Yalian Steel Corporation
TSX VENTURE : YL

Yalian Steel Corporation

May 29, 2012 14:19 ET

Yalian Steel Announces Second Quarter Financial and Operational Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 29, 2012) - Yalian Steel Corporation (TSX VENTURE:YL) today announced its financial and operating results for the three and six months ended March 31, 2012. The "Company" or "Yalian" refers to Yalian Steel Corporation (formerly China Drill Corporation) and its subsidiary, Yangzhou Yalian Steel Pipe Co. Ltd ("Yangzhou Yalian"), which operates primarily within the People's Republic of China ("PRC"). Yalian reports its results in Canadian dollars, as reported here, unless otherwise stated.

For the three months ended March 31, 2012, Yalian reported revenues of $2,078,000; cost of sales of $2,685,000; operating expenses of $624,000 and finance expenses (net of income) of $382,000. Net loss for the three months ended March 31, 2012 was $1,614,000, or $0.02 per share.

For the six months ended March 31, 2012, Yalian reported revenues of $4,351,000; cost of sales of $5,849,000; operating expenses of $1,213,000 and finance expenses (net of income) of $652,000. Net loss for the six months ended March 31, 2012 was $3,363,000, or $0.03 per share.

As at March 31, 2012, cash and cash equivalents were $3,279,000, short term deposit was $3,576,000 and the Company had a working capital deficiency of $14,201,000. Total assets were $88,717,000, short-term and long-term loans, net of financing costs, were $38,903,000, and total shareholders' equity was $39,375,000.

As at March 31, 2012, the Company has short-term loans and current portion of long-term loans due to mature within the next twelve months in the amount of $29,410,000 (comprising of RMB 149,000,000, USD $5,616,000 and $177,000). The Company is currently making arrangements with banks to renew loans or obtain new short term loans to repay these obligations. Management is confident of securing additional loans or other financings which are required in order to fund its working capital and refinancing needs, both in the short and long term. However, there can be no assurance that adequate loans or other financings can be secured.

Operational and Business Highlights

During the quarter ended March 31, 2012, the Company manufactured and delivered 17 sales orders compared to 15 for the three-month period ended March 31, 2011. In terms of volume, total sales orders manufactured and delivered amounted to 3,079 metric tons for the three months ended March 31, 2012, as compared to 9,243 metric tons for the three months ended March 31, 2011.

The Company continues to engage with senior officers from three major domestic oil & gas companies in China, China National Petroleum Corporation ("CNPC"), China National Offshore Oil Corporation("CNOOC")and Sino-China Petrochemical Corporation ("SINOPEC"), to gain access to and to be eventually included in their key purchasing networks, as well as to build strategic alliances with them which will foster the Company's long-term growth. Now the Company is a qualified supplier of CNPC and has obtained steel pipe orders for the projects undertaken by CNOOC and SINOPEC.

The Company is working to develop and expand its business in global markets by actively participating in a number of major international trade shows and engaging with various distributors. Currently, the Company's products are sold to customers in North America, Latin America, Middle East, and Europe etc.

The Company substantially completed the construction of its new anti-corrosion line in March, 2012.Total cost of the project is approximately RMB 55 million ($8.7 million). This new coating line is integrated within its industrial chain and expected to be an essential part of the Company's business development plans. The Company is the first pipe manufacturer in China equipped with semi-automatic control system in the coating line, which increases safety and precise control of the production process. With the new anti-corrosion line the Company can provide external and internal 3PE, 3PP, FBE/DFBE coating service with annual capacity of 2,500,000 square meters for the external coating line and 2,000,000 square meters for internal the coating line. The anti-corrosion feature plays an important role in extending the longevity of the steel pipe, saving energy and also decreasing environmental accidents that could be caused by leakage of fluids carried by the pipe line.

Subsequent to the quarter end, the Company obtained an RMB 20,000,000 ($3,172,000) line of credit from the Bank of Nanjing. The credit facility is valid for six months from March 31, 2012 to October 30, 2012. As of the end of May, 2012, total of RMB 6,000,000 ($951,600) demand loans were drawn and total of RMB 12,000,000 ($1,903,200) was earmarked for the issuance of bankers' acceptance notes against the credit line. In connection with the issuance of the banker's acceptance notes, RMB 6,000,000 ($951,600) cash deposits have been placed with the Bank of Nanjing as collateral. In addition, total of $3,172,000 (RMB 20,000,000) short term loans were repaid subsequent to the quarter end.

For more detailed information, please refer to the Company's filings on SEDAR at www.sedar.com.

About Yalian Steel Corporation

Yalian Steel Corporation is a British Columbia corporation focused on the production of high quality Longitudinally Submerged Arc Welded (LSAW) steel pipe to service Asia's rapidly growing energy transportation infrastructure market. The Company has recently completed construction of its initial manufacturing facility in city of Yangzhou, in the Jiangsu province of China. The Company's production line has a rated capacity of up to 200,000 metric tons per year, depending on product and mix specifications. The Yangzhou Yalian plant utilizes the JCOE (J-ing, C-ing, O-ing, Expanding) process, an advanced method of LSAW pipe production that involves the bending and shaping of X-70 and higher grade steel.

For further company information please access our website: www.yaliansteel.com

This news release contains forward-looking information and forward-looking statements (collectively "forward looking statements"), within the meaning of applicable securities laws, with respect to the ability of the Company to secure additional loans and other financings, the completion of the anti-corrosion line and the Company's ability to execute its business plan. Such forward looking statements are based upon assumptions, and estimates made by management in light of its experience, current conditions and its expectations of future developments as well as other factors which it believes to be reasonable and relevant. These assumptions include those concerning the availability of financing and no significant decline in existing general business and economic conditions. Forward looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from those expressed or implied in the forward looking statements and, accordingly, readers should not place undue reliance on those statements. Risks and uncertainties that may cause actual results to vary include, but are not limited to, the Company's limited financial resources and the availability of financing alternatives; changes in general economic conditions or conditions in the financial market; that the Company will be able to establish and/or maintain relationships with key suppliers, customers and strategic partners; and that the construction of the new anti-corrosion coating line will be completed in a timely manner and on budget as well as other risks and uncertainties which are more fully described in the Company's Management's Discussion and Analysis for the 2010 fiscal year and in other Company filings with securities and regulatory authorities which are available at www.sedar.com. Should one or more risks and uncertainties materialize or should any assumptions prove incorrect, then actual results could vary materially from those expressed or implied in the forward looking statements and accordingly, readers should not place undue reliance on those statements. Readers are cautioned that the foregoing lists of risks, uncertainties, assumptions and other factors are not exhaustive. The forward looking statements contained in this news release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements contained herein or in any other documents filed with securities regulatory authorities, whether as a result of new information, future events or otherwise, except in accordance with applicable securities laws.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this press release.

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