* All figures are as of December 31, as reported in Puda Coal s 10-KSB filing with the Securities and Exchange Commission.

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2 Puda Coal, Inc. OTC BB: PUDC Recent Price: $3.28 (June 19) 52-week high / low: $6.35 / $1.01 Shares Outstanding (weighted average): 75.5 million Market Capitalization: $248 million Cash & Cash Equivalents: $12.1 million Long Term Debt: $12.5 million, convertible 8% note * All figures are as of December 31, as reported in Puda Coal s 10-KSB filing with the Securities and Exchange Commission. Puda Coal, Inc. Corporate Headquarters 426 Xuefu Street Taiyuan, Shanxi Province The People s Republic of China Phone: Web: Investor Relations Justin K. Davis, Keating After Market Support jd@keatingams.com Phone: Toll Free (888) 850-PUDC Fax: (720) Overview Puda Coal is a leading coal cleaning company based in the People s Republic of China. The company provides clean coking coal (or metallurgical coal) to steel companies to be used in their integrated coking and steel making process. China s economy continues to grow at a rapid pace, with 2005 real GDP growth reported at 9.9%. Urban development in China continues to drive demand for construction materials including steel, as some 18 million Chinese people move from rural towns to booming cities each year. With rapid construction in cities throughout China, demand for steel remains high. Clean coal is necessary in the coking and steel making process, and Puda Coal, as a leader with 2.7 million tons of production capacity, is well positioned to prosper as a result of this trend in China. 2

3 Company Background & Operations Puda Coal was founded in 1995 by brothers Zhao Ming and Zhao Yao, who owned 80% and 20% of the private company and continue to serve in the capacity of Chairman & CEO and Chief Operating Officer, respectively. In July of 2005, Puda Coal became a publicly traded company on the OTC Bulletin Board through a reverse merger. At the same time, Puda Coal increased its authorized shares outstanding from 100 million to 150 million. Puda processes and washes raw coking coal in its facilities in Shanxi Province, China. The company produces high quality, low sulfur coal to industrial customers in Central and Northern China. The company s coal products are used primarily for making steel. Shanxi Province & China Coal Shanxi province has 28% of China s coal reserves, and produces 20% of the total annual coal in the country. Based in the province, Puda Coal is well positioned to purchase and clean coal before selling it to steel makers. Puda Coal has been expanding rapidly in order to keep production in line with customer demand. The company has grown its annual clean coal production capacity from 500,000 metric tons in early 2005 to 1.5 million metric tons in November. In first quarter 2006, Puda Coal s production capacity had risen to 2.7 million metric tons, providing a 4x capacity increase in roughly one year. The company has indicated that it currently has demand or interest from existing or potential customers for 3.3 million metric tons of cleaned coal per year. Even with the company s rapid ramp up and building of capacity, it is clear that demand for clean coal products continues to outpace supply. This should bode well for Puda in the coming years as the company continues to bring additional capacity online. Puda is currently the largest clean coal producer in Shanxi province. After coal is cleaned by Puda, it is sold to coking producers in China that then sell coke to major steel companies. Additionally, the company sells its cleaned coal directly to major steel mills and gas companies. Moving forward, Puda plans to focus its sales efforts on large integrated steel mills that have their own coking facilities. Coal washed by Puda is sold to several of the top steel businesses in China, including Taiyuan Iron & Steel and Baotou Iron and Steel. In 2004, the company had eleven different customers, with no single customer accounting for more than 16% of total tonnage sales. 3

4 Coal is required to make coke, which is a necessary input in the steel making process. Coke is smelted with iron ore and limestone in order to bind the ore s atoms and harden the finished steel product. Puda Coal purchases all of its coal from mines located in Shanxi province. In 2004, none of Puda s eight suppliers of coal accounted for more than 15% of the total supply purchased by Puda. In 2004 Puda sourced nearly 13% of its coal from affiliated Liulin Jucai Coal Industries, which is 75% owned and controlled by Yao Zhao, Puda s COO and a major shareholder. Puda Coal views this relationship as a significant strategic advantage as Jucai has contractually committed to supply coal to Puda at competitive prices. In 2006, due to the ramping up of Puda s capacity and demand for high quality raw coal, the percentage of raw coal sourced from Liulin Jucai Coal Industries will increase significantly, according to the company. The company s goal is to achieve a 10% market share of clean coal production in China within ten years. If Puda were to meet this goal, annual production would be 20 million tons, over a 7x increase in current production capacity. Puda Coal Competitive Advantages New capacity being added while at the same time increasing efficiency Jucai Coal relationship provides high quantities of the highest quality raw coal Outstanding relationships with major coke producing and steel customers that are seeking high volumes of high quality coking coal Location with rail line access and within close proximity to coke providers supplying 50% of China s coke and 80% of exported coke Competitive Landscape In the United States, coal companies are integrated, combining mining and preparation/cleaning in one operation. In China, by contrast, most coal mining companies either (a) do not have their own coal preparation facilities outright, or (b) for those that do have cleaning facilities, lack sufficient capacity to handle all of their own production. Thus, coal cleaning companies such as Puda were started to fill this market need. The coal cleaning industry is highly fragmented, with many coal cleaning companies operating with annual processing capacity of 100,000 metric tons or less. Puda Coal believes that with coal washing capacity of 2.7 million metric tons, the company is the largest coal cleaning company in Shanxi province. Other major coal cleaning companies in the province include Taiyaun Coal Beneficiation Plant with capacity of 1.8 million metric tons, followed by Shanxi Coking Company, with capacity of 1.6 million metric tons. 4

5 While there are no industry statistics on coal cleaning readily available, Puda Coal believes that it is the largest coal cleaning company within China s largest coal producing province. Growth Opportunities Abound in China The Chinese economy has achieved significant growth in the last twenty years. Between 1982 and 2004, real GDP growth has averaged 9.5% annually, with per capita GDP increasing from $276 in 1982 to $1,215 in In late January China reported that its economy expanded by an amazing 9.9% in GDP for the year stood at $2.26 trillion, according to China s National Bureau of Statistics. These statistics indicate that China is now the world s fourth largest economy, behind the U.S., Japan, and Germany. This year s economic expansion put China ahead of Britain, France, and Italy in terms of GDP. In addition to strong GDP, exports surged by 30%. Domestic spending also soared, with retail sales climbing 12.9% to $831 billion. Investment in construction and factories was also robust, growing 25.7% to $1.1 trillion. China s construction boom is driving demand for steel in China, as the country continues to develop. One of the underlying components in steel production is clean coal that can be turned into coke, and used to bind ore together. As a leading coal cleaning producer in China, Puda is well positioned to benefit from continued urbanization in China and the massive construction boom in major cities. It is reported that some 18 million Chinese people move from rural towns to major cities each year. As a result of this migration, there are increasing demands for new construction, in addition to improving current buildings. In October the New York Times reported, This year alone, Shanghai will complete towers with more space for living and working than there is in all the office buildings in New York City. Beijing, the city that will host the 2008 summer Olympics, is similarly building skyscrapers at a breakneck pace. And Beijing and Shanghai are not the only Chinese cities experiencing a construction boom nearly every major city in the country of 1.3 billion people is seeing rapid urban development as millions of Chinese people migrate from rural to urban locations. This urban development is the driving force behind China s high demand for steel. With clean coal being a necessary input in the steel making process, Puda Coal stands to profit from this long-term growth trend. 5

6 Financial Performance Puda Coal s financial performance has closely tracked the company s growth in production capacity. Reviewing historical financial statements, it s clear that Puda can quickly fill added production capacity by cleaning more coal for current and new customers, and that the company has benefited from rising prices for cleaned coal. While there has been an increase in revenue from additional sales, there has also been a decrease in profit margins as raw coal sources are increasing the prices charged to Puda. In 2004, Puda reported revenues of $19.5 million, a 47% increase from $13.4 million in While the number of metric tons sold actually decreased by 13% in 2004 from 363,000 tons to 315,000 tons, the overall revenue gains were significant as a result of an increased price per ton. Net income for the year grew 54% from $2.4 million in 2003 to $3.7 million in 2004, increasing at a faster clip than revenue growth and demonstrating the leverage of the company s business model. In 2005, revenues increased 162% from $19.7 million to $51.7 million. The reason for the dramatic top line growth was both increased sales to current and new customers as well as increased prices per ton of cleaned coal. Net income before taxes for the year was $204,000. Income after taxes was a net loss of $3.24 million; excluding non-cash debt financing expenses, adjusted net income was $5.4 million. On a per share basis, the company reported a loss of $0.04; again excluding the non-cash debt financing expense, adjusted EPS was $0.07. During the year, Puda sold 680,000 metric tons of cleaned coal, a 116% increase over The company continues to experience strong growth in early 2006, posting record operating results for the first quarter ended March 31. The company reported revenue of $20.8 million, an increase of 386% from $4.3 million for the same period a year prior. Tonnage sales of cleaned coal amounted to 208,000 tons, a dramatic increase from 59,000 tons cleaned during the three months ending March 31, Puda reported operating income of $3.8 million, an increase of 408% from $700,000 in the first quarter of The company reported a net loss of $2.7 million compared with net income of $500,000 in the year ago quarter. Included in the net loss were non-cash charges totaling approximately $4.4 million, including $1 million in the amortization of debt financing costs and $3.4 million in a financing related derivative fair value loss. Excluding these charges, the company would have earned $1.7 million on an as adjusted basis. With roughly 75.5 million shares outstanding, Puda reported a net loss of $0.03 per share for the quarter compared with a profit of $0.01 per share in the year ago quarter. In 2003 and 2004, when their input prices were significantly lower, the company had an opportunistic strategy to increase inventory. This resulted in a one-time 6

7 event that temporarily inflated gross margins. After 2004, margins returned to more typical levels, and the company believes that it will maintain gross margins in the range of 20 23% going forward. Puda Coal is well financed thanks to a $12.5 million private placement of convertible debentures completed in late November, In the private placement, 500 units were sold to accredited investors at $25,000 per unit. Each unit consists of an unsecured 8% note due October 31, 2008, and converts into 50,000 shares of common stock at $0.50. In addition, the placement included 50,000 warrants per unit, exercisable at $0.60. Given the appreciation of Puda Coal shares, it is likely that all of the warrants will be converted into common stock, resulting in an additional cash infusion of up to $15 million. At the end of the first quarter, Puda Coal had 75.5 million shares of common stock outstanding on an average weighted basis. As of April 21, the company had $12.1 million in cash on hand. In late April, Puda Coal provided full year 2006 guidance that calls for the company to report revenues in the range of $120 - $135 million, an increase of roughly 132% - 162% compared with $51.7 million in Dutton Associates analyst Yan Zhao is currently the only analyst following Puda Coal. Looking forward to 2006, Zhao expects Puda Coal to increase revenues by 140% to $119.3 million, and net income to be $13.6 million or $0.12 per fully diluted share. As of January 6, Dutton Associates rated Puda Coal Neutral, with a share price target of $2.40, noting the Chinese steel-making industry stands on the verge of a slowdown after years of fast growth. The question for Puda is whether it can sign on more clients to fully take advantage of its expanded coalwashing capacity. Dutton Associates is an investment research firm that received compensation of $31,500 from Yorkshire Capital Ltd., an investor in the company, on behalf of Puda Coal for investment research coverage. Dutton & Associates' model is based on sales of 1.5 million metric tons of cleaned coal in Puda Coal has provided guidance calling for 2006 sales of 1.5 million metric tons of cleaned coal. Internal guidance outlines expected revenues of $109 million in 2006, with gross profit margins of 21.3%, and net income of $11.3 million. This would represent a 110% increase in revenues from 2005 results. For 2007, Puda believes it can increase production to 1.8 million metric tons per year. 7

8 Concluding Comments Puda Coal provides investors with direct exposure to the construction boom in cities throughout China as millions of people move from rural to urban settings. Most recently, Puda Coal has increased its coal cleaning production to 2.7 million metric tons per year, a 4x increase. The company currently believes that it is the largest coking coal cleaning company in Shanxi Province, which is the largest coal producing province in China. It is Puda Coal s goal to achieve a 10% market share of clean coal product in China within the next decade. If achieved, this would translate into annual production of 20 million metric tons a year, a 7x increase over current capacity of 2.7 million metric tons per year. Puda Coal is aggressively increasing its production capacity to 2.7 million metric tons of clean coal per year as a result of indications from current and potential customers for demand of 3.3 million metric tons per year. The company s buildout in production capacity is a direct result of increasing demand from current and potential customers. The company has proven its ability to grow revenues in recent years from $13.4 million in 2003, to $19.7 million in 2004, and $51.7 million in Puda Coal maintains a focus on profitability, with management guiding 2006 net income at $11.3 million, or net profit margins of 10.3%. With continued rapid growth in China expected in the coming years and no end in sight for rapid construction in cities throughout the country, demand for steel is unlikely to evaporate anytime soon. With clean coal being a core component in the steel making process, Puda Coal is likely to continue to see great demand for its product. 8