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

F4Q 2012 Earnings Conference Call

August 1, 2012 12:00 ET

Executives

Dickson Lee – Chairman and Chief Executive Officer

Ian Robinson – Chief Financial Officer

Ed Moy – Vice President

Analysts

David Sheridan – Boenning and Scattergood

Don Sinsabaugh – Fulcrum Securities

Stanley Ng – RedChip Companies

Joanne Gannon – Private Investor

Ronald Hudson– Private Investor

Gary Scott – Private Investor

Steve Sullivan – Horizon Financial Group

Operator

Ladies and gentlemen, welcome to the L&L Energy, Incorporated Fiscal Year 2012 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 L&L’s Chairman and Chief Executive Officer, Dickson Lee; Chief Financial Officer, Ian Robinson; Vice Presidents Ed Moy and Clayton Fong.

Before I turn over the call to Mr. Lee, 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 are made pursuant to 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 Chairman and CEO, Dickson Lee. Mr. Lee, please go ahead.

Dickson Lee – Chairman and Chief Executive Officer

Thank you and good morning to everyone. I’d like to welcome you to our fiscal year 2012 earnings call. We are pleased today to share with you our financial results for the year and discuss some of our recent development. We are pleased with our progress this far towards becoming a consolidator in Guizhou.

Revenues from continuing operations surged 52% in the fourth quarter compared to the third quarter of 2012. We believe this shift is a representative of the steps that we have taken to capitalize the consolidation opportunities in Guizhou the potential to acquire mines that meet our standards for safety, scalability and operational efficiency such as the Union Energy mines would be a major driver for sales growth in the quarters ahead.

In parallel, we’re making great strides in expanding our wholesaling capabilities. Late in the fourth quarter we secured a storage facility at the railroad terminal in Shin PingBa that is in Guizhou province in China. The storage place helps to streamline our wholesale platform and distribution network to enhance our ability to serve major customers such as Datang International. As you are aware of Datang International is one of the largest utility companies in China.

More recently we established relationship with China Construction Bank and AVIC Sichuan Coal Logistics Company which further strengthening our capability in the wholesale market. Overall, I believe this wholesale segment is a very attractive area that poise for rapid expansion in 2013. Now, I like to thank our shareholders for their continued support.

With that, I will turn the call over to our CFO, Mr. Ian Robinson, who will give details on our fiscal year financial results. Ian?

Ian Robinson – Chief Financial Officer

Thank you, Dickson. Good morning everybody. Outperformance in the fourth quarter concerns prior expectations that we are turning the corner from the challenges that were present in earlier quarters of 2012. At 108,000 tons of production, our fourth quarter represents 32.8% of overall coal production volume for the year. Our total sales from continuing operations for the fiscal year were 143.6 million, which is broken up into the following: Mining contributed 37.9 million; washing contributed 69.6 million; wholesale contributed 20.6 million; and coking contributed 22 million.

Gross profit for the year was 39.8 million. Net income was 19.2 million. And earnings per share for the continuing business is $0.51 of diluted shares. Net cash provided by operations for the fiscal year was 25.7 million. Our yearend cash and cash equivalents totaled approximately 4 million and our tangible book value increased to 5.72 cents per share. Net income attributable to -- sorry, that was $5.72 just to make it clear.

Net income attributable to the company was approximately 14.2 million for the fiscal year. The difference between net income and net income attributable to L&L is due to the deduction of net income from non-controlling interest that L&L holds. The fourth quarter really improved over the third quarter. For continuing operations on the quarter-over-quarter basis, revenues increased 52% from 27 million in the third quarter to 41 million in the fourth quarter. Net income grew 128% from 3.2 million to 7.3 million and earnings per share from continuing operations increased 120% from $0.09 per share to $0.20 per share.

Going forward, we are optimistic that the fiscal year 2013 will show significant overall improvement. Weishe recently completed its final safety inspections. We anticipate it will ramp up production quickly in the coming quarters. Also, Union Energy’s LuoZhou Mine recently began its trial production.

Now, I’d like to hand over to Ed Moy for a few more comments.

Ed Moy – Vice President

Thanks Ian. Before moving on to the Q&A I would like to briefly summarize some of the operational highlights from the past few months. We completed the divestiture of our underperforming Ping Yi assets during the fourth quarter. Going forward this will eliminate a large capital expenditure trying to bring Ping Yi up to the increasing mine standards and it will allow us to focus on more accretive opportunities like we’ve seen with Union Energy.

This falls right in line with the strategy we discussed during our third quarter call. Dr. Syd Peng’s due diligence efforts last fall concluded that we would best serve our shareholders by focusing our efforts on several larger and better design mines which for the first time are under pressure to consolidate. These mines have less operational risk and are more likely to require less capital expenditure to meet the increases in production, safety and mechanization. Their stronger management teams will also facilitate faster growth in the future.

As Ian already mentioned Weishe mine completed its final safety inspection and is now prepared to ramp up production to its 150,000 tons permit limit. Prior to this accomplishment, the HeZhang County government recognized Weishe as a model mine with County Secretary Huang Guangjiang praising the mines’ advanced mining techniques, commitment to safety and management. We’ve also continued to receive support from the Guizhou provincial government in taking a leadership role in the consolidation process.

Our wholesaling segment which we are seeking to rapidly expand has seen several advancements in recent months. Most recently we entered a partnership with AVIC Sichuan Coal Logistics, a division of the 50,000 employee enterprise called AVIC International Holding. We are exploring many opportunities with AVIC Sichuan and in the near trend this relationship can help expand our wholesaling business into the large Sichuan market. We are also exploring accounts receivable factoring opportunities with China Construction Bank which is one of the four large state-owned banks in China.

Our work with large reputable customers such as Datang International makes CCB an ideal partner in our wholesaling efforts. We also secured a coal storage and rail loading space in Shin PingBa in Guizhou province. An area we are really excited about in our wholesaling segment is the opportunity to become an aggregator of coal supplies from the many small mine operators throughout our operating region. Many of these smaller operators are unable to sell to major customers. Our ability to pull the necessary size together from these smaller mines to meet the requirement of large enterprise customers will be a major driver of growth for our wholesaling segment moving forward.

Lastly, I want to remind investors that we are scheduled our annual onsite investor visit in China for Friday August 10, 2012. This is a great opportunity for investors to see our upgraded mining portfolio including the Weishe mine. Interested parties should contact Sean Morishige in our Seattle office at 206-264-8065.

And with that, I will turn things over to our operator and open the call up for questions. Thanks.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen we’ll now begin the question and answer session. (Operator Instructions) Our first question is from David Sheridan with Boenning and Scattergood.

David Sheridan – Boenning and Scattergood

Hi guys. Great quarter. Congratulations on your execution. I’m just following up with a previous press release that the company put out with for $10 million stock buyback. Could you comment on when that can start?

Dickson Lee

Yes. We are basically this stock buyback is discretionary and we will use it when it’s the best use of capital. Basically that’s the whole focus. We want to use that capital in the best way. So, we are -- we announced that up we can buyback up to 10 million.

David Sheridan – Boenning and Scattergood

I’m aware that it was just the book value is up $5.72. Stock is trading at $2. You would think it would be a good purchase at this time.

Dickson Lee

Yes. We certainly look at it and are looking at it very consistently all the way through and we will use our money in the best way possible.

David Sheridan – Boenning and Scattergood

Alright. Thank you and continue success.

Operator

(Operator Instructions) We’ve a question from Don Sinsabaugh with Fulcrum Securities.

Don Sinsabaugh – Fulcrum Securities

Hi, congratulations on a great quarter. Have you -- how far long are you in about finalizing all your agreements with the three Union mines?

Ed Moy

Hi, Don. This is Ed Moy. We’re continuing to have discussions with Union Energy on their first mine Weishe. We’ve executed that acquisition and they’re on target to meeting all their expectations. They recently had their safety certification approved. So, they got the final go ahead to begin ramping up to their proved production of 150,000 tons. So, we’re very pleased with how that acquisition has gone.

Our second and third mines, the LuoZhou mine and the Lashu mine, those are the remaining two Union Energy mines, we are now engaged in intense discussions and negotiations on LuoZhou Mine which is targeted to go into pretrial production and testing. And so, knowing that that’s almost ready to come online is a good time for us to bring that into the L&L energy fold. Those discussions have not concluded, but the broad outlines that we announced in a recent press release are the general terms that we’re trying to make happen which is a swap, an equity swap with our adopting mind and our Zone Lin coking facility and some additional shares and exchange for controlling interest in the LuoZhou mine. That continues to go well and we hope that sometime in the near future we can put that one to bed and make an announcement on it.

The last mine which is Lashu mine, Lashu, they’re not scheduled to begin their trial production until the end of the year. So, we are continuing to have negotiations, but they are not as critical or as urgent as getting into LuoZhou mine confirmed and acquired sometime soon.

Don Sinsabaugh – Fulcrum Securities

Very good. And are there other partners that you’re looking at in that province that you could make additional acquisitions of mines?

Ed Moy

Yes. You know that’s a really good point Don and you know with the three Union Energy mines each with a maximum production capacity, a full production capacity of 450,000 tons that gives us 1.35 million tons when they’re all full capacity which begins to satisfy the Guizhou’s government’s consolidation standards, but we -- both the government and ourselves have higher expectations. We hope to bring in more tonnage and as a result we have 14 and counting letters of intent from various mines that are interested in being acquired. We are also under the lookout for other attractive mining opportunities.

So, yes, the answer to that is we will be looking at additional acquisitions, but it’s also a very dynamic market right now. We’re in early stages with consolidation while a lot of mines are on the market they’re not on the market for the prices that we feel comfortable enough to be very accretive and beneficial to our shareholders. So, it’s really a matter of getting these better designed mines under the full right away giving them up to their full production from that momentum being able to add on few more acquisitions to make sure that we -- not only meet but surpass the Guizhou standards.

Don Sinsabaugh – Fulcrum Securities

Thank you.

Ed Moy

You’re welcome.

Operator

Our next question is from Stanley Ng with RedChip Companies.

Stanley Ng – RedChip Companies

Hi. We learned from the news report from China Daily Online that there was a mine accident at Anlilai Coal Mine in Pu'an County on July 25th. Does the accident have any impact on your company’s coal mine inflation?

Unidentified Company Speaker

I’m sorry. Can you repeat that question?

Stanley Ng – RedChip Companies

We learned from a news report from China Daily Online there was a mine accident in Pu'an County on July 25. Does the accident have any impact on your company’s coal mine?

Unidentified Company Speaker

Not at this point.

Stanley Ng – RedChip Companies

Not at this point. So, it’s far away from your coal mine.

Unidentified Company Speaker

I would have to take a look at -- to be very frank with you I would have to -- we would have to take a look at it and does anyone else know where this accident is.

Dickson Lee

Yeah. As far as I understand it hasn’t impacted on our mines.

Stanley Ng – RedChip Companies

Okay. Can I ask another question?

Dickson Lee

Yeah sure. And Stanley let me add a little something to that. I think what we’ve seen the last year was a much rockier year as the year opened up the -- and accidents begin to occur the government sort of I’ll use the word was a lot more vociferous in their reaction and did a literally a provincial light shutdown and what we’re seeing now is a little more tempered and targeted response. So, we really feel that and the fourth quarter’s results demonstrate that the uncertainty, while there still is uncertainty as you correctly point out seems to be a lot less volatile. So, we’re -- so I don’t want to down play the access, but on the other hand it would appear that it’s not having as broad an impact.

So, we’ve not seen an impact and to the degree that we’ve seen some accidents in nearby mines the inspections and slowdowns or closures have been much more short-lived than they were earlier on. So, I don’t want to diminish your question. I just don’t think we have not you know you’re talking about something that just occurred last week and so we got no information that it’s had any impact that it’s been any order on any of our existing mines, but I do want to say that the overall environment has improved in the last six months.

Stanley Ng – RedChip Companies

Yeah. I agree. Yeah. It seems to me it’s being stabilized and that it should be a good news to your company, but that’s still we would like to see the company report any in that from mine accident in and around here that would cause your company’s mine to idle, yeah we would probably sure we would like to see some announcement for the company as soon as possible. Okay.

Ed Moy

Yeah, yeah. And Stanley this is Ed Moy. Just wanted to say that you know one of the things that I hope investors or people who have been following our company have seen over the past 18 months is a significant commitment to increasing the transparency in this company. One of the things that I hope people would have noticed is our filings have dramatically improved over the last six quarters and then particularly we’re particularly proud of the work that went into this particular 10-K. And so our commitment to transparency continues to be strong. We believe that will be a differentiating factor between us and our competition. And so, yes a better and more frequent updates from the company is something that our investors should expect over time.

Dickson Lee

Stanley let me add this. You brought up this accident. It’s over 100 miles away from any of our operations so we…

Stanley Ng – RedChip Companies

Okay.

Dickson Lee

I will cautiously say I don’t think it’s going to have an impact, but you know you never know what I – but I don’t think it’s going to have an impact.

Stanley Ng – RedChip Companies

Okay, okay. Thank you.

Operator

Our next question is from (Joanne Gannon), Private Investor.

Joanne Gannon – Private Investor

Hi, I am glad to meet you. I am -- my father early on was a long term supporter of your company and passed away a couple of years ago. I have heard rumors that there the China is planning for major stimulus. And I wonder if you -- if this is something real and if it may have an impact on your future business.

Dickson Lee

You know I -- I’m sorry to hear about your father and I know he was a very early supporter and -- many years ago. So, with regard to China stimulus I guess what I would say is it’s very difficult for our company to respond to what the government might do whether it be here quite frankly here in the United States who knows what the outcome of the election is going to be. And actually what's happening in -- but I will -- let me make these comments just from a historical perspective. China is going through a -- once every 10-year transition. And so what you’re -- what you have seen is a little bit of a slowdown, but you know you had a slowdown in the context. They’ve gone from 8% to 10% growth to an announced 7.5% growth and quite frankly we would be delighted to have that kind of growth here in the United States or anywhere else in the world.

What we are seeing though is concerning China that the outbreak or shall we say the slowdown in Europe and possibly in the United States they’re concerned about that. So there has been discussion of additional stimulus. I think the good news if you look historically at China’s stimulus, it really has indeed been stimulus infrastructure, roads, bridges. And in the areas that we operate, there is still a lot of infrastructure left to be filled. So, we’re very pleased from that.

The other point I would make is our operational footprint is largely in the inland part of China and even in the last worldwide recession what you saw was a slowdown in the coastal areas, but in the inland areas, they almost didn’t really miss a beat, because they’re so much. It’s -- there is so much room left to grow. So, we’re still very bullish with regard to the continued growing appetite for coal on a long run basis. We have seen a little bit of a reduction in price primarily resulting more from the fact that the demand is down in Europe and the United States than so in China. So, all I would say is that historically I think your astute to be looking at the macro side of China, we are still very bullish on the macro side of China.

Joanne Gannon – Private Investor

Great. Thank you very much and congratulations for a great quarter.

Operator

(Operator Instructions) We have a question from (Ronald Hudson), a private investor.

Ronald Hudson – Private Investor

Yes, good morning. Congratulations on the quarter. Interested in the fact that you are diversifying into production, washing and aggregation, do you say that you may be diversified too much at this stage of the company’s growth thereby losing focus?

Dickson Lee

I’ll take the first crack of that. There is no doubt that our -- we believe that the number one priority is the acquisition of mines at the moment because of the tremendously accretive nature of sort of this consolidation. It’s going to require smaller and even medium sized mines to consolidate or get shutdown. However, it has -- that consolidation whereas it got started very quickly last year because of the transition I talked about earlier has taken a little bit -- it has been a little slower this year. We anticipate though as the transition is done and which will be in literally in a few months that you’ll see a real acceleration of the ability to consolidate mines. So, we think that’s our primary focus.

The wholesaling side which I think is what you’re primarily relating to because we aren’t expanding our washing and coking side at this point, because for precisely the reasons you’re saying, but the wholesale side is really worked very well in tandem with the acquisition process number one when you begin to wholesale with some of these mines it really establishes a better working partnership, better understanding of their coal, the logistics around it and it gives you a much better look at the operation and its potential as an acquisition target.

In addition though it may be that you know when you -- as we’ve begun to target larger mines as per recommendation of our Board members Syd Peng, who’s one of the premier experts in coal mining operations that the smaller mines for now because we don’t have the announced full regulatory requirements from China’s government. It makes sense that the smaller mines really would be likely to be very late targets whereas there will be much more attractive prices. So, I think the focal point is the bigger mines and in the mean time the ability to nonetheless make money for our shareholders through wholesaling is really a plus.

And remember that with that uncertainty on the regulatory in terms of what the mechanization requirements are going to be and what have I mean it’s hard to go in and really frame up what's the CapEx going to be and ROI, so it doesn’t make sense to necessarily pull the trigger now, so wholesaling is a natural sort of interim step in working with those combined as well.

Ronald Hudson – Private Investor

Thank you very much.

Operator

(Operator Instructions) We’ve a question from (Gary Scott), a private investor.

Gary Scott – Private Investor

Hi guys. Congratulations on a turnaround quarter. I was wondering if you could give any color on the first quarter which has just ended and how it looks and if there will be anymore write-offs from the Ping Yi sale at $0.08 per share loss from continued operations or discontinued operations rather. If that will show up in Q1 was that a one-time event?

Ian Robinson

Let me answer that. This is Ian Robinson. Let me make it clear. The cost or adjustment was not a actual cost. It’s a non-cash adjustment to bring the Ping Yi debt into the net present value today. So, it -- and as we go forward we pick up the interest per annum on the debt. So, it’s not a write off. It’s just a one-time adjustment. So, I hope that answers that question. On the question of the quarter, the quarter I knew finished yesterday and we’re still working on the figures. So, I can’t really comment at this point of time, but you know the fourth quarter was a good quarter and we hope to continue that progress.

Gary Scott – Private Investor

Okay. So, if I can follow-up just to make sure I’m understanding it, the one-off adjustments for Ping Yi was we won’t be seeing that again in…

Ian Robinson

No you won’t. No, no, no.

Gary Scott – Private Investor

Okay.

Ian Robinson

It’s a one-off adjustment and it’s a non-cash item, so it is not a cost. It’s just an adjustment, because the debt goes out five years, you have to bring the thing back to today’s value using a discount rate and that’s what it is.

Gary Scott – Private Investor

Okay, I got it now.

Ian Robinson

It’s a requirement by the U.S. GAAP.

Gary Scott – Private Investor

Okay. I have it now. Thank you very much.

Ian Robinson

Okay.

Operator

Our next question is from Steve Sullivan with Horizon Financial Group.

Steve Sullivan – Horizon Financial Group

Hello. Thank you for taking my question. I have a more broad macro question. There has been a lot of reports in the media about excess inventories of coal at the ports. Can you sort of give us an on to the ground perspective what's being going on with that situation?

Ed Moy

Yeah. Hi Steve, this is Ed Moy. Yeah, I can give you some macro perspective on that. You know when you take about worldwide at what is happening in the coal industry, here in the United States we have a lot of coal here, but you know because of the low price of natural gas as well as some of the regulatory atmosphere here, there is not a lot of coal being sold here, prices are depressed.

Europe, because of their slowing economy is using less coal there too. That combined with better weather in Indonesia, their normal rainy season is a lot drier, so they’re producing a lot more coal. In Australia, the floods last year that closed a lot of their coal mines and limited that supply. Australia’s mines have not recovered and it’s producing coal. So, I think there is a lot of coal chasing very limited market and the biggest market for that coals in China and so a lot of these companies are taking advantage of this arbitrage opportunity and trying to ship as much coal to China as possible. That coal is piling up in a lot of the ports and you’ve seen pictures of that if you even do a quick Google search, you’ll see stories on this. And so that coal is coming in at a much faster rate than those coastal cities I can use. And so it will take a while for that inventory to get whittled down and giving the upcoming winter that’s going to happen.

Now where we operate which is in the Southwest China in the inland areas in Guizhou and Yunnan isn’t dramatically -- it is affected, but not dramatically by that their surplus coal and here is the reason why that surplus coal in order to be used by the -- in the inland which is still growing at a pretty good clip needs transportation and rail is very difficult to get and so you’re reduced to trucks which are very expensive. And so in the areas that we operate in really rely a lot on local call and we still see strength in that business. You see that not only in how prices have been holding indicated in our 10-K, but demand continues to you know to be strong for that. So the large inventory that you see on the coast we think are a temporary phenomenon that has very minimal impact on our business.

Steve Sullivan – Horizon Financial Group

Okay, thank you. And if I could ask another quick sort of broader macro question as well, you’ve been also hearing in the media talks about electricity generation flat to slightly up, slightly down depending on whose source you’re talking to and then you see the GDP at 7.6 I was just kind of curious why there is such a big gap between those two numbers, am I something that I’m missing in understanding the situation, could you explain it please?

Ian Robinson

We are -- I think what you’ve got is a lot of inference over the visual supplies of coal in some of the export terminals. And let me have a little more to that. Typically in the summer month we do see a drop in demand and also typically in the summer months we see a drop in price. There is a seasonal nature in China. And there is two things that drive that within China without the external forces that Ed talked about. One is the fact that a lot of their hydro is more active during the rainy season which is now and then as that comes off and as the rainy season ends you see less hydropower available. So, part of it’s a cyclical nature.

Also, if you look historically you will see that the sort of the import, as China just became net importers a year or two ago, what you see is actually a relatively catching up infrastructure for importing the coal, to start facility they won’t have. So, you opt in we’ll see by the end of the rainy season a stockpiling of coal leading into the winter. What happened this year that just -- they just hit there, they hit their fill a lot earlier because of the very attractive prices on lower priced coal from other places.

So, I guess what I would say is that we continue to be bullish because we believe a lot of this is somewhat cyclical. I think the supplies will as normally draw down as the winter season comes on. And I want to add this other fact. Our average margins on our coal mining operation, I think the danger point for a lot of US mines is they may operate just to give you an example you might have an Appalachian mine that operates that are $70 a ton production, but when -- so when the price drops below $70 they start bleeding and that makes it a very treacherous place for them, makes it hard to weather the dips. Well, when you’ve got the kinds of operations that we buy where the profit margins are 60% to 70% gross profit margins, you know we can weather a temporary dip in prices without any problem, because what it does is it merely reduces very, very, very attractive margins.

We still believe on a macro side that fundamentally whether these reports are there or not that there is almost a one-to-one increase in electricity consumption connecting to GDP growth. So, as long as you’re seeing this you know even 7.5% GDP growth we think on a overall macro side there will be continued increased demand for coal and you see that on a long term side. So, I think our view of this is it is that we I think we’re well positioned to not to impact us too severely.

Steve Sullivan – Horizon Financial Group

Farewell. Thank you very much. I appreciate your time.

Operator

We have additional question from Don Sinsabaugh with Fulcrum Securities.

Don Sinsabaugh – Fulcrum Securities

Yeah, you did answer my question on seasonality, but if you could give a little more color to the discussion on pricing how that’s looking currently and what you think is going to happen in the next few months in the markets you operate.

Ian Robinson

Yeah, you know pricing is a crystal ball right especially in the coal business. So, I wouldn’t want to be held to any kind of projection on that, but let me talk about some historical numbers which I can be little more firm about. Historically we’ve seen pricing from winter to summer drop as much as 10 or 15 or even 20% and so as a consequence, the seasonality there, we are definitely seeing a little bit more of a difference this year, but I’m talking spot coastal areas and as Ed said what you’re seeing is those big piles of coals are really in the coastal regions because that’s where the imports come in. So, I think it’s having a much bigger impact there.

Secondarily though we believe and this is just a way we’re poised, we’ve begun to build the strong wholesale network and we’ve established rail access in Guizhou province. We did that in Yunnan province quite it ways back and it really was a good foothold for us. Guizhou, we’re doing that now and yes, you’re right the exporting demand that may not be there just right now because of the access on the coast, but we believe that in a few short months just like here we saw stock, we saw the coal prices drop a lot and then that provides us drop. There was a cyclical nature to it. That when winter comes and the demand increases just like here when summer came and the demand increased that will be well poised to take advantage of that wholesale opportunity. That’s where we’re at right now.

So, we feel pretty good in terms of that. You have seen as maybe a benchmark, you have seen new castle pole drop from a peak in the winter in the around 120ish down to below 90 and 80s. And that is the bigger drop to normal, so you know we’ve obvious. They’re not unusual for us to see 10% or 20% drop. That’s a little bigger than the 10% or 20% drop, but we actually -- our view is that how shall I put this, our view is that we’re cautiously optimistic that it’s not going to drop much more and that the increased demand in the winter just like the increased demand in the summer, we’ve had a very hot summer here in the United States. We’ll help to turn that back around.

My -- our sense is that coal prices have overly bottomed the last three or four months, but you know it’s a crystal ball. So, your guess is as good as mine, but as I stated again I think we’re very well protected from any substantial impact given our larger profit margins and the fact that they were inland China and the higher seasonal demand is coming soon.

Don Sinsabaugh – Fulcrum Securities

Thank you.

Operator

We have no further questions at this time. Ladies and gentlemen I’d like to remind everyone that a replay of today’s call is available from one week from today beginning at 12:00 PM Eastern Time until 11:59 PM Eastern Time on August 8, 2012. The number for the replay is 855-859-2056 or for international calls 404-537-3406. Conference ID number 15999879. You may now disconnect.

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