[Haichuan Overseas Engineering] EPC General Contract for the 80,000 tons/year sulfuric acid process titanium dioxide project at Donghua Engineering’s Nyanza company in South Africa
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On October 17, 2023, at the Third Belt and Road International Cooperation Forum – Belt and Road Entrepreneurs Conference held in Beijing, Donghua Engineering Technology Co., Ltd. (hereinafter referred to as “the Company”) and Nyanza Light Metals (Pty) Limited of South Africa (hereinafter referred to as “Nyanza” or “the Company”), signed the EPC General Contract for the 80,000-ton-per-year sulfuric acid process titanium dioxide project in South Africa (hereinafter referred to as “this Contract”). This contract is denominated in US dollars, with the total contract value amounting to approximately 491 million US dollars (calculated based on the intermediate exchange rate for the RMB published by the China Foreign Exchange Trade System on the date of signing the contract, namely 1 USD = 7.1796 CNY, which is equivalent to approximately 3.525 billion RMB) ； The subject of this contract is that our company, in its capacity as general contractor, shall be responsible for all tasks related to this project, including the detailed engineering design of facilities for sulfuric acid, titanium dioxide, and utility systems, the procurement of equipment and materials, construction and installation work, commissioning of the facilities, performance testing, and all activities throughout the project’s warranty period. The construction period is 36 months, with a grace period of 6 months ； The performance evaluation period is 12 months. The signing of the aforementioned general contract with Nianza Company by our company is a normal part of its core business activities, and therefore does not require approval by the board of directors.
II. Basic Information of the Project Owner The owner of this project under this contract is Nianza Company. Nianza Company was established in March 2011, with William Mathamela as its chairman. Its registered address is 5th Floor, Great Hall on Hawking Road, 140 West Street, Sandton District, Johannesburg, South Africa, and its business registration number is 2011/005822/07. Nianza Company has 2 shareholders: Arkein Industrial Holdings holds a 68% stake, while DBF Capital Partners holds a 32% stake. Both of the aforementioned shareholders are South African financial institutions. Since 2011, Nianza Company has invested over $30 million in developing this project, funding the preparation of its feasibility study report as well as the construction of its product testing and R&D center. The investors in this project include Arkein Industrial Holdings (the lead sponsor and founding shareholder), DBF Capital Partners (DBF Investment Partners), Africa Finance Corporation, and African Export-Import Bank. The company has no affiliated relationship with Nianza Company or its shareholders ； Over the past three years, the company has not engaged in any similar transactions with Nianza Company or its shareholders. South Africa has good infrastructure, a high degree of economic openness, and its overall strength and economic size place it among the leaders in Africa. At the same time, South Africa was also the first African country to sign a cooperation memorandum with China under the Belt and Road Initiative; within the framework of this initiative, the two countries have continued to deepen their cooperation, with political trust between them increasing steadily. Nianza Company and its two shareholders possess strong financial capabilities and are in good financial condition; furthermore, Nianza Company will pay this company 15% of the total contract amount as an advance payment for the project. Therefore, Nianza Company has the capacity to fulfill the obligations under this contract. III. Main Terms of the General Contract 1. Project scale and location: Under this contract, a titanium dioxide production facility with an annual capacity of 80,000 tons will be constructed on a turnkey basis, including a corresponding sulfuric acid production facility with an annual capacity of 300,000 tons, as well as related utility systems and waste heat recovery units ； The facility is located in the Richard Bay Industrial Development Area, in Durban, KwaZulu-Natal Province, South Africa. 2. Scope of work: Our company is responsible for all tasks under this contract, including the detailed engineering design of various installations, the procurement of equipment and materials, construction and installation work, commissioning trials, performance testing, and everything up to the end of the project’s warranty period. 3. Contract price and payment: The total amount of this contract is approximately 491 million US dollars. Of this amount, the advance payment for the project constitutes 15% of the total contract value, while other payments such as those related to project progress are made in accordance with the categories, amounts, and payment schedules specified in this contract. 4. Conditions for entry into force: This contract shall come into force upon signature by our company and the legal representative or authorized representative of Nianza Company ； The construction period begins to be calculated once the start conditions agreed upon by both parties are met. 5. Contract duration: The construction period for this project (i.e., the completion of mechanical installation) is 36 months, with a grace period of 6 months ； The performance evaluation period is 12 months. 6. Responsibilities of both parties: The owner of this project is responsible for providing the basic data, necessary conditions, site, and support required for the implementation of the project ； Responsible for project financing and fulfilling obligations such as settlements and payments stipulated in the contract. The company shall, in accordance with the contract requirements, carry out all detailed engineering design, procurement, civil construction, installation of equipment and materials, training, commissioning, acceptance, as well as defect repairs during the warranty period under the contract, and shall provide corresponding advance payment guarantees, performance guarantees, and quality warranty guarantees. This contract also covers matters such as intellectual property, related breaches and damages, performance guarantees and penalties, risk allocation and insurance, confidentiality, force majeure, and dispute resolution. IV. Impact of the General Contract Signing on the Company 1. Impact on the company’s financial situation The total value of this contract is approximately 491 million US dollars, which is equivalent to around 3.525 billion yuan. The total duration of performance under this contract is 48 months (excluding any grace period). The contract amount constitutes 56.54% of the company’s audited operating revenue for 2022, while the average annual contract value represents 14.16% of the company’s audited operating revenue for that same year. In accordance with corporate accounting standards, the company recognizes revenue for its general contracting operations based on the percentage of completion determined using the input method. Therefore, the successful implementation of this project will have a certain impact on the financial condition of our company during the project’s execution period. 2. Impact on the company’s operations: The company’s participation in this project is part of its normal business activities, and it has no significant impact on the independence of its core business operations. The signing and execution of this contract will help the company expand its engineering business in markets such as South Africa, thereby contributing to the stable development of its international engineering operations. V. Potential Risks 1. The titanium dioxide and sulfuric acid production projects are among the company’s traditional areas of strength, and it holds a significant leading position in the domestic project market. At the same time, the company has extensive experience in overseas engineering projects, so there is no risk in fulfilling this contract as the general contractor. 2. The construction period for this project is relatively long, and during the implementation of the general contract, risks such as unforeseen circumstances or force majeure may arise. 3. This contract stipulates that the owner shall carry out the project financing on their own; the time required for such financing is estimated to be 3–6 months. The uncertainties associated with project financing may pose a risk of the project not being able to proceed as planned. 4. This contract is denominated in US dollars, and due to the long duration of its performance, there is a risk of exchange rate losses.
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