Us China Mining Group (OTC BB:SGZH)

First Quarter 2012 Results

• For the three months ended March 31, 2012, the Company generated net sales of $14.5 million compared to $22.2 million for the same period in 2011, a 35% decline.
• Net loss for the three months ended March 31, 2012 was $0.4 million compared to net income of $9.6 million for the same period of 2011. Diluted loss per share for the first quarter 2012 was $0.02 compared to diluted earnings per share of $0.51 in the same period of 2011.

 "While the first quarter left a certain amount of inventory, we believe that it will not take us long to sell and delivery the coal to our customers," said Mr. Hongwen Li, President of US China Mining Group. "We are well capitalized and intently focused on completing the Guizhou acquisition in the near term which will meaningfully increase both our coal reserves and production capacity, while capitalizing on higher market prices to drive incremental revenue and net income growth."

Fourth Quarter 2011 Results

• For the three months ended December 31, 2011, the Company recorded revenues of $14.1 million compared to $28.7 million for the same period of 2010, a decrease of 51%.
• Diluted earnings per share for the fourth quarter 2011 were $0.15 compared to $0.36 in the same period of 2010.

"The Company made some adjustments in our operation during 2011," commented by Mr. Hongwen Li, CEO of the Company. "Compared to the 2010, we produced more, brokered less and had fewer customers. The tightened capacity for coal transportation by rail was one of the main reasons for our increased efforts in selling more coal extracted from our mines to certain customers who were able to book railway cargoes for delivery during 2011."

"During 2011 the Company had to cope with increased pressures related to rising costs and operating expenses, resulting in squeezing effects on profit margin," Mr. Li said. "To relieve those effects, the Company continues our efforts to raise selling price and increase sales of coal we produce ourselves."

"In the meantime, the Company never stops executing our growth strategy," Mr. Li continued. "We are continuing the retrofit project in Xing An, which we anticipate will increase output capacity by 50% by 2013. We put into action a program to potentially capitalize an anthracite coal mine in Guizhou province and we have initiated an exploratory program to trade coal and other mineral products from the US for China's end users."

"For 2012, we intend to stay on the same track as we did in 2011. We estimate that our output will stay in the range of production output permitted under our mining rights. Management will keep focus on having all 2011's outstanding issues completed in a reasonable time schedule, which we expect will provide the more positive outcomes we have planned."

First Quarter Results:

"We continue to benefit from strong demand for coal in China," explained Mr. Hongwen Li, President of US China Mining Group. "Production and sales were up significantly during the first quarter in Tong Gong and Xing An mines. After a slow seasonal period, we expect our coal brokerage and coal sorting business to accelerate through the second half of 2011."

• Gross profit was $8.7 million for the first quarter of 2011 compared to $4.8 million for the same period of 2010, an increase of 80%
• Net income for the three months ended March 31, 2011 was $4.1 million compared to net income of $2.1 million for the same period of 2010, an increase of 92%.
• Diluted earnings per share for the first quarter 2011 were $0.22 compared to $0.14 in the same period of 2010

Management reaffirmed its prior guidance of $95.7 million of revenues and $20.3 million of net income for the full year 2011.

For the three months ended December 31, 2010, the Company recorded revenues of $28.7 million compared to $10.8 millionfor the same period of 2009, an increase of 165%.

"We are pleased to report a strong increase in our fourth quarter operating results, which provides confirmation of our embedded growth plan and solid momentum as we move into 2011, said Mr. Hongwen Li, President of US China Mining Group. "The quarter benefitted from increased production at our Xing An mines while overall coal production increased 136.4% to 606,747 tons."

• Gross profit was $12.1 million for the fourth quarter of 2010 compared to $4.1 million for the same period of 2009, an increase of 194%.
• Net income for the three months ended December 31, 2010 was $5.6 million compared to net income of $0.9 million for the same period of 2009, an increase of 490%.
• Diluted earnings per share for the fourth quarter 2010 were $0.36 compared to$0.06 in the same period of 2009.

GeoTeam Note: 2010 vs 2009 adjusted EPS for

• Full year: $0.97 vs. $1.66
• Fourth quarter: $0.41 vs. $0.07

Preliminary financial guidance for the year ended 2011, ending December 31. The Company expects the following:

Assumptions to forecast:

"Our 2011 financial forecast reflects our confidence in executing our growth strategy," started Mr. Hongwen Li, President of US China Mining Group. "We expect strong organic growth from our coal brokerage and coal production business, which will benefit from completing the mining equipment upgrade at our Xing An mines by February 2011.  Once mining production and our coal sorting operations both reach full production by May 2011, we anticipate revenues and profits to accelerate."

"With strong cash flows, minimal capital expenditure needs, $40 million of cash on our balance as of September 30, 2010 and an additional $15 million from our private placement in the fourth quarter of 2010, we are supremely positioned to make strategic acquisitions," continued Mr. Li. "We are currently evaluating several attractive acquisition candidates both domestically and in the U.S. Based on our preliminary due diligence and progress to date, we expect to complete at least two acquisitions during 2011. We have not included any contribution from acquisitions in our 2011 forecast, which would be additive to our overall growth rate."

Management expects the Company to generate

• revenue of approximately $66.5 million
• net income of approximately $14.1 million for the 2010 Fiscal year ending December 31, 2010.  

This represents a revenue increase of approximately 2.3% and decrease in net income of approximately 44%, from 2009 levels. The decrease in net income is primarily attributed to a decrease in production at the Xing An mine due to maintenance and retrofit projects that began in the fourth quarter of 2009.  

As previously reported, the Company began programs to increase production efficiencies and safety at the Xing An mine in December of 2009.  Upon completion of these programs and modifications, the Xing An mine will be able to maintain coal processing operations year-round and will increase coal production from 600,000 metric tons per year to 900,000 metric tons per year pending approval from local Government in 2012.  The Company expects to be at the full production of 600,000 tons when all upgrades have been completed, in May of 2011.

Status of retrofit of project:

The Xing An project is expected to take about 12 to 14 months. We expect to partially resume production in November of 2010 and fully resume production in February of 2011. We expect that these mine improvements will improve efficiencies, lower costs and greatly enhance our growth and profitability once completed.

Songzai International Holding Group Announces Entry Into Agreement to Acquire Liujiaqu Coal Mine in Inner Mongolia:

Estimated Mine Resources Exceed 140 Million Metric Tons

Terms:

Completion of the proposed acquisition is subject to a number of conditions including, but not limited to, completion of customary due diligence, obtaining all regulatory approvals and the consummation of financing conditions by the Company. Pursuant to the Asset Purchase Agreement, the Company shall acquire the Liujiaqu Coal Mine in consideration for a cash payment in the amount of USD $30 million and the issuance of an aggregate of 10,000,000 shares of the Company's common stock. Under the terms of the Asset Purchase Agreement, if the average closing price of the Company's common stock on the Over-The-Counter Bulletin Board (the "OTCBB") over the 10-day period ending on the day prior to the closing date is greater than $7.00 per share, then the number of shares of common stock to be issued by the Company in connection with the proposed acquisition shall be reduced to such number as determined by dividing USD $70 million by the average closing price for the Company's common stock on the OTCBB during such 10-day period. In addition, the sellers will receive a continuing interest equal to 30% of the net profits from the operation of the Liujiaqu Coal Mine.

Mr. Hongwen Li, CEO of the Company, commented, "We are pleased to have entered into this agreement to complete the large, strategic acquisition of the Liujiaqu Coal Mine. As the further execution of 'develop-the-west strategy' by the PRC government continues, energy, as a dominating developing industry in western China, will experience continued demand. The geographic location of the mine, combined with its resources of approximately 143 million metric tons, make this an important and compelling deal that will more than double the size of our company. Based on our research and information provided, we expect that beginning operation in the third quarter of 2010 will deliver meaningful revenues from the mine this year and upwards of $50 million in revenues during its first full year of operation in 2011."