Us China Mining Group (OTC BB:SGZH)

On SGZH April 15, 2010 released its 2009 10K

Of course, no press release was originally issued. And we can see why. Working the numbers, the fourth quarter was horrible on all fronts.

Looking back at the SGZH third quarter release and 10Q, the company at least reassured us that the quarter's subpar performance was based on short-term occurrences.

In the 2009 10K, SGZH left you to delve into the filing to assess the situation.

Our initial thoughts: How can you be in China coal sector and not grow right now? In the 10K the company inferred that it did not aggressively pursue its coal brokerage business, typically used to fill excess demand, due to the increase in coal prices.

In reaction to the plummeting stock price, it appears that the company eventually realized that maybe communicating with investors is not such a bad idea and spent the whopping $500 to issue a release Monday afternoon. We have been on SGZH for some time to improve shareholder communication efforts. Maybe now they will get the point, especially since their CFO recently resigned.

When all is said and done it appears that the fourth quarter results were affected by temporary issues.

Our results were temporarily impacted by the one month closing of a major power plant customer in July and, during the latter part of the year, by our beginning maintenance and retrofit project at our Xing An mines, thereby decreasing our sales volume. We expect, however, these mine improvements will improve efficiencies and lower costs and greatly enhance our growth and profitability once completed in 2010." Mr. Li continued, "

Unfortunately, the company did not give a timeline on this matter nor did it indicate how much of the company’s decline in revenues was from this project or its reduced coal brokerage business.

Management also states…

“As we look ahead we expect to continue our top line growth and profitability in 2010 and take advantage of our strong balance sheet to actively pursue strategic opportunities to improve and grow business."

While encouraging, this statement does not indicate that the company will grow its EPS, only that it will it will maintain profitability.

If the company pursues an acquisition we estimate this initial cash outlay could be at least $40.0 million. If SGZH tapped the equity markets at the current price we are talking around 6 million shares, which would be horrible unless EPS accretion is significant.

If not for the press release, we were inclined to remove SGZH from the GeoBargain list. Since it seems that the cessation of 30% EPS growth may be temporary we will maintain the GeoBargain code, but on a thin line. We are assuming that that the first quarter may still feel the impact of the ongoing maintenance program. We will attempt to gain more clarity on the timeline for the completion of its maintenance project and acquisition goals.

Additional input from a GeoInvesting Member:

The Tong mine rarely produces significant volume in Q4 (Didn't in 2007 or 2008 either)... The Xian An mine actually did twice as much production in 2009 than in 2008.

The problem was that the brokerage segment fell off a cliff this quarter (Which, as far as I can tell, is incredibly random in where it contributes to the bottom line...I could not detect any repeat seasonality there).

In 2009 Q1 was 53% of annual coal production...In 2008, Q1 was 60% of annual coal production...

Disclosure: GeoTeam Long SGZH

Excerpt from GeoBargain & Special Update - Performance Laggards Article

Songzai Intl Holdings (OTCBB:SGZH)

As we indicated on Monday, November 16, 2009 GeoBargain Songzai Intl Holdings reported weak third quarter results. The stock responded by falling sharply. We are keeping SGZH on the GeoBargain list as it appears that the poor third quarter performance may be due to a one time event. Excerpt from our recent discussion note: "The decrease in sales was mainly due to the temporary closing of a major power plant customer for one month in July for overhauling and maintenance of its boilers.” Unfortunately, with no press release, investors have to dig into Songzai’s 10Q filing to locate this info. It is our belief that a responsible public company should take the time to alert investors with press releases to compliment its filings. We will make a suggestion to the Company to issue a press release, an action that may alleviate recent concerns. Songzai should also communicate how much of the decline in sales was the result of the closing of its power plant; would the revenue comparison have been flat or shown growth?

GeoBargain Songzai Intl Holdings reported pretty weak third quarter results today via a 10Q filing.

At face value this report appears pretty dismal.  Closer inspection, per commentary in the filing, indicates that the weak results should be temporary:

"The decrease in sales  was mainly due to the temporary closing of a major power plant customer for one month in July for overhauling and maintenance of its boilers. Our total sales volume was 209,793 tons for the third quarter of 2009, as compared to 409,426 tons of sales for the third quarter of 2008, a decrease of 199,633 tons or approximately 49%.

The average selling price per ton for the third quarter of 2009 was approximately $44.17, compared to the average selling price of approximately $37.61 per ton for the third quarter of 2008, an increase of 17%. Our high average selling price for the third quarter of 2009 was a result of adjusting our selling price in 2009 according to the market price in Heilongjiang province, and our selling price can vary dramatically depending on the prevailing market price of coal in Heilongjiang Province."

We suspect that the stock may take a short-term hit, until investors locate this commentary. A press release by the company would be advisable.  The GeoTeam® is curious how much sales were lost as result of this situation.