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L&L Energy, Inc. (NASDAQ:LLEN)

F2Q 2013 Results Earnings Call

December, 11, 2012 12:00 PM ET

Executives

Ian Robinson - Chief Financial Officer

Clayton Fong - Vice President, U.S. Operations

Analysts

David Sheridan - Boenning & Scattergood

Don Sinsabaugh - Fulcrum Securities

Walter Ramsey - Walrus Partners

Operator

Good day, ladies and gentlemen and thank you for standing by and welcome to the L&L Energy Incorporated Second Quarter Fiscal 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session toward the end of the conference. (Operator Instructions)

As a reminder this conference is being recorded for replay purposes. With me today is L&L's Chief Financial Officer, Ian Robinson; and Vice President of U.S. Operations and member of the company Board of Directors Clayton Fong.

Before I turn the call over to Mr. Fong, may I remind our listeners that this call management's prepared remarks contain forward-looking statements, which are subject to risks and uncertainties and management may make additional forward-looking statements in response to your questions.

Information regarding forward-looking statements except historical facts contained herein are pursuant of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks, as well as uncertainties, which may cause actual results in future periods to differ materially from forecasted results. Actual results may differ from those discussed today, and therefore we refer to you more detailed discussion in the risks and uncertainties in the company's filing with the Securities and Exchange Commission.

And now it's my pleasure to turn the call over to L&L's Vice President and the director, Clayton Fong. Mr. Fong, please go ahead.

Clayton Fong

Thank you operator, and good morning to everyone. I'd like to welcome you to our second quarter earnings call. We're pleased today to share with you our financial results for the quarter and the discussion of our recent development. This quarter one was definitely one of continued growth. We've seen four count of - four consecutive quarters of increased mining productions, net income, and earnings per share. Our mining production for the second quarter was a company record and mining is the primary driver of our earnings. Going forward we expect continued improvement in mining.

On November 18, we completed the acquisition of two additional new mines Guizhou, which added $34 million tons of coal reserves and when fully expanded 750,000 tons of annual coal production. Both mines produce low sulfur, high BTU, anthracite coal. The first mine, LuoZhou, has 27 million tons of reserves and in accordance with the newly adopted mining standard set by the government has completed its trial production. It is anticipated to reproduce at an initial rate of around 200,000 tons, ramping up to its approved rate of 300,000 tons per year over the subsequent months. LuoZhou is targeted to expand to 450,000 tons by the end of 2013.

The second mine LaShu is producing development coal right now and should start trial production early next year. We expected to hit 150,000 tons per year this coming fiscal year and expected to eventually ramp up to its approved rate of 300,000 tons. LuoZhou and LaShu along with Weishe, an acquisition earlier this year, will eventually be organically expanded to produce in aggregate over $1.2 million tons of coal annually. All three of these mines are located in the same proximity, which allows us to benefit from operational efficiency.

We are very pleased with our partnership with Union Energy, the impact of these three mines greatly will expand L&L's mining segment and ultimately shareholder value. As consideration for LuoZhou in LaShu, L&L agreed to swap our DaPing Coal Mine and Zonelin Coking facility with Union Energy. The asset swap should affect earnings and EPS positively in the short term with substantial upside as we organically expand and grow both LuoZhou and LaShu. While mining expansion should help a bottom line expansion of our wholesale segment should substantially increase a top line.

In October, we inked a new contract with Datang Power, one of second largest energy producers to provide 360,000 tons of coal. In September, we absorbed a local sales company to expand a wholesale capacity in Yunnan. GuangYeh was rolled under the L&L Tai Fung subsidiary and is expected to substantially grow a sales over the next year. We also signed an MoU with Taggart Engineering, Beijing to develop substantial coal washing and other wholesale infrastructure.

With that I'd like to turn the call over to our Chief Financial Officer, Ian Robinson, who'll give details of our fiscal quarter financial results.

Ian Robinson

Thank you, Clayton and good morning everybody. We are pleased to report another quarter of solid profitability and growth. Our production of 185,000 tons represents year-over-year growth of 96% and a quarter-on-quarter increase of 24% from the first quarter. Our revenue for the second quarter was $54.9 million with mining contributing $18.9 million, washing contributing $21.6 million, wholesale contributing $10.1 million and coking contributing $4.3 million.

Revenues increased 27% year-over-year to $54.9 million. On quarter-on-quarter basis revenues increased 21% from was $45.3 million last quarter. Wholesale revenues increased 100% year-over-year to $10.1 million.

Net income attributable to L&L increased 104% year-over-year to $7.7 million for the second quarter and increased quarter-over-quarter 24% from $6.2 million last quarter. Earnings per share for the quarter was 21% an increase of 90% compared with the same period last year and an increase of 24% quarter-over-quarter. I'd like to now hand it back to Clayton for a few closing remarks.

Clayton Fong

That's great, Ian I want to repeat that was earnings per share of $0.21, that's terrific, an increase from $0.17 quarter before -- $0.12 before that - the quarter before that that's terrific. Thanks, Ian. Before moving onto Q&A, I'd like to briefly summarize with the great second quarter L&L has now seen four consecutive quarters of increased coal production earnings and earnings per share. As a matter of fact, the 185,000 tons of quarterly coal production was a company record. And then with the two additional acquisitions, we are definitely poised to continue to deliver increased earnings to a shareholders.

I'm very pleased with a quarter and I'm confident that we will continue to execute on growth plan increasing shareholder value and further establishing ourselves as a leader in the region and with that I'd be happy to turn it over to questions.

Question-and-Answer Session

Operator

Thank you, ladies and gentleman. (Operator Instructions) And it looks like a first question comes from David Sheridan with Boenning. Please go ahead, your line is open.

David Sheridan - Boenning & Scattergood

Hi, Clayton. Congratulations on a terrific quarter. Could you just give us an idea of what the second half of the year looks like sounds like you're looking stronger growth in all three categories of mining wholesale and washing, am I correct with that?

Clayton Fong

Yeah, we really do feel very very good about how well pleased we are for further growth. It is -- it continues to be a tough environment to give guidance just because we're -- we tend to acquire, we tend to grow organically both mining and particularly wholesale and washing so. So we haven't issued a formal guidance but let's suffice to say that maybe from a backdrop side we've now hit a quarter record in mining production higher, than we had even in our best years of 2011 prior to some of slowdowns and yet we've added two very substantial mines that will continue to grow. On a very short-term side it will probably be a modest increase which will turn into a very substantial increase in the bottom line as a ramp up the LaShu and LouZhou mines. I do want to make a note though, that with that swap what you've also seen is we are going from a 60% ownership of DaPing to a 95% ownership of LouZhou and LaShu. So I think bottom line will increase even more so than the top line.

David Sheridan - Boenning & Scattergood

Is there any plans going forward to get the story out to more shareholders because we're trading at almost less than the two PE and comparable to domestic coals it's just still undervalued. What are your plans on getting the story out to more shareholders?

Clayton Fong

Well I think you raised a good point. I think we also agree that the stock is undervalued and our market cap is low. What we are just -- we are focusing on executing the business and doing our best along those lines. And I think your point is well taken. We'll probably, with these, with four quarters, four strong quarters, four good quarters in a row and especially strong quarter the last two, I think it is a good time to get out there and try to get in front of some of the institutions and what have you. So I appreciate your thoughts.

David Sheridan - Boenning & Scattergood

Well again congratulations on the quarter and success in the continuing fiscal quarter here. Thank you.

Operator

Thank you, sir. Our next question comes from the line of Don Sinsabaugh with Fulcrum Securities. Please go ahead with your question please.

Don Sinsabaugh - Fulcrum Securities

Congratulations on great quarter Clayton. Could you discuss pricing in China for coal these days.

Clayton Fong

Yeah. I mean, that's a good question. This quarter, well pricing in China in general, what we saw, well you really have to go back to the beginning of this year when we saw record warm temperatures in the United States, I believe it was the warmest on record and very low gas prices beginning in the spring of this year. And what you saw from there is slowdowns in Europe and you really saw the international coal markets for China drop precipitously that excess of cheap coal for lack of a better word during the summer really hit prices a little harder than normal. There usually is a summer lull in the price of coal as hydros go offline and the rainy season begins. However, this summer was a bigger hit.

We did see for us prices bottom around August and I believe in the beginning of our last earnings call was -- early September we said we had just begun to see prices begin to firm a little bit and we have seen them firm up. But overall this quarters average pricing was actually slightly lower than the quarter before, primarily because it bottomed in this quarter. But what we're positive about is that that we've seen prices firm in September and October and we expect to do better going forward.

So I think the driver of revenue and earnings growth will be partly production, partly only more of the mines than we have and thirdly a little firmer pricing. I will say we do not expect, we're not expecting pricing to be as high as it was last winter, but we do expect it to go up from this summer and we're seeing that happen now. I hope that answers your question on pricing without getting too specific.

Ian Robinson

I think the economy in China has started to grow a little. Last month October saw an increase in inflation and that's showing that there is some growth going on it has been fairly quite before that. So hopefully it will grow and will continue to move ahead.

Don Sinsabaugh - Fulcrum Securities

Okay, as a follow-up could you discuss with us the mix between thermal and coking coal and how that's changing with the two new mines coming on and the DaPing going away?

Clayton Fong

Yeah, you are correct. Our DaPing mine is a coking coal mine and our two acquisitions are thermal coal. I do want to note they're high quality, high Btu anthracite coal, so it does fetch a premium on the thermal coal side. Although I will say this on the coking coal side we've actually seeing softer pricing and a little bit more of an impact and that's typical. If you look historically at coal pricing thermal is a little bit more of a steady as she goes and little less volatile and coking coal can be a lot more volatile and we're seeing that now.

So what I would say is at this point, would that change? I haven't really calculated the mix, but we used to be about a 50%-50%, 60%-40% mix and I suspect we will probably flip to the other way to more of a 60%-40% to more thermal coal with our current output. The DaPing and SuTsong mines are coking coal and are mostly coking coal and are and these other mines are defiantly higher grade thermal coal. So I think you'll see a little bit of a switch along those line, but I think that probably makes sense having that steady as she goes, base is good and then mixing it up a little. That actually was one of the synergies with regard to the swap. The Union Energy guys had mostly thermal and they wanted a little bit of coking coal exposure and for us we were able to reduce it just a little bit.

The other thing that's interesting along those lines and if you'll note that we just announced a new deal with Datang, which is one of the largest power producers in China. So we are really setting up for being able to supply from Guizhou some those these very much larger producers by expanding our infrastructure, expanding our washing capability. What is really key for a region like Guizhou, which has a lot of small mines, many of which you know have somewhat inconsistent quality, higher ash, lower ash, higher sulfur, lower sulfur, we need to be able to give these larger producers a more steady specification of coal. So I think we are going to be building out our -- we announced an MOU with Taggart Engineering, Beijing, in order to build some washing facilities, which will be very key to being able to supply that more steady specification, which we are used to doing here in the United States, but in China they don't necessarily do that.

So it's going to be a very, I think that's a very integral part. We are going to be growing the mining side organically and future acquisition, but we are also going to be growing the wholesale side. Particularly we have looked at a lot of smaller mines that we did MOU's with and it maybe that we'll do more of our acquisitions with larger better designed mines and it maybe that we'll do more wholesale and off take agreements with some of those smaller mines that we have been talking to.

Operator

Thank you, and it looks like our next question in queue comes from the line of Walter Ramsey with Walrus Partners. Please go ahead your line is open.

Walter Ramsey - Walrus Partners

Well Clayton congratulations good quarter. I was wondering if you could do me a favor and go back and give us the revenue breakdown again of the four different business lines. I didn't get all of that.

Ian Robinson

Yes, it is Ian Robinson here, I will give you the breakdown.

Walter Ramsey - Walrus Partners

Okay, thank you.

Ian Robinson

The revenue for the second quarter was $54.9 million, mining was $18.9 million, washing $21.6 million, wholesale $10.1 million and coking $4.3 million.

Walter Ramsey - Walrus Partners

Okay, appreciate that. And as far as the tax rate is concerned can you give us an idea what that should be for the entire year?

Ian Robinson

Roughly our tax in China well overall is about 16%. It varies of course between the various provinces, but we it's all shown in the Q, our tax provisions and tax payments.

Walter Ramsey - Walrus Partners

Okay, you don't see those changing, okay. Is it okay if I ask some more questions before I go off from the queue.

Clayton Fong

Go ahead, Walter.

Walter Ramsey - Walrus Partners

Okay, thank you. Okay, the wholesale business, do you have that pretty well lined up with contracts or do you have to scramble to distribute that every quarter?

Clayton Fong

Yeah, you asked a very good question. What we have done is we have strategically we began with several larger longer-term contracts that we have announced DaPuAn is a good example. And then with that is sort of the lynch pin to being able to sort of justifying and find partners to build out the infrastructure necessary to really go with that. So it's sort of cart before the horse on that side of it, but now we are going to be building out that infrastructure. So I think what you are going to see is absolutely a ramping up of that and it does. Probably it does start out slower and increase if you want to use the word somewhat exponentially as you go forward. I think that's probably the way that will go. We do anticipate to increase our sales and repeat our sales with folks like DaPuAn and to be able to look at bigger entities.

Something worth nothing is that if you look at China's 12th five-year plan they have designated Guizhou Province to have the fastest growth in new coal developments in the country. So I think a lot of the suppliers are looking towards Guizhou, but Guizhou is historically lots of small producers. So I think that link to between rather than a lot of the Inner Mongolia (Inaudible) mines that are 5 and 10 million tons each. Guizhou is characterized by 1,700 mines most -- the vast majority of which are smaller mines under 300,000 tons and they are going to be growing. So you really see a different operation and scale of operation, but that doesn't mean that there is a real opportunity to provide sort of that link of wholesale.

One of the examples would be looking at the three Union Energy mines. They are in fairly close proximity when all done and said that those three mines alone should be about 1.2 million tons when expanded out. Individually smaller mines often don't have the economy of scale to necessarily build a large scale washing plant, but when you aggregate mines like that you can build a washing plant and it can really be helpful both for the bottom line for our shareholders, but it's helpful for the producers there and then it also links the larger providers and the government likes that as well.

That also in turn maximizes the value of the coal out by washing it, making it more efficient. It also minimizes some of the pollutants and what have you by washing out some of the impurities like sulfur. So it's a win-win for everybody and defiantly the government is wanting to see a lot of more of its coal in that region washed and made more efficient. So I think for the wholesale side those are all key. The rail access is also going to be very key and we have been fortune to be able to access that rail access that in the province. So we are feeling very positive about wholesale. I do want to note that wholesale will increase the top line quite dramatically, but obviously our historical margins on mining might be 50% and our historical margins on the wholesaling might be 5% or 10%. So you'll see a difference in margins, but nonetheless it's a business that can scale up a lot faster and quickly.

Walter Ramsey - Walrus Partners

So those contracts and do - are they fixed prices so you know what you're buying and know what you are selling at or is there some.

Clayton Fong

Now as a rule what you'll find is and that's a good question we inked our original contract with for example DaPing and it was the higher price and then it was right before sort of prices sort of bottomed out and so we went back and they wanted to renegotiate the pricing. So we did, China is a little, how shall I put it, you know here in the states we would probably -- I hate to say it, go to the [magistrate] with the lawyers and say sorry man the price is the price. In China what you do when pricing goes down a little bit is you, you know the parties get back together and say hey guys things have changed a little let's sit down and renegotiate. I think it's a little more of amicable arrangement.

I think the key to that is and this is what we do. The key to that is to make sure you are buying mines with substantial margins and padding in that. So that you can weather those ups and downs a little more and when you are running gross margins of 50% of 60% it gives you plenty of room to be able to work with the volatility of coal pricing. We have been a little less volatile in the inland area than they have been in the coastal areas because of the impact of less expensive imported coal, but nonetheless we have seen a reduction in price. So I think those are very good questions. I hope I -- did answer them or…

Walter Ramsey - Walrus Partners

No, that was perfect. So I got another one if that's okay.

Clayton Fong

Sure.

Walter Ramsey - Walrus Partners

I don't want to hog the line. The new government in China, has that, does that look like it might change the regulatory framework at all?

Clayton Fong

Let, me just say this and you are astute to note that. China will go through a every 10-year transition of power and what they did was they just had their congress did elect the new government in early to mid November. So you are really just in the beginnings of that. We did see the consolidation process slowdown fairly substantially went off to a bang and then as the transition year came through and I liken it to here in the United Sates during an election year, no one wants to tackle the tough problems like Medicare and Medicaid and entitlement reforms and hopefully they'll do so now that we have past election year, no more commentary on the US, but China has a similar scenario during transition not trying to implement too much pain. There is no doubt that the consolidation process does cause some pain for lots of smaller mines that have difficulty ramping up. So I think that had been put on hold.

We anticipate in this coming year that they will announce more formally the mechanization requirements and some of the regulatory issues and you'll see the speeding up of that consolidation process. I should note that even under their original plans though they had given the end of 2013 fiscal year, or calendar year to the end of 2013 as the deadline for mines to sort of consolidate and get bought, but then they have until 2015 to met whatever regulatory requirements, size requirements and or mechanization requirements. So I think there is going to be a two phase growth base here. There is going to be a, if you look at the historical side of the provinces that already did their consolidation. A very large percentage of the consolidations occurred in the last year as a matter of fact many of them even in the last six months to eight months. I should note that one of our new board members Jingcai Yang, was with Shenhua and he really oversaw a gigantic consolidation by Shenhua of other mines. So he is very experienced in this, we're very pleased to have a very experienced hand along those lines. And we'll be looking at those opportunities. I think it's very important though that the other things that's worth mentioning on the consolidation is that in the past you could only go after those under 300,000 ton mines that needed to get the 300,000 tons. And so those were the guys they were sort of had the pressures to be bought or consolidate.

The new rule to say that not only the up to hit 300,000 tons but you've got to part of a holding company of at least the million tons. And so if you've got a part of a holding company now you've got a target of some of these bigger mines that are 300, 400,000 tons. So we've been able to up our target pull to mines that have a higher capacity. And I think that's good for scaling, that's good for finding good management and you're seeing that manifest itself in the course of being able to acquire those three union energy mines. So, I think we will continue to go more along those lines. So we feel good about it to answer your question we believe that the consolidation will probably speed up substantially in this coming year.

Walter Ramsey - Walrus Partners

Okay, that's great. Thank you, Ian, thank you Clayton, appreciate it.

Operator

Thank you, sir. Our next question comes from the line of David Gilbert, who is a Private Investor, please go ahead your line is now open.

Unidentified Analyst

Congratulations gentlemen on a terrific quarter. I have three unrelated subjects that I hope you can comment on. First, piece is from (Inaudible) -- first is there any continuing plans to change auditors? Second is there any progress on the Hong Kong listing, and third could you please comment on the status of the Bowie mine whether that loan is going to be repaid whether there is a still any activity in that relation? Thank you.

Clayton Fong

Sure, do you want to -- Ian do you want to take the -- on the Hong Kong.

Ian Robinson

Yeah, from the auditor point of view, yes that is still under consideration and we are moving towards potential change there is a problem with the America at the moment -- with the big five you might have read it in the papers, with the big five group of accountants have been I think summons by the SEC and sanctioned by them and that's causing a few problems at the moment. So we're still going to move forward it's not easy at the moment.

Clayton Fong

If you don't mind, Ian, let me add little to that. The Board certainly remains committed to upgrading an auditor both from -- particularly from a [size] side, however it has been a tough year to do - year, year and half do upgrades with auditors and we found that the hard way that at one point all four, the top four auditors, or big four had decided not to take on new clients and that made it very difficult so we started to dance with them but then they began to not take new clients as some of the issues came out with some of their Chinese clients.

Subsequently, what we found is that the number five is also being spun into this. And so it really is a function of this, I want to say the slowness of this or the deliberateness of this process is really controlled by the auditors these days. And so it's very hard for us to establish a firm timeline. We'd like to go to I think our preference in the beginning whether big four. And that may, the question is you wait for big four but then I will turns out big five is even being done with -- by the SEC. We're hopeful that that will change but it's external issues that make it hard to predict the timeframe but without the doubt we remain committed.

As far as Hong Kong list, we're very pleased that we approach to that with our shareholders at something we might be pursuing in this coming year and it is definitely something we are looking at, we believe that the U.S. markets are a little bit shy, we use the word lightly on with regard to Chinese assets. And it is the U.S. capital markets have had rougher year.

So I think we look at the Hong Kong lists as an option that we will reserve that right to do when -- if and when we need a boost of capital for maybe some of the future acquisitions or expansion and maybe we'll put it as a additional arrow in our quiver, in terms of the ability to raise capital, if it turns out the Hong Kong market might be little more favorable and with regard to evaluation then will try to exercise that next year. There is a long process ironically with a Hong Kong markets, the -- it is harder to get listed but less argue is just to maintain.

And so the timing could be probably at the earliest it would be next year but it certainly still an intention. With regard to Bowie the Bowie Mine we did loan them about $7 million about coming up on year, year and half two years ago. They are paying -- they've been current on interest, and they have a schedule of principle payments the $7 million is now down to about $5.4 million. And they've got principle payments due every six months and they've been on time with that. So we continue to view that favorably the interest rates about 9%. We did go into the Bowie Mine with the anticipation that it wasn't just alone it was also the notion of being of the source call to Asia. But the subsequent price dropped in Asia has made the viability of moving that coal from United States to Asia, really not workable at this time. I think when the market was hot we had issues with port access right now we have issues with the bottom-line.

So what I would say at this point we will look toward Bowie really as a loan and investment from this side of off take for now, that's our [consensus] just don't line up quite right. So -- but the good news is we will certainly expect -- we have been paid back and we are being pay back on time and expect to be pay back over about the course of the next year.

Operator

Thank you, sir. Our next question comes from the line of John Fisher, who is also private investor. Please go ahead, your line is open.

Unidentified Analyst

Okay, thanks it's been, I mean you've all done a great job this quarter and grow in the company and extending the business. But in terms of shareholder value and I have been investor for a while past two years on the chart, past year and half it's been pretty sad on that front. And I want to know you'd at least consider doing some small dividend or larger by share buyback program, because it seems you're talking about the half the book value seems like in general the market, is not so convinced, and I think that would be definitely, swing a lot confidence the market if there was -- there has been end or share buyback?

Clayton Fong

Yeah, I think your question is, are we considering a dividend or share buyback. At this point we see the accretive opportunities with regard to future acquisitions and expansion as more accretive than either issuing a dividend or share buyback. So we're really focused on growing the company both top line and bottom line and what we hope will happen is that over time that the capital markets will improve. It isn't just - with L&L that the capital market has been difficult it's been difficult in the overall capital markets in the U.S. as well as within the China space and in the coal space. So we're under [triple witching hour] right in terms of the way the stars have lined up, but the markets have a tendency to go up and down. I think our focuses that really grow our bottom line.

And if you really look at our bottom line, look at our EPS, look at our earnings growth, look at our revenue growth. It's been substantial it's matter fact I would argue our record coal production is quarter is higher than even when we had much higher multiple. But nonetheless the capital markets do change, we try not to focus on the capital market except it inevitably hits you in the face when it comes time to making acquisitions and raising capital. However, if you note what we've been able to do over the last couple acquisitions during this difficult time in the valuation of capital markets. We did -- we acquired the Weishe mine by utilizing stock and coming up with an agreement to do the stock at around book value, add them their asking their price but did the number of shares based on book value which would substantially helped with regard to the accretive nature of that acquisition. The more recent acquisition we did over $30 million acquisitions partly is an mostly as an asset swap with a little bit of cash.

So what we've been able to do is be creative with our acquisitions, minimized the amount of cash necessary in order to make them nonetheless accretive, and we'll -- we will focus on what we can control which is our earnings our acquisitions being creative doing what we do best which is know China and know how to get a deal done and get a deal done that's accretive for our shareholders and we'll continue to do that. And if the capital and if the fact that we can do it in a bad capital market should be indicative that we can you know, the capital markets improve we should really be a league of game busters this coming year.

Unidentified Analyst

Okay. This -- I mean I understand the perspective, just a follow-up would be because you're mostly in China and it does have a bad name, it's something that you're up against and it's an unfortunate situation but because you're making a lot of money and as money coming in and even like 4% - 5% dividends I think will give a nice boost to the stock and to the shareholders I think they would agree, so just something to think about, if we're looking at [boost that] shareholder value because it has (Inaudible) really well.

Clayton Fong

We'll think about it, we gave you our perspective right now, but we certainly will think about it. I think it's a moment because of the potential acquisitions, they could be coming about in this -- we have a window of consolidation in ways of -- that we believe could be very very attractive to our shareholders for this calendar year 2013. And so I think for now we're just trying to reserve that ability to be as creative with those as possible. Leverage the cash that we have, in order to do deals and make sure that they stay accretive. So it's really just a function of maintaining our options the best we can.

And once you issue a dividend then you're really depleting some cash that you might decide you really wanted to use in a terrific acquisition. So we're just trying to not limit those possibilities. But I understand where you're coming from and I understand what your thinking is, and we'll certainly keep it in mind.

Unidentified Analyst

Okay.

Clayton Fong

I think it's important for this company to grow now, while we have the opportunity and that requires cash. We've also undertaken to reduce costs and become more efficient in our method of operations. We -- from a company point of view, I think we are overall in a better shape, now going forward and I think that it is important to realize that if we don't continue to grow in this next year or two, we will miss the boat. So we take your point, but emphasize that we believe that the growth is very important and I think we've got some very good opportunities in these new mines and I think you'll see good results in the future.

Unidentified Analyst

Okay. Thank you.

Operator

Thank you, sir. Our next question comes from the line of, Steve Anderson who is also a private investor. Your line is now open. Please go ahead.

Unidentified Analyst

Congratulations on your record mining production, but my question with lesser mining production back in fiscal year '11 for the second quarter you made $0.35 a share and this year you only made $0.21 a share, can you comment on why over that period of time that the profit margin has gone down so much?

Clayton Fong

It may -- that may be mostly about -- because I'll have to take a look at the actual number, it may be partly a function of the percentage of the mines we own as well as the -- an increase in the number of shares as we have done a few acquisitions, and issued some additional shares. For example, we issued an additional 3 million shares and the acquisition (Inaudible).

Clayton Fong

I'd be happy to confirm that but that would be my first impression would be the primary -- the additional sharing, because I'll take a look at the actual, there's production and in there's net and the other thing that actually is -- probably true too, is the price is coal is lower than it was in '11. '11 was -- hot as a pistol and you than you had in 2011, you had floods and very adverse weather in both Indonesia and in Australia, which shot the price of coal inordinately high, and now we're seeing a significant lower number than that year. So I think you have partly a function of lower pricing, partly a function of increased cost.

I suspect we may also have a function of a little bit lower difference in the how much of those earnings are attributable to L&L shareholders as well?

Unidentified Analyst

Okay, thank you.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Howe Larger, who's a private investor. Please go ahead, your line is open.

Unidentified Analyst

Good morning, gentlemen. I've just been curious about the recent SEC filing on the S1 -- withdraw, could you comment on that and what - give us color on what's behind that please.

Clayton Fong

We withdrew -- we filed an S1 originally we are following a raise that we did in the end of 2009, an subsequent to that, merely all of the shares are either free trading or they are certainly eligible to be free traded after six months. And so the consequence the S1 really became functionally unnecessary so, we basically withdrew it.

Unidentified Analyst

Thank you.

Operator

(Operator Instructions) Our next question comes from the line of. Our next question comes from [Benjamin Redit with Princeton Strategic] please go ahead, your line is now open.

Pardon me, sir, your line is open please check the mute button on your phone.

Unidentified Analyst

Hi. I just wanted you to comment on the liquidity of the company, I know that it was a -- I think some [okay] that CEO -- among the couple of million dollars though I didn't know how indicative that was for the company being, tail-end cash or what the company financings these well over the next 6 to 12 months.

Clayton Fong

Yeah, the liquidity of the company, we do have use for cash, vis-à-vis acquisitions and expansion of existing mines as well as wholesale infrastructure, planning to expand, washing deals as well, however I think the main -- the main impetus for the CEO to loan the $1 million was really a demonstration of his commitment to try to figure out a way to minimize the amount of cash that we would have to raise in an dilutive manner. So he felt that it would be better for the shareholders and it's really I think a tremendous gesture on his part to loan the money to the company rather than to raise it at pretty low valuations at this point.

Unidentified Analyst

Are these valuations in your control to raise money when you want to for opportunistic deals or, might you be in a situation where you have to raise money at these levels?

Clayton Fong

Well, I think the fact of raising money is really a function of having that ability in the back of your -- I've used the analogy of an arrow in your quiver right. What I mean by that is, we're going to negotiations with future deals and the question really becomes -- the question really becomes can you -- you can do a deal in all cash right now, but if you do a deal in all cash and go out to the public markets to raise that cash you may end up giving away most of the accretive nature of that deal, so the reality is what we've been trying to do is be a little more creative, minimize the amount of cash necessary and then find ways that are not dilutive to the shareholders to raise capital. And a loan from the Chairman and CEO, is a good way and a good outcome for shareholders. And so I think that I viewed it as a tremendous positive, it also is a indication of his desire to -- and his belief in the company and him wanting to double down and put more of his -- more of his money into the company.

Unidentified Analyst

Great, all right thanks on having great comp and quarter.

Operator

Thank you, sir. (Operator Instructions) Our next question comes from David Sheridan, please go ahead, your line is open.

David Sheridan - Boenning & Scattergood

Hi, Clayton, I just wanted to follow up on what you had just aid, with traditional financing needs are the banks in China mandated or going to help in assisting large acquisitions during this consolidation phase, still on table.

Clayton Fong

We definitely are -- those are definitely going to be additional avenues for access to capital, recognize that up until now -- and through now they've announced the consolidation, they've announced a substantial increase in the mechanization and safety requirements yet they have not actually issued and published those. So what a conservative bank does is sit down and say okay, this mine, does it meet the new safety requirements or do you have a plan for the new safety requirements. Very hard to put a plan together if you don't know what the future regs in the roadmap is. So it's been a little bit of a catch 22 with regard to capital, however I think going forward as that becomes clear I think it will be easier to access capital, and in particularly if we're going for mines that are clearly at a higher tier that will be fully mecanizable.

The other area that we'll probably look for financing and capital maybe in the expansion side of it, so acquisitions maybe we do creatively but really apply, we're looking at expanding dramatically washing and wholesale facilities and then -- joint project with Taggart we'll look for creative ways to finance that. We'll as we increase our wholesale we're going to be looking for financing, it takes cash and capital to do that part of it as well and then the -- like I said in the acquisitions as well. So yes, to answer your question, the answer is yes, bank financing is still on -- still a part of the future plans and that's one of the reasons why we're just sort of holding tight with regard to a lot of these pieces, trying we'll try to minimize the amount of capital we need to actually raise or get, and I think we can leverage it pretty well, $1.7 million on a $30 million acquisition is pretty creative, the ratio was literally zero cash. And we may not quite get that good a ratio but nonetheless we will do our best and just remember that that's what we're good at is going into China and being, to find creative ways to do a deal even in tough markets like this.

David Sheridan - Boenning & Scattergood

Thank you.

Operator

Thank you. (Operator Instructions) And at this time there appears to be no additional questioners and that does conclude L&L Energy's conference on their second quarter fiscal 2000 (sic) [2013] Earnings Conference Call. As a reminder ladies and gentlemen, I would like to let you know that a replay will be available from December 11, 2012 at 3:00 PM Eastern Daylight Time to December 18, 2012 11:59 PM Eastern Daylight Time. The number for replay is 855-859-2056, or for international call, 404-537-3406, conference ID number 78879010. You may now all disconnect.

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