China Energy Corp. Reports Financial Results for First Quarter of Fiscal Year 2011

HOHHOT CITY, China, April 20, 2011 /PRNewswire-Asia/ -- China Energy Corporation (OTC Bulletin Board: CHGY), ("China Energy" or the "Company"), a producer and trader of coal for domestic heating, electrical generation, and coking purposes and a supplier of heating and electric energy services in Inner Mongolia, announced yesterday financial results for the first quarter of its fiscal year ending February 28, 2011.

First Quarter Results

For the quarter ended February 28, 2011, China Energy Corp. (the "Company" or "we") reported revenue of $22.4 million, a 7.7% increase over revenue of $20.8 million in the first quarter of fiscal year 2010. Quarterly sales from the Company's coal group increased slightly to $16.3 million, or 73% of total sales, compared to $16.2 million, or 78% of total sales in the prior-year quarter. As a component of this, 43% of total company sales came from coal production, and 30% came from coal trading during the quarter. The Company produced approximately 132,000 metric tons of coal in the first quarter of 2011, compared to 156,000 metric tons in the same period of fiscal year 2010. The 15.4% year-over-year decrease in production from the Company's coal group was mainly due to a temporary halt in our coal production as a result of a new requirement of the local coal bureau for mandatory safety check before the resume of production after the halt during the Spring Festival, . Volume of coal sold by our proprietary trading business approximated 192,000 metric tons during the three months ended February 28, 2011, compared to 170,000 metric tons in the comparable three months in 2010. This increase was mainly attributable to our higher railway transportation quota for 2011.

Sales from our Heat Power group totaled $6.1 million in the first quarter of 2011, or 27% of total sales compared to $4.6 million, or 22% of total sales in the prior-year quarter.

"This is the second year of resuming full coal mine production since the mine improvements, and we expect production volume from coal production to remain at least on par with last year.  In addition, we expect an incremental growth from our proprietary coal trading operation as a result of the increase in the  railway space quota we were granted  from the local railway bureau which allows us to transport and sell more coal purchased from third parties," stated WenXiang Ding, chief executive officer and president. "We believe that our existing infrastructure and proximity to additional coal resources in the region put us in an advantageous position to expand our operations through opportunistic acquisitions. We also expect the continued development of the XueJiaWan district to fuel growth in our Heat Power segment."

Cost of goods sold in the first quarter of fiscal year 2011 was approximately $14.4 million, compared to approximately $13.8 million in the first quarter of 2010. Gross profit was $8.0 million and the gross margin was 35.7% in the quarter, compared to $7.0 million in gross profit and a gross margin of 33.7% during the same period in fiscal year 2010. The year-over-year gross margin improvement was due to higher margins from the Company's coal group. The Company continues to expect higher gross margins from its Coal Group compared to its Heat Power group.

Total operating expenses for the first quarter of fiscal year 2011 were approximately $2.4 million, or 10.7% of revenue, compared to $1.9 million, or 9.1% of revenue in first quarter fiscal year 2010. Selling and marketing expenses in first-quarter fiscal year 2011 were $1.3 million compared to $0.8 million in the same period in fiscal year 2010, due to the Company's investments in expansion of its proprietary coal trading business. General and administration expenses totaled $1.1 million for the quarter ended February 28, 2011, which as flat versus the same period last year. Operating margins was, 25%, same as last year.

Net income during the quarter totaled approximately $4.4 million, or $0.10 per share, compared to $4.0 million, or $0.09 per share in the first quarter of fiscal year 2010. The weighted average common shares outstanding were 45.0 million in both periods.

Balance Sheet and Cash Flow

Cash and cash equivalents totaled $15.7 million on February 28, 2011 compared to $4.6 million on November 30, 2010. The Company had total assets of $118.1 million versus total liabilities of $61.0 million as of February 28, 2011. For the first three months of fiscal year 2011, cash used in operation by the Company was $9.3 million versus cash generated from operating activities amounting to $0.8 million in the same period of fiscal year 2010 due to higher level of inventory we maintained to assure the stability of our proprietary coal trading business.

About China Energy Corporation

China Energy Corporation produces and processes raw coal for domestic heating, electrical generation and coking purposes for steel production primarily in the People's Republic of China, and acts as a brokerage in facilitating coal trade transactions. The Company produces coal through its subsidiary Inner Mongolia Tehong Coal Group Co, Ltd. ("Coal Group") and supplies heating and electricity requirements throughout the XueJiaWan district through its subsidiary Inner Mongolia Zhunger Heat Power Co., Ltd. ("Heat Power"). Through Heat Power, China Energy operates a thermoelectric plant and 32 heat transfer stations located in XueJiaWan, Ordos City in which the Company has a monopoly for heating supply granted to the Company by the local government. For additional information on China Energy Corporation see http://www.ceccec.com.

Cautionary Statement Regarding Forward-Looking Information

This press release may contain certain "forward-looking statements" relating to the business of China Energy Corporation, and its subsidiary companies. All statements, other than statements of historical fact included herein are "forward-looking statements" including statements regarding: the impact of the proceeds from the private placement on the Company's short term business and operations, the general ability of the Company to achieve its commercial objectives, including the ability of the Company to sustain growth; the business strategy, plans and objectives of the Company and its subsidiaries; and any other statements of non-historical information. These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involve known and unknown risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website (http://www.sec.gov)