Prosperity Minerals Q1 pretax profits 13.49 mln usd, down 14 pct

Prosperity Minerals Q1 pretax profits 13.49 mln usd, down 14 pct
Published: 19 September 2007

Prosperity Mineral Holdings, a cement manufacturer and iron ore trader in China, said it is on course to meet full year expectations on the back of continuing strong demand for concrete and steel, despite reporting a 14 pct drop in first quarter pretax profits this morning.

The decline in the first quarter numbers, with pretax profits of 13.49 mln usd, against 15.61 mln in 2006, was put down to a special tax refund last year, higher coal prices and plant down-time for maintenance.
Revenues increased 15 pct year-on-year to 104.39 mln usd, and EBITDA was up 11 pct to 18.56 mln usd, the company said.

The cement market in the PRC performed well in the first quarter as inefficient operators withdrew from the market, chief financial officer Patrick Li told Thomson Financial News in a telephone interview.
The group owns Yingde Dragon Mountain Cement and has a 25 pct interest in Prosperity Conch Cement, both in Guangdong Province, and it acquired a 40 pct stake in Anhui Chaodong Cement Company, based in Anhui Province, in June.

YDMs cement prices increased 6.7 pct year-on-year to 30.30 usd a tonne and clinker was up 20.8 pct to 25.12 usd a tonne, he said, but operating profits were down 15 pct to 3.96 mln usd, due to a 9 pct increase in the average quarterly price of coal.

Li said coal prices will continue to rise as the peak winter season approaches. ’Coal prices continue to go up,’ he said. ’There is very strong demand for coal and the government is restructuring the coal market.’
A change in the annual maintenance schedule, with plant down-time shifted from the Chinese New Year in February into April to coincide with low demand in the rainy season, also impacted operating profit comparisons, as did a special tax refund of 1.78 mln usd in the first quarter of the last financial year, he said.
The group acquired a 40 pct stake in Anhui Chaodong Cement Company, based in Anhui Province, in June, and its 216,726 usd contribution to profits in the first month was in line with expectations, he said.
’Anhiu Provine is strategically located with access to the Yangtze River System,’ he said. ’It has huge potential.’

As well as demand for concrete increasing in line with GDP which is running at 14 pct a year in Guangdong Province the group is benefiting from a government-driven rationalisation cement producers, which is reducing the capacity of inefficient and less environmentally friendly producers, Li said.
’15 mln tonnes of capcity from smaller operators is being eliminated in 2007 and 2008, and a further 15 mln tonnes in 2009 and 2010,’ he said.

Li said the group would consider making further strategic acquisitions in the Chinese concrete market. ’If opportunities arise in future we will positively look at them,’ he said.

Prosperitys iron ore trading volumes decreased by 20 pct to 845,104 tonnes year-on-year, due to the absence of shipments from Brazil and Australia, Li said. Operating profits for the division were down 7 pct to 6.75 mln usd because of the lower volumes.

A hike in freight rates last year led the company to look closer to China for sources of iron ore.
Imports from Thailand increased from 66,639 tonnes in Q1 2006 to 371,203 tonnes in first quarter 2007, he said, and early difficulties in terms of insufficient tonnage and low quality had been overcome.
’We have diversified our source of supply, reducing risk and our reliance on freight rates,’ he said.
Handysize vessels are used for the Thailand imports, which can navigate the Yangtze River giving direct access to customers, he said.

It also completed its first shipments of iron ore from Malaysia in the quarter, and the group is actively seeking new sources of iron ore in other South East Asian countries, Li said.
Overall demand for both cement and iron ore remains strong in China, Li said, and prices are maintaining their upward trend.

Prosperity said it expects its results for the financial year to March 31, 2008 to be in line with expectations.
In reaction, Evolution Securities, which has a ’buy’ rating on the stock and a price target of 215 pence, said the company remained on track to meet full year expectations.

’Prosperity enjoyed strong cement prices and a recovery in iron ore distribution margins in first quarter. If trading conditions remain as they are, we could well find ourselves moving numbers up at the next set of quarterly results,’ the broker said.

The Aim-listed companys shares were down 15 pence in morning trade to 146 pence, valuing the group at 212 mln stg.