China Armco Metals Announces First Quarter 2013 Financial Results

SAN MATEO, CA — (Marketwired) — 05/15/13 — China Armco Metals, Inc. (NYSE MKT: CNAM) (“China Armco” or the “Company”), a distributor of imported metal ore and metal recycler, today announced its financial results for the first quarter of 2013.

For the quarter ended March 31, 2013, net revenue decreased to $14.3 million compared to $49.3 million for the same period of 2012. The decline in sales in the quarter resulted from the significant decrease of $35.9 million, or 87%, in our trading business sales which the Company proactively reacted to the metal ore market change and slowed down our trading activities to manage risks. China Armco sold 32,286 tons various metal ores at an average price of $166 per ton through its trading business compared to sales of a total of 324,849 tons various ores at an average price of $127 per ton in the first quarter of 2012. China Armco–s metal recycling business contributed $9.0 million in sales during the first three months of 2013, increased 12% compared to $8.0 million in sales in same period of 2012.

Gross profit for the first quarter of 2013 decreased 56% to $0.64 million, compared to $1.46 million in the first quarter of 2012 mainly due to the decline in trading business. Gross profits for the trading and metal recycling business were $0.002 million and $0.63 million respectively. Gross margin for the trading business declined to 0.3% and recycling businesses increased to 7%, compared to 3% for trading business and 2% for recycling business in the first quarter of 2012 respectively.

Operating expenses remained at approximately $1.7 million for the first quarter of 2013 compared to same period of 2012. As a percentage of sales, operating expenses were 11.8% and 3.4% in the first quarter of 2013 and 2012, respectively, the increase primarily due to the significant decrease in our trading business sales and a one-time leasing fee adjustment in the first quarter of 2013.

Operating loss for the first quarter of 2013 was $1.05 million compared to an operating loss of $0.23 million in the first quarter of 2012.

Net loss for the first quarter of 2013 was $1.09 million, or $0.05 loss per diluted share, compared to net loss $1.66 million or $0.10 per share for the same period last year. The weighted average diluted shares outstanding increased from 16.7 million in the first quarter of 2012 to 23.3 million in the first quarter of 2013, due to equity issuance for capital raise, payment and compensation and converted debt after the end of first quarter of 2012 .

Mr. Kexuan Yao, Chairman and CEO of China Armco stated, “Although the China steel industry had a turnaround from losses to profits for the first quarter, the total profit posted a downward trend with record-high output over the first three months of 2013 suggesting that the sector remained weak due to fiercer competition amid industrial overcapacity. Our trading business was adversely affected by the market resulting in sharp declines on net revenues and gross margins during the quarter. However, our revenue and gross margin in our recycling business continued to grow steady; the quantities of scrap metals processed and sold from our recycling facility in the first quarter continued to increase compared to the first quarter of 2012. We believe our solid and sound foundation in the industry, our strong relationship with our customers and suppliers around the world, and the strategy we have developed will enable us to overcome various challenges and fully leverage our operating model to generate incremental revenue and profitability, especially, recently in the second quarter we have started to increase our production of recycled nonferrous metal scraps which is expected to further improve our recycling business profitability.”

As of March 31, 2013, the Company had $1.33 million in cash and cash equivalents, compared to $1.37 million at the end of 2012. Working capital was $1.4 million and a current ratio of 1.03:1 on March 31, 2013 compared to $0.3 million and 1.01:1 on December 31, 2012. Total accounts receivable decreased $7.6 million to $8.1 million at the end of the first quarter of 2013 compared to $15.7 million at the year end of 2012 primarily due to the payment we received in the first quarter for our scrap metal sales made during 2012. Inventories increased $5.4 million at March 31, 2013 from December 31, 2012, primarily due to the inventories of $3.57 million of Chrome ore and the increase of scrap metal inventories for increased production. We have signed sales contracts and received deposits for the sales order of the Chrome ore inventories which are expected to be delivered in the second quarter. As of March 31, 2013, shareholders– equity was $42 million, essentially flat from December 31, 2012.

The Company had a $3.3 million net cash inflow from operations in the first quarter of 2013 compared to a net cash outflow of $26.1 million in the same period last year. During the first quarter of 2013, China Armco successfully sold (delivered) or locked sales contracts (to be delivered) for all of our metal ores inventories and scrap metals recycled in the quarter to control market risks and speed up capital turnover. The Company has bank facilities, which provide for cash borrowings or the issuance of commercial letters of credit required in its metal ore trading business, aggregating $57 million. Approximately $37 million was available under these facilities at March 31, 2013.

Our trading business decreased to approximately $5.4 million in net revenues during the first quarter of 2013 compared to $41.3 million in the same period in 2012. In the first quarter of 2013, to manage market risks, we significantly decreased new purchase of metal ore and locked sales orders for our ore inventories of $3.57 million to be delivered in second quarter. We continued to firm our business relationship with worldwide suppliers and stabilize our supply capacity. We believe our effort to build our supply capacity will benefit us in the long term and strengthen our market position in the industry in the PRC. Moreover, we continued to develop our new “Commodity Financing” model and expect to make some major progress in this year which we have obtained support from several large banks.

During the first quarter of 2013, despite the Chinese New Year holiday and the weak demand and market, both production and revenues for our recycling business continued to increase compared to the same period of last year. The scrap metals recycled at our recycling facility increased by 75% to 43,795 MT compared to 25,071 MT in the same period of last year. Our scrap metal business sold approximately 23,001 MT of scrap metals, generating approximately $9.0 million of revenue. By comparison, for the first quarter of 2012, our scrap metal business sold approximately 16,753 MT of scrap metals, generating approximately $8.0 million of revenue. The gross profit margin for our recycling business also increased significantly to 7% for the first quarter in 2013 compared to 2% for same period of 2012 due to the improvement of our recycling business operation. Through the past two years– operation, we have achieved many accomplishments in fundamental aspects of our recycling business, such as optimizing production process, improving cost control and management, developing and streamlining supply chain, establishment of long term strategic partnership with key clients, obtaining various qualifications and licenses, and building our brand in the industry. In addition, as an effort to improve our operation and profitability of the recycling business, we strived to obtain a series of qualifications from the Chinese government. Recently in the second quarter of 2013 we have increased our production of recycled nonferrous metal scraps which is expected to further improve our recycling business profitability. We expect to continue to expend resources to build and firm our customer/business partner bases and supply chain for our recycling business, and recent developments include negotiations on businesses cooperation with large state-owned China steel mills and overseas suppliers.

The Company will conduct a conference call at 5:00 p.m. ET on Monday, May 20, 2013. 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.

The playback of the webcast can be accessed until 08/20/2013. 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 Replay:

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

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

Replay Passcode needs Conference ID#: 414423

Conference ID#: 414423

Teleconference will be available for replay until 11:59 PM 06/03/2013

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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 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. 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 of government imposed energy restrictions and resulting blackouts and 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 operations, institution of governmental regulations relating to our businesses and the international economic climate, and the cautionary statements and risk factor disclosures contained in our Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the year ended December 31, 2012.

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For more information, please contact:

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

China Contact:
Ripple Zhang
Office: 021-62375286
Email:
Website: