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[January 2008]
China Direct Inc to Acquire Two Magnesium Companies
China Direct Inc (Boca Raton, FL, USA), a U.S. company that owns controlling stakes in a diversified portfolio of Chinese entities and assists Chinese businesses in accessing the U.S. capital markets, has announced that it has entered into two letters of intent to create two new foreign invested entities in China.
The new entities, based in Baotou, Inner Mongolia, China, will manufacture and distribute magnesium. Definitive agreements will be subject to the completion of financial audits, due diligence and necessary government approvals.
The first joint venture, Baotou Xinjin Magnesium Co Ltd will be 51% owned by China Direct. Xinjin currently has annual production capacity of approximately 7,000 to 8,000 metric tons and plans to distribute an additional 8,000 metric tons in 2008. China Direct expects to invest approximately US$8.5 million in the form of working capital to increase annual capacity to 20,000 metric tons by the third quarter of 2008.
The second joint venture, Baotou Sanhe Magnesium Co Ltd will be 51% owned by China Direct. China Direct expects to contribute approximately US$7.5 million in the form of working capital to construct a magnesium facility with an annual production capacity of 20,000 metric tons. China Direct forecasts the facility will have 12,000 metric tons of annual capacity by June 2008 and an additional 8,000 metric tons of annual capacity by June 2009.
Management estimates that the two ventures will be at an annual manufacturing run rate of 32,000 metric tons in the second half of 2008. Management further estimates these two ventures, assuming an average price of US$3,000 per metric ton, will contribute annual revenues of approximately US$80 million and US$130 million in annual revenues in 2008 and 2009, respectively.
Dr James Wang, Chairman and CEO of China Direct, said: "We continue to expand our magnesium division as we continue to see industry trends remaining favorable for the foreseeable future. We believe these additional magnesium facilities will possess certain key competitive advantages including the implementation of high temperature air combustion technology, also known as flameless combustion. This technology is designed to reduce furnace gas consumption and improve overall thermal efficiency. As a result, management believes overall production costs could be reduced by as much as 20%.
"The acquisitions of Xinjin and Sanhe will increase China Direct’s annual magnesium production capacity to approximately 75,000 metric tons by the end of the third quarter of 2008. Furthermore, we expect to distribute approximately 50,000 to 60,000 metric tons of magnesium in 2008. With the addition of Xinjin and Sanhe, we believe our overall magnesium division sales will exceed 100,000 metric tons of magnesium in 2008, solidifying our position as a global leader in this industry."
ENDS