China Eco-Materials Group Co. Limited. a holding company incorporated under the laws of the Cayman Islands, through its variable interest entity and subsidiaries, engages in the production and sale of the following two eco-friendly construction materials: autoclaved aerated concrete blocks and ready-mixed mortar, made from mining waste (iron tailings and copper tailings, etc.) and fly-ash, in and around the city of Nanjing, Jiangsu Province, China. The Company commenced its operation, through consolidated variable interest entity Nanjing Fuya, in 2004 with the business of three major product categories, including autoclaved aerated concrete blocks (“concrete blocks”), ready-mixed mortar (“mortar”) and other construction materials (“other products”)
We have two production lines and workshops. Our autoclaved aerated concrete block production workshop which occupies an area of 38,750 square feet and has an annual operating capacity of 300,000 cubic meters of autoclaved aerated concrete blocks. Our ready-mixed mortar production workshop which occupies an area Of 26,910 square feet and has an annual operating capacity of 300,000 tons of ready-mixed mortar. Our production facilities are located in Nanjing City, China, the capital city of Jiangsu Province, which has the second highest GDP of all 31 provinces in China. All of our sales were made to customers in Jiangsu province, especially in the Nanjing City surrounding area.
Our primary raw materials in the production of concrete blocks, mortar and other construction materials are from mining waste, fly-ash, cement and quicklime. Approximately 6.5% of raw material by weight of our concrete blocks and 75%-80% of raw materials by weight of our mortar products are mining waste. All the fine mining waste we use for the concrete blocks and the mortar products is provided to us free of charge from the neighboring mining company, Nanjing Funiushan Copper Co., Ltd. ("Nanjing Copper ). This method will reduce the cost of our products, increase our profit margin, help us compete more effectively in the market.
Another primary raw material used in the production of autoclaved aerated concrete blocks and ready-mixed mortar products is fly-ash, which accounts for approximately 73% of raw materials by weight used for concrete block production and approximately 8-15% of raw materials by weight used for ready-mixed mortar production. We also use cement and quicklime as other raw materials which, respectively, account for approximately 9-17% of raw materials by weight for both concrete blocks and ready-mixed mortar production, and approximately 10% of the weight for concrete block production. Due to the PRC’s national energy conservation and environmental protection policy (the “National Environmental Policy”), the number of coal burning power plants and (as the residue from such power plants) the fly-ash inventory have decreased, and the environmental regulatory compliance costs for cement and quicklime companies have increased, which has caused our raw material costs for fly-ash, cement and quicklime to increase significantly in fiscal year 2018. We expect the impact of the National Environmental Policy to continue for the foreseeable future, until China’s pollution can be better controlled.
Based upon the data from a testing report by Jiangsu Province Construction Project and Construction Materials Quality Testing Center Co., Ltd. dated as of April 1, 2018 that was commissioned by us, our autoclaved aerated concrete block weighs only one third the weight of traditional clay blocks, and its heat insulating ability is 3-4 times more than traditional clay blocks. Its sound insulation and impenetrability is respectively two times and one time more than traditional clay blocks. Our ready-mixed mortar can meet almost all mortar needs of construction projects. Compared to mortar mixed onsite by workers, our product is produced at our factory through standard manufacturing procedures, which ensures reliable and consistent quality. We believe our ready-mixed mortar could reduce onsite labor costs and improve building quality. Additionally, our ready-mixed mortar is stored in tanks, which reduces leaks during transportation and construction site dust emissions, when compared to mixing mortar onsite. Because our product is pre-mixed, it also reduces waiting and mixing time and improves project efficiency.