Salt Lake Potash: Intent on Developing Potash Fertilizer
Business

Scarce resources  VS  important position

Qinghai Salt Lake Potash Co., Ltd. (Salt Lake Potash or the
company, SZ: 000792) is located in Charhan, Germu, Qinghai
province. It is the biggest potash fertilizer producer in China
today. Data show that in the net profit of RMB750 million that
Salt Lake Group accomplished in 2006, RMB695 million was from
the potash fertilizer business.
   The biggest shareholder of Salt Lake Potash today is Qinghai
Salt Lake Industry Group (Salt Lake Group). Sinochem Corporation
put an investment of RMB460 million into Salt Lake Potash in 2004
to hold 18.49% equity and became the second biggest shareholder
of the company. Salt Lake Group holds 30.6% equity in Salt Lake
Potash and is the biggest shareholder of the company.
Well-informed sources disclosed at the beginning of 2007 that
Sinochem is having talks with Salt Lake Group and hopes to become
the biggest shareholder of Salt Lake Potash.
   The cultivated land in China lacks potassium. The start of
production in Salt Lake Potash has effectively eased the import
dependence of potash fertilizers in China. The import amount of
KCl was 7.05 million tons in 2006 and the output was 2.60 million
tons. According to statistics, the reserves of potash resources
in China only account for 2.6% of the world total. Salt lakes
in Charhan, however, gather 145 million tons of liquid-phase
potash and 300 million tons of solid KCl. The KCl resources
account for 97% of the total proven reserves in China. The output
of potash fertilizers in China was 2.069 million tons (pure K2O)
in 2006. Of the total the output in Salt Lake Group was 1.058
million tons.
   As there is no price-deciding power in the market, Salt Lake
Potash can only rely on capacity expansion to occupy greater
market shares. Construction on the 1.0 million t/a potash
fertilizer project was started in 2000 and was fully completed
in 2006. With the completion of new production lines, the purity
of potash fertilizers has reached more than 95% and the cost is
one-third lower than imported products. China has therefore
become the world's 7th country that owns a 1.0 million t/a potash
fertilizer capacity.

Production process  VS  talent assurance

Salt Lake Potash owns more than a dozen salt lakes with an area
of 3-5 km2 each. Due to the peculiarity in the structure of salt
lakes in Charhan, the large-scale extraction of potash must use
a special production process different from technologies used
in other countries. Underground brine is first pumped out and
put in sunshine on the beach to form carnallite and decomposition
is then conducted.
   Salt Lake Potash owns senior technicians and salt lake
experts in the line of potash fertilizer production. The cold
crystallization-backward floatation process being used in the
KCl production today is a production process at the world
advanced level developed by experts in the company itself and
won the gold medal of the state for technology patent in 2000.

Comprehensive development  VS  unitary operation

Besides potassium, salt lakes in Charhan also has quite a lot
of other valuable resources such as sodium, magnesium, lithium,
boron, bromine, iodine, cesium and rubidium. The sodium reserves
are more than 50.0 billion tons, the magnesium reserves are 1.65
billion tons and the lithium reserves are more than 8.0 million
tons. Construction on the 10 000 t/a lithium carbonate project
in Salt Lake Group was started on June 21st, 2007. The project
has an investment of around RMB500 million. (CCR2007, No. 19)
   Board Chairman of the company says that the peculiarities in
potash fertilizer resources, in salt lake business and in the
domestic market have combined to restrict the company to take
the strategy of making the potash fertilizer business bigger and
stronger as its development orientation. Salt Lake Group also
agrees to this point. Besides, the company's long-term program
is actively seeking overseas potash resources. In future salt
lakes in Charhan will be used to meet one-third of the domestic
demand, so will overseas resources and the import proportion
will be reduced step by step. Starting from 2002, Salt Lake
Potash started to get in touch with areas of potash resources
in Laos, Thailand and Vietnam. Different from the situation in
salt lakes in Charhan, potash in Southeast Asia is buried
underground in a solid form. Due to problems in technology,
overseas development projects have not yet been executed.
   With rich resources in salt lakes in Charhan, Salt Lake Group
has launched the project for the comprehensive utilization of
salt lake resources to actively develop non potash fertilizer
businesses. The project will be executed in three phases from
2006 to 2012. The project includes various sub-projects such as
methanol, vinyl chloride, PVC and ammonia. After the full
completion of this major project, Salt Lake Group will become
the first new oil/gas/salt chemical base in China with the
combination of salt lake resources with oil/gas resources. The
second phase of the project started construction on June 21st,
2007 and the total investment is RMB4.68 billion. (CCR2007, No.
19)
   According to the latest news, Qinghai Digital Net Investment
Share Holding Group Co., Ltd. (Digital Net, SZ: 000578) plans
to merge Salt Lake Group through equity swap. The shareholders'
meeting of Digital Net recently passed the move. It is now
subject to the approval by China Securities Regulatory
Commission and relevant government departments.