Changing emphasis
During its 1H12 results conference call, Sinofert’s management suggested thatany excess (c.1.8mtpa) ore production from the mines would go to producingfertilizer rather than additional animal feed. Management is now keener onincreasing its feed business, citing 1) better demand prospects from risingprotein consumption, and 2) its superior cost structure globally. In fact,Sinofert has plans to increase its feed production capacity to 600ktpa by 2015eand 1mtpa by 2017e. Excess ore will be sold to the market or neighboringfertilizer manufacturer, Chongqing Fuling (1.0 m tpa capacity). With an oreproduction cost of ~RMB140/ton, Sinofert will be able to sell 1) excess ore atc.70% operating margin in Yunnan and 2) manufacture MCP / MDCP with anall-in cost of ~RMB2,450 / RMB2,350 /ton, which is 13% / 21% lower than theaverage MCP domestic producer / MDCP producer in USA respectively.