining permits and property deeds are transferred. Anrui Coal, Chuntouao Coal and Xiapingcun Coal will be responsible for canceling or terminating their respective employment contracts (or labor relationships) with their staff, paying all unpaid wage, premium and welfare expenses, and bearing all of the expenses caused by the cancellation or termination of the employment contracts.

Upon completion of the transfer of the mining rights and mining assets under the above agreements, Chuntouao Coal will be closed down and its underground coal reserves together with the reserves of Xiapingcun Coal will be consolidated into Anrui Coal. These coal reserves include higher quality thermal coal and coking coal.  

Shanxi Coal plans to place all the purchased assets of Anrui Coal, Chuntouao Coal and Xiapingcun Coal into Shanxi Pinglu Dajinhe Anrui Coal Industry Co., Ltd., a newly established project company. Dajinhe Anrui Coal is one of the three project companies set up by Shanxi Coal in connection with Phase II of the Pinglu Project. After consolidation and improvements, Dajinhe Anrui Coal's annual capacity will be 900,000 metric tons. The Company expects to complete the consolidation and restructuring within twelve months after the closing of the asset acquisitions.

Phase II of Pinglu Project will be co-developed by Shanxi Coal, Mr. Zhao Ming and Mr. Gao Jianping (the "co-developers") based on the Investment Cooperation Agreement signed on August 1, 2010. Under the Investment Cooperation Agreement, Shanxi Coal, Mr. Zhao and Mr. Gao will each contribute 40%, 30% and 30%, respectively, of the total investment needed for the consolidation and construction of Pinglu Project Phase II. The parties will share the profits based upon the above investment contribution percentages and bear the risks and losses in connection with the project which will be limited by the amount of investment contributed by each party. The co-developers authorized Shanxi Coal to control and manage Phase II of the Pinglu Project.

"We have now successfully acquired two coal mines of Phase I of the Pinglu Project, four coal mines under Phase II of the Pinglu Project and entered into definitive agreements to acquire the remaining coal mines under Phase II of Pinglu Project. In addition, we entered into an agreement to purchase the coal reserves and assets of Xiapingcun Coal, which will enable us to acquire all the coal reserves under the Pinglu Project. Our project team continues to make significant progress with the application process for construction permits and we look forward to commencing construction and restructuring," commented Mr. Liping Zhu, CEO of Puda Coal.

Third Quarter 2010 Highlights

• Third quarter revenue increased 60.4% year over year to $90.0 million
  
• Gross profit increased 78.7% year over year to $9.6 million Gross margin increased to 10.7% from 9.6% for the third quarter of 2009

• Operating income grew 95.8% year over year to $7.9 million 

• Net income was $5.0 million compared to a net loss of $0.6 million in the third quarter of 2009

• Excluding non-cash gains related to the fair value of derivative warrants, adjusted net income rose  86% to $5.2 million, or $0.25 per diluted share

• Sales of cleaned coal increased 30.7% year over year to 651,000 metric tons (MT)
  
• Average selling price of cleaned coal grew 21.1% year over year to $138 per MT
    

Business Outlook

"We expect our coal washing operations to continue to benefit from steel-intensive infrastructure development projects and continue to deliver attractive financial results for Puda Coal," said Mr. Liping Zhu, President and CEO of Puda Coal. "As we make progress on the acquisition and consolidation of Da Wa and Guanyao coal mines, we are becoming more knowledgeable about the intricacies of the approval process and government requirements.  Ultimately, Puda Coal will benefit from this process as our coal mines will be constructed based on government-approved designs focused on safety, production efficiency and optimal output. We are encouraged by our progress to date and are hopeful that we will continue to make meaningful progress on each of our consolidation projects in the months ahead."

Rodman &  Renshaw on PUDA

3Q10 Results Summary Puda Coal (“Puda”, Ticker: PUDA, Market Outperform) announced its 3Q10 results earlier today. Total revenue soared 60.4% YoY to $90.0 million, beating our estimate and Street consensus of $81.3 million by a wide margin. Gross profit however was $9.6 million, or 10.7% of revenue, significantly below our expectation of $11.8 million, or 14.5% of revenue. EBITDA grew 86.4% YoY to $8.3 million, implying an EBITDA margin of 9.3%, compared to our respective estimates of $11.5 million and 14.1%. Non-GAAP net income reached $5.2 million, or $0.25 per diluted share, below our estimates and Street consensus of $6.9 million, or $0.33 per diluted share. 

3Q10 Highlights and Discussions The strong top line result was attributed to increased sales volume and much higher ASP compared to the same period last year. Sales volume in the quarter reached to 651,000 metric tons (MT), higher than 498,000 MT in 3Q09 and 601,000 MT in last quarter. ASP was $138/MT, 22.1% higher than $113/MT in 3Q09 and slightly higher than $137/MT in 2Q10. With the recovering demand from the Chinese steel industry, we expect sales volume and ASP will remain at the current high levels in the near term. 

The weaker than expected gross profit was primarily due to higher weighted average purchasing price of raw coal from the last quarter. During Q2, Puda used some raw coal inventories purchased in Q1 which commanded lower costs, resulting in higher gross margin of 14.7%. As the raw coal price has been on the rise and is expected to stay high as China is entering into a cold winter season, we believe Puda’s gross margin will continue to be under some pressure in the coming quarters. SG&A as a percentage of revenue remained relatively stable at 1.9%, compared to 2.0% in the last quarter. The sequential contraction in EBITDA margin (9.3% vs. 13.2% in Q2) was primarily owing to the compression in gross margin.

The company’s balance sheet remained solid. As of the end of 3Q10, Puda had $80.1 million of cash and $42.7 million of total debt, implying cash per share of $3.84 and net cash per share of $1.79. Accounts receivable was $36.6 million, translating to DSO of 36.0 days. During the quarter, the company generated $9.3 million of operating cash flow, representing significant improvements from the $3.1 million in last quarter and the $1.3 million in 3Q09. 

Updates on Coal Mine Consolidation Projects Pinglu Project Phase I: Puda received approval from the Shanxi provincial government for the geological technical report on the Da Wa Coal mine in November and is awaiting approval for the geological technical report on Guanyao Coal mine. Management indicated in the conference call that the approval was taking longer than expected but expressed confidence that Puda will receive the approval to start the transitional production for both Da Wa and Guanyao by the end of 2010. In addition, management indicated that the coal reserve from Da Wa coal contains higher thermal content than the original estimate based on the new official geological technical report. Guanyao Coal is also likely to possess higher thermal-content coal than the previous estimate. The loftier ASP commanded by higher thermal-content coal should provide further upside to the top line for next year.

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

Member FINRA.
Member SIPC.

Puda Coal, Inc. today announced that Shanxi Puda Coal Group Co. Ltd ("Shanxi Coal"), a 90% subsidiary of Puda Coal, entered into separate coal mining rights and mining assets transfer agreements with two coal mines located in Pinglu County, Shanxi Province, on October 28, 2010, Shanxi Pinglu Renling Coal Industry Ltd. ("Renling Coal") and Pinglu County Donggou Coal Mine ("Donggou Coal").

Pursuant to the agreement with Renling Coal, Shanxi Coal will pay Renling Coal an aggregate purchase price of RMB 205,000,000 (approximately $30.65 million) in cash, of which 38,830,000 ($5.80 million) is for Renling Coal's tangible assets and RMB 166,170,000 ($24.85 million) is for the mining rights of and compensation to Renling Coal.

 "Following the successful acquisition of the first two Pinglu County mines in June 2010, we are excited to reach another milestone in our coal consolidation projects. By partnering with Mr. Zhao and Mr. Gao to co-develop these mines, we will have access to the capital needed to acquire the assets of all six mines simultaneously, thereby accelerating the time frame for the second phase of the Pinglu County project," said Liping Zhu, President and CEO of Puda Coal.

Source: PR newswire

"We expect the recovering steel industry to fuel demand for coking coal and we have a positive outlook for our coal washing operations in 2010," said Mr. Zhu. "We continue to make progress on our coal mine consolidation projects. The asset transfers of the Da Wa Coal and Guanyao Coal mines in Pinglu County were completed in April and we will pay for the assets transfer when the additional registered paid-in-capital of Shanxi Coal is confirmed by the Shanxi government office. Pre-construction activities at these two mines are currently underway. We are working closely with the Shanxi government and expect to receive approval for the business license transfers for all eight of the Pinglu County mines in the near term."