US China Mining Group sells coal for 13% more in second quarter

US China Mining Group’s results for the second quarter of 2011 showed the Company generated net sales of $11.4 million compared to $10.0 million for the same period in 2010, an increase of 14%. The Company sold approximately 216,011 metric tons of coal in the three months ended June 30, 2011, similar to the 215,489 metric tons sold in the second quarter of 2010. The average sales price per ton increased 13% year-over-year, from $46.25 to $52.37, due to strong industry demand.

“The rapid industrialization and urbanization in China will continue to place strong demand for coal, which can be evidenced by upward pricing,” said Mr. Hongwen Li, President of US China Mining Group. “With production and sales steadily increasing at our Tong Gong and Xing An mines, we expect accelerating revenue growth in the second half of 2011 to help offset unanticipated government fees and levies.”

Cost of sales for the three months ended June 30, 2011 was $7.3 million, an increase of $1.2 million or approximately 20% over the year ago period, due to higher labour and materials cost and increasing mining fees.

Gross profit was $4.1 million for the second quarter of 2011 compared to $3.9 million for the same period of 2010, an increase of 5%. Gross margins decreased 320 basis points to 35.7% for the second quarter of 2011 due to higher labor, materials costs, and increased mining fees.

Operating expenses were $4.4 million, up $3.2 million from $1.2 million in the second quarter of 2010. The increase was attributable to new fees levied by the provincial government, including a $1.3 million land use tax for the Xing An mines (The tax started to levy this year at a rate of charge per square meters on the land used Xing An, who made a payment of approximately $2.6 million during the second quarter, with $1.3 million expensed in this quarter and the other half to be expensed in the later half of this year), and a $1.3 million non-recurring expense for repairs, small parts and machine accessories.

Operating loss was $0.3 million for the three months ended June 30, 2011. Excluding $2.6 million in fees and taxes levied by the provincial authorities, the non-recurring repair expenses and in non-cash warrant/option expenses, which were not present during the same period last year, operating income was $2.3 million. Adjusted operating margins were 20.2% for the second quarter of 2011 compared to 26.6% in the year ago period.

Net loss for the three months ended June 30, 2011 was $0.4 million compared to net income of $1.8 million for the same period of 2010. Diluted loss per share for the second quarter 2011 was $0.02 compared to diluted earnings per share of $0.12 in the same period of 2010. Excluding the non-recurring mine repair costs and warrant expense taken during the three months ended June 30, 2011, non-GAAP adjusted net income and EPS were $0.9 million and $0.05, respectively. The weighted diluted shares outstanding increased 24% to approximately 18.9 million as a result of the equity financing completed in the first quarter of 2011.