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 updates on its chemical business.
On November 24, 2017, Gulf Resources received a
letter from the People’s Government of Yangkou County, Shouguang
City notifying the Company that due to the new standards and
regulations relating to safety production and environmental
pollution, from certain local governmental departments, such as the
municipal environmental protection department, the security
supervision department and the fire department, have decided to
relocate chemical enterprises to a new industrial park called Bohai
Marine Fine Chemical Industry Park. The government has
decided to close those chemical companies which are not in
compliance with regulations within the county. The others which are
in compliance with government regulations will be offered the
opportunity to relocate to Bohai Marine Fine Chemical Industry Park
which has been specifically designed for chemical companies. No
chemical companies will be permitted to operate in the county
outside of the new chemical industry park, with the exception of
bromine facilities which are not being required to relocate.
Chemical companies that are not invited into the park will be
permanently closed. Although we are in compliance with
regulations within the county, due to the proximity of our
subsidiary, Shouguang Yuxin Chemical Co.’s, production plant in or
near a residential area, we have been invited to relocate our
chemical production plant to Bohai Marine Fine Chemical Industry
Park. However, we must not commence activities until we have
relocated the production plant and receive qualified acceptances
from related departments.
Based on recent news, the company believes that
many chemical factories in Shandong Province will be permanently
closed. The same pattern is being followed in other provinces in
China. The goal of the government is to reduce pollution and other
risks to its citizens. When this process is completed, the company
believes there will be fewer chemical companies and these companies
will operate at much higher levels of safety and productivity.
While our factories are in compliance with
government regulations, they are located in an area that is
adjacent to residential areas. For that reason, we will have to
close our factories and relocate them to the industrial park. This
ruling applies to both of our chemical factories, which are located
in the same general area.
To any entity which has been offered the
opportunity to relocate, the government will sell those companies
the new land for their factories. We will still control our
existing land and, in the future, will consider new ways to
monetize this asset. We are estimating the cost of acquiring the
new land and designing and building a new factory. However, we have
already made certain decisions with respect to the relocation, as
follows:
- We will combine our two factories into one facility. This will
allow us to be more efficient.
- We will upgrade our production facilities, using the most
modern equipment. This will allow us to develop a strong
competitive advantage over many of the remaining companies.
- We will utilize as much of the existing equipment as possible,
providing it does not jeopardize our long-term efficiency.
At the present time, we believe this relocation
process will cost between $50-$60 million. Fortunately, as of
September 30, 2017 we had approximately $190 million in cash
reserves and will be able to pay for this new construction without
jeopardizing our other projects.
We will need to acquire the land, design our
factory, purchase the upgraded equipment, and then obtain all
necessary government approvals. There is no way to be certain about
the timeline, but we believe it should take slightly more than one
year to construct the factory and obtain government approval. To be
conservative, we believe the new factory will be fully operational
in 1.5 years, with 2 years as the most conservative target.
We will take a write-down to book value after we
determine which of the equipment we will move and which we will
replace.
Obviously, we will lose some customers during the
interim period. However, because there will be many fewer chemical
factories in the county, the province, and throughout the country,
we expect that we will be able to recapture all of our business
and, through efficiencies, grow from there.
“When we first received this news,” Mr. Liu
Xiaobin, the CEO of Gulf Resources stated, “we were disappointed.
We knew the country was on a campaign to improve the environment,
but we did not know the short-term impact on our company would be
this serious. However, after we considered all of the steps the
government is taking, we are encouraged. We now have the incentive
to upgrade our facilities and make them state-of-the-art. There
will be fewer competitors, and the number of competitors will be
permanently limited. Further, we have the cash to move and fully
upgrade, while many of our competitors, that will still be allowed
to remain in operation, may not.”
“This means,” Mr. Liu added, “that although over
the next 1 to two years there will be no revenues generated from
our chemical segment, we believe that with the relocation and
upgrades and the opportunity to obtain business from other chemical
factories that have closed over the long-term, our chemical
business will likely be far more profitable than it has been in the
past.
“In 2018,” Mr. Liu continued, “we expect to have
our bromine facilities fully operational by the end of the first
quarter. We expect strong profits from this segment. We also expect
our natural gas project will begin to contribute to revenues and
profits. In 2019, we expect to have our new chemical factory begin
operations.”
“We know that investors may be disappointed in the
decision by the government to force the relocation of our
factories,” Mr. Liu continued. “China has serious environmental
problems. These steps are absolutely necessary for the well-being
of the country. While we are disappointed our factories need to be
relocated, we are excited about the opportunity to function in an
industry that will have fewer competitors and much lower capacity.
We are pleased that we have more than enough capital to fund the
rectification of our bromine business, the relocation of our
chemical business, and the development of our natural gas
business.”
“Because we assume investors will have many
questions,” Mr. Liu continued, “we will host a conference call to
provide detailed answers before December 9th, 2017, and the company
will issue a press release about the conference date once it is
booked.”
About Gulf Resources, Inc. Gulf
Resources, Inc. operates through three 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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