Helen Xu – CEO Assistant Xiaobin Liu – CEO

Good morning. My name is Rachel, and I will be your conference operator today. At this time, I would like to welcome everyone to the Gulf Resources’ 2013 Third Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions) Thank you. Ms. Xu, you may begin your conference.

Okay, thank you, operator. Good morning, ladies and gentlemen, and good evening to those of you who are joining us from China. And we’d like to welcome all of you to Gulf Resources’ Third Quarter 2013 Earnings Conference Call. My name is Helen, the Assistant of company’s CEO. Our CEO and CFO of the company, Mr. Xiaobin Liu, and Mr. Min Li will also join this call today. I will be offering translation for the management’s comments for the company’s operating results. And I’d like to remind you for listeners that in this call management’s remarks will contain forward-looking statements which are subject to risks and uncertainties. The management may make additional forward-looking statements. Therefore the company claims the protection of Safe Harbor for the forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today depending upon a number of risk factors, including but not limited to, the general economic business condition in China, future product development and production capabilities, shipments to end customers, market acceptance of new and existing products, additional contributions from the existing and new competitors for the bromine and other oil fields, agriculture and the production chemicals and the change in technology; the ability to make future bromine asset purchase and the various other factors beyond the company’s control. All forward-looking statements are expressly qualified in their entirety by this precautionary statement and the risk factors detailed with the company’s reports filed with the SEC. Accordingly, our company believes the expectations reflected in these forward-looking statements are reasonable and there can be no assurance of such if proved to be correct. In addition, any reference to the company’s future performance represents management’s estimates as of today, November 11, 2013. Gulf Resources assumes no obligation to update these projections in the future as market conditions change. For those of you unable to listen to the entire call at this time, a replay will be available for 14 days at the company’s website. The call is also accessible through the webcast and the link is accessible through our website. Please look at our press release issued earlier for details. It’s my pleasure to turn this call to Mr. Liu, the company’s CEO, who is going to provide some initial remarks. And then I will translate. Xiaobin?

[Foreign Language – Chinese] First of all, thank you all for participating in our third quarter 2013 earnings conference call. We are pleased to report that company’s net revenue for the third quarter of 2013 had increased 34%. Income from operations increased 94% and net income increased 97% as compared with the same quarter of 2012, which is mainly due to the increased sales revenue from all segments of the company and a gain on relocation for bromine Factory No. 3. As compared with same period of 2012, the sales revenue of chemical products segments largely increased 45%. Crude salt segment increased 65% and bromine segment slightly increased 22%. The chemical products segment, it had a great performance for the third quarter of 2013, as compared to the same period of 2012, as gross profit margin increased from 29% to 34%. We also noted an upward trend in the average selling price of crude salt, since the third quarter of 2011, due to the stable demand of the crude salt. The average selling price increased from $37.19 per tonne in the third quarter of 2011 to $41.39 per tonne in the third quarter of 2013. In fact, the average selling price of crude salt remain at the current levels towards the end of 2013, since we are still impacted by China’s macroeconomic conditions, our bromine price still remains at a competitively low price which resulted in gross profit margins only increased 2% in the condition, our sales volume has increased 20%. The company will be continually looking for growth of horizontal and vertical acquisition targets, try to expand sales market, increase its product utilization rate and decrease management and administration expenses.

Thank you, Mr. Liu. And I’m going to continue with presenting the company’s results for the third quarter of 2013 on behalf of the company’s CEO, Xiaobin Liu. The company’s net revenue was approximately $32.9 million for three-month period ended September 30, 2013, an increase of approximately $8.4 million or 34% as compared to the same period in 2012. This increase was primarily attributable to the increase of revenues from all of our segments, and actually including an increase of revenue from bromine segment from $14 million for the three-month period ended September 30, 2012 to $17.1 million for the same period in 2013, an increase of around 22%. Secondly, the increase for revenue from the crude salt segment was $2.4 million for the three-month period ended September 30, 2012 to $3.9 million for the three-month ended in September 30, 2013, an increase of around 65%. And thirdly, the increase of revenue from the chemical products segment from $8.2 million for three-month period ended September 30, 2012 to around $12 million for the same period in 2013, an increase of around 45%. Gross profit was $11.9 million or 36% of net revenue for the three-month period ended September 30, 2013, as compared to $10.4 million or 30% of net revenue for the same period in 2012. The increase in gross profit percentage was mainly due to the increase in the margin percentage in all of our three segments. The total research and development costs incurred for this three-month periods ended September 30, 2013 and 2012 were $33,198 and $28,478 respectively, an increase of 17%. These costs for the three-month period mainly represented the raw materials used by Yuxin Chemical for testing the manufacturing routines. And another major cost, write-off of on property, plant and equipment for the three-month period ended…

(Operator Instructions) We’ll pause for just a moment to compile the Q&A roster. Your first question is from the line of Peter Sheriff [ph].

I have a couple of questions. First question is what’s the – how is the price of bromine now and what you expect over the next six months?

[Foreign Language – Chinese] Okay. Currently the bromine price is competitively at the low price. It’s around RMB 18,000 – more than RMB 18,000 currently. And due to the China’s macroeconomic condition and the financial crisis, the export of China has decreased. So in the future six months, we do not expect that it will increase a lot, but it will fluctuate at the current level.

Okay. Will the [indiscernible]. A second question is, you have right now just a huge amount of cash and no debt at all on your balance sheet. And so I’m curious to hear what your ideas are for using all this money to grow your business or what your plan is with all the cash?

[Foreign Language – Chinese] Okay. I can translate this. He said that, company has actually already mentioned that we are always actively looking for acquisition targets, horizontally and vertically which includes the similar as the bromine production factories or downstream productions as well. We see the first thing we can do. Secondly, that we can give some over to our customers to encourage them increase their inventories from the companies and [indiscernible] will think that try to engage in two ways which is good for company’s long-term growth. And we have good results on the company’s operations as well – operation results as well.

Great. Actually, let me just follow-up on that and then I ask one more question. Is he finding good acquisition targets now at cheap prices, because there must be lot of smaller companies still to buy?

Do you mean bromine or the downstream ones?

It’s either way. Are there good acquisitions, good prices now?

Do you mean easy to find them?

Easy to find at good prices, yes.

Okay. [Foreign Language – Chinese] Okay. So he feels that if we look at horizontally acquisition targets such as – for example the bromine factories, because currently bromine is at a competitively low price as compared to history price. So it’s easier to find the appropriate acquisition target. And because for low bromine prices and if we look in for the downstream of the bromine factories, it’s also to have company perfect our production chain and give the company therefore future long-term growth.

Right. Final question, I apologize for many questions.

It’s okay.

In Sichuan your – was the bromine plant in Sichuan?

So do you want to ask about the Sichuan projects, right?

Yes, last question.

Okay. [Foreign Language – Chinese] Okay. And regarding the Sichuan projects, the company is currently doing analysis and evaluations on the warehouse and doing trial drilling to evaluate the amount and – future amount and the commercial production possibilities. And secondly, we’re also doing discussion with local government to try to get their support if we go – this well can go for commercial production in future. Hello, operator?

Yes, ma’am. Are you ready for the next question?

Yes.

(Operator Instructions) We have a question from the line of Jon Ralph [ph].

Yes. Has there been any further developments with regard to the privatization initiatives from SHIG announced earlier in 2012?

Sorry? Hello.

Yes.

Hi, John. Okay.

In early 2012, there was a press release saying that there was a preliminary privatization offer from SHIG.

Okay.

Has there been further developments on this project?

Okay. Thank you. [Foreign Language – Chinese] Okay. So Mr. Liu stated that, actually at beginning of 2012, there is a press release regarding the intention agreement from SHIG and the company’s chairman Mr. Yang Ming. As we received this notice from Mr. Yang and we did a press release regarding their intention letter – intention agreement around future, we did not receive any notice or letter from Mr. Yang yet till now. So we are not clear what he is having now and we didn’t asked Mr. Yang Ming as well. And [indiscernible] until now he does not have any development yet. If he has, he will notify us at the first minute and we will do a press release.

Thank you.

Okay, thank you.

(Operator Instructions) We have no questions at this time.

Okay. [Foreign Language – Chinese] So operator, thank you very much. If there are no further questions, we conclude and call the day for the conference. Thank you very much.

Thank you. This concludes today’s conference call. You may now disconnect.