Gulf Resources Announces Results for the Second Quarter and Six Months Ending June 30, 2023

SHOUGUANG, China, Aug. 14, 2023 (GLOBE NEWSWIRE) -- Gulf Resources, Inc. ( GURE) ("Gulf Resources", “we,” or the "Company"), a leading manufacturer of bromine, crude salt and specialty chemical products in China, today announced financial results for the second quarter and six months ending June 30, 2023. At the end of this press release you will see our income statement, balance sheet, and cash flow statement. Our 10-Q filed with the SEC describes all the business segments of the company.

While we normally cover these segments first, this quarter we will provide investors with context about the Chinese economy in general and our industries in particular so you can better understand the current direction of the company.

The Chinese Economy

In the second quarter of 2023, the Chinese economy continued to suffer a slowdown. Our products were especially impacted. The demand for bromine was weak. With the control of COVID-19, the demand for sanitizers dried up, especially since many companies had built up stock anticipating higher demand. The slowdown in construction also impacted the sales of fire retardants.

As a result, bromine prices from sunsirs.com, which had been RMB 69,500 per tonne on October 16,2021 during the height of COVID, dropped to RMB 18,000 on June 30, 2023, representing a decline of 74%. The company expects bromine prices may improve in the future. In fact, by August 10, 2023, bromine prices had increased to RMB 24,200. However, at this time it is difficult to estimate the timing of the improvement.

In addition to the decline in the price of bromine, the RMB declined against the U.S.D. Over the extended term, this could be a significant benefit for our company. With the lower RMB, imports of chemicals using bromine are more expensive, meaning domestic producers should gain share. Exports of pharmaceuticals and other chemical products may be cheaper, meaning the opportunities for building an export business may increase.

Given the pricing of bromine in the second quarter, the company believes that most companies in the bromine industry and most companies producing chemicals made from bromine have not been profitable. We have yet to seen many bankruptcies, but we assume many may come. Given the current market conditions, we believe that we currently have strong cash position and balance sheet.

Accordingly, the company made two decisions to protect capital and plan for future operations.

1. It has slowed seeking current approval for its rest two closed bromine factories. The opening of these factories may require the company to build aqueducts and drill new wells. With the current market for bromine, we have sufficient capacity and are not willing to expend additional capital until we see a stronger rebound in the market. We still expect to receive permission to open these factories. However, there is no point to spending the capital until they can operate profitably.
   
2. As previously announced, the company also postponed the delivery of the remaining equipment for its chemical factories, while it reevaluates the market opportunities. The company is committed to its Yuxin Chemical business and believes it will be profitable over the long-term. However, different products will require slightly different final equipment. For example, some products, which pollute more heavily, may require more complex pollution restricting equipment. During this period when most chemical companies are losing money, the company is undertaking a thorough review of the potential markets so it can ensure that it is ordering the most applicable equipment. Once the review is finalized and the market has stabilized, we will have the remainder of our equipment delivered and assembled. Then, we will begin trial and test production.
   

Financial Results

Because of the weakness of the Chinese economy and the huge decline in the price of bromine, the company reported an after-tax loss of $681,816 ($0.07 *per share) for the second quarter and $1,239,563 ($0.12 per share) for the six months ended June 30,2023.

However, during the six-month period, the company generated cash from operations of $11,011,556. These numbers reflect the potential strength of our business model.

At the end of the second quarter, our balance sheet was strong.

We are very pleased to have weathered the sharp downturn while generating strong free cash flow and strengthening our balance sheet.

Future Goals and Objectives

• We expect the economy in general and the bromine market in particular to improve. As of August 8, bromine market prices had increased 34% since the end of the second quarter and 11% from the average selling price during the second quarter.
• During Q2, bromine revenues were $7,356,347. If selling prices had been 11% higher, bromine revenues would have been $8,165,545. This would have provided us with an additional gross profit of $809,198. In the quarter, our loss before taxes was $874,515, meaning that a price increase of slightly more than 11% may have taken us to break-even.
• When bromine prices improve further, we will push ahead to get approval for our rest remaining factories.
• We are still expect to our Yuxin Chemical business. At the present time, many chemical factories are struggling. As the economy in general and bromine products in particular improve, we will be in a position to identify the best products for our new factory, have the remaining equipment tailored to our needs and delivered, complete the assembly and then begin trial and test production.
• We are continuing to explore opportunities for exports, so that we can gain financial flexibility. At the present time, the export market is quite depressed. We are looking for products that we can produce and profitably export so we can obtain capital which we may consider to use to repurchase shares and/or pay a dividend.
• We are continuing in the discussion with the government of Daying County on creating a Joint Venture for the exploration and production of natural gas and brine products in Sichuan. While there is no guarantee that the Joint Venture be created, if we are successful in partnering with the local government, substantial opportunities could be open to us.

Financial Results

Included, you will see our income statement, balance sheet, and cash flow statements for the three and six months ended June 30, 2023. Our 10-Q, filed with the SEC, presents a full description of the segments of our business and the factors contributing to our lower sales and profits.

Commentary

Mr. Xiaobin Liu, the CEO of Gulf, commented, “This has been a difficult time for the Chinese economy and for our industries. We have focused on preserving capital, honing our long-term strategy, and preparing for opportunities we see ahead of us. We believe the economy will improve and bromine and crude salt profits will increase. We are carefully refining our plans for our Yuxin chemical plant so we can produce products that may generate the higher level of profits. We also continue to focus on identifying products that can be exported, so we can gain financial flexibility and then consider to support initiatives supporting shareholder value. While we still do not know if our proposed Joint Venture in Sichuan will be approved, the potential could be greater than our original plan. If we can partner with the local government, we would expect to be able to drill more wells for both bromine and brine.”

(*These calculations are based on the number of shares issued and outstanding of 10,431,924 shares as of June 30, 2023)

Conference Call

Gulf Resources management will host a conference call on Monday, August 14, 2023 at 08:00 PM Eastern Time to discuss its Second Quarter 2023 results ended June 30, 2023.

Mr. Xiaobin Liu, CEO of Gulf Resources, will be hosting the call. The Company management team will be available for investor questions following the prepared remarks.

To participate in this live conference call, please dial Toll Free +1 (888) 506-0062 five to ten minutes prior to the scheduled conference call time. International callers should dial +1 (973) -528-0011, and please reference to “Gulf Resources” or Participant Access Code: 778644 while dial in.

The webcasting is also available then, just simply click on the link below:

http://www.gulfresourcesinc.com/news-28.html

A replay of the conference call will be available two hours after the call's completion and expired by Monday, August 21, 2023. To access the replay, call +1 (877) 481-4010. International callers should call +1 (919) 882-2331. The Replay Passcode is 48941.