Potential Cooperation

To: Eric H. Williams

Purchasing Manager

From: Young Fan

President and CEO

Date: October 6,2001

Re: Potential Cooperation

Dear Eric,

It’s generous of you to email us the article by Benjamin Lupus on the Minerals Benjamin Lupus on the Minerals Bulletin. Thanks a lot. I understand your worries. Iappreciate your explaining rather than complaining. I see a great deal of potential for our cooperation. I think the day is not far.

The sustained continued growth of mineral exports from China over the past decade has been directly related to the positive gradual development of the country’s internal and cxternal market economy systems. The ongoing competitive supply of refractory raw materials from China to world markets during the 1990’s will of course depend considerably on the real nature of the developing political and economic environment.

According to my 15-year experience in the refractory material industry, I think there are reasonable grounds for anticipating that the economic systems in China will continue to develop openly and positively, producing the ample base for the consequent on-going development of a socialist market economy that will significantly promote the export of quality refractory raw materials. Despite any changes in economic environment, it is presumed that the economy system in China will continue to promote the country’s system, and that there will be no significant regression to previous central economy systems and experiments.

It is expected that meaningful prompt improvements will be made to the technical aspects of exploration, planning, mining, processing, transportation, testing, and shipping of Chinese refractory raw materials. Effective pressure for this to happen will come from both the foreign consuming industries as well as China’s own internal market. As our industrial base in the steel industry grows, there will be a growing demand for higher quality steel at lower costs, with high performance refractoriness in turn can only be produced from uniform top quality raw materials, and this can only be achieved with effective improvements and corrections to the operating deficiencies previously cited.

These proper procedures, methods, and controls will of course then add to what have been minimum standard operating costs on Chinese minerals. In addition, as the overall quality of the improving Chinese supply becomes world competitive, it can be espected that our pricing will gradually shorten the present gap between our current low pricing and world market prices. Nevertheless, given the in tense market competition between producers and suppliers in the world, it is probable that pricing on Chinese refractory raw materials will only increase moderately during the 2000’s, with these improved materials continuing to be the lowes cost on the world market.

The potential for mainland China to soon become a giant economic dinosaur should not be under-estimated by those who will be involved in, or affected by, trade with China in the future of 21^st century.

Based on the foregoing, projections for the 2000’s on the refractory raw materials in the North American market will be as follows:

Bauxite

Essentially unlimited reserves, relatively low operating costs and selling prices, plus a continuing gradual improvement in explorationg, mining, burning systems, and overall quality control, shall consolidate China’s ongoing position as a major world supplier of refractory grade bauxite. The world refractory bauxite consuming industries will soon take advantage of the variety of Chinese bauxite which are available, inherent differences in raw material chemistry from one province to anotherm, result in calcined products with a range of densities and alkalis, by the year 2000, a major proportion of Chinese refractory grade bauxite and magnesite will be produced in rotary kilns and in modern pressurized shaft kilns. The new availability of high density bauxite, in the range of 3.25 to 3.40 gms/cc, will then provide the world’s refractory industry with a high-tech raw material which can be used to produce a new lin of high performance refractoriness that are even today not on the research drawing boards.

Magnesite

Also involving unlimied reserves, and with modern processing technology already being incorporated into first quality production, Chinese dead-burned magnesite is becoming a major competitive force on the world refractory scene. Technical difficulties in producing a high density and competitively priced96-98 percent MgO grade product has been satisfactorily resolved.

Prior to concluding this discussion, we would like to express a word of caution to those individuals or companies who may be caught-up in the enthusiasm of purchasing refractoryraw materials, or any other raw materials, from China: be careful-our unique systems and procedures can create confusion and quickly discourage the newcomer. My 15-year experience, the patience and intimate knowledge of the Chinese methods of doing business, coupled with a local agent, is the only key to success and survival.

Any veteran China trading partner grudgingly accepts a certain amount of red-tape and bureaucracy, where buyers are forced to follow changes in local to provincial jurisdictions, realignment of companies authorized to export, and rapidly changing internal and export regulations.

I believe China to be a reliable and fair business partner and many of our difficulties are but minor inconveniences when one considers that China will always be a long-term source for raw materials.

In my opinion that a key factor in the effective usage and development of Chinese refractory raw materials in the 2000’s will be the role played by us. We are the only companies who will properly relay the needs and desires of the consuming industries to the Chinese producers and suppliers. Those responsible trading entities, working opening and closely with both the suppliers and the consumers, will directly contribute to positive and prompt improvements in all aspects of raw material supply.

Mutually beneficial long-range relationships are most certainly those that are built on the partnership parameters of confidence, trust, service and quality. The optimism projected here for the growth in word usage of Chinese refractory materials will depend considerably on the positive contribution of both the consumers and the conscientious trading groups.

Mr. Eric H. Williams, the article from the Minerals Bulletin is more asademic than pragmatic. Push your client, place some order, you’ll taste the juicy cherry. The first comes, the first gets benefit.

Looking forward to your trial order.

Yours sincerely,Young Fan