YICHANG MAPLE LEAF CHEMICALS (YMC)

YMC is a joint venture between Spur’s wholly owned subsidiary, Spur BVI, and Hubei Yichang Phosphorous Chemical Co. Ltd. (YPCC) which is a State Owned Enterprise of Yichang City, Hubei Province, PRC.

YMC’s Registered Capital has been set at RMB 798 million (approximately $123 million*). Based on its existing contributions to the YMC joint venture, Spur has earned a 20% ownership interest in YMC by contributing RMB 159 million (approximately $24.5 million) and is not required to make any further cash contributions.

YPCC is in the process of finalizing its Registered Capital contributions to the YMC joint venture, consisting of the contribution of:

• The Dianziping and Shukongping phosphate deposits, which have been valued at RMB 353 million (approximately $54 million) (see below)**
• RMB 286 million ($44 million) in cash

Spur management expects YPCC to complete its Registered Capital contributions to YMC before the end of 2011.

YMC will develop and mine the Dianziping and Shukongping phosphate deposits, located approximately 100km north-northwest of the Yichang, and construct a world-scale, flexible phosphate fertilizer plant with designed production capacity of approximately one million tonnes per annum of compound phosphate fertilizers.

ACQUISITION OF YPCC BY XINGFA

Hubei Xingfa Chemical Fertilizer Group (Xingfa) is in the process of acquiring 95.5% of YPCC, Spur’s joint venture partner in YMC. Xingfa is a financially strong and politically well-connected Chinese organization with extensive experience in phosphate mining and production of phosphoric acid, high-value-added feed and industrial phosphates.

The acquisition is expected to be finalized during the second quarter of 2011 after which Xingfa will complete YPCC’s Registered Capital obligations to YMC as well as commence the process of vending into YMC (on terms to be settled) a fertilizer plant currently under construction near Yidu City, in Hubei Province.

This fertilizer plant has annual design capacity of

• 300,000 tonnes of diammonium phosphate (DAP)
• 200,000 tonnes of monoammonium phosphate (MAP)
• 300,000 tonnes of super single phosphate (SSP), and;
• 100,000 tonnes of mono-dicalcium phosphate (MDCP)

The plant is supported by a 1 million tonne phosphate rock beneficiation plant, 800,000 tonne sulphuric acid plant and a 300,000 tonne phosphoric acid plant.

On vending-in this fertilizer plant, YMC will become a fully integrated fertilizer company with world scale mining of phosphate and production of phosphate fertilizers.

Xingfa has commenced the development of a port site on the Yangtze River to support the three-phase facility with annual handling capacity of four million tonnes. Xingfa has also secured extensive rail and road links, land for all ancillary plant facilities, and a phosphogypsum pond.

The SSP plant is currently undergoing commissioning and is expected to be in commercial production by year end, 2011 while the MAP, DAP and MDCP plants will be in commercial production by year end 2012.

The Xingfa fertilizer plant represents the first phase of a three-phase, integrated phosphate project planned for development by Xingfa, where the second phase will be 500,000 tonnes of various types of feed phosphates, and the third phase will be over one million tonnes of high-value industrial phosphates.

The entire three-phase facility is designed to be fully integrated such that products from one phase become the feedstock for another phase, thus potentially increasing profitability, reducing environmental losses and, most importantly, ensuring that the phosphate rock from YMC's two and Xingfa's five phosphate mines can be fully optimized regardless of the grade and quality of the specific phosphate rock.

PENDING APPROVALS

The Xingfa acquisition of YPCC has received approval from Yichang City State Owned Assets Supervision and Administration Commission (SASAC) and is awaiting approval from Hubei Province SASAC.

Once approved, YMC will seek official approval for a modified JV agreement confirming Spur BVI’s 20% equity position in YMC.

The transfer of the two mines from YPCC to YMC has received approval from Yichang City and Hubei Province departments of Land and Resources and is now awaiting final approval by MOLAR in Beijing.

The vending in of the Xingfa plant into YMC is expected to meet the contractual requirements in the YMC Joint Venture agreement to develop the two mines and to build a world-scale fertilizer plant but must be approved by the relevant Chinese authorities.

YMC’S MINES

The Yichang phosphate district is located approximately 100 kilometers north-northwest of Yichang City, Hubei Province in central China and is directly accessible by road.  Often identified deposits in the district, Dianziping and Shukongping belong to the YMC Project. 

The Yichang phosphate district has an average width of 4 km, a strike length of about 70 km, and a total area of about 300 km2.

The phosphate deposits are of sedimentary origin and are contained in the Doushantuo Formation of Upper Sinian age (Upper Precambrian). The Doushantuo Formation is characterized as the oldest phosphatic sedimentary sequence in southern China, deposited about 650 to 700 million years ago.

The floor material below the relatively flat laying phosphate bed is shale and the roof material is a competent dolomite. The tabular ore bodies are elevated above the surrounding ground, and can be easily accessed through horizontal adits (or tunnels). 

The phosphate bed is divided into three distinctly different layers, with thickness ranging from 0 to 4 meters:

• The middle layer consists of a high-grade section composed of alternating bands of coarse and fine phosphorite
• The bottom layer is composed of banded phosphorite and black potassic shale
• The top layer includes alternating bands of phosphorite and dolomite.