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Executives

Clayton Fong - Vice President of U.S. Operations

Ian Robinson - Chief Financial Officer

Analysts

David Sheridan - Boenning & Scattergood

George Hanes (ph) - Private Investor

Jim Lilly (ph) - Private Investor

L & L Energy, Inc. (LLEN) F4Q2013 Earnings Conference Call July 31, 2013 12:00 PM ET

Operator

Ladies and gentlemen, welcome to the L&L Energy Inc. fiscal year end 2013 earnings conference call.

At this time all participants are in a listen-only mode. We will conduct a 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 is Vice President of U.S. Operations and Member of the company’s Board of Directors, Clayton Fong; and L&L’s Chief Financial Officer, Ian Robinson.

Before I turn the call over 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 the 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 is my pleasure to turn the call over to L&L’s Vice President, Clayton Fong.

Clayton Fong

Thank you operator and good morning everybody. What a great year. Year-over-year really the results are terrific.

I’d like to welcome everyone to our fiscal year end, 2013 earnings call. We are pleased today to share with you our financial results for the year and discussion some of our accomplishments over the fiscal year.

To begin with, we are very proud of our fiscal performance in 2012 and believe that it currently demonstrates the success of our aggressive growth strategy and ability to acquire and integrate successful mining operations into our growing portfolio.

We begin to focus our effects on featuring larger mining operations in Northern China and our due diligence teams have been actively evaluating potential targets. We are confided that we will be able to expand our mining operations beyond Yunnan and Guizhou and our newly opened Beijing office will help provide support to that projects, as well as help us connect to other larger coal related companies.

This year we also furthered our relationship with one of China’s largest utilities, Datang Power. Our increased shipments to them over the year demonstrate our ability to secure and sell coal from the larger end users.

Our fiscal year 2013 was one of the strong organic and accretive growth. A large continuator to this year’s strong results was the successful acquisition and integration and a ramp up on our newly acquired Luozhou and Lashu mines located in Guizhou province.

We completed the acquisitions on November 18, adding 450,000 of approved capacity and when fully expanded 750,000 tons of annual coal production.

During the year Luozhou and Lashu were able to ramp up their production ahead of our internal scheduling, contributing 167,000 tons to company’s mining segment in just a little over five months, with the additional of L&Ls Weishe mine, which we got from Union Energy earlier.

Weishe mine produced about 143,000 tons during fiscal 2013. The company anticipates that those three Guizhou mines will produce 1.2 million tons by the end of 2015, which is the end of the consolidation period.

In addition to the company’s growth in South China, L&L announced earlier this year that it began to evaluate larger mining operations with over 1 million tons of annual production in Northern China. These larger mines have inherently lower production costs and allow L&L to growth its mining segments exponentially.

L&L Director Jingcai Yang and Syd Peng who are very, very prominent leaders in the coal mining community have played integral roles in the due diligence process in evaluating these larger mines. We are really pleased to have their input as there is no doubt that they allow us to make sure we buy the best possible mines, both geologically, as well as ingenerating wise.

L&L’s coal wholesale segment also saw significant growth this year, securing a large new large contract with Datang Power. The increase in volume allowed the company to further build out its infrastructure, developing additional coal processing operations in Guizhou. We’ve got two coal loading stations on rail and blending station in Guizhou, the facilities at ShinPingBa and ZhaZhou are strategically placed to increase the company’s ability to source coal from a broader area.

Our recently acquired Guizhou wholesale company was rolled under our L&L Kaifeng subsidiary in September of last year. Expansion of their sales also positively contributed to wholesale segments.

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, decision making and coal mining leadership at our ministry level and a large corporate level, with these larger coal related companies, many of whom are tenants in that same building. With the strong operational base we’ve established in Kunming and Guiyang, the Beijing office will also increase our exposure to new customers and of course capital as well.

L&L also signed a strategic agreement with Apollo Technologies, a Taiwan based environmental remediation monitoring firm to explore joint ventures in clean coal projects in China.

With that, I’ll turn the call over to our Chief Financial Officer, Ian Robinson, who will give details on our fiscal quarters financials results. Ian.

Ian Robinson

Thanks Clayton and thank you all on the call. We are pleased to report a strong year of profitability and growth. Revenue increased 76% year-over-year to $199 million for the fiscal year 2013, from $113 million last year.

Net income attributable to L&L increased 169% year-over-year to $38.4 million for the 2013 up from $14.2 million last year. Basic earnings per share for the year-end 2013 was $1.03, an increase from $0.43 the previous year, that’s a 140% increase. 2013 ASP was reduced by $0.05 or just $0.05 due to a non-cash or pay back derivative loss.

The company book value for the year ended 2013 was $214 million and that was equivalent to 5.55 per share. Coal mining tons sold increased 182% year-over-year to 670,000 tons for 2013, up from 237,000 for the previous period in last year; that’s over 400,000 increase.

And now I’d like to turn it over to Clayton just for a few closing comments. There you go Clayton.

Clayton Fong

Well thanks Ian. Those are great number. We really are well positioned today. The business is going well and the future is bright.

Operator, I’d like to turn it to back to you.

Question-and-Answer Session

Operator

Certainly. (Operator Instructions). Our first question comes from the line of Mark Harrison from (inaudible). Your question please.

Unidentified Participant

Congratulations on your earnings. First question please; regarding the two new mines, when were the cut off dates on which the Luozhou and Lashu mines completed their development phase and commence the commercial oil well production.

Clayton Fong

I’m sorry. You’re a little bit gobbled. You were asking about the last two acquisitions, Luozhou and Lashu.

Unidentified Participant

Yes, the Luozhou and Lashu mines, can you comment on when the cut off dates were when they completed their development phase and actually commenced commercial oil well production from those mines.

Clayton Fong

Yes. Those mines are previously owned mines that Union Energy purchased and in the process of expansion and redevelopment, they actually, all three of the Guizhou mines we now own are pervious Union Energy mines. So we are really pleased with the joint venture partnership we have with them.

In each case they are previously operated mines that Union Energy implemented substantial plans to expand them. So there was some downtime during that previous period of time. However we purchased them about the time that they came back online.

So to give an example, in the case of the last two mines, we purchased them on November 18 and they were producing coal pretty much straight away at that point. The two mines are Luozhou, was scheduled to be purchased about that time and so they began producing right at, but not slightly above approved capacity.

Lashu, originally internally we had it scheduled for acquisition and kind of reopening in the spring. It is approved at 300,000 tons, but it has been operating approximately about half that speed, and we expect that it will get up to 300,000 tons within the next six to seven months.

Unidentified Participant

Okay, all right. And second question Clayton, what percentage of production in fiscal 2013 was Luozhou and Lashu mines. Excuse me, what percentage of that was the Luozhou and Lashu mines was engineering or development coal versus longwall coal.

Clayton Fong

Well, I actually want to be clear. Those are not longwall mines, they are longwall style mines. Just to give you a sense on the green energy mines, I don’t want people to get a mischaracterization.

This is going to sound a little deep and technical. But what we like about them is they are designed in such a way that they are – I think sometimes the Chinese call them short wall, but the bottom line is it is a long lost style mine and that you develop the parameter and then you have the roof fall. It allows you to take more coal out and so it is a long lost style mine.

Now the difference in these mines is, the fundamental infrastructures is as such, so that you can put mechanized equipment in and therefore make it a longwall or small longwall. However at this time when we bought them, they are still manually operated.

So I would characterize them as manually operated longwalls and part of the expansion will be or can be our really primarily two fold. One is the increase in ventilation required in those areas in order to expand the capacity and then two would be the purchase and implementation of mechanized equipment.

What was key about that mechanization is we bought them as non-mechanized mines, but their ability to be mechanized, without having to redevelop shafts and what have you. Here in the United States if a shaft isn’t at least 19 feet wide, you really can’t run mechanized equipment down it, and many of these mines in this area in Guizhou are 13-foot shafts. These are the three Union Energy mines, former Union Energy mines are actually 19 foot shafts with a roof fall, so they are mechanizable.

So the point is, what we did was we repositioned, swapped out our assets and bought better assets, more capable of full mechanization, if and when that time comes that it’s required. But I would expect that we would do that eventually out of capital expenditure; as a capital expenditure out of our cash flow.

Unidentified Participant

Okay, and I appreciate that answer. Just to clarify, so what percentage of the Guizhou mine would you say is engineering or developing coal. You have a number...

Clayton Fong

I actually don’t have a break down on it. I would expect that the Luozhou mine is operating at capacity. So I would not characterize that as development coal. Lashu is running at about half, its 300 approved, but development coal would be much less than that.

So they are running. I think what’s happening is it is approved at a higher capacity and we are in the process of expanding, which often means that we are going to be running a little below our optimum rate. But we would expect to hit that optimum rate sometime in the next, like I said, three to six months.

Unidentified Participant

Okay, excellent, excellent. And just one more follow up here if I could. How much revenue is generated and how many tons of coal was washed at your Shaanxi facility in Q4 and how was the trend in the Shaanxi coal washing in the current Q1 compared to Q4.

Clayton Fong

I don’t know if I have the quarterly number, one second. I probably do, but I may not – I may have to get back to you on that, on the core lead per segment. We are now at the point where Shaanxi is our primary wash – what I’ll have to do is probably get back to you on that. I just don’t have the segmented or the subsidiary specific information in front of me right now. But I can definitely get back to you on that Mark.

Unidentified Participant

Do you at least have – on the accident year, can you at least comment on the trend from Q1 to Q4 in the coal washing, give us a little color on the trend.

Clayton Fong

Coal washing, I tell you, the trend has been up…

Unidentified Participant

Yes, the coal washing at Shaanxi is I just clarified.

Clayton Fong

Right. The coal washing in Shaanxi has been relatively steady year-over-year. 2012 to 2013 we washed about overall 77,000 tons in that segment and that compares to about 52, 53 – excuse me, let me get the actual tons right.

We went from about 400,000 tons to 470,000 tons year-over-year. That area has been a little more steady. I don’t have the breakdown between the two, but I know because I would expect and I’ll make sure of this, but I believe that’s all of the Shaanxi facility, because those numbers exclude the (inaudible) mine, which was a split facility and they also – and Shaanxi will be the only facility we would count separately.

The DaPuAn mine wanted only its only coal, so it tends to just get lumped in with its coal sales, not a separate breakout on Weishe. So the bottom line is, it is stronger than it was last year and it’s mostly due to the fact that production in the area has been better and so the availability of coal has been better.

Unidentified Participant

Okay, all right and I appreciate that. And just one final question here. (Inaudible) was referring back to the Shaanxi. Would you consider that given in Q1 and in this kind of quarter they are streaming up at the Shaanxi for washing. Is that safe to assume from what you could cover from your answer, your last answer.

Clayton Fong

Overall I don’t have the quarter-over-quarter number in front of me, but I do know that we’ve been trending up modestly on the coal washing side.

Operator

Thank you. Our next question comes from the line of David Sheridan from Boenning & Scattergood. Your question please.

David Sheridan - Boenning & Scattergood

Yes, a fantastic quarter. I’ve got the three questions that I think a lot of investors have been looking for, the answers to. My first one is, through a continued expansion of your existing mines and through acquisition growth, could you give us a projected run rate that the company will be mining by the end of 2013.

Clayton Fong

Yes, well let me characterize it this way, because I think in the coal mining business its hard to be very precise, but I will say that if you take our current approved capacity of all five of our mines, its 840,000 tons, okay, and we’ve begun the expansion of Weishe from 150 to 300 and then eventually it will get to 450. So I would expect that would go up.

We’ve begun expansion of capacity in both DaPuAn and Su Stong. They approved at 150 and 90. Probably you can see from the results that they’ve been running probably 30% or 40% higher than that. The government has given us tax and approval to run them higher in anticipation of more formal approval of an increased run rate.

So the bottom line is those by themselves, those expansions by themselves would probably take us over the million ton mark that we talked about in the K, where we said we expected our run rate at the end of 2013 to be $1 million to $2 million. I would say the $2 million, I don’t expect it to be at about $2 million, but I think $1 million to $1.5 million is a lot more reasonable number, recognizing that run rate doesn’t mean it shows up in the numbers until your looking forward.

David Sheridan - Boenning & Scattergood

And acquisition growth, if we get that large mine in China that you’ve been looking at.

Clayton Fong

Right. Let me frame up the numbers a little differently. If you take the five mines we currently own at 840,000 tons, they are scheduled over the next couple of years, couple or 2.5 years to literally go to 1.8 million tons.

In addition to that we are looking at several acquisitions. The one that is furthest along that we’ve already engaged JT Boyd to do due diligence on for us, geological mining due diligence for us is over 1 million tons of capacity that we believe can be expanded to 3 million tons of capacity.

So to give you a sense, if we were – just the organic growth, target wise we think that’s to double where we are today and then quite frankly, an acquisition would also double where we are today. So as you can see, if you do the math on our one to three, on a long term basis, organic and acquisition growth can put it in the 3 million to 4 million ton range in several years.

Now there’s a lot of ‘ifs’ in that. We haven’t inked that acquisition deal yet, but we’ve got a couple in the pipeline and we do believe that looking in the north is both a good play from the economy of scale, as well as the diversification for company, kind of diversifying geographically is a positive thing as well.

David Sheridan - Boenning & Scattergood

Okay, my second question okay is about the KPMG review being done on the last three fiscal years. Could you comment a little bit on that and when the results of that would be announced to the investors?

Clayton Fong

Sure, sure. We’re really excited about having it. It has been our strong desire to bring a big firm to work with us. Our auditors remain the U.S. firm Kabani & Co. However KPMG has been taxed and engaged to do in essence, in preparation for our Taiwan Depositary Receipt. It has been engaged to basically do a review of – its your opinion based on a review of the U.S. audits of both, of 2011, ’12 and ’13 and issued in opinion that those audits meet Taiwan standards, because it is KPMG Taiwan and it’s a Taiwan listing.

The good news is Taiwan standards and U.S. standards. They are very, very close. They are very, very modest small differences between U.S. GAAP and Taiwan GAAP. So in essence it really is for lack of a better work, a seal of approval for lack of a better word from KPMG and we look forward to that.

It’s hard to comment on specifically. I know the work has been completed with regard to the review of 2011 and ’12 and they were waiting for the completion and final opinion by our U.S. auditors and I would expect something from them in the next two to three weeks, but its hard to say how long their process will take. But I would expect soon we will be able to have, I guess the final opinion issued by KPMG Taiwan.

David Sheridan - Boenning & Scattergood

And then thirdly would be then, after that opinion is generated, the process for the TDR listing would be started, if not already and then hopefully a dual listing by early fall. Would that be…

Clayton Fong

You’re now asking me to gauge the speed of regulators. But I would say that we could not begin the formal application process until KPMG’s opinion is issued, which I will hope will be in the month of August, and then we’ve already engaged TaiShin Bank, the third largest commercial bank in Taiwan as our banker on this deal.

We’ve been in discussions and between the bankers and the attorneys they will compile the application I think fairly quickly, but just like making the application here at the SEC, that could take, I’m told it could take two months before that approval.

And then what that would do is that would open up a window by which the bank would then say, what’s the best time to roll this out, and so yes, I would expect it would be into the fall, late fall or winter when this actually would be executed. It really depends a little bit on market conditions, timing and other kinds of things, but yes.

Our hope would be that by the end of the year we would have – that’s going to be a good source of capital. I mean the core issue around the GDR is that we believe we are greatly under valued here in the United States and that’s a little bit of a hangover over the China sector. The concern is whether China is going as fast as it is and a big hangover over the coal sector here in the United States.

So we believe that we’ll get a much fair valuation in Taiwan and therefore be able to raise money and raise funds for acquisitions and other activities at a much more accretive rate than we might here.

David Sheridan - Boenning & Scattergood

I think that’s a big step of trying to get that higher PE or fair valuation, because I see Peabody Energy loosing $3 a share and trading at $17; I see Walter Energy looking $18 and trading at $11 and then I see you guys making over $1 a share and trading at $3.

Yes, historically you’ve been trading at about 4 PE, so with $1 in earnings that could be a $4 stock with the KPMG review okay, assuming everything’s positive there, give us a five or six PE. The TDR listing, I’m looking very favorably for it, because the average PE over there is 22. I think the lowest stock traded at 10 PE over there. So we can get an eight to 10 PE for L&L over there, that would be fantastic and if we can close this large acquisition by doubling the mining revenues, we could be looking at a PT above 10 again.

So again, congratulations on your exciting year. It looks like you are projecting hard growth for the upcoming year and with all the additional items, the review, the TDR listing, the acquisitions coming in the next six months, I’ll be happy to talk to you again September 15 at first quarter earnings.

Clayton Fong

Thanks Dave. I’ll take that as a comment, not a question.

David Sheridan - Boenning & Scattergood

It was a comment. Thank you.

Operator

Thank you. Our next question comes from the line of Patrick Barnes from [Furlong Assets] (ph). Your question please.

Unidentified Analyst

Hi, can everyone hear me?

Clayton Fong

Yes.

Unidentified Analyst

Okay great. Gentlemen, congratulations on a wonderful quarter and I do agree with the previous caller that this is a $10 stock. I’ll be as quick as possible. My first question is in the July quarter ending today, can we expect to see all five of your mines producing at full capacity and if not, what percentage?

Clayton Fong

Let me say this, we produced about 196,000 tons this last quarter. I think that’s indicative of the current run rate, but note that within that quarter we also had Chinese New Years, which meant that we are basically down for a week or two and so I’ll let you kind of do the math as to what the right number is.

But what I also want to caution everybody on, the good news is that we’ve really seen a stabilization from fiscal year 2012 when it was very difficult to operate and I think that has to do with the way we’ve been operating and the kind of the swap out of the mining assets to different assets. So I think it was a good repositioning for the company.

However if you take past history as an example, in other provinces it has done consolidation. It’s hard to predict full capacity during the consolidation time period, and many mines run well below their full capacity. We are blessed because we are running well, to be running pretty darn close to our full capacity. So it’s very difficult for me to say so.

But I would say that I have, I feel confident that going forward, in this coming year that we will pretty substantially increase our operational capacity. What the timing of that is and whether there are what I will call little blips in short term closures unrelated to our operations, I can’t predict to that. But over a longer period of time rather than quarter-over-quarter, say this coming fiscal year I’m very confident that we will see substantial growth.

Like I said, I think we’ll take our capacity from around 840 and I would expect to take it well over a 1 million, and so if you use those numbers, its hard to predict on a month-to-month basis or a quarter-to-quarter basis, because I think there’s an averaging out of.

If there’s an accident in a near by mine, the government will come in and do inspections of all of the mines in the area and so it does slow things down. We’ve been able to mitigate that as compared to 2012, but that possibility is always still there. So I’m very optimistic.

What we’ve been able to do this last year is really smooth that out, but it’s hard to predict on a quarter-over-quarter basis. I’m sorry I didn’t quite answer your question, but I do believe that we will be well over a million tons for this coming year, which will be substantial growth.

Unidentified Analyst

Okay and I just wanted to ask you; it leads into the next question. Have you expressed any production shutdowns or significant slowdown at any of the mines in the July quarter ending today? I know you mentioned inspections and so forth.

Clayton Fong

I shouldn’t be commenting on a quarter that literally closes today and we are officially in our quiet period. But if we had a substantial shutdown I would let you know. So the answer to that question is no, but I really don’t want to comment on numbers as it relates to the quarter that we just finished and have not published results for.

Unidentified Analyst

Right, I quiet understand. But anything material such as a month’s shutdown, something of that nature you would be aware of, correct.

Clayton Fong

No. Yes, I’d be aware of, and the answer is no.

Unidentified Analyst

Okay, okay. And one more question, since you acquired Luozhou and Lashu mine, how is the integration of the local mine managers into the L&L team going. Sounds like it’s going very well.

Clayton Fong

Yes, it’s going well. Remember it’s the same company, Union Energy. I think that’s one of the things that has made this a little smoother and a little easier for us to digest, and also makes it easier for us to began immediately looking at larger entities.

The way I would frame it is, we are ahead of schedule on our consolidation and plans overall for the last few years. We had four mines going into the 2012 year. 2012 was a touch year. But what we managed to do was, we wanted to get a sort of minimum tonnage.

In Guizhou province we need to be at 800,000 tons on a minimum basis. The three mines we bough already are at 600,000 tons of capacity and we would expect to get – one of them is already going to expand to get us very close to that 800 number, and we need to be at that 800 by 2015. We fully expect to have them at their full 1.2 million capacity well before the end of 2015 period.

So that’s what giving us the ability to now focus on Northern China, where we’re going to go after even bigger and better mines, larger scale and what have you. So for lack of a better word, the consolidation in China allowed us first go after the smallest mines, then it gave us sort of a medium level target which we’ve executed and done and now we are going go after a even larger target.

So we are kind of lily padding up the food chain for lack of a better word. We’ve done it effectively, but just like any, in this industry and what have you, and we’ve done it under extremely difficult circumstances; when liquidity was difficult, when the operating market was difficult and many other companies have tremendous difficult.

Our key, what has made it very, very helpful for this company is we’ve got a couple of best mining people in the world, on our Board, that help do due diligence and we are able to look at mine and at the time we are able to buy mines that have good, good profit margins and that means so if the price dips a little like it did in 2012, we got plenty of room. So we go from a 60% to 70% operating margin to a 50% to 60% operating margin, but that’s very profitably.

The mining of companies that get into trouble are the ones that are running on the edge. They are running a 10% profit margin and then when prices go down 10%, they bleed. So what we’ve done is we’ve been very careful about who we buy, how we buy and we’ve also been nimble and aware of what’s going on, and anticipatory of the governments actions and what you’re seeing right now with the integration of the Union Energy mines is looking at mines.

What they also said was that they are going to look at more mechanization. Well we’ve always been full mechanization, but what we’ve done is we’ve bough mines that are going to be much more capable of being fully mechanized. And I think what’s going to happen is when we get to the Northern China, you’ll see an every bigger scale.

So the answer to your question, I think the management integration, its still, its five months in, but it actually went extremely smoothly, just because of the – and I think it had to do with the fact that we already had just done a deal with Union Energy and so the senior leadership we’ve been working with, the mine by mine folks, we’d already assigned people to them for a few months before doing the final deal and so it was a pretty smooth integration.

It really is a big difference when you move up the scale of mines. The operating, I’ll just say the digestion period and the resources that go into digestion are way easier. So I think I think one of the things that very positive is that as we move and I’m hopping that as we go to even bigger mines that that duration is every easier and if you think of it as, I can do one of two or three a year, so imagine doing 3 million ton mines versus doing 350,000 to 300,000 ton mines. The acquisition scale would be tremendously bigger.

Operator

Thank you. (Operator Instructions). Our next question comes from the line of George Hanes (ph), a private investor. Your question please. George you might have your phone on mute.

Clayton Fong

We can go back to George if he’s having difficulty in the end.

George Hanes (ph) – Private Investor

Hello.

Operator

Yes, we can hear you.

George Hanes (ph) – Private Investor

Hey Clayton, on your Taiwan Depository Receipt, could you tell me what steps the shareholders, I mean you’ll have to take to register their stock in Taiwan so they could sell it there.

Clayton Fong

To be honest with you, I don’t know the answer to that question. I’m not quite sure what you mean. Are you talking about after we have our depository receipt, after we do our TDR you want to find a way to register your persons there.

George Hanes (ph) – Private Investor

Yes Clayton, there’s got to be some arbitrage opportunity, so that you could buy – I mean eventually if you are going to buy stock here in U.S. at $3 and sell it over there at $6, people are going to do that all day long. The question is what’s the procedure to do it.

Clayton Fong

I don’t know that you can do that individually. What the company will do is, the company will deposit L&L stock at TaiShin Bank and TaiShin Bank will then, for lack of a better word sort of ITO it or list it in Taiwan. And those shares will be new issuant shares for the most part. And so I don’t now that you can, after the fact go in and list it. I mean I’m not aware. The company won’t be doing anything like that. What we’ll be doing is listing those shares.

What should occur us the valuation kind of tugged at one another. The valuations are lot tied in Taiwan than they are in the United States. I would expect that the U.S. listing or U.S. valuation will tug the Taiwan valuation down a little and the Taiwan valuation will tug it up a little bit.

Well you have two pools of stock, very potentially trading at different prices. But I think what it does is have an impact. If someone wants to invest, they’ll do one or the other, and they’ll make their call as to which one they want to go at.

So I don’t think it’s really a matter of being able to go and take your U.S. shares and just trade them in Taiwan. You would have to find a way to list them in and the only way I know that we are doing is the way we are doing it, which is to do a formal TDR. I don’t know if you can do it on a small scale.

George Heance – Private Investor

Clayton, do you have market markets for your company stock in the U.S.

Clayton Fong

I would just assume not. We focus on our business, I speak what institutions and what have you all the time. We’ve definitively gotten a lot more interest since we’ve been on Russell, but as far as who the market markets are, I don’t know who they are.

George Heance – Private Investor

Okay. Because I’m going to say if you are paying anybody to make a market in your stock, they are not doing a very good job. You got great results.

Clayton Fong

If someone is marketing a market on our stocks they are doing it on their own.

George Heance – Private Investor

Okay. Yes, it looks like a constant pushdown and I don’t quite understand it. The other thing is, has the price of coal remains relatively stable or is it down more than it is seasonally.

Clayton Fong

There is a seasonal adjustment within in China. I’ll comment on China pricing, just because that’s where we operate. We don’t have the U.S. mine this time.

Right now, on a typical year if you go historically you will see a kind of 10% differential between winter versus summer. Summer is the time that is a rainy season and hydros come online and so less coal is used and so you’ll typically see that, that lower price in the summer.

So far we’ve seen about 10% reduction and usually the price bottoms around August, and so that’s in the main market. In China if you take Bohai RIM weighted average as an example, you’d see about a 10% reduction from sort of the peak in the beginning of the year down to say last week. So that seems to be about normal right now.

Last year was a lot more precipitous. What we saw was about a 20% reduction. Now what I would say is in China the government sort of puts, I call it kind of price restrictions, sort of a collar. So what you’ll see is those numbers are not as big a drop as, lets say for example what you saw in U.S. are new capital coal. Those numbers drop even more.

Now I’ll say this even future for us though. At the same time that the Bohai Rim average drops 20% last year, all of pricing quite frankly, if you take the average pricing for 2012 versus 2013, given the year has just ended, it was only about a 9% difference. Now that was a little bit helped by. It was a 13% difference if we used, did it in RMB, it was a 9% difference if you did it in U.S. currency and that party due to the fact that we get a little bit of a backwind because of the, I would hate to say the weakness of the dollar again the RMB, but that’s a positive thing for us.

So the bottom line is what I would say is, from a pricing side last year was a tough year. This year seems to be, at lease up to now about as expected. So we are kind of expecting kind of internally at this point. We are thinking flat pricing for this year. We don’t have any indications, but we’ll see. I think this next month in August will be inductive of whether if market pricing in China drops a little more or not than the usual 10%.

However, like I said, in last year’s volatility we saw a much less severe drop and the reason for that is, what’s driving the price down is not domestic consumption. What’s driving the price down is very cheep coal available, particularly from Australia and other places. And where we operative and where we run, which is inland China, we really aren’t as effected as much by that, for the simple reason that you can take that coal and move it from the cost. It does have more of an impact on costal China and the Bohai Rim, which handles a lot of boats, domestics and imports.

So I guess the bottom line is, I’d say last year was a tough year. This year seems to be in line with kind of a past, about a 10% drop and we still got another couple of weeks to kind of lock and pay attention to it. But the good news is, because of our location, most of our coal, the vast majority of our coal is produced in Yunnan and Guizhou and utilized in with Yunnan and Guizhou.

Where there’s a little bit of an impact is softer pricing in the costal areas. It may have an impact on how quickly we can ramp the part of our wholesale business that is directed towards that, but that’s not a large percentage of our wholesale business. Hope that answers your question.

Operator

Thank you. Our next question is a follow up question from the line of Patrick Barnes from [Furlong Assets] (ph). Your question please.

Unidentified Participant

Hey gentlemen, my line got a little, was a little fuzzy before, so I just wanted to follow up and I appreciate it. Regarding the integration I was wondering how has the integration been as far as the onsite local managers for the two new lines.

Clayton Fong

It’s been very good. May be you didn’t hear this. What we will typically do before an acquisition is we’ll actually assign managers to go onsite before we acquire and that’s part of our due diligence process, and quite frankly, one of the reasons we speed up the phase of the last few mines was the integration was so smooth and a lot of times the integration is sort of an advance.

With these really smaller mines we have get them to U.S. GAAP, we have to get them – a lot of standards beyond the mining and operational side. With Union Energy they run at a much better level, so we were able to be really complete our acquisitions.

We had three acquisitions in mine, we completed them. It was our initial plan to do. We did one in January 2012, we expected to do one in the fall of 2012 and we expected the third one to be in the spring of 2013. So we actually completed it ahead of schedule and I think that’s very inductive of how smooth the integration with management was.

Unidentified Participant

That’s fantastic. So it sounds like the local manager, they really consider themselves part of the L&L team if you will.

Clayton Fong

Yes, I think so. At the end of the day, what you got is a JV partnership with a very strong entity. I think Union Energy, my recollection off the top of my head is, I think they had right mines. So we’re JV’ing on three of them. So I think its really very co-branded for lack of a better word. There’s still LaShu and LuoZhou mines, but I think the folks know that it’s a very strong, they know that it’s a very strong partnership.

Unidentified Participant

Fantastic, and I’m going to be a little greedy with one more if you don’t mind. Thank you so much, I appreciate it gentlemen. How is the production trending for each of your mines in the July quarter versus the January quarter? I know it just ended, but if you can kind of just elaborate a little bit please.

Clayton Fong

Yes, I’m told I really shouldn’t be commenting on results at all, because we just closed the year and we haven’t stated to talk about it.

Unidentified Participant

Okay. I believe that its just specific to them, they are for (inaudible) just a broad, if you can. How it’s trending, how you are you know, in quarters.

Clayton Fong

What I’m just gong to say is we had no surprise. So what I would say is the numbers we saw in the first, in the fourth quarter, we would expect to see similar numbers. Now, recognize there’s always a demand drop off in the summer, as well as some pricing softness in the summer. So that said, but from a pure production side, I think we expect pretty decent results.

Its not uncommon for us to hold more inventory during the summer and so even though production stays steady, we sometimes sell a little less coal, just because we are going to get a better price in the following quarter. So I mean there’s just a lot of moving parts on all of that, so I’m not going to. I’m just giving you some backdrop, without giving you specific numbers.

Operator

Thank you. Our next question comes from the line of Jim Lilly (ph) a Private Investor. Your question please.

Jim Lilly (ph) – Private Investor

Yes, I have a question on the Taiwan TDR. You mentioned issuing new shares. I wonder if you have a ballpark figure as far as how many new shares could be issued.

Clayton Fong

I would hate to put a number out there just because – you are always going to. If we are looking at three or four months down the line or two or three months down the line, we might end up saying, hey we need a little more, we might need a little less or and then also depends on what the market appetite for it is.

But if I would have to do it broad range, I think – well, I probably shouldn’t even give you a broad range, but we do have acquisitions planed and some other things planned and so we would probably do enough to make those acquisitions. But recognize this, anything we’ve don’t in the past, we’ve always made it accretive, and I cannot imagine we would move away from making sure its accretive.

We’ve been able to in the past buy our mining assets for one to two times EBITDA. If we go up north and were looking at mines and are not under consolidation pressure, but nonetheless would win a partner, maybe we’ll be looking at two to three times EBITDA. But if you are doing that, on top of, I would expect that it would be accretive all day long, but there are a lot of moving parts with regard to that.

And when you got the kind of opportunities we have in front of us. If we want to do one mine we might be looking at one thing, but there might be another mine or some other accretive opportunities. And so depending on how attractive the multiple is and depending on how the number could change. So I don’t mean to now be specific, but I would just mealy say it would be accretive.

Jim Lilly – Private Investor

Okay and you are looking at IM in northern regions. It seems that they are going through kind of a depression in their coal industry right and I’m wondering if maybe if the (inaudible) if they are trying to…

Clayton Fong

I find that an interesting wording. What I’ll make a comment. What happens is the coal space in China, as well as the economy is China has been hotter in the fiscal, probably unattainably hot. So if you take it from an economic side, we saw 10% or 11% growth. And quite frankly we saw 5% growth in the Untied States, but that would be putting the breaks on big time.

So what happened is China began to put the breaks on, because in my mind, 10% and 11%, I think in and the government’s mind there 10% and 11% was not sustainable, it was inflationary. So they began to raise rates and put the breaks on and they announced publicly that we are going to move that target down to 7.5%.

There are a lot of analysts over here that basically said, ‘well gee, 7.5% while we think its still going to be 8% or 9%’ and then when the number came in at 7.5%, they are all saying the sky is falling. So I find it unusual that people would say that.

Here’s our view on China. We think 7.5% is good news. I like 7.5% because 7.5% is sustainable in our minds, non-inflationary and so we hope that growth will be 7.5%.

My analogy would be here in the real-estate market. I’ve invested in a lot of houses over the years and I was always worried when it appreciated 10% and 20%, because I know there was a big bubble coming and a pop coming. So what I much preferred, kind of steady as she grows growth.

That’s what I think we are seeing in China; the year-over-year consumption on coal in China grew 6.5%, that’s still pretty darn good. In the area we are at, we are in Guizhou province, year-over-year growth in Guizhou province has been double digits, continued to be double digits. So what you have is sort of two China’s.

The costal areas, which have grown a lot are growing a little slower, but the inland areas, which have a long way to go to catch up, continue to grow very fast. So from our company side, I think that’s a positive.

It is true that in the North that we’ll be looking at acquisitions on mines, as the market and the pricing is going down, but we view that as a buying opportunity, because we are not buying them, we are buying them as a multiple of earning, and so at this time the multiple of earnings make them extremely even more attractive. So we see this as a tremendous opportunity to buy at an every better deal for our shareholders.

We bought at the peak of the market, that EBITDA margin would be a little bit inflated. But the opportunity of the buy at a low in the market add attractive rates on top of that, we view as a tremendous opportunity.

The key is gong to be and the ones that we are looking at it is to make sure that these things still have good profit margins though. So that if by some chance you see another dip in pricing then you will, but we don’t think so.

We think that last year was the bad scenario and it really was driven primary by a record warm winter in the Untied States, as well as tremendous excess of gas, shale gas, gas dropped under $2, which displaced coal which had a cascading effect, and so what’s happened though is gas is going back up to the $4 or just under $4 range and so you are seeing it more normalizing, you are seeing pries firm up from their lows here in the Untied States and I think that’s going to have an impact there.

I think Australia is still a little behind the curve with regard to making their adjustments, but I suspect they will do so, and so our view is, this is a great time to buy those assets, because we can buy them at multiples of earlier at a time when those earnings are going to be lower on a pro forma basis and therefore we’ll get an even better deal for our folks and that’s just based on the way we buy and the way we value these assets.

Operator

Thank you. Our next question comes from the line of Tim McAndrew (ph) from Stifel. Your question please.

Tim McAndrew - Stifel Nicolaus

I don’t think anybody’s going to argue with the earnings you had for the year or the growth that we are looking at sock wise, but I don’t there’s anybody on the call that doesn’t agree that KPMG is a big factor in here.

I for one have seen a lot of stocks that have had their “Chinese Hangover” and it’s very unusual to have a stock that has the earnings that this company has. The potential growth that you guys are talking about is $3. So obviously, I don’t think there is anybody on this call that doesn’t and is not just excited and waiting for KPMG to put a stamp on your financial for the TDR.

My question is this, on your June 24 release, you said that KPMG had issued a draft opinion, reviewed opinion on those first two years. Are you allowed to comment on those at all or does that have to want for that third quarter 2013 is completed. That’s my question.

Clayton Fong

Yes, they have completed those two years, but it would be inappropriate for me to release or talk about anything, other than to say that they’ve been engaged to comment on all three years. So until they get off – I’ll think we’ll get all three years at once. I don’t think they would actually pass out the work, because they are really doing work for all three years.

However I would say this; I agree with you, I think that KPMG is a big deal. Unfortunately the China space has had a handful of problems and so there is a hangover there. I think I would do two thing; one, KPMG did a lot of due diligence on us before we could engage them.

They now looked at two years and they are still engaged. They are about to review this last year and we are very positive about the outcome being positive, because they’ve been monitoring and walking sort of side-by-side. They know what’s been going on. They just have to go though the process of getting their final approvals back and forth and so I would expect an opinion to be issued soon.

Now I do want to make some distinctions though. Remember, we are a U.S. company, we are not a Chinese company. We are listed here, we are headquarter here, we are founded and incorporated here and we are run primary by U.S. Chinese America citizens and I think that’s a big difference. We just happen to be throwing out the baby with the bath water on the Chinese asset side, because most of our assets are in China.

We always believe, we built this mechanism, this company with the notion, understanding how challenging an environment China can be. We built this whole platform with the notion that it would be a better way to invest in a fast growing Chinese market, but to do so in a way that provides some increased, enhanced security transparency and accountability for U.S. shareholders.

I still believe that’s the case. I think what happened was instead in 2009 and 2010 everybody ran into anything Chinese and didn’t do enough due diligence. In 2011 and 2012 they are running away from it without doing due diligence and what I think is going to happen as we settle down and people will realize that the companies that are still standing have kind of been through the ringer and they are doing well.

But then on top of that, maybe people will really began to realize that realize that this is great platform for the future if you want to invest in Chinese assets because it is an American company, not a Chinese company listed here. It’s an American company that’s buying Chinese assets and I think there is a fundamental difference in that.

I think as that happens and you have an under valuation in the Chinese share and like now you have an under valuation in the coal space, but I think the coal space is going to be turning soon too, because its kind of bottomed out and pricing has began to firm out and what have you in the markets haven’t shown it yet, but I think they will.

So I think from a market side, I think it’s a good time, I think it’s a good time to be looking it and I’m positive, and yes, we share the believe that we are still greatly under valued, but I am also very positive that if we keep our nose at the drawing stone, build the business, continue to deliver to you guys, great earnings, great growth that the market will turn.

Operator

Thank you. Our next question is a follow up question from the line of Mark Harrison from (inaudible). Your question please.

Clayton Fong

I think we are running over the hour. So we’ll probably make this the last question.

Unidentified Participant

Okay, great, and its just a quick follow up Clayton and a very short question here. How many people do you currently have working in your new Beijing office. Do you know those numbers?

Clayton Fong

I think there’s a half a dozen people over there right now. We are in the process of hiring permanent folks. Some of the folks what we’ve done is we’ve done some reassignments, temporary reassignments from our Kunming officer and I think it will all settle out.

I knew we’ve got enough space over there for probably a dozen people for now at lease, and probably a dozen to 15, but I expect that to kind of growth as we growth the operations.

Just as a point, Jingcai Yang, our Board Member even operates out of there. He’s a huge asset and so as a Board Member, it’s a real plus to have him on site and be available to kind of tap his advice on a contemporary space.

There is probably no one better in China that knows the coal space. This guys Shinwa, the largest most profitable coal mining operating, but they have a mandatory retirement, 60 years old. So after he retires we’ll be able to grab him.

But you are talking about the guy who oversaw and watched Shinwa grow several fold during the first round of consolidation, and it was under his watch. So he not only knows coal, but he knows the consolidation process and know a lot of the players up there. So I suspect he can queue up as many opportunities as we can digest.

Operator

Thank you. This does conclude the question-and-answer session of today’s program. Ladies and gentlemen, I would like to remind everyone that a replay will be made available from July 31, 2013 through August 7, 2013. The number for the replay is 855-859-2056 or for international calls 404-537-3406, conference ID number 24623365. You may now disconnect.

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