Gulf Resources, Inc. (Nasdaq:GURE) ("Gulf Resources" or the
"Company" or "GURE"), a leading manufacturer of bromine, crude salt
and specialty chemical products in China, today announced that the
company’s wholly owned subsidiary Shouguang City Haoyuan Chemical
Company Limited(“SCHC”) has entered into an agreement with the
People’s Government of Daying County in Sichuan Province for the
exploration and development of natural gas and brine resources
(including bromine and crude salt).
Mr. Xiaobin Liu, the CEO of Gulf Resources
stated, “We are very pleased to have reached this agreement with
the government of Daying County. We believe there are substantial
resources of natural gas and brine in Sichuan. With the support of
the government of Daying County, we believe we should be able to
build a strong new business in natural gas and brine in Sichuan
that could potentially transform our company.”
“We have talked in the past about our goal of
becoming a large and very profitable company and greatly enhancing
shareholder value,” Mr. Liu continued. “We believe this agreement
is a significant step in this process. If we can develop major
natural gas and brine resources in Sichuan, we can find a sure path
to a significantly higher stock price.”
Because of the size, scope, and potentially
transformative nature of this agreement, Gulf Resources would like
to review a number of issues and answer questions that investors
might have.
- What Are the Opportunities In Daying
County?
Gulf has been conducting exploration projects in
Daying County since 2011. It discovered that the bromine
concentration in the underground brine water resources was 6-7
times higher than those in Shandong Province. Then, in beginning of
2015, Gulf discovered natural gas at its original brine well. The
Company subsequently hired a third party (a subsidiary of Sinopec)
to conduct of survey of this well. The survey and geographic
studies indicated rich natural gas resources under the well. Based
on the assessment report, the Company estimates this well should
produce annual revenue of approximately US$4.7 million and annual
net income approximately US$2.3 million per year. In 2014, Sinopec
Petroleum made the largest natural gas discovery in Chinese history
(440 billion cubic meters) in Anyue and Tongnan counties, which are
adjacent to Daying. However, to date, there has been limited
activity in Daying County. Gulf believes that Daying County has
rich natural gas and brine resources.
- What are the terms of the Agreement?
Under the terms of this agreement, SCHC will
invest up to RMB 1.1 billion (Approximately $172 million) for deep
processing of brine well resources and the comprehensive
utilization of associated natural gas under brine well. This money
will be spent for drilling, extraction, and production of natural
gas, storage depots, pumping stations, trucks and other
transportation equipment, roads, workers’ housing, and other
related expenditures. SCHC will have the responsibility for
exploration, drilling, production, and etc. It will have to meet
environmental assessment and safety regulations.
The government of Daying County will appoint one
county level leader and one project secretary department to work
with SCHC to obtain exploration and mining licenses, support SCHC’s
technology improvement and capacity expansion, provide SCHC with
appropriate incentives, assist SCHC with obtaining project
approval, environment impact and safety assessments, provide SCHC
with access to water and electricity at standard rates, and assist
SCHC in obtaining permits from provincial and national authorities,
and the project funds at all levels of the governments including
the national, provincial and municipal levels.
The full terms of the agreement will be filed as
an 8-K and will be available at WWW.SEC.GOV.
- Is SCHC required to invest all of the RMB1.1
billion?
This investment is a commitment from SHC. It is
not a requirement. Actual expenditures will depend on the results
of the drilling on a step-by-step basis, as well as on further
approvals from provincial and national government authorities. SCHC
will not continue to invest money in this project if the wells do
not perform to expectations.
- Will SCHC have exclusivity in this area?
There is no exclusivity in this area. However,
SCHC believes it has two advantages. It has a strong relationship
with the Daying County government that is anxious to develop all
its resources. It has applied for drilling licenses for multiple
products (brine and natural gas), and it has the commitment of the
government to assist with this project.
- Who has authority to grant permission to drill
additional wells?
County, provincial, and national governments are
all involved in granting permission to drill additional wells. This
agreement is only with the county government of Daying County. The
Sichuan Province government or the national government could
ultimately reject future permissions or give permission to other
parties. However, the agreement between SCHC and the county
government insures SCHC will have a strong ally. The county
government has assured SCHC that it will serve as an advocate to
the Provincial and National governments to help SCHC receives the
necessary permits.
- How many wells can SCHC drill?
Based on the agreement with Daying County as
well as the expected costs of drilling the wells and providing the
additional needed infrastructure, SCHC estimates it should be able
to drill between 15 to 20 wells in the initial stages. However,
SCHC believes that ultimately the number could be significantly
higher.
- When will production commence?
SCHC will begin trial production on its first
well in the very near future. It will also commence the process of
applying for more drilling permits if the trial production
performance is good.
- How will the company finance this
exploration?
The Company can finance this exploration from
existing cash and free cash flow. At the end of the September 2015
quarter, Gulf had cash on hand of approximately $121 million. The
strong cash flow from operations in the past 12 months has
generated approximately $49 million. This will give Gulf sufficient
resources to complete this project.
- How much could Gulf earn from natural
gas?
This is a far too complex question to answer at
the present time. However, based on the results of the first test
well, Gulf estimates it could produce net income of $2.3 million
per year. Since drilling costs of potential future wells should be
lower, this project could produce substantial returns if the
natural gas in other locations is consistent with that in the test
well.
- How has Gulf’s balance sheet impacted this
Agreement?
The cash on Gulf’s balance sheet was a critical
component of its ability to secure this agreement with Daying
County. The officials in the county carefully analyzed Gulf’s
balance sheet and cash flow before entering into the agreement. The
county officials wanted to be certain that Gulf had the resources
to complete the project if the wells produced desired results.
Gulf is aware that shareholders have wanted it
to declare cash dividends or buy back stock, because the
shareholders and Gulf’s management both believe the stock is highly
undervalued. However, management felt that securing this agreement
from Daying County was essential to the long-term growth of the
Company.
- What is Gulf’s Long-Term Financial Plan?
If this project proves successful, Gulf will
consider many alternatives. These could include among others:
selling the natural gas business, spinning it off as a separate
public company in China or Hong Kong, or considering a listing on
another exchange. Gulf believes it is premature to consider these
alternatives.
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 Shouguang City Rongyuan Chemical
Co., Ltd. (SCRC). 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 as papermaking chemical agents. And SCRC
is a leading manufacturer of materials for human and animal
antibiotics in China and other parts of Asia. For more information,
visit www.gulfresourcesinc.com.
Forward-Looking StatementsCertain 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 risks 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.
Gulf Resources, Inc.
Web: http://www.gulfresourcesinc.com
Director of Investor Relations
Helen Xu (Haiyan Xu)
beishengrong@vip.163.com
IR Manager
Max Ma
Max_vx@163.com
Gulf Resources (NASDAQ:GURE)
Historical Stock Chart
From Jun 2024 to Jul 2024
Gulf Resources (NASDAQ:GURE)
Historical Stock Chart
From Jul 2023 to Jul 2024