China Direct Industries, Inc. ( CDII)

F3Q 2011 Earnings Call

August 15, 2011 4:30 PM ET

Executives

Richard Galterio – VP

Andrew Wang – CFO

James Wang – CEO and Chairman

Analysts

Amit Dayal – Rodman & Renshaw

Presentation

Operator

Greetings and welcome to the Third Quarter of Fiscal 2011 Earnings Conference Call for China Direct Industries’. For those of you who maybe new to the company, China Direct Industries trade’s on the NASDAQ global market under the symbol CDII.

China Direct Industries is a U.S.-based holding company that sources, produces and distributes industrial commodities in China and the Americas and provides cross-border business and financial advisory services.

Headquartered in Deerfield Beach, Florida, China Direct Industries have a unique infrastructure that provides a platform to expand business opportunities globally while effectively and efficiently assessing the U.S. capital markets. For more information on the company, please visit its website www.cdii.net.

Our call today is hosted by Mr. Andrew Wang, CFO; and Richard Galterio, Vice President. Additionally, Dr. James Wang, CEO and Chairman will also be available during the Q&A session that will follow management’s discussion of the third quarter ended June 30, 2011.

At this time, I would like to refer to the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. During this conference call, management may discuss financial projections, information or expectations about the company’s products or markets, or otherwise make statements about the future, which statements are forward-looking and subject to a number of risks and uncertainties, that could cause actual results to differ materially from the statements made. These risks and uncertainties are detailed in the company’s filing with the Securities and Exchange Commission including its most recent Form 10-K filed on December 23, 2010.

At this time, I would like to introduce Mr. Richard Galterio, Vice President of China Direct Industries. Mr. Galterio, you may begin your call.

Richard Galterio

Thank you, Operator. And all of you who are joining us for our third quarter fiscal 2011 conference call. I am pleased to announce that China Direct Industries recorded revenue of $145.1 million for the first nine months of fiscal 2011 ended June 30, 2011; this was up 87% from revenues of $77.6 million recorded in the nine months of fiscal 2010.

Net income attributable to China Direct Industries for the first nine months was $7.8 million, improving significantly from a loss of $412,000 recorded in the comparable period in fiscal 2010.

Net income attributable to common stockholders for the first nine months of fiscal 2011 was $7 million, inclusive of approximately $600,000 in non-cash items related to our Series A preferred and this is compared to a loss of $492,000 in the same period of fiscal 2010.

Earnings per basic and diluted share were $0.20 for the first nine months compared to a loss per basic and diluted share of $0.02 recorded in the same period in fiscal 2010.

We recorded revenues of $57 for the third quarter of fiscal 2011 ended June 30, 2011, and this was up 78% when compared to $31.9 million recorded in the third quarter of fiscal 2010. Net income attributable to common stockholders for the third quarter of fiscal 2011 was $4.3 million and this compares to a net loss of $1.1 million attributable to common stockholders in the third quarter of fiscal 2010. This resulted in third quarter net income per basic and delicate share of $0.11 as compared to a loss of $0.04 in the third quarter of fiscal 2010.

We continue to see an expansion across all of our business segments and in the third quarter I would like to highlight a few areas. First in our Magnesium segment we delivered 9,049 metric tons of magnesium, a 52% increase in shipping volume compared to the same period in fiscal 2010. We generated $25 million in revenue in the third quarter of fiscal 2010 (sic) [2011] from magnesium with an average selling price increasing to $2,766 per metric ton. This is a significant improvement compared to $14.3 million in revenues in the third quarter of fiscal 2010 with an average selling price of $2,400. I would also like to point out that this is a 4.8% improvement in average selling price from the previous quarter or second quarter of fiscal 2011.

As we have increased production through the restart of facilities our gross margin excluding depreciation reached 6% in the third quarter and totals an average of 5.1% for the first nine months of the year as a quarterly numbers are improving with the restart of these facilities. We anticipate that we will continue to see positive trend for the remainder of this year as prices and demand continued to firm and our business mix shifts towards production from distribution.

In our Consulting segment, we had a very strong quarter compared to the third quarter of fiscal 2010. Our revenue reached $11.8 million and this compares to $682,000 recorded in the same period in fiscal 2010. This is a result mainly of transactional revenue we conducted for a new client in the quarter. We have added two new clients this fiscal year for transactional services and maintain the same number of clients as last fiscal year for ongoing services.

We continue to see significant improvement in our Basic Materials segment with overall revenue reaching $20.2 million and that’s after 19% from the third quarter of fiscal 2010. Growth has been fuelled by a 21% increase in sales of our specialty chemical as well as shipments of iron ore from our U.S.-based industrial commodities business. We believe this business will play an increasingly important role for the segment the fourth quarter and in fiscal 2012 as we expand our efforts in South America.

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