China Direct fired up by magnesium deal

Even as its chairman prepares to ring the opening bell on Wall Street on Tuesday, investment company China Direct has seen its shares surge 128% in the ten days since it made its debut on the American Stock Exchange through a backdoor listing. The latest stimulus to the company's fortunes, which drove up the stock by more than 35% Friday, was merely a small magnesium project with estimated annual sales of $50 million.

China Direct seems to have swung a good deal, at least on paper. Just four days after it had made its initial investment of some $2 million in CDI Pan Magnesium, China Direct's market value had shot up by $50.6 million to $193.5 million. The stock leapt 35.43%, or $3.10, to $11.85, with more than 7.3 million shares changing hands.

CDI Pan Magnesium is a joint venture 51% held by China Direct; its Chinese partner, Shanxi Jinyang Coal and Coke Group, owns the remaining 49% stake in the project. China Direct said last Monday it would contribute 51 million yuan ($6.8 million) as registered capital, which will be infused in stages over the course of 2 years. The first installment of $2.035 million was provided by China Direct on October 1.

The joint venture currently has a production capacity of about 6,000 tons of magnesium per year and is completing the construction of two new facilities that will add another 12,000 tons annually in 2008.

Based on the current magnesium price of approximately $2,800 per ton, China Direct predicted that the new production capacity, when fully operational, will be able to generate approximately $50 million in annualized sales, with an anticipated net profit margin of 15% to 20% for the fiscal year 2008.

Dr. James Wang, CEO of China Direct, commented, "We are committed to our current plan of reaching manufacturing capacity of 40,000 to 50,000 tons of pure magnesium while distributing an additional 40,000 to 50,000 tons of magnesium in 2008. Our management team expects global demand for magnesium to increase substantially for the foreseeable future and we will continue to grow our magnesium operations to be a leading worldwide force in this industry."

Operated as an investment and consultancy firm, China Direct has interest in several zinc and magnesium projects in China and has helped a few small-sized Chinese firms to tap the U.S. capital markets. In August 2006, China Direct arranged to be acquired by Evolve One, a money-losing over-the-counter-listed company that developed Internet and direct retail marketing companies, in an all-stock deal. Upon completion of the deal, Evolve One changed its name to China Direct and moved up from the OTC Bulletin Board to the Amex on September 24 this year, after which its share price doubled in just ten days.

China Direct said its turnover skyrocketed 223 times to $40,452,970 in the second quarter ended June from $180,417 in the comparable quarter the previous year. The increase in revenues was primarily attributable to Chang Magnesium, Lang Chemical and CDI Wanda, the three Chinese entities acquired after October 2006.

Net income for the second quarter also increased, to $2,267,742, or $0.16 per share, compared with a net loss of $362,697, or $0.04 per share, for the second quarter of 2006. – Forbes