L&L Energy (LLEN) is a vertically integrated coal company engaged in the consolidation and expansion of the fragmented coal industry in Southwestern China. The Company helps to consolidate the industry by managing coal mines to maximize efficiency, distribution, cleanliness, and safety.
It sits on a total of 57 million tons of coal reserves. It owns 4 coal mines, 2 coal washing plants, and a 3rd one that they have access to, and 3 wholesale distribution networks with multiple offices and rail access, and 1 coking facility.
The Chinese government has a lot of influence in the coal industry, and requires coal to first be bought from local coal mines before imported coal. L&L Energy has a trusting, working relationship with the Chinese government. The Company pursues corporate social responsibility and compliance with environmental protection policies in China to get on the authority's good side.
On July 10th, the Company announced that it was hired to manage a coal washing plant. This is a huge management job for the Company. It's expected to give L&L an extra $63 million in revenues and $5.9 million in net income plus an management fee of $0.5 million for the next 12 months of operation. This is almost guaranteed income since the coal washing plant is right by its targeted customer, Yunnan Coal Energy, Inc, which requires approximately 3 million tons of washed coking coal each year.
There is no slowdown of coal use in China. China has a slowing growth rate, but that doesn't mean the country is slowing down overall. Private sector forecasts say overall growth could fall to as low as 7.3%. This is well below China's 2010 10.5% expansion, but it's still experiencing strong growth nonetheless. Coal use is actually increasing in China as the country invests in technology to use coal.
L&L Energy's coal operations are in the Guizhou and Yunnan Provinces, away from the coast. Its coal mine operations have rail access to deliver coal around the area. It isn't affected by the China East Coast coal pile up due to the lack of transportation networks to get coal from the coast.
Although there have been some fraud accusations in the past, it's very unlikely that L&L Energy is fraudulent. It is headquartered in Seattle, Washington, and the management team are all American citizens living in the United States, mostly in the Seattle area. If they were Chinese criminals, they would not live in the US, they would live in China where they would be safe from being prosecuted.
At the end of this month, L&L Energy will report its fiscal year annual report. The Company will likely report strong revenue and earnings. Listening to the Company's Vice President, Ed Moy, in this video presentation on June 13th, 2012, at the 17:00 point he demonstrates that coal consumption in China hasn't slowed down. He also said that all four mines that are managed by the Company are on track to achieve their government approved production.
As of June 15th, 2012, LLEN had 2.92 million shares short, which is about 11.5% of the float. An expected positive earnings report could cause a short squeeze. The Company is also engaging in a share buyback which is decreasing the float. The amount of shares bought back will be revealed in the annual earnings report.
L&L Energy has been expanding its business and increasing its income in a responsible way. It has a lot of happy shareholders, as well as a large short interest. The stock has been depressed for awhile, and it is aching for an excuse to break out to the upside.
Disclosure: I am long LLEN.