The long-term agreement with Potash Export Co. (“PEC”) is a crucial agreement to

secure raw potash supplies as CEO Mr. Liu anticipates that the Russian potash

supply dynamics will shift materially in C2013. Migao believes PEC is a strong

supplier with backing from major producers and is satisfied with the due diligence it

has conducted. It believes PEC has 2-3 million tonnes of total supplies available

starting C2013, which will be the first year it makes sales. Mr. Liu also states that

Migao has analyzed other supply options (Israel, Canada, etc.) and has determined

that PEC offers the best pricing and terms. PEC is not securing potash for domestic

distribution and selling the remainder at a much higher price internationally. The

price discount to Migao, on which management would not elaborate, is partly due to

the upfront payment it made. Under force majeur conditions, if PEC is unable to

make target deliveries, the corresponding advance payments are refundable. In

addition, MGO believes the Chinese government, under its agricultural policy

priorities, will be able to offer subsidized lines of credit (LOC) via banks to the

company at interest rates lower than PRC prime. The company already has $60

million of undrawn LOC and will assess whether the subsidized LOC will be needed

just before C2013.

On the issue of China’s recent smoking ban, the CEO confirms our belief that the

level of smoking in China has not been materially impacted (see our note from Apr

8). In fact, tobacco planting acreage continues to rise steadily, and the current top

priority for state-owned tobacco companies is to improve the quality of tobacco.

Regarding the expansion plan for Southeast Asia, Mr. Liu believes Thailand is

currently the priority target, and hopefully all the necessary economic analysis and

environmental assessments will be completed by the end of C2011, which means

construction should begin next year.