Gulf Resources, Inc. Q3 FY2023 earnings call

• Chairmanship change: Mr. Liu decided not to stand for reelection as Chairman, board nominated him as next Chairman. - Flood prevention plan: Commenced initiative to renovate rivers in mining area to prevent flooding, projected expenditure ~$50.5M, $15.15M spent in Q3 2023. Benefits include enhancing factory reopening chances, enabling additional well drilling, and mitigating future flood risks. - Q3 financial results: Sales down 74%, net loss ~$1.8M, gross profit loss for bromine, etc. - Future outlook: Aim to return to profitability in Q4, progress with chemical factory opening, obtain approvals for remaining bromine factories, and resume natural gas and broad exploration in Sichuan.

In the third quarter of 2023, bromine revenue declined by 75% to approximately $4.9 million from approximately $19.8 million, with a 43% reduction in tons sold and a 57% decrease in average selling price. Crude salt revenue declined by 70% due to an 18% decline in pricing and a 63% decrease in tonnes produced. For the nine months ended September 30, 2023, bromine revenue fell by 51% from approximately $20.7 million to approximately $41.9 million, and crude salt revenue declined by 51% to approximately $2.3 million from approximately $5.5 million. Natural gas business obtained approximately $68,000 in revenue through equipment leasing in Q3, and increased by 13% from equipment levy over nine months. Bromine business had a gross profit loss of approximately $1.1 million in Q3 compared to a profit of $12.5 million previously, while crude salt achieved a gross profit of $511,500 in Q3 compared to $1.9 million previously. For the nine months, bromine business accrued a gross profit of approximately $1.5 million compared to approximately $27.7 million previously, crude salt business had a gross profit of approximately $1.0 million compared to approximately $2.6 million previously, chemical business recorded no gross profit, and natural gas business marked a gross profit of approximately $150,000 compared to approximately $132,600 previously.

• Aim to return to profitability in the fourth quarter. - Progress with the opening of the chemical factory, obtain approvals for the remaining two bromine factories, and ideally resume natural gas and broad exploration in Sichuan Province.

• General economic and business conditions in the PRC. - Risk associated with COVID-19 pandemic outbreak. - Future product development and production capabilities, shipments to end customers, and market acceptance of new and existing products. - Additional competition from existing and new competitors from the bromine and other oilfields and power production chemicals. - Changing technology. - Ability to make future bromine assets. - Risk of typhoon-related flooding if flood prevention plan not implemented.

Q: Could you explain why there was a delay in the 10-Q filing in Q3?

A: This quarter's delay in filing was because auditors needed more documents or materials when doing their review.

Q: Regarding the flood prevention investments, when was the decision taken to make the $15 million underlying investment?

A: It was during September in Q3.

Q: Are you still restricting production in Q4?

A: Because bromine price is in its recovery stage and they should not launch passion of production alone, production volume maybe will be similar as last year Q4, and they are monitoring events in the Middle East.

Q: Has the export team looked at the possibility of exporting some bromine to Asia?

A: Because downstream of bromine industry are majorly in China area, and bromine is very dangerous to transport with high transportation cost, they need to evaluate and monitor market condition and cost-benefit.

Q: Would the company consider a buyout at $15 or $20 a share?

A: No, because they have confidence in their bromine, natural gas, and chemical business segments as they have potential for growth once conditions improve and bromine resources are limited.

Q: What would be the cost if a similar typhoon hit after the flood prevention project?

A: They think the cost to get everything down again would be very few, maybe around $3 million to $5 million.

Q: Reason for proceeding with flood prevention program at this stage?

A: After typhoons in 2018 and 2019, they evaluated surrounding area and learned from others' experiences, and it's an appropriate time to do it with more knowledge.

Q: Why notified investors only after spending a third of the projected expense for flood prevention?

A: They thought the cost was like normal operating expense and disclosed it in the 10-Q to investors.