China GengSheng Minerals, Inc. (CHGS) Acquires One Fourth of Green Silicon Carbide Producer Yili Yiqiang, Secures Stable Supply for Growing Precision Abrasives Business

By @ibtimes on

China GengSheng Minerals, one of China’s top producers of fracture proppants, fine precision abrasives, ceramics and high-temp monolithic refractories/vessel coatings, reported signing yesterday of an agreement whereby the Company will acquire 24.5% ownership of green silicon carbide (SiC) manufacturer Yili Yiqiang Silicon Company.

Yili makes some of the best SiC around, a vital component for precision abrasive products and CHGS just started really ramping up its relatively new fine precision abrasives segment, which is already seeing huge business. That’s what makes this move by CHGS so shrewd, the Company is moving to expand its uptake footprint and capitalize fully on market momentum of its fine precision abrasive business.

The Yili City, Xinjiang Province-based Yili Yiqiang is known throughout the region as a producer of optimal quality green SiC (98.8% average purity) and has reserves on hand of some 6M metric tons, with annual production rates around 16k metric tons. Yili has projected 2011 revenue of $24M, making it a strong addition and, as the price of SiC continues its trend upwards past current prices of some $1500 per metric ton (upon which the $24M figure is based), this deal will grow in significance to CHGS’s profits. Yili has even granted the right of first refusal to CHGS on SiC produced; a move which will ensure premium raw materials only are utilized for the Company’s fine precision abrasives and guarantee consistency.

Chairman and CEO of CHGS, Shunqing Zhang, explained that this nearly 1/4th ownership of a key provider of inputs for the Company’s thriving fine precision abrasives segment was an ideal strategy for increasing sales/margins. This move to absorb sourcing entities alleviates much of the stress from tightened raw material markets and gives CHGS the necessary process momentum to aggressively pursue growth targets anyways.

The SiC coming out of Yili was characterized as being of high-quality and this cost-effective solution will buoy the Company’s bottom line nicely going into 2011. Good news for CHGS shareholders, because as the global solar industry starts to really heat up and commodities/energy prices steadily continue to rise, the fine precision abrasives vital to the solar industry are going to experience accelerated demand. The Company is ideally positioned to tap the bottleneck in China’s solar industry in the precision abrasives segment.

Zhang underscored the incredibly strong growth of the fine precision abrasives segment since the product line launched in Q3 2010 and how this pipeline upgrade will produced organic downstream benefits to “profitability and top-line growth” throughout 2011.

Projected close of the deal will take place in two days on April 10, 2010 and the capital for the acquisition derived largely of operating revenue, with domestic commercial bank loans footing the remainder.

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