Durban - Foskor, the phosphoric acid and fertiliser producer that is majority owned by the Industrial Development Corporation, will expand into food grade phosphoric acid to ensure profitability after 2010.
Alfred Pitse, Foskor's chief executive, said on Friday that the plant could cost about R800 million and would take two years to build.
Food grade phosphoric acid is used in toothpaste, cola drinks and processed cheese.
Foskor has identified an international partner, which has the technology and markets, it could work with on the project.
Foskor relies heavily on the Indian market. Of the group's R2.9 billion revenue last year, R1.47 billion was from sales to India. Sales in South Africa accounted for R1 billion, while smaller markets included the US, Netherlands and Japan.
Pitse said Foskor had appointed an agent in Europe to widen its customer base for phosphoric acid, which is used in fertiliser and animal feed. Foskor's diversification strategy comes after it reported a R537.7 million profit in the year to March, up from R74.8 million the year before.
In 2005 the group made a loss of R478 million and a R198 million loss in 2004.
Foskor also exports phosphate rock and copper.
Pitse said on Friday: "We will be making profits until 2010 because globally there is more demand than supply."
However, new plants are due to come on stream in about two years, which are expected to depress prices.
This includes a 2 million ton capacity phosphoric acid plant in Saudia Arabia and factories in Tunisia, Egypt and India.
Foskor's capacity at its Richards Bay plant is 750 000 tons. Last year it produced 529 000 tons, 15 percent less than the year before because of logistical and plant problems.
Foskor's phosphate rock mine in Phalaborwa has been affected by an international shortage of haul truck tyres. With 15 percent of its fleet is not operating, Foskor plans to install a R300 million conveyor belt to address this.
Despite this, along with unreliable grades and diminishing ore reserves above ground, Phalaborwa's production increased 5.6 percent to 2.67 million tons.
A R200 million project to develop a new ore resource is under way, with an estimated life span of 50 years.
There are also capacity constraints on the rail link between Phalaborwa and Richards Bay. This was expected to improve in the next two years as Spoornet increased its capacity, Pitse said.
Despite these challenges, the group's results were boosted by a 5 percent increase in phosphoric acid prices to an average of $462 (R3 211) a ton and higher fertiliser prices to $307 a ton, up from $293 a ton.
A weaker rand, which averaged R7.02 to the dollar from R6.37 the year before, also helped.
In recent years Foskor cut costs to reduce its breakeven point to less than R6 to the dollar from more than R8 to the dollar two years ago.
Cost cutting was driven by Indian group Coromandel, which has a business assistance agreement with Foskor and holds a 2.5 percent stake.
Pitse expects Foskor to produce 650 000 tons of phosphoric acid in the current financial year.
In the year to March 2010, "Foskor should reach full capacity". Once operating, the food grade acid plant could take about 100 000 tons of Foskor's phosphoric acid production.
"We want to reduce dependency on phosphate rock, phosphoric acid and fertiliser to about 60 percent to ensure profitability after 2010," said Pitse.