Strategy
Iron Ore Business
The Group intends to develop an integrated supply chain of iron ore supplies to the PRC with a particular focus on the upstream iron ore supply chain. This strategy can be broken down into the following key components:
Supply chain integration
Historically the Group has made relatively limited capital investments in fixed assets and other investments in order to make the most effective use of its working capital. The directors believe that the Company can best exploit the increasing demand for steel products in the PRC by creating a vertically integrated supply chain that will add value to the Group’s business. The Group is investigating opportunities to acquire and operate iron ore reserves.
The directors believe that the Group could enhance its profits if it could achieve cost savings by owning and managing some of its iron ore sources and infrastructure such as the logistics and transportation facilities and equipment.
Develop supplier relationships
The Group aims to maintain and develop its already strong relationships with its key iron ore suppliers which, the directors believe, have been essential in securing a stable source of iron ore for its customers. The directors believe that the Group will remain an important customer of its major suppliers and will continue to receive a stable supply of iron ore on a long-term basis. The Group also aims to establish long term relationships and secure a supply of high quality iron ore from other leading suppliers.
Strengthen customer relationships
The Group aims to further develop existing industry relationships and use its position as a committee member on the Southern 20 Steel Enterprises Committee to foster deeper relationships with steel mills in the PRC to better understand the requirements of its targeted market and industry trends. Continuing to develop these relationships to understand customer requirements better should enable the Group to continue to provide value-added services and strengthen customer loyalty, enabling it to focus on maintaining, or even improving, its margins.
Cement Operations
The directors continually review operations at its cement plants improve their competitive position.
Environmental considerations
The Group is committed to minimising its impact on the environment. The Group’s cement and clinker manufacturing facilities are new modern suspension pre-heater plants, also known as “dry method production”. This production method is more efficient and environmentally friendly than the old vertical kiln production plants or “wet method production” which causes a lot of pollution, in particular water pollution, and uses substantially more coal to dry the clinker during the manufacturing process.
Early in 2007, the PRC government announced a schedule for the phasing out of inefficient, more environmentally-damaging “wet method” cement plants. The aim is to modernise the cement industry within the PRC to reach world standards in technology and environmental protection as well as protecting domestic natural resources by improving efficiency in industry. The PRC government plans to increase the ratio of modern dry method production to 70% of the total from 46% in 2006. The target is to reduce the amount of cement manufacturers in the PRC from 5,000 in 2006 to 3,500 by 2010 and 2,000 by 2020. The PRC government plans to achieve this goal with financing policy and increased environmental measures that will make it impossible for inefficient, more environmentally-damaging cement manufacturers to continue operating in the market. In Prosperity’s main market, Guangdong Province, the Company believes that the government is already ahead of its target to eliminate 15 million tonnes of capacity in 2007-08, with another 15 million tonnes of capacity to be eliminated in 2009-10.
Real Estate Investment and Development
The Group is focussed on identifying and pursuing only the best PRC real estate investment and development projects with immediate or imminent access to cash flow and revenue.