Gulf Resources, Inc. (NASDAQ:GURE) Q2 2023 Earnings Call Transcript

Gulf Resources, Inc. (NASDAQ:GURE) Q2 2023 Earnings Call Transcript August 15, 2023

Operator: Greetings. Welcome to the Gulf Resources Second Quarter 2023 Earnings Conference. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Helen Xu. You may begin.

Helen Xu: Thank you, operator. Good morning, ladies and gentlemen and good evening to all those joining us from China and U.S. And I like to welcome all of you to Resources second quarter 2023 Conference Call. I’m Helen Xu, IR Director and CEO of the company; Mr. Xiaobin Liu, will also join this call today. I’d like to remind you to all our listeners that in this call, certain management statements during the call will contain forward-looking information about Gulf Resources in corporation and its subsidiary business and products within the rule of 175 on the Securities Act of 1933 and the Rule 3b-6 under the Securities Exchange of 1934 and are subject to the Safe Harbor created by those rules. Actual results may differ from those discussed today, taking into account a number of risk factors, including but not limited to the general economic and business condition in the PRC.

The risk associated with COVID-19 pandemic outbreak; future product development and production capabilities, shipments to end customers, market acceptance of new and existing products, additional competition from existing and new competition from the bromine and the other oilfields and power production chemicals, changing technology, the ability to make future bromine assets and the risk other factors beyond its control. All forward-looking statements are expressly qualified in their entirety by this cautionary statements and the risk factors detailed with the company’s reports filed with the SEC. Gulf Resources assumes no obligation to revise or update any forward-looking statements. to reflect events of Circumstances after the date of this call.

Accordingly, our company believes expectation reflecting in those forward-looking statements are reasonable and there can be no assurance of such will prove to be correct. In addition, any reference to the company’s future performance, represent the management’s estimates as of today, the 14th of August 2023. For those of you unable to listen to the entire call at this time. A replay will be available on company’s website, the call will also accessible through the website and link is accessible through our website too. So please locate our press release issued earlier for the details. So, we will review the results of this quarter first. I’d like to return the call back to Mr. Liu for his comments. So firstly, let’s look at the Chinese economy for this quarter.

The Chinese economy continues to severely slow down our products were especially impacted. The demand for bromine was weak with the control of COVID-19. The demand for SunSirs drive up, especially since many companies had built up stock anticipating higher not the slowdown in construction of impacted sales of very target. Ever green route as result, bromine prices from based on sensors.com which has been 69,500 per tonne on October 16, 2021, During the heat of COVID dropped to RMB18,0000 only on June 30, 2023, the bromine a decline of 4 percentage — the company expects bromine prices may improve in the future. In fact, by August 10, 2023, bromine prices had increased to RMB2000 — 24200. However, at this time, it is difficult to estimate the timing of the improvement in addition to the decline in the price of bromine, the RMBdecline against the U.S. dollar.

Over the extenditor which could be a significant benefit for our company. with a lower R&D import of chemicals using bromine are more expensive, mean that domestic producers should gain share export pharmaceuticals and other chemicals that may be cheaper. Meaning the opportunities for butene and export will increase. Given the pricing of bromine in the second quarter, the company’s believe that most companies in the bromine industry and most companies produce chemicals made from bromine have not been profitable. We have yet to see mainly bankruptcy but we assume many may come, given the current marketing conditions, we believe that the company currently has strong cash position and balance sheet. Accordingly, the company made 2 decisions to protect capital and plan for future operations.

It has looked seeking current approval for its rep to close bromine factory. The opening of these factories may require the company to build codex and drill new wells. This is the current market for bone we have salient capacity and are not winning to expend additional capital until we see a stronger result in the market. We still expect to receive permission to open these factories. However, there is no point to spend in the capital until they can operate profitably. As previously announced, the company have also postponed the delivery of the remaining equipment for chemical factors, while it will evaluates the market opportunities. The company is committed to its is Chemical business and believe it will be profitable over the long term. However, different products will request slightly different final equipment.

For example, some products which pollute more heavily may require more complex solution restricting equipment. During this period, where most chemical companies are to demand, the company is undertaking a thorough review of the potential market. So it can ensure that it is altering the most applicable equipment. Once the review is finalized and the market has stabilized, we will have the remainder of our equipment delivered and assembled. Then we will begin trial and test production. So now let’s look at the financial results. Because of the weakness of the Chinese economy and a huge decline in the bromine price, the company reported and after tax laws of approximately $61,800 for the second quarter and approximately $1.2 million for the 6 months end June 30, 2023.

However, during the 6-month period, the company generated cash from operations of approximately $11 million. These numbers reflected the potential strength of our business model. At the end of the second quarter, our balance sheet was strong. We have approximately cash of $150 million and approximately representing $11.05 per share. The net net-cash which is cash minus all liabilities, approximately $97 million, representing $9.32 per share, working capital which is approximately $112.6 million which presented $10.79 per share. Shareholder equity approximately $260 million and representing $24.95 per share. We’re very pleased to have rather shut down turn while generating strong free cash flow and strengthening our balance sheet. So for the coming future goals and objectives, the company expects that the economy in general and the bromine market in particular to improve.

As of August 8, from [indiscernible] — from a market prices had increased 34% since the end of the second quarter and 11% from the average selling price during the second quarter due in second quarter. Growing revenues were approximately $7.4 million. If the study of prices has been 11% higher bromine revenues would have been approximately $8.2 million. This would have provided us in the additional gross profit of approximately $809,000 in the quarter. Our loss before taxes was approximately $874,500, meaning that the price increase slightly more than 11% may have taken us to breakeven. At August 14, we can see that market price for bromine was [indiscernible] which is requirement an increase of 37% since the end of the second quarter and [indiscernible] 8% from the average selling price during the second quarter.

This would bring more extra profit based on our previous projection. So when bromine prices improve further, we will push ahead and to get approval for the company’s rest within informing factors. The company is still pacing to its Yuxin Chemical Business. At the present time, many chemical sectors are still struggling. As the cost economic in general and bromine products in particular improved will be in a position to identify the best products for our new factory has a remaining equipment tailored to our needs and delivered complete and assembled. And the rig can begin trial and the test production. The company is continuing to explore opportunities for exports so that it can gain financial flexibility. At the present time, the export market is quite depressed.

The company is looking for products that it can produce profitably export so company can obtain capital which we may continue to use to repurchase shares as all payer dividends. The company is still continuing in the discussion with the government of Daying County. I’m creating a joint venture for the exploration and production of natural gas and bromine product is true. While there is no guarantee that the joint venture will be created but if the company is successful in partnering with the local government, substantial opportunities could be open to us. The financial results which included — you will see in our income statement, balance sheet and cash flow statement for the 3 and 6 months ended June 30, 2023. Our 10-Q have been filed with the SEC will present a full description of the segment of our business and the factors contributing to our lower sales and profits.

[Foreign Language]

Xiaobin Liu: [Foreign Language]

Helen Xu: [Foreign Language] I’ll do the translation for Mr. Liu’s comments. Hi, everyone. I’m Xiaobin Liu, the CEO of the company. First of all, welcome all of you to Gulf Resources 2023 Second Quarter Earnings Conference Call. So we can see there has been a difficult time for the company of our industries and the Chinese economy. We have focused on preserving capital on our long-term strategy and preparing for opportunities we see ahead of us. We believe the economy will improve and bromine and crude salt profits will increase as well. We are carefully refining our plans for Yuxin chemical plant, so we can produce products that generate the higher level of profit. We also continue to focus on identifying products that can be exported, so the company can gain financial flexibility to consider to support initiatives supporting shareholder value.

While the company still do not know if it’s proposed joint venture in Sichuan will be approved. A potential could be significant, greater than is owing to the plan. If the company can partner with the local government. The company should be able to drill more wells for both bromine and bromine and natural gas. Currently, the company has approximately $115 million in cash. It could have moved ahead is our efforts to support the rest two remaining bromine and crude salt factories. It could also have taken delivery of equipment for our chemical factory but we are committed to retaining our capital from the opportunities we see ahead of us. The company’s investors have asked about actions, it will take to increase shareholder value. Companies believe that we had very substantial opportunities in front of us.

The Chinese economy will get better, bromine prices will rise. The chemical facial will open and it will find products to export if company can get off the joint venture established the opportunities in strong will be higher than we had originally anticipated. And the company management just wants to remind our investors that management has traded more than 11.5 years of compensation for shares in Gulf Resources. No one wants to see the price of the shares appreciate more than we do. We are committed to generating cash from exports. When our business improves, the company will take other steps such as hiring investment bankers or IR firm and consider mergers or acquisitions so that it can produce strong financial returns for you and for us.

So, now we are open for the Q&A section.

Q&A Session

Operator: [Operator Instructions] The first question comes from Jay Bhullar [ph], private investor. Jay, please proceed.

Unidentified Analyst: I had a question for Mr. Liu. I wanted to ask, are you guys going to repurchase shares?

Helen Xu: Sorry, I didn’t get it.

Unidentified Analyst: Are you going to repurchase shares?

Helen Xu: Repurchase shares?

Unidentified Analyst: Yes. Because that would be the best use of cash rather than speculating on a factory or exporting goods, you could just repurchase shares and increase the value for shareholders.

Helen Xu: Okay.

Xiaobin Liu: [Foreign Language]

Helen Xu: Okay, so, Hi Jay. So this question has been asked previously by investors as well and as companies explained before, because due to the China government restrictions on the money going overseas and because the company does not have U.S. dollar in overseas bank account. So the company is trying to find a way to maintain dollar in overseas. Then it’s trying — that’s why we explained that the company is trying to find a product with higher profit margin and which can be exported. Then we can retain dollar in overseas accounts and then to consider — do any like improve our shareholders’ value, including share repurchase and all share paid dividends that the way which can initiate our shareholder value.

Operator: Okay. The next question comes from Alan Parka [ph], private investor.

Unidentified Analyst: I don’t call our funds [indiscernible] on call. The question I have is, of course, I mean, regarding share price. You will hear certainly what the investors calling are really concerned, since you announced the delay in the clinical factory, the share price went down the drain and now we are at the lowest ever and ridiculous price compared to the book value of the company. So, if we wait an additional time for the chemical factory to be the solution to shareholder value. I don’t know where the share price will be because investors are living patients. So my question is the company looking in particular, I would say the CEO and the CFO must get a lot of pressure from the Chairman. Are they looking at other ways of creating shareholder value or pushing the share price up.

I’ve heard you talk to investment bankers. You mentioned that which I was happy to hear. But is there a task force like you have in for the chemical factory. Is there a taskforce looking at the possibility of taking action to add the share price?

Helen Xu: Maybe my understanding is not — can you just like…

Unidentified Analyst: Sorry for my French accent to — so I’m just asking, is there any kind of action taken by the CEO and the CFO that would be the main people to look at ways of improving the share price until we have a chemical factory that will create some export business to provide dollars. So is there — and you said, you mentioned you talked to investment banks. So I mean, is there an action or is there a firm action some people being in charge of looking at that?

Helen Xu: Okay. Okay. I got it. [Foreign Language]

Xiaobin Liu: [Foreign Language]

Helen Xu: Okay, so, first of all, thank you for your question Alan. So as you know, this year, in recent years, the company has been in discussion, few discussions. But we did not sign any like formal agreements with any bankers, investment bank or a from yet. Because like we all know that due to 2 major reasons, the COVID-19 for this year which suggests like happened for the past few years. And the company’s current projects which did not performed and completed well yet. So when all these projects, we have a more clear view where we can talk to the investment bank or IR firm to see how we can go and we will have more borrowing power in this discussion?

Unidentified Analyst: Okay. So — but is somebody is in charge of looking at helping the share price. I mean the CEO or the CFO, is there somebody who has been appointed to do that? To really focus on this. I mean we need to miss somebody to be looking at it and having that as a priority, okay, for sure; the CFO.

Helen Xu: Yes, yes.

Unidentified Analyst: And you will do something before the chemical factory and you will do something before the chemical factory is ready because it could take a year or two before we get that? So are you going to do something or you’re going to let the stock price keep falling like it has fallen for the last several months now?

Helen Xu: Okay. [Foreign Language]

Xiaobin Liu: [Foreign Language]

Helen Xu: Hi Alan. For the share price, the company management always been looking at it including the sales and CEO, OP attention. We see the price of the share dropped. The major reason is due to if we’re looking at bromine price which dropped from RMB60 — more than RMB60 at the highest and to recently more than RMB18,000. There is more than 70% drop in this bromine price. And looks like the bromine price has been reflected to our share price. The company management also quite worried about our share price. So we think we have — that’s why we have 2 major ways to do. Firstly, if we look at our chemical business and our chemical products because this area, the product is now with very low, very low profit margin. So the company that’s why — might disrupt its rest equipment to be delivered because the companies want to find new ways with other products which can have higher margin in order to bring the company with more net profit.

By doing this way, may increase our share price and the company’s profit. Secondly, company is in deep discussion with Sichuan Daying [indiscernible with its best — company best to improve this process and to get it down as soon as it can. By doing this, it will provide a continuous much higher opportunities in this area. In exploring and producing bromine, halogen and natural gas and try to bring the company with more opportunities and more possible net profit.

Unidentified Analyst: Okay. I’ll let other people ask questions. I’ll write to you a little bit more because the price of a mine has been coming back up and the share price kept going down. So it’s more than that. But I’ll do it in writing to you later on and I’ll let other people ask questions.

Operator: The next question comes from Frank Manning [ph], private investor.

Unidentified Analyst: Your balance sheet shows cash of $115 million at the end of Q2. Your income statement shows interest income of $72,500 approximately for Q2. That’s under 0.3% annual interest for average cash. Why is that interest so low? And is there a conservative way to increase the interest?

Helen Xu: Okay. [Foreign Language]

Xiaobin Liu: [Foreign Language]

Helen Xu: So because the company is more like of conservative on its cash, so like that’s why I did not do any less finance production [indiscernible] but we just put the money there for its safety and even we did not put money in trust or any other finance products. For example, last trust which had a big problem and because it’s put the money to new assets industry and now they have very lesser [indiscernible] risks and cannot be back. So based on the company’s way of doing this is always conservative to make sure it’s cash in a safe position and but not only looking for higher interest of return. That’s why we have low, like you said, interest rate.

Operator: The next question comes from Kumin Ken [ph] from Dorel Capital Corporation.

Unidentified Analyst: I have a few questions. Question number 1, from the last quarter report Mr. Liu, the CEO, talked about exploring the export of your chemical products. Can you share some light on what concrete plan or have you hired people with knowledge to explore the export opportunities for your chemical products?

Helen Xu: [Foreign Language]

Xiaobin Liu: [Foreign Language]

Unidentified Analyst: My next question is that — the Bromine price has fluctuated and then declined dramatically from $69,500 per tonne in October 2021 and then went down to approximately $18,000 per tonne in October 23. My question is that what are the driving forces for that — for this dramatic price fluctuation?

Helen Xu: Okay. [Foreign Language]

Xiaobin Liu: [Foreign Language]

Helen Xu: Okay. So maybe for fees to other shareholders, I think I will transfer — translate Mr Liu’s comment. The reason for the is drop in this price of bromine because of the real estate industry, the very patent products is the first reason. Second reason is because of COVID-19. Before the demand was high for bromine but after — like past, then the demand for — which drives up the bromine price. The third reason because the export of pharmaceuticals from China to overseas.

Xiaobin Liu: [Foreign Language]

Helen Xu: Okay. So another reason for the very high price, like almost RMB70,000 a tonne because of the market reason. Normally, the market speculation to not only bromine price wouldn’t be that much high if [indiscernible] market speculation.

Unidentified Analyst: Do you anticipate from your perspective or experience that the bromine price is going to be kind of stabilized in short term or maybe the long term? That really the driving force of the revenue and the — and also related to the shareholder price?

Helen Xu: Okay. [Foreign Language]

Xiaobin Liu: [Foreign Language]

Unidentified Analyst: Are you very optimistic in terms of the price stake stabilization?

Helen Xu: [Foreign Language]

Xiaobin Liu: [Foreign Language]

Helen Xu: Okay. So losing that because Bromine resources is funding a major fundamental chemical raw material and this resource is limited. So as this — the — if it’s more than RMB60, they have a reason for the market speculation but if there is too low price like below like RMB10,000 or about approximately RMB10,000 this is realistic to the market reflection as well. So misleading the price for Bromine be stabilized and go up slowly. And this is what the company be happy to see as well. Because we are in this industry and we do not want — do not want to see there is big fluctuation in the pricing of the bromine.

Unidentified Analyst: My last question is the — for your petroleum and natural gas product, you’re working out a partnership with the government. Also, do you anticipate approval and the approval and then start the production of the petroleum and natural gas product. And then what is the expected revenue and a profit margin if the production starts? You’ve done any consulting to do an estimate on this future revenue and profit or margin, etcetera?

Helen Xu: [Foreign Language]

Xiaobin Liu: [Foreign Language]

Unidentified Analyst: Do you anticipate a timeline for this?

Helen Xu: [Foreign Language]

Xiaobin Liu: [Foreign Language]

Helen Xu: No, because this is a discussion with the government. So we do not have the timeline yet.

Operator: The next question comes from Randy Liggett [ph], private investor.

Unidentified Analyst: Hey and how are you and — sorry for all my e-mails, by the way. But obviously, everybody shareholders are frustrated we’ve gone through this for several years, no matter what the price of bromine was. Why are we being so serving about hiring investment bankers and the PR firm. I just don’t understand we’ve been talking about it for quarter after quarter. And the price of bromine was $70,000. And the stock really did not reflect the value of the company. And I would think management, including yourself and the Board of Directors would want the stock to go up. My second question is and I’ll make this very short and sweet. Have you all received any unsolicited offers to purchase the company or take a private or anything like that?

Helen Xu: [Foreign Language]

Xiaobin Liu: [Foreign Language]

Helen Xu: Okay. So first question, as we previously explained that we want to have like a discussion with investment bank or PR firm. But still not progress yet, because if we go to discuss with investment bank and they will want to see real company’s development value and how we want to discuss with you to improve your value, right? But based on the current currency position, our projects which did not — on the standards of position to perform our development value yet. So until our projects which become more clear, then we can see how we’re going to do this discussion with investment bank.

Unidentified Analyst: Yes. How about my second question. Have you received any offers unsolicited?

Helen Xu: [Foreign Language]

Xiaobin Liu: [Foreign Language]

Helen Xu: Okay. So for your second question, because the company never think about to sell it because even though now we have low share price. But we really have big potential and we are confident in it.

Unidentified Analyst: So you all have not had any interest from outside parties.

Helen Xu: No.

Unidentified Analyst: Okay. One last thing, thank you again, Helen. I appreciate all your help. Please update the website and please continue the communications update. Sometimes I feel like we’re going back to the old days. And I think it’s good for shareholders to hear from you all and just kind of let us know what’s going on, not asking much there.

Helen Xu: Okay. Just for information; the website will be updated right after the quarter recruiting the CEO letter and CFO letter. And because sometimes for the fairness of public information to all shareholders, so we want to make sure, it’s fair and transparent to all our investors. Thank you, Randy.

Operator: Okay. We have a question coming from Bill Bender [ph], private investor.

Unidentified Analyst: Good morning, Helen. This question is in general but I’ve been an investor for over 10 years and shared many of the thoughts that previous callers had. But if you look back over the last 5 years, we discovered natural gas. Then you had a Tsunami and we replenished and really made state-of-the-art bromide factories, even though there’s a few not open yet. And then, we were really banking on this new chemical factory for 2023 that was to open in January, it’s now August. And the [indiscernible] were delays in equipment that was for COVID. There’s no more delays. You can get anything in the world today. And the frustration is building and building because we keep going quarter-to-quarter with the same story.

And I’m sorry but the bromide price is not the problem, Helen. The problem is we are losing investor confidence. And I think the management and Mr. Liu and the Board have put their own money on the line, I know they did. They want the share price to go higher. You hear all the callers here who are just investors. I’ve been an investor for 40 years. It really doesn’t take much in 3 months to make a promise of something and we have a brand-new state-of-the-art chemical factory that should be making something and making money and delivering product that’s 8 months of sitting there. I saw the pictures. So the confidence from an investor when every quarter tells us it’s something else. We have not done anything with natural gas. And I don’t even hear a reason why.

We discovered we have natural gas and we can’t sell it. It’s one of the most largest demand items in the world. So my question is this simple. If I remain an investor, I’ve been in this 10 years, if I want to remain an investor for the next 3 months, I would like Mr. Liu, to tell me why I should remain an investor and not finally sell my shares at $2 a share. Thank you.

Helen Xu: Maybe I explain first because for our chemical factory, forming prices have dropped from almost RMB70,000 to RMB18,0000, more than 70 percentage decrease and this similar to chemical industries as well. Chemical products also dropped a lot. So the company, even though it’s chemical factory is almost completed for the [indiscernible] completion. But the equipment which can be customerized for example, the far retardants which have much lower profit margin now have different equipment requirements than paper-making chemicals, because paper making chemicals is more polluted and which require more strict equipment. So that our company stopped based on current market condition, stopped the delivery of the rest equipment because company now cannot see clearly where it will go in this industry which specific products it want to produce and which can produce and bring more value to our company and our shareholders.

That’s why for this chemical factory. Secondly, if we look at our Natural gas project in Sichuan Province. Firstly, because the Sichuan whole province was doing the land and the resourcing planning. Until the government finish the planning, the company continue its further application with government. That’s why this process has been delayed. And now company because there is a huge opportunity in this industry, et cetera. And the company wants to bring governments to join us, maybe we establish a joint venture company then can bring the company with more opportunities in this industry in Sichuan area. The overall companies still are conservative view of company and which is not very aggressive, we can see.

Unidentified Analyst: Helen, the conservative view, quite honestly, I was an investor when bromide was $2,000 and you were very profitable. But the bromine prices are going to go up and are going to go down for the next 10 years. We’re building a company here that is going to be in the bromine business and we can adapt accordingly. We can’t put off and wait for — bromine’s never going to go to 70,000 again. So the delays of the chemical factory are very concerning to me, an investor at the time it takes to make any decision to partner to do anything, the patients — just look at the volume of your shares without earnings, the shares have been going down because people are selling. That’s it. It’s that simple. And they’re losing hope and there’s not one quarter that we get on this call and hear really good news.

Last year, we were profitable and the stock went to 3. We need to know that there are actions being taken to keep your investors who’ve been with you for many, many years, keep us engaged and I’ve been on the call for 1 hour and it seems to me, I’m hearing the same story of delay and why and the 6-year plan is becoming a 10-year plan. And in the meantime, the markets are recovering. Interest rates are high. I agree with the gentlemen that having $115 million in cash earning $70,000. In America, you would earn $570,000. So I just would like some action from the Board to take this call tonight from all your investors seriously because it seems like we all have the same concerns, Helen. And I know you’ve been here for the 10 years with us. I know that.

So we’re all frustrated but we have to take this serious to make some progress in the next 3 to 6 months.

Helen Xu: Okay. Thank you for coming.

Operator: Okay. I would like to turn the floor back to Helen. For any closing remarks, looks like we’ve reached the end of the top of the hour. Do we have any questions?

Helen Xu: I think that’s all for today and it’s been our time closing.

Operator: Thank you. Ladies and gentlemen, this does complete the question-and-answer session. This concludes today’s conference and you may disconnect your lines at this time.

Helen Xu: Thank you and have a good night.