YICHANG SPUR CHEMICALS (YSC)
Spur through its wholly-owned subsidiary, Spur BVI, holds a 72.18% interest in YSC whose operations are located in Zicheng Township in the city of Yidu, Hubei Province. In addition Spur has a 5.45% indirect interest in YSC because YMC has an 11.13% stake in YSC.
YSC’s assets include a 100,000 mt/annum S-NPK compound fertilizer plant and a 60,000 mt/annum phosphoric acid plant. YMC is also in the process of constructing a flexible 200,000 mt/annum mono-ammonium phosphate (MAP) plant on the YSC plant site.
The intention is to integrate YSC's assets into the YMC project. Therefore, it is expected that YSC will be merged with YMC as soon as YMC’s Registered Capital contributions are completed.
YSC - EXISTING FERTILIZER COMPLEX
The original plant was built in 1999 for approximately RMB50 million (US $7 million) and commissioned in 2000. The plant has its own rail spur off a national railway line and its own jetty on the Yangtze River, both facilitating low-cost access to inputs and markets.
YSC produced two types of S-NPK’s 13-17-15 and 14-16-15 (denotes the N-P2O5-K2O content respectively).
The fertilizer complex was acquired in 2003 for a total investment of $2.57 million. At the time, it was understood that the plant would not be profitable on a stand alone basis until a certain level of integration was achieved.
In March 2005, the 60,000 mt/annum phosphoric acid plant was completed, enabling YSC to produce its own phosphoric acid from purchased phosphate rock and sulphuric acid, with the longer term objective of replacing the purchased phosphate rock with the phosophate rock deposits from YMC. The phosphoric acid plant was built in six months (vs. planned nine months) at a cost of US$6.85 million.
From a technical standpoint, YSC operations have improved considerably under Spur BVI management, setting new daily and monthly production and sales records.
The plant is now able to run at full capacity when the market demand exists compared to a previous best performance of 30,000 mt in 2004 (prior to the Company’s acquisition of the facility). Improved operational efficiency has allowed the Company to make a modest gross profit in markets where competitors have lost money.
In August of 2007, it was decided that the YSC plant should be converted to the production of MAP, ("MAP Project") due to the high costs of both potash and sulphuric acid required in the production of NPK's.
As previously noted, management believes that the production of MAP has several advantages over the production of NPK In addition, as an industrial producer this new facility would also have lower working capital costs due to less need to store inventory for the peak spring and fall fertilizer application seasons.
MAP Project
The construction of the MAP plant commenced in early 2008. Once constructed, the plant will produce up to 200,000 mt/annum of powdered MAP destined primarily for domestic NPK producers, up to 100,000 mt/annum of granular MAP for export and up to 100,000 mt/annum of S-NPK depending on market conditions.
Construction was suspended in late August of 2008 due to the world economic crisis. At that time the MAP Project was 3 months from commissioning.
Restarting the MAP Project is expected to require four to six months of lead time to bring the facility into commercial MAP production.
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