China Armco Metals Announces Second Quarter 2012 Financial Results

SAN MATEO, CA — (Marketwire) — 08/14/12 — China Armco Metals, Inc. (NYSE MKT: CNAM) (“China Armco” or the “Company”), a distributor of imported metal ore and metal recycler with a new state-of-the-art scrap metal recycling facility in China, today announced its financial results for its second quarter 2012 and first half year 2012.

For the quarter ended June 30, 2012, net revenue decreased 86% to $4.3 million, of which the metal recycling sales decreased 87% to $2.9 million from $22.1 million and the metal ores trading sales decreased by 84% to $1.4 million from $8.8 million, respectively, compared to the same period of 2011. The Company sold 6,719 metric tons (“MT”) of recycled scrap metal compared to 47,662MT sold in the second quarter of 2012, and the production of recycled scrap metal decreased by 70% to 10,915 MT from 36,322 MT in the second quarter of 2011. The decrease in the trading business sales was composed of a $3.9 million decrease in sales of iron ore, a $2.4 million decrease in sales of manages ore, and a $1.1 million decrease in sales of chromium ore.

“Domestic steel market condition in the PRC deteriorated as the slowdown of China–s economy in the second quarter of 2012,” explained Mr. Kexuan Yao, Chairman and CEO of China Armco. “In response to the deteriorating market in the second quarter we significantly reduced our trading and production activities to control market risks. Consequently, we experienced a significant decline in metal ore sales across the board and scrap metals sales as well in the second quarter of 2012. However, although the market is still weak we have seen some sure signs of a move to pro-growth policy in the PRC and we expect recovery will pick up momentum in the late of 2012. With the expected improvement of our supply chain management, we are well-positioned to capture a growing share of an increasing market demand for our products when the market recovers.”

Gross profit for the second quarter of 2012 was $0.7 million compared to $1.3 million in the second quarter of 2011. Gross margin was 16.9% compared to 4.4% for same period of last year. The profit margin increase was primarily due to an adjustment as result of invoicing changes for transactions in prior quarter.

Operating expenses decreased to $1.9 million from $2.1 million a year ago. The decrease in operating expenses was primarily due to decreased professional fees and selling expenses associated with lower level of sales.

Operating income for the second quarter of 2012 was a $1.2 million loss compared to a $0.7 million loss in the second quarter of 2011.

Net loss for the second quarter of 2012 was $1.7million, or $0.09 per diluted share, compared to a $1.3 million loss, or $0.08 per share, in the same period last year. The weighted average diluted shares outstanding increased from 15.4 million in the second quarter of 2011 to 18.5 million in the second quarter of 2012.

The Company ended the second quarter of 2012 with $0.9 million in cash, compared to $1.0 million at the end of 2011. Working capital was -$2.57 million and a current ratio of 0.93:1 on June 30, 2012 compared to $1.6 million and 1.03:1 on December 31, 2011. The decrease in working capital from end of 2011 was mainly as result of operating loss, interest expense, and wrote off on marketable securities of investment. Total accounts receivable were $0.79 million at the end of the second quarter of 2012 compared to $0.76 million at year-end 2011. Accounts receivable has been maintained at low level due to improved collections and the successful transition to the Company–s pre-selling strategy. Total shareholders– equity was $39.6 million at June 30, 2012.

The Company had $4.95 million net cash outflow from operations the first half of 2012 and spent $1.3 million on capital expenditures. Net cash inflow from financing activities was $7.65 million. China Armco had approximately $63 million of credit available on seven bank lines with an aggregate capacity of $79 million at June 30, 2012.

China Armco–s sales decreased in the first half of 2012, from $80.7 million a year ago to $53.6 million. Sales in the metal recycling business were $11.6 million, a decrease of $16.9 million from the same period last year. Metal ores trading generated $41.9 million of sales compared to $52.2 million in the comparable period a year ago. In response to the deteriorating market due to China economy slowdown in first half of 2012 the company significantly reduced its trading and production activities to control market risks. While expanding its sources of raw material and developing a supply chain network locally to increase and stabilize the availability of raw materials, China Armco is also seeking to expend its overseas supply channels and recent development included negotiations on business cooperation with U.S. and Japan suppliers.

Gross profit decreased by $2.3 million to $2.2 million, with a gross margin of 4% compared to $4.5 million for the first six months of 2011.

Operating expenses decreased from $3.8 million to $3.6 million, primarily due to decrease in professional fees and selling expenses. Net loss and per share loss were $3.3 million and $0.19, respectively, in the first half of 2012. The weighted average diluted shares outstanding were 17.6 million, a 15% increase from 15.3 million in the first six months of 2011.

The metal ore trading business decreased about 20% in net revenues during the first half of 2012 compared to the same period in 2011 due to deteriorating market as result of China economy slowdown. During the difficult time for whole industry, the Company continued to solidify business relationships with its suppliers while reducing purchases and inventory to control market risk. Management also works with clients and financial institutions to refine business model in trading business and believes it will benefit to all parties.

The scrap metal recycling business was adversely affected by the economy slowdown in the PRC. Sales decreased substantially from approximately 61,192 in the first six months of 2011 to approximately 23,471 MT in the first six months of 2012. The Company ended the second quarter with 1,278 MT of recycled scrap steel yet to be delivered. The Company has concentrated its efforts on streamlining the production and operations by developing standardized production processes, improving cost controls with greater precision and efficiencies. The Company continues to work on developing a supply chain network locally and expanding overseas supply channels and recent development included negotiations on business cooperation with U.S. and Japan suppliers. Management continues to believe that the secular shift to more environmentally friendly energy production materials and methods will drive the underlying demand for recycled steel.

In June 2012, the Company renewed the operating agreement with Lianyungang Hebang Renewable Resources Co., Ltd. (“Hebang”), an unrelated third party, to lease storage and production capacity at Hebang–s facilities located in Guanyun City, Jiangsu province. The agreement allows China Armco to secure and store raw materials at a reasonable cost while reducing the cost of transportation. Guanyun City is located approximately 60 miles (direction) from the Company–s metal recycling facilities in Lianyungang. Hebang has provided 11,396 MT raw materials since the first lease started last June.

Please dial in at least 10 minutes before the call to ensure timely participation.

The playback of the webcast can be accessed until 02/15/2013. To access the webcast, you will need to have the Windows Media Player on your desktop. For the free download of the Media Player, please visit:

Teleconference will be available for replay until 11:59 PM 08/29/2012

About China Armco Metals, Inc.

China Armco Metals, Inc. trades metal ore and recycles scrap metal within the PRC, which is the world–s largest importer of iron ore and has the world–s largest market for scrap metal. Through its trading business, the company sells and distributes metal ore and non-ferrous metals within the PRC. Through its recently launched recycling business, the company recycles scrap metal (primarily steel) at its facility located in the Jiangsu province of the PRC and sells the recycled product to steel mills within the PRC. Materials used in the company–s trading business are sourced from global suppliers in India, Hong Kong, Nigeria, Brazil, Turkey and the Philippines, and raw materials in the recycling business are sourced primarily from local suppliers. For more information about China Armco, please visit .

Safe Harbor Statement

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 relating to our operations, results of operations and other matters that are based on our current expectations, estimates, forecasts and projections. Any statements that are not historical facts and that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but not always, indicated through the use of words or phrases such as “will” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “believe,” “project,” “may”, “potential,” “opportunity” and “should”) are intended to identify forward-looking statements and may involve risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. These statements include, but are not limited to, our expectations regarding programs and policies announced by the PRC government on our operations or any forward looking statement in this press release.

We caution that the factors described herein could cause actual results to differ materially from those expressed in any forward-looking statements we make and that investors should not place undue reliance on any such forward-looking statements. Such factors include, but are not limited to: fluctuations in the prices of metals, ore and scrap metal, the growth rate of the Chinese and world economy and related economic factors, fluctuations in supply and demand of metals, ore and scrap metal, our ability to secure supplies of metals, ore and scrap metal upon favorable terms, our ability to resell metals and ores at current market prices and on favorable terms, our ability to finance the purchase price of metals, ore and scrap metal (and the continued willingness of our Chairman to personally guarantee such financing), our ability to repay our indebtedness, our ability to retain current customers and suppliers and attract new customers and suppliers, our ability to continue to improve production rates at our recycling facility, our ability to establish adequate management, legal and financial controls in the United States and China, the actions (including for example electric power limitations and currency controls) of government and regulatory bodies in China and United States, the negative market and governmental reaction to “reverse merger” Chinese companies due to high profile frauds and other problems noted in the press, and the cautionary statements and risk factors contained in our Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the year ended December 31, 2011, as amended by Form 10-K/A, and our Quarterly Report on Form 10-Q for the quarters ended March 31, 2012 and June 30, 2012. Most of these factors are beyond our ability to predict or control. New factors that could cause actual results to differ materially from those expressed in the forward-looking statements emerge from time to time, and it is not possible for us to predict all of such factors. Further, we cannot assess the impact of each such factor on our results of operations or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Each forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.

— Financial Tables —

Company:
US Contact:
Christina Xiong
Investor Relations
China Armco Metals, Inc.
Office: 650.212.7620
Email:
Website:

China Contact:
Julie Gu
Investor Relations
Office: 021-62375286
Email:
Website: