Spur Ventures Inc., Vancouver, said Jan. 10 that it has entered into a share purchase agreement to sell its wholly-owned subsidiary, Spur Chemicals (BVI) Inc., to Hong Tang Vision Ltd., a limited liability company registered in the Cayman Islands, for cash consideration of $9.25 million. If at any time in the future the relevant Chinese authorities remove Spur BVI’s joint venture Yichang Maple Leaf Chemicals’ (YMC) current obligation to produce phosphate fertilizers – thus licensing YMC to simply be a phosphate mining company – Spur will receive an additional payment of $4.75 million from Hong Tang, making the total cash proceeds to Spur $14 million.
Spur shareholders must approve the deal by a 66-2/3rds majority at a meeting Feb. 7. If approved, the deal is expected to close by the end of February.
Spur advised shareholders that failure to approve the deal would require the company to invest approximately $37 million in YMC because of the registered capital requirements. That would require Spur to remit its entire current treasury and to seek to arrange, if possible, more than an additional $15 million by way of new financing from capital markets. Spur says given the challenges it has faced as a foreign investor with the complex regulatory and approval system governing the company’s interests in China, combined with the negative short-term outlook for phosphate fertilizers in Hubei Province, the board believes such an investment would be very high risk and unlikely to generate satisfactory returns to shareholders.
The board said the increasingly challenging business environment for foreign investors in the natural resource sector in China, the recent negative publicity in the western capital markets for other companies conducting business in China, and the significant over-capacity of phosphate fertilizers in China overall in the near term were all factors in Spur’s decision to divest its investment in Spur BVI.
After the sale, Spur says it will have $30 million in cash or cash equivalents to invest in mineral projects in lower risk jurisdictions and in businesses where Spur’s skills and knowledge could enhance the success of the venture.
Spur BVI indirectly owns an interest in two Chinese joint ventures. YMC is a 51:49 joint venture between Hubei Yichang Phosphorus Chemical Co. Ltd. (YPCC), a state-owned enterprise of Yichang City, Hubei Province, and Spur BVI, respectively. YMC’s main assets are the Shukongping and Dianziping phosphate deposits. YMC is also fully approved to process over 1.2 million mt/y of phosphate rock into compound phosphate fertilizers. Yichang Spur Chemicals (YSC) is a 72:17:11 joint venture between Spur BVI, YPCC, and YMC, respectively, whose main asset is a fertilizer production facility in Zicheng Township near Yichang City, which has a production capacity of 100,000 mt/y of NPK fertilizer and 60,000 mt/y of phosphoric acid. YSC has been idled since 2008, but was intended to be merged with YMC to become an integral part of the larger YMC phosphate project.