Puda Coal Announces Strong Third Quarter 2010 Results

-- Third quarter 2010 revenue rose 60% year over year to $90 million

-- Third quarter 2010 adjusted net income rose 86% year over year to $5.2 million, or $0.25 per diluted share

TAIYUAN, Shanxi, China, Nov. 15, 2010 /PRNewswire-Asia-FirstCall/ -- Puda Coal, Inc. (NYSE Amex: PUDA) (the "Company"), a supplier of high grade metallurgical coking coal used to produce coke for steel manufacturing in China and consolidator of twelve coal mines in Shanxi Province, today announced its 2010 third quarter financial results.

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

Third Quarter 2010 Results

For the quarter ended September 30, 2010, net revenue increased 60.4% to $90.0 million, compared to $56.1 million for the third quarter of 2009. Revenue growth was driven by increases in the average selling price of cleaned coal and sales volume as a result of continuous recovery of the steel industry in China.  Sales of cleaned coal increased 30.7% to 651,000 MT, compared to 498,000 MT for the third quarter of 2009.  The average selling price rose 21.1% to $138 per MT, compared to $114 per MT (after adjusting for exchange rate differences) for the third quarter of 2009.  

Gross profit for the third quarter of 2010 expanded 78.7% to $9.6 million, compared to $5.4 million for the third quarter of 2009.  Gross margin increased 1.1% to 10.7%, as compared to 9.6% in the third quarter of 2009. The increase was mainly attributable to an increase in the average selling price of cleaned coal, which exceeded the increase in the average cost of raw coal in the third quarter of 2010.  

Operating expenses for the third quarter of 2010 rose 27.2% to $1.7 million, compared to $1.3 million for the third quarter of 2009.  Selling expenses rose 31.1% year over year to $0.9 million, due to an increase in sales volume. General and administrative expenses increased 23.5% year over year to $0.8 million, primarily due to higher stock compensation expenses and professional fees.

Operating income for the third quarter of 2010 increased 95.8% to $7.9 million, compared to $4.0 million for the third quarter of 2009. Operating margin expanded 1.6% to 8.8% in the third quarter of 2010 from 7.2% for the third quarter of 2009.

Interest expense was $0.6 million compared to $0.1 million for the third quarter of 2009 due to an increase in interest payments related to the 6% loan from the Company's Chairman of the board of directors, Mr. Ming Zhao.  

During the third quarter of 2010, the Company recorded a non-cash loss of $195,000 related to the change in fair value of the derivative warrants issued in November 2005, as compared to a corresponding loss of $3.4 million in the third quarter of 2009.

Income tax expense for the third quarter of 2010 increased 88.2% to $2.1 million, compared to $1.1 million for the same period last year, primarily due to the increase in operating profit to $8.4 million for the third quarter of 2010 from $4.4 million for the third quarter of 2009.

Net income was $5.0 million, or $0.25 per diluted share, compared to a net loss of $0.6 million, or ($0.04) per diluted share, for the third quarter of 2009.  Diluted earnings per share were calculated using weighted average shares of 20,832,440 and 15,387,110 for the quarters ended September 30, 2010 and September 30, 2009, respectively.

Excluding non-cash losses in the fair value of derivative warrants, adjusted net income rose 86.0% to $5.2 million, or $0.25 per diluted share, compared to adjusted net income of $2.8 million, or $0.18 per diluted share, for the third quarter in 2009.  

Nine Months Results

Net revenue was $234.3 million for the nine months ended September 30, 2010, up 52.3% from $153.8 million for the same period last year. Gross profit was $32.0 million, or 13.6% of revenue, up 148.7% from $12.8 million, or 8.4% of revenue, for the nine months ended September 30, 2009. Operating income was $27.4 million, or 11.7% of revenue, up 183.8% from $9.7 million, or 6.3% of revenue, for the same period in 2009. Net income increased 493.6% to $19.1 million, or $0.97 per diluted share, compared to $3.2 million, or $0.21 per diluted share, for the same period prior year.  Excluding non-cash losses in the fair value of derivative warrants, adjusted net income rose 183.5% to $19.2 million, or $0.97 per diluted share, compared to adjusted net income of $6.8 million, or $0.44 per diluted share, for the nine months ended September 30, 2009.  

Financial Condition

As of September 30, 2010, Puda Coal had $80.1 million in cash and cash equivalents, compared to $19.9 million at the end of 2009. Working capital was $104.9 million and a current ratio of 4.8:1. Long-term debt, excluding the current portion, was $41.4 million.  At September 30, 2010, shareholders' equity was $138.5 million, up from $84.0 million at the end of 2009.

For the nine months ended September 30, 2010, the Company generated $25.7 million in cash from operating activities, compared to cash used in operating activities of $11.4 million for the same period last year.  The Company used $27.9 million in cash for investing activities for the nine months ended September 30, 2010 for the purchase of Da Wa Coal and Guanyao Coal mines in Pinglu County.  The remaining payments for these two mines of approximately $8.5 million will be made upon the one year anniversary of the completion of the transfer of the mines.

Net cash provided by financing activities was $61.1 million for the nine months ended September 30, 2010 and included $14.5 million cash proceeds from the sale of common stock, $5.1 million from the exercise of warrants, a $35.4 million loan from the Company's significant shareholder and Chairman of the board of directors, Mr. Ming Zhao, and a $7.0 million increase in the registered capital of the Company's 90% subsidiary, Shanxi Coal, to meet new capital requirements for coal consolidators enacted by the Shanxi provincial government earlier this year.

Status of Coal Mine Consolidation Projects

Pinglu Project Phase I

Under the Pinglu Project, Shanxi Coal will acquire and consolidate eight thermal coal mines into five mines with aggregate reserves of approximate 163.9 million MT, based on government records. Phase I of the  Pinglu Project involves the acquisition and construction of Da Wa and Guanyao coal mines.  The assets and mining rights of the Da Wa  mine was placed into a new project company named Shanxi Pinglu Dajinhe Coal Industry Co., Ltd. and the assets and mining rights of Guanyao was placed into a new project company named Shanxi Pinglu Dajinhe Wujin Coal Industry Ltd.  Both of these project companies are 100% owned by Shanxi Coal.

In November 2010, Shanxi Coal received approval from the Shanxi provincial government for the comprehensive geological technical report on the Da Wa Coal mine.  The Company has submitted the geological technical report on the Guanyao Coal mine and expects to receive approval from the Shanxi provincial government in the near future.  

The Company is now proceeding with the construction design work as it awaits the final approval for the construction and transitional production permit.   Once the permission is given, Shanxi Coal will begin construction of the designed production expansion in full force. During construction, coal will be produced considering the construction work is based on existing mines with good operating histories.

Pinglu Phase II

Phase II of the Pinglu Project involves the acquisition and construction of remaining six coal mines in Pinglu County.  The total production capacity of the six mines is 1.2 million MT per year prior to consolidation and will be expanded to 2.7 million MT following the consolidation.  Shanxi Coal has recently signed separate mining rights and mining transfer agreements with the owners of four Pinglu County mines.  A new project company named Shanxi Pinglu Dajinhe Jinmen Coal Industry Ltd. will hold the assets and mining rights of the Xuhutuo and Daqi coal mines and a new project company named Shanxi Pinglu Dajinhe Jinyi Coal Industry Ltd. will hold the assets and mining rights of the Renling and Donggou coal mines. The aggregate purchase price for the four mines is approximately $80.0 million, of which the Company is responsible for 40% of the total investment. Puda Coal's Chairman, Mr. Ming Zhao, and Mr. Jianping Goa, an unrelated third party, are each responsible for 30% of the total investment under an investment cooperation agreement with Shanxi Coal.  The Company has finalized the purchase price for the remaining Pinglu County mines and expects to enter into definitive acquisition agreements with the remaining owners in the near term.  

Jianhe Project

Shanxi Coal will acquire and consolidate four metallurgical coal mines in Huozhou County into one larger metallurgical mining operation. Production capacity of the four mines will be increased from 720,000 MT to 900,000 MT.  Similar to the Pinglu Project, Shanxi Coal is performing the necessary steps to apply for the construction and transitional production permit.  Shanxi Coal is actively engaged in negotiations with the current mine owners.  

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."

Conference Call

The Company will host a conference call to discuss its third quarter 2010 financial results on Monday, November 15, 2010 at 9:00 a.m. Eastern Time.  To participate in the live conference call, please dial (877) 409-5558 (international callers dial (706) 679 - 8017) approximately five to ten minutes prior to the start of the call and enter passcode 235 546 81.  A replay will be available for 14 days starting on Monday, November 15, 2010 at 10:00 a.m. Eastern Time and can be accessed by dialing (800) 642-1687 (international callers dial (706) 645-9291) and entering passcode 235 546 81.

About Puda Coal, Inc.

Puda Coal, through its subsidiaries, supplies premium high grade metallurgical coking coal used to produce coke for steel manufacturing in China. The Company currently possesses 3.5 million metric tons of annual coking coal capacity. The Company has recently moved upstream into coal mining, as an acquirer and consolidator of coal mines in Shanxi Province, including the Pinglu projects and the Jianhe projects. On September 30, 2009, Shanxi Coal, a 90% indirect subsidiary of the Company, was appointed by the Shanxi provincial government as an acquirer and consolidator of eight thermal coal mines located Pinglu County in southern Shanxi Province. Shanxi Coal plans to consolidate the eight coal mines into five, increasing their total annual capacity from approximately 1.6 million to 3.6 million metric tons. Shanxi Coal received another approval by the Shanxi provincial government to consolidate four additional coking coal mines into one coal mine in Huozhou County. After the completion of the consolidation, the Jianhe project is expected to increase the total annual capacity from 720,000 metric tons to 900,000 metric tons, according to the Shanxi provincial government's approval. For more information, please visit http://www.pudacoalinc.com

FORWARD-LOOKING STATEMENTS

The information contained herein includes forward-looking statements. These statements relate to future events or to our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. You should not place undue reliance on forward-looking statements since they involve known and unknown risks, uncertainties and other factors which are, in some cases, beyond our control and which could, and likely will, materially affect actual results, levels of activity, performance or achievements. Any forward-looking statement reflects our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, results of operations, growth strategy and liquidity. For example, the closing of the transactions contemplated under our coal mine acquisition agreements is subject to various closing conditions, and the success of our overall strategy to enter into the coal mining business will be subject to risks and uncertainties relating to market and geological conditions as well as our management's ability to operate and manage the coal mines. We assume no obligation to publicly update or revise these forward-looking statements for any reason, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

Use of Non-GAAP Financial Information

GAAP results for the three and nine months ended September 30, 2010 and 2009 include non-cash losses related to the change in fair value of the Company's warrants. To supplement the Company's condensed consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information excluding the impact of these items in this release, which are adjusted net income and diluted earnings per share. The Company's management believes that these non-GAAP measures provide investors with a better understanding of how the results relate to the Company's historical performance. The additional adjusted information is not meant to be considered in isolation or as a substitute for GAAP financials. The adjusted financial information that the Company provides also may differ from the adjusted information provided by other companies. Management believes that these adjusted financial measures are useful to investors because they exclude non-cash expenses that management excludes when it internally evaluates the performance of the Company's business and makes operating decisions, including internal budgeting, and performance measurement, as these measures provide a consistent method of comparison to historical periods. As a result, the provision of these adjusted measures allows investors to evaluate the Company's performance using the same methodology and information as that used by the Company's management. Moreover, management believes that these adjusted measures reflect the essential operating activities of the Company. Adjusted measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from the adjusted financial measure. However, the Company's management compensates for these limitations by providing the relevant disclosure of the items excluded. A reconciliation of each adjusted measures to the nearest GAAP measure appears in the table below.