Rationalisation of small, less efficient magnesium producers by Chinese regulators together with projected increases in world magnesium consumption are expected to ensure a strong market for the expanded operation.

The Group intends to expand its magnesium operations to 105,000tpa over three phases.

Phase one is scheduled to be completed by February 2011, Phase 2 December 2011 and Phrase 3 December 2012 at which time the plant will capable of producing 105,000tpa of Magnesium.

The key competitive advantages of the Group’s magnesium business are its license to substantially expand capacity – which is uncommon for an existing, relatively small producer as the Chinese government is discouraging small scale magnesium plants – and its nearby source of magnesium ore, dolomite. The Dolomite Quarry is also owned by a family member of the Group’s joint venture partner, and the Shanxi JV Company holds a call option over that Dolomite Quarry.

Other advantages which are:

• The abundance of relatively low cost coal, as Shanxi has the largest coal reserves in China;
• Access to low-cost ferrosilicon as the Shanxi Province is close to the main ferrosilicon suppliers located in Inner Mongolia and Ningxia Provinces; and
• Access to skilled and low-cost labour, due to the Shanxi Province’s dominance of magnesium production.