China-based Qiao Xing Universal Resources (XING, Financial) is in the process of divesting it telecommunication equipment business that otherwise known as Qiao Xiao Mobile Communication (QXM, Financial). Eventually, XING will become a mining company and will probably be evaluated as such.
Currently, the company reports two segments of business: telecommunication business and mining. In 3Q10, the former had $42.8 million in revenue but lost $7.9 million. The later had $12 million in revenue and yet claimed a profit of $3.4 million.
Two of the three mining business were acquired in December 2010, so the 3Q2010 result only incorporated the 100% residual returns from Chifeng HaoZhou Mining Co., a business the XING acquired from its Chairman Mr. Wu Rui Lin in April 2009.
According to this SEC filing, the price tag for the interest was $110 million. The company paid $30 million in cash and issued 40 million restricted shares of the company’s common stocks valued at $2.00 each. Given the fact that the company has 90 million shares outstanding as of September 30, 2010, a year and half after the acquisition, the dilution was not something one can take it easily.
The question is whether the acquisition makes economical sense. Can the property pays for price tag?
From the same SEC filing, this is the what the company purchased:
Since the purchase of the mine, the company has release a number of quarterly results and one annual report. Here is the result of the mine in 2009, according to this SEC filing:
And for the first half of 2010, according to this SEC filing:
And for the third quarter of 2010, according to this SEC filing:
As least the first acquisition is working out, generating positive earnings and cash.
The management thinks there is $850 million worth of Molybdenum in the ground. If their estimate is close to the reality, it appears the first acquisition is working out.
I am scratching my head trying to figure out why the company is trading below its net-net value.
Currently, the company reports two segments of business: telecommunication business and mining. In 3Q10, the former had $42.8 million in revenue but lost $7.9 million. The later had $12 million in revenue and yet claimed a profit of $3.4 million.
Two of the three mining business were acquired in December 2010, so the 3Q2010 result only incorporated the 100% residual returns from Chifeng HaoZhou Mining Co., a business the XING acquired from its Chairman Mr. Wu Rui Lin in April 2009.
According to this SEC filing, the price tag for the interest was $110 million. The company paid $30 million in cash and issued 40 million restricted shares of the company’s common stocks valued at $2.00 each. Given the fact that the company has 90 million shares outstanding as of September 30, 2010, a year and half after the acquisition, the dilution was not something one can take it easily.
The question is whether the acquisition makes economical sense. Can the property pays for price tag?
From the same SEC filing, this is the what the company purchased:
China Luxuriance, through its wholly owned Chinese subsidiaries, owns the right to receive the expected residual returns from Chifeng Haozhou Mining Co., Ltd. (“Haozhou Mining”), a large copper-molybdenum poly-metallic mining company in China. Haozhou Mining owns the exploration license of a mine covering 53.9 square kilometers (the “Mine”) in the Inner Mongolia Autonomous Region in the People’s Republic of China. Through exploration of 32.34 square kilometers it was concluded that there is a reserve of 30,985 ton of molybdenum metal and an abundance of other types of multi-metal mine reserves, which was supported by the Technical Report issued by Behre Dolbear Asia, Inc. The remaining 21.56 square meters are also expected to be explored and Haozhou believes that there is likely additional reserves of copper-molybdenum and other types of multi-metal mine therein.
More details of the Mine: The mine is located in Chifeng which is a strategically important base for China’s mineral resources; the molybdenum grade is 0.40% for proved reserve, which is very high compared with the global average; transportation, supply of water and electricity are economically accessible; Chifeng Haozhou is managed by a team of mining experts with proven experience who are capable of operating a mining business; it has all necessary permits, approval from the PRC government authorities to explore and extract the mines, as well as environment protection permits and safety permits; the infrastructure and the initial production facility (the “Initial Project”) are believed to be sufficient to support the capacity of processing 435,000 tons of ores and producing 2,817 tons of molybdenum concentrate product annually (equivalent to 1,378 tons of molybdenum metal). The Initial Project is expected to be put into operation in 2009. It is planned that, as of 2011, the production capacity will eventually increase to a level to process 540,000 tons of ores and produce 3,526 tons of molybdenum concentrate on annual basis. The management believe, based on the detected reserve level, the resource business will grow eventually to reach an annual net profit of RMB125 million (around USD18 million at current exchange rate).
Pursuant to the current unit price of molybdenum metal and the detected molybdenum reserve, the gross value of the Mine amounts approximately to USD850million. We expect that the factual gross value of the Mine will be much higher as the price trend of molybdenum metal is on the rise and more molybdenum reserve is expected to be detected in the future.
Since the purchase of the mine, the company has release a number of quarterly results and one annual report. Here is the result of the mine in 2009, according to this SEC filing:
Consolidated revenues from the molybdenum mining business for 2009 were Rmb193.9 million (US$28.4 million); the mining business generated a gross profit of Rmb100.6 million (US$14.7 million) and net income of Rmb64.2 million (US$9.4 million), which are all the same as the previously released unaudited figures.
And for the first half of 2010, according to this SEC filing:
Consolidated revenue from the mining business for the first half of 2010 totaled RMB141.9 million (US$20.9 million). Gross profit was RMB66.4 million (US$9.8 million), resulting in gross margin of 46.8%. Net income totaled RMB45.4 million (US$6.7 million), of which RMB27.5 million (US$4.1 million) was generated in the second quarter of 2010. Net income in the second quarter of 2010 increased by 53.3% from the first quarter of 2010, when business was seasonally slower as most mining businesses in North China shut down operations for the long Chinese New Year holiday in February 2010.
And for the third quarter of 2010, according to this SEC filing:
Consolidated revenue from the mining business for the third quarter of 2010 totaled RMB80.6 million (US$12.0 million). Gross profit was RMB33.9 million (US$5.1 million). Gross margin was of 42.1%, compared to 46.8% in the second quarter of 2010. Net income totaled RMB22.8 million (US$3.4 million) in the third quarter.
As least the first acquisition is working out, generating positive earnings and cash.
The management thinks there is $850 million worth of Molybdenum in the ground. If their estimate is close to the reality, it appears the first acquisition is working out.
I am scratching my head trying to figure out why the company is trading below its net-net value.
