Gushan Environmental Energy Extends Q3 Losses on Plant Disruptions

| About: Gushan Environmental (GU)

Gushan Environmental Energy (NYSE:GU), a biodiesel production company based in Fuzhou, China, said today that it extended third quarter losses as production capacity took a hit from different plant disruptions.

For the third quarter ended September 30, the company recorded a loss of RMB999.0 million compared to net loss of RMB79.1 million for the third quarter of 2009. Third quarter revenues decreased 63% year-over-year as the company’s production capacity took a hit from various plant disruptions.

The company suspended production at its Shanghai plant in April due to chemical enforcement control measures by the Shanghai municipal government during the Expo 2010.

In August, the company also stopped production at its old plant in San Tai County, Sichuan for relocation of the plant’s production lines to its new plant in Qin Dong Bei Industrial Park. The relocation of the Sichuan plant, together with the new plant, when completed, will result in a combined annual biodiesel production capacity of 100,000 tons, the company said.

The Shanghai plant and the new plant are expected to start production in the first quarter of 2011.

In April 2009, the company also stopped production at its Fujian plant due to a dispute with the local tax agency over whether its biodiesel should be subject to a consumption tax.

As a result of the plant disruptions, only the company’s Beijing and Hebei plants are currently in production. The production capacity of the two biodiesel plants amounted to 130,000 tons, or only 28.9% of Gushan's total annual biodiesel production capacity.

The company also announced today that it has completed its acquisition of a 67% stake in Jin Xin, a Chinese company in the copper recycling business, for 24 million shares and a capital contribution of RMB30 million.

"Given the challenging operating environment in Gushan's core biodiesel business, the recent acquisition of a majority stake in Jin Xin, a copper recycler serving the power wire and cable industries, represents an important step in diversifying Gushan's business and revenue streams,” said Jianqui Yu, Chairman of Gushan.

At quarter end, the company had RMB438.8 million (US$65.6 million) in cash with no bank debt.

Looking ahead, the company warned that an expected slow increase in biodiesel demand and uncertainty over the consumption tax issue will continue to negatively affect short term profitability.

Since the announcement, the company’s shares have fallen 6.3% to trade at US$3.70 as of 11:27 am, giving it a market capitalization of roughly US$62 million.

Disclosure: None

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