China Armco Metals Announces Third Quarter 2012 Financial Results

SAN MATEO, CA — (Marketwire) — 11/14/12 — 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 the third quarter and the first nine months of 2012.

For the quarter ended September 30, 2012, net revenue decreased by 5% to $15.4 million, of which the metal recycling sales increased by 60% to $13.4 million from $8.3 million and the metal ores trading sales decreased by 74% to $2.0 million from $7.7 million, respectively, compared to the same period of 2011. The Company sold 38,752 metric tons (“MT”) of recycled scrap metal compared to 16,592MT sold in the third quarter of 2011, and the production of recycled scrap metal increased by 232% to 44,793 MT from 13,500 MT in the third quarter of 2011. The decrease in the trading business sales was caused by a $3.9 million decrease in sales of iron ore and a $4.1 million decrease in sales of chromium ore, and the decrease was partially offset by a $0.37 million increase in sales of manages ore.

“We are pleased to report a consolidated net income in this quarter after consecutive losses in previous quarters and this is important to us,” explained Mr. Kexuan Yao, Chairman and CEO of China Armco. We made significant progress in our metal recycling business this quarter. In response to the market rebound in the third quarter, we significantly expanded our metal recycling business activities and our production and sales increased by 232% and 134% in quantities (MTs), respectively, compared to same period of 2011. Our gross profit margin for recycling business in the third quarter was 14%, signifying significant improvement of our recycling business operation efficiency and capacity. Encouraged by the result, our management is more confident about our business model and operation. We are having active discussions with prospective new customers to further expand our client and business partner base.

Gross profit for the third quarter of 2012 was $1.9 million compared to $0.8 million in the third quarter of 2011. Gross margin was 12.5% compared to 5.0% for same period of last year. The increase in profit margin was primarily due to a significant increase of gross margin in our scrap recycling business from 8% to 14% as result of market rebound and our quick and proactive reaction to the market change in the quarter during which we accumulated raw materials at a low cost during market downturn and sold the products at higher price quickly when market rebounded.

Our operating expenses decreased to $1.4 million from $1.7 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 in our trading business.

Our operating income for the third quarter of 2012 was a $0.54 million income compared to a $0.92 million loss in the third quarter of 2011.

Our net income for the third quarter of 2012 was $0.13 million, or $0.01 per diluted share, compared to a $1.1 million loss, or $0.07 loss per diluted share, in the same period last year. The weighted average diluted shares outstanding increased from 15.4 million in the third quarter of 2011 to 19.5 million in the third quarter of 2012.

The Company ended the third quarter of 2012 with $0.6 million in cash, compared to $1.0 million at the end of 2011. Working capital was negative $1.43 million and a current ratio of 0.96:1 on September 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 a result of operating loss, interest expense, and a write off on marketable securities of investment. Total accounts receivable were $2.7 million at the end of the third quarter of 2012 compared to $0.76 million at year-end 2011. The increase in accounts receivable was mainly due to the timing difference between the sales and collections of sales of Chrome and scrap metal transactions that generated account receivable of approximately $1.4 million and $1.3 million, respectively. The $1.7 million of the account receivable has been received and the remaining is expected to receive in the fourth quarter of 2012. 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 $40.1 million at September 30, 2012.

The Company had $5.19 million net cash outflow from operations the first nine months of 2012 and spent $0.8 million on capital expenditures. Net cash inflow from financing activities was $3.05 million. China Armco had approximately $56 million of credit available on eight bank lines with an aggregate capacity of $81 million at September 30, 2012.

China Armco–s sales decreased in the first nine months of 2012, from $96.8 million a year ago to $68.9 million. Sales in the metal recycling business were $25.0 million, a decrease of $11.8 million from the same period last year. Metal ores trading generated $43.9 million of sales compared to $59.9 million in the comparable period a year ago. In response to the deteriorating market due to the China economy slowdown in the first half of 2012, the company significantly reduced its trading and production activities to control market risks. The metal recycling sales and activities increased in the third quarter in response to the market rebound. 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 expand its overseas supply channels and a recent development included negotiations on business cooperation with U.S. and Japan suppliers.

Our gross profit decreased by $1.2 million to $4.1 million, with a gross margin of 6% compared to $4.5 million with a gross margin of 5.5% for the first nine months of 2011.

Our operating expenses decreased from $5.6 million to $5.0 million, primarily due to a decrease in professional fees and selling expenses. Net loss and net loss per share were $3.2 million and $0.18, respectively, in the first nine months of 2012. The weighted average diluted shares outstanding were 18.2 million, a 19% increase from 15.3 million in the first nine months of 2011.

Our metal ore trading business decreased by approximately 26.8% in net revenues during the first nine months of 2012 compared to the same period in 2011 due to a deteriorating market as a result of the China economy slowdown. During this difficult time for whole industry, the Company continued firm business relationships with its suppliers while reducing purchasing and inventory to control market risk. In response to the market rebound in the late third quarter we increased our trading business activities gradually to seize market opportunities while keeping market risks under control. The management also works with clients and financial institutions to refine our business model in trading business and believes it will benefit to parties. In the third quarter we signed a financing mandate letter with Deutsche Bank. The new financing facility is custom-tailored for our new “Commodity Financing” model which enables us to provide financing service for our clients and liquidate the ore inventories stockpiled at the ports. We expect that the “Commodity Financing” model, a unique innovation in China–s metal industry, will significantly increase the growth potential of the Company. China Armco is also negotiating with two other banks for financing facilities regarding this new business model.

The scrap metal recycling business was adversely affected by the economy slowdown in China resulting in decreases in sales and production in the first six months of 2012. However, its scrap metal recycling business rebounded significantly in the third quarter of 2012. Overall sales decreased from approximately 78,356 MTs in the first nine months of 2011 to approximately 62,083 MTs in the first nine months of 2012. The Company ended the third quarter with orders of 4,000 MTs of recycled scrap steel yet to be delivered. The 4,000 MTs and another 20,000 MTs scrap steel of new orders received in October 2012 have been 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. 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.

Recently our recycling business obtained new qualification certificate for scrap recycling operation. The new qualification certificate allow our facility to recycle scrap metals imported from abroad without using agents, who charge the company a fee. This is expected to substantially lower the company–s cost by removing the agent fee in its operation and thus improve operating profit margin. The removal of the agent requirement also enhances the company–s capability on raw materials sourcing and purchasing and improves the company–s operating capacity. Moreover, obtaining this certificate is the premise for applying the certificate to import scrap steel directly by the company. We believe that this is a milestone for the Company–s supply chain development.

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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, and our Quarterly Report on Form 10-Q for the quarters ended March 31, 2012, June 30, 2012 and September 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 Statement
(Attached)

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: