Shareholder ReportReport to Shareholders
2009
Spur’s World in 2009
2009 was a year of recovery from the economic and political challenges of 2008 but it was also a
year of uncertainty and extreme volatility.
In the midst of this difficult environment and despite increasing challenges faced by foreign
mining companies investing in China, Spur worked with its partners and government agencies to
achieve more progress in late 2009 and early 2010 than in the last five years combined.
Agricultural markets recovered and crop and fertilizer prices stabilized as farmers realized the
errors made by not investing in fertilizers in late 2008 and 2009 to ensure the quality of their
soils and thus sustainable and economic crop production.
There was never any doubt about the long term drivers for agricultural production and fertilizer
demand. The United Nations’ Food and Agriculture Organizations confirmed that by 2050 food
production must increase by 70% to feed the world’s increasingly affluent population estimated
to reach 9 billion. If the trend for using non-food crops for production of renewable fuels
continues, the productivity required per hectare must increase even more.
Feeding the world can only be achieved by the scientific use of all agricultural inputs combined
with sophisticated agronomic knowledge and transfer of this technology to the individual farmer.
China remains the largest and fastest growing fertilizer market in the world and Spur is uniquely
positioned in China as a joint venture partner in two of China's largest undeveloped, high quality
phosphate deposits (Shukongping and Dianziping). Phosphate is a critical plant growth nutrient
essential for root development and plant growth. Global supply is dwindling and there is no
known substitute for phosphate. In China, foreigners are now restricted from investing in
phosphate, but Spur's joint venture project has been "grandfathered" by the Chinese authorities.
Progressing our China Phosphate Project at YMC
In our 2008 Report we noted a renewed commitment on the part of our joint venture partner,
Hubei Yichang Phosphorus Chemical Industries Group Ltd. ("YPCC") and the government
authorities to progress our Yichang Maple Leaf Chemicals joint venture phosphate project
("YMC", the "Project") near Yichang City, Hubei Province.
Encouraged by this, Spur and YPCC worked behind the scenes during 2009 to bring about
changes to the Project that would ensure its progress while still offering attractive returns to our
shareholders. The results of our work are now clear and have been made public.
In the first instance, an updated mining plan was prepared and independent consultants accredited to the Central Ministry of Lands and Resources (“MOLAR”) established the current value of the two mines to be $52 (RMB 353) million, a six-fold increase on the original value established in 2003. Since YPCC’s contribution to the project is an “in-kind” equity contribution based on the value of the mines, this higher valuation allowed YPCC to reach their goal of higher equity ownership in YMC. Strategically China now prefers to control foreign joint ventures.
In addition, Spur and YPCC engaged in a diligent planning and engineering redesign of the Project, which has led to a 20% reduction in the capital cost of the Project or approximately $100 million, without impacting the Project's production capacity or future cash flows.
In parallel, we embarked on a complex and time consuming series of government approvals required to ensure that YMC was legally constituted and that both mining licenses were valid.
Firstly, in what was an extraordinary administrative gesture of support by the Chinese authorities for the Project, YMC's business license was extended to October 31, 2010. The extension was granted to allow sufficient time for all of the government approvals necessary for the pending transfer of the two mining licenses from YPCC to YMC, and for both joint venture partners to complete their registered capital contributions to YMC.
Secondly, MOLAR approved the extension of the Shukongping mining license to October 9, 2011. The Dianziping license is valid until February 2014.
And finally we secured approval from the city, province and Central Beijing government levels to modify the YMC Joint Venture agreement to reflect the lower capital cost of the Project referred to above. Spur has the right to earn a 49-per-cent equity ownership in YMC, taking into account previous contributions to YMC of $23.4 million (158.4 million RMB), by contributing $34.1-million (231.6 million RMB). Under the terms of the original YMC joint venture agreement signed in November 2003, Spur would have been required to contribute a total of $151-million (1.03 billion RMB) to earn 90-per-cent equity ownership.
Spur continues to retain a strong voice in future project planning and investment decision-making with its leadership of the Preparatory Committee which manages all tasks and responsibilities related to the capital construction of the project, and because YMC Board unanimity is required for all financing decisions and amendments to the joint venture agreement.
Looking Ahead
We believe that the approval of the revised joint venture agreement together with the extraordinary extension of YMC’s business license confirms the willingness of YPCC and all levels of government authorities to advance the YMC project and we expect this progress to continue. With all of these approvals completed, the process of orderly transfer has now commenced. According to the modified YMC Joint Venture Agreement, the transfer of the mines must occur no later than August 31, 2010.
Our cash and liquid investments position remains stronger today than at the end of 2008 through judicious control of costs and prudent investments while we focused on our priority goal of advancing the YMC project.
In preparation for ensuring we are in a position to fulfill our Registered Capital contribution obligation, we have had a number of initial discussions with potential investors. These discussions are ongoing and we will update you on progress when appropriate.
In addition, we continue to review and pursue potential investment opportunities where merited. However, the robustness in commodity market performance from mid-2009 to date has reduced the availability of quality distressed investment opportunities which fit our investment criteria.
We would like to thank our management and staff in China and Canada for their patience, dedication and focus over the past year and are truly appreciative of the commitment demonstrated by our Board of Directors and our shareholders.