Attached files
file | filename |
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EX-32 - CHINA SHEN ZHOU MINING & RESOURCES, INC. | v165647_ex32.htm |
EX-31.2 - CHINA SHEN ZHOU MINING & RESOURCES, INC. | v165647_ex31-2.htm |
EX-31.1 - CHINA SHEN ZHOU MINING & RESOURCES, INC. | v165647_ex31-1.htm |
U.S.
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
one)
x
|
Quarterly Report Under
Section 13 or 15(d) of the Securities Exchange Act of
1934
|
For the
Quarterly Period Ended September 30, 2009
or
o
|
Transition Report Under Section 13 or 15(d)
of the Securities Exchange Act of
1934
|
Commission
File Number 000-50491
China Shen Zhou Mining &
Resources, Inc.
(Name of
small business issuer in its charter)
Nevada
|
87-0430816
|
|
(State or other jurisdiction
of incorporation or organization)
|
(I.R.S. Employer Identification No.)
|
No. 166 Fushi Road, Zeyang Tower, Suite 1211
Shijingshan District, Beijing, China 100043
People’s Republic of China
|
|
100043
|
(Address of principal executive offices)
|
|
(Zip Code)
|
Issuer's
telephone number: 86-010-88906927
Indicate
by check mark whether the issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes
x No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).
Yes ¨ No ¨
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
|
Accelerated filer o
|
Non-accelerated filer o
(Do not check if a smaller reporting
company)
|
Smaller reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) Yes ¨
No x
As of
November 12, 2009, the Registrant had 22,214,514 shares of common stock
outstanding.
China Shen Zhou
Mining & Resources, Inc.
Table of
Contents
Page
|
|||
PART
I -
|
FINANCIAL
INFORMATION
|
||
Item
1.
|
Financial
Statements:
|
3
|
|
Consolidated
Balance Sheets as of September 30, 2009 (Unaudited) and December 31,
2008
|
3
|
||
Consolidated
Statements of Operations and Comprehensive Income (Unaudited)
Three
and Nine months ended September 30, 2009 and 2008
|
5
|
||
Consolidated
Statements of Cash Flows (Unaudited)
Nine
months ended September 30, 2009 and 2008
|
6
|
||
Notes
to Financial Statements (Unaudited)
|
8
|
||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
33
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
45
|
|
Item
4.
|
Controls
and Procedures
|
45
|
|
PART
II
|
OTHER
INFORMATION
|
||
Item
1.
|
Legal
Proceedings
|
48
|
|
Item
1A.
|
Risk
Factors
|
48
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
48
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
48
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
48
|
|
Item
5.
|
Other
Information
|
48
|
|
Item
6.
|
Exhibits
|
48
|
2
PART
I - FINANCIAL INFORMATION
Item
1. Financial Statements
CHINA
SHEN ZHOU MINING & RESOURCES, INC AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(Amounts
in thousands, except share data)
September 30
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 1,121 | $ | 205 | ||||
Accounts
receivable, net
|
622 | 561 | ||||||
Other
deposits and prepayments, net
|
1,320 | 1,167 | ||||||
Inventories
|
3,582 | 2,958 | ||||||
Total
current assets
|
6,645 | 4,891 | ||||||
Prepayment
for office rent
|
353 | 505 | ||||||
Available
for sale investment
|
148 | 146 | ||||||
Property,
machinery and mining assets, net
|
46,602 | 47,716 | ||||||
Deferred
debt issuance costs
|
1,437 | 1,755 | ||||||
Total
assets
|
$ | 55,185 | $ | 55,013 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 4,723 | $ | 3,471 | ||||
Fair
value of detachable warrants liability
|
50 | 33 | ||||||
Short
term bank loans
|
3,602 | 1,756 | ||||||
Other
payables and accruals
|
6,189 | 4,794 | ||||||
Taxes
payable
|
314 | 411 | ||||||
Due
to related parties
|
2,046 | 2,666 | ||||||
Convertible
notes payable
|
26,627 | – | ||||||
Total
current liabilities
|
43,551 | 13,131 | ||||||
Convertible
notes payable
|
– | 24,251 | ||||||
Total
liabilities
|
$ | 43,551 | $ | 37,382 | ||||
Minority
interests
|
– | 22 |
3
CHINA
SHEN ZHOU MINING & RESOURCES, INC AND SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS (Continued)
(Amounts
in thousands, except share data)
September 30
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
STOCKHOLDERS’
EQUITY:
|
||||||||
Common
Stock, $0.001 par value:
|
||||||||
Authorized
– 50,000,000 shares (2008: 50,000,000 shares)
|
||||||||
Issued
and outstanding 22,214,514shares
|
$ | 22 | $ | 22 | ||||
Additional
paid-in capital
|
25,251 | 25,251 | ||||||
PRC
statutory reserves
|
1,672 | 1,672 | ||||||
Accumulated
other comprehensive income
|
4,236 | 4,020 | ||||||
Accumulated
deficit
|
(19,547 | ) | (13,356 | ) | ||||
Total
stockholders’ equity
|
11,634 | 17,609 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 55,185 | $ | 55,013 |
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
4
CHINA
SHEN ZHOU MINING & RESOURCES, INC AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amounts
in thousands, except per share data)
For the Three Months Ended
|
For the Nine Months Ended
|
|||||||||||||||
September
30, 2009
|
September
30, 2008
|
September
30, 2009
|
September
30, 2008
|
|||||||||||||
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||
Net
revenue
|
$ | 1,715 | $ | 2,924 | $ | 3,060 | $ | 4,845 | ||||||||
Cost
of sales
|
1,469 | 2,429 | 2,593 | 4,206 | ||||||||||||
Gross
profit
|
246 | 495 | 467 | 639 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Selling
and distribution expenses
|
52 | 36 | 70 | 72 | ||||||||||||
General
and administrative expenses
|
1,379 | 2,550 | 3,650 | 6,942 | ||||||||||||
Total
operating expenses
|
1,431 | 2,586 | 3,720 | 7,014 | ||||||||||||
Net
loss from operations
|
(1,185 | ) | (2,091 | ) | (3,253 | ) | (6,375 | ) | ||||||||
Other
income (expense):
|
||||||||||||||||
Interest
expense
|
(936 | ) | (87 | ) | (2,893 | ) | (1,932 | ) | ||||||||
Other,
net
|
(25 | ) | 48 | (67 | ) | 590 | ||||||||||
Total
other expense
|
(961 | ) | (39 | ) | (2,960 | ) | (1,342 | ) | ||||||||
Loss
from operations before income taxes and minority interests
|
(2,146 | ) | (2,130 | ) | (6,213 | ) | (7,717 | ) | ||||||||
Income
tax benefit
|
- | 85 | - | 129 | ||||||||||||
Loss
from operations before minority interests
|
(2,146 | ) | (2,045 | ) | (6,213 | ) | (7,588 | ) | ||||||||
Minority
interests
|
- | 20 | 22 | 65 | ||||||||||||
Net
loss
|
(2,146 | ) | (2,025 | ) | (6,191 | ) | (7,523 | ) | ||||||||
Other
comprehensive income:
|
||||||||||||||||
Foreign
currency translation adjustments
|
25 | 301 | 216 | 1,857 | ||||||||||||
Comprehensive loss
|
$ | (2,121 | ) | $ | (1,724 | ) | $ | (5,975 | ) | $ | (5,666 | ) | ||||
Net
loss per common share
|
||||||||||||||||
–
basic and diluted
|
$ | (0.10 | ) | $ | (0.09 | ) | $ | (0.28 | ) | $ | (0.34 | ) | ||||
Weighted
average common shares outstanding
|
||||||||||||||||
-
Basic and Diluted
|
22,215 | 22,215 | 22,215 | 22,215 |
5
CHINA
SHEN ZHOU MINING & RESOURCES, INC AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Amounts
in thousands)
For the Nine Months Ended
|
||||||||
September 30
|
||||||||
2009
|
2008
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Cash
flows from operating activities:
|
||||||||
Loss
from operations
|
$ | (6,191 | ) | $ | (7,523 | ) | ||
Adjustments
to reconcile net loss to net cash provided by (used
in)
|
||||||||
Depreciation
and amortization
|
1,868 | 3,288 | ||||||
Deferred
income tax benefits
|
- | (179 | ) | |||||
Fair
value adjustment of warrants
|
17 | (984 | ) | |||||
Accrual
of coupon interests and accreted principal
|
1,169 | 1,112 | ||||||
Amortization
of deferred financing costs
|
1,207 | 1,179 | ||||||
Amortization
of debt issuance costs
|
318 | 311 | ||||||
Minority
interests
|
(22 | ) | (65 | ) | ||||
Changes
in operating assets and liabilities:
|
||||||||
(Increase)
decrease in -
|
||||||||
Accounts
receivable
|
(61 | ) | 1,999 | |||||
Deposits
and prepayments
|
(153 | ) | (443 | ) | ||||
Prepayment
for office rent
|
152 | (540 | ) | |||||
Inventories
|
(624 | ) | (2,871 | ) | ||||
Increase
(decrease) in -
|
||||||||
Accounts
payable
|
1,252 | 494 | ||||||
Other
payables and accruals
|
1,382 | 2,804 | ||||||
Taxes
payable
|
(97 | ) | 57 | |||||
Due
to related parties
|
(620 | ) | 1,032 | |||||
Net
cash used in operating activities
|
(403 | ) | (329 | ) |
6
CHINA
SHEN ZHOU MINING & RESOURCES, INC AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
(Amounts
in thousands)
For the Nine Months Ended
|
||||||||
September 30
|
||||||||
2009
|
2008
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Cash
flows from investing activities:
|
||||||||
Purchases
of property, machinery and mining assets
|
$ | (963 | ) | $ | (1,975 | ) | ||
Sales
of property, machinery and mining assets
|
241 | - | ||||||
Net
cash used in investing activities
|
(722 | ) | (1,975 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from short-term borrowings
|
$ | 1,846 | $ | 446 | ||||
Net
cash provided by financing activities
|
1,846 | 446 | ||||||
Foreign
currency translation adjustment
|
195 | (629 | ) | |||||
Net
increase (decrease) in cash and cash equivalents
|
916 | (2,487 | ) | |||||
Cash
and cash equivalents at the beginning of the period
|
205 | 2,949 | ||||||
Cash
and cash equivalents at the end of the period
|
$ | 1,121 | $ | 462 | ||||
Non-cash
investing and financing activities
|
||||||||
(None)
|
||||||||
Supplemental
disclosures of cash flow information
|
||||||||
Cash
paid for interest expenses
|
$ | 166 | $ | 254 | ||||
Cash
paid for income tax
|
$ | - | $ | - |
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
7
China
Shen Zhou Mining & Resources, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(Unaudited)
NOTE 1 DESCRIPTION OF BUSINESSS AND
ORGANIZATION
China
Shen Zhou Mining & Resources, Inc. and its subsidiaries (collectively known
as the “Company” or “we”) are principally engaged in the exploration,
development, mining and processing of fluorite, zinc, lead, copper, and other
nonferrous metals in the People’s Republic of China (“PRC” or “China”) and
Kyrgyzstan in Central Asia.
On
January 31, 2008, the Company’s common stock was listed on the American Stock
Exchange, now called “NYSE Amex”.
At
September 30, 2009, the subsidiaries of China Shen Zhou Mining & Resources,
Inc. are as follows:
Name
|
Domicile and Date
of Incorporation
|
Paid-in Capital
|
Percentage
of Effective
Ownership
|
Principal Activities
|
|||||||
American
Federal Mining Group, Inc. (“AFMG”)
|
Illinois
November
15, 2005
|
USD
|
10
|
100
|
%
|
Investments
holdings
|
|||||
Inner
Mongolia Xiangzhen Mining Industry Group Co. Ltd. (“Xiangzhen
Mining”)
|
The
PRC
July
3,2002
|
RMB
|
88,860,699
|
100
|
%
|
Acquisition,
exploration and extraction, and development of natural resource
properties
|
|||||
Inner
Mongolia Wulatehouqi Qianzhen Ore Processing Co., Ltd. (“Qianzhen
Mining”)
|
The
PRC
September
22, 2002
|
RMB
|
37,221,250
|
100
|
%
|
Sales
and processing of nonferrous metals and chemical products
|
|||||
Wulatehouqi
Qingshan Non-Ferrous Metal Developing Company Ltd. (“Qingshan
Metal”)
|
The
PRC
April
23, 1995
(Acquired
on April 12, 2006)
|
RMB
|
4,100,000
|
60
|
%
|
Exploration,
extraction and processing of copper, zinc, lead etc
|
|||||
Xinjiang
Buerjin County Xingzhen Mining Company (“Xingzhen Mining”)
|
The
PRC
April
10,2006
(Acquired
on April 28, 2006)
|
RMB
|
1,000,000
|
90
|
%
|
Exploration
of solid metals, processing and sales of mining products.
|
|||||
Tun-Lin
Limited Liability Company (“Tun-Lin”)
|
Kyrgyz
Republic
September
1,2005
(Acquired
on November 26, 2007)
|
KGS
|
5,000
|
100
|
% (a)
|
Investments
holdings
|
|||||
Kichi-Chaarat
Closed Joint Stock Company (“Kichi-Chaarat”)
|
Kyrgyz
Republic September 17,1998 (Acquired on November 26, 2007)
|
KGS
|
10,000
|
100
|
%(b)
|
Exploration,
development, mining, and processing of gold, copper and other mineral
products.
|
(a)
100% ownership of Tun-Lin was acquired by Xiangzhen Mining on November 26,
2007.
(b)
100% ownership of Kichi Chaarat was acquired through the acquisition of Tun-Lin
on November 26, 2007.
8
NOTE
2 BASIS OF PRESENTATION AND GOING CONCERN
These
consolidated financial statements for interim periods are unaudited. In the
opinion of management, all adjustments, consisting of normal, recurring
adjustments and disclosures necessary for a fair presentation of these interim
statements have been included. The results reported in these consolidated
financial statements are not necessarily indicative of the results that may be
reported for the entire year. The accompanying consolidated financial statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission and do not include all information and
footnotes necessary for a complete presentation of financial statements in
conformity with accounting principles generally accepted in the United States of
America. These consolidated financial statements should be read in
conjunction with the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2008, filed on April 15, 2009.
Going
Concern-These consolidated financial statement have been prepared by management
in accordance with accounting principles generally accepted in the Untied States
of America on a “going concern” basis, which presumes that the Company will be
able to realize its assets and discharge its liabilities in the normal course of
business for the foreseeable future.
The
Company has incurred operating losses and negative cash flows from its operating
activities for nine months ended September 30, 2009 and the year ended
December 31, 2008, as well as an accumulated deficit of approximately
$19,547,000 and $13,356,000 and a working capital deficit of approximately
$36,906,000 and $8,240,000 separately as of September 30, 2009 and December 31,
2008.
The
Company’s ability to continue as a going concern is dependent upon continued
production and the display of economically recoverable mining assets as well as
upon obtaining additional financing to develop the properties, the ultimate
realization of profits through future production or sale of properties, and the
success of the Company’s business plan. The outcome of these matters cannot be
predicted at this time. These consolidated financial statements do not include
any adjustments to the amounts and classification of assets and liabilities that
might be necessary should the Company be unable to continue its
business.
NOTE
3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
Company’s consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America.
The preparation of the Company’s consolidated financial statements requires the
Company to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the related disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. The more
significant areas requiring the use of management estimates and assumptions
relate to mineral reserves and value beyond proven and probable reserves that
are the basis for future cash flow estimates utilized in impairment
calculations; the estimated lives of the mineralized bodies based on estimated
recoverable volume through the end of the period over which the Company has
extraction rights that are the basis for units-of-production depreciation;
depletion and amortization calculations; estimates of fair value for certain
reporting units and asset impairments (including impairments of goodwill,
long-lived assets and investments); write-downs of inventory to net realizable
value; reserves for contingencies and litigation; and the fair value and
accounting treatment of financial instruments. The Company bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances. Actual results may differ
significantly from these estimates under different assumptions or
conditions.
9
Principles
of Consolidation
The
consolidated financial statements include the accounts of China Shen Zhou Mining
& Resources, Inc. and the more-than-50%-owned subsidiaries that it controls.
All significant inter-company balances and transactions have been eliminated.
The functional currency for the majority of the Company’s operations is the
Renminbi (“RMB”).
Cash
and Cash Equivalents
Cash and
cash equivalents consist of all cash balances and highly liquid investments with
an original maturity of three months or less. Because of the short maturity of
these investments, the carrying amounts approximate their fair
value.
Accounts
Receivable
Accounts
receivable are stated at cost, net of an allowance for doubtful accounts. The
Company maintains allowances for doubtful accounts for estimated losses
resulting from the failure of customers to make required payments. The Company
reviews the accounts receivable on a periodic basis and makes allowances when
there is doubt as to the collectability of individual balances. In evaluating
the collectability of individual receivable balances, the Company considers many
factors, including the age of the balance, the customer’s payment history, its
current credit-worthiness and current economic trends.
Inventories
Inventories
are stated at the lower of cost, determined on a weighted average basis, or net
realizable value. Costs of finished goods are composed of direct materials,
direct labor and an attributable portion of manufacturing overhead. Net
realizable value is the estimated selling price, in the ordinary course of
business, less estimated costs to complete and dispose. Management also
regularly evaluates the composition of its inventories to identify slow-moving
and obsolete inventories to determine if a valuation allowance is
required.
Available-for-Sale
Investments
The
Company accounts for its investments in auction rate securities in accordance
with FASB ASC 320-10-25-6. Specifically, when the underlying security of an
auction rate has a stated or contractual maturity date in excess of 90 days,
regardless of the frequency of the interest rate reset date, the security is
classified as an available-for-sale marketable debt security.
Property,
Machinery and Mining Assets
Expenditures
for new facilities or equipment and expenditures that extend the useful lives of
existing facilities or equipment are capitalized and depreciated using the
straight-line method at rates sufficient to depreciate such costs over the
estimated productive lives, which do not exceed the related estimated mine
lives, of such facilities based on mineralized material.
10
Mineral
exploration costs are expensed according to the term of the license granted to
the Company. Extraction rights are stated at the lower of cost or recoverable
amount. When extraction rights are obtained from the government according
to mining industry practice in the PRC, extraction rights and other costs
incurred prospectively to develop the property are capitalized as incurred and
are amortized using the units-of-production (“UOP”) method over the estimated
life of the mineralized body based on estimated recoverable volume through the
end of the period over which the Company has extraction rights. At the Company’s
open pits, these costs include costs to further delineate the mineralized body
and remove overburden to expose the mineralized body. At the Company’s
underground mines, these costs include the costs of building access ways, shaft
sinking and access, lateral development, drift development, ramps and
infrastructure development.
Major
development costs incurred after the commencement of production are amortized
using the UOP method based on estimated recoverable volume in mineralized
material. To the extent that these costs benefit the entire mineralized body,
they are amortized over the estimated life of the mineralized body. Costs
incurred to access specific mineralized blocks or areas that only provide
benefit over the life of that area are amortized over the estimated life of that
specific mineralized block or area. Interest cost allocable to the cost of
developing mining properties and to constructing new facilities, if any, is
capitalized until assets are ready for their intended use.
Land use
rights are stated at cost, less accumulated amortization. Amortization is
computed using the straight-line method over the estimated useful lives of 25
years.
The
Company’s estimated useful lives of fixed assets are summarized as
follows:
Useful Life
|
||||
(In years)
|
||||
Land
use rights
|
25 | |||
Buildings
|
25 | |||
Machinery
|
12 | |||
Mining
assets
|
License
term
|
|||
Motor
vehicle
|
6 | |||
Equipment
|
5 | |||
Extraction
rights
|
License
term
|
|||
Exploration
rights
|
License
term
|
11
Stripping
Costs
Stripping
costs are costs of removing overburden and other mine waste materials.
Stripping costs incurred during the production phase of a mine are
variable production costs that are included as a component of inventory to be
recognized in cost of sales in the same period as the revenue from the sale of
inventory.
Debt
Issuance Costs
Debt
issuance costs are costs of commissions, interest expenses for bridge loans and
legal fees for convertible notes. Debt issuance costs are deferred and amortized
over the life of the convertible notes using the effective interest rate
method.
Asset
Impairment
Long-lived
Assets
The
Company reviews and evaluates its long-lived assets including property,
machinery and mining assets for impairment when events or changes in
circumstances indicate that the related carrying amounts may not be recoverable.
An impairment is considered to exist if the total estimated future cash flows on
an undiscounted basis are less than the carrying amount of the assets, including
goodwill, if any. An impairment loss is measured and recorded based on
discounted estimated future cash flows. Future cash flows are estimated based on
quantities of recoverable metals, corresponding expected commodity prices
(considering current and historical prices, price trends and related factors),
production levels and operating costs of production and capital, all based on
life-of-mine plans. Existing proven and probable reserves and value beyond
proven and probable reserves are included when determining the fair value of
mine site reporting units at acquisition and, subsequently, in determining
whether the assets are impaired. The term “recoverable metals” refers to the
estimated amount of metals that will be obtained after taking into
account losses during ore processing and treatment. Estimates of
recoverable metals from such stage metal interests at exploration stage are risk
adjusted based on management’s relative confidence in such materials. In
estimating future cash flows, assets are grouped at the lowest level for which
there are identifiable cash flows that are largely independent of future cash
flows from other asset groups. The Company’s estimates of future cash flows are
based on numerous assumptions and it is possible that actual future cash flows
will be significantly different than the estimates, as actual future quantities
of recoverable minerals, gold and other commodity prices, production levels and
operating costs of production and capital are each subject to significant risks
and uncertainties.
Financial
Instruments
The
Company values its financial instruments by estimating their fair value. The
estimated fair value amounts have been determined by the Company, using
available market information or other appropriate valuation methodologies.
However, considerable judgment is required in interpreting market data to
develop estimates of fair value. Consequently, the estimates are not necessarily
indicative of the amounts that could be realized or would be paid in a current
market exchange.
12
The
Company’s financial instruments primarily consist of cash and cash equivalents,
accounts receivable, other deposits and prepayments, accounts payable,
detachable warrants, short-term bank loans, other payables and accruals, taxes
payable and due to related parties.
As of the
balance sheet dates, the estimated fair values of the financial instruments were
not materially different from their carrying values as presented, due to the
short maturities of these instruments.
Revenue
Recognition
Revenue
is recognized on the sale of products when title has transferred to the customer
in accordance with the specified terms of each product sales agreement and all
the following four revenue criteria are met: persuasive evidence of an
arrangement exists, delivery has occurred, the selling price is fixed or
determinable, and collectibility is reasonably assured. Generally, the Company’s
product sales agreements provide that title and risk of loss pass to the
customer when the quantity and quality of the products delivered are certified
and accepted by the customer.
Sales
revenue is recognized, net of PRC business taxes, sales discounts and returns at
the time when the merchandise is sold to the customer. Based on historical
experience, management estimates that sales returns are immaterial and has not
made allowance for estimated sales returns.
Income
Taxes
The
Company accounts for income taxes in accordance with FASB ASC 740- Income Taxes
which requires an asset and liability approach for financial accounting and
reporting for income taxes and allows recognition and measurement of deferred
tax assets based upon the likelihood of realization of tax benefits in future
years. Under the asset and liability approach, deferred taxes are provided for
the net tax effects of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for
income tax purposes. A valuation allowance is provided for deferred tax assets
if it is more likely than not these items will either expire before the Group is
able to realize their benefits, or their future deductibility is
uncertain.
Transportation
Charges
Transportation
charges represent costs to deliver the Company’s inventory to point of sale.
Transportation costs are expensed and charged to cost of sales as
incurred.
Foreign
Currency
The
Company uses the United States dollar (“U.S. dollar” or “US$” or “$”) for
financial reporting purposes. The functional currency for the majority of the
Company’s operations is the Renminbi (“RMB”). The functional currency for
Tun-Lin and Kichi-Chaarat, the Company’s foreign subsidiaries in Kyrgyz
Republic, is the Kyrgyz Som (“KGS”). All asset and liability accounts have been
translated using the exchange rate in effect at the balance sheet date.
Equity accounts have been translated at their historical exchange rates when the
capital transaction occurred. Statements of operations amounts have been
translated using the average exchange rate for the period. Adjustments resulting
from the translation of the Company’s financial statements are recorded as
accumulated other comprehensive income.
13
The
exchange rates used to translate amounts in RMB and KGS into U.S. dollars for
the purposes of preparing the consolidated financial statements were as
follows:-
September 30, 2009
|
December 31, 2008
|
||||
Balance
sheet items, except for the registered and paid-up capital and
retained earnings, as of period end
|
US$1=RMB6.8288
US$1=KGS43.6293
|
US$1=RMB6.8346
US$1=KGS39.4181
|
For the
Nine months ended
September 30, 2009
|
For the
Nine months ended
September 30, 2008
|
||||
Amounts
included in the statements of operations, statements of changes in
stockholders’ equity and statements of cash flows for the
period
|
US$1=RMB6.8329
US$1=KGS42.7090
|
US$1=RMB6.9920
US$1=KGS35.9253
|
Although
government regulations now allow convertibility of RMB and KGS for current
account transactions, significant restrictions still remain. Hence, such
translations should not be construed as representations that RMB or KGS could be
converted into U.S. dollars at that rate or any other rate.
The value
of RMB and KGS against the U.S. dollar and other currencies may fluctuate and is
affected by, among other things, changes in China and Kyrgyz Republic’s
political and economic conditions. Any significant revaluation of RMB and
KGS may materially affect the Company’s financial condition in terms of U.S.
dollar reporting.
Stock
Based Compensation
In
December 2004, the Financial Accounting Standards Board, or FASB, issued FASB
ASC 718-10-55 - Compensation-Stock Compensation, or ASC 718-10-55. Under ASC
718-10-55, companies are required to measure the compensation costs of
share-based compensation arrangements based on the grant-date fair value and
recognize the costs in the financial statements over the period during which
employees are required to provide services. Share-based compensation
arrangements include stock options, restricted share plans, performance-based
awards, share appreciation rights and employee share purchase plans. In
addition, FASB ASC 825-10-50-10 – Financial Instruments – Overall – Disclosures,
or ASC 825-10-50-10, expresses views of the Securities and Exchange Commission,
or the SEC, staff regarding the interaction between ASC 718-10-55 and certain
SEC rules and regulations and provides the staff's views regarding the valuation
of share-based payment arrangements for public companies. The Company’s
compensation cost is measured on the date of grant at its fair value. Such compensation
amounts, if any, are amortized over the respective vesting periods or period of
service of the option grant
14
Net
Income per Common Share
Basic and
diluted earnings per share are presented for net income and for income from
continuing operations. Basic earnings per share is computed by dividing net
income by the weighted-average number of outstanding common shares for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts that may require the issuance of common
shares in the future were converted. Diluted earnings per share is computed by
increasing the weighted-average number of outstanding common shares to include
the additional common shares that would be outstanding after conversion and
adjusting net income for changes that would result from the conversion. Only
those securities or other contracts that result in a reduction in earnings per
share are included in the calculation.
Comprehensive
Income
Accumulated
other comprehensive income includes foreign currency translation adjustments.
Total foreign currency translation adjustments for the nine months ended
September 30, 2009 and 2008 were $216,000 and $1,857,000
respectively.
Recent Accounting
Pronouncements
In June
2009, the FASB approved its Accounting Standards Codification (“Codification”)
as the single source of authoritative United States accounting and reporting
standards applicable for all non-governmental entities, with the exception of
the SEC and its staff. The Codification which changes the referencing of
financial standards is effective for interim or annual periods ending after
September 15, 2009. Therefore in the third quarter of fiscal year 2009, all
references made to US GAAP will use the new Codification numbering system
prescribed by the FASB. As the codification is not intended to change or alter
existing US GAAP, it is not expected to have any impact on the Company’s
financial position or results of operations, upon adoption.
A variety
of proposed or otherwise potential accounting standards are currently under
study by standard setting organizations and various regulatory agencies. Due to
the tentative and preliminary nature of those proposed standards, management has
not determined whether implementation of such proposed standards would be
material to our consolidated financial statements.
NOTE
4 ACCOUNTS RECEIVABLE
Accounts
receivable consist of the following:
September 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
(In thousands)
|
(In thousands)
|
|||||||
Accounts
receivable
|
$ | 673 | $ | 612 | ||||
Less:
Allowance for doubtful accounts
|
(51 | ) | (51 | ) | ||||
$ | 622 | $ | 561 |
15
The
activities in the Company’s allowance for doubtful accounts are summarized as
follows:
September 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
(In thousands)
|
(In thousands)
|
|||||||
Balance
at the beginning of the year
|
$ | 51 | $ | 53 | ||||
Add:
provision during the year
|
- | (2 | ) | |||||
Balance
at the end of the year
|
$ | 51 | $ | 51 |
NOTE
5 DEPOSITS AND PREPAYMENTS
Deposits
and prepayments consist of the following:
September 30,
2009
|
December 31,
2008
|
|||||||
(In thousands)
|
(In thousands)
|
|||||||
Prepayments
and advances (a)
|
$ | 874 | $ | 963 | ||||
Other
receivables
|
446 | 204 | ||||||
$ | 1,320 | $ | 1,167 |
(a)
|
Prepayments and advances as of
September 30, 2009
and December 31,
2008 include payments of $708,510 and $936,237 to four mining service
providers,
respectively.
|
NOTE
6 INVENTORIES
Inventories
consist of the following:
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
(In
thousands)
|
(In
thousands)
|
|||||||
Raw
materials
|
$ | 625 | $ | 737 | ||||
Unprocessed
ore
|
1,198 | 1,276 | ||||||
Consumables
|
101 | 41 | ||||||
Finished
goods and semi-manufactured goods
|
1,658 | 904 | ||||||
$ | 3,582 | $ | 2,958 |
16
NOTE
7 PROPERTY, MACHINERY AND MINING ASSETS, NET
Property,
machinery and mining assets consist of the following:
September 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
(In thousands)
|
(In thousands)
|
|||||||
Land
use rights
|
$ | 1,837 | $ | 1,700 | ||||
Buildings
|
13,005 | 12,995 | ||||||
Machinery
|
10,902 | 10,140 | ||||||
Mining
assets
|
8,212 | 8,205 | ||||||
Motor
vehicles
|
1,357 | 1,401 | ||||||
Equipment
|
350 | 350 | ||||||
Extraction
rights
|
19,011 | 19,004 | ||||||
Exploration
rights
|
- | 1,683 | ||||||
Construction
in progress
|
1,980 | 2,115 | ||||||
56,654 | 57,593 | |||||||
Less:
|
||||||||
Accumulated
depreciation and amortization
|
(9,947 | ) | (9,772 | ) | ||||
Impairment
provision
|
(105 | ) | (105 | ) | ||||
$ | 46,602 | $ | 47,716 |
Depreciation
and Amortization
Depreciation
and amortization expense in aggregate for the nine months ended September 30,
2009 and 2008 was approximately $1.87 million and $3.29 million, respectively.
Depreciation and amortization expense in aggregate for the three months ended
September 30, 2009 and 2008 was approximately $0.51 million and $1.04 million,
respectively.
17
Impairment
Provision
An
impairment provision was a balance recorded for the equipment of Qingshan Metal,
a subsidiary of the Company within the nonferrous metals segment.
Exploration
and Extraction Rights
As in
most jurisdictions, mineral rights in China are divided into two types:
extraction rights and exploration rights. Extraction rights refer to the rights
obtained in accordance with the law for exploitation of mineral resources and
market control of mineral products. In nearly every jurisdiction in the world,
mineral rights are absolutely exclusive. In China, however, there are no clear
stipulations regarding the exclusivity of mineral rights. The Amendment of China
Mining Regulation stressed the security of mineral rights and its Article 6
stated that “upon discovery of mineral resources, the exploration licensees have
the privileged priority to obtain mining rights to the mineral resources within
the exploration area.” According to the Ministry of Land and Resources,
this privileged priority will be guaranteed under further amendments to be made
in the near future. Exploration rights refer to the right obtained in accordance
with the law for exploring for mineral resources within the areas authorized by
the exploration license. The Company has been granted mineral exploration
permits. These exploration rights enable the Company to explore selected
prospective mines for possible economic value to mine and develop. Under Chinese
mining laws and regulations, generally an exploration license is valid for no
more than three years and extension of the exploration license shall not exceed
two years and two extensions.
NOTE
8 DEBT ISSUANCE COSTS
The
issuance costs directly associated with the Notes and the put warrant aggregated
$2,522,497. The amount was capitalized as deferred debt issuance costs,
and is being amortized using the effective interest rate method over the term of
the convertible loan, with the amounts amortized being recognized as interest
expense. Any unamortized debt issuance costs remaining at the date of conversion
of the loan will be recognized as interest expense in the period the conversion
takes place. As of September 30, 2009 and December 31, 2008, the deferred debt
issuance costs were approximately $1,437,000 and $1,755,000,
respectively.
NOTE
9 WARRANTS LIABILITY
In
connection with the issuance of the convertible notes (as further described in
Note 13), the Company issued a put warrant to one of the Company’s financial
advisors for the purchase of 875,000 shares of the Company’s common stock at an
exercise price of $3.20 per share, exercisable at any time, or from time to
time, during the period commencing from January 1, 2007 through January 1, 2010
(the “Termination Date”). The Company has had the fair value of the put warrant
computed by using the Black Scholes model. As of September 30, 2009, the fair
value of the put warrant is approximately $40,381 with the following significant
assumptions used in the Black-Scholes model:
18
As of September 30, 2009
|
As of December 31, 2008
|
|||||||
Risk-free
interest rate
|
0.070 | % | 0.343 | % | ||||
Expected
volatility
|
107.91 | % | 159.23 | % | ||||
Term
|
0.25
years
|
1
years
|
In the
event that the warrant holder elects not to exercise the warrant, the Company
shall repurchase this warrant for cash at an aggregate purchase price of
$50,000. The Company adjusted the warrant value to $50,000
accordingly.
NOTE
10 SHORT-TERM BANK LOANS
Short-term
bank loans consist of the following:
September 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
|
(in thousands)
|
(in thousands)
|
||||||
10.85%
note payable to Baiyin Credit Union matures on February 14, 2009 with
interest due on the 20th day of each quarter and principal due at date of
maturity, guaranteed by Qianzhen Mining
|
220 | |||||||
10.85%
note payable to Baiyin Credit Union matures on February 14, 2009 with
interest due on the 20th day of each quarter and principal due at date of
maturity, guaranteed by Qianzhen Mining
|
102 | |||||||
8.50%
note payable to Baiyin Credit Union matures on March 26, 2009 with
interest due on the 20th day of each quarter and principal due at date of
maturity,which is in the name of a related party
|
351 | |||||||
9.99%
note payable to Baiyin Credit Union matures on May 21, 2009 with interest
due on the 20th day of each quarter and principal due at date of maturity,
guaranteed by Xiangzhen Mining
|
878 | |||||||
8.22%
note payable to Baiyin Credit Union matures on August 15, 2009 with
interest due on the 20th day of each quarter and principal due at date of
maturity, guaranteed by Qianzhen Mining and secured by the time deposit
of Ms. Xiaojing Yu , a director of the Company
|
117 | |||||||
6.37%
note payable to Baiyin Credit Union matures on December 26, 2009 with
interest due on the 20th day of each quarter and principal due at date of
maturity, guaranteed by Qianzhen Mining and secured by the time deposit of
Ms. Helin Cui , a director of the Company
|
88 | 88 | ||||||
6.37%
note payable to Baiyin Credit Union matures on August 18, 2010 with
interest due on the 20th day of each quarter and principal due at date of
maturity, guaranteed by Qianzhen Mining and secured by the time deposit
of Ms. Xiaojing Yu , a director of the Company
|
117 | |||||||
9.99%
note payable to Baiyin Credit Union matures on November 21, 2009 with
interest due on the 20th day of each quarter and principal due at date of
maturity, guaranteed by Xiangzhen Mining
|
878 | |||||||
8.26%
note payable to Baiyin Credit Union matures on November 13, 2009 with
interest due on the 20th day of each quarter and principal due at date of
maturity, guaranteed by Qianzhen Mining
|
220 | |||||||
8.26%%
note payable to Baiyin Credit Union matures on Novermber 13, 2009 with
interest due on the 20th day of each quarter and principal due at date of
maturity, guaranteed by Qianzhen Mining
|
103 | |||||||
8.50%
note payable to Baiyin Credit Union matures on December 23, 2009 with
interest due on the 20th day of each quarter and principal due at date of
maturity, which is in the name of a related party and guaranteed by
Xiangzhen Mining
|
322 | |||||||
7.65%
note payable to China Citic Bank matures on May 21, 2010,guaranteed by
Xiangzhen Mining (a)
|
1,464 | |||||||
12.21%
note payable to Wulatehouqi Credit Union matures on March 11, 2010 , which
is in the name of a related party and guaranteed by Qianzhen
Mining
|
410 | |||||||
$ | 3,602 | $ | 1,756 |
(a)
|
This
loan is collateralized with Xiangzhen’s extraction
right.
|
19
NOTE
11 OTHER PAYABLES AND ACCRUALS
Other
payables and accruals consist of the following:
September 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
|
(In thousands)
|
(In thousands)
|
||||||
Accrued
debt issuance costs(a)
|
$ | 46 | $ | 53 | ||||
Receipts
in advance
|
1,486 | 1,142 | ||||||
Accruals
for payroll, bonus and other operating expenses
|
617 | 343 | ||||||
Payables
for construction service vender
|
837 | 1,047 | ||||||
Others
payables
|
3,203 | 2,209 | ||||||
$ | 6,189 | $ | 4,794 |
(a)
|
The balance mainly represents
outstanding legal service fees payable in connection with the issuance of
the convertible notes.
|
20
NOTE
12 DUE TO RELATED PARTIES
Due to
related parties consist of the following:
September 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
(In thousands)
|
(In thousands)
|
|||||||
Due
to directors of the Company:
|
||||||||
Ms.
Xiao Jing Yu, CEO of the Company (a)
|
$ | 201 | $ | 270 | ||||
Mr.
Xue Ming Xu, COO of the Company (b)
|
111 | 239 | ||||||
Mr.
Cui He Lin , Director of the Company(c)
|
1 | 73 | ||||||
Due
to Wulatehouqi Mengxin Co., Ltd, the minority Shareholder of Xingzhen
Mining (d)
|
1,538 | 1,463 | ||||||
Due
to Mr. Xiao Ming Yu, General Manager of Xiangzhen (e)
|
195 | 621 | ||||||
$ | 2,046 | $ | 2,666 |
Amounts
due to related parties are interest-free, unsecured and have no fixed terms of
repayment.
(a)
|
Ms.Yu is the CEO of the
Company.
|
(b)
|
Mr.Xu is the COO of the
Company.
|
(c)
|
Mr.Cui is a director of the
Company.
|
(d)
|
Wulatehouqi Mengxin Co., Ltd is
the minority shareholder of Xingzhen
Mining.
|
(e)
|
Mr.Yu is the General Manager of
Xiangzhen Mining.
|
21
NOTE
13 CONVERTIBLE NOTES PAYABLE
On
December 27, 2006, the Company entered into a Notes Purchase Agreement with
Citadel Equity Fund Ltd. (“Citadel”), under the terms of which Citadel purchased
a total of US$28,000,000 (“Original Principal Amount”) in convertible senior
notes (“Notes”). The Notes have a Maturity Date of December 27, 2012. The Bank
of New York is the trustee (“Trustee”), between whom and the Company there is a
indenture (“Indenture”) for the Notes dated December 27, 2006.
Conversion
Feature
The Notes
are convertible at the option of the holders, at any time on or prior to
maturity, into common shares of the Company. Pursuant to Second Supplemental
Indenture entered into between the Company and the Trustee on September 28,
2007, the conversion price has been revised from $3.20 to $2.25 per share and is
subject to adjustment in certain circumstances but shall in no event fall below
$2.00 per share. In no event shall the number of conversion shares
issuable upon conversion of all the outstanding Notes exceed 49.9% of all
outstanding shares upon the conversion of all of the outstanding
Notes.
The
intrinsic value of the beneficial conversion feature (“BCF”) on the commitment
date, i.e. the Second Supplementary Indenture Date of September 28, 2007, has
been recalculated: the change of conversion price in the Second Supplemental
Indenture resulted in a BCF. The BCF was recognized on the effective date of
September 28, 2007 as a discount and will be amortized using the effective
interest rate method from September 28, 2007 to the maturity date.
Redemption
The Notes
contain a feature reflected in the Accreted Principal Amount based on which the
redemption or repurchase price of the Notes is determined. The Accreted
Principal Amount is determined as follows: the Accreted Principal Amount on
December 27, 2009 shall be 116.0% of the Original Principal Amount, and the
Accreted Principal Amount at the Maturity Date shall be 134.5% of the Original
Principal Amount. The Company can redeem all of the Notes on or after December
27, 2009 at 110% of the then Accreted Principal Amount, plus accrued and unpaid
interest to, but excluding, the redemption date. The Notes holders have the
right to require the Company to repurchase the Notes at a price in cash equal to
104% of the then Accreted Principal Amount plus accrued and unpaid interest to
the repurchase date if there is a change of control of the Company. From
and after December 27, 2009, the Notes holders have the right to require the
Company to repurchase the Notes for 100% of the then Accreted Principal Amount
plus accrued and unpaid interest to the repurchase date.
Interest
Rate
The Notes
initially bore interest at 6.75% per annum, which were subject to upward
adjustments and were payable semi-annually. Pursuant to Second Supplemental
Indenture entered into between the Company and the Trustee on September 28, 2007
and Third Supplemental Indenture entered into between the Company and the
Trustee on December 21, 2007, the interest rate has been revised as
follows:
22
(a)
at the rate of 6.75% per annum of the Original Principal Amount of the
Notes, from and including the Issue Date to and including September 30,
2007;
(b) at
the rate of 0.00% per annum of the Original Principal Amount of the Notes, from
and including October 1, 2007 to and excluding January 31, 2008;
and
(c) at
the rate of 0.00% per annum of the Original Principal Amount of the Notes, from
and including January 31, 2008 to but excluding the Maturity Date, if the Public
Listing has occurred on or prior to January 31, 2008 and if the Company
maintains such listing.
Repurchase
On
September 22, 2009, the Company entered into a Notes Repurchase Agreement with
Mountview Path Limited (“Mountview”), a corporation incorporated under the laws
of the British Virgin Islands, pursuant to which the Company repurchased the
entire 6.75% Senior Convertible Notes due 2012 of US $28,000,000 principal
amount ( “Notes”), originally issued to Citadel Equity Fund Ltd (“Citadel”).
Mountview is the current legal and beneficial owner of the entire amount of the
Notes.
In
connection with the Notes Repurchase Agreement, Mountview agreed to waive all
defaults for the Company’s failure to duly observe and perform covenants set
forth in the indenture entered into between the Company and Bank of New York as
trustee and forebear to take any action against the Company for the
defaults. The Company and Mountview also agreed to take all actions necessary in
order for the Bank of New York, to cancel the entire Notes and promptly release
the pledged security interest created pursuant to the share pledge agreement
dated December 27, 2006 and entered into by and among Ms. Xiao Jing Yu and Mr.
Xue Ming Xu, the Bank of New York, as collateral agent and Citadel.
Mountview
is not an affiliate of the Company or any of the Company’s directors or
officers. The consideration payable in the transaction consists of US $8,000,000
in cash and 5 million shares of the Company’s common stock. Mountview shall not
be entitled to any accrued and unpaid interest on the Notes. The
closing of this transaction is scheduled to occur on November 30,
2009.
For more
information, please see Company’s Current Reports on Form 8-K filed with the
Securities and Exchange Commission on April 22, May 13 and September 25, 2009,
which are incorporated by reference herein in their entireties.
Detachable
Warrants
Together
with the issuance of the Notes, the Company issued a put warrant to one of the
Company’s financial advisors in the transaction for the purchase of 875,000
shares of the Company’s common stock at an exercise price of $3.20 per share,
exercisable on or before three years from the date of grant. As of September 30,
2009, the fair value of the put warrant was $50,000.
23
Debt
Issuance Costs
The
issuance costs directly associated with the Notes and the put warrant aggregated
$2,522,497. The amount was capitalized as deferred debt issuance costs,
and is being amortized using the effective interest rate method over the term of
the convertible loan, with the amounts amortized being recognized as interest
expense. Any unamortized debt issuance costs remaining at the date of conversion
of the loan will be recognized as interest expense in the period the conversion
takes place. As of September 30, 2009, the deferred debt issuance costs were
approximately $1,437,000.
NOTE
14 DEFINED CONTRIBUTION RETIREMENT PLANS
As
stipulated by the regulations of the PRC government, companies operating in the
PRC have defined contribution retirement plans for their employees. The PRC
government is responsible for the pension liability to these retired employees.
Commencing January 1, 2002, the Company is required to make specified
contributions to the state-sponsored retirement plan at 20% of the basic salary
cost of their staff. Each of the employees of the PRC subsidiaries is required
to contribute 6% of his/her basic salary.
NOTE
15 PRC STATUTORY RESERVES
In
accordance with the PRC Companies Law, the Company’s PRC subsidiaries were
required to transfer 10% of their profit after tax, as determined in accordance
with accounting standards and regulations of the PRC, to the statutory surplus
reserve and a percentage of not less than 5%, as determined by management, of
the profit after tax to the public welfare fund. With the amendment of the PRC
Companies Law which was effective January 1, 2006, enterprises in the PRC are no
longer required to transfer any profit to the public welfare fund. Any balance
of public welfare fund brought forward from December 31, 2005 should be
transferred to the statutory surplus reserve. The statutory surplus reserve is
non-distributable.
NOTE
16 ASSET RETIREMENT OBLIGATIONS
According
to the “Rules on Mineral Resources Administration” and “Rules on Land
Rehabilitation” of the PRC, mining companies causing damages to cultivated land,
grassland or forest are required to restore the land to a state approved by the
local governments. The local governments administering the “Rules on Mineral
Resources Administration” and “Rules on Land Rehabilitation” on the Company’s
two mines, “Sumochaganaobao Fluorite Mine” and “Mining site No. 2”, have
confirmed that the Company is not required to restore or rehabilitate the
two mining sites because those two mining sites are located at distant areas and
the Company’s mining and extraction activities have not affected the surrounding
environment. The Company’ property, machinery and mining assets related to those
two mining sites at December 31, 2008 and September 30, 2009 were not
subject to an asset retirement obligation.
The
Company has identified but not recognized the asset retirement obligations
related to the Company’s other mining sites for which the Company is applying
the extraction rights. These sites are still at the exploration stage. The asset
retirement obligations related to these sites are not estimable until extraction
rights and licenses are granted. Upon the approval and issuance of the
extraction licenses, the Company will be able to make reasonable estimates, and
apply an expected present value technique to determine and recognize the asset
retirement obligations related to these mining sites.
24
NOTE 17 OPERATING RISK
Country
risk
Currently,
the Company’s revenues are mainly derived from sales in the PRC. The Company
hopes to expand its operations in the PRC, however, there are no assurances that
the Company will be able to achieve such an expansion successfully. Therefore, a
downturn or stagnation in the economic environment of the PRC could have a
material adverse effect on the Company’s financial condition.
Products
risk
The
Company competes with larger companies, who have greater funds available for
expansion, marketing, research and development and the ability to attract more
qualified personnel. There can be no assurance that the Company will remain
competitive with larger competitors.
Exchange
risk
The
Company can not guarantee that the current exchange rate will remain steady,
therefore there is a possibility that the Company could post the same amount of
profit for two comparable periods and because of a fluctuating exchange rate
actually post higher or lower profit depending on exchange rate of PRC Renminbi
(RMB) converted to U.S. dollars on that date. The exchange rate could fluctuate
depending on changes in the political and economic environments without
notice.
Political
risk
Currently,
the PRC is in a period of growth and is openly promoting business development in
order to bring more business into the PRC. Additionally, the PRC allows a PRC
corporation to be owned by a United States corporation. If the laws or
regulations are changed by the PRC government, the Company’s ability to operate
in the PRC could be affected.
Key
personnel risk
The
Company’s future success depends on the continued services of executive
management in China. The loss of any of their services would be detrimental to
the Company and could have an adverse effect on business development. The
Company does not currently maintain key-man insurance on their lives. Future
success is also dependent on the ability to identify, hire, train and retain
other qualified managerial and other employees. Competition for these
individuals is intense and increasing.
25
Non-compliance
with financing requirements
The
Company might need to obtain future financing that require timely filing of
registration statements, and have declared effective those registration
statements, to register the shares being offered by the selling stockholders in
future financing. The Company might be subject to liquidated damages and other
penalties if they continue to obtain future financing requiring registration
statements, and not having those registration statements filed and declared
effective in a prompt manner.
NOTE
18 COMMITMENTS AND CONTINGENCIES
General
The
Company accounts for contingencies, using FASB issued guidance, accordingly,
estimated losses from loss contingencies are accrued by a charge to income when
information available prior to issuance of the financial statements indicates
that it is probable that a liability could be been incurred and the amount of
the loss can be reasonably estimated. Legal expenses associated with the
contingency are expensed as incurred. If a loss contingency is not probable or
reasonably estimable, disclosure of the loss contingency is made in the
financial statements when it is at least reasonably possible that a material
loss could be incurred.
Mining
Industry in PRC and Kyrgyz
The
Company's mining operations are and will be subject to extensive national and
local governmental regulations in China or Kyrgyz, which may be revised or
expanded at any time. A broad number of matters are subject to regulations.
Generally, compliance with these regulations requires the Company to
obtain permits issued by government, state and local regulatory agencies.
Certain permits require periodic renewal or review of their terms and
conditions. The Company cannot predict whether it will be able to obtain
or renew such permits or whether material changes in permit terms and conditions
will be imposed. The inability to obtain or renew permits or the imposition
of additional terms and conditions could have a material adverse effect on the
Company's ability to develop and operate its properties.
Environmental
matters
Environmental
laws and regulations to which the Company is subject as it progresses from the
development stage to the production stage mandate additional concerns and
requirements of the Company. Failure to comply with applicable laws,
regulations and permits can result in injunctive actions, damages and civil and
criminal penalties. The laws and regulations applicable to the Company's
activities change frequently and it is not possible to predict the potential
impact on the Company from any such future changes.
Although
management believes that the Company is in material compliance with the
statutes, laws, rules and regulations of every jurisdiction in which it
operates, no assurance can be given that the Company’s compliance with the
applicable statutes, laws, rules and regulations will not be challenged by
governing authorities or private parties, or that such challenges will not lead
to material adverse effects on the Company’s financial position, results of
operations, or cash flows.
The
Company is not involved in any legal matters arising in the normal course of
business. While incapable of estimation, in the opinion of the management, the
individual regulatory and legal matters in which it might be involved in the
future are not expected to have a material adverse effect on the Company’s
financial position, results of operations, or cash flows.
26
Capital
commitment
|
|
September 30, 2009
|
|
|
December 31, 2008
|
|||
|
|
(In thousands)
|
|
|
(In thousands)
|
|||
Purchase
of machinery - within one year
|
$
|
266
|
$
|
456
|
||||
Acquisition
or construction of buildings-within one year
|
8
|
9
|
||||||
$
|
274
|
$
|
465
|
NOTE
19 SEGMENT INFORMATION
The
Company follows FASB ASC 280-Segment Reporting, which requires that companies
disclose segment data based on how management makes decision about allocating
resources to segments and evaluating their performance. The Company has two
operating segments identified by “fluorite” and “nonferrous metals” products.
The fluorite segment consists of our fluorite extraction and processing
operations through the Company’s wholly-owned subsidiary, Xiangzhen Mining. The
nonferrous metals segment consists of the Company’s copper, zinc, lead and other
nonferrous metal exploration, extraction and processing activities through the
Company’s wholly-owned subsidiaries, Qianzhen Mining, Xingzhen Mining and
Qingshan Mining.
The
segment data presented below was prepared on the same basis as the Company’s
consolidated financial statements.
Nine months ended September 30, 2009
|
Fluorite
|
Nonferrous
metals
|
Consolidated
|
|||||||||
Segment
revenue
|
$ | 2,783 | $ | 277 | $ | 3,060 | ||||||
Inter-segment
revenue
|
||||||||||||
Revenue
from external customers
|
$ | 2,783 | $ | 277 | $ | 3,060 | ||||||
Segment
loss
|
$ | (1,342 | ) | $ | (1,860 | ) | $ | (3,202 | ) | |||
Unallocated
corporate expenses
|
$ | (3,011 | ) | |||||||||
Income
before income taxes and minority interests
|
$ | (6,213 | ) | |||||||||
|
||||||||||||
Total
segment assets
|
$ | 39,042 | $ | 27,664 | $ | 66,706 | ||||||
Inter-segment
receivables
|
(15,736 | ) | 2,558 | (13,178 | ) | |||||||
$ | 23,306 | $ | 30,222 | $ | 53,528 | |||||||
Deferred
debt issuance costs
|
1,437 | |||||||||||
Other
unallocated corporate assets
|
220 | |||||||||||
|
$ | 55,185 | ||||||||||
Other
segment information:
|
||||||||||||
Depreciation
and amortization
|
$ | 1,110 | $ | 758 | $ | 1,868 | ||||||
Expenditure
for segment assets
|
$ | 673 | $ | 290 | $ | 963 |
27
Nonferrous
|
||||||||||||
Nine
months ended September 30, 2008
|
Fluorite
|
metals
|
Consolidated
|
|||||||||
Segment
revenue
|
$ | 2,178 | $ | 2,667 | $ | 4,845 | ||||||
Inter-segment
revenue
|
||||||||||||
Revenue
from external customers
|
$ | 2,178 | $ | 2,667 | $ | 4,845 | ||||||
Segment
loss
|
$ | (2,829 | ) | $ | (2,221 | ) | $ | (5,050 | ) | |||
Unallocated
corporate expenses
|
$ | (2,667 | ) | |||||||||
Income
before income taxes and minority interests
|
$ | (7,717 | ) | |||||||||
Total
segment assets
|
$ | 51,200 | $ | 58,028 | $ | 109,228 | ||||||
Inter-segment
receivables
|
(25,596 | ) | (23,967 | ) | (49,563 | ) | ||||||
$ | 25,604 | $ | 34,061 | $ | 59,665 | |||||||
Deferred
debt issuance costs
|
1,859 | |||||||||||
Other
unallocated corporate assets
|
5 | |||||||||||
$ | 61,529 | |||||||||||
Other
segment information:
|
||||||||||||
Depreciation
and amortization
|
$ | 1,951 | $ | 1,337 | $ | 3,288 | ||||||
Expenditure
for segment assets
|
$ | 1,072 | $ | 903 | $ | 1,975 |
28
The
following summarizes identifiable assets by geographic area:
September 30
2009
|
December 31,
2008
|
|||||||
(In
thousands)
|
(In
thousands)
|
|||||||
China
|
$ | 42,403 | $ | 42,343 | ||||
Kyrgyzstan
|
11,125 | 10,914 | ||||||
Unallocated
corporate assets
|
1,657 | 1,756 | ||||||
$ | 55,185 | $ | 55,013 |
The
following summarizes operating losses before provision for income
tax:
|
Nine months ended September 30,
|
|||||||
|
2009
|
2008
|
||||||
|
(In
thousands)
|
(In
thousands)
|
||||||
China
|
$ | (2,542 | ) | $ | (4,011 | ) | ||
Kyrgyzstan
|
(660 | ) | (1,039 | ) | ||||
Unallocated
corporate operating losses
|
(3,011 | ) | (2,667 | ) | ||||
|
$ | (6,213 | ) | $ | (7,717 | ) |
NOTE
20 OTHER INCOME, NET
Nine months ended September 30,
|
||||||||
|
2009
|
2008
|
||||||
(In thousands)
|
(In thousands)
|
|||||||
Exchange
(loss) gain
|
$ | (70 | ) | $ | 646 | |||
Subsidies
|
23 | - | ||||||
Donation
|
(1 | ) | (43 | ) | ||||
Others
|
(19 | ) | (13 | ) | ||||
$ | (67 | ) | $ | 590 |
29
NOTE
21 EARNINGS PER SHARE
The
following table is a reconciliation of the weighted average shares used in the
computation of basic and diluted earnings per share from continuing and
discontinued operations for the periods presented (amounts in thousands, except
per share data):
Nine months ended September 30,
|
||||||||
|
2009
|
2008
|
||||||
(In thousands,
except per
share data)
|
(In thousands,
except per
share data)
|
|||||||
Income
(loss) from operations available to common shareholders:
|
||||||||
Basic
and Diluted
|
$ | (6,191 | ) | $ | (7,523 | ) | ||
Weighted
average number of shares:
|
||||||||
Basic
and Diluted
|
22,215 | 22,215 | ||||||
Earnings
(loss) per share from operations
|
||||||||
-
Basic and Diluted
|
$ | (0.28 | ) | $ | (0.34 | ) |
As the
convertible notes, warrants and options have an anti-dilutive effect on the
earnings per share for the nine months ended September 30, 2009 and 2008,
they were not included in the calculations of diluted earnings per
share.
NOTE
22 CONCENTRATIONS OF CUSTOMERS AND SUPPLIERS
The
Company had five main customers who contributed approximately $2.41 million
or 79% of the Company’s consolidated net revenue for the nine months
ended September 30, 2009. For the same period of 2008, the Company had four
main customers who contributed approximately $3.50 million or 72% of the
Company’s consolidated net revenue.
The
following table shows the Company’s major customers (10% or more of consolidated
net revenue) for the nine months ended September 30, 2009:
30
Number
|
Customer
|
Revenue
In thousands
|
Percentage
(%)
|
||||||
1
|
Laiwu
Steel Ltd
|
449 | 15 | % | |||||
2
|
Handan
Hongzhi Ltd
|
538 | 18 | % | |||||
3
|
Ningxia
Jinhe Ltd
|
774 | 25 | % | |||||
4
|
Inner
Mongolia Huadesanli Trading Ltd
|
330 | 11 | % | |||||
5
|
Zibo
Bofeng Ltd
|
315 | 10 | % | |||||
TOTAL
|
$ | 2,406 | 79 | % |
The
following table shows the Company’s major customers (10% or more of consolidated
net revenue) for the nine months ended September 30, 2008:
Number
|
Customer
|
Revenue
(In thousands)
|
Percentage
(%)
|
||||||
1
|
RuiPeng
Mining Ltd
|
$ | 1,493 | 31 | % | ||||
2
|
Inner
Mongolia Huadesanli Trading Ltd
|
775 | 16 | % | |||||
3
|
Laiwu
Steel Ltd
|
656 | 13 | % | |||||
4
|
Handang
Hongzhi Ltd
|
574 | 12 | % | |||||
TOTAL
|
$ | 3,498 | 72 | % |
As of
September 30, 2009, accounts receivable total $0.67 million which consists of
receivables from 18 customers.
The
following table shows the receivable distribution of the Company’s major
customers (10% or more of consolidated accounts receivable) as of September 30,
2009:
Number
|
Customer
|
Revenue
(In thousands)
|
Percentage
(%)
|
||||||
1
|
Ningxia
Jinhe Ltd
|
$ | 292 | 43 | % | ||||
2
|
Zibo
Bofeng Ltd
|
146 | 22 | % | |||||
TOTAL
|
$ | 438 | 65 | % |
In the
first nine months of 2009, the Company had no concentrated
suppliers.
31
NOTE
23 SUBSEQUENT EVENTS
On
September 21, 2009, the Company through its indirect wholly-owned subsidiary,
Inner Mongolia Xiangzhen Mining Group Co., Ltd., a company organized under the
laws of People’s Republic of China, entered into a Share Purchase Agreement with
Fortune Pegasus International Limited (“ Fortune” ), a company organized under
the laws of British Virgin Islands, pursuant to which the Company transferred to
Fortune the entire equity of Tun Lin Limited Liability Company in the Kyrgyz
Republic, an exempt company organized under the laws of Kyrgyz Republic (“ Tun
Lin” ). In addition, the Company is assigning Fortune a loan in the
amount of US $1,761,784.78 for which Tun Lin is indebted to the
Company.
Tun Lin
owns the entire equity of Kichi-Chaarat Closed Joint Stock Company, a company
organized under the laws of Kyrgyz Republic, which assets include Kuru-Tegerek
Copper-gold Mine located at Chartcarl, Jalalabad, Southwest of Kyrgyz Republic.
Fortune is not an affiliate of the Company or any of the Company’s directors or
officers. The consideration payable in the transaction consists of US
$8,200,000. The Company will use the proceeds to pay for the Senior
Convertible Notes repurchase described below.
On
September 22, 2009, the Company entered into a Notes Repurchase Agreement with
Mountview Path Limited (“Mountview”), a corporation incorporated under the laws
of the British Virgin Islands, pursuant to which the Company repurchased the
entire 6.75% Senior Convertible Notes due 2012 of US $28,000,000 principal
amount ( “Notes”), originally issued to Citadel Equity Fund Ltd (“Citadel”).
Mountview is the current legal and beneficial owner of the entire amount of the
Notes.
In
connection with the Notes Repurchase Agreement, Mountview agreed to waive all
defaults for the Company’s failure to duly observe and perform covenants set
forth in the indenture entered into between the Company and Bank of New York as
trustee and forebear to take any action against the Company for the
defaults. The Company and Mountview also agreed to take all actions necessary in
order for the Bank of New York, to cancel the entire Notes and promptly release
the pledged security interest created pursuant to the share pledge agreement
dated December 27, 2006 and entered into by and among Ms. Xiao Jing Yu and Mr.
Xue Ming Xu, the Bank of New York, as collateral agent and Citadel. For more
information, please see Company’s Current Reports on Form 8-K filed with the
Securities and Exchange Commission on April 22 and May 13, 2009, which are
incorporated by reference herein in their entireties.
Mountview
is not an affiliate of the Company or any of the Company’s directors or
officers. The consideration payable in the transaction consists of US $8,000,000
in cash and 5 million shares of the Company’s common stock. Mountview shall not
be entitled to any accrued and unpaid interest on the Notes. The
closing of this transaction is scheduled to occur on November 30,
2009.
32
ITEM
2 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The
following management’s discussion and analysis should be read in conjunction
with our consolidated financial statements and the notes thereto and the other
financial information appearing elsewhere in this quarterly report. In addition
to historical information, the following discussion contains certain
forward-looking statements within the “safe harbor” provisions of the Private
Securities Litigation Reform Act of 1995. These statements relate to our future
plans, objectives, expectations and intentions. These statements may be
identified by the use of words such as “may”, “will”, “could”, “expect”,
“anticipate”, “intend”, “believe”, “estimate”, “plan”, “predict”, and similar
terms or terminology, or the negative of such terms or other comparable
terminology. Although we believe the expectations expressed in these
forward-looking statements are based on reasonable assumptions within the bound
of our knowledge of our business, our actual results could differ materially
from those discussed in these statements. Factors that could contribute to such
differences include, but are not limited to, those discussed in the “Risk
Factors” section of the Annual Report on Form 10-K filed on April 15, 2009. We
undertake no obligation to update publicly any forward-looking statements for
any reason, even if new information becomes available or other events occur in
the future.
Our
financial statements are prepared in U.S. Dollars and in accordance with
generally accepted accounting principles in the United States of America. See
“Exchange Rates” below for information concerning the exchange rates at which
Renminbi (“RMB”) were translated into U.S. Dollars (“USD”) at various pertinent
dates and for pertinent periods.
OVERVIEW
We are
principally engaged in the exploration, development, mining, and processing of
fluorite, zinc, lead, copper, and other nonferrous metals, through our
subsidiaries in the PRC and Kyrgyzstan in Central Asia.
33
BUSINESS
STRATEGY
Expansion
of Production Capacity to Meet Demand
▼
Fluorite
In early
2006, we began a project at Xiangzhen Mining to produce 300,000 metric tons of
fluorite ore, and the project was completed in November 2007. We extracted
approximately 122,000 metric tons of fluorite ore in 2008. Due to the economic
crisis and the water supply problem we ceased extracting fluorite ore in
Oct 2008. After the water supply problems were solved in May 2009, we
restarted the mining plant. We had extracted approximately 32,000 metric
tons of fluorite ore since May 2009.
We
produced approximately 6,750 metric tons of fluorite powder in 2008. In early
2006, at our Xiangzhen mine site, we started to build a plant with an annual
processing capacity of 200,000 metric tons of fluorite ore. The new plant
remained in trial production in 2008 and we have been engaged in solving certain
technological problems related to the plant’s water supply. Xiangzhen had
resumed production in May 2009. We had solved the plant’s water supply problems
and started to produce refined fluorite powders in the second quarter of
2009. We had produced approximately 15,000 metric tons of fluorite powder
since May 2009. The production and marketing have shown some improvement in
the third quarter of 2009, but have not met our expectations.
▼
Zinc, Copper and Lead
Due to
supply issues in non-ferrous ores, Qianzhen Mining did not produce any
non-ferrous concentrates in 2008. Taking advantage of the rapidly increasing
price of concentrate sulphur, the Company changed to produce concentrate sulphur
by utilizing accumulated sulphur-bearing tailings, in order to mitigate the
impact of the supply issues in non-ferrous ores on the Company’s production. The
Company processed 77,463 metric tons of sulphur-bearing tailings and produced
18,000 metric tons of concentrate sulphur in 2008. No production is planned at
Qianzhen Mining in 2009 due to the low grade of the ores supplied by Qingshan
Metal and low price of copper. During this shutdown period, Qianzhen will search
actively for partners with the help of the local governments and for
opportunities to re-start production.
In July
2006, Xingzhen Mining began a project at Keyinbulake Multi-Metal Mine in Buerjin
County, Aletai Zone, Xinjiang Uygur Autonomous Region. The project has a mining
and processing capacity of 200,000 metric tons of mineralized zinc-copper
material per year. It went into trial production at the end of the second
quarter of 2008 and produced 1,850 metric tons of zinc concentrates and 108
metric tons of copper concentrates in 2008. From the forth quarter of 2008 to
the first half of 2009, Xingzhen Mining had ceased production due to the low
price of zinc and copper and atrocious weather in Xinjiang Uygur Autonomous
Region. Xingzhen just restarted in June 2009. The processing plant was in
trial production during the third quarter of 2009, and the Company has been
dealing with technological difficulties. We expect to solve the problems in the
first half of 2010.
In
November 2007, we completed the acquisition of Tun-Lin Co. Ltd, a company
organized under the laws of the Republic of Kyrgyzstan, which owns 100% of the
equity in Kichi Chaarat, whose major asset is the subsoil use right for (i)
mining for gold, copper and other metals within the Kuru-Tegerek licensed area;
and (ii) exploration for gold, copper and other metals within the Kuru-Tegerek
licensed area. The purpose of the acquisition was to enable the Company to
explore, develop and mine the potential reserves of the Kuru-Tegerek licensed
area. In July 2008, the development plan for the Kichi Chaarat deposit was
approved by local authority. On September 21, 2009, we entered into an agreement
with Fortune Pegasus International Limited, a company organized under the laws
of British Virgin Islands to dispose Tun-Lin Co. Ltd. as reported in our Current
Report on Form 8-K filed with the SEC on September 25, 2009.
34
Increased
Exploration Activities
· Keyinbulake Copper-Zinc
Mine
Following
the exploration in 2008, further exploration activities are planned in 2009 in
the southern and northern parts of Keyinbulake Cu-Zn Mine. The exploration
details are scheduled as follows:
Table
1-3: Exploration Program for Keyinbulake Property
Item
|
Method
|
Unit
|
Quantity
|
|||||
Geophysical
|
Surface
scanning
|
Km
2
|
2
|
|||||
Drilling
|
four
medium/deep holes
|
m
|
3500
|
|||||
Trenching
|
-
|
m
3
|
5000
|
|||||
Assaying
|
Sampling
and test
|
-
|
-
|
The
exploration activities listed above will be completed by a Geophysical
Prospecting Team of Xinjiang Nonferrous Geophysical Prospecting Bureau with a
total budget of approximately $0.58 million, which will be funded by a
shareholder (natural person) of Xingzhen Mining.
Acquiring
More Mineral Resources
To
increase our reserve base and insure supply to our processing facilities, we
plan to acquire domestic and foreign large-scale mines when the right
opportunity arises. We also expect to acquire additional nonferrous metal mines
and fluorite mines domestically that have good extracting and operating
conditions and possess all necessary governmental licenses.
RECAPITALIZATION
AND REORGANIZATION
On July
14, 2006, American Federal Mining Group, Inc. (“AFMG”, the then holding company
of China Shen Zhou’s PRC subsidiaries) reached a stock exchange agreement with
Earth Products & Technologies, Inc. (“EPTI”). Pursuant to the stock exchange
agreement, and as instructed by the Company, EPTI issued 20,000,000 shares of
its common stock, of which 17,687,000 shares were issued to shareholders of
AFMG, 1,013,000 shares to management of AFMG and 1,300,000 shares to the
financial advisors of AFMG, in exchange for a 100% equity interest in AFMG,
making AFMG a wholly-owned subsidiary of EPTI.
35
The above
stock exchange transaction resulted in those shareholders of AFMG obtaining a
majority voting interest in EPTI. Generally accepted accounting principles in
the United States of America require that the Company whose shareholders retain
the majority interest in a combined business be treated as the acquirer for
accounting purposes. Consequently, the stock exchange transaction has been
accounted for as a recapitalization of AFMG as AFMG acquired a controlling
equity interest in EPTI as of September 15, 2006. The reverse acquisition
process utilizes the capital structure of EPTI and the assets and liabilities of
AFMG recorded at historical cost. Although AFMG is deemed to be the acquiring
corporation for financial accounting and reporting purposes, the legal status of
EPTI as the surviving corporation did not change.
Subsequent
to completion of the reverse takeover transaction, EPTI changed its name to
China Shen Zhou Mining and Resources, Inc. on October 5, 2006.
On
January 31, 2008, the Company’s common stock was listed on the American Stock
Exchange, now called “NYSE Amex”.
RESULTS
OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2009 AS COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 2008
Selected
information from the Consolidated Statements of Operations
For the Three Months Ended September 30,
|
||||||||
2009
|
2008
|
|||||||
(in thousands)
|
(in thousands)
|
|||||||
Net
revenue
|
$
|
1,715
|
$
|
2,924
|
||||
Gross
profit (loss)
|
246
|
495
|
||||||
-
Gross profit margin
|
14
|
%
|
17
|
%
|
||||
General
and administrative expenses
|
1,379
|
2,550
|
||||||
Interest
expenses
|
936
|
87
|
||||||
Net
income (loss)
|
$
|
(2,146
|
)
|
$
|
(2,025
|
)
|
REVENUES.
Net revenues for the three months ended September 30, 2009 were $1.72 million,
representing a $1.21 million or 41% decrease as compared to the same period of
2008. The decrease in net revenues is mainly because (i) Qianzhen Mining
ceased its zinc processing operation as a result of a shortage of ore supplies,
and (ii) Xingzhen’s processing plant was in trial production during
the third quarter of 2009, and had a limited number of qualified products
for the three months ended September 30, 2009.
GROSS
PROFIT AND GROSS PROFIT MARGIN. For the three months ended September 30, 2009,
gross profit was $246,000, which decreased by approximately 50% from
$495,000 in gross profit for the same period of 2008. Gross profit margin
dropped from approximately 17% for the three months ended September 30, 2008 to
approximately 14% for the same period of 2009. The decrease was mainly due to
the significant decrease in the price of fluorite products.
36
GENERAL
AND ADMINISTRATIVE EXPENSES. For the three months ended September 30, 2009,
general and administrative expenses decreased by approximately $1.17 million to
$1.38 million as compared to $2.55 million for the three months ended September
30, 2008. The decrease in general and administrative expenses was primarily due
to the Company’s tightening of its control of expenses in the current economic
crisis.
INTEREST
EXPENSE. Interest expenses increased approximately $0.85 million for
the three months ended September 30, 2009 as compared to the same period of
2008. The increase in interest expenses was mainly due to the difference in
revaluation of the warrant liability.
NET LOSS.
Net loss for the three months ended September 30, 2009 was $2.15 million, a
difference of $0.12 million compared to net loss of $2.03 million for the same
period of 2008. Basic losses per share were $0.10 and
$ 0.09 for the three months ended September 30, 2009 and 2008,
respectively.
SEGMENT
PERFORMANCE ANALYSIS
Segment revenue
|
Segment profit (loss)
|
|||||||||||||||
(amounts in thousand)
|
For the Three Months Ended Sep 30,
|
For the Three Months Ended Sep 30,
|
||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Fluorite
|
$ | 1,526 | $ | 1,122 | $ | (551 | ) | $ | (1,214 | ) | ||||||
|
|
|||||||||||||||
Nonferrous
metals
|
$ | 189 | $ | 1,802 | $ | (1,232 | ) | $ | (613 | ) |
Fluorite
For the
third quarter of 2009, fluorite segment revenue increased by 36% to $1.53
million, as compared to $1.12 million for the same period of 2008. The increase
was primarily due to the water supply problems solved in the second quarter of
2009 at Xiangzhen Mining.
Our
fluorite segment reported a segment loss of $0.55 million for the three months
ended September 30, 2009, compared to a segment loss of $1.21 million in the
same period of 2008. The decrease in segment loss was mainly due to the
significant decrease in the new mineral processing plant preparation costs,
depreciation and amortization expenses by Xiangzhen Mining.
37
Nonferrous
Metals
Nonferrous
metals segment revenue for the three months ended September 30, 2009 amounted to
$0.19 million representing a decrease of approximately $1.61 million or 90%
as compared to the same period of 2008. The performance of the nonferrous metals
segment was negatively affected because (i) Qianzhen Mining ceased its zinc
processing operation as a result of the shortage of ore supplies, and
(ii) Xingzhen’s processing plant was in trial production during the
third quarter of 2009, and had a limited number of qualified products for
the three months ended September 30, 2009.
RESULTS
OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2009 AS COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 2008
Selected
information from the Consolidated Statements of Operations
For the Nine months ended September 30,
|
||||||||
2009
|
2008
|
|||||||
(in thousands)
|
(in thousands)
|
|||||||
Net
revenue
|
$ | 3,060 | $ | 4,845 | ||||
Gross
profit
|
467 | 639 | ||||||
-
Gross profit margin
|
15 | % | 13 | % | ||||
General
and administrative expenses
|
3,650 | 6,942 | ||||||
Interest
expenses
|
2,893 | 1,932 | ||||||
Net
income (loss)
|
$ | (6,191 | ) | $ | (7,523 | ) |
REVENUES.
Net revenues for the nine months ended September 30, 2009 were $3.06
million, representing a $1.79 million or 37% decrease as compared to the same
period of 2008. The decrease in net revenues is mainly because (i) Qianzhen
Mining ceased its zinc processing operation as a result of the shortage of ore
supplies, and (ii) Xingzhen’s processing plant was in trial production, and
had a limited number of qualified products for the nine months ended
September 30, 2009.
38
GROSS
PROFIT AND GROSS PROFIT MARGIN. For the nine months ended September 30,
2009, gross profit was $467,000 which decreased by approximately 27% from
$639,000 gross profit for the same period of 2008. Gross profit margin rose
from 13% for the nine months ended September 30 2008 to 15% for the same period
of 2009. The increase was mainly because of the significant decrease in mining
costs by Xiangzhen Mining.
GENERAL
AND ADMINISTRATIVE EXPENSES. For the nine months ended September 30, 2009,
general and administrative expenses decreased by approximately $3.29 million to
$3.65 million in 2009 as compared to $6.94 million for the same period of 2008.
The decrease in general and administrative expenses was primarily due to the
Company’s tightening its control of expenses in the current economic
crisis.
INTEREST
EXPENSE. Interest expenses increased approximately $0.96 million for
the nine months ended September 30, 2009 as compared to the same period of
2008. The increase in interest expenses is mainly due to the difference in
revaluation of the warrant liability.
NET LOSS.
Net loss for the nine months ended September 30, 2009 was $6.19 million, a
decrease of $1.33 million compared to net loss of $7.52 million for the same
period of 2008. Basic losses per share were $0.28 and $ 0.34 for the
nine months ended September 30, 2009 and 2008, respectively.
SEGMENT
PERFORMANCE ANALYSIS
Segment
revenue
|
Segment
profit (loss)
|
|||||||||||||||
(amounts
in thousand)
|
For the
nine months ended Sep 30,
|
For the
nine months ended Sep 30,
|
||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Fluorite
|
$ | 2,783 | $ | 2,178 | $ | (1,342 | ) | $ | (2,829 | ) | ||||||
|
|
|||||||||||||||
Nonferrous
metals
|
$ | 277 | $ | 2,667 | $ | (1,860 | ) | $ | (2,221 | ) |
Fluorite
Fluorite
segment revenue increased by 28% from $2.18 million for the nine months ended
September 30, 2008 to $2.78 million for the same period of 2009. The increase
was primarily due to the water supply problems solved at Xiangzhen
Mining.
39
Our
fluorite segment reported a segment loss of $1.34 million for the nine months
ended September 30, 2009, compared to a segment loss of $2.83 million in
the same period of 2008. The decrease in segment loss was mainly due to the
significant decrease in the new mineral processing plant preparation
costs, depreciation and amortization expenses by Xiangzhen
Mining.
Nonferrous
Metals
Nonferrous
metals segment revenue for the nine months ended September 30, 2009 amounted to
$0.28 million, representing a decrease of approximately $2.39 million or 90% as
compared to the same period of 2008. The performance of the nonferrous metals
segment was negatively affected because (i) Qianzhen Mining ceased its zinc
processing operation as a result of the shortage of ore supplies, and
(ii) Xingzhen’s processing plant was in trial production, and had a limited
number of qualified products for the nine months ended September 30,
2009.
FINANCIAL
CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Cash and
cash equivalents were $1.12 million as of September 30, 2009, an increase
of $0.91 million as compared to the balance at December 31, 2008 of $0.21
million.
Net cash
used in operating activities for the nine months ended September 30, 2009
was $0.40 million as compared to $0.33million used in the same period in 2008.
The increase in operating cash flows was mainly due to the increase in accounts
receivable as compared to the same period of 2008.
Net cash
used in investing activities for the nine months ended September 30, 2009
were $0.77 million, which was mainly for capital expenditures for mining
development and capacity expansion projects at Xiangzhen Mining.
Net cash
inflows from financing activities for the nine months ended September 30,
2009 were $1.85 million, which was mainly due to proceeds from short-term
borrowings.
CONTRACTUAL
OBLIGATIONS AND COMMERCIAL COMMITMENTS
CONVERTIBLE
NOTES
On
December 27, 2006, the Company entered into a Notes Purchase Agreement with
Citadel Equity Fund Ltd. (“Citadel”), under the terms of which Citadel purchased
a total of US$28,000,000 (“Original Principal Amount”) in convertible senior
notes (“Notes”). The Notes have a Maturity Date of December 27, 2012. The Bank
of New York is the trustee (“Trustee”), between whom and the Company there is a
indenture (“Indenture”) for the Notes dated December 27, 2006.
40
Conversion
Feature
The Notes
are convertible at the option of the holders, at any time on or prior to
maturity, into common shares of the Company. Pursuant to Second Supplemental
Indenture entered into between the Company and the Trustee on September 28,
2007, the conversion price has been revised from $3.20 to $2.25 per share and is
subject to adjustment in certain circumstances but shall in no event fall below
$2.00 per share. In no event shall the number of conversion shares
issuable upon conversion of all the outstanding Notes exceed 49.9% of all
outstanding shares upon the conversion of all of the outstanding
Notes.
The
intrinsic value of the beneficial conversion feature (“BCF”) on the commitment
date, i.e. the Second Supplementary Indenture Date of September 28, 2007, has
been recalculated: the change of conversion price in the Second Supplemental
Indenture resulted in a BCF. The BCF was recognized on the effective date of
September 28, 2007 as a discount and will be amortized using the effective
interest rate method from September 28, 2007 to the maturity date.
Redemption
The Notes
contain a feature reflected in the Accreted Principal Amount based on which the
redemption or repurchase price of the Notes is determined. The Accreted
Principal Amount is determined as follows: the Accreted Principal Amount on
December 27, 2009 shall be 116.0% of the Original Principal Amount, and the
Accreted Principal Amount at the Maturity Date shall be 134.5% of the Original
Principal Amount. The Company can redeem all of the Notes on or after December
27, 2009 at 110% of the then Accreted Principal Amount, plus accrued and unpaid
interest to, but excluding, the redemption date. The Notes holders have the
right to require the Company to repurchase the Notes at a price in cash equal to
104% of the then Accreted Principal Amount plus accrued and unpaid interest to
the repurchase date if there is a change of control of the Company. From
and after December 27, 2009, the Notes holders have the right to require the
Company to repurchase the Notes for 100% of the then Accreted Principal Amount
plus accrued and unpaid interest to the repurchase date.
Interest
Rate
The Notes
initially bore interest at 6.75% per annum, which were subject to upward
adjustments and were payable semi-annually. Pursuant to Second Supplemental
Indenture entered into between the Company and the Trustee on September 28, 2007
and Third Supplemental Indenture entered into between the Company and the
Trustee on December 21, 2007, the interest rate has been revised as
follows:
(a) at
the rate of 6.75% per annum of the Original Principal Amount of the Notes, from
and including the Issue Date to and including September 30, 2007;
(b) at
the rate of 0.00% per annum of the Original Principal Amount of the Notes, from
and including October 1, 2007 to and excluding January 31, 2008;
and
41
(c) at
the rate of 0.00% per annum of the Original Principal Amount of the Notes, from
and including January 31, 2008 to but excluding the Maturity Date, if the Public
Listing has occurred on or prior to January 31, 2008 and if the Company
maintains such listing.
Repurchase
On
September 22, 2009, the Company entered into a Notes Repurchase Agreement with
Mountview Path Limited (“Mountview”), a corporation incorporated under the laws
of the British Virgin Islands, pursuant to which the Company repurchased the
entire 6.75% Senior Convertible Notes due 2012 of US $28,000,000 principal
amount ( “Notes”), originally issued to Citadel Equity Fund Ltd (“Citadel”).
Mountview is the current legal and beneficial owner of the entire amount of the
Notes.
In
connection with the Notes Repurchase Agreement, Mountview agreed to waive all
defaults for the Company’s failure to duly observe and perform covenants set
forth in the indenture entered into between the Company and Bank of New York as
trustee and forebear to take any action against the Company for the
defaults. The Company and Mountview also agreed to take all actions necessary in
order for the Bank of New York, to cancel the entire Notes and promptly release
the pledged security interest created pursuant to the share pledge
agreement dated December 27, 2006 and entered into by and among Ms. Xiao
Jing Yu and Mr. Xue Ming Xu, the Bank of New York, as collateral agent and
Citadel.
Mountview
is not an affiliate of the Company or any of the Company’s directors or
officers. The consideration payable in the transaction consists of US $8,000,000
in cash and 5 million shares of the Company’s common stock. Mountview shall not
be entitled to any accrued and unpaid interest on the Notes. The
closing of this transaction is scheduled to occur on November 30,
2009.
For more
information, please see Company’s Current Reports on Form 8-K filed with the
Securities and Exchange Commission on April 22, May 13 and September 25, 2009,
which are incorporated by reference herein in their entireties.
Detachable
Warrants
Together
with the issuance of the Notes, the Company issued a put warrant to one of the
Company’s financial advisors in the transaction for the purchase of 875,000
shares of the Company’s common stock at an exercise price of $3.20 per share,
exercisable on or before three years from the date of grant. As of September 30,
2009, the value of the put warrant was $50,000.
Debt
Issuance Costs
The
issuance costs directly associated with the Notes and the put warrant aggregated
$2,522,497. The amount was capitalized as deferred debt issuance costs,
and is being amortized using the effective interest rate method over the term of
the convertible loan, with the amounts amortized being recognized as interest
expense. Any unamortized debt issuance costs remaining at the date of conversion
of the loan will be recognized as interest expense in the period the conversion
takes place. As of September 30, 2009, the deferred debt issuance costs were
approximately $1,437,000.
42
OFF-BALANCE
SHEET ARRANGEMENTS
We have
never entered into any off-balance sheet financing arrangements and have not
formed any special purpose entities. We have not guaranteed any debt or
commitments of other entities or entered into any options on non-financial
assets.
INFLATION
The
Company does not foresee any material adverse effects on its earnings as a
result of inflation.
CRITICAL
ACCOUNTING POLICIES
Our
discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these consolidated financial statements
requires us to make estimates, judgments and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses, and the related
disclosure of contingent assets and liabilities. We base our estimates on
historical experience and on various other assumptions that we believe are
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates.
An
accounting policy is considered to be critical if it requires an accounting
estimate to be made based on assumptions about matters that are highly uncertain
at the time the estimates are made, and if different estimates that reasonably
could have been used, or changes in the accounting estimates that are reasonably
likely to occur, could materially impact the consolidated financial
statements.
We
believe that the following critical accounting policies reflect the significant
estimates and assumptions which are used in the preparation of the consolidated
financial statements and affect our financial condition and results of
operations.
Property,
Plant and Mine Development
Expenditures
for new facilities or equipment and expenditures that extend the useful lives of
existing facilities or equipment are capitalized and depreciated using the
straight-line method at rates sufficient to depreciate such costs over the
estimated productive lives, which do not exceed the related estimated mine
lives, of such facilities based on mineralized material.
43
Mineral
exploration costs are expensed according to the term of the license granted to
the Company. Extraction rights are stated at the lower of cost and recoverable
amount. When extraction rights are obtained from the government according
to mining industry practice in the PRC, extraction rights and other costs
incurred prospectively to develop the property are capitalized as incurred and
are amortized using the units-of-production (“UOP”) method over the estimated
life of the mineralized body based on estimated recoverable volume through the
end of the period over which the Company has extraction rights. At the Company’s
open pits, these costs include costs to further delineate the mineralized body
and remove overburden to initially expose the mineralized body. At the Company’s
underground mines, these costs include the cost of building access ways, shaft
sinking and access, lateral development, drift development, ramps and
infrastructure development.
Major
development costs incurred after the commencement of production are amortized
using the UOP method based on estimated recoverable volume in mineralized
material. To the extent that these costs benefit the entire mineralized body,
they are amortized over the estimated life of the mineralized body. Costs
incurred to access specific mineralized blocks or areas that only provide
benefit over the life of that area are amortized over the estimated life of that
specific mineralized block or area. Interest cost allocable to the cost of
developing mining properties and to constructing new facilities, if any, is
capitalized until assets are ready for their intended use.
Asset
Impairment
Long-lived
Assets
The
Company reviews and evaluates its long-lived assets for impairment when events
or changes in circumstances indicate that the related carrying amounts may not
be recoverable. An impairment is considered to exist if the total estimated
future cash flows on an undiscounted basis are less than the carrying amount of
the assets, including goodwill, if any. An impairment loss is measured and
recorded based on discounted estimated future cash flows. Future cash flows are
estimated based on quantities of recoverable metals, corresponding expected
commodity prices (considering current and historical prices, price trends
and related factors), production levels and operating costs of production and
capital, all based on life-of-mine plans. Existing proven and probable reserves
and value beyond proven and probable reserves are included when determining the
fair value of mine site reporting units at acquisition and, subsequently,
in determining whether the assets are impaired. The term “recoverable metals”
refers to the estimated amount of gold or other commodities that will be
obtained after taking into account losses during ore processing and
treatment. Estimates of recoverable metals from such exploration stage metal
interests are risk adjusted based on management’s relative confidence in such
materials. In estimating future cash flows, assets are grouped at the lowest
level for which there are identifiable cash flows that are largely independent
of future cash flows from other asset groups. The Company’s estimates of future
cash flows are based on numerous assumptions and it is possible that actual
future cash flows will be significantly different than the estimates, as actual
future quantities of recoverable metals, gold and other commodity prices,
production levels and operating costs of production and capital are each subject
to significant risks and uncertainties.
44
Stock
Based Compensation
In
December 2004, the Financial Accounting Standards Board, or FASB, issued FASB
ASC 718-10-55 - Compensation-Stock Compensation, or ASC 718-10-55. Under ASC
718-10-55, companies are required to measure the compensation costs of
share-based compensation arrangements based on the grant-date fair value and
recognize the costs in the financial statements over the period during which
employees are required to provide services. Share-based compensation
arrangements include stock options, restricted share plans, performance-based
awards, share appreciation rights and employee share purchase plans. In
addition, FASB ASC 825-10-50-10 – Financial Instruments – Overall – Disclosures,
or ASC 825-10-50-10, expresses views of the Securities and Exchange Commission,
or the SEC, staff regarding the interaction between ASC 718-10-55 and certain
SEC rules and regulations and provides the staff's views regarding the valuation
of share-based payment arrangements for public companies. The Company’s
compensation cost is measured on the date of grant at its fair value. Such compensation
amounts, if any, are amortized over the respective vesting periods or period of
service of the option grant
Adoption
of New Accounting Pronouncements
In June
2009, the FASB approved its Accounting Standards Codification (“Codification”)
as the single source of authoritative United States accounting and reporting
standards applicable for all non-governmental entities, with the exception of
the SEC and its staff. The Codification which changes the referencing of
financial standards is effective for interim or annual periods ending after
September 15, 2009. Therefore in the third quarter of fiscal year 2009, all
references made to US GAAP will use the new Codification numbering system
prescribed by the FASB. As the codification is not intended to change or alter
existing US GAAP, it is not expected to have any impact on the Company’s
financial position or results of operations, upon adoption.
A variety
of proposed or otherwise potential accounting standards are currently under
study by standard setting organizations and various regulatory agencies. Due to
the tentative and preliminary nature of those proposed standards, management has
not determined whether implementation of such proposed standards would be
material to our consolidated financial statements.
.
Item
3. Quantitative and Qualitative Disclosures About Market Risk.
Not
required.
Item
4. Controls and Procedures.
Management
of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting and for the assessment of the effectiveness of
internal controls over financial reporting. The Company's internal control
system over financial reporting is a process designed under the supervision of
the Company's chief executive officer and chief financial officer to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of the consolidated financial statements in accordance with United
States generally accepted accounting principles (“U.S. GAAP”).
All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can only
provide reasonable assurances with respect to financial statement preparation
and presentation. In addition, any evaluation of effectiveness for future
periods are subject to the risk that controls may become inadequate because of
changes in conditions in the future.
45
As of the
end of the period covered by this quarterly report, we carried out an evaluation
of the effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Rule 13a-15(e) of the Exchange Act. This evaluation was
done under the supervision and with the participation of our principal executive
officer and principal financial officer. To make this assessment, we used the
criteria for effective internal control over financial reporting described in
Internal Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treasury Commission. Based on their evaluation of our
disclosure controls and procedures, our principal executive officer and
principal financial officer have concluded that during the period covered by
this report, such disclosure controls and procedures were not effective to
detect the inappropriate application of U.S. GAAP as more fully described below.
This was due to deficiencies that existed in the design or operation of our
internal control over financial reporting that adversely affected our
disclosure controls and that may be considered “material weaknesses”. The
Public
Company Accounting Oversight Board has defined a material weakness as a
“deficiency, or combination of deficiencies, in internal control over financial
reporting (ICFR) such that there is a reasonable possibility that a material
misstatement of the company’s annual or interim financial statements will not be
prevented or detected on a timely basis by the company’s ICFR” .
The
significant deficiencies we identified in the prior year in our internal
controls and disclosure controls related to the application of U.S. GAAP were in
adopting an inappropriate period to depreciate and amortize property, plant and
equipment, including extraction and exploration rights; inappropriate
capitalization of exploration expenses; and inappropriate classification of
balance sheet and income statement balances. These deficiencies, when taken
together, resulted in a conclusion that the Company’s controls suffered from a
material weakness as of December 31, 2006. In 2007, we have remedied all these
significant deficiencies except the failure to provide for an allowance for
doubtful accounts in accordance with the Company’s policy by means of
implementation of the remediation program we planned in the prior year. This
deficiency still resulted in a conclusion that the Company’s disclosure controls
and procedures suffered from a material weakness as of September 30,
2009.
Because
of the identification of the misapplication of U.S. GAAP, our management has
concluded that, as of September 30, 2009, our disclosure controls and
procedures were not effective.
Remediation
of Material Weaknesses
In light
of the conclusion that our Company’s disclosure controls and procedures was not
effective, our management has developed a plan intended to remediate such
ineffectiveness and to strengthen our internal controls over financial reporting
through the implementation of certain remedial measures, which
include:
1) Continuing
to enhance our U.S. GAAP training program for our existing personnel and
recruiting additional professional personnel;
46
2)
Improving the collection from our head office and our subsidiaries of financial
data required to produce U.S. GAAP statements, standardizing the data collection
procedures and assigning data collection responsibilities to designated
personnel; and
3)
Implementing the appropriate procedures to provide for an allowance for doubtful
accounts in accordance with the Company’s policy.
We will
continue these efforts until we are satisfied that all “material weaknesses”
have been eliminated. We expect that resolution of all of these issues will take
place before the end of 2009.
Changes
in Internal Control over Financial Reporting
There
have been no changes in our internal control over financial reporting that
occurred during the quarter ended September 30, 2009, that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
47
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings
None
Item
1A. Risk Factor
Not
required
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item
3. Defaults Upon Senior Securities
None
Item
4. Submission of Matters to a Vote of Security Holders
Our
Current Report on Form 8-K filed with the Securities and Exchange Commission on
September 28, 2009, is incorporated by reference herein in its
entirety.
Item
5. Other Information
None
Item 6.
Exhibits
The
following exhibits are hereby filed as part of this Quarterly Report on Form
10-Q.
Exhibit
Number
|
Description
|
|
31.1
|
Certification
of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of
2002.
|
|
31.2
|
Certification
of Principal Accounting Officer under Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
32
|
Certifications
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350
|
48
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant certifies that it has duly caused this Quarterly Report on
Form 10-Q to be signed on its behalf by the undersigned, thereunto duly
authorized, in Beijing.
CHINA SHEN ZHOU MINING & RESOURCES, INC. | ||
Date:
November 12, 2009
|
By:
|
/s/
Xiaojing Yu
|
Xiaojing
Yu, Chief Executive Officer
|
||
(Principal
Executive
Officer)
|
Date:
November 12, 2009
|
By:
|
/s/ Jiusheng
Zhang
|
Jiusheng Zhang, Chief Financial Officer | ||
(Principal
Financial Officer and Principal Accounting Officer)
|
49