Yalian Steel Announces First Quarter Financial and Operational Results

TSX-V:YL

VANCOUVER, Feb. 25 /CNW/ - Yalian Steel Corporation (TSX-V: YL) ("Yalian" or the "Company") today announced its financial and operating results for the three month period ended December 31, 2009. Yalian (formerly China Drill Corporation) was incorporated in June 2007, completed its qualifying transaction and began trading as a public company in December 2008. Yalian reports its results in Canadian dollars, as reported here, unless otherwise stated.

For the three months ended December 31, 2009, Yalian reported expenses of $1,072,086 and other income of $306,126 ($232,050 from a government grant, a foreign currency exchange gain of $32,084 and interest income of $41,992). Net loss for the three-month period was $765,960, or $0.01 per share. After accounting for an unrealized foreign exchange loss of $1,122,383, the comprehensive loss for the period was $1,888,343.

As at December 31, 2009, prepayments for property plant and equipment totaled $7,402,351, property plant and equipment was $58,613,296, cash and cash equivalents were $20,700,781, and working capital position was $8,940,791. The long-term loans with the Agricultural Bank of China and Bank of China (Canada), net of financing costs, were $26,342,276 and deferred government grant was $5,670,890. Accounts payable and accrued liabilities totaled $8,812,798. Total shareholders' equity was $46,041,272.

Operational and Business Highlights

During the quarter, Yalian achieved a number of operational and business milestones including:

Construction and commissioning of the Longitudinally Submerged Arc Welded Pipe ("LSAW") production facility located in the city of Yangzhou, in the Jiangsu province of China, was completed prior to the quarter, on time and within its prescribed budget. The Company hosted a grand opening ceremony in October, which was attended by government officials from the Ministry of Commerce, Jiangsu Province and Yangzhou Municipal Government, Consul General of the Canadian Consulate General in Shanghai, as well as several of the directors and senior officers of Yalian, and senior officials from the domestic steel companies. The plant is designed to eventually produce up to 200,000 tonnes of high quality LSAW pipes per year to service Asia's rapidly growing energy transportation infrastructure market.

The Company announced in October 2009 that it intends to construct a new anticorrosion coating line on the land it had previously reserved north of the JCOE (J-ing, C-ing, O-ing, Expanding) production line. The anticorrosion line will not only complete the existing JCOE production line, but also provide pipe-coating services to other manufacturers. The new line is an essential part of Yalian's business development plans and integration within its industrial chain. The anticorrosion function of the pipe plays an important role in extending the longevity of the product, saves energy and also decreases environmental safety accidents that could be caused by leakage of fluids carried by the line pipe. As a large and growing oil and gas consumer, China is forecasting continued growth in oil/gas transmission pipeline project construction, especially for high-grade steel large diameter line pipe. The anticorrosion line is estimated to cost $5.3 million.

Also in October, Yalian completed its previously announced agreement with Jiangsu Tongyu Steel Pipe Group Co., Ltd. ("Tongyu"). In accordance with such agreement, Tongyu, following the receipt of requisite approvals, subscribed for 5,700,000 common shares of Yalian at a price of US$1.00 ($1.07) per share in a private placement. The first step in this agreement was completed in June 2009 by Tongyu withdrawing its original paid-in capital of RMB 39,957,000 ($6.6 million) from the Yangzhou Yalian joint venture and relinquishing its 15 percent ownership in Yangzhou Yalian. Yangzhou Yalian owns all the manufacturing assets including land use rights, buildings, and production and plant equipment in Yangzhou. With the completion of the withdrawal of Tongyu's 15 percent equity interest in Yangzhou Yalian, Yalian gained full operational control of Yangzhou Yalian while maintaining its working relationship with Tongyu. Yalian will continue to leverage Tongyu's resources, experienced management, established sales relationships, and technical expertise in order to establish and grow its steel pipe business.

On December 30, 2009, the Company signed a non-revolving secured term loan agreement in the amount of USD $4,700,000 ($4,919,020) with Bank of China (Canada). The facility was fully drawn as at December 31, 2009 and is guaranteed by Yangzhou Yalian. The loan matures on December 31, 2011 and provides for interest to be fixed at the prevailing 6-month LIBOR plus 1.5% per annum and to be adjusted every six months thereafter until maturity. Of the USD $4.7 million borrowed, USD $3,000,000 was invested in Yangzhou Yalian as additional paid-in capital to be used for construction of the aforementioned new anticorrosion line as well as for general corporate purposes.

In January 2010, the Company completed audits in connection with its applications for certification from the American Petroleum Institute and local production permits. On February 19, 2010, Yangzhou Yalian received approval from the American Petroleum Institute for certification and license registration of "5L X-70 Grade" for its high grade steel large diameter pipe mill and is applying for additional certification of up to X-100 grade. The Company expects to receive the production permits from local government authorities in China during the second quarter. Although the Company, through its wholly-owned subsidiary, Yangzhou Yalian, expects to begin generating revenue in early calendar 2010, significant operations are not expected to commence until the production permits are obtained.

Subsequent to the end of the quarter, Murray G. Flanigan was appointed as the Company's chief financial officer (CFO). Mr. Flanigan brings a wealth of international financial management, public market, and business development experience to Yalian. Prior to joining Yalian, Mr. Flanigan served as CFO for a number of Canadian private & public companies. Mr. Flanigan earned a Bachelor of Commerce degree from the University of British Columbia and holds both Chartered Accountant and Chartered Financial Analyst designations.

Selected Financial Highlights

The following table summarizes the selected information from the unaudited interim consolidated financial statements as at December 31, 2009 and audited consolidated financial statements as at September 30, 2009.

    
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                                      December 31, 2009   September 30, 2009
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    Cash and cash equivalents             $  20,700,781        $  16,773,236
    Inventory                                    54,934                    -
    Property, plant and equipment            58,613,296           56,168,723
    Prepayments for property, plant and
     equipment                                7,402,351            3,467,272
    Working capital                           8,940,791            9,901,683
    Total assets                             86,867,236           76,605,865
    Total long-term financial
     liabilities(1)                          28,947,166           27,743,733
    Total Shareholders' equity            $  46,041,272        $  41,825,945
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    (1) Includes deferred government grant.
    

The following table summarizes the selected information from the unaudited interim consolidated financial statements for the three month periods ended December 31, 2009 and 2008.

    
    -------------------------------------------------------------------------
                                     Three months ended   Three months ended
                                      December 31, 2009    December 31, 2008
    -------------------------------------------------------------------------
    Interest income                       $      41,992        $      89,615
    Other income (government grant)             232,050                    -
    Foreign exchange gain                        32,084                    -
    -------------------------------------------------------------------------
                                                306,126               89,615
    Expenses
      General and administrative                794,959              193,232
      Interest on long-term loans               203,188                    -
      Amortization                               73,939               35,659
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    Net loss before non-controlling
     interest                                  (765,960)            (139,276)
    Non-controlling interest                          -                  315
    -------------------------------------------------------------------------
    Net loss for the period                    (765,960)            (138,961)
    Unrealized foreign exchange gain
     (loss)                                  (1,122,383)           7,057,734
    Comprehensive income (loss) for the
     period                               $  (1,888,343)       $   6,918,773
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    Earning per share
      Basic                               $       (0.01)       $        0.00
      Fully diluted                               (0.01)                0.00
    Weighted average number of common
     shares
      Basic                                  95,939,130           41,023,565
      Fully diluted                          95,939,130           41,023,565
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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 substantially completed construction of its initial manufacturing facility in city of Yangzhou, in the Jiangsu province of China. The first production line has a capacity of up to 200,000 metric tons per year. 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-80 grade steel.

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

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.

This press release contains forward-looking statements based on current expectations. These forward-looking statements entail various risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Risks and uncertainties about Yalian's business are more fully discussed in the Company's disclosure materials filed with the securities regulatory authorities in Canada. All amounts are stated in Canadian dollars unless noted otherwise.

For further information: YALIAN STEEL CORPORATION, Murray G. Flanigan, Chief Financial Officer, Tel. No.: [phone]