Sinocoking Coal & Coke (NASDAQ:SCOK)

Fiscal 2012 Third Quarter

• Revenue decreased by 15.4% to approximately $16.8 million from approximately $19.9 million.
  • Coal and coke products accounted for 48.2% and 51.8% of revenue, respectively, as compared to 55.2% and 44.8%, respectively in the same periods of last year.
  • Volume of coal products sold decreased by 42.5%, while volume of coke products sold increased by 2.7% from a year ago.
• Gross margin decreased to 15.7%, as compared to 36.4%.
• Income from operations decreased to $1.9 million from $6.3 million.
• Net income, including the foreign currency transaction adjustment, was $2.1 million or $0.07 per diluted share, as compared to $19.8 million or $0.81 per diluted share.

Discussing mining operations for the 2012 three and nine month periods, SinoCoking's Chairman and CEO, Mr. Jianhua Lv noted, "Coal supplies in Henan Province remained limited as were production activities for all producers due to the ongoing mining moratorium. Since the provincial-wide mining moratorium imposed in June 2010, our Hongchang mine has been operating at approximately 50% capacity, while operations at our other three coal mines (acquired in August 2011) were halted as these mines were waiting to receive clearance from local authorities to commence operations. As required by provincial guidelines, Hongchang mine also halted operations in early September 2011 to complete certain mine engineering work and safety upgrades, which were completed by the end of that month. However, due to an accident inNovember 2011 at one of the mines owned by Yima Coal Group, a state-owned enterprise and one of the six provincial level consolidators in Henan, all mid-scale mines in Henan province, including our four mines, were ordered to shut down their operations and undergo additional safety checks and inspections. Thus far, local authorities have not issued clearances to mines to resume operations and the timing as to when such clearances will be issued remains unknown."

He continued, "Due to the inadequate raw coal supply in Henan province, and due to the halt of operations at our Hongchang mine, as of September 2011 we have met our coal requirements largely by: (a) using the raw coal and washed coal we had accumulated over the last few quarters in anticipation of the commencement of operations of new coking facility which is still under construction and (b) purchasing raw coal from other provinces, such as Gansu, Shanxi and Inner Mongolia. As a result of these purchases, for the three and nine month periods ended March 31, 2012, our cost of raw coal increased and our margins decreased. We don't expect a return to historical margins until the mining moratorium for mid-size coal producers in Henan province is lifted."

Mr. Lv added, "In the meantime, due to our vertically integrated business model, we have been able to continue to optimize our product mix and take advantage of market conditions for coal and coke products. Specifically, as compared to the 2011 third quarter and nine month periods:

GeoTeam® Note: Second quarter 2011 vs. 2010 Adjusted EPS was $0.07 vs. $0.22

PINGDINGSHAN, China – December 23, 2011 - SinoCoking Coal and Coke Chemical Industries, Inc. (NASDAQ: SCOK) (the "Company" or "SinoCoking"), a vertically-integrated coal and coke processor, today provided a business update relating to the construction of its new coking facility and coal mine production.

Mining Activities Due to an accident at one of the mines owned by Yima Coal Group, a state-owned enterprise and one of the six provincial level consolidators in Henan, all mid-scale mines are required to undergo mandatory safety checks and inspections by relevant authorities before receiving clearance to resume coal mining operations. This requirement applies to all SinoCoking mines, including Hongchang and Xingsheng coal mines which were previously awaiting governmental confirmation to resume operations. At present, the Company expects to receive clearance for its four coal mines in spring 2012.

SinoCoking’s Chairman and CEO, Jianhua Lv noted, “We are disappointed that factors beyond our control caused delays in the completion of the new coking facility and the resumption of coal mining operations at full capacity. We have a dedicated team of construction workers, technicians and engineers who are working around the clock to expedite the construction of the coking facility and we will continue to provide investors with updates until construction is completed. Additionally, we are working closely with authorities in hopes that the permits and clearance notices for our four mines can be expedited so that we can resume coal mining operations at full capacity as soon as possible.”

First Quarter 2012 Results

• Revenue increased by 70.3% to $22,151,334 from $13,008,462, due to an increase in all product categories in terms of both sales volumes and selling prices except for the slight decrease in the raw coal sales volume.
• Net income, including the change in fair value of warrants, was $8,308,713, or $0.39 per diluted share as compared to $15,481,998, or $0.73 per diluted share(1).
• Excluding the change of fair value of warrants, net income increased by 106.4% to $5,288,991, or $0.25 per diluted share as compared to $2,562,323, or $0.12 per diluted share

Dear Shareholders:

Fourth Quarter and Full Year 2011 Results

GeoTeam® Note: 2011 vs. 2010 Adjusted EPS

Full Year: $0.80 vs. $0.93

Fourth Quarter: $0.23 vs. $(0.02)

From Press Release:

inoCoking's Chairman and CEO, Mr. Jianhua LV noted, "In fiscal 2011, we continued to try to optimize our product mix to take advantage of favorable market opportunities. Our revenue from the sale of coke and coal products (other than raw coal) increased in response to market demands. However, raw coal sales volume declined due to the continuing supply shortage created by the provincial-wide mining moratorium in connection with the mine consolidation program. The coal supply situation is reflected in our product mix, with 53% of fiscal 2011 total revenue coming from coke products, as compared to 49% in fiscal 2010, and 47% from coal products in fiscal 2011 as compared to 51% in fiscal 2010.

"The market drivers that have been in effect for the past two years should continue to have a direct impact on our operations. These drivers are:

• The continuing impact of mine consolidation and mining moratorium in Henan on the availability of metallurgical coal in the region, and on the prices of coal and coke products;
• The acceleration of government-mandated closure of small-sized and less-efficient coking facilities; and
• The central government's continuing efforts to provide economic stimulus to maintain momentum and growth in domestic consumption."
  

He went on to say, "Our first initiative, the construction of a new state-of-the-art $60 million coking facility is scheduled to be completed by December 2011, with production to begin shortly thereafter. This new facility is adjacent to our current coking plant in Pingdingshan, and as of the end of August we completed construction of the shallow foundation, an underground workshop and the furnace and chimney rack, and are in the process of building furnaces and installing equipment and machineries. When completed, the new plant should have coke-producing capacity of up to 900,000 metric tons per year, as well as the ability to generate power for its own use and/or sale, and distill chemicals such as crude benzol, sulfur and ammonium sulfate from byproducts of the coking process. We also intend to produce purified coal gas at this plant to sell as a fuel source to local residents through the state-owned gas grid."

Mr. Lv added, "Additionally, we completed our acquisitions of 60% of the operators of Shuangrui and Xingsheng coal mines and 100% of the operator of Shunli coal mine in May 2011. Since then, Xingsheng coal mine, as well as our Hongchang coal mine, has received clearance to resume coal production, and we are currently preparing Shuangrui and Shunli coal mines to do the same."

Mr. Sam Wu, SinoCoking's Chief Financial Officer noted, "Historically, funding for our business activities has been mainly provided by cash flow from operations and short-term bank loan financing. However, our acquisitions and new coking plant have and are expected to require additional capital resources. We have access to an aggregate of approximately $55.7 million (RMB 360 million) under a medium-term loan, and the credit to issue approximately $14 million bank guaranteed notes under our Hongli and Hongchang affiliates, with the term of 50% cash deposit of the face value in advance. Net cash used in investing activities for fiscal 2011 was $65.2 million, including approximately $34.9 million in connection with acquisitions, approximately $3.6 million for site expansion of our new coking plant, and approximately $15.5 million towards equipment and machinery purchases for the new coking plant."

Concluding, Mr. Lv noted, "We remain committed to implement our ambitious business plan and continue to profitably grow our Company. We look forward to report our progress in the upcoming months."

PINGDINGSHAN, China, May 19, 2011 /PRNewswire-Asia/ -- SinoCoking Coal and Coke Chemical Industries, Inc. (Nasdaq:SCOK) (the "Company" or "SinoCoking"), a vertically-integrated coal and coke processor, today announced that effective May 17, 2011, the Audit Committee of its Board of Directors appointed Friedman LLP as the Company's new independent auditor, replacing the firm of Frazer Frost LLP.

Friedman LLP will audit the Company's consolidated balance sheet and the related consolidated statements of operations, shareholders' equity and comprehensive income, and cash flows for the year ending June 30, 2011.

The decision to change auditors was not the result of any disagreement between the Company and Frazer Frost LLP on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure.

Third Quarter Results:

• Revenue increased by 30.3% to $19,872,461 from $15,247,494 due to higher prices of coke and coal products largely driven by the coal supply shortage, as well as increased coal tar and washed coal sales, although sales volumes of coke and raw coal decreased.
• Revenue from the sale of coal products increased by 66.8% to $11.1 million while total metric tons sold decreased by 3.7%.
• Revenue from the sale of coke products increased by 2.7% to $8.9 million while total metric tons sold decreased by 4.9%.
• Average selling prices for raw coal, coal tar and coke increased by 20.9%, 10.91% and 7.76%, respectively.
• Gross margin decreased to 36.4% as compared to 37.0%.
• Pre-tax income increased to $18,360,914, as compared to a loss of $35,592,355.
• Including the change in fair value of warrants, net income was $17,138,441, or $0.81 per diluted share, as compared to a net loss of $36,876,262, or $2.39 per share.
• Excluding the change in fair value of warrants, net income increased to $4,947,206, or $0.23 per diluted share as compared to $2,993,400, or $0.17 per diluted share

SinoCoking's Chairman and CEO, Mr. Jianhua Lv noted, "Our operating results for the third quarter were again impacted by the government's plan to consolidate small- and mid-sized coal mines and the related temporary moratorium of mining operations.   As this has been a massive undertaking and the deadline to complete the consolidation has been extended to the end of 2011, we believe that we, along with other consolidators, now have the time needed to work through governmental administrative procedures."

PINGDINGSHAN, China – March 31, 2011 - SinoCoking Coal and Coke Chemical Industries, Inc., today announced that the March 31, 2011 deadline initially set by the Henan Provincial Government to complete the consolidation of small- and mid-sized coal mines in that province has been extended to the end of 2011.  The new deadline gives consolidators, including the Company, the time needed to work through governmental administrative procedures and complete the consolidation process.

By way of background, a plan was initiated in late 2009 by the Henan Provincial Government to consolidate small- and mid-sized coal mines with annual production capacities of 150,000 to 300,000 metric tons.  The objectives of this consolidation are to upgrade existing operations, improve employee working conditions, upgrade safety standards, increase output, and protect the environment.

Rodman and Renshaw on SCOK                                                  2/22/2011

F2Q11 Review  

SinoCoking Coal and Coke Chemical Industries (“SinoCoking,” Ticker: SCOK, Market Perform) reported its F2Q11 financial results. Total revenue for the quarter was $16.7million, up 13.4% YoY, but below our estimate of $18.4 million. Operating income came in at $6.3 million, up 10.7% YoY, beating our estimate of $3.3 million. Non-GAAP net income for the quarter (excluding change in fair value of warrants) was $4.5 million, or $0.21 per diluted share, beating our respective estimates of $2.1 million and $0.10. As of December 31, 2010, the company had $32.6 million of cash and restricted cash.

F2Q11 Financial and Operation Highlights 

During the quarter, SinoCoking booked $9.5 million of revenue from its coke products, slightly higher than our expectation of $9.1 million. The performance of the coal products segment was a disappointment however. With an actual revenue figure of $7.2 million, it was clearly below our estimate of $9.3 million. The company cited a relative lack of coal supply from Zhengzhou Coal Group (due to overall industry coal shortage) as a major reason for this shortfall. That being said, the overall top line miss was more than compensated by the higher than expected gross profit of $7.1 million, above our estimate of $5.1 million. Actual gross margin, as a result, reached 42.5%, well above our expectation of 27.9%. Operating expenses also came in lower than expected. Selling expenses during the quarter were merely $71,447, less than half of our estimate of $0.2 million. G&A expenses came in at $0.7 million, also below our previous projection of $1.7 million. These were the major contributing factors to the much better than expected bottom line results. 

SinoCoking indicated that the construction of its new coking facility is moving ahead and, when completed, can bring the company’s total annual coking capacity to 1.1 million MT. It also announced that its cost estimate for the construction has been reduced by $10 million to $60 million. 

According to the company, on December 30, 2010, SinoCoking set up Henan Zhonghong Energy Investment Co., Ltd. (“Zhonghong”), a limited liability company for the purpose of engaging in coal mine acquisitions pursuant to a planned joint-venture with Henan Province Coal Seam Gas Development and Utilization Co. (“Henan Coal Seam Gas”), a state-owned enterprise. We believe the forming of Zhonghong was in anticipation of the government’s consolidation plan which requires smaller mining companies to reach one-million metric tons (MT) of aggregate annual production capacity threshold by the end of March 2011 in order to continue operation. In our opinion, through Zhonghong, SinoCoking could form joint-ventures with the larger state-owned enterprise that could bring in existing capacity well above the one-million MT threshold, thus enabling SinoCoking to satisfy the government consolidation requirement. That being said, the company, in its earnings press release and conference call, indicated that it planned to complete various coal mine acquisitions so it would reach the one-million MT capacity requirement on its own before March 31. We certainly hope this will become a reality.


Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

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GeoTeam® note: EPS for the the December quarter was $0.21 after adding back change in fair value of warrants.(add back $0.54).

General. With coal production throughout Henan Province significantly affected by the ongoing consolidation initiative throughout the three and six months ended December 31, 2010, coal supply remained tight during these periods. Since the shutdown of mining operations in late June 2010 in connection with an industry-wide safety inspection prompted by the consolidation initiative, some mines (including our Hongchang Mines) were allowed to resume operations in late 2010, albeit at only 50% capacity. Coupled with the seasonal spike in heating demand, however, such limited resumption of coal production did not alleviate the coal supply situation, which we believe will continue until consolidation ends and coal outputs can resume at pre-consolidation levels.

Based on currently available information from the provincial government, the consolidation initiative that began in late 2009 is expected to conclude by the end of March 2011. Through Zhonghong Investment, we are currently exploring an opportunity to participate in the consolidation initiative under a joint-venture with Henan Coal Seam Gas and may ultimately carry out and complete our previously announced acquisitions under the framework of this joint-venture in lieu of proceeding on our own. As of the date of this report, however, no such decision has been made and the joint-venture has not been finalized.

Rodman & Renshaw on SCOK

F1Q11 results update 

SinoCoking Coal and Coke Chemical Industries (“SinoCoking”, Ticker: SCOK, Market Perform) announced its fiscal 1Q11 results that missed our revenue estimate but beat our bottom line projection. Revenue for the quarter was $13.0 million, below our estimate of $14.4 million. Gross profit was $4.6 million, well above our estimate of $2.2 million. Adjusted net income was $2.6 million, above our estimate of $0.7 million. This translates to non-GAAP EPS of $0.12 for the quarter, exceeding our expectation of $0.03. At the end of the quarter, SinoCoking had $6.2 million of cash and $27.5 million of restricted cash.

Operation update

The above-expectation bottom line performance was due in large part to the almost across-the-board increase in coal product prices during the quarter. A combination of factors that included an expected cold winter, the ongoing government coal industry consolidation that limited coal production output, and the fact that China has been entering a more inflationary environment in general, contributed to the coal price increase. We believe the trend of high coal product prices will continue in the foreseeable future. The company also increased its coke production during the quarter to meet increasing demand. The construction of its new 900K-capacity coking facility is ongoing and the target completion date is in March 2011. When completed, the new plant could generate $100-$110 million of annual revenue and $20-$25 million of net income. In July, SinoCoking announced two coal mine acquisitions with a combined annual production capacity of 300,000 MT. According to management, the company is in active discussions with 20 potential mining company targets. It currently plans to complete four more acquisitions before the end of March, and nine in total by the end of F2011. SinoCoking announced in September that it entered into a long term agreement with state-owned Zhengyun Coal to purchase up to 3 million MT of raw and washed coal per year. The agreement not only could secure sufficient coal for SinoCoking’s coking production, but also allowed the company to generate trading revenue using the purchased coal. We thus expect SinoCoking will start to generate trading revenue as early as in F2Q11.

Adjusting estimates and maintaining Market Perform rating 

In light of the quarterly report, we are adjusting our financial projections for SinoCoking. We now expect the company will report FY2011 revenue of $108.4 million, up 83.6% from FY2010, and gross profit of $35.1 million in FY2011, up 56.4% from FY2010. We estimate non-GAAP net income will reach $16.0 million in FY2011, translating to non-GAAP EPS of $0.75. We are maintaining our Market Perform rating on the shares of SinoCoking. We believe the company enjoys a very supportive market environment accentuated by significant increase in coal product prices, however we also acknowledge the near term uncertainty with regard to its coal mine moratorium and acquisition progress. We expect much greater clarity on the company’s business future by the end of next March as it represents the deadline for the company to reach the government mandate of 1 million-MT annual coal production capacity threshold. 

Notice Regarding Privacy and Confidentiality:

This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

Rodman & Renshaw, LLC may make a market in the securities being discussed.

Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

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• SinoCoking's revenues decreased by $5,120,999 or 28.25%, in three months period ended September 30, 2010, with total revenues of $13,008,462 as compared to $18,129,461 for the same period ended September 30, 2009.

• Adjusted net income for the three-month period ended September 30, 2010 was $2.6 million compared with $6.5 million in the same period in 2009.

• Adjusted diluted EPS were $0.12 for the three months ended September 30, 2010, and $0.50 for the three months ended September 30, 2009.

"During the first quarter of fiscal 2011, we saw an increase in coke demand as well as in prices for almost all product categories", said Mr. Jianhua Lv, Chairman and Chief Executive Officer of SinoCoking. "We continue to feel the negative effects of the current provincial mining moratorium on our business but are focusing our efforts on areas of the business we can control. We are encouraged by the progress we are making on both the construction of our new 900,000 metric ton coking facility our previously announced acquisitions. Furthermore, we continue to see a healthy overall market demand for coal, coke, and related products across China, and are confident SinoCoking is in a very strong position to take advantage of these market conditions moving forward".

Starting in the second quarter of fiscal 2010, the Henan provincial government moved forward to consolidate all small-and-mid-sized coal mines with annual production capacity between 150,000 metric tons and 300,000 metric tons, and a moratorium on mining is imposed on these mines until such time when the consolidation process is completed. While the government's intention to improve mining efficiency and reduce accidents through consolidation is laudable, it has also significantly reduced available coal supply and drove up coal prices.

As the only non-state-owned coal company in Pindingshan to be granted consolidator status, SinoCoking remains in active discussions with 20 non-state-owned mining companies potentially representing 3 million metric tons of combined annual capacity. The Company presently intends to complete 4 acquisitions before March 31, 2011, and 9 in total by the end of fiscal 2011. Including the two acquisitions announced in July with a combined annual production capacity of 300,000 metric tons, SinoCoking will potentially have 550,000 metric tons of total mining capacity. The Company is making its best effort to reach the aggregated one million metric ton annual capacity threshold.

Fiscal Year 2011 Guidance:

Management expects the Company to generate $114.9 million in revenues and $16.8 million of net income in fiscal 2011, an increase of 94.8% and 12.8%, respectively, excluding the effect of changes in the fair market value of warrants.

This guidance assumes the new 900,000 metric ton coking facility to commence production in June 2011 and average 60% capacity utilization in the fourth quarter of fiscal 2011. It also assumes the Company closes additional mining acquisitions, adding at least 600,000 tons of annual capacity, and that all of its mines are allowed to resume full production by the end of March 2011. Market price assumptions are based upon current prices and are subject to change. There can be no guarantees that this pricing will be accurate and any variances will cause deviations in guidance.

    Fiscal Year 2011 Cash Flow Projections

    Cash and restricted cash: 6/30/10      $ 40.3 million
    Cap ex                                 $ 56.8 million
    Acquisitions                           $ 12.8 million
    Cash flows from operations             $ 17.0 million
    Bank lines of credit                   $ 42 million plus $29 million note

Rodman & renshaw on Sinocoking Coal & Coke

F4Q10 results update SinoCoking Coal and Coke Chemical Industries (“SinoCoking”, Ticker: SCOK, Market Perform) announced its fiscal 4Q10 results earlier today. Revenue was $10.9 million, somewhat higher than the company’s guidance of $10 million and our estimate of $10.2 million. Gross profit was $1.7 million, below our estimate of $3.8 million, mostly due to lower coke prices and higher costs for coal purchased from third parties. Adjusted net income was $0.6 million, well below the company’s late-August guidance of $2 million and our estimate of $2.1 million. This also translates to non-GAAP EPS of $0.03 for the quarter, below our expectation of $0.09. 

New FY2011 guidance SinoCoking also provided guidance for its fiscal year 2011. Management now expects the company will generate $114.9 million of revenue and $16.8 million of pro forma net income for the year, assuming the new 900,000-metric ton coking facility will commence production in June 2011 and average 60% capacity utilization in F4Q11. It also assumes the company would complete additional mining operations, adding at least 600,000 tons of annual capacity, and all the mines could resume full production by March 31, 2011. 

Operation update With regard to the moratorium on the production of its Baofeng mine, SinoCoking now indicates that it was shut down, together with all other mines with annual production capacities between 150,000 and 300,000 metric tons, due to Henan provincial authorities’ consolidation plan. Under the consolidation plan, mining companies need to reach one million metric tons of aggregate annual production capacity thresholds by the end of March 2011 in order to resume operations. Management has expressed optimism regarding its prospect of reaching such a goal. SinoCoking also announced in September that it signed a long term agreement with Zhenyun Coal Distribution Co. to purchase 3 million metric tons of raw and washed coal per year. The company can utilize this purchased coal for its processing, coking, and trading operations. 

Adjusting estimates and maintaining Market Perform rating In light of the new guidance, we are adjusting our financial projections for SinoCoking. We now expect the company will report FY2011 revenue of $126.3 million, up 113.9% from FY2010. Gross profit, in our model, will reach $33.8 in FY2011, up 50.7% from FY2010. We also estimate non-GAAP net income will reach $16.4 million, or $0.74 per diluted share in FY2011. We are maintaining our Market Perform rating on the shares of SinoCoking. While we believe the company remains a growth story when considering its coal mine acquisition strategy and its new coking capacity expansion, we acknowledge the near term uncertainty with regard to its coal mine moratorium and acquisitions. 

Risks include 1) the uncertainty regarding whether or when the current moratorium will be lifted; 2) dependence on cyclical coal and coke markets; 3) operations dependent on ability to continue acquiring or developing suitable coal mines; 4) uncertainty of capital availability; 5) operation risks inherent to coal mining; 6) safety incident risks; 7) extensive government regulation; and 8) customer concentration risks.

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This material has been prepared for informational purposes only. While it is based on information generally available to the public from sources we believe to be reliable, no representation is made that the subject information is accurate or complete. Past performance is not a guarantee nor does it necessarily serve as an indicator of future results. Price and availability are subject to change without notice. Additional information is available upon request.

Since Rodman & Renshaw, LLC is not a tax advisor, transactions requiring tax consideration should be reviewed carefully with your tax advisor. Similarly, Rodman & Renshaw, LLC is not a law firm and provides no legal opinions or legal advice.

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Rodman & Renshaw, LLC and/or its officers or employees may have positions in any of the securities of this (these) issuer(s).

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Fiscal 2010 Results of Operations

• SinoCoking’s revenues increased by $7,631,498 or 14.85%, in fiscal 2010, with total revenues of $59,027,490 as compared to fiscal 2009 with total revenues of $51,395,992.

These increases were caused primarily by a strong increase in coal product sales revenue, offset by a moderate decrease in revenue from coke sales. Starting from the second quarter of fiscal 2010, the Henan province government started its consolidating process for all local private coal mines which included the temporary closure of coal mines so that safety inspections could take place. Such closures resulted in a decrease in the available coal supply in the market and prices for coal increased accordingly. In response, the Company started to increase its coal products sales in order to maintain its profitability. In the second half of the fourth quarter of fiscal 2010, the adverse impact of the Chinese government’s policy of slowing down the domestic economy began affecting the demand for our coke products, and thus the Company’s revenue from coke sales decreased. In the fiscal 2010, SinoCoking increased its coal product revenue by 52.63% as compared to the same period ending June 30, 2009. In the second half of the calendar year 2009, the market demand for coke products rebounded, and the market prices for coke also began to recover, peaking at $230 per ton in December 2009. Shortly after the end of 2009, local market prices for coke products began to moderate, fluctuating between $200 to $230 per ton. In response to these trends, in the first calendar quarter in 2010, the Company resumed coke production and sales, increasing production significantly though not to the levels achieved in the same period in 2009. However, in the fourth quarter of fiscal 2010, weak demand for coke affected the Company’s coke sales, and thus the contribution of coke sales to the Company’s total revenues was less than in fiscal 2009. However, the coke market, after June 30, 2010, subsequently recovered due to the decreased supply of coal material, and therefore both the demand and the price of coke increased. Management anticipates that this trend will continue, and the coke market will recover in the near future.

• Excluding non-cash expenses, adjusted net income of the fiscal 2010 and 2009 were approximately $15 million and $17 million, respectively, and resulted in $0.95 and $1.29 basic earnings per share, and $0.94 and $1.29 diluted earnings per share for the fiscal 2010 and 2009, respectively.

The decrease of our adjusted net income for fiscal 2010, as compared with the fiscal 2009, was primarily because of the approximately $1.4 million decrease in gross profit, $1.5 million expense related to reverse merger and equity financing expense incurred after the Company went to public, and a $1 million increase of the provision for income tax as stated above.

In the quarter ending December 31, 2009, the Company obtained a letter of intent from the Pingdingshan Rural Cooperative Bank, confirming the bank’s intention to loan the Company up to 300 million RMB (approximately USD $42 million), unsecured at an annual interest rate of 5.2% to finance the construction of its new coking facility. This letter of intent expired on June 30, 2010. In the first quarter of 2010, SinoCoking raised $44 million in gross proceeds from the sale of common stock and warrants.

SinoCoking’s management presently anticipates that its recent equity issuance, its access to credit, and cash flow from operations, together will provide sufficient capital resources to pursue and complete the construction of its new coking facility and proposed mine acquisitions. We intend to utilize existing cash, cash flow from operations and bank loans, to finance the cash portion of the consideration to be paid for our acquisitions. We may consider the issuance of additional equity securities in order to finance our mine acquisitions.

Courtesy of Rodman & Renshaw; More Color regarding the GeoTeam's breaking alert on SCOK @ $13.00 yesterday afternoon: (The stock closed the day at $11.62)

SinoCoking Coal and Coke Chemical Industries announced yesterday an operation ban on its coal mining operations by the government. This was due to couple mining incidents involving some privately-held mining companies in Pingdingshan, the city in which SincoCoking is also located.

Based on the information available to us, we are certain that the incidents did not involve SinoCoking. However, all coal mining operations in Pingdingshan have been shut down, including 100% of SinoCoking’s OFFICIAL mining activities. It is now anybody’s guess when the government will lift the ban. Based on our experience and estimate, we do not expect the ban will be lifted in any immediate future, such as a week or two. In fact, we will not be surprised if the ban lasts for more than 2-3 quarters. We also do not anticipate the company will generate any coal mining revenue during the entire period of the ban.

That being said, based on our information, not all the company’s UNOFFICIAL coal mining activities have stopped. SinoCoking has maintained and will continue to maintain some of its mining activities until it is told otherwise. While these unofficial mining operations cannot be reflected in revenue, we believe they could be used to support the company’s coking production, which is still ongoing. Regardless, we anticipate SinoCoking’s FY11 financial performance will fall dramatically short of our previous estimates.

Maintain Market Perform rating At this time, we choose to wait for greater details and clearer guidance from the company and the government before we can update our financial model. We are maintaining our Market Perform rating on the shares of SinoCoking.

Major risks include 1) dependence on cyclical coal and coke markets; 2) operations dependent on ability to continue acquiring or developing suitable coal mines; 3) uncertainty of capital availability; 4) operation risks inherent to coal mining; 5) safety incident risks; 6) extensive government regulation; and 7) customer concentration risks.

On August 10, 2010 Hongli Coal & Coke Co., Ltd. entered into two Equity Interests Transfer Agreements, both dated as of August 10, 2010:

• The first Agreement is entered into with Dongping Wu, Xiaoling Zhao and Dianqing Li who collectively own 100% of the equity interests of Baofeng Shuangrui Coal Co., Ltd. (“Shuangrui”), to acquire 60% of Shuangrui equity interests held by them (the “Shuangrui Equity Interests”).
  
• The second Agreement is entered into with Mingxun Du and Xingling Li who collectively own 100% of the equity interests of Baofeng Xingsheng Coal Co., Ltd. (“Xingsheng”), to acquire 60% of Xingsheng equity interests held by them (the “Xingsheng Equity Interests”).

Hongli operates the Registrant’s China-based coal and coke producing business, and is controlled by the Registrant through a series of contractual arrangements between Hongli and Pingdingshan Hongyuan Energy Science and Technology Development Co., Ltd., a wholly-owned subsidiary of the Registrant.

Some material terms of the Agreement for the Shuangrui Equity Interests are as follows:

   1. Hongli shall acquire the Shuangrui Equity Interests for consideration of 42 million Renminbi (“RMB”)

   2. If the total coal output of Shuangrui for the twelve-month period from the completion of the Modification Registration is less than 150,000 metric tons, then Hongli shall be entitled to an additional percentage of Shuangrui equity interests held by the Shuangrui Owners equal to 16.67% of the Shuangrui Equity Interests, or liquidated damages from the Shuangrui Owners equal to 16.67% of the Consideration if such equity interests cannot be timely transferred to Hongli.

   3. If the total coal reserves of Shuangrui Coal Mine as of the Effective Date is less than 2 million metric tons, as determined in accordance with the standards of the Securities Act Industry Guide 7, then Hongli shall be entitled to an additional percentage of Shuangrui equity interests held by the Shuangrui Owners equal to 16.67% of the Shuangrui Equity Interests, or liquidated damages from the Shuangrui Owners equal to 20% of the Consideration if such equity interests cannot be timely transferred to Hongli. If the total reserves of Shuangrui Coal Mine is less than 400,000 metric tons, then Hongli may cancel the Agreement and be reimbursed the full amount of Consideration paid through such time of cancellation.

The material terms of the Agreement with the Xingsheng Owners for the Xingsheng Equity Interests are identical to those of the Agreement for the Shuangrui Equity Interests as described above.

Sinocoking Coal shares have continued their strong momentum into this morning's trading session. Recall, we added the stock to our data base on February 10, 2009 at $4.30.  At near $20.00, SCOK now trades a P/E of 15 on June ending 2010 forecasted implied EPS of $1.26.  Investors should be aware that as SCOK enters 2011, it may require financing to achieve its aggressive expansion plans to expand capacity.

Now, i am curious if GeoBargains LLEN and SGZH will follow suit.

A short-term conclusion on SGZH is a little tough since the  company has little  IR and had, what appears to be, some temporary issues that negatively impacted its 2009 third quarter results. Still, the company trades at a P/E of 5 and a low price to book multiple.

LLEN trades at a P/E of 9 on April ending 2010 EPS guidance of $0.94  and is well into its expansion strategy.

^a Adjusted for a 25% tax rate.

Other  Chinese coal companies  include PUDA, YZC, CCOZF.

Share Update:

Post Merger Share Calculation:

     405,709: Pre reverse merger outstanding shares (After Reverse Split)
13,117,952: Shares of Common Stock issued in connection with merger.
 1,180,892: Private placement financing shares
    590,446: Warrant shares with an exercise price of $12.00

Updated GeoTeam® best effort calculation of total post reverse merger outstanding shares assuming full conversions: 15,294,999

2009 Proforma EPS: $1.11(June Fiscal Yr.)
Trailing 12 months EPS: $1.34
2010 Proforma EPS estimate: $1.26

Became public via a reverse merger on February 5th, 2010.

Company Details

• SinoCoking currently holds mining rights for approximately 2.5 million tons of coal from mines located in central China.
• SinoCoking began producing metallurgical coke in 2002, and since then has expanded its production to become an important supplier to regional steel producers in central China.
• Coke, which is an essential ingredient in steel-making, is manufactured in SinoCoking`s on-site facilities by heating selected coal with certain thermal and chemical properties at extremely high temperatures in an oxygen-free environment.
• For the year ending June 30, 2009, SinoCoking produced and sold 154,631 tons of coke, 55,360 tons of washed coal, and 72,923 tons of raw coal, and generated $51 million in revenue from sales consisting primarily of these products.
• During its 2009 fiscal year, SinoCoking had audited net income of approximately $17 million on a GAAP basis."
• Currently, the demand from our customers significantly exceeds our current production capacity, and we think that demand from Chinese industrial purchasers will continue to increase.

Post Merger Share Calculation:

• 405,709:Pre reverse merger outstanding shares (After Reverse Split)
• 13,117,952:Shares of Common Stock issued in connection  with merger. 

GeoTeam® best effort calculation of total post reverse merger outstanding shares assuming full conversions:  13,523,661

2009 Proforma EPS: $1.26

Note: The reverse merger agreement allows for The issuance of shares in connection with a financing which may consist of debt or equity or a combination of both, involving the issuance of the Company’s securities for $50 million to $75 million in gross proceeds.