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Executives

Ian Robinson - Chief Financial Officer

Clayton Fong - Vice President, U.S. Operations

Analysts

David Sheridan - Boenning & Scatter

Walter Ramsey - Walrus Partners

L & L Energy, Inc. (LLEN) F3Q 2013 Earnings Conference Call March 12, 2013 2:30 PM ET

Operator

Ladies and gentlemen, welcome to the L&L Energy Incorporated Third Quarter Fiscal 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. We will conduct the question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. With me today are L&L’s Chief Financial Officer, Ian Robinson; and Vice President of U.S. Operations and Member of the Company’s Board of Directors, Clayton Fong.

Before I turn the call over to Mr. Fong, may I remind our listeners that in 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 for historical information contained herein is made 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 you to a more detailed discussion of the risks and uncertainties in the company’s filings with the Securities and Exchange Commission.

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

Clayton Fong - Vice President, U.S. Operations

Thank you, operator, and good morning to everyone. I’d like to thank you and welcome you to our third quarter earnings call. We are pleased today to share with you our financial results for the quarter and discuss some of our recent developments. This quarter was one of continued growth and execution. We have now seen five consecutive quarters of increased production, net income, and EPS. Our mining production for the third quarter was a new company record surpassing the marks set by our second quarter of this year. Mining is the primary driver of our earnings. A large contributor to this quarter’s strong results was the successful integration and ramp up of our newly acquired LaShu and LuoZhou mines located in Guizhou Province.

We completed the acquisitions on November 18th and added 34.2 million tons of coal reserves and when fully expanded 750,000 tons of annual coal production. Both mines are now running at or near their proved capacities of 150,000 tons and 200,000 tons. And both mines are targeted for further expansion. In addition to LaShu and LuoZhou our other three mines Weishe, DaPuAn and Su Stong were fully operational during the quarter and are running at or near their proved capacities. Our Guizhou mine LuoZhou, LaShu and Weishe will eventually be organically expanded to produce in aggregate approximately 1.2 million tons of coal annual.

We are very pleased with our partnership with Union Energy. The impact of these three mines have already and will further expand L&L’s mining segment and ultimately shareholder value. While our mining expansion should help our bottom line, expansion of our wholesale segment should substantially increase our top line. In October we entered new contract with our Datang Power one of China’s largest energy producers to provide 360,000 tons of coal. During the third quarter the company began ramping up shipments to Datang which is the main driver for the 15% increase quarter-over-quarter in revenues in this wholesale segment.

And L&L also relocated its China headquarters to Beijing from Kunming. While we still have a strong presence in Kunming and Guiyang, our new Beijing office will enhance L&L’s ability to connect the policy and decision making on a ministry level. It will also increase business cooperation with coal related companies many who – of whom are tenants in the same building. With the strong operational base established in Kunming and Guiyang the Beijing office will also increase our exposure to capital and new customers. With that I will turn the call over to our CFO, Ian Robinson, who will give the details of our great fiscal quarter.

Ian Robinson - Chief Financial Officer

Thank you, Clayton. Good morning and those in the West good afternoon. We are pleased to report another quarter of solid profitability and growth. Our production of 233,000 tons represents a year-over-year growth of about 253% and quarter-on-quarter increase of 26% from the second quarter. Our total sales from the third quarter were $59.8 million with mining contributing $26.1 million, washing contributing $22.1 million, wholesale contributing $11.6 million. Revenues increased 98% year-over-year to $59.8 million from $30.2 million. On a quarter-on-quarter basis revenues increased 9%from $54.9 million last quarter, wholesale revenues increased 119% year-over-year to $11.6 million overall.

Net income attributable to L&L increased 300% over the year-over-year to $15.6 million for the third quarter and increase quarter-over-quarter 103% from $7.7 million last quarter. Earnings per share for quarter were $0.42, an increase of 282% when compared to the last year and an increase of 100% quarter-over-quarter.

Now I would like to hand back to Clayton for a few closing comments.

Clayton Fong - Vice President, U.S. Operations

Well, Ian, $0.42 earnings per share last quarter that’s really great. Thank you again for the terrific numbers. We are really well positioned today. The business is growing well and the future is bright. Spring of 2011 when Guizhou Provincial Consolidation was announced, we projected that we would see short-term pain, but long-term gain. The following three quarters were more challenging than expected but this quarter’s results caps five consecutive quarters of growth in production, revenues, earning and EPS. It demonstrates that L&L has weathered the tough times and is poised to become a consolidator.

In Guizhou we have successfully acquired three new mines which produce over 143,000 tons just this last quarter. These three mines are well ahead of schedule which would get them collectively to 1.2 million tons of capacity well ahead of the 2015 deadline. This is an important milestone because executing the organic growth plans of these three mines would allow L&L to exceed the minimum requirement of 800,000 to 1 million tons for a holding company in Guizhou Province. It would also double, I repeat, double our current production at these three mines. DaPuAn and SuTsong Yunnan Province continue to operate steadily at or moderately above approved rates. Consolidation in Yunnan Province will likely occur in the next five year plan beginning in 2016. We will in the meantime continue to improve and expand those mines toward the 300,000 ton capacity each.

Last quarter, the five mines we currently own produced in an annualized rate of 900,000 tons, that’s a new record for us. Organically, they are target to grow collectively 100% between now and 2015. We also expect significant growth in our wholesale and washing operations in the next few years. That growth would increase even higher with a few additional acquisitions. We continue to look at opportunities in Guizhou Province and have begun looking at even bigger mines in Shaanxi Province in here Mongolia. As I said before, the business is going well and the future is bright.

With that, I will turn things over to the operator and open the call up for questions. Thank you very much.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Our first question comes from the line of David Sheridan with Boenning & Scatter. Your line is open.

David Sheridan - Boenning & Scatter

Hi, Clayton. Great quarter. I got two questions for you, the first being that I read the 10-Q and I saw that on February 28, 2013, the Boenning had paid back to the company $5 million plus, okay, for repayment of the loan. And adding that, to the cash at the end of January 31 on the balance sheet, I see that we would then have over $10 million in cash available. So, my question would be what will be the uses for that money? My guess is maybe mine acquisitions and a possible stock buyback?

Clayton Fong

Sure. You want me to answer the first question first or did you have two questions?

David Sheridan - Boenning & Scatter

No, let’s say, answer that one first.

Clayton Fong

Okay, sure. That’s good question. You are right. We are very pleased that we did loan some money to buy (indiscernible) back and they repaid early actually. So, we have received our entire $7 million plus 9% interest back from them plus a little change. The bottom line is that it does increase our U.S. dollar holding to about $5 million and there was as of the 31st about $5 million in China. You know the Chinese side will continue as I have stated earlier, we expect to literally double the capacity of our mines and increase the infrastructure of our wholesale and washing operations. So, you will see most of the cash in China go toward internalized growth at this point. As far as the cash in the U.S., we just got that cash back and we do – we are evaluating a number of potential acquisition. And I think that, that’s going to put us in a good place to be able to evaluate that. So, most of the acquisitions would be a little more than that $5 million obviously, but I think having that capital will be a positive thing.

As far as the buyback is concerned, we did discuss that last summer. I think things were at a different point. Since then, I think you would agree with me that these results show that instead of a buyback we actually put that capital to very good use to close off and buy the last two union energy mines at LuoZhou and LaShu and you have seen what it done to EPS, literally has taken it up 2 to 3 times. And so I think that we have done a good job of making sure of that capital whether that capital is better off, some of it might be used for stock buyback. At this point, we are still kind of holding our powder dry, we haven’t made that decision yet, but given that we have a number, let me just say that, I think we have a lot of acquisitions that are potential going forward and the use of that money would be – could be probably even more accretive to the shareholders to actually make acquisitions rather than a buyback. However, maybe a modest amount could be used for that. I’ll just kind of hold that off as kind of a arrow in the quiver shall we say.

David Sheridan - Boenning & Scatter

Well, I agree, you had been very successful with acquisitions in the past, which I guess leads me to my second question, okay, trailing earnings over the last year, okay amount to $0.82 now and the stocks been trading at roughly a three multiple just using conservative numbers, okay for the fourth quarter, it looks like we’ll post over $1 in earnings per share end of April. So, even at a three multiple, that’s a $3 stock, it’s a 50% move from here, if we get a five multiple, we are looking at 150% gain at $5 million. What is – what are we going to do to help that expansion of the multiple, where we are still considering the listing, okay that we are looking at meeting with foreign buyers, okay since the U.S. market is kind of slow, your comments on that?

Clayton Fong

Sure. That’s a good question. And I think as you can see the business side – the operating business side is just going tremendously well. We have really just done enough outpacing, not only have we gone back to where we were. We are actually doing better than we have ever been – than we have ever been, but you are right, the capital market share in the United States are really still have a little bit of a hangover as it relates to Chinese companies. Remember, we are not a Chinese company we are American company run by Americans headquartered here in the United States.

We designed this platform precisely with a notion that a U.S. listed U.S. headquartered company audited by U.S. auditors would be more transparent, more accountable, and would provide a better platform for an American investors to reach into China. Ironically instead, I think the past year we have just sort to had this sort of the baby out with the backwater. I am hopeful that maybe five consecutive quarters of growth will help people kind of realized a little better. But in the meantime, we are actually beginning to reach out. We’ve got a conscientious effort following this quarter to do more outreach – non-deal outreach to investors in Asia and other parts of the United States, where I think shall I say they are much more optimistic in the valuations for companies with Chinese assets is much more fairly marketed.

As far as dual-listed, it is something that we continue to look at. I think the timing for that would probably be later in the year. It really any kind of a listing and what have you is really subject of doing some of the homework and due diligence. We need to do in the meantime, but really it’s a timing of when the markets would go. As far as the timing is concerned, our feeling is that we are really beginning to see on the ground that China’s economies is really improving this last sort of January/February. And so we think as things begin to improve in China that you will see both the Hong Kong markets and the Asia markets in general begin to reflect that and so that maybe better the next few months over the summer or so.

As far as foreign buyers are concerned, we do believe that with some of our limited conversations at this point, but we’ll probably expand on it that the how do I put this if I could be. So, I think in the U.S. because we are farther away and maybe many investors don’t know China as well, they have tended a little bit more overreact quite frankly to some of the issues that are handful of Chinese companies have had. And so you take the literally hundreds and hundreds of U.S. listed Chinese companies and there have been a problems with a handful of them.

I think in China they understand that you don’t punish the entire segment over a handful of problems. And so I think they are a lot more realistic. At this point, I think their U.S. side is still little more apprehensive, but I believe that going forward, they are going to pick and choose, because I think the companies that have kind of weathered the last two years of this difficulty in China, those that are kind of for lack of a better word left standing, I think for the most part are stronger companies. And that’s not that just similar to, let’s say, the dotcom era, where just thousands of companies went public and then you sort of – on the first sort of downturn, the weaker one get washed out, but the stronger ones are left standing, where we are very proud. We weathered this period of time. And even in the toughest times, we continue to earn. We earned less, but we continue to earn and now we are back on record growth and record earnings. So, we feel good about where we are at. We think we are extremely well positioned on the business. And organically, we’ll see good solid moderate growth and you are right, the situation is very important, because the market valuation is going to be an important ingredient toward being able to add to that great growth story with additional acquisitions. And so, I appreciate your question, David, and I know you’ve been following the company for a long time. So, we appreciate the confidence you had in us.

David Sheridan - Boenning & Scatter

Thank you.

Operator

Our next question comes from Private Investor, (George Hu). Your line is open.

Unidentified Analyst

Yeah, Clayton, wonderful quarter. Everything looks great from the third quarter. Is there a chance you could replicate that in the fourth quarter and what kind of probability would you give that?

Clayton Fong

Let me be a little less specific, but we are confident that we have turned the corner operationally. All of our mines are running at or near approved levels and we have no reason to believe that won’t continue. So, I would say, there is a good chance we’ll see similar numbers production, what have you, I’d say there are two modest caveats to that. On the fewer earnings side, there is within the numbers about $3 million one-time gain on the disposal of stop taking and long-lived. That will not repeat itself, but if you kind of were to quantify that, that’s about $0.10 worth of EPS/$3.5 million, $3.6 million worth of earnings. So, short of that one-time gain, I would say, that, that is very possibly replicable. The only other little caveat I would add to that is the Chinese New Year’s was February 9 and 10. And so there is a little bit of a slowdown nationwide. But I think that the my gut tells me that as we are ramping up these mines that the increase in productivity may hopeful offset that Chinese New Year’s down, but I would say if you were to be thinking in the $0.30 range on an EPS replicability is very, very possible given that eliminates the one-time gain if that make sense.

Unidentified Analyst

Yeah. Because that was my next question is that your revenue was up $5 million, but your earnings was up $7.7 million. So that, I guess the $3 million explains a lot of that?

Clayton Fong

Yeah, the $3 million is part of it the other of part it is our biggest growth occurred in the mining sector and the mining sector is our most profitable sector. So, our mining production increased from about 185,000 tons for Q2 to 233,000 tons for Q3 and about 8,000 of those tons were for Datang mine for the part of November that we still owned it. So, 225,000, that’s a pretty good number. The key driver there was that last two acquisitions really came on line full speed much faster than we had anticipated which is a great thing to happen. Usually in the mining business, the guys put together a schedule for you and they say okay, this is what we are going to doing. And the old attitude is you always got to buffer that a little bit and we did, but it turned out that they not only made their mark, they exceeded their mark.

And so they really got the full production very fast. So, we expect once we already announced in Weishe, which was a little slower to get the full production that we have already begun to take it from it approved 150 to the expanded 450 eventually. And I suspect now that we have gotten that we now that we have been running at full speed -- we have hit full speed already in LaShu and LuoZhou that which were 200,000 and 150,000 tons respectively that will probably be able to begin to expand those to 300,000 tons and 450,000 tons. The bottom line is I do expect some good organic growth on top-line and bottom line going forward, but I think the real kind of icing on the cake going forward as we have a nice pipeline of potential acquisition and that’s going to take a little more creativity unless our market valuation can more realistically reflect where we should be.

Unidentified Analyst

And quite now leads to another thing, I’ve been in your stock for couple of years and I don’t see a big institutional ownership of it. Do you think was your five consecutive quarters of growth in revenue and earnings that the institutional investors are percentage owning kind of OEM is going to be dramatically larger.

Ian Robinson

I hope so. I think that my sense is that the institutions were very interested in our story back in the sort of 2009 and 2010 window. But in 2011, you saw lot of institutions kind of pullback on the China exposure. And so, I think we’re beginning to see that the institutions at least for us, the interested in hearing the story, my sense is that they’ve still been cautious and little deliberate. But I think you’re right, if you kind of go back consecutively, we’ve literally $0.42 this quarter, $0.21 last quarter, $0.17 last quarter before that $0.12 the quarter before that. I think going forward we’re likely to be in the 30s. I think that’s the – I think that really shows kind of a stabilization and returning in the quarter kind of back to that nice robust growth that we experienced in the 2009 and ‘10 we are on.

So, I think I would like to think that they will kind of see this is proof us in the putting and that the last two quarters are real demonstration of our kind of a debt lead traversing what I – every single that the provinces that went through consolidation, all went through a window during the consolidation where production was rocky and difficult ant went back. What happens post the consolidation deadline is that you see a big increase in production. Well, we’ve kind of meet that turn ahead of the curve because the consolidation deadline is 2013, and I like to think that that just because we bring really kind of solid western management and accountability into a process that’s really allowed us to when time gets up, we cut back expenses, we made the process leaner and meaner and then returned the corner and now we are ramping up back on a growth track.

So, we feel really good about the future. I think we’re little ahead of the curve. We’re extremely well-positioned to make additional acquisitions and we’re very well-positioned to organically grow our operation. So, anyway I appreciated and Georgia I appreciate your confidence in the company. I know you’ve been involved for a while too and I think for those of us seen it, there has been – you have be a long player and ever been a little patient through that 2011 and 2012 window. I would like to think that now is the point in time that patient is going to begin to be rewarded.

Unidentified Analyst

It should be an easy sales story with your increase in revenue and increase in earnings and I don’t know if you have any thoughts with the last two days, you had really remarkable volume on the markets and for your stock. But I’m surprised that are that many ready sellers and I’m also surprised that given the volume that the price hasn’t increased more. Any thoughts you have on that?

Ian Robinson

That’s a market question. I wish I had a crystal ball. I tend to agree with you, I mean, I show is that I own a number of shares and then I’d really see the future bright. So, I wouldn’t be selling right now personally, but I don’t know it’s hard to say what’s going on there, I don’t know whether some folks are kind of taking a little profit and then realizing and going some people will buy and then that will be happy to make – they are happy to make 5% or 10% a day and in turn I have no idea. But I will say that I agree with your basic notion that one of the core things here is that just a really begin to rebuild the institutional ownership and we are beginning to do that. We are going to as I said earlier today with Sheridan, we are going to be focusing on I’m getting out on a non-deal basis. Right now, we are probably going to spend a little more time in Asia and outside of the United States. Although, I think we are going to talk to the folks in the United States if we get some traction on it. But we are going to start ramping up the overseas piece and to be very frank we seem to be getting a little traction overseas than a little more traction than we are in the U.S. but I hope to standby, it’s only we have only had these numbers out since yesterday. And I am some of the U.S. investors and institutions will begin to kind of see this as a critical math point maybe to begin really looking at a company that has a lot of potential growth at top and bottom line.

Unidentified Analyst

For what it’s worth the numbers were particularly the earnings numbers were much higher than I anticipated, so thank you and you did a good job.

Ian Robinson

Thanks a lot of George.

Unidentified Analyst

Okay.

Operator

Our next question comes from the line of Walter Ramsey with Walrus Partners. Your line is open.

Walter Ramsey - Walrus Partners

Thank you. Congratulations Ian, Clayton, nice to talk with you again. I got a couple of questions. The coal prices in China can you give us an update on what the (light) of land is there and how the imports are playing into that?

Clayton Fong

Sure, until we start with that you want to start with that Ian or you want me to.

Ian Robinson

Yes, coal prices are being quite steady during the winter months and we can’t predict what they are going to be, but we think that they have stabilized quite a lot in China. So, going forward summers, I think they are down a little bit, but we are hoping that we will maintain a good price throughout production is up and hopefully we will keep growing.

Walter Ramsey - Walrus Partners

So, there will be lots of – oh sorry go ahead.

Clayton Fong

Yeah, let me do a little bit that Walter without a doubt what we saw last literally a year ago today you saw both the kind of the quarter-on-quarter slowdown in Europe – European demand, but more importantly in the United States we had a record warm winter. I think it was the warmest winter in recorded history on top of a lot of shale gas that came on the same time so what you saw was a pretty precipitous drop in natural gas prices, which caused a relatively speaking somewhat of a displacement for the coal. And so you saw a very big oversupply and a drop in price on the U.S. side.

And then what you saw on the imported coal become quite cheap and you are correct, I think what you saw was China’s infrastructure to kind of import to put it bluntly their import, their infrastructure is still is always catching up with their production and their demand. And so even though their prices are low they can only bring in so much coal. What you saw was you saw prices drop. They dropped more in the coastal areas in China last summer and a little less to where we are because we are it’s harder to bring in you really don’t bring imported coal into Yunnan or Guizhou Providences where our customer bases and where our mines are. However, they did – slightly did bottomed last summer. We saw the bottoming of prices around August, September of last year. And then we saw and let’s say roughly speaking around the 20% reduction in price which is over the summer was about double what the typical seasonal adjustment would be, so to speak.

We usually see a 5% to 10% differential between winter to summer. What we are seeing in the – so we saw the increment about double that amount for us. I think coastal areas might saw a little bit bigger hit than that. What we began to see in this winter now that we are in the middle arena right now is we have seen prices go back up roughly speaking in the 10% range, 9% or 10% range which is kind of a typical seasonal adjustment and that’s optimistic for us because if things were really still oversupplied, we might not have seen an increase. So, I think for this last quarter we saw an – we saw an increase back and so that – so we feel good about that.

Going forward we are basically just on a conservative basis assuming fairly level pricing going forward for the year. Just for our own internal. I think it’s – I think there is a possibility we will see a modest increase, but I think for planning purposes we are going to do it. There always is a little bit of a seasonality, so I would expect the next quarter pricing to still be firm and then that the summer pricing may dip a little bit, but then – but no way near the same amount as it did last time we don’t see the over supply. We don’t see matter of fact U.S. coal has come back a little bit Australian coal has come back a little bit so you don’t have the same kind of dynamic going on right now as you did a year ago. So, I won’t say we are thinking back just kind of the double-digit growth that we saw a few years ago, but I think for sure what Ian characterized, which is a stabilization has definitely occurred.

Walter Ramsey - Walrus Partners

Okay. And the spread you guys earn on the wholesale business is that expanding or steady or under pressure, what’s the story there?

Ian Robinson

At this moment, we didn’t grow as much of that. We had instant contracts and looked at the wholesale side. When there is uncertainty, we probably didn’t push the pedal to the metal quite so much on the wholesale side because it’s definitely a risk when you are not sure what’s going on with pricing. Going forward because of the stabilization, I think we’ll feel little better and we are likely to accelerate that better. Our margins have been very similar to the past though, we usually do a net, net may be about a 5% margin on wholesale gross margins could be as high as 10, but our driver for earnings is definitely the mining site. But the way I want to characterize this is as we look at the Guizhou Province mines, we’ve look at a lot of different mine and what’s happened is to buy mines, we are actually moving up the food chain for lack of better word and the mine that we are going to be buying are going to be bigger, better economy of scale, bigger volume.

However, there is a lot of mines still out there that we’ve looked at on LOIs within those kinds of things and we are – we expect that instead of buying those mines will probably have a strong wholesale arrangement with them. So, what you’ll – I think what you’ll see is – I don’t know if you’ll see that big expansion this year because typically the most of the mines in Guizhou Province are going to be in the pressure to consolidate and or debarked by end of 2013. They’ll have till 2015 is then expand but they have to be – they have to kind of do the shuffling of the cards so to speak by the end of 2013.

So during this pressure period, we may not see a lot of expansion in the province of coal production and so I’m not sure there will be that much more available supplies may still be a little to word it bluntly unlike the rest of China little bit tight. And so I think that our – I would say that the wholesale in the two to three year window is likely to expand a lot. It’s hard to say whether this year would be that year that we would expand. I think from now to summer, we probably won’t, but I think that going from summer to winter when we are more certain that the price – pricing will be on an upswing, well probably be the better time to really expand that number.

Walter Ramsey - Walrus Partners

Okay.

Clayton Fong

Is that answer your question, I hope.

Walter Ramsey - Walrus Partners

It does, that was excellent, thank you. As far as the new government regime in China goes, can you give us a quick summary as to what kind of regulatory changes you might see there, they talked about a variety of things, whipping out pollution and putting on an energy tax and so on and so forth that would – that just talk or they are going to do it.

Clayton Fong

Well, let me start with the transition obviously at the top, the transition was done in at the party level what have you back last November. There – there will be a congress of spring, I think it’s like I want to say it’s down March, we’re in March currently and so the finalization of the transition sort of occurs with this spring. I think the more important issue for us and if you look historically I will like in this drawn analogy of the U.S. In the U.S., we often have what we called leaned up session and in the leaned session things are little slow, you will make a lot of decision.

And so I think the last year sort of a leaned up session for lack of a better word and so things have been slowed traditionally coming into a new regime so to speak, a new leadership what you see is an acceleration. Historically that’s true and we expect that and we are already seeing evidence of that fact. So, I think as it relates to transition from a broad GDP side, we think that this is a good sign from the growth of GDP and opportunities in China. As it relates specifically the coal related policy let me focus on a couple of things, yes, you raise a very interesting note on the pollution front side without a doubt, I think that is a potential future play for L&L. I personally have to serve in – on a senior staff of Georgia H.W. Bush when we passed the Clean Air Act in 1992.

We gave the power industry 20 years to as kind of a grandfathered window to retrofit their power producers and in 2012, they had to be on scrubbers by then. You actually saw number of plants go offline in 2012, because they just decided not to retrofit them, which by the way was a partial contributor to the reduction in demand in the U.S., but I guess my point is without a doubt, pollution has become a very significant issue, particularly in some of the bigger coastal cities, Beijing, Shanghai and what have you. I think we are definitely seeing evidence that they are going to begin to be a much more, well cypress in there implementation of clean air rig. They do have clean air rig, but the how strongly the local government in the past have implemented and enforced them basically they haven’t much. I think we are going to begin to see that happen more. And I think as that happened that might be an interesting area for us. For example, I think it has the potential to be a positive play on U.S. coal to China. U.S. coal as a whole is a higher quality of coal.

And what we did in 1992, what happened when we passed the Clean Air Act, a lot of the higher quality coal like the Valley mine that we have made an investment in what we called super-compliance coal. The value of that coal went up, because it was higher BTU, lower sulfur, lower ash. And so, whereas the plant had 20 years of retrofit, immediately what we did was it, but you have to burn coal that’s more efficient, higher BTU, lower ash, and lower sulfur. And so if China takes a similar track, I think they will need to look for cleaner coal. The reality as a whole much of China’s coal tends to be higher sulfur as a rule. An interesting note, our Union Energy mines are anthracite coal and one of the reasons we like that coal and think it has very good promise for being exported to other areas at a price premium is that anthracite is higher BTU, lower ash, and lower and just as importantly, lower sulfur. So, I guess to answer your question, I think on the….

Operator

Ladies and gentlemen, please standby. Your conference call will resume momentarily. Once again, ladies and gentlemen, please standby. Your conference call will resume momentarily.

Clayton Fong

My apologies, I don’t know technical difficulties, we somehow got dropped off, but anyway backed at it, I will just wrap real quickly, and if you want, I’ll give you a follow-up.

Walter Ramsey - Walrus Partners

Okay.

Clayton Fong

Walter, you still there?

Walter Ramsey - Walrus Partners

Yes, I am. Thank you.

Clayton Fong

Okay. And I will give you a follow up to that. I got obviously interrupted in that. The bottom line is I do see a regulatory change. We actually seeing a real opportunity for LLEN, because we will do just as we have done in other areas and try to take the practices, the basic practices in the United States and help to apply them in China and it gives us in ability to anticipate and apply for. What I think are practices we have done here in the United States. I will make a copy after that. So, I think China will do at much faster once they make the decision. They won’t be a 20-year grandfathered period. It might be more like 3 to 5.

Walter Ramsey - Walrus Partners

Okay. Alright, so anything else as far as the government goes or do you think that’s their main initiative?

Clayton Fong

Well, I think the last piece I would want to talk about in terms of the government is mechanization requirement. I think what’s going to happen is the government is really pushing to increase mechanization requirement and I think one of the key is to what – the other area that I’m very pleased with what we’ve done. The successful kind of swapping out of mines in Guizhou Province for lack of a better word, not only is helped our bottom-line from an earnings side, it actually is also these mines are better constructed from the side of, they are more easily mechanizable. To put it bluntly the vast majority of mines in the province have 13 foot shafts. In a 13 foot shafts, you really can’t run a continuous mine. These mines have 19 foot shafts and so they are little bit wider, they are fully mechanizable. So, the key is – these mines have been designed in a way that because they are newer, they just – they are literally just opening. They’ve been designed with what we anticipate to be higher mechanization requirement. So, just as importantly as the bottom-line is the long-term viability in an increasingly higher mechanized, higher safety environment. So, recognized that we are looking at the bottom-line, we are anticipating the regulatory scheme. We are using – utilizing sort of our experience of what the United States has been through because in a way what China just doing what we did 50 to 70 years, take a lot of (mall) in top mine and trying to consolidate and create economy the scale and efficiency through that. I think it is going to do at a lot faster than we did.

Walter Ramsey - Walrus Partners

Okay. And I want to keep it too long, but one more question on the balance sheet company has quite a file of receivables is that kind of be the case going forward or is there a likelihood that you can shrink that down at least relative to the sales in other assets?

Clayton Fong

I’ll let Ian to respond to that, yeah.

Ian Robinson

Yes, normally in China there is quite a lot of receivables and lot of payables because people pay a little bit lighter than they would normally would in the States, but yes, we will be getting on to collecting receivables as fast as we possible can and hopefully that will improve our cash position even better.

Clayton Fong

It just as an example, two things that are going to be reflected pretty quickly, we – we (indiscernible) about $7 million, there was about $5.4 million, $5.5 million outstanding as of January 31st. They have subsequently paid that loan off, so the next quarter you will see that’s the reduction. The other area is for example the Ping Yi mine, which we sold for $31 million and we took it as a receivable as and in terms of prepayment in future coal as well as future access to the coal washing facility Ping Yi in three quarters has – we’ve been paid back about – I want to say about $5.5 million of that amount which is a little ahead of the five year schedule. So, the answer to your question there are some larger receivables that partly a reflection of sort of the top three quarters we went through in the consolidation was first announced and some and the sales – the recent sales and disposals that with some of that was taken in the sale would basically done in a prepaid. So, I expect those numbers will drop down as the time goes on kind of on a pretty regular schedule.

Operator

Our next question comes from the line of Charles (Botero), Private Investor. Your line is open.

Unidentified Analyst

Good afternoon gentlemen and great quarter, great to see a $0.42 earnings. Mr. Fong, you’ve talking for a while with us. so, I think I’ll let you sit back, have a sip of water, I think I’ve a question for Mr. Robinson and the question for Mr. Robinson goes that I noticed in January, you did a private sale of little over $0.5 million in share for a little less than a $1 million plus you offered little over 100,000 and once had a price of $2.10 for one, which right now the stock market is that wants in the black. My question is if you have any color to add with regard to such a sale and the need for the less than $1 million in cash in January.

Ian Robinson

Sorry, I – can you repeat the start of that question again.

Unidentified Analyst

Yes, I noticed that in January, you offered for private placement, 0.5 million shares of stock, little over 0.5 million, it was 505,000 and some change.

Ian Robinson

0.5 million, yes we did.

Unidentified Analyst

And I was wondering a little color on what you did, what was the need for that cash. If you could possible light on that given the fact that ended of January with $5 million in cash?

Ian Robinson

Yes, well at that particular time, we didn’t know what the both would be paying back as fast as I did. Quite understandably we made cash to help our acquisition program and to help in all aspects of the company. And if we get more cash we can do more things, the cash that we have in the past we have used very effectively. And what we have done even knowing Barry with both I think we would because we like to get big investors in who are interested in the company and obviously this particular investor was very keen to take the interest in the company and we are very grateful. And we would continue to do that but as the previous person asked me a question would we get some institutional investors, yes. The cash is always needed in a company that is expanding and we have as quite – said we have quite a quite number of possible acquisitions in the pipeline. And we can certainly the use the funds. We’re not going to use those funds in the non-accretive way. So, we will make sure that they are all invested for the benefit of shareholders.

Unidentified Analyst

The follow-up Mr. Robinson we are able to concern it or has the Board ever concerned the fact that a rights offering to the current stockholders may slowdown some of those heavy sales, thee heavy volumes that a previous call I pointed out that in the last two days it seems we have a lot of people that are willing to unload their stock at a very, very good price given your earnings outlook going forward. Where do you stand on that as for as rights offering just maybe a little bit more rights ownership will keep this people holding on to their stock?

Ian Robinson

Well, let’s comment on the first, but first that number of sellers I am puzzled why there are paying to get out at this stage knowing that we are doing well and we have turned the corner. But who knows what make up people decide in their own interest. Rights issue was always on the cards with any company. But at this stage we would consider that as and when there is a need for great sum of funds. If we had some very big and very accretive investments coming up but needed that sort of cash we could consider that. From the point of view of adjusting the market I am not familiar how that would work exactly but it’s always something that the Board would discuss at some stage in the near future.

Unidentified Analyst

Okay. Well, thank you for your time. Gentlemen again great quarter and I appreciate your taking time talk to us. Thank you.

Operator

Our next question comes from the line of (Tim McAndrew) with Stifel. Your line is open.

Unidentified Analyst

Thank you, gentlemen. My question is over the last three quarters if I’m looking at the numbers correctly you have net earned about $20.5 million about $0.80 of share. My question I guess specifically maybe answer with the last caller Dickson Lee lend the company a million dollars back in November maybe give us a little more color as to what that was needed for maybe it was short-term loan I don’t know with the status that loan is today?

Ian Robinson

Yeah. If you notice that loan coincided very closely with our acquisition of LuoZhou and the few mine last two Union Energy mines, it was done with an asset swap. But included in that though was about a $1.7 million cash payment that needed to be made in US dollars and as a consequence we have thought that we delayed the payment of that or a month or two from the time we acquired it, but obviously we needed to make that payment. So, just lend the money in order to make that. There we have also been doing a little expansion with some of our operations, but I think the primary driver for that was the acquisition, but if you think about it this way, and Dickson did it as alone because he wanted to make it as non-dilutive as possible. So, it can just say I believe in the company, starting to loan the company money, and by loaning the company money, it’s not dilutive to the shareholders.

And that was his primary reason. That was his primary reason. We were still at that time doing a little bit of expansion on some of our wholesale, some of our wholesale infrastructure as well. And so we have got some modest cash needs and that we have seen a couple of very small amounts. What we are trying, we are very conscientious of the undervaluation of the stock, and if you kind of look at it about big picture side, we have made three acquisitions with very, very accretive, very, very attractive, very well performing acquisitions in the Union Energy mines, and we have done so at a time that raising capital was very, very, very difficult. So, you can sit down and say why did you raise us little bit of money, because what we are doing is we are trying to minimize the amount of capital we have to raise and so we are kind of doing cartwheel for lack of a better word in other ways. And so you will see small amounts popped in, because we are trying to keep it to the smallest amount possible, because we are very aware of what we consider a very, very low valuation of the stock.

Unidentified Analyst

And the status of that loan today, is that been paid back?

Ian Robinson

No, it is not. I think he had lend it to us I believe for term of the year, I think. So, he has an forward back, so if using let us use it for a year, well let it we will use it for a year.

Unidentified Analyst

Okay, thank you.

Ian Robinson

Yeah.

Operator

(Operator Instructions) Our next question comes from the line of Keith (Williams) with Maverick Partners. Your line is open.

Unidentified Analyst

Pretty star-studded board, there have been any consideration making the company private?

Clayton Fong

I am sorry, Keith, if that’s you we only got about the last two words that you said, would you mind repeating your question.

Unidentified Analyst

Has there been any consideration since you guys have a pretty star-studded Board of Directors has there been any discussion or consideration of going private?

Clayton Fong

Folks, a number of Chinese companies and remember we are not Chinese, we are a U.S. company, but when number of Chinese companies because of the space is still undervalued have endeavored to go private. That’s not something I mean people have mentioned it, but it’s not something that we are thinking about at this point in time. We are hopeful that we are going to be able to get a fair valuation out of this with just sometime. We believe that this platform makes sense. We are a U.S. company, U.S. headquartered run by most of our management team, senior management team, or U.S. or at least certainly Western trained. And so we think that at this point in time, it doesn’t make sense. And so we are not entertaining any kind of a privatization proposal at this point in time. We are looking at the prospects of dual-listing and we think that we can get a better valuation potentially in the Asia markets where a company like ours instead of a literally 2 to 3PE in Asia we might be seeing 7, 8 to 10 even 12PE. And so I think that if we were to do a duel listing maybe meet somewhere in the middle we would think of that as a pretty positive outcome.

Unidentified Analyst

Okay. One other follow-up question, with the U.S. coal companies kind of stagnant and kind of regrouping and struggling and then starting what their mission is anymore has any U.S. coal companies approached you on partnering since there is such a need in expansion opportunity in China?

Clayton Fong

To answer that question, I think there are number. We have had a number of U.S. entities expressing interest in our ability to bridge across the China. I think most people understand that the primary driver of coal in the world and coal consumption in the world is China. And it’s hard to do business in China. We have a good network. So, I think folks have expressed an interest whether we can help them sell their coal or those kinds of things. And I think those are possibilities that we may explore in the future. Right now, our focal point though is we have got some really great opportunities. Our focus is in these great opportunities. So, we spend a lot of our energy repositioning the company. We have done so. We think we are extremely well-positioned now. And then right now the focus is on some of these acquisitions in organic growth in China. We probably will entertain some U.S. arbitrage opportunities, because I think there are going to be some interesting opportunities going forward, but it would be premature to discuss them at this point in time.

Unidentified Analyst

Okay. And the last question is why the interest in Inner Mongolia?

Clayton Fong

The Inner Mongolia Shaanxi region, Inner Mongolia not Mongolia, Inner Mongolia Shaanxi region are part of China and they are the two largest, they are two of three largest coal producing regions in China. They have already been through their first phase of consolidation. And so they complete their consolidation. And as it turns out, our board member, Jingcai Yang, who was the CEO of Shendong Coal’s coal operating division or subsidiary. Literally, it’s one of the biggest players in that region. Shendong owns and bought a lot of mines over there. So, I think what’s going to happen he has identified a number of potential acquisitions in that area.

Operator

Ladies and gentlemen, please standby. Your conference call will resume momentarily. Again, ladies and gentlemen, please standby. Your conference call will resume momentarily. And please resume.

Clayton Fong

Okay. Guys, I am sorry. There is some kind of technical difficulty with us getting dropped out. I am going to, if folks want to stay on, we will extend the next 5 or 10 minutes to accommodate the drop off. I appreciate everyone’s patience. I forgot where we were at. So, if whoever was on the call, if you are still there, you want to repeat your….

Unidentified Analyst

Yeah, in the Mongolia?

Clayton Fong

Inner Mongolia, yeah, so the bottom line is we have got obviously tremendous contacts. You have got one of the guys who is literally the king of coal there running Shendong’s operation, he would have been responsible for a very, very, very sizable percentage of the coal there. They actually did a gigantic consolidation at the end of the first five years, and so is very well positioned. The bigger company Shendong is actually kind of given their own internal goal that they are going to not deal, try not to deal with mines that are say under 3 to 5 million tons. So, I think there is a potential for some of these smaller mines to be acquired. We are looking at it right now. Two things, the other thing is because we’ve been to the consolidation those mines would not – if they work out wouldn’t have as anywhere near as much capital expenditures so the private cash flow lot sooner.

So, I think there is a lot of potential there in the bottom line, and I think the point I will try to make when I cut off is that the government is recently kind of trial balloon a notion of creating the holding company concept in that area. In other words, when they did their consolidation, they did not – they gave them a million ton minimum, but they didn’t say they had to be a part of our holding company of a certain five, was it try of moving that holding company notion and. So let’s say, they end up coming up with the thing they said you got to be part of a holding company of at least 3 million ton to 5 million ton, there may be an opportunity to buy some of those. In that area, smaller mine, but for us it would be a very operation like a million ton. Obviously that’s subject to a lot of things, price, viability, due diligence on the mines and more importantly the ability to raise the capital at a reasonable enough rate to make the acquisition accretive, but that’s the reason why we are looking at that area.

Unidentified Analyst

Thank you very much.

Operator

Ladies and gentlemen, I would like to remind everyone that a replay will be made available from March 12, 2013 at 5.30 P.M. Eastern Standard Time to March 19, 2013 at 11:59 PM Eastern Standard Time. The number for the replay is 855-859-2056, or for international call, 404-537-3406, conference ID number 22133889. You may now disconnect.

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