Armco Metals Holdings Announces Third Quarter 2013 Financial Results

SAN MATEO, CA — (Marketwired) — 11/14/13 — Armco Metals Holdings, Inc. (NYSE MKT: AMCO) (“Armco Metals” or the “Company”), a distributor of imported metal ore and metal recycler in China, today announced its financial results for the third quarter and the first nine months of 2013.

For the quarter ended September 30, 2013, net revenue increased by 33% to $20.5 million, of which the metal recycling sales decreased by 12% to $12.0 million from $13.4 million and the metal ores trading sales increased by 323% to $8.5 million from $2.0 million, respectively, compared to the same period of 2012. The Company sold 30,469 metric tons (“MT”) of recycled scrap metal compared to 38,752 MT sold in the third quarter of 2012, and the production of recycled scrap metal decreased by 23% to 34,692 MT from 44,793 MT in the third quarter of 2012. The decrease in the recycling business sales was due to the soften demand for our product in the quarter. The increase in the trading business sales was caused by a $7.0 million increase in sales of chromium ore and the increase was partially offset by a $0.7 million decrease in sales of manganese ore. The type of products we buy and sell are subject to change and are dependent upon availability and the demands of our customers.

“We experienced a difficult quarter for the industry witnessing a softened scrap metal market with wide fluctuation and sharp decline in price,” explained Mr. Kexuan Yao, Chairman and CEO of the Company. “We suffered losses in both our metal recycling and trading business this quarter, especially a substantial loss in the recycling business. Management conducted a series of in-depth analysis on the operating results and the strategy how to better manage market risks in our business. Although disappointed by the result of the quarter, our management is still confident about our business model and operation which are still under development and the Company will be constantly adjusting its strategy to adapt to the market change and maintain its operation flexibility.”

Gross profit for the third quarter of 2013 was -$1.9 million compared to $1.9 million in the third quarter of 2012. Gross margin was -9.1% compared to 12.5% for same period of last year. The decrease in profit margin was primarily due to a significant decrease of gross margin in our scrap recycling business from 14% to -15.5% as result of the sluggish scrap metal market with wide fluctuation and sharp decline in steel scrap price in the quarter during which we purchased raw materials at a higher cost and resulted an approximately $1.5 million of inventory deprecation in our recycling business.

Our operating expenses decreased to $1.2 million from $1.4 million a year ago. The decrease in operating expenses was primarily due to decreased general and administrative expenses and professional fees.

Our operating loss for the third quarter of 2013 was a -$3.1 million compared to an income of $0.54 million in the third quarter of 2012.

Our net loss for the third quarter of 2013 was -$3.5 million, or -$0.14 per diluted share, compared to an income of $0.13 million, or $0.01 per diluted share, in the same period last year. The weighted average diluted shares outstanding increased from 19.5 million in the third quarter of 2012 to 24.7 million in the third quarter of 2013.

Our net revenue decreased in the first nine months of 2013, from $68.9 million a year ago to $62.5 million. Sales in the metal recycling business were $39.8 million, an increase of $14.8 million from the same period last year. Metal ores trading generated $22.7 million of sales compared to $43.9 million in the comparable period a year ago. The decline in trading sales was primarily a result of a decrease in the sales of iron ore $35 million, partially offset by the increase in the sales of chrome ore of $7.9 million, manganese ore of $2.5 million, and titanium ore of $0.7 million. Our gross profit decreased by $3 million to $1.1 million, with a gross margin of 1.8% compared to $4.1 million with a gross margin of 6.0% for the first nine months of 2012.

Our operating expenses decreased from $5.0 million to $4.2 million, primarily due to a decrease in general and administrative expenses and operating cost of idle manufacturing facility. Net loss and net loss per share were -$3.7 million and -$0.15, respectively, in the first nine months of 2013. The weighted average diluted shares outstanding were 24.2 million, a 33% increase from 18.2 million in the first nine months of 2012.

The Company ended the third quarter of 2013 with $2.8 million in cash, compared to $1.4 million at the end of 2012. Working capital was -$1.12 million and a current ratio of 0.98:1 on September 30, 2013 compared to $0.3 million and 1.01:1 on December 31, 2012. The increase in working capital from end of 2012 was mainly a result of more cash flow from financing activities. Total accounts receivable were $7.8 million at the end of the third quarter of 2013 compared to $15.7 million at year-end 2012. The decrease in accounts receivable was primarily due to the timing difference between the sales and collections of sales of Chrome and scrap metal transactions. The account receivable for our 15,000 MT scrap metal sales to a customer has been received in November 2013. 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 $40.7 million at September 30, 2013.

The Company had $5.25 million net cash outflow from operations the first nine months of 2013 and spent $0.2 million on capital expenditures. Net cash inflow from financing activities was $8.6 million. Armco Metals had approximately $53 million of credit available on nine bank lines with an aggregate capacity of $85 million at September 30, 2013.

Our metal ore trading business decreased by approximately 48% in net revenues during the first nine months of 2013 compared to the same period in 2012. The decline in trading business sales was primarily due to the adjustment that the Company proactively made to the operation in response to the change in metal ore market where the Company slowed down its trading activities to manage risks. The Company reduced sales of iron ore significantly and increased sales of manganese ore and chrome ore to diversify and balance product sales for managing market risks. In the fourth quarter, the Company signed a sales contract value at approximately $18 million to provide corrosion resistant plate to the customer and the delivery of the product has started. The Company continued to strengthen business relationship with its suppliers and develop customer base while looking for new business opportunities in metal ore trading. We added five new customers for our trading business and the trading business sales from new customers for the first nine months of 2013 were approximately $5.8 million. Meanwhile, we continued to develop our new “Commodity Financing” model and obtained support from several large banks.

In the third quarter, our scrap metal recycling business was adversely affected by the softened scrap metal market with wide fluctuation and sharp decline in price resulting in decreases in sales and production, as well as a significant decrease in gross profit margin in the quarter compared to same period of prior year. However, for the first nine months of 2013, the sales and production for our scrap metal recycling business both increased significantly. Overall sales increased from approximately 62,083 MTs in the first nine months of 2012 to approximately 96,063 MTs in the first nine months of 2013, representing 55% growth. The production of scrap metals for the first nine months of 2013 increased 62% to 131,236 MTs from 80,779 MTs in the same period of 2012. The Company continued to develop new customers to expand its customer base for its recycling business. For the first nine months of 2013 we added two new customers and the recycling business sales generated from new customers amounted to $7.8 million. The recycling business contributed 64% and 75% of our net revenue and gross profit, respectively, for the nine months ended September 30, 2013. The 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.

Friday, November 15, 2013
5:00 p.m. Eastern Time, US
1-877-407-9210
1-201-689-8049

2013 Third Quarter Financial Results Call

The playback of the webcast can be accessed until 02/17/2014.

Replay Number (Toll Free): 1-877-660-6853

Replay Number (International): 1-201-612-7415

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Armco Metals Holdings, Inc. is engaged in the sale and distribution of metal ore and non-ferrous metals throughout the PRC and is in the recycling business in the PRC. Armco Metals– customers throughout China include some of the fastest growing steel producing mills and foundries in the PRC. Raw materials are acquired from a global group of suppliers located in diverse countries, including, but not limited to, Brazil, India, Indonesia, Ukraine and the United States. Armco Metals– product lines include ferrous and non-ferrous ore, iron ore, chrome ore, nickel ore, magnesium, copper ore, manganese ore, and steel billet and recycled scrap metals. For more information about Armco Metals, please visit .

For more information, please contact:

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US Contact:
Christina Xiong
Armco Metals Holdings, Inc.
Office: 650.212.7620
Email:
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China Contact:
Ripple Zhang
Investor Relations
Office: 021-62375286
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Website: