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China Armco Metals Announces First Quarter 2011 Financial Results

/ Source: GlobeNewswire

    SAN MATEO, Calif., May 16, 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 first quarter and full year 2010.

    SUMMARY FINANCIALS

    First Quarter of 2011 Financial Results

    For the quarter ended March 31, 2011, compared to same period of 2010, net revenue rose 479% to $49.7 million due to strong trading revenues. China Armco sold 253,249 tons of iron ore and various other ores through its trading business compared to a total of 63,171 tons in the first quarter of 2010, at an average price of $438 per ton. China Armco's metal recycling business contributed $6.3 million in sales during the first three months of 2011, as the business started to ramp back up. There were no comparable sales as our recycling facility was not in operation in the first quarter of 2010.

    Mr. Kexuan Yao, Chairman and CEO of China Armco stated, "Our first quarter reflects the strength of a diversified business model and our ability to secure meaningful new customers which culminated into a return to profitability. We expect a ramp up in sales in both our metal trading and recycling businesses under a backdrop of robust steel production and demand across China. Developing strong relationships with strategic customers and suppliers such as Mineracao Usiminas S.A. ("MUSA"), will enable us to fully leverage our operating model to generate incremental revenue and profitability."

    Gross profit for the first quarter of 2011 increased 467% to $3.2 million, compared to $0.6 million in the first quarter of 2010. Gross profit for trading was $2.8 million and $0.4 million for metal recycling. Gross margin was flat year-over-year at 6.4%.

    Operating expenses increased $0.9 million to $1.8 million for the first quarter of 2011 due to increased sales and marketing expenses related to higher orders. As a percent of sales, operating expenses were 3.6% and 10.7% in the first quarter of 2011 and 2010, respectively, reflecting positive operating leverage from significantly higher sales.

    Operating income for the first quarter of 2011 was $1.4 million compared to an operating loss of $0.4 million in the first quarter of 2010.

    Net income for the first quarter of 2011 was $0.6 million, or $0.04 per diluted share, compared to $0.1 million or $0.01 per share for the same period last year. The weighted average diluted shares outstanding increased from 12.1 million in the first quarter of 2010 to 15.3 million in the first quarter of 2011, due to an equity raise and converted warrants during 2010.

    Financial Condition

    As of March 31, 2011, the Company had $5.7 million in cash and cash equivalents, compared to $3.1 million at the end of 2010. Working capital was $12.2 million and a current ratio of 1.2:1 on March 31, 2011 compared to 8.5 million and 1.4:1 on March 31, 2010. Total accounts receivable were $30.5 million at the end of the first quarter of 2011 compared to $19.1 million at year-end 2010 due to the $22.4 million accounts in receivable related to the sale of 150,000 MT of iron ore, which approximately $22 million was collected in April, 2011. As of March 31, 2011, shareholders' equity was $43 million, essentially flat from December 31, 2010. Management believes the working capital is adequate to fund operations for the coming 12 months.

    The Company had a $9.2 million net cash outflow from operations the first quarter of 2011 compared to a net inflow of $15.4 million in the same period last year. China Armco increased inventories by $8.5 million in anticipation of higher production at its recycling facilities. The Company has bank facilities, which provide for cash borrowings or the issuance of commercial letters of credit required in its metal ore trading business, aggregating $95 million. Approximately $53 million was available under these facilities at March 31, 2011.

    Business Updates

    China Armco had several large metal trading orders in the first quarter of 2011. On March 17, 2011, the Company delivered its first shipment of 150,000 tons of iron value valued at $19.8 million from Mineracao Usiminas S.A. ("MUSA"), which is 70% owned by Usiminas, one of the largest steel producers in Brazil. The strategic relationship with MUSA provides an entry into a new, fast-growing market for China Armco. Subsequent orders are expected from this relationship while the Company is pursuing additional customers to complement growth in this business segment.

    The metal recycling business resumed normal operations in January 2011 after the provincial government eliminated power restrictions that were in effect since September. During the first quarter, which ended March 31, the Company sold approximately 14,435 tons of processed scrap steel. The Company currently serves nine clients, several which it also presents on the trading business, and is establishing itself as a quality producer. Management continues to believe that the secular shift to renewable raw material sources and government quotas imposed on steel producers will drive underlying demand for recycled steel. Furthermore, the Company expects to ramp production in its Texas Shredder throughout the remainder of 2011 as it adds new customers and gains more experience in metal recycling production. Enhanced capacity utilization is expected to have a positive variance on margins.

    Management began migrating its metal recycling customers to a pre-sold model starting in January 2011. Under this new sales strategy, customers pay China Armco 100% of the total purchase price in advance by issuing a commercial bill from 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. Seven 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 Monday, May 16th, 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.

    Date:  Monday, May 16th, 2011
    Time:  5:00 p.m. Eastern Time, U.S.
    Conference Line Dial-In (U.S.):  1-877-407-9210
    International Dial-In:  1-201-689-8049
    Conference ID# 372658:  "China Armco Metals"
    Webcast link: 

    The playback of the webcast can be accessed until May 21st, 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 November 15, 2011

    -- Replay Number (Toll Free): (877) 660-6853
    -- Replay Number (international): (201) 678-7415
    -- Account #: 286
    -- Conference ID: 372658

    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 capable of producing up to approximately one million tons per year located on 32 acres of land. China Armco maintains customers throughout China which includes the fastest growing steel producing mills and foundries in the PRC. Raw materials are acquired from a global group of suppliers located in 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 .

    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: U.S. 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