Executives
Crocker Coulson - President, CCG Elite Investor Relations
Xiangzhi Chen - President, CEO and Director
Anhui Guo - CFO
Analysts
Robert Sussman - Bentley
Hao Hong - Brean Murray
Edward Yang - Oppenheimer
Ping Luo - Global Hunter Securities
ShengdaTech, Inc. (SDTH) Q3 2008 Earnings Call Transcript November 11, 2008 9:00 AM ET
Operator
Good day, ladies and gentlemen, and welcome to the ShengdaTech third quarter Earnings Call. My name is Emmanuvel, and I will be your operator for today. (Operator instructions).
I would now like to turn the call over to your host for today, Mr. Crocker Coulson.
Crocker Coulson
Thank you and good evening to those of you joining us from China. I am Crocker Coulson from CCG Investor Relations, the company's investor relations firm. I would like to welcome all you to ShengdaTech's third quarter 2008 conference call.
With us today on the call are Mr. Xiangzhi Chen, ShengdaTech's Chief Executive Officer; and Ms. Anhui Guo, Chief Financial Officer, both of whom are joining us from China. Also joining us on the line is CCG's Jenny Yang who will provide translation for your questions and answers.
I'd like to remind our listeners that in this call, management's prepared remarks contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions.
Therefore, the company claims the protection of the Safe Harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
Actual results may differ from those discussed today due to various risks, including, but not limited to, factors such as unanticipated changes in product demand, especially in the tire and PVC industry; pricing and demand trends for the company's chemical products; the ability to attract new customers; ability to prepare for growth; planned manufacturing expansion; the acquisition of Jinan Fertilizer; outlook for it's coal-based chemical operations; the ability to increase products applications; and other information detailed from time to time in the company's filings with the SEC.
Accordingly, although the ShengdaTech believes the expectations reflected in these forward-looking statements are reasonable, we can provide no assurance that they will prove to be correct. In addition, any projections as to the company's future performance represent management estimates as of today, November 11, 2008, and ShengdaTech assumes no obligation to update these projections in the future as market conditions change.
I am now going to provide the management discussion section on behalf of ShengdaTech's Chairman and CEO, Mr. Chen.
Xiangzhi Chen
(Interpreted)
Again, welcome, everybody, and thank you for joining ShengdaTech's third quarter 2008 conference call.
We are very pleased to announce that in the third quarter of 2008, ShengdaTech achieved record revenue growth driven by increased demand our chemical and NPCC products. We've successfully expanded our presence in NPCC market and were able to make full use of our expanded production capacity.
Revenue for the third quarter was a record $49.3 million, up 81% compared to the third quarter of 2007. The outstanding growth in our topline was the result of increased demand for products in the chemical and NPCC segments.
Revenue generated from NPCC segment increased 94.5% to $25.5 million, representing 51.8% of total revenues. This was due in large part to our new facility in Shaanxi Province, which reached full utilization during the quarter.
Our chemical segment also posted a strong quarter with revenue of $23.7 million, up 68.9% from a year ago. Our gross profit was a record $16.7 million, up 73.3% from third quarter '07. Gross margin was 34%, down 1.6 percentage points from 35.6% in the prior-year period. The EBITDA was $17 million, up 85.8% year-over-year, and net income was $9.9 million or $0.17 per diluted share, up 27% year-over-year.
Recently, financial markets worldwide have been hit by a deepening economic crisis, resulting in low investor confidence. In these difficult times, we'd like to assure our investors that ShengdaTech's business customers are able to measurably lower their production costs, while improving the functionality and quality of their end products. Simply put, NPCC is very well positioned to take advantage of the growing demand for this product.
We've been able to serve this growing demand through the efficient utilization of our available capacity at both our Shaanxi and Shandong facilities. Using our patented membrane-dispersion technology, we're able to produce truly nano-sized NPCC particles with consistent product quality. This is a key competitive advantage that allows ShengdaTech to continuously increase market penetration both in China and in other countries.
During the quarter, we successfully expanded our presence in the domestic NPCC market with the addition of 22 new customers, including a record increase of 12 new polyethylene customers. Shortly after the quarter-end, we solidified our position as the largest NPCC supplier to China's tire industry with the addition of another of China's top 10 tire manufacturers as a new customer.
We're excited that they've selected ShengdaTech to fulfill their tire production needs and look forward to building a long-term relationship with them.
We also made great progress in the international markets as we added nine new clients, including an adhesive producer in India, a polyethylene manufacturer in Israel, a paint manufacturer and two PVC producers in Thailand, and four new tire manufacturers in the Philippines, Iran, South Korea and Malaysia.
NPCC exports in the first nine months of 2008 accounted for about 8% of total NPCC revenues. As we continue to expand our presence in the global NPCC market, we estimate that exports will contribute approximately 15% of total NPCC revenue in the near term.
Currently, we have 73 potential customers, including 7 international and 66 domestic customers. We're involved in a testing process with about 80% of these potential customers. We're very optimistic about this pipeline, since our closing rate, once the customer engages in testing phase, has been approximately 60%.
The dramatic growth in the NPCC segment over the last three years was driven by our aggressive expansion strategy and R&D efforts. We continue to invest in building new capacities to fuel our future growth.
In October of 2008, we began construction at our new NPCC facility in Zibo Province designed with an annual production capacity of 160,000 metric tons. The local government viewed this facility as the desirable form of high-tech industrial development in the region hence provide us with strong support such as favorable tax benefits.
We expect the first phase with 60,000 metric tons of capacity to come online in July of 2009. In light of worldwide economic conditions, we are going to closely monitor market demand to determine the most favorable time to start the build out of the second phase of additional 60,000 metric tons.
Our R&D team in Shanghai is constantly creating innovative new applications for NPCC. They play a vital role in building relationships with our customers as they are involved in the testing and implementation stages. Their success is evident in the dramatic growth and acceptance of these new NPCC applications such as polyethylene.
Introduced in February 2008, sales of NPCC for polyethylene generated $1.9 million in revenue during the third quarter. Our R&D team is currently working on new applications for asphalt, epoxy resin, water based paint for construction, improvements of latex for NPCC and polypropylene. We have made significant progress on the NPCC application for asphalt and are currently engaged in preproduction trials with three asphalt manufactures.
Now, I would like to spend a little bit of time on our Chemical segment. I would like to startup by briefly commenting on the question that we have had from several investors regarding the melamine contamination discovered in the dairy industry in China over the last several months.
ShengdaTech is very saddened by the illness and debts resulting from this scandal and we (inaudible) before the actions taken by the Chinese government in the wake of these tragic events.
A recent inspection by the Health Department in Shandong Province, confirms that ShengdaTech does not sell melamine products to milk farmers or the dairy industry. Rather our melamine products have been sold directly to seven customers with chemical factories that use melamine to produce melamine resin, which is an environmentally friendly alternative to formaldehyde resin.
We fully understand our social responsibility and we would like to assure our shareholders that our strong principles guide us to avoid involvement in any such unethical and the illegal activities and thereby avoid any negative impact to be able to close this acquisition including all the procedural steps and final negotiations before the end of 2008.
In view of the possibility of delays beyond December 2008, we have restarted efforts to secure outsource production for our chemical products and discussions are underway, which in this event could be to an alternative production source by the end of this year.
During the closure of the facility in Tai'an and the delay in completing the acquisition, we will not be able to generate revenue from our chemical business until the acquisition closes.
On a positive note, even assuming an interruption in chemical sales [about] two months, we expect to meet our financial goals for 2008 due to the exceptionally strong performance of both our NPCC and Chemical segments so far this year.
We believe we are on track to meet or exceed prior revenue guidance of $132 million to $134 million and we expect net income to be within our prior guidance of $33 million to $35 million including the impact of additional interest expense related to the $115 million convertible note issued in June of 2008.
Expenses related to the closure of the chemical facility in Tai'an City and interest-bearing expenses related to the closing the acquisition of Jinan Fertilizer are not included in the above net income guidance, but are expected to be approximately $3 million to $3.5 million.
While the delay in the acquisition is disappointing, we view it as a minor setback especially given the tremendous growth potential Jinan Fertilizer presents to ShengdaTech.
Jinan Fertilizer is currently ranked the second largest nitric acid fertilizer company in China and its seven subsidiaries hold a 16% share of the domestic concentrated nitric acid fertilizer market and account for about 50% of China's nitric acid fertilizer exports.
While Jinan Fertilizer's current operations are suffering a loss from inefficient production processes, we are very confident in our ability to swiftly and significantly turnaround its operations.
According to our estimates, after Jinan Fertilizer (inaudible) operations and is combined with our current chemical business, our Chemical segment will yield sales of approximately $150 million and a gross margin equal to or higher than our historical chemical business at the targeted production levels.
Since May of 2008, Jinan Fertilizer has been managed by our affiliate Shengda Group. Under Shengda Group's management Jinan's equipment has undergone a technological updates and are being well maintained.
All of Jinan's chemical products have reached approximately now 75% utilization levels with the exception of nitric acid. Once we complete the acquisition of Jinan, we plan to upgrade the equipment, used in the production of nitric acid and make other technological improvements to achieve full capacity utilization for this product in a short period of time.
Now, I am going go into ShengdaTech's financial results in greater detail on behalf of the company's CFO, Ms. Guo.
Anhui Guo
I would like to mention that beginning with this quarter’s disclosure, we are going to be providing non-GAAP financial measure EBITDA, which is an acronym for Earnings Before Interest, Taxes, Depreciation and Amortization. We present this as a supplement to our GAAP results because we believe it provides useful information in analyzing the performance of our operations.
We are also reporting pro forma financial statements for the third quarter of 2008 because such presentation reflects ShengdaTech's historical GAAP results adjusted to remove the impact of a $1.7 million of expenses associated with the accelerated depreciation of equipment related to the closure of the company’s Tai’an City Chemical facility. The company believes these pro forma results provide investors with useful information in analyzing our year-over-year financial performance.
Please refer to the press release, we issued earlier today for reconciliation of EBITDA to net income and of our pro forma financial results to the comparable US GAAP financial measures.
Our revenues for the third quarter 2008 increased again to $49.3 million up 81.3%. The strong revenue growth was due to higher selling prices and increased demand for products in both chemical and NPC segments.
Revenue growth was also attributable to the new three stainless steel NPC production lines added in April of 2008, which have reached their full capacity during the third quarter. NPCC accounted for 51.8% of revenues with 48.2% coming from the Chemical segment.
Revenue from NPCC products increased with use in polyethylene, which was just introduced in February of 2008 increased to 7.5% of NPCC revenues. NPCC used in paint, paper, printing ink, and our latest NPCC application, automobile undercutting paints combined to generate 9.4% of our NPCC revenues.
Revenues in the chemical segment for the third quarter were $23.7 million, up 69% from $14 million a year ago. Sales of liquid ammonia, which represented 39.2% of the chemical segment's revenue, increased 83.1% from the third quarter of 2007.
Ammonium bicarbonate contributed 30% of total chemical revenue, an increase of 80.6% from the third quarter of 2007. The increase in the sales amount for liquid ammonia and ammonium bicarbonate was a result of seasonality in sales. Methanol and melamine represented 16.8% and 13.9% respectively of the chemical segment's revenues during the quarter.
Our gross profit in the third quarter was $16.7 million up 73% from $9.7 million a year ago. Gross margin for the quarter was 34% compared to 35.6% for the same period a year ago. The chemical segment's gross margin was 25%, a decrease of 3 percentage points from 28% in the third quarter of 2007, due to increased production costs associated with higher raw coal prices.
Gross margin for NPCC segment was 42.3% in the third quarter, a decrease of 1.3 percentage points from 43.6% in the same quarter last year. Our NPCC segment was also affected by rising production costs, which can not be fully passed on to our customers.
Looking at pro forma gross profit, this actually increased 91.2% year-over-year to $18.5 million in the third quarter as compared to third quarter of 2007. Pro forma gross margin was 37.5%, which is an increase of 1.9 percentage points from the prior period. This calculation of pro forma gross profits includes the $1.7 million in accelerated depreciation expense due to the closure of the company's Tai'an chemical operations.
Selling expenses in the second quarter were $900,000 or approximately 1.7% of revenue compared with $400,000 or 1.6% of revenue in the same period last year. The increase was primarily due to higher sales commissions and related expenses in proportion to increasing sales volumes. Selling expenses also increased as a result of increased freight and other costs related to the growth in NPCC exports during Q3 of 2008.
General and administrative expenses were $1.7 million or 3.4% of revenues, up from $700,000 or 2.6% of revenues for the same period of last year. The increase in G&A expenses was mainly due to amortization of cost associated with the company’s convertible senior notes issued in May and June of 2008, and additional public listing maintenance fees.
Higher research and development expenses and the planned increase in salaries of administrative staff also contributed to the increase in G&A during the quarter. Operating income for the third quarter was $14.2 million, up 67.1% from $8.5 million in the same period a year ago. Operating margin was 28.9% compared to 31.3% in Q3 of ’07.
Pro forma operating income in the third quarter was $16 million, up 87.4% from $85 million in the third quarter of 2007. Our pro forma operating margin was 32.4%, up one percentage point compared to 31.3% in the same period a year ago.
Interest expense in the third quarter was $1.7 million due to interest associated with the convertible notes. No such interest expense was incurred in the third quarter 2007.
Provision for income tax in third quarter was $2.7 million, up from $0.8 million in Q3 of '07. The significant increase was due to the end of the two year phase of the income tax holiday at our Shaanxi factory, which began paying taxes at 16.5% tax rate beginning of 2008 through 2010 and also the significant increase in taxable income.
Our facility in Shandong began to pay tax rate of 16.5% in 2007 and will continue to do so through 2009. Our net income in the third quarter was $9.9 million, up 27.1% from $7.8 million in the same period last year. Fully diluted earnings per share for the third quarter were $0.17 including the dilutive fact of the convertible notes issued in May and June of 2008, compared with fully diluted earnings per share of $0.14 in the third quarter of 2007.
Pro forma net income for the third quarter was $11.7 million, up 49.2% from $7.8 million in the prior year period. And fully diluted pro forma earnings per share in the third quarter were $0.20. EBITDA for the third quarter of 2008 increased 85.8% year-over-year to $17 million from $9.2 million in the third quarter of 2007.
Now turning briefly to balance sheet, as of September 30th 2008, we had a $132.4 million in cash and cash equivalents and $131.7 million working capital and $115 million in long-term convertible senior notes. Shareholders' equity stood at $123 million, up from $89 million at yearend of 2007.
For the first nine months of 2008, ShengdaTech generated net cash flow from operating activities of $34.5 million. Our ability to generate positive cash flows provides stability to our business operations. We have sufficient cash reserves available to finance the planned acquisition of Jinan Fertilizer, the ongoing construction of phase one of our new NPCC facility in Zibo and other working capital requirements.
We've invested approximately $30 million to purchase land use rights and workshops for the Zibo facility, and we expect capital expenditures of approximately $26 million over the next 12 months, which will be funded from cash on hand and cash flow from operations.
I will now provide some final remarks before we open up the call to questions and answers. So, ShengdaTech continues to enjoy a leading position in the worldwide market for NPCC. Our continued success in this segment is the result of our targeted R&D efforts, high-quality NPCC products and an aggressive expansion strategy.
We do not expect the worldwide economic crisis to have an adverse impact on the demand for NPCC and believe our current cash position and the ability to generate strong cash flows from operations protects us from the challenges faced by many other companies today. We continue to expand our market share in the global NPCC markets and aggressively expand our capacity with available funds.
We also believe we have sufficient capital available for the planned acquisition of Jinan Fertilizer. Despite the delay in the acquisition of Jinan and the temporary interruption of our chemical business, we believe the promising growth opportunities available to ShengdaTech, following the completion of this acquisition, remain compelling and extremely attractive.
We're working closely with the Jinan City government to successfully complete the acquisition. Our chemical segment has seen increased demand over the past several quarters, and we expect the trend to continue as soon as we're able to restart these operations.
With that, we'd like to close by thanking you for your support during this period, and we'd now like to open up the call for any questions you have for ShengdaTech's management.
Question-and-Answer Session
Operator
(Operator Instructions). Our first question will come from the line of Robert Sussman with Bentley. Please proceed.
Robert Sussman - Bentley
I've got two questions about NPCC. It looks to me as if the average selling price went up to $493 versus $427 last quarter, which would be a huge increase. I'd like to know if that's right and what the reason is.
My second question is that the metric tons in NPCC increased more than just the extra 30% of the recent 60,000-ton expansion. Are you getting additional volume out of existing equipment to account for this?
Anhui Guo
Okay. Robert, to answer your first question, the actual average price for the NPCC during the quarter was $482 per metric ton, which is like an increase from the last quarter. The main reason was due to the higher price on the raw material. We were able to increase the price of the NPCC because of the price increases on the raw material.
The second question, first of all, the capacity or production of Shaanxi Facility has reached its full capacity. Therefore, for the third quarter, they were able to have like a huge increase on the production capacity of the NPCC. They have higher metric tons in this quarter.
Robert Sussman - Bentley
Let me just ask one follow-up on that. It looks to me as if the increase in volume was greater than the additional capacity. Will the company be able to produce more volume in the fourth quarter than the third of NPCC?
Anhui Guo
Okay. Regarding your question on the production capacity by volume well, the actual volume given by the company was for like 300 days per year it’s a calculation, where the company produce for 300 days in one year.
But the actual production, well, they have more actual production days therefore they have a higher production capacity during this quarter. Do you understand what I mean?
Crocker Coulson
Yes. So, I think you’re right rather both facilities were running above their designed capacity.
Robert Sussman - Bentley
Yes, Crocker that’s what I’m really asking. What I’m really asking is, is there any more room, they seem to get greater productivity out of the equipment each quarter and I’m asking if they can do that again in the fourth quarter.
Anhui Guo
Yes during the fourth quarter, the production capacity will be similar to the third quarter.
Robert Sussman - Bentley
Okay. Thank you.
Crocker Coulson
Thanks, Robert.
Anhui Guo
Thank you.
Operator
Our next question comes from the line of Hao Hong with Brean Murray. Please proceed.
Hao Hong - Brean Murray
Hi. It’s Hao Hong from Brean Murray.
Crocker Coulson
Jenny Yang can you just translate the question before Ms. Guo answers?
Jenny Yang
Well in the balance sheet, the inventory has increased severely during the third quarter. So, she wants to know, what’s the reason that the inventory has increased?
Crocker Coulson
Okay. Thank you.
Anhui Guo
Okay. Because during the third quarter the company has actually stuck up on the raw material of the coal, therefore they have like huge increase in the inventory.
Operator
Our next question will come from the line of Edward Yang with Oppenheimer. Please proceed.
Edward Yang - Oppenheimer
Hi. Good morning. On the $26 million in CapEx for the next 12 months that you referenced in the press release, is that your total CapEx budget for 2009 and what does that include, does that include the Phase I for the Zibo expansion to the 250,000 metric ton and how much would have cost to do Phase II.
Anhui Guo
Okay. The $26 million additional CapEx will be for NPCC facility in Zibo only. That’s the CapEx that they will be spending for the next 12 months for that facility. That will include the phase one, which is the 60,000 metric tons of production capacity, and whether, they also mentioned that there was, like $30 million, which was already spent on the land. So, for the second phase, they expect to have, like a CapEx of $38 million additional CapEx for the second phase.
Edward Yang – Oppenheimer
So what was the total CapEx spending be in 2009 in terms of guidance?
Crocker Coulson
Just to make it clear that the second phase has not yet received, I believe final Board approval. So that’s why it’s not included. So the, second phase when they move forward, I think they said it would be additional $38 million.
Edward Yang – Oppenheimer
Okay. Then, there would be some CapEx spending associated with coal based chemicals as well?
Crocker Coulson
Let's translate that one.
Anhui Guo
Okay. The only CapEx for the chemical business will be the acquisition that they are going to make for the Jinan Fertilizer.
Edward Yang – Oppenheimer
Okay. What kind of resale margins will you get, if you do or decide to outsource source your coal based chemicals production while the Jinan acquisition closes?
Anhui Guo
Okay. It will really depends on the product that they'll be reselling and that it would depend on the market condition, because in China the market for the chemical products that they are producing have ups and downs, so they are not able to give an actual gross margin in sense of they’re selling others products, so they are not able to give a specific number on this.
Edward Yang – Oppenheimer
Is the purpose of exploring a resale arrangement, is that just so that you could maintain the customer relationships while you’re making this transition, but margins would probably be on the lower side?
Anhui Guo
Okay. The company does not really have any plans to actually reselling products produced by other factories. Well, the first reason is that although they actually hope to close the acquisition by the end of this year, but if they start to like outsource the production, this process might get much longer. So, right now, they do not have plans to actually outsource the production.
Edward Yang – Oppenheimer
Okay. Just a final question on the economy. Are you seeing any changes in your bad debt expense and could you talk about the types of customers that you are serving? I would think that your customers are on a larger side. Are they able to get credit to function and order your products?
Anhui Guo
Okay. As per now Ms. Guo said that she has not seen any like affected from the clients of the company. They pretty much have pretty good credit rates within and pretty good relationships. So they aren't having any bad debts right now.
Edward Yang – Oppenheimer
Okay. Thank you.
Anhui Guo
Thank you.
Operator
Our next question comes from the line of Ping Luo with Global Hunter Securities.
Ping Luo - Global Hunter Securities
Thank you for taking my question. I'll ask in Chinese first and then English. My question is about the demand and the pricing trend on the coal-based chemical side in Q4 and next year.
I understand that the cost of coal is going down. So, I wonder whether the pricing for coal-based chemical is going slower as well. Also, in terms of the demand for next year, as the economy in general is slowing down, I want to ask about the comment on the demand side.
Crocker Coulson
Okay. The question is specifically on coal-based chemicals or on both side of the business?
Ping Luo - Global Hunter Securities
It's on the coal-based chemical.
Crocker Coulson
Okay.
Anhui Guo
Okay. Let me just translate that regarding the gross margin for the fourth quarter, the company has seen the price of coal decrease right now in the fourth quarter, and the price of the chemical-based products were decreased as well.
Therefore, the gross margin for the fourth quarter is predicted to be similar to the one during the third quarter. The company thinks that the demand for the chemical-based products will still be very, very active as it was during this year.
Ping Luo - Global Hunter Securities
Okay. Thank you. You basically confirmed your 2008 revenue guidance, $132 million to $134 million, and you basically have made $117 million for the first nine months, which means about a little over $20 million of revenue for the fourth quarter, which is less than half of Q3. I wonder whether that will be the case?
Anhui Guo
Okay. The guidance as well as the estimation of $20 million for the fourth quarter is approximation guidance because the company has excluded the revenue from the chemical business for the month of November and December.
Ping Luo - Global Hunter Securities
Okay. Thank you.
Crocker Coulson
Just to make it clear. On the revenue side, we said we would meet or exceed the revenue guidance.
Ping Luo - Global Hunter Securities
Understand.
Crocker Coulson
Just to make it clear.
Ping Luo - Global Hunter Securities
Okay. Thank you. My last question is also on the chemical side of the business. Can you describe how, what did the relocation look like? Are you going to dispose the equipment in the current facility and just using this equipment in the Jinan Fertilizer basically to make the production?
I understand because the current chemical business, have a different product line I would say, this is a little bit overlapping, but different product lines with Jinan Fertilizer. Are you going to the Jinan facility to produce all of these products? How do you achieve $150 million revenue you’ve guided for the chemical business?
Anhui Guo
Okay. The company will not bring the equipments from the current chemical business in Tai'an. The reason is because they would like to focus on updating the technology of Jinan Fertilizer’s equipments in order for us to achieve full capacity. So, bringing the equipments from the Tai'an chemical business will not have a greater effect on their plan.
So through updating the equipments and bringing the technology to the most updated one this will bring Jinan Fertilizer to achieve its full capacity and the revenue that they will be able to generate still like a $150, as it was disclosed before without bringing the equipments from the chemical business in Tai'an City.
Ping Luo - Global Hunter Securities
Thank you very much. That’s all my questions.
Crocker Coulson
Thank you.
Operator
(Operator Instructions) Our next question will come from the line of (inaudible). Please proceed.
Unidentified Analyst
Hi. Two questions. First it was mentioned in the remarks that shipping costs rose in the third quarter and my understanding is that shipping costs are now falling pretty dramatically out there. So, what is the company seeing now in terms of shipping cost and how does that affect the economics of exporting NPCC?
Anhui Guo
For the NPCC, the average selling price already includes the shipping cost. So, there's not much reference that there is not much problems related to the shipping costs increase or decrease for the company. But, although the shipping cost increase thus really related to other costs. So for the exports after order prices is also like the FOB. Therefore, I mean the shipping cost is nowhere relevant to the export of the NPCC.
Unidentified Analyst
Okay.
Crocker Coulson
We should also point out that the new facility that is building in Zibo that will be closer to the ports in China. So, it should be a market million location for export oriented sales.
Unidentified Analyst
Okay. I mean, I guess, I will just have to assume that somehow it has to be easier to export and much more sensible economically to export NPCC, if it costs less to move it from one place to the other. But the second question was, can you review, I don't think you've said anything at all about what the company is going to pay for Jinan Fertilizer. Am I right about that or, what if any clues have you given to the cost to the Jinan facility?
Anhui Guo
Okay. Regarding the price of the acquisition, the company is still assessing the price to acquire Jinan Fertilizer, and that we have not really given any clues previously on that quotation price. Beside the company’s Board still assessing on the price and therefore, currently we are not able to give a specific number as to the price of the acquisition.
Unidentified Analyst
Okay, thank you.
Operator
The next question is a follow-up question from Robert Sussman with Bentley. Please proceed.
Robert Sussman - Bentley
Thank you. You mentioned that the delay in closing the Jinan acquisition is due to procedural issues. Can you be a little bit more specific whether it’s issues with the government, issues with the employees, or what exactly is holding up the process?
Anhui Guo
Okay. Regarding all the details that the company is able to provide at this moment is that the acquisition, there is some necessary procedures from the government side, where they have to negotiate with the employees, with the workers union group of Jinan fertilizer.
It's really a negotiation process between the government and the workers' union. Therefore, the process has been taking longer than expected. Just recently, the government has informed the company that a follow-up of the cost has encountered from the government side, and they might require a longer time to complete such transaction.
But the company hopes and believes that closing the acquisition, including all the procedures, could be finalized by the end of 2008, but such thing is no guarantee, because it really would depend on the negotiation from the government.
Robert Sussman - Bentley
Okay.
Anhui Guo
So they don't think that they're able to disclose at this moment.
Robert Sussman - Bentley
I understand. Okay. Thank you.
Operator
At this time, there are no more questions in queue. I'd now like to turn the call back over to Crocker Coulson for closing remarks.
Crocker Coulson
Okay. Well, thank you very much to everyone for participating in today's call and for your questions. The company will be participating in the Roth Capital event in Las Vegas later this month, and the company will also be visiting with some of their shareholders in advance of that event. So please let us know if you would like to visit with the company while there in the US.
Again, thank you all for your participation in today's call. That does wrap up our third quarter conference call. Thank you.
Operator
Thank you for your participation. This conference is concluded. Thank you and have a nice day.
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