UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act 1934
Date of Report (date of earliest event reported): November 23, 2015
Gulf Resources, Inc.
(Exact name of registrant as specified in charter)
Delaware
(State or other jurisdiction of incorporation)
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000-20936
(Commission File Number)
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13-3637458
(IRS Employer Identification No.)
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Level 11,Vegetable Building, Industrial Park of the East City
Shouguang City, Shandong, 262700, P.R. China
(Address of principal executive offices and zip code)
+86 (536) 567-0008
(Registrant's telephone number including area code)
(Registrant's former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of registrant under any of the following provisions:
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o Soliciting material pursuant to Rule 14a-12(b) under the Exchange Act (17 CFR 240.14a-12(b))
o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 1.01 Entry into a Material Definitive Agreement.
On November 23, 2015, Gulf Resources, Inc. (the “Company”) wholly owned subsidiary Shouguang City Haoyuan Chemical Company Limited (“SCHC”) entered into a Project Investment Agreement (the “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). Under the terms of the 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. 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 investment on the part of SCHC is a commitment, as opposed to a requirement. Actual expenditures will depend on the results of drilling on a step-by-step basis, as well as further approvals from provincial and national government authorities.
A copy of the Agreement is attached as Exhibit 1.01 to this Current Report and is incorporated herein by reference. A copy of the press release is filed herewith as Exhibit 99.1.
Item 9.01 Financial Statements and Exhibits
(d) Exhibits.
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Exhibit Number
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Description
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1.01
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Project Investment Agreement, dated November 23, 2015
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99.1
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Press Release, dated November 30, 2015
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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GULF RESOURCES, INC.
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By:
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/s/ Xiaobin Liu
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Name:
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Xiaobin Liu
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Title:
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Chief Executive Officer
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Dated: November 30, 2015
Project Investment Agreement
Party A: People’s Government of Daying County
Party B: Shouguang City Haoyuan Chemical Company Limited
Party B has entered into Daying County to carry out the trial investment operation since 2011, and has obtained the relevant geological data and the general reserve status of the underground brine resources and the natural gas resources in Daying County. On the basis of the above relevant information, Party B has decided to continue to increase its investment in the county. The following investment agreements are reached by both parties after negotiation:
a. Investment Scale: total investment is RMB1,100,000,000.
b. Construction Content: deep processing of brine well resources and the comprehensive utilization of associated natural gas under brine well.
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B.
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Party A's responsibilities and obligations
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a. Party A to provide preferential policies
Party A shall actively assist Party B to obtain the project funds at all levels of the governments including the national, provincial and municipal levels. In line with the project funds management approach, Party A shall give the full amount of the project funds applied and acquired in the name of this project to Party B to support the project development.
b. Party A shall support Party B on its technology improvement, capacity expansion and technology innovation, and provide Party B appropriate incentives in accordance with relevant policies.
c. Water, electricity and gas used by Party B for production shall be charged based on price list in Daying City for similar industry. Water, electricity and gas used by Party B for living shall be charged based on the standard of urban residents in Daying City. Prices of water, electricity and gas shall be adjusted in accordance with price adjustment by the State.
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C.
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Coordination work for Party A
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a. Party A shall organize the relevant departments to assist Party B with follow-up project approval, environmental impact assessment, safety assessment, etc. pursuant to national industrial policies.
b. Party A shall one (1) county level leader and one (1) project secretary department to provide full service for Party B, to assist Party B with all kinds of administrative licenses, and to help Party B to solve the specific issues during the construction process.
c. Party A shall assist Party B to apply for the brine water exploration rights and mining rights in accordance with the legal procedures in Daying County and provide policy support for the construction in terms of land use, industrial planning, industrial policy, and industrial workers training.
d. Party B shall be treated the same as local residents in Daying County in terms of children enrolled and labor's household registration.
e. Party A shall ensure that Party B has a good environment for construction, production, operation and security.
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D.
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Party B's responsibilities and obligations
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a. Party B shall register a development and construction company with independent enterprise legal qualification in Daying County, which shall apply for the exploration and mining licenses in accordance with the statutory procedures in Daying County, and independently implement the project management and operation. Party B shall bear joint and several liability.
b. Party B shall conduct the project approval, research, design, environmental assessment, safety assessment and other work in accordance with the requirements of the State, and shall obtain the project construction-related administrative license and legal construction and production management right.
c. Party B shall pay relevant administrative fees, government funds, social insurance, etc., in accordance with relevant laws and regulations.
d. Party B shall carry out the construction in accordance with the project layout plan approved by Party A. Party B shall not change such plan without Party A’s permission.
e. Party B shall conduct project construction in accordance with the principle of design with certificate, construction with certificate, supervision with certificate, quality supervision, safe production and standard acceptance.
f. Party B shall use the advanced equipment, advanced technology and advanced technology to produce, and ensure that the project products is high-end in the industry.
g. Party B shall carry out the production and operation activities in accordance with the laws and regulations of the State.
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E.
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Responsibilities for breach
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Party A shall have the right to terminate the agreement when any of the following events happens, and Party B shall be responsible for all the losses caused by such event.
a. Party B for its own reasons fails to obtain the relevant administrative license, or pass environmental assessment, security evaluation, etc., which causes the project on hold;
b. Party B does not meet the requirements of environmental protection and safety in the production process, and does not satisfy the relevant requirements after being given a rectification period;
c. Major environmental pollution or accident occurs during the construction and operation.
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F.
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Modification and termination
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a. Modification
In the principle, no modification shall be made to this agreement. If a change needs to be made, each party shall inform the other party by written notice in advance of fifteen (15) days. The other party shall response in writing within five (5) business days after receiving the notice. Both parties shall negotiate to determine the content of the change.
b. Termination
If the agreement cannot be performed due to the changes of national laws, regulations or policies, or other force majeure reasons, both parties may terminate the agreement through negotiation. If an agreement cannot be reached by negotiation, both parties may apply for arbitration before the Suining Arbitration Commission.
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G.
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This agreement shall not be treated as an evidence for Party B's external contracting projects and collecting the project deposits.
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H.
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Party A shall take no responsibilities for the economic and civil activities conducted by Party B with third parties during the project construction, equipment procurement, production. etc..
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I.
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This agreement becomes effective when signed and sealed by both parties. Other unmentioned matters including plant location, investment intensity, tax standard, time node, prediction value shall be agreed by both parties in a separate agreement.
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J.
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This agreement is signed in quadruplicate, each party holds two copies.
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Party A: People’s Government of Daying County
Party B: Shouguang City Haoyuan Chemical Company Limited
Gulf Resources announces a partnership with the People’s Government of Daying County in Sichuan Province for the exploration and development of natural gas and brine resources.
SHOUGUANG, China, November. 30, 2015 (GLOBE NEWSWIRE) -- 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.
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What Are the Opportunities In Daying County?
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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.
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What are the terms of the Agreement?
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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.
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Is SCHC required to invest all of the RMB1.1 billion
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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.
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Will SCHC have exclusivity in this area?
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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.
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Who has authority to grant permission to drill additional wells?
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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.
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How many wells can SCHC drill?
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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.
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When will production commence?
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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.
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How will the company finance this exploration?
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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.
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How much could Gulf earn from natural gas?
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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.
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How has Gulf’s balance sheet impacted this Agreement?
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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.
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What is Gulf’s Long-Term Financial Plan?
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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 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 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
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