Gulf Resources (GURE) CEO Xiaobin Liu on Q1 2019 Results - Earnings Call Transcript

May 14, 2019 2:35 PM ETGulf Resources, Inc. (GURE)2 Likes
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Gulf Resources Inc. (NASDAQ:GURE) Q1 2019 Earnings Conference Call May 14, 2019 9:30 AM ET

Executives

Helen Xu - IR, Director

Xiaobin Liu - CEO

Analysts

Mick Ross - Investor

Operator

Good morning, my name is Kael and I will be your conference operator today. At this time, I would like to welcome everyone to the Gulf Resources 2019 First Quarter Earnings Conference Call. All lines will be placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Miss Helen Xu, Director of Investor Relations, you may begin your conference.

Helen Xu

Hi, thank you operator. And sorry for those of you who are late to this call. We are five minutes late due to the line problem. So, good morning to ladies and gentlemen and good evening to all of those of you who's joining us from China.

And we like to welcome all of you to Gulf Resources first quarter 2019 earning conference call. My name is Helen, the IR Director. Our CEO of the company, Mr. Xiaobin Liu will also join this call today. I will be offering translation for his comments and for the company's operating results during the Q&A section as well.

I would like to remind you to all of our listeners that in this call, certain management's statements during this call will contain forward-looking information about Gulf Resources Incorporation and its subsidiaries business and products within the meaning of Rule 175 under the Securities Act of 1933 and Rule 3b-6 under the Securities Exchange Act of 1934 and are subject to the Safe Harbor created by those rules.

Actual results may differ from those discussed today taking into account a number of risk factors, including, but not limited to the general economic and the business condition in China, future product development and the production capabilities, shipments to end customers, market acceptance of new and existing products, additional competition from existing and new competition from the bromine and other oilfields and the power production chemical, change in technology, the ability to make future bromine assets, and the various other factors beyond its control.

All forward-looking statements are expressly qualified in their entirety by this cautionary statement and the risks factors detailed in the company's reports filed with the SEC. Gulf Resources assumes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this call.

Accordingly, our company believes expectation reflecting in those forward-looking statements are reasonable and there can be no assurance of such will prove to be correct.

In addition, any reference to company's future performance represents the management's estimates as of today, the 14th of May, 2019. For those of you unable to listen to the entire call at this time, a replay will be available for 14 days at the company's website. The call is also accessible through the webcast and the link is accessible through our website.

So, please locate our press release issued early for the details. Xiaobin Liu?

Xiaobin Liu

[Foreign Language]

Helen Xu

Okay. I will do the translation for Xiaobin Liu remarks. He say that, "Hello everyone. Thanks for attending Gulf Resources' 2019 first quarter earnings conference call." So, the company had passed 18 months extremely difficult voyage. A sea of problems but without just missing our date that now we are beginning to get our major facility back in operation.

And are very excited about the potentials of our business. Firstly, I will review the financial results summary and to make the call more auditioned, we have received asking questions from many of our investors which we will answer during the second section of this call.

At last Mr. Liu the CEO will provide his comments during the question-and-answer section. So, firstly let's look at our financial results.

On April 2nd, 2019, our industry has received governmental approval to open bromine factory number seven which is a combination of factories number five and number seven and the subsection factory of number one which is now called factory number four.

Each factories had begun operation in April 2019. And during the first quarter of 2019, Gulf Resources commenced trial production at its natural gas in Sichuan Province. And thirdly, despite the lack of operation for most of the past 18 months, a substantial investment in the coming new facilities Gulf Resources ended the quarter of this, cash of approximately $179.7 million which is equivalent to approximately $3.83 per share.

The net-net of cash, which is cash minus all liabilities is approximately $163.8 million or approximately $3.49 per share. Working capital of approximately $176.1 million or equivalent to $3.75 per share, shareholders equity of approximately around $295.1 million or equivalent to $6.29 per share.

So, now let's look at the second section about expected questions and answer from our shareholders. Now let's look at the bromine and crude salt business segment. Question one: Can the company give us an update on the status of the factory you have already opened? Answer: Yes. As we noted in our April 2019 press release, the company have commenced production in two factories.

The first one which we call factory number seven, is a combination of both factory number five and number seven. And the second is a subdivision of factory number one which we call number four; factory number four now. This factory adds the production currently at a present time these factories are doing as testing production.

All of our factories have new environmentally friendly equipment, so we are testing all of the aspects of this equipment to make sure that they are operating correctly with that complex production systems and we have to make sure each stage is functioning appropriately.

Since, we have not operated much of this equipment in the past. We are not yet able to estimate when we will be able to ramp-up commercial production. This process normally takes around three to six months but when we know more we will let our shareholders know.

As a result, the current level of daily production in this factories is not significant. However, we are optimistic that this new modern and environmentally friendly equipment will soon be operating at high levels of efficiency. At the present time, we cannot estimate level of production at end of second quarter.

However, as we ramp-up production, we will communicate the results with our shareholders and investors. However, we like to note that the price of bromine remains extremely high, which is RMB 35,000 per ton and this levels our factory this should be profitable once full production commences.

Question two: Do you expect the annual capacity to be the same as they were before? Answer: We are not yet in a position to estimate the annual capacity of these factories. We have more modern equipment but however it's not possible, if it is possible that the government could place some restrictions on capacity.

We have no knowledge of the potential of such restrictions yet but we wish to be conservative in all matters leading to the government. Question three: What is the status of other factories? Answer: They also received approval for the inside rectification of factory one and factory nine and are now focusing on the outside rectification.

We currently expect to receive approval for these factories by end of second quarter 2019 or early of third quarter 2019 upon receipt of all required approval we will follow the same processes we are using with our existing factories. The remaining three factories, two, eight and 10 are going through a rectification phase.

Most of this rectifications are related to the planning approval and mainly with rights approval. As previously noted, we entered into a contract with a third party to allow the company to move the land near to its factory number 10 for wastewater discharge and have invested $1 million to build an aqueduct to discharge the wastewater.

Question four: Are you still considering potential acquisition? Answer: We are carefully looking at acquisition. There are two different types of acquisition. There are factories that have finished rectification and received approval, there are also factories that have finished rectification but not yet received approval.

The latter factories can be acquired at a more attractive prices. We believe we have an advantage of the cost, we have good relations with the local government and highly prepared with the rectification and approval process. We believe we can use this experience to acquire bromine assets at attractive valuations.

However, at the present time we have not finalized any acquisitions yet. Question five: What is the status of the negotiation associated with land for the cloud spectrum number three, number four, and number 11? They have returned the land from those factories through them mainly on which the land is located.

Now, let's look at a second chemicals segment. Question six: What is the latest status of the new chemical production facility? Answer: We're still waiting for final government approval. The government have already announced the closing of more than 600 chemical factories. However, we are still very confident our factories will receive final approval.

Question seven: What's your latest estimate of when production will begin? Answer: Once we receive full environmental approval, we will begin construction. We continue to expect production will begin before the end of the year 2020.

Question eight: How much have you spent so far on a project? Answer: The company incurred relocation cost control include prepaid land lease and professional fees related to the design of the new chemical factory in the amount of approximately $10.9 million.

Now, let's look at the last business segment; natural gas. Question nine: Trial production started four months ago, could you update us where you stand in this trial production? Answer: Our trial production is on track. We are producing small amount of natural gas to ensure that all of the equipment is functioning correctly.

We are currently very pleased with our trial production. Question 10: What level of production have you achieved today and what level do you expect to achieve by the end of second quarter? Answer: We expect the trial production will continue at this level for additional three to four months, then we will do a complete assessment of all how they are, after which we expect to move to commercial production phase.

Question 11: When do you expect to begin commercial production, what's the expected volume which we expected price? As we enter commercial production, we will carefully increase production and the medium term goal is approximately 20,000 cubic meters per day.

Question 12: What plans and value do you currently have for drilling a second well? How many wells do plan to drill in the coming nine to 10 months? Are you considering speeding up the development after commercial production is achieved and any potential partnership? Answer: We are now applying for certificates to drill more wells.

We have learned a lot over the past several years. We are confident in our increment and our personnel, th3ey are now ready to expand our natural gas business. We are not considering any potential partnerships at this point-in-time yet. So, at last let's look at the other related question.

Question 13: Any update on Chairman's plan to purchase of shares, are you concerned about the in terms of not fulfilling this commitment, as on the shareholders trust? Answer: The Chairman and the Management are focused on this issue. The Chairman applied for permission to take money out of China, so he could buy back the shares to reach the committees.

Unfortunately, the government did not give its approval. The government is being very rigorous in controlling outflows of capital. So, we will continue to work on this issue.

Question 14: What's your plans for developing the bromine potential in Dayng County? Answer: We continue to believe that Dayng County can and will provide a significant opportunity for bromine production. However, at the present time, we are working to get our other factories open. So, once everything is functioning well, we will focus on this opportunity.

Question 15: How easy do you believe it to be to regain your previous bromine customers, what payment terms you plan to have with such customers? Answer: Getting back our previous customers, will be extremely easy; here is a shortage of bromine in China. Customers are anxious for any products that we can get. We will have no problem getting customers back. Our payment terms will be the same as we were before.

Okay operator, can we open up the call for today? Please, ask in for questions now.

Question-and-Answer Session

Operator

[Operator Instructions] We have a question coming from the line of Mick Ross, an Investor. Your line is no open.

Mick Ross

Hi, thank you very much for your comments. First of all, I'd like to say good job with all the adversity and all the tough times with the regulations and the hurricanes and the storm. So, maybe appreciate that.

I wanted to ask whether you ever considered doing buybacks, not that the Chairman would buy our shares but that the company itself would buy shares.

Helen Xu

Okay, hi Mick Ross and will ask about it from Mr. Liu.

[Foreign Language]

Xiaobin Liu

[Foreign Language]

Helen Xu

Hi, Mick Ross. Here is the response from Mr. Liu the CEO, coming CEO. He says that the company and do not have the share buyback plan yet. Because you know the company in China where it's located and if he really need a lot of cost to gather back is implement back in production.

And other test production it has to do still a lot of work to fix by the government requirements. And you order to make the companies together continuing long-term operation result.

Mick Ross

So, just to make sure I understood that. You there hasn’t been any focus on this but this is the possibility, the main focus has been on rebuilding the factories and restoring the company back to the operating condition?

Helen Xu

Yes. The main focus is still here and there is no current playing it on the buyback from company side.

Mick Ross

Okay. And would you guys consider something like this because potentially this could give a lot more value to shareholders, then one more factory here or on less factory?

Helen Xu

Okay.

Mick Ross

I mean, the share there extremely --.

Helen Xu

Okay. I got your points I think.

[Foreign Language]

Xiaobin Liu

[Foreign Language]

Helen Xu

Okay. Hi, Mick Ross. So, we understand that the company's shares are being really undervalued. And we think when the company's operation stuck and the way it have a consistence to long-term bromine production, then we will can figure about it; the shares buyback.

Mick Ross

I see. I mean, I will mention this that well operations are extremely important. By the time operations are back, then the opportunity in the stock price will probably hopefully not be there. In other words, when operations are back, when profits are back, when sales are back. When all that's back, then price of the shares hopefully will rise eventually.

I don’t really care if it's next quarter or next year but eventually it'll get there. But right now there is an opportunity in buying the shares on the cheap and you definitely have enough cash.

Helen Xu

Well, that’s it as we just now. First, explain that there are still a lot of places during the rectification or during the government's requirements which meet some, we have to go.

Mick Ross

Say again, sorry?

Helen Xu

I say as we explained at the beginning of this question, we say that there are still lot of places still needs lot of plans to get back the company in operation because the rectification and maybe governments had some method. New requirements we had to do and the natural gas as well.

Mick Ross

So, as far as I thought we --.

Helen Xu

We thought we could catch that some effect --.

Mick Ross

Sorry, go ahead.

Helen Xu

Okay. In order to get back the companies to sustainable operation not have a belief, they are still needs funds. So, that's why we can we should be conservative and should be careful in spending the fund.

Mick Ross

Absolutely. The care and step-by-step is definitely a strong selling point. Can you just more-or-less tell me how much you I mean I thought we estimates of $60 million to $70 million to get back to get operations back. Is that not the case?

Helen Xu

Okay. During the six year spends in there from now or total?

Mick Ross

I thought it was total but maybe a bit easy on the details.

Helen Xu

Okay.

Mick Ross

Could you tell me if I remember correctly, there is around a $169 million left in cash?

Helen Xu

Okay.

[Foreign Language]

Xiaobin Liu

[Foreign Language]

Helen Xu

Okay.

Xiaobin Liu

[Foreign Language]

Helen Xu

Okay. Hi Mick Ross, I do not have that cash which is $179 million and a 79.7 --.

Mick Ross

Seventy nine, okay. And -- sorry, go ahead.

Helen Xu

Yes. And Mr. Liu just now did explain that there are two major path which needs cash too. Firstly, we want to gather all of our bromine factories, chemical factories and crude salt and backing operation; all of these. And especially now we are as we said we are at time for the natural gas certificates to clear for more wells.

And to have a corporate with the governments. So, once we get that, we don’t have a new budget before later; how much we have to spend on natural gas or well.

Mick Ross

Okay. So, could you break it down for what you estimate the cost being for the crude salt, bromine, all the factories reopening, recertifying from this point until getting it all back to operations; that's question number one.

And question number two is the natural gas part of it; how much you would have to spend on that part.

Helen Xu

[Foreign Language]

Xiaobin Liu

[Foreign Language]

Helen Xu

Okay. Hi, Mick Ross. I think all these packets we have disclosed previously in our queue or press release is because we have to go back check it and if you all need it I can e-mail you. You can send me your e-mail address, I'll forward all those information to you. Okay?

Mick Ross

Okay. So, you'll send me that information and then we'll follow-up from there.

Helen Xu

Okay, thank you. Yes, you'll e-mail me, I'll get your e-mail checked.

Mick Ross

Okay. What's the e-mail address just so I have it on record?

Helen Xu

You may check on my press release. It's beishengrong@vip.163.com. "B-E-I-S-H-E-N-G-R-O-N-G."

Mick Ross

Okay. I'll get the exact e-mail from the protocol of the conversation. I think that concludes my questions for today.

Helen Xu

Yes. Okay, thank you. Have a good day.

Mick Ross

Thank you, very much.

Xiaobin Liu

Thank you.

Helen Xu

Welcome. Hi, operator. Is there any other question?

Operator

[Operator Instructions] There are no question at this time, please continue.

End of Q&A

Helen Xu

[Foreign Language]

Xiaobin Liu

[Foreign Language]

Helen Xu

Okay, hi operator. If there is no more question, can we close the call for today?

Operator

Alright. This concludes today's conference call, you may now disconnect.

Helen Xu

Okay, thank you.

Operator

You're welcome, have a great day there.

Xiaobin Liu

Thank you, there.

Helen Xu

Okay, thank you.

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