Gulf Resources, Inc.
Q4 2014 Earnings Call Transcript

Published: 16 Mar 2015

[Operator:]

Good morning. My name is Jackie, and I will be your conference operator today. At this time, I would like to welcome everyone to the GULF RESOURCES 2014 Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. I’d now like to turn the call over to Helen Xu to begin.

[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’d like to welcome all of you to GULF RESOURCES Fourth Quarter and Annual 2014 Earnings Conference Call. My name is Helen, the IR Director. Our CEO and CFO of the Company, Mr. Xiaobin Liu; and Mr. Min Li will also join this call today. I will be offering translation for the management’s comments for the company’s operating results as well. I’d like to remind you that, 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 conditions in China; future product development and production capabilities; shipments to end customers; market acceptance of new and existing products; additional competition from existing and new competitors for the bromine and other oilfields; agricultural and flame production chemicals, and the change in technology; the ability to make future bromine asset purchases, and various other factors beyond the company’s control. All forward-looking statements are expressly qualified in their entirety by this precautionary statement, and the risk factors detailed with the company’s reports filed with the SEC. Accordingly, our company believes that the expectations reflected in these forward-looking statements are reasonable and there can be no assurance of such will be proven to be correct. In addition, any reference to the company’s future performance reflecting the management estimates as of today, the 16th of March, 2015, GULF RESOURCES assumes no obligation to update these projections in the future as market conditions change. 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. Please look at the press release issued earlier for details. It’s now my pleasure to turn this call to Mr. Liu, the company’s CEO, who is going to provide some initial remarks, and then I will translate. Xiaobin?

[Xiaobin Liu:]

[Foreign Language].

[Helen Xu:]

First to all, thank you all for participating today in Gulf Resources’ Fourth Quarter and Annual 2014 Earnings Conference Call.

[Xiaobin Liu:]

[Foreign Language].

[Helen Xu:]

Despite the continuing macro-economic tightening policy imposed by the PRC government beginning in the second half of 2011, the company’s net revenue decreased slightly by 4% for the fiscal year 2014 as compared to 2013. If excluding one-time gain from the relocation of Factory 3 in 2013, earnings per share and net income would have only declined approximately around 6% [slightly]. And net net cash reached $3.49 per share, free cash flow per share is $1.01 per share.

[Xiaobin Liu:]

[Foreign Language].

[Helen Xu:]

The company completed its acquisition of Shouguang City Rongyuan Chemical Co., Ltd at the beginning of 2015, and entered into a five-year lock up agreement with the former equity owners of Rongyuan. Rongyuan is the leading manufacturer of materials for human and animal antibiotics in China and other parts of Asia. After that, we expect that the company’s 2015 total revenue will increase to $190 million, and net income will increase to the range of $33 million to $34 million. But considering our current band of low stock price, while meeting the company’s strategy be that on the condition, the company wish and will consider to do something to increase shareholders’ value, and reach a win-win situation for both the company and its shareholders, such as the share buyback, listing on other stock exchange [indiscernible] and so on.

[Xiaobin Liu:]

[Foreign Language].

[Helen Xu:]

Thank you, Mr. Liu. I am going to continue with presenting the company results, for the fourth quarter and annual of 2014 on the behalf of company’s CEO, Mr. Xiaobin Liu. For the fiscal year 2014, company’s net revenue was $113.7 million, a decrease of 4% over the same period in 2013. This decrease was attributable to our Bromine and the Crude Salt segments. The revenue from Bromine segment decreased from $60.5 million for the fiscal year 2013 to [$57.9] million for the same period in 2014, a decrease of approximately 4% due to the lower prices. Secondly, revenue from our Crude Salt segment also decreased from $13.8 million for the fiscal year 2013 to $10.8 million for the same period in 2014, a decrease of approximately 22% due to the low prices. Revenue from Chemical Products segment increased from $44.1 million for the fiscal year 2013 to $45 million for the same period in 2014, an increase of approximately 2%. Gross profit was $32 million, or 28% of net revenue for fiscal year 2014 as compared to $34.2 million or 29% of net revenue for fiscal year 2013. Income from operations was $23.8 million for year 2014, a decrease of approximately 16% over the income from operations for the fiscal year 2013. The decrease resulted primarily from the decrease in pricing for our Bromine and the Crude Salt segments products as well from the recognized gain on the relocation of our original Factory No.3 in the amount of $2.5 million for the fiscal year 2013 as we mentioned below before. The net income for fiscal year 2014 was $17.9 million, which decreased around [15%] as compared to 2013. This decrease was primarily attributable due to the decrease in the selling price of bromine and crude salt. For the fourth quarter of 2014 results, the company’s revenue was $25.2 million for the fourth quarter, a decrease of 16% as compared to the same quarter of 2013. Gross profit for the fourth quarter of 2014 was $6.7 million, which decreased around 27% as compared to the same period of 2013. General and administrative expenses for the fourth quarter of 2014 was $2.24 million as compared to $2.1 million for the fourth quarter of 2013. Income from operations for the fourth quarter of 2014 was around $4 million as compared to $7.6 million for the same period of 2013. The gross operating margin was [15.8%] for the same quarter of 2014 as compared to 25.1% for the same quarter of 2013. For the fourth quarter of 2014, the Company incurred other income around $82,000 as compared to $50,000 for the same quarter of last year. The income tax was $1.2 million for the fourth quarter of 2014 which decreased around 40% as compared to the same quarter of 2013. The Company’s effective tax rate was 26% during this quarter, which is same as the fourth quarter of 2013. Net income was $2.9 million for the fourth quarter of 2014, which decreased around 49% as compared to the same quarter of last year. Basic and diluted earnings per share in the fourth quarter of 2014 was $0.07 per basic and diluted share as compared to $0.15 per basic and $0.14 per diluted share in the same quarter of 2013. And finally the financial condition as of December 31st 2014. The Company had a total cash of $146.6 million, which is around $3.77 per share. Current liabilities of $8.1 million and shareholders’ equity of $312.1 million, which is around $8.02 per share. Net net cash totaled $135.7 million. At the end of fiscal year 2014, the Company had working capital of $186 million, which is $4.78 per share. During 2014, we generated positive cash flow from operating activities of $46.6 million. We used $0.66 million for the payment of land leases. In the same year period, we also used approximately $6.46 million for the third phase enhancement project related to the protective shells for the transmission channels and ducts in Factory No. 10 and 11. Free cash flow as Mr. Liu already mentioned that, which is like $1.01 per share totaled $39 million. The subsequent event as Mr. Liu already mentioned that in order to increase the Company’s profit margin, produce more consistent and reliable earnings, and lessen dependence on the economically-sensitive bromine industry. On January 12, 2015 the Company entered into the Equity Interest Transfer Agreement with Shouguang City Rongyuan Chemical Co, Ltd, and its shareholders. On February 4 2015, the Company closed its transaction and entered into a lock up agreement with the four former equity owners of Rongyuan Chemical. On January 30, 2015 the Company announced that it found natural gas resources under its bromine well in the Sichuan area. The company will hire a third party to conduct a survey of the geological and complexity analysis, and the economics of the natural gas under this well. The Company is in the final stage of discussion with the expert company to finalize the service agreement. So for further investment queries, investors must reach to me or our IR Manager at the email address disclosed at the earnings conference call, the press release or at the company’s website. With that now, we’d like to open up the call to any questions pertaining to the fourth quarter and annual 2014 financial and operating performance. Operator? Question-and-Answer Session

[Operator:]

[Operator Instructions]. Our first question comes from the line of Adam Waldo.

[Adam Waldo:]

Adam Waldo, Lismore Partners LLC, Chicago, Illinois, USA. On that point, I wanted to ask my first question about your steps to enhance the shareholder value as reflected in the stock price to more closely match the value that you’ve created in the actual business as you detailed very well in your press release today. You talk about share repurchases, you talk about a dual listing. You did not surprisingly mention a dividend, which is one of the easiest ways to enhance shareholder value especially for US-listed Chinese companies. I wonder if you can provide more detail on the timing and magnitude of share repurchases that you were thinking about, whether you are thinking about a dual listing in Hong Kong or on the Shenzhen [band], the ChiNext Index as we call it in the States. And can you provide some detail on your current thinking on dividend policy as you sit with in excess of $2 per share in cash after closing of the Chemical acquisition and with a run rate annual free cash approaching a $1.50 per share after that acquisition. And I’ve a few follow-up questions. Thank you.

[Helen Xu:]

[Foreign Language].

[Xiaobin Liu:]

[Foreign Language].

[Helen Xu:]

So as I’ve heard the comments from management, firstly that the company was doing share buyback, and we were continually doing it following our buyback plans. And secondly, in order to improve the company’s long-term growth, and as well increase our shareholders’ value, the company have to consider like because the Sichuan gas project did not -- the assessment report is not issued yet. After its assessment report is issued, then we can decide how much we’re going to invest in that project. After that, we can decide how much more cash is left and how many can be used for more actions such as the share buyback or other things to increase shareholders’ value and increase the share price. Certainly, there are lots -- several investment banks did contact the company, and discussed with us, because the company’s stock was listed on the US market and that we all think it’s quite devalued. So currently, we already have some lawyers, we discussed with some lawyers and investment bankers on the requirements and the possibilities the company can be listed on other markets as well. If we found that there is a possibility, then we may go further, more deeper discussion with them.

[Adam Waldo:]

Okay, so you’ve had some preliminary conversations about dual listings as you were approached by investment banks. Are you talking about a dual listing in Hong Kong or on the Shenzhen [band] into the ChiNext, can you be more specific about that?

[Helen Xu:]

Adam, did you mention dual listing, like listing at the same time on the US and Hong Kong?

[Adam Waldo:]

The press release makes reference to the possibility of a dual listing and if you don’t -- [indiscernible]?

[Helen Xu:]

Okay, okay, got it. [Foreign Language].

[Xiaobin Liu:]

[Foreign Language].

[Helen Xu:]

Okay, because it’s at the very beginning initial discussion. So the decision wasn’t been made yet. It’s a dual listing or like we’ll first buyback and retire from if not recommended by experts. So all these are not decided yet. But Mr. Liu said that he thinks, and the listing market also isn’t decided. But Mr. Liu said that he thinks Hong Kong is not a bad idea.

[Adam Waldo:]

So he thinks Hong Kong is a not a bad idea. Am I understanding that properly?

[Helen Xu:]

Yeah, yeah.

[Adam Waldo:]

Okay, thank you. No, no, clearly you look as though you qualify well for that given your [transparency], and your audit’s history and the like. On the dividend, just one of the easiest ways for US-listed Chinese companies or frankly for any company listed on any exchange to have its share price more accurately reflect the fundamental value of the company, its cash flow generation and its cash position. And we talked about the fact that even after the acquisition had closed in February, you’ve about $2 per share in cash. The business including the effect of that acquisition to generate annual free cash flow approaching a $1.50 per year, and yet the stock trades at $1.71 as of Friday’s close, a huge discount to fundamental value. Can you talk a bit about your plans for a dividend in the near term, and particularly an ongoing quarterly dividend that would allow the share price trading to consistently be more aligned with the fundamental value of the company?

[Helen Xu:]

[Foreign Language].

[Xiaobin Liu:]

[Foreign Language].

[Helen Xu:]

Adam, we think that you did give a good idea, and it’s a good suggestion. We also think a bit, and yeah we understand that dividend is a good way to increase the fundamental value of the company’s share. And because the management thinks for income of company and long-term growth. And we also want at the same time to increase shareholders’ value, and increase the company’s anti-risk ability as well. So that's why the Company did the acquisition of Rongyuan Chemical. They think by doing this acquisition, it’s a good example for the company to increase its anti-risk ability while the bromine industry is at its weak period. And at the same time, we also increased our shareholders’ value, and also meet the company’s long-term growth strategy, and meet all these conditions the company’s required, and there’s no other way which can reach our goals. And we’ll consider to pay the dividend to shareholders at that time.

[Adam Waldo:]

Helen, if I could just delve upon this dividend point one more time. You’ve made a very nice acquisition here in terms of increasing shareholder value fundamentally, and diversifying the business making it less reliant on the cyclical bromine market. But again, you’ve a share price at a deep discount of fundamental value. You’ve had from time to time groups of organized short sellers attack your stock which has led to a depressed share price on the US exchange. Dual listing might help that, but again a dividend to be quite honest raises the cost of shorting considerably for the short seller groups. For example, the company has a run rate free cash flow outlook in 2015 after the acquisition of about a $1.50 per share. If you were to earmark say 20% of that, $0.30 to an annual dividend, in fairly short order, the stock price should trade $2 or $3 per share. And yet, you would still have considerable liquidity to pursue other diversifying acquisitions you know to grow the business, and increase long-term fundamental value of the company, which makes sense as well. In short, I think you can do both. You know you can have a dividend policy, and you can continue to invest in growth and diversifying acquisitions. And I just continue to or I’d respectfully, I’d strongly suggest that the management has the latitude to do both, given the scale of the company and the financial strength of the company.

[Helen Xu:]

Okay, thank you. [Foreign Language].

[Xiaobin Liu:]

[Foreign Language].

[Xiaobin Liu:]

Okay, thank you very much Adam. We’ll reconsider about this advise and idea.

[Adam Waldo:]

Thank you very much. And one last question if I may on the natural gas, apparent natural gas on Sichuan. You are retaining your third-party experts to evaluate that. I think that's terrific, you’ve estimated the cost of that at about $10 million. Can you give us a bit more clarity on the state of the mineral rights that you’ve on the property? Do you for certain have the mineral rights for nat gas exploration on the property from the local government? Do you’ve all applicable mineral rights at this point to be able to pursue exploration with a partner, should the third-party review that's to be completed in May come back very strongly as you suspected may? Are you in possession of all the exploration permits, pardon me all the mineral rights permits that you would need for that find?

[Helen Xu:]

[Foreign Language].

[Xiaobin Liu:]

[Foreign Language].

[Helen Xu:]

Okay first of all, the natural gas found, it was a surprise for us under company’s existing wells, because we were drilling for bromine, and we found natural gas under it. So at that time, we did not have the permit for drilling natural gas yet. But after the assessment report from third-parties, we are okay to being issued. Then the company will apply for the license from government to drill this natural gas. And, but considering this natural gas which is associated with the bromine drilling, so there is a possibility that the license which we’re going to apply, which will be easier than the normal gas license application.

[Adam Waldo:]

Okay, so you plan to apply for the natural gas mineral rights permit following the assessment?

[Helen Xu:]

But after the assessment we passed the initial, if there is a commercial viability. We think it’s commercially, like yeah then we’ll apply for the license for it. But this license might be -- there is a possibility, but we’re not sure yet because we are just at a research stage. As this license which because it could associate it, or license with bromine which is different from the license for natural gas.

[Adam Waldo:]

Yes, no I understand you’ve a license for bromine and the property. And is it fair to say that you’ve to prove the natural gas find with the third-party review before you can apply for the natural gas permit? Am I understanding you properly? You can’t apply for the natural gas permit until the find has been fully proven by the third-party experts and you don’t expect that?

[Helen Xu:]

No if not, we can or we can not. It’s the company’s strategy after it’s been approved. Because until now, we’re not sure how much gas on the [indiscernible] was drilling on something. After that, then the company can decide if we’re going to apply it.

[Adam Waldo:]

Okay, so you’ve to wait for the third-party review to be completed and then to be certain of the find and the magnitude of the find, and how much natural gas is there. And once you’ve that third-party report validating the amount of the find?

[Helen Xu:]

Yes.

[Adam Waldo:]

Then you can apply it with the mineral rights permit for natural gas on the property on which you already have the bromine mineral rights? Is that -- am I understanding that properly?

[Helen Xu:]

Yes, yes. [Foreign Language].

[Xiaobin Liu:]

[Foreign Language].

[Helen Xu:]

Oh yes, we’ll. No, no, the understanding is not right. We’ll apply for both the license, bromine and it’s associated always from these two license, or maybe it’s combined one license.

[Adam Waldo:]

Oh I see, in other words you would apply for a combined license for both, bromine and natural gas?

[Helen Xu:]

Maybe. Oh we’re not sure yet like how the license is [counted] like its [code] or something. We cannot decide yet, but we’ll apply it after this report is being issued.

[Adam Waldo:]

Okay, so in other words, you can’t be certain what mineral rights [comment] to be applying for until you know for sure the amount of the natural gas find and that it has been validated by the third-party review? And once you know that the review has validated it in May, then you can apply for the appropriate mineral rights permit, bromine and natural gas combined in all likelihood? Am I understanding that correct?

[Helen Xu:]

Yes, yes.

[Operator:]

Our next question comes from the line of [Joe Madersky].

[Unidentified Analyst:]

My question is, is management already in touch with potential partners for exploring these reserves? And you know, are they proven? Who are they?

[Helen Xu:]

You mean the partner? The assessment reports, third party or?

[Unidentified Analyst:]

Yeah, who is the third-party partner that they are using to explore their reserves?

[Helen Xu:]

[Foreign Language].

[Xiaobin Liu:]

[Foreign Language].

[Helen Xu:]

So currently in China, there are only two companies, Sinopec or CNPC, these two companies and its subsidiaries which have the ability to do such assessments. So the one we hired is one of the two.

[Unidentified Analyst:]

Okay, and are you planning on extracting bromine and gas from wetfields during both moving forward?

[Helen Xu:]

We cannot decide it yet, Joe until the third-party assessment passes it and issues if there is -- the gas is commercially worth for drill.

[Unidentified Analyst:]

Okay, do you’ve any idea of the area, like square meters of you know of natural gas? Do you have any idea of the size we’re looking at here?

[Helen Xu:]

[Foreign Language].

[Xiaobin Liu:]

[Foreign Language].

[Helen Xu:]

Okay, so we only can say now because we cannot find how much reserves are on these wells now. But we can see from the pressure of the well, of our company's current existing wells, we think that the result is --the company thinks it’s [optimum]. But we cannot, like because if you want to do an assessment of how much reserves are under there, you cannot do the assessment based on one point or just one well. So you’ve to develop and go through all the four points, then you can do the assessment like how much natural gas is reserved under this area. So from this current lease report, we only can see if the natural gas is commercially viable or not for the company to do the drilling. But we cannot decide or see how much natural gas reserve is under it.

[Operator:]

Our next question comes from the line of Adam Waldo.

[Adam Waldo:]

Yes, two follow up questions if I may. Adam Waldo, Lismore Partners LLC in Chicago, Illinois USA. On the natural gas validation find assessment that's either being done, I think you said by Sinopec or CNPC. You couldn't disclose which one is doing it, but you said those were the two companies most qualified to do it. Are they planning both and executing both the volumetric and the discovery process assessment for the natural gas find? Can you give more detail on what specific testing they are doing to prove out the find? And then on the Chemical company acquisition they closed in February, can you confirm that the company has delivered on their expected 2014 revenues and earnings as stated in the purchase contract? Or will there need to be an adjustment to the purchase contract? Thank you.

[Helen Xu:]

[Foreign Language].

[Xiaobin Liu:]

[Foreign Language].

[Helen Xu:]

Adam regarding your first question, he said that maybe I didn’t explain clear. Mr. Liu said that there is only Sinopec and CNPC which has the assessment ability to do the under well assessment, underground. So, and because we just like started, so they did not explain clear to us yet the specific technology or the way they are going to use to do the assessment and analysis. So regarding the second question of Rongyuan, Mr. Liu said there wasn’t any surprise come out yet regarding the agreement. So we think that maybe it’s okay, but until the final auditing report or the final results come, we cannot assure it. And the auditing report will be filed by the end of April.

[Adam Waldo:]

Right, right you make reference to that in the press release. So at this point everything looks good and that's why you are reaffirming your earlier guidance for 2015 of a $190 million in revenue and $32 million to $33 million in net income including the acquisition. But you need to get the final audit in April before you'll know for certain, is that fair?

[Helen Xu:]

Yes.

[Operator:]

Our next question comes from the line of [Harold Shields].

[Unidentified Analyst:]

I am calling from New York. I'm a private investor, but I also represent three investment funds. Going back to the Daying County agreement in 2011 where you invested $7.5 million in exploration wells. I wonder if you could comment number one, on what depth those wells were drilled? And number two, whether you expect bromine production from those wells this year? I know the concentration levels were six to seven times which you had in Shandong Province. Secondly, and the second part is at what depth did you discover the gas below the bromine for [oil] wells? Thank you very much.

[Helen Xu:]

Sorry, I need to hear your third question. I am sorry, the third question?

[Unidentified Analyst:]

Didn’t you get that question?

[Helen Xu:]

Yeah, the third one, the last question.

[Unidentified Analyst:]

Oh, at what depth did you discover the natural gas when you were drilling. Mr. Liu in his press report said that it was not that expensive, because you use the existing wells that you went down. I want to know how much further you had to go?

[Helen Xu:]

[Foreign Language].

[Xiaobin Liu:]

[Foreign Language].

[Helen Xu:]

So first off all the first question, the company drilled more than 2000 meters deep looking for bromine, looking for bromine water, halogen water. And because at that time, we were looking for -- only looking for this halogen water, and did not think about any other like possible resources we might look in for. So the drilling machine, the bit, the drilling bit we used which is different from the drilling bit for natural gas, the bit is quite sensitive for halogen water. And the second question regarding the bromine production, that time we found the bromine water was very concentrated than our bromine water in Shandong. But we did not know how much reserve is under it and so we cannot decide the business development strategy yet under this well at that time. And then until 2014, the China government found that Sinopec found there is natural gas exist under the well in [indiscernible] block, which is not far from the company’s well. That's why we think there might be a possibility that under our well, there is also gas exist. That's why the Company again did different levels like when you're under one well, there is different levels and we did several levels of assessment on the resources, and we found that there is natural gas there.

[Unidentified Analyst:]

Those several levels, can you define how deep you had to go? Did you, the find that Sinopec had was about 12,000 feet. I am just wondering was yours at 8000, was yours at [indiscernible]?

[Helen Xu:]

12,000 feet. For Sinopec, it’s 12,000 feet. [Foreign Language].

[Xiaobin Liu:]

[Foreign Language].

[Unidentified Analyst:]

Well you want meters. You can use meters, it doesn’t matter.

[Helen Xu:]

[Foreign Language].

[Xiaobin Liu:]

[Foreign Language].

[Unidentified Analyst:]

Well, you can use meters if it’s easier for you.

[Helen Xu:]

[Foreign Language].

[Xiaobin Liu:]

[Foreign Language].

[Helen Xu:]

So it’s like nearly 2000 meters.

[Unidentified Analyst:]

Oh you still did 2000 meters? So that's almost at the same level as you drill for the bromine?

[Helen Xu:]

[Foreign Language].

[Xiaobin Liu:]

[Foreign Language].

[Helen Xu:]

It’s like this, so when we drill for bromine it’s already like around 2000 meters, and we did not think there might be natural gas. That's why, then we come back, and Sinopec says that it found natural gas, so we think maybe there is gas under our well as well. So that's why we come back, and did like for different levels, one by one did assessment again. Then we found that natural gas is there finally. So it’s like a surprise for us.

[Unidentified Analyst:]

Yes, yes. I know, you had to change the drill bit. You had to get a different, I guess drilling company. You used a different drilling company, I guess. But did you get an initial flow rate or an initial pressure rate from that well? And you did take a test of the couple of zones, [indiscernible].

[Helen Xu:]

Yes. No, you are professional in this matter, I think. [Foreign Language].

[Xiaobin Liu:]

[Foreign Language].

[Helen Xu:]

So the most of the natural gas, sorry most of the wells, of our this well now it’s reached 28 megapascals.

[Unidentified Analyst:]

28, what did you use?

[Helen Xu:]

28 megapascals.

[Unidentified Analyst:]

Mega?

[Helen Xu:]

Megapascals, pascals.

[Unidentified Analyst:]

Pascals, okay, alright.

[Helen Xu:]

It will be [20].

[Unidentified Analyst:]

That's your pressure.

[Helen Xu:]

Atmosphere. Pressure atmosphere.

[Unidentified Analyst:]

Atmosphere. 20 atmosphere, okay. Alright, you didn’t have to get that far. I just was --

[Helen Xu:]

[28], because [indiscernible].

[Unidentified Analyst:]

Okay, okay.

[Helen Xu:]

[Foreign Language].

[Xiaobin Liu:]

[Foreign Language].

[Unidentified Analyst:]

So the big thing I was trying to get at is, at what depth you discovered the gas, because Sinopec is at 12,000 to 13,000 feet or 4000 meters.

[Helen Xu:]

So we’re not at --

[Unidentified Analyst:]

You are not at [indiscernible].

[Helen Xu:]

Nearly 2000 feet, sorry nearly 2000 meters. And the 28 atmosphere.

[Unidentified Analyst:]

Good, because the wells cost very, very much more money at that deeper level. And the level that you are at is not quite as expensive to drill?

[Helen Xu:]

Yes, that's what.

[Unidentified Analyst:]

Yeah, okay. Well that's very advantageous to the company. I mean it could very well be that you found conventional natural gas, and you may not have to do tight sands fracking and the like.

[Operator:]

And we’ve no further questions at this time.

[Helen Xu:]

[Foreign Language].

[Xiaobin Liu:]

[Foreign Language].

[Helen Xu:]

Okay, thank you very much for attending this call, and we’ll go back to reconsider all the comments, and then all these questions raised by our investors today. And we’ll go back, and have more communication with you, and to have better operation results and to reward our investors and shareholders the best, and increase your value. Thank you very much. Have a good day.

[Operator:]

Thank you. This concludes today’s conference call. You may now disconnect.