Gulf Resources, Inc. (Nasdaq:GURE) ("Gulf Resources" or the
"Company"), a leading manufacturer of bromine, crude salt,
specialty chemical products, and natural gas in China, today
announced the closing of its bromine, crude salt and chemical
factories for rectification and improvement in order to meet the
new environmental rules in China.
On September 1, 2017, Gulf Resources received letters from the
Yangkou County, Shouguang City government to each of its
subsidiaries, Shouguang City Haoyuan Chemical Company Limited and
Shouguang Yuxin Chemical Industry Co., Limited, which stated that
in an effort to improve the safety and environmental protection
management level of chemical enterprises, the plants are requested
to immediately stop production and perform rectification and
improvements in accordance with the country's new safety,
environmental protection requirements.
In the company’s press release of August 11, 2017 and on its
conference call of August 14, 2017, we addressed our concerns that
increased government enforcement of stringent environmental rules
that were adopted in early 2017 to insure corporations bring their
facilities up to necessary standards so that pollution and other
negative environmental issues are limited and remediated, could
have an impact on our business in both the short and
long-term. We also expressed that although we believed our
facilities were fully compliant, we did not know how our facilities
would fare under the new rules and that we expected to have a full
understanding of the implications within the next two months.
Teams of inspectors were sent to many provinces to inspect all
mining and manufacturing facilities. The local government requested
that facilities be closed, so that the facilities can undergo the
inspection and analysis in the most efficient manner by
inspectors’ team.
A press release from the Chinese Ministry of Environmental
Protection on August 18, 2017, stated, among other things that
inspection teams would be deployed in Shandong Province as part of
the efforts to implement the guidelines on promoting ecological
progress and protecting the environment, and the major decisions
and deployments of the CPC Central Committee and the State Council.
Similar press releases were issued for other provinces. For a full
version of the press release, please see the following links:
- Chinese
version: http://www.mep.gov.cn/gkml/hbb/qt/201708/t20170810_419538.htm
- English
version: http://english.mep.gov.cn/News_service/news_release/201708/t20170828_420530.shtml
At this time, Gulf Resources does not know the timing of further
inspections or the cost of remediation and improvement that will be
required, nor does the company know how long the factories will be
closed. Until the Company understands the full implications and
timing of these issues, it will not be able to provide any
estimates as to the impact on either earnings or capital expenses.
However, the company is currently in discussions with the county
and city governments to resolve these issues as rapidly as
possible.
While the company does not yet know all of the issues that might
be involved, Gulf believes that with respect to its Bromine
production that it may have to purchase new equipment and utilize
more modern technology in order to increase utilization; Converting
the material used for energy from coal to natural gas, electricity,
or solar power; develop better waste water treatment, and invest in
equipment that minimizes emissions. While there is no way of
knowing at this juncture how much all of these steps will cost, the
company believes it could be between $15 and $30 million.
In the chemical industries, the company believes the same types
of issues will apply. In Sichuan, where the company is currently
exploring for natural gas, the company believes the most important
environmental issue is the treatment of waste water.
“These are very interesting business situation,” Mr. Liu
Xiaobin, the CEO of Gulf Resources stated. “With most of the
factories in industries such as mining and chemicals closed, there
will be many people unemployed. In addition, these basic industries
provide products for downstream industries. If they cannot produce
products, downstream industries will also have to close.”
“Our experience indicates,” Mr. Liu continued, “that the Chinese
government will move very quickly to complete the inspections and
get companies to agree to the necessary remediation and upgrading.
The government has increased the number of inspection teams from 8
to more than 30 in order to move the process as quickly as
possible. While we would prefer to continue operating all of our
factories, we believe the government should do its best to improve
the environment in which we all have to live.”
“From a business point of view,” Mr. Liu stated, “we actually
look at this as a significant intermediate to long term
opportunity. In bromine, for example, we are among one of the
largest producers. We believe smaller producers control
approximately 50% of the market. We further believe our facilities
are generally better than those of our smaller competitors. In
addition, we have approximately $176 million of cash on our balance
sheet. This gives us more than ample resources to invest in any
needed technology and equipment. We also have a skilled management
team that will enable us to act in an expeditious manner. We do not
know if our smaller competitors have the needed resources and
management capabilities. However, we believe that some do not. And
it may provide the company with potential acquisition
opportunity.”
“In chemicals,” Mr. Liu continued, “we do have some larger
competitors, but the market also has many smaller competitors that
may not have the capital to conduct the remediation and
improvement.”
“Over the short term,” Mr. Liu stated, “prices of commodities
should increase as there are temporary shortages. Over the
intermediate to long-term, the large, well-capitalized companies
that are able to invest in new equipment should be able to
significantly increase their market share, utilization, and
profitability. China has instituted similar policies for other
basic materials. For example, it announced a policy that will
result in the closing of 5,600 of the country’s 10,760 coal mines*.
We believe the government of China is strongly committed to
improving the environment, and that over the long-term this will be
a great benefit to the larger and more well capitalized companies
that can make the right improvements at the fastest speed.”
As soon as Gulf has a better understanding of the timing, cost
and impact of the factory closures, it will update this press
release to inform investors.
(*http://www.reuters.com/article/us-china-energy-coal/china-to-close-more-than-1000-coal-mines-in-2016-energy-bureau-idUSKCN0VV0U5)
About Gulf Resources, Inc.Gulf Resources, Inc.
operates through four wholly-owned subsidiaries, Shouguang City
Haoyuan Chemical Company Limited ("SCHC"), Shouguang Yuxin Chemical
Industry Co., Limited ("SYCI"), and Daying County Haoyuan Chemical
Company Limited (“DCHC”). The company believes that it is one of
the largest producers of bromine in China. Elemental Bromine is
used to manufacture a wide variety of compounds utilized in
industry and agriculture. Through SYCI, the company manufactures
chemical products utilized in a variety of applications, including
oil and gas field explorations and papermaking chemical agents, and
materials for human and animal antibiotics. DCHC was established to
further explore and develop natural gas and brine resources
(including bromine and crude salt) in China. For more information,
visit www.gulfresourcesinc.com.
Forward-Looking Statements
Certain statements in this news release contain forward-looking
information about Gulf Resources and its subsidiaries' business and
products within the meaning of Rule 175 under the Securities Act of
1933 and Rule 3b-6 under the Securities Exchange Act of 1934, and
are subject to the safe harbor created by those rules. The actual
results may differ materially depending on a number of risk factors
including, but not limited to, the general economic and business
conditions in the PRC, future product development and production
capabilities, shipments to end customers, market acceptance of new
and existing products, additional competition from existing and new
competitors for bromine and other oilfield and power production
chemicals, changes in technology, the ability to make future
bromine asset purchases, and various other factors beyond its
control. All forward-looking statements are expressly qualified in
their entirety by this Cautionary Statement and the risk factors
detailed in the company's reports filed with the Securities and
Exchange Commission. Gulf Resources undertakes no duty to revise or
update any forward-looking statements to reflect events or
circumstances after the date of this release.
CONTACT: Gulf Resources, Inc.
Web: http://www.gulfresourcesinc.com
Director of Investor Relations
Helen Xu (Haiyan Xu)
beishengrong@vip.163.com
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