China Armco Metals Announces Financial Results for the Fourth Quarter and Full Year of 2011

SAN MATEO, CA — (Marketwire) — 03/30/12 — China Armco Metals, Inc. (NYSE Amex: CNAM) (“China Armco” or “the Company”), a distributor of imported metal ore and metal recycler, today announced its financial results for its fourth quarter and for the fiscal year ended December 31, 2011.

For the quarter ended December 31, 2011, net revenue decreased 61% to $9.46 million due to the sharp price changes and market uncertainty. In response, our scrap metal customers temporarily reduced or postponed pre-order significantly while we also lowered our procurement and pre-selling sales to control our market risk. Despite the great uncertainties surrounding global economies, we believe the demand for iron ore on a global basis and the Chinese scrap steel demand will grow in 2012. We intend to continue our strategy to secure longer term ore and scrap metal supply contracts with our customers, ensuring a more stable supply of inventory.

Gross profit for the fourth quarter of 2011 decreased 35% to $0.52 million, compared to $0.8 million in the fourth quarter of 2010. Gross margin increased to 5.5%, compared to 3.1% in the same period in 2010.

Operating expenses decreased by 37% to $1.19 million for the fourth quarter of 2011 from $1.9 million for the fourth quarter of 2010.

Operating loss for the fourth quarter of 2011 decreased 39% to $0.67 million, compared to an operating loss of $1.1 million in the fourth quarter of 2010.

Net loss for the fourth quarter of 2011 was $1.51 million, or $0.10 per diluted share, compared to a loss of $1.6million or $0.11 per share for the same period last year. Diluted earnings per share were a $0.22 loss and $0.16 loss for the year ended December 31, 2011 and December 31, 2010, respectively.

Net revenues in 2011 increased by $37.4 million to $106.2 million, an increase of 54% compared to 2010, primarily due to an approximately $24.2 million increase in the sale of scrap metals, a $11.1 million increase in sale of iron pellets, a $4.6 million increase in the sale of chrome ore and a $2.2 million increase in the sale of iron ore. The increases were partially offset by a decrease in manganese ore sales of $3.5 million. Our recycling business generated net revenues of approximately $43.7 million in 2011.

Gross profit for the full year 2011 was $5.85 million, an increase of 134% from $2.5 million for the year ended December 31, 2010. Gross margins increased to 5.5% in 2011 compared to 3.6% in 2010, which was primarily attributable to higher margins on iron ore and manganese ore sales, and sales of scrap metal valued at $43.7 million in 2011 with a gross margin of 6.6%.

Operating expenses of $6.8 million in 2011 increased by $1.9 million, or 40%, over 2010 due to an increase in operating cost of our idle manufacturing facility of $1.9 million, an increase in general and administrative expenses of $0.71 million, and an increase in professional fees of $0.15 million including legal fees, audit fees, investor relations, website design and SEC filing services. These increases were partially offset by decreases in selling expenses of $0.86 million attributable to a decrease in warehouse fees for our trading business. Selling expenses include commissions, salaries and travel for the sales agents and warehouse fees.

Our net loss in 2011 was $3.3 million, compared to net loss of $2.2 million in 2010, primarily related to the write down of $1.98 million from our investment in Apollo Minerals. Such loss was partially offset by an increase in gross profit of $3.4 million.

In reviewing the financial performance for the quarter and year ended 2011, Mr. Kexuan Yao, Chairman and CEO of China Armco, acknowledged the challenges the company encountered during this past year. Mr. Yao remarked that, “We met a myriad of challenges in 2011, both unexpectedly imposed and some inadvertently encountered and obviously disappointed in the financial results of the fourth quarter 2011. While there is no way to expect the unexpected, we have made diligent efforts in making significant changes to improve in a number of areas, including, but not limited to, a more efficient personnel utilization, strengthened financial controls and risk management systems and increased corporate governance communications. We have also streamlined our logistics and supply chain, and have acquired key customers and suppliers around the world, where our relationships with business leaders in Brazil have been strengthened.”

Mr. Yao further stated that, “We believe that we have developed a strategy that will enable us in the future to address more successfully these challenges caused by the interdependence of the world–s economies in general and the consequential volatility impact on the steel and recycling businesses. These efforts have provided us with a solid and sound foundation to secure brand recognition and to establish our reputation for outstanding reliability and servicing in the industry. This growth in prominence enables us to work more with the larger Chinese steel mills. With the mandate by the Chinese government under the new Five-Year Plan (2011-2015) to increase the use of scrap metal, we are well-positioned to capture a growing share of an increasing market demand for our products.”

As of December 31, 2011, the Company had $1.0 million in cash and cash equivalents, compared to $3.1 million at year-end 2010. The Company had working capital of $1.6 million and a current ratio of 1.03:1 on December 31, 2011 compared to $12.2 million and 1.3:1 on December 31, 2010. The decrease in working capital was mainly due to our investment in property, plant and equipment of $7.5 million and an increase in land use right of $4.1 million for our future expansion. As of December 31, 2011, shareholders– equity was $42.3million, down from $42.8 million at the end of 2010.

The Company had a $14.3 million net cash inflow from operations in 2011 compared to a net outflow of $5.7 million in 2010. Inventories increased by $22.9 million in the year ended 2011 compared to year ended 2010. The sharply increased inventories were mainly attribute to the iron ore purchased from Brazil in December of 2011, which was promptly sold in the first quarter of 2012. The Company invested a total of approximately $48.6 million in the aggregate to acquire land use rights and to construct and purchase equipment for scrap metal facilities we operated. We maintain nine bank facilities with lines of credit totaling approximately $110 million in the aggregate. Approximately $78 million remained available at December 31, 2011.

China Armco continues to make steady progress in both its metal trading and recycling businesses. In 2011 our sales increased significantly with improved gross margin in compared to 2010 in both our trading and recycling business. By February 17, 2012, the Company had completed the shipment of 150,000 MT of iron ore purchased from Brazil with a purchase contract value of approximately $17 million. As of the date of this filing, the ore had already been sold to our customers in PRC upon favorable terms. The establishment of these long-term relationships with Brazilian steel and mining companies is directed at increasing gross margins in our businesses in the long-term. The company continued to refine its business model to better manage risk, anticipating pricing and market changes. In 2011 we added 10 new customers to its growing base of customers throughout China. We accomplished a goal of building a stronger marketing and brand positioning for our businesses and products.

In the metal recycling business, in 2011, the Company implemented its strategy to expand sources of raw material acquisition locally. By establishing a supply chain network through leasing arrangements, we have sought to both increase and stabilize the availability of raw materials. In furtherance of this strategy, in June 2011, the Company signed a lease agreement to manage, operate and control a scrap recycling facility in the area. Capable of recycling scrap metals, the lease has enabled the Company to begin to consolidate its control over the local supply of recycled and raw materials. Since October 2011 it has supplied over 4,529 MT scrap metals. At the end of 2011, China Armco had entered into three other lease arrangements with local scrap recyclers and was in negotiations with five other comparable scrap recyclers in the area. Each such small scrap recycling facility is expected to be able to acquire and process scrap metals 1,000 MT monthly. In addition, China Armco also expanded its purchases from overseas markets, acquiring approximately 10,000 MT of unprocessed scrap metals for the year ended December 31, 2011. The Company also expects to continue to build its overseas supply channels. We have concentrated our efforts on streamlining our production and operations by developing standardized procedures while also improving cost controls with greater precision and efficiencies. These efforts produced dramatically improved gross margins and profitability for the recycling business, of 16% for the fourth quarter of 2011, compared to the 4% for the fourth quarter of 2010, although we do not expect such margins to be sustainable in the future. With an improved supply chain and expected increase operating production efficiencies, we maintain the belief that that our recycling operation will be the largest driver of revenues in returning to profitability.

In addressing the issues faced by the Company–s recycling operations for 2011, Chairman Yao noted that, “Our Facility is fully capable of ramping up to satisfy an expected increase in production volumes. With the benefit of the greater efficiency of recycling operations and its strategic port location advantages, we are cautiously optimistic that we can operate profitably with potentially higher gross margins. Perhaps, most importantly, while enduring these tumultuous times, we wish to express our sincere appreciation to our customers, suppliers, vendors, as well as all of our long-term stockholders and banking institutions, for their unwavering support. All our credit facilities have been renewed on favorable terms, reflecting their continual confidence in our management team, our strategies and its future business prospects for success. As a result, we continue to remain optimistic for our business prospects for 2012, despite the existence of the world–s economies mercurial nature.”

The Company will conduct a conference call at 5:00 p.m. ET on Friday, March 30, 2012. To attend the call, please use the dial-in information below. When prompted, ask for the “China Armco Metals call” and/or be prepared to provide the conference ID.

Webcast link:

The playback of the webcast can be accessed until 9/30/ 2012. 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:

The Teleconference will be available for replay until 11:59 PM April 4, 2012
— Replay Number (Toll Free): 1-877- 660-6853
— Replay Number (international): 1- 201- 612-7415
— Account #: 286
— Conference ID: 391506

China Armco Metals, 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. China Armco–s customers throughout China include some of its fastest growing steel producing mills and foundries. 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. China Armco–s product lines include ferrous and non-ferrous ore, iron ore, chrome ore, nickel ore, magnesium, copper ore, manganese ore, steel billet and recycled scrap metals. For more information about China Armco, please visit .

In connection with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, China Armco Metals, Inc., is hereby providing cautionary statements identifying important factors that could cause our actual results to differ materially from those projected in forward-looking statements (as defined in such act). 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 likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “intends,” “plans,” “believes” and “projects”) may be forward-looking and may involve estimates and uncertainties which 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 our revenues and production related to our scrap metal recycling operations and the extent that any of China–s energy restrictions that have and could be imposed upon us from time to time in the future with resulting blackouts having and adverse impact on our recycling operations.

In addition, any such statements are qualified in their entirety by reference to, and are accompanied by, the following key factors that have a direct bearing on our results of operations:

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. Further, any 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. New factors 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. This press release is qualified in its entirety by the following, including, but not limited to, any expectations with respect to the Company–s revenues and results of operations, the institution of China and US governmental regulations relating to our businesses and the general economic climate of volatility around the world, and the cautionary statements and risk factor disclosure contained in our Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the year ended December 31, 2011.

US Contact:
Investor Relations
Christina Xiong
Office: 650.212.7620
Email:
Website:

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