Fenway Int'l, Inc (FWIN) - Description of business

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Company Description
--------------------------------Our Background and Development. Fenway International, Inc., a Nevada corporation was incorporated in the State of Nevada on May 7, 1984 using the name Nevada-Utah Gold, Inc. for the primary purpose of developing mining properties. During 1985, we settled our liabilities and were inactive until 1998, when we began acquiring property and mineral interests in anticipation of developing commercial grade cement production facilities in the Philippines. Specifically, on or about August 10, 1998, we acquired the assets of Fenway Resources, Ltd., a Delaware corporation, which assets included property and mineral interests in the Philippines. We issued 7,644,067 shares of our $.001 par value common stock for the assets acquired. On or about September 4, 1998, we filed a Certificate of Amendment to our Articles of Incorporation changing our name to Fenway International, Inc. Our executive offices are located at 308-409 Granville Street, Vancouver, British Columbia, Canada V6C 1T2. Our telephone number is 604.844.2265.Our Business. We plan to develop and construct two large commercial grade cement production facilities in the Philippines. Our predecessor-in-interest, Fenway Resources, Ltd., spent more than five years obtaining the necessary licensing, permits and environmental approvals necessary to support construction of such facilities on the island of Palawan (the "Palawan Project"). The necessary permits and environmental approvals for a proposed facility on the island of Negros Oriental (the "Negros Project") have already been received. We are required to participate with local corporations in the Philippines in order to commercially exploit Philippine mineral claims and, therefore, we have incorporated two Philippine corporations. The organizational chart attached as Exhibit 21 to our Registration Statement on Form 10-SB filed with the Commission on March 8, 1999 provides a diagram of our relationships with these entities, which are specified in detail below.The Negros Project. On or about July 16, 1998, we entered into an option agreement ("Option Agreement") with Negor RR Cement Corporation, an independent Philippine corporation, for the purpose of forming and operating a Negros mining company ("NMC") and a Negros cement manufacturing company ("NCC"). Pursuant to the Option Agreement, we purchased a 90% equity interest in the Negor RR Cement Corporation, a Philippine corporation ("Negor Corporation").The details of the Option Agreement are as follows:A. For a period of four (4) years following the date of acceptance by us of a commercial feasibility study and report for the Negros Project, which study and report are sufficient to enable us to obtain any and all funds necessary or appropriate to finance the development and operation of the Negros Project, Negor Corporation has the option to acquire that number of shares of our $.001 par value common stock equal to the lesser of (a) two million (2,000,000), or (b) ten percent (10%) of the then issued and outstanding shares of our common stock, at a purchase price of Five Dollars ($5.00) per share.B. NMC shall prepare, sign and deliver to Negor Corporation any and all documents and other instruments necessary or appropriate to vest in Negor Corporation an ownership interest in NMC equal to forty percent (40%) of the total issued and outstanding capital stock of NMC. As a result of such ownership interest, Negor Corporation shall be entitled to have allocated to it forty percent (40%) of the net profits, losses and credits of NMC.C. NMC shall prepare, sign and deliver to us any and all documents and other instruments necessary or appropriate to vest in us an ownership interest in NMC equal to forty percent (40%) of the total issued and outstanding capital stock of NMC. As a result of such ownership interest, we shall be entitled to have allocated to us forty percent (40%) of the net profits, losses and credits of NMC.D. NCC shall prepare, sign and deliver to Negor Corporation any and all documents and other instruments necessary or appropriate to vest in Negor Corporation an ownership interest in NCC equal to ten percent (10%) of the total issued and outstanding capital stock of NMC. As a result of such ownership interest, Negor shall be entitled to have allocated to it ten percent (10%) of the net profits, losses and credits of NCC. NCC shall prepare, sign and deliver to us any and all documents and other instruments necessary or appropriate to vest in us an ownership interest in NCC equal to ninety percent (90%) of the total issued and outstanding capital stock of NMC. As a result of such ownership interest, we shall be entitled to have allocated to it ninety percent (90%) of the net profits, losses and credits of NCC.E. NMC shall prepare, sign and deliver to one or more third party investors any and all documents and other instruments necessary or appropriate to vest collectively in those third party investors an ownership interest in NCC equal to twenty percent (20%) of the total issued and outstanding capital stock of NMC. As a result of such ownership interest, those third party investors shall be entitled to have allocated to them, in the aggregate, twenty percent (20%) of the net profits, losses and credits of NCC.F. We paid Negor Corporation Fifty Thousand Dollars ($50,000) at the date of signing of the Option Agreement and Fifty Thousand Dollars ($50,000) on or prior to September 30, 1998, as specified in the Option Agreement.At such time as all feasibility studies and similar studies and reports which are necessary or appropriate for the construction and operation of the manufacturing facilities (and which will be required prior to the receipt of the funds to finance construction of the manufacturing facilities) are completed, NMC has agreed to pay to Negor One Million Dollars ($1,000,000.00) which funds may be contributions to capital and proceeds from one or more borrowing transactions, or either of them. In connection with any and all such borrowing transactions, the acquired claims may be utilized as collateral or otherwise be pledged to enhance the credit of the borrower.The development program for the Negros Oriental Project will be similar to that for Palawan, except for the power plant. As there is already a source of power supply available in Negros Oriental, the cement plant will only require an electrical distribution system, which, we believe, will reduce capital costs by $40 million.We believe that the development of the Negros Oriental cement plant will be approximately one year after the start of the Palawan cement project. During this one year period, work will be undertaken to upgrade the original environmental studies, bring the engineering reports to bankable standards, to drill and test the limestone deposits, and to obtain land for the plant site.The Palawan Project. The Palawan Project has been under development by us for more than five years in association with local Philippine mining and development interests. Our predecessor company, Fenway Resources Ltd., a Delaware corporation, acquired mineral rights to 10,296 hectares in 1992 and 3,200 hectares in 1995 in three (3) contiguous claim blocks on the west central portion of Palawan Island near Scott Point, Municipality of Sofronio Espanola, Palawan, Philippines. Explorations by the Philippine government first confirmed the existence of limestone deposits in the central part of Palawan. We retained Kilborn Engineering Pacific Ltd., now known as Kilborn-SNC Lavalin Inc., to prepare a project feasibility study which was completed in 1995. This study concluded our claims have significant resources of limestone and shale, the two main ingredients for the manufacture of Portland Cement, and that a cement plant and quarries can be developed in full compliance with environmental regulations in the Philippines and should not have any adverse effect on local communities or indigenous people.As required by the Philippine Government, formal application for the final environmental certification of the Palawan Project will be submitted to the Philippine Department of Environment and Natural Resources after receipt of the Mineral Production Sharing Agreement, which is currently under departmental review.In addition, we have conducted professional hearings and discussions with all levels of government, with indigenous leaders, and with local landowners who might be affected by the Palawan Project. The project in production will stimulate local economic development and employment and we have received strong local support for the Palawan Project as evidenced by the Palawan Council for Sustainable Development endorsement of the environmental compliance certificate and letters of recommendation from local government units and endorsement of the project from indigenous people as evidenced by the National Commission on Indigenous Peoples' Certificate.Commercial law in effect on Palawan Island requires the participation of local entities to exploit the island's mineral resources. Two local corporations have been created and formally registered in compliance with local commercial law and securities regulation. We own approximately 40% of Palcan Mining Company ("PMC") which will be responsible for the quarry properties and the production of crushed stone, both graded and blended, for cement plant processing operations. PMC will also be responsible for payments of royalties and fees based on the volumes of quarried stone extracted for cement production. PMC was incorporated in the Republic of the Philippines on August 13, 1998, and has several common directors with us.We have also continued to assess the market acceptance for products of the proposed Palawan plant within the Philippines and in export markets. The ability to produce cement of high quality and reliable uniformity from local materials is essential to our success and this ability is currently unproven.Discussions are currently in progress with several design-build groups to construct and equip the Palawan plant. We are negotiating with Krupp Polysius to provide the cement plant equipment and with Bilfinger + Berger to engineer and construct the Palawan Project. These negotiations have not been concluded and there can be no assurance that either Krupp Polysius or Bilfinger + Berger will provide equipment or services to us.The capital costs of the plants, including the construction of all facilities such as power and ports, are estimated by our engineering consultants to be approximately $340 million for the Negros Project and approximately $380 million for the Palawan Project. To conform to investment guidelines promulgated by the Philippine government, 70% of those capital costs can be financed by loans, including export credits, and 30% can be financed by equity investments.The approximately $500 million required in loans may be provided by a consortium of German banks. Krupp-Polysius, one of the world's largest corporations, anticipates supplying the cement plant equipment to both the Negros Project and the Palawan Project and has offered to assist us in its loan negotiations with these German banks. We anticipate that approximately $215 million may be received from a registered offering of our common or preferred stock, probably through brokerage firms located in New York, complemented by one or more private placements of our common stock. In addition, approximately $110 million may be provided by contractors for the quarry and power plant which will reduce Fenway's need for equity financing.Products. We are not currently producing any products or supplying any services to any third parties. When, and if, we develop and construct our cement manufacturing facilities, we anticipate producing commercial quantities of Portland cement. Portland cement is a finely ground processed material that, when mixed with sand, gravel, water and other minerals, forms concrete. The raw materials, limestone and shale, are mined, crushed, and burned in high-temperature rotary kilns, producing a substance commonly referred to as "clinker". The resulting clinker is then finely ground with small amounts of gypsum to produce Portland cement. From the Palawan Project, we anticipate producing 2.5 million metric tonnes of Portland cement per year.Marketing and Sales. We anticipate that all revenues from the sale of our products will be derived from customers located outside the United States. To support our overseas customers, we anticipate operating offices outside the continental United States. There can be no assurance that we will be able to manage these operations effectively or that we will be able to compete successfully in international markets or satisfy the service and support requirements of its customers. In addition, a significant portion of our sales and operations are subject to significant risks, including tariffs and other trade barriers, difficulties in staffing and managing foreign subsidiary and branch operations, currency exchange risks and exchange controls, potentially adverse tax consequences, and the possibility of difficulty in accounts receivable collection. There can be no assurance that any of these factors will not have a material adverse effect on our business, financial condition and results of operations.We anticipate that initially the Portland cement produced by the Negros and Palawan Projects will be marketed exclusively in the Philippines, with expanded capacity providing cement to foreign markets, such as Japan, South Korea, Thailand, Malaysia, Singapore, Taiwan, Vietnam and Indonesia (collectively, the "Target Countries"). Nearby Asian export markets for cement products have a current volume exceeding 90 million tonnes per year moving in trade. Entities that have previously taken most Philippine cement exports have been countries bordering the South China Sea, those close to the Malacca Straits and other countries in the South Asia Sub-Continent.Our strategy for growth is substantially dependent upon our ability to market and distribute products successfully. Other companies, including those with substantially greater financial, marketing and sales resources, compete with us, and have the advantage of marketing existing products with existing production and distribution facilities. There can be no assurance that we will be able to market and distribute products on acceptable terms, or at all. Our failure to market our products successfully could have a material adverse effect on our business, financial conditions or results of operations.We anticipate that the construction industries in the Target Countries will experience positive growth, ranging from modest growth expected for Japan, to more significant growth anticipated in the lesser developed countries, such as Vietnam, Thailand, the Philippines and Indonesia. The location of the Palawan and the Negros Projects provides easy access to the Target Countries.Raw Materials. For the Palawan Project, we have acquired mineral rights to 13,496 hectares in three contiguous claims on the west central portion of the Palawan Island near Scott Point. The claims are underlain by significant reserves of limestone and shale, the two main ingredients for the manufacture of Type I Portland cement. Chemical analysis by the Philippine Bureau of Mines and Geosciences, Technical Services Division, indicates that the site of the Palawan Project contains commercial quantities of these raw materials.The Negor Corporation (in which we hold a 90% equity interest) has mineral claims on the island of Negros Oriental in the Philippines, which include significant reserves of limestone and shale suitable for the manufacture of Portland cement. Limestone mineral claims lie near the coastal towns of Guihulngan and La Libertad on the island of Negros Oriental. Geological studies suggest that the raw resources on those claims could sustain significant cement manufacturing operations. We have received an Environmental Compliance Certificate and have entered into the Mineral Production Sharing Agreement required by the Philippine government for all mining projects in the Philippines before mining operations can proceed.Distribution and Transportation. Distribution in the cement industry is typically conducted using agency contracts. The agent accepts product in bulk or bagged from the plant at a specified price. The agent then takes responsibility for marketing within the region(s) served; for transport and delivery to customers; and for selling to large-volume customers, retailers or intermediate wholesalers. The agent marks up the price to cover all costs of distribution. The final price to consumers at retail accommodates markups as appropriate in the distribution process. An allowance is included in the markup applied at each step as profit for product handling and sale.The Palawan plant will adopt the customary methods typically used in the Philippines for distribution of cement products, with the following variations: 1. As the Palawan plant will ship to markets in different countries, not one but several distribution agencies probably will be utilized; 2. Shipments of bagged or bulk product by truck will be for the emerging market on Palawan; 3. Most products will be shipped from the Palawan plant in bulk by sea to reach the Target Countries; 4. Transfer of Palawan product from vessels, bulk storage, bagging (as needed) and distribution by truck will occur within regional markets in the Target Countries; and, 5. Intra-regional transportation to customers will be minimized by the locations of regional facilities for the receipt and handling of Palawan plant products.Costs of the first water crossing from Palawan to Philippine markets will be less than typical costs associated with the transport of equivalent tonnage in bulk by truck from competing plants. Overall, we believe that the costs of product distribution to Philippine regional markets from the new plant in Palawan pursuant to agency contracts will be equivalent to similar costs for competing plants serving the same markets. If necessary to assure entry to Philippine regional markets, all or part of the costs of the initial water crossing can be absorbed at the Palawan plant by adjusting the price for product placed to agents for distribution. Given the cost advantages of marine transport, this will not be necessary as a general condition, but can be done where and as needed in special situations.The Palawan plant is ideally located for export of cement products to regional markets in the Target Countries. Export sales will be developed and sustained from the Palawan plant, as a means of broadening market presence, preserving high utilization of plant assets and pursuing the best combination of available customer relationships and opportunities for product sales and profits. Direct relationships with large-volume customers and distribution relationships with importers will be established in receptive countries, to assure that export options remain available for the Palawan plant at all times.We believe that we can provide our products to markets in the Target Countries, subject to import barriers. Overt barriers have not been present in the countries where Philippine cement has been accepted in the past, and import duties in these and other locations continue to decline. Additional liberalization of trade in East and South Asia may expand opportunities for general acceptance of products from the Palawan plant. If necessary in particular situations, entry may be eased by adjusting prices to absorb some of the costs of marine transport and import costs. Although not necessary as a general condition, some absorption of transport costs has been assumed to apply, for purposes of project valuation, to all products shipped from Palawan.Employees. We currently have eight full-time employees, three of whom are salaried. Our management anticipates using consultants for business, accounting, engineering, and legal services on an as-needed basis. Management has senior company experience in mine management, mineral processing, engineering, construction, administration, and marketing. All members of management have held senior positions in international companies or organizations.Competition. As a result of the lack of product differentiation and the commodity nature of cement, the cement industry is quite competitive. Competition is based generally on price and, to a lesser extent, quality and service. We may compete with national, international and regional cement producers in its target markets. Many of our competitors are larger and have significantly greater resources than us. The prices that we charge our customers probably won't be materially different from the prices charged by other cement producers in the same markets. Accordingly, profitability in the cement industry is generally dependent on the level of cement demand and on a cement producer's ability to contain operating costs. Prices are subject to material changes in response to relatively minor fluctuations in supply and demand, general economic conditions and other market conditions beyond our control. There can be no assurance that prices will not decline in the future or that such declines will not have a material adverse effect on our financial condition or results of operations.Our anticipated cost per tonne of production will be directly related to the number of tonnes of cement manufactured; and decreases in production will increase our fixed cost per tonne. Equipment utilization percentages can vary from year to year based upon demand for our products or as a result of equipment failure. Much of our anticipated manufacturing equipment requires significant time to replace and is very costly to replace or repair. Although we will attempt to maintain sufficient spare parts to avoid long periods of shutdown in the event of equipment failure, there can be no assurance such shutdowns can be avoided.Compliance with Environmental Laws. The proposed site for the Palawan Project is near the ancestral lands of a Filipino indigenous people. These lands may contain a portion of our mineral claims. The risk of accidental contamination or injury to indigenous peoples from hazardous materials cannot be completely eliminated. In the event of such an accident, we, or any successor-in-interest, could be held liable for any damages that result and any such liability could exceed our financial resources. In addition, there can be no assurance that in the future we will not be required to incur significant costs to comply with environmental laws and regulations relating to hazardous materials. There can be no assurance that we will not be required to incur significant costs to comply with current or future environmental laws and regulations nor that our operations, business or assets will not be materially or adversely affected by current or future environmental laws or regulations; provided, however, that we have retained SNC Lavalin, a Canadian firm, and GAIA, Inc., a Philippine firm, to prepare and file the requisite environmental impact statements necessary for us to receive our Environmental Compliance Certificate for the Palawan Project (an Environmental Compliance Certificate has already been issued for the Negros Project).Our management believes that both the Palawan Project and the Negros Project can operate cleanly and without significant pollution in an environmentally safe manner. However, certain environmental consequences associated with mining are unavoidable. The primary environmental damage from the mineral industry occurs during the extraction of raw materials, which requires large amounts of water and energy. We believe that with the utilization of modern technology and careful planning we can significantly reduce the environmental impact of the manufacturing of cement. As we are not presently manufacturing any products, our management believes we will not have any significant material expenditures in the next fiscal year related to the cost of compliance with applicable environmental laws, rules and regulations. However, at some time in the future, our operations may involve the controlled use of hazardous materials. As a result, we may be subject to various laws and regulations governing the use, manufacture, storage, handling, and disposal of such materials and certain waste products. We cannot presently estimate the potential costs of complying with the applicable foreign environmental laws.

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