Gulf Resources, Inc.
Q2 2018 Earnings Call Transcript

Published: 13 Aug 2018

[Operator:]

Good morning. My name is Kyle and I will be your conference operator today. At this time, I would like to welcome everyone to the Gulf Resources 2018 Second Quarter Earnings Conference Call. All lines will be placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Ms. Xu, you may begin your conference.

[Helen Xu:]

Thank you, operator. Good morning, ladies and gentlemen, and good evening to those of you who are joining us from China and we would like to welcome all of you to Gulf Resources’ second quarter 2018 earnings 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 for the Company’s operating results during the Q&A session. I would like to remind you to all our listeners that in this call, management’s remarks will contain forward-looking statements which are subject to risks and uncertainties. The management may make additional forward-looking statements. Therefore, the company claims the protection of Safe Harbor for the forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today depending upon a number of risk factors, including, but not limited to, the general economic 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 the existing under the new competitors from the bromine and other oilfields, agriculture and applying production chemicals and change in technology, the ability to make future bromine asset purchase and various other factors beyond the Company’s control. All forward-looking statements are expressly qualified in this entirety by this precautionary statement and the risk factors detailed with the Company’s reports filed with the SEC. Accordingly, our company believes the expectation reflected in these forward-looking statements are reasonable and there can be no assurance of such will prove to be correct. In addition, any reference to the Company’s future performance represents the management’s estimates as of today, August 13, 2018. Gulf Resources assumes no obligation to update these projections in the future as market conditions may change. For those of you who 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 look at our press release issued earlier for the details. Liu?

[Xiaobin Liu:]

[Foreign Language]

[Helen Xu:]

[Foreign Language] So I’ll be offering translation for Mr. Liu. Thank you very much all for attending Gulf Resources 2018 second quarter earnings conference call. And the company had surrounding events of the close of our facilities. So today our management will be answer all the questions we received from investors by Helen first, then I’ll be doing the response to questions by investors during the Q&A session. So now I’ll provide the summarized question, answers company received recently from our shareholders and our investors. First of all, let’s look at bromine section, regarding rectification the first question that what’s the status of approval process for each of the various bromine production plant? For this question, we refer to the 10-Q and the press release company filed and issued earlier which provide the very details of discretion of the issued in the various government agencies as we relate to the approval process for the various bromine plant. In the interest of time on this conference call, we will give you more conscious answers to this issue, so that there is time for Q&A session. However, the company wants to say that to order that all the complete details answers that have been reviewed by the company auditors and lawyers, investors should refer to the 10-Q for more detailed information. Second, what still needs to be done? As expected, that have been already completed their rectification, we didn’t expect area. But they ask you, the crude salt field area rectification did not finish yet. Question three, what’s the current schedule for reopening each of the bromine production plant, that past is production. And in particular when we factory one reopen, the opening of the factory will be determined by the timing of the approval of the government, it would not impact factory number one to have significantly different schedule than other factory. We’re however optimistic that this issue can be solved at all companies expect efforts. The chemical and the bromine industries are important in Shandong. We believe the goal of the government is to provide clear air and water for his people, but not to close important industries. Question four, have you decided reach of the alternative approaches as a presented in your maintains to the 2018 press release, your intent for the whole plant that did not has infection yet. And if not when do you expect to decide. The answer, we’re very close to sat all the issues for Factory No 10. The company is negotiating with a third party about the waste water discharge of the Factory No 10. If an agreement is reached, the company will invest additional RMB7 million to build a new aqueduct and discharge the waste water to the designated place by the third party for treatment. This would mean that there will be only three factories that could present a problem. These remaining factories have a slightly more complex issue that needs to be resolved. All bromine factories now require paired crude salt pans to prevent the halogen water resulting from the production process from flowing into the sea. These factories do not have a designated crude salt pan where the wastewater could be channeled. The company has four alternatives for these factories, which do not have paired crude salt pans

[Operator:]

[Operator Instructions] Your first question comes from the line of James Meyer. Your line is open.

[Unidentified Analyst:]

Hello, congratulations, first of all to your accumulation of net-net worth capital over all the years. I have one question about the government evaluation of your bromine rectification plans and the environmental situation. Can you give a little bit more color to this? Thank you.

[Helen Xu:]

Again, I think this question, I don’t want to see in more detailed necessity from the beginning. The Company’s 10-Q and the press release issued that we would have more detailed information about it.

[Unidentified Analyst:]

Thank you. Is it correct that the environmental issues have been completely resolved except of course, three or four of facilities?

[Helen Xu:]

No. The first six facilities have already complete the rectification in these metro areas but as we cross out viewed areas rectification did not finished yet for this six – yes, and for question 10, raising on the discussion with third-party to build a product through transfer – allowing what our tools, we are designing today, this is what actually intend and the rest three factories did not have a final solution, yet and the company is still on the discussion with government and its related parties.

[Unidentified Analyst:]

Understand. Your company and for example, Mr. Ming, the Chairman with his own company are also in direct contact with the provincial government. Is it correct?

[Helen Xu:]

Sorry, I didn’t get you, apologizes, if you…

[Unidentified Analyst:]

In your 8-K or 10-Q filings, you mentioned that, the union or the local government is helping you to communicate with the provincial government for the approval. But I do…

[Helen Xu:]

The bromine association. The bromine association is returned all bromine factories in Shouguang City. It’s helping the company to do negotiation with local government.

[Unidentified Analyst:]

Okay. So you cannot give any more color. But you will provide color as soon as possible. Is it available?

[Helen Xu:]

Yes.

[Unidentified Analyst:]

To our knowledge there was a good rating from the government regarding the evaluation of your progress. Is it correct?

[Helen Xu:]

We cannot say that until we know, because we did not talk we finished yet. But for the first six factories, the company – yes before, they did – do it. But later on the year, several policies come out. So if you look at Company 10-Q and press release, you’ll have more details. Since the beginning on because the policy come out one-by-one, all have effect to the company’s current situation.

[Unidentified Analyst:]

Okay. Thank you very much.

[Helen Xu:]

Okay. Thank you.

[Operator:]

[Operator Instructions] The next question comes from the line of [indiscernible]. Your line is open.

[Unidentified Analyst:]

Yes, good morning. Can you hear me?

[Helen Xu:]

Yes.

[Unidentified Analyst:]

Okay. I have several questions. My first question is the six bromine facilities that you have spent the $30 million on to date that equal how much prior production?

[Helen Xu:]

Okay. How much processing fees production is accounted for the company, right?

[Unidentified Analyst:]

How much of the total – in the past, like in the past, the six facilities that you’ve already spent the – that you’ve already spent the money and attempting to permit. What percent of the output does represent? Simple question.

[Helen Xu:]

Okay. Yes, I got you. Then your next question. Do you want add one-by-one or…

[Unidentified Analyst:]

Let’s do one-by-one.

[Helen Xu:]

Okay. [Foreign Language]

[Xiaobin Liu:]

[Foreign Language]

[Helen Xu:]

[Foreign Language] Okay. These six factories which is represented 60% of the total production of the prior company’s production capability.

[Unidentified Analyst:]

That was 60 – 60%?

[Helen Xu:]

Yes, 60%.

[Unidentified Analyst:]

Okay. My second question is – given the situation why have you waited till 2019 to rebuild the chemical facilities, why not – why was this not done earlier?

[Helen Xu:]

Okay. [Foreign Language]

[Xiaobin Liu:]

[Foreign Language]

[Helen Xu:]

Okay. [Foreign Language]. Here is the response for your question from Mr. Liu, the CEO. He said that, the company also want start the construction for its chemical companies as soon as early as it can. But it’s not under the company’s control on it. Because, first of all, the Company had to buy land, get land in the rural area, by the government designed that’s where we located in this chemical and the area. And listen the company have to design, like we mentioned in our press release and 10-Q that the company had submitted its completed draft design and as it related papers to the government and getting the approval, get the feedback and get approval. And this approval is not well approval – as there are several approvals which need in this project, like the environmental approval for 50 production, planning approval and project approval. Here let me get the all approval then the country – the government will issue the company construction of factory permit, then that company can start to build its factory. So Company will tries back to get all these done as soon as possible. But to get all the related approval – if we have to get all the related approval first from government as well as if you will be like a legal in the future on the construction.

[Unidentified Analyst:]

Thank you. My next question is, in the past, the company has indicated that it needs substantial re-cash as balance sheet in order to pursue the natural gas opportunity that the local governance wanted to see the substantial asset cash given that you’re likely to spend $60 million on chemicals, $30 million on bromine to date, another $40 million potentially more is the company recorded the efficient that continue the well program – did natural gas program.

[Helen Xu:]

Okay. [Foreign Language].

[Xiaobin Liu:]

[Foreign Language]

[Helen Xu:]

Okay. Yes. So based on this external situation and the company did on time and principally communication discussion with Daying County local governments about our current situation and about our rectification program in Shouguang, and the local governments from the county also expressed that they understand the situation, because overall the whole country during the – and they understand the coming situation and they think they also want to the company to finish its rectification program in Shouguang first.

[Unidentified Analyst:]

Okay. And can you further explain to me the $40 million in the press release is that were the existing six bromine and salt facilities or is that for other facilities, I was confused what the $40 million? Where it’s being spent and why it’s being spent? I guess that’s my question. Why and where is the $40 million in the press release being spent?

[Helen Xu:]

Okay. [Foreign Language]

[Xiaobin Liu:]

[Foreign Language]

[Helen Xu:]

Okay. The answer from Mr. Liu that this $40 is for all the 10 factories wells that only half of this 10 factories wells. We do upgrading…

[Unidentified Analyst:]

Helen, Helen.

[Helen Xu:]

Yes.

[Unidentified Analyst:]

There’s background noise. I can hear nothing, there’s background noise.

[Helen Xu:]

Okay, okay. Wait. [Foreign Language] Right. Okay. Is it clear?

[Unidentified Analyst:]

Yes. Sorry, I didn’t hear one word.

[Helen Xu:]

Okay. I will say again. So here that answer from Mr. Liu that this $40 the company is plan to spend in 2018 is for all our 10 factories, 10 bromine factories, half of the wells from the 10 bromine factories. We want to upgrade those wells and keep running them, because some of the wells are really old, and we need to go further making wells more deeper than have more halogen water come out.

[Xiaobin Liu:]

[Foreign Language]

[Helen Xu:]

Okay. So this year we plan to do 50% like half of the wells of this 10 bromine factories, next year we will do the rest half upgrade. The major with for doing this in that because most of the wells are more than 10 years and which is beyond their usage and have leakage problem. Government does not allow this to have, which will – like sending to the nearby lands. So the company also wants – first for its steps, secondly for accomplish for the government policy and to do the better condition for future.

[Unidentified Analyst:]

Helen, I’m confused. So how can the company get the ability to open the six well if you have the issues with the salt mine and you need to spend another $40 million, I don’t understand how you’re going to get them open with that outstanding problem?

[Helen Xu:]

No, no, no. This is not like outstanding from, it’s the companies own, because the well is old, and the company wants to protect this.

[Unidentified Analyst:]

Though it’s environmentally you think sound, but you want to expand the – you want to expand that to be – you want to upgrade the facility, but you think it’s functional?

[Helen Xu:]

No. We want to make the wells better, have a longer life.

[Unidentified Analyst:]

Okay. So you would…

[Helen Xu:]

And the government also encourage company to do this.

[Unidentified Analyst:]

Right. But this is – but this $40 million is for all the wells not just the six wells, I mean the six facilities, is that correct?

[Helen Xu:]

Yes. For all the 10 factories, half of the wells from the 10 factories, it’s a budget, but we don’t know because the rest three factories we do not know if they are going to get approval yet.

[Unidentified Analyst:]

Okay. My last question is, I believe in the past that you’ve indicated that a natural gas wells, I bought and I could be wrong you would said about $2 million per well. Today you’re indicating about $3 million to $4.5 million, am I incorrect that in the past it’s been $2 million per wells, it’s my memory wrong?

[Helen Xu:]

I will double check, okay. [Foreign Language]

[Xiaobin Liu:]

[Foreign Language]

[Helen Xu:]

I think maybe there is a misunderstand or mistake, this for regarding your $2 million memory regarding per well. Because our current well, this first well which cause more than $6 million near $7 million well, the first well. So in the future budget like maybe around $3 million to $5 million per well that is definitely cannot be down within $2 million.

[Unidentified Analyst:]

And what is the natural gas exploration budget for calendar 2018?

[Helen Xu:]

2018 if our first well goes fine, we want to do two more wells in the next half of 2019.

[Unidentified Analyst:]

And how may wells if you drill – have you drill today?

[Helen Xu:]

One.

[Unidentified Analyst:]

And what was the result of that well?

[Helen Xu:]

It’s under – it’s just finish this, let us do under testing, and it was the product testing. Like we say that it like a response of this question just now in 2022 and 2023 about like how – about the natural gas well like – wait let me check, what’s the well scale or schedule to begin test in August and trial product in September the first well, and is expect to sell production last for one year.

[Unidentified Analyst:]

Okay. So if you haven’t have the results of the first well that you’ve spent $6 million to $7 million on, why are you pursuing another well, I’m confused?

[Helen Xu:]

It’s like the first well trial production will finish around September 2019, and the company’s has scheduled for two wells for next half year of 2019.

[Unidentified Analyst:]

So there is no capital spending on natural gas wells in 2018, all the money was spent last year with $6 million to $7 million was spent and now you’re awaiting test results is that accurate?

[Helen Xu:]

Yes. I think so, wait I would have a confirm. But I think so. [Foreign Language]

[Xiaobin Liu:]

[Foreign Language]

[Helen Xu:]

Yes, on the spending its correct, so there will be normal like major capital expenditure for the first well, but except we will maintain its cost.

[Unidentified Analyst:]

Great. My last question and I know that’s a lot is, how much of this $60 million for chemical and the $40 million for the salt mines going to be spent in 2018?

[Helen Xu:]

$40 million, do you mean the additional $40 million budget. Right?

[Unidentified Analyst:]

Yes, how much of the $40 million additional and the $60 million chemical will be spent in 2018 and then the rest will be in 2019?

[Helen Xu:]

Okay. [Foreign Language]

[Xiaobin Liu:]

[Foreign Language]

[Helen Xu:]

[Foreign Language]

[Xiaobin Liu:]

[Foreign Language]

[Helen Xu:]

[Foreign Language]

[Xiaobin Liu:]

[Foreign Language]

[Helen Xu:]

So first we will talk about $60 million budget for chemical sediment, the first $20 million around, less that $20 million which we will be spending in the year 2018, for its launch and designing and related preparation for all the approvals, then the rest $40 million for chemical that will be spent in the year 2019. This is for the $60 million for Chemical sediments. Thank you.

[Unidentified Analyst:]

Yes. So the answer is 2018, $20 million.

[Helen Xu:]

Yes, $20 million in Chemical and $40 million in 2019. And let’s talk about the $40 million, the $40 million for bromine wells, they are two-thirds of $40 million will be spent in the year 2018 and the rest will be spent in the beginning of the year 2019 but before the 10-K is filed

[Unidentified Analyst:]

So, two-thirds, 60% will be spent in 2018 of the $40 million?

[Helen Xu:]

Two-thirds of the $40 million, yes, will be spent in the year 2018 and the rest ones that we will spend in the beginning of the year 2019.

[Unidentified Analyst:]

So, total capital spending for 2018 is going to be $30 million, that’s been spent on the bromine facilities to-date, $20 million for the chemical and two-thirds of $40 million. Right?

[Helen Xu:]

Two-thirds of $40 million and plus $20 million. Yes.

[Unidentified Analyst:]

So, total capital spending for 2018 is projected at what number? That’s my last question I promise? Capital spending 2018?

[Helen Xu:]

Of course I bet, for the 2015 – 2018 would be around $46 million – the rest year of the Capital Spending, which will be $46 million.

[Unidentified Analyst:]

No, I’m asking for total capital spending, the total for the company, what is the projection for 2018?

[Helen Xu:]

Wait. [Foreign Language]

[Xiaobin Liu:]

[Foreign Language]

[Helen Xu:]

[Foreign Language]

[Xiaobin Liu:]

[Foreign Language]

[Helen Xu:]

[Foreign Language]

[Xiaobin Liu:]

[Foreign Language]

[Helen Xu:]

Hello.

[Unidentified Analyst:]

I am just living one number estimated to be capital spending what is that?

[Helen Xu:]

$65 million, around $65 million total for the year 2018.

[Unidentified Analyst:]

But, Helen I got $25 million is two-thirds of $40 million.

[Helen Xu:]

Yes.

[Unidentified Analyst:]

$20 million for Chemicals and $27 million you go forwarded in spent on the existing Bromine that’s definitely $1 million, so some number you gave me is wrong.

[Helen Xu:]

Some number is wrong is in my calculation. First of all we will [indiscernible] wait.

[Xiaobin Liu:]

[Foreign Language]

[Helen Xu:]

[Foreign Language] In my calculation, so $20 million for Chemical, and then two-thirds of the $40 million which is around $26 million, right?

[Unidentified Analyst:]

Yes, I have $25 million here.

[Helen Xu:]

And, $1 million for Factory No 10.

[Unidentified Analyst:]

The $27 million. Yes.

[Helen Xu:]

Okay?

[Unidentified Analyst:]

Okay.

[Helen Xu:]

And, for the bromine rectification which posses’ $35 million budget and the company already spent $18 million, so the rest $17 million will spent only in year 2018.

[Unidentified Analyst:]

I thought you said in the press release you spent $27 million of a budget of the $30 million, is that?

[Helen Xu:]

Yes.

[Unidentified Analyst:]

And the $27 million – so the $27 million was spent in 2017, 2018, when was it spent, the 27 million?

[Helen Xu:]

In year 2017, we spent $17.9 million, and in the year 2018 we spent $8.7 million, so this – $8.7 million should be in the year 2018 budget.

[Unidentified Analyst:]

Okay, alright. Okay, I am very clear. I didn’t recall that part of the $27 million was spent in 2017, I apologize, thank you very much for answering these question. I think it’s much – I think you painted a very clear – a clearer picture. Thank you for that. Thank you very much.

[Helen Xu:]

Okay. If you have any questions feel free to email me.

[Unidentified Analyst:]

Thanks, I’m good now. Thank you.

[Helen Xu:]

Okay. Thank you. Have a good day. Bye-bye. Hi, Operator, I think no more questions and our time is out, can I close for the call today?

[Operator:]

Go ahead.

[Helen Xu:]

Yes, can I close for the call today?

[Operator:]

Sorry, do you have any closing remarks?

[Helen Xu:]

No, just simply close the call for today, thank you. Have a good day.

[Operator:]

That concludes today’s conference, you may now disconnect.