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China Armco Metals Announces Fourth Quarter and Full Year 2010 Financial Results

/ Source: GlobeNewswire

SAN MATEO, Calif., March 31, 2011 (GLOBE NEWSWIRE) -- China Armco Metals, Inc. (AMEX:CNAM) ("China Armco" or the "Company"), a distributor of imported metal ore and metal recycler with a new state-of-the-art scrap metal recycling facility in China, today announced its financial results for its fourth quarter and full year 2010.

SUMMARY FINANCIALS

Fourth Quarter of 2010 Financial Results

For the quarter ended December 31, 2010, net revenue decreased 29% to $24.5 million due to the Lianyungang provincial government imposing power restrictions starting in September 2010. China Armco's metal recycling operations were substantially curtailed throughout the fourth quarter of 2010. The power restrictions were lifted starting in January 2011, and as a result the recycling operations have resumed normal production. The Company sold 106,668 metric tons of iron ore through its trading business compared to 157,894 metric tons in the fourth quarter of 2009 at an average price of $153 compared to $94 in the year ago period.

"We made progress during 2010 despite unforeseen industry challenges," said Mr. Kexuan Yao, Chairman and CEO of China Armco. "We finished construction of our state-of-the-art metal recycling production facility and secured new iron ore trading customers. The relationships we are developing with key customers and suppliers worldwide provide a solid foundation in which to grow both of these businesses. As more steel mills in China increase their use of scrap metal to comply with the government's mandate to reduce harmful emissions, we are optimistic in capturing market share while ramping production volumes and associated operating profits."

Gross profit for the fourth quarter of 2010 decreased 76% to $0.8 million, compared to $3.2 million in the fourth quarter of 2009. Gross margin decreased to 3.1%, compared to 10.1% in the same period in 2009.

Operating expenses increased to $1.9 million for the fourth quarter of 2010 from $0.3 million for the fourth quarter of 2009.

Operating income for the fourth quarter of 2010 was a loss of $1.1 million compared to operating income of $3 million in the fourth quarter of 2009.

Net income for the fourth quarter of 2010 was a loss of $1.6 million, or $0.11 per diluted share, compared to $3.1 million or $0.31 per share for the same period last year. Diluted earnings per share was a $0.16 loss and $0.51 for the year ended December 31, 2010 and December 31, 2009, respectively.

Results for the Year Ended December 31, 2010

Net revenues in 2010 decreased by $18.2 million to $68.8 million compared to 2009, primarily due to an approximately $28.5 million decrease in the sale of iron ore, a $7.4 million decrease in sale of iron pellets, a $2.4 million decrease in the sale of chrome ore and a $2.3 million decrease in the sale of coke (charcoal made from coal). The decreases in iron ore sales were attributable to lower demand for these products due to reduced production volumes by Chinese steel and alloy manufacturers that began midway through the second quarter of 2010 and continued through the third quarter. These declines were partially offset by sales $19.1 million of recycled scrap metal from our new recycling operations and an increase in manganese ore sales of $3.4 million.  

Gross profit for the full year 2010 was $2.5 million, a decrease of 72% from $ 8.9 million for the year ended December 31, 2009. Gross margins decreased to 3.6% in 2010 compared to 10.3% in 2009, which was attributable to unfavorable pricing conditions during the first half of 2010 and to the energy restrictions imposed in the third and fourth quarters.

Operating expenses of $4.8 million in 2010 increased by $3.1 million, or 182%, over 2009 due to higher selling and general and administrative expenses. Selling expenses increased by $0.71 million mainly due to increased port charges and warehouse fees, which were partially offset by decreases in selling expenses associated with lower volumes. General and administrative costs significantly increased by $2.4 million in 2010 as compared to 2009, primarily related to increases in operating costs relating to increased activities to establish our U.S. corporate office, increases in professional fees, increases in salaries, expenses associated with being a publicly-traded company and stock based compensation costs. 

Net loss was $2.2 million for 2010 with ($0.16) in diluted loss per share compared to net income of $5.1 million, or $0.51 per share for the same period last year. Calculations were base using weighted average shares of 13.8 million and 10.1 million for the year ended December 31, 2010 and December 31, 2009, respectively.

Financial Condition

As of December 31, 2010, the Company had $3.1 million in cash and cash equivalents, compared to $0.7 million at year-end 2009. The Company had working capital of $12.2 million and a current ratio of 1.3:1 on December 31, 2010 compared to 5.3 million and 1.2:1 on December 31, 2009. As of December 31, 2010, shareholders' equity was $42.8 million, up from $17.1 million at the end of 2009. The Company received approximately $9.1 million of net proceeds from the sale of 1.53 million shares of common stock and 5-year warrants on April 20, 2010 and an additional $13.2 million through the exercise of outstanding warrants and common stock options.

The Company had a $5.7 million net cash outflow from operations in 2010 compared to a net outflow of $6.9 million in 2009. The Company increased inventories by $9.9 million in the second half of 2010 to take advantage of lower scrap steel prices in anticipation of higher production from its recycling facilities in 2011. Approximately $14.2 million was spent on property, equipment and construction related to its new 1 million metric ton metal recycling production facility in 2010. The company has a long term loan  of $8.3 million with Bank of China which $4.5 million is due August 25 of this year. In addition, The company has bank facilities which provide for cash borrowings or the issuance of commercial letters of credit that we require in our operations in the aggregate amount of $87.5 million.  Approximately $50.1 million was available under these facilities at December 31, 2010.

Business Outlook

China Armco continues to make steady progress in both its metal trading and recycling businesses. In the fourth quarter of 2010, the Company secured and delivered two orders of iron ore with a combined volume of 42,000 metric tons and an aggregate value of $4.7 million. On March 17, 2011, the Company delivered its first shipment of 150,000 metric tons of iron value valued at $19.8 million from Mineracao Usinimas S.A. ("Usiminas"), one of the largest steel producers in Brazil. The strategic relationship with Usiminas provides China Armco with a significant potential growth conduit as it is the first company to help Usiminas to export its iron ore to China.

The metal recycling business resumed normal operations in January 2011 after the provincial government eliminated power restrictions that were in effect from September to December of 2010. In addition, it has added 6 new metal cutting machines since the beginning of 2011, bringing the total to 18. We expect these machines will allow the Company to reach its designed recycling capacity of one million metric tons per year.

Management began migrating its metal recycling customers to its pre-sold model starting in January 2011. Under this new sales strategy, customers pay China Armco approximately 100% of the total purchase price in advance by issuing a commercial bill from a related bank, thereby locking in a set volume and price. This allows the Company to use the proceeds to pay for raw materials, thereby reducing its working capital needs and providing enhanced visibility into future production volumes. 2 customers have transitioned to the pre-selling model so far, and the Company continues to actively solicit existing and new customers.

Conference Call

The Company will conduct a conference call at 5:00 p.m. ET on Thursday, March 31, 2011. To attend the call, please use the dial-in information below. When prompted, ask for the "China Armco Metals call" and/or be prepared to provide the conference ID.

The playback of the webcast can be accessed until July 31, 2011. To access the webcast, you will need to have the Windows Media Player on your desktop. For the free download of the Media Player, please visit:

The Teleconference will be available for replay until 11:59 PM April 7, 2011

-- Replay Number (Toll Free): (877) 660-6853

-- Replay Number (international): (201) 612-7415

-- Account #: 286

-- Conference ID: 370152

About China Armco Metals, Inc.

China Armco Metals, Inc. is engaged in the sale and distribution of metal ore and non-ferrous metals throughout the PRC and is in the recycling business with the recent launch of operations of a metal recycling facility with a designed production capacity of approximately one million metric tons per year located on 32 acres of land. China Armco maintains customers throughout China which include the fastest growing steel producing mills and foundries in the PRC. Raw materials are acquired from a global group of suppliers located diverse countries, including, but not limited to, Brazil, India, Indonesia, Ukraine and the United States. China Armco's product lines include ferrous and non-ferrous ore, iron ore, chrome ore, nickel ore, magnesium, copper ore, manganese ore and steel billet. The recycling facility is expected to be capable of recycling one million metric tons of scrap metal per year which will position the Company as one of the 10 largest recyclers of scrap metal in China. China Armco estimates the demand for recycled metal market in China will be over 120 million metric tons in 2011. For more information about China Armco, please visit http://www.armcometals.com.

Safe Harbor Statement

In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, China Armco Metals, Inc., is hereby providing cautionary statements identifying important factors that could cause our actual results to differ materially from those projected in forward-looking statements (as defined in such act). Any statements that are not historical facts and that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, indicated through the use of words or phrases such as "will likely result," "are expected to," "will continue," "is anticipated," "estimated," "intends," "plans," "believes" and "projects") may be forward-looking and may involve estimates and uncertainties which could cause actual results to differ materially from those expressed in the forward-looking statements. These statements include, but are not limited to, our expectations regarding our revenues and production related to our scrap metal recycling operations and the extent of government imposed energy restrictions and resulting blackouts and impact on our recycling operations.

In addition, any such statements are qualified in their entirety by reference to, and are accompanied by, the following key factors that have a direct bearing on our results of operations:

We caution that the factors described herein could cause actual results to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. New factors emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. This press release is qualified in its entirety by the following, including, but not limited to, any expectations with respect to the Company's revenues and operations, institution of governmental regulations relating to our businesses and the international economic climate, and the cautionary statements and risk factor disclosure contained in our Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the year ended December 31, 2010.

CONTACT: Investor Relations: HC International, Inc. Ted Haberfield, Executive VP Tel: +1-760-755-2716 Email: ir@armcometals.com Web: www.hcinternational.net Company: US Contact: Oliver Hu Investor Relations China Armco Metals, Inc. Office: 650.212.7620 Email: oliver@armcometals.com Website: www.armcometals.com China Contact: Wayne Wu China Armco Metals, Inc. Office: 021-62375286 Email: wayne.wu@armcometals.com Website: www.armcometals.com