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The Company completed construction of a 40,000 tonnes per year potassium sulphate fertilizer production facility in Changchun, Jilin Province, China in late 2007 using the same process as Guangdong Migao. Another 40,000 tonnes of annual capacity came on line in January, 2012. Changchun Migao produces potassium sulphate fertilizer (including both powdered and granular forms) for local high value crop customers. The plant also produces as a co-product of potassium sulphate production, i.e. hydrochloric acid, which is sold primarily to local industrial customers for use in corn processing, drug making, steel pickling and water treatment etc. The total annual production capacity is 80,000 tonnes of potassium sulphate and nearly 100,000 tonnes of hydrochloric acid co-product.
Construction of a 120,000 tonne per annum fertilizer pelletizing production line at the Changchun Migao facility was completed and commenced the production of granular form potassium sulphate during the third quarter of Fiscal 2015. The pelletizing production line at Changchun Migao is identical to the one being built at Liaoning Migao.
Liaoning Migao was originally established on January 14, 2005. The main business of Liaoning Migao is the production and sale of both granular and powdered agricultural potassium sulphate and the co-product industrial-grade hydrochloric acid using the same process as Guangdong Migao. Liaoning Migao owns Migao's third fertilizer plant, Phase I of which was completed and put into operation in December 2005.
The Liaoning Migao production plant is located within the Yingko Economic & Technological Development Zone in Liaoning Province, a key port with railway transportation extending into Yingko City. The short distance between the plant and the port and railway freight yard minimizes the transportation costs associated with delivery of raw materials to the plant as well as its products to customers.
The construction of the Liaoning Migao production facility commenced in May 2005 and was completed in December 2005. It consists of a production line with an original annual design capacity of an aggregate 40,000 tonnes of granular and powdered potassium sulphate. In addition, the plant has a production capacity of 48,000 tonnes of the co-product hydrochloric acid. Operation of the production line commenced on December 15, 2005.
The use of granular chemical fertilizer, produced by Liaoning Migao is a relatively recent trend in China that follows fertilizer development in western countries and is particularly appropriate for use on the larger farms found in the region. Bulk blend fertilizers require granular fertilizers. As compared with the powdered fertilizer, granular fertilizer has improved physical performance, including reduced caking during long-term storage, is easy to handle, and can be more easily spread mechanically.
Over the past 20 years, super-granular urea, mono- and di-ammonium phosphate (MAP, DAP), compound fertilizer, and granular potash have become common in western agriculture; this is a developing trend internationally and in China. In North America, where the development of the chemical fertilizer industry is mature, approximately 35% to 40% of total potash production is sold as granular and coarse grades (which are amenable to bulk blending technology) with about 35% marketed to the domestic market. The current import and consumption of granular potash fertilizer is virtually zero in China, largely driven by the facts of (i) higher prices for granular product and (ii) the traditional hand spreading of each fertilizer separately and individually. However, with availability of modern farm equipment and better understanding of balanced fertilizer practices, granular fertilizer products are seen as offering benefits. This situation suggests substantial market potential for Liaoning Migao as it targets the high value, intensively managed crop sector.
Construction of a 120,000 tonne per annum fertilizer pelletizing production line at the Liaoning Migao facility was completed and commenced the production of granular fertilizers during the third quarter of Fiscal 2015. During the pelletizing process, the powdered fertilizers are compacted and formed into irregularly shaped granular fertilizers. Granular fertilizers are more demanded by farmers in northern China than other regions in the nation where planting seasons are normally windy, which makes it difficult to apply powdered fertilizers on the soil.
Tianjin Migao was established on December 12, 2007 and is located approximately 130 kilometres from Beijing. Construction of approximately 115,250 square feet of warehouse space has been completed. The warehouse operation is intended to handle distribution of products such as inbound potash and outbound potassium nitrate from the Tianjin port, when the production facility at Tianjin will be expanded in the future. Future expansion at the facility for production of potassium sulphate, potassium nitrate or compound fertilizers will be determined based on market conditions.
Tianjin Migao entered into a warehouse service contract to lease the warehouse space to a third party for a period of five years beginning from January 1, 2014 until December 31 2018. The leased warehouse will be used for storing safe goods or substance, which exclude inflammable, explosive, corrosive and poisonous goods.
Migao's potassium sulphate fertilizer production facility near Shanghai began test production in March 2011, using the same process as Guangdong Migao. Shanghai Migao produces 40,000 tonnes of potassium sulphate fertilizer annually for high value crop customers, particularly the fruit and vegetable growers who supply the lucrative, quality-conscience Shanghai and east coast markets. The Shanghai Migao plant produces, as a co-product of potassium sulphate production, nearly 48,000 tonnes of hydrochloric acid annually. The Shanghai property secured by Shanghai Migao covers an area that is large enough to expand the potassium sulphate production by an additional 40,000 tonnes, if market conditions justify such expansion.
Sichuan Migao was originally established under the laws of the PRC on June 6, 2003. Sichuan Migao is focused on the production and sale of high quality agricultural potassium nitrate and the co-product agricultural ammonium chloride.
Sichuan Migao's production facility is located in Chengdu, the capital city of Sichuan Province, and is situated in the centre of an area which provides what management believes are favorable logistics in terms of Sichuan Migao's marketing and sales efforts for its potassium nitrate. Most of Sichuan Migao's production volume has been earmarked and sold to tobacco customers (including Yunnan Tobacco Company as described below) in Yunnan, Guizhou, and Sichuan Provinces, the key tobacco producing areas in the PRC. In addition, Sichuan Province is one of the major markets for ammonium chloride, which is the co-product from Sichuan Migao's facility.
The Sichuan Migao facility employs a technology that utilizes a proprietary process. Managing the operation is a team of highly-trained and experienced industry experts. Sichuan Migao's facility produces agricultural potassium nitrate and ammonium chloride using a low energy consumption double decomposition process (see "Research and Development" below in this AIF). The intellectual property rights associated with this process are owned by Sichuan Migao and a national patent application has been granted in the PRC. The first phase of the plant (with an original annual design production capacity of 20,000 tonnes of potassium nitrate) was completed at the end of 2003, the second phase (with an additional design production capacity of 20,000 tonnes of potassium nitrate) was completed in September 2004 and the first stage of the third phase, of the same size, was completed in November 2006. An additional construction phase for 20,000 tonnes of potassium nitrate was completed in October 2007. Sichuan Migao has 80,000 tonnes of annual production capacity in place and almost 45,000 tonnes of ammonium chloride. During fiscal 2008 Sichuan Migao added the capability to produce potassium nitrate in an upgraded industrial-grade form.
The agricultural potassium nitrate fertilizer produced by Sichuan Migao provides agronomically beneficial properties including: nitrogen in the nitrate form, a favorable nitrogen/potassium ratio, moderate salt index, negligible chloride content, alkaline residual reaction in the soil, and as well, low hygroscopicity which allows it to be applied directly or in mixtures with other fertilizers. Both the potassium and nitrate-nitrogen are readily taken up by crops. Special and careful management provides a high nutrient use-efficiency factor which promotes the desired high quality and yield in target crops. Sichuan Migao's potassium nitrate fertilizer is suitable for high value economic crops, such as tobacco, vegetables, grapes, sugar beets and citrus fruit trees, with the main markets for its products being the economic crop production bases in Yunnan, Guizhou, Guangxi and Sichuan Provinces. However, potassium nitrate can be successfully used in all crop production systems when properly managed according to soil characteristics and crop requirements.
A 100,000 tonne per year compound fertilizer facility has been constructed at Sichuan Migao and began shipping product in January 2010. The blended fertilizer produced at the facility combines the Company's low chloride potassium nitrate and potassium sulphate with other essential crop nutrients as required to be applied directly to tobacco crops. The low chloride properties and high quality nutrient mix (including nitrogen, phosphorus and potassium and which may include secondary and micro nutrients) are designed for the development of high yield, high quality tobacco leaves.
Sichuan SQM - Migao is a WFOE jointly owned 50-50 by Migao and SQM. The original registered share capital of Sichuan SQM -- Migao is US$20 million and obtained approval from the local government to increase its registered share capital to US$28 million during the year ended March 31, 2013. Migao has provided its full contribution of US$14 million during the year ended March 31, 2014. The 40,000-tonne per annum potassium nitrate facility of Sichuan SQM -- Migao commenced production in January 2011, which also produces 22,400-tonnes of ammonium chloride as co-product. This facility employs a modified process which allows marketing for use with a wider range of high value crops.
One of the target markets for the facility is cut flowers, a high value crop which requires three to four applications of potassium nitrate in a season. Potassium nitrate enhances flower production, shelf life and stem strength and increases bloom diameter.
A specialty compound fertilizer production facility is located at Zunyi, Guizhou Province in southern China. A 100,000 tonne module was completed in March 2012 and production commenced at that time. The property will accommodate another module of equal size, if and when market conditions justify the expansion. The facility produces compound fertilizer mainly for tobacco customers. The Zunyi facility incorporates processing improvements learned from the Sichuan Migao compounding facility.
Guangdong Migao was originally established on April 30, 2004. The main business of Guangdong Migao is the production and sale of agricultural potassium sulphate and the co-product of industrial-grade hydrochloric acid. At the end of 2004, Guangdong Migao adopted the "Mannheim Process" (see "Research and Development" section below in this AIF) and installed production equipment to produce an annual output of at least 40,000 tonnes of powdered potassium sulphate for agricultural use and 48,000 tonnes of hydrochloric acid for industrial use. Additional construction phases since 2004 have increased the annual production capacity to 160,000 tonnes of potassium sulphate and 190,000 tonnes of hydrochloric acid.
The Guangdong Migao production plant is located in close proximity to the Chiwan Port of Shenzhen, to which most of the plant's raw material needs are delivered. This proximity reduces transportation costs for the potassium sulphate produced at the Guangdong Migao plant. Furthermore, Guangdong Migao's production plant is located in the Pearl River Delta, one of the most industrially developed and agriculturally diverse regions in the PRC. The local economy, which is highly developed, has a large demand for hydrochloric acid which the Guangdong Migao plant can supply. Hydrochloric acid is an important industrial raw material for such things as batteries, electronics, textiles, metallurgical processes, metal cleaning and food processing.
Agronomically, potassium sulphate is substituted for potassium chloride when a crop is sensitive to chloride and requires or benefits from a lower chloride content, crop demand for plant nutrient sulphur is high, or in situations where lower salt index fertilizers can help alleviate soil salinity problems. Potassium sulphate improves, among other functions, the starch or sugar content of crops, which generally acts to increase both yield and quality. This is of specific importance in economic crops, such as vegetables, tobacco, potatoes, cotton, grapes, sugar beets, pineapples, bananas and citrus and deciduous fruits. Potassium sulphate can be successfully used in all crop production systems when properly managed according to soil characteristics and crop requirements.
On November 28, 2013, Migao entered into a joint venture shareholders agreement with EuroChem, which is a subsidiary of Russia's largest mineral fertilizer producer, OJSC EuroChem Mineral Chemical Company, to produce potassium nitrate and chloride-free NPK fertilizer in Yunnan Province in southern China. On February 14, 2014, a joint venture holding company, EuroChem Migao, was incorporated in Hong Kong by HK Migao and EuroChem. Eurochem Migao is owned by 50-50 by HK Migao and EuroChem. During the quarter ended June 30, 2014, Eurochem Migao obtained the approval from MOFCOM to conduct business in China. On October 28, 2014, Eurochem Migao purchased 100% of equity interest of Yunnan Migao from Sichuan Migao and Guangdong Migao for cash consideration of US$18 million. The anticipated capital contribution to Eurochem Migao is US$36 million.
Yunnan Migao was incorporated by Migao on July 12, 2013. The Yunnan facilities consists of Phase I plant and Phase II plant.
The Phase I 100,000 tonnes per annum NPK production line at the facility in Luliang, Yunnan commenced trial production in the fourth quarter of Fiscal 2014. The chloride-free speciality NPK compound fertilizer to be produced by Yunnan Migao is intended to satisfy growing demand for chloride-free fertilizer from fruit, vegetable and tobacco growers in China.
The construction of the Phase II 60,000 tonnes per annum potassium nitrate production facilities commenced during the quarter ended March 31, 2015. The potassium nitrate production facilities are expected to be completed and put into operation by the end of the 2015 calendar year. Currently there is no fixed timetable for the construction of the second 100,000 tonnes per annum NPK production unit and future expansion will based on market conditions.