Tuesday, October 19, 2010

Lihua International Signs Major Supply Contract for Copper Anode

Today Lihua International (LIWA) announced a major supply contract for copper anode equivalent to nearly 40% of their expected 2011 production. Even more incredibly is the announcement of more then 80,000 metric tons is potential contracts which alone exceed the production expectations for 2011 even after building another facility. Guess this explains why the stock soared over 11% yesterday. Guess this news wasn't that guarded.

LIWA along with several other Chinese reverse merger small caps continue to be the cheapest investments into the China economy. Yet most investors continue to avoid these stocks due to fraud scares as if the US market is that safe.

LIWA also confirmed guidance for 2010 and expansion plans are expected to begin soon. This remains one of the best ways to play the expected copper shortage beginning in 2011 and the huge demand from Asia. Anybody concerned about fraud can limit the position to less then 5% or diversify among other China plays like LLEN, PUDA, or CNAM.


Press release:
  • today announced that it has signed a 2011 copper anode volume supply contract for 30,000 tons with its recently announced domestic customer, one of the world's leading copper and metal conglomerates. Additionally, Lihua has received 2011 copper anode volume demand indication from 3 other customers totaling 80,000 metric tons. 
  • In order to meet this expected demand, Lihua plans to break ground in the near term on its second copper recycling facility, located on approximately 33 acres of land adjacent to its existing copper recycling facility in Danyang, China.  The Company expects to complete construction of this new facility during the second half of 2011, bringing annual refined copper production capacity to 100,000 tons. The Company plans to allocate 75,000 tons to copper anode, with the remaining 25,000 tons allocated to copper rod.
  • "We have received 2011 customer demand indications for copper anode which already exceeded our full year estimated refinery capacity, reinforcing our belief in the sizeable market opportunity that exists for this product and supporting our decision to launch the anode product line during the second quarter of 2010," said Jianhua Zhu, chairman and CEO of Lihua. "Since launching copper anode in July, we have shipped over 4,000 tons and remain on track to meet our goal of shipping 8,000 to 10,000 tons of copper anode during 2010."
2010 Financial Guidance and Outlook
Lihua reaffirms its full year 2010 financial guidance based on its recent capacity expansion, positive market trends and strong end market usage for Lihua products. Lihua expects to increase its gross profit by 46-53% over 2009 to $52.9 to $55.7 million, and grow its non-GAAP net income by 48-57% to $38.1 million to $40.3 million. (estimates are close to $2 for next year)

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