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TABLE OF CONTENTS
FEISHANG ANTHRACITE RESOURCES LIMITED INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
Table of Contents
Exhibit 15.1
CONFIDENTIAL TREATMENT REQUESTED BY FEISHANG ANTHRACITE
RESOURCES LIMITED
Subject to Completion, dated November 19, 2013
Information Statement dated , 2013
[LOGO]
FEISHANG ANTHRACITE RESOURCES LIMITED
Ordinary Shares, par value HK$0.01 per share
China Natural Resources, Inc. ("CHNR") is furnishing this information statement in connection with its spin-off (the "Spin-off") of Feishang
Anthracite Resources Limited ("Feishang Anthracite"). CHNR intends to effect the Spin-off by way of a distribution in specie of the entire issued share capital of Feishang Anthracite to the
holders of the common shares of CHNR (the "Distribution").
Feishang
Anthracite is currently a wholly-owned subsidiary of CHNR. Feishang Anthracite is a producer of anthracite coal based in Guizhou province of the People's Republic of China
(the "PRC") and is primarily engaged in the acquisition, construction and development of anthracite coal mines and the extraction and sale of anthracite coal. After the completion of the
Spin-off, CHNR will no longer hold any shares in Feishang Anthracite.
In
connection with the Spin-off, the ordinary shares of Feishang Anthracite will be distributed on a pro rata basis to holders of record of the common shares of CHNR on
, 2013 (the "Distribution Record Date"). Holders of CHNR common shares ("CHNR Shareholders") will be entitled to receive five Feishang Anthracite ordinary shares for each
CHNR
common share held on the Distribution Record Date. CHNR Shareholders will not be required to
pay any consideration for the Feishang Anthracite ordinary shares that they will be entitled to receive in the Distribution or to surrender or exchange CHNR common shares in order to be entitled to
receive Feishang Anthracite ordinary shares and do not need to take any other action in connection with the Spin-off. No CHNR Shareholder approval of the Spin-off or Distribution is required or
sought. CHNR is not asking you for a proxy and you are requested not to send CHNR a proxy.
The
Spin-off is subject to the conditions described under "The Spin-off" in this information statement. Investors who trade in the Feishang Anthracite ordinary shares prior to receipt of
the Feishang Anthracite share certificates do so entirely at their own risk.
Currently,
there is no trading market for Feishang Anthracite ordinary shares. The Feishang Anthracite ordinary shares are expected to be listed on The Stock Exchange of Hong Kong
Limited (the "Hong Kong Stock Exchange") under the stock code " " on or around , 2013. Admission to
listing and trading is subject to the approval of the Listing
Committee of the Hong Kong Stock Exchange. The Feishang Anthracite ordinary shares will not be listed on any securities exchange in the United States or quoted on any automated inter-dealer
quotation system in the United States. An active trading market for Feishang Anthracite ordinary shares is not expected to develop in the United States.
CHNR
intends to treat the Distribution as a taxable dividend for U.S. Federal income tax purposes. See "Certain Material Tax Consequences" on page IS-28 of this information
statement.
You
should carefully consider the risks described under "Risk Factors Relating to the Distribution" beginning on page IS-16 of this information statement and under "Risk Factors"
beginning on page 34 of the Hong Kong Listing Document.
Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of the Feishang Anthracite ordinary
shares or passed upon the accuracy or adequacy of this information statement. Any representation to the contrary is a criminal offense.
This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.
This information statement was first mailed to CHNR Shareholders on or about , 2013.
Table of Contents
TABLE OF CONTENTS
Information Statement
IS-i
Table of Contents
ABOUT THIS INFORMATION STATEMENT
This information statement incorporates the listing document (the "Hong Kong Listing Document") for the listing of the Feishang
Anthracite ordinary shares on the Hong Kong Stock Exchange, except for: (a) Appendix I — "Accountants' Report of the Company" to the Hong Kong
Listing Document, which contains our consolidated financial statements as of and for the years ended December 31, 2010, 2011 and 2012 and as of and for the six months ended June 30, 2013
as audited by Ernst & Young in accordance with Auditing Guideline 3.340 Prospectuses and Reporting Accountant issued by the Hong Kong
Institute of Certified Public Accountants ("HKICPA") and unaudited comparative consolidated financial statements for the six months ended June 30, 2012, which have been reviewed by
Ernst & Young in accordance with Hong Kong Standard on Review Engagement 2410 Review of Interim Financial Information Performed by the Independent Auditor of the
Entity issued by the HKICPA; and (b) Appendix II — "Accountants' Report of Guizhou Puxin" to the Hong Kong Listing Document,
which contains the consolidated financial statements of Guizhou Puxin
Energy Co., Ltd. ("Guizhou Puxin") as of December 31, 2009 and March 17, 2010 and for the 76-day period ended March 17, 2010.
In
lieu of the financial statements contained in Appendix I — "Accountants' Report of the Company" to the Hong Kong Listing Document, we have
included in this information statement our consolidated financial statements as of and for the years ended December 31, 2010, 2011 and 2012 and as of and for the six months ended
June 30, 2013, which have been audited by Ernst & Young, and our unaudited comparative consolidated financial statements for the six months ended June 30, 2012 which have been
reviewed by Ernst & Young, in accordance with the standards of the Public Company Accounting Oversight Board (United States). Except for the auditing standards under which our
consolidated financial statements as of and for the years ended 2010, 2011 and 2012 and as of and for the six months ended June 30, 2013 were audited by Ernst & Young and the review
standards under which the comparative consolidated financial statements for the six month ended June 30, 2012 were reviewed by Ernst & Young, these financial statements are
substantially similar to those contained in Appendix I — "Accountants' Report of the Company" to the Hong Kong Listing Document. For purposes of this
information statement, all references in the Hong Kong Listing Document to "Appendix I — 'Accountants' Report of the Company"' or "our consolidated
financial statements" shall refer to our consolidated financial statements included in this information statement beginning on page F-1. The consolidated financial statements of Guizhou Puxin
contained in Appendix II — "Accountants' Report of Guizhou Puxin" to the Hong Kong Listing Documents have been included in the Hong Kong Listing Document
solely to satisfy the requirements of the Hong Kong Stock Exchange. The financial position and results of operations of Guizhou Puxin have been consolidated into our consolidated financial statements
since March 18, 2010.
This
information statement should be read in conjunction with the Hong Kong Listing Document, and is qualified in its entirety by the more detailed information contained in the Hong Kong
Listing Document. For the avoidance of doubt, the documents delivered to the Registrar of Companies and available for inspection set forth in Appendix VI to the Hong Kong Listing
Document do not form a part of, and are not incorporated by reference in, this information statement. Terms used but not defined herein shall have the meanings given to them in the Hong Kong
Listing Document incorporated herein.
This
information statement is being furnished solely to provide information to existing CHNR Shareholders who will be entitled to receive Feishang Anthracite ordinary shares in
connection with the Spin-off. This information statement is not an offer to sell or a solicitation of any offer to buy any securities. The Spin-off and listing of the Feishang Anthracite ordinary
shares on the Hong Kong Stock Exchange do not involve any offering of any ordinary shares or any other securities of Feishang Anthracite, and no proceeds will be raised.
The
Feishang Anthracite ordinary shares to be distributed to you by CHNR in connection with the Distribution have not been and will not be registered under the U.S. Securities Act
of 1933, as amended (the "Securities Act"). The Feishang Anthracite ordinary shares are being registered under the U.S. Securities Exchange Act of 1934, as amended (the "Exchange
Act"), pursuant to a registration statement on Form 20-F. You can retrieve a copy of the Form 20-F registration statement from the website of the U.S. Securities and Exchange
Commission (the "SEC") at www.sec.gov.
IS-1
Table of Contents
After
the completion of the Spin-off, we will become subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. As a
foreign private issuer, we are exempt under the Exchange Act from, among other things, the rules prescribing the furnishing and content of proxy statements, and our executive officers, directors and
principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the
Exchange Act to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act.
No
person has been authorized to give any information or to make any representations other than those contained in this information statement and, if given or made, such information or
representations must not be relied upon as having been authorized. The information in this information statement is only accurate as of the date hereof. Nothing in this information statement may be
relied upon as a promise or representation as to future results or events, and the delivery of this information statement does not imply that there has been no change in the affairs of Feishang
Anthracite or CHNR or that the information in this information statement is correct as of any date subsequent to the date hereof.
You
should not construe the contents of this information statement as investment, legal or tax advice and should consult with your own counsel, accountants and other advisors as to
legal, tax, business, financial and related aspects of receiving Feishang Anthracite ordinary shares.
This
information statement has not been and will not be submitted to the British Virgin Islands Registrar of Corporate Affairs, any other authority in the British Virgin Islands or the
Hong Kong Stock Exchange, and may not be distributed to the public in the British Virgin Islands or in Hong Kong.
In
this information statement, unless the context otherwise requires, when we use the terms "we", "us", "our" or "Company", we are referring to Feishang Anthracite and its subsidiaries.
References
in this information statement to "US$" and "U.S. dollars" are to United States dollars and references to "HK$" are to Hong Kong dollars; and all references to
"RMB" or "Renminbi" are to Renminbi, the official currency of the PRC.
Unless
otherwise stated in this information statement, Renminbi amounts have been translated into U.S. dollars at the rate of RMB6.1374 to US$1.00 and Hong Kong dollars have been
translated into U.S. dollars at the rate of HK$7.7560 to US$1.00, which were exchange rates as set forth in the H.10 statistical release of the Federal Reserve Board on June 28,
2013. No representation is made that the U.S. dollar amounts have been, could have been or could be converted to Renminbi, or vice versa, or that the Hong Kong dollar amounts have been, could
have been or could be converted to U.S. dollars, or vice versa, at that rate or at any other rate or at all.
Any
discrepancies in any table or elsewhere in this information statement between totals and sums of amounts listed herein are due to rounding.
The
financial information in this information statement, including the Hong Kong Listing Document, has been prepared in accordance with the International Financial Reporting Standards
("IFRS") issued by the International Accounting Standards Board (the "IASB"), which differ in certain respects from accounting principles generally accepted in certain other countries,
including generally accepted accounting principles in the United States.
IS-2
Table of Contents
SHAREHOLDER INQUIRIES
CHNR Shareholders with questions relating to the Spin-off may contact CHNR at Room 2205, 22/F, West Tower, Shun Tak Centre,
168-200 Connaught Road Central, Sheung Wan, Hong Kong, email: info@chnr.net, telephone: +852 2810 7205. You may also request copies of this information statement by contacting CHNR at the above
address, email address or telephone number.
ENFORCEABILITY OF CIVIL LIABILITIES
Feishang Anthracite is a company incorporated in and under the laws of the British Virgin Islands with limited liability, and all of
Feishang Anthracite's directors and officers reside outside the United States and all or a substantial portion of the assets of Feishang Anthracite and of such persons are located outside the
United States. As a result, it may not be possible for shareholders to effect service of process within the United States upon Feishang Anthracite or such persons, or to enforce against
Feishang Anthracite or such persons judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the Federal securities laws of the
United States. Feishang Anthracite has been advised by its British Virgin Islands counsel, Maples and Calder, that there is doubt as to the enforceability in the British Virgin Islands in
original actions or in actions for enforcement of judgments of United States courts, or civil liabilities predicated solely upon the Federal securities laws of the United States or the
securities laws of any State or territory within the United States since the British Virgin Islands does not have treaties with the United States providing for the reciprocal enforcement
of civil judgments. Feishang Anthracite has also been advised by its PRC counsel, Commerce & Finance Law Offices, that there is doubt as to the enforceability in the PRC, in original actions or
in actions for enforcement of judgments of United States courts, of civil liabilities predicated solely upon the Federal securities laws of the United States, since the PRC does not have
treaties with the United States providing for the reciprocal recognition and enforcement of judgment of courts.
IS-3
Table of Contents
FORWARD-LOOKING STATEMENTS
This information statement contains forward-looking statements. All statements other than statements of historical fact contained in
this information statement, including, without limitation, statements relating to our strategies, plans, objectives, goals and targets, our future financial, business or other performance and
development, the future development of our industry, the general economy of our key markets and globally, are intended to identify forward-looking statements. We also use the words "aim",
"anticipate", "believe", "continue", "could", "estimate", "expect", "forecast", "going forward", "intend", "may", "plan", "potential", "predict", "project", "ought to", "seek", "should", "will",
"would" and similar expressions to identify forward-looking statements.
These
forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other factors, some of which are beyond our control. In addition, these
forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. Important factors that could materially affect our actual results,
performance or achievements include the risk factors set forth in "Risk Factors" in the Hong Kong Listing Document and the following:
- •
- our liquidity and financial condition;
- •
- our business strategies and plan of operations;
- •
- our future debt levels and capital needs and the availability and costs of bank loans and other forms of financing;
- •
- our capital expenditure plans;
- •
- projects under construction or planning;
- •
- the possibility of project cost overruns or unanticipated costs and expenses;
- •
- our production capacity;
- •
- our operations and business prospects;
- •
- our product mix;
- •
- changes in prices for anthracite coal;
- •
- supply and demand changes in anthracite coal markets;
- •
- changes in the competitive landscape in the anthracite coal industry;
- •
- our ability to reduce production costs;
- •
- our relationship with, and other conditions affecting, our customers;
- •
- risks inherent to coal mining, including accidents;
- •
- estimates of coal reserves;
- •
- our plans and objectives for future operations and expansion;
IS-4
Table of Contents
- •
- our dividend policy;
- •
- the regulatory environment and developments of our industry in general;
- •
- changes in political, economic, legal and social conditions in the PRC, including the PRC government's specific policies
with respect to the coal industries, economic growth, inflation, foreign exchange and the availability of credit; and
- •
- catastrophic losses from fires, floods, windstorms, earthquakes, diseases or other adverse weather-related damage.
These
forward-looking statements are based on current plans and estimates, which speak only as of the date they are made, and numerous assumptions regarding our present and future
business strategy and
the environment in which we will operate in the future. Subject to the requirements of applicable laws, rules and regulations, we do not have any obligation to update or otherwise revise any
forward-looking statements in this information statement, whether as a result of new information, future events or otherwise.
Due
to these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this information statement might not occur in the way we expect, or at all.
Accordingly, you should not place undue reliance on any forward-looking information. All forward-looking statements contained in this information statement are qualified by reference to this
cautionary statement.
IS-5
Table of Contents
SUMMARY
The following summary highlights information contained in, and is qualified in its entirety by, the more
detailed information (including our consolidated financial information and the notes thereto) appearing elsewhere in this information statement. Since the following is a summary, it does not contain
all of the information relevant to the Spin-off. Accordingly, you are urged to read the entire information statement, including the Hong Kong Listing Document.
OVERVIEW
We are a producer of anthracite coal based in Guizhou province of the PRC. We are primarily engaged in the acquisition, construction
and development of anthracite coal mines and the extraction and sale of anthracite coal. Our mining assets consist of seven underground anthracite coal mines in Guizhou province, of which four have
commenced commercial production, two are undergoing their pilot run phase and one is under construction. All of our anthracite coal mines are accessible by road and located in Guizhou province, which,
according to the SAWS and Fenwei, had the largest anthracite coal resources among the provinces in Southwest China as of December 31, 2012. The following table sets forth certain information
regarding our seven anthracite coal mines as of the date of the Hong Kong Listing Document, other than information regarding the total proved and probable reserves and the estimated mine lives of our
anthracite coal mines, which were as of July 31, 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthracite Coal Mine
|
|
Stage of Production |
|
Date of
Initial/Expected
Commercial Production |
|
Total
Proved and
Probable
Reserves
(in million
tonnes) |
|
Permitted
Annual
Production
Capacity
(in tonnes)(1) |
|
Estimated
Mine
Life(2) (in years) |
|
Baiping Coal Mine |
|
Commercial production |
|
June 2009 |
|
|
22.48 |
|
|
150,000 |
|
|
37 |
|
Liujiaba Coal Mine |
|
Commercial production |
|
December 2012 |
|
|
13.60 |
|
|
300,000 |
|
|
23 |
|
Zhulinzhai Coal Mine |
|
Commercial production |
|
April 2012 |
|
|
9.56 |
|
|
300,000 |
|
|
21 |
|
Gouchang Coal Mine |
|
Commercial production (suspended)(3) |
|
April 2011 |
|
|
5.72 |
|
|
90,000 |
|
|
52 |
|
Yongsheng Coal Mine |
|
Pilot run |
|
March 2014 |
|
|
51.96 |
|
|
600,000 |
|
|
29 |
|
Dayuan Coal Mine |
|
Pilot run |
|
November 2013 |
|
|
8.26 |
|
|
300,000 |
|
|
18 |
|
Dayun Coal Mine |
|
Construction |
|
July 2015 |
|
|
97.29 |
|
|
600,000 |
|
|
54 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
208.87 |
|
|
2,340,000 |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Represents
the annual production capacity as permitted under the relevant mining rights permits.
- (2)
- Mine
life estimates are calculated by dividing proved and probable reserves by the optimized annual production capacity, which takes into account the
planned future increases in production capacity still in the design phase.
- (3)
- Operations
have been suspended at Gouchang Coal Mine since March 2013 pending the acquisition by us of a nearby coal mine and Gouchang Coal Mine
achieving certain production capacity targets in accordance with Guizhou province's coal mine consolidation policy. See "Business — Our Anthracite Coal
Mines — Mines in Commercial Production — Gouchang Coal Mine" on page 104 of the Hong Kong Listing Document.
As of July 31, 2013, we had total proved and probable coal reserves of approximately 208.87 million tonnes, total measured,
indicated and inferred coal resources of 407.18 million tonnes and total permitted annual production capacity of 2.34 million tonnes. In 2010, 2011, 2012 and the six months ended
June 30, 2012 and 2013, we sold 166,362 tonnes, 314,058 tonnes, 437,010 tonnes, 148,539 tonnes and 187,432 tonnes of anthracite coal, respectively, and had
revenues of RMB38.7 million, RMB105.2 million, RMB141.9 million, RMB55.2 million and RMB54.7 million, respectively. In 2010, 2011, 2012 and the six months ended
June 30, 2012 and 2013, the average selling price of the anthracite coal we produced was RMB232.4, RMB296.4, RMB323.6, RMB360.3 and RMB291.9 per tonne, respectively.
IS-6
Table of Contents
During
the Track Record Period, we derived our revenue primarily from the sale of coal we produced. From time to time, we also engaged in coal trading activities by selling coal that we
purchased from third party suppliers. In 2011, 2012 and the six months ended June 30, 2012 and 2013, revenue from sales of third party coal was RMB33.1 million, RMB1.1 million,
RMB1.1 million and nil, respectively, representing 31.5%, 0.8%, 2.0% and nil, respectively, of our total revenue. We did not engage in any coal trading activities in 2010, and we do not intend
to engage in any significant coal trading activities in the future.
In
the PRC, end users generally characterize anthracite coal as thermal coal, chemical coal or PCI coal. Thermal coal is generally used in the electric power industry for power
generation and in the construction industry for cement production. Chemical coal is generally used for the production of synthetic ammonia and methanol, and PCI coal is generally used for sintering,
smelting and injection
purposes in the pulverized coal injection process in iron production. Prior to 2011, we sold substantially all of the coal produced from our mines as thermal coal. In 2011, 2012 and the six months
ended June 30, 2013, we derived approximately 5%, 5% and 1.2% of our revenue from the sale of chemical coal we produced, respectively, while our remaining revenue in each of these years was
derived from the sale of thermal coal we produced and coal sourced from third parties. Subject to market conditions and the Guizhou government's annual guidance on supply of thermal coal to power
plants, we intend to significantly increase our sales of chemical coal in the future and begin selling PCI coal in 2014. Our ability to sell chemical coal or PCI coal during the Track Record Period
has been constrained as our annual production levels were determined based in large part on the Guizhou government's annual guidance relating to the provision of certain minimum amounts of thermal
coal to power plants operating in Guizhou, which has taken up a significant portion of our production capacity. We generally price our anthracite coal based on the prevailing market prices in Guizhou,
the anthracite coal type and quality, our sales volume and the length of our relationship with the customer.
In
order to increase our production capacity, we plan to optimize all of our currently operating anthracite coal mines by improving mine layout and upgrading mine infrastructure and
equipment. We expect that our optimization plans will begin in 2015 and, after their expected completion in December 2018, we expect to be able to achieve an aggregate annual production
capacity of 5.81 million tonnes. The estimated costs of our optimization plans are RMB807.5 million.
Anthracite
coal production in Guizhou has historically exceeded local consumption and this trend is expected to continue. Anthracite coal prices in Guizhou are also highly cyclical. For
example, anthracite coal prices in Guizhou declined significantly in the second quarter of 2012 and, after a brief period of recovery, declined significantly again in the first half of 2013. There
could be further declines in anthracite coal prices in Guizhou in the future. See "Risk Factors — Risks relating to PRC's Coal
Industry — Our business, financial condition and results of operations are susceptible to the cyclical nature of the PRC anthracite coal market and vulnerable to
fluctuations in anthracite coal prices" on page 46 of the Hong Kong Listing Document.
IS-7
Table of Contents
Under
PRC law, each coal mine in the PRC must obtain certain permits prior to commencing commercial production, including a mining right permit, a safe production permit and a coal
production permit. The following table sets forth certain information regarding our mining right permits, safe production permits and coal production permits as of the Latest Practicable Date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining Right Permit |
|
Safe Production Permit |
|
Coal Production Permit(5) |
Mine
|
|
Holder/permit number |
|
Permit date
(month/year) |
|
Expiration
date
(month/year) |
|
Permit date
(month/year) |
|
Expiration
date
(month/year) |
|
Permit date
(month/year) |
|
Expiration
date
(month/year) |
Baiping Coal Mine(1) |
|
Baiping Mining/ C5200002011111120121064 |
|
November
2011 |
|
August 2014 |
|
May 2012 |
|
May 2015 |
|
June 2009 |
|
June 2020 |
Liujiaba Coal Mine |
|
Xinsong Coal/ C5200002009091120036374(2) |
|
March 2011 |
|
September
2019 |
|
November
2012 |
|
November
2015 |
|
December
2012 |
|
December
2037 |
Zhulinzhai Coal Mine |
|
Linjiaao Coal/ C5200002011031120108782 |
|
April 2011 |
|
July 2018 |
|
March 2012 |
|
March 2015 |
|
April 2012 |
|
April 2031 |
Gouchang Coal Mine |
|
Gouchang Coal/ C5200002009121120048406 |
|
April 2011 |
|
April 2017 |
|
April 2011 |
|
April 2014 |
|
April 2011 |
|
April 2045 |
Yongsheng Coal Mine |
|
Guizhou Yongfu/ C5200002012021120124117(3) |
|
February
2012 |
|
November
2027 |
|
— |
|
— |
|
— |
|
— |
Dayuan Coal Mine |
|
Dayuan Coal/ 5200002011051120118585 |
|
March 2013 |
|
March 2023 |
|
— |
|
— |
|
— |
|
— |
Dayun Coal Mine |
|
Guizhou Dayun/ C5200002011031120112455(4) |
|
March 2011 |
|
March 2031 |
|
— |
|
— |
|
— |
|
— |
- (1)
- In
2011 and 2012, the actual production output of Baiping Coal Mine exceeded its permitted annual production capacity under its mining right permit and coal
production permit. See "Business — Our Anthracite Coal Mines — Mines in Commercial
Production — Baiping Coal Mine" on page 102 of the Hong Kong Listing Document. We have applied for a mining right permit with an annual production capacity
of 300,000 tonnes for Baiping Coal Mine and we expect to obtain such permit in 2014.
- (2)
- The
mining right has been pledged to China Minsheng Bank.
- (3)
- The
mining right has been pledged to China Minsheng Bank and Bank of China.
- (4)
- The
mining right has been pledged to China Merchants Bank.
- (5)
- The
National People's Congress Standing Committee passed certain amendments to the Coal Law, which became effective on June 29, 2013, including
removing the requirement of obtaining coal production permits.
Each of our anthracite coal mines currently utilizes manual longwall mining, semi-mechanical longwall mining or mechanical longwall mining methods
to extract coal. Longwall mining refers to extracting coal from long rectangular blocks of coal seams. Manual longwall mining refers to drilling holes in the mining face, placing explosives and
detonating the explosives to extract the coal. Mechanical and semi-mechanical longwall mining involve using a mechanical shearer in coal extraction. In mechanical longwall mining, the mine roof is
held up during the extraction process by automatic hydraulic roof supports, while in semi-mechanical longwall mining, the mine roof is held up hydraulic roof supports that are operated manually. The
following table sets forth the current extraction method of each of our anthracite coal mines:
|
|
|
Anthracite Coal Mine
|
|
Extraction Method |
Baiping Coal Mine |
|
Manual longwall |
Liujiaba Coal Mine |
|
Semi-mechanical longwall |
Zhulinzhai Coal Mine |
|
Manual longwall |
Gouchang Coal Mine |
|
Manual longwall |
Dayun Coal Mine |
|
Mechanical longwall |
Yongsheng Coal Mine |
|
Mechanical longwall |
Dayuan Coal Mine |
|
Semi-mechanical longwall |
Our
capital expenditures were RMB219.7 million, RMB341.5 million, RMB360.2 million, RMB202.9 million and RMB139.3 million in 2010, 2011, 2012 and the
six months ended June 30, 2012 and
IS-8
Table of Contents
2013,
respectively. Our capital expenditures primarily related to the construction of our coal mines, purchase of mining-related equipment and machinery and pre-payments for land use rights for our
coal mines. We expect to pay approximately an aggregate of RMB545.0 million in 2013 and 2014 for capital expenditures. See Appendix III — "Competent
Person's Report" to the Hong Kong Listing Document. We expect to fund these capital expenditures through interest-bearing bank loans and other borrowings. In the past, we have financed a significant
portion of our cash requirements with non-interest bearing loans from companies controlled by Mr. Li Feilie, our chairman and chief executive officer. In March 2013, we repaid a
significant portion of the non-interest bearing loans from companies controlled by Mr. Li with interest-bearing bank and other borrowings. We do not anticipate receiving additional non-interest
bearing loans from our related parties after the Listing. Accordingly, we expect our finance costs to increase significantly in the future. See "Financial
Information — Indebtedness" to the Hong Kong Listing Document.
OUR STRENGTHS
We believe our principal strengths include the following:
- •
- anthracite is a relatively scarce and valuable resource;
- •
- our high quality coal reserves;
- •
- we are located in Guizhou province, which has one of the largest anthracite coal resources in the PRC;
- •
- we are well-positioned to capitalize on industry consolidation opportunities in Guizhou; and
- •
- experienced management team.
BUSINESS STRATEGIES
We aim to grow our business by focusing on the following strategies:
- •
- achieve profitability through sales of higher margin chemical and PCI coal and increasing our production output;
- •
- strengthen our sales and marketing networks;
- •
- create a more vertically integrated business;
- •
- enhance our operational efficiency and cost control;
- •
- enhance the environmental and occupational health and safety standards of our operations; and
- •
- increase our anthracite coal production capacity in the long-term through mine optimization plans and acquisitions of high
quality anthracite coal mines.
IS-9
Table of Contents
THE SPIN-OFF
The following is a brief summary of certain information contained elsewhere in this information statement and the Hong Kong Listing
Document. This summary is qualified in its entirety by the more detailed information set forth in this information statement and the Hong Kong Listing Document.
|
|
|
| Distributed Company |
|
Feishang Anthracite Resources Limited, a company incorporated in the British Virgin Islands with limited liability on January 6, 2010 and a wholly-owned subsidiary of CHNR immediately prior to the
Distribution. |
Distributing Company |
|
China Natural Resources, Inc., a company incorporated in the British Virgin Islands on December 14, 1993 and the sole shareholder of Feishang Anthracite immediately prior to the
Distribution. |
The Distribution and Spin-off |
|
On , 2013, the board of directors of CHNR declared a conditional special interim dividend to the CHNR
Shareholders to be satisfied by way of a distribution in specie of the entire issued share capital of Feishang Anthracite, being an aggregate of 124,554,580 ordinary shares, to all CHNR Shareholders in proportion to their respective
shareholdings in CHNR on the Distribution Record Date. |
|
|
CHNR Shareholders will be entitled to receive five Feishang Anthracite ordinary shares for each CHNR common share held on the Distribution Record Date. CHNR Shareholders will not be required to pay
any consideration for the Feishang Anthracite ordinary shares that they will be entitled to receive in the Distribution or to surrender or exchange CHNR common shares in order to be entitled to receive Feishang Anthracite ordinary shares and do not
need to take any other action in connection with the Distribution. After the completion of the Distribution, CHNR will no longer hold any shares in Feishang Anthracite. |
|
|
Share certificates for Feishang Anthracite ordinary shares are expected to be dispatched on , 2013. The
share certificates will only become valid if the Distribution becomes unconditional. In the event the Distribution does not become unconditional, dealings in the shares on the Hong Kong Stock Exchange will not commence
on , 2013. In such event, we will make an announcement of the above and, if necessary, of a revised timetable. Investors who trade in Feishang Anthracite
ordinary shares prior to the receipt of the share certificates do so entirely at their own risk. |
|
|
The listing of and dealing in Feishang Anthracite ordinary shares on the Hong Kong Stock Exchange is expected to commence
on , 2013. |
|
|
|
IS-10
Table of Contents
|
|
|
| |
|
For further information, see "The Spin-off" in the Hong Kong Listing Document. |
Conditions to the Distribution |
|
The Distribution is conditional on the Listing Committee of the Hong Kong Stock Exchange granting listing of, and permission to deal in, Feishang Anthracite ordinary shares in issue on the Main Board
of the Hong Kong Stock Exchange. |
Distribution Record Date |
|
, 2013 |
|
|
In order to be entitled to receive Feishang Anthracite ordinary shares in the Distribution, CHNR Shareholders must be holders of record of CHNR common shares on the Distribution Record Date. The last
day of dealings in CHNR common shares on the NASDAQ Capital Market with the entitlement to Feishang Anthracite ordinary shares will be , 2013 and the
latest time for lodging transfers of the CHNR common shares with the share registrar with the entitlement to Feishang Anthracite ordinary shares will be 4:30 p.m., Hong Kong time,
on , 2013. See "Expected Timetable" in the Hong Kong Listing Document. |
Listing and Trading of Feishang Anthracite Ordinary Shares |
|
There is currently no public market for Feishang Anthracite ordinary shares. Feishang Anthracite ordinary shares are expected to be listed on the Hong Kong Stock Exchange under the stock code
" " on or around , 2013. The proposed listing does not
involve an offering of new shares or any other securities and no proceeds will be raised pursuant to the Listing. Admission to listing and trading is subject to the approval of the Listing Committee of the Hong Kong Stock Exchange. Feishang
Anthracite ordinary shares will not be listed on any securities exchange in the United States or quoted on any automated inter-dealer quotation system in the United States. |
Risks Associated with the Distribution and Feishang Anthracite |
|
There are certain risks associated with the Distribution and Feishang Anthracite. See "Risk Factors Relating to the Distribution" beginning on page IS-16 of this information statement and "Risk
Factors" beginning on page 34 of the Hong Kong Listing Document. |
No CHNR Shareholder Approval Required |
|
No CHNR Shareholder approval of the Distribution is required or sought. CHNR is not asking you for a proxy and you are requested not to send CHNR a proxy. |
No Appraisal Rights |
|
CHNR Shareholders have no appraisal rights in connection with the Distribution. |
|
|
|
IS-11
Table of Contents
|
|
|
| Certain Relationships Among Mr. Li Feilie, CHNR and Feishang Anthracite After the Distribution |
|
Immediately after the Distribution, Mr. Li Feilie will directly and indirectly own approximately 59.33% of the ordinary shares of Feishang Anthracite. For a discussion of certain continuing
relationships among Mr. Li Feilie, CHNR and Feishang Anthracite, see "Relationship with Our Controlling Shareholders" and "Connected Transactions" in the Hong Kong Listing Document. |
Certain Material Tax Consequences |
|
The Distribution will not be subject to British Virgin Islands or Hong Kong tax, but CHNR intends to treat the Distribution as a taxable dividend for U.S. Federal income tax purposes. CHNR may be
subject to PRC withholding tax on the Distribution. For a discussion of certain material income tax consequences, see "Certain Material Tax Consequences" in this information statement. |
IS-12
Table of Contents
SELECTED HISTORICAL FINANCIAL INFORMATION
The following selected historical consolidated income statements for the years ended December 31, 2010, 2011 and 2012 and the
six months ended June 30, 2012 and 2013, and the selected consolidated statements of financial position as of December 31, 2010, 2011 and 2012 and June 30, 2013 are derived from
our consolidated financial statements, including the notes thereto, beginning on page F-1 of this information statement. You should read the summary historical
consolidated financial statements set forth below in conjunction with our consolidated financial statements beginning on page F-1 of this information statement together with the accompanying
notes, which have been prepared in accordance with IFRS as issued by the IASB.
Selected Consolidated Income Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
2013 |
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
(in thousands, except number of shares)
|
|
Revenue |
|
|
38,668 |
|
|
105,211 |
|
|
141,939 |
|
|
55,156 |
|
|
54,716 |
|
|
8,915 |
|
Gross profit |
|
|
13,215 |
|
|
30,922 |
|
|
46,050 |
|
|
24,760 |
|
|
14,763 |
|
|
2,405 |
|
Operating Loss |
|
|
(54,545 |
) |
|
(22,985 |
) |
|
(36,602 |
) |
|
(11,270 |
) |
|
(231,685 |
) |
|
(37,750 |
) |
Profit/(Loss) Before Income Tax |
|
|
562,134 |
|
|
(55,150 |
) |
|
(82,266 |
) |
|
(32,921 |
) |
|
(273,224 |
) |
|
(44,518 |
) |
Income tax (expense)/benefit |
|
|
(6,141 |
) |
|
(9,750 |
) |
|
15,210 |
|
|
(5,784 |
) |
|
50,468 |
|
|
8,223 |
|
Profit/(Loss) for the Year |
|
|
555,993 |
|
|
(64,900 |
) |
|
(67,056 |
) |
|
(38,705 |
) |
|
(222,756 |
) |
|
(36,295 |
) |
Attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners of the Company |
|
|
562,432 |
|
|
(64,165 |
) |
|
(75,312 |
) |
|
(40,861 |
) |
|
(221,947 |
) |
|
(36,163 |
) |
Non-controlling interests |
|
|
(6,439 |
) |
|
(735 |
) |
|
8,256 |
|
|
2,156 |
|
|
(809 |
) |
|
(132 |
) |
Earnings (losses) per share attributable to owners of the Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
562,432 |
|
|
(64,165 |
) |
|
(75,312 |
) |
|
(40,861 |
) |
|
(221,947 |
) |
|
(36,163 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
562,432 |
|
|
(64,165 |
) |
|
(75,312 |
) |
|
(40,861 |
) |
|
(221,947 |
) |
|
(36,163 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
1 |
|
|
1 |
|
|
1 |
|
|
1 |
|
|
1 |
|
|
1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
1 |
|
|
1 |
|
|
1 |
|
|
1 |
|
|
1 |
|
|
1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
IS-13
Table of Contents
Selected Consolidated Statements of Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
2013 |
|
|
|
RMB
|
|
RMB
|
|
RMB
|
|
RMB
|
|
US$
|
|
|
|
(in thousands, except number of shares)
|
|
Non-current assets |
|
|
1,824,292 |
|
|
2,125,475 |
|
|
2,477,108 |
|
|
2,451,243 |
|
|
399,394 |
|
Current assets |
|
|
107,222 |
|
|
179,085 |
|
|
285,754 |
|
|
245,852 |
|
|
40,058 |
|
Total assets |
|
|
1,931,514 |
|
|
2,304,560 |
|
|
2,762,862 |
|
|
2,697,095 |
|
|
439,452 |
|
Current liabilities |
|
|
544,306 |
|
|
811,181 |
|
|
1,315,865 |
|
|
1,200,957 |
|
|
195,678 |
|
Net current liabilities |
|
|
437,084 |
|
|
632,096 |
|
|
1,030,111 |
|
|
955,105 |
|
|
155,620 |
|
Total liabilities |
|
|
1,300,550 |
|
|
1,739,091 |
|
|
2,255,267 |
|
|
2,407,524 |
|
|
392,271 |
|
Equity attributable to owners of the Company |
|
|
554,831 |
|
|
479,784 |
|
|
413,654 |
|
|
196,439 |
|
|
32,007 |
|
Non-controlling interests |
|
|
76,133 |
|
|
85,685 |
|
|
93,941 |
|
|
93,132 |
|
|
15,174 |
|
Total equity |
|
|
630,964 |
|
|
565,469 |
|
|
507,595 |
|
|
289,571 |
|
|
47,181 |
|
Key Financial Ratios
The table below sets forth our key financial ratios as of the dates or for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the year
ended December 31, |
|
As of or for the six months ended June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Inventory turnover days(1) |
|
|
49 |
|
|
26 |
|
|
31 |
|
|
45 |
|
|
59 |
|
Average trade and bill payable turnover days(2) |
|
|
660 |
|
|
362 |
|
|
325 |
|
|
428 |
|
|
451 |
|
Average trade and bill receivable turnover days(3) |
|
|
29 |
|
|
61 |
|
|
101 |
|
|
75 |
|
|
157 |
|
Gearing ratio(4) |
|
|
47.5 |
% |
|
60.4 |
% |
|
68.8 |
% |
|
66.6 |
% |
|
86.5 |
% |
Debt to equity ratio(5) |
|
|
90.5 |
% |
|
152.4 |
% |
|
220.0 |
% |
|
199.8 |
% |
|
641.2 |
% |
Gross margin(6) |
|
|
34.2 |
% |
|
29.4 |
% |
|
32.4 |
% |
|
44.9 |
% |
|
27.0 |
% |
- (1)
- Inventory
turnover days are calculated by dividing the arithmetic mean of the opening and closing balances of inventories for the year by cost of sales in
that year and multiplying by 360 days. As we did not have any commercial production until March 18, 2010, inventory turnover days in 2010 is calculated by dividing the arithmetic mean of
the balance of inventories as of March 18 and December 31, 2010 by cost of sales for the period beginning on March 18, 2010 and ending on December 31, 2010, and multiplying
by 280 days.
- (2)
- The
average trade and bill payable turnover days are calculated by dividing the arithmetic mean of opening and ending balance of trade and bill payables for
the year by cost of sales in the year and then multiplying by 360 days. As we did not have any commercial production until March 18, 2010, the average trade and bill payables turnover
days in 2010 is calculated by dividing the arithmetic mean of the balance of trade and bill payables as of March 18 and December 31, 2010 by cost of sales for the period beginning on
March 18, 2010 and ending on December 31, 2010, and multiplying by 280 days.
IS-14
Table of Contents
- (3)
- The
average trade and bill receivable turnover days are calculated by dividing the arithmetic mean of opening and ending balance of trade and bill
receivables for the year by revenue in that year and then multiplying by 360 days. As we did not have any commercial production until March 18, 2010, the average trade and bill
receivables turnover days in 2010 is calculated by dividing the arithmetic mean of the balance of trade and bill receivables as of March 18 and December 31, 2010 by revenue for the
period beginning on March 18, 2010 and ending on December 31, 2010, and multiplying by 280 days.
- (4)
- Gearing
ratio is calculated by dividing total interest-bearing debt by total capital at the end of the year and multiplying by 100%. Interest-bearing debt
includes interest-bearing bank and other borrowings and mining rights payables. Capital includes total equity and interest-bearing debt.
- (5)
- Debt
to equity ratio is calculated by dividing total interest-bearing debt by total equity (based on book value without any revaluation) at the end of the
year and multiplying by 100%. Interest-bearing debt includes interest-bearing bank and other borrowings and mining rights payables.
- (6)
- Gross
margin is calculated by dividing gross profit by revenue at the end of the year and multiplying by 100%.
IS-15
Table of Contents
RISK FACTORS RELATING TO THE DISTRIBUTION
You should carefully consider the risks described below and under "Risk Factors" beginning on page 34 in the Hong Kong Listing
Document.
The combined market value of CHNR common shares and Feishang Anthracite ordinary shares after the Spin-off may be less than the market value of CHNR common shares prior to
the Spin-off.
CHNR currently has two business segments: base metals exploration and mining; and anthracite coal exploration and mining, which is
operated through Feishang Anthracite. After the completion of the Distribution, CHNR will no longer hold any Feishang Anthracite ordinary shares and, accordingly, it will only retain its base metals
exploration mining business. Until the market has fully evaluated the business of CHNR without Feishang Anthracite, as well as the business of Feishang Anthracite on a stand-alone basis, the trading
price of the common shares of CHNR and the ordinary shares of Feishang Anthracite may fluctuate significantly. In particular, the combined market value of CHNR common shares and Feishang Anthracite
ordinary shares after the Spin-off may be significantly less than the market value of CHNR common shares prior to the Spin-off.
CHNR intends to treat the Distribution as a taxable dividend for U.S. Federal income tax purposes.
It is not clear whether the Distribution would qualify as a tax-free spin-off under Section 355 of the U.S. Internal
Revenue Code of 1986, as amended (the "Code"). If CHNR is required to report the Distribution to the IRS, CHNR intends to treat the Distribution as a taxable dividend to its Shareholders for
U.S. Federal income tax purposes. Under this treatment, as explained in "Certain Material Tax Consequences — United States Federal Income Taxation"
in this information statement, U.S. holders of CHNR common shares would be subject to tax on the fair market value of the Feishang Anthracite ordinary shares they receive. Holders should consult their own tax advisers
concerning the U.S. federal, state, local and other tax consequences of the Distribution in light of their particular
circumstances.
Holders of the Feishang Anthracite ordinary shares located in the United States may not be able to participate in rights offerings or elect to receive dividends in
the form of Feishang Anthracite ordinary shares and may experience dilution of their holdings.
We may, from time to time, distribute rights to our shareholders, including rights to acquire securities. We may not offer or sell
securities in the United States unless we register those securities under the Securities Act or an exemption from the registration requirements of the Securities Act is available. We cannot
assure you that we will be able to establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these
rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, holders of the Feishang Anthracite ordinary shares located in the United States
may be unable to participate in rights offerings and may experience dilution of their holdings as a result.
We
may offer, from time to time, a share dividend election to all our shareholders, subject to applicable securities laws, in respect of future dividends. We will, however, not
permit our shareholders to exercise such election unless the issuance of our ordinary shares pursuant to such election is either exempt from registration under the Securities Act
or registered under the provisions of the Securities Act. There can be no assurance that we will be able to establish an exemption from registration under the Securities
Act, and we are under no obligation to file a registration statement with respect to shares issuable pursuant to these elections or to endeavor to have a registration
IS-16
Table of Contents
statement
declared effective under the Securities Act. In addition, we may choose not to offer such election to some shareholders, and may instead offer those shareholders dividends in the form of
cash only. Accordingly, our shareholders may be unable to elect to receive dividends in the form of our ordinary shares rather than cash and, as a result may experience dilution of
their holdings.
CHNR faces uncertainties with respect to the applicability of PRC withholding tax on the Distribution.
Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises (
) ("SAT Circular 698") issued by the State Administration of Taxation ("SAT") on December 10, 2009 with retroactive effect from January 1, 2008, if
a non-PRC resident enterprise transfers its indirect equity interests in a PRC resident enterprise by disposing of its equity interests in an overseas holding company ("Indirect Transfer"), and such
overseas holding company is located in a tax jurisdiction that has an effective tax rate of less than 12.5% or does not tax foreign income of its residents, the non-PRC resident enterprise, as the
transferor, is required to report the Indirect Transfer to the relevant PRC tax authorities. Using a "substance over form" principle, the PRC tax authorities may disregard the existence of the
overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of avoiding PRC tax, in which case the gains derived from such "Indirect Transfer" may be
subject to PRC withholding tax at a rate of up to 10%. SAT Circular 698 also provides that, if a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its
related parties at a price lower than the fair market value, the relevant PRC tax authorities have the authority to make reasonable adjustments to the taxable income of the transaction.
There
is uncertainty as to the application of SAT Circular 698. For example, while the term "Indirect Transfer" is not clearly defined, it is understood that the relevant PRC tax
authorities have jurisdiction regarding requests for information over a wide range of foreign entities having no direct contact with the PRC. In addition, there is no formal declaration with regard to
how to determine whether an overseas holding company lacks a "reasonable commercial purpose" or was "established for the purpose of avoiding PRC tax". As a result, there is a risk that the PRC tax
authorities would regard the Distribution as an "Indirect Transfer" by CHNR of our PRC subsidiaries to CHNR's shareholders subject to SAT Circular 698. If SAT Circular 698 were
determined to be applicable to the Distribution by the PRC tax authorities, CHNR could be required to withhold taxes at a rate of up to 10% on any gains derived from the Distribution, which may be
deemed as the difference between the fair value of our ordinary shares at the time of the Distribution and CHNR's tax basis in our ordinary shares.
We are a British Virgin Islands company and, because the rights of shareholders under British Virgin Islands differ from those under U.S. law, you may have difficulty
protecting your shareholder rights.
We are a company incorporated under the laws of the British Virgin Islands, and substantially all of our assets are located outside the
United States. In addition, all of our directors and executive officers are nationals or residents of jurisdictions other than the United States and all or a substantial portion of their
assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon our directors or
executive officers, or enforce judgments obtained in the United States courts against our directors or executive officers.
IS-17
Table of Contents
Our
corporate affairs are governed by our amended and restated memorandum and articles of association, The BVI Business Companies Act, 2004, of the British Virgin Islands and the common
law of the British Virgin Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors under British
Virgin Islands law are to a large extent governed by The BVI Business Companies Act, 2004, and the common law of the British Virgin Islands. The common law of the British Virgin Islands is derived in
part from comparatively limited judicial precedent in the British Virgin Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the British Virgin
Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under British Virgin Islands law are not as clearly established as they would be under statutes or judicial
precedent in some jurisdictions in the United States. In particular, the British Virgin Islands has a less developed body of securities laws as compared to the United States, and some
states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law. In addition, British Virgin Islands companies may not have standing to initiate a shareholder
derivative action in a federal court of the United States.
The
British Virgin Islands courts are also unlikely:
- •
- to recognize or enforce against us judgments of courts of the United States based on certain civil liability
provisions of U.S. Federal securities laws; and
- •
- to impose liabilities against us, in original actions brought in the British Virgin Islands, based on certain civil
liability provisions of U.S. Federal securities laws that are penal in nature.
There
is no statutory recognition in the British Virgin Islands of judgments obtained in the United States, although the courts of the British Virgin Islands will generally
recognize and enforce a non-penal final and conclusive monetary judgment of a foreign court of competent jurisdiction without retrial on the merits.
As
a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors
or controlling shareholders than they would as shareholders of a U.S. company.
IS-18
Table of Contents
EXCHANGE RATE INFORMATION
The PRC
The People's Bank of China ("PBOC") sets and publishes daily a base exchange rate with reference primarily to the supply and demand of
Renminbi against a basket of currencies in the markets during the prior day. The PBOC also takes into account other factors such as the general conditions existing in the international foreign
exchange market. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of Renminbi to that of the U.S. dollar. Under the policy, Renminbi is permitted
to fluctuate within a narrow and managed band against a basket of certain foreign currencies determined by the PBOC. On May 18, 2007, the PBOC increased the floating band of Renminbi trading
prices against the U.S. dollar in the interbank spot foreign currency exchange market from 0.3% to 0.5%. This allows the Renminbi to fluctuate against the U.S. dollar by up to 0.5% above
or below the central parity rate published by the PBOC. On June 19, 2010, the PBOC announced that it intends to further reform the Renminbi exchange rate regime by allowing greater flexibility
in the Renminbi exchange rate. According to this announcement, the exchange rate floating bands will remain the same as previously announced, but the PBOC will place more emphasis on reflecting market
supply and demand with reference to a basket of currencies. The floating band was further widened to 1.0% since April 16, 2012. The PRC government in the future may make further adjustments to
the exchange rate system. The PBOC authorized the China Foreign Exchange Trading Center, effective since January 4, 2006, to announce the central parity exchange rate of certain foreign
currencies against the Renminbi at 9:15 a.m. each business day. This rate is set as the central parity for the trading against the Renminbi in the inter-bank foreign exchange spot market and
the over the counter exchange rate for that business day.
The
following table sets forth the exchange rates between Renminbi and U.S. dollar for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange rate(1) |
|
Period
|
|
Period end |
|
Average(2) |
|
High |
|
Low |
|
|
|
(RMB per US$1.00)
|
|
2008 |
|
|
6.8225 |
|
|
6.9193 |
|
|
7.2946 |
|
|
6.7800 |
|
2009 |
|
|
6.8259 |
|
|
6.8295 |
|
|
6.8470 |
|
|
6.8176 |
|
2010 |
|
|
6.6000 |
|
|
6.7603 |
|
|
6.8330 |
|
|
6.6000 |
|
2011 |
|
|
6.2939 |
|
|
6.4475 |
|
|
6.6364 |
|
|
6.2939 |
|
2012 |
|
|
6.2301 |
|
|
6.2990 |
|
|
6.3879 |
|
|
6.2221 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
January |
|
|
6.2186 |
|
|
6.2215 |
|
|
6.2303 |
|
|
6.2134 |
|
February |
|
|
6.2213 |
|
|
6.2323 |
|
|
6.2438 |
|
|
6.2213 |
|
March |
|
|
6.2108 |
|
|
6.2154 |
|
|
6.2246 |
|
|
6.2105 |
|
April |
|
|
6.1647 |
|
|
6.1861 |
|
|
6.2078 |
|
|
6.1647 |
|
May |
|
|
6.1340 |
|
|
6.1416 |
|
|
6.1665 |
|
|
6.1213 |
|
June |
|
|
6.1374 |
|
|
6.1342 |
|
|
6.1488 |
|
|
6.1248 |
|
July |
|
|
6.1284 |
|
|
6.1343 |
|
|
6.1408 |
|
|
6.1284 |
|
August |
|
|
6.1193 |
|
|
6.1213 |
|
|
6.1302 |
|
|
6.1123 |
|
September |
|
|
6.1200 |
|
|
6.1198 |
|
|
6.1213 |
|
|
6.1178 |
|
October |
|
|
6.0943 |
|
|
6.1032 |
|
|
6.1209 |
|
|
6.0815 |
|
November (through November 8) |
|
|
6.0903 |
|
|
6.0946 |
|
|
6.0993 |
|
|
6.0903 |
|
IS-19
Table of Contents
- (1)
- Exchange
rates between the Renminbi and the U.S. dollar for all periods through December 31, 2008 represent the noon buying rates for
U.S. dollars in New York City for cable transfers in Renminbi as certified for customs purposes by the Federal Reserve Bank of New York. Exchange rates between the Renminbi and
the U.S. dollar from and after January 1, 2009 represent the daily rates as set forth in the H.10 statistical release of the Federal Reserve Board.
- (2)
- Annual
averages are calculated by averaging the exchange rates on the last business day of each month during the relevant year. Monthly averages are
calculated by averaging the daily rates during the relevant monthly period.
Hong Kong
The Hong Kong dollar is freely convertible into the U.S. dollar. Since October 17, 1983, the Hong Kong dollar has been
pegged to the U.S. dollar at the rate of HK$7.80 to US$1.00. Under existing Hong Kong law, (i) there are no foreign exchange controls that affect the remittance of dividend payments to
United States residents and (ii) there are no limitations on the rights of non-residents or foreign owners to hold the Feishang Anthracite ordinary shares. The Basic Law of the Hong Kong
Special Administrative Region of the People's Republic of China (the "Basic Law"), which came into effect on July 1, 1997, provides that no foreign exchange control policies shall be
applied in Hong Kong.
The
market exchange rate of the Hong Kong dollar against the U.S. dollar continues to be determined by the forces of supply and demand in the foreign exchange market. However,
against the background of the fixed rate system which applies to the issuance and withdrawal of Hong Kong currency in circulation, the market exchange rate has not deviated significantly from the
level of HK$7.80 to US$1.00 since the peg was first established. However, in May 2005, the Hong Kong Monetary Authority broadened the 22-year old trading band from the original rate of HK$7.80
per U.S. dollar to a rate range of HK$7.75 to HK$7.85 per U.S. dollar. The Hong Kong government has indicated its intention to maintain the link within that rate range. Under the Basic
Law, the Hong Kong dollar will continue to circulate and remain freely convertible. The Hong Kong government has also stated that it has no intention to impose exchange controls in Hong Kong and that
the Hong Kong dollar will remain freely convertible into other currencies, including the U.S. dollar. However, no assurance can be given that the Hong Kong government will maintain the link at
HK$7.75 to HK$7.85 to US$1.00 or at all.
IS-20
Table of Contents
The
following table sets forth the exchange rates between the Hong Kong dollar and the U.S. dollar for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange rate(1) |
|
Period
|
|
Period end |
|
Average(2) |
|
High |
|
Low |
|
|
|
(HK$ per US$1.00)
|
|
2008 |
|
|
7.7499 |
|
|
7.7814 |
|
|
7.8159 |
|
|
7.7497 |
|
2009 |
|
|
7.7536 |
|
|
7.7513 |
|
|
7.7618 |
|
|
7.7495 |
|
2010 |
|
|
7.7810 |
|
|
7.7692 |
|
|
7.8040 |
|
|
7.7501 |
|
2011 |
|
|
7.7663 |
|
|
7.7793 |
|
|
7.8087 |
|
|
7.7634 |
|
2012 |
|
|
7.7507 |
|
|
7.7556 |
|
|
7.7699 |
|
|
7.7493 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
January |
|
|
7.7560 |
|
|
7.7530 |
|
|
7.7585 |
|
|
7.7503 |
|
February |
|
|
7.7546 |
|
|
7.7552 |
|
|
7.7580 |
|
|
7.7531 |
|
March |
|
|
7.7629 |
|
|
7.7592 |
|
|
7.7640 |
|
|
7.7551 |
|
April |
|
|
7.7606 |
|
|
7.7631 |
|
|
7.7652 |
|
|
7.7606 |
|
May |
|
|
7.7625 |
|
|
7.7614 |
|
|
7.7639 |
|
|
7.7587 |
|
June |
|
|
7.7560 |
|
|
7.7602 |
|
|
7.7654 |
|
|
7.7534 |
|
July |
|
|
7.7558 |
|
|
7.7567 |
|
|
7.7587 |
|
|
7.7535 |
|
August |
|
|
7.7544 |
|
|
7.7553 |
|
|
7.7564 |
|
|
7.7537 |
|
September |
|
|
7.7551 |
|
|
7.7543 |
|
|
7.7557 |
|
|
7.7533 |
|
October |
|
|
7.7530 |
|
|
7.7536 |
|
|
7.7545 |
|
|
7.7524 |
|
November (through November 8) |
|
|
7.7515 |
|
|
7.7517 |
|
|
7.7524 |
|
|
7.7512 |
|
- (1)
- Exchange
rates between the Hong Kong dollar and the U.S. dollar for all periods through December 31, 2008 represent the noon buying rates for
U.S. dollars in New York City for cable transfers in the Hong Kong dollar as certified for customs purposes by the Federal Reserve Bank of New York. Exchange rates between the
Hong Kong dollar and the U.S. dollar from and after January 1, 2009 represent the daily rates as set forth in the H.10 statistical release of the Federal Reserve Board.
- (2)
- Annual
averages are calculated by averaging the exchange rates on the last business day of each month during the relevant year. Monthly averages are
calculated by averaging the daily rates during the relevant monthly period.
IS-21
Table of Contents
CAPITALIZATION
The following table sets forth Feishang Anthracite's capitalization as of , 2013. This table should be read in
conjunction with the information under "Selected Historical Financial Information" in this information statement and Feishang Anthracite's consolidated financial statements beginning on
page F-1 of this information statement.
|
|
|
|
|
|
|
|
|
|
As of , 2013 |
|
|
|
RMB |
|
US$ |
|
|
|
(in thousands)
|
|
INTEREST-BEARING LOANS |
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
Working capital facilities |
|
|
|
|
|
|
|
Bank and other borrowings — guaranteed |
|
|
|
|
|
|
|
Current portion of long term bank and other borrowings — secured and guaranteed |
|
|
|
|
|
|
|
Current portion of long term bank and other borrowings — guaranteed |
|
|
|
|
|
|
|
Non-current |
|
|
|
|
|
|
|
Bank and other borrowings — guaranteed |
|
|
|
|
|
|
|
Bank and other borrowings — secured and guaranteed |
|
|
|
|
|
|
|
Bank and other borrowings — unsecured |
|
|
|
|
|
|
|
| |
|
|
|
|
|
Total Interest-Bearing Bank and Other Borrowings |
|
|
|
|
|
|
|
DUE TO RELATED COMPANIES |
|
|
|
|
|
|
|
Current |
|
|
|
|
|
|
|
Non-Current |
|
|
|
|
|
|
|
| |
|
|
|
|
|
Total Due to Related Companies |
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
|
|
Issued capital |
|
|
|
|
|
|
|
Reserves |
|
|
|
|
|
|
|
Equity Attributable to Owners of the Company |
|
|
|
|
|
|
|
| |
|
|
|
|
|
TOTAL CAPITALIZATION |
|
|
|
|
|
|
|
| |
|
|
|
|
|
IS-22
Table of Contents
MARKET INFORMATION
Currently, there is no trading market for Feishang Anthracite ordinary shares. Feishang Anthracite is seeking the approval of the
Listing Committee of the Hong Kong Stock Exchange for the listing of Feishang Anthracite ordinary shares on the Hong Kong Stock Exchange. See "The Spin-off" in this information statement. The Feishang
Anthracite ordinary shares are expected to be listed on the Hong Kong Stock Exchange under the stock code " " on or
around , 2013. The proposed listing does not involve an
offering of new shares or any other securities and no new proceeds will be raised pursuant to the listing. There can be no assurance as to the establishment or continuity of any trading market for the
Feishang Anthracite ordinary shares. The Feishang Anthracite ordinary shares will not be listed on any securities exchange in the United States or quoted on any automated inter-dealer quotation
system in the United States.
IS-23
Table of Contents
THE HONG KONG STOCK EXCHANGE
The Hong Kong Stock Exchange, which commenced trading on April 2, 1986, was formed upon the unification of the four stock
exchanges then existing in Hong Kong and, by September 30, 2013, listed the shares of 1,399 companies on the main board with a total market capitalization of approximately
HK$22,679 billion. During the month ended September 30, 2013, the average trading volume in value for the main board per trading day on the Hong Kong Stock Exchange was approximately
HK$59 billion. On March 3, 1999, the Financial Secretary of Hong Kong announced in his budget speech a comprehensive reform of the securities and futures markets in Hong Kong, which
included the demutualization and merger of the five recognized and approved market operators in Hong Kong, namely the Hong Kong Stock Exchange, Hong Kong Futures Exchange Limited, HKSCC, The SEHK
Options Clearing House Limited and HKFE Clearing Corporation Limited under a single holding company (which was subsequently incorporated under the name of Hong Kong Exchanges and Clearing Limited
("HKEx")). The merger became effective on March 6, 2000.
As
a result of the merger, the former shareholders of the Hong Kong Stock Exchange and Hong Kong Futures Exchange Limited (together, the "Exchanges") effectively exchanged their
ownership rights in the Exchanges for economic interests in HKEx and the conventional right to receive dividends, while retaining their existing rights to trade on the Exchanges. At the same time,
certain of the regulatory functions performed by the Exchanges were passed over to the SFC.
Shares
in the HKEx were listed on the Hong Kong Stock Exchange on June 27, 2000. As a listed company on its own stock market, HKEx is regulated by the SFC to avoid any conflict of
interest and to ensure a level playing field between HKEx and other listed companies which are subject to the Listing Rules. Regulation by the SFC is imposed through two sets of provisions. First, the
Listing Rules have been amended to incorporate a new chapter (Chapter 38) relating specifically to the listing of HKEx and which sets out the requirements that must be satisfied for the
securities of HKEx to be listed on the Hong Kong Stock Exchange Second, a Memorandum of Understanding, dated June 19, 2000 (which was subsequently replaced and superseded by another Memorandum
of Understanding dated August 22, 2001), has been entered into among the SFC, HKEx and the Hong Kong Stock Exchange which sets forth the manner the parties to it will relate to each other in
relation to:
- •
- HKEx's and other applicants' and issuers' compliance with the Listing Rules;
- •
- the enforcement by the Hong Kong Stock Exchange of its rules in relation to HKEx's securities and those of other
applicants and issuers;
- •
- the SFC's supervision and regulation of HKEx as a listed issuer and, where a conflict of interest arises, other applicants
and issuers;
- •
- conflicts of interest which may arise between the interests of HKEx as a listed company and companies of which it is the
controller, and the interests in the proper performance of regulatory functions by such companies; and
- •
- market integrity.
Trading
on the Hong Kong Stock Exchange takes place on each business day with continuous trading being divided into morning and afternoon sessions. Trading is order-based using a
computer-assisted trading system that conveys bid and ask prices for securities. Trades are then effected on a matched trade basis directly between buyers and sellers. All securities are traded in
board lots. For most companies a board lot is 1,000 shares or 2,000 shares; odd lots are traded separately,
IS-24
Table of Contents
usually
at a small discount to the board lot prices. Settlement of trades on the Hong Kong Stock Exchange is required to take place on the second trading day after the day the trade takes place. All
trades on the Hong Kong Stock Exchange are generally required to be settled between broker participants through CCASS, the central clearing and settlement system, operated by HKSCC. CCASS is the
central depositary of share certificates and provides a computerized book-entry settlement of share transactions between its participants, which includes all broker participants of the Hong Kong
Stock Exchange. Share certificates kept at CCASS are electronically recorded in the stock accounts of its participants. CCASS also facilitates money settlement between participants. It is also
possible for settlement to take place outside CCASS (except in relation to trades between broker participants of the Hong Kong Stock Exchange). In such a case, share certificates, together with signed
instruments of transfer, must be delivered on the second business day following the transaction and will typically be delivered against payment by check or bank cashier orders. There are no
market-makers in the Hong Kong Stock Exchange except in the market for exchange-traded options, but exchange dealers may act as dual capacity broker-dealers. Short selling of securities at or through
the Hong Kong Stock Exchange is currently prohibited except in respect of a limited group of securities.
The
SFC charges a transaction levy of 0.003% of the consideration of each transaction and the Hong Kong Stock Exchange charges a trading fee of 0.005% of the consideration of each
transaction, payable by both seller and buyer. In addition, member brokers charge brokerage commissions to either a buyer or a seller which are freely negotiated between such brokers and their
clients. Additional administrative fees are also payable for trades settled through CCASS. Member brokers are required to make a contract note in respect of each transaction in securities. The
contract note is required to be stamped with ad valorem stamp duty and to be delivered to the client not later than the end of the second trading day following the transaction.
The
SFC, an independent, non-government statutory body outside the civil service that provides a general regulatory framework of the securities and futures industries, was established by
the Hong Kong government in 1989. The SFC administers certain elements of Hong Kong securities law, including the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) which
regulates, among other things, activities in the securities market, requirements and conduct of intermediaries, investor compensation, market misconduct and disclosure of interests.
The
Hong Kong Stock Exchange promulgates its own rules governing share trading and disclosure of information to shareholders and investors. Companies listed on the Hong Kong Stock
Exchange are required to comply with the provisions of the Listing Rules, which provide for, among other things, the issuance of interim and audited annual accounts to shareholders and the making of
prompt public disclosure of material transactions and developments. In addition, the Hong Kong Codes on Takeovers and Mergers and Share Repurchases, which have been issued by the SFC but do not have
the force of law, provide guidelines for the fair treatment of shareholders and preservation of an impartial trading market in connection with takeovers and mergers of public companies in Hong Kong
and guidelines for share repurchases by such companies. Part XV of the Securities and Futures Ordinance also contains provisions which require certain persons interested (or deemed to be
interested) in shares, underlying shares and short positions in listed companies in Hong Kong to disclose their interest in those shares in certain circumstances. Disclosure of the Directors'
interests in the Company is set out in Appendix V — "Statutory and General Information — Disclosure of
Interests" starting on page V-14 in the Hong Kong Listing Document.
IS-25
Table of Contents
The
Hong Kong Stock Exchange imposes a requirement on us to keep the Hong Kong Stock Exchange, the Shareholders and other holders of our listed securities informed as soon as reasonably
practicable of any information relating to us, including information which (i) is necessary to avoid a false market in our securities, or (ii) constitutes inside information within the
meaning of the Securities and Futures Ordinance and which is required to be disclosed under Part XIVA of the Securities and Futures Ordinance.
There
are also requirements under the Listing Rules for us to obtain prior shareholders' approval and/or to disclose to shareholders details of certain acquisitions or disposal of assets
and connected transactions.
The
Hang Seng Index is a capitalization-weighted index of a portfolio of stocks (currently 50) listed on the Hong Kong Stock Exchange. The highest and lowest closing levels of the
Hang Seng Index for the five years from 2008 to 2012 and the nine months ended September 30, 2013 were as follows:
|
|
|
|
|
|
|
|
Year
|
|
Highest closing level |
|
Lowest closing level |
|
2008 |
|
|
27,615.85 |
|
|
11,015.84 |
|
2009 |
|
|
22,943.98 |
|
|
11,344.58 |
|
2010 |
|
|
24,964.37 |
|
|
18,985.50 |
|
2011 |
|
|
24,419.62 |
|
|
16,250.27 |
|
2012 |
|
|
22,666.59 |
|
|
18,185.59 |
|
2013 (through September 30, 2013) |
|
|
23,822.06 |
|
|
19,813.98 |
|
IS-26
Table of Contents
CERTAIN INFORMATION CONCERNING CHNR
CHNR is incorporated in the British Virgin Islands with its principal executive offices at Room 2205, 22/F, West Tower, Shun Tak
Centre, 168-200 Connaught Road Central, Sheung Wan, Hong Kong. The telephone number of CHNR at this location is +852 2810 7205.
Following
the Distribution, CHNR will continue to engage in base metals exploration and mining in the PRC.
Directors and Management
Upon the completion of the Spin-off:
- •
- Mr. TAM Cheuk Ho, an executive director of Feishang Anthracite, is expected to resign from his current positions at
CHNR as an executive director and executive vice president;
- •
- Mr. WONG Wah On Edward, an executive director of Feishang Anthracite, is expected to resign from his current
positions at CHNR as an executive director, chief financial officer and company secretary; and
- •
- Mr. YUE Ming Wai Bonaventure, chief financial officer and company secretary of Feishang Anthracite, is expected to
resign from his current position at CHNR as financial controller.
Agreements with Feishang Anthracite
After the Spin-off, CHNR will be a "connected person" of Feishang Anthracite under the Listing Rules. As a result, certain additional
compliance obligations on the part of Feishang Anthracite will arise from any transactions between CHNR and Feishang Anthracite that may occur after the Spin-off. See "Connected Transactions" in the
Hong Kong Listing Document.
IS-27
Table of Contents
CERTAIN MATERIAL TAX CONSEQUENCES
The following discussion of the material British Virgin Islands, Hong Kong, PRC and United States
Federal income tax consequences of the Distribution is based upon laws and relevant interpretations thereof in effect as of the date of this information statement, all of which are subject to change.
This discussion does not address all possible tax consequences relating to the Distribution ordinary shares, including the tax consequences under United States state and local tax laws. CHNR
Shareholders are urged to consult their own tax advisers concerning the overall tax consequences to them, including consequences arising under United States state and local or other
tax laws.
British Virgin Islands Tax Consequences
The distribution of Feishang Anthracite ordinary shares as part of the Distribution will not be subject to British Virgin
Islands tax.
Feishang
Anthracite, as well as all dividends, interest, rents, royalties, compensation and other amounts paid by Feishang Anthracite to persons who are not resident in the British
Virgin Islands and any capital gains realized with respect to any shares, debt obligations or other securities of Feishang Anthracite by persons who are not resident in the British Virgin Islands are
exempt from all provisions of the Income Tax Ordinance in the British Virgin Islands.
No
estate, inheritance, succession or gift tax, rate, duty, levy or other charge is payable by persons who are not resident in the British Virgin Islands with respect to any shares, debt
obligation or other securities of Feishang Anthracite.
All
instruments relating to transfers of property to or by Feishang Anthracite and all instruments relating to transactions in respect of the shares, debt obligations or other securities
of Feishang Anthracite and all instruments relating to other transactions relating to the business of CHNR or Feishang Anthracite are exempt from payment of stamp duty in the British Virgin Islands.
This assumes that CHNR and Feishang Anthracite do not hold an interest in real estate in the British Virgin Islands.
There
are currently no withholding taxes or exchange control regulations in the British Virgin Islands applicable to Feishang Anthracite.
Hong Kong Tax Consequences
The distribution of Feishang Anthracite ordinary shares as part of the Distribution will not be subject to Hong Kong tax.
Dividends
No tax is payable in Hong Kong in respect of dividends paid by Feishang Anthracite.
Capital Gains and Profits Tax
No tax is imposed in Hong Kong in respect of capital gains from the sale of the Feishang Anthracite ordinary shares.
IS-28
Table of Contents
Trading
gains from the sale of Feishang Anthracite ordinary shares by persons carrying on a trade, profession or business in Hong Kong where such gains arise in or are derived from Hong
Kong from such trade, profession or business will be chargeable to Hong Kong profits tax. Currently, profits tax is imposed on corporations at the rate of 16.5% and on individuals and unincorporated
businesses at a maximum rate of 15.0%. Gains from sales of Feishang Anthracite ordinary shares effected on the Hong Kong Stock Exchange will be considered to arise in or be derived from Hong Kong.
Liability for Hong Kong profits tax may thus arise in respect of trading gains from sales of the Feishang Anthracite ordinary shares effected on the Hong Kong Stock Exchange realized by persons
carrying on a business or trading or dealing in securities in Hong Kong.
Stamp Duty
Hong Kong stamp duty will be payable by the purchaser on every purchase, and by the seller on every sale, of Feishang Anthracite
ordinary shares registered on Feishang Anthracite's Hong Kong branch register. The duty is charged at the ad valorem rate of 0.1% of the consideration
for, or (if greater) the value of, the shares transferred on each of the seller and purchaser. In other words, a total of 0.2% is currently payable on a typical sale and purchase transaction of
shares. In addition, any instrument of transfer (if required) will be subject to a flat rate of stamp duty of HK$5.00. Where a sale or purchase of Feishang Anthracite ordinary shares registered
on Feishang Anthracite's Hong Kong branch register is effected by a person who is not resident in Hong Kong and any stamp duty payable on the contract note is not paid, the relevant instrument of
transfer (if any) shall be chargeable with such duty. If stamp duty is not paid on or before the due date, a penalty of up to ten times the duty payable may be imposed.
No
Hong Kong stamp duty will be levied on the transfer of Feishang Anthracite ordinary shares that are registered on a share register outside Hong Kong.
No
Hong Kong stamp duty is payable in connection with the distribution of Feishang Anthracite ordinary shares to CHNR Shareholders in the Distribution.
PRC Tax Consequences
There is uncertainty as to whether the PRC tax authorities would regard the Distribution as an "Indirect Transfer" by CHNR of our PRC
subsidiaries to CHNR's shareholders subject to SAT Circular 698. If SAT Circular 698 were determined to be applicable to the Distribution by the PRC tax authorities, CHNR could be
required to withhold taxes at a rate of up to 10% on any gains derived from the Distribution, which may be deemed as the difference between the fair value of our ordinary shares at the time of the
Distribution and CHNR's tax basis in our ordinary shares. See "Risk Factors Relating to the Distribution — CHNR faces uncertainties with respect to the
applicability of PRC withholding tax on the Distribution" on page IS-17 of this information statement.
United States Federal Income Taxation
This summary describes certain material U.S. Federal income tax consequences of the Distribution for CHNR Shareholders, but it
does not purport to be a comprehensive description of all of the tax considerations that may be relevant to such holder, including tax considerations that arise from rules of general application to
all taxpayers or to certain classes of investors or that are generally assumed to be known by holders. This summary applies only to a holder that will hold the Feishang Anthracite ordinary shares it
receives in the Distribution as a capital asset, and does not apply to a holder subject to special rules, such as a dealer in securities or currencies, a trader in securities that elects to use a
mark-to-market method of accounting for securities holdings; a bank; a life-insurance company; a tax-exempt organization; regulated investment companies; real estate investment trusts; a person
subject to the alternative minimum tax; U.S. expatriates; a person that holds his or her CHNR common shares (or that will hold his or her Feishang Anthracite ordinary shares) as part of
a hedge, straddle or conversion transaction for tax
IS-29
Table of Contents
purposes;
a person whose functional currency for tax purposes is not the U.S. dollar; or a person that owns or is deemed to own 10% or more of any class of CHNR common shares (or of
Feishang Anthracite ordinary shares).
This
summary is based on the Code, its legislative history, existing and proposed regulations promulgated thereunder, published rulings and court decisions, all as currently in effect.
These laws are subject to change, possibly on a retroactive basis.
Holders should consult their own tax advisers concerning the U.S. federal, state, local and other national tax consequences of the Distribution in light of their
particular circumstances.
For
purposes of this summary, a "U.S. Holder" is, generally, a beneficial owner of CHNR common shares that is: (i) an individual citizen or resident of the
United States; (ii) a corporation (or other entity treated as a corporation for U.S. Federal income tax purposes) created or organized under the laws of the
United States or any state thereof or the District of Columbia; (iii) an estate the income of which is subject to U.S. Federal income taxation regardless of its source;
(iv) a trust if a court within the United States is able to exercise primary jurisdiction over its administration and one or more U.S. persons have authority to control all
substantial decisions of the trust; or (v) any other person that is subject to U.S. Federal income taxation on a net income basis with respect to the CHNR common shares.
If
a partnership or other pass-through entity is a beneficial owner of CHNR common shares, the tax treatment of a partner or other owner will generally depend upon the status of the
partner or other owner and the activities of the entity. Partners and other owners of a partnership or other pass-through entity that own CHNR common shares should consult their own tax adviser
regarding the tax consequences of the Distribution.
For
the U.S. Federal income tax consequences of the Distribution to a holder that is not a U.S. Holder (a "non-U.S. Holder"), see the discussion below under
"— Non-U.S. Holders."
IS-30
Table of Contents
U.S. Holders
Taxation of the Distribution
It is not clear whether the Distribution should be treated as a tax-free spin-off under Section 355 of the Code. If CHNR is
required to report the Distribution to the IRS, CHNR intends to take the view that the Distribution will be treated as a taxable distribution, and the remainder of the disclosure so assumes. Under
this treatment, for U.S. Federal income tax purposes, the Distribution should be a taxable event for holders of CHNR common shares on the Distribution Record Date. Accordingly, a
U.S. Holder:
- •
- should generally be treated as having received (at the time of receipt of the Feishang Anthracite ordinary shares)
a taxable distribution (as explained below) in an amount equal to the fair market value of the Feishang Anthracite ordinary shares received in the Distribution,
- •
- should have a tax basis in its Feishang Anthracite ordinary shares equal to their fair market value on the date of the
Distribution, and
- •
- should have a holding period in its Feishang Anthracite ordinary shares that will commence on the day after the date of
the Distribution.
The
fair market value of the Feishang Anthracite ordinary shares distributed by CHNR to a U.S. Holder should be taxed as a "dividend" to the extent of such holder's proportionate
share of CHNR's current and accumulated earnings and profits (if any), and should otherwise be (i) a tax-free return of capital to the extent of such holder's adjusted tax basis in his
or her CHNR common shares and (ii) thereafter as a capital gain. CHNR does not maintain calculations of its earnings and profits in accordance with U.S. Federal income tax principles;
accordingly holders should assume that the entire Distribution should be taxed as a dividend. CHNR intends to treat the distribution of Feishang Anthracite ordinary shares as a taxable dividend for
U.S. federal income tax purposes, and the remainder of the disclosure so assumes.
Dividend Amount
Under the U.S. federal income tax laws, and subject to the passive foreign investment company, or PFIC, rules discussed below,
if you are a U.S. Holder, the dividend amount is subject to U.S. federal income taxation. If you are a noncorporate U.S. holder, the dividend will be taxable to you at a maximum
rate of 20% provided that you hold the CHNR common shares for more than 60 days during the 121-day period beginning 60 days before the distribution date and meet other holding period
requirements. The dividend amount will not be eligible for the dividends received deduction generally allowed to corporations.
Passive Foreign Investment Company Considerations
A foreign corporation will be considered a PFIC for any taxable year in which (i) 75% or more of its gross income is passive
income, or (ii) 50% or more of the average value (or, if elected, the adjusted tax basis) of its assets are considered "passive assets" (generally, assets that generate passive income).
IS-31
Table of Contents
Based
on CHNR's audited accounts and relevant market and shareholder data, CHNR believes that it was not a PFIC for U.S. Federal income tax purposes under the foregoing tests with
respect to its 2012
taxable year, but this conclusion is a factual determination that is made annually and thus may be subject to change.
If
CHNR were classified as a PFIC for 2012 or 2013, a U.S. Holder could be subject to an increased tax liability (possibly including an interest charge) upon the receipt of the
Distribution. The PFIC rules are complex, and holders should consult their own tax advisers regarding the possible application of the PFIC rules to the
Distribution.
Taxation of Future Distributions from Feishang Anthracite
Distributions made by Feishang Anthracite to a U.S. Holder should generally be taxed as a "dividend" to the extent of such
holder's proportionate share of Feishang Anthracite's current and accumulated earnings and profits (if any), and should otherwise be (i) a tax-free return of capital to the extent of
such holder's adjusted tax basis in his or her Feishang Anthracite ordinary shares and (ii) thereafter as a capital gain. Feishang Anthracite does not maintain calculations of its earnings and
profits in accordance with U.S. Federal income tax principles; accordingly, holders should assume that distributions they receive on their Feishang Anthracite ordinary shares should generally
be taxed as dividends.
Distributions
treated as dividends are includable in the income of a U.S. Holder as foreign source ordinary dividend income on the date the distribution is received by the holder
and will not be eligible for the dividends received deduction allowed to corporations. Dividends paid in a foreign currency will be included in the income of a U.S. Holder as a dollar amount
calculated by reference to the exchange rate in effect on the date of receipt, whether or not converted into U.S. dollars.
Sale, Exchange or Disposition of Feishang Anthracite Ordinary Shares
Gain or loss realized by a U.S. Holder on the sale, exchange or other disposition of Feishang Anthracite ordinary shares will be
subject to U.S. Federal income tax as capital gain or loss in an amount equal to the difference between the U.S. Holder's adjusted tax basis in its Feishang Anthracite ordinary shares
(which, as indicated under "— United States Federal Income
Taxation — U.S. Holders — Taxation of the Distribution," should generally be equal to their fair market value on the
date of the Distribution) and the dollar-value of the amount realized on such sale, exchange or other disposition. If the amount realized is denominated in a foreign currency, such amount shall be
determined at the spot rate on the date of disposition, or, at the spot rate on the settlement date if the Feishang Anthracite ordinary shares are traded on an established securities market and the
holder is a cash basis U.S. holder or an accrual basis U.S. holder that so elects.
The
gain or loss will be long-term gain or loss if the Feishang Anthracite ordinary shares were held for more than one year. The excess of net long-term capital gains over net short-term
capital losses generally will be taxed at a lower rate than ordinary income for non-corporate taxpayers. The deduction of capital losses is subject to limitations.
IS-32
Table of Contents
Non-U.S. Holders
A Non-U.S. Holder generally will be exempt from U.S. Federal income tax, including withholding tax and backup withholding
tax, with respect to the Distribution. Similarly, a Non-U.S. Holder generally will be exempt from U.S. Federal income tax, including withholding tax and backup withholding tax, with
respect to distributions from, and sale, exchange or other disposition of, its Feishang Anthracite ordinary shares. However, to qualify for these exemptions, a Non-U.S. Holder may be required
to satisfy certain certification requirements of the Internal Revenue Service to establish that it is not a U.S. person. See "— United States Federal Income
Taxation — Information Reporting and Backup Withholding" below.
Information with Respect to Foreign Financial Assets
Owners of "specified foreign financial assets" with an aggregate value in excess of $50,000 (and in some circumstances, a higher
threshold) may be required to file an information report with respect to such assets with their tax returns. "Specified foreign financial assets" may include financial accounts maintained by foreign
financial institutions, as well as the following, but only if they are not held in accounts maintained by financial institutions: (i) stocks and securities issued by non-United States
persons, (ii) financial instruments and contracts held for investment that have non-United States issuers or counterparties, and (iii) interests in foreign entities. Holders are
urged to consult their tax advisors regarding the application of this reporting requirement to their ownership of the Feishang Anthracite ordinary shares.
Information Reporting and Backup Withholding
To the extent paid within the United States or through certain U.S. related financial intermediaries, the Distribution as
well as future distributions on Feishang Anthracite ordinary shares and the sale, exchange or disposition of Feishang Anthracite ordinary shares are subject to information reporting and may be subject
to backup withholding unless the holder (i) is a corporation or other exempt recipient or (ii) provides a taxpayer identification number and certifies that no loss of exemption from
backup withholding has occurred. Non-U.S. Holders generally are not subject to information reporting or backup withholding. However, a Non-U.S. Holder may be required to provide a
certification as to its non-U.S. status in connection with payments received within the United States or through certain U.S. related financial intermediaries.
Backup
withholding tax is not an additional tax. Any amounts withheld under the backup withholding rules will be allowed as a refund or credit against a holder's United States
Federal income tax liability, provided that such holder provides the required information to the United States Internal Revenue Service.
IS-33
Table of Contents
EXPERTS
The consolidated financial statements of Feishang Anthracite Resources Limited as of December 31, 2010, 2011, 2012 and
June 30, 2013 and for each of the three years in the period ended December 31, 2012 and the six months ended June 30, 2013, appearing in this information statement and included in
our Registration Statement on Form 20-F have been audited by Ernst & Young, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. The offices of Ernst & Young are located at 22nd Floor,
CITIC Tower, 1 Tim Mei Avenue, Central, Hong Kong.
The
competent person's report included in Appendix III — "Competent Person's Report" to the Hong Kong Listing Document is prepared and issued
by Behre Dolbear Asia, Inc., 6430 S. Fiddler's Green Circle, Suite 250, Greenwood Village, Colorado 80111, USA, an independent mineral industry
advisory and consulting firm. Behre Dolbear Asia, Inc. has prepared this report in accordance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
(Listing Rules), in particular, the requirements of Chapter 18 of the Listing Rules, and has given and not withdrawn its written consent to the issue of the information statement with the
inclusion of its report in the form and context in which it is included.
IS-34
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Shareholders of
Feishang
Anthracite Resources Limited (Formerly known as "Wealthy Year Limited")
We
have audited the accompanying consolidated statements of financial position of Feishang Anthracite Resources Limited (the "Company"), formerly known as Wealthy Year Limited, as
of December 31, 2010, 2011, 2012 and June 30, 2013, and the related consolidated income statements, statements of comprehensive income, statements of changes in equity and statements of
cash flows for each of the three years in the period ended December 31, 2010, 2011, and 2012 and the six-month period ended June 30, 2013. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial
reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2010, 2011,
2012, and June 30, 2013, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, 2011 and 2012 and the
six-month period ended June 30, 2013, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.
/s/
Ernst & Young
Certified Public Accountants
Hong Kong
November 19,
2013
F-2
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
CONSOLIDATED INCOME STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended June 30, |
|
|
|
Notes |
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue |
|
|
4 |
|
|
38,668 |
|
|
105,211 |
|
|
141,939 |
|
|
55,156 |
|
|
54,716 |
|
Cost of sales |
|
|
5 |
|
|
(25,453 |
) |
|
(74,289 |
) |
|
(95,889 |
) |
|
(30,396 |
) |
|
(39,953 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
13,215 |
|
|
30,922 |
|
|
46,050 |
|
|
24,760 |
|
|
14,763 |
|
Selling and distribution expenses |
|
|
|
|
|
(2,918 |
) |
|
(2,930 |
) |
|
(3,694 |
) |
|
(1,412 |
) |
|
(2,728 |
) |
Administrative expense |
|
|
|
|
|
(55,822 |
) |
|
(49,432 |
) |
|
(77,334 |
) |
|
(33,975 |
) |
|
(57,423 |
) |
Impairment loss on property, plant and equipment |
|
|
16 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(184,417 |
) |
Other operating expenses |
|
|
|
|
|
(9,020 |
) |
|
(1,545 |
) |
|
(1,624 |
) |
|
(643 |
) |
|
(1,880 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING LOSS |
|
|
|
|
|
(54,545 |
) |
|
(22,985 |
) |
|
(36,602 |
) |
|
(11,270 |
) |
|
(231,685 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs |
|
|
6 |
|
|
(6,007 |
) |
|
(31,841 |
) |
|
(44,533 |
) |
|
(20,655 |
) |
|
(43,731 |
) |
Interest income |
|
|
8 |
|
|
115 |
|
|
564 |
|
|
1,048 |
|
|
814 |
|
|
977 |
|
Gain on bargain purchase of a subsidiary |
|
|
30 |
|
|
624,148 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Non-operating income/(expense), net |
|
|
7 |
|
|
(1,577 |
) |
|
(888 |
) |
|
(2,179 |
) |
|
(1,810 |
) |
|
1,215 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROFIT/(LOSS) BEFORE INCOME TAX |
|
|
8 |
|
|
562,134 |
|
|
(55,150 |
) |
|
(82,266 |
) |
|
(32,921 |
) |
|
(273,224 |
) |
Income tax (expense)/benefit |
|
|
12 |
|
|
(6,141 |
) |
|
(9,750 |
) |
|
15,210 |
|
|
(5,784 |
) |
|
50,468 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROFIT/(LOSS) FOR THE
YEAR/PERIOD |
|
|
|
|
|
555,993 |
|
|
(64,900 |
) |
|
(67,056 |
) |
|
(38,705 |
) |
|
(222,756 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner of the Company |
|
|
|
|
|
562,432 |
|
|
(64,165 |
) |
|
(75,312 |
) |
|
(40,861 |
) |
|
(221,947 |
) |
Non-controlling interests |
|
|
|
|
|
(6,439 |
) |
|
(735 |
) |
|
8,256 |
|
|
2,156 |
|
|
(809 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
555,993 |
|
|
(64,900 |
) |
|
(67,056 |
) |
|
(38,705 |
) |
|
(222,756 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS/(LOSSES) PER SHARE ATTRIBUTABLE TO OWNER OF THE COMPANY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
14 |
|
|
562,432 |
|
|
(64,165 |
) |
|
(75,312 |
) |
|
(40,861 |
) |
|
(221,947 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
14 |
|
|
562,432 |
|
|
(64,165 |
) |
|
(75,312 |
) |
|
(40,861 |
) |
|
(221,947 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-3
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
PROFIT/(LOSS) FOR THE YEAR/PERIOD |
|
|
555,993 |
|
|
(64,900 |
) |
|
(67,056 |
) |
|
(38,705 |
) |
|
(222,756 |
) |
Other comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Items to be reclassified to profit or loss in subsequent period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
360 |
|
|
425 |
|
|
82 |
|
|
(98 |
) |
|
155 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive income for the year/period, net of tax |
|
|
360 |
|
|
425 |
|
|
82 |
|
|
(98 |
) |
|
155 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
TOTAL COMPREHENSIVE INCOME/(LOSS) FOR THE YEAR/PERIOD, NET OF TAX |
|
|
556,353 |
|
|
(64,475 |
) |
|
(66,974 |
) |
|
(38,803 |
) |
|
(222,601 |
) |
Attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner of the Company |
|
|
562,792 |
|
|
(63,740 |
) |
|
(75,230 |
) |
|
(40,959 |
) |
|
(221,792 |
) |
Non-controlling interests |
|
|
(6,439 |
) |
|
(735 |
) |
|
8,256 |
|
|
2,156 |
|
|
(809 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
556,353 |
|
|
(64,475 |
) |
|
(66,974 |
) |
|
(38,803 |
) |
|
(222,601 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
F-4
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of
June 30, |
|
|
|
Notes |
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
16 |
|
|
1,789,275 |
|
|
2,030,611 |
|
|
2,327,641 |
|
|
2,287,056 |
|
Rehabilitation fund |
|
|
17 |
|
|
19,507 |
|
|
23,018 |
|
|
29,894 |
|
|
41,783 |
|
Prepayments, deposits and other receivables |
|
|
20 |
|
|
15,510 |
|
|
71,846 |
|
|
115,821 |
|
|
117,039 |
|
Deferred tax assets |
|
|
12 |
|
|
— |
|
|
— |
|
|
3,752 |
|
|
5,365 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NON-CURRENT ASSETS |
|
|
|
|
|
1,824,292 |
|
|
2,125,475 |
|
|
2,477,108 |
|
|
2,451,243 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
18 |
|
|
5,324 |
|
|
5,328 |
|
|
11,266 |
|
|
15,080 |
|
Trade and bills receivables |
|
|
19 |
|
|
5,577 |
|
|
30,356 |
|
|
48,967 |
|
|
46,298 |
|
Corporate income tax refundable |
|
|
|
|
|
— |
|
|
— |
|
|
3,901 |
|
|
6,436 |
|
Prepayments, deposits and other receivables |
|
|
20 |
|
|
19,839 |
|
|
28,759 |
|
|
33,554 |
|
|
37,226 |
|
Restricted bank deposits |
|
|
21 |
|
|
— |
|
|
21,000 |
|
|
7,082 |
|
|
— |
|
Term deposits with an original maturity over three months |
|
|
21 |
|
|
— |
|
|
20,000 |
|
|
20,000 |
|
|
— |
|
Cash and cash equivalents |
|
|
21 |
|
|
76,482 |
|
|
73,642 |
|
|
160,984 |
|
|
140,812 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS |
|
|
|
|
|
107,222 |
|
|
179,085 |
|
|
285,754 |
|
|
245,852 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
|
|
|
|
1,931,514 |
|
|
2,304,560 |
|
|
2,762,862 |
|
|
2,697,095 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and bills payables |
|
|
22 |
|
|
80,017 |
|
|
69,402 |
|
|
103,798 |
|
|
97,737 |
|
Other payables and accrued liabilities |
|
|
23 |
|
|
26,369 |
|
|
36,406 |
|
|
60,155 |
|
|
58,124 |
|
Interest-bearing bank and other borrowings |
|
|
24 |
|
|
100,000 |
|
|
225,000 |
|
|
443,900 |
|
|
861,900 |
|
Due to related companies |
|
|
32 |
|
|
314,235 |
|
|
451,380 |
|
|
672,401 |
|
|
140,633 |
|
Interest payable |
|
|
|
|
|
4,253 |
|
|
5,979 |
|
|
9,093 |
|
|
11,195 |
|
Income tax payable |
|
|
|
|
|
240 |
|
|
402 |
|
|
950 |
|
|
— |
|
Mining rights payables |
|
|
25 |
|
|
19,192 |
|
|
22,612 |
|
|
25,568 |
|
|
31,368 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES |
|
|
|
|
|
544,306 |
|
|
811,181 |
|
|
1,315,865 |
|
|
1,200,957 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
NET CURRENT LIABILITIES |
|
|
|
|
|
437,084 |
|
|
632,096 |
|
|
1,030,111 |
|
|
955,105 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS LESS CURRENT LIABILITIES |
|
|
|
|
|
1,387,208 |
|
|
1,493,379 |
|
|
1,446,997 |
|
|
1,496,138 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing bank and other borrowings |
|
|
24 |
|
|
318,742 |
|
|
510,886 |
|
|
569,630 |
|
|
897,449 |
|
Interest payable |
|
|
|
|
|
13,205 |
|
|
18,205 |
|
|
17,894 |
|
|
18,788 |
|
Deferred tax liabilities |
|
|
12 |
|
|
285,849 |
|
|
289,416 |
|
|
267,004 |
|
|
216,332 |
|
Mining rights payables |
|
|
25 |
|
|
132,966 |
|
|
103,378 |
|
|
77,810 |
|
|
66,150 |
|
Asset retirement obligations |
|
|
26 |
|
|
5,482 |
|
|
6,025 |
|
|
7,064 |
|
|
7,848 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL NON-CURRENT LIABILITIES |
|
|
|
|
|
756,244 |
|
|
927,910 |
|
|
939,402 |
|
|
1,206,567 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
|
|
|
|
1,300,550 |
|
|
1,739,091 |
|
|
2,255,267 |
|
|
2,407,524 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued capital |
|
|
27 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Reserves |
|
|
29 |
|
|
554,831 |
|
|
479,784 |
|
|
413,654 |
|
|
196,439 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
EQUITY ATTRIBUTABLE TO OWNER OF THE COMPANY |
|
|
|
|
|
554,831 |
|
|
479,784 |
|
|
413,654 |
|
|
196,439 |
|
NON-CONTROLLING INTERESTS |
|
|
|
|
|
76,133 |
|
|
85,685 |
|
|
93,941 |
|
|
93,132 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL EQUITY |
|
|
|
|
|
630,964 |
|
|
565,469 |
|
|
507,595 |
|
|
289,571 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
|
|
|
|
|
1,931,514 |
|
|
2,304,560 |
|
|
2,762,862 |
|
|
2,697,095 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
F-5
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to owner of the Company |
|
|
|
|
|
|
|
Issued
capital |
|
Safety fund
and
production
maintenance
fund* |
|
Special
reserve* |
|
Merger
reserve* |
|
Retained
earnings/
(accumulated
losses)* |
|
Exchange
fluctuation
reserve* |
|
Total |
|
Non-
controlling
interests |
|
Total |
|
|
|
RMB'000
|
|
RMB'000
Note 29 (a)
|
|
RMB'000
Note 29 (b)
|
|
RMB'000
Note 29 (c)
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
At January 1, 2010 |
|
|
— |
|
|
— |
|
|
1,864 |
|
|
71,000 |
|
|
(48,305 |
) |
|
— |
|
|
24,559 |
|
|
38,932 |
|
|
63,491 |
|
Profit/(loss) for the year |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
562,432 |
|
|
— |
|
|
562,432 |
|
|
(6,439 |
) |
|
555,993 |
|
Foreign currency translation adjustments |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
360 |
|
|
360 |
|
|
— |
|
|
360 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income/(loss) for the year |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
562,432 |
|
|
360 |
|
|
562,792 |
|
|
(6,439 |
) |
|
556,353 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed distribution to the owner of the Company (note 1.2(3)) |
|
|
— |
|
|
— |
|
|
— |
|
|
(70,000 |
) |
|
— |
|
|
— |
|
|
(70,000 |
) |
|
— |
|
|
(70,000 |
) |
Deemed contribution from the owner of the Company |
|
|
— |
|
|
— |
|
|
17,009 |
|
|
— |
|
|
— |
|
|
— |
|
|
17,009 |
|
|
— |
|
|
17,009 |
|
Acquisition of Guizhou Puxin (note 30) |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
64,111 |
|
|
64,111 |
|
Gain/(loss) from Guizhou Yongfu reorganisation |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
20,471 |
|
|
— |
|
|
20,471 |
|
|
(20,471 |
) |
|
— |
|
Appropriation and utilisation of safety fund and production maintenance fund, net |
|
|
— |
|
|
1,066 |
|
|
— |
|
|
— |
|
|
(1,066 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010 |
|
|
— |
|
|
1,066 |
|
|
18,873 |
|
|
1,000 |
|
|
533,532 |
|
|
360 |
|
|
554,831 |
|
|
76,133 |
|
|
630,964 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss for the year |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(64,165 |
) |
|
— |
|
|
(64,165 |
) |
|
(735 |
) |
|
(64,900 |
) |
Foreign currency translation adjustments |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
425 |
|
|
425 |
|
|
— |
|
|
425 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss)/income for the year |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(64,165 |
) |
|
425 |
|
|
(63,740 |
) |
|
(735 |
) |
|
(64,475 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution to the owner of the Company (note 1.2(4)) |
|
|
— |
|
|
— |
|
|
— |
|
|
(1,000 |
) |
|
(20 |
) |
|
— |
|
|
(1,020 |
) |
|
— |
|
|
(1,020 |
) |
(Loss)/gain from Yangpu Dashi and Guizhou Dayun reorganisation |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(10,287 |
) |
|
— |
|
|
(10,287 |
) |
|
10,287 |
|
|
— |
|
Appropriation and utilisation of safety fund and production maintenance fund, net |
|
|
— |
|
|
3,255 |
|
|
— |
|
|
— |
|
|
(3,255 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2011 |
|
|
— |
|
|
4,321 |
|
|
18,873 |
|
|
— |
|
|
455,805 |
|
|
785 |
|
|
479,784 |
|
|
85,685 |
|
|
565,469 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/profit for the year |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(75,312 |
) |
|
— |
|
|
(75,312 |
) |
|
8,256 |
|
|
(67,056 |
) |
Foreign currency translation adjustments |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
82 |
|
|
82 |
|
|
— |
|
|
82 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss)/income for the year |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(75,312 |
) |
|
82 |
|
|
(75,230 |
) |
|
8,256 |
|
|
(66,974 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed contribution from the owner of the Company (note 32(c)) |
|
|
— |
|
|
— |
|
|
9,100 |
|
|
— |
|
|
— |
|
|
— |
|
|
9,100 |
|
|
— |
|
|
9,100 |
|
Appropriation and utilisation of safety fund and production maintenance fund, net |
|
|
— |
|
|
4,127 |
|
|
— |
|
|
— |
|
|
(4,127 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2012 |
|
|
— |
|
|
8,448 |
|
|
27,973 |
|
|
— |
|
|
376,366 |
|
|
867 |
|
|
413,654 |
|
|
93,941 |
|
|
507,595 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-6
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to owner of the Company |
|
|
|
|
|
|
|
Issued capital |
|
Safety fund
and
production
maintenance
fund* |
|
Special
reserve* |
|
Merger
reserve* |
|
Retained
earnings/
(accumulated
losses)* |
|
Exchange
fluctuation
reserve* |
|
Total |
|
Non-
controlling
interests |
|
Total |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
|
|
|
|
Note 29 (a)
|
|
Note 29 (b)
|
|
Note 29 (c)
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2013 |
|
|
— |
|
|
8,448 |
|
|
27,973 |
|
|
— |
|
|
376,366 |
|
|
867 |
|
|
413,654 |
|
|
93,941 |
|
|
507,595 |
|
Profit/(loss) for the period |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(221,947 |
) |
|
— |
|
|
(221,947 |
) |
|
(809 |
) |
|
(222,756 |
) |
Foreign currency translation adjustments |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
155 |
|
|
155 |
|
|
— |
|
|
155 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income/(loss) for the period |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(221,947 |
) |
|
155 |
|
|
(221,792 |
) |
|
(809 |
) |
|
(222,601 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed contribution from the owner of the Company (note 32(c)) |
|
|
— |
|
|
— |
|
|
4,577 |
|
|
— |
|
|
— |
|
|
— |
|
|
4,577 |
|
|
— |
|
|
4,577 |
|
Appropriation and utilisation of safety fund and production maintenance fund, net |
|
|
— |
|
|
1,570 |
|
|
— |
|
|
— |
|
|
(1,570 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2013 |
|
|
— |
|
|
10,018 |
|
|
32,550 |
|
|
— |
|
|
152,849 |
|
|
1,022 |
|
|
196,439 |
|
|
93,132 |
|
|
289,571 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to owner of the Company |
|
|
|
|
|
|
|
Issued capital |
|
Safety fund and
production
maintenance
fund* |
|
Special
reserve* |
|
Merger
reserve* |
|
Retained
earnings/
(accumulated
losses)* |
|
Exchange
fluctuation
reserve* |
|
Total |
|
Non-
controlling
interests |
|
Total |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Note 29 (a)
|
|
Note 29 (b)
|
|
Note 29 (c)
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2012 |
|
|
— |
|
|
4,321 |
|
|
18,873 |
|
|
— |
|
|
455,805 |
|
|
785 |
|
|
479,784 |
|
|
85,685 |
|
|
565,469 |
|
(Loss)/profit for the period |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(40,861 |
) |
|
— |
|
|
(40,861 |
) |
|
2,156 |
|
|
(38,705 |
) |
Foreign currency translation adjustments |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(98 |
) |
|
(98 |
) |
|
— |
|
|
(98 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive (loss)/income for the period |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(40,861 |
) |
|
(98 |
) |
|
(40,959 |
) |
|
2,156 |
|
|
(38,803 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deemed contribution from the owner of the Company (note 32(c)) |
|
|
— |
|
|
— |
|
|
1,811 |
|
|
— |
|
|
— |
|
|
— |
|
|
1,811 |
|
|
— |
|
|
1,811 |
|
Appropriation and utilisation of safety fund and production maintenance fund, net |
|
|
— |
|
|
3,414 |
|
|
— |
|
|
— |
|
|
(3,414 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2012 |
|
|
— |
|
|
7,735 |
|
|
20,684 |
|
|
— |
|
|
411,530 |
|
|
687 |
|
|
440,636 |
|
|
87,841 |
|
|
528,477 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- *
- These reserve accounts comprise the consolidated reserves of RMB554.8 million, RMB479.8 million, RMB413.7 million,
RMB196.4 million and RMB440.6 million as of December 31, 2010, 2011, 2012, June 30, 2013 and June 30, 2012, respectively.
F-7
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended June 30, |
|
|
|
Notes |
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
(Unaudited)
|
|
RMB'000
|
|
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) before income tax |
|
|
|
|
|
562,134 |
|
|
(55,150 |
) |
|
(82,266 |
) |
|
(32,921 |
) |
|
(273,224 |
) |
Adjustments for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
8 |
|
|
(115 |
) |
|
(564 |
) |
|
(1,048 |
) |
|
(814 |
) |
|
(977 |
) |
Finance cost |
|
|
|
|
|
5,917 |
|
|
31,366 |
|
|
44,410 |
|
|
20,583 |
|
|
36,073 |
|
Depreciation and amortisation |
|
|
8 |
|
|
8,055 |
|
|
13,037 |
|
|
17,812 |
|
|
6,401 |
|
|
7,696 |
|
Equity-settled share option expense |
|
|
28 |
|
|
17,009 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Loss on disposal of items of property, plant and equipment |
|
|
8 |
|
|
139 |
|
|
250 |
|
|
194 |
|
|
463 |
|
|
— |
|
Impairment loss on property, plant and equipment |
|
|
16 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
184,417 |
|
Impairment of inventories |
|
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
984 |
|
Gain on bargain purchase of subsidiaries |
|
|
30 |
|
|
(624,148 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sub-total |
|
|
|
|
|
(31,009 |
) |
|
(11,061 |
) |
|
(20,898 |
) |
|
(6,288 |
) |
|
(45,031 |
) |
Increase in rehabilitation fund |
|
|
|
|
|
(14,538 |
) |
|
(3,511 |
) |
|
(6,876 |
) |
|
(7,340 |
) |
|
(11,889 |
) |
Increase/(decrease) in trade and bills receivables |
|
|
|
|
|
(2,073 |
) |
|
(23,242 |
) |
|
(15,409 |
) |
|
12,318 |
|
|
2,644 |
|
Increase in inventories |
|
|
|
|
|
(1,659 |
) |
|
(4 |
) |
|
(5,938 |
) |
|
(4,447 |
) |
|
(4,798 |
) |
Increase in prepayments, deposits and other receivables |
|
|
|
|
|
(15,062 |
) |
|
(8,920 |
) |
|
(8,696 |
) |
|
(4,796 |
) |
|
(3,672 |
) |
Increase/(decrease) in trade and bills payables |
|
|
|
|
|
3,423 |
|
|
2,996 |
|
|
20,294 |
|
|
3,466 |
|
|
(21,103 |
) |
Increase/(decrease) in other payables and accrued liabilities |
|
|
|
|
|
24,849 |
|
|
17,931 |
|
|
20,049 |
|
|
18,053 |
|
|
(2,553 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash from/(used in) operations |
|
|
|
|
|
(36,069 |
) |
|
(25,811 |
) |
|
(17,474 |
) |
|
10,966 |
|
|
(86,402 |
) |
Interest received |
|
|
|
|
|
115 |
|
|
564 |
|
|
1,048 |
|
|
814 |
|
|
977 |
|
Interest paid |
|
|
|
|
|
(1,637 |
) |
|
(31,294 |
) |
|
(43,816 |
) |
|
(19,026 |
) |
|
(33,782 |
) |
Income tax paid |
|
|
|
|
|
(2,133 |
) |
|
(6,021 |
) |
|
(10,406 |
) |
|
(4,306 |
) |
|
(5,302 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in operating activities |
|
|
|
|
|
(39,724 |
) |
|
(62,562 |
) |
|
(70,648 |
) |
|
(11,552 |
) |
|
(124,509 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayment for purchase of land use rights |
|
|
|
|
|
(3,566 |
) |
|
(14,812 |
) |
|
(12,508 |
) |
|
(4,811 |
) |
|
(10,859 |
) |
Purchase of items of property, plant and equipment |
|
|
|
|
|
(216,165 |
) |
|
(326,655 |
) |
|
(347,672 |
) |
|
(198,092 |
) |
|
(128,454 |
) |
Net proceeds from disposal of items of property, plant and equipment |
|
|
|
|
|
1,194 |
|
|
— |
|
|
888 |
|
|
71 |
|
|
— |
|
Net cash paid for acquisition of subsidiaries |
|
|
30 |
|
|
2,558 |
|
|
(140,100 |
) |
|
— |
|
|
— |
|
|
— |
|
Advances to related companies |
|
|
|
|
|
(127,196 |
) |
|
(21,180 |
) |
|
(29,000 |
) |
|
|
|
|
|
|
Repayments from related companies |
|
|
|
|
|
103,970 |
|
|
58,078 |
|
|
3,140 |
|
|
— |
|
|
— |
|
Term deposits with an original maturity over three months |
|
|
21 |
|
|
— |
|
|
(20,000 |
) |
|
— |
|
|
20,000 |
|
|
20,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows used in investing activities |
|
|
|
|
|
(239,205 |
) |
|
(464,669 |
) |
|
(385,152 |
) |
|
(182,832 |
) |
|
(119,313 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-8
Table of Contents
$_$_CHANGE_INDENT,0
FEISHANG ANTHRACITE RESOURCES LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended June 30, |
|
|
|
Notes |
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
(Unaudited)
|
|
RMB'000
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from interest-bearing bank and other borrowings |
|
|
|
|
|
318,742 |
|
|
360,000 |
|
|
501,258 |
|
|
330,000 |
|
|
918,600 |
|
Repayments of interest-bearing bank and other borrowings |
|
|
|
|
|
— |
|
|
(100,000 |
) |
|
(228,100 |
) |
|
(125,000 |
) |
|
(175,000 |
) |
Increase/(decrease) of restricted bank deposits |
|
|
21 |
|
|
— |
|
|
(21,000 |
) |
|
13,918 |
|
|
(11,566 |
) |
|
7,082 |
|
Advances from related companies |
|
|
|
|
|
458,322 |
|
|
433,940 |
|
|
456,226 |
|
|
241,875 |
|
|
1,664,486 |
|
Repayments to related companies |
|
|
|
|
|
(211,656 |
) |
|
(134,198 |
) |
|
(200,492 |
) |
|
(82,786 |
) |
|
(2,191,771 |
) |
Repayments to unrelated third parties |
|
|
* |
|
|
(261,673 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Prepayment of deferred bank loan interest |
|
|
|
|
|
— |
|
|
(14,370 |
) |
|
— |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash flows from financing activities |
|
|
|
|
|
303,735 |
|
|
524,372 |
|
|
542,810 |
|
|
352,523 |
|
|
223,397 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS |
|
|
|
|
|
24,806 |
|
|
(2,859 |
) |
|
87,010 |
|
|
158,139 |
|
|
(20,425 |
) |
NET FOREIGN EXCHANGE DIFFERENCE |
|
|
|
|
|
358 |
|
|
19 |
|
|
332 |
|
|
3 |
|
|
253 |
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR/PERIOD |
|
|
|
|
|
51,318 |
|
|
76,482 |
|
|
73,642 |
|
|
73,642 |
|
|
160,984 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD |
|
|
21 |
|
|
76,482 |
|
|
73,642 |
|
|
160,984 |
|
|
231,784 |
|
|
140,812 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary disclosures of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash paid for interest (including capitalised interest of RMB16.2 million, RMB22.9 million and RMB42.8 million, RMB20.8 million
and RMB19.4 million for the years ended December 31, 2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, respectively) |
|
|
|
|
|
17,861 |
|
|
54,162 |
|
|
86,579 |
|
|
39,810 |
|
|
53,173 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- *
- Included
in the amount there is RMB162.4 million outstanding cash consideration paid in 2010 for the acquisition of Linjiaao Coal, Xinsong Coal, Dayuan
Coal, Baiping Mining and Gouchang Coal by Guizhou Puxin, this was classified as "other current liabilities" under note 30, business combination.
F-9
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL INFORMATION
1.1 CORPORATE INFORMATION
The Company is a limited liability company incorporated in the British Virgin Islands ("BVI") on January 6, 2010. The registered office of the Company is
P.O. Box 173, Kingston Chambers, Road Town, Tortola, British Virgin Islands.
China
Natural Resources, Inc. ("CHNR") is a BVI holding company incorporated in 1993 with its shares listed on the NASDAQ Capital Market in the United States. The Company
is a wholly-owned subsidiary of CHNR.
CHNR's
principal shareholder is Feishang Group Limited ("Feishang" or "controlling shareholder"), a company incorporated in the British Virgin Islands. Mr. Li Feilie, the director
and beneficial owner of Feishang, is the Chairman and Chief Executive Officer of the Company.
Mr. Li
Feilie, together with Feishang, directly or indirectly holds an effective equity interest in CHNR ranging from 59.33% to 65.05% in aggregate for the years ended
December 31, 2010, 2011, 2012 and the six months ended June 30, 2013. In the opinion of the Directors of the Company, the ultimate holding company is Laitan Investments Limited, a
company incorporated in the British Virgin Islands.
The
Company is an investment holding company. During the years ended December 31, 2010, 2011, 2012 and the six months ended June 30, 2013, the Company's subsidiaries
(hereinafter referred to as the "Group") were involved in acquisition, construction and development of anthracite coal mines and extraction and sale of anthracite coal.
Before
the Reorganisation and formation of the Group, the business was carried out by the subsidiaries now comprising the Group as set out in note 1.3, all of which were
collectively controlled by the controlling shareholder.
1.2 SIGNIFICANT EVENTS
- (1)
- Formation of the Company
In
January 2010, the Company was established as a direct wholly-owned subsidiary of Feishang which transferred its equity interest in the Company to CHNR in April 2010.
- (2)
- Acquisition of Guizhou Puxin Energy Co., Ltd. ("Guizhou Puxin") and its five subsidiaries (the "Acquisition")
(note 30)
In
March 2010, Guizhou Fuyuantong Energy Co., Ltd. ("Guizhou Fuyuantong"), an indirect wholly-owned PRC subsidiary of Feishang, acquired all the issued and
outstanding capital stock of Guizhou Puxin and its five subsidiaries, including Guizhou Nayong Dayuan Coal Mining Co., Ltd. ("Dayuan Coal"), Jinsha Baiping
Mining Co., Ltd. ("Baiping Mining"), Liuzhi Linjiaao Coal Mining Co., Ltd. ("Linjiaao Coal"), Liuzhi Xinsong Coal Mining Co., Ltd. ("Xinsong Coal") and Nayong
Gouchang Coal Mining Co., Ltd. ("Gouchang Coal") from unrelated third parties. In the consolidated financial statements, Guizhou Fuyuantong was identified as the accounting acquirer and
Guizhou Puxin and its five subsidiaries, including Dayuan Coal, Baiping Mining, Linjiaao Coal, Xinsong Coal and Gouchang Coal, were identified as the accounting acquirees. Note 30 sets out the
fair values of the assets and liabilities of Guizhou Puxin and its five subsidiaries as of the date of Acquisition.
F-10
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In
April 2010, the Company acquired all the issued and outstanding capital stock of Guizhou Fuyuantong through its indirect subsidiary, Hong Kong Smartact Limited, from Feishang
at a cash consideration of RMB10.0 million. The consideration was fully paid in 2010.
- (3)
- Reorganisation of Guizhou Yongfu Mining Co., Limited ("Guizhou Yongfu")
In
July 2008, Feishang Yongfu Mining Limited ("Feishang Yongfu"), a Hong Kong company 100% controlled by Feishang, acquired a 70% equity interest in Guizhou Yongfu through its
direct subsidiary, Yangpu Shuanghu Industrial Development Co., Limited ("Yangpu Shuanghu"), from third party shareholders. In August 2008, Newhold Investments Limited ("Newhold"), a BVI
holding company which was a wholly-owned subsidiary of Feishang, acquired all of the equity interest in Feishang Yongfu.
In
January 2009, CHNR acquired all the issued and outstanding capital stock of Newhold and its subsidiaries, among which Guizhou Yongfu was an indirect 70%-owned subsidiary, from
Feishang and assumed the outstanding indebtedness owed by Newhold to Feishang on the closing date.
In
September 2010, the Company, through its indirect subsidiary Guizhou Puxin, acquired all of the CHNR's indirect 70% equity interest in Guizhou Yongfu at a cash consideration of
RMB70.0 million ("Guizhou Yongfu Reorganisation"). The consideration was fully paid in 2010.
- (4)
- Reorganisation of Hainan Yangpu Dashi Industrial Co., Limited ("Yangpu Dashi") and Guizhou Dayun
Mining Co., Ltd. ("Guizhou Dayun")
In
June 2008, Feishang Dayun Coal Mining Limited ("Feishang Dayun"), a Hong Kong company 100% controlled by Feishang, acquired 100% equity interest in Guizhou Dayun through its
wholly-owned subsidiary, Yangpu Dashi, from third party shareholders. In July 2008, Pineboom Investments Limited ("Pineboom"), a BVI holding company which was a wholly-owned subsidiary of
Feishang, acquired all of the equity interest in Feishang Dayun.
In
July 2009, CHNR acquired all the issued and outstanding capital stock of Pineboom and its subsidiaries, among which Yangpu Dashi and Guizhou Dayun were indirect wholly-owned
subsidiaries, from Feishang and assumed the outstanding indebtedness owed by Pineboom to Feishang on the closing date.
In
July 2011, the Company, through its indirect subsidiary Guizhou Puxin, acquired all of Pineboom's indirect 100% interest in Yangpu Dashi and Guizhou Dayun to Guizhou Puxin at a
cash consideration of RMB1.02 million ("Guizhou Dayun Reorganisation") which was fully paid in 2011.
As
a result of the aforementioned Acquisition and reorganisations, the Company became the holding company of the subsidiaries now comprising the Group.
F-11
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1.3 PARTICULARS OF PRINCIPAL SUBSIDIARIES
As at the date of this report, the Company had direct and indirect interests in its subsidiaries, all of which are private limited liability companies or have
substantially similar characteristics to a private company incorporated or registered in Hong Kong and Mainland China, the particulars of which are set out below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nominal value
of issued
ordinary/
registered
share capital
RMB'000 |
|
|
|
|
|
|
|
|
|
|
Percentage of equity attributable to the Company |
|
|
|
|
Place and date of
incorporation/
registration and
operations |
|
|
Name
|
|
Direct % |
|
Indirect % |
|
Principal activities |
Bijie Feishang Energy Co., Ltd. (
) |
|
Mainland China October 19, 2010 |
|
|
10,000 |
|
|
— |
|
|
100 |
|
Investment holding |
Guizhou Dayun Mining Co., Ltd. (
) |
|
Mainland China April 14, 2004 |
|
|
150,000 |
|
|
— |
|
|
100 |
|
Coal development and mining |
Guizhou Fuyuantong Energy Co., Ltd. (
) |
|
Mainland China March 10, 2010 |
|
|
10,000 |
|
|
— |
|
|
100 |
|
Investment holding |
Guizhou Nayong Dayuan Coal Mining Co., Ltd. (
) |
|
Mainland China January 22, 2009 |
|
|
46,000 |
|
|
— |
|
|
99 |
|
Coal development and mining |
Guizhou Puxin Energy Co., Ltd. (
) |
|
Mainland China January 15, 2009 |
|
|
150,000 |
|
|
— |
|
|
100 |
|
Investment holding and coal trading |
Guizhou Yongfu Mining Co., Limited (
) |
|
Mainland China June 27, 2005 |
|
|
100,000 |
|
|
— |
|
|
70 |
|
Coal development and mining |
Hong Kong Smartact Limited (
) |
|
Hong Kong January 25, 2010 |
|
|
— |
|
|
100 |
|
|
— |
|
Investment holding |
Hainan Yangpu Dashi Industrial Co., Limited (
) |
|
Mainland China April 13, 2004 |
|
|
1,000 |
|
|
— |
|
|
100 |
|
Investment holding |
Jinsha Baiping Mining Co., Ltd. (
) |
|
Mainland China January 15, 2009 |
|
|
58,000 |
|
|
— |
|
|
70 |
|
Coal development and mining |
Jinsha Juli Energy Co., Ltd. (
) |
|
Mainland China November 16, 2012 |
|
|
30,000 |
|
|
— |
|
|
100 |
|
Preparatory work for the construction of coal beneficiation plant in Jinsha county |
Liuzhi Linjiaao Coal Mining Co., Ltd. (
) |
|
Mainland China November 19, 2008 |
|
|
30,600 |
|
|
— |
|
|
99 |
|
Coal development and mining |
Liuzhi Xinsong Coal Mining Co., Ltd. (
) |
|
Mainland China November 13, 2008 |
|
|
60,000 |
|
|
— |
|
|
99 |
|
Coal development and mining |
Nayong Gouchang Coal Mining Co., Ltd. (
) |
|
Mainland China September 10, 2009 |
|
|
40,000 |
|
|
— |
|
|
99 |
|
Coal development and mining |
Shenzhen Chixin Information and Consulting Co., Ltd. (
) |
|
Mainland China July 18, 2012 |
|
|
1,000 |
|
|
— |
|
|
100 |
|
Provision of management and consulting services to other companies in the Group |
- *
- The
English names of certain companies above represent the best efforts by the management of the Company in directly translating the Chinese names of these
companies as no English names have been registered.
F-12
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2.1 BASIS OF PRESENTATION
The Company was part of a series of reorganisations and became the holding companies now comprising the Group since July 12, 2011.
The
consolidated income statements, statements of comprehensive income, statements of changes in equity and statements of cash flows of the Group for the years ended December 31,
2010, 2011 and 2012 and the six months ended June 30, 2012 and 2013 include the results and cash flows of all companies now comprising the Group, as if the Group structure had been in existence
throughout each of the years ended December 31, 2010, 2011 and 2012 and the six months ended June 30, 2012 and 2013, since the earliest date presented or since the respective dates of
incorporation/establishment of the combining companies, or since the date when the subsidiaries and/or businesses first came under the common control of the controlling shareholder, whichever is a
shorter period. The consolidated statements of financial position of the Group as at December 31, 2010, 2011, 2012 and June 30, 2013 have been prepared to present the assets and
liabilities of the subsidiaries and/or businesses comprising the Group at these dates, as if the Group structure had been in existence as at these dates. The net assets and results of the relevant
companies of the Group were consolidated using the existing book values from the controlling shareholder's perspective. No adjustments are made to reflect fair values, or recognise any new assets or
liabilities as a result of the reorganisations.
Equity
interests in subsidiaries and held by parties other than the controlling shareholder prior to the reorganisations, if significant, are presented as non-controlling interests in
equity in applying the principles of merger accounting.
All
intra-group transactions and balances have been eliminated on consolidation.
COMPARATIVE INFORMATION
Certain items in the consolidated financial statements have been reclassified to conform to the current year's presentation to
facilitate comparison.
2.2 BASIS OF PREPARATION
The consolidated financial statements have been prepared in accordance with IFRSs as issued by the IASB. All IFRSs effective for the annual period commencing from
January 1, 2013, together with the relevant transitional provisions, have been early adopted by the Group in the preparation of the consolidated financial statements throughout the years ended
December 31, 2010, 2011, 2012 and the six months ended June 30, 2013 as well as the six months ended June 30, 2012.
The
consolidated financial statements have been prepared on a historical cost basis. The consolidated financial statements are presented in Renminbi ("RMB").
Going concern
As of June 30, 2013, the Group had a working capital deficiency of RMB955.1 million and the Group has undrawn loan
facilities totalling RMB260.0 million to finance its future operations. Subsequent to the six months ended June 30, 2013, the Group has secured additional loan facilities as at
October 31, 2013 totalling RMB431.0 million and obtained confirmation letters from the banks to provide loan facilities totaling RMB1,950.0 million pursuant to certain conditions
(note 37). The Group's forecasts and projections, after taking account of reasonably possible changes in trading performance, operating as well as capital expenditure, and of the available bank
facilities, support that the Group's ability to continue to operate within the level of its current capacity.
In
view of the above, in the opinion of the Directors, the Group expects it will have sufficient liquidity to finance its operations for the next twelve months. Therefore, the
consolidated financial statements have been prepared on a going concern basis. The going concern basis assumes that the Group will continue in operation for the foreseeable future and will be able to
realise its assets and discharge its liabilities and commitments in the normal course of business.
F-13
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2.3 ISSUED BUT NOT YET EFFECTIVE INTERNATIONAL FINANCIAL REPORTING STANDARDS
The Group has not applied the following new and revised IFRSs, that have been issued but are not yet effective, in these financial statements:
|
|
|
IFRS 9 |
|
Financial Instruments(2) |
IFRS 10, IFRS 12 and IAS 27 (2011) Amendments |
|
Amendments to IFRS 10, IFRS 12 and IAS 27 — Investment Entities(1) |
IAS 32 Amendments |
|
Amendments to IAS 32 Financial Instruments: Presentation — Offsetting Financial Assets and Financial Liabilities(1) |
IAS 36 Amendments |
|
Amendments to IAS 36 Impairment: Recoverable Amount Disclosures for Non-Financial Assets(1) |
IAS 39 Amendments |
|
Amendments to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting(1) |
IFRIC 21 |
|
Levies(1) |
- (1)
- Effective
for annual periods beginning on or after January 1, 2014
- (2)
- Effective
for annual periods beginning on or after January 1, 2015
Further
information about those changes that are expected to significantly affect the Group is as follows:
IFRS 9
issued in November 2009 is the first part of phase 1 of a comprehensive project to entirely replace IAS 39 Financial
Instruments: Recognition and Measurement. This phase focuses on the
classification and measurement of financial assets. Instead of classifying financial assets into four categories, an entity shall classify financial assets as subsequently measured at either amortised
cost or fair value, on the basis of both the entity's business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. This aims to improve and
simplify the approach for the classification and measurement of financial assets compared with the requirements of IAS 39.
In
October 2010, the IASB issued additions to IFRS 9 to address financial liabilities (the "Additions") and incorporated in IFRS 9 the current derecognition
principles of financial instruments of IAS 39. Most of the Additions were carried forward unchanged from IAS 39, while changes were made to the measurement of financial liabilities
designated as at fair value through profit or loss using the fair value option ("FVO"). For these FVO liabilities, the amount of change in the fair value of a liability that is attributable to changes
in credit risk must be presented in other comprehensive income ("OCI"). The remainder of the change in fair value is presented in the income statement, unless presentation of the fair value change in
respect of the liability's credit risk in OCI would create or enlarge an accounting mismatch in the income statement. However, loan commitments and financial guarantee contracts which have been
designated under the FVO are scoped out of the Additions.
F-14
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
IAS 39
is aimed to be replaced by IFRS 9 in its entirety. Before this entire replacement, the guidance in IAS 39 on hedge accounting and impairment of financial
assets continues to apply. The Group expects to adopt IFRS 9 from January 1, 2015. The Group will quantify the effect in conjunction with other phases, when the final standard including
all phases is issued.
The
IAS 32 Amendments clarify the meaning of "currently has a legally enforceable right to set off" for offsetting financial assets and financial liabilities. The amendments also
clarify the application of the offsetting criteria in IAS 32 to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous.
The amendments are not expected to have any impact on the financial position or performance of the Group upon adoption on January 1, 2014.
The
narrow-scope amendments to IAS 36 Impairment of Assets address the disclosure of information about the recoverable amount of
impaired assets if that amount is based on fair value less costs of disposal. When developing IFRS 13 Fair Value Measurement, the IASB decided to
amend IAS 36 to require disclosures about the recoverable amount of impaired assets. The Group expects to adopt the amendments from January 1, 2014.
The
narrow-scope amendments to IAS 39 will allow hedge accounting to continue in a situation where a derivative, which has been designated as a hedging instrument, is novated to
effect clearing with a central counterparty as a result of laws or regulation, if specific conditions are met (in this context, a novation indicates that parties to a contract agree to replace
their original counterparty with a new one). The amendments are not expected to have any impact on the financial position or performance of the Group upon adoption on January 1, 2014.
IFRIC
Interpretation 21 clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. It
also clarifies that a levy liability is accrued progressively only if the activity that triggers payment occurs over a period of time, in accordance with the relevant legislation. For a levy that is
triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be recognised before the specified minimum threshold is reached. The Group expects to adopt the
amendments from January 1, 2014.
The
Group has already commenced an assessment of the related impact of the above revised standards, amendments and interpretations on the Group's financial statements and is not
expecting any significant impact on the Group's financial position and results.
2.4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- (a)
- Subsidiaries
Subsidiaries
are all those entities over which the Group has power over the investee such that the Group is able to direct the relevant activities, has exposure or rights to variable
returns from its involvement with the investee and has the ability to use its power over the investee to affect the amount of the investee's returns.
- (b)
- Business combinations
The
consolidated financial statements incorporate the financial statements of the Company and its subsidiaries for the years ended December 31, 2010, 2011, 2012, and the six
months ended June 30, 2013. As explained in note 2.1 above, the acquisition of subsidiaries and business under common control,
where applicable, has been accounted for using merger accounting. The financial statements of the combining entities or businesses under common control are prepared for the same reporting period as
the Company, using consistent accounting policies.
F-15
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The
merger method of accounting involves incorporating the financial statement items of the combining entities or businesses in which the common control combinations occurs as if they
had been combined from the date when the combining entities or businesses first came under the control of the controlling shareholder. The net assets of the combining entities or businesses are
combined using the existing book values from the controlling shareholder's perspective. No amount is recognised in respect of goodwill or the excess of the acquirers' interest in the net fair value of
acquirees' identifiable assets, liabilities and contingent liabilities over the cost of investment at the time of common control combination.
The
consolidated income statement include the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities or
businesses first came under common control or since their respective dates of incorporation/establishment, where this is a shorter period, regardless of the date of the common control combination. All
intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated on consolidation.
Business
combinations, other than business combinations under common control, are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of
the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether it
measures the non-controlling interests in the acquiree that are present ownership interests and entitle their holders to a proportionate share of net assets in the event of liquidation either at fair
value or at the proportionate share of the acquiree's identifiable net assets. All other components of non-controlling interests are measured at fair value. Acquisition costs incurred are expensed and
included in administrative expenses.
When
the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms,
economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.
If
the business combination is achieved in stages, the acquisition date fair value of the acquirer's previously held equity interest in the acquiree is remeasured to fair value at the
acquisition date through the income statement.
Any
contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent
consideration that is deemed to be an asset or liability will be recognised in accordance with IAS 39 either in the income statement or as a change to other comprehensive income. If the
contingent consideration is classified as equity, it will not be remeasured. Subsequent settlement is accounted for within equity. In instances where the contingent consideration does not fall within
the scope of IAS 39, it is measured in accordance with the appropriate IFRS.
Goodwill
is initially measured at cost, being the excess of the aggregate of the consideration transferred, the amount recognised for non-controlling interests and any fair value of the
Group's previously held equity interests in the acquiree over the identifiable net assets acquired and liabilities assumed. If the sum of this consideration and other items is lower than the fair
value of the net assets of the subsidiary acquired, the difference is, after reassessment, recognised in the income statement as a gain on bargain purchase.
F-16
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- (c)
- Related parties
A
party is considered to be related to the Group if:
- (1)
- the
party is a person or a close member of that person's family and that person
- (i)
- has
control or joint control over the Group;
- (ii)
- has
significant influence over the Group; or
- (iii)
- is
a member of the key management personnel of the Group or of a parent of the Group;
or
- (2)
- the
party is an entity where any of the following conditions applies:
- (i)
- the
entity and the Group are members of the same group;
- (ii)
- one
entity is an associate or joint venture of the other entity (or of a parent, subsidiary or fellow subsidiary of the other entity);
- (iii)
- the
entity and the Group are joint ventures of the same third party;
- (iv)
- one
entity is a joint venture of a third entity and the other entity is an associate of the third entity;
- (v)
- the
entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the Group;
- (vi)
- the
entity is controlled or jointly controlled by a person identified in (1); and
- (vii)
- a
person identified in (1)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a
parent of the entity).
- (d)
- Property, plant and equipment
Property,
plant and equipment comprise buildings, mining structures, mining rights, machinery and equipment, motor vehicles, exploration rights and construction in progress.
Exploration
rights are capitalised and amortised over the term of the license granted to the Company by the authorities.
When
proved and probable coal reserves have been determined, costs incurred to develop coal mines are capitalised as part of the cost of the mining structures.
Buildings,
mining structures, machinery and equipment, and motor vehicles are stated at cost less accumulated depreciation and any impairment losses. Expenditures for routine repairs and
maintenance are expensed as incurred.
Mining
rights are stated at cost less accumulated amortisation and any impairment losses. The costs of mining rights are initially capitalised when purchased. If proved and probable
reserves are established for a property and it has been determined that a mineral property can be economically developed, costs are capitalised and are amortised upon production based on actual units
of production over the estimated proved and probable reserves of the mines. For mining rights in which proved and probable reserves have not yet been established, the Group assesses the carrying value
for impairment at the end of each reporting period. The Group's rights to extract minerals are contractually limited by time. However, the Group believes that it will be able to extend licenses.
F-17
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Mining
related buildings, mining structures and mining related machinery and equipment are stated at cost less accumulated depreciation and any impairment losses. Those mining related
assets for which proved and probable reserves have been established are depreciated upon production based on actual units of production over the estimated proved and probable reserves of
the mines.
Reserve
estimates are reviewed when information becomes available that indicates a reserve change is needed, or at a minimum once a year. Any material effect from changes in estimates is
considered in the period the change occurs.
Depreciation
for the following items is calculated on the straight-line basis over each asset's estimated useful life down to the estimated residual value of each asset. Estimated useful
lives are as follows:
|
|
|
|
| |
Non-mining related buildings |
|
15 - 35 years |
| |
Non-mining related machinery and equipment |
|
5 - 15 years |
| |
Motor vehicles |
|
5 - 8 years |
Residual
values, useful lives and the depreciation method are reviewed and, adjusted if appropriate, at each reporting date.
When
properties are retired or otherwise disposed, the related cost and accumulated depreciation are removed from the respective accounts and any profit or loss on disposition is
recognised in the income statement.
Construction
in progress is carried at cost and is to be depreciated when placed into service over the estimated useful lives or units of production of those assets. Construction costs
are capitalised as incurred. Interest is capitalised as incurred during the construction period.
- (e)
- Exploration and evaluation costs
Exploration
and evaluation assets include topographical and geological surveys, exploratory drilling, sampling and trenching and activities in relation to commercial and technical
feasibility studies, and expenditure incurred to secure further mineralisation in existing coal bodies and to expand the capacity of a mine. Expenditure incurred prior to acquiring legal rights to
explore an area is expensed as incurred.
Once
the exploration right to explore has been acquired, exploration and evaluation expenditure is charged to the income statement as incurred, unless a future economic benefit is more
likely than not to be realised. Exploration and evaluation assets acquired in a business combination are initially recognised at fair value. They are subsequently stated at cost less accumulated
impairment.
When
it can be reasonably ascertained that a mining property is capable of commercial production, exploration and evaluation costs are transferred to tangible or intangible assets
according to the nature of the exploration and evaluation assets. If any project is abandoned during the evaluation stage, the total expenditure thereon will be written off.
F-18
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- (f)
- Impairment of non-financial assets
Where
an indication of impairment exists, or when annual impairment testing for an asset is required (other than inventories, financial assets, etc.), the asset's recoverable amount
is estimated.
An
impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in
use, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the
recoverable amount is determined for the cash-generating unit to which the asset belongs. The fair value less costs to sell calculation is based on available data from binding sales transactions in
arm's length transactions of similar assets or observable market prices less incremental costs for disposing of the asset or other appropriate valuation technique. The value in use calculation is
based on a discounted cash flow model, using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to
the income statement in the period in which it arises in those categories consistent with the function of the impaired asset.
An
assessment is made at the end of each reporting period as to whether there is an indication that previously recognised impairment losses may no longer exist or may have decreased. If
such an indication exists, the recoverable amount is estimated. A previously recognised impairment loss of an asset other than goodwill is reversed on if there has been a change in the estimates used
to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortisation) had no impairment
loss been recognised for the asset in prior years. A reversal of such an impairment loss is credited to the income statement in the period in which it arises (only if there are revalued assets in the
financial statement), unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is accounted for in accordance with the relevant accounting policy for that
revalued asset.
- (g)
- Financial assets
As
of December 31, 2010, 2011, 2012 and June 30, 2013, the Group's financial assets within the scope of IAS 39 are all classified as loans and receivables. The Group
determines the classification of its financial assets at initial recognition. All financial assets are recognised initially at fair value plus transaction costs.
All
regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or
sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace.
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.
They are included in current assets, except for maturities greater than 12 months after the reporting date, which are classified as non-current assets. Loans and receivables are included in
"trade and bills receivables", "prepayments, deposits and other receivables", "term deposits with an original maturity over three months", "restricted bank deposits", "cash and cash equivalents",
"rehabilitation fund" and "due from related companies" in the consolidated statements of financial position. These assets are subsequently carried at amortised cost using the effective interest method
("EIR") less any provision for impairment. Gains and losses are recognised in the interest income or finance costs in the consolidated income statement when the loans and receivables are derecognised
as well as through the amortisation process.
F-19
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 2010, 2011, 2012 and June 30, 2013, the carrying amounts of rehabilitation fund are not materially
different from their fair values. The carrying values of other financial assets approximated their fair values due to the short-term maturity of these instruments.
The Group assesses at each reporting date whether there is any objective evidence that the loans and receivables are impaired. The
Group first assesses individually whether objective evidence of impairment exists for loans and receivables that are individually significant, or collectively for loans and receivables that are not
individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed loans and receivables, whether significant or not, it includes the asset
in a group of loans and receivables with similar credit risk characteristics and collectively assesses them for impairment. Loans and receivables that are individually assessed for impairment and for
which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.
If
there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, the amount of the loss is measured as the difference between
the asset's carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective
interest rate (the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount
of the impairment loss is recognised in the income statement in finance costs for loans and in other operating expenses for receivables.
If,
in a subsequent year, the amount of the estimated impairment loss increases or decreases and the decrease can be related objectively to an event occurring after the impairment was
recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. Any subsequent reversal of an impairment loss is recognised in the consolidated income
statement, to the extent that the carrying value of the asset does not exceed amortised cost at the reversal date.
In
relation to trade and other receivables, a provision for impairment is made when there is objective evidence (such as the probability of insolvency or significant financial
difficulties of the debtor and significant changes in the technological, market, economic or legal environment that have an adverse effect on the debtor) that the Group will not be able to collect all
of the amounts due under the original terms of an invoice.
For financial assets classified as loans and receivables, the financial asset (or, where applicable a part of a financial asset or part
of a group of similar financial assets) is derecognised where:
- (i)
- the
rights to receive cash flows from the asset have expired;
- (ii)
- the
Group retains the rights to receive cash flows from the asset, but has assumed an obligation to pay the received cash flows in full without material
delay to a third party under a "pass-through" arrangement; or
F-20
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- (iii)
- the
Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of
the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When
the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks
and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the asset is recognised to the
extent of the Group's continuing involvement in the asset. In that case, the Group also recognises an associated liability. The transferred asset and the associated liability are measured on a basis
that reflects the rights and obligations that the Group has retained.
Continuing
involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of
consideration that the Group could be required to repay.
- (h)
- Financial liabilities at amortised cost
Financial
liabilities including trade and bills payables, amounts due to related companies, other payables and certain accrued liabilities, interest-bearing loans, mining rights payable
and interest payable are initially stated at fair value less directly attributable transaction costs and are subsequently measured at amortised cost, using the EIR. The related interest expense is
recognised within "finance costs" in the consolidated income statement.
Gains
and losses are recognised in the consolidated income statement when the liabilities are derecognised as well as through the amortisation process.
As of December 31, 2010, 2011, 2012 and June 30, 2013, the carrying values of these financial liabilities other than
long-term interest-bearing loans and mining rights payable, approximated their fair values due to the short-term maturity of these instruments. The carrying values of long-term interest bearing-loans
and mining rights payable approximated their fair values as the interest rates on almost all the balances are reset each year based on prevailing interest rates stipulated by the People's Bank
of China.
The
Group had no financial liabilities measured at fair value on a recurring or a non-recurring basis as of December 31, 2010, 2011, 2012 and June 30, 2013.
A financial liability is derecognised when the obligation under the liability is discharged, cancelled, or expires.
When
an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such
an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognised in
the consolidated income statement.
F-21
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Financial assets and liabilities are offset and the net amount reported in the consolidated statements of financial position, if and
only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities
simultaneously.
- (i)
- Financial guarantee contracts
Financial
guarantee contracts issued by the Group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to
make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognised initially as a liability at fair value, adjusted for transaction costs that are
directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the
reporting date and the amount recognised less cumulative amortisation.
- (j)
- Inventories
Inventories
are stated at the lower of cost and net realisable value. Cost is determined by the weighted-average method. Net realisable value is based on estimated selling prices less
any estimated costs to be incurred to completion and disposal. Major types of inventories include:
- •
- Spare parts and consumables
- •
- Coal
- (k)
- Cash and cash equivalents
For
the purpose of the consolidated statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short term highly liquid investments that are
readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts
which are repayable on demand and form an integral part of the Group's cash management.
For
the purpose of the statement of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits, and assets similar in nature to cash, which
are not restricted as to use.
- (l)
- Employee benefits
The Group contributes on a monthly basis to various defined contribution retirement benefit plans administered by the PRC government.
The relevant government agencies undertake to assume the retirement benefit obligation payable to all existing and future retired
employees under these plans and the Group has no further obligation for post-retirement benefits beyond the contributions made. Further information is set out in note 9.
F-22
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
All full-time employees of the Group are entitled to participate in various government-sponsored housing funds. The Group contributes
on a monthly basis to these funds based on certain percentages of the salaries of the employees. The Group's liability in respect of these funds is limited to the contributions payable in
each year.
- (m)
- Asset retirement obligations
The
Group's legal or constructive obligations associated with the retirement of non-financial assets are recognised at fair value at the time the obligations are incurred and if it is
probable that an outflow of resources will be required to settle the obligation, and a reasonable estimate of fair value can be made. Upon initial recognition of a liability, a corresponding amount is
capitalised as part of the carrying amount of the related property, plant and equipment. Asset retirement obligations are regularly reviewed by management and are revised for changes in future
estimated costs and regulatory requirements. Changes in the estimated timing of retirement or future estimated costs are dealt prospectively by recording an adjustment against the carrying value of
the provision and a corresponding adjustment to property and equipment. Depreciation of the capitalised asset retirement cost is generally determined on a units-of-production basis. Accretion of the
asset retirement obligation is recognised over time and generally will escalate over the life of the producing asset, typically as production declines. Accretion is included in the finance cost in the
consolidated income statement. Any difference between the recorded obligation and the actual costs of reclamation is recorded in the income statement in the period the obligation is settled.
- (n)
- Borrowing costs
Borrowing
costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing costs directly relating to the acquisition, construction or
production of a qualifying asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. The
capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sale. All other borrowing costs are expensed in the period in which they
are incurred.
- (o)
- Revenue recognition
The
Group sells its products pursuant to sales contracts entered into with its customers. Revenue for all products is recognised when the significant risks and rewards of ownership have
passed to the customer and when collectability is reasonably assured. The passing of the significant risks and rewards of ownership to the customer is based on the terms of the sales contract,
generally upon delivery and acceptance of the product by the customer.
F-23
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In accordance with the relevant tax laws in the PRC, value-added taxes ("VAT") is levied on the invoiced value of sales and is payable by the purchaser. The Group
is required to remit the VAT it collects to the tax authority, but may deduct the VAT it has paid on eligible purchases. The difference between the amounts collected and paid is presented as VAT
recoverable or payable in the consolidated statements of financial position. VAT on sales amounted to RMB9.3 million, RMB18.4 million, RMB29.8 million, RMB10.1 million and
RMB12.8 million for the years ended December 31, 2010, 2011, 2012, the six months ended June 30, 2012 and June 30, 2013, respectively. The Group recognises revenues net
of VAT.
The
price adjustment fund ("PAF") was imposed by the Guizhou Provincial Government of the PRC at predetermined rates and on the quantity of coal sold by entities operated in Guizhou
Province. The PAF paid can be claimed as a deductible expense for corporate income tax purposes and the amount claimed is based on the actual amount paid. The Group recognised PAF in "cost of sales"
in the consolidated income statement.
- (p)
- Income taxes
Income
tax comprises current and deferred tax. Income tax is recognised in the consolidated income statement or consolidated statement of comprehensive income, either as an expense as it
relates to operating activities or as a component of the applicable categories of other comprehensive income or loss.
Current
tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax
laws used to compute the amount are those that are enacted or substantially enacted, by the reporting date, in the countries where the Group operates and generates taxable income.
Deferred
tax is provided, using the liability method, on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes.
Deferred
tax liabilities are recognised for all taxable temporary differences, except:
- •
- where the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that is not
a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
- •
- in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint
ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred
tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable
profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised,
except:
- •
- where the deferred tax assets relating to the deductible temporary differences arise from the initial recognition of an
asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
- •
- in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in
joint ventures, deferred tax assets are only recognised to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available
against which the temporary differences can be utilised.
F-24
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The
carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to
allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it is probable that sufficient
taxable profit will be available to allow all or part of the deferred tax asset to be utilised.
Deferred
tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates
(and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred
tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes
relate to the same taxable entity and the same taxation authority.
- (q)
- Share-based payment transactions
Employees
(including directors) of the Group receive remuneration in the form of share-based payment transactions, whereby employees render services as consideration for equity
instruments ("equity-settled transactions").
The
cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value is determined by using the
Black-Scholes option pricing model.
The
cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled.
The cumulative expense recognised for equity-settled transactions at the end of each reporting period until the vesting date reflects the extent to which the vesting period has expired and the Group's
best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the income statement for a period represents the movement in the cumulative expense recognised as
at the beginning and end of that period.
No
expense is recognised for awards that do not ultimately vest for the Group.
- (r)
- Foreign currency translation
The
functional currency of substantially all the operations of the Group is the RMB, the national currency of the PRC. Transactions denominated in currencies other than the RMB recorded
by the entities of the Group are initially recorded using their respective functional currency rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in other
currencies have been translated into RMB at the functional currency rates of exchange prevailing at the end of the reporting period. The resulting exchange gains or losses are credited or charged to
the consolidated income statement. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the date of the initial
transactions.
The
financial statements of certain overseas subsidiary operations with a functional currency other than the RMB have been translated into RMB. The assets and liabilities of these
entities have been translated using the exchange rates prevailing at the reporting date and the income statement have been translated using the weighted average exchange rate for the year. Resulting
translation adjustments are reported as a separate component of other comprehensive income.
F-25
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On
disposal of a foreign operation, the deferred cumulative amount recognised in equity relating to that particular foreign operation is recognised in the income statement.
- (s)
- Provisions
A
provision is recognised when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required
to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.
When
the effect of discounting is material, the amount recognised for a provision is the present value at the end of the reporting period of the future expenditures expected to be
required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in finance costs in the income statement.
- (t)
- Leases
Leases
that transfer substantially all the rewards and risks of ownership of assets to the Group, other than legal title, are accounted for as finance leases. At the inception of a
finance lease, the cost of the leased asset is capitalised at the lower of its fair value of the present value of the minimum lease payments and recorded together with the obligation, excluding the
interest element, to reflect the purchase and financing. Assets held under capitalised finance leases are included in property, plant and equipment, and depreciated over the shorter of the lease terms
and the estimated useful lives of the assets. The finance costs of such leases are charged to the income statement so as to provide a constant periodic rate of charge over the lease terms.
Leases
where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Rentals payable under operating leases net of
any incentives received from the lessor are charged to the income statement on the straight-line basis over the lease terms.
Prepaid
land lease payments under operating leases are initially stated at cost and subsequently recognised on the straight-line basis over the lease terms.
2.5 SIGNIFICANT ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of the consolidated financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect
the reported amounts of assets, liabilities at the reporting date and the reported amounts of revenues and expenses during the reporting period. However, uncertainty about these assumptions and
estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.
Judgements
In the process of applying the Group's accounting policies, management has made the following judgements, which have the most
significant effect on the amounts recognised in the consolidated financial statements.
F-26
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- (i)
- Commercial production start date
The
Group assesses the stage of each coal mine under construction to determine when a coal mine moves into the production stage. The criteria used to assess the start date are determined
based on the unique nature of each coal mine construction project. The Group considers various relevant criteria to assess when the coal mine is substantially complete, ready for its intended use and
is reclassified from "Construction in progress" to "Mining structures". The criteria will include, but are not limited, to the following:
- •
- The level of capital expenditure compared to the construction cost estimates
- •
- Completion of a reasonable period of testing of the mine and equipment
- •
- Ability to produce coals in saleable form (within specifications)
- •
- Ability to sustain ongoing production of coal
When
a mine construction project moves into the production stage, the capitalisation of certain coal mine construction costs ceases, and further extraction costs incurred are either
regarded as inventory or expensed, except for costs that qualify for capitalisation relating to mining asset additions or improvements, underground mine development or mineable reserve development.
The commercial production start date is also the date when depreciation and/or amortisation of the mining structure assets commences.
Estimates and assumptions
The
key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustments to the
carrying amounts of assets and liabilities within the next financial year, are discussed below. The Company has based its assumptions and estimates on parameters available when the consolidated
financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the
Company. Such changes are reflected in the assumptions when they occur.
- (i)
- Impairment of property, plant and equipment
Long-lived
assets to be held and used, such as property, plant and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amounts
may not be recoverable. An impairment loss is recognised for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair
value less costs to sell and value in use. In estimating the recoverable amounts of assets, various assumptions, including future cash flows to be associated with the non-current assets and discount
rates, are made. If future events do not correspond to such assumptions, the recoverable amounts will need to be revised, and this may have an impact on the Group's results of operations or financial
position.
There
were no impairments recognised for the years ended December 31, 2010, 2011, 2012 and the six months ended June 30, 2013.
F-27
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- (ii)
- Units-of-production depreciation for mining related assets
The
Group determines the depreciation and/or amortisation of mining related assets by the actual units of production over the estimated reserves of the mines. Further details about the
reserve estimates are included in note 2.5 (iv).
- (iii)
- Useful lives of non-mining related property, plant and equipment
The
Group's management determines the estimated useful lives and related depreciation charges for its non-mining related property, plant and equipment. This estimate is based on the
historical experience of the actual useful lives of non-mining related property, plant and equipment of similar nature and functions. It could change significantly as a result of technical innovation
and competitor action in response to severe industry cycles. Management will increase the depreciation charges where useful lives are less than previously estimated lives, or it will write-off or
write-down technically obsolete or non-strategic assets that have been abandoned or sold.
- (iv)
- Reserve estimates
Proved
and probable coal reserve estimates are estimates of the amount of coal that can be economically and legally extracted from the Group's mining properties. In determining the
estimates, recent production and technical information of each mine will be considered.
Fluctuations
in factors including the price of coal, production costs and transportation costs of coal, a variation on recovery rates or unforeseen geological or geotechnical perils may
render it necessary to revise the estimates of coal reserves.
Because
the economic assumptions used to estimate reserves changes from period to period, and because additional geological data is generated during the course of operations, estimates
of reserves may change from period to period. Changes in reported reserves may affect the Group's financial results and financial position in a number of ways, including
the following:
- •
- Asset carrying values may be affected due to changes in estimated future cash flows.
- •
- Depreciation, depletion and amortisation charged to the income statement may change where such charges are determined by
the units of production basis, or where the useful economic lives of assets change.
- •
- Asset retirement obligations may change where changes in estimated reserves affect expectations about the timing or cost
of these activities.
- •
- The carrying value of deferred tax assets may change due to changes in estimates of the likely recovery of the
tax benefits.
- (v)
- Trade and other receivables
The
Group's management determines the provision for impairment of trade and other receivables. This estimate is based on the credit history of its customers and current market
conditions. Management reassesses the provision at the end of each reporting period.
F-28
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- (vi)
- Income taxes
There
are certain transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities based on
estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, the differences will be reflected in the
income tax and deferred tax provisions in the period in which the determination is made. In addition, the realisation of future income tax assets is dependent on the Group's ability to generate
sufficient taxable income in future years to utilise income tax benefits and income tax loss carryforwards. Deviations of future profitability from estimates or in the income tax rate would result in
adjustments to the value of future income tax assets and liabilities that could have a significant effect on earnings.
- (vii)
- Provision for asset retirement obligations
The
provision for asset retirement obligations is determined by management based on the past experience and best estimation of future expenditures, taking into account existing relevant
PRC regulations. However, insofar as the effect on the land and the environment from current mining activities becomes apparent in future years, the estimate of the associated costs may be subject to
revision from time to time.
3. OPERATING SEGMENT INFORMATION
For management purposes, the Group operates in one business unit based on its products, and has only one reportable segment which is the exploration and mining of
coal. The Group conducts its principal
operation in the PRC. Management monitors the operating results of its business units as a whole for the purpose of making decisions about resources allocation and performance assessment.
Geographic information
The Group's revenue from external customers is derived solely from its operation in Mainland China, and no non-current assets of the
Group are located outside Mainland China.
Information about major customers
During the year ended December 31, 2010, sales derived from two customers accounted for 29.7% and 24.4% of the consolidated
revenue, respectively. During the year ended December 31, 2011, sales derived from three customers accounted for 29.2%, 19.0% and 14.8% of the consolidated revenue, respectively. During the
year ended December 31, 2012, sales derived from two customers accounted for 24.1% and 15.3% of the consolidated revenue, respectively. During the six months ended June 30, 2012, sales
derived from one customer accounted for 55.3% of the consolidated revenue. During the six months ended June 30, 2013, sales derived from four customers accounted for 24.5%, 18.7%, 13.6% and
11.6% of the consolidated revenue, respectively.
F-29
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. REVENUE
Revenue comprises the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Sale of coal |
|
|
38,668 |
|
|
105,211 |
|
|
141,939 |
|
|
55,156 |
|
|
54,716 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
All
of the Group's revenue is derived solely from its operations in Mainland China.
5. COST OF SALES
Cost of sales comprises the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Sale of coal (note 8) |
|
|
25,453 |
|
|
74,289 |
|
|
95,889 |
|
|
30,396 |
|
|
39,953 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
6. FINANCE COSTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Interest on interest-bearing bank and other borrowings |
|
|
15,987 |
|
|
48,980 |
|
|
83,490 |
|
|
38,208 |
|
|
52,934 |
|
Interest on payables for mining rights |
|
|
5,845 |
|
|
11,908 |
|
|
5,892 |
|
|
3,231 |
|
|
3,235 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
21,832 |
|
|
60,888 |
|
|
89,382 |
|
|
41,439 |
|
|
56,169 |
|
Less: capitalised interest (note 16) |
|
|
(16,224 |
) |
|
(30,065 |
) |
|
(45,609 |
) |
|
(21,155 |
) |
|
(20,446 |
) |
Bank charges |
|
|
90 |
|
|
475 |
|
|
123 |
|
|
72 |
|
|
46 |
|
Entrusted loan commission fee |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
7,612 |
|
Accretion expenses (note 26) |
|
|
309 |
|
|
543 |
|
|
637 |
|
|
299 |
|
|
350 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,007 |
|
|
31,841 |
|
|
44,533 |
|
|
20,655 |
|
|
43,731 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
F-30
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. NON-OPERATING INCOME/(EXPENSES), NET
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Reversal of other payable |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,271 |
|
Loss on disposal of items of property, plant and equipment (note 8) |
|
|
(139 |
) |
|
(250 |
) |
|
(194 |
) |
|
(463 |
) |
|
— |
|
Donation |
|
|
(909 |
) |
|
(297 |
) |
|
(1,445 |
) |
|
(1,266 |
) |
|
(28 |
) |
Others |
|
|
(529 |
) |
|
(341 |
) |
|
(540 |
) |
|
(81 |
) |
|
(28 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,577 |
) |
|
(888 |
) |
|
(2,179 |
) |
|
(1,810 |
) |
|
1,215 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
F-31
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. PROFIT/(LOSS) BEFORE INCOME TAX
The Group's profit/(loss) before income tax is arrived at after charging/(crediting):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Crediting: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income on bank deposits |
|
|
115 |
|
|
564 |
|
|
1,048 |
|
|
814 |
|
|
977 |
|
Gain on bargain purchase (note 30) |
|
|
624,148 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Charging: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of inventories sold (a) |
|
|
19,413 |
|
|
65,808 |
|
|
66,963 |
|
|
21,593 |
|
|
29,001 |
|
Price adjustment fund |
|
|
2,624 |
|
|
4,995 |
|
|
12,116 |
|
|
7,135 |
|
|
2,792 |
|
Sales tax and surcharge |
|
|
1,856 |
|
|
1,812 |
|
|
3,897 |
|
|
1,216 |
|
|
1,834 |
|
Utilisation of safety fund and production maintenance fund |
|
|
1,560 |
|
|
1,674 |
|
|
12,913 |
|
|
452 |
|
|
6,326 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Cost of sales (note 5) |
|
|
25,453 |
|
|
74,289 |
|
|
95,889 |
|
|
30,396 |
|
|
39,953 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Employee benefit expenses (note 9) |
|
|
46,117 |
|
|
40,631 |
|
|
63,941 |
|
|
24,558 |
|
|
32,916 |
|
Depreciation, depletion and amortisation: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— Property, plant and equipment |
|
|
8,055 |
|
|
13,037 |
|
|
17,812 |
|
|
6,401 |
|
|
7,696 |
|
Auditors' remuneration |
|
|
23 |
|
|
24 |
|
|
2,449 |
|
|
1,450 |
|
|
1,800 |
|
Operating lease rental: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— Office properties |
|
|
729 |
|
|
932 |
|
|
622 |
|
|
489 |
|
|
155 |
|
Loss on disposal of items of property, plant and equipment (note 7) |
|
|
139 |
|
|
250 |
|
|
194 |
|
|
463 |
|
|
— |
|
Impairment of property, plant and equipment |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
184,417 |
|
Write down of inventories to net realisable value |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
984 |
|
Repairs and maintenance |
|
|
1,572 |
|
|
2,219 |
|
|
1,209 |
|
|
664 |
|
|
863 |
|
Losses arising from temporary suspension of production (b) |
|
|
— |
|
|
— |
|
|
3,278 |
|
|
2,948 |
|
|
6,389 |
|
- (a)
- Included
in the cost of inventories sold are RMB17.3 million, RMB25.1 million, RMB51.6 million, RMB16.6 million and
RMB21.6 million for the years ended December 31, 2010, 2011, 2012, the six months ended June 30, 2012 and June 30, 2013, relating to employee benefit expenses, and
depreciation, depletion and amortisation, these amounts are also included in the respective amounts disclosed separately above for each type of expense.
- (b)
- The
amount represented the overhead costs incurred during the period of temporary suspension of production implemented by the local governments for
inspections as well as the suspension of production in Gouchang Coal Mine according to Guizhou Province's coal mine consolidation policy issued in March 2013.
F-32
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFITS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Wages, salaries and allowances |
|
|
36,191 |
|
|
43,601 |
|
|
78,579 |
|
|
28,599 |
|
|
41,679 |
|
Contribution to pension plans (a) |
|
|
2,947 |
|
|
2,246 |
|
|
654 |
|
|
1,037 |
|
|
1,302 |
|
Housing funds (a) |
|
|
972 |
|
|
879 |
|
|
143 |
|
|
493 |
|
|
388 |
|
Welfare and other expenses |
|
|
6,578 |
|
|
8,711 |
|
|
9,342 |
|
|
4,587 |
|
|
5,130 |
|
Equity-settled share option expense (note 28) |
|
|
17,009 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Sub-total |
|
|
63,697 |
|
|
55,437 |
|
|
88,718 |
|
|
34,716 |
|
|
48,499 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
- (a)
- As
stipulated by the PRC state regulations, the employees of the Group's subsidiaries which operate in Mainland China are required to participate in a
central pension scheme operated by the local municipal government and government-sponsored housing funds. These subsidiaries are required to contribute a certain percentage of their payroll costs for
those qualified urban employees to the central pension scheme as well as the housing funds.
Employee
benefits charged to the consolidated income statements are analysed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Total employee benefits accrued for the year |
|
|
63,697 |
|
|
55,437 |
|
|
88,718 |
|
|
34,716 |
|
|
48,499 |
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount included in inventories |
|
|
(297 |
) |
|
(1,012 |
) |
|
(1,978 |
) |
|
(1,403 |
) |
|
(3,110 |
) |
Amount included in property, plant and equipment |
|
|
(17,283 |
) |
|
(13,794 |
) |
|
(22,799 |
) |
|
(8,755 |
) |
|
(12,473 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Amount charged to income statements (note 8) |
|
|
46,117 |
|
|
40,631 |
|
|
63,941 |
|
|
24,558 |
|
|
32,916 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
10. DIRECTOR'S AND CHIEF EXECUTIVE'S REMUNERATION
Mr. Li Feilie was appointed as the Company's director and Chief Executive Officer on January 15, 2010. There are no fees or remuneration paid to
Mr. Li Feilie for the years ended December 31, 2010, 2011, 2012, and the six months ended June 30, 2013 except the share-based compensation in the year of 2010, as
disclosed in note 28.
Mr. Tam
Cheuk Ho and Mr. Wong Wah On Edward were appointed as the Company's director on February 1, 2013. There were no fees or remuneration paid to Mr. Tam
Cheuk Ho and Mr. Wong Wah On Edward for the years ended December 31, 2010, 2011, 2012, and the six months ended June 30, 2013.
There
is no arrangement under which a director waived or agreed to waive any remuneration during the years ended December 31, 2010, 2011, 2012, and the six months ended
June 30, 2013.
The
Group did not have any non-executive directors, independent non-executive directors and chief executives at any time during the years ended December 31, 2010, 2011, 2012, and
the six months ended June 30, 2013.
F-33
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. FIVE HIGHEST PAID INDIVIDUALS
The five individuals whose emoluments, including share-based compensation, were the highest in the Group during the years ended December 31, 2010, 2011,
2012, and the six months ended June 30, 2013 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of employees |
|
|
|
Year ended December 31, |
|
Six months ended June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
Directors |
|
|
1 |
|
|
0 |
|
|
0 |
|
|
0 |
|
|
0 |
|
Non-director individuals |
|
|
4 |
|
|
5 |
|
|
5 |
|
|
5 |
|
|
5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|
5 |
|
|
5 |
|
|
5 |
|
|
5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
The
details of remuneration paid to the five highest paid individuals who were directors of the Company during the years ended December 31, 2010, 2011, 2012, and the six months
ended June 30, 2013 have been included in note 10 above. Details of the remuneration paid to the remaining non-director and non-chief-executive individuals are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Wages, salaries and allowances |
|
|
755 |
|
|
770 |
|
|
1,259 |
|
|
574 |
|
|
648 |
|
Contribution to pension plans |
|
|
— |
|
|
— |
|
|
12 |
|
|
4 |
|
|
7 |
|
Housing funds |
|
|
— |
|
|
— |
|
|
3 |
|
|
2 |
|
|
5 |
|
Welfare and other expenses |
|
|
— |
|
|
— |
|
|
— |
|
|
2 |
|
|
5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
755 |
|
|
770 |
|
|
1,274 |
|
|
582 |
|
|
665 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
The
number of non-director, non-chief-executive, highest paid employees whose remuneration fell within the following bands is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of employees |
|
|
|
Year ended December 31, |
|
Six months ended June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
Nil to RMB1,000,000 |
|
|
4 |
|
|
5 |
|
|
5 |
|
|
5 |
|
|
5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4 |
|
|
5 |
|
|
5 |
|
|
5 |
|
|
5 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
F-34
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAX AND DEFERRED TAX
The Company is incorporated in the British Virgin Islands ("BVI") and conducts its primary business through its subsidiaries in the PRC. It also has an
intermediate holding company in Hong Kong. Under the current laws of the BVI, the Company incorporated in the BVI is not subject to tax on income or capital gains. Hong Kong Profits Tax rate is 16.5%
during the years ended December 31, 2010, 2011, 2012, and the six months ended June 30, 2013. The Company's Hong Kong subsidiary has both Hong Kong-sourced and non-Hong
Kong-sourced incomes. The latter is not subject to Hong Kong Profits Tax and the related expenses are non-tax-deductible. For the Hong Kong-sourced income, no provision for Hong Kong Profits Tax was
made as such operation sustained tax losses during the years ended December 31, 2010, 2011, 2012, and the six months ended June 30, 2013. Furthermore, there are no withholding
taxes in Hong Kong on the remittance of dividends.
Effective
from January 1, 2008, the PRC's statutory corporate income tax ("CIT") rate is 25%. The Company's PRC subsidiaries are subject to income tax at 25% on their respective
taxable incomes as calculated in accordance with the CIT Law and its relevant regulations ("the actual method") except for Dayuan Coal, Gouchang Coal, Baiping Mining, Xinsong Coal, Linjiaao
Coal and Guizhou Yongfu. Prior to 2012, based on the local practices, the aforementioned subsidiaries were taxed on a deemed profit method based on their actual revenue minus deemed expenses with the
25% statutory rate. Practically, the CIT were collected approximately at a range of RMB9.5 to RMB32.0 per tonne of sales, or 7.50% to 10.64% of sales. No deferred tax assets were then provided
for these subsidiaries in view of the deemed profit method imposed.
During
the second half of 2012, the Group received written confirmations from the respective local tax bureaus that the aforementioned subsidiaries excluding Guizhou Yongfu are subject
to income tax on the actual method effective retrospectively from 2011. Guizhou Yongfu is subject to income tax on the actual method effective retroactively from the date of establishment. The effect
of change in the taxing method is the recognition of deferred tax assets for prior year tax losses amounting RMB15.3 million during 2012.
Under
the prevailing CIT Law and its relevant regulations, any dividends paid by the Company's PRC subsidiaries from their earnings derived after January 1, 2008 to the Company's
Hong Kong subsidiary are subject to a 5% or 10%, depending on the applicability of the Sino-Hong Kong tax treaty, PRC dividend withholding tax.
In
accordance with the New CIT Law, enterprises established under the laws of foreign countries or regions and whose "place of effective management" is located within the PRC
territory are considered PRC resident enterprises and subject to the PRC income tax at the rate of 25% on worldwide income. The definition of "place of effective management" refers to an establishment
that exercises, in substance, overall management and control over the production and business, personnel, accounting and properties of an enterprise. As of June 30, 2013, no detailed
interpretation or guidance has been issued to define "place of effective management". If the Company's non-PRC incorporated entities are deemed PRC tax residents, such entities would be subject to PRC
tax under the New CIT Law. As of June 30, 2013, the Company has analysed the applicability of this law and has not accrued for PRC tax on such basis. The Company will continue to monitor
changes in the interpretation or guidance of this law.
F-35
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The
current and deferred components of income tax expense/(benefit) appearing in the consolidated income statements are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Current — Mainland China |
|
|
2,066 |
|
|
6,183 |
|
|
10,954 |
|
|
4,769 |
|
|
1,817 |
|
Deferred — Mainland China |
|
|
4,075 |
|
|
3,567 |
|
|
(26,164 |
) |
|
1,015 |
|
|
(52,285 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,141 |
|
|
9,750 |
|
|
(15,210 |
) |
|
5,784 |
|
|
(50,468 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
A
reconciliation of the income taxes computed at the PRC statutory tax rate of 25% to the actual income tax expense/(benefit) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Profit/(loss) before income tax |
|
|
562,134 |
|
|
(55,150 |
) |
|
(82,266 |
) |
|
(32,921 |
) |
|
(273,224 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Tax at the statutory tax rate of 25% |
|
|
140,534 |
|
|
(13,788 |
) |
|
(20,567 |
) |
|
(8,230 |
) |
|
(68,306 |
) |
Effect of different tax rates for the Company and the Hong Kong subsidiary |
|
|
3 |
|
|
7 |
|
|
142 |
|
|
2 |
|
|
3,433 |
|
Effect of the deemed profit method |
|
|
1,779 |
|
|
1,528 |
|
|
— |
|
|
131 |
|
|
— |
|
Non-taxable income |
|
|
(156,037 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Non-deductible expenses |
|
|
12,586 |
|
|
8,605 |
|
|
3,058 |
|
|
1,943 |
|
|
1,094 |
|
Deferred tax assets not recognised |
|
|
2,114 |
|
|
1,110 |
|
|
794 |
|
|
522 |
|
|
(1,543 |
) |
Tax losses not recognised |
|
|
5,153 |
|
|
12,280 |
|
|
16,241 |
|
|
11,140 |
|
|
15,526 |
|
Recognition of deferred tax assets for prior year tax losses |
|
|
— |
|
|
— |
|
|
(15,278 |
) |
|
— |
|
|
— |
|
Others |
|
|
9 |
|
|
8 |
|
|
400 |
|
|
276 |
|
|
(672 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Income tax expense/(benefit) |
|
|
6,141 |
|
|
9,750 |
|
|
(15,210 |
) |
|
5,784 |
|
|
(50,468 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
F-36
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The
Group's major deferred tax assets and deferred tax liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Deferred tax assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities and other payables |
|
|
— |
|
|
— |
|
|
3,612 |
|
|
3,351 |
|
Capitalized pilot run income |
|
|
— |
|
|
— |
|
|
7,737 |
|
|
10,944 |
|
Tax losses |
|
|
— |
|
|
— |
|
|
16,298 |
|
|
21,851 |
|
Others |
|
|
— |
|
|
— |
|
|
423 |
|
|
473 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
— |
|
|
28,070 |
|
|
36,619 |
|
| |
|
|
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and fair value adjustment of property, plant and equipment* |
|
|
(285,849 |
) |
|
(289,416 |
) |
|
(291,322 |
) |
|
(247,586 |
) |
| |
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities |
|
|
(285,849 |
) |
|
(289,416 |
) |
|
(263,252 |
) |
|
(210,967 |
) |
| |
|
|
|
|
|
|
|
|
|
Classification in the consolidated statements of financial position: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets |
|
|
— |
|
|
— |
|
|
3,752 |
|
|
5,365 |
|
| |
|
|
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
(285,849 |
) |
|
(289,416 |
) |
|
(267,004 |
) |
|
(216,332 |
) |
| |
|
|
|
|
|
|
|
|
|
- *
- Included
in the deferred tax liabilities, there are RMB281.4 million, RMB280.4 million, RMB278.7 million and RMB232.9 million
deferred tax liabilities recognised relating to fair value adjustment on property, plant and equipment as of December 31, 2010, 2011, 2012 and June 30, 2013, respectively.
During
2012, deferred tax assets were recognised for Dayuan Coal, Xinsong Coal, Linjiaao Coal and Guizhou Yongfu which were either in the construction phase or had just commenced
commercial production. They were taxed on a deemed profit method before and were changed to the actual method during 2012 as approved by the respective local tax bureaus. In assessing the
recoverability of the Group's deferred tax assets, the management has performed a detailed assessment on the available taxable temporary differences relating to the same taxation authority and the
same taxable entity, which will result in taxable amounts against which the deductible temporary differences and unused tax losses can be utilised before they expire. In addition, the management has
also performed a detailed assessment on these coal mining subsidiaries' profitability based on their production plans, product mix, forecasted selling prices, and the related production and
operational costs, of which strong profits are expected. Accordingly, the management considered it is probable that the Group, in future, will earn sufficient taxable profits to utilise these coal
mining subsidiaries' deductible temporary differences and unused tax losses before they expire and as such, the related deferred tax assets are recognised.
The
Group did not recognise any deferred tax liabilities in respect of the 5% or 10%, depending on the applicability of the tax treaty preferential, PRC dividend withholding tax on the
undistributed earnings of its PRC subsidiaries as there were no undistributed earnings available due to aggregate loss of the subsidiaries as of December 31, 2010, 2011, 2012 and
June 30, 2013.
F-37
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The
total amounts of unused tax losses for which no deferred tax assets were recognised amounting to RMB18.6 million, RMB55.1 million, RMB97.8 million and
RMB145.5 million as of December 31, 2010, 2011, 2012 and June 30, 2013, respectively. As of June 30, 2013, unused tax losses of RMB18.6 million,
RMB36.5 million and RMB42.7 million and RMB47.7 million, if unused, will expire by end of 2015, 2016, 2017 and 2018, respectively.
The
gross movements on the deferred tax account are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
At beginning of the year/period |
|
|
— |
|
|
(285,849 |
) |
|
(289,416 |
) |
|
(263,252 |
) |
Debited/(credited) to consolidated income statements |
|
|
(4,075 |
) |
|
(3,567 |
) |
|
26,164 |
|
|
52,285 |
|
Acquisition of a subsidiary (note 30) |
|
|
(281,774 |
) |
|
— |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
At end of the year/period |
|
|
(285,849 |
) |
|
(289,416 |
) |
|
(263,252 |
) |
|
(210,967 |
) |
| |
|
|
|
|
|
|
|
|
|
13. PROFIT/(LOSS) ATTRIBUTABLE TO OWNER OF THE COMPANY
The consolidated profit/(loss) attributable to owner of the parent for the years ended December 31, 2010, 2011, 2012 and the six months ended
June 30, 2012 and June 30, 2013 includes a loss of RMB0.01 million, a loss of RMB0.01 million, a loss of RMB0.57 million, a loss of RMB0.01 million and a loss
of RMB0.01 million, respectively, which has been dealt with in the financial statements of the Company (note 33).
14. EARNINGS/(LOSS) PER SHARE ATTRIBUTABLE TO OWNER OF THE COMPANY
Basic and diluted earnings per share for the years ended December 31, 2010, 2011, 2012 and the six months ended June 30, 2013 were calculated
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Profit/(loss) for the year attributable to owner of the Company: |
|
|
562,432 |
|
|
(64,165 |
) |
|
(75,312 |
) |
|
(40,861 |
) |
|
(221,947 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
1 |
|
|
1 |
|
|
1 |
|
|
1 |
|
|
1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
1 |
|
|
1 |
|
|
1 |
|
|
1 |
|
|
1 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Earnings/(losses) per share attributable to owner of the Company: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
562,432 |
|
|
(64,165 |
) |
|
(75,312 |
) |
|
(40,861 |
) |
|
(221,947 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
562,432 |
|
|
(64,165 |
) |
|
(75,312 |
) |
|
(40,861 |
) |
|
(221,947 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
The
Company did not have any potential diluted shares throughout the years ended December 31, 2010, 2011, 2012, and the six months ended June 30, 2013. Accordingly,
the diluted earnings per share amounts are the same as the basic earnings per share amounts.
15. DIVIDEND
No dividend has been paid or declared by the Company since its incorporation.
F-38
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buildings |
|
Mining
structures
and mining
rights |
|
Machinery
and
equipment |
|
Motor
vehicles |
|
Construction
in progress |
|
Total |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2010 |
|
|
399 |
|
|
139,346 |
|
|
757 |
|
|
2,735 |
|
|
37,134 |
|
|
180,371 |
|
Acquisition of Guizhou Puxin |
|
|
5,053 |
|
|
1,248,471 |
|
|
12,055 |
|
|
2,383 |
|
|
68,419 |
|
|
1,336,381 |
|
Additions |
|
|
8 |
|
|
105,916 |
|
|
4,987 |
|
|
2,245 |
|
|
177,214 |
|
|
290,370 |
|
Transfers |
|
|
2,610 |
|
|
1,568 |
|
|
6,420 |
|
|
— |
|
|
(10,598 |
) |
|
— |
|
Disposals |
|
|
(81 |
) |
|
(9,763 |
) |
|
(379 |
) |
|
— |
|
|
— |
|
|
(10,223 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010 |
|
|
7,989 |
|
|
1,485,538 |
|
|
23,840 |
|
|
7,363 |
|
|
272,169 |
|
|
1,796,899 |
|
Additions |
|
|
9,429 |
|
|
14,164 |
|
|
7,718 |
|
|
426 |
|
|
222,886 |
|
|
254,623 |
|
Transfers |
|
|
50 |
|
|
50,569 |
|
|
5,655 |
|
|
— |
|
|
(56,274 |
) |
|
— |
|
Disposals |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(250 |
) |
|
(250 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2011 |
|
|
17,468 |
|
|
1,550,271 |
|
|
37,213 |
|
|
7,789 |
|
|
438,531 |
|
|
2,051,272 |
|
Additions |
|
|
1,795 |
|
|
8,511 |
|
|
27,678 |
|
|
6,322 |
|
|
271,618 |
|
|
315,924 |
|
Transfers |
|
|
11,994 |
|
|
130,642 |
|
|
23,916 |
|
|
— |
|
|
(166,552 |
) |
|
— |
|
Disposals |
|
|
(118 |
) |
|
(611 |
) |
|
(697 |
) |
|
— |
|
|
— |
|
|
(1,426 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2012 |
|
|
31,139 |
|
|
1,688,813 |
|
|
88,110 |
|
|
14,111 |
|
|
543,597 |
|
|
2,365,770 |
|
Additions |
|
|
1,805 |
|
|
8,617 |
|
|
12,661 |
|
|
4,231 |
|
|
124,214 |
|
|
151,528 |
|
Transfers |
|
|
— |
|
|
30,458 |
|
|
3,304 |
|
|
— |
|
|
(33,762 |
) |
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2013 |
|
|
32,944 |
|
|
1,727,888 |
|
|
104,075 |
|
|
18,342 |
|
|
634,049 |
|
|
2,517,298 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated depreciation, depletion and amortisation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2010 |
|
|
(11 |
) |
|
(7,700 |
) |
|
(164 |
) |
|
(584 |
) |
|
— |
|
|
(8,459 |
) |
Depreciation charge |
|
|
(283 |
) |
|
(4,571 |
) |
|
(2,713 |
) |
|
(488 |
) |
|
— |
|
|
(8,055 |
) |
Disposals |
|
|
7 |
|
|
8,779 |
|
|
104 |
|
|
— |
|
|
— |
|
|
8,890 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010 |
|
|
(287 |
) |
|
(3,492 |
) |
|
(2,773 |
) |
|
(1,072 |
) |
|
— |
|
|
(7,624 |
) |
Depreciation charge |
|
|
(482 |
) |
|
(9,815 |
) |
|
(1,946 |
) |
|
(794 |
) |
|
— |
|
|
(13,037 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2011 |
|
|
(769 |
) |
|
(13,307 |
) |
|
(4,719 |
) |
|
(1,866 |
) |
|
— |
|
|
(20,661 |
) |
Depreciation charge |
|
|
(805 |
) |
|
(11,741 |
) |
|
(4,189 |
) |
|
(1,077 |
) |
|
— |
|
|
(17,812 |
) |
Disposals |
|
|
16 |
|
|
108 |
|
|
220 |
|
|
— |
|
|
— |
|
|
344 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2012 |
|
|
(1,558 |
) |
|
(24,940 |
) |
|
(8,688 |
) |
|
(2,943 |
) |
|
— |
|
|
(38,129 |
) |
Depreciation charge |
|
|
(630 |
) |
|
(3,821 |
) |
|
(2,823 |
) |
|
(422 |
) |
|
— |
|
|
(7,696 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2013 |
|
|
(2,188 |
) |
|
(28,761 |
) |
|
(11,511 |
) |
|
(3,365 |
) |
|
— |
|
|
(45,825 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2010, December 31, 2010, 2011 and 2012 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Impairment |
|
|
— |
|
|
(184,417 |
) |
|
— |
|
|
— |
|
|
— |
|
|
(184,417 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2013 |
|
|
— |
|
|
(184,417 |
) |
|
— |
|
|
— |
|
|
— |
|
|
(184,417 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net carrying amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At January 1, 2010 |
|
|
388 |
|
|
131,646 |
|
|
593 |
|
|
2,151 |
|
|
37,134 |
|
|
171,912 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010 |
|
|
7,702 |
|
|
1,482,046 |
|
|
21,067 |
|
|
6,291 |
|
|
272,169 |
|
|
1,789,275 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2011 |
|
|
16,699 |
|
|
1,536,964 |
|
|
32,494 |
|
|
5,923 |
|
|
438,531 |
|
|
2,030,611 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2012 |
|
|
29,581 |
|
|
1,663,873 |
|
|
79,422 |
|
|
11,168 |
|
|
543,597 |
|
|
2,327,641 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
At June 30, 2013 |
|
|
30,756 |
|
|
1,514,710 |
|
|
92,564 |
|
|
14,977 |
|
|
634,049 |
|
|
2,287,056 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
F-39
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As at December 31, 2010, 2011, 2012 and June 30, 2013, certain mining rights with carrying amounts of RMB140.5 million,
RMB520.3 million, RMB525.5 million and RMB527.5 million were pledged to secure
bank loans with carrying amounts of RMB168.7 million, RMB338.7 million, RMB475.0 million and RMB450.0 million, respectively.
As
at June 30, 2013, certain buildings with a carrying amount totalling RMB20.8 million were without title certificates. The Group has obtained the relevant confirmation
letters issued by the local authorities confirming that they will not impose any penalties in connection with the construction of these buildings, and that the Group may continue to use these
buildings in accordance with the current uses. The directors of the Company are of the view that the Group is entitled to lawfully and validly occupy and use the above-mentioned buildings. The
directors of the Company are also of the opinion that the aforesaid matter will not have any significant impact on the Group's financial position as of June 30, 2013.
Interest
expenses of RMB16.2 million, RMB30.1 million, RMB45.6 million and RMB20.4 million arising from borrowings attributable to the construction of
property, plant and equipment were capitalised at an annual rate of 5.40% to 9.17% and were included in 'additions' to construction in progress and mining rights during the years ended
December 31, 2010, 2011, 2012 and the six months ended June 30, 2013, respectively.
Exploration
costs totalling RMB3.9 million, nil, nil and nil were incurred during the years ended December 31, 2010, 2011, 2012 and the six months ended June 30,
2013, respectively, of which RMB2.2 million, nil, nil and nil have been capitalised in the exploration rights and construction in progress in property, plant and equipment, and
RMB1.7 million, nil, nil and nil have been included in other operating expenses in the income statements for the years ended December 31, 2010, 2011, 2012 and the six months ended
June 30, 2013, respectively.
F-40
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Operations
have been suspended at Gouchang Coal Mine since March 2013 pending the acquisition by the Group of a nearby coal mine and Gouchang Coal Mine achieving certain
production capacity targets in accordance with Guizhou Province's coal mine consolidation policy. The whole Gouchang Coal Mine was designated as a CGU. The carrying value of the long-term assets was
compared to the recoverable amount of the CGU, which was based predominantly on the fair-value-less-costs-of-disposal ("FVLCD") approach. FVLCD calculations use pre-tax cash flow projections. Other
key assumptions applied in the impairment tests include the production volume, expected coal price, coal product mix, product cost and related expenses. Management determined that these key
assumptions were based on past performance and their expectations on market development. Further, the Group adopts a pre-tax rate of 15.05% that reflects specific risks related to CGU as discount
rates. For the six months ended June 30, 2013, impairment loss for property, plant and equipment of RMB184.4 million (nil for the years ended December 31, 2010, 2011, 2012)
was recognised in profit or loss.
17. REHABILITATION FUND
The rehabilitation fund represents restricted cash set aside by the Group in banks and cash placed with authorities for the purpose of future environmental
rehabilitation as well as the settlement of asset retirement obligations.
18. INVENTORIES
Inventories are summarised as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Spare parts and consumables |
|
|
2,868 |
|
|
3,066 |
|
|
6,393 |
|
|
8,112 |
|
Coal |
|
|
2,456 |
|
|
2,262 |
|
|
4,873 |
|
|
6,968 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
5,324 |
|
|
5,328 |
|
|
11,266 |
|
|
15,080 |
|
| |
|
|
|
|
|
|
|
|
|
The
provision for impairment of inventories of the Group amounted to nil, nil, nil and RMB1.0 million for the years ended December 31, 2010, 2011, 2012, and the six months
ended June 30, 2013, respectively.
19. TRADE AND BILLS RECEIVABLES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Trade receivables |
|
|
5,577 |
|
|
29,356 |
|
|
38,166 |
|
|
39,998 |
|
Less: provision for impairment |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
5,577 |
|
|
29,356 |
|
|
38,166 |
|
|
39,998 |
|
Bills receivable |
|
|
— |
|
|
1,000 |
|
|
10,801 |
|
|
6,300 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
5,577 |
|
|
30,356 |
|
|
48,967 |
|
|
46,298 |
|
| |
|
|
|
|
|
|
|
|
|
Credit
of up to three months is granted to customers with an established trading history, otherwise sales on cash terms or payment in advance are required. Trade receivables are
non-interest-bearing.
F-41
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
An aged analysis of the trade receivables as at the end of each reporting period, based on the invoice date, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Within 3 months |
|
|
5,577 |
|
|
17,485 |
|
|
36,996 |
|
|
32,666 |
|
3 to 6 months |
|
|
— |
|
|
10,776 |
|
|
909 |
|
|
3,117 |
|
6 to 12 months |
|
|
— |
|
|
1,095 |
|
|
254 |
|
|
4,197 |
|
Over 12 months |
|
|
— |
|
|
— |
|
|
7 |
|
|
18 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
5,577 |
|
|
29,356 |
|
|
38,166 |
|
|
39,998 |
|
| |
|
|
|
|
|
|
|
|
|
The
aged analysis of the trade receivables that are not individually nor collectively considered to be impaired is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Neither past due nor impaired |
|
|
5,577 |
|
|
17,485 |
|
|
36,996 |
|
|
32,666 |
|
Within one year past due |
|
|
— |
|
|
11,871 |
|
|
1,163 |
|
|
7,314 |
|
More than one year past due |
|
|
— |
|
|
— |
|
|
7 |
|
|
18 |
|
| |
|
|
|
|
|
|
|
|
|
Trade receivables, net |
|
|
5,577 |
|
|
29,356 |
|
|
38,166 |
|
|
39,998 |
|
| |
|
|
|
|
|
|
|
|
|
Receivables
that were past due but not impaired relate to a number of independent customers that have a good track record with the Group. Based on past experience, the directors of the
Company are
of the opinion that no provision for impairment is necessary in respect of these balances as there has not been a significant change in credit quality and the balances are still considered fully
recoverable.
Bills
receivable are bills of exchange with maturity dates of less than one year.
F-42
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
20. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES
The balance consists of prepayments, deposits and other receivables at cost of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid spare parts and consumables purchases |
|
|
5,344 |
|
|
7,413 |
|
|
3,095 |
|
|
3,583 |
|
Deposits |
|
|
2,731 |
|
|
5,200 |
|
|
10,249 |
|
|
9,986 |
|
Staff advances |
|
|
4,042 |
|
|
3,648 |
|
|
4,081 |
|
|
4,763 |
|
Withheld social security |
|
|
3,125 |
|
|
5,170 |
|
|
5,417 |
|
|
4,036 |
|
Value-added tax recoverable |
|
|
2,707 |
|
|
4,292 |
|
|
6,188 |
|
|
10,007 |
|
Prepaid transportation fee |
|
|
486 |
|
|
400 |
|
|
1,184 |
|
|
1,015 |
|
Others |
|
|
1,404 |
|
|
2,636 |
|
|
3,340 |
|
|
3,836 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
19,839 |
|
|
28,759 |
|
|
33,554 |
|
|
37,226 |
|
| |
|
|
|
|
|
|
|
|
|
Non-current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepayments for land use rights |
|
|
9,681 |
|
|
24,493 |
|
|
37,001 |
|
|
47,860 |
|
Prepayments for construction related work |
|
|
1,527 |
|
|
36,715 |
|
|
72,678 |
|
|
61,774 |
|
Deposits for equipment purchases |
|
|
2,207 |
|
|
5,485 |
|
|
4,622 |
|
|
5,207 |
|
Prepayments for mining plans design |
|
|
1,191 |
|
|
4,625 |
|
|
1,100 |
|
|
1,767 |
|
Others |
|
|
904 |
|
|
528 |
|
|
420 |
|
|
431 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
15,510 |
|
|
71,846 |
|
|
115,821 |
|
|
117,039 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
35,349 |
|
|
100,605 |
|
|
149,375 |
|
|
154,265 |
|
| |
|
|
|
|
|
|
|
|
|
None
of the above assets is either past due or impaired.
21. CASH AND CASH EQUIVALENTS AND PLEDGED DEPOSITS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Restricted bank deposits (a) |
|
|
— |
|
|
21,000 |
|
|
7,082 |
|
|
— |
|
Term deposits with an original maturity over three months |
|
|
— |
|
|
20,000 |
|
|
20,000 |
|
|
— |
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
|
|
|
|
— Cash on hand |
|
|
174 |
|
|
202 |
|
|
100 |
|
|
179 |
|
— Cash at banks |
|
|
76,308 |
|
|
73,440 |
|
|
160,884 |
|
|
140,633 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
76,482 |
|
|
114,642 |
|
|
188,066 |
|
|
140,812 |
|
| |
|
|
|
|
|
|
|
|
|
Notes:
- (a)
- Restricted
bank deposits mainly include deposits of RMB21.0 million held as security for the working capital facilities as of December 31,
2011 (note 24) and of RMB7.1 million held as security for the banks bills as of December 31, 2012 (note 22).
F-43
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- (b)
- Deposits
and cash and cash equivalents are denominated in the following currencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB |
|
|
76,454 |
|
|
114,618 |
|
|
188,047 |
|
|
140,797 |
|
Hong Kong dollar |
|
|
28 |
|
|
24 |
|
|
19 |
|
|
15 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
76,482 |
|
|
114,642 |
|
|
188,066 |
|
|
140,812 |
|
| |
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents are principally RMB-denominated deposits placed with banks in the PRC. The RMB is not freely convertible into other currencies, however, under the PRC's Foreign
Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB into other currencies through banks authorised
to conduct foreign exchange business.
Cash
at banks earns interest at floating rates based on daily bank deposit rates. Short term time deposits are made for varying periods of between one day and three months depending on
the
immediate cash requirements of the Group, and earn interest at respective short term deposit rates. The bank balances and pledged deposits are deposited with creditworthy banks with no recent history
of default.
22. TRADE AND BILLS PAYABLES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Trade payables* |
|
|
80,017 |
|
|
69,402 |
|
|
96,716 |
|
|
97,737 |
|
Bills payables |
|
|
— |
|
|
— |
|
|
7,082 |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
80,017 |
|
|
69,402 |
|
|
103,798 |
|
|
97,737 |
|
| |
|
|
|
|
|
|
|
|
|
- *
- Included
in trade payables were RMB74.1 million, RMB60.5 million, RMB64.6 million and RMB79.7 million due to construction related
constructors as of December 31, 2010, 2011 and 2012 and June 30, 2013.
The
ageing analysis of trade payables is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Within one year |
|
|
56,266 |
|
|
63,349 |
|
|
87,284 |
|
|
87,532 |
|
More than one year |
|
|
23,751 |
|
|
6,053 |
|
|
9,432 |
|
|
10,205 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
80,017 |
|
|
69,402 |
|
|
96,716 |
|
|
97,737 |
|
| |
|
|
|
|
|
|
|
|
|
Bills
payable are bills of exchange with maturity of less than one year. Time deposits of nil, nil, RMB7.1 million and nil were pledged to secure the bank bills as of
December 31, 2010, 2011, 2012 and June 30, 2013.
F-44
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
23. OTHER PAYABLES AND ACCRUED LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Natural resources fee (a) |
|
|
505 |
|
|
48 |
|
|
693 |
|
|
522 |
|
Construction deposits from contractors |
|
|
4,118 |
|
|
4,160 |
|
|
6,309 |
|
|
6,866 |
|
Social security payable (b) |
|
|
6,116 |
|
|
16,620 |
|
|
16,268 |
|
|
11,151 |
|
Payroll payable |
|
|
10,573 |
|
|
5,204 |
|
|
16,711 |
|
|
12,084 |
|
Advances from customers |
|
|
1,117 |
|
|
4,057 |
|
|
11,325 |
|
|
9,641 |
|
Other taxes payables |
|
|
980 |
|
|
4,618 |
|
|
5,154 |
|
|
5,205 |
|
Accrued expenses |
|
|
— |
|
|
— |
|
|
— |
|
|
9,141 |
|
Others |
|
|
2,960 |
|
|
1,699 |
|
|
3,695 |
|
|
3,514 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
26,369 |
|
|
36,406 |
|
|
60,155 |
|
|
58,124 |
|
| |
|
|
|
|
|
|
|
|
|
- (a)
- The
natural resources fee represents fees payable to the PRC Government and is calculated as a percentage of sales.
- (b)
- Social
security consists of employee retirement insurance, medical insurance, maternity insurance, employment injury insurance and unemployment insurance
and housing funds for the benefit of the Group's employees.
24. INTEREST-BEARING BANK AND OTHER BORROWINGS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital facilities |
|
|
— |
|
|
70,000 |
|
|
— |
|
|
— |
|
Bank and other borrowings — guaranteed |
|
|
100,000 |
|
|
100,000 |
|
|
265,000 |
|
|
635,000 |
|
Current portion of long term bank and other borrowings — secured and guaranteed |
|
|
— |
|
|
55,000 |
|
|
155,000 |
|
|
170,000 |
|
Current portion of long term bank and other borrowings — guaranteed |
|
|
— |
|
|
— |
|
|
23,900 |
|
|
56,900 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
100,000 |
|
|
225,000 |
|
|
443,900 |
|
|
861,900 |
|
| |
|
|
|
|
|
|
|
|
|
Non-current |
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank and other borrowings — guaranteed |
|
|
— |
|
|
77,144 |
|
|
149,630 |
|
|
433,849 |
|
Bank and other borrowings — secured and guaranteed |
|
|
318,742 |
|
|
433,742 |
|
|
420,000 |
|
|
380,000 |
|
Bank and other borrowings — unsecured |
|
|
— |
|
|
— |
|
|
— |
|
|
83,600 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
318,742 |
|
|
510,886 |
|
|
569,630 |
|
|
897,449 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
418,742 |
|
|
735,886 |
|
|
1,013,530 |
|
|
1,759,349 |
|
| |
|
|
|
|
|
|
|
|
|
F-45
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Certain
of the interest-bearing bank and other borrowings are secured by:
- (1)
- Pledges
over the Group's mining rights with carrying amounts of RMB140.5 million, RMB520.3 million, RMB525.5 million and
RMB527.5 million as of December 31, 2010, 2011, 2012 and June 30, 2013, respectively;
- (2)
- Pledges
over the Company's equity interest in Baiping Mining, Dayuan Coal, Gouchang Coal, Linjiaao Coal, Xinsong Coal and Dayun Coal;
- (3)
- Pledges
over certain of the Group's time deposits with carrying amounts of nil, RMB21.0 million, nil and nil as of December 31, 2010, 2011,
2012 and June 30, 2013, respectively;
In
addition, Mr. Li Feilie has guaranteed certain of the Group's interest-bearing bank and other borrowings up to RMB150.0 million, RMB277.1 million,
RMB486.6 million and RMB805.7 million as of December 31, 2010, 2011, 2012 and June 30, 2013, respectively. Also, the Group's fellow subsidiaries have guaranteed certain of
the Group's interest-bearing bank and other borrowings up to RMB418.7 million, RMB665.9 million, RMB1,013.5 million and RMB1,050.7 million as of December 31, 2010,
2011, 2012 and June 30, 2013, respectively (note 32).
All
borrowings are denominated in RMB.
The
ranges of the effective interest rates on the Group's bank and other borrowings are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended June 30 |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
%
|
|
%
|
|
%
|
|
%
|
|
%
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Fixed-rate bank and other borrowings |
|
|
6.37 |
|
|
6.37 |
|
|
7.20~9.00 |
|
|
6.97~7.87 |
|
|
6.30~9.00 |
|
Floating-rate bank and other borrowings |
|
|
5.94~8.32 |
|
|
6.22~9.84 |
|
|
5.94~9.47 |
|
|
5.94~9.47 |
|
|
6.40~9.00 |
|
The
maturity profile of the bank and other borrowings as of December 31, 2010, 2011, 2012, and June 30, 2013 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Bank and other borrowings repayable: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Within one year or on demand |
|
|
100,000 |
|
|
225,000 |
|
|
443,900 |
|
|
861,900 |
|
In the second year |
|
|
55,000 |
|
|
175,000 |
|
|
143,000 |
|
|
470,000 |
|
In the third to fifth years, inclusive |
|
|
215,000 |
|
|
287,144 |
|
|
426,630 |
|
|
427,449 |
|
Beyond five years |
|
|
48,742 |
|
|
48,742 |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
418,742 |
|
|
735,886 |
|
|
1,013,530 |
|
|
1,759,349 |
|
| |
|
|
|
|
|
|
|
|
|
F-46
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
25. MINING RIGHTS PAYABLES
Mining rights payables represent the payables to the Guizhou Provincial Department of Land and Resources as a result of acquiring the mining rights for Guizhou
Yongfu, Dayuan Coal, Gouchang Coal, Baiping Mining, Xinsong Coal, Linjiaao Coal and Guizhou Dayun. Mining rights payables are classified as current/non-current liabilities according to instalment
plans agreed with the Guizhou Provincial Department of Land and Resources.
Maturities
of mining rights payables are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Within one year or on demand |
|
|
19,192 |
|
|
22,612 |
|
|
25,568 |
|
|
31,368 |
|
In the second year |
|
|
29,588 |
|
|
25,568 |
|
|
22,368 |
|
|
22,368 |
|
In the third to fifth years, inclusive |
|
|
70,304 |
|
|
67,104 |
|
|
55,442 |
|
|
43,782 |
|
Beyond five years |
|
|
33,074 |
|
|
10,706 |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
152,158 |
|
|
125,990 |
|
|
103,378 |
|
|
97,518 |
|
| |
|
|
|
|
|
|
|
|
|
The
mining rights payables bear interest at a rate stipulated by the People's Bank of China from year to year. The ranges of the interest rates for mining rights payables
for the years ended December 31, 2010, 2011, 2012, and the six months ended June 30, 2013 are 5.85%~6.40%, 6.65%~7.05%, 6.15%~6.55% and 6.00~6.55%, respectively.
26. ASSET RETIREMENT OBLIGATIONS
Asset retirement obligations primarily relate to the closure of mines, which includes dismantling mining-related structures and the reclamation of land upon
exhaustion of coal reserves.
The
following table describes the changes to the Group's asset retirement obligation liability:
|
|
|
|
|
|
|
Amount |
|
|
|
RMB'000
|
|
At January 1, 2010 |
|
|
2,055 |
|
Arising during the year |
|
|
— |
|
Recognised from business combination (note 30) |
|
|
3,118 |
|
Accretion expenses (note 6) |
|
|
309 |
|
| |
|
|
|
At December 31, 2010 |
|
|
5,482 |
|
Arising during the year |
|
|
— |
|
Accretion expenses (note 6) |
|
|
543 |
|
| |
|
|
|
At December 31, 2011 |
|
|
6,025 |
|
Arising during the year |
|
|
402 |
|
Accretion expenses (note 6) |
|
|
637 |
|
| |
|
|
|
At December 31, 2012 |
|
|
7,064 |
|
Change of estimation |
|
|
434 |
|
Accretion expenses (note 6) |
|
|
350 |
|
| |
|
|
|
At June 30, 2013 |
|
|
7,848 |
|
| |
|
|
|
The
inflation rate, discount rate and market risk premium used for estimating the provision for asset retirement obligations for the years ended December 31, 2010,
2011, 2012 and the six months ended June 30, 2013 are 2.53%, 9.91% and 6.09%, respectively. There were no material changes to those rates used in subsequent periods.
F-47
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
27. ISSUED CAPITAL
The Company was incorporated on January 6, 2010 with authorised capital of a maximum of 50,000 shares of a single class each with a par value of
US$1.00. On January 15, 2010, 1 share was issued to Feishang which was subsequently transferred to CHNR on April 30, 2010.
28. SHARE-BASED COMPENSATION
In January 2008, 1,000,000 stock options of CHNR were granted to Mr. Li Feilie, at an exercise price of US$22.64 per share (the fair
market value of CHNR's common stock as of the grant date). Vesting is conditional upon Mr. Li Feilie's working for CHNR for the next three years commencing from the grant date. As of
December 31, 2010, the compensation expense related to the options has been fully recognised. In January 2011, the outstanding 1,000,000 shares of stock options were expired and
not exercised.
The
estimated fair value of these options at the date of grant using the Black Scholes option pricing model was RMB78.0 million, which is being amortised over the requisite
service period of three years with the following assumptions: risk-free interest rate of 3.00%; no dividend yield; volatility of 124.50%; and the expected term of the options of one year.
Since
the share options were granted by CHNR to Mr. Li Feilie for his services to CHNR, including the coal business of the Group, the compensation expense relating to his service
to the coal business of the Group of RMB17.0 million for the year ended December 31, 2010, determined using a proportional
allocation method based on the headcount of the coal business and non-coal business of CHNR, is recognised in the Group's financial statements with a corresponding credit to deemed contribution from
the owner of the Company.
29. RESERVES
The amounts of the Group's reserves and movements therein for each of the years ended December 31, 2010, 2011, 2012, and the six months ended
June 30, 2013 are presented in the consolidated statements of changes in equity.
- (a)
- Safety fund and production maintenance fund
The
safety and production maintenance fund represents the safety production fund and the production maintenance fund which is accrued based on production volume in accordance with the
circular of the Ministry of Finance on enterprise safety production.
- (b)
- Special reserve
The
special reserve represents equity-settled share option expense related to the coal business (note 28) as well as prepaid listing expenses undertaken and paid by CHNR on behalf
of the Group (note 32(c)).
- (c)
- Merger reserve
The
merger reserve of the Group represents the capital contributions from the owner of the Company. The additions during the years ended December 31, 2010, 2011, 2012, and
the six months ended June 30, 2013 represent the injection of additional paid-in capital by the equity holders of the subsidiaries to the respective companies. The deductions during the
years ended December 31, 2010, 2011, 2012, and the six months ended June 30, 2013 represent the acquisition of paid-in capital of the subsidiaries by the Company from the
owner of the Company which is accounted for as a distribution to the owner of the Company in the consolidated statements of changes in equity.
F-48
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
30. BUSINESS COMBINATION
As further explained below, during the year ended December 31, 2010, the Group completed the Acquisition. Guizhou Puxin and its subsidiaries principally
engage in coal mine development and operation in Guizhou Province, the PRC.
On
March 18, 2010, Guizhou Fuyuantong, an indirect wholly-owned PRC subsidiary of Feishang, acquired all the issued and outstanding capital stock of Guizhou Puxin and its five
subsidiaries, including Baiping Mining, Dayuan Coal, Gouchang Coal, Linjiaao Coal and Xinsong Coal, from unrelated third parties. The total purchase consideration was in the form of cash, totalling
RMB150.0 million.
In
April 2010, the Company acquired all the issued outstanding capital stock of Guizhou Fuyuantong through its direct subsidiary, Hong Kong Smartact Limited, from Feishang for
RMB10.0 million. Guizhou Puxin and its five subsidiaries engage in coal mine development and operation in Guizhou Province, the PRC.
The
following table summarises the fair values of assets and liabilities of Guizhou Puxin and its five subsidiaries, including Baiping Mining, Dayuan Coal, Gouchang Coal, Linjiaao Coal
and Xinsong Coal when they were acquired from the unrelated third parties on March 18, 2010:
|
|
|
|
|
|
|
RMB'000 |
|
Property, plant and equipment |
|
|
1,336,381 |
|
Rehabilitation fund |
|
|
4,969 |
|
Other non-current assets |
|
|
8,436 |
|
Inventories |
|
|
3,665 |
|
Trade receivables |
|
|
2,478 |
|
Cash and cash equivalents |
|
|
12,458 |
|
Other current assets |
|
|
156,048 |
|
Trade payables |
|
|
(20,443 |
) |
Other current liabilities |
|
|
(349,457 |
) |
Deferred tax liabilities |
|
|
(281,774 |
) |
Asset retirement obligations |
|
|
(3,118 |
) |
Other non-current liabilities |
|
|
(31,384 |
) |
Non-controlling interests |
|
|
(64,111 |
) |
| |
|
|
|
Fair value recognised by the Group |
|
|
774,148 |
|
Purchase price paid to unrelated third parties of the Group |
|
|
(150,000 |
) |
| |
|
|
|
Bargain purchase gain |
|
|
624,148 |
|
| |
|
|
|
The
bargain purchase gain arise from the distressed sale by the unrelated third parties as a result of the consolidation of smaller coal mines by the PRC government. The valuation is
based on an independent valuation report, which uses an income-based approach estimating the future economic benefits and discounting these benefits into present value using a discount rate
appropriate for the risks associated with realising those benefits. The fair value of the non-controlling interest is measured at the non-controlling interest proportion of the net fair value of the
assets, liabilities and contingent liabilities recognised.
F-49
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Since
the Acquisition date, Guizhou Puxin and its five subsidiaries contributed RMB38.7 million to the Group's revenue and a loss of RMB68.6 million to the consolidated
profit for the year ended December 31, 2010.
Had
the Acquisition taken place at the beginning of the year, the revenue and profit of the Group for the year ended December 31, 2010 would have been RMB48.0 million and
RMB548.6 million, respectively.
An
analysis of the cash flows in respect of the acquisition of Guizhou Puxin and its subsidiaries is as follows:
|
|
|
|
|
|
|
RMB'000 |
|
Cash consideration |
|
|
(150,000 |
) |
Cash and cash equivalents acquired |
|
|
12,458 |
|
| |
|
|
|
Net outflow of cash and cash equivalents |
|
|
(137,542 |
) |
| |
|
|
|
Out
of the total cash consideration amounting to RMB150.0 million, RMB9.9 million was paid during the year ended December 31, 2010. The outstanding balance of
RMB140.1 million was fully paid in July 2011.
31. COMMITMENTS
- (a)
- Capital commitments
The
Group had the following capital commitments as of December 31, 2010, 2011 and 2012, and June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of
June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Construction and purchase of items of property, plant and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
— Contracted, but not provided for |
|
|
57,854 |
|
|
99,398 |
|
|
94,625 |
|
|
88,961 |
|
| |
|
|
|
|
|
|
|
|
|
- (b)
- Operating lease commitment
The
Group has commitments to make the following future minimum lease payments under non-cancellable operating leases:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of
June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Within the first year |
|
|
932 |
|
|
1,000 |
|
|
73 |
|
|
936 |
|
After one year but not more than five years |
|
|
2,986 |
|
|
2,046 |
|
|
24 |
|
|
943 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
3,918 |
|
|
3,046 |
|
|
97 |
|
|
1,879 |
|
| |
|
|
|
|
|
|
|
|
|
F-50
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In
October 2012, Guizhou Yongfu entered into an operating lease agreement with a third party contractor for a shearer to be used in coal extraction at its current mining face. The
rental of the shearer is determined by the production volume during the period and the unit rent rate of RMB68.0/ton. The shearer was not utilised during the years ended December 31, 2010,
2011, 2012, and the six months ended June 30, 2013 until the commencement of pilot run of Guizhou Yongfu in July 2013.
32. RELATED PARTY TRANSACTIONS
In addition to the transactions detailed elsewhere in these financial statements, the Group had the following transactions with related parties during the years
ended December 31, 2010, 2011, 2012, and the six months ended June 30, 2013:
- (a)
- Outstanding balances with related companies
The
Group's payables with related companies, which are all unsecured and non-interest-bearing are summarised as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of
June 30, |
|
|
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Current |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payables to related companies: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wuhu Feishang |
|
* |
|
|
25,000 |
|
|
118,000 |
|
|
118,000 |
|
|
— |
|
Yangpu Lianzhong |
|
* |
|
|
— |
|
|
104,985 |
|
|
— |
|
|
— |
|
Feishang Management |
|
* |
|
|
263,401 |
|
|
178,843 |
|
|
540,010 |
|
|
131,000 |
|
Yunnan Feishang |
|
* |
|
|
— |
|
|
35,180 |
|
|
— |
|
|
— |
|
Yangpu Shuanghu |
|
* |
|
|
14,993 |
|
|
— |
|
|
— |
|
|
— |
|
CHNR |
|
** |
|
|
9,698 |
|
|
9,291 |
|
|
9,537 |
|
|
9,633 |
|
Feishang Enterprise Group Limited ("Feishang Enterprise") |
|
** |
|
|
1,143 |
|
|
5,081 |
|
|
4,854 |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
314,235 |
|
|
451,380 |
|
|
672,401 |
|
|
140,633 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
- *
- These
are subsidiaries under the control of CHNR and Feishang.
- **
- These
are subsidiaries under the control of Feishang.
The
payables with related companies are all due on demand or within one year.
F-51
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- (b)
- Compensation of key management personnel of the Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended
June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Wages, salaries and allowances |
|
|
385 |
|
|
824 |
|
|
2,523 |
|
|
1,012 |
|
|
1,303 |
|
Contribution to pension plans |
|
|
— |
|
|
23 |
|
|
37 |
|
|
7 |
|
|
40 |
|
Housing funds |
|
|
— |
|
|
— |
|
|
16 |
|
|
11 |
|
|
55 |
|
Welfare and other expenses |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
40 |
|
Equity-settled share option expense |
|
|
17,009 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,394 |
|
|
847 |
|
|
2,576 |
|
|
1,030 |
|
|
1,438 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Further
details of the directors' and chief executive's emoluments are included in note 10 to the consolidated financial statements.
- (c)
- Listing expenses
Pursuant
to undertakings, CHNR, the parent of the Company, agreed to bear the listing expenses amounting to RMB9.1 million, RMB4.6 million and RMB1.8 million for the
year ended December 31, 2012, the months ended June 30, 2013 and 2012, respectively (note 29) in relation to the listing by introduction of the shares of the Company on the Main
Board of The Stock Exchange of Hong Kong Limited.
F-52
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
33. CONDENSED FINANCIAL INFORMATION OF THE COMPANY
The following is the condensed financial information of the Company on a non-consolidated basis:
CONDENSED STATEMENTS OF FINANCIAL POSITION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
|
|
|
|
As of June 30,
2013 |
|
|
|
2010 |
|
2011 |
|
2012 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT IN A SUBSIDIARY AND TOTAL NON-CURRENT ASSETS |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Due from a subsidiary |
|
|
9,689 |
|
|
9,278 |
|
|
9,202 |
|
|
9,062 |
|
| |
|
|
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS |
|
|
9,689 |
|
|
9,278 |
|
|
9,202 |
|
|
9,062 |
|
| |
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
|
9,689 |
|
|
9,278 |
|
|
9,202 |
|
|
9,062 |
|
| |
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other payables and accrued liabilities |
|
|
— |
|
|
— |
|
|
236 |
|
|
— |
|
Due to parent |
|
|
9,698 |
|
|
9,292 |
|
|
9,537 |
|
|
9,633 |
|
| |
|
|
|
|
|
|
|
|
|
TOTAL CURRENT LIABILITIES |
|
|
9,698 |
|
|
9,292 |
|
|
9,773 |
|
|
9,633 |
|
| |
|
|
|
|
|
|
|
|
|
NET CURRENT LIABILITIES |
|
|
9 |
|
|
14 |
|
|
571 |
|
|
571 |
|
| |
|
|
|
|
|
|
|
|
|
TOTAL ASSETS LESS CURRENT LIABILITIES |
|
|
(9 |
) |
|
(14 |
) |
|
(571 |
) |
|
(571 |
) |
| |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
|
9,698 |
|
|
9,292 |
|
|
9,773 |
|
|
9,633 |
|
| |
|
|
|
|
|
|
|
|
|
EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued capital |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Reserves |
|
|
(9 |
) |
|
(14 |
) |
|
(571 |
) |
|
(571 |
) |
| |
|
|
|
|
|
|
|
|
|
EQUITY ATTRIBUTABLE TO OWNER OF THE COMPANY |
|
|
(9 |
) |
|
(14 |
) |
|
(571 |
) |
|
(571 |
) |
| |
|
|
|
|
|
|
|
|
|
TOTAL EQUITY |
|
|
(9 |
) |
|
(14 |
) |
|
(571 |
) |
|
(571 |
) |
| |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
|
|
9,689 |
|
|
9,278 |
|
|
9,202 |
|
|
9,062 |
|
| |
|
|
|
|
|
|
|
|
|
The
investment in a subsidiary, namely Hong Kong Smartact, was in unlisted shares, measured at cost of 1 Hong Kong dollar. Particulars of the principal direct and indirect
subsidiaries are set out in note 1.3 to the consolidated financial statements.
The
amount due from a subsidiary included in the Company's current assets of RMB9.7 million, RMB9.3 million, RMB9.2 million and RMB9.1 million as of
December 31, 2010, 2011, 2012 and June 30, 2013, respectively, are unsecured, interest-free and are due on demand.
The
amount due to parent, namely CHNR, was unsecured, interest-free and is due on demand or within one year as of December 31, 2010, 2011, 2012 and June 30, 2013.
F-53
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED INCOME STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months
ended June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
ADMINISTRATIVE EXPENSES |
|
|
9 |
|
|
6 |
|
|
564 |
|
|
6 |
|
|
8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAX |
|
|
9 |
|
|
6 |
|
|
564 |
|
|
6 |
|
|
8 |
|
INCOME TAX EXPENSE |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
LOSS FOR THE YEAR/PERIOD |
|
|
9 |
|
|
6 |
|
|
564 |
|
|
6 |
|
|
8 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
CONDENSED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months
ended June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Net cash flows used in operating activities |
|
|
(9 |
) |
|
(6 |
) |
|
(564 |
) |
|
(6 |
) |
|
(8 |
) |
Net cash flows used in investing activities |
|
|
(9,689 |
) |
|
(6 |
) |
|
(6 |
) |
|
(7 |
) |
|
(6 |
) |
Net cash flows from financing activities |
|
|
9,698 |
|
|
12 |
|
|
328 |
|
|
13 |
|
|
14 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
NET DECREASE IN CASH AND CASH EQUIVALENTS |
|
|
— |
|
|
— |
|
|
(242 |
) |
|
— |
|
|
— |
|
NETFOREIGN EXCHANGE DIFFERENCE |
|
|
— |
|
|
— |
|
|
242 |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR/PERIOD |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF THE YEAR/PERIOD |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
The
above financial statements have been provided pursuant to the requirements of Rule 12-04(a) and 4-08(e)(3) of Regulation S-X, which require condensed financial
information as to financial position, results of operations and cash flows of a parent company as of the same dates and for the same periods for which audited consolidated financial statements have
been presented when the restricted net assets of the consolidated and unconsolidated subsidiaries and the parent's equity in the undistributed earnings of 50 percent or less owned persons
accounted for by the equity method together exceed 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. As of June 30, 2013,
RMB407.3 million of the restricted capital and reserves are not available for distribution, and as such, the condensed financial information of the Company has been presented for the years
ended December 31, 2010, 2011 and 2012 and the six months ended June 30, 2013.
In
the parent-company-only financial statements, the Company's investments in subsidiaries are stated at cost. The parent-company-only financial statements should be read in conjunction
with the Company's consolidated financial statements.
The
Company does not have any significant commitments or long-term obligations as of any of the years presented.
During
the years ended December 31, 2010, 2011, 2012 and the six months ended June 30, 2013, no cash dividends were declared and paid by subsidiaries of the Company.
F-54
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
34. TRANSFERS OF FINANCIAL ASSETS
At December 31, 2012 and June 30, 2013, the Group endorsed certain bills receivable accepted by banks in the PRC (the "Derecognised Bills"),
to certain of its suppliers in order to settle the trade payables due to these suppliers with a carrying amount in aggregate of RMB22.5 million and RMB16.4 million, respectively. The
Derecognised Bills have a maturity from one to six months at the end of the reporting period. In accordance with the Law of Negotiable Instruments in the PRC, the holders of the Derecognised Bills
have a right of recourse against the Group if the PRC banks default (the "Continuing Involvement"). In the opinion of the directors, the Group has transferred substantially all risks and
rewards relating to the Derecognised Bills. Accordingly, it has derecognised the full carrying amounts of the Derecognised Bills and the associated trade payables. The maximum exposure to loss from
the Group's Continuing Involvement in the Derecognised Bills and the undiscounted cash flows to repurchase the Derecognised Bills equals to their carrying amounts. In the opinion of the directors, the
fair values of the Group's Continuing Involvement in the Derecognised Bills are not significant.
During
the years ended December 31, 2010, 2011, 2012, and the six months ended June 30, 2013, the Group has not recognised any gain or loss on the date of
transfer of the Derecognised Bills. No gains or losses were recognised from the continuing involvement, both during the year or cumulatively. The
Endorsement has been made evenly throughout the years ended December 31, 2010, 2011, 2012, and the six months ended June 30, 2013.
35. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES
Financial instruments of the Group primarily include cash, trade and bills receivables, certain other current assets, trade and bills payables, certain other
liabilities, amounts due to related companies, interest-bearing bank and other borrowings and mining rights payables.
The
Group is exposed to credit risk, foreign currency risk, interest rate risk and liquidity risk. The Group has not used any derivatives and other instruments for hedging purposes. The
Group does not hold or issue derivative financial instruments for trading purposes. The Group reviews and agrees policies for managing each of these risks and they are summarised below.
- (a)
- Credit risk
The
carrying amounts of the Group's cash and cash equivalents, time deposits, restricted bank deposits, trade and bills receivables, and certain other current assets, represent the
Group's maximum exposure to credit risk in relation to its financial assets.
The
Group maintains its cash and cash deposits primarily with various PRC state-owned banks and Hong Kong-based financial institutions, which management believes are of high credit
quality. The Group performs periodic evaluations of the relative credit standing of those financial institutions.
The
carrying amounts of the Group's cash and cash equivalents, time deposits, restricted bank deposits, trade and bills receivables, and certain other current assets, represent the
Group's maximum exposure to credit risk in relation to its financial assets.
F-55
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The
Group sells anthracitic coal to companies in the PRC. Trade receivables are typically unsecured and are mainly derived from revenue earned from customers in the PRC. The risk with
respect to trade receivables is mitigated by credit evaluations that the Group performs on its customers and its ongoing monitoring of outstanding balances. The Group provides impairment for trade
receivables primarily based on the age of the balances and factors surrounding the customer's credit worthiness. No provision for impairment of trade receivables was provided during the years ended
December 31, 2010, 2011, 2012 and the six months ended June 30, 2013. As of December 31, 2010, 2011, 2012 and June 30, 2013, receivables due from the largest five customers
accounted for 59.4%, 84.2%, 87.2% and 53.6% of the trade receivables, respectively.
Sales
to the largest five customers accounted for 66.6%, 73.5%, 56.7%, 73.7% and 72.8% of the consolidated revenue for the years ended December 31, 2010, 2011 and 2012 and the six
months ended June 30, 2012 and 2013, respectively. The largest five customers are all recognised and creditworthy third parties and trading terms are mainly on payment in advance or with a
credit period of one month. The Group expects the concentration of coal customers to subside once the production volume increases in the future.
Bills
receivable represent letters of credit obtained by customers of the Group to finance purchases which have been presented to banks for payment after delivery of goods to customers.
As of December 31, 2011, 2012 and June 30, 2013, the bills receivable balance was guaranteed by financial institutions. The bills receivable have normal terms of maturity of
six months.
- (b)
- Foreign currency risk
These
financial statements are presented in RMB, which is the Company's presentation currency. The currency is not freely convertible into foreign currencies. The State Administration
for Foreign Exchange, under the authority of the People's Bank of China, controls the conversion of the currency into foreign currencies. The value of the currency is subject to changes in PRC
government policies and to international economic and political developments affecting supply and demand in the China Foreign Exchange Trading System market. All foreign exchange transactions continue
to take place either through the People's Bank of China or other banks authorised to buy and sell foreign currencies at the exchange rates quoted by the People's Bank of China.
- (c)
- Interest rate risk
Interest
rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group's exposure to the
risk of changes in market interest rates relates primarily to the Group's long-term debt obligations with floating interest rates. The interest rate risk is closely monitored by the Group's senior
management. As of December 31, 2010, 2011, 2012 and June 30, 2013, the interest rates for only 5.30%, 8.10%, 12.50% and 31.97% of the Group's interest-bearing debts were fixed,
respectively. The following table demonstrates the sensitivity to a reasonably possible change in interest rates on the portion of interest-bearing bank and other borrowings and mining rights payables
with floating interest rates except for interest which is capitalised. With all other variables held constant, the Group's profit / (loss) before tax is affected through the impact on floating rate
borrowings as follows:
F-56
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
|
|
|
|
|
|
|
|
|
Increase/(decrease)
in basis points |
|
Increase/(decrease)
in profit/(loss) before tax |
|
|
|
|
|
RMB'000
|
|
Year ended December 31, 2010 |
|
|
100 |
|
|
(668 |
) |
|
|
|
(100 |
) |
|
668 |
|
Year ended December 31, 2011 |
|
|
100 |
|
|
(2,841 |
) |
|
|
|
(100 |
) |
|
2,841 |
|
Year ended December 31, 2012 |
|
|
100 |
|
|
(4,289 |
) |
|
|
|
(100 |
) |
|
4,289 |
|
Six months ended June 30, 2013 |
|
|
100 |
|
|
(5,530 |
) |
|
|
|
(100 |
) |
|
5,530 |
|
- (d)
- Liquidity risk
The
Group manages its liquidity risk by regularly monitoring its liquidity requirements and its compliance with debt covenants to ensure that it maintains sufficient cash and cash
equivalents, and adequate time deposits to meet its liquidity requirements in the short and long term. The Group also relies on financial support from its controlling shareholder. In addition, bank
facilities have been put in place for contingency purposes.
The
table below summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
On demand |
|
Less than
1 year |
|
1 to 5 years |
|
More than
5 years |
|
Total |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Trade and bills payables |
|
|
— |
|
|
97,737 |
|
|
— |
|
|
— |
|
|
97,737 |
|
Other payables and accrued liabilities |
|
|
— |
|
|
29,684 |
|
|
— |
|
|
— |
|
|
29,684 |
|
Interest-bearing bank and other borrowings |
|
|
— |
|
|
978,168 |
|
|
1,045,164 |
|
|
— |
|
|
2,023,332 |
|
Due to related companies |
|
|
140,633 |
|
|
— |
|
|
— |
|
|
— |
|
|
140,633 |
|
Mining rights payable |
|
|
— |
|
|
38,976 |
|
|
97,764 |
|
|
— |
|
|
136,740 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140,633 |
|
|
1,144,565 |
|
|
1,142,928 |
|
|
— |
|
|
2,428,126 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2012
|
|
On demand |
|
Less than
1 year |
|
1 to 5 years |
|
More than
5 years |
|
Total |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Trade and bills payables |
|
|
— |
|
|
103,798 |
|
|
— |
|
|
— |
|
|
103,798 |
|
Other payables and accrued liabilities |
|
|
— |
|
|
22,022 |
|
|
— |
|
|
— |
|
|
22,022 |
|
Interest-bearing bank and other borrowings |
|
|
— |
|
|
508,388 |
|
|
654,212 |
|
|
— |
|
|
1,162,600 |
|
Due to related companies |
|
|
672,401 |
|
|
— |
|
|
— |
|
|
— |
|
|
672,401 |
|
Mining rights payable |
|
|
— |
|
|
32,234 |
|
|
110,524 |
|
|
— |
|
|
142,758 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
672,401 |
|
|
666,442 |
|
|
764,736 |
|
|
— |
|
|
2,103,579 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
F-57
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011
|
|
On demand |
|
Less than
1 year |
|
1 to 5 years |
|
More than
5 years |
|
Total |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Trade and bills payables |
|
|
— |
|
|
69,402 |
|
|
— |
|
|
— |
|
|
69,402 |
|
Other payables and accrued liabilities |
|
|
— |
|
|
9,964 |
|
|
— |
|
|
— |
|
|
9,964 |
|
Interest-bearing bank and other borrowings |
|
|
— |
|
|
277,992 |
|
|
557,015 |
|
|
49,146 |
|
|
884,153 |
|
Due to related companies |
|
|
451,380 |
|
|
— |
|
|
— |
|
|
— |
|
|
451,380 |
|
Mining rights payable |
|
|
— |
|
|
27,644 |
|
|
121,529 |
|
|
18,256 |
|
|
167,429 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
451,380 |
|
|
385,002 |
|
|
678,544 |
|
|
67,402 |
|
|
1,582,328 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
On demand |
|
Less than
1 year |
|
1 to 5 years |
|
More than
5 years |
|
Total |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Trade and bills payables |
|
|
— |
|
|
80,017 |
|
|
— |
|
|
— |
|
|
80,017 |
|
Other payables and accrued liabilities |
|
|
— |
|
|
8,700 |
|
|
— |
|
|
— |
|
|
8,700 |
|
Interest-bearing bank and other borrowings |
|
|
— |
|
|
134,357 |
|
|
270,000 |
|
|
48,742 |
|
|
453,099 |
|
Due to related companies |
|
|
314,235 |
|
|
— |
|
|
— |
|
|
— |
|
|
314,235 |
|
Mining rights payable |
|
|
— |
|
|
22,980 |
|
|
118,758 |
|
|
46,513 |
|
|
188,251 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
314,235 |
|
|
246,054 |
|
|
388,758 |
|
|
95,255 |
|
|
1,044,302 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
- (e)
- Capital management
The
primary objectives of the Group's capital management are to safeguard the Group's ability to continue as a going concern and to maintain healthy capital ratios in order to support
its business and maximise shareholders' value. The Group also relies on financial support from its controlling shareholder.
The
Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may return capital
to shareholders, raise new debt or issue new shares. No changes were made in the objectives, policies or processes for managing capital during the years ended December 31, 2010, 2011,
2012, and the six months ended June 30, 2013.
The
Group monitors capital on the basis of the debt to capital ratio (gearing ratio), which is calculated as interest-bearing debt divided by total capital. Interest-bearing debt
includes interest-bearing bank and other borrowings and mining rights payables. Capital includes total equity and interest-bearing debt. The gearing ratios as at the end of each of the years ended
December 31, 2010, 2011, 2012, and the six months ended June 30, 2013 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of
June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Interest-bearing debt |
|
|
570,900 |
|
|
861,876 |
|
|
1,116,908 |
|
|
1,856,867 |
|
Total equity |
|
|
630,964 |
|
|
565,469 |
|
|
507,595 |
|
|
289,571 |
|
| |
|
|
|
|
|
|
|
|
|
Total capital |
|
|
1,201,864 |
|
|
1,427,345 |
|
|
1,624,503 |
|
|
2,146,438 |
|
| |
|
|
|
|
|
|
|
|
|
Gearing ratio |
|
|
47.5% |
|
|
60.4% |
|
|
68.8% |
|
|
86.5% |
|
| |
|
|
|
|
|
|
|
|
|
F-58
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
36. MATERIAL NON-CONTROLLING INTERESTS
The Group has two subsidiaries with material non-controlling interests ("NCI"). Information regarding these subsidiaries is as follows:
Six months ended June 30, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Principal place
of business |
|
NCI in
subsidiary |
|
Profit/(loss)
allocated
to NCI |
|
Accumulated
NCI |
|
Dividends
paid to NCI
in year |
|
|
|
|
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Baiping Mining |
|
Mainland China |
|
|
30 |
% |
|
2,133 |
|
|
67,097 |
|
|
— |
|
Guizhou Yongfu |
|
Mainland China |
|
|
30 |
% |
|
(1,337 |
) |
|
21,070 |
|
|
— |
|
Six months ended June 30, 2012 (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Principal place
of business |
|
NCI in
subsidiary |
|
Profit/(loss)
allocated
to NCI |
|
Accumulated
NCI |
|
Dividends
paid to NCI
in year |
|
|
|
|
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Baiping Mining |
|
Mainland China |
|
|
30 |
% |
|
3,618 |
|
|
60,052 |
|
|
— |
|
Guizhou Yongfu |
|
Mainland China |
|
|
30 |
% |
|
(1,253 |
) |
|
21,134 |
|
|
— |
|
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Principal place
of business |
|
NCI in
subsidiary |
|
Profit
allocated
to NCI |
|
Accumulated
NCI |
|
Dividends
paid to NCI
in year |
|
|
|
|
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Baiping Mining |
|
Mainland China |
|
|
30 |
% |
|
8,530 |
|
|
64,964 |
|
|
— |
|
Guizhou Yongfu |
|
Mainland China |
|
|
30 |
% |
|
20 |
|
|
22,407 |
|
|
— |
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Principal place
of business |
|
NCI in
subsidiary |
|
Profit/(loss)
allocated
to NCI |
|
Accumulated
NCI |
|
Dividends
paid to NCI
in year |
|
|
|
|
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Baiping Mining |
|
Mainland China |
|
|
30 |
% |
|
1,204 |
|
|
56,434 |
|
|
— |
|
Guizhou Yongfu |
|
Mainland China |
|
|
30 |
% |
|
(1,743 |
) |
|
22,387 |
|
|
— |
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Principal place
of business |
|
NCI in
subsidiary |
|
Loss
allocated
to NCI |
|
Accumulated
NCI |
|
Dividends
paid to NCI
in year |
|
|
|
|
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Baiping Mining |
|
Mainland China |
|
|
30 |
% |
|
2,233 |
|
|
55,230 |
|
|
— |
|
Guizhou Yongfu |
|
Mainland China |
|
|
30 |
% |
|
1,727 |
|
|
24,130 |
|
|
— |
|
F-59
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Summarised
financial information including consolidation adjustments but before inter-company eliminations is as follows:
Baiping Mining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Cash and cash equivalents |
|
|
71 |
|
|
21,297 |
|
|
4,564 |
|
|
2,246 |
|
Other current assets |
|
|
11,816 |
|
|
23,643 |
|
|
30,967 |
|
|
39,098 |
|
Non-current assets |
|
|
280,504 |
|
|
293,307 |
|
|
310,529 |
|
|
312,387 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
292,391 |
|
|
338,247 |
|
|
346,060 |
|
|
353,731 |
|
| |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
52,153 |
|
|
93,621 |
|
|
73,621 |
|
|
35,579 |
|
Non-current liabilities |
|
|
56,137 |
|
|
56,512 |
|
|
55,891 |
|
|
94,495 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
108,290 |
|
|
150,133 |
|
|
129,512 |
|
|
130,074 |
|
| |
|
|
|
|
|
|
|
|
|
Baiping Mining
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended
June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue |
|
|
13,233 |
|
|
44,189 |
|
|
106,446 |
|
|
44,136 |
|
|
40,227 |
|
Profit/(loss) for the year/period |
|
|
(7,442 |
) |
|
4,012 |
|
|
28,434 |
|
|
12,060 |
|
|
7,112 |
|
Total comprehensive income/(loss) for the year/period, net of tax |
|
|
(7,442 |
) |
|
4,012 |
|
|
28,434 |
|
|
12,060 |
|
|
7,112 |
|
Net cash flows generated from/(used in) operating activities |
|
|
(5,265 |
) |
|
8,112 |
|
|
50,272 |
|
|
21,005 |
|
|
(3,930 |
) |
Increase/(decrease) in cash and cash equivalents |
|
|
(985 |
) |
|
21,226 |
|
|
(16,733 |
) |
|
(19,770 |
) |
|
(2,318 |
) |
Guizhou Yongfu
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
Cash and cash equivalents |
|
|
3,918 |
|
|
3,209 |
|
|
3,825 |
|
|
12,018 |
|
Other current assets |
|
|
136,999 |
|
|
72,894 |
|
|
70,081 |
|
|
67,825 |
|
Non-current assets |
|
|
268,179 |
|
|
403,441 |
|
|
543,252 |
|
|
606,365 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
409,096 |
|
|
479,544 |
|
|
617,158 |
|
|
686,208 |
|
| |
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
85,000 |
|
|
96,328 |
|
|
262,907 |
|
|
109,669 |
|
Non-current liabilities |
|
|
243,664 |
|
|
308,594 |
|
|
279,562 |
|
|
506,307 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
328,664 |
|
|
404,922 |
|
|
542,469 |
|
|
615,976 |
|
| |
|
|
|
|
|
|
|
|
|
F-60
Table of Contents
FEISHANG ANTHRACITE RESOURCES LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Guizhou Yongfu
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended
June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
RMB'000
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Revenue |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Profit/(loss) for the year/period |
|
|
(5,755 |
) |
|
(5,808 |
) |
|
66 |
|
|
(4,177 |
) |
|
(4,457 |
) |
Total comprehensive income/(loss) for the year/period, net of tax |
|
|
(5,755 |
) |
|
(5,808 |
) |
|
66 |
|
|
(4,177 |
) |
|
(4,457 |
) |
Net cash flows used in operating activities |
|
|
(2,531 |
) |
|
(3,953 |
) |
|
(6,930 |
) |
|
(2,103 |
) |
|
(4,943 |
) |
Increase/(decrease) in cash and cash equivalents |
|
|
(45,261 |
) |
|
(709 |
) |
|
616 |
|
|
381 |
|
|
8,193 |
|
37. EVENTS AFTER THE REPORTING PERIOD
On July 5, 2013, Guizhou Puxin received and fully drew down a RMB105.0 million three-year entrusted loan from China Minsheng
Bank Co., Ltd., entrusted by Yangpu Banghua, an unrelated third party. The purpose of the loan is to finance the operating working capital, mine construction, payment of mining rights
payables and debt settlement. The loan bears fixed interest rate of 7.38% per annum and bears commission fee at a rate of 0.33%.
On
July 18, 2013, the Group obtained a confirmation letter from China Minsheng Bank which will provide a loan facility totalling RMB1.6 billion for a year during which the
Group can draw down loan amounts pursuant to the conditions set out in the confirmation letter. On July 29, 2013, the Group obtained a revised confirmation letter from China Minsheng Bank which
extends the expiry period of the loan facility from a year to one and a half years.
On
August 14, 2013 and October 17, 2013, Guizhou Puxin received a RMB100.0 million and RMB150.0 million one-year bank loan from China Minsheng
Bank Co., Ltd., Chongqing Branch, respectively. The purpose of the loan is to finance the purchase of coal and to finance the working capital of Guizhou Puxin, respectively. The loans
are guaranteed by Wuhu Feishang Industrial Development Co., Ltd. ("WFID"), and Pingxiang Iron & Steel Co., Ltd. ("Pingxiang"). Pingxiang was a related company
controlled by Mr. Li Feilie, who is also an executive officer, director and the principal beneficial owner of the Company. Upon the disposition by Mr. Li Feilie in January 2013,
Pingxiang became an independent third party thereafter. The loans are also collateralized by a pledge of the outstanding stock of Guizhou Puxin. The loans bear floating annual interest rate of 6.60%
and 6.00% per annum, respectively. The loans were fully drew down in August 2013 and October 2013, respectively.
On
August 29, 2013, Guizhou Puxin received and fully drew down a RMB76.0 million one-year entrusted loan from China Industrial International Trust Limited. The purpose of
the loan is to finance the working capital of Guizhou Puxin. The loan bears a fixed interest rate of 7.29% per annum. The loan is secured by a RMB16.0 million bank deposit.
On
October 10, 2013, the Group obtained a confirmation letter from China Merchants Bank which will provide a loan facility totalling RMB350.0 million for seventeen months
during which the Group can draw down loan amounts pursuant to the conditions set out in the confirmation letter.
38. APPROVAL OF THE FINANCIAL STATEMENTS
The financial statements were approved and authorised for issue by the board of directors on November 19, 2013.
F-61
Table of Contents
IMPORTANT
If you are in any doubt about the contents of this listing document, you should seek independent professional advice.
[LOGO]
Feishang Anthracite Resources Limited
(Incorporated in the British Virgin Islands with limited liability)
LISTING BY INTRODUCTION
OF THE ENTIRE ISSUED SHARE CAPITAL OF THE COMPANY
ON THE MAIN BOARD OF
THE STOCK EXCHANGE OF HONG KONG LIMITED
|
|
|
|
|
Nominal value |
|
: |
|
HK$0.01 per Share |
Stock code |
|
: |
|
|
Joint Sponsors
(in alphabetical order)
Hong
Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this listing document,
make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents
of this listing document.
This
listing document is published in connection with the Listing on the Stock Exchange of our Shares which are currently in issue and held by CHNR and will be distributed to the shareholders of CHNR
upon completion of the Distribution. This listing document contains particulars given in compliance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited and
the Securities and Futures (Stock Market Listing) Rules (Chapter 571V of the Laws of Hong Kong) for the purpose of giving information with regard to the Company and its subsidiaries.
This listing document does not constitute an offer of, nor is it calculated to invite offers for, shares or other securities of the Company, nor have such shares or other
securities been allotted with a view to any of them being offered for sale to or subscription by the public. No new Shares will be allotted or issued in connection with, or pursuant to, this listing
document.
Information
regarding the proposed arrangements for the listing of, and dealings and settlement of dealings in, the Shares following completion of the Spin-off is set out in the section headed
"Information about this Listing Document and the Spin-off" in this listing document.
Your
attention is drawn to the section headed "Risk Factors" in this listing document.
2013
Table of Contents
EXPECTED TIMETABLE(1)
|
|
|
|
|
Last day of dealing in CHNR Shares ona cum entitlement basis |
|
|
, 2013 |
|
First day of dealing in CHNR Shares on an ex entitlement basis |
|
|
, 2013 |
|
Latest time for lodging transfers of the CHNR Shares cum entitlement to the Shares pursuant to the Distribution |
|
|
a.m./p.m. on , 2013 |
|
Register of members of CHNR closes from |
|
|
, 2013 |
|
Distribution Record Date |
|
|
, 2013 |
|
Declaration of a conditional special interim dividend by CHNR to be satisfied by way of a distribution in specie of our Shares to CHNR
Shareholders |
|
|
, 2013 |
|
Register of members of CHNR opens on |
|
|
, 2013 |
|
Announcement of obtaining the final listing approval from the Stock Exchange |
|
|
, 2013 |
|
Dispatch of Share certificates on(2) |
|
|
, 2013 |
|
Listing of and dealing in the Shares on the Stock Exchange expected to commence on(2) |
|
|
, 2013 |
|
Notes:
- (1)
- All
dates and times refer to Hong Kong dates and times, except as otherwise stated. Details of the Spin-off, including its condition, are set out in the
sections headed "Information about this Listing Document and the Spin-off" and "The Spin-off" in this listing document.
- (2)
- The
Share certificates are expected to be dispatched on , 2013. The Share certificates will only become valid if the Distribution becomes
unconditional. In the event the Distribution does not become unconditional, dealings in the Shares on the Stock Exchange will not commence on , 2013. In
such event, we will make an
announcement of the above and, if necessary, of a revised timetable. Investors who trade in the Shares prior to the receipt of the Share certificates do so entirely at their own risk.
i
Table of Contents
CONTENTS
IMPORTANT NOTICE TO INVESTORS
We have not authorized anyone to provide you with information or representation that is different from what is
contained in this listing document. Any such information or representation must not be relied on by you as having been authorized by us, the Joint Sponsors, any of our or their respective directors,
officers or representatives or any other person involved in the Spin-off.
|
|
|
|
|
Page |
Expected Timetable |
|
i |
Contents |
|
ii |
Summary |
|
1 |
Definitions |
|
13 |
Glossary of Technical Terms |
|
24 |
Forward-looking Statements |
|
28 |
Waiver from Strict Compliance with the Listing Rules |
|
30 |
Information about this Listing Document and the Spin-off |
|
31 |
Risk Factors |
|
34 |
Directors and Parties Involved in the Spin-off |
|
57 |
Corporate Information |
|
60 |
Industry Overview |
|
62 |
Regulation |
|
72 |
History and Development |
|
83 |
The Spin-off |
|
90 |
Business |
|
91 |
Financial Information |
|
137 |
Relationship with Our Controlling Shareholders |
|
179 |
Connected Transactions |
|
198 |
Directors and Senior Management |
|
201 |
Substantial Shareholders |
|
220 |
Share Capital |
|
223 |
ii
Table of Contents
|
|
|
|
|
|
|
|
|
Page |
| Appendix I — |
|
Accountants' Report of the Company |
|
I-1 |
| Appendix II — |
|
Accountants' Report of Guizhou Puxin |
|
II-1 |
| Appendix III — |
|
Competent Person's Report |
|
III-1 |
| Appendix IV — |
|
Summary of the Constitution of Our Company and British Virgin Islands Companies Law |
|
IV-1 |
| Appendix V — |
|
Statutory and General Information |
|
V-1 |
| Appendix VI — |
|
Documents Available for Inspection |
|
VI-1 |
iii
Table of Contents
SUMMARY
This summary is intended to give you an overview of the information contained in this listing document. Since it is a summary, it does not contain all the information
that may be important to you. You should read the listing document in its entirety. The resource and reserve data of the Company included in this listing document are determined by measuring the
raw coal extracted from our coal mines. The characteristics of our coal products are assessed by measuring our raw coal after
beneficiation (or coal washing) as may be required under the Chinese Coal Classification Standard. See "Business — Our Coal Characteristics and Coal
Products — Coal Classification".
OVERVIEW
We are a producer of anthracite coal based in Guizhou province of the PRC. We are primarily engaged in the acquisition,
construction and development of anthracite coal mines and the extraction and sale of anthracite coal. Our mining assets consist of seven underground anthracite coal mines in Guizhou province, of
which four have commenced commercial production, two are undergoing their pilot run phase and one is under construction. All of our anthracite coal mines are accessible by road and located in
Guizhou province, which, according to the SAWS and Fenwei, had the largest anthracite coal resources among the provinces in Southwest China as of December 31, 2012. The following table
sets forth certain information regarding our seven anthracite coal mines as of the date of this listing document, other than information regarding the total proved and probable reserves and the
estimated mine lives of our anthracite coal mines, which were as of July 31, 2013.
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Anthracite Coal Mine
|
|
Stage of Production |
|
Date of
Initial/Expected
Commercial
Production |
|
Total
Proved and
Probable
Reserves
(in million
tonnes) |
|
Permitted
Annual
Production
Capacity
(in tonnes)(1) |
|
Estimated
Mine
Life(2)
(in years) |
|
Baiping Coal Mine |
|
Commercial production |
|
June 2009 |
|
|
22.48 |
|
|
150,000 |
|
|
37 |
|
Liujiaba Coal Mine |
|
Commercial production |
|
December 2012 |
|
|
13.60 |
|
|
300,000 |
|
|
23 |
|
Zhulinzhai Coal Mine |
|
Commercial production |
|
April 2012 |
|
|
9.56 |
|
|
300,000 |
|
|
21 |
|
Gouchang Coal Mine |
|
Commercial production (suspended)(3) |
|
April 2011 |
|
|
5.72 |
|
|
90,000 |
|
|
52 |
|
Yongsheng Coal Mine |
|
Pilot run |
|
March 2014 |
|
|
51.96 |
|
|
600,000 |
|
|
29 |
|
Dayuan Coal Mine |
|
Pilot run |
|
November 2013 |
|
|
8.26 |
|
|
300,000 |
|
|
18 |
|
Dayun Coal Mine |
|
Construction |
|
July 2015 |
|
|
97.29 |
|
|
600,000 |
|
|
54 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
208.87 |
|
|
2,340,000 |
|
|
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| |
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|
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|
|
|
|
Notes:
- (1)
- Represents
the annual production capacity as permitted under the relevant mining rights permits.
- (2)
- Mine
life estimates are calculated by dividing proved and probable reserves by the optimized annual production capacity, which takes into account the
planned future increases in production capacity still in the design phase.
- (3)
- Operations
have been suspended at Gouchang Coal Mine since March 2013 pending the acquisition by us of a nearby coal mine and Gouchang Coal
Mine achieving certain production capacity targets in accordance with Guizhou province's coal mine consolidation policy. See "Business — Our Anthracite Coal
Mines — Mines in Commercial Production — Gouchang Coal Mine".
1
Table of Contents
As of July 31, 2013, we had total proved and probable coal reserves of approximately 208.87 million tonnes, total measured,
indicated and inferred coal resources of 407.18 million tonnes and total permitted annual production capacity of 2.34 million tonnes. In 2010, 2011, 2012 and the six months ended
June 30, 2012 and 2013, we sold 166,362 tonnes, 314,058 tonnes, 437,010 tonnes, 148,539 tonnes and 187,432 tonnes of anthracite coal, respectively, and had
revenues of RMB38.7 million, RMB105.2 million, RMB141.9 million, RMB55.2 million and RMB54.7 million, respectively. In 2010, 2011, 2012 and the six months ended
June 30, 2012 and 2013, the average selling price of the anthracite coal we produced was RMB232.4, RMB296.4, RMB323.6, RMB360.3 and RMB291.9 per tonne, respectively.
During
the Track Record Period, we derived our revenue primarily from the sale of coal we produced. From time to time, we also engaged in coal trading activities by selling coal that we
purchased from third party suppliers. In 2011, 2012 and the six months ended June 30, 2012 and 2013, revenue from sales of third party coal was RMB33.1 million, RMB1.1 million,
RMB1.1 million and nil, respectively, representing 31.5%, 0.8%, 2.0% and nil, respectively, of our total revenue. We did not engage in any coal trading activities in 2010, and we do not intend
to engage in any significant coal trading activities in the future.
In
the PRC, end users generally characterize anthracite coal as thermal coal, chemical coal or PCI coal. Thermal coal is generally used in the electric power industry for power
generation and in the construction industry for cement production. Chemical coal is generally used for the production of synthetic ammonia and methanol, and PCI coal is generally used for sintering,
smelting and injection purposes in the pulverized coal injection process in iron production. Prior to 2011, we sold substantially all of the coal produced from our mines as thermal coal. In 2011, 2012
and the six months ended June 30, 2013, we derived approximately 5%, 5% and 1.2% of our revenue from the sale of chemical coal we produced, respectively, while our remaining revenue in each of
these years was derived from the sale of thermal coal we produced and coal sourced from third parties. Subject to market conditions and the Guizhou government's annual guidance on supply of thermal
coal to power plants, we intend to significantly increase our sales of chemical coal in the future and begin selling PCI coal in 2014. Our ability to sell chemical coal or PCI coal during the Track
Record Period has been constrained as our annual production levels were determined based in large part on the Guizhou government's annual
guidance relating to the provision of certain minimum amounts of thermal coal to power plants operating in Guizhou, which has taken up a significant portion of our production capacity. We generally
price our anthracite coal based on the prevailing market prices in Guizhou, the anthracite coal type and quality, our sales volume and the length of our relationship with the customer.
2
Table of Contents
The following table sets forth the development status, estimated timeline and estimated capital expenditure required to achieve commercial production as of
June 30, 2013 for Yongsheng Coal Mine, Dayuan Coal Mine and Dayun Coal Mine:
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|
Material
Permits to be
Obtained
before
Commercial
Production |
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|
|
|
|
Estimated Capital
Expenditure
Required to Achieve
Commercial
Production as of
June 30, 2013
(RMB in millions) |
|
|
|
Permitted
Annual
Production
Capacity
(in tonnes) |
|
|
|
Expected Timeline |
|
Mines under
Construction
|
|
Development Status |
|
Approval Process |
|
Expected Time |
|
Yongsheng Coal Mine |
|
|
600,000 |
|
• Safe production
permit |
|
• Completed major
construction |
|
• Obtain approval of safety
facilities acceptance |
|
• February 2014 |
|
|
159.1 |
|
|
|
|
|
|
|
|
• Completed quality
authentication |
|
• Obtain safe production
permit |
|
• March 2014 |
|
|
|
|
|
|
|
|
|
|
|
• Completed on-site
inspection for pilot run |
|
• Commence commercial
production |
|
• March 2014 |
|
|
|
|
|
|
|
|
|
|
|
• Undergoing pilot run
phase |
|
|
|
|
|
|
|
|
Dayuan Coal Mine |
|
|
300,000 |
|
• Safe production
permit |
|
• Completed major
construction |
|
• Obtain safe production
permit |
|
• November 2013 |
|
|
1.5 |
|
|
|
|
|
|
|
|
• Undergoing quality
authentication phase |
|
• Commence commercial
production |
|
• November 2013 |
|
|
|
|
|
|
|
|
|
|
|
• Undergoing pilot run
phase |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
• Obtained approval of
safety facilities acceptance |
|
|
|
|
|
|
|
|
Dayun Coal Mine |
|
|
600,000 |
|
• Safe production
permit |
|
• Undergoing major
construction phase |
|
• Complete quality
authentication |
|
• September 2014 |
|
|
246.7 |
|
|
|
|
|
|
|
|
|
|
• Obtain approval of pilot
run |
|
• November 2014 |
|
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|
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|
|
|
|
|
|
|
|
|
• Obtain approval of safety
facilities acceptance |
|
• May 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
• Obtain safe production
permit |
|
• July 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
• Commence commercial
production |
|
• July 2015 |
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|
|
|
3
Table of Contents
In order to increase our production capacity, we plan to optimize all of our currently operating anthracite coal mines by improving mine layout and upgrading mine
infrastructure and equipment. We expect that our optimization plans will begin in 2015 and, after their expected completion in December 2018, we expect to be able to achieve an aggregate annual
production capacity of 5.81 million tonnes. The estimated costs of our optimization plans are RMB807.5 million.
Anthracite
coal production in Guizhou has historically exceeded local consumption and this trend is expected to continue. Anthracite coal prices in Guizhou are also highly cyclical. For
example, anthracite coal prices in Guizhou declined significantly in the second quarter of 2012 and, after a brief period of recovery, declined significantly again in the first half of 2013. There
could be further declines in anthracite coal prices in Guizhou in the future. See "Risk Factors — Our business, financial condition and results of operations are
susceptible to the cyclical nature of the PRC anthracite coal market and vulnerable to fluctuations in anthracite coal prices".
Under
PRC law, each coal mine in the PRC must obtain certain permits prior to commencing commercial production, including a mining right permit, a safe production permit and a coal
production permit. The following table sets forth certain information regarding our mining right permits, safe production permits and coal production permits as of the Latest Practicable Date:
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|
|
|
|
Mining Right Permit |
|
Safe Production Permit |
|
Coal Production Permit(5) |
Mine
|
|
Holder/permit number |
|
Permit date
(month/year) |
|
Expiration
date
(month/year) |
|
Permit date
(month/year) |
|
Expiration
date
(month/year) |
|
Permit date
(month/year) |
|
Expiration
date
(month/year) |
Baiping Coal Mine(1) |
|
Baiping Mining/ C5200002011111120121064 |
|
November
2011 |
|
August 2014 |
|
May 2012 |
|
May 2015 |
|
June 2009 |
|
June 2020 |
Liujiaba Coal Mine |
|
Xinsong Coal/ C5200002009091120036374(2) |
|
March 2011 |
|
September
2019 |
|
November
2012 |
|
November
2015 |
|
December
2012 |
|
December
2037 |
Zhulinzhai Coal Mine |
|
Linjiaao Coal/ C5200002011031120108782 |
|
April 2011 |
|
July 2018 |
|
March 2012 |
|
March 2015 |
|
April 2012 |
|
April 2031 |
Gouchang Coal Mine |
|
Gouchang Coal/ C5200002009121120048406 |
|
April 2011 |
|
April 2017 |
|
April 2011 |
|
April 2014 |
|
April 2011 |
|
April 2045 |
Yongsheng Coal Mine |
|
Guizhou Yongfu/ C5200002012021120124117(3) |
|
February
2012 |
|
November
2027 |
|
— |
|
— |
|
— |
|
— |
Dayuan Coal Mine |
|
Dayuan Coal/ 5200002011051120118585 |
|
March 2013 |
|
March 2023 |
|
— |
|
— |
|
— |
|
— |
Dayun Coal Mine |
|
Guizhou Dayun/ C5200002011031120112455(4) |
|
March 2011 |
|
March 2031 |
|
— |
|
— |
|
— |
|
— |
- (1)
- In
2011 and 2012, the actual production output of Baiping Coal Mine exceeded its permitted annual production capacity under its mining right permit and coal
production permit. See "Business — Our Anthracite Coal Mines — Mines in Commercial
Production — Baiping Coal Mine" on page 97. We have applied for a mining right permit with an annual production capacity of 300,000 tonnes for
Baiping Coal Mine and we expect to obtain such permit in 2014.
- (2)
- The
mining right has been pledged to China Minsheng Bank.
4
Table of Contents
- (3)
- The
mining right has been pledged to China Minsheng Bank and Bank of China.
- (4)
- The
mining right has been pledged to China Merchants Bank.
- (5)
- The
National People's Congress Standing Committee passed certain amendments to the Coal Law, which became effective on June 29, 2013, including
removing the requirement of obtaining coal production permits.
Each of our anthracite coal mines currently utilizes manual longwall mining, semi-mechanical longwall mining or mechanical longwall mining methods
to extract coal. Longwall mining refers to extracting coal from long rectangular blocks of coal seams. Manual longwall mining refers to drilling holes in the mining face, placing explosives and
detonating the explosives to extract the coal. Mechanical and semi-mechanical longwall mining involve using a mechanical shearer in coal extraction. In mechanical longwall mining, the mine roof is
held up during the extraction process by automatic hydraulic roof supports, while in semi-mechanical longwall mining, the mine roof is held up hydraulic roof supports that are operated manually. The
following table sets forth the current extraction method of each of our anthracite coal mines:
|
|
|
Anthracite Coal Mine
|
|
Extraction Method |
Baiping Coal Mine |
|
Manual longwall |
Liujiaba Coal Mine |
|
Semi-mechanical longwall |
Zhulinzhai Coal Mine |
|
Manual longwall |
Gouchang Coal Mine |
|
Manual longwall |
Dayun Coal Mine |
|
Mechanical longwall |
Yongsheng Coal Mine |
|
Mechanical longwall |
Dayuan Coal Mine |
|
Semi-mechanical longwall |
Our
cash operating costs consist primarily of the costs of wages and labor, materials, power and maintenance. Set forth below are our cash operating costs of our coal mines that were in
commercial production in 2012 and the six months ended June 30, 2013. See Appendix III — "Competent Person's Report".
|
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|
|
|
|
|
|
|
|
Average Cash Operating Costs
(RMB/Tonne of Saleable
Coal Produced) |
|
Category
|
|
Year ended
December 31, 2012 |
|
Six months ended
June 30, 2013 |
|
Wages and labor |
|
|
88.9 |
|
|
100.7 |
|
Materials |
|
|
47.5 |
|
|
44.8 |
|
Power |
|
|
11.5 |
|
|
16.0 |
|
Maintenance |
|
|
1.7 |
|
|
1.5 |
|
Other |
|
|
7.1 |
|
|
5.6 |
|
| |
|
|
|
|
|
Total cash operating costs |
|
|
156.7 |
|
|
168.6 |
|
| |
|
|
|
|
|
5
Table of Contents
Cash
operating cost is not a measure calculated in accordance with IFRS and is being disclosed in this listing document pursuant to the requirements of the Hong Kong Stock Exchange. We
believe cash operating cost is a relevant and useful measure to our investors, as it is used by our management as a gauge of our production costs and for purposes of internal reporting and planning in
connection with our liquidity and cash requirements. Set forth below is a reconciliation of our cash operating costs to cost of sales for the periods indicated:
|
|
|
|
|
|
|
|
|
|
Year ended
December 31, 2012 |
|
Six months ended
June 30, 2013 |
|
|
|
(RMB in thousands)
|
|
Cost of sales |
|
|
95,889 |
|
|
39,953 |
|
Opening coal balance |
|
|
(2,262 |
) |
|
(4,873 |
) |
Ending coal balance |
|
|
4,873 |
|
|
6,968 |
|
Price adjustment fund |
|
|
(12,116 |
) |
|
(2,792 |
) |
Sales taxes |
|
|
(3,897 |
) |
|
(1,834 |
) |
Cost of third party coal sold |
|
|
(1,110 |
) |
|
— |
|
Inventory write-down |
|
|
— |
|
|
984 |
|
Non-cash operating costs |
|
|
(12,934 |
) |
|
(5,949 |
) |
| |
|
|
|
|
|
Total cash operating costs |
|
|
68,443 |
|
|
32,457 |
|
| |
|
|
|
|
|
Our
capital expenditures were RMB219.7 million, RMB341.5 million, RMB360.2 million, RMB202.9 million and RMB139.3 million in 2010, 2011, 2012 and the
six months ended June 30, 2012 and 2013, respectively. Our capital expenditures primarily related to the construction of our coal mines, purchase of mining-related equipment and machinery and
pre-payments for land use rights for our coal mines. We expect to pay approximately an aggregate of RMB545.0 million in 2013 and 2014 for capital expenditures. See
Appendix III — "Competent Person's Report". We expect to fund these capital expenditures through interest-bearing bank loans and other borrowings. In the
past, we have financed a significant portion of our cash requirements with non-interest bearing loans from companies controlled by Mr. Li Feilie, our chairman and chief executive officer. In
March 2013, we repaid a significant portion of the non-interest bearing loans from companies controlled by Mr. Li with interest-bearing bank and other borrowings. We do not anticipate
receiving additional non-interest bearing loans from our related parties after the Listing. Accordingly, we expect our finance costs to increase significantly in the future. See "Financial
Information — Indebtedness".
THE SPIN-OFF
We are a wholly-owned subsidiary of CHNR, a BVI company with common shares listed on the NASDAQ Capital Market under the symbol "CHNR"
and controlled by Mr. Li Feilie, our chairman and chief executive officer. CHNR has two business segments: base metals exploration and mining; and anthracite coal exploration and mining. CHNR's
anthracite coal exploration and mining segment is operated through our Company.
6
Table of Contents
On ,
2013, the CHNR Board approved a conditional special interim dividend to the CHNR Shareholders to be satisfied by way of a distribution in specie of the entire
issued share capital of our Company to all CHNR Shareholders in proportion to their respective shareholdings in CHNR on the Distribution Record Date. Pursuant to the Distribution, each CHNR
Shareholder will be entitled to five Shares for every CHNR Share held on the Distribution Record Date. The Spin-off does not involve any offering of new Shares or a public offering of any other
securities and no funds will be raised pursuant to the Spin-off. The Distribution is conditional on the Listing Committee granting listing of, and permission to deal in, our Shares in issue on the
Main Board of the Stock Exchange. The reasons for the Spin-off include the following:
- •
- as CHNR's base metals exploration and mining business is fundamentally different from our Company's business, we believe
the Spin-off could result in more efficient and focused management for our Company and CHNR;
- •
- following the Spin-off, each of our Company and CHNR may adopt more effective incentive compensation arrangements,
including share-based compensation, that are more directly tied to performance;
- •
- after the Spin-off, each of our Company and CHNR may adopt more individually tailored capital structures; and
- •
- we believe that after the Spin-off, the trading price of the shares of each of our Company and CHNR may more accurately
reflect their respective values, and any future capital raised by our Company or CHNR may more accurately reflect such company's respective cost of capital.
Immediately
following the Spin-off, Mr. Li Feilie, our chairman and chief executive officer, will, through his shareholdings in Laitan Investments and Feishang, continue to be a
Controlling Shareholder of the Company. See "Relationship with Our Controlling Shareholders" for further details.
In
connection with the Distribution, CHNR subscribed for 124,554,580 Shares at a total consideration of HK$98,380,000 on , 2013. See "History and
Development — Increase in Share Capital Prior to Distribution".
We
expect to announce the Spin-off and Distribution on or around , 2013. The Distribution is not subject to the approval of CHNR Shareholders or NASDAQ. The
Shares to be
distributed in connection with the Distribution is being registered under the U.S. Exchange Act pursuant to a registration statement on Form 20-F. After the completion of the Spin-off,
we will become subject to periodic reporting and other informational requirements of the U.S. Exchange Act as applicable to "foreign private issuers" as defined therein.
7
Table of Contents
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following summary historical consolidated income statements for the years ended December 31, 2010, 2011 and 2012 and the six
months ended June 30, 2012 and 2013, and the selected consolidated statements of financial position as of December 31, 2010, 2011 and 2012 and June 30, 2013 are derived from our
consolidated financial statements, including the notes thereto, set forth in Appendix I — "Accountants' Report of the Company". You should read the summary
historical consolidated financial statements set forth below in conjunction with our consolidated financial statements included in
Appendix I — "Accountants' Report of the Company," together with the accompanying notes, which have been prepared in accordance with IFRS as issued by
the IASB.
Summary Consolidated Income Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended
June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(RMB in thousands)
|
|
Revenue |
|
|
38,668 |
|
|
105,211 |
|
|
141,939 |
|
|
55,156 |
|
|
54,716 |
|
Gross profit |
|
|
13,215 |
|
|
30,922 |
|
|
46,050 |
|
|
24,760 |
|
|
14,763 |
|
Operating loss |
|
|
(54,545 |
) |
|
(22,985 |
) |
|
(36,602 |
) |
|
(11,270 |
) |
|
(231,685 |
) |
Profit/(loss) before income tax |
|
|
562,134 |
|
|
(55,150 |
) |
|
(82,266 |
) |
|
(32,921 |
) |
|
(273,224 |
) |
Income tax (expense)/benefit |
|
|
(6,141 |
) |
|
(9,750 |
) |
|
15,210 |
|
|
(5,784 |
) |
|
50,468 |
|
Profit/(loss) for the year |
|
|
555,993 |
|
|
(64,900 |
) |
|
(67,056 |
) |
|
(38,705 |
) |
|
(222,756 |
) |
Attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owners of the Company |
|
|
562,432 |
|
|
(64,165 |
) |
|
(75,312 |
) |
|
(40,861 |
) |
|
(221,947 |
) |
Non-controlling interests |
|
|
(6,439 |
) |
|
(735 |
) |
|
8,256 |
|
|
2,156 |
|
|
(809 |
) |
Summary Consolidated Statements of Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of
June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
(RMB in thousands)
|
|
Non-current assets |
|
|
1,824,292 |
|
|
2,125,475 |
|
|
2,477,108 |
|
|
2,451,243 |
|
Current assets |
|
|
107,222 |
|
|
179,085 |
|
|
285,754 |
|
|
245,852 |
|
Total assets |
|
|
1,931,514 |
|
|
2,304,560 |
|
|
2,762,862 |
|
|
2,697,095 |
|
Current liabilities |
|
|
544,306 |
|
|
811,181 |
|
|
1,315,865 |
|
|
1,200,957 |
|
Net current liabilities |
|
|
437,084 |
|
|
632,096 |
|
|
1,030,111 |
|
|
955,105 |
|
Total liabilities |
|
|
1,300,550 |
|
|
1,739,091 |
|
|
2,255,267 |
|
|
2,407,524 |
|
Equity attributable to owners of the Company |
|
|
554,831 |
|
|
479,784 |
|
|
413,654 |
|
|
196,439 |
|
Non-controlling interests |
|
|
76,133 |
|
|
85,685 |
|
|
93,941 |
|
|
93,132 |
|
Total equity |
|
|
630,964 |
|
|
565,469 |
|
|
507,595 |
|
|
289,571 |
|
8
Table of Contents
KEY FINANCIAL RATIOS
The table below sets forth our key financial ratios as of the dates or for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the year ended
December 31, |
|
As of or for the six
months ended June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Inventory turnover days(1) |
|
|
49 |
|
|
26 |
|
|
31 |
|
|
45 |
|
|
59 |
|
Average trade and bill payable turnover days(2) |
|
|
660 |
|
|
362 |
|
|
325 |
|
|
428 |
|
|
451 |
|
Average trade and bill receivable turnover days(3) |
|
|
29 |
|
|
61 |
|
|
101 |
|
|
75 |
|
|
157 |
|
Gearing ratio(4) |
|
|
47.5 |
% |
|
60.4 |
% |
|
68.8 |
% |
|
66.6 |
% |
|
86.5 |
% |
Debt to equity ratio(5) |
|
|
90.5 |
% |
|
152.4 |
% |
|
220.0 |
% |
|
199.8 |
% |
|
641.2 |
% |
Gross margin(6) |
|
|
34.2 |
% |
|
29.4 |
% |
|
32.4 |
% |
|
44.9 |
% |
|
27.0 |
% |
- (1)
- Inventory
turnover days are calculated by dividing the arithmetic mean of the opening and closing balances of inventories for the year by cost of sales in
that year and multiplying by 360 days. As we did not have any commercial production until March 18, 2010, inventory turnover days in 2010 is calculated by dividing the arithmetic mean of
the balance of inventories as of March 18 and December 31, 2010 by cost of sales for the period beginning on March 18, 2010 and ending on December 31, 2010, and multiplying
by 280 days.
- (2)
- The
average trade and bill payable turnover days are calculated by dividing the arithmetic mean of opening and ending balance of trade and bill payables for
the year by cost of sales in the year and then multiplying by 360 days. As we did not have any commercial production until March 18, 2010, the average trade and bill payables turnover
days in 2010 is calculated by dividing the arithmetic mean of the balance of trade and bill payables as of March 18 and December 31, 2010 by cost of sales for the period beginning on
March 18, 2010 and ending on December 31, 2010, and multiplying by 280 days.
- (3)
- The
average trade and bill receivable turnover days are calculated by dividing the arithmetic mean of opening and ending balance of trade and bill
receivables for the year by revenue in that year and then multiplying by 360 days. As we did not have any commercial production until March 18, 2010, the average trade and bill
receivables turnover days in 2010 is calculated by dividing the arithmetic mean of the balance of trade and bill receivables as of March 18 and December 31, 2010 by revenue for the
period beginning on March 18, 2010 and ending on December 31, 2010, and multiplying by 280 days.
- (4)
- Gearing
ratio is calculated by dividing total interest-bearing debt by total capital at the end of the year and multiplying by 100%. Interest-bearing debt
includes interest-bearing bank and other borrowings and mining rights payables. Capital includes total equity and interest-bearing debt.
- (5)
- Debt
to equity ratio is calculated by dividing total interest-bearing debt by total equity (based on book value without any revaluation) at the end of the
year and multiplying by 100%. Interest-bearing debt includes interest-bearing bank and other borrowings and mining rights payables.
- (6)
- Gross
margin is calculated by dividing gross profit by revenue at the end of the year and multiplying by 100%.
9
Table of Contents
REGULATORY COMPLIANCE
Set forth below is a summary of our material non-compliance incidents during the Track Record Period, as well as the rectification
actions and preventative measures that we have taken in respect of such incidents, including obtaining confirmations from the relevant regulatory authorities that they would not impose penalties or
other measures on us. For further information on each of these incidents, see "Business — Regulatory Compliance":
|
|
|
Non-Compliance
|
|
Rectification Actions/Preventive Measures |
In 2012, Baiping Coal Mine produced 292,000 tonnes of anthracite coal which significantly exceeded its annual production capacity of
150,000 tonnes as permitted under its mining right permit and coal production permit. |
|
• In January and
July 2013, the Energy Bureau of Guizhou Province issued confirmation letters stating (i) it would not impose any penalties or other measures (including but not limited to revocation of the coal production permit or suspension of coal mining
operations) against Baiping Mining or its employees in respect of any over-production in 2012 or thereafter, as Baiping Coal Mine has undergone certain technological improvements after its coal production permit was issued, such that its actual
production capacity and ventilation systems exceeded the design specifications set forth in its coal production permit and could support an annual production output of 290,000 tonnes, and (ii) it would support our application for the
relevant permits with an annual production capacity of 300,000 tonnes or more. Between December 2012 and January 2013, we also received confirmation letters from the Water Conservation Office of Bijie City, the Water Resources
Department of Guizhou Province, the Guizhou Administration of Coal Mine Safety and the Environmental Protection Department of Guizhou Province. These confirmation letters either agreed with the January 2013 confirmation letter issued by the
Energy Bureau of Guizhou Province or confirmed there would be no penalties imposed on Baiping Mining and/or Baiping Mining's employees as a result of the over-production at Baiping Coal Mine. Our PRC legal advisors, Commerce & Finance Law
Offices, have advised us that such confirmation letters were issued by the competent government authorities and are legally valid. We plan to continue producing anthracite coal at Baiping Coal Mine, and may produce anthracite coal in excess of its
permitted production capacity as our annual production levels were determined based in large part on the Guizhou government's annual guidance relating to the provision of certain minimum amounts of thermal coal to power plants operating in Guizhou.
See "Regulation — PRC Laws relating to the Coal Industry — Supply of thermal coal to power plants". We have applied for a 300,000 tonnes mining right permit for Baiping Coal Mine and we expect to obtain such permit
in June 2014. After receiving such permit, we do not expect Baiping Coal Mine will continue to produce anthracite coal in excess of its permitted production capacity. |
None of our four anthracite coal mines in commercial production have completed its environmental trial run or the environmental acceptance inspection by the
relevant government authorities prior to commencing commercial production. |
|
• In January and
July 2013, the relevant Guizhou government authorities issued confirmation letters stating that no penalties would be imposed on any of our four anthracite coal mines that have commenced commercial production. Our PRC legal advisors,
Commerce & Finance Law Offices, have advised us that such confirmation letters were issued by the competent government authorities and are legally valid.
• We adopted an internal policy on
environmental protection management measures in June 2013 and established an environmental protection committee in August 2013 to improve the coordinated development of our coal mines, expedite the required environmental acceptance
inspections and improve compliance with applicable environmental and safety standards. |
10
Table of Contents
|
|
|
Non-Compliance
|
|
Rectification Actions/Preventive Measures |
|
|
• Prior to commencing
commercial production at each of these four anthracite coal mines, we have undertaken to the Guizhou Energy Bureau that we will comply with all relevant environmental laws, rules and regulations or apply for environmental acceptance inspections
immediately following our completion of inspections for obtaining coal production permits. We are in the process of applying for environmental acceptance inspections for each of our coal mines that has commenced commercial production, with the
exception of Gouchang Coal Mine, which has suspended operations. According to our PRC legal advisors, Commerce & Finance Law Offices, there will be no material legal impediments for us to obtain the relevant approvals to complete the
environmental acceptance inspections if we are able to meet all the conditions and requirements under PRC law or imposed by relevant authorities and undergo the relevant procedures, including submitting the requisite documents. We expect the
environmental acceptance inspections for these coal mines to be completed by 2014. |
|
|
• Our compliance and audit
department closely monitors our mining operations to make sure they are conducted in accordance with the applicable laws, rules and regulations. |
During the Track Record Period, certain of our subsidiaries did not timely complete their social insurance registrations and pay social insurance
contributions for employees in full. |
|
• In March, April and
May 2013, the relevant Guizhou government authorities issued confirmation letters stating that they would not impose any penalties in respect of our subsidiaries' failure to timely complete their social insurance registrations or pay their
social insurance contributions in full. The confirmation letters also stated that the unpaid contributions of our subsidiaries were waived. Our PRC legal advisors, Commerce & Finance Law Offices, have advised us that the confirmation letters
have been issued by the competent government authorities and are legally valid. |
|
|
• As of the Latest
Practicable Date, all of our subsidiaries have completed their social insurance registrations, and since April 2013, all of our subsidiaries have made their social insurance contributions in full and no outstanding contribution remains to be
made. |
|
|
• To avoid non-compliance
in the future, we have implemented a stricter internal policy in March 2013 requiring all of our subsidiaries to register for social insurance and pay social insurance contributions in full for each new employee in a timely manner. We also plan
to conduct monthly inspections of our employees' social insurance contribution payments. |
11
Table of Contents
|
|
|
Non-Compliance
|
|
Rectification Actions/Preventive Measures |
During the Track Record Period, certain of our subsidiaries did not timely complete their housing provident fund registrations and pay the required housing
provident fund contribution for employees in full. |
|
• In March and
April 2013, the relevant Guizhou government authorities issued confirmation letters stating that they would not impose any penalties in respect of our subsidiaries' failure to timely complete their housing provident fund registrations or pay
their housing provident fund contributions. The confirmation letters also stated that the unpaid contributions of our subsidiaries were waived. Our PRC legal advisors, Commerce & Finance Law Offices, have advised us that the confirmation
letters have been issued by the competent government authorities and are legally valid. |
|
|
• As of the Latest
Practicable Date, all of our subsidiaries have completed their housing provident fund registrations, and since April 2013, all of our subsidiaries have made their housing provident fund contributions in full and no outstanding contribution
remains to be made. |
|
|
• To avoid non-compliance
in the future, we have implemented a stricter internal policy in March 2013 requiring all of our subsidiaries to register for housing provident fund and pay housing provident fund contributions in full for each new employee in a timely manner.
We also plan to conduct monthly inspections of our employees' housing provident fund contribution payments. |
During the Track Record Period, certain of our subsidiaries made non-interest bearing intercompany loans to our other subsidiaries in the PRC in
contravention of applicable PRC regulations on intercompany lending. |
|
• Prior to the Listing, all
of the intercompany loans among our subsidiaries have been terminated and replaced with entrusted loans. These entrusted loans were made available by Feishang Management, certain of our subsidiaries or Independent Third Parties as the entrusting
party, through China Minsheng Bank as the lender, to our other subsidiaries as the borrower. See "Relationship with Our Controlling Shareholders — Independence from Our Controlling Shareholders — Financial Independence".
The provision of entrusted loans is in line with the practice generally adopted by corporations in the PRC, and our PRC legal advisors, Commerce & Finance Law Offices, have advised us that such entrusted loans do not contravene any PRC laws,
rules or regulations. |
Recent Developments
There has been no material change to our business, industry or regulatory environment since June 30, 2013 and up to the date of
the listing document, except as disclosed in the listing document.
12
Table of Contents
DEFINITIONS
In this listing document, unless the context otherwise requires, the following words and expressions shall have
the following meanings. Certain technical terms are explained in the section headed "Glossary of Technical Terms" in this listing document.
|
|
|
"Accountants' Report of the Company" |
|
a report prepared by the Company's reporting accountants, Ernst & Young, in respect of the Company for the purpose of
incorporation in this listing document. Please refer to Appendix I to this listing document for the full report |
"Accountants' Report of Guizhou Puxin" |
|
a report prepared by the Company's reporting accountants, Ernst & Young, in respect of Guizhou Puxin for the purpose of
incorporation in this listing document. Please refer to Appendix II to this listing document for the full report |
"Articles of Association" |
|
the articles of association of our Company (as amended from time to time), filed
on , 2013 a summary of which is set out in Appendix IV — "Summary of the Constitution
of Our Company and British Virgin Islands Companies Law" to this listing document |
"associate(s)" |
|
has the meaning ascribed thereto under the Listing Rules |
"Baiguochong Mine" |
|
a lead-zinc mine located in E Shan town, Fanchang county, Anhui province, the PRC, which is wholly-owned by Yunnan
Feishang |
"Baiping Coal Mine" |
|
a coal mine located in Gaoping, Jinsha county, Qianbei Coal District, Guizhou province, the PRC, which is wholly-owned by Baiping
Mining |
"Baiping Mining" |
|
Jinsha Baiping Mining Co. Ltd. (
), a company organized in the PRC on January 15, 2009 and owned as to 70% by Guizhou Puxin and 30% by Yangpu Wanshun Energy Co. Ltd., an Independent Third Party |
"Bank of Chongqing" |
|
Bank of Chongqing Co., Ltd. (
), a company organized in the PRC and an Independent Third Party |
"Bank of Communications" |
|
Bank of Communications Co., Ltd. (
), a company organized in the PRC and an Independent Third Party |
"Behre Dolbear" or "Behre Dolbear Asia, Inc" |
|
Behre Dolbear Asia, Inc., a subsidiary of Behre Dolbear Group, Inc, a mineral industry advisory and consulting group, which
specializes in performing mineral industry studies for mining companies, financial institutions and natural resource firms, and an Independent Third Party |
|
|
|
13
Table of Contents
|
|
|
"Bijie Feishang" |
|
Bijie Feishang Energy Co. Ltd. (
), a company organized in the PRC on October 19, 2010 and a wholly-owned subsidiary of Guizhou Puxin |
"Board" or "Board of Directors" |
|
the board of directors of our Company |
"BVI" |
|
the British Virgin Islands |
"BVI Business Company" |
|
a business company with limited liability incorporated under the Companies Act |
"Business Day" |
|
any day (other than a Saturday, Sunday or public holiday) on which banks in Hong Kong are generally open for business |
"CAGR" |
|
compound annual growth rate |
"CCASS" |
|
the Central Clearing and Settlement System established and operated by HKSCC |
"CCASS Clearing Participant" |
|
a person admitted to participate in CCASS as a direct clearing participant or a general clearing participant |
"CCASS Custodian Participant" |
|
a person admitted to participate in CCASS as a custodian participant |
"CCASS Investor Participant" |
|
a person admitted to participate in CCASS as an investor participant who may be an individual or joint individuals or a
corporation |
"CCASS Participant" |
|
a CCASS Clearing Participant, a CCASS Custodian Participant or a CCASS Investor Participant |
"China", "PRC" or "State" |
|
the People's Republic of China excluding, for the purpose of this listing document only, Hong Kong, Macao and Taiwan, unless
otherwise specified |
"China Coal" |
|
China Coal Mining Investments Limited (
), a company incorporated in Hong Kong on January 14, 2008 and a wholly-owned subsidiary of CHNR |
"China Coal Resource" |
|
China Coal Resource Website (
), a website established in 1998 by a group of experts from sectors such as coal, coke, coal-chemical, coal transportation and sales and strategic investments |
"China Everbright Bank" |
|
China Everbright Bank Co., Ltd. (
), a company organized in the PRC and an Independent Third Party |
|
|
|
14
Table of Contents
|
|
|
"China Merchants Bank" |
|
China Merchants Bank Co., Ltd. (
), a company organized in the PRC and an Independent Third Party |
"China Minsheng Bank" |
|
China Minsheng Banking Corp., Ltd. (
), a company organized in the PRC and an Independent Third Party |
"CHNR" |
|
China Natural Resources, Inc., a company incorporated in the BVI on December 14, 1993 and the sole Shareholder of our
Company prior to the Distribution |
"CHNR Board" |
|
the board of directors of CHNR |
"CHNR Group" |
|
CHNR and its subsidiaries, which, except where the context otherwise requires, includes our Company |
"CHNR Share(s)" |
|
common shares in the capital of CHNR without par value |
"CHNR Shareholder(s)" |
|
holder(s) of the CHNR Shares |
"Companies Act" |
|
The BVI Business Companies Act, 2004 |
"Companies Ordinance" |
|
the Companies Ordinance (Chapter 32 of the Laws of Hong Kong), as amended or supplemented from time to time |
"Company", "our", "we" or "us" |
|
Feishang Anthracite Resources Limited (
), a company incorporated in the BVI with limited liability on January 6, 2010 and, except where the context otherwise requires, all of its subsidiaries |
"Competent Person's Report" |
|
a competent person's report issued by Behre Dolbear
dated , 2013, details of which are set out in "Appendix III — Competent Person's
Report" to this listing document |
"Controlling Shareholder(s)" |
|
immediately following the Spin-off, Feishang, Laitan Investments and/or Mr. Li Feilie |
"Core Businesses" |
|
the business of the acquisition and exploitation of coal mining rights (including the exploration, construction, development and
operation of coal mines) located in Guizhou province in the PRC |
"Corporate Transactions" |
|
the series of acquisitions and other transactions undertaken by our Company in 2010 and 2011, details of which are set forth in
the section headed "History and Development" in this listing document |
"CPC" |
|
Communist Party of China |
|
|
|
15
Table of Contents
|
|
|
"CSRC" |
|
China Securities Regulatory Commission (
) |
"Dayuan Coal" |
|
Guizhou Nayong Dayuan Coal Mining Co. Ltd. (
), a company organized in the PRC on January 22, 2009 and owned as to 99% by Guizhou Puxin and 1% by Mr. Li Shenggen, an Independent Third Party |
"Dayuan Coal Mine" |
|
a coal mine located in Xinfang, Nayong county, Zhina Coal District, Guizhou province, the PRC, which is wholly-owned by Dayuan
Coal |
"Dayun Coal Mine" |
|
a coal mine located in Gaopingxiang, Jinsha county, Qianbei Coal District, Guizhou province, the PRC, which is wholly-owned by
Guizhou Dayun |
"Deed of Non-Competition" |
|
the deed of non-competition
dated , 2013, entered into between Feishang, Laitan Investments, Mr. Li Feilie, Feishang Energy and
the Company in respect of the Core Businesses (as defined in the section headed "Relationship with Our Controlling Shareholders — Deed of Non-Competition" in this listing document) |
"Director(s)" |
|
director(s) of our Company |
"Distribution" |
|
a conditional special interim dividend declared by CHNR to be satisfied by way of a distribution in specie of the entire
issued share capital of our Company, being an aggregate of 124,554,580 Shares to the CHNR Shareholders, subject to the satisfaction of the conditions described in the section headed "The Spin-off" in this listing document |
"Distribution Record Date" |
|
, 2013, being the record date for ascertaining entitlements to the Distribution |
"Entrusted Loan" |
|
the loan in the amount of RMB131.0 million made available by Feishang Management as the entrusting party, through the
Chongqing branch of China Minsheng Bank as the lender, to Guizhou Puxin as the borrower |
"Feishang" |
|
Feishang Group Limited, a company incorporated in the BVI on January 3, 1997 and is wholly-owned by Laitan Investments,
which is one of our Controlling Shareholders |
"Feishang Energy" |
|
Guizhou Feishang Energy Co., Ltd. (
), a company organized in the PRC on February 1, 2010 and a wholly-owned subsidiary of Shenzhen Feishang |
|
|
|
16
Table of Contents
|
|
|
"Feishang Enterprise" |
|
Feishang Enterprise Group Co., Ltd. (
), a company organized in the PRC on June 9, 2000 and owned as to 60.74% by Mr. Li Feilie, 4.48% by Mr. Li Feiwen, 17.39% by Mr. Li Qingquan and 17.39% by Ms. Li Ruijin, all of whom are associates of
Mr. Li Feilie |
"Feishang Management" |
|
Shenzhen Feishang Management and Consulting Co. Limited (
), a company organized in the PRC on October 6, 2008 and a wholly-owned subsidiary of Yunnan Feishang |
"Feishang Mining" |
|
Feishang Mining Holdings Limited (
), a company incorporated in the BVI on September 3, 2004 and, since February 3, 2006, a wholly-owned subsidiary of CHNR |
"Fenwei" |
|
Shanxi Fenwei Energy Consulting Co., Ltd. (
), an independent market consultant we engaged to prepare a report on certain industry data contained in this listing document |
"GDP" |
|
gross domestic product |
"Gouchang Coal" |
|
Nayong Gouchang Coal Mining Co. Ltd. (
), a company organized in the PRC on September 10, 2009 and owned as to 99% by Guizhou Puxin and 1% by Mr. Huang Bin, an Independent Third Party |
"Gouchang Coal Mine" |
|
a coal mine located in Kunzhai, Nayong county, Zhina Coal District, Guizhou province, the PRC, which is wholly-owned by Gouchang
Coal |
"Guizhou Bank" |
|
Bank of Guizhou (
),
a company organized in the PRC and an Independent Third Party |
"Guizhou Dayun" |
|
Guizhou Dayun Mining Co., Ltd. (
), a company organized in the PRC on April 14, 2004 and a wholly-owned subsidiary of Guizhou Puxin |
"Guizhou Fuyuantong" |
|
Guizhou Fuyuantong Energy Co., Ltd. (
), a company organized in the PRC on March 10, 2010 and a wholly-owned subsidiary of Smartact |
"Guizhou Puxin" |
|
Guizhou Puxin Energy Co., Ltd. (
), a company organized in the PRC on January 15, 2009 and a wholly-owned subsidiary of Guizhou Fuyuantong |
17
Table of Contents
|
|
|
"Guizhou Yongfu" |
|
Guizhou Yongfu Mining Co., Limited (
), a company organized in the PRC on June 27, 2005 and owned as to 70% by Guizhou Puxin and 30% by Yangpu Wanshun Energy Co. Ltd., an Independent Third Party |
"HK$" or "Hong Kong dollars" |
|
Hong Kong dollars, the lawful currency of Hong Kong |
"HKSCC" |
|
Hong Kong Securities Clearing Company Limited |
"HKSCC Nominees" |
|
HKSCC Nominees Limited, a wholly-owned subsidiary of HKSCC |
"Hong Kong" |
|
the Hong Kong Special Administrative Region of the PRC |
"Hong Kong Branch Share Registrar" |
|
Tricor Investor Services Limited |
"Huachuang Securities" |
|
Huachuang Securities Limited (
), a company organized in the PRC and an Independent Third Party |
"IASB" |
|
International Accounting Standards Board |
"IFRS" |
|
International Financial Reporting Standards issued by the IASB |
"Independent Third Party(ies)" |
|
persons who, as far as our Directors are aware after having made all reasonable enquiries, are not connected with (within the
meaning of the Listing Rules) any directors, chief executive or substantial shareholders of the Company or any of its subsidiaries or any of their respective associates |
"Industrial and Commercial Bank of China" |
|
Industrial and Commercial Bank of China Limited (
), a company organized in the PRC and an Independent Third Party |
"Jinsha Juli" |
|
Jinsha Juli Energy Resources Co. Ltd., (
), a company organized in the PRC on November 16, 2012 and owned as to 99% by Guizhou Puxin and 1% by Bijie Feishang |
"Joint Sponsors" |
|
Jefferies Hong Kong Limited and Nomura International (Hong Kong) Limited |
"Laitan Investments" |
|
Laitan Investments Limited, a company incorporated in the BVI on January 8, 1997 and is wholly-owned by Mr. Li Feilie,
which is one of our Controlling Shareholders |
|
|
|
18
Table of Contents
|
|
|
"Latest Practicable Date" |
|
,
2013, being the latest practicable date for the purpose of ascertaining certain information contained in this listing document prior to its publication |
"Linjiaao Coal" |
|
Liuzhi Linjiaao Coal Mining Co., Ltd. (
), a company organized in the PRC on November 19, 2008 and owned as to 99% by Guizhou Puxin and 1% by Mr. Zheng Shengjian, an Independent Third Party |
"Listing" |
|
the listing of the Shares on the Main Board of the Stock Exchange by way of introduction |
"Listing Committee" |
|
the listing committee of the Stock Exchange |
"Listing Date" |
|
the date, expected to be on or
about , 2013, on which the Shares are listed on the Stock Exchange and from which dealings in the Shares
are permitted to commence on the Stock Exchange |
"Listing Rules" |
|
the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, as amended or supplemented from time to
time |
"Liujiaba Coal Mine" |
|
a coal mine located in Xinhua, Liuzhi Special District, Zhina Coal District, Guizhou province, the PRC, which is wholly-owned by
Xinsong Coal |
"Luojiachong Mine" |
|
a copper-polymetallic mine located in the west of Chisha town, Fanchang county, Anhui province, the PRC, which is wholly-owned by
Yunnan Feishang |
"Main Board" |
|
the stock exchange (excluding the option market) operated by the Stock Exchange which is independent from and operated in
parallel with the Growth Enterprise Market of the Stock Exchange |
"Memorandum of Association" |
|
the memorandum of association of our Company (as amended from time to time), filed
on , 2013, a summary of which is set out in Appendix IV — "Summary of the Constitution
of Our Company and British Virgin Islands Companies Law" to this listing document |
"MLR" |
|
the Ministry of Land and Resources of the PRC (
) |
"MOF" |
|
the Ministry of Finance of the PRC (
) |
|
|
|
19
Table of Contents
|
|
|
"MOFCOM" |
|
the Ministry of Commerce of the PRC (
) or its predecessor, the Ministry of Foreign Trade and Economic Cooperation of the PRC (
) |
"NDRC" |
|
National Development and Reform Commission of the PRC (
) |
"NEA" |
|
National Energy Administration (
) |
"PBOC" |
|
People's Bank of China (
) |
"Peak Vision Appraisals Limited" |
|
an independent property valuation company we engaged to provide an overview of certain property interests held by us |
"PRC Company Law" |
|
the Company Law of the PRC (
), as amended |
"PRC Enterprise Income Tax Law" or the "EIT Law" |
|
The Enterprise Income Tax Law of the PRC (
), as amended |
"PRC GAAP" |
|
the generally accepted accounting principles in the PRC |
"PRC Government" |
|
the Government of the PRC |
"RMB" or "Renminbi" |
|
Renminbi, the lawful currency of the PRC |
"SACMS" |
|
State Administration of Coal Mine Safety of the PRC (
) |
"SAFE" |
|
State Administration of Foreign Exchange of the PRC (
) |
"Sanjiazhai Mine" |
|
a coal mine located in Liuzhi Special District, Guizhou province, PRC, which is controlled by Feishang Enterprise |
"SAT" |
|
State Administration of Taxation of the PRC (
) |
"SAWS" |
|
State Administration of Work Safety of the PRC (
) |
"SFC" |
|
the Securities and Futures Commission of Hong Kong |
"SFO" |
|
the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended or supplemented from time to
time |
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|
|
|
"Share(s)" |
|
ordinary shares in the capital of our Company with a par value of HK$0.01 each |
"Share Option Scheme" |
|
the share option scheme conditionally approved by the then sole Shareholder
on , 2013, a summary of the principal terms of which is set out in
Appendix V — "Statutory and General Information — (b) Share Option Scheme" to this listing document |
"Shareholder(s)" |
|
holder(s) of the Shares |
"Shenzhen Chixin" |
|
Shenzhen Chixin Information Consulting Co., Ltd. (
), a company organized in the PRC on July 18, 2012 and a wholly-owned subsidiary of Guizhou Puxin |
"Shenzhen Feishang" |
|
Shenzhen Feishang Energy Investment Co., Ltd. (
), a company organized in the PRC on September 28, 2007 and a wholly-owned subsidiary of Feishang Enterprise |
"Sichong Mine" |
|
a gold-silver-lead-zinc mine located in Suncun town, Fanchang county, Anhui province, the PRC, which is wholly-owned by Wuhu
Feishang |
"Smartact" |
|
Hong Kong Smartact Limited (
), a company incorporated in Hong Kong on January 3, 2010 and a wholly-owned subsidiary of the Company |
"SPDB" |
|
Shanghai Pudong Development Bank Co., Ltd. (
), a company organized in the PRC and an Independent Third Party |
"Spin-off" |
|
the spin-off of the Company to be effected by way of the Listing and the Distribution, the details of which are set out in the
section of "The Spin-off" |
"State Council" |
|
the State Council of the PRC (
) |
"Stock Exchange" |
|
The Stock Exchange of Hong Kong Limited |
"Takeovers Code" |
|
Code on Takeovers and Mergers and Share Repurchases published by the SFC |
"Track Record Period" |
|
the financial years of our Company ended December 31, 2010, 2011 and 2012 |
"U.S." or "United States" |
|
the United States of America |
|
|
|
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|
|
|
"U.S. Exchange Act" |
|
the United States Securities Exchange Act of 1934, as amended |
"U.S. Securities Act" |
|
the United States Securities Act of 1933, as amended |
"US$" or "U.S. dollars" |
|
United States dollars, the lawful currency of the United States |
"VAT" |
|
value added tax |
"WFID" |
|
Wuhu Feishang Industrial Development Co., Ltd. (
), a company organized in the PRC on December 26, 2001 and owned as to 90% by Feishang Enterprise and 10% by Shenzhen Chaopeng Investment Co., Ltd. (
), a 90%-owned subsidiary of Feishang Enterprise |
"Wuhu Feishang" |
|
Wuhu Feishang Mining Development Co. Limited (
), a company organized in the PRC on June 21, 2002 and a wholly-owned subsidiary of Feishang Mining |
"Wuhu Port" |
|
Wuhu Port Co., Ltd. (
), a company organized in the PRC on September 12, 2002 and owned as to 60% by WFID and 40% by Yangpu Jinding Industrial Co., Ltd. (
), an Independent Third Party |
"Xinsong Coal" |
|
Liuzhi Xinsong Coal Mining Co. Ltd. (
), a company organized in the PRC on November 13, 2008 and owned as to 99% by Guizhou Puxin and 1% by Mr. Cai Songqing, an Independent Third Party |
"Yangpu Dashi" |
|
Hainan Yangpu Dashi Industrial Co., Limited (
), a company organized in the PRC on April 13, 2004 and a wholly-owned subsidiary of Guizhou Puxin |
"Yangpu Lianzhong" |
|
Yangpu Lianzhong Mining Co. Limited (
), a company organized in the PRC on January 21, 2008 and a wholly-owned subsidiary of China Coal |
"Yangpu Shuanghu" |
|
Yangpu Shuanghu Industrial Development Co. Limited (
), a company organized in the PRC on May 11, 2004 and a wholly-owned subsidiary of CHNR |
"Yongsheng Coal Mine" |
|
a coal mine located in Huajuexiang, Jinsha county, Qianbei Coal District, Guizhou province, the PRC, which is wholly-owned by
Guizhou Yongfu |
"Yunnan Feishang" |
|
Yunnan Feishang Mining Co. Limited (
), a company organized in the PRC on June 12, 2007 and a wholly-owned subsidiary of Wuhu Feishang |
|
|
|
22
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|
|
|
"Zhulinzhai Coal Mine" |
|
a coal mine located in Xinhua, Liuzhi Special District, Zhina Coal District, Guizhou province, the PRC, which is wholly-owned by Linjiaao
Coal |
In
this listing document, the terms "associate", "connected person", "connected transaction", "controlling shareholder", "subsidiary" and "substantial shareholder" shall have the
meanings given to such terms in the Listing Rules, unless the context otherwise requires.
In
this listing document, if there is any inconsistency between the Chinese names of entities or enterprises established in China or Chinese government authorities or departments and
their English translations, the Chinese names shall prevail.
Certain
amounts and percentage figures included in this listing document have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an
arithmetic aggregation of the figures preceding them.
23
Table of Contents
GLOSSARY OF TECHNICAL TERMS
This glossary contains explanations of certain technical terms used in this listing document. Such terminology
and meanings may not correspond to standard industry meanings or usages of those terms.
|
|
|
"anthracite coal" |
|
coal that has a volatile matter content of 10% or less under the Chinese Coal Classification Standard |
"ash content" |
|
the inorganic residue remaining after the combustion of coal; ash content is an important characteristic of coal because it
impacts boiler performance of electric generating plants and determines the suitability of the coal for end users |
"chemical coal" |
|
coal used for the production of synthetic ammonia and methanol |
"Chinese Coal Classification Standard" |
|
a national standard (GB/T 5751-2009) in respect of coal classification issued by the General Administration of Quality
Supervision, Inspection and Quarantine of the PRC and the Standardization Administration of the PRC |
"Chinese Coal Granularity Classification Standard" |
|
a national standard (GB/T 189-1997) in respect of coal granularity classification issued by the General Administration of Quality
Supervision, Inspection and Quarantine of the PRC |
"coal seam" |
|
a geological structure containing a series of layers of coal, shale and other mineral materials of various thickness within a
defined zone |
"drilling and blasting" or "manual longwall mining" |
|
a coal extraction method involving drilling holes in mining face, placing explosives and detonating the explosives |
"grindability" |
|
level of difficulty of grinding coal into particles sizes required for efficient combustion in pulverized coal boiler
furnaces |
"heat value" |
|
energy released by coal during combustion |
"indicated resource" |
|
that part of a coal resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be
estimated with a reasonable level of confidence |
"inferred resource" |
|
that part of a coal resource for which tonnage, grade and mineral content can be estimated with a low level of confidence; it is
inferred from geological evidence, sampling and assumed but not verified geological and/or grade continuity |
|
|
|
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|
|
|
"JORC Code" |
|
Australian Code of Reporting of Mineral Resources and Ore Reserves, prepared by the Joint Ore Reserves Committee of the Australasian Institute of
Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia in 1999 and revised in 2004 |
"longwall mining" |
|
mining method of extracting coal from long rectangular blocks of coal seams and delivering the extracted coal to the surface via
a mine conveyor system |
"measured resource" |
|
that part of a coal resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be
estimated with a high level of confidence |
"mechanical longwall mining" |
|
a type of longwall mining where the mine roof is held up by automatic hydraulic roof supports during the extraction
process |
"mining face" |
|
the working area where the extraction of overburden or coal takes place in an underground or open-cut mine |
"MJ/kg" |
|
megajoules per kilogram |
"moisture content" |
|
amount of moisture in coal, expressed as a percentage of the weight of the coal |
"overburden" |
|
barren rock material, either loose or consolidated, overlying a mineral deposit, which must be removed prior to
mining |
"PCI coal" |
|
coal generally used for sintering, smelting and injection purposes in the pulverized coal injection process in iron
production |
"PRC Solid Mineral Resources/ Reserves Classification Code" |
|
a mineral reserves classification system of the PRC which is consistent with the principles of classification adopted
internationally |
"probable reserves" |
|
unless otherwise indicated economically mineable part of an indicated resource and, in some circumstances, measured resource
under the JORC Code |
"proved reserves" |
|
unless otherwise indicated economically mineable part of a measured resource under the JORC Code |
|
|
|
25
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|
|
|
"pulverized coal injection process" |
|
process that involves blowing large volumes of fine coal granules into the blast furnace during the iron production process |
"reclamation" |
|
process of restoring land and the environment to their original state following mining activities, which commonly includes
reshaping the land to its approximate original appearance, restoring topsoil and planting native grass and ground cover |
"recovery rate" |
|
percentage of coal that can be recovered from the coal deposits at existing mines |
"rock bolt" |
|
a long anchor bolt used to support and stabilize mine tunnel and shaft walls |
"semi-mechanical longwall mining" |
|
a type of longwall mining where the mine roof is held up manually during the extraction process |
"shotcrete" |
|
a technique involving spraying concrete through a hose onto a surface at high speed to reinforce and stabilize the
surface |
"slagging and tunneling" |
|
a tunneling technique using large mechanical tunnel scrapers |
"sulfur content" |
|
the amount of sulfur dioxide that may be emitted as a result of combustion |
"thermal coal" |
|
coal used in combustion processes by power producers and industrial users to produce steam for power and heat |
"tonne" |
|
a metric mass unit that equals 1,000 kilograms |
"underground mine" |
|
a mine where the coal is extracted from below the surface without removing the overburden |
"volatile matter content" |
|
matters that are released from coal at high temperatures, other than moisture |
"WY1-class anthracite coal" |
|
anthracite coal that has a volatile matter content of no more than 3.5% or helium content of no more than 2.0%. Under the Chinese
Coal Classification Standard, in case of a conflict between the classification of anthracite coal based on volatile matter content and helium content, the classification based on helium content will be used |
|
|
|
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Table of Contents
|
|
|
"WY2-class anthracite coal" |
|
anthracite coal that has a volatile matter content of more than 3.5% and no more than 6.5% or helium content of more than 2.0% and no more than
3.0%. Under the Chinese Coal Classification Standard, in case of a conflict between the classification of anthracite coal based on volatile matter content and helium content, the classification based on helium content will be used |
"WY3-class anthracite coal" |
|
anthracite coal that has a volatile matter content of more than 6.5% and no more than 10.0% or helium content of more than 3.0%.
Under the Chinese Coal Classification Standard, in case of a conflict between the classification of anthracite coal based on volatile matter content and helium content, the classification based on helium content will be used |
27
Table of Contents
FORWARD-LOOKING STATEMENTS
This listing document contains forward-looking statements. All statements other than statements of historical fact contained in this
listing document, including, without limitation, statements relating to our strategies, plans, objectives, goals and targets, our future financial, business or other performance and development, the
future development of our industry, the general economy of our key markets and globally, are intended to identify forward-looking statements. We also use the words "aim", "anticipate", "believe",
"continue", "could", "estimate", "expect", "forecast", "going forward", "intend", "may", "plan", "potential", "predict", "project", "ought to", "seek", "should", "will", "would" and similar
expressions to identify forward-looking statements.
These
forward-looking statements are subject to known and unknown risks, uncertainties, assumptions and other factors, some of which are beyond our control. In addition, these
forward-looking statements reflect our current views with respect to future events and are not a guarantee of future performance. Important factors that could materially affect our actual results,
performance or achievements include the risk factors set forth in "Risk Factors" and the following:
- •
- our liquidity and financial condition;
- •
- our business strategies and plan of operations;
- •
- our future debt levels and capital needs and the availability and costs of bank loans and other forms of financing;
- •
- our capital expenditure plans;
- •
- projects under construction or planning;
- •
- the possibility of project cost overruns or unanticipated costs and expenses;
- •
- our production capacity;
- •
- our operations and business prospects;
- •
- our product mix;
- •
- changes in prices for anthracite coal;
- •
- supply and demand changes in anthracite coal markets;
- •
- changes in the competitive landscape in the anthracite coal industry;
- •
- our ability to reduce production costs;
- •
- our relationship with, and other conditions affecting, our customers;
- •
- risks inherent to coal mining, including accidents;
28
Table of Contents
- •
- estimates of coal reserves;
- •
- our plans and objectives for future operations and expansion;
- •
- our dividend policy;
- •
- the regulatory environment and developments of our industry in general;
- •
- changes in political, economic, legal and social conditions in the PRC, including the PRC's government's specific policies
with respect to the coal industries, economic growth, inflation, foreign exchange and the availability of credit; and
- •
- catastrophic losses from fires, floods, windstorms, earthquakes, diseases or other adverse weather-related damage.
The
Directors confirm that these forward-looking statements are made by the Directors after due and careful considerations and on bases and assumptions that are fair
and reasonable.
These
forward-looking statements are based on current plans and estimates, which speak only as of the date they are made, and numerous assumptions regarding our present and future
business strategy and the environment in which we will operate in the future. Subject to the requirements of applicable laws, rules and regulations, we do not have any obligation to update or
otherwise revise any forward-looking statements in this listing document, whether as a result of new information, future events or otherwise.
Due
to these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this listing document might not occur in the way we expect, or at all.
Accordingly, you should not place undue reliance on any forward-looking information. All forward-looking statements contained in this listing document are qualified by reference to this cautionary
statement.
In
this listing document, statements of or references to our intentions or that any of our Directors are made as of the date of this listing document. Any such information may change in
light of future developments.
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Table of Contents
WAIVER FROM STRICT COMPLIANCE WITH THE LISTING RULES
We have applied to the Stock Exchange for, and the Stock Exchange [has granted] to us, the following waiver
from strict compliance with the Listing Rules.
BASIC CONDITIONS IN RELATION TO QUALIFICATIONS FOR LISTING
According to Rule 8.05 of the Listing Rules, an issuer must satisfy one of the three tests in relation to: (i) profit;
(ii) market capitalization, revenue and cash flow; or (iii) market capitalization and revenue requirements. Chapter 18 of the Listing Rules applies to mineral companies. Under
Rules 8.05 and 18.04 of the Listing Rules, the requirements of Rule 8.05 of the Listing Rules may not apply if the Stock Exchange is satisfied that the directors and management of
the issuer have sufficient experience relevant to the exploration and/or extraction activity that the issuer is pursuing and the directors and management relied on have a minimum of five years of
relevant industry experience. We have applied for, and the Stock Exchange [has granted], a waiver from strict compliance with Rule 8.05 of the Listing Rules in
accordance with the reasoning under Rules 8.05 and 18.04 of the Listing Rules.
30
Table of Contents
INFORMATION ABOUT THIS LISTING DOCUMENT AND THE SPIN-OFF
DIRECTORS' RESPONSIBILITY FOR THE CONTENTS OF THIS LISTING DOCUMENT
This listing document, for which the Directors collectively and individually accept full responsibility, includes particulars given in
compliance with the Listing Rules for the purpose of giving information to the public with regard to us.
The
Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief, the information contained in this listing document is accurate and complete
in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this listing document misleading.
INFORMATION ON THE SPIN-OFF
The Spin-off does not involve any offering of new Shares or a public offering of any other securities and no funds will be raised
pursuant to the Spin-off. The Distribution is conditional on the Listing Committee granting the listing of, and permission to deal in, the Shares in issue on the Main Board of the Stock Exchange. If
such condition is not satisfied, the Distribution will not be made and the Spin-off will not take place, in which case an announcement to that effect will be made.
Neither the publication or delivery of this listing document nor the distribution of Shares pursuant to the Distribution should, under any circumstances,
constitute a representation that there has been no change or development reasonably likely to involve a change in our affairs since the date of this listing document or imply that the information
contained in this listing document is correct as of any date subsequent to the date of this listing document.
RESTRICTION ON THE USE OF THIS LISTING DOCUMENT
This listing document is published solely in connection with the Spin-off. It may not be used for any other purpose and, in particular,
no person is authorized to use or reproduce this listing document or any part thereof in connection with any offering of shares or other securities of our Company. Accordingly, there is no, and will
not be any, public offer, solicitation, or invitation by or on behalf of our Company and/or the Joint Sponsors to invest or hold any of our Shares. Neither this listing document nor any other document
or information (or any part thereof) delivered or supplied under or in relation to the Spin-off may be used for the purpose of making, and the delivery, distribution and availability of this
listing document or such other document or information (or any part thereof) does not constitute, any offer of or solicitation or an invitation by or on behalf of our Company or the Joint
Sponsors to invest or hold any of our Shares.
INFORMATION AND REPRESENTATIONS
We have not authorized anyone to provide any information or to make any representation not contained in this listing document. You
should not rely on any information or representation not contained in this listing document as having been authorized by us, the Joint Sponsors, or any of our
31
Table of Contents
or
their respective directors, officers or representatives or any other person involved in the Spin-off. No representation is made that there has been no change or development reasonably likely to
involve a change in our affairs since the date of this listing document or imply that the information contained in this listing document is correct as of any date subsequent to the date of this
listing document.
NO CHANGE IN BUSINESS
No change in the business of our Company is contemplated immediately following the Spin-off.
APPLICATION FOR THE LISTING OF OUR SHARES ON THE STOCK EXCHANGE BY WAY OF INTRODUCTION
There is no established public trading market for our Shares. An application has been made to the Listing Committee for the listing of,
and permission to deal in, on the Main Board of the Stock Exchange, the Shares in issue.
No
part of the share or loan capital of our Company is listed on or dealt in on any other stock exchange. At present, our Company is not seeking or proposing to seek such listing of, or
permission to deal in, the share or loan capital of our Company on any other stock exchange.
REGISTER OF MEMBERS AND STAMP DUTY
Our Company's principal register of members will be maintained by our principal registrar in the BVI and our Company's Hong Kong register of members will be maintained by the Hong Kong Branch Share Registrar.
Dealings
in our Shares registered in our register of members in Hong Kong maintained by the Hong Kong Branch Share Registrar will be subject to Hong Kong stamp duty.
Unless
our Company determines otherwise, dividends payable in Hong Kong dollars in respect of our Shares will be paid to the Shareholders listed on our Company's Hong Kong register of
members, by way of check sent by ordinary post, at our Shareholder's risk, to the registered address of each Shareholder.
SHARES WILL BE ELIGIBLE FOR ADMISSION INTO CCASS
Subject to the granting of listing of, and permission to deal in, our Shares on the Stock Exchange and compliance with the stock
admission requirements of HKSCC, our Shares will be accepted as eligible securities by HKSCC for deposit, clearance and settlement in CCASS with effect from the date of commencement of dealings in our
Shares on the Stock Exchange or on any other date HKSCC chooses.
Settlement
of transactions between participants of the Stock Exchange is required to take place in CCASS on the second business day after the relevant trading day.
32
Table of Contents
All
activities under CCASS are subject to the General Rules of CCASS and CCASS Operational Procedures in effect from time to time.
All
necessary arrangements have been made for our Shares to be admitted into CCASS.
PROFESSIONAL TAX ADVICE RECOMMENDED
You should consult your professional advisers if you are in any doubt as to the taxation implications of receiving, purchasing,
holding, disposing of and dealing in our Shares. We emphasize that none of us, the Joint Sponsors, any of our or their respective directors, officers or representatives or any other person involved in
the Spin-off accepts responsibility for any tax effects or liabilities resulting from the receipt of, purchase, holding or disposing of, or dealing in, our Shares or your exercise of any rights
attaching to our Shares.
COMMENCEMENT OF DEALINGS IN OUR SHARES
Dealings in our Shares on the Stock Exchange are expected to commence on .
Our
Shares will be traded in board lots of Shares each. The stock code of our Shares is .
LANGUAGE
If there is any inconsistency between this listing document and the Chinese translation of this listing document, this listing document
shall prevail. The translated English names of the PRC nationals, entities, departments, facilities, certificates, titles, laws, regulations, natural persons or other entities (including certain of
our subsidiaries) included in this listing document and for which no official English translation exists are unofficial translations for your reference only.
ROUNDING
Any discrepancies in any table or chart between the total shown and the sum of the amounts listed thereon are due to rounding. Certain
amounts and percentage figures included in this listing document have been subject to rounding adjustments, or have been rounded to one decimal place.
33
Table of Contents
RISK FACTORS
You should consider carefully all the information set forth in this listing document and, in particular, the
risks and uncertainties described below and in the Competent Person's Report in Appendix III before making an investment in our Shares. Our business, financial condition, results of operations
or prospects could be materially and adversely affected by any of these risks and uncertainties. The market price of our Shares could decline significantly due to any of these risks, and you may lose
all or part of your investment. Additional risks and uncertainties that are not presently known to us or that we currently deem immaterial may arise or become material in the future and may have a
material adverse effect on our Company.
RISKS RELATING TO OUR BUSINESS
As we are a development stage coal mining company with a limited operating and production history, it is difficult to evaluate our business and prospects.
We are a development stage coal mining company. We have seven underground anthracite coal mines in Guizhou province, of which four have
commenced commercial production, two are undergoing their pilot run phase and one is under construction. Baiping Coal Mine, Gouchang Coal Mine (currently suspended), Zhulinzhai Coal Mine and Liujiaba
Coal Mine commenced commercial production in June 2009, April 2011, April 2012 and December 2012, respectively. We did not generate any revenue or begin commercial
production of anthracite coal until the acquisition of Guizhou Puxin in March 2010. Accordingly, we have a limited operating and production history upon which you could evaluate our business
and prospects. We are subject to risks and uncertainties frequently encountered by coal mining companies at an early stage of development in the PRC, and our ability to manage and respond to these
risks is unproven. Some of these risks and uncertainties relate to our ability to:
- •
- expand production capacity in a cost-effective manner;
- •
- respond to fluctuating demand for, and variations in price of, coal in a highly cyclical market;
- •
- respond to competition in a highly fragmented market;
- •
- effectively market and sell the anthracite coal we produce;
- •
- respond to changing, unpredictable and increasingly onerous regulatory requirements; and
- •
- raise sufficient capital to sustain and grow our business.
If
we are not successful in addressing these risks, our business, financial condition, results of operations and prospects will be materially and adversely affected.
34
Table of Contents
We have a history of losses and we anticipate that losses will continue.
Our business has not yet achieved any operating profits. In 2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, we
incurred operating losses of RMB54.5 million, RMB23.0 million, RMB36.6 million, RMB11.3 million and RMB231.7 million, respectively, and, disregarding the effects of
a RMB624.1 million non-recurring gain relating to the acquisition of Guizhou Puxin in 2010, we would have incurred net losses in each of those periods. We cannot assure you when or if we will
be able to achieve or sustain profitability.
We require a significant amount of cash to fund the growth of our business as well as to meet our working capital requirements, and we may be unable to obtain sufficient
capital in a timely manner or on acceptable terms, or at all.
Our business is capital intensive. In particular, we will need a substantial amount of cash for the construction and development of our
coal mines, our coal beneficiation plant and our shipping port. As of the date of this listing document, we expect to pay approximately an aggregate of RMB545.0 million in 2013 and 2014 for
capital expenditures. These estimated capital expenditures are expected to be used primarily for the construction of Dayuan Coal Mine, Dayun Coal Mine, Yongsheng Coal Mine, a coal beneficiation plant
in Jinsha county and a port along the Wujiang River near Yongsheng coal Mine. We have not generated any net cash flows from our operating activities, and as of December 31, 2010, 2011 and 2012
and June 30, 2013, we had net current liabilities
of RMB437.1 million, RMB632.1 million, RMB1,030.1 million and RMB955.1 million, respectively. As a result, we may need to obtain additional funding to finance our growth
and meet our working capital requirements. Our ability to obtain additional funding is subject to a variety of uncertainties, including:
- •
- our financial condition, results of operations and cash flows;
- •
- the conditions in the PRC, Hong Kong and other markets where we may seek to raise funds;
- •
- investors' perception of, and demand for, securities of coal mining companies; and
- •
- economic, political and other conditions in the PRC and elsewhere.
Among
our seven coal mines, four have commenced commercial production, two are undergoing their pilot run phase and one is under construction. In the past, we have financed a significant
portion of our funding needs with non-interest bearing loans from companies controlled by Mr. Li Feilie, our chairman and chief executive officer. In 2013, we refinanced a significant portion
of our non-interest bearing loans with interest-bearing bank and other borrowings, which significantly increased our finance costs and reduced our ability to obtain additional financing. If we are
unable to obtain sufficient funding in a timely manner or on acceptable terms, or at all, our business, financial condition, results of operations and prospects would be materially and adversely
affected.
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We are highly leveraged, which may materially and adversely affect our financial condition and results of operations as well as our ability to expand our business.
We have a high degree of financial leverage. As of December 31, 2010, 2011 and 2012 and June 30, 2013, our gearing ratio
was 47.5%, 60.4%, 68.8% and 86.5%, respectively. We rely heavily on borrowings to fund our capital requirements and expect to continue to do so in the future. As of December 31, 2010, 2011 and
2012 and June 30, 2013, we had total outstanding interest-bearing bank and other borrowings of RMB418.7 million, RMB735.9 million and RMB1,013.5 million and
RMB1,759.3 million, respectively, and as of the Latest Practicable Date, the total outstanding amount of our interest-bearing bank and other borrowings was
RMB . In addition, in
July 2013, we obtained a legally binding commitment letter from China Minsheng Bank to provide a term loan with an aggregate principal amount of up to RMB1.6 billion that may be drawn
down on or before January 29, 2015, subject to certain conditions. Furthermore, in October 2013, we obtained a legally binding commitment letter from China Merchants Bank to provide a
term loan with an aggregate principal amount of up to RMB350 million that may be drawn down before March 10, 2015, subject to certain conditions. The degree to which we are leveraged may
impair our ability to make necessary capital expenditure, increase our exposure to interest rate fluctuations, and limit our ability to develop business opportunities or make strategic acquisitions,
which may materially and adversely affect our financial condition and results of operations as well as our ability to expand our business.
If we are unable to successfully expand our coal production capacity, our business and prospects would be materially and adversely affected.
Our future success is dependent on our ability to expand our coal production capacity. We need to increase our coal production capacity
and meet the demands of our customers as well as benefit from economies of scale and reduce our average costs. In particular, Dayun Coal Mine, Dayuan Coal Mine and Yongsheng Coal Mine have not
commenced commercial production, and our ability to achieve commercial production at these coal mines in a timely and cost effective manner is subject to a number of risks and factors beyond our
control, including:
- •
- construction delays and cost overruns due to weather, mechanical failures, mine accidents, unforeseen geological
anomalies, changes in government regulations or policies and other reasons;
- •
- inability to obtain or delays in obtaining the requisite government approvals; and
- •
- our ability to fund the capital expenditure requirements.
The
construction of our anthracite coal mines has been subject to multiple delays and cost overruns, and we cannot assure you that delays and cost overruns will not occur in the future.
In the past, our delays and cost overruns were caused by various factors beyond our control, including:
- •
- suspensions of mining activities in Guizhou by the Guizhou government in response to the occurrence of severe mining
accidents and certain government meetings and other events in Guizhou;
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- •
- unanticipated difficulties in relocating local residents affected by certain of our coal mines as required by the local
government, including Dayun Coal Mine and Zhulinzhai Coal Mine;
- •
- the upgrade of certain of our coal mines from using drilling and blasting mining methods to semi-mechanical longwall
mining methods in 2011 in anticipation of Guizhou's new requirements relating to mining methods, which required us to incur significant time and expense to redesign and upgrade Liujiaba Coal
Mine; and
- •
- suspension of construction of one of the two mine faces of Yongsheng Coal Mine as required by the Jinsha County
Administration of Coal Mine in 2013.
In
addition, our business, financial condition and results of operations may be materially and adversely affected if we are unable to continue operations at our coal mines. For example,
the operations at
Gouchang Coal Mine were suspended from March to August 2012 under certain newly implemented mine gas control requirements in Guizhou, and have been suspended by the Guizhou government since
March 2013 pending the acquisition by us of a nearby coal mine and Gouchang Coal Mine achieving certain production capacity targets in accordance with Guizhou province's coal mine consolidation
policy. We cannot assure you that our acquisition of the coal mine near Gouchang Coal Mine would be successful or that Gouchang Coal Mine would be able to resume production. As of July 31,
2013, Gouchang Coal Mine had proved and probable reserve of 5.72 million tonnes, representing approximately 2.7% of our total proved and probable reserve.
To
manage the growth of our business, we would also need to improve our operational and financial systems, procedures and controls, integrate the transportation logistics at these coal
mines with our existing operating coal mines, as well as expand, train and manage our employee base. We cannot assure you that our current and planned operations, personnel, systems and internal
procedures and controls will be adequate to support our future growth. If we are unable to increase our coal production capacity in a timely and cost effective manner, or if we are unable to
successfully manage and integrate our increased coal production capacity, we may not be able to effectively grow our business, benefit from the intended economies of scale or achieve profitability.
Our reliance on sales of thermal coal makes our financial results vulnerable to downturns in the demand for, and government price controls imposed on, thermal coal in
the PRC.
Although we intend to increase our sales of chemical coal in the future, we currently derive a significant portion of our revenue from
the sale of thermal coal to local power plants in Guizhou province. The demand for thermal coal from power producers in the PRC is dependent on a number of factors, including the rate of economic
growth and general economic conditions in the PRC, the PRC Government's economic, energy, environmental and other policies, and the availability and cost of alternative energy sources. Although
thermal coal is expected to remain a significant energy source in the PRC, the PRC Government is investing heavily in exploring alternative energy sources, including
nuclear, hydroelectric, wind and solar power. Moreover, the PRC Government agreed during
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the
United Nations Climate Change Conference in December 2009 to reduce carbon dioxide emissions by 40% to 45% by 2020 from 2005 levels. Any government initiative to reduce energy consumption
or control greenhouse gas emission could reduce the demand for, and prices of, thermal coal in the PRC.
Moreover,
the price of thermal coal in the PRC has from time to time been subject to government price controls. For example, in November 2011, the NDRC issued the Notice on Implementation of Temporary Price Intervention on Thermal
Coal and Enhancement of Thermal Coal Price Control (
) which limited increases in the contract price of thermal
coal sold to certain power producers in the PRC to 5% in 2012 and imposed a maximum price limit of RMB800 per
tonne on the spot prices of thermal coal. While these price control measures did not directly impact the average selling prices of our thermal coal, which were significantly below the specified price
limits prior to the enactment of these measures, these measures may have created downward pressures on the PRC thermal coal market generally and indirectly affected the average selling prices of our
thermal coal. Although these price control measures were terminated in January 2013, we cannot assure you that the price of thermal coal would not be subject to further price controls in the
future. Any significant decline in the demand for, or prices of, thermal coal could materially decrease our revenue and cash flows, and may further increase our net losses.
We may not be able to successfully produce, market and sell chemical and PCI coal, which could materially and adversely affect our business and prospects.
Our future profitability will significantly depend on our ability to produce, market and sell chemical coal and PCI coal, which
generally command higher average selling prices and have higher margins than thermal coal. In 2011, 2012 and the six months ended June 30, 2013, we derived approximately 5%, 5% and 1.2%,
respectively, of our revenue from the sale of self-produced chemical coal, and we have not yet commenced selling any PCI coal. As part of our strategy, however, we intend to significantly increase our
sales of chemical coal, and we intend to begin selling PCI coal in 2014.
Our
ability to market and sell chemical and PCI coal is subject to a number of risks and uncertainties. For example, our annual coal production levels were determined based in large part
on the Guizhou government's annual guidance relating to the provision of certain minimum amounts of thermal coal to power plants operating in Guizhou, which has significantly limited our capacity to
produce and sell chemical coal. See "Regulation — PRC Laws relating to the Coal Industry — Supply of thermal coal to power
plants". We cannot assure you that we will not be subject to other regulatory requirements or government actions that will constrain our ability to produce, market or sell chemical or PCI coal in the
future. Moreover, although we have entered into certain non-binding cooperation arrangements relating to the sale of chemical coal, we have not yet entered into any binding agreements for the sale of
chemical or PCI coal, and we cannot assure you that we will be able to effectively market and sell chemical or PCI coal. The target customers for chemical and PCI coal, which primarily include
chemical, steel and iron companies, are different from our existing customers for thermal coal, which mainly consist of power producers, and we cannot assure you that we will be able to develop the
necessary customer relationships. Furthermore, the underdeveloped road, water and railway transportation infrastructure in the regions where our coal mines are located may limit our
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ability
to efficiently transport chemical and PCI coal to our target customers. If we cannot successfully produce, market and sell chemical and PCI coal in sufficient quantities, our revenue and cash
flows as well as our financial condition and results of operations could be materially and adversely affected.
We
are in the process of constructing a coal beneficiation plant in Jinsha county to process anthracite coal into chemical coal and PCI coal. However, we have no experience with
constructing or operating coal beneficiation plants, and we cannot assure you that we will be able to complete the construction process without significant delays or cost overruns, or that we will be
able to operate the coal beneficiation plant efficiently and profitably once it has been constructed.
The coal reserve data in this listing document are estimates and may be inaccurate, and our actual reserves and production may differ materially from these estimates.
The coal reserve data on which our production and capital expenditure plans are based are estimates that have made based on the results
of geological exploration and were reviewed by Behre Dolbear, an independent mining consultant. There are inherent uncertainties in estimating coal reserves, and these reserve estimates may be
inaccurate and may differ materially from our actual volume of reserves, rates of production and coal characteristics. As these coal reserve estimates are based on a number of assumptions regarding
expected market coal prices, production and transportation costs and recovery rates, these assumptions may turn out to be incorrect or need to be revised in light of actual results. For example,
unexpected geographic anomalies, such as faults, discovered during the extraction process could reduce our assumed recovery rates as well as the quality of the coal extracted. Moreover, most of our
coal mines have multiple mining stacked seams, and we may not be able to achieve the assumed recovery rates due to our inexperience with multiple mining stacked seams, particularly the lower stacked
seams, and the current engineering and technical design of our coal mines may not support the assumed recovery rates, particularly in the later years of production when deeper extraction from our coal
mines is needed to recover the coal. If any revision results in these estimates in a substantial reduction in proved or probable reserves at one or more of our coal mines, our business, financial
condition, results of operations and prospects could be materially and adversely affected.
Unanticipated faults at our coal mines could materially and adversely affect our production output, coal quality and mining operations.
Faults are displacements or offsets in coal seams that could reduce coal production output and extraction rates by obstructing mining
equipment. Moreover, due to the prevalence of rocks in fault areas, the quality of coal extracted from fault areas are typically lower as a result of the high rock content in the extracted coal.
Mining in fault areas could also wear out mining equipment more rapidly, as well as adversely affect the safety of mining operations by reducing roof stability and acting as trap zones for gas.
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Although
we have planned our mines to avoid known faults, we have not conducted any seismic studies to generate full subsurface profiles of our coal mines to identify the full extent of
faulting, and we cannot assure you that the actual extent of faulting at our coal mines is not more extensive than currently estimated. We have encountered unanticipated faults at Yongsheng Coal Mine
and Liujiaba Coal Mine, which have adversely affected recovery rates at those mines and rendered the coal extracted in the fault areas unsuitable for use as chemical coal or PCI coal. If we encounter
additional unanticipated faults at our coal mines in the future, our production output and coal quality could suffer, and our business, financial condition, results of operations and prospects could
be materially and adversely affected.
Our business, financial condition, results of operations and prospects could be materially and adversely affected if we are unable to obtain or renew the necessary
government permits and licenses or complete the required environmental trial runs and inspections relating to our operations.
Prior to the commencement of commercial production, each coal mine in the PRC is required to obtain a number of permits and licenses,
including:
- •
- a mining right permit;
- •
- a safe production permit; and
- •
- a coal production permit.
In
addition to these permits, prior to commencing commercial production, coal mines in the PRC are required to complete an environmental trial run and an environmental acceptance
inspection.
We
cannot assure you that we will be able to obtain or renew the permits, licenses and approvals necessary for our business operations or complete the required environmental trial runs
and inspections in a timely manner or at all, or that onerous conditions will not be imposed in connection with the granting or renewal of such permits and licenses. The granting of permits and
licenses in the PRC is discretionary and is subject to the PRC Government's prevailing economic, energy, environmental, health and safety and other policies. If we are unable to obtain or renew the
required permits and licenses at any of our coal mines, we may need to suspend, terminate or downsize our operations, which could have a material adverse effect on our business, financial condition,
results of operations and prospects.
In
2012, the production output of Baiping Coal Mine significantly exceeded its assessed annual production capacity as set forth in its mining right permit and coal production permit.
Moreover, none of our anthracite coal mines have completed the requisite environmental trial run or the environmental acceptance inspection prior to commencing commercial production. Although the
relevant PRC Governmental authorities have issued letters to confirm that no penalties would be imposed in respect of these violations, we cannot assure that similar violations will not occur in the
future, which could subject us to significant fines, production suspensions and, for certain serious violations, criminal liability and mine closure. See
"Business — Regulatory Compliance".
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Our long-term business and prospects depend upon our ability to successfully increase our production based on existing coal reserves, and acquire and develop additional
coal reserves.
As of July 31, 2013, we had approximately 208.87 million tonnes of proved and probable coal reserves, respectively. Our
existing coal reserves will decline as we produce coal. As a result, our ability to sustain or increase our production in the long-term will depend on our ability to increase our production based on
existing coal reserves, and acquire additional coal reserves and develop these reserves into coal mines. We cannot assure you that we will be able to successfully identify suitable coal reserves for
acquisition, or that we will be able to acquire such reserves on acceptable terms, or at all. There is a limited supply of desirable coal reserves in the PRC, and there is intense competition for
mining rights from other coal producers, some of which may have significantly greater financial and other resources than we do.
Moreover,
assuming we are able to acquire additional coal reserves, our ability to develop these reserves into commercially viable coal mines is subject to a number of risks. For
example, the geological and extraction conditions of these reserves may turn out to be different from what we anticipated, the characteristics of the coal produced from these reserves may be less
desirable than we expected, the construction and production costs may be higher than our estimates, and the relevant governmental approvals, permits and licenses may be delayed or withheld. If we
cannot successfully expand our coal resources, our business and prospects could be materially and adversely affected.
We are dependent on a limited number of customers for a substantial portion of our revenue, and a significant reduction in purchases or delayed payments by our largest
customers would materially decrease our revenue and cash flows, as well as materially and adversely affect our liquidity.
In 2010, 2011, 2012 and the six months ended June 30, 2013, we derived 66.6%, 73.5%, 56.7% and 72.8%, respectively, of our total
revenue from our five largest customers. The average term of our contracts with these customers is less than one year. We cannot assure you that we would be able to renew existing coal supply
contracts or enter into new contracts with major customers on acceptable terms, or at all, or that payments by major customers would not be materially delayed. If one or more of our largest customers
were to significantly reduce coal purchases from us, or if we are unable to continue to sell coal to them on terms as favorable to us as the terms under our current contracts, or if our largest
customers delay payments to us, our revenue and cash flows, as well as our liquidity, would materially decrease.
Accidents at our coal mines or neighboring coal mines could materially disrupt our business and operations and damage our reputation.
Our coal mining operations are subject to certain inherent safety risks that could lead to death or serious injuries, including methane
gas explosions, roof collapses, coal mine water discharge and ground falls. Accidents at coal mines may also result from insufficient attention to safety, maintenance and working conditions. During
the Track Record Period, we had separate accidents involving three employee fatalities, all of which occurred in 2010. Although we are endeavoring to minimize the number of accidents at our coal
mines, accidents involving death or serious injuries are unavoidable.
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The
occurrence of accidents at our coal mines may result in substantial disruptions to our business and operations, reputational harm, litigation, and investigations and sanctions by regulatory
authorities, which could lead to substantial monetary penalties, onerous remediation orders and production suspensions.
Accidents
that occur at our neighboring coal mines could also materially and adversely affect our coal mining operations. In response to a mining accident, the regulatory authorities may
suspend the production of all coal mines in the region where the mining accident occurred, regardless of whether those coal mines are owned by the mining company involved in the accident. For example,
certain coal mining activities were suspended in Guizhou on multiple occasions in 2012 and in 2013 in response to certain mining accidents in Guizhou, which caused us to suffer significant losses and
production delays. Moreover, in response to an accident, the regulatory authorities may enact new safety regulations applicable to all coal mines in the region, leading to substantially greater
compliance costs.
As our coal mining operations are subject to seasonality, operating results in different periods of a year may not be comparable and our financial condition and results of
operation may be materially and adversely affected if our coal mining operations experience any interruptions during the periods normally associated with higher production output.
Our production output in the first quarter of each year is generally lower than our production output in other quarters, as our coal
mining operations are typically suspended for approximately three to five weeks during the lunar new year holidays. In addition, our production
output in the third and fourth quarters of each year is generally higher than our production output in other quarters, mainly as a result of higher demand and more favorable weather conditions for
coal extraction. As a result, if our coal mining activities during periods normally associated with higher coal production output experience any material interruptions or slowdowns, our coal
production output for the year would significantly decline and our financial condition and results of operations may be materially and adversely affected.
Our coal mining operations may be materially disrupted by operational risks and natural disasters for which we have limited insurance.
Our coal mining operations are subject to significant risks and hazards, including earthquakes and other natural disasters, severe
weather conditions, unexpected maintenance or technical problems, key equipment failures, unexpected geological variations and underground mining risks such as mine collapse, gas leaks or explosions,
fire and flooding. The occurrence of these events may materially disrupt our coal production capacity, disrupt coal transportation or cause significant business interruptions, personal injuries,
property or environmental damage and reputation harm.
In
line with what we believe to be industry practice, we do not maintain any fire, liability or other property insurance covering our properties, equipment or inventories, and we do not
carry any business interruption insurance, transportation insurance or third party liability insurance to cover claims in respect of personal injuries or property or environmental damage arising from
accidents on our properties. Any uninsured losses and liabilities incurred by us may have a material adverse effect on our financial condition and results of operations.
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A decrease in availability or increase in costs of electricity, water or other key supplies may significantly disrupt our business and operations as well as materially and
adversely affect our financial condition and results of operations.
Our coal mining operations require a reliable supply of electricity, water and other key materials and components, including mining
equipment, replacement parts, explosives and roof control materials, and our demand for these resources and materials is expected to grow as our business grows and our production capacity increases.
We obtain power supply from the China
Southern power grid and we obtain water primarily from surface and subsurface supplies, including rivers, reservoirs and springs. We have not entered into any long-term supply contracts or obtained
any guarantees of supply with respect to water, electricity or any of our key supplies. Any shortages or disruption in the availability of water, electricity or other key supplies could lead to delays
and suspensions of our production process, and any significant increase in the cost of these resources and supplies will increase our operating costs, may significantly disrupt our business and
operations and could have a material adverse effect on our financial condition and results of operations if we are not able to pass on the increased costs to our customers.
Our business, financial condition and results of operations could be materially and adversely affected if we experience any significant interruptions, capacity shortages or
cost increases with respect to our coal transportation.
We currently transport coal to our customers primarily by road using third party coal transportation services. To date, we have not
entered into any long-term contracts with or otherwise obtained any capacity guarantees or commitments from any provider of coal transportation services, and we cannot assure that we will not
experience coal transportation interruptions or capacity shortages. For many consumers of anthracite coal, particularly chemical plants, having a timely and reliable supply of anthracite coal is
critical for their business. As a result, our failure to deliver anthracite coal to our customers in a timely manner could cause significant damage to our customer relationships and our reputation.
Moreover, as we have not entered into any long-term contracts with any provider of coal transportation services, we cannot assure that coal transportation costs will not increase significantly in the
future, which may materially decrease the competitiveness of our anthracite coal as well as our profit margins.
We rely on third party contractors for the construction of our coal mines, and their failure to perform their obligations could have a material and adverse effect on our
business and prospects.
We have outsourced to third party contractors the construction of our coal mines. See
"Business — Suppliers, Third Party Contractors and Utilities". Although we maintain close supervision over our contractors, we cannot assure you that our
contractors will perform their obligations on time, to our satisfaction, or at all. Our contractors' failure to perform their obligations, meet our quality, safety and environmental protection
standards or comply with relevant laws, rules and regulations may result in liabilities for us and could severely damage our reputation. Furthermore, if we have any material dispute with our
contractors or if our relationship with our contractors deteriorates, our production capacity expansion plans could be materially and adversely affected.
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We depend on our key personnel, and our business and prospects could be materially and adversely affected if we lose their services.
Our success is significantly dependent on the continued service of our key executives and skilled employees. In particular,
Mr. Li Feilie, our chairman and chief executive officer, and the other individuals set forth in the section headed "Directors and Senior Management" are critical to the development of our
business and our strategic direction. If we lose the services of one or more of our key executives and skilled employees, we may not be able to locate suitable or qualified replacements, and we may
need to incur additional expenses to recruit and train new personnel, which could have a material adverse effect on our business and prospects. Moreover, as we expect to continue to expand our
operations, we will need to continue attracting and retaining experienced management and other skilled personnel.
Competition
in the PRC mining industry for personnel experienced in the acquisition, exploration and development of coal mines is intense, and the availability of suitable and qualified
candidates is limited. Competition for these individuals could cause us to offer higher compensation and other benefits in order to attract and retain them, which could materially increase our
operating costs. If we are unable to attract or retain the personnel required to achieve our business objectives, our financial condition and results of operations could be materially and adversely
affected.
The interests of our controlling shareholder may differ from those of our other shareholders.
Immediately following the Spin-off, Mr. Li Feilie, our chairman and chief executive officer, will directly and indirectly own
approximately 59.33% of our outstanding Shares. Accordingly, Mr. Li will have the ability to exercise significant control over our business, including matters
relating to:
- •
- the nomination and election of our Directors;
- •
- our management, particularly the composition of our senior management;
- •
- the issuance of new securities;
- •
- the timing and amount of dividend payments;
- •
- our business strategies and policies;
- •
- any plans relating to acquisitions, investments, divestitures or other significant corporate transactions; and
- •
- amendments to our Articles of Association.
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The
interests of Mr. Li may differ from your interest as a shareholder of our Company, and Mr. Li may take actions that may not be in the best interests of our Company or
our other shareholders. Moreover, Mr. Li's controlling stake in our Company may discourage, delay or prevent a change in control or other business combination involving our Company, which could
deprive you of an opportunity to receive a premium for your Shares as part of a sale of our Company and may reduce the price of our Shares.
Failure by the Controlling Shareholders and Feishang Energy to fulfill their obligations under the Deed of Non-Competition could have a material adverse effect on our
business, financial condition, results of operations and prospects.
In connection with the Listing, the Controlling Shareholders and Feishang Energy entered into a Deed of Non-Competition pursuant to
which each of them has undertaken to:
- •
- not, and procure that their respective subsidiaries or parties controlled by them either solely or jointly with another
Controlling Shareholder or any other party will not, either on their own account or in conjunction with or on behalf of any person, firm or company, directly or indirectly, be interested or engaged in
or acquire or hold any right or interest (in each case whether as a shareholder, partner, agent or otherwise) in any business which directly or indirectly competes or may so compete with the
Core Businesses;
- •
- if any of them becomes aware of any business opportunity which directly or indirectly competes or may so compete with the
Core Businesses ("New Business Opportunity"), notify our Company of such business opportunity forthwith; and
- •
- use its best endeavors to procure that the New Business Opportunity is first offered to our Company on terms and
conditions that are fair and reasonable.
Feishang
Energy, an indirect wholly-owned subsidiary of Feishang Enterprise, is one of the entities in Guizhou province (including our Company) that has been assessed under the Guizhou
government's coal mine consolidation policy to be a consolidator of coal mines in Guizhou province. Accordingly, Feishang Energy has provided the above undertakings with respect to the period
beginning from the date of the Listing until it ceases to be qualified as a consolidator. Mr. Li Feilie, our chairman and chief executive officer, owns approximately 60.74% of the outstanding
shares of Feishang Enterprise.
For
the purpose of the Deed of Non-Competition, "Core Businesses" include the acquisition and exploitation of coal mining rights (including the exploration, construction, development and
operation of coal mines) located in Guizhou province in the PRC. Failure by the Controlling Shareholders and/or Feishang Energy to fulfill their obligations under the Deed of Non-Competition could
have a material adverse effect on our business, financial condition, results of operations and prospects. See "Relationship with Our Controlling
Shareholders — Deed of Non-Competition".
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If we are unable to renew the governmental approvals to use certain of our leased properties for coal mining purposes, our business and operations could be materially
disrupted.
As of the Latest Practicable Date, we leased 19 parcels of collectively-owned land with a total site area of approximately
470,821.0 square meters in connection with our coal mining operations. Our use of these properties for coal mining is subject to the approval of the local land and resources authorities. Each
approval is generally valid for one to two years and must be renewed thereafter. We cannot assure you that we will be able to renew these approvals in a timely manner or at all. If we are not able to
continue occupying and using these properties for coal mining purposes, our business and operations could be materially disrupted.
RISKS RELATING TO PRC'S COAL INDUSTRY
Our business, financial condition and results of operations are susceptible to the cyclical nature of the PRC anthracite coal market and vulnerable to fluctuations in
anthracite coal prices.
As substantially all of our revenue is derived from the sale of anthracite coal, our business, financial condition and results of
operations are substantially dependent upon the prices we charge for our anthracite coal. We price our anthracite coal by reference to prices in the domestic PRC anthracite coal markets, which is
highly cyclical and has in the past exhibited significant fluctuations in prices due to various supply and demand factors. For example, anthracite coal prices in Guizhou declined significantly in the
second quarter of 2012 and again in the first half of 2013 as a result of the general economic slowdown in the PRC, which reduced demand, as well as an increase in production capacity in Shanxi
province, which increased supply. The decline in anthracite coal prices in Guizhou is expected to continue. To date, we have not engaged in any hedging transactions to manage our commodity price risk.
The PRC anthracite coal market is affected by numerous factors beyond our control, including:
- •
- general economic conditions in the PRC;
- •
- global and regional supply and demand for anthracite coal;
- •
- competition from other energy sources or alternatives to anthracite coal;
- •
- abnormal weather conditions;
- •
- speculative anthracite coal trading;
- •
- the PRC Government's economic, energy, environmental, health and safety and other policies; and
- •
- fluctuations in the development and growth of industries in the PRC with high demand for anthracite coal, including the
power, chemical, iron and steel, and building materials industries.
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Moreover,
technological developments may reduce the long-term demand for anthracite coal. In particular, certain chemical manufacturers have begun experimenting with alternative
synthesis processes that would allow the use of lower cost bituminous coal or natural gas instead of anthracite coal to produce ammonia and methanol, while certain iron and steel enterprises are
experimenting with using bituminous coal instead of anthracite coal in the steel production process. Although these processes have not yet been proven to be commercially viable, if cost-effective and
reliable alternatives to anthracite coal are developed in the future, the long-term demand for, and prices of, anthracite coal would suffer. Any substantial or extended decline in the market prices of
anthracite coal in the PRC could materially decrease our revenue and cash flows as well as increase our net loss. For the discussion on sensitivity analysis of the effects of increases or decreases in
the average selling price of our anthracite coal on our financial results, see "Financial Information — Market Risk
Disclosure — Commodity Price Risk".
We are subject to extensive regulation, and our business, financial condition, results of operations and prospects may be materially and adversely affected if we fail to
comply with applicable regulations or if existing regulations or other government policies change.
Our coal mining operations are subject to extensive regulation in the PRC
relating to:
- •
- the granting and renewal of coal mining rights;
- •
- the granting of safe production permits;
- •
- coal mining project approvals;
- •
- production capacity requirements;
- •
- resource recovery rate and water and soil preservation requirements;
- •
- environmental, safety and occupational health requirements;
- •
- government control over coal prices;
- •
- taxes, duties and levies, including, among others, resource taxes, mining right usage fees, mineral resource compensatory
fees and the coal price levies; and
- •
- the allocation of coal transportation capacity on the national railway system.
Interpretation
of these regulations may change and new regulations may come into effect, which could disrupt or restrict our coal mining operations, reduce our competitiveness or require
us to incur substantial compliance costs. In particular, we are subject to increasingly stringent regulatory requirements with respect to coal mine safety. For example, Gouchang Coal Mine suspended
its operations from March to August 2012 to comply with certain newly implemented mine gas control requirements in Guizhou. Furthermore, in 2011, as a result of the upgrade of drilling and
blasting mining methods to semi-mechanical longwall mining methods in anticipation of Guizhou government's requirements on mining methods, we incurred significant time and expense to redesign
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and
upgrade Liujiaba Coal Mine. We are also subject to extensive and increasingly stringent environmental laws, rules and regulations in the PRC. These laws, rules and regulations impose, among other
things, fees for the discharge of pollutants and waste substances, as well as require us to establish reserves for land reclamation and rehabilitation. Any failure to comply may result in fines,
restrictions and limits on our coal mining operations, as well as suspension or revocation of our business licenses.
Changes
in or implementation of government policies in relation to the consolidation of coal enterprises or coal mines may also have a material adverse effect on our business. For
example, in March 2013, the Guizhou government issued a coal mine consolidation policy which aims to, among other things, reduce the total number of coal enterprises and coal mines in Guizhou.
As a result of this policy, the operations of Gouchang Coal Mine have been suspended by the Guizhou government since March 2013 pending the acquisition by us of a nearby coal mine and Gouchang
Coal Mine achieving certain production capacity targets in accordance with Guizhou province's coal mine consolidation policy. We cannot assure you that our acquisition of the coal mine near Gouchang
Coal Mine would be successful or that Gouchang Coal Mine would be able to resume production. In the six months ended June 30, 2013, we incurred an impairment loss on property, plant and
equipment of RMB184.4 million in connection with the suspension of Gouchang Coal Mine, and we may incur additional impairment losses in respect of Gouchang Coal Mine in the future if we are
unable to successfully resume operations. As of July 31, 2013, Gouchang Coal Mine had proved and probable reserve of 5.72 million tonnes, representing approximately 2.7% of our total
proved and probable reserve.
Regulatory
changes in the PRC could also significantly reduce the demand for, and the price of, anthracite coal. For example, in November 2011, the NDRC limited increases in the
contract price of thermal coal sold to certain power producers in the PRC to 5%, as well as imposed certain price limits on the spot prices of thermal coal. Although these measures were terminated in
January 2013, we cannot assure you that the price of thermal coal would not be subject to further price controls in the future. Moreover, the Guizhou government levies a coal price adjustment
fund levy on the coal sold by local coal producers and the rate of the coal price adjustment fund levy is subject to frequent changes based on prevailing government policies, which significantly
reduced the competitiveness of coal
producers in Guizhou. We cannot assure you that we will not be subject to further price restrictions, levies or additional regulations in the future, or that future regulatory changes would not have a
material adverse effect on our business or prospects.
Competition in the PRC coal industry is intense, and we cannot assure you that we will be able to compete effectively.
The PRC coal industry is highly competitive, and we compete on the basis of many factors, including, coal quality and characteristics,
stability of supply, availability and cost of transportation, reliability and timeliness of delivery, customer service and price. Moreover, as there is a limited supply of desirable anthracite coal
reserves in the PRC, there is intense competition for mining rights among anthracite coal producers in the PRC. We face competition primarily from other anthracite coal enterprises in Guizhou. Many of
our competitors have greater financial, marketing and distribution
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resources,
lower operating costs, more advanced technologies, longer operating histories and greater brand recognition than us. If we are unable to compete effectively in attracting and retaining
customers as well as obtaining mining rights over coal reserves, our business, financial condition, results of operations and prospects would be materially and adversely affected.
RISKS RELATING TO CONDUCTING BUSINESS IN THE PRC
Changes in economic, political and social conditions in the PRC could have a material adverse effect on our business, financial condition, results of operations
and prospects.
Substantially all of our business and operations are conducted in the PRC. Accordingly, our business, financial condition, results of
operations and prospects are, to a significant degree, subject to the economic, political and social conditions in the PRC. The PRC economy differs from the economies of most developed countries in
many respects, including the amount of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. Although the PRC Government has implemented
measures since the late 1970s emphasizing the utilization of market forces for economic reform, the reduction of state ownership of productive assets and the establishment of improved corporate
governance in business enterprises, a substantial portion of productive assets in the PRC is still government-owned. In addition, the PRC Government continues to play a significant role in regulating
industry development through the implementation of industrial policies. In particular, the PRC coal industry is subject to extensive regulation. See
"Regulation — PRC Laws Relating to the Coal Industry". The PRC Government also exercises significant control over the economy through the allocation of resources,
controlling payment of foreign currency denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies.
Uncertainties with respect to the PRC legal system could have a material adverse effect on us.
Our business and operations are primarily conducted in the PRC and governed by PRC laws, rules and regulations. Our PRC subsidiaries
are generally subject to laws, rules and regulations applicable to foreign investments in the PRC and, in particular, laws applicable to wholly foreign owned enterprises. The PRC legal system is a
civil law system based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since the late 1970s, the PRC Government has significantly enhanced
PRC legislation and regulations to provide protections to various forms of foreign investments in the PRC. However, the PRC has not developed a fully integrated legal system and recently enacted laws
and regulations may not sufficiently cover all aspects of economic activities in the PRC. As many of these laws, rules and regulations are continually evolving, and because of the limited volume of
published decisions, the interpretation and enforcement of these laws, rules and regulations involve uncertainties and may not be as consistent or predictable as in other more developed jurisdictions.
In addition, the PRC legal system is based in part on government policies and administrative rules that may have retroactive effect. As a result, we may not be aware of any violations by us until some
time after the violation. Furthermore, the legal protections available to us under these laws, rules and regulations may be limited. Any litigation or regulatory enforcement action in the PRC may be
protracted and could result in substantial costs and diversion of resources and management attention.
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Governmental control over currency conversion may affect the value of your investment and limit our ability to utilize our cash effectively.
The PRC Government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance
of currency out of the PRC. We receive substantially all of our revenue in Renminbi, which is currently not a freely convertible currency. Shortages in the availability of foreign currency may
restrict our ability to remit sufficient foreign currency to pay dividends, or otherwise satisfy any foreign currency dominated obligations we may incur. Under existing PRC foreign exchange
regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, may be made in foreign currencies without prior
approval from the SAFE by complying with certain procedural requirements. However, approval from the SAFE or its local branch may be required where Renminbi is to be converted into foreign currency
and remitted out of the PRC to pay capital expenses, such as offshore investments denominated in foreign currencies. The PRC Government may also at its discretion restrict access to foreign currencies
for current account transactions. In addition, since a significant amount of our future cash flow from operations will be denominated in Renminbi, any existing and future restrictions on currency
exchange may limit our ability to receive dividends and distributions from our subsidiaries in the PRC, purchase goods and services outside of the PRC or otherwise fund any future business activities
that may be conducted in foreign currencies. This could also affect the ability of our subsidiaries in the PRC to obtain foreign exchange through debt or equity financing, including by means of loans
or capital contributions from us.
We may rely on dividends and other distributions on equity paid by our operating subsidiaries in the PRC to fund our cash and financing requirements, and any limitation on
the ability of our operating subsidiaries in the PRC to pay dividends or make distributions to us could have a material adverse effect on our liquidity.
We are a holding company, and we rely on dividends and other distributions on equity paid by our operating subsidiaries in the PRC for
our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to our shareholders, service any debt we may incur and pay certain operating expenses.
Under the applicable PRC laws, rules and regulations, dividends may be paid only out of distributable profits. We cannot assure you that our operating subsidiaries will generate sufficient earnings
and cash flow to pay dividends or otherwise distribute sufficient funds to enable us to meet our financial obligations or declare dividends. In particular, each of our subsidiaries in the PRC is
required under the applicable laws, rules and regulations to set aside a portion of its net income each year to fund certain statutory reserves. These reserves, together with the registered equity,
are not distributable as cash dividends. In addition, our bank borrowing or other financing agreements may contain certain restrictions relating to
the payment of dividends or other distributions. As a result, these subsidiaries are restricted in their ability to transfer a portion of their respective net assets to their shareholders as
dividends. Limitations on the ability of these subsidiaries in the PRC, such as Guizhou Puxin and Guizhou Fuyuantong, to pay dividends or make distributions to us could limit our ability to grow our
business, make investments or acquisitions, pay dividends to our shareholders, or otherwise fund and conduct our business.
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Dividends received by holders of our Shares that are non-PRC enterprises and gains derived from the disposition of our Shares by such holders may become subject to PRC
taxation, which may materially reduce the value of investments in our Shares.
Under the PRC Enterprise Income Tax Law and its implementing rules, which became effective on January 1, 2008, a non-PRC
enterprise is generally subject to enterprise income tax at the rate of 10% with respect to PRC-sourced income, including dividends derived from sources within the PRC and gains derived from the
disposition of equity interests in a PRC company, subject to any reductions under any special arrangements or applicable treaty between the PRC and the jurisdiction of the relevant foreign
enterprise's residence. As the PRC Enterprise Income Tax Law and its implementation rules are relatively new, there remains significant uncertainty as to their interpretation and application by the
PRC tax authorities, including whether and how enterprise income tax on dividends payable to and gains derived by holders of our Shares that are non-PRC enterprises may be collected. If we are
considered a PRC resident enterprise, dividends we pay with respect to our Shares, or the gain our Shareholders may realize from the transfer of our Shares, may be treated as income derived from
sources within the PRC and be subject to PRC tax. If we are required under the PRC Enterprise Income Tax Law and its implementing rules to withhold PRC income tax on dividends payable to our
Shareholders that are non-PRC resident enterprises, or if our Shareholders are required to pay PRC income tax on the transfer of our Shares, the value of such non-PRC enterprise holders' investments
in our Shares may be materially reduced.
We may be subject to PRC enterprise income tax on our global income, or dividends we receive from our PRC subsidiary may be subject to PRC withholding tax, depending on
whether we are recognized as a resident enterprise in the PRC.
Pursuant to the PRC Enterprise Income Tax Law and its implementation rules, an enterprise established under the laws of a foreign
country or region whose "de facto management body" is located within the PRC territory is considered a resident enterprise and will generally be subject to the enterprise income tax at the rate of 25%
on its global income. According to
the Implementation Rules, "de facto management body" refers to a managing body that exercises, in substance, overall management and control over the production and business, personnel, accounting and
assets of an enterprise. As there is no official interpretation or application of the resident enterprise, it remains unclear how PRC tax authority will treat an overseas company that is controlled by
natural persons like us. In addition, if new rules and interpretations are issued in the future specifying the criteria for determining whether a foreign entity controlled by a natural person is a
resident enterprise under the PRC Enterprise Income Tax Law, we cannot assure you that we will not be deemed a PRC resident enterprise. If, in accordance with any future rules, we were considered a
PRC resident enterprise, we would be subject to the enterprise income tax at the rate of 25% on our global income and any dividend received by our non-resident enterprise shareholder may be subject to
10% withholding tax. If we are considered a non-resident enterprise under the PRC Enterprise Income Tax Law, we will not be subject to the enterprise income tax at the rate of 25% on our global
income. In such case, however, dividends we receive from our PRC subsidiaries will be subject to a PRC withholding tax of 10% or 5%, depending on the availability of the relevant tax treaty.
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We may not be able to enjoy a reduced withholding tax rate under the special arrangement between Hong Kong and the PRC.
Under the PRC Enterprise Income Tax Law and its implementing rules, which became effective on January 1, 2008, a non-PRC
resident enterprise is generally subject to a withholding tax rate of 10% with respect to dividends paid by its subsidiaries in the PRC, subject to any reductions under any special arrangements or
applicable treaty between the PRC and the jurisdiction of the relevant foreign enterprise's residence. Under the Arrangement between the Mainland and Hong Kong Special Administrative Region for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (
), which became effective on
January 1, 2007, the withholding tax rate for dividends paid by a PRC resident enterprise to a Hong Kong resident enterprise may be lowered
to 5% if the Hong Kong resident enterprise owns at least 25% of the PRC resident enterprise. Nonetheless, according to the Circular of the State Administration of Taxation on Relevant Issues relating
to the Implementation of Dividend Clauses in Tax Treaties (
), which became effective on February 20, 2009, special tax treatments on
dividends paid by a PRC company under relevant tax treaties will not be available unless
certain conditions are satisfied. In
addition, pursuant to the Administrative Measures for Non-residents to Enjoy Treatments under Tax Treaties (Trial) (
), which became
effective on October 1, 2009, approvals from competent local tax authorities are required before an enterprise can enjoy the relevant tax treatments. See
"Regulation — PRC Laws relating to Taxation And Fee". Although Smartact is a Hong Kong resident enterprise which wholly owns Guizhou Fuyuantong, our holding
company in the PRC, we cannot assure you that it will be able to enjoy the reduced withholding tax rate under the special arrangement between Hong Kong and the PRC.
We face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.
Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises (
) ("SAT Circular 698") issued by the State Administration of Taxation ("SAT") on December 10, 2009 with retroactive effect from January 1, 2008,
where a non-PRC resident enterprise transfers its indirect equity interests in a PRC resident enterprise by disposing of its equity interests in an overseas holding company, or an "Indirect Transfer",
and such overseas holding company is located in a tax jurisdiction that has an effective tax rate less than 12.5% or does not tax foreign income of its residents, the non-PRC resident enterprise, as
the transferor, is required to report the Indirect Transfer to the relevant PRC tax authorities. Using a "substance over form" principle, the PRC tax authorities may disregard the existence of the
overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of avoiding PRC tax, in which case the gains derived from such "Indirect Transfer" may be
subject to PRC withholding tax at a rate of up to 10%. SAT Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to
its related parties at a price lower than the fair market value, the relevant PRC tax authorities have the authority to make reasonable adjustments to the taxable income of the transaction.
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There
is uncertainty as to the application of SAT Circular 698. For example, while the term "Indirect Transfer" is not clearly defined, it is understood that the relevant PRC tax
authorities have jurisdiction regarding requests for information over a wide range of foreign entities having no direct contact with the PRC. In addition, there is no formal declaration with regard to
how to determine whether an overseas holding company lacks a "reasonable commercial purpose" or was "established for the purpose of avoiding PRC tax". As a result, if we and/or our Shareholders are
deemed to be conducting
any "Indirect Transfer", we and/or our Shareholders may become at risk of being taxed under SAT Circular 698 in the future and we and/or our Shareholders may be required to expend valuable
resources to comply with SAT Circular 698 or to establish that we and/or our Shareholders should not be taxed under SAT Circular 698.
PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident shareholders or our PRC subsidiaries to
liabilities or penalties, limit our ability to inject capital into our PRC subsidiaries or limit the ability of our PRC subsidiaries to distribute profits to us.
The SAFE issued a public notice in October 2005 ("SAFE Circular No. 75"), requiring PRC residents to register with the
local branch of the SAFE before establishing or controlling any company outside of the PRC for the purpose of capital financing with assets or equities of PRC companies, referred to in the notice as
an "offshore special purpose company". In addition, any PRC resident that is a shareholder of an offshore special purpose company is required to amend its registration with the SAFE with respect to
that offshore special purpose company in connection with any increase or decrease of capital, transfer of shares, merger, division, equity investment, creation of any security interest over any assets
located in the PRC or any other material change in share capital. We may not be fully informed of the identities of all of our beneficial owners who are PRC residents. Moreover, we do not have control
over our beneficial owners and cannot assure you that all of our PRC resident beneficial owners will comply with SAFE Circular No. 75. The failure of our beneficial owners who are PRC residents
to register or amend their registrations with the SAFE in a timely manner pursuant to SAFE Circular No. 75 or the failure of future beneficial owners of our company who are PRC residents
to comply with the registration procedures set forth in SAFE Circular No. 75 may subject such beneficial owners or our PRC subsidiaries to fines and legal sanctions, and may also limit our
ability to contribute additional capital to our PRC subsidiaries, limit our PRC subsidiaries' ability to distribute dividends to us or otherwise materially and adversely affect our business. See
"Regulation — PRC Laws Relating to Foreign Exchange".
PRC regulation of loans to, and investments in, PRC entities by offshore holding companies and governmental control of currency conversion may restrict or prevent us from
making loans or additional capital contributions to our PRC subsidiaries, which may materially and adversely affect our liquidity and our ability to fund and expand our business.
Loans or additional capital contributions by our Company to our PRC subsidiaries are subject to PRC regulations and approvals.
For example:
- •
- capital contributions by our Company to a PRC subsidiary must be approved by the MOFCOM or its local counterparts;
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- •
- acquisition of onshore entities by us or our offshore subsidiaries must be approved by the MOFCOM or its local
counterparts; and
- •
- loans by us to a wholly foreign-owned subsidiary cannot exceed statutory limits and must be registered with SAFE or
its branches.
On
August 29, 2008, SAFE issued the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency
Capital of Foreign Invested Enterprises, or Circular 142, regulating the conversion by a foreign-invested enterprise of foreign currency registered capital into Renminbi by restricting how the
converted Renminbi may be used. Circular 142 provides that the Renminbi capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes
within the business scope approved by the applicable governmental authority and, unless otherwise provided by law, such Renminbi capital may not be used for equity investments in the PRC. In addition,
SAFE strengthened its oversight of the use of Renminbi capital converted from foreign currency registered capital of a foreign-invested company. The use of such Renminbi capital may not be altered
without SAFE approval, and such Renminbi capital may not, in any case, be used to repay Renminbi loans if the proceeds of such loans have not been used. Violations of Circular 142 could result
in severe monetary or other penalties.
We
cannot assure you that we will be able to obtain requisite government registrations or approvals on a timely basis, if at all, with respect to future loans or capital contributions by
us to our PRC subsidiaries. If we fail to receive such registrations or approvals, our ability to fund our operations in the PRC would be limited, which could materially and adversely affect our
liquidity and our ability to expand our business.
You may experience difficulties in effecting service of legal process and enforcing judgments against us and our management.
Substantially all of our assets and our subsidiaries are located in the PRC. In addition, most of our Directors and officers reside
within the PRC, and the assets of certain Directors and officers are located within the PRC. As a result, it may not be possible to effect service of process within the United States or
elsewhere outside the PRC upon most of our Directors and officers, including with respect to matters arising under the U.S. federal securities laws or applicable state securities laws.
Moreover, the PRC does not have treaties providing for the reciprocal enforcement of judgments of courts with the United States, the United Kingdom, Japan or most other Western
countries. In addition, Hong Kong has no arrangement for the reciprocal enforcement of judgments with the United States. As a result, recognition and enforcement in the PRC or Hong Kong of
judgments of a court in the United States and any of the other jurisdictions mentioned above in relation to any matter that is not subject to a binding arbitration provision may be difficult or
impossible. In addition, although we will be subject to the Listing Rules and the Takeovers Code upon the listing of our Shares on the Stock Exchange, the holders of Shares will not be able to bring
actions on the basis of violations of the Listing Rules and must rely on the Stock Exchange to enforce its rules.
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Natural disasters and health and public security hazards in the PRC may severely disrupt our business and operations and may have a material adverse effect on our financial
condition and results of operations.
In May 2008 and April 2013, earthquakes registering 8.0 and 6.6, respectively, on the Richter scale struck Sichuan
Province and certain other parts of the PRC, devastating much of the affected areas and causing tens of thousands of deaths and widespread injuries. In addition, in September 2012, a series of
earthquakes registering 4.8 to 5.6 on the Richter scale struck Guizhou and Yunnan. Although these earthquakes did not materially affect our operations, they caused at least 80 deaths and
significant and extensive damage to factories, power lines, blackouts, transportation and communications disruptions and other losses in the affected areas. The PRC has also encountered incidents of
severe acute respiratory syndrome and the outbreak of influenza A (H1N1 and H7N9). We are unable to predict the effect, if any, that any future natural disasters and health and public security hazards
may have on our business. Any future natural disasters and health and public security hazards may, among other things, significantly disrupt our ability to adequately staff or otherwise operate our
coal mines, limit coal transportation, as well as generally disrupt our operations. Furthermore, natural disasters and health and public security hazards may severely restrict the level of economic
activity in affected areas, which may in turn materially and adversely affect our financial condition and results of operations.
RISKS RELATING TO THE SPIN-OFF
We have no history operating as an independent company, and we may incur significant expenses to create the corporate infrastructure necessary to operate as an independent
public company.
Prior to the Spin-off, we have relied on the corporate infrastructure of CHNR to support our business functions, including information
technology systems, human resource systems and legal support. The expenses related to establishing and maintaining this infrastructure were allocated among all of the businesses of CHNR. Following the
Spin-off, we will no longer have access to CHNR's corporate infrastructure, and we will need to establish our own corporate infrastructure or hire third parties to perform these functions on our
behalf. The costs associated with performing or outsourcing these functions may be significant and could have a material adverse effect on our financial condition and results of operations.
An active trading market for our Shares may not develop, and the trading price and volume of our Shares may fluctuate significantly.
Prior to the Listing, no public market for our Shares existed. We cannot assure you that an active and liquid trading market for our
Shares will develop or be sustained after the Listing or that we will be able to maintain the listing of our Shares. If an active and liquid trading market for our Shares does not develop or is not
sustained after the Listing, the trading price and liquidity of our Shares may be materially and adversely affected.
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The
trading price and volume for our Shares may be highly volatile in response to factors beyond our control, including general market conditions of the capital markets in Hong Kong and
elsewhere in the
world. Moreover, the price and trading volume for our Shares may be volatile for specific business or other reasons. In particular, factors such as variations in our revenue, earnings and cash flow,
announcements of new investments, acquisitions or discovery of new coal reserves, fluctuations in the market prices for coal, as well as general economic, market or regulatory conditions, could cause
large and sudden changes in the trading volume and price of our Shares.
Future sales or perceived sales of substantial amounts of our securities in the public market, including any future sale of our Shares by those Shareholders that are
currently subject to contractual or legal restrictions on Share transfers, could have a material adverse effect on the prevailing market price of our Shares and our ability to raise capital in the
future, and may result in dilution of your shareholding in our Company.
The market price of our Shares could decline as a result of future sales of substantial amounts of our Shares or other securities
relating to our Shares in the public market or the issuance of new Shares or other securities, or the perception that such sales or issuances may occur. Future sales, or perceived sales, of
substantial amounts of our securities, including any future offerings, could also materially and adversely affect our ability to raise capital in the future at a time and at a price we deem
appropriate. In addition, our Shareholders may experience dilution in their holdings to the extent we issue additional securities in future offerings.
In
connection with the Listing, each Controlling Shareholder has agreed, among other things, not to sell our Shares for six months after the Listing Date and has agreed to retain
sufficient Shares to remain as our Controlling Shareholder for six months after the Listing Date. However, we cannot assure you that our Controlling Shareholders will not dispose of any or all of the
Shares they may own now or in the future after the expiration of the applicable lock-up periods. Any future sales, or perceived sales, of substantial amounts of our Shares by our Controlling
Shareholders could cause the market price of our Shares to decrease significantly as well as materially hinder our ability to raise capital in the future.
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DIRECTORS AND PARTIES INVOLVED IN THE SPIN-OFF
DIRECTORS
|
|
|
|
|
| Name |
|
Residential Address |
|
Nationality |
| Chairman and Executive Director |
|
|
|
|
LI Feilie (
) |
|
Flat 5-1, Fragrance House
Ocean Garden
The Fifth Street, Ocean Garden
Taipa, Macao, PRC |
|
Chinese |
Executive Directors |
|
|
|
|
HAN Weibing (
) |
|
Flat 22A, Building 19
Shenzhen Riverist
Nanshan District, Shenzhen
Guangdong, PRC |
|
Chinese |
WAN Huojin (
) |
|
Flat 3, 23/F, Block 4
Longsheng Garden
Jinyang Wonderland
Guiyang, Guizhou
PRC |
|
Chinese |
TAM Cheuk Ho (
) |
|
Flat 21A, Butler Towers
1-5 Boyce Road
Jardine's Lookout
Hong Kong |
|
Chinese |
WONG Wah On Edward (
) |
|
Flat A, 9/F, Block 9
South Horizons
Ap Lei Chau
Hong Kong |
|
Chinese |
Independent Non-executive Directors |
|
|
|
|
LO Kin Cheung (
) |
|
Flat A, 11/F, Block 1
Sorrento, Kowloon
Hong Kong |
|
British |
HUANG Zuye (
) |
|
Flat 602, Block 13
Guizhou Coal Mine Design &
Research Institute Dashuigou
Huaxi District
Guiyang, Guizhou
PRC |
|
Chinese |
GU Jianshe (
) |
|
Flat 501, Block E2
Shiji Garden,
No. 270 Erqiao Road
Yunyan District
Guiyang, Guizhou
PRC |
|
Chinese |
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PARTIES INVOLVED IN THE SPIN-OFF
|
|
|
Joint Sponsors
(in alphabetical order) |
|
Jefferies Hong Kong Limited
22nd Floor, Cheung Kong Center
2 Queen's Road Central
Hong Kong |
|
|
Nomura International (Hong Kong) Limited
30th Floor, Two International Finance Centre
8 Finance Street
Hong Kong |
Legal Advisers to Our Company |
|
as to Hong Kong and U.S. law: |
|
|
Sullivan & Cromwell
28th Floor
Nine Queen's Road Central
Hong Kong |
|
|
as to PRC law: |
|
|
Commerce & Finance Law Offices
6th Floor, NCI Tower
A12 Jianguomenwai Avenue
Beijing, PRC |
|
|
as to British Virgin Islands law: |
|
|
Maples and Calder
53rd Floor, The Center
99 Queen's Road Central
Hong Kong |
Legal Advisers to the Joint Sponsors |
|
as to Hong Kong and U.S. law: |
|
|
Freshfields Bruckhaus Deringer
11th Floor, Two Exchange Square
8 Connaught Place Central
Hong Kong |
|
|
as to PRC law: |
|
|
Jingtian & Gongcheng
34th Floor, Tower 3, China Central Place
77 Jianguo Road, Chaoyang District
Beijing, PRC |
|
|
|
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|
|
|
| Auditors and Reporting Accountants |
|
Ernst & Young
22nd Floor, CITIC Tower
1 Tim Mei Avenue
Central, Hong Kong |
Property Valuer |
|
Peak Vision Appraisals Limited
12th Floor, Effectual Building
14-16 Hennessy Road
Wanchai
Hong Kong |
Competent Person |
|
Behre Dolbear Asia, Inc.
6430 S. Fiddler's Green Circle
Suite 250, Greenwood Village
CO USA 80111 |
Independent Market Consultant |
|
Shanxi Fenwei Energy Consulting Co., Ltd.
8th Floor, Tower A
Shanxi World Trade Center
111 Changzhi Road
Taiyuan, Shanxi
PRC |
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CORPORATE INFORMATION
|
|
|
| Registered office |
|
Maples Corporate Services (BVI) Limited
Kingston Chambers, P.O. Box 173
Road Town, Tortola
BVI |
Headquarters in China |
|
54/F, International Chamber of Commerce Tower
168 Fuhua 3rd Road
Futian CBD, Shenzhen
Guangdong 518048
China |
Place of business in Hong Kong
registered under Part XI of
the Companies Ordinance |
|
Room 2205, Shun Tak Centre
200 Connaught Road Central
Sheung Wan
Hong Kong |
Company's website |
|
www.fsanthracite.com
(The information on the website does not form a part of this listing document) |
Company secretary |
|
Yue Ming Wai Bonaventure (FCS, FCPA)
Flat A, 11/F, Block 1
Royal Knoll, Fanling
New Territories
Hong Kong |
Authorized representatives |
|
Wong Wah On Edward
Flat A, 9/F, Block 9
South Horizons
Ap Lei Chau
Hong Kong |
|
|
Yue Ming Wai Bonaventure
Flat A, 11/F, Block 1
Royal Knoll, Fanling
New Territories
Hong Kong |
Audit committee |
|
Lo Kin Cheung (Chairman)
Huang Zuye
Gu Jianshe |
Remuneration committee |
|
Gu Jianshe (Chairman)
Lo Kin Cheung
Huang Zuye
Li Feilie
Han Weibing |
|
|
|
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|
|
|
| Nomination committee |
|
Huang Zuye (Chairman)
Lo Kin Cheung
Gu Jianshe
Li Feilie
Tam Cheuk Ho |
Corporate social responsibility committee |
|
Gu Jianshe (Chairman)
Wan Huojin
Han Weibing |
The British Virgin Islands
Unlisted Share Registrar and Transfer Office |
|
|
Hong Kong Branch Share Registrar |
|
|
Compliance adviser |
|
|
Principal banker |
|
China Minsheng Banking Corp., Ltd.
Tongju Yuanjing Building
Jianxin North Road
Jiangbei District
Chongqing, PRC |
|
|
China Merchants Bank
Electric Hub Building
No.284 Zhonghua North Road
Yunyan District
Guiyang, Guizhou, PRC |
|
|
Industrial and Commercial Bank of China
No. 70 Zhonghua Road
Chengguan Town
Jinsha County, Bijie, Guizhou, PRC |
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INDUSTRY OVERVIEW
This listing document contains information relating to the PRC economy, the PRC coal and power industries as
well as the international coal market and other energy markets. The information is derived from various publications, market data providers and other independent third party sources. We have also
engaged Fenwei, an experienced consultant in the energy sector in China and an Independent Third Party, to prepare a report to provide certain industry data for this section and elsewhere in this
listing document. Fenwei was paid a total of RMB320,000 in fees for this service. Fenwei prepared its report based on its in-house database, independent third party reports and publicly
available data from reputable industry organizations. Where necessary, Fenwei visited companies operating in the industry to gather and synthesize information about market, prices and other relevant
information.
We believe that the sources of the information in this section are appropriate sources for such information and have taken reasonable care in the extraction,
compilation and reproduction of the information presented in this section. We have no reason to believe that such information is false or misleading in any material respect or that any part has been
omitted that would render such information false or misleading in any material respect. Neither we, the Joint Sponsors nor any of our or their respective directors, officers or representatives or any
other person involved in the Listing have independently verified the information directly or indirectly derived from official government sources, or make any representation as to the accuracy of the
information from official government or other third party sources. Such information may not be consistent with and may not have been compiled with the same degree of accuracy or completeness as other
information compiled within or outside the PRC. Accordingly, the information derived from official government and other third party sources contained herein may not be accurate and should not be
unduly relied upon.
INTRODUCTION
Coal is a combustible, sedimentary, organic rock composed mainly of carbon, hydrogen and oxygen. It is a fossil fuel and the primary
energy source in the PRC. The "rank" of coal, which is determined by the degree of change undergone by coal as it matures from peat to coal, has an important bearing on its physical and chemical
properties as well as end use. Low-rank coal, such as lignite and sub-bituminous coal, is typically softer, friable material with a dull, earthy appearance. It is characterized by high moisture levels
and low carbon content, and consequently low energy content. High-rank coal, such as coking coal and anthracite coal, is generally harder and stronger and often has a black, vitreous luster, and
generally contains more carbon, has lower moisture content, and produces more energy than low-rank coal. The diagram below summarizes the primary types of coal and their associated end-uses.
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Source: World Coal Institute, The Coal Resource, Fenwei, BP Statistical Review of World
Energy (2013)
Anthracite Coal — The Highest-Rank Type of Coal
Under the Chinese Coal Classification Standard, anthracite coal is the highest-rank coal, containing volatile matter content of 10.0%
or less and thus a high percentage of carbon. According to the SAWS and Fenwei, anthracite coal accounted for approximately 12% of total coal resources in China in 2012. As a result of anthracite
coal's relative quality and scarcity, it is generally able to command a higher selling price than other types of coal.
In
the process of determining whether the coal belongs to anthracite coal and its relevant classification, beneficiation (or coal washing) of raw coal (the result of which
is referred to as "float coal") is required in order to reduce the dry ash content to an acceptable level as necessary under the Chinese Coal Classification Standard. The Chinese Coal Classification
Standard categorizes anthracite coal into three classes based on volatile matter and helium content — WY1-class anthracite coal has a volatile matter content of
no more than 3.5% or helium content of no more than 2.0%; WY2-class anthracite coal has a volatile matter content of more than 3.5% and no more than 6.5% or helium content of more than 2.0% and no
more than 3.0%; and WY3-class anthracite coal has a volatile matter content of more than 6.5% and no more than 10.0% or helium content of more than 3.0%. Under the Chinese Coal Classification
Standand, in case of a conflict between the classification of anthracite coal based on volatile matter content and helium content, the classification based on helium content
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will
be used. According to the Chinese Coal Granularity Classification Standard, large-lump anthracite coal has a diameter above 50 millimeters, mid-lump anthracite coal has a diameter between
25 and 50 millimeters, small-lump anthracite coal has a diameter between 13 and 25 millimeters and fine anthracite coal has a diameter below 13 millimeters.
OVERVIEW OF THE ANTHRACITE COAL INDUSTRY IN THE PRC
The PRC's Anthracite Coal Resources
According to the SAWS and Fenwei, the PRC had anthracite coal resources of 134.2 billion tonnes in 2012, which accounted for
approximately 12% of the PRC's total coal resources. According to SAWS and Fenwei, approximately 70% of PRC's anthracite coal resources was located in Shanxi and Guizhou provinces in 2012.
Anthracite Coal Supply & Demand in the PRC
From 2008 to 2012, domestic anthracite coal production in the PRC was insufficient to meet domestic demand, and as a result, the PRC
was a net importer of anthracite coal during the period. According to Fenwei, anthracite coal demand in the PRC is expected to continue rising in general due to estimated increases in the demand in
anthracite coal for industrial uses, and the supply deficit is expected to continue. Set forth below is the total supply and demand for anthracite coal in the PRC for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
CAGR |
|
|
|
(million tonnes, except for percentages)
|
|
Production |
|
|
446.7 |
|
|
426.0 |
|
|
496.0 |
|
|
530.7 |
|
|
534.4 |
|
|
4.6 |
% |
Net imports (or supply deficit) |
|
|
13.3 |
|
|
31.1 |
|
|
22.2 |
|
|
31.9 |
|
|
31.2 |
|
|
23.7 |
% |
Total supply |
|
|
460.0 |
|
|
457.1 |
|
|
518.2 |
|
|
562.6 |
|
|
565.6 |
|
|
5.3 |
% |
Total demand |
|
|
459.9 |
|
|
457.9 |
|
|
516.6 |
|
|
560.3 |
|
|
564.9 |
|
|
5.3 |
% |
Source: Fenwei
The PRC's Anthracite Coal Production
According to Fenwei, the four major anthracite coal producing provinces in the PRC are Shanxi, Henan, Guizhou and Hunan, which
accounted for approximately 67% of the total anthracite coal production volume in the PRC in 2012. Shanxi is the largest anthracite coal producer in the PRC in terms of production volume, accounting
for approximately 32% of the PRC's total anthracite coal production volume in 2012. Based on the data from Fenwei, although Guizhou held approximately 30% of total anthracite coal resources in the
PRC, Guizhou anthracite coal production volume accounted for only 10% of total domestic production in 2012, due to the less developed stage of
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exploration
and production in Guizhou. Set forth below is the breakdown by province of the anthracite coal production in the PRC in 2012:
Sources: SAWS; Fenwei
The PRC's Anthracite Coal Imports
The PRC is a net importer of anthracite coal. Based on the data from Fenwei, the PRC's net anthracite coal imports grew at a CAGR of
23.7% from 13.3 million tonnes in 2008 to 31.2 million tonnes in 2012. The PRC mainly imports anthracite coal from Vietnam, which accounted for 51% of the PRC's total anthracite coal
imports in 2012. Beginning in 2010, the PRC also began to import large volumes of anthracite coal from North Korea. In 2012, anthracite coal imports from North Korea accounted for 34% of the PRC's
total anthracite coal imports, the second largest source of import after Vietnam. Other sources of imports included Australia and Russia.
By
comparison, the volume of anthracite coal exports from the PRC has been low, at approximately four million tonnes per year over the period from 2008 to 2012, based on Fenwei's data.
The PRC primarily exports anthracite coal to South Korea and Japan.
Uses of Anthracite Coal in the PRC
Anthracite coal has applications in a number of different industries. In the PRC, end users generally characterize anthracite coal as
thermal coal, chemical coal or PCI coal. Set forth below is a summary of the key characteristics of thermal coal, chemical coal and PCI coal:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal Type
|
|
Industry |
|
Coal Type
by Size |
|
Ash
Content
(%) |
|
Sulfur
Content
(%) |
|
Volatile
Matter
Content
(%) |
|
Calorific
Value
(MJ/Kg) |
|
Thermal Coal |
|
Power; Building Materials |
|
Fine |
|
|
20-30 |
|
|
1.0-3.0 |
|
|
6.5-10.0 |
|
|
21.0-24.0 |
|
Chemical Coal |
|
Chemical industry |
|
Lump/Fine |
|
|
<25 |
|
|
<2.0 |
|
|
£10 |
|
|
NA |
|
PCI Coal |
|
Iron and steel |
|
Fine |
|
|
<14 |
|
|
0.5-1 |
|
|
7-10 |
|
|
>24.5 |
|
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Thermal coal primarily refers to fine anthracite coal used in the electric power industry for power generation and in the building
materials industry for cement production. Fine anthracite coal may generally be used directly as thermal coal without any coal-washing or other processing.
According
to Fenwei, in recent years, the installed capacity of the PRC's electric power industry has been expanding, driven by a growing economy and increasing fixed-asset investments.
According to Fenwei, thermal power accounted for 79% of the PRC's total power supply in 2012, of which
approximately 15% was fueled by anthracite coal. Anthracite coal used for electric power generation grew at a CAGR of 5.3% from 175.1 million tonnes in 2008 to 215.3 million tonnes
in 2012.
In
the building materials industry, anthracite coal is used for cement production. According to Fenwei, anthracite coal used in the building materials industry grew at a CAGR of 7.1%
from 96.9 million tonnes in 2008 to 127.4 million tonnes in 2012 and is expected to remain relatively stable in the coming years.
Chemical coal refers to coal used for synthetic ammonia, methanol and other chemical production. Synthetic ammonia is the raw material
for urea production, and methanol is an important base chemical and may be used directly as fuel. Anthracite coal is a key raw material for synthetic ammonia and methanol production. Based on the data
from Fenwei, anthracite coal used in the chemical industry grew at a CAGR of 3.2% from 70.0 million tonnes in 2008 to 79.3 million tonnes in 2012. Depending on the usage and the desired
technical specifications, both anthracite coal lumps and fine anthracite coal may be used as chemical coal, and coal-washing may be required.
Some
chemical plants have experimented with using bituminous coal or natural gas as a substitute for anthracite coal to save costs. However, the use of bituminous coal requires the
restructuring of gasification furnaces and has a negative environmental impact, while the supply of natural gas in the PRC is limited. According to Fenwei, approximately 71% of synthetic ammonia and
approximately 70% of methanol in the PRC were produced from anthracite coal in 2012.
PCI coal is generally used for sintering, smelting and injection purposes in the pulverized coal injection process in iron production,
and it is produced from anthracite coal fines after coal-washing to achieve certain technical specifications. Iron and steel manufacturing plants are able to reduce costs by using PCI coal for blast
furnace injection instead of coke, which is produced from coking coal. PCI coal can be made from anthracite or bituminous coal or a combination of both. According to Fenwei, in 2012, approximately 60%
of PCI coal in the PRC was made from anthracite coal, compared with 80% in 2007, and the proportion of PCI coal made from anthracite coal is expected to continue to decline. However, anthracite coal
used in the iron and steel industry grew at a CAGR of 13.5% from 37.9 million tonnes in 2008 to 62.9 million tonnes in 2012.
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Table of Contents
OVERVIEW OF THE ANTHRACITE COAL INDUSTRY IN GUIZHOU
Anthracite Coal Resources & Distribution in Guizhou
According to the SAWS and Fenwei, in 2012, Guizhou had 49.8 billion tonnes of coal resources, 80% of which were anthracite coal,
accounting for 30% of the PRC's total anthracite coal resources.
The
Guizhou coal market is highly fragmented. According to statistics from the Guizhou Administration of Coal Mine Safety, in June 2011, Guizhou had 18 large coal mines
with annual production capacity of no less than 1.2 million tonnes and 70 medium-sized mines with an annual production capacity of 0.3 to 1.2 million tonnes. The production volume
of small coal mines with an annual production capacity of no more than 0.3 million tonnes accounted for 76% of the total coal production capacity in Guizhou.
Coal Transportation in Guizhou
Guizhou province is located in southwest China. Coal in Guizhou is transported by rail, road and waterway. According to Fenwei, in
2012, the average transportation cost in Guizhou per each tonne of coal was RMB0.5 to RMB1.0 per kilometer by road, RMB0.3 per kilometer by rail and RMB0.2 to RMB0.3 per kilometer
by waterway.
Guizhou
is a key province for transferring cargo from the PRC's western provinces to its southern coastal area. There are four railway lines which run through Guizhou province and the
road network spans over 30,000 kilometers in Guizhou, including five national roads and 30 provincial roads. Guiyang
is at the center of Guizhou's rail and road networks, which extend to substantially all cities and counties in the province. The inland waterway system in Guizhou consists of five primary
out-of-provincial waterways linked to the Yangtze River in northern Guizhou and the Pearl River in southern Guizhou.
According
to Guizhou's "678 highway network plan" Guizhou intends to increase the total road mileage by at least 4,500 kilometers and construct a highway in each county by
2015. This development is expected to significantly improve the transportation of coal by road in Guizhou, particularly in the Bijie area, and it is also expected to reduce the transportation costs.
Guizhou also plans to construct two waterway systems for out-of-province cargo transport by 2015, with one end connecting the Yangtze River in northern Guizhou and the other end connecting the Pearl
River in southern Guizhou.
TARGET MARKETS FOR GUIZHOU ANTHRACITE COAL
Anthracite Coal Supply & Demand in the Target Markets
According to the SAWS, Guizhou is the largest anthracite coal producing province in southern China. Guizhou has a surplus of anthracite
coal and is a net exporter of anthracite coal to other provinces in the PRC. Anthracite coal production in Guizhou has historically exceeded local consumption, and this trend is expected to continue.
In addition to local consumption, other target markets for Guizhou anthracite coal are the neighboring provinces and municipalities of Guizhou,
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including
Guangdong, Guangxi, Sichuan, Chongqing and Jiangxi. Demand for anthracite coal in these target markets has been growing faster than supply, resulting in a widened anthracite coal supply
deficit. As Guizhou has a surplus of anthracite coal, it is in a position to supply to its neighboring provinces. Given the relative scarcity of anthracite coal and the growing economies of the target
markets, Fenwei expects the supply deficit of anthracite coal in the target markets to continue. Set
forth below is a table containing the actual and estimated volume of anthracite coal production, demand and surplus or deficit in Guizhou and the target markets. The estimation was prepared by Fenwei
based primarily on the 12th Five Year Plan for the Development of Coal Industry of each of Guizhou and such target markets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item
|
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
CAGR
(2008-2012) |
|
2013E |
|
2014E |
|
2015E |
|
CAGR
(2013E-
2015E) |
|
|
|
(million tonnes, except percentages)
|
|
Guizhou |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthracite coal production |
|
|
49.0 |
|
|
48.9 |
|
|
62.6 |
|
|
59.9 |
|
|
53.4 |
|
|
2.20 |
% |
|
54.5 |
|
|
56.5 |
|
|
58.8 |
|
|
3.87 |
% |
Anthracite coal demand |
|
|
29.7 |
|
|
34.3 |
|
|
35.9 |
|
|
39.3 |
|
|
40.8 |
|
|
8.31 |
% |
|
43.6 |
|
|
46.2 |
|
|
46.8 |
|
|
3.69 |
% |
Anthracite coal supply deficit/(surplus) |
|
|
-19.3 |
|
|
-14.6 |
|
|
-26.8 |
|
|
-20.6 |
|
|
-12.6 |
|
|
|
|
|
-10.9 |
|
|
-10.3 |
|
|
-11.9 |
|
|
|
|
Other Target Markets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthracite coal production |
|
|
56.8 |
|
|
54.5 |
|
|
52.3 |
|
|
54.9 |
|
|
55.8 |
|
|
-0.45 |
% |
|
53.2 |
|
|
51.3 |
|
|
48.9 |
|
|
-4.12 |
% |
Anthracite coal demand |
|
|
66.3 |
|
|
74.0 |
|
|
77.6 |
|
|
85.4 |
|
|
85.7 |
|
|
6.64 |
% |
|
80.4 |
|
|
81.5 |
|
|
81.2 |
|
|
0.51 |
% |
Anthracite coal supply deficit/(surplus) |
|
|
9.5 |
|
|
19.5 |
|
|
25.3 |
|
|
30.5 |
|
|
29.9 |
|
|
|
|
|
27.2 |
|
|
30.2 |
|
|
32.3 |
|
|
|
|
Source: Fenwei
COAL PRICING IN GUIZHOU
Recent Guizhou Anthracite Coal Prices
Anthracite coal prices in Guizhou rose significantly in October 2011, mainly driven by a reduction in anthracite coal supply as
a result of extensive industry consolidation in the Guizhou coal sector and strong demand growth driven by fast economic growth. The price of anthracite coal in Guizhou fell significantly in the
second quarter of 2012 and again in the first half of 2013, primarily due to a slowdown in economic growth which constrained the growth of domestic demand, an increase in anthracite coal production in
Shanxi province following restructuring and consolidation of coal enterprises, and a rise in anthracite coal imports. Such decline may continue.
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Table of Contents
Average Anthracite Coal Price (including value-added tax) in Guizhou
(January 2008 — October 2013) (RMB/tonne)
Source: China Coal Resource Website (www.sxcoal.com), Fenwei
- (1)
- Anshun large lump: ash 12%; volatility 7.5%; sulfur 0.9%; calorific value 6800kcal/kg (28.5MJ/kg)
- (2)
- Anshun
mid lump: ash 11%; volatility <10%; sulfur 1%; calorific value >7000kcal/kg (29.3MJ/kg)
- (3)
- Anshun
fine: ash 28%; volatility 6%; sulfur 0.4%; calorific value 5000kcal/kg (20.9MJ/kg)
- (4)
- Zhijin
PCI: ash <13.5%; volatility <10%; sulfur <0.8%; calorific value >6300kcal/kg (26.4MJ/kg)
- (5)
- Jinsha
small lump: ash 16-18%; volatility 6.5%; sulfur 0.4%; calorific value 6600kcal/kg (27.6MJ/kg)
Factors Affecting Guizhou Anthracite Coal Prices
According to Fenwei, prices of Guizhou anthracite coal are expected to be supported by several factors,
including:
- •
- limited anthracite coal imports into the region: most of the anthracite coal imports into southwestern China originate
from Vietnam, which has limited anthracite coal resources and its government has expressed its intention to restrict anthracite coal exports;
- •
- a continuing supply deficit of anthracite coal in the PRC domestic market, as a result of the scarcity of anthracite coal
and limited domestic production capacity; and
- •
- improvements in transportation conditions within Guizhou and between Guizhou and its neighboring provinces.
However,
anthracite coal prices in Guizhou may also experience downward pressure. In particular, future improvements in rail transportation conditions in the PRC, especially the railway
from Inner Mongolia to central China, may make it less expensive to transport coal from Inner Mongolia. In addition, coal production capacity in Shanxi may expand gradually following the completion of
its coal sector consolidation.
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Table of Contents
PRC GOVERNMENT POLICY TOWARDS THE COAL INDUSTRY
The 12th Five Year Plan for the PRC's Coal Industry
On March 18, 2012, the NDRC released the 12th Five Year Plan for Development of the Coal Industry, the national plan for
2011 to 2015 on coal mine construction, production capacity, and transportation via railway and port facilities in the PRC. The main objectives are
as follows:
- •
- Construct large-scale coal bases and coal enterprise groups, as well as large and modern coal mines. The goal is to have
20 large-scale coal enterprise groups accounting for over 60% of the nation's total coal production by 2015. In addition, ten of the 20 coal enterprise groups are expected to have total
annual production capacity of 100 million tonnes and the other ten coal enterprise groups are expected to have total annual production capacity of 50 million tonnes. Furthermore, large-,
medium- and small-sized mines are expected to account for 63%, 22% and 15%, respectively, of the nation's total coal production by 2015.
- •
- Keep coal production "controlled in the east, stable in the center and developing in the west of the PRC". Under the
12th Five Year Plan for Development of the Coal Industry, the "east" of PRC refers to the coastal provinces and municipals, as well as Jilin and Heilongjiang; the "center" of the PRC refers to
Hunan, Hubei, Jiangxi, Anhui, Henan, and Shanxi; and the "west" of the PRC refers to the rest of the areas of the PRC. The increase in the coal production capacity in the PRC was below the
government's plan in 2006 to 2010. Under such 12th Five Year Plan, increases in the coal production capacity are expected to continue in 2011 to 2015 in the east, center and west of the PRC,
which would account for 5.6%, 30.6% and 63.8%, respectively, of the nation's planned production capacity by 2015. The newly commenced coal mine construction in the east, center and west of the PRC is
expected to account for 3.3%, 25.0% and 71.7%, respectively, of the nation's total newly commenced coal mine construction in 2011 to 2015. By 2015, national production capacity is projected to be
4.1 billion tonnes per year, and the east, center and west of the PRC are expected to account for 12%, 35% and 53%, respectively, of the nation's total production capacity.
- •
- In 2015, rail transport demand for coal is predicted to be 2.6 billion tonnes, with planned capacity of
3 billion tonnes per year. Trans-provincial coal transport volume is estimated to be 1.66 billion tonnes by 2015, of which 1.58 billion tonnes are expected to be from Shanxi,
Shaanxi, Inner Mongolia, Ningxia and Gansu, 0.03 billion tonnes from Xinjiang, and 0.05 billion tonnes from Yunnan and Guizhou.
Consolidation Policy for the PRC's Coal Industry
The 12th Five Year Plan for the Development of the Coal Industry states that the primary objective during 2011 to 2015 is to
"promote merger and restructuring of coal enterprise groups, to develop large-scale enterprise groups". The State plans to accelerate resource consolidation and mergers and restructurings of coal
enterprise groups, which are expected to significantly elevate the concentration ratio of the PRC coal industry. According to the plan, from 2011 to 2015 the State will prioritize the construction of
large-scale coal bases, enterprise groups and modern mines. Moreover,
70
Table of Contents
under
the plan, there will be no more than a total of 4,000 coal enterprise groups nationwide and the average production capacity of each enterprise will exceed 1 million tonnes per
year. From 2011 to 2015,
Shanxi, Shaanxi, Inner Mongolia, Ningxia, Qinghai, Gansu, Xinjiang, Sichuan, Guizhou and Yunnan plan to accelerate the consolidation of mining properties and resources.
Coal Industry Policy in Guizhou
According to the 12th Five Year Plan for the Development of Coal Industry of Guizhou, coal production is expected to reach
182.33 million tonnes by 2015.
Guizhou began consolidating its coal sector in 2005, with 346 coal mines closed that year and 425 coal mines closed
between 2006 to 2007. According to the 12th Five Year Plan for the Development of Coal Industry of Guizhou released in January 2011, the Guizhou government announced a policy to reduce
the target number of coal enterprise groups to 100 and the target number of coal mines to approximately 1,000, each with a production capacity of at least 1.5 million tonnes per year, by the
end of 2015. This policy also aims to form one "extra-large" coal enterprise group producing at least 50 million tonnes of coal per year, two "large" coal enterprise groups producing at least
30 million tonnes of coal per year, and 10 "medium" coal enterprise groups producing at least five million tonnes of coal per year.
On
March 22, 2013, the authorities in Guizhou issued the Notice of the "Implementation Rules on Accelerating the Progress of Merging and Restructuring Coal Mining Enterprises of
Guizhou Province" (
), which aims to implement the aforementioned reductions of coal mining enterprises and coal mines. Coal enterprises
located in Bijie and Liupanshui counties are required to
have annual production capacities of no less than 2.0 million tonnes, and those located in the other areas of Guizhou are required to have annual production capacities of no less than
1.5 million tonnes.
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Table of Contents
REGULATION
OVERVIEW
The coal industry in the PRC is subject to extensive regulations. These regulations govern investments in coal businesses, mining
rights, coal exploration, production, distribution, trading and transportation, as well as safety and environmental protection. In addition, coal operations in the PRC are subject to taxes
and levies.
PRC LAWS RELATING TO THE COAL INDUSTRY
Approval of Coal Mine Development Projects
In the PRC, coal mine development projects must be approved by the NDRC or its local counterparts, depending on the location and annual
production capacities of the project.
On
July 16, 2004, the State Council promulgated the Decision on Institutional Reform of Investment System (
) (the "Investment
Decision"), which significantly modified the government approval process for major investment projects in the PRC. Pursuant to the Investment
Decision, applications for coal mine development projects within the mining areas under the national plan are required to be submitted to the NDRC, and applications for other coal mine development
projects are required to be submitted to the competent investment department of the local government.
On
December 8, 2005, the NDRC issued the Notice on Strengthening the Management of Related Issues Concerning Basic Construction of Coal Projects (
), which was amended on December 12, 2012. Under the Coal Projects Notice, the NDRC delegated to its local counterparts the authority to approve coal mine development
projects which are within the mining areas under the national plan which have annual production capacities under 600,000 tonnes.
On
May 15, 2013, the State Council promulgated the Decision on Cancellation and Delegation of Certain Items Subject to Administrative Examination and Approval (
) (the "Decision on Administrative Examination and Approval"). According to the Decision on Administrative Examination and Approval, the competent investment department
of the provincial governments may approve applications for coal mine development projects which are within the mining areas under the national plan and have newly increased annual production
capacities under 1,200,000 tonnes.
Mining Operations
The Coal Law of the PRC (
), which became effective on December 1,
1996 and as amended on August 27, 2009 and April 22, 2011, sets forth certain requirements relating to coal
production, including requirements relating to the exploration of mineral resources, the approval of new mines, the issuance of production permits, the implementation of safety standards, the coal
trading, the protection of mining areas from destructive exploitation, the protection of miners and the administration and supervision of coal mining operations.
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Table of Contents
Under
the Mineral Resources Law of the PRC (
) (the "Mineral Resources Law"), which became effective on January 1, 1997 and as amended
on August 29, 1996, all mineral resources in PRC are owned by the
State. The Mineral Resources Law governs the supervision and administration of the mining and exploration of mineral resources. Under the Mineral Resources Law, the geology and mineral resources
bureau of each province, autonomous region and municipal government is responsible for the supervision and administration of the exploration, development and exploitation of mineral resources within
its jurisdiction. Businesses engaged in the exploration and exploitation of mineral resources are required to obtain exploration rights and mining rights from the competent land and resources
authorities.
Pursuant
to the Coal Law and the Mineral Resources Law, exploration and exploitation of coal is subject to the supervision by the MLR and the relevant local mineral resource bureaus and
coal administration departments. For example, coal exploration licenses and coal mining right permits are granted by the MLR or local mineral resource bureaus. Holders of mining right permits are
required to file annual reports with the relevant administrative authorities that issue the permits. A coal production permit is required before a coal producer may produce and sell coal in the PRC.
Furthermore, the production capacity of each coal mine is subject to annual review by the NDRC or local counterparts.
Under
the Procedures for the Registration of Mineral Resources Mining (
) (the "State Council Circular No. 241"), which became
effective on February 12, 1998, holders of mining right permits are required to submit applications
with the relevant registration authorities to change the scope of mining area, the main exploited mineral categories, exploitation modes and name of the mining enterprise, as well as transferring
mining rights. Mining right permits will terminate upon their expiration unless they are extended by relevant registration authorities.
Coal
mining businesses may be subject to administrative penalties for certain non-compliance. For example, conducting a coal mining business without a mining right permit, safety
production permit or coal production permit may result in cease-and-desist orders, disgorgement of profits and fines. In addition, coal mining businesses which exceed the production limit set forth in
the mining right permit or coal production permit may be subject to a one-time fine of up to RMB2.0 million on the coal mine, a fine of no more than RMB150,000 on the mine manager, other
administrative penalties and, in serious cases, revocation of coal production permit and mine managers' qualification certifications, as well as closure of the mine.
Under
the Coal Law and the Mineral Resources Law, coal producers are required to achieve certain reserves recovery rates, and failure to achieve the rates may result in penalties,
including the revocation of coal production permits.
It
is unlawful to conduct mining operations in areas authorized for exploitation by other mining operators, which may result in cease and desist orders, fines, forfeiture of relevant
products and proceeds and damage of losses suffered by authorized operators.
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Coal
mining businesses which cause harm to others in the course of operations are liable to the affected parties and are required to take remedial measures. Under the Detailed Rules for
the Implementation of the Mineral Resources Law (
), a mine operator is required to follow certain procedures when closing a mine,
including submitting a mine closure geology report to the relevant authorities that approved
the opening of the mine.
Mining
rights are transferable subject to the approval of the relevant geological and mineral resources and land bureaus of the PRC. A mining right permit holder is entitled to and
obligated to conduct mining activities in the area specified in and within the term of the mining right permit. A mining right permit holder is also entitled to set up necessary production facilities
and acquire land use rights necessary for coal production. A mining right permit holder is required to (i) conduct reasonable exploitation and protect and fully utilize mineral resources,
(ii) pay resources taxes and resources compensation levies, (iii) comply with the laws and regulations relating to occupation safety, soil and water conservation and reclamation and
environmental protection, and (iv) submit mineral resource reserves and utilization reports to the relevant government authorities.
Pursuant
to the Coal Law, a coal mining business is required to obtain a coal production permit in order to sell self-produced coal. In addition, pursuant to the Measures of Supervision
of Coal Operation (
), a coal operation qualification certificate is required to be obtained before engaging in sales of coal products that
are not self-produced or self-processed.
The
National People's Congress Standing Committee passed certain amendments to the Coal Law, which became effective on June 29, 2013, including removing the requirements of
obtaining coal production permits and coal operation permits.
Pricing
Since the PRC Government eliminated price controls over the coal used for power generation in 2002, coal price has been mainly
influenced by the supply and demand of coal markets. Nonetheless, the PRC Government still has the right to implement certain temporary price intervention measures. For example, the NDRC issued the
Notice on Strengthening Adjustments of Thermal Coal Prices (
) on November 30, 2011, pursuant to which the NDRC implemented a
temporary price intervention measure on thermal coal sold to certain power producers by setting maximum
coal prices at key ports and distribution centers in January 2012. The temporary price intervention measure was terminated in
January 2013 in accordance with the Notice on Terminating Temporary Price Intervention Measures on Thermal Coal Prices (
) issued by
the NDRC on December 18, 2012. Pursuant to the Price Law of the PRC (
), which became effective on May 1, 1998, temporary price
intervention measures may be introduced to limit coal price increases.
Supply of thermal coal to power plants
On March 28, 2011, the NDRC issued the "Emergency Notice to Ensure the Stable Supply of Thermal Coal and the Stabilization of
the Price of Thermal Coal by NDRC" (
), which called for a stable supply of thermal coal in all coal producing provinces and districts.
Furthermore, according to the "Notice of Issuing the Provincial
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Thermal
Coal Supply Target for the Year 2010 by the General Office of the Guizhou Provincial People's Government (Qianfubanfa (2010) No.4)" (
2010
(2010) 4
)
issued on January 12, 2010, the "Notice of Issuing the Provincial Thermal Coal Supply Target for the
Year 2011 by the General Office of the Provincial People's Government (Qianfubanfa (2010) No.119)" (
2011
(2010) 119
) issued on
December 17, 2010 and the "Notice of Implementing the Provincial Supply of Thermal Coal and Coal Consumed for
Municipal Gas for Manufacture for the Year 2012 by the General Office of the Provincial People's Government (Qianfubanfa (2011) No.127)" (
2012
(2011) 127(
)) issued on December 12, 2011 by the Guizhou government, the Guizhou government published the annual guidance relating to the provision of certain minimum amounts of
thermal coal by coal enterprises in Guizhou province to power plants operating in Guizhou in 2010, 2011 and 2012, respectively. Under the Notice of Issuing the Provincial
Thermal Coal Instructional Plan for the Year 2013 (Qianjingxinyunxing (2013) No.1) (
2013
) (
) [2013] 1
)) issued by the Guizhou Economic and Information Commission and the Energy Bureau of Guizhou Province on January 5, 2013, coal mining enterprises
located in Bijie City
and Liupanshui City are required to provide 17.25 million tonnes and 11.1 million tonnes of thermal coal, respectively, to power plants in Guizhou in 2013. Such guidances are aimed at
ensuring adequate supply of thermal coal to power plants in Guizhou.
Foreign Investments in Coal Mining Industry
Under the Catalogue of Industries for Guiding Foreign Investments (Amended in 2011) (
(2011
)) (the "Catalogue") promulgated by the MOFCOM and the NDRC, which became effective on January 30,
2012, exploration and mining of "special and scarce" coal is an
industry in which foreign investments are restricted and businesses in the industry are required to be controlled by PRC persons. Although "special and scarce" coal is not defined in the Catalogue,
there is an enumerated listed of "special and scarce" coal under the Interim Administrative Measures on the Development and Utilization of Special and Scarce Coal (
) (the "Measures on Special and Scarce Coal") which were promulgated by the NDRC and became effective on January 9, 2013, which provides that businesses engaged
in the development of "special and scarce" coal in certain designated "special and scarce coal mining areas" are required to be controlled by PRC persons. In Guizhou, anthracite coal does not fall
within the enumerated list of "special and scarce" coal, and none of our mines are located in the designated "special and scarce coal mine areas".
PRC LAWS RELATING TO ENVIRONMENTAL PROTECTION
General
Coal mining operations in the PRC are subject to extensive environmental regulations. Under the relevant laws, rules and regulations, a
business that discharges toxic and hazardous materials is required to comply with the applicable standards and report to and register with the relevant environmental protection authorities. Failure to
comply may result in warnings, enforcement orders
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and other penalties. Before a construction project commences, an environmental impact assessment report must be submitted to the relevant environmental protection authorities for approval. An
acceptance inspection by the relevant environmental protection authorities must be obtained before the completed construction project may commence its operations.
Provisions on the Protection of the Geological Environment of Mines
According to the Provisions on the Protection of the Geologic Environment of Mines (
), which became effective on May 1, 2009, a mining right permit applicant is required to submit a plan relating to the protection and restoration of the mine's
geological environment to the competent land and resources authorities for approval. In addition, a mining right permit holder is required to pay a
security deposit for the restoration of the geological environment of mines and must be responsible for restoration of the mine's geological environment which is affected by its mining operation.
Regulations on Land Reclamation and its Implementing Measures
Pursuant to the Regulations on Land Reclamation (
), which became effective
on March 5, 2011 and the Implementing Measures of Regulations on Land Reclamation (
), which became effective on March 1, 2013, a
coal production enterprise must take measures to restore the land that has been damaged due to its coal mining operations.
The reclaimed land may be put into use only after the reclamation requirements are fulfilled and the relevant land administration authorities have completed an examination and acceptance. Failure to
comply with the reclamation requirements or restore the land in the mining areas may subject the coal production enterprise to fines, land reclamation fees, rejection of the application for land use
right, revocation of the mining right permit or, in serious cases, criminal liability.
PRC LAWS RELATING TO PRODUCTION SAFETY
The SAWS and the SACMS under the supervision of the SAWS are responsible for centralized supervision and monitoring of coal mine
safety. Pursuant to the Provisions on the Supervision of Safety Facilities for Coal Mine Construction Projects (
), the safety design and
procedures of a coal mine construction project must be examined and approved by the SACMS or its local branches. Before the commencement of operation
of the coal mine, coal mine equipment and conditions must pass relevant inspections and acceptance tests performed by SACMS or its local branches. The SACMS may conduct safety inspections of the
conditions of coal production businesses regularly pursuant to the Safety Production Law of the PRC (
), the Mining Safety Law of the PRC (
) and other relevant safety regulations. Coal production businesses that fail to meet relevant safety requirements may be subject to fines
and suspensions of operations.
Pursuant
to the requirements of the Measures for the Implementation of Safe Production Licenses of Coal Mine Enterprises (
), which became effective
on May 17, 2004, coal mines in operation must have a valid production safety license issued by the SACMS or its provincial bureaus and comply
with the safe production requirements set forth in the license. The production safety license has an initial term of three years, subject to renewals upon satisfaction of
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relevant
safe production requirements. Moreover, pursuant to the Special Provisions of the State Council on the Prevention of Coal Mine Production Safety Accidents (
), which became effective on September 3, 2005, coal mine businesses are responsible for preventing accidents at coal mines, and are required to have sufficient safety
equipment, facilities and resources, appropriate accident prevention measures and a sound emergency contingency plan. Coal mine businesses must establish policies relating to the monitoring,
inspection, handling and reporting of potential safety risks. If any major potential safety risk of production set forth in the policies is identified, coal mine businesses should suspend their
operations and eliminate the risk.
On
July 19, 2010, the State Council issued the Notice of the General Office of the State Council on Further Improving Production Safety of Enterprises (
) (the "Production Safety Notice"). The Production Safety Notice requires enterprises such as coal mining enterprises to improve safety management, conduct frequent
safety inspections, enhance the responsibility and accountability of persons in charge of production and improve safety education and trainings.
The
Trial Rules on Mining Production Work-Related Safety Issues (
), which became effective on September 1, 2010, require coal mining
companies to submit to relevant safety authorities safety manuals, reports on evaluation of
work-related risks, means adopted for risk prevention and work safety measures.
Pursuant
to the Notice of "Ten Prohibitions" on Coal Mine Gas Prevention (
), which became effective on November 25, 2011, coal and gas
outburst mines with annual production capacities of 90,000 tonnes or less are required to suspend
production pending rectifications and assessments of gas prevention capability. Coal and gas outburst mines which fail to pass the assessment are required to remain suspended pending rectifications,
be consolidated with other mines with gas prevention capacity, or close down their operations.
On
December 26, 2011, the NEA issued the Administrative Measures regarding Assessment of Gas Prevention Capability of Coal Mining Enterprises (
) (the "Measures on Gas Prevention"). On March 5, 2012, the Office of the Guizhou Energy Bureau issued Opinions on Implementation of Assessment of Gas Prevention
Capability of Coal Mining Enterprises in Guizhou Province (
) (the "Opinions on Gas Prevention"). According to the Measures on Gas
Prevention and the Opinions on Gas Prevention, coal mining enterprises engaged in production and
construction of mines with high gas contents and coal and gas outburst mines in Guizhou province are required to apply for assessments of gas prevention capability. Gas prevention capability
assessments are required before applying for approval of construction projects of mines with high gas contents and coal and gas outburst mines or consolidating mines with high gas contents and coal
and gas outburst mines. Mines with high gas content and coal and gas outburst mines which fail to pass the assessments are required to suspend their operations pending rectifications, consolidate with
other mines with gas prevention capacity or close down their operations.
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PRC LAWS RELATING TO TAXATION AND FEES
Pursuant to the PRC Enterprise Income Tax Law (
) effective on
January 1, 2008 and its implementation rules, domestic enterprises and foreign invested enterprises are subject to enterprise income tax at a rate of 25%
on taxable income.
Under
the PRC Enterprise Income Tax Law, enterprises are categorized as resident enterprises and non-resident enterprises. A resident enterprise refers to an enterprise that is
incorporated under the PRC law, or that is incorporated under the law of a jurisdiction outside the PRC with its de facto management body located within the PRC. Pursuant to the Regulation on the
Implementation of the PRC Enterprise Income Tax Law (
), which became effective on January 1, 2008, a "de facto management body" is
defined as a managing body that exercises, in substance, overall management and control
over the production and business, personnel, accounting and assets of an enterprise. A non-resident enterprise refers to an enterprise which is incorporated under the law of a jurisdiction outside the
PRC with its de facto management body located outside of the PRC, but which has set up institutions or establishments in the PRC, or has income originating from the PRC without setting up any
institution or establishment in the PRC.
On
August 21, 2006, the PRC and Hong Kong entered into an Arrangement between the Mainland of the PRC and Hong Kong for Avoidance of Double Taxation of Income and Prevention of
Income Tax Evasion (
) (the "Income Tax Arrangement"). According to the Income Tax Arrangement, a withholding tax rate of 5% applies
to dividends paid by a PRC company to a corporate
recipient that is a Hong Kong resident and directly holds at least 25% equity interests in the PRC company. A withholding tax rate of 10% applies to dividends paid by a PRC company to a corporate
recipient that is a Hong Kong resident and holds less than 25% equity interests in the PRC company.
According
to the Circular of the State Administration of Taxation on Relevant Issues relating to the Implementation of Dividend Clauses in Tax Treaties (
), which became effective on February 20, 2009, special tax treatments on dividends paid by a PRC company under relevant tax treaties will not be available unless
certain conditions are satisfied. For example, the dividend recipient must be qualified under the relevant tax treaty, and must directly hold certain equity interest in and voting shares of the PRC
company distributing dividends as specified in the relevant treaty within 12 months prior to the dividends distribution. In addition, pursuant to the Administrative Measures for Non-residents
to Enjoy Treatments under Tax Treaties (Trial) (
), which became effective on October 1, 2009, approvals from competent local tax
authorities are required before an enterprise can enjoy the relevant
tax treatments.
Pursuant
to the Provisional Regulation of Resources Tax of the PRC (
), which became effective on January 1, 1994 and as amended on
September 30, 2011 and the Rules Administering Levy of Mine Resource Compensation Fees (
), which became effective on April 1,
1994 and as amended on July 3, 1997, coal mining businesses are subject to resources taxes and resources compensation fees.
Since 2004, the MOF and the SAT has increased coal resources tax rates in certain regions, including Guizhou province. According to the
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Detailed Rules for Implementation of the Interim Regulations of the People's Republic of China on Resource Tax (
) issued by the Ministry
of Finance and State Administration of Taxation on October 28, 2011 (effective on November 1, 2011), the rate of coal resources tax
(excluding coking coal) for Guizhou province is RMB2.5 per tonne.
PRC LAWS RELATING TO LAND
Under the Land Administration Law of the PRC (
), which became effective on
January 1, 1999 and amended on August 28, 2004, land in the PRC is either state-owned or collectively-owned, depending on the
location of the land. Land in the urban areas of a
city or town is generally state-owned, and the land in the rural areas of a city or town and all rural land is generally collectively owned. Land is subject to requisitions by the government if it is
required by the public interest. Generally, the land use rights of collectively owned land may not be granted, assigned or leased to any party for uses other than agricultural uses. In the case of
temporary use of collectively-owned land for construction projects or by geological survey teams, approvals must be obtained from the relevant land administrative authorities. The term of each such
approval generally does not exceed two years. In addition, any person who uses the collectively-owned land for purposes other than agricultural uses must enter into a contract with rural economic
collective organizations or village committees, depending on who owns the land, and pay land compensation fees as provided in the contract.
PRC LAWS RELATING TO LABOR
Under the Labor Law of the PRC (
) and the Labor Contract Law of the PRC (
), labor relationships between the employers and the employees must be established by labor contracts, and the employers are subject to
certain obligations,
including:
- •
- prohibitions against requiring the employees to work overtime;
- •
- the obligation to timely pay the wages which are not less than minimum wages to the employees;
- •
- the obligation to establish and improve their systems for labor safety and sanitation, strictly abide by the applicable
rules and standards on labor safety and sanitation and educate employees on labor safety and sanitation; and
- •
- the obligation to provide employees with working conditions which meet the requirements for labor safety and sanitation
and provide employees with regular health examination.
Under
the Regulation of Insurance for Labor Injury (
), which became effective on January 1, 2004 and as amended in 2010, the Provisional
Insurance Measures for Maternity of Employees (
), which became effective on January 1, 1995, the Interim Regulation on the Collection
and Payment of Social Insurance Premiums (
), which became effective on January 22, 1999 and the Interim Provisions on Registration of
Social
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Insurance
(
), which became effective on March 19, 1999, employers are required to register with the competent social insurance authorities and
provide their employees with welfare
schemes covering pension insurance, unemployment insurance, maternity insurance, injury insurance and medical insurance.
Pursuant
to the Social Insurance Law of the PRC (
), which became effective on July 1, 2011, all employees are required to participate in basic
pension insurance, basic medical insurance schemes and unemployment
insurance, which must be contributed by both the employers and the employees. All employees are required to participate in work-related injury insurance and maternity insurance schemes, which must be
contributed by the employers. Employers are required to complete registrations with local social insurance authorities. Moreover, the employers must timely make all social insurance contributions.
Pursuant
to the Regulations on Management of Housing Fund (
), which became effective on April 3, 1999 and as amended in 2002, enterprises are
required to register with the competent administrative centers of housing fund and
open bank accounts for housing funds for their employees. Employers are also required to timely pay all housing fund contributions for their employees.
PRC LAWS RELATING TO FOREIGN EXCHANGE
Under the Regulations on Foreign Exchange Control of the PRC (
), which
became effective on April 1, 1996 and as amended on August 5, 2008, payments made in foreign currencies for international trades such as the sale or
purchase of goods are not subject to governmental control or restrictions. Certain organizations in the PRC such as foreign-invested enterprises may purchase, sell and remit foreign currencies at
certain banks authorized to engage in foreign exchange business by providing valid supporting documents to the banks. However, regulatory approvals are required for certain capital account
transactions such as overseas investments by a domestic company.
The
SAFE issued the Notice of the SAFE on Issues Relating to the Administration of Foreign Exchange on Fund Raisings by PRC Residents Through Offshore Special Purpose Vehicles and
Round-trip Investment (
) in October 2005 ("SAFE Circular No. 75"), requiring PRC residents to register with the competent local
branch of the SAFE before establishing or controlling any
company outside of the PRC for the purpose of capital financing with assets or equities in PRC companies, referred to in the notice as an "offshore special purpose company". In addition, any PRC
resident that is a shareholder of an offshore special purpose company is required to amend its registration with the local branch of the SAFE with respect to that offshore special purpose company in
connection with any increase or decrease of capital, transfer of shares, merger, division, long-term equity or debt investment, creation of any security interest over assets or any other material
change in share capital not involving a round-trip investment.
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PRC LAWS RELATING TO MINING RESOURCE CONSOLIDATION
On October 16, 2010, the General Office of the State Council forwarded NDRC's Certain Opinions on Accelerating the Merger and
Restructuring of Coal Mine Enterprises (
) (the "Opinions on Consolidations of Coal Mine Enterprises") to the governments of all
provinces, autonomous regions and municipalities of the PRC, and all ministries
and commissions of as well as departments administered directly under the State Council. The Opinions on Consolidations of Coal Mine Enterprises relate to accelerating the merger and restructuring of
coal mine enterprises and clarify certain important implications, guiding principles and main goals of accelerating the merger and restructuring of coal enterprises.
On
January 30, 2011, the Guizhou General Office of the Guizhou Provincial government issued the "12th Five-Year Plan (2011-2015) for the Development of Coal Industry of
Guizhou" (
). Under this plan, the Guizhou government plans to form one coal enterprise group in Guizhou that has annual production
capacity of 50 million tonnes and two coal
enterprise groups in Guizhou each having total annual production capacities of 30 million tonnes. The plan also specified that the total number of the coal enterprise groups to be maintained
below 200.
Pursuant
to the Notice of the General Office of the Guizhou Provincial Government on Forwarding the "Instruction and Opinions on Accelerating the Progress of Merging and Restructuring
Coal Mining Enterprises" issued by the Energy Bureau of Guizhou Province (
) on April 15, 2011, the Guizhou government intends to
reduce the total number of coal mining enterprises, particularly the number of small coal mines through mergers
and restructuring.
The
Notice of the General Office of the Guizhou Provincial Government on Forwarding the "Plan for the Merger and Restructuring of Coal Mining Enterprises for Guizhou Province (Trial
Implementation)" was promulgated on December 17, 2012 (
) (the "2012 Coal Mining Enterprise Consolidation Notice"). In addition, the
Notice of the "Implementation Rules on Accelerating the Progress of Merging and Restructuring Coal
Mining Enterprises of Guizhou Province" (
) (the "2013 Coal Mining Enterprise Consolidation Notice") was promulgated on March 22,
2013. According to the 2012 Coal Mining Enterprise Consolidation Notice and the
2013 Coal Mining Enterprise Consolidation Notice, by 2015, the Guizhou government plans to achieve the following:
- •
- generally eliminate small-scaled coal mines with annual production capacities under 150,000 tonnes;
- •
- phase out coal and gas outburst mines with annual production capacities under 300,000 tonnes;
- •
- generally require the coal and gas outburst mines to maintain annual production capacities of at least
450,000 tonnes and the high gas mines to maintain annual production capacities of at least 300,000 tonnes;
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- •
- maintain the number of the coal mining groups below 100;
- •
- maintain the number of the mines to around 1,000; and
- •
- require the coal mining groups located in each of Bijie City and Liupanshui City to maintain aggregate annual production
capacities of at least 2,000,000 tonnes, respectively.
We
believe the 2012 Coal Mining Enterprise Consolidation Notice and the 2013 Coal Mining Enterprise Consolidation Notice will be a positive development for coal mining groups that
qualify as coal mine consolidators, including our Company. By reducing the number of coal mining groups and of
small-scaled coal mines in Guizhou, we believe the competition for acquiring mining rights for desirable coal reserves in Guizhou would be reduced. Moreover, the proposed phase-out of coal and gas
outburst mines could improve safety conditions of coal mines in Guizhou, thereby potentially reducing the frequency of coal mining accidents and the associated production suspensions imposed by the
Guizhou government on surrounding coal mines.
Under
the Notice of Issuing the Implementation Rules on Coal Mining Enterprises of Guizhou Province Merger and Reorganization Subject Qualification Declaration
Work (
) jointly issued by the Energy Bureau of Guizhou Province, the Guizhou Development and Reform Commission,
the Guizhou Economic and Information Commission, the Department of
Land and Resources of Guizhou Province, the Administration for Industry and Commerce of Guizhou Province, the Guizhou Administration of Work Safety and the Guizhou Administration of Coal Mine Safety
on January 8, 2013, a coal enterprise group is required to meet the following criteria in order to qualify as a coal mine consolidator in Guizhou province: (i) it must be an independent
legal person and is registered with the administration of commerce and industry department in Guizhou province; (ii) it must have obtained the safe production permit; (iii) it is
required to maintain annual design production capacity of at least 2,000,000 tonnes if it is located in Bijie City or Liupanshui City; and (iv) it must pass certain gas prevention
capability assessments if it owns and/or plans to acquire mines located in coal and gas outburst areas or outburst dangerous areas.
Under
the Notice of Issuing the Implementation Rules on Work for the Merger and Reorganization of Coal Mining Enterprises of Guizhou
Province (
) jointly promulgated by the Energy Bureau of Guizhou Province, the Guizhou Provincial Public Security
Department, the Department of Land and Resources of Guizhou Province, the
Environmental Protection Department of Guizhou Province, the Guizhou Provincial Water Resources Department, the Administration for Industry and Commerce of Guizhou Province, the Guizhou Administration
of Work Safety and the Guizhou Administration of Coal Mine Safety on March 22, 2013, a coal mining enterprise group which has been identified as a consolidator must report to the Guizhou
Provincial Coal Mining Enterprise Merger and Reorganization Work Leading Group Office (
) regarding potential merger and reorganization
activities. The consolidator qualifications are subject to review and examination on a quarterly basis. If the coal mining
enterprise group no longer meets the requisite conditions for being a consolidator, its qualifications may be revoked by Guizhou Provincial Coal Mining Enterprise Merger and Reorganization Work
Leading Group (
).
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HISTORY AND DEVELOPMENT
HISTORY
Our Company was incorporated in January 2010 under the laws of BVI. We are a wholly-owned subsidiary of CHNR, a BVI company with
common shares listed on the NASDAQ Capital Market under the symbol "CHNR" and controlled by Mr. Li Feilie, our chairman and chief executive officer. CHNR has two business segments: base metals
exploration and mining and anthracite coal exploration and mining. CHNR's anthracite coal exploration and mining segment is operated through our Company. Please refer to the section headed "Business"
for the status of development of each of our seven anthracite coal mines.
On ,
the CHNR Board approved a conditional special interim dividend to the CHNR Shareholders to be satisfied by way of a distribution in specie of the entire issued
share capital of our Company to all CHNR Shareholders in proportion to their respective shareholdings in CHNR on the Distribution Record Date. Please refer to the section headed "The Spin-off" for the
details of, and reasons for, the Spin-off.
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OUR CORPORATE STRUCTURE
We are a holding company, and each of our anthracite coal mines is held through one of our wholly- or majority-owned subsidiaries. Set
forth below is our corporate structure immediately prior to the completion of the Spin-off:
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- (1)
- The
remaining 1% equity interest is held by Mr. Zheng Shengjian, an Independent Third Party.
- (2)
- The
remaining 1% equity interest is held by Mr. Huang Bin, an Independent Third Party.
- (3)
- The
remaining 1% equity interest is held by Mr. Cai Songqing, an Independent Third Party.
- (4)
- The
remaining 1% equity interest is held by Mr. Li Shenggen, an Independent Third Party.
- (5)
- The
remaining 30% equity interest is held by Yangpu Wanshun Energy Co. Ltd., which is an Independent Third Party incorporated in the PRC and
engaged in the business of trading of general machinery and non-ferrous metal, sales of raw ferrous metal and ferrous metal products, and development of energy technologies.
- (6)
- The
remaining 30% equity interest is held by Yangpu Wanshun Energy Co. Ltd., which is an Independent Third Party incorporated in the PRC and
engaged in the business of trading of general machinery and non-ferrous metal, sales of raw ferrous metal and ferrous metal products, and development of energy technologies.
- (7)
- CHNR's
metal mining operations comprise the acquisition and exploitation of mining rights, including the exploration, mineral extraction, processing and
sales of iron, zinc and other nonferrous metals extracted or produced at mines primarily located in Anhui province, the PRC.
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Set
forth below is our corporate structure immediately after the completion of the Spin-off:
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- (1)
- The
remaining 1% equity interest is held by Mr. Zheng Shengjian, an Independent Third Party.
- (2)
- The
remaining 1% equity interest is held by Mr. Huang Bin, an Independent Third Party.
- (3)
- The
remaining 1% equity interest is held by Mr. Cai Songqing, an Independent Third Party.
- (4)
- The
remaining 1% equity interest is held by Mr. Li Shenggen, an Independent Third Party.
- (5)
- The
remaining 30% equity interest is held by Yangpu Wanshun Energy Co. Ltd., an Independent Third Party.
- (6)
- The
remaining 30% equity interest is held by Yangpu Wanshun Energy Co. Ltd., an Independent Third Party.
- (7)
- CHNR's
metal mining operations comprise the acquisition and exploitation of mining rights, including the exploration, mineral extraction, processing and
sales of iron, zinc and other nonferrous metals extracted or produced at mines primarily located in Anhui province, the PRC.
CORPORATE TRANSACTIONS
Our corporate structure resulted from the Corporation Transactions pursuant to which the corporate entities that have historically
conducted our business were acquired by Feishang and subsequently transferred to us. The Corporate Transactions were completed in July 2011 and involved three
key steps:
- •
- the acquisition of Guizhou Puxin;
- •
- the acquisition of Guizhou Yongfu; and
- •
- the acquisition of Guizhou Dayun.
As
advised by our PRC legal advisors, Commerce & Finance Law Offices, we have obtained all the material approvals from the relevant authorities for our PRC subsidiaries directly
involved in the Corporation Transactions, and each of the transfers directly involving our PRC subsidiaries was properly and legally completed in all material respects.
Acquisition of Guizhou Puxin
Guizhou Puxin was established in January 2009 under the laws of the PRC. In March 2010, Guizhou Fuyuantong acquired 100%
of the equity interests in Guizhou Puxin from Yangpu Jindin Industrial Co. Ltd. and Mr. Zhang Xiaofeng, each of which was an Independent Third Party, for a consideration of
RMB150.0 million which represented the registered capital of Guizhou Puxin. The consideration was fully paid by July 2011. At the time of the acquisition, Guizhou Puxin had the following
five majority-owned subsidiaries:
- •
- Baiping Mining, a 70%-owned subsidiary which holds Baiping Coal Mine;
- •
- Xinsong Coal, a 99%-owned subsidiary which holds Liujiaba Coal Mine;
- •
- Linjiaao Coal, a 99%-owned subsidiary which holds Zhulinzhai Coal Mine;
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- •
- Gouchang Coal, a 99%-owned subsidiary which holds Gouchang Coal Mine; and
- •
- Dayuan Coal, a 99%-owned subsidiary which holds Dayuan Coal Mine.
The
consideration of RMB150.0 million was significantly lower than the fair value of Guizhou Puxin's net assets at the time of the acquisition, which was RMB774.1 million.
We believe Guizhou Fuyuantong was able to acquire Guizhou Puxin at a relatively low price because Guizhou Puxin was incurring losses and its coal mines were in the early stages of development at the
time of the acquisition, and Yangpu Jindin Industrial Co. Ltd. and Mr. Zhang were experiencing financial difficulties and were unable or unwilling to fund the capital expenditures
that would have been required to develop Guizhou Puxin's coal mines.
Guizhou
Puxin, together with its five subsidiaries, became our indirect subsidiaries in April 2010 when Smartact acquired 100% of the equity interests in Guizhou Fuyuantong from
Feishang for a consideration of RMB10.0 million. The consideration was determined based on the then net asset value of Guizhou Fuyuantong and was fully paid in July 2010.
Acquisition of Guizhou Yongfu
Guizhou Yongfu, which holds Yongsheng Coal Mine, was established in June 2005 under the laws of the PRC. In July 2008,
Yangpu Shuanghu, a company then controlled by Feishang, acquired 70% of the equity interests in Guizhou Yongfu from Mr. Li Qing, an Independent Third Party, for a consideration of
RMB11.8 million which represented 70% of the then registered capital of Guizhou Yongfu. The consideration was fully paid in July 2009. In August 2008, Newhold Investments Limited
("Newhold"), a company then wholly-owned by Feishang, acquired all of the equity interests in the holding company of Yangpu Shuanghu for a nominal value of HK$1.0 as part of internal group
restructuring. In January 2009, CHNR acquired all the issued shares of Newhold from Feishang for a total consideration of RMB287.7 million which was determined based on the volume of
coal resources. The consideration was fully paid by November 2009.
Guizhou
Yongfu became our indirect subsidiary in September 2010 when Guizhou Puxin acquired 70% of the equity interests in Guizhou Yongfu from Yangpu Shuanghu for a consideration
of RMB70.0 million, which represented 70% of the then registered capital of Guizhou Yongfu. The consideration was fully paid in October 2010. Yangpu Wanshun Energy Co. Ltd.
owns the remaining 30% equity interests in Guizhou Yongfu.
Acquisition of Guizhou Dayun
Guizhou Dayun, which holds Dayun Coal Mine, was established in April 2004 under the laws of the PRC. In June 2008, Yangpu
Dashi, a company then controlled by Feishang, acquired 100% of the equity interests in Guizhou Dayun from Yu Xiang, Wang Fang, Wang Yongzhi and Liu Min, each of whom was an Independent Third Party,
for a total consideration of RMB4.0 million which represented the then registered capital of Guizhou Dayun. The consideration was fully paid in December 2009. In July 2008,
Pineboom Investments Limited ("Pineboom"), a company then wholly-owned by Feishang, acquired all of the equity interests in the holding company of Yangpu Dashi for a nominal value of HK$1.0 as part of
internal group restructuring. In July 2009, CHNR acquired all the issued shares of Pineboom from Feishang for a total consideration of RMB154.4 million which was determined based on the
volume of coal resources. The consideration was fully paid by January 2010.
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Yangpu
Dashi and Guizhou Dayun became our indirect wholly-owned subsidiaries in July 2011 when Guizhou Puxin acquired 100% of the equity interests in Yangpu Dashi for a
consideration of RMB1.0 million, which was determined by the tax authorities in Guizhou and was fully paid in September 2011.
OUR OTHER SUBSIDIARIES
As at the Latest Practicable Date, we had three other subsidiaries organized in the PRC. These
subsidiaries are:
- •
- Bijie Feishang, our wholly-owned subsidiary which was incorporated by Guizhou Puxin in October 2010 under the laws
of the PRC. Bijie Feishang was set up with the intention that it will hold and operate new coal mines that may be acquired by our Company subsequent to the completion of the Spin-off.
- •
- Jinsha Juli, our wholly-owned subsidiary which was incorporated by Guizhou Puxin and Bijie Feishang in
November 2012 under the laws of the PRC. Jinsha Juli was involved in the preparatory work for the construction of our coal beneficiation plant in Jinsha county.
- •
- Shenzhen Chixin, our wholly-owned subsidiary which was incorporated by Guizhou Puxin in July 2012 under the laws of
the PRC. Shenzhen Chixin provides management and consulting services to other companies within our Company.
INCREASE IN SHARE CAPITAL PRIOR TO DISTRIBUTION
In preparation for the Distribution, the Directors passed resolutions in writing
on , 2013 to approve the following
matters:
- •
- change of the authorized share capital of our Company from US$50,000 divided into 50,000 ordinary shares of US$1.00
each to HK$10,000,000 divided into 1,000,000,000 Shares of HK$0.01 each;
- •
- repurchase and cancellation of all issued shares of US$1.00 each from CHNR for US$1.00; and
- •
- issue of a total of 124,554,580 Shares of HK$0.01 each to CHNR for HK$98,380,000.
These
transactions were completed on , 2013.
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THE SPIN-OFF
On , 2013 the CHNR Board approved a conditional special interim dividend to the CHNR
Shareholders to be satisfied by way
of a distribution in specie of the entire issued share capital of our Company to all CHNR Shareholders in proportion to their respective shareholdings in CHNR on the Distribution Record Date.
Pursuant to the Distribution, each CHNR Shareholder will be entitled to five Shares for every CHNR Share held on the Distribution Record Date. After the completion of the Distribution, CHNR will no
longer hold any Shares in our Company.
The
Spin-off does not involve any offering of new Shares or a public offering of any other securities and no funds will be raised pursuant to the Spin-off. The Distribution is
conditional on the Listing Committee granting listing of, and permission to deal in, our Shares in issue on the Main Board of the
Stock Exchange. If such condition is not satisfied, the Distribution will not be made and the Spin-off will not take place. Share certificates are expected to be dispatched to CHNR Shareholders on or
before , 2013. Share certificates will only become valid if the Distribution becomes unconditional. The reasons for the Spin-off include
the following:
- •
- as CHNR's base metals exploration and mining business is fundamentally different from our Company's business, we believe
the Spin-off could result in more efficient and focused management for each of our Company and CHNR;
- •
- following the Spin-off, each of our Company and CHNR may adopt more effective incentive compensation arrangements,
including share-based compensation, that are more directly tied to its performance;
- •
- after the Spin-off, each of our Company and CHNR may adopt its own capital structure; and
- •
- we believe that after the Spin-off, the trading price of the shares of each of our Company and CHNR may more accurately
reflect its value, and any future capital raised by our Company or CHNR may more accurately reflect such company's cost of capital.
We
expect to announce the Spin-off and Distribution on or around , 2013. The Distribution is not subject to the approval of CHNR Shareholders or NASDAQ. The
Shares to be
distributed under the Distribution is being registered under the U.S. Exchange Act pursuant to a registration statement on Form 20-F. After the completion of the Spin-off, we will become
subject to periodic reporting and other informational requirements of the U.S. Exchange Act applicable to "foreign private issuers" as defined therein.
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BUSINESS
Unless otherwise indicated, our coal resource and reserve estimates are based upon estimates made in accordance
with the PRC law and were reviewed, reclassified and substantiated by Behre Dolbear in July 2013 in accordance with the JORC Code. Unless otherwise specified, all technical data in this section
are based on the Competent Person's Report included in Appendix III — "Competent Person's Report". The resource and reserve data of the Company included in
this listing document are determined by measuring the raw coal extracted from our coal mines, and in accordance with the Competent Person's Report, all of the coal reserves are included within the
coal resource statements. The characteristics of our coal products are assessed by measuring our raw coal after beneficiation (or coal washing) as may be required under the Chinese Coal
Classification Standard. See "— Our Coal Characteristics and Coal Products — Coal Classification".
OVERVIEW
We are a producer of anthracite coal based in Guizhou province of the PRC. We are primarily engaged in the acquisition, construction
and development of anthracite coal mines and the extraction and sale of anthracite coal. Our mining assets consist of seven underground anthracite coal mines in Guizhou province, of which four have
commenced commercial production, two are undergoing their pilot run phase and one is under construction. All of our anthracite coal mines are located in Guizhou province, which, according to the SAWS
and Fenwei, had the largest anthracite coal resources among the provinces in Southwest China as of December 31, 2012. The following table sets forth certain information regarding our seven
anthracite coal mines as of the date of this listing document other than information regarding the total proved and probable reserves and the estimated mine lives of our anthracite coal mines, which
were as of July 31, 2013.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anthracite Coal Mine
|
|
Stage of Production |
|
Date of
Initial/Expected
Commercial
Production |
|
Total Proved
and Probable
Reserves (in million tonnes) |
|
Permitted
Annual
Production
Capacity
(in tonnes)(1) |
|
Estimated
Mine Life(2)
(in years) |
|
Baiping Coal Mine |
|
Commercial production |
|
June 2009 |
|
|
22.48 |
|
|
150,000 |
|
|
37 |
|
Liujiaba Coal Mine |
|
Commercial production |
|
December 2012 |
|
|
13.60 |
|
|
300,000 |
|
|
23 |
|
Zhulinzhai Coal Mine |
|
Commercial production |
|
April 2012 |
|
|
9.56 |
|
|
300,000 |
|
|
21 |
|
Gouchang Coal Mine |
|
Commercial production (suspended)(3) |
|
April 2011 |
|
|
5.72 |
|
|
90,000 |
|
|
52 |
|
Yongsheng Coal Mine |
|
Pilot run |
|
March 2014 |
|
|
51.96 |
|
|
600,000 |
|
|
29 |
|
Dayuan Coal Mine |
|
Pilot run |
|
November 2013 |
|
|
8.26 |
|
|
300,000 |
|
|
18 |
|
Dayun Coal Mine |
|
Construction |
|
July 2015 |
|
|
97.29 |
|
|
600,000 |
|
|
54 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
208.87 |
|
|
2,340,000 |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Represents
the annual production capacity as permitted under the relevant mining rights permits.
- (2)
- Mine
life estimates are calculated by dividing proved and probable reserves by the optimized annual production capacity, which takes into account the
planned future increases in production capacity still in the design phase.
- (3)
- Operations
have been suspended at Gouchang Coal Mine since March 2013 pending the acquisition by us of a nearby coal mine and Gouchang Coal Mine
achieving certain production targets in accordance with Guizhou province's coal mine consolidation policy.
As of July 31, 2013, we had total proved and probable coal reserves of approximately 208.87 million tonnes, total measured,
indicated and inferred resources of 407.18 million tonnes and total permitted annual production capacity of 2.34 million tonnes. In 2010, 2011, 2012 and the six months ended
June 30,
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2012
and 2013, we had revenues of RMB38.7 million, RMB105.2 million, RMB141.9 million, RMB55.2 million and RMB54.7 million, respectively, and sold
166,362 tonnes, 314,058 tonnes, 437,010 tonnes, 148,539 tonnes and 187,432 tonnes of anthracite coal, respectively.
The
Chinese Coal Classification Standard categorizes anthracite coal into three classes based on volatile matter content and helium content. According to the Competent Person's Report,
substantially all of our coal is classified as WY2-class or WY3-class anthracite coal under the Chinese Coal Classification Standard, with the majority being classified as WY3-class
anthracite coal.
OUR STRENGTHS
We believe our principal strengths include the following:
Anthracite is a relatively scarce and valuable resource
Anthracite coal is a relatively scarce resource and accounted for approximately only 12% of the PRC's total coal resources in 2012,
according to the SAWS and Fenwei. Due to its low volatile matter content and other characteristics, anthracite coal generally emits less harmful pollutants than other types of coal upon combustion,
and it has a wide range of industrial applications. Anthracite coal may be used as chemical coal for synthetic ammonia and methanol production, as well as PCI coal for sintering, smelting and
injection purposes in the pulverized coal injection process in iron production. Anthracite coal may also be used as thermal coal for electric power generation as a cleaner energy source than other
types of coal.
Our high quality coal reserves
As July 31, 2013, we had total proved and probable coal reserves of approximately 208.87 million tonnes, substantially
all of which, following beneficiation (or coal washing) as required under the Chinese Coal Classification Standard, is expected to qualify as anthracite coal under such standard. Subject to any
required coal-washing and processing to achieve the desired technical specifications, we expect all of our anthracite coal will be suitable for use as chemical coal, while our anthracite coal from
Baiping Coal Mine, Dayun Coal Mine and Yongsheng Coal Mine is expected to be suitable for use as PCI coal. Generally, chemical coal and PCI coal are able to command significantly higher selling prices
than thermal coal. According to China Coal Resource, the average selling price in Guizhou in 2012 of chemical coal, PCI coal and thermal coal was RMB486.0 to RMB1,007.0 per tonne (depending on
the type and characteristic of coal), RMB952.0 per tonne and RMB323.0 per tonne, respectively. We believe the suitability of our anthracite coal reserves for use in higher-value
industrial applications positions us well for future growth.
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We are located in Guizhou province, which has one of the largest anthracite coal resources in the PRC
We believe our location in Guizhou province positions us favorably for future growth. Guizhou has one of the largest anthracite coal
resources in the PRC. According to the SAWS and Fenwei, Guizhou was estimated to have approximately 40 billion tonnes of anthracite coal resources in 2012, ranking first among provinces in
Southwest China and second among all provinces in the PRC. Guizhou's neighboring provinces and municipalities, including Guangdong, Sichuan, Guangxi, Jiangxi and Chongqing, are large net consumers of
anthracite coal. According to the Fenwei, in 2010, 2011 and 2012, Guangdong, Sichuan, Guangxi, Jiangxi and Chongqing together purchased 25.3 million tonnes, 30.5 million tonnes and
29.9 million tonnes, respectively, of anthracite coal from other provinces and overseas markets. Furthermore, Guizhou's transportation network has been expanding, and we expect that the cost
and time of transporting anthracite coal to customers both within Guizhou and outside Guizhou will reduce in the future. Under the "678 Highway Network Plan" announced by the Guizhou Department
of Transportation in 2009, Guizhou plans to construct a highway in each county in Guizhou and increase its highway network by 4,500 kilometers by 2015. In addition, the Guizhou government has
announced plans to construct two waterway transportation systems to connect Yangtze River in northern Guizhou to the Pearl River in southern Guizhou by 2015.
We are well-positioned to capitalize on industry consolidation opportunities in Guizhou
In recent years, the Guizhou government has introduced a number of measures to encourage the consolidation of the coal mining industry.
In particular, under the "Twelfth Five-year Plan on the Development of the Coal Industry" and relevant notices issued by the local government authorities, the Guizhou government introduced a number of
incentives to encourage coal-mining enterprises that meet certain criteria to acquire smaller coal mines in Guizhou, including tax incentives, reduced mining right premiums and certain subsidies for
mine upgrades. Moreover, the Guizhou government announced in 2013 plans to, eliminate small-scaled coal mines in Guizhou with an annual production capacity below 150,000 tonnes, reduce the
total number of coal mining groups in Guizhou to below 100, and reduce the total number of coal mines in Guizhou to approximately 1,000 by 2015. See
"Regulation — PRC Laws relating to Mining Resource Consolidation". Furthermore, in the past we have successfully completed the acquisitions of coal mining
companies that constitute part of our Company. See "History and Development — Corporate Transactions". As we are expected to become one of the non-state owned
coal-mining companies in Guizhou that meet the requirements to act as a consolidator in connection with the Guizhou's coal industry consolidation process, we believe we are well-positioned to grow our
business as a result of the Guizhou government's coal industry consolidation policy. See "Relationship with our Controlling Shareholders — Feishang Energy and
Guizhou Puxin and their statuses as coal mine consolidators in Guizhou".
Experienced management team
Our management team has extensive experience in coal mine acquisition, management, construction, development, operation and safety. In
particular, Mr. Li Feilie, our chairman and chief executive officer, led the successful acquisition of each of our seven anthracite coal mines and has extensive experience in the acquisition
and corporate management of coal mines. Mr. Han Weibing, our executive Director and chief operating officer, has extensive knowledge and experience in coal
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mining
management and operations. Mr. Wan Huojin, our chief technical officer and chief engineer, has over 40 years of experience in coal mine development and operations, and had acted
as the head of Fengcheng Mining Bureau of Jiangxi Province between 2001 and 2007 before joining us. Mr. Wan also obtained several awards for improvements to certain coal mining techniques he
implemented and a number of awards in recognition of his contribution to the coal mining industry. Furthermore, Mr. Wan and several other executive officers have extensive experience in
managing mines with high gas contents and other difficult geologic conditions in Jiangxi province. Moreover, each of Mr. Cai Zhenghui, Mr. Teng Biao, Mr. Liao Diansheng,
Mr. Hu Lubao, Mr. Wu Ziping, Mr. Cheng Wenkun and Mr. Lan Xiaosheng has over 20 years or more years of relevant experience in the coal-mining industry. See "Our
Directors and Senior Management".
BUSINESS STRATEGIES
We aim to grow our business by focusing on the following strategies:
Achieve profitability through sales of higher margin chemical and PCI coal and increasing our production output
We intend to significantly increase our sales of chemical coal, as well as begin selling PCI coal. In the past, our ability to sell
chemical or PCI coal has been constrained by our
production capacity. In particular, our annual coal production levels were determined based in large part on the Guizhou government's annual guidance relating to the provision of certain minimum
amounts of thermal coal to power plants operating in Guizhou, which took up a significant portion of our production capacity and limited our ability to sell other types of anthracite coal. See
"Regulation — PRC Laws relating to the Coal Industry — Supply of thermal coal to power plants". To increase our production
capacity, we are aiming to commence commercial production at Yongsheng Coal Mine, Dayuan Coal Mine and Dayun Coal Mine in March 2014, November 2013 and July 2015, respectively.
Moreover, each of Yongsheng Coal Mine and Dayun Coal Mine is expected to have a permitted annual production capacity of 600,000 tonnes upon commercial production, is located in close proximity
to Baiping Coal Mine in Jinsha county. We believe the close proximity of these three mines, which are expected to have an aggregate permitted annual production capacity of 1,350,000 tonnes upon
commercial production, could create significant economies of scale through the sharing of transportation, coal processing, logistics and other services.
Strengthen our sales and marketing networks
We intend to strengthen our sales and marketing network to build our reputation in the Guizhou anthracite coal market and develop a
stable and loyal customer base. In particular, we plan to deepen our existing relationships with our chemical coal customers and begin developing PCI coal customers. To date, we have entered into four
cooperation arrangements with large chemical companies located near our anthracite coal mines, and we intend to establish additional cooperation relationships by increasing the size of our sales and
marketing teams to target potential chemical coal and PCI coal customers.
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Create a more vertically integrated business
We are in the process of constructing a coal beneficiation plant in Jinsha county to process our anthracite coal into PCI coal as well
as to produce chemical coal with certain technical specifications. The coal beneficiation plant is expected to be built on a site adjacent to Yongsheng Coal Mine. We plan to construct the coal
beneficiation plant in two phases with a planned aggregate annual coal-washing capacity of 1.2 million tonnes. The first phase of the coal beneficiation plant is expected to achieve an annual
coal-washing capacity of 600,000 tonnes, and the second phase is expected to increase the annual coal-washing capacity to 1.2 million tonnes. The construction of the first
phase commenced in September 2013 and is expected to be completed by April 2014. The construction of the second phase is expected to commence in 2015 and complete by the end of 2015. See
"— Our Coal Characteristics and Coal Products — Coal Products".
We
are also contemplating constructing a port along the Wujiang River near Yongsheng Coal Mine to facilitate the transportation of the anthracite coal we produce at our mines in Jinsha
county. Upon completion, the port is expected to allow us to transport the coal produced by Yongsheng Coal Mine by waterway, and provide us access to markets such as Guangdong, Guangxi, Sichuan,
Chongqing and Jiangxi. See "— Coal Transportation".
We
believe that with a more vertically integrated business model and increased capacity for coal processing and transportation, we will be able to reduce our costs, better serve our
existing customers and broaden our customer base.
Enhance our operational efficiency and cost control
We aim to improve our operational efficiency to control costs and increase profitability. We intend to upgrade our mining equipment and
technology to increase our recovery rate, adopt more efficient mining methods to reduce production costs, as well as increase our production capacity to achieve greater economies of scale. In
particular, we plan to increase the size of our coal mine tunnels to increase extraction efficiency, as well as gradually upgrade our mines to utilize mechanical longwall mining methods to reduce
labor costs. We are also seeking to adopt enhanced project management and budgeting systems to improve the efficiency of our coal mine construction and coal production processes.
Enhance the environmental and occupational health and safety standards of our operations
We believe that it is our corporate social responsibility to improve our environmental and occupational health and safety standards.
Moreover, improving our environmental and occupational health and safety standards could also reduce the probability of fines, administrative penalties and other disruptions to our operations. With
respect to environmental protection, we plan to improve our wastewater disposal system, provide training to our employees to promote environmental awareness, and set aside an annual budget for
expenses relating to our environmental protection efforts. Regarding occupational health and safety, we are currently in the process of implementing a six-part safety system at each of our operating
coal mines which consists of the following components: an
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electronic
safety monitoring system; a wireless tracking system that tracks the location of our underground workers; emergency exits; emergency water supplies; emergency underground communication
equipment; and compressed air stations that provide emergency underground oxygen supplies.
Increase our anthracite coal production capacity in the long-term through mine optimization plans and acquisitions of high quality anthracite coal mines
With the exception of Gouchang Coal Mine, we are currently contemplating mine optimization plans to upgrade and expand the production
capacity of all of our anthracite coal mines by expanding our mines or upgrading our mining infrastructure, methods and equipment. We expect our optimization plans will begin in 2015 and, after their
expected completion in December 2018, we expect to be able to achieve an aggregate annual production capacity of 5.81 million tonnes. We also intend to selectively pursue acquisitions of
high quality anthracite coal reserves and coal mines in Guizhou. As we are expected to meet the requirements for a consolidator to take part in Guizhou's coal industry consolidation process, we intend
to leverage our senior management's experience and business networks in Guizhou to seek attractive acquisition targets in the Bijie and Liupanshui regions of Guizhou province that may be acquired at
competitive prices. See "Relationship with our Controlling Shareholders — Feishang Energy and Guizhou Puxin and their statuses as coal mine consolidators in
Guizhou". We evaluate potential acquisition targets based on factors such as the geographic location of the mine, the quality and quantity of anthracite coal reserves, the stage of development of the
mine, mining conditions, and potential synergies with our existing business operations.
OUR COAL CHARACTERISTICS AND COAL PRODUCTS
Coal Classification
Under the Chinese Coal Classification Standard, anthracite coal is defined as coal that has a volatile matter content of 10.0% or less.
In the process of determining whether the coal belongs to anthracite coal and its relevant classification, beneficiation (or coal washing) of raw coal (the result of which is referred to
as "float coal") is required in order to reduce the dry ash contents to an acceptable level as necessary under the Chinese Coal Classification Standard. Following beneficiation of the raw coal at each
of our mines under the Chinese Coal Classification Standard, all of the float coal at each of our mines may be classified as anthracite coal. The resource and reserve data of the Company included in
this listing document are determined by measuring the raw coal extracted from our coal mines.
The
Chinese Coal Classification Standard categorizes anthracite coal into three classes based on volatile matter content and helium content. According to the Competent Person Report,
substantially all of our coal is classified as WY2-class or WY3-class anthracite coal under the Chinese Coal Classification Standard, with the majority being classified as WY3-class
anthracite coal.
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Coal Characteristics
The commercial value of coal is determined in part by its characteristics, including:
- •
- Heat Value. Heat value refers to the energy released by
coal during combustion. In general, the carbon content of coal supplies most of its heat value. Heat value is a key characteristic in the determination of coal quality.
- •
- Moisture Content. Moisture content of coal varies by the
type of coal, the region where it is mined and the location of the coal within a seam. In general, coal with lower moisture content is more valuable, as moisture content decreases the heat value and
increases the weight of the coal, thereby making it more expensive to transport.
- •
- Sulfur Content. The PRC has regulations that limit the
amount of sulfur dioxide that may be emitted as a result of combustion, and the chemical composition and concentration of sulfur in coal affects the amount of sulfur dioxide produced in combustion.
Coal-fueled power plants may reduce sulfur dioxide emissions by burning coal with low sulfur content. As a result, coal with lower sulfur content is generally more valuable than coal with high sulfur
content. Coal-washing and processing may reduce the sulfur content of coal.
- •
- Ash Content. Ash is the inorganic residue remaining after
the combustion of coal. Ash content is an important characteristic of coal because it impacts boiler performance of electric generating plants and determines the suitability of the coal for
end users.
- •
- Volatile Matter Content. Volatile matter refers to the
matters that are released from coal at high temperatures, other than moisture. Under the Chinese Coal Classification Standard, coal is classified into lignite coal, sub-bituminous coal, bituminous
coal and anthracite coal based on volatile matter content.
The
following table sets forth the weighted average coal quality of our proved and probable coal reserves at each of our mines other than information regarding volatile matter content,
which was based on simple average coal quality:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Characteristic
|
|
Baiping
Coal Mine |
|
Liujiaba
Coal Mine |
|
Zhulinzhai
Coal Mine |
|
Gouchang
Coal Mine |
|
Dayun
Coal Mine |
|
Yongsheng
Coal Mine |
|
Dayuan
Coal Mine |
|
Heat value (MJ/kg) |
|
|
28.33 |
|
|
23.95 |
|
|
28.14 |
|
|
27.80 |
|
|
28.03 |
|
|
28.62 |
|
|
25.79 |
|
Moisture content (%) |
|
|
2.47 |
|
|
1.38 |
|
|
1.87 |
|
|
3.86 |
|
|
2.40 |
|
|
2.28 |
|
|
1.15 |
|
Sulfur content (%) |
|
|
2.35 |
|
|
2.30 |
|
|
1.81 |
|
|
1.10 |
|
|
2.12 |
|
|
1.27 |
|
|
1.16 |
|
Ash content (%) |
|
|
19.04 |
|
|
25.03 |
|
|
21.84 |
|
|
20.46 |
|
|
18.27 |
|
|
17.95 |
|
|
24.60 |
|
Volatile matter content (%)(1) |
|
|
7.28 |
|
|
8.81 |
|
|
8.84 |
|
|
6.06 |
|
|
7.33 |
|
|
8.16 |
|
|
7.46 |
|
- (1)
- Measured
based on our float coal, or the raw coal after beneficiation (or coal washing) as may be required under the Chinese Coal Classification
Standard, at each mine.
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Coal Products
In the PRC, end users generally characterize anthracite coal as thermal coal, chemical coal or PCI coal. Thermal coal is generally used
in the electric power industry for power generation and in the construction industry for cement production. Chemical coal is generally used for the production of synthetic ammonia and methanol, and
PCI coal is generally used for sintering, smelting and injection purposes in the pulverized coal injection process in iron production. While certain types of anthracite coal may be sold directly as
chemical coal without coal-washing, other types of anthracite coal need to be washed and processed before they may be sold as chemical coal in order to achieve appropriate technical specifications,
including heat value, moisture content, ash content and sulfur content. In contrast, in order to be sold as PCI coal, anthracite coal must first be washed and processed. In the PRC, chemical coal and
PCI coal are able to generally command higher selling prices and higher profit margins than thermal coal. According to China Coal Resource, the average selling price of thermal coal in Guizhou in 2012
was RMB323.0 per tonne, compared to RMB486.0 to RMB1,007.0 per tonne for chemical coal (depending on the type and characteristic of coal) and RMB952.0 per tonne for
PCI coal.
Subject
to having been washed and processed to the extent necessary, we generally expect that the anthracite coal produced from our mines will be suitable to be sold as thermal coal and
chemical coal, while the anthracite coal produced from our Baiping Coal Mine, Dayun Coal Mine and Yongsheng Coal Mine is generally expected to be suitable to be sold as PCI coal. However, each of our
coal mines contains a number of faults, and coal extracted from fault areas may be unsuitable for use as chemical or PCI coal. See "Risk Factors — Unanticipated
faults of our coal mines could materially and adversely affect our production output, coal quality and mining operations".
Prior
to 2011, we sold substantially all of the coal produced from our mines as thermal coal. In 2011, 2012 and the six months ended June 30, 2013, we derived approximately 5%, 5%
and 1.21% of our revenue from the sale of chemical coal we produced, respectively, while our remaining revenue in each of these years was derived from the sale of thermal coal we produced and coal
sourced from third parties. Subject to market conditions and the Guizhou government's annual guidance on supply of thermal coal to power plants, we intend to significantly increase our sales of
chemical coal in the future and begin selling PCI coal in 2014. Although we plan to outsource coal processing to third party coal beneficiation plants as appropriate, we have entered into a memorandum
of understanding with the People's Government of Jinsha county in Guizhou province to construct a coal beneficiation plant to process our coal into PCI coal and to produce chemical coal with certain
technical specifications. The estimated capital expenditure for the coal beneficiation plant is RMB73.5 million, of which we had paid RMB5.9 million as of June 30, 2013. We have
fulfilled the initial funding requirement with our internal financial resources, and we are seeking financing from external sources, including banks, for the
purpose of meeting our further funding requirements. Prior to the construction of our coal beneficiation plant, we are required to make filings with the relevant local NDRC and safety authorities, as
well as obtain certain approvals or permits from certain other local regulatory authorities, including the relevant local environmental protection authorities, land and resources authorities, urban
and rural planning authorities, and housing and urban and rural construction authorities. We have already made the local NDRC filing and obtained the approvals of the local environmental protection
authorities. Although the requisite filings, approvals or permits from the other local regulatory authorities are currently pending, we have received confirmation letters from
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these
authorities in respect of the commencement of construction of our coal beneficiation plant, and we do not expect any material difficulties in completing and/or obtaining the requisite filings,
approvals and/or permits. These filings, approvals and/or permits relating to construction are expected to be obtained or completed by April 2014 when the first phase of the construction of the
coal beneficiation plant is expected to be completed.
As
of the Latest Practicable Date, we have entered into four non-binding cooperation arrangements relating to the sale of chemical coal, but we have not yet entered into any binding
agreement for the sale of chemical coal or PCI coal. Our annual coal production levels were determined based in large part on the Guizhou government's annual guidance relating to the provision of
certain minimum amounts of thermal coal to power plants in Guizhou, which has taken up a significant portion of our production capacity. In 2010, 2011 and 2012 and the six months ended June 30,
2013, in response to the Guizhou government's annual guidance, we produced and sold 136,000 tonnes, 202,000 tonnes, 382,000 tonnes and 171,000 tonnes, respectively, of
thermal coal to be supplied to power plants in Guizhou. See "Regulation — PRC Laws relating to the Coal Industry — Supply of
thermal coal to power plants". We believe that by increasing our production capacity, we will be able to sell a larger percentage of our anthracite coal as chemical or PCI coal. Our ability to
effectively produce, market and sell our anthracite coal as chemical coal or PCI coal is, however, subject to a number of uncertainties. See "Risk Factors — Risks
Relating to Our Business — We may not be able to successfully produce, market and sell chemical and PCI coal, which could materially and adversely affect our
business and prospects".
During
the Track Record Period, we derived our revenue primarily from the sale of coal we produced. From time to time, we also engaged in coal trading activities by selling coal that we
purchased from third party suppliers. In 2011, 2012 and the six months ended June 30, 2012 and 2013, revenue from sales of third party coal was RMB33.1 million, RMB1.1 million,
RMB1.1 million and nil, respectively, representing 31.5%, 0.8%, 2.0% and nil, respectively, of our total revenue. We did not engage in any coal trading activities in 2010, and we do not intend
to engage in any significant coal trading activities in the future.
OUR ANTHRACITE COAL MINES
We currently have seven anthracite coal mines. Four of our anthracite coal mines, including Baiping Coal Mine, Liujiaba Coal Mine,
Zhulinzhai Coal Mine and Gouchang Coal Mine, have commenced commercial production. However, operations at Gouchang Coal Mine have been suspended since March 2013 under Guizhou province's coal
mine consolidation policy. With respect to our other three anthracite coal mines that have not commenced commercial production, Yongsheng Coal Mine and Dayuan Coal Mine are currently undergoing their
pilot run phase, while Dayun Coal Mine is currently under construction. Yongsheng Coal Mine, Dayuan Coal Mine and Dayun Coal Mine are expected to commence commercial production in March 2014,
November 2013 and July 2015, respectively.
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All
of our anthracite coal mines are underground anthracite coal mines located in the Zhina Coal District and the Qianbei Coal District in Guizhou province. The following maps show the
location of our anthracite coal mines as of the date of this listing document:
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The
following table sets forth certain information relating to each of our seven anthracite coal mines as of the date of this listing document (unless otherwise indicated):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Production |
|
Under Construction |
|
Mine
|
|
Baiping
Coal Mine |
|
Liujiaba
Coal Mine |
|
Zhulinzhai
Coal Mine |
|
Gouchang
Coal Mine |
|
Yongsheng
Coal Mine |
|
Dayuan
Coal Mine |
|
Dayun
Coal Mine |
|
Location (within Guizhou province, PRC) |
|
|
Jinsha county, Qianbei Coal District |
|
|
Liuzhi Special District, Zhina Coal District |
|
|
Liuzhi Special District, Zhina Coal District |
|
|
Nayong County, Zhina Coal District |
|
|
Jinsha county, Qianbei Coal District |
|
|
Nayong county, Zhina Coal District |
|
|
Jinsha county, Qianbei Coal District |
|
Date of initial/expected commercial production |
|
|
June 2009 |
|
|
December 2012 |
|
|
April 2012 |
|
|
April 2011 |
(1) |
|
March 2014 |
|
|
November 2013 |
|
|
July 2015 |
|
Mining area (square kilometers) |
|
|
3.0143 |
|
|
3.7891 |
|
|
1.4104 |
|
|
1.7198 |
|
|
18.2340 |
|
|
1.6490 |
|
|
16.9035 |
|
Number of mineable seams |
|
|
5 |
|
|
3 |
|
|
5 |
|
|
5 |
|
|
5 |
|
|
4 |
|
|
4 |
|
Designed annual production capacity (tonnes) |
|
|
300,000 |
|
|
300,000 |
|
|
300,000 |
|
|
110,000 |
|
|
900,000 |
|
|
300,000 |
|
|
900,000 |
|
Permitted annual production capacity (tonnes)(2) |
|
|
150,000 |
|
|
300,000 |
|
|
300,000 |
|
|
90,000 |
|
|
600,000 |
|
|
300,000 |
|
|
600,000 |
|
Expiry date of the mining right |
|
|
August 2014 |
|
|
September 2019 |
|
|
July 2018 |
|
|
April 2017 |
|
|
November 2027 |
|
|
March 2023 |
|
|
March 2031 |
|
Reserve data (as of July 31, 2013) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved reserve (million tonnes) |
|
|
3.44 |
|
|
2.08 |
|
|
2.15 |
|
|
1.87 |
|
|
3.77 |
|
|
2.99 |
|
|
12.50 |
|
Probable reserve (million tonnes) |
|
|
19.04 |
|
|
11.52 |
|
|
7.41 |
|
|
3.85 |
|
|
48.19 |
|
|
5.27 |
|
|
84.79 |
|
Total proved and probable reserve (million tonnes) |
|
|
22.48 |
|
|
13.60 |
|
|
9.56 |
|
|
5.72 |
|
|
51.96 |
|
|
8.26 |
|
|
97.29 |
|
Total cost of property, plant and equipment as of December 31, 2012 (RMB in millions)(3) |
|
|
307.2 |
|
|
374.0 |
|
|
358.5 |
|
|
252.7 |
|
|
541.8 |
|
|
307.3 |
|
|
145.3 |
|
Age of the mining equipment(4) (year) |
|
|
1-5 |
|
|
1-3 |
|
|
1-5 |
|
|
1-5 |
|
|
1-2 |
|
|
1-4 |
|
|
1-2 |
|
- (1)
- Operations
have been suspended since March 2013 under Guizhou province's coal mine consolidation policy.
- (2)
- This
represents the annual production capacity as permitted under the relevant mining rights permits.
- (3)
- The
cost is net of applicable accumulated amortization and depreciation.
- (4)
- Mining
equipment is owned by us except for the mechanical longwall mining equipment at Yongsheng Coal Mine we lease from third parties.
As of July 31, 2013, we had total proved and probable coal reserves of approximately 208.87 million tonnes, total measured,
indicated and inferred resources of 407.18 million tonnes and total permitted annual production capacity of 2.34 million tonnes. The resource and reserve data of the Company included in
the listing document are determined by measuring the raw coal extracted from our coal mines. See "— Our Coal Characteristics and Coal
Products — Coal Classification".
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Mines in commercial production
Baiping Coal Mine is our third largest mine as measured by proved and probable coal reserves. We operate Baiping Coal Mine through our
70%-owned subsidiary, Baiping Mining. Baiping Coal Mine covers an area of 3.0143 square kilometers and is located in Jinsha county,
Qianbei Coal District. As of July 31, 2013, Baiping Coal Mine had total proved and probable coal reserves of 22.48 million tonnes.
Baiping
Coal Mine commenced commercial production in June 2009 and completed a technical system upgrade in March 2011. The current mining right permit for Baiping Coal Mine
allows for an annual production capacity of 150,000 tonnes. The mining right premium of RMB3.4 million for Baiping Coal Mine had been fully paid as of December 31, 2010.
In
2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, Baiping Coal Mine produced 65,046 tonnes, 159,185 tonnes, 292,000 tonnes,
109,944 tonnes and 118,386 tonnes of anthracite coal, respectively. In 2011 and 2012, the amount of anthracite coal produced by Baiping Coal Mine exceeded its permitted annual production
capacity of 150,000 tonnes under its mining right permit and coal production permit. In January and July 2013, the Energy Bureau of Guizhou Province issued confirmation letters, stating
that (i) it did not consider there was any over-production prior to 2012, (ii) it would not impose any penalties against Baiping Mining or its employees or impose any other measures
(including but not limited to, revocation of the coal production permit or suspension of coal mining operations) in respect of over-production in 2012 or thereafter, as Baiping Coal Mine has undergone
certain technological improvements after its coal production permit was issued, such that its actual production capacity and ventilation systems exceeded the design specifications set forth in its
coal production permit and could support an annual production output of 290,000 tonnes, and (iii) it would support our application for the relevant permits with an annual production
capacity of 300,000 tonnes or more. The Energy Bureau of Guizhou Province further confirmed orally that it considered the overproduction at Baiping Coal Mine in 2011 to be minimal and the
production output in years prior to 2011 were within the permitted annual production capacity. Between December 2012 and January 2013, we also received confirmation letters from the
Water Conservation Office of Bijie City, the Water Resources Department of Guizhou Province, the Guizhou Administration of Coal Mine Safety and the Environmental Protection Department of Guizhou
Province. These confirmation letters either agreed with the January 2013 confirmation letter issued by the Energy Bureau of Guizhou Province or confirmed there would be no penalties imposed on
Baiping Mining and/or Baiping Mining's employees as a result of the over-production at Baiping Coal Mine. Our PRC legal advisors, Commerce & Finance Law Offices, have advised us that such
confirmation letters were issued by the competent government authorities and are legally valid.
We
plan to continue producing anthracite coal at Baiping Coal Mine, and may produce anthracite coal in excess of its permitted production capacity as our annual production levels were
determined based in large part on the Guizhou government's annual guidance relating to the provision of certain minimum amounts of thermal coal to power plants operating in Guizhou. See
"Regulation — PRC Laws relating to the Coal Industry — Supply of thermal coal to power plants". We had informed the relevant
governmental authorities prior to producing anthracite coal in excess of Baiping Coal Mine's
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permitted
production capacity, and the relevant governmental authorities had approved such over-production. In 2010, 2011 and 2012, the Guizhou government had requested Baiping Coal Mine to supply a
minimum of 60,000 tonnes, 120,000 tonnes and 230,000 tonnes, respectively, of thermal coal to power plants in Guizhou province. Pursuant to these requests, in 2010, 2011 and 2012,
Baiping Coal Mine produced and sold 67,150 tonnes, 136,767 tonnes and 249,914 tonnes of thermal coal, respectively, to power plants in Guizhou province. Any change in the policies
or positions adopted by the Guizhou government authorities in respect of over-production and target production capacities to produce and sell a minimum amount of thermal coal may affect these plans as
well as our compliance with applicable laws, rules and regulations. We have applied for a 300,000 tonnes mining right permit for Baiping Coal Mine and we expect to obtain the permit in
June 2014. See "— Regulatory Compliance". After receiving such permit, we do not expect Baiping Coal Mine will continue to produce anthracite coal in excess of its
permitted production capacity.
We operate Liujiaba Coal Mine through our 99%-owned subsidiary, Xinsong Coal. Liujiaba Coal Mine covers an area of 3.7891 square
kilometers and is located in Liuzhi Special District, Zhina Coal District. As of July 31, 2013, Liujiaba Coal Mine had total proved and probable coal reserves of 13.60 million tonnes.
Commencement of commercial production at Liujiaba Mine had been delayed as a result of Guizhou's requirement for certain coal mines using drilling and blasting mining methods to upgrade to
semi-mechanical longwall mining methods in 2011, which required us to incur significant time and expense to redesign and upgrade Liujiaba Coal Mine. Liujiaba Coal Mine commenced commercial production
in December 2012 with a permitted annual production capacity of 300,000 tonnes. The mining right premium of RMB26.0 million for Liujiaba Coal Mine had been fully paid by
May 2011. In 2012 and the six months ended June 30, 2012 and 2013, Liujiaba Coal Mine produced 25,680 tonnes, nil and 50,649 tonnes of anthracite coal, respectively.
We operate Zhulinzhai Coal Mine through our 99%-owned subsidiary, Linjiaao Coal. Zhulinzhai Coal Mine covers an area of
1.4104 square kilometers and is located in Liuzhi Special District, Zhina Coal District. As of July 31, 2013, Zhulinzhai Coal Mine had total proved and probable coal reserves of
9.56 million tonnes. Zhulinzhai Coal Mine commenced commercial production in April 2012 with a permitted annual production capacity of 300,000 tonnes. The mining right premium
for Zhulinzhai Coal Mine is RMB19.9 million, of which RMB16.7 million had been paid by August 30, 2012 and the remaining balance of RMB3.2 million has been paid in
August 2013.
In
2012 and the six months ended June 30, 2012 and 2013, Zhulinzhai Coal Mine produced 65,111 tonnes, 21,041 tonnes and 19,682 tonnes of anthracite coal,
respectively. Coal production at Zhulinzhai Coal Mine has been slowed down by the relocation of local residents affected by the mine's operations. We have entered into relocation agreements with the
local residents pursuant to which they agreed to relocate after receiving additional compensation and we expect to complete the relocation by March 2014. Since January 2013, Zhulinzhai
Coal Mine has been undergoing certain mine safety upgrades, which has also limited its production output.
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We operate Gouchang Coal Mine through our 99%-owned subsidiary, Gouchang Coal. Gouchang Coal Mine covers an area of
1.7198 square kilometers and is located in Nayong county, Zhina Coal District. As of July 31, 2013, Gouchang Coal Mine had total proved and probable coal reserves of 5.72 million
tonnes. Gouchang Coal Mine commenced commercial production in April 2011 with a permitted annual production capacity of 90,000 tonnes, and produced 96,068 tonnes,
53,362 tonnes, 14,782 tonnes and 3,872 tonnes of anthracite coal in 2011, 2012 and the six months ended June 30, 2012 and 2013, respectively. The mining right premium of
RMB11.8 million for Gouchang Coal Mine had been fully paid as of May 2012.
Gouchang
Coal Mine suspended its operations from March to August 2012 to comply with certain newly implemented mine gas control requirements in Guizhou. Since March 2013,
operations at Gouchang Coal Mine have been suspended under Guizhou province's coal mine consolidation policy pending the acquisition by us of a nearby coal mine and Gouchang Coal Mine achieving
certain production capacity targets in accordance with Guizhou province's coal mine consolidation policy. We are currently considering acquiring Dongdi coal mine, which is adjacent to Gouchang Coal
Mine. According to the website of the Energy Bureau of Guizhou Province, Dongdi coal mine has estimated coal resources of 13.09 million tonnes as measured in accordance with the PRC Solid
Mineral Resources/Reserves Classification Code as of August 2011 and a planned annual production capacity of 300,000 tonnes. To our knowledge, Dongdi coal mine has not yet commenced
commercial production. We have not begun any formal negotiations with the owner of Dongdi coal mine in relation to the acquisition and the estimated cost for theacquisition remains unknown at this
stage. However, we are aiming to complete the acquisition of Dongdi coal mine by March 2015 and resume operations at Gouchang Coal Mine by
the end of 2015. As of the Latest Practicable Date, Gouchang Coal Mine has not re-commenced operations. See "Regulation — PRC Laws Relating to Mining Resource
Consolidation".
Mines under construction
Yongsheng Coal Mine is our second largest mine as measured by proved and probable coal reserves. We hold Yongsheng Coal Mine through
our 70%-owned subsidiary, Guizhou Yongfu. Yongsheng Coal Mine covers an area of 18.2340 square kilometers and is located in the Qianbei Coal District. As of July 31, 2013, Yongsheng Coal
Mine had total proved and probable coal reserves of 51.96 million tonnes. The current mining right permit for Yongsheng Coal Mine allows for an annual production capacity of
600,000 tonnes.
The
construction of Yongsheng Coal Mine commenced in November 2008. Construction progress had been delayed in 2012 mainly because we encountered several large karst caves at the
mine site, which slowed down construction. Construction was further delayed in 2013 as we were required by the Jinsha County Administration of Coal Mine Safety in July 2013 to suspend the
construction of one of the two mine faces at Yongsheng Coal Mine to install gas ventilation tunnels. The construction of
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the
mine face resumed in October 2013 after gas ventilation tunnels were installed. Yongsheng Coal Mine is currently undergoing its pilot run phase, and commercial production is expected to
commence in March 2014. The estimated amount of capital expenditure for the construction of Yongsheng Coal Mine is RMB596.3 million, of which we have paid RMB437.2 million as of
June 30, 2013.
The
mining right premium for Yongsheng Coal Mine is RMB89.5 million, of which RMB36.0 million had been paid by December 2012. The balance of RMB53.5 million
will be payable in five installments over a five-year period from 2013 to 2017.
We hold Dayuan Coal Mine through our 99%-owned subsidiary, Dayuan Coal. As of July 31, 2013, Dayuan Coal Mine had total proved
and probable coal reserves of 8.26 million tonnes. The current mining right permit for Dayuan Coal Mine allows for an annual production capacity of 300,000 tonnes. The mining right
premium of RMB13.4 million for Dayuan Coal Mine had been fully paid as of October 2011.
The
construction of Dayuan Coal Mine commenced in June 2009. Dayuan Coal Mine has commenced its pilot run phase in July 2013 and is expected to commence commercial
production in November 2013. Construction progress of Dayuan Coal Mine had been delayed by certain changes in the governmental approval process for obtaining mining right permits. The estimated
amount of capital expenditure for the construction of Dayuan Coal Mine is RMB106.4 million, of which we have paid RMB105.0 million as of June 30, 2013.
Dayun Coal Mine is our largest mine as measured by proved and probable coal reserves. We hold Dayun Coal Mine through our wholly-owned
subsidiary, Guizhou Dayun. Dayun Coal Mine covers an area of 16.9035 square kilometers and is located in Jinsha county, Qianbei Coal District. As of July 31, 2013, Dayun Coal Mine had
total proved and probable reserves of 97.29 million tonnes. The current mining right permit for Dayun Coal Mine allows for an annual production capacity of 600,000 tonnes.
The
construction of Dayun Coal Mine commenced in May 2012 and commercial production is expected to commence in July 2015. Construction progress of Dayun Coal Mine has been
slowed down by the relocation of local residents affected by construction. We expect the relocation process will be completed by the end of 2013. The estimated amount of capital expenditure for the
construction of Dayun Coal Mine is RMB385.3 million, of which RMB138.6 million had been paid as of June 30, 2013.
The
mining right premium for Dayun Coal Mine is RMB73.0 million, of which RMB38.0 million had been paid by March 2013 and the remaining balance of
RMB35.0 million will be payable in three installments over a three-year period from 2014 to 2016.
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Plans for Achieving Commercial Production
The following table sets forth the development status, estimated timeline and estimated capital expenditure required to achieve commercial production as of
June 30, 2013 for Yongsheng Coal Mine, Dayuan Coal Mine and Dayun Coal Mine:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Capital
Expenditure
Required to Achieve
Commercial
Production as of
June 30, 2013
(RMB in millions) |
|
|
|
|
|
Material Permits
to be Obtained
before
Commercial
Production |
|
|
|
|
|
|
|
|
|
Permitted
Annual
Production
Capacity (in tonnes) |
|
|
|
Expected Timeline |
|
Mines under
Construction
|
|
Development Status |
|
Approval Process |
|
Expected Time |
|
Yongsheng Coal Mine |
|
|
600,000 |
|
• Safe production
permit |
|
• Completed major
construction
• Completed quality
authentication
• Completed on-site inspection
for pilot run
• Undergoing pilot run
phase |
|
• Obtain approval of safety
facilities acceptance
• Obtain safe production
permit
• Commence commercial
production |
|
• February 2014
• March 2014
• March 2014 |
|
|
159.1 |
|
Dayuan Coal Mine |
|
|
300,000 |
|
• Safe production
permit |
|
• Completed major
construction
• Undergoing quality
authentication phase
• Undergoing pilot run phase
• Obtained approval of safety
facilities acceptance |
|
• Obtain safe production
permit
• Commence commercial
production |
|
• November 2013
• November 2013 |
|
|
1.5 |
|
Dayun Coal Mine |
|
|
600,000 |
|
• Safe production
permit |
|
• Undergoing major
construction phase |
|
• Complete quality
authentication
• Obtain approval of pilot
run
• Obtain approval of safety
facilities acceptance
• Obtain safe production
permit
• Commence commercial
production |
|
• September 2014
• November 2014
• May 2015
• July 2015
• July 2015 |
|
|
246.7 |
|
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OPTIMIZATION PLANS
In order to increase our production capacity, we plan to optimize all of our currently operating anthracite coal mines by improving
mine layout and upgrading mine infrastructure and equipment. We expect our optimization plans will begin in 2015 and, after their expected completion in December 2018, we expect to be able to
achieve an aggregate annual production capacity of 5.81 million tonnes. The estimated cost of the optimization plans is RMB807.5 million.
MINING RIGHTS AND OTHER PERMITS
Under PRC law, prior to June 29, 2013, each coal mine in the PRC must obtain certain permits prior to commencing commercial
production, including the following key permits:
- •
- a mining right permit;
- •
- a safe production permit; and
- •
- a coal production permit.
Typically,
the safe production permit and the coal production permit will not be issued until the mining right permit has been issued, a pilot run of one to six months following the
completion of construction of the coal mine has been completed and the relevant government authorities have completed certain safety inspections. In addition to these permits, prior to commencing
commercial production, coal mines in the PRC are required to complete an environmental trial run and an environmental acceptance inspection. In Guizhou, in general, mining right permits are issued by
the Guizhou Provincial Department of Land and Resources, safe production permits are issued by the Guizhou Administration of Coal Mine Safety and coal production permits are issued by the Energy
Bureau of Guizhou Province. Once a mining right permit has been issued, mining right premiums will be payable by the permit holder to the relevant land and resources authorities pursuant to an
installment payment plan with the authorities.
Effective
on June 29, 2013, the National People's Congress Standing Committee passed certain amendments to the Coal Law which among other thing, removed the requirement of
obtaining coal production permits. Detailed implementation rules have not yet been promulgated.
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The
following table sets forth certain information regarding our mining right permits, safe production permits and coal production permits as of the Latest Practicable Date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mining Right Permit |
|
Safe Production Permit |
|
Coal Production Permit(5) |
|
Mine
|
|
Holder/permit number |
|
Permit
date
(month/year) |
|
Expiration
date
(month/year) |
|
Permit
date
(month/year) |
|
Expiration
date
(month/year) |
|
Permit
date
(month/year) |
|
Expiration
date
(month/year) |
|
Baiping Coal Mine(1) |
|
Baiping Mining/ C5200002011111120121064 |
|
November 2011 |
|
August 2014 |
|
|
May 2012 |
|
|
May 2015 |
|
|
June 2009 |
|
|
June 2020 |
|
Liujiaba Coal Mine |
|
Xinsong Coal/ C5200002009091120036374(2) |
|
March 2011 |
|
September 2019 |
|
|
November 2012 |
|
|
November 2015 |
|
|
December 2012 |
|
|
December 2037 |
|
Zhulinzhai Coal Mine |
|
Linjiaao Coal/ C5200002011031120108782 |
|
April 2011 |
|
July 2018 |
|
|
March 2012 |
|
|
March 2015 |
|
|
April 2012 |
|
|
April 2031 |
|
Gouchang Coal Mine |
|
Gouchang Coal/ C5200002009121120048406 |
|
April 2011 |
|
April 2017 |
|
|
April 2011 |
|
|
April 2014 |
|
|
April 2011 |
|
|
April 2045 |
|
Yongsheng Coal Mine |
|
Guizhou Yongfu/ C5200002012021120124117(3) |
|
February 2012 |
|
November 2027 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Dayuan Coal Mine |
|
Dayuan Coal/ 5200002011051120118585 |
|
March 2013 |
|
March 2023 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Dayun Coal Mine |
|
Guizhou Dayun/ C5200002011031120112455(4) |
|
March 2011 |
|
March 2031 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
- (1)
- In
2011 and 2012, the actual production output of Baiping Coal Mine exceeded its permitted annual production capacity under its mining right permit and coal
production permit. See "— Our Anthracite Coal Mines — Mines in Commercial Production — Baiping Coal
Mine". We have applied for a mining right permit with an annual production capacity of 300,000 tonnes for Baiping Coal Mine by 2013 and we expect to obtain such permit in 2014.
- (2)
- The
mining right has been pledged to China Minsheng Bank.
- (3)
- The
mining right has been pledged to China Minsheng Bank and Bank of China.
- (4)
- The
mining right has been pledged to China Merchants Bank.
- (5)
- The
National People's Congress Standing Committee passed certain amendments to the Coal Law, which became effective on June 29, 2013, including
removing the requirement of obtaining coal production permits.
Under the relevant mineral resources regulations of the PRC, if residual coal reserves which have been recorded with relevant land and resource
authorities remain after the term of a mining right permit expires, the holder of the mining right may, subject to certain conditions, apply for an extension of the mining right permit. There is no
minimum residual reserve requirement for the extension of mining right permits. If any of our mines has any residual coal reserves when the relevant mining right permit expires, we intend to submit an
application to renew the mining right permit. Our PRC legal advisors, Commerce & Finance Law Offices, have advised us that, provided that the current PRC laws, regulations and mining industry
policies remain unchanged and we have complied with all substantive and procedural requirements under the PRC laws, rules and regulations, as well as all requests of the competent authorities at the
relevant time, there would not be material legal impediments in renewing our mining right permits.
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MINING OPERATIONS AND PROCESSES
The following diagram illustrates the main processes in our mining operations.
Mine construction
The three main stages of mine construction include:
- •
- Pre-construction work. Pre-construction work provides the
foundation for future mine construction and planning for overall construction management, and includes leveling the land on which the mine is located and stripping the topsoil, and connecting the land
to the water, electricity, road transportation and telecommunications networks.
- •
- Shaft engineering and civil engineering. After
pre-construction work has been completed, we begin constructing inclined mine shafts to reach the coal seams. We use a number of shaft engineering and civil engineering techniques in constructing our
mine shaft, including drilling and blasting and slagging and tunneling techniques. We primarily use shotcrete and rock bolt techniques to support our shaft walls.
- •
- Electrical equipment installation and complementary production system
engineering: Concurrent with shaft engineering and civil engineering, we install electrical equipment and complementary production systems, including the power supply system,
draft system, drainage system, pressure ventilation system, elevation and transportation system, gas drainage system and monitoring system.
We
have entered into agreements with third party contractors for the construction of our anthracite coal mines. See "— Suppliers, Third Party Contractors and
Utilities". Depending on the
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Table of Contents
mine
design plan and the technical standards, it generally takes two to five years to complete the construction of an anthracite coal mine. Prior to the full commencement of commercial production, we
may be able to produce and sell a limited amount of coal produced during mine construction process.
Coal extraction
Each of our anthracite coal mines currently utilizes manual longwall mining, semi-mechanical longwall mining or mechanical longwall
mining methods to extract coal. Longwall mining refers to extracting coal from long rectangular blocks of the coal seams. Manual longwall mining refers to drilling holes in the mining face, placing
explosives and detonating the explosives to extract the coal. Mechanical and semi-mechanical longwall mining involve using a mechanical shearers in coal extraction. Coal that has been extracted by the
mechanical shearer is then loaded on to a mine conveyor system for delivery to the surface. In mechanical longwall mining, the mine roof is held up during the extraction process by automatic hydraulic
roof supports, while in semi-mechanical longwall mining, the mine roof is held up by hydraulic roof supports that are operated manually. The time required for coal extraction depends primarily on the
nature of the mine, including the amount of anthracite coal reserves, the mining method adopted, the geological conditions of the mine and the size of the mining face. We generally transport the
anthracite coal extracted from our mines to the ground surface on a daily basis. The following table sets forth the current extraction method of each of our anthracite coal mines:
|
|
|
Anthracite Coal Mine
|
|
Extraction Method |
| Baiping Coal Mine |
|
Manual longwall |
| Liujiaba Coal Mine |
|
Semi-mechanical longwall |
| Zhulinzhai Coal Mine |
|
Manual longwall |
| Gouchang Coal Mine |
|
Manual longwall |
| Dayun Coal Mine |
|
Mechanical longwall |
| Yongsheng Coal Mine |
|
Mechanical longwall |
| Dayuan Coal Mine |
|
Semi-mechanical longwall |
Due
to our relative inexperience with mechanical longwall mining, production ramp-up time for our mechanical longwall mines may be longer than expected. We intend to minimize the risk of
ramp-up delays by requesting the mining equipment manufacturers' service representatives to be present during the start-up phase to provide training to our employees. Moreover, we intend to rotate our
trained employees from mines which have used mechanical longwall mining systems to mines where mechanical longwall mining systems are being introduced for the first time.
Waste disposal and reclamation
Our mining operations seek to ensure that waste gas, waste water and industrial residue are disposed of in accordance with the relevant
legal requirements of the PRC. In addition, we are required by PRC law to reclaim and restore mining sites to their prior condition after completion of mining operations. Reclamation activity
typically involves the removal of buildings, equipment,
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machinery
and other physical remnants of mining, the restoration of land features in mined-out areas, dumping sites and other mining area, and the contouring, covering and re-vegetation of waste rock
piles and other disturbed areas. We expect the waste disposal and reclamation process will take approximately six months to complete.
Cash Operating Costs
Our cash operating costs consist primarily of wages and labor, costs of materials, power and maintenance. Set forth below are our cash
operating costs of our coal mines that were in commercial production in 2012 and the six months ended June 30, 2013. See Appendix III — "Competent
Person's Report".
|
|
|
|
|
|
|
|
|
|
Average Cash Operating Costs
(RMB/Tonne of Saleable Coal Produced) |
|
Category
|
|
Year ended
December 31, 2012 |
|
Six months ended
June 30, 2013 |
|
Wages and labor |
|
|
88.9 |
|
|
100.7 |
|
Materials |
|
|
47.5 |
|
|
44.8 |
|
Power |
|
|
11.5 |
|
|
16.0 |
|
Maintenance |
|
|
1.7 |
|
|
1.5 |
|
Other |
|
|
7.1 |
|
|
5.6 |
|
| |
|
|
|
|
|
Total cash operating costs |
|
|
156.7 |
|
|
168.6 |
|
| |
|
|
|
|
|
Cash
operating cost is not a measure calculated in accordance with IFRS and is being disclosed in this listing document pursuant to the requirements of the Hong Kong Stock Exchange. We
believe cash operating cost is a relevant and useful measure to our investors, as it is used by our management as a gauge of our production costs and for purposes of internal reporting and planning in
connection with our liquidity and cash requirements. Set forth below is a reconciliation of our cash operating costs to cost of sales for the periods indicated:
|
|
|
|
|
|
|
|
|
|
Year ended
December 31, 2012 |
|
Six months ended
June 30, 2013 |
|
|
|
(RMB in thousands)
|
|
Cost of sales |
|
|
95,889 |
|
|
39,953 |
|
Opening coal balance |
|
|
(2,262 |
) |
|
(4,873 |
) |
Ending coal balance |
|
|
4,873 |
|
|
6,968 |
|
Price adjustment fund |
|
|
(12,116 |
) |
|
(2,792 |
) |
Sales taxes |
|
|
(3,897 |
) |
|
(1,834 |
) |
Cost of third party coal sold |
|
|
(1,110 |
) |
|
— |
|
Inventory write-down |
|
|
— |
|
|
984 |
|
Non-cash operating costs |
|
|
(12,934 |
) |
|
(5,949 |
) |
| |
|
|
|
|
|
Total cash operating costs |
|
|
68,443 |
|
|
32,457 |
|
| |
|
|
|
|
|
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SALES AND MARKETING
We currently sell most of our anthracite coal as thermal coal to power producers in Guizhou province. We also sell a small amount of
our anthracite coal to chemical plants. As we have not entered into any long-term sales contracts, we sell our anthracite coal in the spot market. We generally price our anthracite coal based on the
prevailing market prices in Guizhou, the anthracite coal type and quality, and our sales volume and the length of our relationship with the customer. The market prices of anthracite coal have a
significant effect on our average selling price. See "Financial Information — Market Risk Disclosure — Commodity Price
Risk". In 2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, the average selling price of the anthracite coal we produced was RMB232.4, RMB296.4, RMB323.6, RMB360.3 and
RMB291.9 per tonne, respectively.
In
2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, our five largest customers accounted for approximately 66.6%, 73.5%, 56.7%, 73.7% and 72.8%, respectively, of
our total revenue and our largest customer accounted for approximately 29.7%, 29.0%, 24.1%, 55.3% and 24.5%, respectively, of our total revenue. In 2010, 2011, 2012 and the six months ended
June 30, 2012 and 2013, five, four, four, five and five of our five largest customers, respectively, were power producers purchasing thermal coal from us. As of June 30, 2013, the length
of our relationships with five largest customers ranged from one to five years. Prior to 2011, we derived substantially all of our revenue from the sale of thermal coal. We believe that by increasing
our sales of chemical coal and beginning selling PCI coal, we may be able to reduce our dependency on a limited group of large customers. None of our Directors, their associates or our Shareholders
are related to or owns any interest in any of our five largest customers.
As
of June 30, 2013, we had a dedicated sales and marketing team consisting of 12 employees. Our sales and marketing team is responsible for establishing sales networks,
providing customer support and collecting payments from customers.
COAL TRANSPORTATION
Substantially all of the anthracite coal we sell is transported to our customers by road. Most of our customers request us to arrange
for transportation, in which case we generally invoice them for the cost of transportation on a cost-plus basis over the mine gate price of our anthracite coal, which is the sales price of anthracite
coal sold at the producing mine. We have not entered into any long-term contracts with the providers of transportation services. All of our anthracite coal mines are accessible by road. See
Appendix III — "Competent Person's Report — Coal Marketability and
Products — Customers and Transportation".
We
are contemplating the construction of a port along the Wujiang River. Upon completion, the port is expected to allow us to transport the coal produced by Yongsheng Coal Mine by
waterway, and provide us access to markets such as Guangdong, Guangxi, Sichuan, Chongqing and Jiangxi. We plan to construct the port in two phases with a planned aggregate annual transportation
capacity of one million tonnes. The first phase of the port is expected to achieve an annual transportation capacity of 500,000 tonnes, and the second phase is expected to increase the annual
transportation capacity to one million tonnes. The first phase is expected to commence in 2014 and complete by the end of 2014. The second phase is expected to commence in July 2015 and
complete by the end of 2015. The estimated
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capital
expenditure for the port is RMB11.7 million and we plan to introduce two other parties to participate in the construction and operation of the port. We plan to contribute 55% of the
estimated capital expenditure, which amounts to RMB6.4 million, by using our internal financial resources with the remaining capital expenditures to be provided by the other two parties. The
construction of the port is subject to our Company obtaining from the relevant governmental authorities, among other things, construction project approval, a coastline use permit, a hydraulic
operation safety permit, a port operations permit and surface and underwater construction operation permits.
Prior
to the Latest Practicable Date, we did not experience any transportation disruptions that had a material adverse effect on our business, financial condition and results
of operations.
SUPPLIERS, THIRD PARTY CONTRACTORS AND UTILITIES
The main suppliers for our mining operations include third party contractors and suppliers of ancillary materials used in our mining
operations. In 2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, our purchases from our five largest suppliers were approximately RMB98.2 million,
RMB109.0 million, RMB127.7 million, RMB45.7 million and RMB37.2 million, respectively, representing approximately 57.1%, 49.8%, 42.5%, 36.3% and 26.5%, respectively, of our
total purchases. In 2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, our largest supplier accounted for approximately 19.3%, 18.2%, 15.7%, 14.7% and 9.8%, respectively, of our
total purchases. Each of our five largest suppliers is a third party contractor. As of the Latest Practicable Date, none of our Directors, their associates or our Shareholders are related to or owns
any interest in any of the five largest suppliers.
Third Party Contractors
We enter into agreements with third party contractors for the construction of our coal mines from time to time. In 2010, 2011, 2012 and
the six months ended June 30, 2012 and 2013, we had 14, 20, 28, 26 and 20 third party contractors, respectively. Each of these third party contractors is an Independent Third Party, and,
to our knowledge, each of them have the relevant licenses and permits to conduct the activities for which they are engaged except for one individual third party contractor we engaged in 2012. We
engaged this individual third party contractor to expedite the
construction process and reduce the construction cost of Yongsheng Coal Mine. Such contractor was involved in the tunneling of two mining faces of Yongsheng Coal Mine. We examined the licenses and
permits of such contractor prior to its engagement, and we obtained an undertaking from such contractor that all the necessary licenses and permits would be obtained within a period of three months
after the engagement. Pursuant to the undertaking, such contractor is liable to compensate us for any fines or penalties imposed on us arising from or as a result of the engagement. We subsequently
terminated our engagement with such contractor in 2013 and did not encounter any quality or safety problems on the construction work performed. Under the Regulations on the
Administration of Construction Project Quality
issued by the State Council on January 30, 2000, a company which engages a third
party contractor without the appropriate qualifications may be required to take
remedial actions and is subject to a fine of between RMB500,000 and RMB1 million. The persons within the company who are directly responsible for the engagement may be subject to an additional
fine ranging from 5% to 10% of the total fine imposed on the company. In order to ensure that our third party contractors have the required licenses and permits in the future, we have improved our
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internal
control policies with respect to the selection of third party contractors and equipment suppliers. First, we will inspect the licenses and permits of potential third party contractors before
requesting them to submit a bid. In addition, we will re-examine the licenses and permits of potential third party contractors during the evaluation or competitive-bid stage to ensure that the
short-listed third party contractor remains qualified. We also plan to regularly examine our third party contractors' licenses and permits after their engagement throughout the contract term.
In
2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, our purchases from our third party contractors were RMB104.8 million, RMB145.5 million,
RMB144.0 million, RMB77.0 million and RMB51.6 million, respectively. As of June 30, 2013, our relationships with third party contractors ranged from one to five years. We
have not engaged any third party contractors to provide services other than for the construction of our coal mines and our coal beneficiation plant.
We
select our contractors through a bidding process to ensure that our contracts are entered into on competitive terms. In the bidding process, we focus on the bidders' skills,
expertise, experience and reputation, in addition to the bidding price. Our contracts with third party contractors typically require our contractors to comply with applicable laws, rules and
regulations as well as our technical and safety standards, and that they perform their work under our supervision. Moreover, our contracts with third party contractors typically require the contractor
to bear all losses or liabilities incurred as a result of the contractors' failure to maintain proper safety standards. We generally pay our contractors on a monthly basis based on the percentage of
work they have completed. Upon the completion of work by
our contractors, we carry out detailed inspection prior to acceptance of the work. During the Track Record Period, we did not experience any material suspensions or delays in mine construction as a
result of any sub-standard work or improper act of our contractors. If any of our existing third party contractors discontinues their services, we believe we will be able to engage a replacement
contractor on similar terms and conditions.
As
advised by our PRC legal advisors, we are not required to purchase social insurance for the employees of the contractors as they are not considered to be our employees under the
applicable PRC laws and regulations. We do not maintain any insurance policy to cover possible losses, damage or costs resulting from accidents, fault or omission of the contractors and
its employees.
Suppliers of Ancillary Materials
The key ancillary materials used in our mining operations include replacement parts, steel, cement, explosives, fuel and lubricants. We
generally do not enter into long-term supply agreements with respect to our ancillary materials and we are not dependent on any single supplier. We typically select the supplier based on various
factors, including the quality and safety standard of their products, their ability to reliably meet our supply requirements, their credit terms and their after-sales service. We have not experienced
any shortage of supplies during the Track Record Period.
Utilities
We consume a significant amount of electricity at our mining operations. All of our anthracite coal mines receive power supply from the
China Southern power grid. We have not experienced any
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significant
interruptions in our electricity supply during the Track Record Period. In 2010, 2011, 2012 and the six months ended June 30, 2013, respectively, our electricity cost ranged from
RMB5.6 to RMB13.7 per tonne, RMB8.2 to RMB11.4 per tonne, RMB7.5 to RMB22.7 per tonne, and RMB10.1 to RMB45.6 per tonne, respectively.
We
obtain water for our mining operations from surface and subsurface supplies, including rivers, reservoirs and springs. We also reuse water discharged during our mining operations, and
filter and reuse waste water in our anthracite coal production activities. We have not experienced any significant interruptions in our water supply during the Track Record Period.
We
have not entered into any hedging arrangements to manage fluctuations in the prices of supplies and raw materials. Whether we can pass on significant increases in the cost of supplies
and raw materials will depend on market conditions.
COAL TRADING
In addition to our primary business of selling anthracite coal produced from our mines, we have from time to time engaged in coal
trading activities by selling coal that we purchased from third party suppliers since January 2011. In 2011 and 2012, revenue from sales of third party coal was RMB33.1 million and
RMB1.1 million, respectively, representing 31.5% and 0.8%, respectively, of our total revenue. The decrease of revenue from sales of third party coal as a percentage of our total revenue in
2012 was primarily due to an increase in sales of our self-produced coal, which in turn resulted from an increase in the production output of Baiping Coal Mine in 2012 and the commencement of
commercial production at Zhulinzhai Coal Mine and Liujiaba Coal Mine in April and December 2012, respectively. We did not sell any third party coal in 2013 and we do not expect sales of third
party coal to account for a significant part of our revenue in the future.
COMPETITION
The PRC anthracite coal market is highly fragmented. We primarily compete with other anthracite coal enterprises in Guizhou.
Competitive factors in the PRC anthracite coal industry include coal quality and characteristics, stability of supply, pricing, availability and cost of transportation, reliability and timeliness of
delivery and customer service. See "Risk Factors — Risks Relating to Our Business — Competition in the PRC coal industry is
intense, and we cannot assure you that we will be able to compete effectively".
ENVIRONMENTAL MATTERS
Our operations are subject to environmental laws, rules and regulations relating to, among others, gas and water emissions, hazardous
substances and waste management. See "Regulation — PRC Laws Relating to Environmental Protection". According to the relevant PRC laws and regulations governing
land reclamation, coal enterprises are required to restore the land that has been damaged by coal mining operations. See "Regulation — PRC Laws Relating to
Environmental Protection — Regulations On Land Reclamation and Its Implementing Measures". We set aside restricted cash and
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place
cash with the relevant government authorities for the purpose of our future environmental rehabilitation obligations as well as the settlement of asset retirement obligations. See "Financial
Information — Critical Accounting Policies and Estimates — Provision for Asset Retirement Obligations".
Except
as disclosed in "— Regulatory Compliance" in this listing document, we have not committed any material breaches of any environmental laws, rules or
regulations applicable to us. Our environmental protection systems and facilities comply with applicable PRC national and local environmental protection laws, rules and regulations. As of the Latest
Practicable Date, we were not subject to any material environmental claims, lawsuits, penalties or disciplinary actions.
We
emphasize environmental protection at our operations and have made significant financial commitments towards the construction of environmental protection facilities and the
establishment of a sound environmental protection management and monitoring system. In 2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, our cost of compliance with applicable
environmental laws, rules and regulations were approximately RMB6.6 million, RMB8.3 million, RMB11.6 million, RMB4.6 million and RMB7.9 million, respectively. In
2013, we expect to spend an additional RMB19.2 million for compliance with environmental obligations. The cost of compliance with environmental obligations is expected to increase in 2013 as we
expect to incur significant costs in the construction of environmental protection facilities at Yongsheng Coal Mine and Dayuan Coal Mine, and we expect the environmental acceptance inspections of
three of our other anthracite coal mines will be conducted in 2014.
OCCUPATIONAL HEALTH AND SAFETY
We are committed to reducing our employee fatality rate and maintaining high safety standards at our anthracite coal mines. We have
implemented a number of occupational health and safety measures to ensure compliance with PRC regulatory requirements. We have installed methane gas drainage facilities and mine fans at all of our
anthracite coal mines in commercial production, and each of our anthracite coal mines in commercial production has a 24-hour control room to monitor mine conditions, a rescue room to facilitate the
rescue and recovery of victims in the event of mine accidents and a safety management team that performs regular safety inspections. All of our mine safety managers are experienced personnel with the
relevant safety and management qualifications issued by the Guizhou government. We also have an internal safety management manual for mine operations and have adopted detailed safety procedures
pursuant to the State Coal Mine Safety Guidelines. We conduct regular safety training sessions for our employees, including mine managers, methane inspectors, blasters, electricians, coal miners and
other workers, to improve their safety awareness and knowledge, and we also arrange periodic health checks for our employees. Since February 2013, we have implemented a six-part safety system
at each of our operating coal mines consisting of the following components: an electronic safety monitoring system; a wireless tracking system that tracks the location of our underground workers;
emergency exits; emergency water supplies; emergency underground communication equipment; and compressed air stations that provide emergency underground oxygen supplies.
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In
2010, we had separate accidents involving three employee fatalities at our anthracite coal mines, representing a fatality rate of 17.7 fatalities per million tonnes of coal
produced. These fatalities occurred at Baiping Coal Mine, Gouchang Coal Mine and Dayuan Coal Mine and were related to our employees' violations of our work safety rules in relation to roof operations,
mine car operations and personal protective equipment. In 2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, compensation in an aggregate amount of RMB1.62 million,
RMB0.32 million, RMB0.44 million, RMB0.28 million and nil, respectively, was paid in connection with employee accidents. Of these amounts, in each of 2010, 2011, 2012 and the six
months ended June 30, 2012 and 2013: (i) RMB0.94 million, RMB0.16 million, RMB0.18 million, RMB0.13 million and nil, respectively, was paid by the Company;
(ii) RMB0.50 million, RMB0.16 million, RMB0.26 million, RMB0.16 million and nil, respectively, was covered by social insurance claims; and
(iii) RMB0.18 million, nil, nil, nil and nil, respectively, was covered by commercial insurance claims. See "Risk Factors — Risks Relating to Our
Business — Accidents at our coal mines or neighboring coal mines could materially disrupt our business and operations and damage our reputation". Since
September 2010, we did not have any additional employee fatalities at our anthracite coal mines. According to the SAWS, the average coal mine fatality rates in the PRC in 2010, 2011 and 2012
were 0.749, 0.564 and 0.374 fatalities per million tonnes of coal produced, respectively. During the Track Record Period, we
did not experience any incidents whereby production at any of our anthracite coal mines was suspended due to safety issues regarding our own operations.
In
an effort to improve our mine safety, we have implemented various initiatives since August 2010 to enhance our safety standards. We have established a safety management
committee and a safety supervision department responsible for conducting safety inspections of our coal mines. We have also revised our operational procedures and improved our field management by
replacing wooden support structures in our mines with metal support structures to prevent the occurrence of roof collapses. In addition, we have adopted regular inspection and maintenance measures,
installed new safety equipment and facilities, established additional operational safety guidelines, implemented production safety systems and enhanced training efforts. We have also retained five
registered safety engineers consisting of two dedicated safety personnel, two coal mine managers and one chief engineer, to ensure safety at our coal mines. The Directors believe that these safety
initiatives are adequate and effective. Our PRC legal advisors, Commerce & Finance Law Offices, are of the opinion that our Company has complied with the relevant occupational health and safety
laws and regulations in all material respects based on the confirmation letters issued by the relevant county level Administrations of Work Safety and the Guizhou Administration of Coal
Mine Safety.
In
2011, the municipal government of Jinsha county selected our "culture corridor" at Baiping Coal Mine as a model facility for the promotion of safety. The "culture corridor" is a
hallway in the mine with various safety instructions, procedures and reminders posted on the walls. In addition, Yongsheng Coal Mine received the "Advanced Enterprise for Work Safety in 2012" award
from Jinsha county and our chief manager of Baiping Coal Mine also received the "Best Work Safety Employee in 2012" award from Jinsha county.
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RISK MANAGEMENT
We have adopted a risk management policy to manage our operational risks. Under our risk management policy, our key risk management
objectives include:
- •
- developing a comprehensive risk management strategy for our Company;
- •
- recognizing different types of risks and developing appropriate risk management strategies based on the type
of risk;
- •
- identifying, monitoring and managing risk and our risk tolerance level; and
- •
- balancing risk management with the development of our Company.
Under
our risk management policy, our Board of Directors is responsible for establishing the key risk management principles and objectives, while our chief executive officer is
responsible for establishing risk management measures and reviewing material risks within our Company. We have established a compliance and audit department which is expected to be responsible for
implementing our risk management efforts, and each of our operating PRC subsidiaries has a designated risk management department which is expected to be responsible for coordinating and supervising
our risk management efforts within the subsidiary.
QUALITY CONTROL
To ensure that our anthracite coal meets the requirements of our customers, we have established three laboratories to test the quality
of our coal. The laboratories are staffed by six quality control employees responsible for monitoring our anthracite coal production process, conducting inspection and testing of our anthracite coal
and performing on-site inspections at our anthracite coal mines.
RESEARCH AND DEVELOPMENT
We did not incur any significant amounts on company-sponsored research or development activities during the Track Record Period.
INTELLECTUAL PROPERTY
We believe that our operation is not materially dependent on our ownership of any intellectual property rights. We have submitted three
applications with the Trade Marks Registry of Hong Kong for registration. See "Appendix V — Statutory and General
Information — (e) Further Information About Our Business — B. Intellectual Property Rights".
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PROPERTIES
The following table sets forth certain information about the interests in the properties owned by or leased to us in the PRC as of November 1, 2013,
prepared by Peak Vision Appraisals Limited, an independent property valuation company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Description and Location |
|
Holding
Entity |
|
Use &
Occupancy |
|
Approximate
Total Site
Area (sq.m.) |
|
Approximate
Total Gross Floor Area
(sq.m.) |
|
Details of approved usage/
Details of lease |
|
Expiry date
of approved
temporary
usage/land use
rights/rent free
term/lease |
|
Restrictions
on use |
|
Material
encumbrances |
|
Material
environmental
issues,
litigation,
breaches,
defects |
|
Plans for
construction
improvement
in the next
12 months |
|
Interest
attributable to
the Company |
|
1 The mining site and various structures of the Dayun Coal Mine located at Jinqiao Village, Gaoping Township, Jinsha County, Bijie City, Guizhou Province, the PRC |
|
Guizhou Dayun |
|
The mining site & ancillary facilities for Dayun Coal Mine |
|
|
132,490.00 |
|
|
1,467.80
(excluding approximately 4,456.068 sq.m. under construction) |
|
Jinsha County State-owned Land Resources Bureau (the "Bureau") has confirmed:
(i) As per the approval document issued by the People's Government of Guizhou Province dated 31 December 2011, approval has been given for the land of the property, with a total site area of 132,490 sq.m., to be allocated to
Guizhou Dayun for construction of the Dayun Mine. The Bureau is currently processing the change of land use from collective agricultural land to construction use land, and after completing this change, will issue the Certificate of State-owned Land
Use of the property to Guizhou Dayun upon going through relevant procedures and the submitting of required documents by Guizhou Dayun.
(ii) Guizhou Dayun is currently using a portion of the property with a site area of 120,326.0667 sq.m., which has been approved for temporary usage.
Pursuant to a confirmation letter issued by Jinsha County Housing and Urban Construction Bureau dated 22 April 2013, approval has been given for the usage of the temporary structures which are completed having a total gross floor area of
130.39 sq.m. and the temporary structures under construction having a total gross floor area of 5,793.478 sq.m. of the property.
Pursuant to a confirmation letter issued by Jinsha County Urban Planning Bureau dated 22 April 2013, the property does not fall within the town planning of Gaoping Township and is therefore basically not affected by the said construction
planning. |
|
13 January 2014 in respect of the portion of the property with a site area of 120,326.0667 sq.m. |
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|
For operation of Dayun Coal Mine |
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None |
|
None |
|
Various structures with a total gross floor area of 4,456.068 sq.m. are under construction and expected to be completed in 2013. |
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100% |
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| Description and Location |
|
Holding
Entity |
|
Use &
Occupancy |
|
Approximate
Total Site
Area (sq.m.) |
|
Approximate
Total Gross Floor Area
(sq.m.) |
|
Details of approved usage/
Details of lease |
|
Expiry date
of approved
temporary
usage/land use
rights/rent free
term/lease |
|
Restrictions
on use |
|
Material
encumbrances |
|
Material
environmental
issues,
litigation,
breaches,
defects |
|
Plans for
construction
improvement
in the next
12 months |
|
Interest
attributable to
the Company |
|
2 The mining site and 14 structures of the Yongsheng Coal Mine located at Qianshun Village, Huajue Township, Jinsha County, Bijie City, Guizhou Province, the PRC |
|
Guizhou Yongfu |
|
The mining site, industrial production facilities, staff quarters, office & ancillary facilities for Yongsheng Coal Mine |
|
|
148,804.00 |
|
|
12,326.33 |
|
Jinsha County State-owned Land Resources Bureau has given consent to the temporary usage of the property with a site area of 148,804.00 sq.m.
Pursuant to a confirmation letter issued by Jinsha County Housing and Urban Construction Bureau dated 22 April 2013, approval has been given for the usage of the temporary structures of the property having a total gross floor area of
12,326.33 sq.m.
Pursuant to a confirmation letter issued by Jinsha County Urban Planning Bureau dated 22 April 2013, the property does not fall within the town planning of Gaoping Township and Huajue Township and is therefore basically not affected by the
said construction planning. |
|
27 December 2013 |
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|
For operation of Yongsheng Coal Mine |
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None |
|
None |
|
None |
|
70% |
|
3 The mining site and 29 structures of the Baiping Coal Mine located at Lianhe Village, Gaoping Township, Jinsha County, Bijie City, Guizhou Province, the PRC |
|
Baiping Mining |
|
The mining site, industrial production facilities, staff quarters, office & ancillary facilities for Baiping Coal Mine |
|
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41,993.54 |
|
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19,793.17 |
|
Jinsha County State-owned Land Resources Bureau has given consent to the temporary usage of a portion of the property with a site area of 10,877 sq.m. and has given consent to the temporary usage of the remaining
portion of the property with a site area of 31,116.54 sq.m.
Pursuant to a confirmation letter issued by Jinsha County Housing and Urban Construction Bureau dated 22 April 2013, approval has been given for the usage of the temporary structures of the property having a total gross floor area of
19,793.17 sq.m.
Pursuant to a confirmation letter issued by Jinsha County Urban Planning Bureau dated 22 April 2013, the property does not fall within the town planning of Gaoping Township and is therefore basically not affected by the said construction
planning. |
|
30 May 2014 in respect of the portion of the property with a site area of 10,877 sq.m.; and 13 January 2014 in respect of the remaining portion. |
|
|
For operation of Baiping Coal Mine |
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None |
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None |
|
None |
|
70% |
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Table of Contents
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| Description and Location |
|
Holding
Entity |
|
Use &
Occupancy |
|
Approximate
Total Site
Area (sq.m.) |
|
Approximate
Total Gross Floor Area
(sq.m.) |
|
Details of approved usage/
Details of lease |
|
Expiry date
of approved
temporary
usage/land use
rights/rent free
term/lease |
|
Restrictions
on use |
|
Material
encumbrances |
|
Material
environmental
issues,
litigation,
breaches,
defects |
|
Plans for
construction
improvement
in the next
12 months |
|
Interest
attributable to
the Company |
|
4 The mining site and 21 structures of the Dayuan Coal mine located at Pingdong Village, Xinfang Township, Nayong County, Bijie City, Guizhou Province, the PRC |
|
Dayuan Coal |
|
The mining site, industrial production facilities, staff quarters, office & ancillary facilities for Dayuan Coal Mine |
|
|
66,847.00 |
|
|
5,060.19
(excluding approximately 1,187.59 sq.m. under construction) |
|
NayongCountyState-ownedLand Resources Bureau has given consent to the temporary usage of a portion of the property with a site area of 4,528.32 sq.m. and has given consent to the temporary usage of the remaining
portion of the property with a site area of 62,318.68 sq.m.
Pursuant to a confirmation letter issued by Nayong County State-owned Land Resources Bureau dated 14 January 2013, Dayuan Coal is currently using a site area of 62,318.6809 sq.m. of the aforesaid remaining portion of the property,
which has been approved for temporary usage.
Pursuant to two confirmation letters issued by Nayong County Housing and Urban Construction Bureau and Nayong County Urban Planning Bureau, both dated 7 April 2013, approvals have been given for the usage of the temporary structures of the
property having a total gross floor area of 5,060.19 sq.m. and the temporary structures under construction having a gross floor area of 1,187.59 sq.m. of the property. |
|
19 February 2014 in respect of the portion of the property with a site area of 4,528.32 sq.m.; and 13 January 2015 in respect of the remaining portion. |
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For operation of Dayun Coal Mine |
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None |
|
None |
|
A complex with a gross floor area of 1,187.59 sq.m. isunder construction and expected to be completed in 2013. |
|
99% |
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5 The mining site and 17 structures of the Gouchang Coal Mine located at Gouchang Village, Kunzhai Township, Nayong County, Bijie City, Guizhou Province, the PRC |
|
Gouchang Coal |
|
The mining site, industrial production facilities, staff quarters, office & ancillary facilities for Gouchang Coal Mine |
|
|
43,476.22 |
|
|
4,534.80 |
|
Nayong County State-owned Land Resources Bureau has given consent to the temporary usage of a portion of the property with a site area of 11,329.35 sq.m. and has given consent to the temporary usage of the
remaining portion of the property with a site area of 32,146.87 sq.m.
Pursuant to two confirmation letters issued by Nayong County Housing and Urban Construction Bureau and Nayong County Urban Planning Bureau, both dated 7 April 2013, approvals have been given for the usage of the temporary structures of the
property having a total gross floor area of 4,534.8 sq.m. |
|
23 May 2014 in respect of the portion of the property with a site area of 11,329.35 sq.m.; and 13 January 2014 in respect of the remaining portion. |
|
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For operation of Gouchang Coal Mine |
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None |
|
None |
|
None |
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99% |
121
Table of Contents
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|
| Description and Location |
|
Holding
Entity |
|
Use &
Occupancy |
|
Approximate
Total Site
Area (sq.m.) |
|
Approximate
Total Gross Floor Area
(sq.m.) |
|
Details of approved usage/
Details of lease |
|
Expiry date
of approved
temporary
usage/land use
rights/rent free
term/lease |
|
Restrictions
on use |
|
Material
encumbrances |
|
Material
environmental
issues,
litigation,
breaches,
defects |
|
Plans for
construction
improvement
in the next
12 months |
|
Interest
attributable to
the Company |
|
6 The mining site and 18 structures of the Zhulinzhai Coal Mine located at Tianba Village, Xinhua Township, Liuzhi Special Zone, Liupanshui City, Guizhou Province, the PRC |
|
Linjiaao Coal |
|
The mining site, industrial production facilities, staff quarters, office & ancillary facilities for Zhulinzhai Coal Mine |
|
|
37,913.13 |
|
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4,461.28 |
|
Liuzhi Special Zone State-owned Land Resources Bureau has given consent to the temporary usage of a portion of the property with a site area of 5,014 sq.m. and has given consent to the temporary usage of the
remaining portion of the property with a site area of 32,899.13 sq.m.
Pursuant to the confirmation letter issued by Liuzhi Special Zone Housing and Urban Construction Bureau dated 25 March 2013, approval has been given for the usage of the temporary structures of the property having a total gross floor area
of 4,461.28 sq.m. |
|
25 November 2014 in respect of the portion of the property with a site area of 5,014 sq.m.; and 28 February 2015 in respect of the remaining portion. |
|
|
For operation of Zhulinzhai Coal Mine |
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None |
|
None |
|
None |
|
99% |
|
7 The mining site and 26 structures of the Liujiaba Coal Mine located at Tianba Village, Xinhua Township, Liuzhi Special Zone, Liupanshui City, Guizhou Province, the PRC |
|
Xinsong Coal |
|
The mining site, industrial production facilities, staff quarters, office & ancillary facilities for Liujiaba Coal Mine |
|
|
49,278.25 |
|
|
8,398.75 |
|
Liuzhi Special Zone State-owned Land Resources Bureau has given consent to the temporary usage of a portion of the property with a site area of 2,369 sq.m. and has given consent to the temporary usage of the
remaining portion of the property with a site area of 46,909.25 sq.m.
Pursuant to the confirmation letter issued by Liuzhi Special Zone Housing and Urban Construction Bureau dated 25 March 2013, approval has been given for the usage of the temporary structures of the property having a total gross floor area
of 8,398.75 sq.m. |
|
4 February 2015 in respect of the portion of the property with a site area of 2,369 sq.m.; and 28 February 2015 in respect of the remaining portion. |
|
|
For operation of Liujiaba Coal Mine |
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None |
|
None |
|
None |
|
99% |
|
8 An industrial complex under development comprising a parcel of land with various structures under construction thereon located at Qianshun Village, Huajue Township, Jinsha County, Bijie City, Guizhou
Province, the PRC |
|
Jinsha |
|
To be used as the industrial production facilities, storage, staff quarters, office & ancillary facilities for the coal washing plant held by Jinsha Juli |
|
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52,113.33 |
|
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Various structures of the property which are under construction are planned to have a total gross floor area of approximately 15,140.00 sq.m. |
|
Jinsha County State-owned Land Resources Bureau has confirmed that Jinsha Juli is in the process of obtaining the grant of state-owned land use rights for the property, and the relevant procedures will be carried out
in due course, including issue of the Certificate of State-owned Land Use Rights.
Jinsha County Rural Planning Bureau and Jinsha County Housing and Rural Construction Bureau have confirmed that the relevant procedures for the structures under construction on the property will be carried out in due course, including issue of the
Certificate for Construction Land Use Planning, Certificate for Construction and Engineering Planning and Certificate for Commencing Construction for the property, after the relevant procedures of obtaining the state-owned land use rights of the
property have been completed.
The above bureaus have confirmed that Jinsha Juli will not be subject to penalties before obtaining the relevant title certificates. |
|
To be confirmed after Jinsha Juli has obtained relevant title certificates. |
|
|
Not specified |
|
None |
|
None |
|
Various structures with a total gross floor area of 15,140.00 sq.m. are under construction and expected to be completed by mid 2014. |
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100% |
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| Description and Location |
|
Holding
Entity |
|
Use &
Occupancy |
|
Approximate
Total Site
Area (sq.m.) |
|
Approximate
Total Gross Floor Area
(sq.m.) |
|
Details of approved usage/
Details of lease |
|
Expiry date
of approved
temporary
usage/land use
rights/rent free
term/lease |
|
Restrictions
on use |
|
Material
encumbrances |
|
Material
environmental
issues,
litigation,
breaches,
defects |
|
Plans for
construction
improvement
in the next
12 months |
|
Interest
attributable to
the Company |
|
9 Units 1 to 3 on Level 25, Block B2, Phase 2, Qilong Central Business Building, Business and Financial District, Jinyang New District, Guiyang City, Guizhou Province, the PRC |
|
Guizhou Puxin |
|
The office, staff quarters, and ancillary facilities of Guizhou Puxin for use by the Company |
|
|
100.70 |
|
|
865.92 |
|
3 Certificates of Building Ownership have been issued to Guizhou Puxin for office use of the property with a total gross floor area of 865.92 sq.m.
3 Certificates of State-owned Land Use Rights have been issued to Guizhou Puxin for commercial use of the property with a total apportioned site area of approximately 100.70 sq.m. |
|
30 November 2043 |
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Office |
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None |
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None |
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None |
|
100% |
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|
| Description and Location |
|
Holding
Entity |
|
Use &
Occupancy |
|
Approximate
Total Site
Area (sq.m.) |
|
Approximate
Total Gross Floor Area
(sq.m.) |
|
Details of
approved usage/
Details of lease |
|
Expiry date
of approved
temporary
usage/land use
rights/rent free
term/lease |
|
Restrictions
on use |
|
Material
encumbrances |
|
Material
environmental
issues,
litigation,
breaches,
defects |
|
Plans for
construction
improvement
in the next
12 months |
|
Interest
attributable to
the Company |
|
10 A unit located at No. 97 Changan Street, Jinsha County, Bijie City, Guizhou Province, the PRC |
|
Guizhou Dayun |
|
The office, staff quarters, and ancillary facilities of Guizhou Dayun for use by the Company |
|
|
N/A |
|
|
109.72 |
|
Leased by Guizhou Dayun pursuant to a tenancy agreement for a yearly rental of RMB20,000. |
|
18 February 2015 |
|
|
Not specified |
|
The landlord has not obtained title documents or other title certificates and therefore it cannot be confirmed whether the landlord has the right to lease the property to the Company for use.
The usage of the property has been changed from residential use to office use and it cannot be confirmed whether the interested owners have consented to the change.
The aforesaid change in the usage of the property has not been registered with the relevant PRC government administrative department. The Company may be required to submit the registration at the request of relevant authorities and will be subject to
a fine should registration not take place within a specified period.
The tenancy agreement has not been submitted to the relevant PRC government administrative department for registration. The Company may be required to submit the registration at the request of relevant authorities and may be subject to a fine should
registration not take place within a specified period. |
|
None |
|
None |
|
100% |
123
Table of Contents
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|
| Description and Location |
|
Holding
Entity |
|
Use &
Occupancy |
|
Approximate
Total Site
Area (sq.m.) |
|
Approximate
Total Gross Floor Area
(sq.m.) |
|
Details of
approved usage/
Details of lease |
|
Expiry date
of approved
temporary
usage/land use
rights/rent free
term/lease |
|
Restrictions
on use |
|
Material
encumbrances |
|
Material
environmental
issues,
litigation,
breaches,
defects |
|
Plans for
construction
improvement
in the next
12 months |
|
Interest
attributable to
the Company |
|
11 A unit located at No. 283 Luoma Street, Chengguan Town, Jinsha County, Bijie City, Guizhou Province, the PRC |
|
Jinsha Juli |
|
The office, staff quarters, and ancillary facilities of Jinsha Juli for use by the Company |
|
|
N/A |
|
|
126.15 |
|
Leased by Jinsha Juli pursuant agreement rental of to a tenancy for a yearly rental of RMB18,000. |
|
19 November 2016 |
|
|
Not specified |
|
The usage of the property has been changed from residential use to office use and it cannot be owners have consented to the change.
The aforesaid change in the usage of the property has not been registered with the relevant PRC government administrative department. The Company may be required to submit the registration at the request of relevant authorities and will be subject to
a fine should registration not take place within a specified period.
The tenancy agreement has not been submitted to the relevant PRC government administrative department for registration. The Company may be required to submit the registration at the request of relevant authorities and may be subject to a fine should
registration not take place within a specified period. |
|
None |
|
None |
|
100% |
|
12 A unit located at No. 1 Huang Shan Chong, Yunyan District, Guiyang City, Guizhou Province, the PRC |
|
Guizhou Fuyuantong |
|
The office and ancillary facilities of Guizhou Fuyuantong for use by the Company |
|
|
N/A |
|
|
196.00 |
|
Leased by Guizhou Fuyuantong pursuant to a tenancy agreement for a monthly rental of RMB1,000. |
|
10 March 2014 |
|
|
Not specified |
|
The landlord has not obtained title documents or other title certificates and therefore it cannot be confirmed whether the landlord has the right to lease the property to the Company for use.
The tenancy agreement has not been submitted to the relevant PRC government administrative department for registration. The Company may be required to submit the registration at the request of relevant authorities and may be subject to a fine should
registration not take place within a specified period. |
|
None |
|
None |
|
100% |
|
13 Room 503C, Block B, Xinyingwan Anzhi District, Yangpu Economic Development Zone, Hainan Province, the PRC |
|
Yangpu Dashi |
|
The office of Yangpu Dashi for use by the Company |
|
|
N/A |
|
|
38.00 |
|
Yangpu Economic Development Zone Xinganzhong District Office Xinyingwan Neighbourhood Committee has agreed to provide the property to Yangpu Dashi for a rent free term of ten years. |
|
22 March 2015 |
|
|
Not specified |
|
The landlord has not obtained title documents or other title certificates and therefore it cannot be confirmed whether the landlord has the right to provide the property to the Company for use. |
|
None |
|
None |
|
100% |
124
Table of Contents
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| Description and Location |
|
Holding
Entity |
|
Use &
Occupancy |
|
Approximate
Total Site
Area (sq.m.) |
|
Approximate
Total Gross Floor Area
(sq.m.) |
|
Details of
approved usage/
Details of lease |
|
Expiry date
of approved
temporary
usage/land use
rights/rent free
term/lease |
|
Restrictions
on use |
|
Material
encumbrances |
|
Material
environmental
issues,
litigation,
breaches,
defects |
|
Plans for
construction
improvement
in the next
12 months |
|
Interest
attributable to
the Company |
| |
14 Room 1317, Level 13, Block C, Biyang Main Road Administrative Center, Bijie City, Guizhou Province, the PRC |
|
Bijie Feishang |
|
The registered office of Bijie Feishang |
|
|
N/A |
|
|
21.60 |
|
Guizhou Province Bijie Diqu Industrial and Energy Council has agreed to provide the property rent free to Bijie Feishang as its registered address |
|
Undefined |
|
|
Not specified |
|
The landlord has not obtained title documents or other title certificates and therefore it cannot be confirmed whether the landlord has the right to provide the property to the Company for use. |
|
None |
|
None |
|
100% |
|
15 Unit 01-H, Level 54, Shenzhen International Chamber of Commerce Centre, located at the intersection of Fuhua Third Road and Yitian Road, Futian District, Shenzhen, the PRC |
|
Shenzhen Chixin |
|
The office of Shenzhen Chixin for use by the Company |
|
|
N/A |
|
|
106.00 |
|
Leased by Shenzhen Chixin pursuant to a tenancy agreement for a term of 3 years for a monthly rental of RMB19,080 (year 1), RMB20,225 (year 2) and RMB21,439 (year 3). |
|
30 April 2016 |
|
|
Office |
|
The landlord has not obtained title documents or other title certificates and therefore it cannot be confirmed whether the landlord has the right to lease the property to the Company for use. |
|
None |
|
None |
|
100% |
|
16 A portion of No. 2205, 22nd Floor, West Tower, Shun Tak Centre, Nos. 168-200 Connaught Road Central, Hong Kong |
|
The Company |
|
The registered office of the Company |
|
|
N/A |
|
|
118.87 (1,279.5 sq.ft.) |
|
Anka Consultants Limited has agreed to licence the property to the Company for a rent free term of 8 months, excluding government rent, government rates, management fees and other expenses. |
|
30 June 2014 |
|
|
Office |
|
None |
|
None |
|
None |
|
100% |
125
Table of Contents
Our Directors confirm that none of our property interests is individually material to us in terms of income contribution or rental expense, and no property
interest owned by our Company is held by us for property activities.
Owned properties
As of the Latest Practicable Date, we owned three properties with a total gross floor area of 865.9 square meters, all of which
are used as office space. We have obtained building ownership certificates and the related land use right certificates for each of these properties. All of these properties are located
in Guizhou.
As
of the Latest Practicable Date, the carrying amount of our property interests was RMB10.0 million, representing less than 15% of our total assets.
Temporary structures
As of the Latest Practicable Date, we constructed 128 temporary structures with a total gross floor area of
61,686.0 square meters within the areas of our seven anthracite coal mines for use in our mining operations. We have obtained the relevant confirmation letters issued by the local authorities
in the Jinsha County, Nayong County and Liuzhi Special District confirming that they will not impose any penalties in connection with the construction of these temporary structures, and that our
subsidiaries may continue to use the temporary structures in accordance with the current uses. Our PRC legal advisors, Commerce & Finance Law Offices, have advised that these authorities are
the competent authorities to issue the confirmation letters and such confirmation letters should not be subject to challenge by higher governmental authorities.
Leased properties
As of the Latest Practicable Date, we leased six properties (including two rent free properties) with a total gross floor area of
approximately 597.5 square meters in Guizhou, Hainan and Shenzhen for uses as office space. The leases underlying these properties have certain
defects:
- •
- The lessors of five of these properties do not have the relevant building ownership certificates. If the lessors do not
have lawful rights to these properties, we may not be able to continue to occupy and use such properties.
- •
- The lease agreements of three of these properties have not been registered with the relevant PRC authorities, which may
result in correction orders by the relevant authorities and subject us to a fine of RMB1,000 to RMB10,000.
- •
- Two of these properties are residential properties. Our use of these properties as office space without obtaining relevant
consents may subject us to correction orders by the relevant authorities and a daily fine of RMB5 to RMB20 per square meter.
Our
Directors do not believe that these four properties are critical to our operations.
126
Table of Contents
With
respect to the land for our anthracite coal mines, we have leased 19 parcels of collectively-owned land with a total site area of approximately 470,821.0 square
meters. These parcels of land cover all of our anthracite coal mines. Although in general the term of the leases is approximately 20 years with renewal right exercisable by us, our use of these
properties for coal mining is subject to the Guizhou government's approval, and each approval is generally valid for only one to two years and must be renewed thereafter. We have already obtained the
relevant approvals for all 19 parcels of leased land, and we have also obtained confirmation letters from the relevant government authorities in Guizhou confirming that they will not revoke
their approval and that they will, upon the expiration of the current approvals, grant additional approvals for our continued use of the leased land for coal mining. Our PRC legal advisors,
Commerce & Finance Law Offices, have advised that we are entitled to use these 19 parcels of leased land for coal mining in accordance with the terms in the relevant leases, approvals
and confirmation letters.
We
are in the process of obtaining the land use right certificates for the land we use in Dayun Coal Mine, which cover a total area of 132,490.0 square meters. We have obtained
the relevant confirmation letter from Jinsha County Land and Resources Bureau in Guizhou confirming that the relevant land requisition is being processed and the authority did not anticipate any
material legal impediments in obtaining the land use right. Our PRC legal advisors, Commerce & Finance Law Offices, have advised that the authority is the competent authority to issue the
confirmation letter and such confirmation letter should not be subject to challenge by higher governmental authorities.
INSURANCE
We make social insurance contributions and carry basic occupational injury, medical, pension, unemployment and maternity insurance for
our employees. In line with what we believe to be industry practice, we do not maintain any fire, liability or other property insurance
covering our properties, equipment or inventories, and we do not carry any business interruption insurance, transportation insurance or third party liability insurance to cover claims in respect of
personal injuries or property or environmental damage arising from accidents on our properties. See "Risk Factors — Risks Relating to Our
Business — Our coal mining operations may be materially disrupted by operational risks and natural disasters for which we have limited insurance".
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REGULATORY COMPLIANCE
Sets forth below is a summary of our material non-compliance incidents during the Track Record Period. Where internal control measures are adopted by the Company
to avoid re-occurrence of the non-compliance incidents in the future, the Directors believe that such measures are adequate and effective.
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Non-Compliance
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Reason |
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Legal Consequences/
Potential Maximum Penalties |
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Rectification Actions/Preventive Measures |
| In 2012, Baiping Coal Mine produced 292,000 tonnes of anthracite coal, which significantly exceeded its annual production capacity of 150,000 tonnes as permitted under its mining right permit and coal production
permit. |
|
The over-production was due to our annual production levels being determined based in large part on the Guizhou government's annual guidance relating to the provision of certain minimum amounts of thermal coal to power
plants operating in Guizhou. |
|
A coal mine that produces coal in excess of its permitted annual production capacity may be subject to administrative penalties, including a fine of up to RMB2.0 million on the relevant coal mine, a fine of up to
RMB150,000 on the mine manager and, in serious cases, revocation of the coal production permit and the mine manager's qualification certification, as well as mine closure. |
|
• In January and
July 2013, the Energy Bureau of Guizhou Province issued confirmation letters stating (i) it would not impose any penalties or other measures (including but not limited to revocation of the coal production permit or suspension of coal mining
operations) against Baiping Mining or its employees in respect of any over-production in 2012 or thereafter, as Baiping Coal Mine has undergone certain technological improvements after its coal production permit was issued, such that its actual
production capacity and ventilation abilities exceeded the design specifications |
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Non-Compliance
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Reason |
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Legal Consequences/
Potential Maximum Penalties |
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Rectification Actions/Preventive Measures |
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set forth in its coal production permit and could support an annual production output of 290,000 tonnes, and (ii) it would support our application for the relevant permits with an annual
production capacity of 300,000 tonnes or more. Between December 2012 and January 2013, we also received confirmation letters from the Water Conservation Office of Bijie City, the Water Resources Department of Guizhou Province, the
Guizhou Administration of Coal Mine Safety and the Environmental Protection Department of Guizhou Province. These confirmation letters either agreed with the January 2013 confirmation letter issued by the Energy Bureau of Guizhou Province or
confirmed there would be no penalties imposed on Baiping Mining and/or Baiping Mining's employees as a result of the over-production at Baiping Coal Mine. We plan to continue producing anthracite coal at Baiping Coal Mine, and may produce anthracite
coal in excess of its permitted production capacity as our annual production levels were determined based in large part on the Guizhou government's annual guidance relating to the provision of certain minimum amounts of thermal coal to power plants
operating in Guizhou. See "Regulation — PRC Laws relating to the Coal Industry — Supply of thermal coal to power plants". Our PRC legal advisors, Commerce & Finance Law Offices, have advised us that such
confirmation letters were issued by the competent government authorities and are legally valid. We have applied for a 300,000 tonnes mining right permit for Baiping Coal Mine and we expect |
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Non-Compliance
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Reason |
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Legal Consequences/
Potential Maximum Penalties |
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Rectification Actions/Preventive Measures |
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to obtain such permit in June 2014. After receiving such permit, we do not expect Baiping Coal Mine will continue to produce anthracite coal in excess of its permitted production
capacity. |
| None of our four anthracite coal mines in commercial production have completed its environmental trial run or the environmental acceptance inspection by the relevant government authorities prior to commencing commercial
production. |
|
The relevant environmental acceptance inspection and trial run procedures are conditions to the issuance of the coal production permit. As we had already received the coal production permit and completed the required
environmental impact assessments and construction of necessary environmental facilities for each of the four anthracite coal mines before their commencement of commercial production, we were of the view that commencing commercial production at each
of these mines without having completed the environmental acceptance inspections or trial runs would not otherwise affect our ability to continue to comply with the relevant environmental laws. |
|
Failure to complete the required environmental trial run or the environmental acceptance inspection prior to commencing commercial production may result in production suspension and a fine of up to RMB100,000. |
|
• In January and
July 2013, the relevant Guizhou government authorities issued confirmation letters stating that no penalties would be imposed on any of our four anthracite coal mines that have commenced commercial production. Our PRC legal advisors,
Commerce & Finance Law Offices, have advised us that such confirmation letters were issued by the competent government authorities and are legally valid.
• We adopted an internal policy
on environmental protection management measures in June 2013 and established an environmental protection committee in August 2013 to improve the coordinated development of our coal mines, expedite the required environmental acceptance
inspections and improve compliance with applicable environmental and safety standards. |
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Non-Compliance
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Reason |
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Legal Consequences/
Potential Maximum Penalties |
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Rectification Actions/Preventive Measures |
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• Prior to commencing
commercial production at each of these four anthracite coal mines, we have undertaken to the Guizhou Energy Bureau that we will comply with all relevant environmental laws, rules and regulations or apply for environmental acceptance inspections
immediately following our completion of inspections for obtaining coal production permits. We are in the process of applying for environmental acceptance inspections for each of our coal mines that has commenced commercial production, with the
exception of Gouchang Coal Mine, which has suspended operations. As advised by our PRC legal advisors, Commerce & Finance Law Offices, there will be no material legal impediments to the process of obtaining the relevant approvals to complete
the environmental acceptance inspections if we are able to meet all the conditions and requirements under PRC law or imposed by relevant authorities and undergo the relevant procedures, including submitting the requisite documents. We expect the
environmental acceptance inspections for these coal mines to be completed by 2014. |
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Non-Compliance
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Reason |
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Legal Consequences/
Potential Maximum Penalties |
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Rectification Actions/Preventive Measures |
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• Our compliance and audit
department closely monitors our mining operations to make sure they are conducted in accordance with the applicable laws, rules and regulations. |
| During the Track Record Period, certain of our subsidiaries did not timely complete their social insurance registrations and pay social insurance contributions for employees in full. |
|
The failure to complete the social insurance registrations and pay social insurance contributions was primarily due to our employees' reluctance to participate into the social insurance program which they believe will not
offer the benefit they desire and the general practice in Guizhou coal mining industry of not making registrations or paying social insurance contributions. Moreover, social insurance contributions may not be transferred between cities or provinces.
Many of our employees are from provinces other than Guizhou and have already paid their social insurance contributions in their home provinces. As a result, some of our employees are unwilling to register for and continue to pay social insurance
contributions in Guizhou, as contributions paid in Guizhou may not be transferable to their home provinces. |
|
• An employer that fails to
timely complete its social insurance registration may be subject to a penalty of up to three times the amount of social insurance contribution that the employer would have been required to pay had it timely completed its registration.
• An employer that fails to
timely pay its social insurance contributions may be subject to an additional daily penalty equal to 0.05% of the unpaid contributions and a penalty of up to three times the amount of unpaid social insurance contribution in certain
situations. |
|
• In March, April and
May 2013, the relevant Guizhou government authorities issued confirmation letters stating that they would not impose any penalties in respect of our subsidiaries' failure to timely complete their social insurance registrations or pay their
social insurance contributions in full. The confirmation letters also stated that the unpaid contributions of our subsidiaries were waived. Our PRC legal advisors, Commerce & Finance Law Offices have advised us that the confirmation letters
have been issued by the competent government authorities and are legally valid.
• As of the Latest Practicable
Date, all of our subsidiaries have completed their social insurance registrations, and since April 2013, all of our subsidiaries have made their social insurance contributions in full and there is no outstanding contribution.
• To avoid non-compliance in the
future, we have implemented a stricter internal policy in March 2013 requiring all of our subsidiaries to register for social insurance and pay social insurance contributions in full for each new employee in a timely manner. We also plan to
conduct monthly inspections on our employees' social insurance contribution payments. |
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Non-Compliance
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Reason |
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Legal Consequences/
Potential Maximum Penalties |
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Rectification Actions/Preventive Measures |
| During the Track Record Period, certain of our subsidiaries did not timely complete their housing provident fund registrations and pay the required housing provident fund contribution for employees in full. |
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The failure to complete the housing provident fund registrations and pay the required housing provident fund contributions was primarily due to our employees' reluctance to participate into the housing provident fund
program which they believe will not offer the benefit they desire and the general practice in Guizhou coal mining industry of not making registrations or paying housing provident fund contributions. Moreover, housing provident fund contributions may
not be transferred between cities or provinces. Many of our employees are from provinces other than Guizhou province and have already paid their and housing provident fund contributions in their home provinces. As a result, some of our employees are
unwilling to register for and continue to pay and housing provident fund contributions in Guizhou, as contributions paid in Guizhou may not be transferable to their home provinces. |
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An employer that fails to timely complete its housing provident fund registration or pay its housing provident fund contribution may be subject to a penalty of up to RMB50,000 and court enforcement order in certain
situations. |
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• In March and
April 2013, the relevant Guizhou government authorities issued confirmation letters stating that they would not impose any penalties in respect of our subsidiaries' failure to timely complete their housing provident fund registrations or pay
their housing provident fund contributions in full. The confirmation letters also stated that the unpaid contributions of our subsidiaries were waived. Our PRC legal advisors, Commerce & Finance Law Offices, have advised us that the
confirmation letters have been issued by the competent government authorities and are legally valid.
• As of the Latest Practicable
Date, all of our subsidiaries have completed their housing provident fund registrations, and since April 2013, all of our subsidiaries have made their housing provident fund contributions in full and no outstanding contribution remains to be
made.
• To avoid non-compliance in the
future, we have implemented a stricter internal policy in March 2013 requiring all of our subsidiaries to register for housing provident fund and pay housing provident fund contributions for each new employee in a timely manner. We also plan to
conduct monthly inspections on our employees' housing provident fund contribution payments. |
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Non-Compliance
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Reason |
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Legal Consequences/
Potential Maximum Penalties |
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Rectification Actions/Preventive Measures |
| During the Track Record Period, certain of our subsidiaries made non-interest bearing intercompany loans to our other subsidiaries in the PRC in contravention of applicable PRC regulations on intercompany
lending. |
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We entered into non-interest bearing intercompany loans primarily because it was cost-efficient to utilize group financial resources. The legal consequence of entering into the loans whereby there were no profits received
by the lender is not specified under any PRC law, rule or regulation. |
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Under PRC laws, a corporation that directly lends money to another corporation may be subject to a fine of up to five times of the amount of the profits received by lender. |
|
• Prior to the Listing, all
of the intercompany loans among our subsidiaries have been terminated and replaced with entrusted loans. These entrusted loans were made available by Feishang Management, certain of our subsidiaries or Independent Third Parties as the entrusting
party, through China Minsheng Bank as the lender, to our other subsidiaries as the borrower. See "Relationship with Our Controlling Shareholders — Independence from Our Controlling Shareholders — Financial Independence".
The provision of entrusted loans is in line with the practice generally adopted by corporations in the PRC and our PRC legal advisers, Commerce & Finance Law Offices, have advised us that such entrusted loans do not contravene any PRC laws,
rules or regulations. |
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Except as disclosed under the section headed "— Regulatory Compliance" in this listing document, our PRC legal advisors
are of the view that, as of the Latest Practicable Date, we were in compliance with applicable laws, rules and regulations in all material respects and that we had obtained all necessary licenses,
approvals and permits that are material for our business operations in the PRC.
We
have implemented an internal policy which strictly prohibits over-production at our coal mines since June 2011. Under this policy, our annual extraction plans and monthly
production plans are required to
be formulated in strict accordance with the requirements imposed by the relevant regulatory authorities to ensure that the planned production output remains within the permitted production capacity as
set out in the mining right permits or otherwise authorized by the relevant government authorities from time to time. Each coal mine will be required to submit its production data to the relevant
department of the Company on a daily basis, and coal production will be suspended immediately if the actual production output exceeds the planned production output. Similarly, each coal mine will be
required to submit its cumulative production data to the senior management of the Company on a monthly basis, and coal production will be suspended if the cumulative actual production output is about
to exceed the permitted production capacity. In addition, the compliance and audit department of the Company will conduct regular spot checks in order to ensure that these measures are effectively
implemented.
EMPLOYEES
As of the Latest Practicable Date, we had a total of 333 employees based in Guizhou and Shenzhen. The following table sets forth
the number of our employees based on their function:
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Function
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Number of employees (1) |
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Administration and management |
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146 |
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Accounting |
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47 |
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Procurement and sales |
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42 |
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Production |
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98 |
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Total |
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333 |
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- (1)
- Do
not include workers provided by third party labor agencies.
As of December 31, 2010, 2011 and 2012 and June 30, 2013, we had 1,048, 1,139, 1,656 and 333 employees, respectively. In
order to reduce administration cost as well as due to the suspension of the operations of Gouchang Coal Mine, we significantly reduced the number of our employees and started using mining workers
provided by a third party labor agency since March 2013.
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As
we believe having a well-trained and motivated workforce is important to our business, we have adopted a recruitment policy that aims to attract and retain motivated and qualified
employees. Our mining employees receive training through orientation training sessions as well as on-the-job training by our more experienced technical personnel. Moreover, our coal mine managers
receive additional technical and managerial training, and we offer certain of our employees the opportunity to attend external training sessions held by colleges and governmental organizations.
Our
employees are employed under employment contracts that set forth, among other things, the employee's responsibilities, remuneration and grounds for termination of employment.
In
addition to our own employees, we entered into an arrangement with a third party labor agency in March 2013 to provide mining workers. These workers are employed by the labor
agency but are supervised directly by us. As of June 30, 2013, we had 1,412 workers provided by the third party labor agency. As advised by our PRC legal advisors, Commerce &
Finance Law Offices, the arrangement is in compliance with the applicable PRC laws and regulations in all material respects.
LEGAL PROCEEDINGS
As of the Latest Practicable Date, we were not involved in any pending or threatened litigation, arbitration or claim of material
importance, and no litigation, arbitration or claim of material importance is known to our Directors to be pending or threatened by or against us, that would have a material adverse effect on our
financial condition and results of operations or our rights to conduct exploration or mining activities.
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FINANCIAL INFORMATION
You should read the following discussion and analysis of our financial condition and results of operations in
conjunction with our consolidated financial statements as included in Appendix I — "Accountants' Report of the Company," which has been prepared in
accordance with IFRS as issued by the IASB. The following discussion and analysis contain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially
from those anticipated in these forward-looking statements due to various factors, including those set forth under the sections "Forward-Looking Statements," "Risk Factors" and elsewhere in this
listing document.
OVERVIEW
We are a producer of anthracite coal based in Guizhou province of the PRC. We are primarily engaged in the acquisition, construction
and development of anthracite coal mines and the extraction and sale of anthracite coal. Our mining assets consist of seven underground anthracite coal mines in Guizhou province, of which four have
commenced commercial production. In particular:
- •
- Baiping Coal Mine, Liujiaba Coal Mine and Zhulinzhai Coal Mine are in commercial production;
- •
- Gouchang Coal Mine has commenced commercial production, but its operations have been suspended since March 2013
under the Guizhou government's mine consolidation policy;
- •
- Yongsheng Coal Mine and Dayuan Coal Mine are in their pilot run phase; and
- •
- Dayun Coal Mine is undergoing construction.
As
of July 31, 2013, we had total proved and probable coal reserves of approximately 208.87 million tonnes, total measured, indicated and inferred resources of
approximately 407.18 million tonnes and total permitted annual production capacity of approximately 2.34 million tonnes. In 2010, 2011, 2012 and the six months ended June 30, 2012
and 2013, we had revenues of RMB38.7 million, RMB105.2 million, RMB141.9 million, RMB55.2 million and RMB54.7 million, respectively, and sold 166,362 tonnes,
314,058 tonnes, 437,010 tonnes, 148,539 tonnes and 187,432 tonnes of anthracite coal, respectively.
OUR CORPORATE TRANSACTIONS
Our Company was incorporated on January 6, 2010 as a wholly-owned subsidiary of Feishang. Prior to the Corporate Transactions,
our business was conducted by various corporate entities controlled by Feishang. On July 12, 2011, the Corporate Transactions were completed pursuant to which the corporate entities that have
historically conducted our business were transferred to us and became our Company's subsidiaries. See "History and Development". As Feishang controlled these corporate entities before our Corporate
Transactions and continued to control our Company after the Corporate Transactions, we have accounted for our Corporate Transactions as business combinations under common control using merger
accounting. All of the information in this listing document, including the consolidated financial statements included in Appendix I — "Accountants' Report
of the Company," has been prepared as if our Company had been in existence since January 1, 2010 and as
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if
we had owned each of our current subsidiaries since the date on which such subsidiary came under the control of Feishang. The assets, liabilities and results of operations of our subsidiaries were
consolidated using Feishang's historical carrying amounts, and no amount was recognized in respect of goodwill or any other additional assets or liabilities, and no adjustments were made to reflect
fair values as a result of the Corporate Transactions with the exception of the acquisition of Guizhou Puxin. The financial information and financial statements included in this listing document may
not reflect what our historical financial condition and results of operations would have been if we had actually operated on a stand-alone basis since January 1, 2010, and they are not
necessarily indicative of our future financial condition and results of operations.
LIMITED OPERATING AND PRODUCTION HISTORY
We have seven underground anthracite coal mines in Guizhou province, of which four have commenced commercial production, two are
undergoing their pilot run phase and one is under construction. Baiping Coal Mine, Gouchang Coal Mine (currently suspended), Zhulinzhai Coal Mine and Liujiaba Coal Mine commenced commercial production
in June 2009, April 2011, April 2012 and December 2012, respectively. We have a limited operating and production history for you to use as a basis for evaluating our
business. We did not have any commercial production of coal until the acquisition of Guizhou Puxin in March 2010. You should consider our prospects in light of the risks,
expenses and difficulties frequently encountered by companies in an early stage of development, particularly companies in a highly regulated and cyclical industry such as the PRC coal industry.
In
each of 2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, we incurred operating losses and had negative net cash flows from operating activities. We also
incurred net losses in each of 2011, 2012 and the six months ended June 30, 2012 and 2013 and, disregarding the effects of a RMB624.1 million non-recurring bargain purchase gain relating
to the acquisition of Guizhou Puxin in 2010, we would have also incurred a net loss in 2010. We may continue to incur losses and have negative net cash flows from operating activities in
the future.
FACTORS AFFECTING OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Production Output
Our future operating results will be dependent on our ability to increase our production output. We believe the increased production
output would allow us to increase our revenue, as well as create economies of scale that could reduce our average production costs per tonne and increase our profitability. Our annual production
output grew from 159,074 tonnes in 2010 to 436,153 tonnes in 2012. We plan on increasing our production by achieving commercial production at Yongsheng Coal Mine, Dayun Coal Mine and
Dayuan Coal Mine and, in the long term, increasing our production capacity at Baiping Coal Mine, Liujiaba Coal Mine and Zhulinzhai Coal Mine. Our ability to successfully expand our production output,
however, is subject to a number of significant risks and uncertainties, including, among other things, constraints on production capacity, changing government regulations and our relationship with the
local community. See "Risk Factors — Risks Relating to Our Business — If we are unable to successfully expand our coal
production capacity, our business and prospects would be materially and adversely affected".
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Our
production output is subject to seasonality. Typically, our production output in the first quarter of each year is generally lower than our production output in other quarters, as
our coal mining operations are typically suspended for approximately three to five weeks during the lunar new year holidays. In addition, our production output in the third and fourth quarters of each
year is generally higher than our production output in other quarters, mainly as a result of higher demand and more favorable weather conditions for coal extraction.
Industry Supply and Demand of Anthracite Coal
The supply and demand of anthracite coal in Guizhou have a significant impact on the sales volume and average selling price of our
anthracite coal. Although we expect the demand for anthracite coal in the PRC to generally increase in the long-term, the Guizhou anthracite coal market is highly cyclical and demand and pricing
trends in Guizhou may differ significantly from the demand and pricing trends elsewhere in the PRC. For example, although anthracite coal prices in Guizhou in 2012 were higher than 2011, there were
significant fluctuations in coal prices within the PRC in 2012. In particular, anthracite coal prices in Guizhou declined significantly in the second quarter of 2012 and again in the first half of
2013 as a result of a slowdown of economic growth in the PRC as well as an increase in production capacity in Shanxi province. In 2010, 2011, 2012 and the six months ended June 30, 2012 and
2013, the average selling price of the anthracite coal we produced was RMB232.4, RMB296.4, RMB323.6, RMB360.3 and RMB291.9 per tonne, respectively. In general, the Guizhou anthracite coal
markets are affected by many factors beyond our control, including:
- •
- general economic conditions in Guizhou as well as the PRC;
- •
- regional supply and demand for anthracite coal;
- •
- competition from other energy sources or alternatives to anthracite coal;
- •
- abnormal weather conditions;
- •
- speculative coal trading;
- •
- the respective economic, energy, environmental, health and safety and other policies of the Guizhou and PRC
governments; and
- •
- fluctuations in the development and growth of industries with high demand for anthracite coal, including the power,
chemical, iron and steel, and building materials industries.
Product Mix
Anthracite coal is typically sold as thermal coal, chemical coal or PCI coal. Generally, thermal coal has lower average selling prices
and lower margins than chemical coal and PCI coal. According to China Coal Resource, the average selling price of thermal coal in Guizhou in 2012 was RMB323.0
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per
tonne, compared to RMB486.0 to RMB1,007.0 per tonne for chemical coal (depending on the type and characteristic of coal) and RMB952.0 per tonne for PCI coal. Accordingly, our ability
to produce, market and sell our anthracite coal as chemical coal or PCI coal will have a significant impact on our revenue and profitability.
Prior
to 2011, we derived substantially all of our revenue from the sale of thermal coal. In 2011, 2012 and the six months ended June 30, 2012 and 2013, we derived approximately
5%, 5%, nil and 1.2% of our revenue from the sale of chemical coal we produced. Subject to market conditions and the Guizhou government's annual guidance on supply of thermal coal to power plants, we
intend to significantly increase our sales of chemical coal in the future and begin selling PCI coal in 2014. Our
ability to sell chemical or PCI coal has been constrained as our annual production levels were determined based in large part on the Guizhou government's annual guidance relating to the provision of
certain minimum amounts of thermal coal to power plants operating in Guizhou, which has taken up a significant portion of our production capacity. See
"Regulation — PRC Laws relating to the Coal Industry — Supply of thermal coal to power plants". We believe that by
increasing our production capacity, we will be able to sell a larger percentage of our anthracite coal as chemical or PCI coal. However, our ability to effectively produce and sell chemical coal and
PCI coal is subject to a number of risks and uncertainties. See "Risk Factors — Risks Relating to Our Business — We may not
be able to successfully produce, market and sell chemical and PCI coal, which could materially and adversely affect our business and prospects". To date, we only have entered into four non-binding
cooperation arrangements relating to the sale of chemical coal, and we have not entered into any binding agreement for the sale of chemical coal or PCI coal.
Financing Arrangements
Coal mining is a capital intensive business, and we will need a substantial amount of cash to meet our working capital requirements and
expand our production capacity. As we have not generated any net cash flows from our operating activities, we have relied on, and will continue to rely on, short-term and long-term borrowings to
finance our operations and capital expenditures. Our finance costs for bank borrowings and mining right payables (including capitalized interest) increased from RMB21.8 million in 2010 to
RMB60.9 million in 2011 and RMB89.4 million in 2012, and increased from RMB41.4 million for the six months ended June 30, 2012 to RMB56.2 million in the same period
in 2013, and we expect our finance costs to continue to increase in the future. In the past, we have financed a significant portion of our cash requirements with non-interest bearing loans from
companies controlled by Mr. Li Feilie, our chairman and chief executive officer. If these loans had been interest-bearing, our finance costs would have been significantly higher. In
March 2013, we repaid a significant portion of the non-interest bearing loans from companies controlled by Mr. Li Feilie with interest-bearing bank and other borrowings, and we do not
anticipate receiving additional non-interest bearing loans from our related parties in the future. In July 2013, we obtained a legally binding commitment letter from China Minsheng Bank to
provide a term loan with an aggregate principal amount of up to RMB1.6 billion that may be drawn down on or before January 29, 2015, subject to certain conditions. In addition, in
October 2013, we obtained a legally binding commitment letter from China Merchant Bank to provide a term loan with an aggregate principal amount of up to RMB350 million that may be drawn
down on or before March 10, 2015, subject to certain conditions. See "— Liquidity and Capital Reserves". As of the Latest Practicable Date, the total outstanding amount
of our non-interest bearing loans was RMB131.0 million.
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Regulatory Environment
Coal mining is a highly regulated industry in the PRC, and the regulatory regime applicable to our operations is rapidly evolving. In
particular, in response to a number of highly-publicized mining-related accidents and fatalities, the PRC regulatory authorities have recently taken a number of measures to improve mine safety, some
of which have significantly affected our business and operations. For example, Gouchang Coal Mine was required to suspend its operations from March 2012 to August 2012 under certain
newly implemented mine gas control requirements in Guizhou. Moreover, in 2012, the Guizhou government required certain coal mines utilizing drilling and blasting mining methods to upgrade to
semi-mechanical longwall mining methods, which required us to incur significant time and expense to redesign and upgrade Liujiaba Coal Mine. In addition to mine safety measures, regulatory authorities
in the PRC may also impose various taxes, duties, levies or take other actions as part of the PRC's overall economic, environmental or energy policies. For example, the Guizhou government levies a
coal price adjustment fund levy on the coal sold by local coal producers and the rate of the coal price adjustment fund levy is subject to changes from time to time based on prevailing government
policies. Furthermore, under the coal mine consolidation policy promulgated by the Guizhou government in March 2013, operations at Gouchang Coal Mine have been suspended since March 2013
pending the acquisition by us of a nearby coal mine and Gouchang Coal Mine achieving certain production capacity requirements in accordance with Guizhou province's coal mining consolidation policy.
These regulatory developments have significantly affected our pricing, production capacity, production costs and capacity expansion schedule, and we expect that our business, financial condition and
results of operations will continue to be significantly affected by future regulatory developments.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our significant accounting policies are set forth in note 2.4 to our consolidated financial statements included in
Appendix I — "Accountants' Report of the Company". The preparation of our consolidated financial statements requires our management to make judgments,
estimates and assumptions that affect the amount reported in our consolidated financial statements. These judgments, estimates and assumptions are based on historical experience and other factors,
including expectations of future events that are believed to be reasonable under the circumstances, and actual results could differ significantly. We have identified the following accounting policies
as critical to an understanding of our financial condition and results of operations, because the application of these policies requires significant management judgments, estimates and assumptions,
and the reporting of materially different amounts could result if different judgments were made or different estimates or assumptions were used.
Impairment of Property, Plant and Equipment
Long-lived assets, such as property, plant and equipment, are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amounts may not be recoverable. An impairment loss for a long-lived asset is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of the asset's fair value less costs to sell the asset and the asset's value in use. When our management estimates the recoverable amount of an asset, various
assumptions are made, including the future cash flows
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expected
to be associated with the asset and the applicable discount rate. If future events do not correspond to these assumptions, the recoverable amounts may need to be revised, which may lead to
impairment losses and adversely affect our financial condition and results of operations. In the six months ended June 30, 2013, we recognized impairment losses on property, plant and equipment
of RMB184.4 million in connection with the suspension of Gouchang Coal Mine since March 2013.
Units-of-Production Depreciation for Mining-Related Assets
Mining-related assets, including mining rights and mining-related buildings, mining structures and mining-related machinery and
equipment, are depreciated or amortized using the units-of-production method based on the actual units of coal production over the estimated coal reserves of our mines. As a result, changes in our
coal reserve estimates could significantly affect our financial condition and results of operations. In particular, a reduction in our estimated coal reserves would increase depreciation and
amortization expenses per unit of coal production and reduce our gross margins as well as increase our losses. See the section entitled "— Critical Accounting Policies and
Estimates — Reserve Estimates".
Useful Lives of Non-Mining Related Property, Plant and Equipment
Non-mining related property, plant and equipment are depreciated over their estimated useful lives using the straight-line method. The
useful life of an asset is the period over which the asset is expected to be available for use, and our management estimates the useful lives of our non-mining related property, plant and equipment
based on a collective assessment of technology and industry conditions as well as historical experience with similar assets. The estimated useful lives of non-mining related property, plant and
equipment are reviewed periodically and updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence or legal or other limits on the use
of such assets. Changes in such estimates could significantly affect our financial condition and results of operations. In particular, a reduction in the estimated useful lives of non-mining related
property, plant and equipment would increase depreciation expenses and reduce operating income, as well as result in write-off or write-down of obsolete assets in certain cases. The estimated useful
lives of our non-mining related property, plant and equipment are as follows:
|
|
|
|
|
Estimated Useful Lives |
Non-mining related buildings |
|
15-35 years |
Non-mining related machinery and equipment |
|
5-15 years |
Motor vehicles |
|
5-8 years |
Reserve Estimates
Proved and probable coal reserve estimates are estimates of the amount of coal that can be economically and legally extracted from our
mines. In estimating our coal reserves, our management reviews recent production and technical information of each mine, considers the potential for unforeseen geological and technical difficulties,
and makes various assumptions and estimates relating
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to
the price of coal, production costs, transportation costs of coal and expected recovery rates. Our management reviews our coal reserve estimates annually or when information becomes available that
indicates our coal reserve estimates would need to be revised. For example, during the course of our operations, additional geological or other information may become available that would require our
management to update certain assumptions it used in estimating our coal reserves. Changes to coal reserve estimates could significantly affect our financial condition and results of operations. In
particular, a change in our estimated coal reserves could have the following effects:
- •
- reduce the carrying values of certain of our assets, including mining rights, due to changes in the estimated future cash
flows associated with such assets;
- •
- increase depreciation or amortization expenses relating to assets that are depreciated or amortized using the
units-of-production method based on our estimated coal reserves;
- •
- asset retirement obligations and related accretion expenses may be affected if estimates of the expected timing and cost
of our asset retirement expenditures are affected by changes in our estimates of coal reserves; and
- •
- reduce the carrying value of deferred tax assets due to changes in the estimated likelihood of recovery of the
tax benefits.
Impairment of Trade and Other Receivables
We recognize a provision for impairment of our trade and other receivables when there is objective evidence that we will not be able to
collect all of the amounts due under the terms of our invoice, including the probability of insolvency or significant financial difficulties of the customer, as well as significant changes in the
technological, economic or legal environment that may have an adverse effect on the customer. Our management takes into account our historical write-off experience, the age of the receivable, the
credit history of the customer and current market conditions when making a provision, and our management will reassess our provisions at the end of each reporting period. If the customer's financial
condition deteriorates or if its repayment ability is lower than we had anticipated, our impairment losses may increase, and our financial condition and results of operations, as well as liquidity,
would be materially and adversely affected. Historically, we have not experienced any impairment losses from our trade and other receivables. During the Track Record Period, we have not made any
provisions for impairment of trade and other receivables.
Income Taxes
There are certain transactions for which the ultimate tax determination is uncertain during the ordinary course of business. We
recognize tax liabilities based on estimates of whether additional taxes will be due. If the final tax outcome of certain transactions is different from the amounts that were initially recognized, the
difference will impact the income tax and deferred tax provisions in the period in which the determination was made.
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Deferred
tax is provided, using the liability method, based on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in our
consolidated financial statements. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted and which are expected to apply when the related deferred
income tax asset is realized or the deferred income tax liability is settled. In addition, deferred tax assets are recognized only to the extent it is probable that we would have sufficient future
taxable income against which any deductible temporary differences, unused tax credits or unused tax losses could be utilized. If the actual or expected tax rates and laws in the future are different
from our original estimates, or if our actual or expected future taxable income is lower than we had estimated, the carrying amount of deferred tax assets and liabilities would be affected in the
period in which such estimates have changed.
Provision for Asset Retirement Obligations
Asset retirement obligations are the present value of the expenditures that we expect to incur in relation to the closure of our mines
following the exhaustion of their coal reserves, including dismantling mining structures and restoring the land.
Provisions
for asset retirement obligations are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, and it is probable that an
outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Our
assessment of potential liabilities and estimate of necessary reserves for rehabilitation are based on: (i) our assessment of the applicable environmental laws, policies
and/or standards promulgated by the PRC governmental authorities; and (ii) our calculations of the amount and timing of future cash expenditures needed to fulfil our assessed obligations.
Expenditure estimates are adjusted for inflation and market risk premium, and then discounted at a rate that reflects the current market assessments of the time value of money and the risks specific
to the liability such that the amount of provision reflects the present value of the expenditures expected to be required to fulfil the obligation. We recognize asset retirement obligations according
to IAS 37, and record a corresponding asset in the period in which the liability is incurred. The asset is depreciated using the units-of-production method by the actual unit of production over
the estimated proved and probable reserves of the coal mines. After the initial recognition of an asset retirement obligation, it is accreted to reflect the increase in the present value of our
expected expenditures due to the passage of time, and a corresponding accretion expense will be recognized as financial cost.
Asset
retirement obligations are determined based on our management's past experience, its estimates of the timing and amount of the future expenditures, its expectations of future
regulatory requirements, as well as various assumptions regarding the applicable discount rate to be used for purposes of calculating the present value. Our management regularly reviews our asset
retirement obligations, which will be revised if any of our management's estimates, expectations or assumptions change. Changes of these estimates, expectations and assumptions could result in an
adjustment of the carrying value of the asset retirement obligations as well as changes to the related accretion expenses.
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While
we believe that our asset retirement provisions are adequate, the amounts estimated for future liabilities may differ materially from the costs that will actually be incurred to
rehabilitate our mine sites in the future. In particular, changes in environmental laws and regulations may increase the costs of environmental rehabilitation.
Our
provision for asset retirement obligation was RMB5.5 million, RMB6.0 million, RMB7.1 million and RMB7.9 million as at December 31, 2010, 2011 and
2012 and June 30, 2013, respectively. Based on the proved and probable reserves of the coal mines as of June 30, 2013, the provision for asset retirement obligation per tonne of coal
reserve was approximately RMB0.04.
DESCRIPTION OF THE KEY COMPONENTS OF OUR RESULTS OF OPERATIONS
Revenue
We generate our revenue primarily from the production and sale of anthracite coal. In 2011 and 2012, we also generated a portion of our
revenue from sales of anthracite coal purchased from third parties, as we engaged in coal trading activities to take advantage of coal price fluctuations during the ramp-up of our production capacity.
In 2011 and 2012, revenue from sales of third party anthracite coal was RMB33.1 million and RMB1.1 million, respectively, representing 31.5% and 0.8%, respectively, of our revenue in
those years. We do not expect to generate any significant revenue from sales of third party coal in the future.
We
sell a significant portion of our anthracite coal as thermal coal to power producers in Guizhou province. As a result, we are dependent on a limited number of customers for a
substantial portion of our revenue. In 2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, we derived 66.6%, 73.5%, 56.7%, 73.7% and 72.8%, respectively, of our revenue from
anthracite coal sales to our five largest customers. We believe that by diversifying our product mix to include increased sales of chemical coal and sales of PCI coal, our dependency on a limited
number of large customers will decrease.
We
recognize revenue from the sale of anthracite coal when the significant risks and rewards of ownership have passed to the customer and when collectability is reasonably assured. The
point at which the significant risks and rewards of ownership is deemed to have passed to the customer is determined based on the terms of the sale. Typically, we recognize revenue upon delivery to
and acceptance of our anthracite coal by our customers. Unless we receive payment in full at the time revenue is recognized for the sale, we would record the receivable in respect of the sale as a
trade receivable. We offer a credit term of up to three months to customers. Our trade receivables are non-interest bearing, and we do not hold any collateral over our trade receivables. For customers
with whom we have no prior trading history, we generally require immediate cash payment or advance payment.
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Most
of our customers request us to arrange for transportation of the anthracite coal they purchase from us. We generally charge our customers separately for the cost of transportation
and record as revenue any excess of the amount we collect over the cost of arranging the transportation. In some circumstances, the amount we charge our customers for the cost of transportation may be
less than our cost of arranging the transportation, in which case we would deduct the amount of the deficiency against the revenue recognized for the corresponding sale.
We
recognize revenue net of value-added taxes. All of the anthracite coal we sell is subject to a value-added tax of 17.0% in the PRC. Pursuant to applicable PRC regulations, we add
value-added taxes to the invoiced price of our sales, and we remit the value-added taxes we collect from our customers to the PRC tax authorities, subject to applicable deductions. The difference
between the amount of value-added taxes we collect and the amount of value-added taxes we pay is recorded in our consolidated statements of financial position as prepayments, deposits and other
receivables, or other payables and accrued liabilities, as applicable.
We
are also required by the Guizhou government to pay a coal price adjustment fund levy on the anthracite coal we sell. The invoiced price of our anthracite coal sales may be inclusive
or exclusive of this levy, depending on negotiations with the customer on a case-by-case basis. Any coal price adjustment fund levy we recover from our customers will be included in our revenue, and
any coal price adjustment fund levy we are required to pay to the Guizhou government will be included in our cost of sales.
Cost of Sales
In 2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, cost of sales was RMB25.5 million,
RMB74.3 million, RMB95.9 million, RMB30.4 million and RMB40.0 million, respectively. Our cost of sales consists primarily the cost of sales of our self-produced coal,
which include:
- •
- direct labor costs for personnel involved in our coal mining operations;
- •
- mining-related taxes, fees and levies, including the coal price adjustment fund levy;
- •
- depreciation and amortization expenses of mining-related assets, including the amortization expenses of our
mining rights;
- •
- cost of materials, including explosives, mine roof support materials, steel, cement and diesel fuel; and
- •
- other miscellaneous cost of sales, including the cost of utilities, repair and maintenance expenses and overhead.
In
2011 and 2012, our cost of sales also included the cost of purchasing third party coal in connection with our coal trading activities. In 2011 and 2012, cost of purchasing third party
coal was RMB30.2 million and RMB1.1 million, respectively, representing approximately 40.7% and 1.2%, respectively, of our total cost of sales. We did not sell any third party coal
after 2012.
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Table of Contents
We believe our product mix will be one of the most important factors in determining our cost of sales as a percentage of our revenue. In particular, chemical coal
and PCI coal, which generally command significantly higher average selling prices than thermal coal, do not cost significantly more to produce than thermal coal. We currently sell most of our
anthracite coal as thermal coal, and we cannot assure you that we will be able to successfully produce and sell chemical coal or PCI coal. See "Risk
Factors — Risks Relating to Our Business — We may not be able to successfully produce, market and sell chemical and PCI
coal, which could materially and adversely affect our business and prospects".
Selling and Distribution Expenses
Our selling and distribution expenses primarily consist of salaries and benefits for our sales staff, travel expenses and other
miscellaneous selling expenses. In 2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, selling and distribution expenses were RMB2.9 million, RMB2.9 million,
RMB3.7 million, RMB1.4 million and RMB2.7 million, respectively, representing 7.5%, 2.8%, 2.6%, 2.6% and 5.0%, respectively, of our revenue. As we intend to increase our marketing
and sales of chemical coal, we expect our selling and distribution expenses to increase in future periods.
Administrative Expenses
The following table sets forth a breakdown of our administrative expenses of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
(RMB in thousands)
|
|
Wages and labor |
|
|
34,771 |
|
|
22,499 |
|
|
33,342 |
|
|
15,045 |
|
|
18,068 |
|
Public relation |
|
|
5,055 |
|
|
8,504 |
|
|
12,034 |
|
|
5,120 |
|
|
6,671 |
|
Office expenses |
|
|
4,308 |
|
|
5,720 |
|
|
6,843 |
|
|
3,537 |
|
|
3,285 |
|
Depreciation and amortisation |
|
|
715 |
|
|
1,895 |
|
|
2,820 |
|
|
1,604 |
|
|
1,611 |
|
Taxes |
|
|
3,988 |
|
|
2,678 |
|
|
4,336 |
|
|
1,544 |
|
|
2,766 |
|
Maintenance |
|
|
1,427 |
|
|
2,501 |
|
|
3,325 |
|
|
1,285 |
|
|
2,014 |
|
Professional service fee |
|
|
1,418 |
|
|
759 |
|
|
9,544 |
|
|
1,841 |
|
|
15,387 |
|
Loss on suspension of production |
|
|
— |
|
|
— |
|
|
3,278 |
|
|
2,948 |
|
|
6,476 |
|
Others |
|
|
4,140 |
|
|
4,876 |
|
|
1,812 |
|
|
1,051 |
|
|
1,145 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
55,822 |
|
|
49,432 |
|
|
77,334 |
|
|
33,975 |
|
|
57,423 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
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Our
administrative expenses consist mainly of salaries and benefits for our management and administrative personnel, depreciation and amortization expenses for our non-mining related
assets, losses resulting from suspensions of mining operations, professional advisor fees, travel and entertainment expenses, miscellaneous office expenses and utilities. In 2010, our administrative
expenses also included share-based compensation expenses of RMB17.0 million relating to share options granted to Mr. Li Feilie by CHNR to purchase 1,000,000 shares of CHNR. The
options were granted in January 2008 and the related share-based compensation expenses were amortized over three years from 2008 to 2010. We did not have any share-based compensation expenses
in 2011 or 2012. See note 28 to our consolidated financial statements included in Appendix I — "Accountants' Report of the Company".
In
2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, our administrative expenses were RMB55.8 million, RMB49.4 million, RMB77.3 million,
RMB34.0 million and RMB57.4 million, respectively, representing 144.4%, 47.0%, 54.5%, 61.6% and 104.9%, respectively, of our revenue. We expect our administrative expenses to increase in
the future as our business and production capacity expands. Moreover, after the completion of our Listing, we will become a stand-alone independent public company and will incur significantly higher
levels of legal, accounting, compliance and other administrative expenses than we did as a wholly-owned subsidiary of CHNR. Also, as we intend to adopt the Share Option Scheme after the completion of
the Listing to incentivize our management and employees, we expect our share-based compensation expenses to increase significantly in the future.
Impairment Loss on Property, Plant and Equipment
We incurred impairment loss on property, plant and equipment of RMB184.4 million in the six months ended June 30, 2013 in
connection with the suspension of Gouchang Coal Mine since March 2013. After considering the circumstances relating to the suspension of Gouchang Coal Mine, our management determined that
RMB184.4 million of the carrying amount of Gouchang Coal Mine's total carrying value of RMB255.9 million may not be recoverable. Our management determined the recoverable value of
Gouchang Coal Mine primarily based on the mine's fair value less cost of disposal using pre-tax cash flow projections, adopting certain key assumptions based on the mine's past performance and the
management's expectations on market developments, applying a discount rate of 15.05%, and assuming that the Gouchang Coal Mine could resume operations by the end of 2015. See
"— Critical Accounting Policies And Estimates — Impairment of Property, Plant and Equipment". We may recognize additional impairment
losses with respect to Gouchang Coal Mine in the future.
Other Operating Expenses
Our other operating expenses primarily consist of mine pre-development expenses, administrative penalties and fines, relocation
compensation paid to local residents, as well as other miscellaneous levies and charges. In 2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, our other operating expenses were
RMB9.0 million, RMB1.5 million, RMB1.6 million, RMB0.6 million and 1.9 million, respectively, representing 23.3%, 1.5%, 1.1%, 1.2% and 3.4%, respectively, of
our revenue.
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Table of Contents
Finance Costs
The following table sets forth a breakdown of our finance costs for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
(RMB in thousands)
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
Interest on interest-bearing bank and other borrowings |
|
|
15,987 |
|
|
48,980 |
|
|
83,490 |
|
|
38,208 |
|
|
52,934 |
|
Interest on payable for mining rights |
|
|
5,845 |
|
|
11,908 |
|
|
5,892 |
|
|
3,231 |
|
|
3,235 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
21,832 |
|
|
60,888 |
|
|
89,382 |
|
|
41,439 |
|
|
56,169 |
|
Less: capitalized interest |
|
|
(16,224 |
) |
|
(30,065 |
) |
|
(45,609 |
) |
|
(21,155 |
) |
|
(20,446 |
) |
Bank charges |
|
|
90 |
|
|
475 |
|
|
123 |
|
|
72 |
|
|
46 |
|
Entrusted loan commission fee |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
7,612 |
|
Accretion expenses |
|
|
309 |
|
|
543 |
|
|
637 |
|
|
299 |
|
|
350 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,007 |
|
|
31,841 |
|
|
44,533 |
|
|
20,655 |
|
|
43,731 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Interest
on interest-bearing loans is the largest component of our finance costs. Our interest-bearing bank and other borrowings consist of short-term and long-term bank and other
borrowings. As of December 31, 2010, 2011 and 2012 and June 30, 2013, we had total outstanding interest-bearing loans of RMB418.7 million, RMB735.9 million,
RMB1,013.5 million and 1,759.3 million, respectively, with effective interest rates ranging from 5.94% to 8.32%, 6.22% to 9.84%, 5.94% to 9.47% and 6.40% to 9.00%, respectively. We
expect our interest on interest-bearing bank and other borrowings to increase significantly in future periods, as we intend to increase our short-term and long-term borrowings to fund our operations
and capital expenditures. In March and May 2013, we entered into a RMB400.0 million one-year bank loan (bearing a floating annual interest rate of 20% above the one-year base lending
rate published by the PBOC) with China Minsheng Bank and a RMB300.0 million 8.00% two-year entrustment loan with Huachuang Securities, respectively, to refinance certain of our non-interest
bearing loans from companies controlled by Mr. Li Feilie.
Interest
on payable for mining rights relates to our interest expense under our installment payment plans with the Guizhou Provincial Department of Land and Resources in respect of our
mining right
permits. The interest rate applicable to these installment payment plans is determined annually based on the PBOC's official benchmark interest rates.
Capitalized
interest relates to borrowing costs that directly relate to the acquisition or construction of coal mines that have not commenced commercial production. These borrowing costs
are capitalized as part of the cost of the coal mine and not expensed in the period they are incurred. Once commercial production has commenced, however, these borrowing costs may no longer be
capitalized and must be expensed in the period incurred. As a result, if we achieve commercial production at additional coal mines in the future, our finance costs may increase.
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Bank
charges include miscellaneous fees and charges in connection with our long-term and short-term bank borrowings. As we replaced certain of our intra-company loans with entrustment
loans since March 2013, we expect our bank charges to increase in future periods.
Entrusted
loan commission fees includes miscellaneous fees and charges in connection with entrusted loans.
Accretion
expenses reflect the increase in the present value of our asset retirement obligations due to the passage of time. Accretion expenses are expected to generally increase over
time and may be affected by changes in estimates and assumptions regarding the applicable discount rates as well as changes to our estimated asset retirement obligations. See
"— Critical Accounting Policies — Asset Retirement Obligations".
Gain on Bargain Purchase of a Subsidiary
In March 2010, we acquired Guizhou Puxin for a cash consideration of RMB150.0 million, which was less than the fair value
of its net assets of RMB774.1 million at the time of the acquisition. As a result, we recognized a one-time gain on bargain purchase of RMB624.1 million in connection with the
transaction. This gain is non-recurring and non-cash and should not be viewed as indicative of our future earnings. See "History and Development".
Net non-operating expense
Net non-operating expense primarily consists of losses on disposal of non-current assets and certain required sponsorships and
contributions to the community and certain government organizations. In 2010, 2011, 2012 and the six months ended June 30, 2012, our net non-operating expense was RMB1.6 million,
RMB0.9 million, RMB2.2 million and RMB1.8 million, respectively. In the six months ended June 30, 2013, our net non-operating income was RMB1.2 million.
Taxation
Our Company is not subject to any income or capital gains tax under the current laws of the British Virgin Islands. There are currently
no dividend withholding taxes in the British Virgin Islands.
We have one subsidiary, Smartact, incorporated in Hong Kong. Under current Hong Kong laws, companies incorporated in Hong Kong are
subject to profits tax at a rate of 16.5%. We have not made any provision for Hong Kong profits tax as we did not have any assessable profits arising in Hong Kong in 2010, 2011, 2012 or the six months
ended June 30, 2013, and Smartact is exempt from foreign-derived income. There are currently no dividend withholding taxes in Hong Kong.
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On March 16, 2007, the PRC National People's Congress adopted the PRC Enterprise Income Tax Law, which became effective on
January 1, 2008. Under the PRC Enterprise Income Tax Law, our PRC subsidiaries are subject to annual enterprise income tax at a rate equal to 25% of their taxable income. Under the PRC
Enterprise Income Tax Law, all dividends paid by our PRC subsidiaries to Smartact are subject to a 5% or 10% withholding tax depending on the availability of the relevant tax treaty. No such dividends
were paid in 2010, 2011 or 2012.
Prior
to 2012, certain of our PRC subsidiaries, including Dayuan Coal, Gouchang Coal, Baiping Mining, Xinsong Coal and Linjiaao Coal were required by the Guizhou local taxation bureau to
pay enterprise income tax at a rate of 25% of their "deemed profits" rather than 25% of their taxable income as determined under the PRC Enterprise Income Tax Law. The "deemed profits" of these
subsidiaries, which were determined based on the actual revenue of these subsidiaries less certain "deemed expenses" as determined by the Guizhou local taxation bureau, were significantly higher than
their taxable income. As a result, in periods prior to 2012, these PRC subsidiaries paid a higher amount of enterprise income tax than what the PRC Enterprise Income Tax law would have otherwise
required. In 2012, the Guizhou local taxation bureau confirmed in writing that these PRC subsidiaries should have only been subject to income tax at a rate of 25% of their taxable income as determined
under the PRC Enterprise Income Tax Law since January 2011. As a result, we recognized deferred tax assets for prior year tax losses in the amount of RMB15.3 million in 2012. According
to the Guizhou local taxation bureaus, it had been the general practice to require enterprises to pay enterprise income tax based on "deemed profits". See note 12 to our consolidated
financial statements included in Appendix I — "Accountants' Report of the Company".
RESULTS OF OPERATIONS
You should read the summary historical consolidated financial statements set forth below in conjunction with our consolidated financial
statements included in the Appendix I — "Accountants' Report of the Company," together with the accompanying notes, which have been prepared in accordance
with IFRS as issued by the IASB. The summary historical consolidated income statements for the years ended December 31, 2010, 2011 and 2012 and the six months ended June 30, 2012 and
2013 and the selected consolidated statements of financial position as of December 31, 2010, 2011 and 2012 and June 30, 2013 set forth below are derived from our
consolidated financial statements, including the notes thereto, set forth in Appendix I — "Accountants' Report of the Company".
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Consolidated Income Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
(RMB in thousands, except per share data)
|
|
Revenue |
|
|
38,668 |
|
|
105,211 |
|
|
141,939 |
|
|
55,156 |
|
|
54,716 |
|
Cost of sales |
|
|
(25,453 |
) |
|
(74,289 |
) |
|
(95,889 |
) |
|
(30,396 |
) |
|
(39,953 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
13,215 |
|
|
30,922 |
|
|
46,050 |
|
|
24,760 |
|
|
14,763 |
|
Selling and distribution expenses |
|
|
(2,918 |
) |
|
(2,930 |
) |
|
(3,694 |
) |
|
(1,412 |
) |
|
(2,728 |
) |
Administrative expense |
|
|
(55,822 |
) |
|
(49,432 |
) |
|
(77,334 |
) |
|
(33,975 |
) |
|
(57,423 |
) |
Impairment loss on property, plant and equipment |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(184,417 |
) |
Other operating expenses |
|
|
(9,020 |
) |
|
(1,545 |
) |
|
(1,624 |
) |
|
(643 |
) |
|
(1,880 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Operating Loss |
|
|
(54,545 |
) |
|
(22,985 |
) |
|
(36,602 |
) |
|
(11,270 |
) |
|
(231,685 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Finance costs |
|
|
(6,007 |
) |
|
(31,841 |
) |
|
(44,533 |
) |
|
(20,655 |
) |
|
(43,731 |
) |
Interest income |
|
|
115 |
|
|
564 |
|
|
1,048 |
|
|
814 |
|
|
977 |
|
Gain on bargain purchase of a subsidiary |
|
|
624,148 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Non-operating income / (expenses), net |
|
|
(1,577 |
) |
|
(888 |
) |
|
(2,179 |
) |
|
(1,810 |
) |
|
1,215 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Profit / (Loss) before Income Tax |
|
|
562,134 |
|
|
(55,150 |
) |
|
(82,266 |
) |
|
(32,921 |
) |
|
(273,224 |
) |
Income tax (expense) / benefit |
|
|
(6,141 |
) |
|
(9,750 |
) |
|
15,210 |
|
|
(5,784 |
) |
|
50,468 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Profit / (Loss) for the Year / Period |
|
|
555,993 |
|
|
(64,900 |
) |
|
(67,056 |
) |
|
(38,705 |
) |
|
(222,756 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Attributable to: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Owner of the Company |
|
|
562,432 |
|
|
(64,165 |
) |
|
(75,312 |
) |
|
(40,861 |
) |
|
(221,947 |
) |
Non-controlling interests |
|
|
(6,439 |
) |
|
(735 |
) |
|
8,256 |
|
|
2,156 |
|
|
(809 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
555,993 |
|
|
(64,900 |
) |
|
(67,056 |
) |
|
(38,705 |
) |
|
(222,756 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Earnings / (Losses) per Share attributable to Owner of the Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
562,432 |
|
|
(64,165 |
) |
|
(75,312 |
) |
|
(40,861 |
) |
|
(221,947 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
562,432 |
|
|
(64,165 |
) |
|
(75,312 |
) |
|
(40,861 |
) |
|
(221,947 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
152
Table of Contents
Consolidated Statements of Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
(RMB in thousands)
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment |
|
|
1,789,275 |
|
|
2,030,611 |
|
|
2,327,641 |
|
|
2,287,056 |
|
Rehabilitation fund |
|
|
19,507 |
|
|
23,018 |
|
|
29,894 |
|
|
41,783 |
|
Prepayments, deposits and other receivables |
|
|
15,510 |
|
|
71,846 |
|
|
115,821 |
|
|
117,039 |
|
Deferred tax assets |
|
|
— |
|
|
— |
|
|
3,752 |
|
|
5,365 |
|
| |
|
|
|
|
|
|
|
|
|
Total Non-Current Assets |
|
|
1,824,292 |
|
|
2,125,475 |
|
|
2,477,108 |
|
|
2,451,243 |
|
| |
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventories |
|
|
5,324 |
|
|
5,328 |
|
|
11,266 |
|
|
15,080 |
|
Trade and bills receivables |
|
|
5,577 |
|
|
30,356 |
|
|
48,967 |
|
|
46,298 |
|
Corporate income tax refundable |
|
|
— |
|
|
— |
|
|
3,901 |
|
|
6,436 |
|
Prepayments, deposits and other receivables |
|
|
19,839 |
|
|
28,759 |
|
|
33,554 |
|
|
37,226 |
|
Restricted bank deposits |
|
|
— |
|
|
21,000 |
|
|
7,082 |
|
|
— |
|
Term deposits with an original maturity over three months |
|
|
— |
|
|
20,000 |
|
|
20,000 |
|
|
— |
|
Cash and cash equivalents |
|
|
76,482 |
|
|
73,642 |
|
|
160,984 |
|
|
140,812 |
|
| |
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
107,222 |
|
|
179,085 |
|
|
285,754 |
|
|
245,852 |
|
| |
|
|
|
|
|
|
|
|
|
Total Assets |
|
|
1,931,514 |
|
|
2,304,560 |
|
|
2,762,862 |
|
|
2,697,095 |
|
| |
|
|
|
|
|
|
|
|
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and bills payables |
|
|
80,017 |
|
|
69,402 |
|
|
103,798 |
|
|
97,737 |
|
Other payables and accrued liabilities |
|
|
26,369 |
|
|
36,406 |
|
|
60,155 |
|
|
58,124 |
|
Interest-bearing bank and other borrowings |
|
|
100,000 |
|
|
225,000 |
|
|
443,900 |
|
|
861,900 |
|
Due to related companies |
|
|
314,235 |
|
|
451,380 |
|
|
672,401 |
|
|
140,633 |
|
Interest payable |
|
|
4,253 |
|
|
5,979 |
|
|
9,093 |
|
|
11,195 |
|
Income tax payable |
|
|
240 |
|
|
402 |
|
|
950 |
|
|
— |
|
Mining rights payables |
|
|
19,192 |
|
|
22,612 |
|
|
25,568 |
|
|
31,368 |
|
| |
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
544,306 |
|
|
811,181 |
|
|
1,315,865 |
|
|
1,200,957 |
|
| |
|
|
|
|
|
|
|
|
|
Net Current Liabilities |
|
|
437,084 |
|
|
632,096 |
|
|
1,030,111 |
|
|
955,105 |
|
| |
|
|
|
|
|
|
|
|
|
Total Assets Less Current Liabilities |
|
|
1,387,208 |
|
|
1,493,379 |
|
|
1,446,997 |
|
|
1,496,138 |
|
| |
|
|
|
|
|
|
|
|
|
153
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
|
|
(RMB in thousands)
|
|
Non-Current Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing bank and other borrowings |
|
|
318,742 |
|
|
510,886 |
|
|
569,630 |
|
|
897,449 |
|
Interest payable |
|
|
13,205 |
|
|
18,205 |
|
|
17,894 |
|
|
18,788 |
|
Deferred tax liabilities |
|
|
285,849 |
|
|
289,416 |
|
|
267,004 |
|
|
216,332 |
|
Mining rights payables |
|
|
132,966 |
|
|
103,378 |
|
|
77,810 |
|
|
66,150 |
|
Asset retirement obligations |
|
|
5,482 |
|
|
6,025 |
|
|
7,064 |
|
|
7,848 |
|
| |
|
|
|
|
|
|
|
|
|
Total Non-Current Liabilities |
|
|
756,244 |
|
|
927,910 |
|
|
939,402 |
|
|
1,206,567 |
|
| |
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
1,300,550 |
|
|
1,739,091 |
|
|
2,255,267 |
|
|
2,407,524 |
|
| |
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued capital |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Reserves |
|
|
554,831 |
|
|
479,784 |
|
|
413,654 |
|
|
196,439 |
|
| |
|
|
|
|
|
|
|
|
|
Equity Attributable to Owner of the Company |
|
|
554,831 |
|
|
479,784 |
|
|
413,654 |
|
|
196,439 |
|
Non-Controlling Interests |
|
|
76,133 |
|
|
85,685 |
|
|
93,941 |
|
|
93,132 |
|
| |
|
|
|
|
|
|
|
|
|
Total Equity |
|
|
630,964 |
|
|
565,469 |
|
|
507,595 |
|
|
289,571 |
|
| |
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity |
|
|
1,931,514 |
|
|
2,304,560 |
|
|
2,762,862 |
|
|
2,697,095 |
|
| |
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2013 Compared to Six Months Ended June 30, 2012
Our revenue decreased by 0.8% from RMB55.2 million in the six months ended June 30, 2012 to RMB54.7 million in the
same period in 2013. This reflected a decrease in revenue from sales of third party coal from RMB1.1 million in the six months ended June 30, 2012 to nil in the same period in 2013 as we
discontinued our coal trading activities. The effect of this decrease was partially offset by a 1.3% increase in revenue from sales of self-produced coal from RMB54.0 million in the six months
ended June 30, 2012 to RMB54.7 million in the same period in 2013. The increase in revenue from sales of self-produced coal resulted from an increase in sales volume, which was partially
offset by a decrease in average selling price. Sales volume of self-produced coal increased from 146,734 tonnes in the six months ended June 30, 2012 to 187,432 tonnes in the same
period in 2013, principally as a result of an increase in the production output of Baiping Coal Mine and the commencement of commercial production of Liujiaba Coal Mine in December 2012, which
was partially offset by a decrease in the production output that resulted from the suspension of the Gouchang Coal Mine since March 2013. Average selling price for self-produced coal decreased
from RMB360.3 per tonne in the six months ended June 30, 2012 to RMB291.9 in the same period in 2013, principally as a result of the significant decline in the market price of
coal in Guizhou in the first half of 2013.
154
Table of Contents
Our cost of sales increased by 31.4% from RMB30.4 million in the six months ended June 30, 2012 to RMB40.0 million
in the same period in 2013. This was primarily due to our increased sales volume.
As
a percentage of revenue, cost of sales increased from 55.1% in the six months ended June 30, 2012 to 73.0% in the same period in 2013. For our self-produced coal, cost of sales
as a percentage of revenue increased from 54.2% in the six months ended June 30, 2012 to 73.0% in the same period in 2013, mainly as a result of a significant decrease in the average selling
price of our self-produced coal.
As a result of the foregoing, our gross profit, which is equal to revenue less cost of sales, decreased by 40.4% from
RMB24.8 million in the six months ended June 30, 2012 to RMB14.8 million in the same period in 2013. Our gross margin, which is equal to gross profit divided by revenue, decreased
from 44.9% in the six months ended June 30, 2012 to 27.0% in the same period in 2013. Gross margin for sales of our self-produced coal decreased from 45.8% in the six months ended
June 30, 2012 to 27.0% in the same period in 2013.
Our selling and distribution expenses increased by 93.2% from RMB1.4 million in the six months ended June 30, 2012 to
RMB2.7 million in the same period in 2013, primarily due to an increase in payroll expense for our sales staff and an increase in our sales and marketing activities as we increased our
production output. As a percentage of revenue, sales and distribution expenses increased from 2.6% in the six months ended June 30, 2012 to 5.0% in the same period in 2013.
Our administrative expenses increased by 69.0% from RMB34.0 million in the six months ended June 30, 2012 to
RMB57.4 million in the same period in 2013. This increase primarily reflected expenses incurred in connection with the preparation for the Listing, losses incurred from the suspension of
production at Gouchang Coal Mine since March 2013, as well as higher payroll expenses for our administrative staff following the expansion. As a percentage of revenue, administrative expenses
increased from 61.6% in the six months ended June 30, 2012 to 104.9% in the same period in 2013.
Impairment Loss on Property, Plant and Equipment
We incurred an impairment loss on property, plant and equipment of RMB184.4 million in the six months ended June 30, 2013
in connection with the suspension of Gouchang Coal Mine. We did not incur any impairment losses in the same period in 2012.
155
Table of Contents
Our other operating expenses increased from RMB0.6 million in the six months ended June 30, 2012 to RMB1.9 million
in the same period in 2013, primarily as a result of the recognition of a provision for inventory impairment in connection with the suspension of the Gouchang Coal Mine and the incurrence of certain
miscellaneous levies and charges at the Baiping Coal Mine, which were partially offset by a decrease in administrative fines and penalties. Other operating expenses in the six months ended
June 30, 2012 consisted mainly of administrative penalties and fines, which primarily related to our safety facilities and miscellaneous charges related to temporary use of land, while other
operating expenses in the same period in 2013 consisted mainly of miscellaneous levies and charges and provisions for impairment of inventory. As a percentage of revenue, other operating expenses
increased from 1.2% in the six months ended June 30, 2012 to 3.4% in the same period in 2013.
As a result of the foregoing, our operating loss increased significantly from RMB11.3 million in the six months ended
June 30, 2012 to RMB231.7 million in the same period in 2013.
Our finance costs increased significantly from RMB20.7 million in the six months ended June 30, 2012 to
RMB43.7 million in the same period in 2013, principally due to a 38.5% increase in interest expenses on interest-bearing bank and other borrowings from RMB38.2 million in the six months
ended June 30, 2012 to RMB52.9 million in the same period in 2013. Interest expenses on interest-bearing bank and other borrowings increased primarily because we significantly increased
our bank borrowings from RMB943.1 million as of June 30, 2012 to RMB1,759.3 million as of June 30, 2013.
We
also incurred entrusted loan commission fees of RMB7.6 million in the six months ended June 30, 2013 as we replaced our intercompany loans with entrusted loans to comply
with PRC legal requirements. We did not have any entrusted loans or incur any entrusted loan commission fees in the six months ended June 30, 2012.
Our interest income increased by 20.0% from RMB0.8 million in the six months ended June 30, 2012 to RMB1.0 million
in the same period in 2013, mainly as a result of an increase in the average balance of our bank deposits in the six months ended June 30, 2013 and, to a lesser extent, an increase in the
average yield of our bank deposits.
156
Table of Contents
We had net non-operating expense of RMB1.8 million in the six months ended June 30, 2012, compared to net non-operating
income of RMB1.2 million in the same period in 2013. Our net non-operating expense in the six months ended June 30, 2012 primarily included sponsorships and contributions to the
community and certain government organizations as well as losses on disposal of certain property, plant and equipment. The net non-operating income in the six months ended June 30, 2013
primarily reflected the reversal of certain payables after the relevant government authorities issued confirmation letters confirming that we did not have any outstanding social security fund or
housing provident fund contributions.
As a result of the foregoing, our loss before income tax increased significantly from RMB32.9 million in the six months ended
June 30, 2012 to RMB273.2 million in the same period in 2013.
We had an income tax benefit of RMB50.5 million in the six months ended June 30, 2013, compared to an income tax expense
of RMB5.8 million in the same period in 2012. Our income tax benefit in the six months ended June 30, 2013 was primarily attributable to our loss before tax of RMB273.2 million in
that period, which resulted in the recognition of deferred tax assets. Although we also incurred a loss before tax in the six months ended June 30, 2012, we incurred income tax expenses in that
period primarily because certain of our PRC subsidiaries were required by the Guizhou local taxation bureau to pay tax at a rate of 25% of their "deemed profits", which resulted in these PRC
subsidiaries paying a significantly higher amount of tax than otherwise required under the PRC Enterprise Income Tax Law. See "— Description of Key Components of Our Results
of Operations — Income Tax — PRC Income Tax".
As a result of the foregoing, our loss for the year increased significantly from RMB38.7 million in the six months ended
June 30, 2012 to RMB222.8 million in the same period in 2013.
Profit attributable to non-controlling interests was RMB2.2 million in the six months ended June 30, 2012, compared to
loss attributable to non-controlling interests of RMB0.8 million in the same period in 2013. The loss attributable to non-controlling interests in the six months ended June 30, 2013
mainly reflected the minority shareholders' share of the financial results of
Gouchang Coal, which recorded a larger loss, and the financial results of Baiping Mining, which recorded a lower profit.
Loss
attributable to owner of our Company increased significantly from RMB40.9 million in the six months ended June 30, 2012 to RMB221.9 million in the same period
in 2013.
157
Table of Contents
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Our revenue increased by 34.9% from RMB105.2 million in 2011 to RMB141.9 million in 2012. This reflected a 95.3% increase
in revenue from sales of self-produced coal from RMB72.1 million in 2011 to RMB140.8 million in 2012, which was partially offset by a 96.6% decrease in revenue from sales of third party
coal from RMB33.1 million in 2011 to RMB1.1 million in 2012. The increase in revenue from sales of self-produced coal resulted from an increase in sales volume as well as an increase in
average selling price. Sales volume of self-produced coal increased from 243,247 tonnes in 2011 to 435,205 tonnes in 2012, principally as a result of an increase in the production output
of Baiping Coal Mine in 2012 and the commencement of commercial production at Zhulinzhai Coal Mine in April 2012 and Liujiaba Coal Mine in December 2012, partially offset by the
suspension of production at Gouchang Coal Mine from March to August 2012 under certain newly implemented mine gas control requirements in Guizhou. The average selling price of self-produced
coal increased from RMB296.4 per tonne in 2011 to RMB323.6 per tonne in 2012, mainly due to the higher market prices of anthracite coal in the PRC in 2012. Revenue from the sales of
third party coal decreased, primarily as a result of a decrease in sales volume from 70,811 tonnes in 2011 to 1,805 tonnes in 2012. We do not intend to engage in any significant coal
trading activities in the future.
Our cost of sales increased by 29.1% from RMB74.3 million in 2011 to RMB95.9 million in 2012. This was primarily due to
our increased sales volume. As a percentage of revenue, cost of sales decreased from 70.6% in 2011 to 67.6% in 2012. Cost of sales as a percentage of revenue decreased in 2012 principally due to a
significant reduction of our coal trading activities, which had lower profit margins than selling self-produced coal. For our self-produced coal, cost of sales as a percentage of revenue increased
from 61.1% in 2011 to 67.3% in 2012. This was mainly the result of an increase in the cost of materials, particularly the cost of explosives and mine roof support materials. For our sales of
third-party coal, cost of sales as a percentage of revenue increased from 91.3% in 2011 to 99.3% in 2012. This was mainly due to differences in coal quality and market conditions.
As a result of the foregoing, our gross profit, which is equal to revenue less cost of sales, increased by 48.9% from
RMB30.9 million in 2011 to RMB46.1 million in 2012. Our gross margin, which is equal to gross profit divided by revenue, increased from 29.4% in 2011 to 32.4% in 2012. Gross margin for
sales of our self-produced coal decreased from 38.9% in 2011 to 32.7% in 2012, and gross margin for sales of third-party coal decreased from 8.7% in 2011 to 0.7% in 2012.
Our selling and distribution expenses increased by 26.1% from RMB2.9 million in 2011 to RMB3.7 million in 2012, primarily
due to an increase in our sales and marketing activities as we increased our production output. As a percentage of revenue, sales and distribution expenses decreased from 2.8% in 2011 to 2.6%
in 2012.
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Table of Contents
Our administrative expenses increased by 56.4% from RMB49.4 million in 2011 to RMB77.3 million in 2012. This increase
primarily reflected higher salaries and benefits expenses for our administrative staff, as we increased the number of our administrative staff in 2012 to support the growth of our business, losses
incurred from the suspension of production at Gouchang Coal Mine from March to August 2012, as well as expenses incurred in connection with the preparation for the Listing. As a percentage of
revenue, administrative expenses increased from 47.0% in 2011 to 54.5% in 2012.
Our other operating expenses increased from RMB1.5 million in 2011 to RMB1.6 million in 2012. Other operating expenses in
2011 consisted mainly of administrative penalties and fines, which primarily related to our safety facilities and miscellaneous charges related to temporary use of land, while other operating expenses
in 2012 consisted mainly of miscellaneous levies and charges. As a percentage of revenue, other operating expenses decreased from 1.5% in 2011 to 1.1% in 2012.
As a result of the foregoing, our operating loss increased by 59.2% from RMB23.0 million in 2011 to RMB36.6 million
in 2012.
Our finance costs increased by 39.9% from RMB31.8 million in 2011 to RMB44.5 million in 2012, principally due to a 70.5%
increase in interest expenses on interest-bearing bank and other borrowings from RMB49.0 million in 2011 to RMB83.5 million in 2012. Interest expenses on interest-bearing bank and other
borrowings increased primarily because we significantly increased our bank borrowings from RMB735.9 million as of December 31, 2011 to RMB1,013.5 million as of December 31,
2012, and the average interest rate on our outstanding bank borrowings increased from
8.0% in 2011 to 8.5% in 2012. The increase in interest expenses was partially offset by a higher level of capitalized interest in 2012 as compared to 2011, as well as a decrease in interest on payable
for mining rights. The higher level of capitalized interest in 2012 was mainly the result of an increase in bank borrowings for funding coal mine construction. Interest on payables for mining rights
decreased in 2012 primarily because the mining right premiums for Liujiaba Coal Mine and Gouchang Coal Mine were fully paid in 2012.
Our interest income increased by 85.8% from RMB0.6 million in 2011 to RMB1.0 million in 2012, mainly as a result of an
increase in the average balance of our bank deposits in 2012 and, to a lesser extent, an increase in the average yield of our bank deposits.
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Table of Contents
Our net non-operating expense increased significantly from RMB0.9 million in 2011 to RMB2.2 million in 2012, primarily
reflecting an increase in sponsorships and contributions to the community and certain government organizations.
As a result of the foregoing, our loss before income tax increased by 49.2% from RMB55.2 million in 2011 to
RMB82.3 million in 2012.
We had an income tax benefit of RMB15.2 million in 2012, compared to an income tax expense of RMB9.8 million in 2011. Our
income tax benefit in 2012 primarily reflected the recognition of deferred tax assets of RMB15.3 million, as the Guizhou local taxation bureau confirmed in 2012 that certain of our PRC
subsidiaries should have been subject to income tax at a rate of 25% of their taxable income as determined under the PRC Enterprise Income Tax Law since January 2011, rather than 25% of their
"deemed profits". Prior to 2012, certain of our PRC subsidiaries were required by the Guizhou local taxation bureau to pay tax at a rate of 25% of their "deemed profits", which resulted in these PRC
subsidiaries paying a significantly higher amount of tax than otherwise required under the PRC Enterprise Income Tax Law. See "— Description of the Key Components of Our
Results of Operations — Taxation — PRC Income Tax". Our income tax expense in 2011 mainly reflected the enterprise income
tax payable by certain of our PRC subsidiaries as determined based on their "deemed profits".
As a result of the foregoing, our loss for the year increased by 3.3% from RMB64.9 million in 2011 to RMB67.1 million
in 2012.
Loss attributable to non-controlling interests was RMB0.7 million in 2011, compared to profit attributable to non-controlling
interests of RMB8.3 million in 2012. The profit attributable to non-controlling interests in 2012 mainly reflected the minority shareholders' share of the financial results of Baiping Mining,
which recorded a profit in 2012.
Loss
attributable to owner of our Company increased by 17.4% from RMB64.2 million in 2011 to RMB75.3 million in 2012.
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Table of Contents
Year Ended December 31, 2011 Compared to Year Ended December 31, 2010
Our revenue increased significantly from RMB38.7 million in 2010 to RMB105.2 million in 2011, reflecting a 86.4% increase
in revenue from sales of self-produced coal from RMB38.7 million in 2010 to RMB72.1 million in 2011, as well as the commencement of our coal trading activities in January 2011.
The increase in revenue from sales of self-produced coal was the result of an increase in sales volume as well as an increase in average selling price. Sales volume of self-produced coal increased
from 166,362 tonnes in 2010 to 243,247 tonnes in 2011, principally as a result of the commencement of commercial production at Gouchang Coal Mine in April 2011 and an increase in
production output at Baiping Coal Mine. The average selling price of self-produced coal increased from RMB232.4 per tonne in 2010 to RMB296.4 per tonne in 2011, mainly due to the general
increase in the market prices of anthracite coal in the PRC. In 2011, we generated RMB33.1 million in revenue from the sale of 70,811 tonnes of third party coal as part of our coal
trading activities.
Our cost of sales increased significantly from RMB25.5 million in 2010 to RMB74.3 million in 2011. This was principally
the result of our increased sales volume. As a percentage of revenue, cost of sales increased from 65.8% in 2010 to 70.6% in 2011. Cost of sales as a percentage of revenue increased in 2011 mainly due
to the commencement of our coal trading activities in January 2011, which had lower profit margins than selling self-produced coal. For our self-produced coal, cost of sales as a percentage of
revenue decreased from 65.8% in 2010 to 61.1% in 2011. This was primarily due to an increase in the average selling price of our self-produced coal, as well as greater economies of scale realized from
our higher production volume. For our sales of third-party coal, cost of sales as a percentage of revenue was 91.3% in 2011.
As a result of the foregoing, our gross profit increased significantly from RMB13.2 million in 2010 to RMB30.9 million in
2011. Our gross margin decreased from 34.2% in 2010 to 29.4% in 2011. Gross margin for sales of our self-produced coal increased from 34.2% in 2010 to 38.9% in 2011, and gross margin for sales of
third-party coal was 8.7% in 2011.
Our selling and distribution expenses were RMB2.9 million in both 2010 and 2011, as we did not materially change our sales and
marketing activities or the size of our sales and marketing personnel. As a percentage of revenue, sales and distribution expenses were 7.5% in 2010 and 2.8% in 2011.
Our administrative expenses decreased by 11.4% from RMB55.8 million in 2010 to RMB49.4 million in 2011, primarily because
no share-based compensation expense was recognized. In 2010, our administrative expenses included share-based compensation expenses of RMB17.0 million allocated
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from
CHNR in connection with the share options granted in 2008 to Mr. Li Feilie to purchase 1,000,000 shares of CHNR. This was partially offset by an increase in salaries and benefits
for our administrative staff, as we increased the number of our administrative staff in 2011 to support the growth of our business. As a percentage of revenue, administrative expenses decreased from
144.4% in 2010 to 47.0% in 2011.
Our other operating expenses decreased by 82.9% from RMB9.0 million in 2010 to RMB1.5 million in 2011, mainly because we
were subject to less administrative penalties and fines. In 2010 and 2011, our administrative penalties and fines related primarily to late payment of mining right premium, mine accidents and
non-compliant safety equipment. Our operating expenses in 2010 were also significantly affected by mine pre-development expenses we incurred totaling RMB1.7 million in respect of Dayun Coal
Mine and RMB3.2 million in compensation we paid to certain local residents at Dayuan Coal Mine. As a percentage of revenue, other expenses decreased from 23.3% in 2010 to 1.5% in 2011.
As a result of the foregoing, our operating loss decreased by 57.9% from RMB54.5 million in 2010 to RMB23.0 million
in 2011.
Our finance costs increased significantly from RMB6.0 million in 2010 to RMB31.8 million in 2011. This increase was
principally due to a significant increase in interest expenses on interest-bearing bank and other borrowings from RMB16.0 million in 2010 to RMB49.0 million in 2011, as well as a
significant increase in interest on payable for mining rights from RMB5.8 million in 2010 to RMB11.9 million in 2011. Interest expenses on interest-bearing bank and other borrowings
increased primarily because of an increase in our bank borrowings from RMB418.7 million as of December 31, 2010 to RMB735.9 million as of December 31, 2011, as well as an
increase in the average interest rate on our outstanding bank borrowings from 7.1% in 2010 to 8.0% in 2011. Interest on payables for mining rights increased mainly because of the commencement of
paying interest on payables for mining rights for Dayun Coal Mine. These increases were partially offset by a higher level of capitalized interest in 2011 as compared to 2010. The higher level of
capitalized interest in 2011 was mainly the result of an increase in bank borrowings for funding coal mine construction.
Our interest income increased from RMB0.1 million in 2010 to RMB0.6 million in 2011, mainly as a result of an increase in
the average level of our bank deposits and, to a lesser extent, an increase in the average yield of our bank deposits.
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Table of Contents
In 2010, we recognized a non-recurring gain on bargain purchase of RMB624.1 million in connection with our acquisition of
Guizhou Puxin. We did not recognize a similar gain in 2011.
Non-operating Expense, Net
Our net non-operating expense decreased by 43.7% from RMB1.6 million in 2010 to RMB0.9 million in 2011, primarily because
of lower amounts in sponsorships and contributions to the community and certain government organizations.
As a result of the foregoing, we recorded a profit before income tax of RMB562.1 million in 2010 and a loss before income tax of
RMB55.2 million in 2011. Disregarding the
effects of the RMB624.1 million non-recurring time gain on the bargain purchase of Guizhou Puxin, we would have incurred a loss before income tax of RMB62.0 million in 2010.
Our income tax expense increased by 58.8% from RMB6.1 million in 2010 to RMB9.8 million in 2011, primarily as a result of
an increase in the "deemed profits" of certain of our PRC subsidiaries. See "— Description of the Key Components of Our Results of
Operations — Taxation — PRC Income Tax".
As a result of the foregoing, we recorded a profit of RMB556.0 million in 2010 and a loss of RMB64.9 million
in 2011.
Loss attributable to non-controlling interests decreased significantly from RMB6.4 million in 2010 to RMB0.7 million in
2011. Although the Company had a profit of RMB556.0 million in 2010, there was a loss attributable to non-controlling interests in 2010 because the non-controlling interests were mainly related
to the minority shareholders of Baiping Mining and Guizhou Yongfu, which did not benefit from the RMB624.1 million non-recurring gain on the bargain purchase of Guizhou Puxin.
Profit
attributable to owner of our Company was RMB562.4 million in 2010, compared to a loss attributable to owner of our Company of RMB64.2 million in 2011.
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LIQUIDITY AND CAPITAL RESOURCES
We need a substantial amount of cash to fund our operations and capital expenditures. In each of 2010, 2011, 2012 and the six months
ended June 30, 2012 and 2013, we had negative net cash flows from operations. In the past, we had primarily funded our operations and capital expenditures with non-interest bearing borrowings
from companies controlled by Mr. Li Feilie, as well as short-term and long-term bank and other borrowings. Since March 2013, we began to refinance a significant portion of the
non-interest bearing borrowings from companies controlled by Mr. Li Feilie with interest-bearing bank and other borrowings, and we do not anticipate receiving additional non-interest bearing
loans from our related companies in the future. As of June 30, 2013, we had cash and cash equivalents of RMB140.8 million.
Since
June 30, 2013, we have incurred certain additional bank and other borrowings. Moreover, in July 2013, we obtained a legally binding commitment letter from China
Minsheng Bank to provide a term loan with an aggregate principal amount of up to RMB1.6 billion that may be drawn down on or before January 29, 2015, subject to certain conditions, and
in October 2013, we obtained a legally binding commitment letter from China Merchant Bank to provide a term loan with an aggregate principal amount of up to RMB350 million that may be
drawn down on or before March 10, 2015, subject to certain conditions. See "— Indebtedness — Interest-Bearing Loans".
Cash Flows
The following table sets forth our cash flows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Six months ended June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
(RMB in thousands)
|
|
Net cash flows used in operating activities |
|
|
(39,724 |
) |
|
(62,562 |
) |
|
(70,648 |
) |
|
(11,552 |
) |
|
(124,509 |
) |
Net cash flows used in investing activities |
|
|
(239,205 |
) |
|
(464,669 |
) |
|
(385,152 |
) |
|
(182,832 |
) |
|
(119,313 |
) |
Net cash flows from financing activities |
|
|
303,735 |
|
|
524,372 |
|
|
542,810 |
|
|
352,523 |
|
|
223,397 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
|
|
24,806 |
|
|
(2,859 |
) |
|
87,010 |
|
|
158,139 |
|
|
(20,425 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
To date, we have experienced significant negative net cash flows from operating activities. In 2010, 2011, 2012 and the six months
ended June 30, 2012 and 2013, net cash used in operating activities was RMB39.7 million, RMB62.6 million, RMB70.6 million, RMB11.6 million and
RMB124.5 million, respectively, as adjusted for non-cash items. In 2010, net cash used in operating
164
Table of Contents
activities
primarily reflected our profit before income tax of RMB562.1 million, as adjusted for the RMB624.1 million non-cash gain on the bargain purchase of Guizhou Puxin. In each of
2011, 2012 and the six months ended June 30, 2012, our net cash used in operating activities were largely attributable to our loss before income tax, which were RMB55.2 million,
RMB82.3 million and RMB32.9 million, respectively, in each case as adjusted for certain non-cash items. In the six months ended June 30, 2013, our net cash used in operating
activities mainly reflected our loss before income tax of RMB273.2 million, as adjusted for the non-cash impairment loss on property, plant and equipment of RMB184.4 million related to
the suspension of Gouchang Coal Mine and other adjustments for non-cash items, including the significant decreases in trade and bills payables and other payable and accrued liabilities that resulted
from our settlement of certain payables in respect of mining equipment purchases for Xinsong Coal Mine. See our consolidated statements of cash flows in
Appendix I — "Accountants' Report of the Company" for a reconciliation of our net cash used in operating activities to profit/(loss) before
income tax.
In 2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, net cash used in investing activities was
RMB239.2 million, RMB464.7 million, RMB385.2 million,
RMB182.8 million and RMB119.3 million, respectively. Net cash used in investing activities in each of these periods primarily related to the construction and development of our coal
mines and purchases of mining-related equipment and machinery, except that in 2011, net cash used in investing activities also included a RMB140.1 million payment in respect of the balance of
the purchase price for the acquisition of Guizhou Puxin.
In 2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, net cash generated from financing activities was
RMB303.7 million, RMB524.4 million, RMB542.8 million, RMB352.5 million and RMB223.4 million, respectively. Net cash from financing activities during these periods
mainly reflected the proceeds from bank borrowings and from non-interest bearing borrowings from companies controlled by Mr. Li Feilie.
Capital Expenditure
Our capital expenditures were RMB219.7 million, RMB341.5 million, RMB360.2 million, RMB202.9 million and
RMB139.3 million in 2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, respectively. From June 30, 2013 to the Latest Practicable Date, our capital expenditures
were RMB . Our capital expenditures mainly related to the construction of our coal mines, purchase of mining-related equipment and machinery and pre-payments for land use rights
for our
coal mines.
We
expect to pay approximately an aggregate of RMB545.0 million in 2013 and 2014 for capital expenditures. These estimated capital expenditures are expected to be used primarily
for construction of Dayuan Coal Mine, Dayun Coal Mine and Yongsheng Coal Mine, the construction of a coal beneficiation plant in Jinsha county and the construction of a port along the Wujiang River
near Yongsheng coal Mine. Our current plan with respect to capital expenditures is subject to a number of
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uncertainties
and may change due to various reasons, including delays in construction work, unanticipated increases in cost of construction, changes in construction scope and completion time, adverse
weather conditions, unexpected changes to applicable regulatory requirements and other unforeseen difficulties. We periodically review our capital expenditure plans and may make adjustments from time
to time.
We
expect to fund our capital expenditures in 2013 and 2014 through interest-bearing bank and other borrowings. See "— Indebtedness".
Working Capital
As of December 31, 2012 and June 30, 2013, we had net current liabilities of RMB1,030.1 million and
RMB955.1 million, respectively. We intend to fund our cash requirements with additional short-term and long-term bank and other borrowings. As of the Latest Practicable Date, we had
RMB260.0 million of undrawn commitments under our long-term credit facilities. In July 2013, we obtained a legally binding commitment letter from China Minsheng Bank to provide a term
loan with an aggregate principal amount of up to RMB1.6 billion that may be drawn down on or before January 29, 2015, subject to certain conditions. In addition, in October 2013,
we obtained a legally binding commitment letter from China Merchant Bank to provide a term loan with an aggregate principal amount of up to RMB350 million that may be drawn down on or before
March 10, 2015, subject to certain conditions. Taking into account the financial resources available to us, our Directors believe that we will have 125% of the working capital required to fund
our operations for at least the next 12 months.
INDEBTEDNESS
Loans From Related Companies
As of December 31, 2010, 2011 and 2012 and June 30, 2013, our loans from companies controlled by Mr. Li Feilie
were RMB314.2 million, RMB451.4 million, RMB672.4 million and RMB140.6 million, respectively. These loans were non-interest bearing, unsecured and payable on demand. In
2013, we repaid a significant portion of our loans from related companies with interest-bearing bank and other borrowings. As of the Latest Practicable Date, our outstanding loans from companies
controlled by Mr. Li was RMB million.
Interest-Bearing Loans
Our interest-bearing loans consist of short-term and long-term bank and other borrowings.
As
of June 30, 2013, the total outstanding amount of our short-term bank and other borrowings and the current portion of our outstanding long-term bank borrowings were
RMB861.9 million. Certain of our outstanding short-term bank and other borrowings were guaranteed by Mr. Li Feilie and/or companies controlled by him. Our short-term bank and other
borrowings typically have floating interest rates. As of June 30, 2013, the effective interest rates on our outstanding short-term bank borrowings ranged from 6.30% to 9.00%.
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Table of Contents
As of June 30, 2013, we had total outstanding long-term bank borrowings (excluding the current portion) of RMB897.4 million. We obtained our
long-term bank borrowings from various financial institutions under several credit facilities. Certain of our long-term bank borrowings are guaranteed by Mr. Li Feilie and/or companies
controlled by him and certain of our long-term bank borrowings are secured by pledges of our mining rights, equity interests in Baiping Mining, Dayuan Coal, Gouchang Coal, Linjiaao Coal, Xinsong Coal
and Guizhou Dayun and certain of our time deposits. As of the Latest Practicable Date, the total amount of bank borrowings that were guaranteed by Mr. Li and/or companies controlled by him was
approximately RMB million, representing approximately % of our total borrowings. We have
obtained in-principle consents from Bank of Chongqing, China
Minsheng Bank, China Merchants Bank, Bank of Communications, Industrial and Commercial Bank of China and Huachuang Securities to release the guarantees for at least RMB1,375.0 million of the
borrowings, to be effective upon the Listing and subject to the completion of certain administrative procedures of the banks, which is expected to be completed in approximately one to three months
after the Listing. See "Relationship With Our Controlling Shareholders — Independence From Our Controlling
Shareholders — Financial Independence". Our long-term bank borrowings typically have floating interest rates. As of June 30, 2013, the effective interest
rates on our outstanding long-term bank borrowings ranged from 6.40% to 8.52%. Our long-term bank borrowings agreements contain restrictive covenants providing for certain restrictions relating to,
among others, mergers and
consolidations, incurrence of additional indebtedness or guarantees, disposals of a substantial portion of our assets, significant changes in the ownership of our subsidiaries and payment of dividends
or other distributions.
In
July 2013, we entered into a RMB105.0 million 7.38% three-year entrusted loan with China Minsheng Bank, which has been fully drawn down.
In
July 2013, we obtained a legally binding commitment letter from China Minsheng Bank to provide a term loan with an aggregate principal amount of up to RMB1.6 billion
that may be drawn down on or before January 29, 2015, subject to certain conditions. These conditions include the absence of material adverse changes to our Company's financial position, which
in turn requires, among others, that the revenue of our Company for the year in which the loan is drawn down must not decrease by more than 50% as compared to the immediately preceding year, that our
Company's total interest-bearing debt to asset ratio shall not exceed 90%, and that we do not have a poor credit record. According to a letter we received from China Minsheng Bank in
September 2013 explaining the July 2013 commitment letter, China Minsheng Bank will carry out internal financial assessment procedures on our Company prior to loan drawdown, which will
be conducted based on the internal credit rating system of China Minsheng Bank. In the event that our Company's credit rating is assessed by China Minsheng Bank to be "BBB-" or below,
China Minsheng Bank will not approve the drawdown. The credit rating of our Company is currently assessed by China Minsheng Bank to be "A," which is three ratings higher than "BBB-". The
interest rate of the loan will be determined based on the prevailing market conditions at the time of drawdown. The interest rates generally charged by China Minsheng Bank are the PBOC's official
benchmark interest rates plus a premium of 20% to 30%.
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Table of Contents
In
August 2013, we entered into a RMB76.0 million 7.29% one-year entrusted loan with China Industrial International Trust Limited, an Independent Third Party, which has
been fully drawn down. The loan is secured by a RMB16.0 million bank deposit of Guizhou Puxin.
In
August 2013, we entered into a RMB100.0 million 6.60% one-year bank loan with China Minsheng Bank, which has been fully drawn down. The loan is guaranteed by WFID and
Pingxiang Iron & Steel Co. Ltd. ("Pingxiang"), and secured by the pledge of shares in Guizhou Puxin. Prior to 2013, Pingxiang was a
related company controlled by Mr. Li Feilie. Upon its disposition, and securred by the pledge of shares in Guizhou Puxin by Mr. Li in January 2013, Pingxiang became an Independent
Third Party.
In
October 2013, we entered into a RMB150.0 million 6.00% one-year bank loan with China Minsheng Bank, which has been fully drawn down. The loan is guaranteed by WFID and
Pingxiang, and secured by the pledge of shares in Guizhou Puxin.
In
addition, in October 2013, we obtained a legally binding commitment letter from China Merchant Bank to provide a term loan with an aggregate principal amount of up to
RMB350 million that may be drawn down before March 10, 2015, subject to certain conditions, including a repayment term of not less than one year for each draw down.
For
additional information on bank and other borrowings, see note 36 to our consolidated financial statements included in
Appendix I — "Accountants' Report of the Company".
During
the Track Record Period and as of the Latest Practicable Date, the Directors confirmed that we had no material defaults in relation to our bank borrowings or breaches of covenants
in the bank borrowings, or payment of trade or non-trade payables.
As
of the Latest Practicable Date, we had RMB260.0 million of undrawn commitments under our long-term credit facilities.
The
Directors have confirmed that unless otherwise disclosed under the section headed "— Indebtedness" in the listing document there has not been any material
change in our indebtedness since June 30, 2013.
Mining Rights Payables
Mining rights payables are payables under our installment payment plans with the Guizhou Provincial Department of Land and Resources
for the acquisition of our mining rights. Interest on our outstanding mining rights are determined annually by reference to the official benchmark interest rates published by the PBOC. As of
June 30, 2013, the interest rate on our outstanding mining rights payables ranged from 6.00% to 6.55%.
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Table of Contents
CONTRACTUAL OBLIGATIONS
The following table summarizes our contractual obligations as of June 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period |
|
|
|
Total |
|
On
demand |
|
Within
1 year |
|
2-3
years |
|
4-5
years |
|
After
5 years |
|
|
|
(RMB in thousands)
|
|
Interest-bearing bank and other borrowings |
|
|
2,023,332 |
|
|
— |
|
|
978,168 |
|
|
544,666 |
|
|
500,498 |
|
|
— |
|
Mining rights payables |
|
|
136,740 |
|
|
— |
|
|
38,976 |
|
|
30,613 |
|
|
67,151 |
|
|
— |
|
Due to related companies |
|
|
140,633 |
|
|
140,633 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Capital commitments, contracted but not provided for |
|
|
88,961 |
|
|
— |
|
|
88,961 |
|
|
— |
|
|
— |
|
|
— |
|
Operating leases commitments |
|
|
1,879 |
|
|
— |
|
|
936 |
|
|
943 |
|
|
— |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
2,391,545 |
|
|
140,633 |
|
|
1,107,041 |
|
|
576,222 |
|
|
567,649 |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
The capital commitments are expected to be funded by external borrowings from banks and internal financial resources.
CONTINGENT LIABILITIES
As the Latest Practicable Date, except for bank borrowings disclosed above and intra-group liabilities, we did not have any loan
capital or debt securities issued or agreed to be issued, outstanding bank overdrafts and liabilities under acceptances or other similar indebtedness, debentures, mortgages, charges or loans or
acceptance credits, finance leases or hire purchase commitments or guarantees or material contingent liabilities.
LISTING EXPENSES
As of June 30, 2013, we had incurred expenses in connection with the Listing of RMB13.8 million, which were accounted for
as our administrative expenses for the year ended December 31, 2012 and the six months ended June 30, 2013. We expect to further incur an additional RMB42.7 million to
RMB56.5 million of expenses in connection with the Listing, which are subject to adjustments to be agreed by the Company, the Joint Sponsors and other parties. We do not believe the additional
expenses will have a material impact on our results of operations.
169
Table of Contents
KEY FINANCIAL RATIOS
The table below sets forth our key financial ratios as of or for the dates or for the periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the year ended
December 31, |
|
As of or for the
six months ended
June 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2012 |
|
2013 |
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
Inventory turnover days(1) |
|
|
49 |
|
|
26 |
|
|
31 |
|
|
45 |
|
|
59 |
|
Average trade and bill payable turnover days(2) |
|
|
660 |
|
|
362 |
|
|
325 |
|
|
428 |
|
|
451 |
|
Average trade and bill receivable turnover days(3) |
|
|
29 |
|
|
61 |
|
|
101 |
|
|
75 |
|
|
157 |
|
Gearing ratio(4) |
|
|
47.5 |
% |
|
60.4 |
% |
|
68.8 |
% |
|
66.6 |
% |
|
86.5 |
% |
Debt to equity ratio(5) |
|
|
90.5 |
% |
|
152.4 |
% |
|
220.0 |
% |
|
199.8 |
% |
|
641.2 |
% |
Gross margin(6) |
|
|
34.2 |
% |
|
29.4 |
% |
|
32.4 |
% |
|
44.9 |
% |
|
27.0 |
% |
- (1)
- Inventory
turnover days are calculated by dividing the arithmetic mean of the opening and closing balances of inventories for the year by cost of sales in
that year and multiplying by 360 days. As we did not have any commercial production until March 18, 2010, inventory turnover days in 2010 is calculated by dividing the arithmetic mean of
the balance of inventories as of March 18 and December 31, 2010 by cost of sales for the period beginning on March 18, 2010 and ending on December 31, 2010, and multiplying
by 280 days.
- (2)
- The
average trade and bill payable turnover days are calculated by dividing the arithmetic mean of opening and ending balance of trade and bill payable for
the year by cost of sales in the year and then multiplying by 360 days. As we did not have any commercial production until March 18, 2010, the average trade and bill payables turnover
days in 2010 is calculated by dividing the arithmetic mean of the balance of trade and bill payables as of March 18 and December 31, 2010 by cost of sales for the period beginning on
March 18, 2010 and ending on December 31, 2010, and multiplying by 280 days.
- (3)
- The
average trade and bill receivable turnover days are calculated by dividing the arithmetic mean of opening and ending balance of trade and bill
receivables for the year by revenue in that year and then multiplying by 360 days. As we did not have any commercial production until March 18, 2010, the average trade and bill
receivables turnover days in 2010 is calculated by dividing the arithmetic mean of the balance of trade and bill receivables as of March 18 and December 31, 2010 by revenue for the
period beginning on March 18, 2010 and ending on December 31, 2010, and multiplying by 280 days.
- (4)
- Gearing
ratio is calculated by dividing total interest-bearing debt by total capital at the end of the year and multiplying by 100%. Interest-bearing debt
includes interest-bearing bank and other borrowings and mining rights payables. Capital includes total equity and interest-bearing debt.
- (5)
- Debt
to equity ratio is calculated by dividing total interest-bearing debt by total equity (based on book value without any revaluation) at the end of the
year and multiplying by 100%. Interest-bearing debt includes interest-bearing bank and other borrowings and mining rights payables.
- (6)
- Gross
margin is calculated by dividing gross profit by revenue at the end of the year and multiplying by 100%.
170
Table of Contents
Inventory turnover days
In 2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, our inventory turnover days were 49 days,
26 days, 31 days, 45 days and 59 days, respectively. Our inventory turnover days was higher in 2010 than in 2011 and 2012 mainly because of lower sales. Our inventory
turnover days was higher in the six months ended June 30, 2013 than in the same period in 2012, mainly because of the inventory which remained at Gouchang Coal Mine due to the suspension of
operations since March 2013.
Inventories
are stated at the lower of cost and net realizable value. Cost is determined by the weighted-average method, and net realizable value is determined based on the estimated
selling prices less the estimated costs for the sale. These estimates are based on the current market conditions and our historical experience for selling products of similar nature. Management
reassesses these estimates at the end of each reporting period. In the six months ended June 30, 2013 we made provisions for impairment of inventory at Gouchang Coal Mine due to its suspension
of operations since March 2013.
As
of December 31, 2010, 2011, 2012 and June 30, 2013, we had RMB5.3 million, RMB5.3 million, RMB11.3 million and RMB15.1 million of
inventories. The increase in inventory in 2012 and was primarily the result of the commencement of commercial production at Zhulinzhai Coal Mine in April 2012, and the increase in inventory in
the six months ended June 30, 2013 was primarily the result of the commencement of commercial operations at Liujiaba Coal Mine in December 2012.
Set
forth below is breakdown of our inventory as of June 30, 2013 and the usage thereof as of September 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of
June 30, 2013 |
|
Subsequent usage
as of September 30,
2013 |
|
Subsequent usage
as of September 30,
2013 |
|
|
|
(RMB in thousands)
|
|
(in %)
|
|
|
|
|
|
(unaudited)
|
|
|
|
Spare parts and consumables |
|
|
8,112 |
|
|
5,489 |
|
|
67.7 |
% |
Coal |
|
|
6,968 |
|
|
4,568 |
|
|
65.6 |
% |
| |
|
|
|
|
|
|
|
Total |
|
|
15,080 |
|
|
10,057 |
|
|
66.7 |
% |
| |
|
|
|
|
|
|
|
Average Trade and Bill Payable Turnover Days
In 2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, our average trade and bill payable turnover days were
660 days, 362 days, 325 days, 428 days and 451 days, respectively. Our average trade and bill payable turnover days are relatively high in each of these periods
because a significant portion of our trade and bill payables related to construction and other non-operating activities, which generally have longer payment periods. Our average trade and bill payable
turnover days were significantly higher in 2010 than in other periods primarily because we had a higher portion of payables relating to construction and other non-operating activities, as we had more
mines under construction.
171
Table of Contents
As
of December 31, 2010, 2011 and 2012 and June 30, 2013, we had RMB80.0 million, RMB69.4 million, RMB103.8 million and RMB97.7 million of
outstanding trade and bill payables. The decline in outstanding trade and bill payables from December 31, 2010 to December 31, 2011 was mainly due to the settlement of certain
construction payables in respect of Liujiaba Coal Mine and Zhulinzhai Coal Mine. The increase in trade and bill payables from December 31, 2011 to December 31, 2012 was principally
related to payables for equipment purchases for the Liujiaba Coal Mine and the construction of the Yongsheng Coal Mine. The decrease in trade and bill payables from December 31, 2012 to
June 30, 2013 was primarily due to the settlement of certain payables in respect of equipment purchases at the Xinsong Coal Mine.
Average Trade and Bill Receivable Turnover Days
In 2010, 2011, 2012 and the six months ended June 30, 2012 and 2013, our average trade and bill receivable turnover days were
29 days, 61 days, 101 days, 75 days and 157 days, respectively. Our average trade and bill receivable turnover days has been increasing throughout the Track Record
Period due to certain of our power producer customers taking a longer amount of time to settle payments due to certain operating difficulties. Moreover, in the six months ended June 30, 2013,
payment from one of our largest five customers was late. We ultimately collected the full payment in September 2013.
Our
provisioning policy for the impairment of trade and bill receivables is determined by our management based on the credit history of our customers and current market conditions. The
provision amounts of provision are reassessed at the end of each reporting period. During the Track Record Period, we have not made any provisions for impairment of trade and bill receivables.
As
of December 31, 2010, 2011 and 2012 and June 30, 2013, we had RMB5.6 million, RMB30.4 million, RMB49.0 million and RMB46.3 million of
outstanding trade and bill receivables. The increase in trade receivables are in line with the growth of our business and revenues. Set forth below is the aging analysis of our outstanding trade
receivables as of the dates indicated and the subsequent settlement thereof as of September 30, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, |
|
As of
June 30, |
|
Subsequent
settlement as
of September 30, |
|
|
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
2013 |
|
|
|
(RMB in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
(unaudited)
|
|
Within 3 months |
|
|
5,577 |
|
|
17,485 |
|
|
36,996 |
|
|
32,666 |
|
|
27,342 |
|
3 to 6 months |
|
|
— |
|
|
10,776 |
|
|
909 |
|
|
3,117 |
|
|
229 |
|
7 to 12 months |
|
|
— |
|
|
1,095 |
|
|
254 |
|
|
4,197 |
|
|
2,759 |
|
Over 12 months |
|
|
— |
|
|
— |
|
|
7 |
|
|
18 |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,577 |
|
|
29,356 |
|
|
38,166 |
|
|
39,998 |
|
|
30,330 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
172
Table of Contents
Gearing Ratio
As of December 31, 2010, 2011 and 2012 and June 30, 2013, our gearing ratio was 47.5%, 60.4%, 68.8% and 86.5%,
respectively. Our gearing ratio increased throughout the Track Record Period as we increased our interest-bearing borrowings to support the growth of our business and meet our capital expenditure
requirements.
Debt to Equity Ratio
As of December 31, 2010, 2011 and 2012 and June 30, 2013, our debt to equity ratio was 90.5%, 152.4%, 220.0% and 641.2%,
respectively. Our debt to equity ratio increased throughout the Track Record Period as we increased our interest-bearing borrowings to support the growth of our business and meet our capital
expenditure requirements.
Gross Margin
As of December 31, 2010, 2011 and 2012 and June 30, 2012 and 2013, our gross margin was 34.2%, 29.4%, 32.4%, 44.9% and
27.0%, respectively.
OFF-BALANCE SHEET ARRANGEMENTS
As of the Latest Practicable Date, we did not have any material off-balance sheet arrangements. We have not entered, and do not intend
to enter, into any derivative transactions for trading purposes.
MARKET RISK DISCLOSURE
We are exposed to various types of market risks in the ordinary course of business, including credit risk, foreign currency risk,
interest rate risk and liquidity risk. We have not used any derivatives or other instruments for hedging purposes.
Credit Risk
We are exposed to credit risk in connection with our trade receivables, bill receivables and our cash deposits.
Our trade receivables are mainly derived from anthracite coal sales and are typically unsecured. We mitigate the credit risks relating
to our trade receivables by performing
credit evaluations and monitoring outstanding balances of our trade receivables regularly. We recognize impairment for trade receivables primarily based on our historical write-off experience, the age
of the outstanding balances and other factors regarding the specific customer's credit-worthiness and current market conditions. We have not recognized any provision for impairment of trade
receivables in 2010, 2011, 2012 or the six months ended June 30, 2013. Our largest five customers accounted for 66.6%, 73.5%, 56.7% and
173
Table of Contents
72.8%
of our revenue in 2010, 2011, 2012 and the six months ended June 30, 2013, respectively. Our outstanding trade receivables from our largest five customers accounted for 59.4%, 84.2%,
87.2% and 53.6% of our total trade receivables in 2010, 2011, 2012 and the six months ended June 30, 2013, respectively.
Bill receivables represent letters of credit obtained by our customers to finance purchases which have been presented to banks for
payment after delivery of goods to customers. As of June 30, 2013, all of the bills underlying our outstanding bills receivables were issued by financial institutions. Bill receivables
typically have a term of maturity of six months.
We maintain our cash and cash deposits primarily with PRC state-owned banks and Hong Kong-based financial institutions which we believe
are of high credit quality. We perform periodic evaluations of the relative credit standing of those financial institutions.
Commodity Price Risk
Our main exposure to commodity price risk relates to fluctuations in the average selling prices of anthracite coal, which are affected
to a significant extent by the market price of anthracite coal in Guizhou. Anthracite coal prices can fluctuate significantly and are affected by many factors beyond our control. We have not engaged
in any hedging transactions to manage our commodity price risk. Set forth below is a sensitivity analysis illustrating the effects of a 10% increase or decrease in the average selling price of our
anthracite coal on our revenue and gross profit for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
June 30, 2013 |
|
Coal Price |
|
|
|
Actual |
|
+ 30% |
|
-30% |
|
|
|
(RMB in millions, except percentages)
|
|
Total revenue |
|
|
54.7 |
|
|
16.4 |
|
|
(16.4) |
|
% Change |
|
|
|
|
|
30 |
% |
|
(30) |
% |
Gross profit |
|
|
14.8 |
|
|
16.4 |
|
|
(16.4) |
|
% Change |
|
|
|
|
|
111.1 |
% |
|
(111.1) |
% |
174
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
June 30, 2012 |
|
Coal Price |
|
|
|
Actual |
|
+ 30% |
|
-30% |
|
|
|
(RMB in millions, except percentages)
|
|
|
|
(unaudited)
|
|
|
|
|
|
Total revenue |
|
|
55.2 |
|
|
16.5 |
|
|
(16.5) |
|
% Change |
|
|
|
|
|
30.0 |
% |
|
(30.0) |
% |
Gross profit |
|
|
24.8 |
|
|
16.5 |
|
|
(16.5) |
|
% Change |
|
|
|
|
|
66.6 |
% |
|
(66.6) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31, 2012 |
|
Coal Price |
|
|
|
Actual |
|
+ 30% |
|
-30% |
|
|
|
(RMB in millions, except percentages)
|
|
Total revenue |
|
|
141.9 |
|
|
42.6 |
|
|
(42.6) |
|
% Change |
|
|
|
|
|
30.0 |
% |
|
(30.0) |
% |
Gross profit |
|
|
46.1 |
|
|
42.6 |
|
|
(42.6) |
|
% Change |
|
|
|
|
|
92.5 |
% |
|
(92.5) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31, 2011 |
|
Coal Price |
|
|
|
Actual |
|
+ 30% |
|
-30% |
|
|
|
(RMB in millions, except percentages)
|
|
Total revenue |
|
|
105.2 |
|
|
31.6 |
|
|
(31.6) |
|
% Change |
|
|
|
|
|
30.0 |
% |
|
(30.0) |
% |
Gross profit |
|
|
30.9 |
|
|
31.6 |
|
|
(31.6) |
|
% Change |
|
|
|
|
|
102.2 |
% |
|
(102.2) |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31, 2010 |
|
Coal Price |
|
|
|
Actual |
|
+ 30% |
|
-30% |
|
|
|
(RMB in millions, except percentages)
|
|
Total revenue |
|
|
38.7 |
|
|
11.6 |
|
|
(11.6) |
|
% Change |
|
|
|
|
|
30.0 |
% |
|
(30.0) |
% |
Gross profit |
|
|
13.2 |
|
|
11.6 |
|
|
(11.6) |
|
% Change |
|
|
|
|
|
87.8 |
% |
|
(87.8) |
% |
175
Table of Contents
Foreign Currency Risk
Our financial statements are presented in, and our functional currency is, Renminbi. The Renminbi is not freely convertible into
foreign currencies. The SAFE, under the authority of the PBOC, controls the conversion of Renminbi into foreign currencies. The value of Renminbi is subject to changes in PRC Government policies and
international economic and political developments which affect the supply and demand of Renminbi. All foreign exchange transactions take place either through the PBOC or other banks authorized to buy
and sell foreign currencies at the exchange rates quoted by the PBOC.
Interest Rate Risk
Our exposure to the interest rate risk arises primarily from our long-term obligations with floating interest rates, including certain
long-term bank and other borrowings and mining rights payables. We have not entered into any interest rate swaps or any other hedging
transactions to manage our interest rate risks. As of June 30, 2013, 68.03% of the total outstanding principal amounts of our bank and other borrowings, and all of our mining right payables,
had floating interest rates. Set forth below is a sensitivity analysis illustrating the effects of a 100 basis point increase or decrease in interest rates on our long-term interest-bearing
bank and other borrowings and mining right payables and on our profit before tax for the periods indicated:
|
|
|
|
|
|
|
|
|
|
Increase/(decrease)
in basis points |
|
Increase/(decrease)
in profit before tax |
|
|
|
|
|
(RMB in thousands)
|
|
Year ended December 31, 2010 |
|
|
100 |
|
|
(668 |
) |
|
|
|
(100 |
) |
|
668 |
|
Year ended December 31, 2011 |
|
|
100 |
|
|
(2,841 |
) |
|
|
|
(100 |
) |
|
2,841 |
|
Year ended December 31, 2012 |
|
|
100 |
|
|
(4,289 |
) |
|
|
|
(100 |
) |
|
4,289 |
|
Six months ended June 30, 2013 |
|
|
100 |
|
|
(5,530 |
) |
|
|
|
(100 |
) |
|
5,530 |
|
176
Table of Contents
Liquidity Risk
We manage our liquidity risk by regularly monitoring our liquidity requirements and compliance with debt covenants to ensure that we
maintain sufficient cash and cash equivalents to meet our liquidity requirements. Set forth below is the maturity profile of our financial liabilities based on contractual undiscounted payments as of
the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2013
|
|
On
demand |
|
Less than
1 year |
|
1 to 5
years |
|
More than
5 years |
|
Total |
|
|
|
(RMB in thousands)
|
|
Trade and bills payables |
|
|
— |
|
|
97,737 |
|
|
— |
|
|
— |
|
|
97,737 |
|
Other payables and accrued liabilities |
|
|
— |
|
|
29,684 |
|
|
— |
|
|
— |
|
|
29,684 |
|
Interest-bearing bank and other borrowings |
|
|
— |
|
|
978,168 |
|
|
1,045,164 |
|
|
— |
|
|
2,023,332 |
|
Due to related companies |
|
|
140,633 |
|
|
— |
|
|
— |
|
|
— |
|
|
140,633 |
|
Mining rights payable |
|
|
— |
|
|
38,976 |
|
|
97,764 |
|
|
— |
|
|
136,740 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
140,633 |
|
|
1,144,565 |
|
|
1,142,928 |
|
|
— |
|
|
2,428,126 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2012
|
|
On
demand |
|
Less than
1 year |
|
1 to 5
years |
|
More than
5 years |
|
Total |
|
|
|
(RMB in thousands)
|
|
Trade and bills payable |
|
|
— |
|
|
103,798 |
|
|
— |
|
|
— |
|
|
103,798 |
|
Other payables and accrued liabilities |
|
|
— |
|
|
22,022 |
|
|
— |
|
|
— |
|
|
22,022 |
|
Interest-bearing bank and other borrowings |
|
|
— |
|
|
508,388 |
|
|
654,212 |
|
|
— |
|
|
1,162,600 |
|
Due to related companies |
|
|
672,401 |
|
|
— |
|
|
— |
|
|
— |
|
|
672,401 |
|
Mining rights payable |
|
|
— |
|
|
32,234 |
|
|
110,524 |
|
|
— |
|
|
142,758 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
672,401 |
|
|
666,442 |
|
|
764,736 |
|
|
— |
|
|
2,103,579 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2011
|
|
On
demand |
|
Less than
1 year |
|
1 to 5
years |
|
More than
5 years |
|
Total |
|
|
|
(RMB in thousands)
|
|
Trade and bills payable |
|
|
— |
|
|
69,402 |
|
|
— |
|
|
— |
|
|
69,402 |
|
Other payables and accrued liabilities |
|
|
— |
|
|
9,964 |
|
|
— |
|
|
— |
|
|
9,964 |
|
Interest-bearing bank and other borrowings |
|
|
— |
|
|
277,992 |
|
|
557,015 |
|
|
49,146 |
|
|
884,153 |
|
Due to related companies |
|
|
451,380 |
|
|
— |
|
|
— |
|
|
— |
|
|
451,380 |
|
Mining rights payable |
|
|
— |
|
|
27,644 |
|
|
121,529 |
|
|
18,256 |
|
|
167,429 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
451,380 |
|
|
385,002 |
|
|
678,544 |
|
|
67,402 |
|
|
1,582,328 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
177
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
On
demand |
|
Less than
1 year |
|
1 to 5
years |
|
More than
5 years |
|
Total |
|
|
|
(RMB in thousands)
|
|
Trade and bills payable |
|
|
— |
|
|
80,017 |
|
|
— |
|
|
— |
|
|
80,017 |
|
Other payables and accrued liabilities |
|
|
— |
|
|
8,700 |
|
|
— |
|
|
— |
|
|
8,700 |
|
Interest-bearing bank and other borrowings |
|
|
— |
|
|
134,357 |
|
|
270,000 |
|
|
48,742 |
|
|
453,099 |
|
Due to related companies |
|
|
314,235 |
|
|
— |
|
|
— |
|
|
— |
|
|
314,235 |
|
Mining rights payable |
|
|
— |
|
|
22,980 |
|
|
118,758 |
|
|
46,513 |
|
|
188,251 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
314,235 |
|
|
246,054 |
|
|
388,758 |
|
|
95,255 |
|
|
1,044,302 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
STATEMENT OF NET CURRENT LIABILITIES
As of June 30, 2013, we had net current liabilities of RMB955.1 million. See "— Liquidity and
Capital Resources — Working Capital" for a discussion of our net current liabilities.
DISCLOSURE REQUIRED UNDER THE LISTING RULES
As of the Latest Practicable Date, we are not aware of any circumstances that would give rise to a disclosure required under
Rules 13.13 to 13.19 of the Listing Rules.
DIVIDEND POLICY
We have not declared or paid any dividends since our incorporation, and we have no current intention of declaring or paying any
dividends after the completion of the Listing.
However, the determination to pay dividends will be made at the direction of our board of directors and will be based on our profits, cash flows, financial condition, capital requirements and other
conditions that our board of directors deems relevant. The payment of dividends may be limited by legal restrictions and agreements that we may enter into in the future.
See
"Summary of BVI company law and taxation" included in Appendix IV — "Summary of the Constitution of Our Company and British Virgin
Islands Companies Law".
RECENT ACCOUNTING PRONOUNCEMENTS
See note 2.3 to our consolidated financial statements included in
Appendix I — "Accountants' Report of the Company".
NO MATERIAL ADVERSE CHANGE
The Directors have confirmed there has been no material adverse change in our financial position or prospects since
June 30, 2013.
178
Table of Contents
RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS
OUR CONTROLLING SHAREHOLDERS AND THEIR RETAINED BUSINESSES
As of the Latest Practicable Date, Mr. Li Feilie, through its 100% shareholding in Laitan Investments, indirectly held 100% of
the issued share capital of Feishang, which in turn held approximately 58.13% of the issued share capital of CHNR. Mr. Li also directly held approximately 1.2% of the issued share capital of
CHNR as of the Latest Practicable Date.
The
Distribution will be satisfied wholly by way of a distribution in specie to all CHNR Shareholders of an aggregate of 124,554,580 Shares, representing 100% of the issued
share capital of our Company, in proportion to their respective shareholdings in CHNR on the Distribution Record Date. Pursuant to the Distribution, the CHNR Shareholders will be entitled to five
Shares for every CHNR Share held on the Distribution Record Date. As a result, following completion of the Spin-off, although CHNR will no longer hold any interest in our Company, Mr. Li
Feilie, Laitan Investments and Feishang will continue to be our Controlling Shareholders and the controlling shareholders of CHNR. In addition to his interests in CHNR and our Company, Mr. Li
also engages in other businesses through his approximately 60.74% interest in Feishang Enterprise. The following is a summary of the businesses conducted by our Controlling Shareholders and Feishang
Enterprise. None of these businesses compete with our business.
Nonferrous metal and non-metal mineral mining
- •
- Copper. Feishang Enterprise, through its subsidiary, holds
49% of the equity interest in Wuhu Hengxin Copper Industrial Group Co., Ltd., which in turn holds 28.74% of the equity interest in Anhui Xinke
New Materials Co. Ltd., a company whose shares are listed on the Shanghai Stock Exchange. Wuhu Hengxin Copper Industrial Group Co., Ltd. is engaged in the copper
refining business and Anhui Xinke New Materials Co. Ltd. is involved in the production of copper-based alloy materials.
- •
- Iron, zinc and other nonferrous metals. In addition to
coal mining operations which are conducted through our Company, CHNR is also engaged in the exploration, mineral extraction, processing and sales of iron, zinc and other nonferrous metals extracted or
produced at mines primarily located in Anhui province of the PRC. These operations are conducted by Wuhu Feishang and Yunnan Feishang, through which the CHNR Group owns and has the right to operate
Yangchong Mine, Sichong Mine, Baiguochong Mine and Luojiachong Mine.
- •
- Non-metals minerals. Anhui Xinke
New Materials Co. Ltd., a company which is held as to 28.74% by Wuhu Hengxin Copper Industrial Group Co., Ltd. which in turn is held as to 49% by Feishang Enterprise
through its subsidiaries, also produces and sells non-metal minerals and materials such as carbon fiber reinforced metal matrix composite, rare and precious metals, and porcelain. In addition,
Feishang, through its indirect subsidiary, Wuhu Feishang Non-Metal Materials Co., Ltd., mines, produces and sells bentonite.
179
Table of Contents
Meager-lean coal
Feishang Enterprise, pursuant to a trust arrangement, controls 100% of the equity interest in Guizhou Jusheng
Energy Co., Ltd. which in turn owns and operates the Sanjiazhai Mine. The Sanjiazhai Mine is a meager-lean coal mine located in Liuzhi county of Guizhou province. The Sanjiazhai Mine was
acquired by Feishang Enterprise on November 29, 2010 to provide upstream supply coal to its steel business. Feishang Energy is in the process of acquiring the Sanjiazhai Mine from Feishang
Enterprise in accordance with the request of the Leading Group and is expected to complete the acquisition by the end of 2013. The Sanjiazhai Mine will not form a part of our business upon
completion of the Spin-off for the following reasons:
- •
- The Sanjiazhai Mine produces meager-lean coal rather than anthracite coal as produced by our anthracite coal mines, and
does not have a meaningful portfolio of anthracite coal. It also has only an expected annual production capacity of 150,000 tonnes of meager-lean coal, and an expected resources of
8.42 million tonnes of meager-lean coal under the PRC Solid Mineral Resources/Reserves Classification Code.
- •
- The Sanjiazhai Mine is located in the Shuicheng District, which is designated as a "special and scarce coal mine area"
under the Interim Administrative Measures on the Development and Utilization of Special and Scarce Coal (NDRC Order No. 16)
(
16
) (the "Measures on Special and Scarce Coal"). Under the Measures on Special and Scare Coal, the development in "special and scarce coal mine areas" must be controlled
by PRC parties and, as a result, may not be included in our Company.
- •
- The Sanjiazhai Mine does not satisfy the listing requirements under Chapter 18 of the Listing Rules. As of
June 30, 2013, the Sanjiazhai Mine remained in the pilot run stage.
Our
Directors believe that there is generally insignificant competition between our core business and the operations of the Sanjiazhai Mine for the following
reasons:
- •
- The Sanjiazhai Mine produces meager-lean coal, which is primarily supplied to coal processing plants and coking plants in
Shuicheng city for the production of coking coal, whereas our Company produces anthracite coal, which is mainly sold to power plants and occasionally to chemical plants.
- •
- The Sanjiazhai Mine is limited in scale with an expected resources of 8.42 million tonnes of meager-lean coal under
the PRC Solid Mineral Resources/Reserves Classification Code, compared to our Company's proved and probable reserves of approximately 208.87 million tonnes.
- •
- The extraction methods for the mining of meager-lean coal and anthracite coal, as well as their intended uses, are
different. Although both meager-lean coal and anthracite coal can
180
Table of Contents
be
processed into PCI coal for use in the steel industry, the Directors are of the view that there is generally insignificant competition between our core business and the operations of the Sanjiazhai
Mine given that Sanjiazhai Mine possesses a limited annual production capacity and that our core business is not focused on the production of PCI coal.
It
is expected that the Sanjiazhai Mine will continue to produce meager-lean coal and sell the coal to coal processing plants and coking plants in the future. On the other hand, we
expect to continue to produce anthracite coal and sell the vast majority of our anthracite coal as chemical coal and thermal coal, with the rest as PCI coal. We currently do not have any plan to
expand into the meager-lean coal business. If we intend to expand into the meager-lean coal business in the future, we will be entitled under the Deed of Non-Competition to exercise our pre-emptive
right to acquire the Sanjiazhai Mine.
Feishang Energy and Guizhou Puxin and their statuses as coal mine consolidators in Guizhou
The Energy Bureau of Guizhou Province and the Leading Group Office of Guizhou Province on Coal Enterprises Consolidation ("Leading
Group Office") issued a confirmation letter on July 16, 2013 and August 23, 2013, respectively, which stated the following:
- •
- Feishang Energy, an indirect wholly-owned subsidiary of Feishang Enterprise, is one of the coal enterprises that have been
assessed as meeting the requirements to be a coal mine consolidator in Guizhou under the notice published by the Leading Group Office on February 28, 2013.
- •
- Guizhou Puxin (including its subsidiaries and their anthracite coal mines) is an affiliated entity of Feishang Energy.
Although Guizhou Puxin has been assessed to have met the requirements to qualify as a coal mine consolidator in Guizhou, under the principles and policies adopted by the Leading Group in respect of
the assessment of coal mine consolidator status, only one entity will be officially designated as being a coal mine consolidator if there are two or more entities under the common control of the same
person which satisfy the coal mine consolidator requirements. Accordingly, following the official designation of Feishang Energy as a coal mine consolidator, Guizhou Puxin will not be officially
designated as such. However, the lack of official designation as a coal mine consolidator would not affect Guizhou Puxin's ability to acquire or consolidate other coal mines, as Guizhou Puxin would in
practice still be treated as a coal mine consolidator.
- •
- Accordingly, Guizhou Puxin (including its subsidiaries and their anthracite coal mines) would not be subject to
consolidation or required to be closed down under Guizhou's consolidation policies. Although Guizhou Puxin (including its subsidiaries and their anthracite coal mines) would not be the subject of or
be subject to acquisition or consolidation by other third party coal mine consolidators in Guizhou, its subsidiaries or their anthracite coal mines may nevertheless be required to temporarily suspend
operations under relevant PRC laws and regulations. For example, under the "Notice of the Implementation Rules on Accelerating the Progress of Merging and Restructuring Coal
Mining Enterprises of Guizhou Province"
, coal mines which do not meet certain production capacities or gas outburst
181
Table of Contents
Our
PRC legal advisors, Commerce & Finance Law Offices, advise that the Energy Bureau of Guizhou Province is one of the most important authorities to provide its confirmation and
the Leading Group Office is the competent authority to issue its confirmation letter.
We
have excluded Feishang Energy from our Company to maintain our flexibility in selecting our acquisition targets and to avoid potential conflicts with the Measures on Special and
Scarce Coal. As an officially designated coal mine consolidator, Feishang Energy will be obliged to, upon the request of the relevant government authorities in Guizhou, acquire or consolidate certain
adjacent coal mines or coal enterprises which may not be a desirable acquisition target. As Guizhou Puxin is not an officially designated coal mine consolidator, however, it would not be subject to
these requirements. Moreover, the relevant governmental authorities in Guizhou may require Feishang Energy to acquire or consolidate "special or scarce" coal mines under the Measures on Special and
Scarce Coal, which are not permitted to be owned by non-PRC entities.
Notwithstanding
that Feishang Energy will not form part of our Company following the Listing, our Directors believe that there is generally no competition between our core business and
the operations of Feishang Energy for the following reasons:
- •
- Feishang Energy has provided certain non-competition undertakings in our favor, the details of which are set out in
"— Deed of Non-Competition". Such undertakings will take effect on the Listing Date and will remain in full force and be terminated until the date on which Feishang Energy
ceases to be qualified as a coal mine consolidator in Guizhou.
- •
- As a result of Feishang Energy's non-competition undertakings and Guizhou Puxin's status as a deemed consolidator of coal
mines and coal enterprises in Guizhou:
- –
- Feishang Energy may not engage in businesses that directly or indirectly compete with our core businesses.
- –
- Feishang Energy must give us the first opportunity to utilize any Consolidation Opportunity and to use its best endeavours
to procure that such opportunities are first offered to us.
- –
- We (through Guizhou Puxin) may selectively pursue Consolidation Opportunities which are appropriate for our business and
operations of producing high quality anthracite coal products.
182
Table of Contents
- –
- We (through Guizhou Puxin) may further exercise our right to purchase from Feishang Energy any interest in coal mines or
coal enterprises which was first offered to, but had not been acquired by, Guizhou Puxin and are acquired by Feishang Energy, as and when we consider such opportunities to be appropriate for our
business and operations of producing high quality anthracite coal products.
As
of [the Latest Practicable Date], Feishang Energy does not own any coal mines other than the Sanjiazhai Mine to be acquired by the end of 2013. In assessing
whether our Company should take up new business opportunities or exercise its pre-emptive rights under the Deed of Non-Competition, our independent non-executive Directors will consider a variety of
factors, including: (i) whether the costs of taking up the new business opportunities or exercising the pre-emptive rights would justify the benefits, taking into consideration our financial
condition, corporate strategy and long-term plan; (ii) the potential synergy between our existing operations and the new business opportunities; (iii) the geographical proximity of the
new business opportunities to our existing operations; and (iv) whether the new business opportunities would enhance our overall competitiveness and sustainability of our existing and future
businesses.
Forestry
Feishang Enterprise owns slash pine plantations in Jiangxi. Through its subsidiary, Jiangxi Feishang Forestry Co., Ltd.,
Feishang Enterprise engages in the production, sales and research and development of rosin and the processing of abietic resin and turpentine. Through its subsidiary, Taihe Feishang
Forestry Co., Ltd., Feishang Enterprise engages in the production of tackifying resin, resin coating and polyamide resin.
Other businesses
Feishang Enterprise, through its indirect subsidiary, Wuhu Port Company Limited, provides port services. Wuhu Port Company Limited, in
turn, through its 25.86% interest in Wuhu Port Storage and Transportation Company Limited, a company whose shares are listed on the Shanghai Stock Exchange, provides modern logistics services
comprising loading, storage, transportation and trading.
DEED OF NON-COMPETITION
The Controlling Shareholders and Feishang Energy have executed the Deed of Non-Competition in our favor
on 2013,
pursuant to which each of them has undertaken to:
- •
- not, and procure that their respective subsidiaries or parties controlled by them either solely or jointly with another
Controlling Shareholder or any other party ("Affiliates") will not, either on their own account or in conjunction with or on behalf of any person, firm or company, directly or indirectly, be
interested or engaged in or acquire or hold any right or interest (in each case whether as a shareholder, partner, agent or otherwise) in any business which directly or indirectly competes or
may so compete with the Core Businesses;
183
Table of Contents
- •
- notify our Company of any business opportunity which directly or indirectly competes or may so compete with the Core
Businesses ("New Business Opportunity"), if any of them becomes aware of such business opportunity; and
- •
- use its best endeavours to procure that the New Business Opportunity is first offered to our Company on terms and
conditions that are fair and reasonable.
For
the purpose of the Deed of Non-Competition, "Core Businesses" shall include the acquisition and exploitation of coal mining rights (including the exploration, construction,
development and operation of coal mines) located in Guizhou province in the PRC.
Each
of the Controlling Shareholders and Feishang Energy also unconditionally and irrevocably undertakes to grant to us the following options and pre-emptive
rights:
- •
- options to purchase on the basis of valuations conducted by an independent qualified valuer jointly appointed by the
relevant Controlling Shareholder, Feishang Energy and us, subject to any relevant laws and applicable listing rules and existing third party pre-emptive
rights:
- –
- any interest in the relevant Controlling Shareholder's or Feishang Energy's business, including any business of their
respective Affiliates, which directly or indirectly competes or is likely to compete with the Core Businesses; and
- –
- any interest in any business of a Controlling Shareholder or Feishang Energy or their respective Affiliates resulting from
a New Business Opportunity which has been offered to us, but has not been purchased by us, and has been retained by a Controlling Shareholder, Feishang Energy or their respective
Affiliates; and
- •
- pre-emptive rights to purchase on fair and reasonable terms any new or existing business of the Controlling Shareholders,
Feishang Energy or any of their respective Affiliates that directly or indirectly competes, or may so compete with the Core Businesses, subject to any relevant laws and applicable listing rules and
existing third party pre-emptive rights.
The
Deed of Non-Competition does not restrict each of the Controlling Shareholders, Feishang Energy and their respective
Affiliates to:
- •
- hold, directly or indirectly securities of any company listed on the Stock Exchange or other recognized stock exchange
which is primarily engaged in any Core Business provided that the interests of the relevant Controlling Shareholder and its Affiliates or Feishang Energy and its Affiliate, in each case, in such
company represents in aggregate not more than 5% of the total issued share capital of such company and that the relevant Controlling Shareholder and its Affiliates or Feishang Energy and its
Affiliates, in each case, individually or together, are not in control of the board of directors of such company;
184
Table of Contents
- •
- hold shares and other securities in us and our subsidiaries or Feishang Energy; and/or
- •
- hold shares and other securities of any company listed on the Stock Exchange or other stock exchange whose primary
business is not the Core Businesses.
Furthermore,
each of the Controlling Shareholders and Feishang Energy undertakes to us to provide an annual confirmation to us and our independent non-executive Directors regarding their
compliance and the compliance of their Affiliates (as relevant) with the Deed of Non-Competition.
We
will disclose the review by our independent non-executive Directors of the compliance, and enforcement of, the Deed of Non-Competition in our annual report or by way of announcement
to the public in compliance with the requirements of the Listing Rules. In the event any New Business Opportunities presented by or otherwise arising in connection with any of the Controlling
Shareholders or Feishang Energy are turned down by us according to the Deed of Non-Competition, we will disclose the decision, as well as the basis for such decision in our annual report or
interim report.
The
Deed of Non-Competition will take effect on the Listing Date and will remain in full force and be terminated:
- •
- in respect of the Controlling Shareholders, upon the earlier of:
- i.
- the
date on which the relevant Controlling Shareholders and/or their Affiliates cease to be a controlling shareholder of us within the meaning of the
Listing Rules;
- ii.
- the
date on which our Shares cease to be listed on the Stock Exchange; and
- iii.
- the
date on which our Company ceases to engage in the Core Businesses; and
- •
- in respect of Feishang Energy only, on the date on which it ceases to be qualified as a coal mine consolidator
in Guizhou.
For
the avoidance of doubt, CHNR, together with its subsidiaries and the parties controlled by it, will become an Affiliate of Mr. Li Feilie upon the completion of the Spin-off
and be subject to the relevant undertakings set forth above.
185
Table of Contents
INDEPENDENCE FROM OUR CONTROLLING SHAREHOLDERS
Our Directors confirm that, for the reasons set forth below, we will be able to conduct our business independently of our Controlling
Shareholders and their respective associates following the Listing and completion of the Spin-off.
Management independence
Feishang Enterprise, Feishang, Laitan Investments, CHNR and their subsidiaries, on the one hand, and our Company, on the other hand,
have boards of directors or equivalent decision making bodies that function independently of each other. While Mr. Li Feilie overlaps as a director between the respective boards of directors of
Feishang Enterprise, CHNR and our Company, he will spend the necessary time and attention required as an executive Director of our Company to formulate an overall business strategy and oversee the
corporate development of our Company. There will not be any other Directors who also serve on the board of directors of CHNR upon completion of the Spin-off.
CHNR
will cease to be our Controlling Shareholder upon completion of the Spin-off. Although Mr. Li Feilie, Mr. Tam Cheuk Ho and Mr. Wong Wai On Edward are
shareholders of CHNR, this will not affect the management independence of the Company since, except for Mr. Li who will continue to be a director of CHNR: (i) their interests in CHNR are
only in the capacity of shareholders; and (ii) they have no management role in CHNR upon completion of the Spin-off. Although Mr. Li serves as a director in both CHNR and our Company,
for the reasons disclosed in this section (including the fact that CHNR and the Company have boards of directors or equivalent decision making bodies that function independently of each other and the
fiduciary duties owed to each of the companies as a director), management independence is preserved.
Each
of our Directors is aware of his or her fiduciary duties as a Director which require, among other things, that he or she acts for the benefit and in the best interests of our
Company and does not allow any conflict between his or her duties as a Director and his or her personal interest. In the event there is a potential conflict of interest arising out of any transaction
to be entered into between our Company and our Directors or their respective associates, the interested Director(s) will, if his or her or any of his or her associates' interest in such contract or
arrangement is material, declare the nature of his or her interest in accordance with the Articles of Association and will not vote on or be counted in the quorum for any resolution of the Board in
respect of such contract or arrangement unless so authorized by the Articles of Association.
The
Directors have confirmed that they do not have any interests in any business which directly or indirectly competes or is likely to compete, directly or indirectly, in any material
respect with the Core Businesses as of the date of this listing document.
186
Table of Contents
Business operations
We are engaged mainly, among other things, in the production and sale of anthracite coal. We have full rights to make decisions on and
to carry out our own business and operations independently. The principal supplies and equipment we use are generally widely available and we are not dependent on the Controlling Shareholders for such
supplies and equipment. We also have direct and close contact with our customers without dependence on the Controlling Shareholders for market access. Moreover, we have sufficient capital, equipment
and employees to operate our business independently.
Operational independence
Our operational decisions are made by our Directors and senior management. We have established our own set of organizational structure
made up of individual
departments, each with specific areas of responsibilities. We have also established a set of internal controls to facilitate the effective operation of our business.
Financial independence
We have established an independent finance department responsible for discharging the treasury, accounting, reporting, group credit and
internal control functions independent from the Controlling Shareholders and their subsidiaries (excluding our Company). In addition, we have established our bank accounts independent of our
Controlling Shareholders. We also make tax registrations independently of our Controlling Shareholders and pay taxes independently of our Controlling Shareholders pursuant to applicable laws. We have
employed a sufficient number of dedicated financial accounting personnel responsible for financial auditing of our accounts.
During
the Track Record Period and thereafter, our Controlling Shareholders and their subsidiaries have provided certain financial assistance to our Company in the form of shareholders'
loans and guarantees.
187
Table of Contents
The following table sets forth the details of the financial assistance provided by our Controlling Shareholders and their subsidiaries (excluding our Company) to
our Company as of the Latest Practicable Date:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrower
|
|
Lender |
|
Date of loan
agreement |
|
Loan amount
(RMB) |
|
Current
interest rate |
|
Purpose |
|
Term |
|
Outstanding
loan amount
as of Latest
Practicable
Date
(RMB) |
|
Largest
amount
during the
term of loan
(RMB) |
|
Connected
person
providing
guarantee |
|
Security
provided
by our
Company in
respect of the
financial
assistance |
The Entrusted Loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guizhou Puxin |
|
Feishang Management through China Minsheng Bank, Chongqing Branch |
|
|
March 19, 2013 |
|
|
131,000,000 |
|
|
None |
|
Replacing the inter-company loan |
|
March 19, 2013 - March 19, 2016 |
|
|
131,000,000 |
|
|
131,000,000 |
|
Nil |
|
Nil |
|
|
|
|
|
TOTAL |
|
|
131,000,000 |
|
|
|
|
|
|
TOTAL |
|
|
131,000,000 |
|
|
|
|
|
|
|
Bank and other borrowings guaranteed by our Controlling Shareholders or their subsidiaries (excluding our Company)
("Connected Guarantees") that are expected to be released after the Listing and completion of the Spin-off |
Guizhou Puxin |
|
China Merchants Bank, Guiyang Branch |
|
|
January 29, 2013 |
|
|
20,000,000 |
|
|
7.80%
(fixed) |
|
General working capital and financing the inter-company purchase of coal |
|
January 29, 2013 - January 28, 2014 |
|
|
20,000,000 |
|
|
20,000,000 |
|
WFID |
|
Nil |
Guizhou Puxin |
|
China Merchants Bank, Guiyang Branch |
|
|
February 27, 2013 |
|
|
30,000,000 |
|
|
7.80%
(fixed) |
|
Financing the inter-company purchase of coal |
|
February 27, 2013 - February 26, 2014 |
|
|
30,000,000 |
|
|
30,000,000 |
|
WFID |
|
Nil |
Guizhou Dayun |
|
China Merchants Bank, Guiyang Branch |
|
|
December 19, 2011 |
|
|
300,000,000 |
|
|
8.52%
(floating) |
|
Financing the construction of Dayun Coal Mine |
|
December 20, 2011 - December 19, 2017 |
|
|
180,000,000 |
|
|
180,000,000 |
|
Mr. Li Feilie and Feishang Enterprise |
|
Nil |
188
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrower
|
|
Lender |
|
Date of loan
agreement |
|
Loan amount
(RMB) |
|
Current
interest rate |
|
Purpose |
|
Term |
|
Outstanding
loan amount
as of Latest
Practicable
Date
(RMB) |
|
Largest
amount
during the
term of loan
(RMB) |
|
Connected
person
providing
guarantee |
|
Security
provided
by our
Company in
respect of the
financial
assistance |
The Entrusted Loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xinsong Coal |
|
China Minsheng Bank, Chongqing Branch |
|
|
May 5, 2011 |
|
|
50,000,000 |
|
|
8.00%
(floating) |
|
Financing the improvement project of Liujiaba Coal Mine |
|
May 5, 2011 - May 5, 2014 |
|
|
45,000,000 |
|
|
50,000,000 |
|
WFID |
|
Nil |
Dayuan Coal |
|
Bank of Communications, Guizhou Branch |
|
|
June 26, 2012 |
|
|
100,000,000 |
|
|
8.00%
(floating) |
|
Ramp-up of Dayuan Coal Mine |
|
June 26, 2012 - June 26, 2015 |
|
|
94,700,000 |
|
|
96,900,000 |
|
WFID and Mr. Li Feilie |
|
Nil |
Guizhou Dayun |
|
Industrial and Commercial Bank of China, Jinsha Branch |
|
|
December 17, 2012 |
|
|
150,000,000 |
|
|
7.21%
(floating) |
|
Financing the construction of Dayun Coal Mine |
|
December 26, 2012 - December 25, 2018 |
|
|
10,000,000 |
|
|
10,000,000 |
|
Feishang Enterprise |
|
Nil |
Guizhou Puxin |
|
China Everbright Bank, Guiyang Branch |
|
|
February 4, 2013 |
|
|
20,000,000 |
|
|
6.30%
(fixed) |
|
Financing the inter-company purchase of coal |
|
February 4, 2013 - February 3, 2014 |
|
|
20,000,000 |
|
|
20,000,000 |
|
Mr. Li Feilie and Feishang Enterprise |
|
Nil |
Linjiaao Coal |
|
Bank of Chongqing, Guiyang Branch |
|
|
August 23, 2011 |
|
|
90,000,000 |
|
|
6.40%
(floating) |
|
Financing the improvement project of Linjiaao Coal Mine |
|
August 24, 2011 - August 23, 2015 |
|
|
82,000,000 |
|
|
90,000,000 |
|
Mr. Li Feilie and WFID |
|
Nil |
Guizhou Puxin |
|
Bank of Chongqing, Guiyang Branch |
|
|
March 29, 2013 |
|
|
50,000,000 |
|
|
8.40%
(fixed) |
|
General working capital and financing the inter-company purchase of coal |
|
March 29, 2013 - March 28, 2014 |
|
|
50,000,000 |
|
|
50,000,000 |
|
Feishang Enterprise |
|
Nil |
189
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrower
|
|
Lender |
|
Date of loan
agreement |
|
Loan amount
(RMB) |
|
Current
interest rate |
|
Purpose |
|
Term |
|
Outstanding
loan amount
as of Latest
Practicable
Date
(RMB) |
|
Largest
amount
during the
term of loan
(RMB) |
|
Connected
person
providing
guarantee |
|
Security
provided
by our
Company in
respect of the
financial
assistance |
The Entrusted Loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guizhou Puxin |
|
Huachuang Securities through Guizhou Bank, Guiyang Branch |
|
|
May 13, 2013 |
|
|
300,000,000 |
|
|
8.00%
(fixed) |
|
General working capital, financing the acquisitions of mines and the settlement of debts |
|
May 14, 2013 - May 13, 2015 |
|
|
300,000,000 |
|
|
300,000,000 |
|
Mr. Li Feilie, Feishang Enterprise and Feishang Energy |
|
Nil |
Guizhou Puxin |
|
China Minsheng Bank, Chongqing Branch |
|
|
August 14, 2013 |
|
|
100,000,000 |
|
|
6.60%
(floating) |
|
Financing the inter-company purchase of coal |
|
August 15, 2013 - August 15, 2014 |
|
|
100,000,000 |
|
|
100,000,000 |
|
WFID |
|
Nil |
Guizhou Puxin |
|
China Minsheng Bank, Chongqing Branch |
|
|
October 17, 2013 |
|
|
150,000,000 |
|
|
6.00%
(floating) |
|
General working capital |
|
October 17, 2013 - October 17, 2014 |
|
|
150,000,000 |
|
|
150,000,000 |
|
WFID |
|
Nil |
|
|
|
|
|
TOTAL |
|
|
1,360,000,000 |
|
|
|
|
|
|
TOTAL |
|
|
1,081,700,000 |
|
|
|
|
|
|
|
190
Table of Contents
The Entrusted Loan was made available by Feishang Management as the entrusting party, through the Chongqing branch of China Minsheng Bank as the
lender, to Guizhou Puxin as the borrower. We intend to repay the Entrusted Loan as soon as possible, in any event no later than six months after the Listing using a combination of working capital
and/or securing new bank loans. Proceeds from the Entrusted Loan was applied to replace certain inter-company loans which were not compliant with the relevant PRC regulations on intercompany lending.
As
at the Latest Practicable Date, the total amount of loans subject to the Connected Guarantees was approximately RMB1,315.0 million, representing approximately 60.3% of the
total borrowings of our Company.
For
the reasons set forth below, our Directors and the Joint Sponsors are of the view that we are able to operate financially independently of our Controlling Shareholders.
We have obtained in-principle consents from each of China Minsheng Bank, China Merchants Bank, Bank of Communications, Industrial and
Commercial Bank of China, China Everbright Bank, Bank of Chongqing and Huachuang Securities to release all of the Connected Guarantees, to be effective upon Listing and the completion of certain
administrative procedures of the lenders, which is expected to be completed approximately three months after the Listing.
Accordingly,
all Connected Guarantees given by Mr. Li Feilie, Feishang Enterprise, Wuhu Port, WFID and Feishang Energy in respect of our loans will be replaced by guarantees to be
provided by our Company in favor of the respective lending banks on similar terms within three months after the Listing. The additional timing to release such Connected Guarantees post-Listing is
required to (1) complete certain administrative procedures of the banks and (2) enter into new loan agreements and guarantee contracts by our Company in connection with the replacement
of such guarantees following the Listing.
We
believe that the in-principle consents for the replacement of all of our Connected Guarantees by guarantees to be given by our Company demonstrate that we are able to obtain new
financing and extend existing financing from commercial banks on market terms without guarantee or security from our Controlling Shareholders or their subsidiaries (excluding our Company) following
the Listing.
In July 2013, we obtained a legally binding commitment letter from China Minsheng Bank to provide a term loan with an aggregate
principal amount of up to RMB1.6 billion that may be drawn down on or before January 29, 2015, subject to certain conditions. These conditions include the absence of any material adverse
changes to our Company's financial position, which in turn requires, among others, that the revenue of our Company for the year in which the loan is drawn down
must not decrease by more than 50% as compared to the immediately preceding year, that our Company's total interest-bearing debt to asset ratio shall not exceed 90%, and that we do not have a poor
credit record. According to a letter we received from China Minsheng Bank in September 2013 explaining the July 2013 commitment letter, China Minsheng Bank will carry out internal
financial assessment
191
Table of Contents
procedures
on our Company prior to loan drawdown, which will be conducted based on the internal credit rating system of China Minsheng Bank. In the event that our Company's credit rating is assessed
by China Minsheng Bank to be "BBB-" or below, China Minsheng Bank will not approve the drawdown. The credit rating of our Company is currently assessed by China Minsheng Bank to be "A,"
which is three ratings higher than "BBB-". The interest rate of the loan will be determined based on the prevailing market conditions at the time of drawdown. The interest rates generally
charged by China Minsheng Bank are the PBOC's official benchmark interest rates plus a premium of 20% to 30%. The loan is expected to be provided without the assistance of our Controlling Shareholders
or their subsidiaries (excluding our Company). In addition, in October 2013, we obtained a legally binding commitment letter from China Merchant Bank to provide a term loan with an aggregate
principal amount of up to RMB350 million that may be drawn down on or before March 10, 2015, subject to certain conditions, including a repayment term of not less than one year for each
draw down.
RELATED PARTY TRANSACTIONS
Related party advances
We have obtained advances from related parties from time to time during the Track Record Period. These loans are non-interest bearing,
unsecured and payable on demand. See "Financial Information — Indebtedness — Loans From Related Companies" and
note 32 to our consolidated financial statements as included in Appendix I — "Accountants' Report of the Company". Set forth below is a
summary of our related party loans since January 1, 2010 to the Latest Practicable Date.
Wuhu Feishang is an indirect wholly owned subsidiary of CHNR. As of December 31, 2010, 2011 and 2012, the outstanding balance of
advances from Wuhu Feishang was RMB25.0 million, RMB118.0 million and RMB118.0 million, respectively. We have repaid all of the advances in April 2013. From
January 1, 2010 to April 2013, the largest daily outstanding balance of advances from Wuhu Feishang was RMB143.0 million.
Yangpu Lianzhong is an indirect wholly owned subsidiary of CHNR. As of December 31, 2011, the outstanding balance of advances
from Yangpu Lianzhong was RMB105.0 million. We have repaid all of the advances in October 2012. From January 1, 2010 to October 2012, the largest daily outstanding balance
of advances from Yangpu Lianzhong was RMB146.0 million.
Feishang Management is an indirect wholly owned subsidiary of CHNR. As of December 31, 2010, 2011 and 2012 and the six months
ended June 30, 2013, the outstanding balance of advances from Feishang Management was RMB263.4 million, RMB178.8 million, RMB540.0 million and RMB131.0 million,
respectively. From January 1, 2010 to the Latest Practicable Date, the largest daily outstanding balance of advances from Feishang Management was RMB620.3 million.
192
Table of Contents
Yunnan Feishang is an indirect wholly owned subsidiary of CHNR. As of December 31, 2011, the outstanding balance of advances
from Yunnan Feishang was RMB35.2 million. We have repaid all of the advances in December 2012. From January 1, 2010 to December 2012, the largest daily outstanding balance
of advances from Yunnan Feishang was RMB35.2 million.
Yangpu Shuanghu is a wholly owned subsidiary of CHNR. As of December 31, 2010, the outstanding balance of advances from Yangpu
Shuanghu was RMB15.0 million. We have repaid all of the advances in November 2011. From January 1, 2010 to November 2011, the largest daily outstanding balance of advances
from Yangpu Shuanghu was RMB15.0 million.
As of December 31, 2010, 2011 and 2012 and the six months ended June 30, 2013, the outstanding balance of advances from
CHNR was RMB9.7 million, RMB9.3 million, RMB9.5 million and RMB9.6 million, respectively. From January 1, 2010 to the Latest Practicable Date, the largest daily
outstanding balance of advances from CHNR was RMB19.5 million.
Fiishang Enterprise is 100% controlled by Mr. Li Feilie and his associates. As of December 31, 2010, 2011 and 2012, the
outstanding balance of advances from Feishang Enterprise was RMB1.1 million, RMB5.1 million and RMB4.9 million, respectively. We have repaid all of the advances in
May 2013. From January 1, 2010 to May 2013, the largest daily outstanding balance of advances from Feishang Enterprise was RMB240.2 million.
193
Table of Contents
Discontinued Guarantees from Related Parties
Certain of our bank and other borrowings are guaranteed by Mr. Li Feilie and/or companies controlled by him. See
"— Independence From Our Controlling Shareholders — Financial Independence" for the guarantees provided by Mr. Li and companies
controlled by him relating to our continuing bank and other borrowings and "Financial
Information — Indebtedness — Interest-Bearing Loans". The following table sets forth the details of bank and other
borrowings guaranteed by Mr. Li and companies controlled by him during the Track Record Period which have expired.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrower
|
|
Lender |
|
Date of
loan
agreement |
|
Loan
amount
(RMB) |
|
Term |
|
Outstanding
loan amount
as of Latest
Practicable
Date
(RMB) |
|
Related party
providing
guarantee |
Guizhou Puxin |
|
SPDB |
|
|
June 10, 2010 |
|
|
10,000,000 |
|
June 10, 2010 -
June 8, 2011 |
|
|
0 |
|
Wuhu Port |
Guizhou Puxin |
|
SPDB |
|
|
June 18, 2010 |
|
|
20,000,000 |
|
June 18, 2010 -
June 15, 2011 |
|
|
0 |
|
Wuhu Port |
Guizhou Puxin |
|
China Minsheng Bank |
|
|
December 14, 2010 |
|
|
70,000,000 |
|
December 14, 2010 -
December 13, 2011 |
|
|
0 |
|
Wuhu Port and WFID |
Guizhou Puxin |
|
China Merchant Bank |
|
|
February 1, 2011 |
|
|
20,000,000 |
|
February 1, 2011 -
January 30, 2012 |
|
|
0 |
|
WFID |
Guizhou Puxin |
|
China Merchant Bank |
|
|
February 25, 2011 |
|
|
30,000,000 |
|
February 25, 2011 -
February 24, 2012 |
|
|
0 |
|
WFID |
Guizhou Puxin |
|
Bank of Chongqing |
|
|
April 12, 2011 |
|
|
70,000,000 |
|
April 12, 2011 -
October 12, 2011 |
|
|
0 |
|
WFID |
Guizhou Puxin |
|
SPDB |
|
|
June 30, 2011 |
|
|
50,000,000 |
|
June 30, 2011 -
July 1, 2012 |
|
|
0 |
|
Wuhu Port |
Guizhou Puxin |
|
Bank of Chongqing |
|
|
October 18, 2011 |
|
|
60,000,000 |
|
October 18, 2011 -
March 30, 2012 |
|
|
0 |
|
WFID |
Guizhou Puxin |
|
Bank of Chongqing |
|
|
October 26, 2011 |
|
|
10,000,000 |
|
October 26, 2011 -
March 30, 2012 |
|
|
0 |
|
WFID |
Guizhou Puxin |
|
China Merchant Bank |
|
|
January 31, 2012 |
|
|
20,000,000 |
|
January 31, 2012 -
January 28, 2013 |
|
|
0 |
|
WFID |
Guizhou Puxin |
|
China Merchant Bank |
|
|
February 27, 2012 |
|
|
30,000,000 |
|
February 27, 2012 -
February 26, 2013 |
|
|
0 |
|
WFID |
Guizhou Puxin |
|
China Minsheng Bank |
|
|
April 20, 2012 |
|
|
100,000,000 |
|
April 20, 2012 -
April 20, 2013 |
|
|
0 |
|
WFID |
Guizhou Puxin |
|
CITIC |
|
|
July 20, 2012 |
|
|
60,000,000 |
|
July 20, 2012 -
July 19, 2013 |
|
|
0 |
|
Wuhu Port |
194
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrower
|
|
Lender |
|
Date of
loan
agreement |
|
Loan
amount
(RMB) |
|
Term |
|
Outstanding
loan amount
as of Latest
Practicable
Date
(RMB) |
|
Related party
providing
guarantee |
Guizhou Puxin |
|
China Minsheng Bank, Chongqing Branch |
|
|
August 24, 2010 |
|
|
150,000,000 |
|
August 11, 2010 -
August 11, 2013 |
|
|
0 |
|
Mr. Li Feilie and Wuhu Port |
Guizhou Puxin |
|
Industrial and Commercial Bank of China, Guiyang Branch |
|
|
September 27, 2012 |
|
|
25,000,000 |
|
October 8, 2012 -
October 7, 2013 |
|
|
0 |
|
Mr. Li Feilie and Feishang Enterprise |
Guizhou Puxin |
|
China Everbright Bank, Chongqing Branch |
|
|
November 2, 2012 |
|
|
30,000,000 |
|
November 2, 2012 -
November 2, 2013 |
|
|
0 |
|
Feishang Enterprise |
Other Related Party Transactions
As part of our Corporate Transactions, in September 2010 and July 2011, we acquired Guizhou Yongfu and Guizhou Dayun from
Yangpu Shuanghu and Feishang Dayun, respectively. See "History and Development — Corporate Transactions".
195
Table of Contents
CORPORATE GOVERNANCE
Our Board will consist of not less than three independent non-executive Directors to ensure that our Board is able to effectively
exercise independent judgment in its decision-making process and provide independent advice to our Shareholders. We will ensure that our independent non-executive Directors are of sufficient caliber,
knowledge and experience, have no connections or relationship with us or our connected persons and will carry weight in our decision-making process.
We
have adopted the following decision-making procedures for matters or transactions with potential conflicts of interest between us, on the one hand, and our Controlling Shareholders
and their subsidiaries, on the other hand:
- •
- The Articles of Association require the Directors to declare material
interests. The Articles of Association provide that if a Director is in any way interested in a contract, transaction or arrangement
with the Company (including one that is proposed), the Director shall declare the nature of such interest at the earliest opportunity at which it is practicable for him or her to do so.
- •
- The Articles of Association require that the Directors with material interests shall not vote nor be counted in
quorum. Subject to certain exceptions, the Articles of Association provide that a Director shall not vote (nor shall he or she be
counted in the quorum) on any resolution of our Board approving any contract, arrangement or proposal in which he or she, or any of his or her associates, is, to his or her knowledge, materially
interested. If he or she votes, his or her vote will not be counted (nor will he or she be counted in the quorum for that resolution). The Articles of Association require a Director to excuse
himself or herself from voting in the event the Director has any conflicts of interest.
- •
- Audit, nomination and remuneration committees. We have
established an audit committee, a nomination committee and a remuneration committee to assess and control, and ensure our Board is appropriately advised as to, matters relating to (among other things)
our relationship with our external auditors and our internal audit function, the remuneration of the Directors and our senior management, and the composition of the Board. Our audit committee
comprises non-executive Directors and each of our nomination committee and remuneration committee comprises a majority of independent non-executive Directors. Moreover, the chairman of each of our
audit, nomination and remuneration committees is an independent non-executive Director. For the composition of, and other details relating to, these committees, see "Directors and Senior Management".
- •
- Appointment of compliance adviser. We expect to enter into
an agreement with a compliance adviser, , to provide us with professional advice and guidance in respect of compliance with the Listing Rules and relevant
applicable laws.
196
Table of Contents
In
addition, the following measures will be adopted by us in respect of the enforceability of the Deed of Non-Competition:
- •
- Compliance with Deed of Non-Competition. The independent
non-executive Directors will review, on an annual basis, the Controlling Shareholders' and Feishang Energy's compliance with the Deed of Non-Competition and we will disclose the results of such review
and the enforcement of (if any) the Deed of Non-Competition in our annual report or by way of announcement to the public in compliance with the requirements of the Listing Rules. Our
Controlling Shareholders and Feishang Energy have undertaken to us that they will provide all information necessary for the annual review by our independent non-executive Directors and the enforcement
of the Deed of Non-Competition. Our Controlling Shareholders and Feishang Energy have further undertaken to us that each of them will make an annual confirmation as to compliance with the Deed of
Non-Competition in our annual report.
- •
- New business opportunities. Any New Business
Opportunities under the Deed of Non-Competition (including to exercise or not to exercise any option under the Deed of Non-Competition) and all other matters determined by our Board as having a
potential conflict of interest with the Controlling Shareholders or Feishang Energy will be referred to our independent non-executive Directors for discussion and decision. When necessary, these
Directors will engage an independent financial advisor to advise them on these matters. In the event any New Business Opportunities presented by or otherwise arising in connection with any of
the Controlling Shareholders or Feishang Energy are turned down by us according to the Deed of Non-Competition, we will disclose the decision, as well as the basis for such decision in our annual
report or interim report.
- •
- Disclosure of new opportunities. Our annual report will
include the views and decisions, with bases, of our independent non-executive Directors on whether to take up any new opportunities under the Deed of Non-Competition (including to exercise or not to
exercise any option under the Deed of Non-Competition) or other matters having a potential conflict of interest with the Controlling Shareholders or Feishang Energy that have been referred to the
independent non-executive Directors.
Moreover,
any transaction that is proposed between us and any of our Controlling Shareholders will be required to comply with the then requirements of the Listing Rules, including, where
applicable, the announcement, reporting and independent shareholders' approval requirements.
Based
on the above, our Board is satisfied that there are sufficient and effective preventive measures to manage conflicts of interest and our Board is able to operate independently of
the Controlling Shareholders.
197
Table of Contents
CONNECTED TRANSACTIONS
RELEVANT CONNECTED PERSONS
The table below sets forth the connected persons of our Company who conduct or will continue to conduct connected transactions with our
Company upon the Listing and the nature of their connection with our Company:
|
|
|
Name
|
|
Connected Relationship |
| Mr. Li Feilie |
|
As of the Latest Practicable Date, Mr. Li Feilie indirectly held 100% of the issued share capital of Feishang, which in turn held approximately 58.13% of the issued share capital of CHNR. Mr. Li
also directly held approximately 1.2% of the issued share capital of CHNR. Upon Listing and completion of the Distribution, Mr. Li will, through Feishang and his direct shareholding, become our ultimate Controlling Shareholder holding
approximately 59.33% of the issued share capital of our Company and will become our connected person pursuant to Rule 14A.11(1) of the Listing Rules. |
Feishang Enterprise |
|
Feishang Enterprise is owned as to approximately 60.74% by Mr. Li Feilie, our Controlling Shareholder. As such, Feishang Enterprise is an associate of Mr. Li and our connected person
pursuant to Rule 14A.11(4) of the Listing Rules. |
Feishang Energy |
|
Feishang Energy is an indirect wholly-owned subsidiary of Feishang Enterprise, which is in turn owned as to approximately 60.74% by Mr. Li Feilie. As such, Feishang Energy is an associate of
Mr. Li and our connected person pursuant to Rule 14A.11(4) of the Listing Rules. |
WFID |
|
WFID is a non-wholly-owned subsidiary of Feishang Enterprise, which is in turn owned as to approximately 60.74% by Mr. Li Feilie. As such, WFID is an associate of Mr. Li and our connected
person pursuant to Rule 14A.11(4) of the Listing Rules. |
Wuhu Port |
|
Wuhu Port is a non-wholly-owned subsidiary of Feishang Enterprise, which is in turn owned as to approximately 60.74% by Mr. Li Feilie. As such, Wuhu Port is an associate of Mr. Li and our
connected person pursuant to Rule 14A.11(4) of the Listing Rules. |
Feishang Management |
|
Feishang Management is a wholly-owned subsidiary of CHNR, which is in turn owned as to approximately 58.13% by Feishang and approximately 1.2% by Mr. Li Feilie. As such, Feishang Management is an
associate of Mr. Li and our connected person under Rule 14A.11(4) of the Listing Rules. |
198
Table of Contents
|
|
|
Name
|
|
Connected Relationship |
Anka Consultants Limited
("Anka") |
|
Anka is owned as to 50% by Mr. Tam Cheuk Ho and as to 50% by Mr. Wong Wah On, Edward, both of whom are
our Directors. As such, Anka is an associate of each of Mr. Tam and Mr. Wong and our connected person pursuant to Rule 14A.11(4) of the Listing Rules. |
EXEMPT CONTINUING CONNECTED TRANSACTIONS
We have entered into agreements or transactions with certain of our connected persons and such agreements or transactions will
constitute continuing connected transactions of our Company under Chapter 14A of the Listing Rules. All of such transactions are exempt from the reporting, announcement and independent
shareholders' approval requirements under Chapter 14A of the Listing Rules and are classified into the following categories.
|
|
|
|
|
|
|
Nature of Transaction
|
|
Applicable Listing Rule |
|
| (1) |
|
A loan provided to our Company by Feishang Management through China Minsheng Bank |
|
|
Rule 14A.65(4) |
|
(2) |
|
Guarantees provided by our connected persons to secure loan facilities granted to our Company by third parties |
|
|
Rule 14A.65(4) |
|
(3) |
|
A licence agreement entered into between our Company and Anka to set forth certain office sharing arrangements |
|
|
Rule 14A.33(3) |
|
Entrusted Loan
Pursuant to an arrangement among Feishang Management, China Minsheng Bank and Guizhou Puxin, dated March 19, 2013, Feishang
Management deposited with China Minsheng Bank an amount equal to RMB131.0 million, which in turn was lent to Guizhou Puxin as an interest-free, unsecured loan for the purpose of replacing the
inter-company loan (the "Entrusted Loan"). The term of the loan is three years. The outstanding amount of the Entrusted Loan as of the Latest Practicable Date was RMB131.0 million,
representing approximately 6.0% of the total borrowings of our Company.
The
Directors are of the view that the provision of the Entrusted Loan by Feishang Management, being a form of financial assistance (as defined in the Listing Rules), for our
benefit, is fair and reasonable, on normal commercial terms and in our and our Shareholders' interest. No security over our assets is granted to Feishang Management in respect of its provision of the
Entrusted Loan. Accordingly, the provision of the Entrusted Loan is exempt from compliance with the reporting, announcement and independent shareholders' approval requirements pursuant to
Rule 14A.65(4) of the Listing Rules.
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Table of Contents
See
"Relationship with our Controlling Shareholders — Independence from our Controlling
Shareholders — Financial Independence" in respect of the arrangements to repay the Entrusted Loan upon the Listing.
Connected Guarantees
Our connected persons have guaranteed certain of our external borrowings from banks which are Independent Third Parties
(the "Connected Guarantees"). The Connected Guarantees have enabled us to obtain more favorable financing terms from such lending banks. Details of the Connected Guarantees are set forth in the
section headed "Relationship with our Controlling Shareholders — Independence from our Controlling Shareholders — Financial
Independence".
The
Connected Guarantees will, upon the Listing, constitute financial assistance provided by our connected persons. Our Directors are of the view that the Connected Guarantees, being a
form of financial assistance (as defined in the Listing Rules) for our benefit, are fair and reasonable, on normal commercial terms and in our and our Shareholders' interest. No security over
our Company's assets is granted to our connected persons in respect of the financial assistance. Accordingly, the provision of the Connected Guarantees is exempt from compliance with the reporting,
announcement and independent shareholders' approval requirements under Rule 14A.65(4) of the Listing Rules.
See
"Relationship with our Controlling Shareholders — Independence from our Controlling
Shareholders — Financial Independence" in respect of the arrangements to release all of the Connected Guarantees within a period of three months after
the Listing.
Licence Agreement
We have entered into a licence agreement dated September 1, 2013 (the "Licence
Agreement") with Anka, our connected person. Anka currently shares, and under the
terms of the Licence Agreement will continue to share, part of its rented office space with us. The rent payable by us to Anka for the use of such office space is approximately
HK$700,000 per annum.
Based
on the total assets and estimated market capitalization of our Company, in respect of the Licence Agreement above, each of the applicable percentage ratios on an annual basis falls
below 0.1%. Therefore, such transactions will be exempted from the reporting, annual review, announcement and independent shareholders' approval requirements applicable to continuing connected
transactions under Chapter 14A of the Listing Rules as they fall within the de minimis threshold under Rule 14A.33(3) of the Listing Rules.
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DIRECTORS AND SENIOR MANAGEMENT
DIRECTORS
Our Board consists of eight Directors, of which five are executive Directors and three are independent non-executive Directors. The
Directors are elected at the general meetings of the Shareholders. At every annual general meeting of Shareholders, one-third of the
Directors must retire from office by rotation and every Director is required to be subject to retirement by rotation at least once every three years. The functions and duties of our Board include
convening general meetings of the Shareholders, implementing the resolutions passed at the Shareholders' meetings, determining our business plans and strategies, formulating our annual budget and
final accounts, formulating our proposals for profit distributions as well as exercising other powers, functions and duties as conferred by our Articles of Association. We [have
entered] into service contracts with all of our executive Directors and independent non-executive Directors which provide for a term of directorship up to three years.
The
following table sets forth certain information concerning our Directors as of the date of this listing document:
|
|
|
|
|
|
|
|
|
|
Name
|
|
Age |
|
Position |
|
Roles and
Responsibilities |
|
Term of
Directorship |
Mr. LI Feilie (
) |
|
|
47 |
|
Chairman, executive Director and chief executive officer |
|
Corporate strategy, planning and business development |
|
Elected on January 15, 2010, subject to retirement by rotation |
Mr. HAN Weibing (
) |
|
|
41 |
|
Executive Director and chief operating officer |
|
Daily corporate management and supervision |
|
|
Mr. WAN Huojin (
)
|
|
|
67 |
|
Executive Director and chief technical officer |
|
Coal mine construction and coal production |
|
|
Mr. TAM Cheuk Ho (
) |
|
|
50 |
|
Executive Director |
|
Corporate and business development |
|
Elected on February 1, 2013, subject to retirement by rotation |
Mr. WONG Wah On Edward (
) |
|
|
49 |
|
Executive Director |
|
Corporate and business development |
|
Elected on February 1, 2013, subject to retirement by rotation |
Mr. LO Kin Cheung (
) |
|
|
49 |
|
Independent non-executive Director |
|
Independent supervision and management |
|
|
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Table of Contents
|
|
|
|
|
|
|
|
|
|
Name
|
|
Age |
|
Position |
|
Roles and
Responsibilities |
|
Term of
Directorship |
Mr. HUANG Zuye (
) |
|
|
68 |
|
Independent non-executive Director |
|
Independent supervision and management |
|
|
Mr. GU Jianshe (
)
|
|
|
60 |
|
Independent non-executive Director |
|
Independent supervision and management |
|
|
Chairman
Mr. LI Feilie (
), aged 47, has been our executive Director since January 15, 2010 and was appointed as the chairman of our Board and the chief executive officer
on . He
is primarily responsible for the overall corporate strategy, planning and business development of our Company. He also plays an integral role in supervising the Company's operational management, and
has more than five years of experience in corporate management in the coal mining industry. Mr. Li was extensively involved in the financing of
our anthracite coal mines and their development towards commercial production. Mr. Li has served as a director and the chairman of CHNR since February 2006. He has also been a director
of Smartact, a subsidiary of the Company, since April 2010. In addition, Mr. Li has served as a director of a number of companies, including Yangpu Lianzhong since March 2008,
Feishang Mining since September 2004 and Wuhu Port since October 2002. He was a director of Wuhu Feishang from December 2001 to July 2011. He has also served as a director
of Feishang Enterprise since June 2000. Mr. Li was a director and the vice president of a private agricultural resources company in Hainan from May 1994 to June 2001.
Mr. Li graduated from Peking University (
) with a bachelor's degree and a master's degree in economics in June 1988 and
January 1991, respectively. Except as disclosed above, Mr. Li has not held
any directorship in any other publicly-listed companies in the three years preceding the Latest Practicable Date.
Executive Directors
Mr. HAN Weibing (
), aged 41, has been our executive Director and chief operating officer since . He
is primarily responsible for overseeing the day-to-day management and
operations of our Company. Mr. Han has served as the vice president of the coal division of CHNR, a director and the chairman of the board of directors of Guizhou Puxin and the chairman of the
board of directors of Guizhou Yongfu since January 2012, taking charge of the development and management of their coal mining related business. He has also served as a director of Jinsha Juli
since November 2012. Mr. Han was the general manager and the vice president of the human resources department of Feishang Enterprise from March 2009 to March 2012, and he
also served as the assistant president of Feishang Enterprise from February 2010 to February 2011, during which he gained extensive industry knowledge and management experience for coal
companies. From August 1995 to March 2007, Mr. Han served as the deputy manager of the human resources department of China International Marine Containers
(Group) Co., Ltd., a multinational logistics equipment manufacturing company listed on the Shenzhen Stock Exchange. He graduated from Sun Yat-Sen University (
) with an
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executive master of business administration degree in June 2007 and from Wright State University in the United States with a master of business administration
degree in November 2008. Except as disclosed above, Mr. Han has not held any directorship in any other publicly-listed companies in the three years preceding the Latest
Practicable Date.
Mr. WAN Huojin (
), aged 67, was appointed as our executive Director and chief technical officer
on . He is primarily responsible for overseeing the coal mine construction and
coal production of our Company. Mr. Wan has approximately 45 years of experience in the mining industry, particularly on coal production. He was the deputy general manager of Guizhou
Puxin from March 2010 to June 2010, and has been its general manager since June 2010. His responsibilities include determining and overseeing Guizhou Puxin's overall business
strategies and plans, including the plans for coal mine operation and development. Under his leadership, Guizhou Puxin accomplished certain improvement and expansion plans of its coal mines, including
but not limited to Baiping Coal Mine, Gouchang Coal Mine and Linjiaao Coal Mine.
He has served as a director of Jinsha Juli since November 2012. He also served as the deputy general manager of Guizhou Yongfu from September 2008 to March 2010, during which he
assisted the general manager with the implementation of operational plans and the achievement of operational targets including the technological upgrades of Baiping Coal Mine and certain coal
mining-related technologies. During the period between January 2001 and December 2007, Mr. Wan acted as the head of Fengcheng Mining Bureau of Jiangxi Province (
). In November 2003, a gas explosion incident occurred at one of the coal mines under the administration of Fengcheng Mining Bureau of Jiangxi Province. Solely by virtue
of Mr. Wan's position as the head of the bureau, he was decommissioned from his position in June 2004 as a consequence of the incident but was nevertheless retained as the deputy head of
the bureau in view of his significant rescue efforts. Thereafter, in recognition of his contributions to the promotion of safety standards at the bureau and its outstanding overall performance under
his leadership, Mr. Wan was reinstated as the head of the bureau in March 2005 and held such office until his retirement in 2007. Prior to that, he had served as the deputy head, the
deputy chief engineer of Fengcheng Mining Bureau of Jiangxi Province (
) from January 1997 to December 2000 and the head of its
safety supervisory bureau from January 1995 to January 1997. Mr. Wan was responsible
for establishing and implementing the local coal mining safety-related regulations and policies. Under his leadership, a series of technological issues, including issues relating to ventilation and
excavation mechanization, were successfully resolved. During the period from January 1994 to December 1994, Mr. Wan worked as a mine manager at Pinghu coal mine (
) owned by Fengcheng Mining Bureau of Jiangxi Province (
). From August 1968 to
December 1993, Mr. Wan spent over 25 years at Shangzhuang coal mine (
) owned by Fengcheng Mining Bureau of Jiangxi Province
(
), where he worked as a technician, a department head and was promoted to mine manager in 1982. Mr. Wan has obtained comprehensive,
practical coal mining exploration and
extraction experience during his employment with Pinghu coal mine and Shangzhuang coal mine. He was involved in the technological upgrade of the coal mine ventilation system, the enhancement of coal
mine production capacity and the improvement of the mine hoist. In addition, during his tenure from 1968 to 2007 at Fengcheng Mining Bureau of Jiangxi Province (
), Mr. Wan was also involved in the operation and management of five coal beneficiation plants affiliated to Fengcheng Mining Bureau of Jiangxi Province (
). Mr. Wan graduated from Jiangxi Polytechnic College (
) with a secondary
vocational school's diploma in
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coal
mining in August 1968. He was awarded the certificate for the ventilation engineering training courses provided by China University of Mining and Technology (
) in 1981. He was accredited as a senior engineer by the Jiangxi Branch of China Universal Allocation Coal Mining Company (
) in September 1992.
Over
the past 10 years, Mr. Wan has obtained several awards for advocating improvements to certain coal mining techniques. He also published several dissertations,
including one with respect to the
resolution of the excessive gas content issue which was recognized as a National Excellent Dissertation (
) and awarded the first place of
the Representative Dissertation of China Modern Exploration New Dissertation Bank (
) in March 2005, and one with respect to the
generation of electricity by coal mine gas which was awarded a special prize in a science conference by Fengcheng Mining
Bureau (
) in October 2010. In addition, Mr. Wan has received a number of awards in recognition of his contribution to the coal
mining industry, including the award of
Mining Mechanization Contribution (
) given by Jiangxi Coal Industry Bureau (
) in January 1991, the award for high achievers given by the Coal Industry Bureau of the PRC (
) in May 1994 to persons who have made tremendous contributions to the coal mining industry, the award of Excellent Enterprise Operational Manager (
) given by the People's Government of Yichun (
) in February 2003, and the award of Outstanding Contribution
to Provincial Coal and Electricity Operation for the Year 2004 (2004
) given by Economics and Trading Committee of Jiangxi Province (
) in May 2005. Mr. Wan was also named the Excellent General Manager of Jiangxi Province for the Year 2005 (2005
) by Economics and Trading Committee of Jiangxi Province (
), Enterprises Union of Jiangxi Province (
) and Entrepreneurs Association of Jiangxi Province (
) in July 2006.
Except
as disclosed above, Mr. Wan has not held any directorship in any other publicly-listed companies in the three years preceding the Latest Practicable Date.
Mr. TAM Cheuk Ho (
), aged 50, was appointed as our executive Director on February 1, 2013. Mr. Tam had been with the CHNR Group for more than 15 years and has gained more
than five years of experience in corporate and business development in the coal mining industry. He has extensive knowledge and experience of the Company's operations. Mr. Tam served as a
director of a member of the predecessor group of CHNR from December 1993 to January 1994 and then from December 1997, and continued such directorship upon the redomicile of such
group into CHNR. He will resign from his directorship at CHNR upon the completion of the Spin-off. Mr. Tam was also the chief financial officer of CHNR from December 2004 to
January 2008 and has served as CHNR's executive vice president since January 2008, and will resign from such position upon the completion of the Spin-off. Mr. Tam also served as
the chief financial officer and a director of China Resources Development, Inc., a member of the predecessor group of CHNR, from December 1994 to December 2004. During the period
from May 2002 to April 2003, Mr. Tam was an executive director and the deputy chairman of ITC Properties Group Limited (formerly known as Cheung Tai Hong Holdings Limited), a
company listed on the Stock Exchange and engaged in property development and securities investment operations. He has been a partner of a certified public accountant firm in Hong Kong since
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Table of Contents
July 1995, and was the finance director of a private investment company from October 1992 to December 1994. He was the company secretary of China Nuclear
Industry 23 International Corporation Limited (formerly known as Tack Hsin Holdings Limited), a company listed on the Stock Exchange operating Chinese restaurants chain and engaging in property
investments from February 1993 to December 2012, and was its financial controller from February to September 1992. From July 1984 to December 1991, Mr. Tam
worked at an international certified public accountant firm and his last position at such firm was as an audit manager. Mr. Tam graduated from the Chinese University of Hong Kong with a
bachelor's degree in business administration in December 1984. He was accredited as a certified public accountant (practicing) by the Hong Kong Institute of Certified Public Accountants in
July 1992, and was admitted as a fellow in November 1999. He was also admitted as a fellow of the Association of Chartered Certified Accountants in October 1992. Except as
disclosed above, Mr. Tam has not held any directorship in any other publicly-listed companies in the three years preceding the Latest Practicable Date.
Mr. WONG Wah On Edward (
), aged 49, was appointed as our executive Director on February 1, 2013. Mr. Wong has been with the CHNR Group for more than 15 years and has gained more
than five years of experience in corporate and business development in the coal mining industry. He has served as a director of Smartact, a subsidiary of the Company, since January 2010. In
addition, he has served as a director of a member of the predecessor group of CHNR since January 1999 and its company secretary since February 1999, and continued to serve such positions
upon the redomicile of such group into CHNR. He will resign from his positions at CHNR upon the completion of the Spin-off. Mr. Wong also served as CHNR's financial controller from
December 2004 to January 2008 and its chief financial officer from January 2008, and will resign from such position upon the completion of the Spin-off. Mr. Wong also
served as the corporate secretary and a director of China Resources Development, Inc., the predecessor of CHNR, from December 1997 to December 2004, and its financial controller
from December 1994 to December 2004. From December 2000 to December 2006, Mr. Wong was an independent non-executive director of China Pipe Group Limited (formerly
known as World Trade Bun Kee Ltd.), a company listed on the Stock Exchange engaged in the trading of construction materials. He has also served as a partner of a certified public accountant
firm in Hong Kong since July 1995. From October 1992 to December 1994, Mr. Wong was the deputy finance director of a private investment company. From July 1988 to
October 1992, Mr. Wong worked at the audit department of an international certified public accountant firm, providing professional auditing services to clients in a variety of business
sectors, and he left the firm as a senior auditor. Mr. Wong graduated from the Hong Kong Polytechnic University with a professional diploma in company secretaryship and administration in
November 1988. He was accredited as a certified public accountant (practicing) by the Hong Kong Institute of Certified Public Accountants in September 1993, and was admitted as a fellow
in November 1999. He was also admitted as a fellow of the Association of Chartered Certified Accountants in October 1996 and an associate of the Hong Kong Institute of Chartered
Secretaries in August 1994. Except as disclosed above, Mr. Wong has not held any directorship in any other publicly-listed companies in the three years preceding the Latest
Practicable Date.
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Table of Contents
Independent non-executive Directors
Mr. LO Kin Cheung (
), aged 49, was appointed as our independent non-executive Director on . He acted
as an independent non-executive director of CHNR from December 2004 to
June 2006 and an independent non-executive director of China Resources Development, Inc., a member of the predecessor group of CHNR, from May 2000 to December 2004. He also
served as an independent non-executive director of China Nuclear Industry 23 International Corporation Limited (formerly known as Tack Hsin Holdings Limited), a
company listed on the Stock Exchange operating Chinese restaurant chains and engaged in property investments during the period from August 2004 to August 2011. Mr. Lo has been the
chief financial officer of a private company engaging in the printing business since September 2001. From March 1998 to July 2001, Mr. Lo was an executive director of
Wiltec Holdings Limited, a company listed on the Stock Exchange then involved in the baby care product industry and the multimedia industry. From July 1986, Mr. Lo spent nearly
12 years with an international certified public accountant firm and his last position at such firm was as a principal. Over these years, Mr. Lo has gained extensive experience in finance
and accounting. He graduated from the University of Hong Kong with a bachelor's degree in science in 1986 and completed the advanced management program at Harvard Business School in May 2004.
Mr. Lo was admitted as a fellow of the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants in March 2000 and July 1994,
respectively. He was also admitted as an associate of the Institute of Chartered Accountants in England and Wales and as a member and certified general accountant of the Certified General Accountants
Association of Canada in August 2005 and September 1990, respectively. Except as disclosed above, Mr. Lo has not held any directorship in any other publicly-listed companies in
the three years preceding the Latest Practicable Date.
Mr. HUANG Zuye (
), aged 68, was appointed as our independent non-executive Director on .
Mr. Huang has over 35 years of experience in the coal mining industry. He
retired from the Coal Mining Engineering Institute of Guizhou Province (
) in April 2005. Prior to that, he had worked at the
institute for 30 years since May 1975, serving as its CPC secretary from December 1997 to
March 2005, its head of institute from June 1994 to March 2003, its deputy head of institute from February 1988 to May 1994 and taking positions of assistant
engineer and engineer from May 1975 to February 1988. During such period, Mr. Huang's responsibilities ranged from project construction design, coal mine design, research and
development to the overall management of the institute. He worked as a technician at Laoying mine of Shuicheng Mining Bureau (
) from
August 1967 to April 1975 and was primarily responsible for handling the general technological issues relating to coal mine extraction. Mr. Huang graduated from
Guizhou Institute of Technology (
) with a diploma in underground coal mining extraction in August 1967. He obtained his master's degree
in management from Quebec Chicoutimi University in Canada in
March 2006. Mr. Huang was
accredited a number of professional qualifications, such as a senior engineer by the Department of Personnel of Guizhou Province (
) in
August 1992, a consultant engineer and a cost engineer jointly by the Ministry of Personnel of the PRC (
) and the Ministry of
Construction of the PRC (
) in March 1997 and October 2001, respectively, and a registered consulting engineer jointly by the Ministry of
Personnel of the PRC (
) and the State Development Planning Commission of the PRC (
) in March 2003. Except as disclosed above, Mr. Huang has not held any directorship in any other publicly-listed companies in the three years preceding the Latest
Practicable Date.
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Table of Contents
Mr. GU Jianshe (
), aged 60, was appointed as our independent non-executive Director on .
Mr. Gu has approximately 40 years of experience in the mining industry. He
was a member of the CPC committee and also the head of the discipline and inspection group of Guizhou Energy Bureau (
) from May 2009
to May 2013. He took a number of positions including the member of the CPC committee, a professional discipline and inspection supervisor, the
head of the discipline and inspection group as well as the head of office and the deputy secretary of the CPC committee during his stay with Guizhou Coal Management Bureau (
) from November 2002 to May 2009. He was a senior economist and the head of the development and planning department of Shuicheng Mining (Group) Corporation (
) from September 2001 to November 2002. Prior to that, he worked at Shuicheng Mining Bureau (
) from July 1985 to September 2001, during which he served as a senior economist and the head of its
office from June 1997 to September 2001, the deputy secretary of the CPC committee and the secretary of the discipline committee of its mechatronical general factory from
June 1995 to June 1997, the secretary and deputy manager of its office from July 1985 to June 1995. Between September 1983 and July 1985, Mr. Gu stayed
at Yunnan Normal University (
) as a student of the politics and education faculty. He worked at Wangjiazhai Coal Selection Plant (
) of Shuicheng Mining Bureau (
) from
September 1971 to September 1983 during which he also served as the deputy head of the publicity division of Shuicheng Mining Bureau (
)'s mechatronical general factory. Mr. Gu obtained a junior college's diploma in politics and education from Yunan Normal University (
) in July 1985. He also obtained his bachelor's degree in economics and management as a correspondence student (
) from CPC Guizhou Committee Party School (
) in July 1997. Mr. Gu was accredited as a senior economist by the Department
of Personnel of Guizhou Province (
) in December 1999. Except as disclosed above, Mr. Gu has not held any directorship in any
other publicly-listed companies in the three years preceding the Latest
Practicable Date.
Except
as disclosed above, there is no other information in respect of our Directors that is discloseable pursuant to Rules 13.51(2)(a) to (v) of the Listing Rules and
there is no other matter that needs to be brought to the attention of the Shareholders.
- *
- Correspondence education means a distance learning course that aims to deliver education to students who are not
physically "on site" in a traditional classroom or campus. The correspondence student may take courses online or by correspondence with teachers. The correspondence education offered by institutions
shall be accredited by the Ministry of Eductaion of PRC.
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Table of Contents
SENIOR MANAGEMENT
Our executive Directors and senior management are responsible for the day-to-day management of our business. The following table sets
out certain information concerning our senior management:
|
|
|
|
|
|
Name
|
|
Age |
|
Position |
Mr. LI Feilie (
) |
|
|
47 |
|
Chairman, executive Director and chief executive officer |
Mr. HAN Weibing (
) |
|
|
41 |
|
Executive Director and chief operating officer |
Mr. WAN Huojin (
) |
|
|
67 |
|
Executive Director and chief technical officer |
Mr. YUE Ming Wai Bonaventure (
) |
|
|
46 |
|
Chief financial officer and company secretary |
Mr. HU Lubao (
)
|
|
|
50 |
|
Deputy chief engineer |
Mr. LIAO Diansheng (
) |
|
|
49 |
|
Head of electrical and mechanical department |
Mr. CAI Zhenghui (
) |
|
|
43 |
|
Deputy chief engineer and head of ventilation and safety department |
Mr. TENG Biao (
) |
|
|
47 |
|
Deputy chief engineer |
Mr. LAN Xiaosheng (
) |
|
|
44 |
|
Head of infrastructure department |
Mr. WU Ziping (
) |
|
|
54 |
|
Head of safety and inspection department |
Mr. CHENG Wenkun (
) |
|
|
40 |
|
Deputy head of ventilation and safety department |
Mr. JIA Zhigang (
) |
|
|
49 |
|
Deputy general manager |
Mr. LIN Quanlong (
) |
|
|
32 |
|
Head of licenses and permits department |
Mr. WU Quanyi (
)
|
|
|
37 |
|
Head of supply and sales department |
Mr. ZHANG Ye (
)
|
|
|
37 |
|
Assistant general manager |
Mr. LI Feilie (
), aged 47, is an executive Director, the chairman of our Board and our chief
executive officer. See
"— Directors — Chairman".
Mr. HAN Weibing (
), aged 42, is our executive Director and chief operating officer. See
"— Directors — Executive Directors".
Mr. WAN Huojin (
), aged 67, is our executive Director and chief technical officer. See
"— Directors — Executive Directors".
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Table of Contents
Mr. YUE Ming Wai Bonaventure (
)), aged 46, was appointed as our chief financial officer and company secretary
on . Mr. Yue has more than five years of experience in the financial
management of coal mining companies. He has been an executive director and the legal representative of Shenzhen Chixin since July 2012, and has been the financial controller of CHNR since
April 2008 and will resign from such position upon the completion of the Spin-off. Over the years, Mr. Yue has gained expertise in the field of finance and accounting. Mr. Yue
served as the financial controller of Enerchina Holdings Limited, a company listed on the Stock Exchange operating power plants during the period from September 2007 to April 2008. He
was an independent non-executive director of K.P.I. Company Limited, a retail company listed on the Stock Exchange from June 2006 to May 2007. From April 2003 to
October 2007, Mr. Yue also acted as the chief financial officer and the company secretary of a public manufacturing company. Mr. Yue has served as a director of a private company
engaging in the provision of corporate services since March 2003. Since November 1998, Mr. Yue spent more than four years with a private investment advisory company as an
associate director until April 2003. From April to October 1998, he was the senior corporate finance manager of Best Wide Group Limited, a manufacturing company then listed on the Stock
Exchange. Prior to that, from August 1996 to April 1998, Mr. Yue had served as an accounting manager of Leading
Spirit (Holdings) Company Ltd., another manufacturing company then listed on the Stock Exchange. During the period from January 1995 to August 1996, Mr. Yue was the
assistant financial controller and the company secretary of Nam Hing Holdings Limited, another manufacturing company listed on the Stock Exchange. He worked as an accountant in Sun Hung
Kai & Co. Limited, a company listed on the Stock Exchange engaging in securities and investment business from December 1992 to August 1993. From July 1990 to
December 1992, he worked in the audit department of an international certified public accountant firm. Mr. Yue graduated from the Hong Kong Baptist University with a bachelor's degree in
business administration in November 1990 and was awarded a master of science degree in accounting and finance with the University of Manchester in December 1994. He was admitted as a
fellow member of the Hong Kong Institute of Certified Public Accountants and the Hong Kong Institute of Chartered Secretaries in February 2002 and November 2005, respectively. He was
also admitted as an associate of the Institute of Chartered Accountants in England & Wales in January 2005 and a member of the Institute of Chartered Accountants in Australia in
January 2008. Except as disclosed above, Mr. Yue has not held any directorship in any other publicly-listed companies in the three years preceding the Latest Practicable Date.
Mr. HU Lubao (
), aged 50, was appointed as the deputy chief engineer of Guizhou Puxin in June 2012. Mr. Hu has more than 30 years of experience in the coal mining
industry. Prior to joining our Company, Mr. Hu worked as the head of the production technology department and a senior engineer at Anyuan Coal Industry Group Co., Ltd. ("Anyuan
Coal") (
) (formerly known as Anyuan Industrial Co., Ltd. (
)) from March 2010 to May 2012. He was primarily responsible for the review, supervision and implementation of the technology-related plans as well as the
standardization of safety and quality requirements. He served as the general manager and a senior engineer of Anyuan Qujiang Coal Development Co., Ltd. (
), a subsidiary of Anyuan Coal, from December 2008 to March 2010. During this period, he was in charge of the overall management of the coal mine, including
aspects related to safety, production, operation and public relations. He was the deputy general manager and a senior engineer of Qujiang Coal Development Co., Ltd. of Fengcheng Mining
Bureau (
) from May 2003 to December 2008, during which he mainly focused on coal production, coal extraction and coal mine
maintenance. In particular, under his
209
Table of Contents
leadership,
the comprehensive mechanical coal mining working face was successfully put into operation, and the capacity of the coal beneficiation plant was significantly enhanced upon the
implementation of the relevant modifications and expansions. He took was the deputy division chief, manager engineer and an engineer of the production and technology division of Fengcheng Mining
Bureau (
) from November 1999 to May 2003, focusing on production technology-related affairs. He also held a number of positions at
the Industry Corporation of Fengcheng
Mining Bureau (
) from July 1986 to October 1999, with his last position as the deputy chief engineer and deputy general manager.
During this period, he was primarily responsible
for the production, technology, project quality and safety supervision management. In particular, he successfully established small coal beneficiation plants after conducting the relevant research and
design work. He was a teacher at Fengcheng Mining Bureau Technician School (
) from September 1985 to July 1986. He worked as an
technician at Jianxin coal mine (
) of Fengcheng Mining Bureau (
) from August 1982 to August 1985 and was responsible for establishing the internal coal mining-related operational policies and involved in the design and
construction of a coal beneficiation plant. Mr. Hu graduated from Huainan Mining College (
) with a bachelor's degree in engineering in
May 1989 and obtained a diploma inmining engineering in November 1988. He was accredited as a senior engineer by the
Professional Titles Reform Work Leading Group of Jiangxi Province (
) in November 2000. Mr. Hu has not held any directorship in
any publicly-listed companies in the three years preceding the Latest Practicable Date.
Mr. LIAO Diansheng (
), aged 49, was appointed as the head of electrical and mechanical department of Guizhou Puxin in March 2011. Mr. Liao has approximately 30 years of
experience in the coal mining industry. He served as the head of Yongsheng Coal Mine from March 2010 to March 2011 and was responsible for the overall management of the coal mine and had
achieved a series of operational targets, including the modification of the coal mine design plan and the implementation of safe production measures and other upgrades of the coal mining-related
technologies. Prior to joining our Company, Mr. Liao served
as a senior engineer and the chief engineer of the Gas Research Institute of the Jiangxi Coal Group Corporation (
) from March 2007 to
February 2010. During his employment, Mr. Liao had a number of achievements relating to gas research including the establishment of a
gas research laboratory engaged in the analysis of gas-related index. He also served as a coal mine safety engineer of Longnan County Hengtai Enterprise Co., Ltd. (
), a conglomerate which is engaged in coal mining, from March 2005 to November 2006, during which he was mainly involved in the electromechanical aspects of the
relevant coal mines as well as the administration of their safe production. He was also involved in the construction of new coal mines and the implementation of production plans and onsite safety
inspection. After graduation, Mr. Liao held a number of positions at Fengcheng Mining Bureau (
) from August 1983 to
February 2005. He served as the head of the electromechanics division, chief engineer and senior engineer at Fengcheng Mining Bureau's (
) electromechanics department for the period between January 2003 and February 2005, and focused on matters relating to
electromechanics and was involved in the
acceptance inspection of Qujiang coal mine (
) and other technological upgrades. From August 1983 to December 2002, Mr. Liao
spent nearly 20 years at Pinghu Coal Mine (
) of Fengcheng Mining Bureau (
) where he held various positions and gained extensive engineering experience. His responsibilities ranged from resolving the technical malfunctions and participating in the
design and installation work of coal mining-related projects, overseeing coal mine operations, establishing and
210
Table of Contents
enhancing the relevant internal regulations and policies, to upgrading the mining-related technologies. Mr. Liao obtained his secondary vocational school's diploma in electromechanics from
Jiangxi Coal Industry School (
) in July 1983. Mr. Liao graduated, as a correspondence student (
), from Huainan Mining College (
) with a junior college's
diploma in mining electromechanics in December 1993. He was accredited as a senior engineer by the Title Affairs Office of Jiangxi Province (
) in February 2005. Mr. Liao, together with three other fellows, was awarded the first prize at a science conference in August 2003 by Fengcheng Mining
Bureau (
) in recognition of his advocating improvements to certain coal mining techniques. Mr. Liao has not held any directorship in
any publicly-listed companies in the three
years preceding the Latest Practicable Date.
Mr. CAI Zhenghui (
), aged 43, was appointed as the deputy chief engineer and the head of the ventilation and safety department of Guizhou Puxin in March 2012. Mr. Cai has
more than 20 years of experience in coal production. He has been the head of the safety production technology department of Guizhou Puxin since March 2010. He served as the head of the
safety production technology department of Guizhou Yongfu from September 2008 to March 2010. Mr. Cai's roles in Guizhou Puxin and Guizhou Yongfu are similar and both relate to
mining operations and technology. He is responsible for reviewing and supervising the implementation of the annual coal production plans, and maintaining coal mine quality standards. He was also the
head of the safety and technology department of Jiang Coal Guizhou Mining Group Co., Ltd. (
) between the period of
February 2008 and September 2008, and was in charge of the production and safety management affairs, the coordination of periodic safety
inspections and the handling of mine accidents. From July 2006 to February 2008, Mr. Cai was the chief engineer of Sanjia coal mine (
) in Zhijin county, Guizhou province. He was also in charge of mining technology affairs, the implementation of the annual production plans and safety technologies and
measures, as well as onsite management, inspection and supervision. Prior to that, Mr. Cai had worked at Jianxin coal mine (
) owned by
Fengcheng Mining Bureau of Jiangxi Province (
) from July 1992 to July 2006, serving as a technician, engineer and managing
engineer from July 1992 to August 2005 and as the head of the
production technology division from August 2005 to July 2006. During such period, he undertook a series of responsibilities relating to the geology of the coal mine, including carrying
out geological exploration and tackling mining-related geological hazards. Mr. Cai graduated from Jiaozuo Mining College (
) in Henan
province with a bachelor's degree in engineering in July 1992, and was accredited as an engineer by the Professional Titles Reform Work Leading Group of
Jiangxi Province (
) in June 1998. Mr. Cai has not held any directorship in any publicly-listed companies in the three years
preceding the Latest Practicable Date.
Mr. TENG Biao (
), aged 47, was appointed as the deputy chief engineer of Guizhou Puxin in February 2012. Mr. Teng has
more than 25 years of experience in the coal mining industry. Mr. Teng worked in Guizhou Xiangneng Mining Group (
), a
conglomerate dedicated in coal mining related business, from March 2007 to February 2012. He was appointed as a senior engineer
- *
- Correspondence
education means a distance learning course that aims to deliver education to students who are not physically "on site" in a traditional
classroom or campus. The student may take courses online or by correspondence with teachers. The correspondence education offered by institutions are accredited by the Ministry of Education
of PRC.
211
Table of Contents
of Guizhou Xiangneng Mining Group (
) ("Xiangneng Mining") in June 2011, and was promoted as its deputy chief engineer in
December 2009. He was appointed as the deputy chief engineer of Guizhou
Xiangneng Industry Co., Ltd. (
) ("Xiangneng Industry"), a coal mining company and a subsidiary of Guizhou Xiangneng Mining Group
(
), in August 2010 and its head of the quality supervision department in February 2009 as well as its head of the audit
department in March 2008. During his
employment with Xiangneng Mining and Xiangneng Industry, Mr. Teng's responsibilities varied from auditing of projects, project quality supervision, project acceptance inspection to the adoption
of electromechanical transportation technology. From July 1985 to February 2007, Mr. Teng worked at Hunan Baisha Industry Co., Ltd. (
), a coal mining conglomerate, taking a number of positions, including a technician, the head of the machinery and electricity team, the deputy head of the production division,
a deputy mining manager and a department head. During such period, Mr. Teng was assigned various responsibilities, including
electromechanical transportation safety supervision as well as the design of certain electricity projects. In particular, Mr. Teng accomplished the modification of the safety system and the
standardization of the safety quality requirements for the mines. Mr. Teng graduated from Hunan Coal Industry School (
) with a
secondary vocational school's diploma in electromechanical mining in July 1985, and obtained a bachelor's degree in business management as a part-time student
from Hunan Economic Management Cadre College (
) in June 2004. He was also accredited as a senior engineer by the Department of
Personnel of Hunan Province (
) in December 2001. Mr. Teng was named the Excellent Personnel of Safe Production for the Year 1986
(1986
) by the Coal Industry Bureau of Hunan Province (
) and Coal Trade Union of Hunan Province (
) in February 1987. Mr. Teng has not held any directorship in
any publicly-listed companies in the three years preceding the Latest Practicable Date.
Mr. LAN Xiaosheng (
), aged 44, was appointed as the head of the infrastructure department of Guizhou Puxin in September 2012. Mr. Lan has more than 20 years of
experience in the coal mining industry. He has been the deputy head of Dayun Coal Mine since September 2012 and is mainly responsible for project construction management and project investment
management. He was the deputy head of the infrastructure department of Guizhou Puxin from August 2011 to September 2012. He served as an engineer of the infrastructure department of
Guizhou Puxin from March 2010 to August 2011. He also served as an engineer in the infrastructure department of Guizhou Yongfu from April 2009 to January 2010. During his
employment with Guizhou Puxin and Guizhou Yongfu, Mr. Lan's responsibilities included investment budget estimation and review, construction management and project acceptance inspections. He was
an auditor of Yinggangling Mining Bureau (
) from October 2004 to February 2009 and the person in charge of the nano calcium
carbonate project of Jiangxi Huaming Nano Calcium
Carbonate Co., Ltd. (
) from September 2003 to October 2004. From April 2003 to September 2003, Mr. Lan
served as a chief inspector's representative at a
construction project management company. During the period between January 1995 and March 2003, Mr. Lan worked at Taihua Corporation of Yinggangling Mining Bureau (
), a coal mine contractor, serving as the head of the infrastructure construction team from January 1998
to March 2003, and a construction worker, an estimator from January 1995 to December 1997. During this period, Mr. Lan's responsibilities varied from project construction
management to project budgeting. Prior to that, he had worked as a technician at Fenglin coal mine (
) of Yinggangling Mining Bureau (
) from August 1990 to April 1994 and was responsible for mining ventilation and gas-related mining technologies.
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He obtained a secondary vocational school's diploma in mine ventilation and safety in July 1990 from Jiangxi Coal Industry College (
). He studied at Xiangtan Mining College (
) from April 1994 to February 1995, and was granted a junior college's diploma
in industrial and civil
construction in March 1995. Mr. Lan was accredited as an engineer by the Professional Technology Committee of Yinggangling Mining Bureau (
) in December 1998. Mr. Lan obtained the National Certification of Construction Cost Estimation Qualification (
) from the Construction Bureau of Jiangxi Province (
) in May 2007. He was also accredited as a state certified supervision engineer by the Ministry of Housing and Urban-Rural Development of the PRC (
) in January 2009, and a state certified constructor by the Ministry of Construction of the PRC (
) in December 2009. Mr. Lan has not held any directorship in any publicly-listed companies in the three years preceding the Latest Practicable Date.
Mr. WU Ziping (
), aged 54, was appointed as the head of the safety and inspection department of Guizhou Puxin in May 2012. Mr. Wu has more than 35 years of
experience in the coal mining industry. He has been the deputy head of the production and technology department of Guizhou Puxin from March 2012 to May 2012. He worked as the deputy
general commander and the chief engineer of Yongsheng Coal Mine from May 2009 to December 2011 and focused on technology management during coal mine construction. He was the deputy head
of the construction general command of Dayun Coal Mine from October 2008 to May 2009 in charge of safe production and technology management. From April to October 2008,
Mr. Wu was an engineer in the production and technology department of Jiangxi Coal Group (Guizhou) Mining Co., Ltd. (
), a
coal mining company. His responsibilities included providing technology support for the safe production of the relevant coal mines. Prior to that, from April 2006
to April 2008, he was the coal mine manager and chief engineer of Yingjiao coal mine (
) in Zhijin county, Guizhou province and was
mainly responsible for safe production and mining technology upgrades. Mr. Wu worked at Pinghu coal mine (
) of Fengcheng Mining Bureau of Jiangxi Province (
) from December 1976 to March 2006, during which his
working scope covered mine extraction, mine
production and mine measurement, and his last position was the head of the production section. Mr. Wu graduated from China University of Mining and Technology (
) with a junior college's degree in surveying in July 1990. In addition, Mr. Wu was accredited as an engineer by Jiangxi Coal Industry Bureau (
) in September 2000. Mr. Wu has received a number of awards for his collaborative research and achievements in coal mining related technologies, including
research conducted jointly with two other fellows in relation to coal mining sinking which was awarded the third prize in a science conference held in 2003 by Fengcheng Mining Bureau (
), and achievements with other fellows relating to coal mining under certain geological conditions which were awarded the premium prizes of scientific advance achievements by
Jiangxi Coal Group Co., Ltd. (
) and Fengcheng Mining Bureau (
) in June 2005 and December 2005, respectively. Mr. Wu has not held any directorship in any publicly-listed companies in the three years preceding the
Latest Practicable Date.
Mr. CHENG Wenkun (
), aged 40, was appointed as the deputy head of the ventilation and safety department and the head of gas research center of Guizhou Puxin in March 2012.
Mr. Cheng has more than 20 years of experience in the coal mining industry. He served as an engineer of the ventilation and safety department of Guizhou Puxin from June 2010 to
February 2012, during which he supervised the preliminary construction of the gas sampling system and standard reaching system
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Table of Contents
for certain coal mines of Guizhou Puxin. Before joining our Company, Mr. Cheng occupied various positions in a number of coal mining companies. He served as the deputy head of the ventilation
and safety department of Hidili Industry (China) Group Co., Ltd., a subsidiary of Hidili Industry International Development Ltd., a Hong Kong-listed coal mining company, from
August 2008 to May 2010. During such period, he provided technology support to ensure the safe production of the relevant coal mines. He worked at Jianxin coal mine (
) of Fengcheng Mining Bureau of Jiangxi Province (
) from July 1993 to August 2008,
serving as the deputy section head from May 2006 to August 2008, the chief technician from
October 2002 to April 2006 and a technician from July 1993 to October 2002, respectively. During such period, Mr. Cheng was assigned various responsibilities ranging
from the upgrade of coal and gas-related mining technologies to research in coal mine extraction. Mr. Cheng graduated from Jiangxi Coal Industry School (
) with a secondary vocational school's diploma in ventilation and safety in July 1993. He was accredited
as a ventilation engineer by the Professional Titles Reform Work Leading Group of Jiangxi Coal Group Corporation (
) in November 2009.
He was also accredited as a state certified safety engineer by the State Administration of Work Safety (
) in October 2007.
Mr. Cheng has not held any directorship in any publicly-listed companies in the three years preceding the Latest Practicable Date.
Mr. JIA Zhigang (
), aged 49, was appointed as the deputy general manager of Guizhou Puxin in January 2013 and is responsible for overseeing the licenses and permits department and
the supply and sales department of Guizhou Puxin. Mr. Jia has more than five years of experience in the coal mining industry. He served as the head of the department of public relations of
Guizhou Puxin from March 2011 to December 2012 and he also took the role as the assistant general manager of Guizhou Puxin from March 2010 to January 2013. He was the
assistant general manager of Guizhou Yongfu from September 2008 to March 2010. He has been a director of certain subsidiaries of the Company, namely Bijie Feishang since
September 2010, Yangpu Dashi since August 2010, Baiping Mining since March 2009 and Guizhou Yongfu since July 2008. From November 2006 to July 2008, he worked
as a manager of the president's office of Feishang Enterprise. During the period from May 1985 to November 2006, Mr. Jia served as an engineer in Luoyang Nonferrous Metals
Processing and Design Research Institute (
). Mr. Jia graduated from the Junior College affiliated to such institute with a junior
college's diploma in metallurgical machinery in January 1985. He obtained
the qualifications for standardization personnel from the State Bureau of Technical Supervision (
) in December 1994. Mr. Jia has
not held any directorship in any listed public companies in the three years preceding the Latest Practicable Date.
Mr. LIN Quanlong (
), aged 32, was appointed as the head of the licenses and permits department of Guizhou Puxin in March 2013. Mr. Lin has more than 10 years of
experience in the coal mining industry. Mr. Lin served as the deputy head of public relations department of Guizhou Puxin from March 2012 to December 2012. Mr. Lin served
as the deputy managing engineer of the public relations department of Guizhou Puxin from March 2010 to February 2012. He has been a director of Xinsong Coal and Linjiaao Coal since
February 2011 and January 2011, respectively. From November 2008 to March 2010, he served as the deputy managing engineer of Guizhou Dayun. He worked as an engineer in the
project management department of Guizhou Zhongshui Construction Management Co., Ltd. (
), a water conservancy and hydropower
project management company, being responsible for the
management of coal mining projects, from March 2006 to October 2008. From July 2003 to March 2006, he served as a geology engineer in the production and
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Table of Contents
technology
department of the Qinghai Coal Geological Investigation Institute (
), a governmental body engaging in coal exploration. Mr. Lin
graduated from Jilin University (
) with a bachelor's degree in geological mining inspection in July 2003. He was accredited as an
engineer by Guizhou Provincial Personnel Exchange Service Center (
) in November 2008 and also as a certified safety engineer by the
Ministry of Human and Social Security of the PRC Resources (
) together with the State Administration of Work Safety (
) in February 2009. Mr. Lin has not held any directorship in any publicly-listed companies in the three years preceding the Latest Practicable Date.
Mr. WU Quanyi (
), aged 37, was appointed as the head of the supply and sales department of Guizhou Puxin in March 2010. Mr. Wu has more than five years of experience in
the coal mining related industry. He served as the head of Guizhou Yongfu's supply and sales department from September 2008 to March 2010. Mr. Wu was the manager in the sales
department of Hubei Yongfu Investment Co., Ltd. (
), a coal trading company, from May 2005 to September 2008. During
the period from July 1999 to April 2005, Mr. Wu served as a manager of the
sales departments in three private companies as well as a
salesperson in a coal trading company. Mr. Wu obtained his bachelor's degree in International Economics and Trade from Fudan University (
) in July 2007 by attending its online courses. He was awarded a junior college's diploma in enterprise public relation and sales by Wuhan University (
) in June 2000. Mr. Wu has not held any directorship in any publicly-listed companies in the three years preceding the Latest Practicable Date.
Mr. ZHANG Ye (
), aged 37, was appointed as the assistant general manager of Guizhou Puxin in January 2011 and is responsible for human resources matters and general office
affairs of our Company. Mr. Zhang has served as a director of Bijie Feishang since September 2010. He served as the head of the general manager's office of Guizhou Puxin from
May 2010 to January 2011. He also took the role as the assistant general manager of the operation management centre of Feishang Enterprises from August 2009 to May 2010.
From May 2006 to July 2009, Mr. Zhang held various positions, including engineer, senior engineer and assistant to the general supervisor in the operation management department,
at a company engaged in the sale of information technology equipment, being responsible for the operation flow management, internal control management and organization performance management affairs.
He had also worked as a consultant and a project manager in a management consultancy company from March 2003 to May 2006. Mr. Zhang obtained a master of business administration
degree from Xinan Jiaotong University (
) in July 2005. Mr. Zhang has not held any directorship in any publicly-listed companies
in the three years preceding the Latest Practicable Date.
COMPANY SECRETARY
Our company secretary is Mr. Yue Ming Wai Bonaventure, who is also our chief financial officer. See
"— Senior Management".
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Table of Contents
BOARD COMMITTEES
We have established the following four committees in our Board: an audit committee, a remuneration committee, a nomination committee
and a corporate social responsibility committee. The committees operate in accordance with the terms of reference established by our Board.
Audit committee
We have established an audit committee with written terms of reference in compliance with Rule 3.21 of the Listing Rules and
paragraph C3 of the Corporate Governance Code as set forth in Appendix 14 of the Listing Rules. The primary duties of the audit committee are to assist our Board to provide an
independent review of the effectiveness of the financial reporting process, internal control and risk management.
Our
audit committee consists of three independent non-executive Directors, Mr. Huang Zuye, Mr. Lo Kin Cheung and Mr. Gu Jianshe. Mr. Lo Kin Cheung, who has
professional qualifications in accountancy, is the chairman of the audit committee.
The
responsibilities of our audit committee include, among others: appointing and overseeing the work of our independent auditors and pre-approving all non-audit services to be provided
by our independent auditors; reviewing our annual and interim financial statements, earnings releases, critical accounting policies and practices used to prepare financial statements, alternative
treatments of financial information, the effectiveness of our disclosure controls and procedures and important trends and developments in financial reporting practices and requirements; reviewing the
planning and staffing of internal audits, the organization, responsibilities, plans, results, budget and staffing of our internal audit team and the quality and effectiveness of our internal controls;
reviewing our risk assessment and management policies; and establishing procedures for the treatment of complaints received by us regarding accounting, internal accounting controls, auditing matters,
potential violations of law and questionable accounting or auditing matters.
Remuneration committee
We have established a remuneration committee with written terms of reference in compliance with Rule 3.25 of the Listing Rules
and paragraph B1 of the Corporate Governance Code as set forth in Appendix 14 to the Listing Rules. The primary duties of the remuneration committee are to consider and recommend to the
Board the emoluments and other benefits paid by us to our Directors and to assess the appropriateness of the nature and amount of emoluments of such senior management on a periodic basis by reference
to relevant employment market conditions with the overall objective of ensuring maximum Shareholder benefit from the retention of talented individuals.
Our
remuneration committee consists of three independent non-executive Directors, Mr. Lo Kin Cheung, Mr. Huang Zuye and Mr. Gu Jianshe, and two executive Directors,
Mr. Li Feilie and Mr. Han Weibing. Mr. Gu Jianshe is the chairman of the remuneration committee.
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Table of Contents
The responsibilities of our remuneration committee include, among others: approving and overseeing the total compensation package for
our executive officers, evaluating the performance of and determining and approving the compensation to be paid to our senior management; reviewing and making recommendations to our Board with respect
to Directors' compensation, including equity-based compensation; administering and periodically reviewing and making recommendations to our Board regarding the long-term incentive compensation or
equity plans made available to our Directors, employees and consultants; and reviewing and making recommendations to our Board regarding executive compensation philosophy, strategy and principles and
preparing annual reports on the compensation of our senior management.
Nomination committee
We have established a nomination committee with written terms of reference in compliance with paragraph A5.2 of the Corporate
Governance Code as set forth in Appendix 14 to the Listing Rules. The primary duties of the nomination committee are to formulate the nomination procedures and standards for candidates
for Directors and senior management, conduct preliminary review of the qualifications and other credentials of the candidates for Directors and senior management, and recommend suitable candidates for
Directors and senior management to the Board.
Our
nomination committee consists of three independent non-executive Directors, Mr. Lo Kin Cheung, Mr. Huang Zuye and Mr. Gu Jianshe, and two executive Directors,
Mr. Li Feilie and Mr. Tam Cheuk Ho. Mr. Huang Zuye is the chairman of the nomination committee.
The
responsibilities of our nomination committee include, among others: reviewing the structure, size and composition of the Board and making recommendations on any proposed changes to
the Board to complement the Company's corporate strategy; identifying individuals suitably qualified to become Board members and making recommendations to the Board on the selection of individuals
nominated for directorships; assessing the independence of independent non-executive Directors; and making recommendations to the Board on the appointment or re-appointment of Directors and succession
planning for Directors.
Corporate social responsibility committee
We have established a corporate social responsibility committee with written terms of reference. The primary purpose of such committee
is to assist the Board in reviewing the policies and overseeing the issues with respect to corporate social responsibility, including workplace quality, occupational health and safety, environmental
protection, operating practices and community involvement.
Our
corporate social responsibility committee consists of two executive Directors, Mr. Wan Huojin and Mr. Han Weibing, and one independent non-executive Director,
Mr. Gu Jianshe. Mr. Gu Jianshe is the chairman of the committee.
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Table of Contents
The
responsibilities of our corporate social responsibility committee include, among others: considering and formulating the Company's value and strategy as regards corporate social
responsibility; developing and reviewing the Company's corporate social responsibility policies and occupational health and safety standards; identifying corporate social responsibility issues, and
related risks and opportunities that are relevant to the Company's operations; monitoring and overseeing the implementation of the Company's corporate social responsibility policies and practices; and
evaluating and enhancing the Company's corporate social responsibility performance and making recommendation to the Board for improvement.
COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT
Our Directors receive compensation in the form of fees, salaries, allowances, bonuses and other benefits-in-kind, including our
Company's contribution to a pension plan on their behalf.
After
the Listing, our Directors and senior management may receive share options pursuant to our Company's Share Option Scheme. See
Appendix V — "Statutory and General Information — (b) Share Option Scheme".
Total
benefits granted to our Directors and charged to the consolidated income statements in 2010, 2011 and 2012 were approximately RMB17.0 million, nil and nil, respectively.
During the Track Record Period, no remuneration was paid by our Company to our Directors or the five highest paid employees as an inducement to join, or upon joining, our Company. No compensation was
paid to, or receivable by, our Directors or past Directors or the five highest paid employees for the Track Record Period for the loss of office as director of any member of our Company or of any
other office in connection with the management of the affairs of any member of our Company. None of our Directors waived any emoluments for 2010, 2011 and 2012.
As
required by PRC regulations, we participate in various defined pension schemes for our employees, including those organized by regional or municipal governments. The employees covered
by such schemes include our Directors and management personnel. The total amounts set aside or accrued by our Company to provide pension, retirement or similar benefits were approximately
RMB0.7 million as of December 31, 2012.
The
five highest paid employees in 2010, 2011 and 2012 include 1, nil and nil Director, respectively. The aggregate amount of compensation paid by our Company to the five highest paid
employees who are not Directors during the same periods were approximately RMB0.8 million, RMB0.8 million and RMB 1.3 million, respectively. Under the arrangements currently in
force, there was no remuneration payable to, or benefits-in-kind receivable by, the Directors (including three independent non-executive Directors) in respect of the six months ending
June 30, 2013.
In
2012, none of our Directors had any service contracts with the Company that provided for benefits upon termination of employment.
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Table of Contents
SHARE OPTION SCHEME
We have conditionally approved the Share Option Scheme pursuant to which eligible participants may be granted Options to subscribe for
Shares as incentives to contribute to our Company and to enable our Company to recruit high caliber employees and attract or retain human resources that are valuable to our Group. A summary of the
principal terms of the Share Option Scheme is set out in Appendix V — "Statutory and General Information — (b)
Share Option Scheme".
COMPLIANCE ADVISER
Our Company has agreed to appoint to be the compliance adviser upon listing in compliance with Rule 3A.19 of
the
Listing Rules. Our Company expects to enter into a compliance adviser's agreement with the compliance adviser prior to the Listing Date, the material terms of which are
as follows:
- [(a)
- our
Company will appoint as the compliance adviser for the purposes of Rule 3A.19 of the Listing Rules for a period
commencing from the Listing Date and ending on the date on which our Company distributes its annual report incorporating financial results for the first full financial year commencing after the
Listing Date in compliance with Rule 13.46 of the Listing Rules;
- (b)
- the
compliance adviser will provide our Company with certain services, including providing our Company with proper guidance and advice as to compliance with
the requirements under the Listing Rules and applicable laws, rules, codes and guidelines and to act as one of our Company's principal channels with the Stock Exchange;
- (c)
- the
compliance adviser will, as soon as reasonably practicable inform us of any amendment or supplement to the Listing Rules announced by the Stock Exchange
from time to time, and of any amendment or supplement to the applicable laws and guidelines;
- (d)
- the
Company will agree to indemnify the compliance adviser for certain actions against the losses incurred by the compliance adviser arising out of or in
connection with the performance by the compliance adviser of their duties under the agreement, or any material breach by the Company of the provisions of the agreement, provided that the indemnity
will not apply to an action or loss which is finally judicially determined to have been caused by the wilful default, fraud or gross negligence on the part of the compliance adviser;
- (e)
- our
Company may terminate the appointment of the compliance adviser if its work is of an unacceptable standard (which cannot be resolved within
30 days); and
- (f)
- the
compliance adviser may terminate their appointment by service of a notice to our Company.]
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Table of Contents
SUBSTANTIAL SHAREHOLDERS
The following table sets forth information with respect to the ownership of our Shares (i) immediately prior to completion of
the Spin-off and (ii) immediately following completion of the Spin-off, by:
- •
- each Shareholder who directly or indirectly controlled, or is entitled to exercise, or control the exercise of, 5% or more
of our Shares;
- •
- each executive officer;
- •
- each of our Directors; and
- •
- all of our executive officers and Directors as a group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Immediately prior to
completion of the Spin-off |
|
Immediately following
completion of the Spin-off |
|
| Name |
|
Number of
Shares Directly
or Indirectly
Held |
|
Approximate
Percentage of
Share Capital
(%) |
|
Number of
Shares Directly
or Indirectly
Held |
|
Approximate
Percentage of
Share Capital
(%) |
|
CHNR |
|
|
124,554,580 |
(1) |
|
100 |
|
— |
|
|
— |
|
Feishang |
|
|
124,554,580 |
(2) |
|
100 |
|
|
(6) |
|
58.1 |
|
Laitan Investments |
|
|
124,554,580 |
(3) |
|
100 |
|
|
(7) |
|
58.1 |
|
Mr. Li Feilie |
|
|
124,554,580 |
(4) |
|
100 |
|
|
(8) |
|
59.3 |
|
Rosetta Stone Capital Limited(5) |
|
|
— |
|
|
— |
|
|
(9) |
|
|
|
Mr. Han Weibing |
|
|
— |
|
|
— |
|
|
|
|
|
(12) |
Mr. Wan Huojin |
|
|
— |
|
|
— |
|
|
|
|
|
(12) |
Mr. Tam Cheuk Ho |
|
|
— |
|
|
— |
|
|
(10) |
|
1.13 |
|
Mr. Wong Wah On Edward |
|
|
— |
|
|
— |
|
|
(11) |
|
1.61 |
|
Mr. Lo Kin Cheung |
|
|
— |
|
|
— |
|
|
|
|
|
(12) |
Mr. Huang Zuye |
|
|
— |
|
|
— |
|
|
|
|
|
(12) |
Mr. Gu Jianshe |
|
|
— |
|
|
— |
|
|
|
|
|
(12) |
Mr. Yue Ming Wai Bonaventure |
|
|
— |
|
|
— |
|
|
|
|
|
(12) |
Mr. Hu Lubao |
|
|
— |
|
|
— |
|
|
|
|
|
(12) |
Mr. Liao Diansheng |
|
|
— |
|
|
— |
|
|
|
|
|
(12) |
Mr. Cai Zhenghui |
|
|
— |
|
|
— |
|
|
|
|
|
(12) |
Mr. Teng Biao |
|
|
— |
|
|
— |
|
|
|
|
|
(12) |
Mr. Lan Xiaosheng |
|
|
— |
|
|
— |
|
|
|
|
|
(12) |
Mr. Wu Ziping |
|
|
— |
|
|
— |
|
|
|
|
|
(12) |
Mr. Cheng Wenkun |
|
|
— |
|
|
— |
|
|
|
|
|
(12) |
Mr. Jia Zhigang |
|
|
— |
|
|
— |
|
|
|
|
|
(12) |
Mr. Lin Quanlong |
|
|
— |
|
|
— |
|
|
|
|
|
(12) |
Mr. Wu Quanyi |
|
|
— |
|
|
— |
|
|
|
|
|
(12) |
Mr. Zhang Ye |
|
|
— |
|
|
— |
|
|
|
|
|
(12) |
All executive officers and Directors as a group (20 persons) |
|
|
— |
|
|
— |
|
|
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|
|
220
Table of Contents
- (1)
- These Shares are held directly by CHNR.
- (2)
- Feishang
held 58.1% of the equity interests in CHNR. Accordingly, under the SFO, Feishang was deemed to be interested in the 124,554,580 Shares held
by CHNR.
- (3)
- Laitan
Investments held 100% of the equity interests in Feishang. Accordingly, under the SFO, Laitan Investments was deemed to be interested in the
124,554,580 Shares held by CHNR.
- (4)
- Mr. Li
Feilie held 100% of the equity interests in Laitan Investments. Accordingly, under the SFO, Mr. Li was deemed to be interested in the
124,554,580 Shares held by CHNR. Mr. Li also directly held CHNR Shares or approximately 1.2% of
the equity interests in CHNR.
- (5)
- Based
solely upon its filings with the SEC, we understand that Rosetta Stone Capital Limited was owned 32.5% by Mr. Guozhong Xie, 29.17% by Keen View
Investments Limited, 29.17% by Sun Fortune Investments Limited, 5.83% by Smartmind Investments Limited and 3.33% by Mr. Yuen Kin Lo. Mr. Xie was the sole director of Rosetta Stone
Capital Limited, Ms. Pan Pan Hui was the sole shareholder and director of Keen View Investments Limited, Ms. Yi Mei Liu was a controlling shareholder and director of Sun Fortune
Investments Limited and Ms. Yunxiao Zhao was the sole shareholder and director of Smartmind Investments Limited. We also understand that Rosetta Stone Capital Limited maintained an office at
10th Floor, Center Point, 181 Gloucester Road, Hong Kong.
- (6)
- Feishang
held CHNR Shares. Based on the distribution of five Shares for every CHNR Share outstanding, Feishang held
Shares following completion of the Spin-off.
- (7)
- Laitan
Investments held 100% of the equity interests in Feishang. Accordingly, under the SFO, Laitan Investments was deemed to be interested in the
Shares held by Feishang.
- (8)
- Mr. Li
Feilie held 100% of the equity interests in Laitan Investments. Accordingly, under the SFO, Mr. Li was deemed to be interested in the
Shares held by Feishang. Since Mr. Li also directly held CHNR Shares immediately prior to
completion of the Spin-off, based on the distribution of
five Shares for every CHNR Share outstanding, Mr. Li will directly hold Shares following completion of the Spin-off.
- (9)
- Rosetta
Stone Capital Limited held CHNR Shares. Based on the distribution of five Shares for every CHNR Share outstanding, Rosetta
Stone Capital Limited will hold Shares following completion of the Spin-off.
- (10)
- Mr. Tam
Cheuk Ho held CHNR Shares. Based on the distribution of five Shares for every CHNR Share outstanding, Mr. Tam
will hold Shares following completion of the Spin-off.
- (11)
- Mr. Wong
Wah On Edward held CHNR Shares. Based on the distribution of five Shares for every CHNR Share outstanding,
Mr. Wong will hold Shares following completion of the Spin-off.
- (12)
- Shares
held in all cases constituted less than 1% of the issued share capital of the Company.
Following completion of the Spin-off, we will have an aggregate of 124,554,580 Shares outstanding, based on 24,910,916 CHNR Shares
outstanding on , 2013. The mailing address for each of the Directors and executive officers is c/o
Feishang Anthracite Resources Limited, Room 2205, Shun Tak Centre,
200 Connaught Road Central, Sheung Wan, Hong Kong.
Based
on CHNR's shareholder records as June 25, 2013 (assuming that there are no changes in shareholdings between June 25, 2013 and the Distribution Record Date),
immediately following completion of the Spin-off, our Shares would be held on record by a total of 181 registered shareholders (with more than 300 beneficial shareholders), 146 of whom,
representing approximately 29.15% of the outstanding Shares, were located in the United States. Shares registered in the name(s) of intermediaries were assumed to be held by residents of the
same country where the intermediary was located.
221
Table of Contents
Except
as disclosed herein, the Directors are not aware of any person who will, immediately following completion of the Spin-off, have an interest or short position in Shares or
underlying Shares which would be required to be disclosed to our Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, directly or indirectly, be
interested in 5% or more of the
nominal value of any class of share capital carrying rights to vote in all circumstances at our general meetings. Except as otherwise disclosed in this listing document, as of the Latest Practicable
Date, we were not aware of any arrangement which may at a subsequent date result in a change of control of our Company.
222
Table of Contents
SHARE CAPITAL
|
|
|
|
|
|
|
|
|
|
Number of Shares |
|
Value (HK$) |
|
Authorized share capital |
|
|
1,000,000,000 |
|
|
10,000,000 |
|
Issued share capital immediately before completion of the Spin-off |
|
|
124,554,580 |
|
|
1,245,545.8 |
|
Issued share capital immediately following completion of the Spin-off |
|
|
124,554,580 |
|
|
1,245,545.8 |
|
ASSUMPTIONS
The above table assumes that the Distribution becomes unconditional and it takes no account of any Shares which may be allotted and
issued pursuant to the general mandate to issue new Shares, or which we may repurchase pursuant to the share repurchase mandate.
RANKING
The Shares are ordinary shares in the share capital of the Company and will rank equally in all respects with each other, and will
qualify for all dividends, income and other distributions declared, made or paid and any other rights and benefits attaching or accruing to the Shares following the completion of the Spin-off.
GENERAL MANDATE TO ISSUE SHARES
The Directors have been granted a mandate to allot, issue and deal with additional Shares and to make or grant offers, agreements and
options which will or might require the exercise of such powers, provided that the aggregate nominal amount of Shares allotted or agreed conditionally or unconditionally to be allotted (whether
pursuant to an option or otherwise) by the Directors other than pursuant to:
- •
- a rights issue; or
- •
- any scrip dividend or similar arrangement providing for the allotment of Shares in lieu of the whole or part of a dividend
on Shares
shall
not exceed the aggregate of:
- •
- 20% of the aggregate nominal amount of the Shares in issue as at the date on which dealings in the Shares commence on the
Stock Exchange; and
- •
- the aggregate nominal amount of the share capital of the Company repurchased by the Company under the share repurchase
mandate (up to a maximum equivalent to 10% of the aggregate nominal amount of Shares in issue as at the date on which dealings in the Shares commence on the Stock Exchange).
223
Table of Contents
This
mandate will expire at the earliest of:
- •
- the conclusion of the next annual general meeting of the Company;
- •
- the expiration of the period within which the next annual general meeting of the Company is required by law to be
held; and
- •
- the revocation or variation of the authority given by an ordinary resolution of the Shareholders.
For
further details of this mandate, see the section headed "Further Information About Our Company — Written Resolutions of the Sole Shareholder
Dated , 2013" in Appendix V — "Statutory and General Information" to this listing
document.
GENERAL MANDATE TO REPURCHASE SHARES
The Directors have been granted a repurchase mandate to exercise all the powers of the Company to make repurchase of Shares on the
Stock Exchange or on any other stock exchange on which the securities of the Company may be listed and which is recognized by the SFC and the Stock Exchange for this purpose, with a total nominal
value of not more than 10% of the aggregate nominal amount of the share capital of the Company in issue as at the date on which dealings in the Shares commence on the Stock Exchange.
This
repurchase mandate only relates to on-market share repurchases (within the meaning of the Hong Kong Code on Share Repurchases) and will expire at the
earliest of:
- •
- the conclusion of the Company's next annual general meeting;
- •
- the expiration of the period within which the next annual general meeting of the Company is required by law to be
held; and
- •
- the revocation or variation of the authority given by an ordinary resolution of the Shareholders.
For
further details of this repurchase mandate, see the section headed "Further Information About Our Company — Written Resolutions of the Sole
Shareholder Dated , 2013" in Appendix V — "Statutory and General Information" to
this listing document.
224
Table of Contents
UNDERTAKINGS BY THE COMPANY
Pursuant to Rule 10.08 of the Listing Rules, the Company has undertaken to the Stock Exchange that the Company will not issue
any further Shares or securities convertible into equity securities of the Company (whether or not of a class already listed) or enter into any agreement to such issue within six months from the date
on which the Company's securities first commence dealing on the Stock Exchange (whether or not such issues of Shares or securities will be completed within six months from the commencement of
dealing), except in the circumstances provided under Rule 10.08 of the Listing Rules.
UNDERTAKINGS BY THE CONTROLLING SHAREHOLDERS
Pursuant to Rule 10.07 of the Listing Rules, each of the Controlling Shareholders has undertaken to the Stock Exchange and to
the Company that except pursuant to the
Distribution, it will not and will procure that the relevant registered holder(s) will not:
- (a)
- in
the period commencing on the date by reference to which disclosure of its shareholding is made in this listing document and ending on the date which is
six months from the date on which dealings in the Shares commence on the Stock Exchange, dispose of, or enter into any agreement to dispose of or otherwise create any options, rights, interests or
encumbrances in respect of, any of the Shares in respect of which it is shown by this listing document to be the beneficial owner; and
- (b)
- in
the period of six months commencing on the date on which the period referred to in paragraph (a) above expires, dispose of, or enter into any
agreement to dispose of or otherwise create any options, rights interests or encumbrances in respect of, any of the Shares if, immediately following such disposal or upon the exercise or enforcement
of such options, rights, interests or encumbrances, it would cease to be the controlling shareholder of the Company.
Pursuant
to Note 3 to Rule 10.07(2) of the Listing Rules, each of the Controlling Shareholders has undertaken to the Stock Exchange and to the Company that within the
period commencing on the date by reference to which disclosure of its shareholding in the Company is made in this listing document and ending on the date which is 12 months from the date on
which dealings in the Shares commence on the Stock Exchange, it will:
- (i)
- when
it pledges or charges any Shares beneficially owned by it in favour of an authorized institution (as defined in the Banking Ordinance
(Chapter 155 of the Laws of Hong Kong)) pursuant to Note 2 to Rule 10.07(2) of the Listing Rules, immediately inform the Company of such pledge or charge together with the number
of Shares so pledged or charged; and
- (ii)
- when
it receives indications, either verbal or written, from the pledgee or chargee of any Shares that any of the pledged or charged Shares will be
disposed of, immediately inform the Company of such indications.
225
Table of Contents
APPENDIX I
ACCOUNTANTS' REPORT OF THE COMPANY
[INTENTIONALLY
OMITTED. SEE "ABOUT THIS INFORMATION STATEMENT" ON PAGE IS-1]
I-1
Table of Contents
APPENDIX II
ACCOUNTANTS' REPORT OF GUIZHOU PUXIN
[INTENTIONALLY
OMITTED. SEE "ABOUT THIS INFORMATION STATEMENT" ON PAGE IS-1]
II-1
Table of Contents
APPENDIX III
COMPETENT PERSON'S REPORT
CHINA NATURAL RESOURCES INC.
FEISHANG ANTHRACITE RESOURCES LIMITED
INDEPENDENT TECHNICAL REVIEW OF
SEVEN COAL MINES
(BEHRE DOLBEAR PROJECT 13229)
NOVEMBER 2013
PREPARED BY:
BEHRE DOLBEAR ASIA, INC.
6430 SOUTH FIDDLER'S GREEN CIRCLE, SUITE 250
GREENWOOD VILLAGE, COLORADO 80111
(303) 620-0020
A Member of the Behre Dolbear Group Inc.
© 2013, Behre Dolbear Group Inc. All Rights Reserved.
www.dolbear.com
III-1
Table of Contents
BEHRE DOLBEAR
founded 1911 MINERALS INDUSTRY ADVISORS
BEHRE DOLBEAR ASIA, INC.
07 November 2013
The
Directors
Feishang Anthracite Resources Limited
(formerly known as "Wealthy Year Limited")
54-55/F, International Chamber of Commerce Tower
168 Fuhua Third Road, Futian CBD
Shenzhen, Guangdong 518048
CHINA
Re:
Behre Dolbear Project 13-229 — Independent Technical Review of Seven Coal Mines and Properties in Guizhou Province, People's Republic of China for Feishang
Anthracite Resources Limited as at 31 July 2013
Gentlemen:
Behre
Dolbear Asia, Inc., a wholly-owned subsidiary of Behre Dolbear Group, Inc., located at the address noted below, herewith submits its updated Independent Technical
Review (the "Competent Person's Report") of Seven Coal Properties in Guizhou Province, the People's Republic of China. Behre Dolbear Asia, Inc. is herein referred to as "BD Asia." The
original version of this report was submitted to China Natural Resources, Inc. (CHNR) in September 2011. At CHNR's request, this updated Competent Person's Report is being submitted to
Feishang Anthracite Resources Limited ("Feishang" or "Company"). The Company is preparing for a proposed listing of its shares (Listing) on the Main Board of The Stock Exchange of Hong Kong Limited
(SEHK). This document is specifically intended to serve as a Competent Person's Report in support of filings on the SEHK. It is not intended for public filing on any other exchange and it might not be
in full compliance or conformance with the requirements of other exchanges.
This
Competent Person's Report covers all seven underground coal mines of the Company (Mines) and coal mining properties (Properties) in Guizhou Province. The Mines are currently at
various stages of construction, development, and operation. Behre Dolbear's experts visited the Mines during the period from 05 through 11 May 2011 and again during the periods from 22
through 26 October 2012, 03 through 06 May 2013, and 06 through 09 October 2013.
The
purpose of this Competent Person's Report is to provide an independent technical assessment of the Company's coal mining properties to be included in documents for the Listing.
This Competent
6430 South Fiddler's Green Circle, Suite 250, Greenwood Village, Colorado 80111 3030-620-0020 fax 303-620-0024
BEIJING CHICAGO DENVER GUADALAJARA HONG KONG LONDON NEW YORK
SANTIAGO SYDNEY TORONTO ULAANBAATAR VANCOUVER
www.dolbear.com
III-2
Table of Contents
Person's Report has been prepared in accordance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
(Listing Rules), in particular, the requirements of Chapter 18 of the Listing Rules, and therefore, constitutes a Competent Person's Report under these Listing Rules. The reporting standard
adopted by this Competent Person's Report is the Code for Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports, as adopted by the
Australasian Institute of Mining and Metallurgy in 1995 and updated in 2005 (VALMIN Code). Mineral resources and ore reserves defined for the properties have been reviewed for conformity with the
Australasian Code for Reporting Exploration Results, Mineral Resources, and Ore Reserves prepared by the Joint Ore Reserves Committee (JORC Code) of the Australasian Institute of Mining and
Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia in 1999 and revised in 2004.
This
Competent Person's Report comprises an introduction, followed by a review of the technical aspects of the above matters and a summary risk analysis. We trust that this Competent
Person's Report adequately and appropriately highlights the critical technical aspects of the Mines and Properties under review and addresses all risk elements of significance.
The
evidence upon which the estimated coal resources and coal reserves are based includes the deposit geology, drilling, and sampling information, project economics, and past production
history. The basis upon which Behre Dolbear formed its view on the coal resource and coal reserve estimates also includes the site visits of Behre Dolbear's professionals to all the reviewed coal
mining properties, interviews of the Company's site personnel, analysis of the drilling and sampling database, procedures and parameters used for the estimates, and a comparison with past production.
The
Behre Dolbear project team consisted of senior-level mining professionals from Behre Dolbear's Denver office in the United States, the Hong Kong office in China, and the
Toronto office in Canada. The scope of work conducted by Behre Dolbear included site visits to all the mining properties, technical analysis of the project geology, coal resource and coal reserve
estimates, review of the mining, production, operating and capital costs, economic analysis, environmental assessment, occupational health and safety issues, and compilation of this Competent Person's
Report.
Neither
Behre Dolbear nor any of its partners, officers, employees, or associates involved in the preparation of this Competent Person's Report has any direct or indirect economic,
beneficial or ownership interests of any kind (whether in the past, present or contingent) in the Company, its coal mining properties, any of its assets being reported on or any group, holding or
associated company of the Company. None of Behre Dolbear's partners, officers, employees, or associates is an officer, employee, or proposed officer of the Company or any group, holding, or associated
company of the Company. Behre Dolbear is to receive a fee for its services (the work product of which includes this Competent Person's Report) at its normal commercial rate and customary
payment schedules. Payment of Behre Dolbear's professional fee is not contingent upon the outcome of this Competent Person's Report.
Behre
Dolbear confirms that it is not a group, holding, or associated company of the Company. Behre Dolbear does not have any claims outstanding with the Company, its assets, or any
group, holding or associated company of the Company.
III-3
Table of Contents
Pursuant
to the terms of Behre Dolbear's engagement in respect of this assignment, CHNR has agreed to release, defend, and indemnify Behre Dolbear from and against certain liabilities
arising from the performance of its services. The Company has not indemnified Behre Dolbear for this assignment.
This
Competent Person's Report documents Behre Dolbear's findings with respect to the Company's Mines, coal-bearing properties, and coal resources and reserves of the Mines as of
31 July 2013. This incorporates the Company's statements with respect to past and current production costs and certain financial models provided by the Company to Behre Dolbear.
This
Competent Person's Report is based on information compiled by Mr. Norris E. Brooks, who is a member of the Mining & Metallurgical Society of America and is a Senior
Associate of Behre Dolbear. Mr. Brooks has sufficient experience, which is relevant to the style of mineralization and type of deposit under consideration and to the activity that he is
undertaking, to qualify as Competent Person, as defined in the JORC Code and Chapter 18 of the Listing Rules. Mr. Brooks, as the Competent Person, takes overall responsibility for this
Competent Person's Report for the purpose of Chapter 18 of the Listing Rules. For the avoidance of doubt, Mr. Brooks' overall responsibility as Competent Person does not in any way
reduce or limit the responsibilities, obligations, and liabilities of Behre Dolbear in respect of the issuance and submission of this Competent Person's Report.
Except
as specifically noted in this Competent Person's Report, Behre Dolbear confirms that it is not aware of any material changes to the mining operations of the Company other than the
on-going production and Mine expansion construction since the date of this report.
As
of the date of this report, Behre Dolbear has reviewed and commented on the Company's regulatory compliance, permit status, and license approval status using criteria that are
consistent with the standards of the industry. The impact of new or revised laws, rules, or restrictions that might be imposed on future exploration, development, or operations of the Mines after the
date of this report cannot be anticipated.
The
sole purpose of this Competent Person's Report is for use by the Company and its Sponsors in connection with the Listing. This Competent Person's Report cannot be used or relied upon
for any other purpose. Neither the whole, nor any part, of this Competent Person's Report, nor any reference thereto may be included in, with or attached to any document or used for any other purpose
without Behre Dolbear's written consent to the form and context in which it appears.
Yours
faithfully,
BEHRE DOLBEAR ASIA, INC.
Norris
E. Brooks
Senior Associate and Competent Person
cc:
Alastair McIntyre, Senior Managing Director-Asia
III-4
Table of Contents
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page |
| 1.0 |
|
EXECUTIVE SUMMARY |
|
III-15 |
| |
|
1.1 |
|
BACKGROUND |
|
III-15 |
| |
|
1.2 |
|
GEOLOGY |
|
III-17 |
| |
|
1.3 |
|
RESOURCES AND RESERVES |
|
III-17 |
| |
|
1.4 |
|
CHINESE RESOURCE ESTIMATE |
|
III-19 |
| |
|
1.5 |
|
BD ASIA JORC CODE IN-SITU COAL RESOURCE ESTIMATE |
|
III-20 |
| |
|
1.6 |
|
BD ASIA JORC CODE COAL RESERVE ESTIMATE |
|
III-20 |
| |
|
1.7 |
|
COAL QUALITY |
|
III-22 |
| |
|
1.8 |
|
MINE AND BENEFICIATION PLANT DESCRIPTIONS AND PLANS |
|
III-22 |
| |
|
1.9 |
|
COAL PRODUCTION FORECASTS |
|
III-25 |
| |
|
1.10 |
|
COAL PRODUCTS AND MARKETS |
|
III-25 |
| |
|
1.11 |
|
REGULATORY ISSUES |
|
III-26 |
| |
|
|
|
1.11.1 |
|
Mining Rights and Permits |
|
III-26 |
| |
|
|
|
1.11.2 |
|
Environmental |
|
III-26 |
| |
|
|
|
1.11.3 |
|
Occupational Health and Safety |
|
III-27 |
| |
|
|
|
1.11.4 |
|
Social Issues |
|
III-27 |
| |
|
1.12 |
|
FINANCIAL EVALUATION AND CASH FLOW MODEL |
|
III-28 |
| |
|
1.13 |
|
CONCLUSIONS AND RISK ASSESSMENT |
|
III-29 |
| 2.0 |
|
QUALIFICATIONS OF BEHRE DOLBEAR ASIA |
|
III-30 |
| |
|
2.1 |
|
BEHRE DOLBEAR PERSONNEL |
|
III-30 |
| 3.0 |
|
SCOPE OF WORK FOR THE UPDATE OF THE TECHNICAL REVIEW |
|
III-33 |
| 4.0 |
|
DESCRIPTION |
|
III-34 |
| |
|
4.1 |
|
GENERAL LOCATION, INFRASTRUCTURE, AND ACCESS |
|
III-34 |
| |
|
4.2 |
|
CLIMATE AND PHYSIOGRAPHY |
|
III-34 |
| 5.0 |
|
GEOLOGY |
|
III-35 |
| |
|
5.1 |
|
REGIONAL GEOLOGICAL SETTING |
|
III-35 |
| |
|
5.2 |
|
LOCAL AND DEPOSIT GEOLOGICAL SETTING |
|
III-36 |
| |
|
|
|
5.2.1 |
|
Geological Setting of Qianbei Coal District |
|
III-36 |
| |
|
|
|
5.2.2 |
|
Geological Setting of the Zhina Coal District |
|
III-39 |
| |
|
5.3 |
|
GEOLOGY OF THE COAL DEPOSITS |
|
III-42 |
| |
|
|
|
5.3.1 |
|
Coal-bearing Strata in the Qianbei Coal District |
|
III-42 |
| |
|
|
|
5.3.2 |
|
Coal-bearing Strata in Zhina Coal District |
|
III-44 |
| |
|
5.4 |
|
GEOLOGICAL DATABASE FOR RESOURCE ESTIMATION |
|
III-46 |
| 6.0 |
|
COAL RESOURCES AND RESERVES |
|
III-48 |
| |
|
6.1 |
|
DIGITAL DATABASE FOR COAL RESOURCE ESTIMATION |
|
III-48 |
| |
|
6.2 |
|
COAL-BEARING STRATA |
|
III-49 |
| |
|
6.3 |
|
COAL RESOURCE AND RESERVE CLASSIFICATION SYSTEM UNDER THE AUSTRALASIAN JORC CODE |
|
III-49 |
III-5
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page |
| |
|
6.4 |
|
PROCEDURES AND PARAMETERS FOR COAL RESOURCE ESTIMATION |
|
III-52 |
| |
|
6.5 |
|
DISCUSSION — COAL RESOURCES AND RESERVES |
|
III-53 |
| |
|
6.6 |
|
COAL RESOURCE STATEMENT |
|
III-54 |
| |
|
6.7 |
|
PROCEDURES AND PARAMETERS FOR COAL RESERVE ESTIMATION |
|
III-55 |
| |
|
6.8 |
|
COAL RESERVE STATEMENT |
|
III-57 |
| |
|
6.9 |
|
PHYSICAL AND CHEMICAL CHARACTERISTICS OF COAL RESERVES |
|
III-58 |
| |
|
6.10 |
|
RESOURCE AND RESERVE RISK FACTORS |
|
III-59 |
| |
|
6.11 |
|
RESOURCE AND RESERVE CONCLUSIONS |
|
III-61 |
| 7.0 |
|
MINE DESCRIPTIONS AND PLANS |
|
III-61 |
| |
|
7.1 |
|
GENERAL |
|
III-61 |
| |
|
|
|
7.1.1 |
|
Baiping Coal Mine |
|
III-63 |
| |
|
|
|
7.1.2 |
|
Yongsheng Coal Mine |
|
III-63 |
| |
|
|
|
7.1.3 |
|
Dayun Coal Mine |
|
III-64 |
| |
|
|
|
7.1.4 |
|
Gouchang Coal Mine |
|
III-64 |
| |
|
|
|
7.1.5 |
|
Dayuan Coal Mine |
|
III-65 |
| |
|
|
|
7.1.6 |
|
Liujiaba Coal Mine |
|
III-66 |
| |
|
|
|
7.1.7 |
|
Zhulinzhai Coal Mine |
|
III-67 |
| |
|
|
|
7.1.8 |
|
Jinsha Juli Coal Beneficiation Plant |
|
III-67 |
| |
|
7.2 |
|
EXPANSION AND CONSTRUCTION SCHEDULES |
|
III-69 |
| 8.0 |
|
COAL PRODUCTION |
|
III-72 |
| |
|
8.1 |
|
HISTORICAL PRODUCTION |
|
III-72 |
| |
|
8.2 |
|
FORECASTED PRODUCTION |
|
III-72 |
| 9.0 |
|
COAL MARKETABILITY AND PRODUCTS |
|
III-75 |
| |
|
9.1 |
|
MARKETABILITY OF COAL PRODUCTS |
|
III-75 |
| |
|
9.2 |
|
FORECASTED PRODUCT MIX |
|
III-77 |
| |
|
9.3 |
|
CUSTOMERS AND TRANSPORTATION |
|
III-81 |
| 10.0 |
|
REGULATORY ISSUES |
|
III-85 |
| |
|
10.1 |
|
MINING RIGHTS |
|
III-85 |
| |
|
10.2 |
|
ENVIRONMENTAL, SAFETY, AND SOCIAL MATTERS |
|
III-89 |
| |
|
|
|
10.2.1 |
|
Baiping Coal Mine |
|
III-89 |
| |
|
|
|
10.2.2 |
|
Yongsheng Coal Mine |
|
III-90 |
| |
|
|
|
10.2.3 |
|
Dayun Coal Mine |
|
III-92 |
| |
|
|
|
10.2.4 |
|
Gouchang Coal Mine |
|
III-95 |
| |
|
|
|
10.2.5 |
|
Dayuan Coal Mine |
|
III-95 |
| |
|
|
|
10.2.6 |
|
Liujiaba Coal Mine |
|
III-97 |
| |
|
|
|
10.2.7 |
|
Zhulinzhai Coal Mine |
|
III-98 |
| |
|
10.3 |
|
OCCUPATIONAL HEALTH AND SAFETY |
|
III-99 |
| 11.0 |
|
OPERATING COSTS |
|
III-101 |
| 12.0 |
|
CAPITAL COSTS |
|
III-103 |
| 13.0 |
|
FINANCIAL ANALYSIS |
|
III-105 |
| |
|
13.1 |
|
INTRODUCTION |
|
III-105 |
| |
|
13.2 |
|
TECHNICAL ASSUMPTIONS — BCFM INPUTS |
|
III-106 |
| |
|
|
|
13.2.1 |
|
Basis of BCFM Inputs |
|
III-106 |
| |
|
|
|
13.2.2 |
|
Cash Flow Timeline |
|
III-108 |
| |
|
|
|
13.2.3 |
|
LOM and Reserves |
|
III-108 |
III-6
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page |
| |
|
|
|
13.2.4 |
|
Coal Production |
|
III-108 |
| |
|
|
|
13.2.5 |
|
Coal Sales Price and Revenues |
|
III-110 |
| |
|
|
|
13.2.6 |
|
Cost of Production |
|
III-113 |
| |
|
|
|
13.2.7 |
|
Other Costs and Expenses |
|
III-115 |
| |
|
|
|
13.2.8 |
|
Taxes and Government Levies |
|
III-115 |
| |
|
|
|
13.2.9 |
|
Capital Costs, Depreciation, and Amortization |
|
III-116 |
| |
|
|
|
13.2.10 |
|
Working Capital |
|
III-117 |
| |
|
|
|
13.2.11 |
|
Net Income and Cash Flow Determination |
|
III-117 |
| |
|
13.3 |
|
DEMONSTRATION OF ECONOMIC VIABILITY |
|
III-118 |
| |
|
13.4 |
|
SENSITIVITY ANALYSIS |
|
III-118 |
| 14.0 |
|
RISK ANALYSIS |
|
III-121 |
|
|
|
|
|
|
|
|
|
|
| LIST OF TABLES |
| Table 1.1 |
|
Original Chinese Resource Summary |
|
III-19 |
| Table 1.2 |
|
BD Asia's Estimate of the In-situ JORC Code Coal Resource |
|
III-20 |
| Table 1.3 |
|
JORC Code Coal Reserves and Resources |
|
III-21 |
| Table 1.4 |
|
Company Ramp-up and LOM Forecasted Annual Production by Mine |
|
III-25 |
| Table 1.5 |
|
Product Mix Distribution By Year |
|
III-26 |
| Table 5.1 |
|
Structural Feature Summary of Three Coal Mines of the Company |
|
III-38 |
| Table 5.2 |
|
Structural Feature Summary of Four Coal Mines |
|
III-42 |
| Table 5.3 |
|
Mineable Coal Seams for the Coal Mines of the Company |
|
III-44 |
| Table 5.4 |
|
Mineable Coal Seams for the Company's Coal Mines |
|
III-45 |
| Table 5.5 |
|
Bulk Densities Used for Coal Resource Estimation |
|
III-47 |
| Table 6.1 |
|
Exploration Project Table |
|
III-48 |
| Table 6.2 |
|
Main Parameters of Mineable Coal Seams for All Company Properties |
|
III-49 |
| Table 6.3 |
|
Correlation of 1999 Chinese Resource Classification with JORC Code Resource Classes |
|
III-54 |
| Table 6.4 |
|
Chinese Resource Summary |
|
III-54 |
| Table 6.5 |
|
BD Asia's Estimate of the JORC Code Resources at the Company's Mines |
|
III-55 |
| Table 6.6 |
|
JORC Code Coal Reserves and Resources |
|
III-57 |
| Table 6.7 |
|
Average Coal Quality of Raw Coal in the Reserves |
|
III-58 |
| Table 7.1 |
|
Summary Description of the Seven Underground Anthracite Mines |
|
III-62 |
| Table 7.2 |
|
Overall Projected Production Capacities and Permitted Capacities |
|
III-69 |
| Table 7.3 |
|
Construction and Production Schedules |
|
III-70 |
| Table 8.1 |
|
Historical Production — May 2011 to July 2013 |
|
III-73 |
| Table 8.2 |
|
Company Projected Annual Coal Production Volumes |
|
III-74 |
| Table 9.1 |
|
Market Targets for the Company's Anthracite Coals |
|
III-75 |
| Table 9.2 |
|
Basis for Steady State Final Product Mix |
|
III-78 |
| Table 9.3 |
|
Projected Product Mix Distribution By Mine |
|
III-79 |
III-7
Table of Contents
|
|
|
|
|
|
|
|
|
Page |
| Table 9.4 |
|
Overall Product Mix Distribution By Year |
|
III-80 |
| Table 9.5 |
|
Current Coal Transportation Network |
|
III-82 |
| Table 10.1 |
|
Permits for Mining Rights |
|
III-85 |
| Table 10.2 |
|
Summary of the Main Approved Permits for the Seven Mines |
|
III-86 |
| Table 10.3 |
|
Summary of Compensated Households for the Mines Under Construction and Households Remaining to be Compensated |
|
III-91 |
| Table 10.4 |
|
Description of Historical Fatalities and Serious Injuries at the Company's Mines |
|
III-100 |
| Table 11.1 |
|
Actual and Forecasted Direct Production Cash Costs |
|
III-102 |
| Table 12.1 |
|
BCFM Total Capital Costs as of 31 December 2012 |
|
III-104 |
| Table 13.1 |
|
Company Holdings in the Seven Mines |
|
III-106 |
| Table 13.2 |
|
Origin of Original Mine Design Parameters |
|
III-107 |
| Table 13.3 |
|
Comparison of JORC Code Equivalent Reserves (As of 30 July 2013) and BCFM Projected Production |
|
III-108 |
| Table 13.4 |
|
BCFM Forecasted Annual Commercial Coal Production By Mine |
|
III-109 |
| Table 13.5 |
|
Product Mix Distribution By Year |
|
III-109 |
| Table 13.6 |
|
BCFM Projected Coal Prices |
|
III-110 |
| Table 13.7 |
|
Comparison of BCFM-Projected Coal Prices versus Historical Coal Prices |
|
III-112 |
| Table 13.8 |
|
BCFM Cost of Production — Steady State (LOM) |
|
III-114 |
| Table 13.9 |
|
BCFM Other Costs and Expenses and Government Levies — Steady State (LOM) |
|
III-116 |
| Table 13.10 |
|
BCFM Total Capital Costs By Year |
|
III-117 |
| Table 14.1 |
|
Overall Risk Assessment Matrix |
|
III-121 |
| Table 14.2 |
|
Project Risk Determination for Coal Mines of the Company |
|
III-121 |
|
|
|
|
|
| LIST OF FIGURES |
| Figure 1.1. |
|
General location of Mines and Properties described in this report |
|
III-16 |
| Figure 5.1. |
|
Simplified map of Tectonic Unit Distribution of northwestern Guizhou coal fields |
|
III-35 |
| Figure 5.2. |
|
Local geological map of the Company's Mines in Qianbei coal district, Guizhou |
|
III-36 |
| Figure 5.3. |
|
Comprehensive strata column map of the coal field in Jinsha County |
|
III-37 |
| Figure 5.4. |
|
Local geological map of the Company's Mines in Zhina coal district, Guizhou Province |
|
III-39 |
| Figure 5.5. |
|
Comprehensive strata column map of coalfields in Nayong County |
|
III-40 |
| Figure 5.6. |
|
East-West transgressed facies in late Permian coal measures |
|
III-41 |
| Figure 5.7. |
|
A multiple cyclic marine-terrestrial sediments system during Late Permian from West Guizhou Province |
|
III-43 |
| Figure 6.1. |
|
General relationships between exploration results, coal resources, and coal reserves (after the JORC Code 2012 edition) |
|
III-51 |
III-8
Table of Contents
|
|
|
|
|
|
|
|
|
Page |
| Figure 7.1. |
|
Construction and production schedule |
|
III-71 |
| Figure 10.1. |
|
A BD Asia summarized safety approval process for Mines awaiting permission for commercial production |
|
III-88 |
| Figure 13.1. |
|
PCI and anthracite coal price trends in the Guizhou Province |
|
III-111 |
| Figure 13.2. |
|
Total revenue distribution by coal type |
|
III-113 |
| Figure 13.3. |
|
NPV (10%) sensitivity analysis — BCFM |
|
III-120 |
III-9
Table of Contents
HISTORY OF ENGAGEMENT
In 2009 and 2010, China Natural Resources, Inc. (CHNR) acquired the entire or majority equity interest in seven underground
anthracite coal mines in Guizhou Province, the People's Republic of China (PRC). Under a Consulting Services Agreement, dated 14 March 2011, CHNR engaged Behre Dolbear Asia, Inc.
("BD Asia" or "Behre Dolbear") to conduct an Independent Technical Review (ITR) of CHNR's interests in the seven coal mining operations (Mines) and the properties upon which they operate
(Properties) to support a listing on the NASDAQ Capital Market. As of the transmittal date of this report, CHNR remains listed on the NASDAQ Capital Market.
For
the development of the ITR, a team of Behre Dolbear experts visited the Mines and the Properties during the period from 05 May 2011 through 11 May 2011.
That report was prepared by relying upon
information gathered during that site visit and using data and information provided by CHNR and its subsidiaries (CHNR Group). This included extensive information regarding the Mines and the
Properties, forecasted expansion and development activities, resultant production, and capital and operating cost forecasts. Based upon the information provided by the CHNR Group at that time, Behre
Dolbear believed that the plans and schedules were reasonably consistent with generally accepted international standards for such activities.
A
report titled "INDEPENDENT REVIEW OF SEVEN COAL MINES" (September 2011 ITR) was submitted to CHNR in September 2011. The purpose of the September 2011 ITR was to
comply with certain requirements under Industry Guide 7 promulgated by the United States Securities and Exchange Commission (U.S. SEC).
Under
a subsequent Consulting Services Agreement, dated 04 July 2012, and several subsequent Work Change Orders since July 2012, CHNR engaged Behre Dolbear to update
the information in the September 2011 ITR. This report (Updated ITR) provides the most recent ITR of the Mines and Properties. The Updated ITR is intended to be included in the listing document
of a wholly owned subsidiary of CHNR, Feishang Anthracite Resources Limited (Company), for the purpose of its proposed listing on the Main Board of The Stock Exchange of Hong Kong
Limited (SEHK).
The
following chart sets out the structure under which the Mines and Properties and their mining related activities are owned, and their operations are held by the Company and its
subsidiaries (Group).
III-10
Table of Contents
CORPORATE STRUCTURE
III-11
Table of Contents
- (1)
- The
remaining 1% equity interest is held by Mr. Zheng Shengjian, a third party independent of CHNR Group (including our Group).
- (2)
- The
remaining 1% equity interest is held by Mr. Huang Bin, a third party independent of CHNR Group (including our Group).
- (3)
- The
remaining 1% equity interest is held by Mr. Cai Songqing, a third party independent of CHNR Group (including our Group).
- (4)
- The
remaining 1% equity interest is held by Mr. Li Shenggen, a third party independent of CHNR Group (including our Group).
- (5)
- The
remaining 30% equity interest is held by Yangpu Wanshun Energy Co. Ltd., a third party independent of CHNR Group (including
our Group).
- (6)
- The
remaining 30% equity interest is held by Yangpu Wanshun Energy Co. Ltd., a third party independent of CHNR Group (including
our Group).
BD
Asia began its initial review of the information to be contained in the update; however, early in the review, it became apparent that many of the permitting, expansion, and upgrading
schedules presented to BD Asia in 2011 and included in the September 2011 ITR had not been met.
It
is BD Asia's opinion that the delays are due, in part, to the unpredictability of Chinese national and provincial government actions. For example:
- (1)
- Certain
mining and/or development activities in all Guizhou Province coal mines have been suspended for varying periods since the issuance of the
September 2011 ITR because of serious accidents in certain (non-CHNR Group) Guizhou Province coal mines. While the government agencies must be applauded for efforts to improve safety, these
actions were not anticipated or predicted by either the CHNR Group or Behre Dolbear during development of the September 2011 ITR.
- (2)
- Certain
mining and/or development activity in Guizhou Province coal mines was suspended during a meeting of the Congress of Party Representatives of Guizhou
Province and also for a national conference of Party Representatives.
- (3)
- Permitting
and licensing activities were delayed because of unanticipated difficulties in relocating project-affected households.
- (4)
- Mining
activity was delayed as a result of the Guizhou government's requirement for certain coal mines using drilling and blasting mining methods to upgrade
to semi-mechanical longwall mining methods.
III-12
Table of Contents
- (5)
- Mining
developments were delayed in some of the Company's mines due to new regulations and concern by the Guizhou provincial government regarding potential
methane outbursts in certain underground coal mines in the Province. The Guizhou government has mandated that methane drainage tunnels or galleries be constructed under areas planned for development
or active works in all new mines to audit the possibility of methane outbursts and to minimize Mine accidents.
In
light of recent experience, the Group has made appropriate adjustments in its planning and scheduling and management has benefited from those experiences.
In
the new engagement, BD Asia and the Group approached the Updated ITR with a fresh perspective, and did not simply carry forward information contained in the September 2011 ITR.
The disclosure of present-day information by the Group has permitted BD Asia to make an objective, current assessment of the subject matter.
During
the period from 22 through 26 October 2012, the professionals responsible for the September 2011 ITR again visited the Mines and the Properties. BD Asia's
experts made this second visit in order to:
- •
- better understand the nature of the 2011-2012 delays.
- •
- discuss new schedules for the expansion, upgrading, and permitting activities.
- •
- ascertain the actual progress at the Mines.
- •
- gather contemporary information regarding the Mines and the Properties.
- •
- facilitate an objective and current ITR.
Because
of further delays, primarily due to unpredictable state-wide government actions, the BD Asia team made two additional site visits to the properties during the periods from 03
through 06 May 2013 and 06 through 09 October 2013 to gather information regarding the effects of the new government policies and regulations on the projects, to understand
the status of the Project Affected People (PAPs), and to observe the effect of previously undetected faulting at two of the Company's Mines.
CORPORATE RECIPIENT OF UPDATED ITR
Prior to finalization of the Updated ITR, CHNR asked BD Asia to address the Updated ITR to "Feishang Anthracite Resources Limited" and
provided the following explanation for that request:
- •
- CHNR's Chairman, Mr. Li, holds a 59.3% stake in CHNR through Feishang Group Limited, a company that is indirectly
wholly owned by Chairman Li.
- •
- The Mines, the Properties, and their mining related activities are owned and their operations are held through Feishang
Anthracite Resources Limited, which is 100% owned by CHNR. Feishang Anthracite Resources Limited plans to list its shares on the SEHK.
III-13
Table of Contents
- •
- The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited requires the Updated ITR (which
will form part of the listing document to be published by Feishang Anthracite Resources Limited for the purpose of the listing) to be addressed to the entity that is seeking the listing m that is,
Feishang Anthracite Resources Limited.
- •
- CHNR has confirmed that all licenses, permits, etc. in respect of the Mines and Properties are either held or being
applied through the PRC subsidiary of Smartact Limited, the direct wholly-owned subsidiary of Feishang Anthracite Resources Limited. Feishang Anthracite Resources Limited holds all relevant Mines and
Properties that plan to be listed on the SEHK. Originals and photocopies of existing permits were presented to BD Asia for review. The client's attorneys are responsible for the authenticity of the
permits. Licenses and permits of the Mines and Properties will not be transferred outside of Feishang Anthracite Resources Limited and the PRC subsidiaries and there is no intention to do so
immediately prior to or after completion of the listing. The names of the PRC operating subsidiaries will not be changed immediately prior to or after completion of the listing.
BD
Asia has relied upon the representations of CHNR and has not independently confirmed the validity of CHNR's statements in the above regard, nor has it investigated the corporate
interrelationships described above. In this Updated ITR, the term "Company" now refers to "Feishang Anthracite Resources Limited". BD Asia further notes that it has not independently verified the
current ownership and validity of the mining rights, licenses, and permits of the Company.
STANDARDS FOR DEVELOPMENT OF THE UPDATED ITR
This Updated ITR meets the requirements for Competent Person's Reports under Chapter 18 of the Rules Governing the Listing of
Securities on the SEHK (Listing Rules) and has been prepared in accordance with the relevant rules and reporting standards therein. The reporting standard adopted for this report is the Code for
Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports as adopted by the Australasian Institute of Mining and Metallurgy in 1995 and updated
in 2005 (VALMIN Code). Coal resources and coal reserves defined for the Properties have been reviewed to determine their conformity with the Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves, prepared by the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of
Australia in 1989 and revised at various times, the latest being in 2012 (the "JORC Code" or the "2012 JORC Code").
DISCLAIMER
BD Asia has conducted an ITR of seven coal mining operations and their associated properties. BD Asia professionals have made two site
visits to the Mines and Properties. With respect to technical, operational, and financial issues, BD Asia has exercised all due care in reviewing the supplied information and believes the basic
assumptions are factual and correct and the interpretations are reasonable. BD Asia has independently analyzed data provided by the Group, but the accuracy of the conclusions in this Updated ITR
largely relies upon the accuracy of the supplied data. The intent of this Updated ITR is to report on technical, operational, and financial issues related to the Mines and
III-14
Table of Contents
Properties,
irrespective of the ownership structure in which they are held. BD Asia does not accept responsibility for any errors or omissions in the supplied information and does not accept any
consequential liability arising from investment or other financial decisions or actions. BD Asia makes no representation with respect to the schedules or the attainment of the corporate restructuring
described above. This document is specifically intended to serve as a Competent Person's Report in support of filings on the SEHK. It is not intended for public filing on any other exchange and it
might not be in full compliance or conformance with the requirements of other exchanges.
UNITS USED IN THIS REPORT
The metric system is used throughout this report and the currency used is the Chinese Yuan (or RMB). When units in other systems
and other currencies are used, they are identified in the text. Elevations are expressed in meters above mean sea level.
1.0 EXECUTIVE SUMMARY
1.1 BACKGROUND
CHNR is incorporated in the British Virgin Islands and is listed on the NASDAQ Capital Market. CHNR's head office and the offices of Feishang Anthracite Resources
Limited are located in Hong Kong and Shenzhen, Guangdong Province of the People's Republic of China ("China" or "PRC"). The offices that are responsible for the Mines and the Properties are located in
Guiyang, Guizhou Province of China.
Feishang
Anthracite Resources Limited is incorporated in the British Virgin Islands. It is a wholly-owned subsidiary of CHNR. Feishang holds all of its anthracite coal Mines through
wholly — or majority-owned subsidiaries.
In
addition to its zinc and iron mine in Wuhu, Auhui Province, PRC, CHNR's primary business is coal mining and coal sales, which it operates through the Company. The Company currently
controls and operates three underground anthracite coal mines in Jinsha County, two underground anthracite coal mines in Nayong County, and two underground anthracite coal mines in Liuzhi Special
District, Guizhou Province. These properties are currently in production or at the construction stage of development except for Gouchang where operations have been suspended since March 2013.
CHNR and the Company plan to upgrade the production capacity of these seven Mines to a total of 5.8 million tonnes per year (Mtpa) by 2019.
In
September 2011, BD Asia developed an independent technical report to support certain CHNR filings on the NASDAQ Capital Market. BD Asia has been engaged to update the
September 2011 ITR using a format that meets the Chapter 18 requirements of the SEHK. The Updated ITR is to be filed with the SEHK in support of the proposed listing of Feishang
Anthracite Resources Limited, a wholly-owned subsidiary of CHNR.
III-15
Table of Contents
Figure 1.1
shows the location of Guizhou Province in China and the general location of the Mines and Properties described in this report.
Figure 1.1. General location of Mines and Properties described in this report
III-16
Table of Contents
1.2 GEOLOGY
The Mines are located in the west and north regions of Guizhou Province. They are located in two different coal districts, the Zhina (Zhijin-Nayong) Coal District
to the west of Guiyang (the capital city of Guizhou Province) and the Qianbei Coal District to the north of Guiyang. The Zhina Coal District contains the Liujiaba Coal Mine, Zhulinzhai Coal
Mine, Dayuan Coal Mine, and Gouchang Coal Mine. The Qianbei Coal District contains Dayun Coal Mine, Yongsheng Coal Mine, and Baiping Coal Mine.
Geologically,
both Qianbei and Zhina Coal Districts are located in the Central Guizhou Uplift of the Yangzhi Craton (see Figure 5.1). They are surrounded by boundary faults
on all directions. The Nayong Fault zone separates the Qianbei and Zhina Coal Districts.
The
region surrounding the Qianbei Coal District has undergone a complex geologic history, the detail of which is beyond the scope of this ITR. A number of tectonic episodes, since
deposition of the coal beds, has resulted in geologic structures that complicate mining. The geologic structure maps generally show a number of north-south trending small folds that are locally
interrupted by northwest-southeast trending faults. Most of the major faults were identified by the exploration drilling in the area, but additional small faults, with displacement ranging from less
than 1 meter (m) up to 10m, have been identified while driving entryways at the Yongsheng Mine. As a result of the tectonic forces, which have created the complex geologic history of the
region, the rank of the coal resources is anthracite. The pressures, which have elevated the coal in rank to anthracite, have created local variations in the thickness and structural attitude of the
coal beds, which can be observed in the mine workings.
Except
for localized areas, the minable coal seams in the Qianbei Coal District are present throughout each mine area. The coal seams being considered for mining range in thickness from
less than 0.83m to 3.8m. Local variations in coal thickness occur throughout the mining areas, as a result of the coalification process. These variations may require localized adjustments to the
mining plan when encountered.
The
Zhina Coal District is of relatively simple to medium geological structure. It has undergone limited structural deformation since the deposition of the Late Permian coal-bearing
strata. These coal-bearing strata have been gently and widely folded. Normal fault structures are from simple to medium in the Company's four mines in the Zhina Coal District.
1.3 RESOURCES AND RESERVES
BD Asia estimates that the seven mining properties covered by this review hold approximately 125.9 million tonnes (Mt) of Measured, 198.7 Mt of
Indicated, and 82.6 Mt of Inferred in-situ Coal Resources conforming to the definitions in the 2012 edition of The Australasian Code for Reporting of Exploration
Results, Mineral Resources and Ore Reserves. Included within the in-situ resource are approximately 28.8 Mt of Proved and 180.1 Mt of Probable Coal Reserves, also
conforming to the 2012 JORC Code.
III-17
Table of Contents
Wuhan
Zhongnan Metallurgical Mineral Exploration and Resources Environment Engineering Co., Ltd. (WZMM) was engaged to develop independent coal resource estimations and
mine designs for the
seven Properties that are now held by the Company. WZMM is an independent entity licensed to conduct exploration and resource estimation for solid mineral resources, including coal, in China. WZMM
completed the Chinese Resource and Reserve work at the Properties during the period from December 2010 through March 2011. The contents and dates of those reports are discussed herein.
Furthermore,
the Company's subsidiaries had engaged the Jiangxi Provincial Coal Mining Design Institute (JPCM) to produce life-of-mine (LOM) mine plans and production schedules at each
Mine. JPCM is an independent entity licensed for the development of such geological and mining studies. The contents and dates of those plans and schedules are discussed herein.
In
part, BD Asia has based the opinions in this ITR upon the information contained in the WZMM and JPCM studies. BD Asia analyzed the data and conclusions in those studies to determine
the accuracy and completeness of that work. Those analyses included certain statistical tests to confirm the validity of the data and certain cross-checking calculations to corroborate the conclusions
of that work. Having been satisfied with the results of the WZMM and JPCM studies, BD Asia used that information in developing this report. Using the WZMM and JPCM studies in conjunction with its own
knowledge of coal-bearing properties, BD Asia examined the Resources and Reserves of the following Properties:
- •
- Baiping Coal Mine
- •
- Yongsheng Coal Mine
- •
- Dayun Coal Mine
- •
- Gouchang Coal Mine
- •
- Dayuan Coal Mine
- •
- Liujiaba Coal Mine
- •
- Zhulinzhai Coal Mine
Following
are the general observations made by BD Asia regarding the resources and reserves for the seven Mines.
- •
- BD Asia believes that the coal resource estimation database, procedures, and parameters applied by WZMM to the Company's
properties are reasonable and appropriate.
- •
- BD Asia believes that the data density requirements for measured and indicated block definition used by WZMM for the
estimates are reasonable for JORC Code resource estimation for coal deposits of this type.
- •
- The resource and reserves calculated by WZMM and JPCM using the Chinese standards appear to be of high quality and
accurately reflect the underlying drilling data.
III-18
Table of Contents
- •
- The work was well organized and WZMM and JPCM personnel have a good understanding of the potentially minable portion of
the in-situ resource at the Properties.
1.4 CHINESE RESOURCE ESTIMATE
WZMM estimated the in-situ resource at the Company's properties using typical manual methods and government-approved techniques. The Chinese in-situ resource
estimate has been completed for only a portion of the seams at each property, as these are the seams that meet the Chinese standards for minable coal seams based on coal type, depth, and seam
orientation. At the Company's Properties, the primary parameters used to determine the minable portion of the seams are:
|
|
|
|
| |
|
|
|
| |
• Minimum thickness |
|
0.70m to 0.80m (depending on the Mine) |
| |
• Maximum ash content |
|
40% |
| |
• Maximum sulfur content |
|
3% |
| |
• Minimum heating value |
|
22.1 Mj/kg |
Using
these parameters, WZMM determined that 38 different seams at the Mines have minable potential. They plotted each seam with thickness contours and appropriate isopachs of
ash, sulfur, and thermal value to determine those areas that meet the Chinese criteria. They divided the area on these plan maps and assigned an estimation categorization using sampling density and
spacing. They digitized the area, multiplied by thickness and apparent density, adjusted the volume if the dip of the seam was greater than 10 degrees, and then tabulated the results.
Based
on the techniques applied by WZMM, it was determined that the unmined in-situ tonnage estimate for these seven Mines is approximately 418 Mt of coal classified in the
Chinese system as 331, 332, and 333 resources. The estimate is shown by seam in Table 1.1.
TABLE 1.1
ORIGINAL CHINESE RESOURCE SUMMARY
(MILLIONS OF TONNES)
(AS OF MAY 2011)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resource Category |
|
|
|
Coal Mine
|
|
331 |
|
332 |
|
333 |
|
Total |
|
Baiping |
|
|
9.36 |
|
|
24.44 |
|
|
7.50 |
|
|
41.30 |
|
Yongsheng |
|
|
37.70 |
|
|
60.73 |
|
|
36.84 |
|
|
135.27 |
|
Dayun |
|
|
57.79 |
|
|
73.48 |
|
|
19.77 |
|
|
151.04 |
|
Gouchang |
|
|
8.71 |
|
|
3.65 |
|
|
1.66 |
|
|
14.02 |
|
Dayuan |
|
|
8.00 |
|
|
5.71 |
|
|
4.52 |
|
|
18.23 |
|
Liujiaba |
|
|
13.74 |
|
|
14.66 |
|
|
16.77 |
|
|
45.17 |
|
Zhulinzhai |
|
|
6.21 |
|
|
6.87 |
|
|
0.13 |
|
|
13.21 |
|
| |
|
|
|
|
|
|
|
|
|
Total |
|
|
141.51 |
|
|
189.54 |
|
|
87.19 |
|
|
418.24 |
|
| |
|
|
|
|
|
|
|
|
|
III-19
Table of Contents
1.5 BD ASIA JORC CODE IN-SITU COAL RESOURCE ESTIMATE
BD Asia's resource and reserve expert and geologist reviewed and verified the calculations completed by WZMM. BD Asia excluded some of the areas included in the
Chinese calculations because they do not conform to the 2012 JORC Code guidelines. BD Asia also found a small number of minor mathematical errors and these were adjusted prior to estimating the
in-situ resource conforming to JORC Code guidelines. Resources in Table 1.2 are inclusive of the Reserves.
TABLE 1.2
BD ASIA'S ESTIMATE OF THE IN-SITU JORC CODE COAL RESOURCE
(MILLIONS OF TONNES)
(AS OF 31 JULY 2013)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-situ Resource Category |
|
Coal Mine
|
|
Measured |
|
Indicated |
|
Inferred |
|
Total |
|
Baiping |
|
|
8.69 |
|
|
24.44 |
|
|
7.24 |
|
|
40.37 |
|
Yongsheng |
|
|
27.40 |
|
|
69.88 |
|
|
31.68 |
|
|
128.96 |
|
Dayun |
|
|
57.79 |
|
|
73.48 |
|
|
19.72 |
|
|
150.99 |
|
Gouchang(1) |
|
|
8.60 |
|
|
3.67 |
|
|
1.52 |
|
|
13.79 |
|
Dayuan |
|
|
7.43 |
|
|
6.55 |
|
|
5.70 |
|
|
19.68 |
|
Liujiaba |
|
|
9.90 |
|
|
14.01 |
|
|
16.43 |
|
|
40.34 |
|
Zhulinzhai |
|
|
6.09 |
|
|
6.67 |
|
|
0.29 |
|
|
13.05 |
|
| |
|
|
|
|
|
|
|
|
|
Total |
|
|
125.90 |
|
|
198.70 |
|
|
82.58 |
|
|
407.18 |
|
| |
|
|
|
|
|
|
|
|
|
- (1)
- Tenure
of the Coal Resource at Gouchang is at risk until either consolidation is completed or a new mine permit is obtained.
1.6 BD ASIA JORC CODE COAL RESERVE ESTIMATE
Based on the above in-situ resource, JPCM has developed a mine design and plan for extraction of the coal. They have excluded coal underneath the local villages
and protected areas, barrier pillars required for ventilation and haulage, and they have accounted for mining losses. BD Asia adjusted JPCM's work to account for production, mining losses, dilution
and eliminated seams or parts of seams, which, because of interburden and seam thickness, may only be partially recoverable.
III-20
Table of Contents
Table 1.3
shows BD Asia's estimate of the JORC Code Reserves and Resources at the Company's Properties as of 31 July 2013. The Inferred Resources are in addition to
the Reserves.
TABLE 1.3
JORC CODE COAL RESERVES AND RESOURCES
(MILLIONS OF TONNES(3))
(AS OF 31 JULY 2013)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve/Resource Category |
|
Coal Mine
|
|
Proved |
|
Probable |
|
Total Proved and
Probable Reserves |
|
Inferred(1) |
|
Baiping |
|
|
3.44 |
|
|
19.04 |
|
|
22.48 |
|
|
7.24 |
|
Yongsheng |
|
|
3.77 |
|
|
48.19 |
|
|
51.96 |
|
|
31.68 |
|
Dayun |
|
|
12.50 |
|
|
84.79 |
|
|
97.29 |
|
|
19.72 |
|
Gouchang(2) |
|
|
1.87 |
|
|
3.85 |
|
|
5.72 |
|
|
1.52 |
|
Dayuan |
|
|
2.99 |
|
|
5.27 |
|
|
8.26 |
|
|
5.70 |
|
Liujiaba |
|
|
2.08 |
|
|
11.52 |
|
|
13.60 |
|
|
16.43 |
|
Zhulinzhai |
|
|
2.15 |
|
|
7.41 |
|
|
9.56 |
|
|
0.29 |
|
| |
|
|
|
|
|
|
|
|
|
Total |
|
|
28.80 |
|
|
180.07 |
|
|
208.87 |
|
|
82.58 |
|
| |
|
|
|
|
|
|
|
|
|
- (1)
- Inferred
tonnage is in addition to Reserve tonnage.
- (2)
- Tenure
of the Coal Resource and Reserve at Gouchang is at risk until either consolidation is completed or a new mine permit is obtained.
- (3)
- Totals
are subject to slight rounding adjustment
The
differences in the tonnages from Table 1.2 and Table 1.3 reflect mining losses, un-mined coal left in place to protect the villages and surface facilities, pillars
between old mine working, and pillars necessary to support underground operations to recover the coal.
While
the Company currently has tenure of the Coal Reserves and Resources at the Gouchang Coal Mine, the mine permit and production at this property has been suspended due to a newly
introduced consolidation policy in the Province until it has been consolidated with one of the adjacent coal mines. Alternately, the government might allow the Company to develop a new mine design
which incorporates an increased production capacity and then grant a mining permit without consolidation; however, it is unclear at the present time if the government would rescind the consolidation
order and issue the Company a new mining permit. In the event that the Province ultimately requires the consolidation, the tenure of the Resources and Reserves at Gouchang could end up under the
control of a different party or the Company could increase their holdings depending on the Company's negotiations with the adjacent mines. Behre Dolbear, therefore, believes the company's tenure at
Gouchang could be at risk.
III-21
Table of Contents
1.7 COAL QUALITY
The coal produced at the Mines is classified as anthracite. Anthracite is characterized by high calorific values, low volatility, low impurities, high density,
high ignition point, and a long combustion time. Anthracite is suitable for use in the chemical industry (production of synthetic ammonia and methanol) as well as for use as thermal coal for power
generation, metallurgical applications (sintering, smelting, and injection in steel mills), and production of construction materials (cement). In the PRC, anthracite is divided into lump and fine
anthracite classifications. Lump anthracite is applicable to the chemical industry while fine anthracite has its primary applications in the power and construction industries. It can also be sold as
Pulverized Coal Injection (PCI) products for the iron and steel industries. Fine anthracite can also be used in the chemical industries.
BD
Asia reviewed extensive drill core data and limited washability data provided by the Company. The physical and chemical characteristics described in the reviewed data indicate that
the Company's coals can generally be categorized as WY2 and WY3 anthracite products, as defined by the State Standard of China Coal Classification System (GB5751-86). The data indicates that
the vast majority of the Company's coal is in the WY3 category, with dry volatile matter contents ranging from 6.5% to 10.0%. The dry ash contents of the Company's run-of-mine coals indicate
that, in some instances, beneficiation (coal washing) will be required prior to utilization.
The
Group provided specific data for the Baiping C5, Dayun M8, and Yongsheng C8 coal seams that confirm their applicability as PCI products. From seam to seam, the Company has
documented physical
and chemical characteristics that are consistent with PCI Grades I, II, and III in accordance with State Standard of China Coal Classification GB/T 1852-2008 for PCI coal definition.
1.8 MINE AND BENEFICIATION PLANT DESCRIPTIONS AND PLANS
Baiping Coal Mine is located in Jinsha County. The Company holds a 70% interest in Baiping Coal Mine. The Mine was
opened in 2008 with 2 slopes accessing the 5 mineable coal seams dipping at 8 degrees. A shaft was added in 2009. The Mine had an original design capacity of 300 kilotonnes
per year (ktpa). Baiping Coal Mine is currently operating under a 150 ktpa mining rights permit. Mine management will ultimately apply for a mining rights permit allowing 600 ktpa from
1 mechanical longwall. Current production comes from Seam 12, which is approximately 2.2m thick, at an average depth of 120m.
Yongsheng Coal Mine is located in Jinsha County. The Company holds a 70% interest in Yongsheng Coal Mine. The Mine is currently in
development construction with no coal production. Development consists of over 13,000m of tunnels in limestone with a 1,000m conveyor belt providing access to a nearby river that is reportedly
navigable. The development tunnels will provide mining access to as many as 5 coal seams dipping approximately 10 degrees. By definition, the Chinese government has declared coal seams
thicker than 0.70m to be mineable and the law decrees they must be mined. Three of the 5 seams defined, as mineable, are less than 1.08m thick. BD Asia believes the seams less than 1.08m thick
may be mineable; however, recovery will probably be less than mandated by law. BD Asia has discounted recovery of those seams to a percentage it believes is more likely to occur.
III-22
Table of Contents
Yongsheng
holds a mining rights permit for 600 ktpa from 2 mechanical longwalls with the initial test run planned for May 2013. The current design capacity is
900 ktpa and is expected to increase to 1,800 ktpa in 2015 with the start-up of an additional mechanical longwall. Yongsheng is divided into an east block and a west block by a
significant vertical fault. Other minor faults are scattered throughout the mining blocks. The Guizhou government has mandated that methane drainage galleries be developed under Yongsheng Coal Mine to
assist in the de-gassing effort and to help determine the potential for methane outbursts.
Dayun Coal Mine is located in Jinsha County. The Company is the sole owner of Dayun Coal Mine. Construction of the Mine commenced in
May 2012. Initiation of construction was delayed over relocation disagreements with the surrounding project-affected villagers. The local issues were to be
mitigated by local government authorities and during the update, the Company indicated that these issues are being resolved. Relocation is expected to be completed by the end of 2013. Dayun Coal Mine
obtained a 600 ktpa mining rights permit in March 2011. Initial production of 600 ktpa to 900 ktpa is proposed from 1 mechanical longwall unit beginning in
July 2015, increasing to 1,800 ktpa in 2017 with the addition of a second mechanical longwall unit. The Mine area contains 4 mineable seams dipping at angles between
8 degrees and 24 degrees. The Guizhou government has mandated that methane drainage galleries be developed under Dayun Coal Mine to assist in the de-gassing effort and to help determine
the potential for methane outbursts.
Gouchang Coal Mine is located in Nayong County. The Company holds a 99% interest in Gouchang Coal Mine. Historical coal mining has
occurred in and around this area since the 1970s. Gouchang's mining license covers an area of 1.7198 square kilometers (km2) and it has a permitted production capacity of
90 ktpa from 5 mineable seams dipping between 23 degrees and 36 degrees, with an average mineable seam thickness of 2.06m. Actual tonnes produced for the Years 2011 and
2012 were 96 kt and 53 kt, respectively.
Due
to high methane emissions (12.44m3/t to 17.18m3/t) and the possibility of methane outbursts, the Gouchang Coal Mine was idled from March to August in 2012
pending a gas prevention and gas control assessment by government-approved gas testing agencies. The required gas control assessment has since been conducted. As a result of the test, an approval
JNYMT(2012) No. 278 was issued on 20 August 2012 and production resumed soon after. Production was from a manual longwall using drilling and blasting methods with multiple
manually operated single props for roof support at the face area. At the time of its October 2012 site visit, BD Asia had been informed that the government of Guizhou Province, State
Administration, had issued a circular, Work Safety No. 178 (2010), discouraging coal production by drilling and blasting methods and advising conversion to mechanical longwall mining methods
for safety reasons. The Company recently stated that because Gouchang Coal Mine had been confirmed before issuance of that circular, that Mine and the rest of Feishang Coal Mines (operating manual
longwalls) have been permitted to continue operations until upgrades are completed. Unfortunately, the recent Notice QianNengYuanBan [2013] No. 120 Ref No.
(QFGD-2013-29002) requires consolidation of coal mines in Guizhou Province that are considered to have a high possibility of methane outburst and that have production capacities of less than
90 ktpa. As a result, operations at Gouchang Coal Mine have temporarily been suspended since March 2013 pending possibility of consolidation with the neighboring mine to meet government
safety standards.
III-23
Table of Contents
Dayuan Coal Mine is located in Nayong County. The Company holds a 99% interest in Dayuan Coal Mine. Construction for the Dayuan Coal Mine
was initiated in June 2009. Currently, Dayuan holds a mining permit with production capacity of 300 ktpa. There was no commercial production at Dayuan in 2011 or 2012. The Mine will
produce coal from 5 mineable coal seams dipping at approximately 19 degrees. The Company plans to apply for a mining rights permit allowing 450 ktpa in 2016. Coal
production and development have historically been from a manual longwall using drilling and blasting. As of 21 December 2010, management was required to switch to semi-mechanical
longwall methods using a Chinese-made shearer with multiple single props for face support after completion of the first working panel. The Company reports that this Coal Mine was selected to
participate in a pilot project for this type of mining. There have been delays in mining development due to government policy changes. The issues have been dealt with including the completion of
various methane control testing programs. Mine management informed the BD Asia team that all required licenses and permits are expected by November 2013 with commercial production starting
immediately thereafter.
Liujiaba Coal Mine is located in Liuzhi Special District. The Company holds a 99% interest in Liujiaba Coal Mine. The mining rights permit
covers an area of 3.7891 km2 and Liujiaba Coal Mine has a mining rights permit of 300 ktpa from 3 coal seams dipping at less than 10 degrees. Coal production
at Liujiaba Coal Mine has been delayed because the government of Guizhou Province disallowed production from drilling and blasting methods. The Company reports that Liujiaba Coal Mine has also been
selected as part of a pilot program to adopt semi-mechanical longwall production method. However, trial production using manual longwall methods with multiple single prop face support did start in
June 2012. The Company reported that this Mine obtained its coal production safety license on 20 November 2012 and also obtained its coal production license on
25 December 2012 permitting it to start production using semi-mechanical longwall.
Zhulinzhai Coal Mine is located in Liuzhi Special District. The Company holds a 99% interest in Zhulinzhai Coal Mine. The Mine was
originally opened in 1994. It has a licensed mining area of 1.4104 km2 with 5 mineable seams. It has a history of low, sporadic production. Zhulinzhai obtained its
300 ktpa mining rights permit in April 2011, received the remaining necessary permits in 2012 and passed the inspection approval of safety on 16 February 2012. The
300 ktpa construction was completed in August 2011 and the Mine went into trial production. Production will come from mining 3 seams dipping at between 12 degrees and
20 degrees. Steady state production will be from 1 mechanical longwall and 3 development units. Mining has resumed, but not to full capacity because not all PAPs have
moved out.
Jinsha Juli Coal Beneficiation Plant ("Beneficiation Plant" or "Plant") is presently under construction and is adjacent to the Yongsheng
Coal Mine Industrial Square. The Plant will be built in 2 phases, each designed to process 600 ktpa of raw coal, resulting in a final capacity of 1.2 Mtpa. It will use state of
the art processing equipment and process circuitry. It will be operated by Jinsha Juli Energy Resources Co., Ltd, a subsidiary (or affiliate) of the Company, to process and
upgrade portions of the raw coal issuing from Yongsheng, Baiping and Dayun Coal Mines. Phase One began in August 2013 and is scheduled for completion in April 2014; the Company has not
stated a specific timetable for Phase Two, but expects that phase to be completed sometime in 2016. The Company estimates capital expenditures for Phase One and Phase Two at RMB54.01 million
and RMB19.45 million, respectively. Approximately 9% of that capital will be associated with environmental protection
III-24
Table of Contents
facilities.
The Company's studies show that the Beneficiation Plant will position the Yongsheng, Baiping, and Dayun Coal Mines to compete more effectively in the marketplace and create flexibility to
address a broader range of coal quality requirements than would be possible by selling only raw coals.
1.9 COAL PRODUCTION FORECASTS
Table 1.4 shows the forecasted production for each Mine through the LOM. The ramp-up of volumes in the Baiping, Yongsheng, and Dayun Coal Mines result from
the completion of the optimization design by adding one more mechanical longwall unit to each mine. Dayuan, Liujiaba, and Zhulinzhai Coal Mines will have single mechanical longwall units. Gouchang
Coal Mine will continue as a manual longwall operation.
TABLE 1.4
COMPANY RAMP-UP AND LOM FORECASTED ANNUAL PRODUCTION BY MINE(1)
(KTPA)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal Mine
|
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
2018 |
|
2019-LOM |
|
Baiping |
|
|
290 |
|
|
300 |
|
|
350 |
|
|
385 |
|
|
570 |
|
|
600 |
|
|
600 |
|
Yongsheng |
|
|
320 |
|
|
600 |
|
|
950 |
|
|
1,400 |
|
|
1,800 |
|
|
1,800 |
|
|
1,800 |
|
Dayun |
|
|
20 |
|
|
200 |
|
|
660 |
|
|
920 |
|
|
1,000 |
|
|
1,485 |
|
|
1,800 |
|
Gouchang |
|
|
0 |
|
|
0 |
|
|
20 |
|
|
110 |
|
|
110 |
|
|
110 |
|
|
110 |
|
Dayuan |
|
|
60 |
|
|
200 |
|
|
320 |
|
|
450 |
|
|
450 |
|
|
450 |
|
|
450 |
|
Liujiaba |
|
|
140 |
|
|
200 |
|
|
300 |
|
|
300 |
|
|
400 |
|
|
600 |
|
|
600 |
|
Zhulinzhai |
|
|
60 |
|
|
180 |
|
|
300 |
|
|
420 |
|
|
450 |
|
|
450 |
|
|
450 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
890 |
|
|
1,680 |
|
|
2,900 |
|
|
3,985 |
|
|
4,780 |
|
|
5,495 |
|
|
5,810 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- Includes
construction and production coal.
The
above forecasts assume that the measures forecasted by the Company will be undertaken by the Company to successfully expand production. In addition, these tonnages are predicated on
steady state market conditions and government policies allowing mining to continue or to commence at the Gouchang Coal Mine and then remain unchanged during the next several years.
1.10 COAL PRODUCTS AND MARKETS
The Company has indicated that, prior to 2013, most of the coal produced at the operating Mines was sold as thermal coal. Starting in 2014, the Company intends to
beneficiate certain portions of the run-of-mine coal in order to enhance marketability and facilitate the sale of differing grades of coal as necessary. However, coal sales in 2013 and 2014 will
continue to be primarily thermal coal with only a portion sold as chemical coal. This has been primarily driven by the Guizhou government's requirement for the Company to produce and sell a minimum
amount of thermal coal, which has taken a significant portion of Company's production capacity. The Company has projected increases in chemical coal and PCI-grade coal sales starting in 2015.
The
Company commissioned Shanxi Fenwei Energy Consulting Co., Ltd. (Fenwei Energy) to prepare a market study on the market for Guizhou anthracite coals and used the
information developed in that market study to determine a product mix for the coals produced at the Mines.
III-25
Table of Contents
On
the basis of this market study, a majority of the coal from the Mines will be sold as either chemical coal for the production of synthetic ammonia or methanol or as thermal coal to
the electric power industry. Some PCI coal will be produced at the Baiping, Yongsheng, and Dayun Coal Mines for use in the steel industry. The projected overall product mix is shown in
Table 1.5.
TABLE 1.5
PRODUCT MIX DISTRIBUTION BY YEAR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal Product
|
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
2018 |
|
2019 |
|
PCI |
|
|
0 |
% |
|
4 |
% |
|
13 |
% |
|
13 |
% |
|
14 |
% |
|
14 |
% |
|
14 |
% |
Chemical Coal |
|
|
4 |
% |
|
15 |
% |
|
51 |
% |
|
51 |
% |
|
51 |
% |
|
51 |
% |
|
52 |
% |
Thermal Coal |
|
|
96 |
% |
|
81 |
% |
|
26 |
% |
|
25 |
% |
|
23 |
% |
|
24 |
% |
|
22 |
% |
High Ash Anthracite |
|
|
0 |
% |
|
0 |
% |
|
10 |
% |
|
11 |
% |
|
12 |
% |
|
11 |
% |
|
12 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source: "Project Champion_Projection - 09242013.xls" — The Company model used to generate net income and
cash flows.
Portions
of the raw coal from some Mines will require washing to attain the appropriate dry ash content for each designated use and to attain the product mix indicated above. The
Company's Jinsha Juli Beneficiation Plant will process coals from the Baiping, Yongsheng, and Dayun Coal Mines. The raw coal feed rate for Phase One of the Plant is designed to be 140 tonnes
per hour (tph). A second phase of construction will create an additional 140 tph of processing capacity, giving a potential for total raw coal throughput of approximately 1.2 million
tonnes per year (mtpy).
The
above product mix distribution depends upon raw coal production with certain impurity levels, i.e., certain levels of ash content. If
excessive faulting is encountered at the Baiping, Yongsheng, and Dayun Mines for extended periods, then the Plant might not be able to attain sufficient ash reductions to attain the product mix shown
above. Displacing shipments from the higher quality PCI and chemical coal products into the lower value thermal coal and high ash anthracite products would have a negative effect upon revenues.
1.11 REGULATORY ISSUES
1.11.1 Mining Rights and Permits
All mining operations inspected by BD Asia possessed the material operation permits and mining rights at the time of the
October 2013 visit and those Mines under construction had received approvals for such construction. Those Mines in pilot run are ready to receive approvals upon safety inspection.
1.11.2 Environmental
The permits for water and air emission stipulate the environmental protection conditions for each Mine, including the frequency of site
inspection by the Environmental Protection Bureau (EPB) officers to ensure compliance with the environmental protection requirements. Each Mine has waste management plans. Mine refuse is either used
for road construction or stored in waste storage dumps. Wastewater is treated before it is discharged to the nearby water catchments.
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Environmental monitoring, which includes the monitoring of wastewater quality, air quality, and general site inspections, is conducted by the government
protection personnel on a weekly and monthly basis. BD Asia had the opportunity to review reports from the EPB for some Mines. The reports show compliance with the government standards.
Though
no site has reached ISO standards, Guizhou Provincial Coal Mine Design and Research Institute, the designing company responsible for environmental assessments studies for the
Company's Mines, has passed the GB/T19001-2008/ISO 9001: 2008 Standard.
1.11.3 Occupational Health and Safety
All senior Mine management staff positions have the appropriate level of technical competence and experience and those who are not
competent are reportedly being replaced. BD Asia also observed that safety statistics and accident records of recent years are kept. Safety statistics are available at all individual sites. They
reflect a low occupational health and safety risk since measures are being applied to avoid future fatalities and accidents. Methane drainage facilities, compressed air stations, and mine fans are all
in place and in good running order. Three-year medium-term mining plans showing current and future panel layouts were all available at the Mine sites. BD Asia received records of all fatalities at
each individual site and discussed measures to avoid future occurrences.
The
Company is obliged to meet the local government regulations to improve safety standards. Gas tests have been conducted to classify the category of each Mine in terms of methane
outbursts. The Mines with the potential for methane gas outbursts have installed methane drainage systems to drain methane before mining. Methane control and monitoring systems are in place at
operating Mines. Small mines with risks of methane outburst are obliged to integrate with neighboring mines or apply for expansion to meet government set standards.
A
new circular was recently passed that requires all new coal mines in Guizhou province to drill gas channels in the development tunnels and engage a third party institute to carry out
methane audits that will determine whether the new coal mine is deemed a "high" methane outburst coal mine or a "low" methane outburst coal mine. All tests related to methane accidents, i.e., methane
concentration and pressure at which methane outbursts will occur, are determined. Thereafter, the mine is required to install gas drainage
systems, as well as further enhancing current ventilation systems depending at the level of outburst potential.
1.11.4 Social Issues
Under international standards, each Mine has been encouraged to fully integrate the local community by improving the infrastructures
around each individual site and to improve on corporate social responsibility in order to have local support to continue the operation. BD Asia observed that corporate management, in collaboration
with the government, is investing in road improvements around the individual sites.
Some
delays have been encountered at the Dayun and Zhulinzhai Coal Mines as the result of the need to relocate some of the local villagers. The government department responsible for
arbitrating company-community issues is fully involved in helping to resolve issues with PAPs at Dayun and
Zhulinzhai Coal Mines. The Company has encountered similar issues at other mines. Nevertheless, progress has been achieved at those mines and construction is proceeding smoothly.
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1.12 FINANCIAL EVALUATION AND CASH FLOW MODEL
On 24 September 2013, BD Asia received the cash flow financial model prepared by the Company titled "Project
Champion_Projection — 09242013.xls" (herein referred to as "Base Case Financial Model" or "BCFM"). The technical operating parameters, revenues, operating costs,
taxes, and capital costs for the seven Mines and Properties are integrated into the BCFM, resulting in the determination of the after-tax net income and cash flow for each Mine and the aggregate of
the seven projects for 18 years commencing in Year 2013 and ending 2030.
The
objective of BD Asia's evaluation of the BCFM was to validate the economic viability of the seven Mines and Properties in support of the Proved and Probable Reserves reported in this
ITR. This financial evaluation is not intended to represent the fair market value of the seven Mines and Properties. The focus of this financial
evaluation was on the reasonableness of the mining technical inputs into the BCFM and the effect of those inputs on the economic viability of the Mines and Properties, thus, substantiating the
categorization of the reported Proved and Probable Reserves.
The
basis of the BCFM production volumes, unit production costs, and capital expenditures are the "original mine designs" and the "optimization mine designs" for the individual seven
Coal Mines and Properties. Accordingly, the final production capacity at each Mine will be accomplished in two phases. The first phase incorporates the design parameters as per the original mine
design to achieve a base production capacity. The original mine designs were prepared as individual feasibility studies between the Years 2002 and 2010. This phase of work is in varying degrees of
completion at all of the Mines.
The
optimization mine design reports were produced in March 2011 and are based on the incremental increases in production above the base capacity and do not address the original
mine design parameters in any significant detail. The operating costs and capital costs are also reported on an incremental basis. In the BCFM, the Company modified the original and optimization
production volumes and unit production costs to account for more recent management plans and budgets.
BD
Asia did not review the underlying assumptions regarding the current management production volumes and costs; however, the Company's projections appear to be generally more
conservative than those outlined in the original and optimized mine plans.
Each
of the seven Mines demonstrated a positive undiscounted net present value (NPV) during its LOM. Therefore, BD Asia believes the Proved and Probable Reserves for the seven Mines, as
reported in this Updated ITR, have demonstrated economic viability under reasonable financial assumptions. These results are dependent on the viability of technical inputs discussed in this report.
Material changes in the operating costs, capital costs, and coal sales prices could affect these results.
Certain
variable factors could have significant effects on the financial performance of the Mines. To determine the effect of these variables, BD Asia prepared sensitivity analyses by
changing the following components of the base case assumptions.
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- •
- Product mix
- •
- Operating costs
- •
- Capital expenditures
Of
the sensitivity factors reviewed, the cash flow from the Mines was most significantly affected by variations in the coal sales prices and the product mix. The sensitivity analysis
clearly demonstrated the
need for the Company to be able to sell a significant portion of its coal into markets other than the thermal coal market.
1.13 CONCLUSIONS AND RISK ASSESSMENT
Based upon BD Asia's site visits, review of provided information and data, and discussions with the Company, BD Asia has reached the following conclusions and has
identified the following risks to the ability of the Mines to meet forecasted production and financial targets.
- •
- BD Asia confirms a significant resource base conforming to 2012 JORC Code guidelines.
- •
- BD Asia believes that the new and proposed mine plans and mining equipment will meet the forecasted production performance
shown above in Table 1.4.
- •
- BD Asia believes the following aspects of the project present the greatest risks to the Mines and the Company.
- (1)
- Surface
transportation in the Mine areas is not well developed, though during the October 2013 site visit the BD Asia team did observe that upgrading
of local haul roads is being undertaken.
- (2)
- Mining
of the lower stacked seams, particularly those with thin interburdens, may reduce the percentage of recovery.
- (3)
- Production
ramp-up time for the new, mechanized longwalls may be longer than forecasted due to lack of experience in this type of mining in the work force
and supervisory staff.
- (4)
- A
reduction in PCI and chemical coal sales would have a negative effect on the economics; especially, if a greater proportion of the coal is sold as
lower-priced thermal coal in the long term.
- (5)
- Encountering
previously unidentified faults in coal seams may impact raw coal quality and production volumes, thus, shifting the product mix toward coal
products of lower quality.
- (6)
- Unanticipated
changes in governmental regulations and policies make forecasting difficult due to the potential for unanticipated delays, changes to
operational procedures and methods, increases to capital and operating costs, and mandated requirements in the products produced for sale.
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2.0 QUALIFICATIONS OF BEHRE DOLBEAR ASIA
Behre Dolbear Asia, Inc. (BD Asia) is a wholly owned subsidiary of Behre Dolbear & Company, Inc., which is
in turn a wholly owned subsidiary of the Behre Dolbear Group Inc. Behre Dolbear Asia, Inc. was established in 2004 to manage BD Asia's projects in China and other Asian countries. BD
Asia's project teams typically consist of senior-level professionals from Behre Dolbear's Denver office in the United States, Sydney office in Australia, Beijing office in China, and other
worldwide offices. Since its establishment, Behre Dolbear Asia, Inc. has conducted over 50 technical studies for mining projects in China or overseas mining projects to be acquired by
SEHK-listed Chinese companies. The Behre Dolbear Group Inc. is an international minerals industry advisory and consulting group that has operated continuously worldwide since 1911. The Behre
Dolbear Group currently has offices in Beijing, Chicago, Denver, Guadalajara, Hong Kong, London, New York, Santiago, Sydney, Toronto, Ulaanbaatar, and Vancouver. The firm specializes in
performing mineral industry studies for mining companies, financial institutions, and natural resource firms, including mineral resource/ore reserve compilations and audits, mineral property
evaluations and valuations, due diligence studies and independent expert reviews for acquisition and financing purposes, project feasibility studies, assistance in negotiating mineral agreements, and
market analyses. The firm works with a broad spectrum of commodities including base and precious metals, coal, ferrous metals, and
industrial minerals on a worldwide basis. The Behre Dolbear Group has acted on behalf of numerous international banks, financial institutions and mining clients and is well-regarded worldwide as an
independent expert engineering consultant in the minerals industry. Behre Dolbear has prepared hundreds of independent technical reports for mining projects worldwide to support various types of
financings and to support securities exchange filings of mining companies in Hong Kong, the United States, Canada, Australia, the United Kingdom, and other countries.
Behre
Dolbear's associates and consultants have occupied senior corporate management and operational roles and are thus well-experienced from a commercial view point as well as being
independent expert technical consultants. The professionals assigned to this review were specifically chosen for their knowledge of the coal industry and the various coal-related disciplines that are
the subjects of this report.
2.1 BEHRE DOLBEAR PERSONNEL
The following personnel were assigned to conduct this update.
Project Advisor — Mr. Donald K. Cooper is the former President of Behre Dolbear &
Company (USA), Inc. He continues to serve as the parent company's Global Director of Coal Services. He holds a BS degree in Mineral Preparation Engineering from The Pennsylvania State
University and he did MS level studies in Mineral Economics and Statistics at the West Virginia University. He has diverse experience in eastern-United States coal mining, preparation,
marketing, transportation, and utilization. His 40 years in the coal industry have included project engineering, construction, and start-up management. The majority of that time was spent in
the West Virginia coal fields. Working for large, publicly held corporations such as United States Steel Corporation and small, private companies, he managed project feasibility studies for
coal mining and preparation, developed capital and operating budgets, structured and restructured operating and sales organizations, and established coal mining business plans. He has extensive
experience in the evaluation and development of coal
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projects
in the Appalachian region of the United States. Mr. Cooper specializes in the practical aspects of project development and management, including capital budget analysis,
contract specifications, and construction progress and start-up coordination. He has been either the Project Manager or the Project Advisor for essentially all of Behre Dolbear's major coal industry
studies during the past 10 years.
Project Manager and Mining Engineer — Mr. Norris Brooks, based in Malaysia, has over
30 years of experience in the coal industry, including 20 years in executive level management. He has managed and directed underground and surface mines and mining companies as well as
mine development projects. His business expertise includes management of surface and underground coal mine operations, coal preparation, acquisitions, safety, business development, organization
development, project management and construction, financial evaluations, and feasibility studies. Mr. Brooks has extensive coal industry experience in the United States, Indonesia,
China, Mongolia, Russia, India, Malaysia, Mexico, and South America. Mongolian experience includes the development of an Independent Technical Review of a large surface mining complex in Mongolia.
Domestically and internationally, he has managed coal mining and processing operations, managed mine development projects, been involved in the evaluations and negotiations for several acquisitions,
been the project leader in numerous feasibility studies, and been an advisor to foreign governments and companies on coal mine fires, explosions, and inundations. Mr. Brooks' credentials
include a Bachelor of Engineering in Mining from The Ohio State University and The Executive Program from the Darden School of Business, University of Virginia. He meets the requirements for
"Competent Person" as defined in the Australasian JORC Code and in Chapter 18 of the Listing Rules, and the requirements for "Qualified Person" as defined in Canadian National
Instrument 43-101. Mr. Brooks takes overall responsibility for this report.
Resource/Reserve Specialist — Dr. Robert Cameron has over 30 years of experience in
geostatistical analysis of ore reserves, computerized mine planning, computerized studies for ultimate pit limit optimization, mine management consulting, cost optimization, operations downsizing,
minerals valuation, mine economic feasibility analysis, mine finance and operations research. Dr. Cameron had responsibility for supervising, reviewing, and quality assurance of all ore reserve
worked performed by Behre Dolbear as their Director of Geostatistics and Mine Planning. He has extensive experience in computerized mine planning and ore reserve estimation using classical and
geostatistical ore reserve modeling; selection of mining related computer software, ore reserve audits, computer applications, mineral commodity studies, computer modeling of commodities, and
remediation of abandoned mine sites. Additionally, he has a vast knowledge of the full range of mine planning computer software including Datamine, MedSystem, Techbase, PC-Mine, and Whittle pit
optimization. He has reviewed resources and reserves estimates of over 80 different anthracite, bituminous, and lignite coal properties around the globe. Dr. Cameron holds B.S., M.S.,
and Ph.D. degrees in Mining Engineering from the University of Utah.
Environmental and Permitting Specialist — Dr. Lawrence Malesu holds a Ph.D. in Safety
Technology and Engineering and a Master degree in Environmental Engineering, both granted by Northeastern University in Shenyang, China. Fluent in Mandarin, Mr. Malesu specializes in the
assessment of environmental and safety risks. He has provided his services on a number of Behre Dolbear projects in China and for Chinese clients on other continents. He has worked as the
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government
Inspector of Mines and Environment in Africa. He has extensive experience in open cast and underground mining activities, including coal, copper, and iron ore. His work has involved
environmental site assessment, mining rights, permitting and licensing, mitigation plans, wastewater treatment, feasibility studies, and mine environmental and social integrations and
responsibilities.
Project Geologist and Resource/Reserve Specialist — Mr. James Kohler has over 35 years
of experience in coal and oil shale geology and holds a Master's Degree in geology. He was an executive in the U.S. Bureau of Land Management, which administered budgets for solid mineral
programs on federal lands including coal, oil shale, and non-energy minerals. He established and developed automated techniques to inventory mineral resource data and developed a reserve evaluation
for coal and other minerals. He was Manager of Coal Development and Mining Geology for a major U.S. coal company. While there, he led exploration programs and evaluated coal resources,
including development potential of acquisition opportunities in Indonesia, China, and the United States. Mr. Kohler meets the requirements of "Qualified Person."
Financial Modeling and Economic Analysis — Ms. Amy Jacobsen has 25 years of diverse
experience in technical consulting, business plan development, business process reviews, and independent engineer technical reviews of large infrastructure projects, including coal and mineral
projects as well as power generation projects. She specializes in the review, analysis, and preparation of cash flow models for use in project evaluations and valuations. Her experience has been in
Asia, Europe, North and South America, Australia, Middle East, and Africa, and includes experience in energy fuels such as coal, lignite, and uranium as well as precious metals, base metals including
copper, cobalt, zinc, and nickel, industrial minerals and fertilizers. Ms. Jacobsen holds a B.S. in metallurgical engineering from the Colorado School of Mines and an MBA from the University
of Denver.
Underground Mining Engineering — Dr. Jerry Tien, Ph.D.,
P.E. has over 35 years of experience in mining engineering, including 13.5 years in the mining industry and 24.5 years in academia teaching mining
engineering courses. He is currently a professor and chairman of the Division of Mining and Resource Engineering, Department of Civil Engineering at Monash University in Melbourne, Australia. He
worked 2 years in an underground copper operation and 11.5 years in the coal industry (including 1.5 years as VP, Technical Services for a 6 Mt anthracite underground coal
operation in Jincheng, Shanxi, China). He served on the 6-member federal Technical Study Panel mandated by the MINER Act of 2006 studying the use of belt air in underground coal mines. In addition to
teaching, he has consulted for over 65 different mines, mining companies, consulting firms, law firms and government agencies, coal, metal and nonmetal, including the World Bank, International
Financial Corporation, and the United Nation's Development Program (UNDP) in Geneva. He has written two books (Practical Mining Ventilation Engineering and China's Gold Industry), conducted over
30 short courses on mine ventilation, diesel particulate emissions control, mine dewatering and coal mining in the US, China, Canada and Mexico. He has authored and co-authored over
130 journal and symposium papers, including one chapter on room and pillar coal mining in SME Mining Engineering Handbook, 3rd Edition (2010). Dr. Tien's credentials
include a B.S. (National Chenggong University, Taiwan), M.S. (Michigan Technological University) and Ph.D. (University of Missouri-Rolla), all in mining
engineering, and an MBA from the University of Evansville, Indiana. He is a registered Professional Engineer and a Mine Foreman, both in the Commonwealth of Kentucky.
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3.0 SCOPE OF WORK FOR THE UPDATE OF THE TECHNICAL REVIEW
From 22 October 2012 through 26 October 2012, Mr. Brooks, the Project Manager for the
September 2011 ITR, Dr. Lawrence Malesu, the Environmentalist and Permitting Specialist for the September 2011 ITR, and Dr. Jerry Tien Underground Mining Engineer, traveled
to Jinsha County, Nayong County, and Liuzhi Special District, in Guizhou Province, PRC to inspect the progress or changes at each Mine since the May 2011 site visit. The team visited and
inspected the seven coal mining properties reviewed in this report. The visits included an evaluation of environmentally related practices and underground inspections of the Yongsheng, Gouchang,
Liujiaba, and Baiping Coal Mines. During BD Asia's visits, discussions were held with technical and managerial staff at the Property sites and with technical and management personnel in Guiyang,
Guizhou regional offices of the Company.
From
03 through 06 May 2013, Mr. Brooks and Mr. Malesu traveled to Jinsha County and Nayaong County and again reviewed progress with issues related to PAPs
and mine development. Mr. Brooks and Mr. Malesu visited Dayun Coal Mine, Yongsheng Coal Mine, and Dayuan Coal Mine during that site visit.
From
06 through 09 October 2013, Mr. Brooks and Mr. Malesu, accompanied by Geologist James Kohler, traveled to Jinsha County to inspect faulting,
de-gasification galleries, and the progress in construction of the coal beneficiation facilities. Mr. Brooks and Mr. Kohler made an underground inspection of Yongsheng Coal Mine and
Mr. Malesu revisited Dayun Coal Mine to review community relations issues.
This
report covers the following primary items:
- •
- mining tenements (mining rights), history and infrastructures.
- •
- geology and characteristics of coal seams.
- •
- restatement of coal resource coal reserve estimates according to JORC standards.
- •
- coal mining operations.
- •
- coal production forecasts.
- •
- coal quality.
- •
- mining production costs.
- •
- transport to markets.
- •
- capital expenditures.
- •
- environmental issues and management.
- •
- occupational health and safety.
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Table of Contents
- •
- project economics and projected cash flows.
- •
- risk analysis.
4.0 DESCRIPTION
4.1 GENERAL LOCATION, INFRASTRUCTURE, AND ACCESS
Jinsha County, under the administration of Bijie City, is located in northwest Guizhou (Figure 1.1). Total area for the county is approximately
2,528 km2. The population is approximately 669,700.
Nayong
County, under the administration of Bijie City, is located in west Guizhou (Figure 1.1). Total area for the county is approximately 2,448 km2. The
population is approximately 938,000.
Liuzhi
Special District, under the administration of Liupanshui City, is located in the west Guizhou (Figure 1.1). Total area for the county is approximately
1,792 km2. The population is approximately 652,500.
Because
of their abundant coal resources, coal mining and processing are increasing as primary industries for Jinsha and Nayong Counties and Liuzhi Special District. Smaller coal mines
have been required to shut down or merge with larger coal mines.
Local
infrastructure at all the Company's Mines is not well developed, though from observation, many of the roads are being upgraded and paved. Baiping and Dayun Coal Mines are within
the administrative jurisdiction of Gaoping Town of Jinsha County and Yongsheng Coal Mine is within the administrative jurisdiction of Huajue Town of Jinsha County. These 3 Mines are located
approximately 28 kilometers (km) to 35 km southeast of Jinsha County and approximately 3 km to 6 km east of Gaoping Town. They are approximately 45 km from
the electric power plant of Jinsha County, and about 70 km from the railway stations of Zunyi County. There are conceptual plans to provide access to water transportation on the Wujiang River.
Gouchang and Dayuan Coal Mines are located in Nayong County and are accessible by the road from Bijie to Shuicheng city. The intention is for Dayuan Coal Mine to sell its coal to a power plant located
7 km from the Mine. Liujiaba and Zhulinzhai Coal Mines are located north of Liuzhi Special District in the mountain area of Xinhua town. The Mines are accessible by paved roads passing through
communities and villages.
4.2 CLIMATE AND PHYSIOGRAPHY
Guizhou is a mountainous province with higher topographic relief in the west gradually becoming lower relief toward the eastern and southern portions of the
province. The western part of the province where the Mines are located forms part of the Yunnan-Guizhou Plateau. Guizhou has a sub-tropical humid climate with few seasonal changes. Average monthly
temperatures range from 9°C to 20°C. The average annual precipitation in the region is approximately 1,267 millimeters (mm), with the period of May through September
accounting for 70% of the annual precipitation. No surface waters are within the Mine areas other than several seasonal streams that are part of the Wujiang River basin within the Yangtze River water
system. According to the China Regionalization Map for Motion Parameters (GB198306-2001), the basic Seismic Intensity is less than Degree VI for the regions where the Mine areas are located.
Earthquakes have taken place in this region historically, but their intensities were less than Degree VI.
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Generally,
all of the seven Mines are subject to similar conditions.
All
the Mines are located in mountainous areas away from local communities. According to the surface maps provided to BD Asia, there are no government-protected areas in any of the Mine
leases visited by BD Asia.
5.0 GEOLOGY
5.1 REGIONAL GEOLOGICAL SETTING
Guizhou is the most important coal producing province in South China. Approximately 150 Mt of coal were produced in Guizhou Province in 2010. More than 90%
of this coal was produced from Late Permian coal measures in West and Northwest Guizhou. The Company's Mines are located in the above mentioned areas and are divided into 2 different coal
districts, the Zhina Coal District west of Guiyang, the capital city of Guizhou Province and Qianbei Coal District north of Guiyang. The Zhina Coal District contains the Liujiaba (also called Xinsong)
Coal Mine, the Zhulinzhai (also called Linjiaao) Coal Mine, the Dayuan Coal Mine, and the Gouchang Coal Mine. The Qianbei Coal District contains the Dayun Coal Mine, the Yongsheng (also called Yongfu)
Mine, and the Baiping Coal Mine (Figure 1.1).
Geologically,
both Qianbei and Zhina Coal Districts are located in the Central Guizhou Uplift of the Yangzhi Craton (Figure 5.1). They are surrounded by boundary faults on all
directions. The Nayong Fault zone separates the Qianbei and Zhina Coal Districts. The current outline of the structural characteristics was finalized in the Yanshan tectonic movement during the
Late Mesozoic.
Figure 5.1. Simplified map of Tectonic Unit Distribution of northwestern Guizhou coal fields
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5.2 LOCAL AND DEPOSIT GEOLOGICAL SETTING
5.2.1 Geological Setting of Qianbei Coal District
The main structural features in the Qianbei Coal District are north-northeast folds and faults, i.e., the Erhai anticline, Huajue
anticline, Huamiaogou syncline, and Gaoping compound syncline (Figure 5.2).
Figure 5.2. Local geological map of the Company's Mines in Qianbei coal district, Guizhou
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Stratigraphy in these coalfields, in an ascending order, consists of Middle Permian Maokou Formation (P2m), Upper Permian Longtan Formation (P31), Changxing Formation
(P3c), Lower Triassic Yelang Formation (T1y), and Quaternary (Q) (Figure 5.3). Maokou Formation (P2m) comprises various kinds of limestone. Longtan
Formation (P31) consists of coal-bearing sandstones, mudstones, limestones, and coal beds. Changxing Formation (P3c) is limestone that contains chert nodules, clumps, and
bands. Triassic Yelang Formation consists of limestones, argillaceous limestones, and mudstones.
Figure 5.3. Comprehensive strata column map of the coal field in Jinsha County
The Upper Permian Longtan Formation is the only coal-bearing formation in the Company's Qianbei Coal District properties. This
formation has an overall thickness ranging from 67m to 320m and contains 12 coal seams with a total thickness ranging from 5m to 6m. Of the 12 coal seams, 5 are considered
mineable or mostly mineable with a combined average thickness ranging from 5m to 9m.
The
region surrounding the Qianbei Coal District has undergone a complex geologic history, the detail of which is beyond the scope of this ITR. A number of tectonic episodes, since
deposition of the coal beds, has resulted in geologic structures that complicate mining. The geologic structure maps generally show a number of north-south trending small folds that are locally
interrupted by northwest-southeast trending faults. Most of the major faults were identified by the exploration
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drilling
in the area, but additional small faults, with displacement ranging from less than 1m up to 10m, have been identified while driving the entryways at the Yongsheng Mine. As a result of the
tectonic forces that have created the complex geologic history of the region, the rank of the coal resources is anthracite. The pressures, which have elevated the coal in rank to anthracite, have
created local variations in the thickness and structural attitude of the coal beds that can be observed in the mine workings.
The
Qianbei Coal District is of relatively simple to medium complex geological structure. It has undergone limited structural deformation since the deposition of the Permian coal-bearing
strata. These coal-bearing strata have been gently and widely folded. Fault structures are from simple to medium developed in the Company's three coal mining properties of the Qianbei Coal District.
The structure feature summary of these Mines is listed in the Table 5.1.
TABLE 5.1
STRUCTURAL FEATURE SUMMARY OF THREE COAL MINES OF THE COMPANY
QIANBEI COAL DISTRICT
|
|
|
|
|
Coal Mine
|
|
Folds |
|
Faults |
| Baiping |
|
Wide and gentle syncline complex with strata dip angle from 10 degrees to 13 degrees, locally 25 degrees. |
|
Major faults are not evident in the mine area. Some small faults have been identified with 3m to 5m vertical displacements. |
Yongsheng |
|
Wide and gentle syncline complex with strata dip angle from 5 degrees to 15 degrees, It can be 80 degrees at the coal seam outcrop which is brought up by the coal field boundary fault. |
|
A total of 11 faults had been detected in the mine area via the original exploration drilling by WZMM; 7 of which are normal faults, and the other 4 are reverse faults. Vertical displacements range from
10m to 170m. The fault strike lengths range from 300m to 2,440m. Additional small faults are being encountered during mining. |
Dayun |
|
Monocline strata with dip angle of 16 degrees to 24 degrees with average of 18 degrees. |
|
Six simple faults with 10m to 70m vertical displacements. |
Except
for localized areas, the minable coal seams in the Qianbei Coal District are present throughout each mine area. The coal seams being considered for mining range in thickness from
less than 0.83m to 3.8m. Local variations in coal thickness occur throughout the mining areas as a result of the coalification process. Coal seams in the Qianbei Coal District have generally been
metamorphosed to coal rank equivalent to anthracite coal.
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5.2.2 Geological Setting of the Zhina Coal District
The main structural features in the Zhina Coal District are northeast-east folds and faults. Within the Upper Permian Series, the
coal-bearing strata including Longtan Formation and Changxing Dalong Formation, the overlying strata including Yelang Formation and Yongningzhen Formation of Lower Triassic Series and Quaternary
(Figure 5.4).
Figure 5.4. Local geological map of the Company's Mines in Zhina coal district, Guizhou Province
III-39
Table of Contents
In
an ascending order, the stratigraphy of the Zhina Coal District consists of Middle Permian Maokou Formation (P2m), Upper Permian Longtan Formation (P31), and
Changxing Formation (P3c), Lower Triassic Yelang Formation (T1y), and Quaternary (Q) (Figure 5.5) after "Late Permian coal measures in south-western China",
International Journal of Coal Geology 85 (2011), Wang et al). Maokou Formation (P2m) consists of various kinds of limestones. Longtan Formation (P31) consists of
coal-bearing sandstones, mudstones, limestones, and coal beds. Changxing Formation (P3c) is limestone that contains chert nodules, clumps, and bands. Triassic Yelang Formation consists of
limestones, argillaceous limestones, and mudstones.
Figure 5.5. Comprehensive strata column map of coalfields in Nayong County
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Table of Contents
Figure 5.6 (after
"Late Permian coal measures in south-western China," International Journal of Coal Geology 85 (2011)), Wang, et al. shows the lateral facies changes
east-west across the region, with the terrestrial (coal bearing)/marine (transgressive limestone) cycles. Wang, et al. identified up to 4th level transgressive facies cycles.
Figure 5.6. East-West transgressed facies in late Permian coal measures
The
Upper Permian Longtan Formation is the only coal-bearing formation at the Company's properties located in the Zhina Coal District. This formation has an overall thickness ranging
from 80m to 400m and contains 17 coal seams deemed economic, ranging in thickness from 0.6m to 8.3m at the Gouchang, Dayuan, Liujiaba, and Zhulinzhai Coal Mines. Across these
4 tenements, 6 additional seams are considered too thin for economic mining.
The
Zhina Coal District is of relatively simple to medium geology structure. It has undergone a limited structural deformation since the deposition of the Late Permian coal-bearing
strata. These coal-bearing strata have been gently and widely folded. Normal fault structures are from simple to medium developed in the Company's four coal mine Properties of the Zhina Coal District.
The structure feature summary of the four Mines is listed in the Table 5.2.
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Table of Contents
TABLE 5.2
STRUCTURAL FEATURE SUMMARY OF FOUR COAL MINES
ZHINA COAL DISTRICT
|
|
|
|
|
Coal Mine
|
|
Folds |
|
Faults |
| Gouchang |
|
Wide and gentle monocline complex with strata dip angle from 20 degrees to 30 degrees, it can be 80 degrees at the coal seam outcrop which is brought up by the coal field boundary fault. |
|
Faulting known from exploration drill holes and mine workings are quite small normal faults (throw <1m) and do not greatly impede mining. |
Dayuan |
|
Wide and gentle syncline complex with strata dip angle from 3 degrees to 7 degrees, locally 25 degrees. |
|
Faults are not developed in the mine area. Only seen some small faults with 1m to 2m vertical displacements. |
Liujiaba |
|
Relatively flat strata with dip angle of 2 degrees to 3 degrees. |
|
Three normal faults with 10m to 20m vertical displacements had been detected during original exploration drilling. Additional faulting has been encountered during mining. |
Zhulinzhai |
|
Relatively flat strata with dip angle of 2 degrees to 3 degrees. |
|
No significant faulting known from exploration data. |
5.3 GEOLOGY OF THE COAL DEPOSITS
5.3.1 Coal-bearing Strata in the Qianbei Coal District
All minable coal seams at the Company's Mines are contained in the Permian Longtan Formation. This formation consists of multiple
cyclic marine-terrestrial sediments, including sandstones, siltstones, mudstone, limestone, clay, and coal seams (Figure 5.7). It is rich in fern plant fossils in the clastic sediments and
brachiopod animal fossils in the limestone. It has total thicknesses ranging from 120m to 165m. There are 12 coal seams with an overall thickness ranging from 6.78m to 16.10m. Five of the seams
have overall thickness ranging from 5.08m to 9.24m. All are considered mineable or mostly minable under current technology and economic conditions. These coal seams in the Longtan Formation are
numbered from top to down. They are C4, C5, C7, C8, and C12 in the Baiping Coal Mine; C8, C9, C10, C11, and C12 in the Yongsheng Coal Mine; and M6, M8, M11,
and M12 in the Dayun Coal Mine. These coal seam designations are used in the resource estimation for the Company's Mines.
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Table of Contents
Figure 5.7. A multiple cyclic marine-terrestrial sediments system during Late Permian from
West Guizhou Province
The average thicknesses of the coal seams sampled in the core drilling are relatively consistent from area to area for each of the mines and average from 0.83m to
2.77m. However, localized thickness variations of plus or minus 50% can be seen in some of the early mining panels which is typical of anthracite seams within this region. The continuity of these coal
seams between the core holes is relatively good although typical faulting and folding of the anthracite seams do occur resulting in displaced seam horizons of up to 10m and some variation in seam
dips. These deviations may require some localized adjustments to the mining plan when encountered. Some of the coal seams contain 1 or 2 layer partings. Separation between mineable coal seams
is variable from 10m to 30m, which generally is not a problem for current mining methods. Ground control problems caused by transmitted stresses between seams are only minor. Most of the licensed
areas are above hydrostatic water levels and pumping problem is relatively minimal.
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Table of Contents
Table 5.3
lists the mineable coal seams used for the current resource estimation and their average thickness and average seam dip ranges.
TABLE 5.3
MINEABLE COAL SEAMS FOR THE COAL MINES OF THE COMPANY
QIANBEI COAL DISTRICT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal Mines
|
|
Mineable Seam
Numbers |
|
Minimum-Maximum
Seam Thickness (m) |
|
Average Seam
Thickness (m) |
|
Average Seam Dip
(degree) |
|
| Baiping |
|
|
C4 |
|
|
1.6 - 3.0 |
|
|
2.1 |
|
|
|
|
| |
|
|
C5 |
|
|
1.3 - 1.9 |
|
|
1.6 |
|
|
|
|
| |
|
|
C7 |
|
|
1.4 - 2.1 |
|
|
1.8 |
|
|
10 - 13 |
|
| |
|
|
C8 |
|
|
1.2 - 2.3 |
|
|
1.8 |
|
|
|
|
| |
|
|
C12 |
|
|
1.3 - 3.6 |
|
|
2.3 |
|
|
|
|
Yongsheng |
|
|
C8 |
|
|
1.8 - 3.9 |
|
|
2.8 |
|
|
|
|
| |
|
|
C9 |
|
|
0.2 - 1.8 |
|
|
0.9 |
|
|
|
|
| |
|
|
C10 |
|
|
0.3 - 2.4 |
|
|
0.8 |
|
|
5 - 15 |
|
| |
|
|
C11 |
|
|
0.3 - 1.6 |
|
|
1.1 |
|
|
|
|
| |
|
|
C12 |
|
|
1.3 - 2.5 |
|
|
1.7 |
|
|
|
|
Dayun |
|
|
M6 |
|
|
0.3 - 3.3 |
|
|
1.7 |
|
|
|
|
| |
|
|
M8 |
|
|
1.1 - 5.0 |
|
|
2.7 |
|
|
|
|
| |
|
|
M11 |
|
|
0.5 - 2.9 |
|
|
1.2 |
|
|
16 - 24 |
|
| |
|
|
M12 |
|
|
0.8 - 3.6 |
|
|
2.0 |
|
|
|
|
5.3.2 Coal-bearing Strata in Zhina Coal District
All minable and mostly minable coal seams at the Company's mines in the Zhina Coal District are contained in the Late Permian Longtan
Formation. This formation consists of multiple cyclic marine-terrestrial sediments, including sandstones, siltstones, mudstone, limestone, clay, and coal seams. It is rich in fern plant fossils in the
clastic sediments and brachiopod animal fossils in the limestones. It ranges from 80m to 400m thick. Within this formation, there are 17 economic coal seams with a thickness range of between 1m
to 8m. These seams are mineable or mostly mineable under current technology and economic conditions. The mineable coal seams in the Longtan Formation are numbered from top to down. They are M5-1,
M5-2, M6-1, M6-2, and M13 in the Gouchang Coal Mine; C3, C5, C6, and C7 in the Dayuan Coal Mine; M27, M28, and M30 in the Xinsong Coal Mine; and C6, C16, C18, C27, and
C30 in the Linjiaao Coal Mine. These coal seams are used in the resource estimation for the Company's four Zhina Coal District mines. Additional coal seams have been identified at the Dayuan
Coal Mine (C11, C22, C26, C28, C31, C32, and C34); however, these coal seams have not been included in the resource estimate because they are considered too deep and too thin at the current level of
exploration knowledge.
The
average thicknesses of the coal seams sampled in the core drilling are relatively consistent from area to area for each of the mines and average from 0.5m to 8.3m. Again, localized
thickness variations of plus or minus 50% can be seen in some of the early mining panels which is typical of anthracite
III-44
Table of Contents
seams
within this region. The continuity of these coal seams between the core holes is relatively good although typical faulting and folding of the anthracite seams do occur resulting in displaced
seam horizons of up to 10m and some variation in seam dips. These deviations may require localized adjustments to the mining plan when encountered. Some of the coal seams contain 1 or 2 layer
partings. Separation between mineable coal seams is variable from 10m to 30m, which generally is not a problem for current mining methods. Ground control problems caused by transmitted stresses
between seams are only minor. Most of the licensed areas are above hydrostatic water levels and pumping problem is relatively minimal.
Table 5.4
lists the mineable coal seams used in the current resource estimation and their average thickness and average seam dip ranges. The thickness of all the mineable coal
seams are suitable for both mechanical longwall panel mining method or drilling and explosive mining method for the Company's 4 Mines in the Zhina Coal District.
TABLE 5.4
MINEABLE COAL SEAMS FOR THE COMPANY'S COAL MINES
ZHINA COAL DISTRICT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal Mines
|
|
Mineable Seam
Numbers |
|
Minimum-Maximum
Seam Thickness (m) |
|
Average Seam
Thickness (m) |
|
Range of Seam Dip
(degree) |
|
| Gouchang |
|
|
M5-1 |
|
|
0.2 - 3.0 |
|
|
2.6 |
|
|
|
|
| |
|
|
M5-2 |
|
|
1.2 - 4.6 |
|
|
3.2 |
|
|
|
|
| |
|
|
M6-1 |
|
|
0.9 - 2.3 |
|
|
1.7 |
|
|
20 - 30 |
|
| |
|
|
M6-2 |
|
|
0.4 - 1.4 |
|
|
1.2 |
|
|
|
|
| |
|
|
M13 |
|
|
1.0 - 1.2 |
|
|
1.1 |
|
|
|
|
Dayuan(1) |
|
|
C3 |
|
|
0.4 - 2.1 |
|
|
1.1 |
|
|
|
|
| |
|
|
C5 |
|
|
0.8 - 8.6 |
|
|
3.5 |
|
|
|
|
| |
|
|
C6 |
|
|
0.8 - 1.2 |
|
|
1.0 |
|
|
5 - 18 |
|
| |
|
|
C7 |
|
|
0.5 - 1.5 |
|
|
1.0 |
|
|
|
|
Liujiaba |
|
|
M27 |
|
|
0.9 - 6.3 |
|
|
4.6 |
|
|
|
|
| |
|
|
M28 |
|
|
0.8 - 5.9 |
|
|
3.3 |
|
|
3 - 6 |
|
| |
|
|
M30 |
|
|
1.0 - 6.5 |
|
|
4.6 |
|
|
|
|
Zhulinzhai |
|
|
C6 |
|
|
3.5 - 4.5 |
|
|
3.9 |
|
|
|
|
| |
|
|
C16 |
|
|
1.1 - 2.2 |
|
|
1.5 |
|
|
|
|
| |
|
|
C18 |
|
|
1.2 - 3.2 |
|
|
1.7 |
|
|
15 - 20 |
|
| |
|
|
C27 |
|
|
0.8 - 3.2 |
|
|
2.0 |
|
|
|
|
| |
|
|
C30 |
|
|
1.0 - 2.2 |
|
|
1.5 |
|
|
|
|
- (1)
- Other
coal seams have been identified for the Dayuan Coal Mine (C11, C22, C26, C28, C31, C32, and C34); however, these coal seams have not been included in
the resource estimate because they are considered too deep and too thin at the current level of exploration knowledge. Additionally, minimal data points were available in the Resource report provided
to BD Asia.
III-45
Table of Contents
5.4 GEOLOGICAL DATABASE FOR RESOURCE ESTIMATION
The Company (and/or its various subsidiaries) engaged WZMM to develop independent coal resource estimations and mine designs for the seven Properties held by the
Company. WZMM is an independent entity licensed for exploration and resource estimation for solid mineral resources, including coal, in China.
The
database used for the coal resource estimation includes historical exploration data and data collected from the current coal mines of the Company. The dates of the WZMM resource
reports for the seven Mines range from December 2010 to March 2011. Each of the Company's Mines has been the subject of a number of resource estimates in the past. Those were conducted
by licensed state-run entities similar to WZMM. Basic information for these studies, including topography, deposit geology, geological mapping, and drilling data, was compiled for each coal mining
license area by WZMM. Included in the database are coal seam thickness, coal quality, and dry bulk density data.
Gouchang,
Dayuan, and Baiping Coal Mines have been operational over a number of years. Historical coal resource estimates have generally been verified by mine production. Production has
also provided additional information for the current coal resource estimation. Information provided by the Company
includes maps for current underground workings and mined-out areas, coal seam thickness, and quality data. Behre Dolbear believes that the data collected from the current mining operations is more
important than the data generated from the early exploration, as data measured from underground workings is generally more reliable than data measured from drill holes. WZMM has conducted careful
verification of the data provided by the Company by underground survey and measurement before using the data for coal resource estimation.
Nonetheless,
the exploration drilling programs have been done to JORC standards: Drill holes are located at Measured and Indicated centered distances; each seam has been cored and
laboratory-analyzed; each drill hole has been geophysically logged and depths from these logs reconciled with drilling depths; gas measurements have been done on selected holes (seam gas is generally
98% CH4 and 2% CO2); and resources have been estimated from valid data.
Dry
bulk density used for coal resource estimation is different from each coal seam and each Mine that are listed in Table 5.5 in the Qianbei and Zhina Coal Districts. These dry
bulk densities are based on measurements conducted on coal specimens and have been verified by coal production. BD Asia believes that these bulk densities are reasonable for the Mines.
III-46
Table of Contents
TABLE 5.5
BULK DENSITIES USED FOR COAL RESOURCE ESTIMATION
|
|
|
|
|
Coal Mines
|
|
Mineable Seam Numbers
|
|
Average Bulk Density
(tonne/m3)
|
| Baiping |
|
C4 |
|
1.42 |
| |
|
C5 |
|
1.47 |
| |
|
C7 |
|
1.45 |
| |
|
C8 |
|
1.45 |
| |
|
C12 |
|
1.45 |
Yongsheng |
|
C8 |
|
1.42 |
| |
|
C9 |
|
1.42 |
| |
|
C10 |
|
1.45 |
| |
|
C11 |
|
1.45 |
| |
|
C12 |
|
1.45 |
Dayun |
|
M6 |
|
1.49 |
| |
|
M8 |
|
1.46 |
| |
|
M11 |
|
1.51 |
| |
|
M12 |
|
1.51 |
Gouchang |
|
M5-1 |
|
1.51 |
| |
|
M5-2 |
|
1.51 |
| |
|
M6-1 |
|
1.50 |
| |
|
M6-2 |
|
1.49 |
| |
|
M13 |
|
1.51 |
Dayuan(1) |
|
C3 |
|
1.48 |
| |
|
C5 |
|
1.50 |
| |
|
C6 |
|
1.49 |
| |
|
C7 |
|
1.51 |
Liujiaba |
|
M27 |
|
1.46 |
| |
|
M28 |
|
1.47 |
| |
|
M30 |
|
1.48 |
Zhulinzhai |
|
C6 |
|
1.46 |
| |
|
C16 |
|
1.51 |
| |
|
C18 |
|
1.50 |
| |
|
C27 |
|
1.51 |
| |
|
C30 |
|
1.48 |
- (1)
- Other
coal seams have been identified for the Dayuan Coal Mine (C11, C22, C26, C28, C31, C32, and C34); however, these coal seams have not been included in
the resource estimate because they are considered too deep and too thin at the current level of exploration knowledge. Additionally, minimal data points were available in the Resource report provided
to BD Asia.
III-47
Table of Contents
6.0 COAL RESOURCES AND RESERVES
6.1 DIGITAL DATABASE FOR COAL RESOURCE ESTIMATION
BD Asia has reviewed in detail the coal resource reports prepared by WZMM as well as the digital maps that include original data points used for the coal resource
estimation. BD Asia selectively checked the accuracy of the calculations and found that the procedures and parameters used for the coal resource estimation are appropriate and the calculations are
correct. In addition, BD Asia professionals visited all of the seven coal mining properties reviewed in this report and reviewed the geology of the coal deposits in the field. During the site visits,
BD Asia made certain field observations to corroborate WZMM's work, including a general review of topographical and geological conditions at the Mines. BD Asia's observations and discussions with
Company personnel, during the field visit, provided further information in support of WZMM's coal resource estimations. It should be noted that BD Asia has not conducted a detailed audit of the
original data used for the coal resource estimation and has relied upon the accuracy of the original data used by WZMM and the Company. The Company controlled the data used in the WZMM resource
estimations and provided that information to BD Asia, so BD Asia had no direct contact with WZMM during development of this ITR.
The
digital database used for the coal resource estimation includes historical exploration data and data collected from underground workings of the Mines. Each of the Mines has been the
subject of a number of resource estimates in the past conducted by licensed state-owned entities similar to WZMM. Basic information for these studies, including topography, deposit geology, geological
mapping, and drilling data, was compiled for each coal mining license area by WZMM. Included in the database are
coal seam thicknesses (excluding partings of more than 0.05m thick), coal quality, and dry bulk density data. Table 6.1 summarizes the resource database used for resource estimation of the
seven Mines.
TABLE 6.1
EXPLORATION PROJECT TABLE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hole |
|
|
|
|
|
|
|
|
|
|
|
Underground
Development
(m) |
|
Surface
Trench (m3) |
|
Number of
Coal Analyses |
|
Number of
Density
Measurements |
|
Coal Mine
|
|
Number |
|
Depth (m) |
|
Baiping |
|
|
13 |
|
|
2,601 |
|
|
550 |
|
|
529 |
|
|
269 |
|
|
15 |
|
Yongsheng |
|
|
55 |
|
|
20,030 |
|
|
1,031 |
|
|
857 |
|
|
276 |
|
|
35 |
|
Dayun |
|
|
60 |
|
|
22,130 |
|
|
1,065 |
|
|
712 |
|
|
639 |
|
|
89 |
|
Gouchang |
|
|
9 |
|
|
5,128 |
|
|
310 |
|
|
252 |
|
|
162 |
|
|
15 |
|
Dayuan |
|
|
10 |
|
|
3,889 |
|
|
520 |
|
|
690 |
|
|
367 |
|
|
27 |
|
Zhulinzhai |
|
|
10 |
|
|
4,465 |
|
|
450 |
|
|
0 |
|
|
75 |
|
|
13 |
|
Liujiaba |
|
|
15 |
|
|
3,339 |
|
|
390 |
|
|
450 |
|
|
82 |
|
|
10 |
|
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Table of Contents
6.2 COAL-BEARING STRATA
The mineable coal seams of the Company's Properties are numbered numerically from top down in the formation. The number of coal seams used for resource estimation
with average thickness and dip ranges for the seven Properties are listed in Table 6.2.
TABLE 6.2
MAIN PARAMETERS OF MINEABLE COAL SEAMS FOR ALL COMPANY PROPERTIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Thickness
(m) |
|
|
|
|
|
|
|
|
|
Average Dip
(degree) |
|
| Number |
|
Coal Mine |
|
Minable Seam |
|
Maximum |
|
Minimum |
|
| 1 |
|
Baiping |
|
C4, C5, C7, C8, C12 |
|
|
2.3 |
|
|
1.6 |
|
|
8 |
|
| 2 |
|
Yongsheng |
|
C8, C9, C10, C11, C12 |
|
|
2.8 |
|
|
0.8 |
|
|
10 |
|
| 3 |
|
Dayun |
|
M6, M8, M11, M12 |
|
|
2.7 |
|
|
1.2 |
|
|
18 |
|
| 4 |
|
Gouchang |
|
M5-1, M5-2, M6-1, M6-2, M13 |
|
|
2.1 |
|
|
1.0 |
|
|
28 |
|
| 5 |
|
Dayuan |
|
C3, C5, C6, C7, |
|
|
3.5 |
|
|
1.0 |
|
|
19 |
|
| 6 |
|
Liujiaba |
|
M27, M28, M30 |
|
|
4.6 |
|
|
3.3 |
|
|
10 |
|
| 7 |
|
Zhulinzhai |
|
C6, C16, C18, C27, C30 |
|
|
3.9 |
|
|
1.5 |
|
|
20 |
|
The
thickness of the coal seams is relatively consistent in local areas but variable over distances. Average seam thickness for the mineable seams ranges from 1.0m to 4.6m. Coal seams
are thicker and more consistent at some of the Mines and thinner and more variable at others. Some of the coal seams contain a number of partings. Partings with thickness greater than 0.05m are
excluded from the coal resource tonnage estimates. The intervals between mineable coal seams are variable. They range from less than 3m to over 50m and are typically greater than 15m. Minimum
thickness and adequate separation were parts of the criteria used to identify which coal seams were included as part of the resource and reserve estimate for each Property.
6.3 COAL RESOURCE AND RESERVE CLASSIFICATION SYSTEM UNDER THE AUSTRALASIAN JORC CODE
The JORC Code is a resource and reserve classification system that has been widely used and is internationally recognized. It has also been used previously in
independent technical reports for coal resource and coal reserve statements for other Chinese public companies reporting to the HKSE. The JORC Code is used by BD Asia to report the coal resources and
coal reserves of the Company's mining properties in this report. The coal resources and coal reserves under the JORC Code are defined as follows:
A "Coal Resource" is a concentration or occurrence of solid material of economic interest in or on the Earth's crust in such
form, grade (or quality), and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade (or quality), continuity and other geological
characteristics of a Coal Resource are known, estimated or interpreted from specific geological evidence and knowledge, including sampling. Coal Resources are sub-divided, in order of increasing
geological confidence, into Inferred, Indicated and Measured categories.
III-49
Table of Contents
An "Inferred Coal Resource" is that part of a Coal Resource for which quantity and grade (or quality) are estimated on
the basis of limited geological evidence and sampling. Geological evidence is sufficient to imply but not verify geological and grade (or quality) continuity. It is based on exploration,
sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes.
An Inferred Mineral Resource has a lower level of confidence than that applying to an Indicated Mineral Resource and must not be converted to an Ore Reserve. It is reasonably
expected that the majority of Inferred Coal Resources could be upgraded to Indicated Coal Resources with continued exploration.
An
"Indicated Coal Resource" is that part of a Coal Resource for which quantity, grade (or quality), densities, shape and physical
characteristics are estimated with sufficient confidence to allow the application of Modifying Factors in sufficient detail to support mine planning and evaluation of the economic viability of
the deposit.
Geological evidence is derived from adequately detailed and reliable exploration, sampling and testing gathered through appropriate techniques from locations such as outcrops,
trenches, pits, workings and drill holes, and is sufficient to assume geological and grade (or quality) continuity between points of observation where data and samples
are gathered.
An Indicated Coal Resource has a lower level of confidence than that applying to a Measured Coal Resource and may only be converted to a Probable
Coal Reserve.
A "Measured Coal Resource" is that part of a Coal Resource for which quantity, grade (or quality), densities, shape, and
physical characteristics are estimated with confidence sufficient to allow the application of Modifying Factors to support detailed mine planning and final evaluation of the economic viability of
the deposit.
Geological evidence is derived from detailed and reliable exploration, sampling and testing gathered through appropriate techniques from locations such as outcrops, trenches,
pits, workings and drill holes, and is sufficient to confirm geological and grade (or quality) continuity between points of observation where data and samples
are gathered.
A Measured Coal Resource has a higher level of confidence than that applying to either an Indicated Coal Resource or an Inferred Coal Resource. It may be converted to a Proved
Coal Reserve or under certain circumstances to a Probable Coal Reserve.
A "Coal Reserve" is the economically mineable part of a Measured and/or Indicated Coal Resource. It includes diluting materials
and allowances for losses, which may occur when the material is mined or extracted and is defined by studies at Pre-Feasibility or Feasibility level as appropriate that include application of
Modifying Factors. Such studies demonstrate that, at the time of reporting, extraction could reasonably be justified.
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Table of Contents
A "Probable Coal Reserve" is the economically mineable part of an Indicated, and in some circumstances, a Measured Coal
Resource. The confidence in the Modifying Factors applying to a Probable Coal Reserve is lower than that applying to a Proved Coal Reserve.
A "Proved Coal Reserve" is the economically mineable part of a Measured Coal Resource. A Proved Coal Reserve implies a high
degree of confidence in the Modifying Factors.
Under the JORC Code, Inferred Coal Resources are deemed to be too poorly delineated to be transferred into a reserve category; and therefore, no equivalent
Possible Reserve category is used. The general relationships between exploration results, coal resources, and coal reserves under The JORC Code are summarized in
Figure 6.1.
Figure 6.1. General relationships between exploration results, coal resources, and coal reserves (after the JORC Code 2012 edition)
Generally,
coal reserves are quoted as comprising part of the total coal resource body rather than the coal resources being additional to the coal reserves quoted. The JORC Code allows
for either procedure, provided the system adopted is clearly specified. In this BD Asia report, all of the coal reserves are included within the coal resource statements.
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Table of Contents
6.4 PROCEDURES AND PARAMETERS FOR COAL RESOURCE ESTIMATION
The methods used to estimate coal resources and the parameters used to categorize the resources are generally prescribed by the relevant government authorities in
China. Coal resources for the Company's seven coal mining properties were estimated using the geological block method on coal seam floor structural contour maps. Procedures and parameters used for the
resource estimation have followed set government guidelines and are described below.
- •
- Determining the "Deposit Industry
Parameters": The economic parameters for coal resource estimation are generally referred to as "Deposit Industry Parameters" in Chinese
literature or technical reports. These parameters generally include minimum coal seam thickness, maximum ash content, maximum total sulfur content, and minimum thermal value. Based on the current
technology and cost information for the China Natural Resources mines, a minimum coal seam thickness of 0.7m to 0.8m, a maximum ash content of 40%, a maximum total sulfur content of 3%, and a minimum
heating value of 22.1 Mj/kg, were used for the coal resource estimation. Coal seams or portions of a coal seam meeting these requirements are considered to be mineable and have been used for
resource estimation.
- •
- Compiling Base Maps for Resource
Estimation: Based on the exploration data and current mining operation data, a series of base maps have been generated for each
Property. These maps include a surface geology map with topographic contours and projections of underground workings, a seam floor structural contour map for each of the coal seams used for the
resource estimation and one or more cross sections through the coal mining license area. Coal seam thickness from the drill holes, underground and surface measurements, and their locations were
projected onto the structural contour maps. The mined-out areas for each seam were also projected onto the structural contour maps.
- •
- Determining the Resource Block
Boundaries: Resource blocks for different resource categories were drawn on the coal seam floor structural contour maps. Data density
for different coal resource categories is based on Chinese specifications. In general, a measured resource block was defined by a data density of 500m × 500m for the seven Properties. An
indicated block was defined by data density of 1,000m × 1,000m. There is no extrapolation from the data point in defining the measured and indicated blocks. An inferred block was defined
by extrapolating half of the indicated data spacing from the data points. The horizontal mining license boundary and its elevation limits were used to confine the resource blocks. In general, the
mineable coal seams within the mining license limits have all been contained within the resource blocks. When a coal seam is exposed at the surface, the first 20m to 50m from its surface exterior
boundary are considered as weathered and are excluded from the defined resource blocks.
III-52
Table of Contents
- •
- Calculating the Block
Volume: An average dip angle of the coal seam was determined from the seam floor-structural contours and an average seam true thickness
was determined from the measurements of the seam from the underground workings, surface outcrops, and relevant drill holes. The volume (V) of a resource block is calculated by multiplying its
horizontal projection area (S) measured on the projected plan maps by the average true thickness (M) then dividing by the cosine of its average dip angle
(a). If the average dip angle was 10 degrees or less, the cos a term was not used.
- •
- Calculating the Block
Tonnage: The block tonnage was calculated by multiplying the block volume by the average dry bulk density (typically
1.4 tonnes/m3 to 1.5 tonnes/m3). Inferred tonnage was multiplied by 0.80 to reflect the uncertainty of the estimate.
- •
- Compiling the Resource Summary
Table: The resources are tabulated by seam and by resource category.
6.5 DISCUSSION — COAL RESOURCES AND RESERVES
Based on its review, BD Asia considers the coal resource estimation database, procedures, and parameters applied by WZMM to the seven Coal Mines to be reasonable
and appropriate. The coal deposit geology shows reasonably good continuities for the coal seams and geological faults were adequately considered. BD Asia believes that the data density requirements
for measured and indicated block definition used for the Company's Mines are generally adequate to support JORC Code resource estimation. Reasonable extrapolations from the data points for the
measured and indicated resource blocks are also allowed under the JORC Code, but there is minor extrapolation in the Company's resource estimation. In BD Asia's opinion, those extrapolations were not
material to the accuracy of the resource estimations.
BD
Asia has visited all the Mines and reviewed all the coal seam floor structural contour maps used for coal resource estimation by WZMM. Based on its review of the sampling data,
methodology, procedures, and parameters used for the estimation of coal resources, BD Asia is of the opinion that the measured, indicated, and inferred coal resources estimated under the 1999 Chinese
resource classification system for the Company's Mines by WZMM and JPCM conform to the equivalent the JORC Code coal resource categories.
Table 6.3
lists the comparable coal resource categories under the 1999 Chinese resource classification system and the JORC Code that has been used to convert the coal resource
estimate under the Chinese system to that meeting the JORC Code. As only the mineable coal seams or the mineable portion of a coal seam were used for the resource estimation, the measured and
indicated coal resources estimated by WZMM can be used to produce proved and probable coal reserve estimates, respectively.
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Table of Contents
TABLE 6.3
CORRELATION OF 1999 CHINESE RESOURCE CLASSIFICATION WITH
JORC CODE RESOURCE CLASSES
|
|
|
1999 Chinese
|
|
JORC Code |
111b |
|
Measured |
122b |
|
Indicated |
331 |
|
Measured |
332 |
|
Indicated |
333 |
|
Inferred |
|
|
|
NOTE: |
|
The JORC Code mineral resource is generally classified based on the geological confidence level into Measured, Indicated, and Inferred. Whereas the 1999 Chinese system is based on a three-dimensional matrix or three-digit
code in the form of "123". The first digit represents economics: 1 — Economic, 2 — Marginal Economic, and 3 — Intrinsic Economic; the second digit represents the level of feasibility study:
1 — Feasibility Study; 2 — Pre-Feasibility Study, and 3 — Scoping Study; the third digit represents the level of geological confidence: 1 — Measured, 2 — Indicated, and
3 — Inferred. The letter "b" after the third digit represents that the resource is in-situ and no design or mining losses have been deducted. Therefore, the 1999 Chinese resource class "111b" is the in-situ, economic, measured resource
with a feasibility level of technical study; the resource class "122b" is the in-situ, economic, indicated resource with a pre-feasibility level of technical study; and the resource class "333" is the intrinsic economic, inferred resource with only a
scoping level of technical study. |
6.6 COAL RESOURCE STATEMENT
Based on their techniques, WZMM determined that the un-mined, in-situ tonnage estimate for these seven Mines is approximately 418 Mt of coal classified in
the Chinese system as 331, 332, and 333 resources. For consistency, BD Asia has consolidated the original 111b and 122b into the 331 and 332 categories, respectively, as WZMM had not
re-categorized the estimates after completion of their feasibility study. The Chinese estimate, as of 01 May 2011, is shown by Coal Mine in Table 6.4.
TABLE 6.4
CHINESE RESOURCE SUMMARY
(MILLIONS OF TONNES)
(AS OF 01 MAY 2011)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Resource Category |
|
|
|
Mine
|
|
331 |
|
332 |
|
333 |
|
Total |
|
Baiping |
|
|
9.36 |
|
|
24.44 |
|
|
7.50 |
|
|
41.30 |
|
Yongsheng |
|
|
37.70 |
|
|
60.73 |
|
|
36.84 |
|
|
135.27 |
|
Dayun |
|
|
57.79 |
|
|
73.48 |
|
|
19.77 |
|
|
151.04 |
|
Gouchang |
|
|
8.71 |
|
|
3.65 |
|
|
1.66 |
|
|
14.02 |
|
Dayuan |
|
|
8.00 |
|
|
5.71 |
|
|
4.52 |
|
|
18.23 |
|
Liujiaba |
|
|
13.74 |
|
|
14.66 |
|
|
16.77 |
|
|
45.17 |
|
Zhulinzhai |
|
|
6.21 |
|
|
6.87 |
|
|
0.13 |
|
|
13.21 |
|
| |
|
|
|
|
|
|
|
|
|
Total |
|
|
141.51 |
|
|
189.54 |
|
|
87.19 |
|
|
418.24 |
|
| |
|
|
|
|
|
|
|
|
|
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Table of Contents
BD
Asia has adjusted the original Chinese estimates to account for mined tonnage and a few minor calculation or categorization differences found during its detailed review of each seam.
BD Asia's coal resource estimates for the Company's seven Mines conforming to the JORC Code guidelines as of 30 April 2013, are summarized in Table 6.5. Coal resource estimates in
Table 6.5 report are inclusive of the coal reserves.
TABLE 6.5
BD ASIA'S ESTIMATE OF THE JORC CODE RESOURCES AT THE COMPANY'S MINES
(AS OF 31 JULY 2013)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-situ Coal Resource |
|
Mine
|
|
Measured (Mt) |
|
Indicated (Mt) |
|
Inferred (Mt) |
|
Total (Mt) |
|
Baiping |
|
|
8.69 |
|
|
24.44 |
|
|
7.24 |
|
|
40.37 |
|
Yongsheng |
|
|
27.40 |
|
|
69.88 |
|
|
31.68 |
|
|
128.96 |
|
Dayun |
|
|
57.79 |
|
|
73.48 |
|
|
19.72 |
|
|
150.99 |
|
Gouchang(1) |
|
|
8.60 |
|
|
3.67 |
|
|
1.52 |
|
|
13.79 |
|
Dayuan |
|
|
7.43 |
|
|
6.55 |
|
|
5.70 |
|
|
19.68 |
|
Liujiaba |
|
|
9.90 |
|
|
14.01 |
|
|
16.43 |
|
|
40.34 |
|
Zhulinzhai |
|
|
6.09 |
|
|
6.67 |
|
|
0.29 |
|
|
13.05 |
|
| |
|
|
|
|
|
|
|
|
|
Total |
|
|
125.90 |
|
|
198.70 |
|
|
82.58 |
|
|
407.18 |
|
| |
|
|
|
|
|
|
|
|
|
- (1)
- Tenure
of the Coal Resource at Gouchang is at risk until either consolidation is completed or a new mine permit is obtained.
6.7 PROCEDURES AND PARAMETERS FOR COAL RESERVE ESTIMATION
Under the JORC guidelines, a coal resource generally refers to the in-situ coal that has a potential to be mined economically and a coal reserve comprises that
portion of the Measured and Indicated coal resource that is definitively planned to be mined and delivered to a coal beneficiation plant for processing or sold directly to the customers at reasonably
assumed economic conditions. The Company (and its various subsidiaries) engaged JPCM to produce a LOM) mine plan and production schedules at each Mine. The JPCM plans and schedules were
developed and presented during May 2011. BD Asia has reviewed the Company's Mine production planning processes and has estimated a coal reserve for each of the Mines reviewed in this report.
These coal reserve estimates have been produced from the in-situ coal resource estimates based on the economic Measured and Indicated resource categories for which mine plans have
been generated.
The
mine planning produced by JPCM is typical of those produced by firms licensed for exploration and resource estimation for solid mineral resources in China in that the mine plan
includes a factored "333" or Inferred resource that should be excluded from a reserve estimate. Also, typical in their mine plans is the duplication of the same plan from seam to seam with slight
modifications where the production scheduled was determined by annual licensed tonnage instead of detailed design and scheduling.
III-55
Table of Contents
For
the purpose of converting the economic Measured and Indicated coal resources to coal reserves, JPCM used the overall mining dilution factor and mining recovery factor between the
in-situ coal resources and the raw production coal based on the Chinese requirements, the characteristics of coal seams, and the mining method to be used for each seam. The design reports first
convert the in-situ resource into a recoverable resource by deducting the coal contained within the barrier pillars for ventilation and haulage entries, shafts, and under villages, rivers, and mine
facilities, as shown in their mine design. Then a recovery factor, based on coal characteristics and thickness, is applied as specified in the Chinese design standards. The Chinese standards for each
Mine specified a 75% to 85% seam recovery. Typically, 80% was used for the seams at the Company's seven mines; however, a few seams were reduced to 75% recovery and a few increased to 85% recovery.
Finally, JPMC divided the "recoverable" resource by the target production rate to develop a production schedule.
The
calculations were slightly inconsistent between the different mine design reports and BD Asia made some minor adjustments to correct those problems. In addition, several of the Mines
have seams that are less than 1m in thickness or are relatively close to the seam above. BD Asia believes the standard used by JPCM, while meeting the Chinese requirements, is optimistic. Based upon
its detailed review of the mine plans, BD Asia reduced the mine recovery for some of these seams to 45% to 60%. For other seams, BD Asia eliminated the seam from the mine plan. BD Asia also moved all
tonnage produced after Year 5 or Year 6 (depending on the Mine) into the Probable Reserve classification because BD Asia believes the uncertainty in the engineering and technical analysis for the
production after Year 5 is too high to allow Proved Reserves classification under the JORC system.
In
addition, anthracite coal seams typically have many small faults due to the geologic stresses and processes involved in the formation of the seams. During the development of the
initial mining panels at the Younsheng and Liujiaba mines, the Company has discovered several faults that were not accounted for in the original Chinese resource estimation due to the drill hole
locations. Based on BD Asia's experience with similar anthracite mines and our detailed review of the geologic setting and drill hole spacing, BD Asia believes the mines will likely see some
additional minor faulting not currently mapped and has adjusted the resource and reserve estimates accordingly.
BD
Asia has reviewed the plans and suggests that the Company actively monitor the coal mining recovery factor and coal mining dilution factor and revise the coal reserve estimates for
these operations, according to the actual mining recovery factor and mining dilution factor achieved, when appropriate. All Inferred Resources that are included in the JPMC's mine plan are reported
separately by BD Asia as Inferred Resource in the Reserve table.
III-56
Table of Contents
6.8 COAL RESERVE STATEMENT
BD Asia estimates that, as of 30 April 2013, the Company's seven Mine properties covered by this review hold approximately 28.8 Mt of Proved
and 180.1 Mt of Probable Reserves conforming to the definitions in the JORC Code guidelines. In addition, there are approximately 82.6 Mt of Inferred Resource also conforming to the JORC
Code guidelines. Table 6.6 summarizes BD Asia's estimation of the JORC Code reserves and Inferred resources in addition to reserves at the seven Properties. All tonnage is specified in millions
of tonnes. The Mine life is estimated using only the Proved and Probable Reserves.
TABLE 6.6
JORC CODE COAL RESERVES AND RESOURCES
(MILLIONS OF TONNES(1))
(AS OF 31 JULY 2013)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve/Resource Category (Mt) |
|
|
|
Permitted
Estimated
Mine Life(4)
(years) |
|
Annual
Design
Tonnage(5)
(Mt) |
|
Design
Estimated
Mine Life(6)
(years) |
|
|
|
Permitted
Tonnage(3)
(Mt) |
|
Coal Mine
|
|
Proved |
|
Probable |
|
Inferred(2) |
|
Baiping |
|
|
3.44 |
|
|
19.04 |
|
|
7.24 |
|
|
0.15 |
|
|
150 |
|
|
0.60 |
|
|
37 |
|
Yongsheng |
|
|
3.77 |
|
|
48.19 |
|
|
31.68 |
|
|
0.60 |
|
|
87 |
|
|
1.80 |
|
|
29 |
|
Dayun |
|
|
12.50 |
|
|
84.79 |
|
|
19.72 |
|
|
0.60 |
|
|
162 |
|
|
1.80 |
|
|
54 |
|
Gouchang(7) |
|
|
1.87 |
|
|
3.85 |
|
|
1.52 |
|
|
0.09 |
|
|
64 |
|
|
0.11 |
|
|
52 |
|
Dayuan |
|
|
2.99 |
|
|
5.27 |
|
|
5.70 |
|
|
0.30 |
|
|
28 |
|
|
0.45 |
|
|
18 |
|
Liujiaba |
|
|
2.08 |
|
|
11.52 |
|
|
16.43 |
|
|
0.30 |
|
|
45 |
|
|
0.60 |
|
|
23 |
|
Zhulinzhai |
|
|
2.15 |
|
|
7.41 |
|
|
0.29 |
|
|
0.30 |
|
|
32 |
|
|
0.45 |
|
|
21 |
|
Total |
|
|
28.80 |
|
|
180.07 |
|
|
82.58 |
|
|
2.34 |
|
|
N/A |
|
|
5.81 |
|
|
N/A |
|
- (1)
- Totals
are subject to rounding adjustment.
- (2)
- Inferred
tonnage is in addition to the Reserves.
- (3)
- Currently
permitted tonnages.
- (4)
- Estimated
Mine Life based on currently annual permitted tonnages and calculated with Proved and Probable Reserves only.
- (5)
- Target
steady state tonnages as of 2019.
- (6)
- Estimated
Mine Life based on annual design tonnages and calculated with Proved and Probable Reserves only.
- (7)
- Tenure
of the Coal Reserves and Resources at Gouchang Coal Mine is at risk until either consolidation is completed or a new mine permit is obtained.
While
the Company currently has tenure of the Coal Reserves and Resources at the Gouchang Coal Mine, the mine permit and production at this property have been suspended due to a newly
introduced consolidation policy in the Province until Gouchang Coal Mine has been consolidated with one of the adjacent coal mines. Alternately, the government might allow the Company to develop a new
mine design that incorporates increased production capacity and then grant a mining permit without consolidation; however, it is presently unclear if the government would rescind the consolidation
order and issue the Company a new mining permit. In the event that the Province ultimately requires the consolidation, the tenure of the Resources and Reserves at Gouchang Coal Mine could end up under
the control of a different party or the Company could increase their holdings depending on the Company's negotiations with the adjacent mines. BD Asia, therefore, believes the Company's tenure at
Gouchang Coal Mine could be at risk.
III-57
Table of Contents
6.9 PHYSICAL AND CHEMICAL CHARACTERISTICS OF COAL RESERVES
BD Asia reviewed extensive drill core data and certain examples of washability data provided by the Company. According to the float test reports produced by WZMM,
the physical and chemical characteristics indicate that the Company's coals can generally be categorized as WY2 and WY3 anthracite, as defined by the State Standard of China Coal Classification
System (GB5751-86). It should be noted that the WY2 and WY3 anthracite classification for the Company's coals is based on the float test results (washed coal) and not the raw coal quality
parameters as allowed under the GB5751-86 standards when classifying coals with dry ash contents in the ranges found at the Company's properties.
Coal
quality at the Properties is generally good but variable within each seam. The seams generally contain coal with low sulfur content and high heating value. Table 6.7 shows
the weighted average coal quality of the Proved and Probable Coal Reserve at each Mine.
TABLE 6.7
AVERAGE COAL QUALITY OF RAW COAL IN THE RESERVES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mine
|
|
Moisture
(%) |
|
Ash
(%) |
|
Volatile
Matter (%) |
|
Sulfur
(%) |
|
Heating Value
(MJ/kg) |
|
Density
(tonnes/m3) |
|
Baiping |
|
|
2.47 |
|
|
19.04 |
|
|
9.88 |
|
|
2.35 |
|
|
28.33 |
|
|
1.45 |
|
Yongsheng |
|
|
2.28 |
|
|
17.95 |
|
|
11.72 |
|
|
1.27 |
|
|
28.62 |
|
|
1.43 |
|
Dayun |
|
|
2.40 |
|
|
18.27 |
|
|
9.20 |
|
|
2.12 |
|
|
28.03 |
|
|
1.49 |
|
Gouchang |
|
|
3.86 |
|
|
20.46 |
|
|
6.92 |
|
|
1.10 |
|
|
27.80 |
|
|
1.50 |
|
Dayuan |
|
|
1.15 |
|
|
24.60 |
|
|
9.33 |
|
|
1.16 |
|
|
25.79 |
|
|
1.49 |
|
Liujiaba |
|
|
1.38 |
|
|
25.03 |
|
|
12.57 |
|
|
2.30 |
|
|
23.95 |
|
|
1.49 |
|
Zhulinzhai |
|
|
1.87 |
|
|
21.84 |
|
|
11.49 |
|
|
1.81 |
|
|
28.14 |
|
|
1.41 |
|
The
float coal data from WZMM washability tests indicates that the majority of the Company's coal is in the WY3 category, with dry volatile matter contents ranging from 6.5% to
10.0%. The float coal from Baiping Coal Mine, Zhulinzhai Coal Mine and Dayun Coal Mine can be classified as WY2 anthracite coal while the float coal from Liujiaba Coal Mine, Gouchang Coal Mine,
Yongsheng Coal Mine and Dayuan Coal Mine can be classified as WY3 anthracite coal. The raw coal dry ash data presented in the WZMM reports indicate that beneficiation (coal washing), prior to
utilization, may be required on part of the coal in order to ensure the quality of the Company's higher-end products.
The
Company is focusing on production from the C5 coal seam from the Baiping Coal Mine, the C8 coal seam from the Yongsheng Coal Mine, and the M8 coal seam from the
Dayun Coal Mine as
sources of PCI (Pulverized Coal Injection) product for the steel industry. The Company believes that as much as 72 Mt of its coal resource can qualify for use as Grade II and Grade III
PCI coal.
III-58
Table of Contents
According
to certain exploration reports, 31 samples from Baiping Coal Mine's C5 coal seam, 52 samples from Yongsheng Coal Mine's C8 seam, and
60 samples from Dayun Coal Mine's M8 seam confirm the Company's statement that these coals will meet or exceed the GB/T 1852-2008 Standard for PCI Grade III coal products. Some areas of
these seams will yield PCI Grade II (and possibly PCI Grade I) coal when washed.
Typical
analyses indicate that the ash content of raw coal issuing from operations in these seams must be reduced to facilitate categorization of these coals as PCI products, but a
number of washing studies have shown that washed coals with less than 12% dry ash content or less can be produced. Total sulfur content, phosphorus content, volatile matter content, and total
potassium and sodium contents also appear to be within the ranges required for categorization as PCI coals. BD Asia believes that an un-quantified portion of the coal reserves in these seams will
qualify as PCI Grade I, the most attractive and valuable category of PCI coal.
6.10 RESOURCE AND RESERVE RISK FACTORS
BD Asia believes that WZMM has done good work in determining the in-situ resource of the minable coal seams. BD Asia also believes that the coal resource and BD
Asia-modified reserve statements herein are acceptable based on the methods used to determine those in-situ resources by WZMM. However, there are a number of risk factors.
- •
- BD Asia Has Not Audited the Sampling Data or Conducted Independent Sampling: BD
Asia has accepted the drilling data, mine sampling data, and coal quality analyses presented by the Company for this report. A few inconsistencies were discovered during the
preparation of this report and most were resolved as typographic errors during translation or transposition errors in preparing the documents. The exploration and resource calculations were completed
by government institutions or licensed entities in Guizhou Province. These entities have no stake in the Company and their work is generally considered reputable. Low Risk
- •
- Mathematical Errors in the Original Calculations: BD Asia found a small
number of minor mathematical errors in the original resource reports and these were promptly corrected. BD Asia only spot checked the calculations by Mine and re-digitized only a few areas on each of
the maps provided. When corrected, they did not have any significant impact on the final resource tonnage. Given that there are 38 minable coal seams at the seven Mines in this study, a few
minor mathematical errors may still exist in the resource work. Low Risk
- •
- Reserve Conversion: The reserve conversion from the in-situ
resource was completed using detailed engineering design specifications. These studies include ventilation, electrical, pumping, environmental, methane, equipment selection, and labor considerations.
The mine designs, especially those after Year 5 or Year 6, are more on a conceptual basis as opposed to what is generally accepted as a detailed mine layout. Mine recoveries and dilution will need to
be monitored as each Mine moves to deeper seams and reserves need to be adjusted as appropriate. Low Risk
III-59
Table of Contents
- •
- Multiple Stacked
Seams: Most of the Company's mines have multiple stacked seams. The Company has little operational experience with mining stacked seams.
Mistakes in pillar design or layout on the lower seams may create problems that inhibit attainment of the projected recoveries from the lower seams. Several of the seams are within 6m to 8m of the
next seam, potentially creating extraction dynamics that will reduce coal recoveries. While BD Asia has reduced the forecasted recoveries from these seams, this issue still represents a Moderate Risk.
- •
- Economics Used for the Determination of Mineable
Seams: The minable seams were determined based on the overall operating and capital costs. No allowance for higher operating costs, as
the mining progresses to deeper seams was used to determine, if a seam was economically feasible and hence classified as minable. Low to
Moderate Risk
- •
- Mining
Loss: BD Asia believes that the mining losses or mine recoveries used in the reserve calculations are achievable in the short term;
however, the mining losses could be significantly higher as mining progresses deeper. The level of engineering and technical design within the mine design specification reports is not sufficient to
completely support the level of recovery assumed by the Company in the later years of production. This risk to the reserve statement increases with time. BD Asia believes the risks of reduced seam
recoveries are Low for the first 10 to 15 years, Moderate for Years 16 to 30, and High-Moderate from Year 31 to the end of the projected mining life. The Company will need to re-evaluate its reserve base as it updates engineering and
mine plans, as mining progresses to deeper seams.
- •
- Unmapped
Faulting: Anthracite coal seams typically have many small faults due to the geologic stresses and processes involved the formation of
the seams. While BD Asia has adjusted their coal resource and reserve estimates to account for potential losses that will occur around the faulting, there is a risk of additional unmapped minor faults
at the properties. Based on discussions with the mine geologists and mine personnel, BD Asia believes production losses and reserve losses, due to unmapped faulting, will be minimal, provided the
Company re-evaluates and updates its mine plans when these minor faults are encountered during panel development. BD Asia believes the risk of significantly reduced coal reserves, due to unmapped
faults, to be Low provided the Company adjusts their mine plans in the manner discussed during the site visits.
- •
- Gouchang Coal Reserves and
Resources: Due to a newly introduced consolidation policy in the Province, the mine permit and production at the Gouchang Coal Mine has
been suspended until it has been consolidated with one of the adjacent coal mines. Depending on the outcome of the Company's negotiations, the tenure of the Gouchang Coal could end up either under
control of a different party or the Company could increase their holdings. Should this be the case, Gouchang would have no JORC compliant Coal Resources and Reserves; however, Gouchang Reserves
represent less than 3% of the Company's total Coal Reserves. Moderate Risk
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Table of Contents
6.11 RESOURCE AND RESERVE CONCLUSIONS
BD Asia estimates that, as of 30 April 2013, the Company's seven Mine Properties covered by this review hold approximately 28.8 Mt of Proved
and 180.1 Mt of Probable Reserves conforming to the definitions in JORC Code. In addition to reserves, there are approximately 82.6 Mt of Inferred Resource also conforming to the
JORC Code.
There
is a high probability that a significant portion of that inferred resource could be converted into indicated resource and probable reserves with additional work. WZMM reports only
80% of the calculated inferred tonnage resulting in a conservative estimation of the inferred tonnage.
BD
Asia believes that the coal resource estimation database, procedures, and parameters applied by WZMM to the seven Mines are reasonable and appropriate. The coal deposit geology shows
reasonably good continuities for the coal seams and the faults were adequately considered in their estimation of the resource. BD Asia believes that the data density requirements for measured and
indicated block definition, used for the estimates, are generally adequate for JORC Code resource estimation for similar coal deposits.
It
is also BD Asia's opinion that WZMM has done good work in determining the in-situ resource of the minable coal seams. As the Company produces coal, it must monitor consumption of the
in-situ resource and adjust reserve figures when warranted.
BD
Asia believes that the mining losses and mine recoveries used by WZMM in the reserve calculations are achievable in the short term; however, several of the Mines will work in seams
that are less than 1m thick or are relatively close to the seam above. For these seams, BD Asia either reduced the mine recovery or the subject seam was eliminated from the mine plan. BD Asia believes
that, while meeting the Chinese requirements, the standard used by WZMM is optimistic. As mining progresses deeper and encompasses more stacked seams, minor operational mistakes could have an impact
on the recoverable coal and remaining reserves and ultimately reduce the Mine life. BD Asia believes that the risk of a reserves shortfall, during the first 15 years for the seven Mines, is low
due to the reserve tail and the size of the in-situ resource.
7.0 MINE DESCRIPTIONS AND PLANS
7.1 GENERAL
Seven Guizhou coal mine properties are reviewed in this report. Three Properties in Jinsha County, two Properties in Nayong County, and two Properties in Liuzhi
Special District were acquired by the Company in 2009 and 2010. All of the Mines are underground anthracite mines.
Historically,
these Mines have used manual mining methods for coal production. To date, all of the Mines have had generally insignificant coal production because they have been under
development and construction. The Company plans to upgrade the original mine designs between the Years 2013 and 2018 in order to increase the production capacity for these properties. The Company
intends to achieve their optimization plans through better mine layout, infrastructure, and capital support and by introducing mechanical longwall mining methods.
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Table of Contents
The seven Coal Mines are summarized in Table 7.1.
TABLE 7.1
SUMMARY DESCRIPTION OF THE SEVEN UNDERGROUND ANTHRACITE MINES
|
|
|
|
|
|
|
|
|
|
|
|
|
Primary Mining Method |
|
|
Coal Mine
|
|
Location |
|
Original Design |
|
Optimization Design |
|
Status and Notes |
Baiping |
|
Jinsha County |
|
Manual longwall —
1 unit |
|
Mechanical longwall —
1 unit |
|
Commercial production |
Yongsheng |
|
Jinsha County |
|
Mechanical longwall —
2 units |
|
Mechanical longwall —
3 units |
|
Under construction for original design — completion in mid-2013. Currently in pilot run stage of production. Some
delays have been encountered due to large karst caves and faulting. Delays have been experienced due to government-mandated de-gasification galleries. |
Dayun |
|
Jinsha County |
|
Mechanical longwall —
1 unit |
|
Mechanical longwall —
2 units |
|
New mine under construction for original design — completion at end of 2014. Some delays have been encountered due
to re-location of villagers. |
Gouchang |
|
Nayong County |
|
Manual longwall —
1 unit |
|
Semi-mechanical
longwall — 1 unit |
|
Suspended pending consolidation with neighboring mine |
Dayuan |
|
Nayong County |
|
Manual longwall —
1 unit to
Semi-Mechanical
longwall — 1 unit |
|
Mechanical longwall —
1 unit |
|
Currently on pilot run stage of production. Some delays have been encountered due to changes in government policies. |
Liujiaba |
|
Liuzhi Special District |
|
Semi-mechanical
longwall — 1 unit |
|
Mechanical longwall —
1 unit |
|
Commercial production. Some delays were encountered due to changes in government policies and faulting. |
Zhulinzhai |
|
Liuzhi Special District |
|
Manual longwall —
1 unit |
|
Mechanical longwall —
1 unit |
|
Commercial production. Some delays were encountered for road construction and re-location of villagers. |
Geographical locations of the seven Mines are shown in Figure 1.1 and a description for each of the Properties follows.
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7.1.1 Baiping Coal Mine
The Company holds a 70% interest in the Baiping Coal Mine. It is located in the southern part of Jinsha County approximately
47 km from the Jinsha County power generation station. Prior to 2003, there were a number of small private mines operating along the crop line of Seam C4. Construction of Baiping Coal Mine was
started in 2004 with the driving of 2 slopes to Seam C8. The Company purchased the 70% interest in Baiping Coal mine Property in 2010. Its mining license covers an area of
3.0143 km2 and it has a permitted production capacity of 150 ktpa.
Baiping
Coal Mine is currently in operation with 3 slopes reaching to Seam C12. Development is progressing with a system of adits and slopes for mining in Seam C8. Production
comes from 1 manual longwall system, which has been allowed until 2015 based on the recently issued notice. Baiping Coal Mine is not a part of bigger mining operations, hence current operations
using manual longwall will continue until the expansion program is completed. Production in 2012 reached 290 ktpa and is expected to be at the same level in 2013. It should be noted that the
Company had been given provision by the local government to mine above the current permit limit while the expansion program is on-going. Mine expansion plans call for the introduction of
1 mechanical longwall replacing the currently operating manual longwall. Upon completion of the expansion in 2018, this Mine will have a final design production capacity of 600 tpa.
Coal
is being de-gassed prior to mining. The gas is captured into a pipeline and is exhausted to the outside in order to avoid methane bursts underground.
The
BD Asia team inspected Baiping Coal Mine's underground operations, including the manual longwall face and coal transportation slope.
7.1.2 Yongsheng Coal Mine
The Company holds a 70% interest in the Yongsheng Coal Mine. It is located in southeastern Jinsha County approximately 50 km
from the Jinsha County power generation station. The area around Yongsheng Coal Mine has been historically mined by small, private, and seasonal mines operated primarily in the winter, producing coal
for local consumption. The mining license covers an area of 18.23 km2 and currently has a permitted production capacity of 600 ktpa. The Company will seek to increase
permitted production to 1,800 ktpa.
Yongsheng
Coal Mine construction was initiated in 2008. To date approximately 13,000m of tunnels and adits have been driven. The Mine area is heavily faulted. Mining will be constrained
by large-scale faulting that divides the Mine into small mining blocks. A major fault zone divides this Mine into an east section and a west section. Two development systems are being driven to access
the 2 bodies. Each section is accessed by 2 slopes and a system of tunnels and adits. The Company has experienced some delays in the development as several large karst caves have been
encountered.
During
development mining, previously undetected faults have been encountered. The Company has mined through those faults and expects to encounter similar faulting in future mining.
These situations will cause some loss of production and will increase the ash content of the run-of-mine coal while the faults are mined through. It is BD Asia's opinion that the Company's production
projections are
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sufficiently
conservative to allow for production shortfalls from the effect of the faults to be made up during normal mining operations. Extended periods of fault mining have the potential to impact
this Mine's product mix, potentially shifting it more heavily toward high ash thermal coal and away from low ash PCI and chemical coal products.
The
Company intends to construct a 1,000m surface conveyor belt to transport coal to the nearby Wujiang River that is reported to be navigable.
The
Company anticipates trial production for the first phase of construction in the second quarter of 2013, followed by commercial production starting in March 2014. Expansion
construction is scheduled to begin in the Year 2015. Ultimately, the Mine will have 2 mechanical longwall systems.
The
Guizhou government has mandated that methane drainage galleries be driven under the development work at the Yongsheng Coal Mine (which is considered a new mine) in order to determine
potential for methane gas outbursts and to aid in the de-gasification of the Mine. These galleries have caused some delays in the development of Yongsheng Coal Mine.
7.1.3 Dayun Coal Mine
The Company holds a 100% interest in the Dayun Coal Mine. It is located in southeastern Jinsha County approximately 45 km from
the Jinsha County power generation station. Construction of Dayun Coal Mine commenced in May 2012. Initiation of construction was delayed as a result of issues involving the surrounding
villagers. BD Asia has been told that these local issues have been resolved through government intervention.
The
area has a history of small private mines operated primarily in the winter, producing for local consumption only. Dayun Coal Mine holds a 600 ktpa mining rights permit. The
mining license covers an area of approximately 16.9035 km2.
First
phase production is planned for 900 ktpa with the installation of a mechanical longwall system. Ultimately, the production is planned to increase to 1,800 ktpa using
2 mechanical longwall systems.
The
Guizhou government has mandated that methane drainage galleries be driven under the development work at the Dayun Coal Mine (which is considered a new mine) in order to determine
potential for methane gas outbursts and to aid in the de-gasification of the Mine. Tests showed that the potential for these outbursts in the Dayun Coal Mine were small.
7.1.4 Gouchang Coal Mine
The Company holds a 99% interest in the Gouchang Coal Mine. It is located in northwest Nayong County, approximately 24 km
northwest of the Nayong County Seat (Figure 5.2). Historical coal mining has occurred in and around this area since the 1970s. Gouchang's mining license covers an area of
1.7198 km2 and has a permitted production capacity of 90 ktpa.
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Table of Contents
This
Mine uses adits and slopes for mine development and manual longwall retreat mining for production. Recently put into production after a construction upgrade, the main, auxiliary,
and ventilation adits and slopes are developed to coal Seams No. 5, 6, and 13; however, only Seam No. 5-1 is currently being mined. Coal production reached 96 kt in 2011.
Production
in 2012 was negatively impacted by changing mine gas safety regulations in Guizhou Province. Due to high methane emissions and the possibility of methane bursts, Gouchang Coal
Mine was idled in from March to August 2012 pending a gas prevention and control assessment from government approved gas testing agencies. As a result of the assessment, approval JNYMT(2012)
No. 278 was issued on 20 August 2012 and commercial production resumed soon after. Production is intended to be from a manual longwall using drilling and blasting methods with
multiple manually operated single props for roof support at the face area even though the government of Guizhou Province is recommending the introduction of mechanized mining methods instead of
drilling and blasting methods. The appropriate permits had been issued by the Guizhou Province government allowing production to continue from the manual longwall system.
Planned
development was expected to increase the size of the longwall panels significantly. However, as a result of the recent policy, Notice QianNengYuanBan
[2013] No. 120, Ref No. (QFGD-2013-29002) issued by the Guizhou Province on 22 March 2013, further development and operations at the Gouchang Coal Mine
have again been temporarily suspended pending consolidation with a neighboring mine to meet government set safety standards. That notice addresses consolidation of coal mines considered to be high
methane outburst mines with production capacities of less than 90 ktpa, thus, directly affecting the Gouchang Coal Mine. The future mining permit application allowing production to increase to
450 ktpa is pending until the finalization of potential mine consolidation opportunities with a neighboring coal mine. BD Asia's review did not include reviewing this consolidation plan.
Coal
will be de-gassed prior to mining, captured into a pipeline, and released to the outside in order to avoid the possibility of methane bursts.
Two
BD Asia team members toured the underground operation and inspected the auxiliary adit and slope, haulage, gate road, and manual longwall working face in October 2012.
7.1.5 Dayuan Coal Mine
The Company holds a 99% interest in the Dayuan Coal Mine. It is located in southwest Nayong County, 7 km from the Yangchang
thermal power plant and approximately 22 km southwest of the Nayong County Seat (Figure 5.2). It is a new coal mine, after the integration of the original Dayuan and Laluo Coal Mines.
The mining lease covers 1.649 km2. Construction at this
Mine began in June 2009. The Mine recently upgraded its mining permit from 150 ktpa to 300 ktpa and expects to further upgrade the mining permit to 450 ktpa in the second
phase of the expansion program.
This
Mine uses main and auxiliary horizontal adits and 2 ventilation declines for mine development and plans to use fully mechanized longwall retreat mining for production. In the
current working area under development, exploitable coal in Seams No. 4 and No. 5 has been exhausted and Seam No. 6 is being worked. The Mine uses a scoop loader with gathering
bucket to speed up the loading for development work.
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Table of Contents
Coal
production and development has been from a manual longwall using drilling and blasting; however, the government of Guizhou Province had, at one point, disallowed production from
blasting methods. The Company has now switched to semi-mechanical longwall using a Chinese-made shearer with multiple single props for face support. There have been delays in mining development due to
government policy changes. These issues have been dealt with, including the completion of various methane control testing. The 300 ktpa mining permit application was obtained on
15 March 2013 and remaining two required licenses and permits are expected by 01 September 2013 with trial production starting immediately thereafter. Commercial production
is expected to begin in November 2013.
The
proximity of the Yangchang Thermal Power Plant makes Dayuan Coal Mine a potentially significant source of coal for that facility. However, due to the quality of the Mine's coal, the
Company ultimately plans to haul the Mine's product to the chemical plant for methanol production. The Mine is on a road connecting to Provincial Highway 307 at approximately 4 km
distance. Management has diverted the road from the Mine site to avoid heavy trucks passing through the local community.
Coal
will be de-gassed prior to mining, with such gas captured into a pipeline and released to the atmosphere to avoid the possibility of methane bursts.
7.1.6 Liujiaba Coal Mine
The Company holds a 99% interest in the Liujiaba Coal Mine. It is located in Liuzhi Special District, approximately 21 km north
of the Liuzhi County Seat (Figure 5.2). The mining lease covers 3.7891 km2 and has a permitted production capacity of 300 ktpa.
The
Mine uses main, auxiliary, and ventilation adits for development and plans to install a mechanical longwall for retreat mining for production. Trial production for the first phase of
construction began in the No. 27 coal seam in the second quarter of 2012. Commercial production started in December 2012 and production levels are forecasted to reach the permitted
capacity by 2015. A roadheader will perform the development work. There are 3 major faults in the Property covered by the mining lease, creating separate coal seam areas in the deposit. Each
area, thus created, will be treated as a separate mining area, with its own adits and ventilation system. When the Mine proves it can operate at the current permit capacity, mine production is
expected to increase to 600 ktpa by 2018.
During
mining in the second longwall panel, previously undetected faulting was encountered. Mining in that panel has been stopped until the mining equipment is moved to an area out by
the faulting in that panel. Also, coal production in 2013 has been affected by local drought conditions, which has limited the availability of water for the mechanical longwall operation. As a result,
actual production is expected to be approximately 30% lower than originally projected.
Coal
production at Liujiaba Coal Mine was delayed because the government of Guizhou Province had at one point discouraged production from drilling and blasting methods, recommending coal
mining companies to switch to mechanical longwall. However, trial production started on 18 June 2012 using manual longwall with multiple single prop face support because the policy of
switching to mechanical longwall mining will not be fully be implemented until 2015. At the time of BD Asia's site visit in October 2012, a government agency field inspection, which is part of
the safety license approval
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process,
had been conducted; and on 20 November 2012, the Mine was granted a coal production safety license. On 25 December 2012, a coal production license was issued and
commercial production finally commenced in December 2012 with the installation of a semi-mechanical longwall in place of the manual longwall.
Coal
will be de-gassed prior to mining. Gas will be captured into a pipeline and released to the atmosphere to avoid the possibility of methane bursts. Future consideration will be given
to using the gas in a small, on-site power generation facility. A water treatment plant is in place for treating underground mine water before it is discharged to the nearby stream.
Two
BD Asia team members toured the underground operation and inspected the auxiliary adit and two development working faces in October 2012.
7.1.7 Zhulinzhai Coal Mine
The Company holds a 99% interest in the Zhulinzhai Coal Mine. The Mine is located in Liuzhi Special District, approximately
20 km north of Liuzhi County Seat (Figure 5.2). Mining originally began in 1992 and the mining lease covers 1.4104 km2. The Mine currently has a permitted production
capacity of 300 ktpa.
The
Mine currently uses main, auxiliary, and ventilation adits with declines for development and manual longwall retreat mining for production. Commercial production began in the
No. 16 coal seam in early 2012 and is forecasted to reach the current permitted capacity of 300 ktpa by 2015. When the No. 6 coal seam is mined, a 2-pass, top cave mining method
will be needed to mine in the thick coal seam. The Mine is expected to increase production to 450 ktpa by utilizing fully mechanized longwall retreat mining for production.
Coal
will be de-gassed prior to mining, captured into a pipeline, and released to the outside in order to avoid the possibility of methane bursts. A water treatment plant is in place to
produce potable water.
7.1.8 Jinsha Juli Coal Beneficiation Plant
The Company is presently building a coal beneficiation plant to the northeast of and adjacent to the Yongsheng Coal Mine Industrial
Square. The Plant will be built in two phases, each designed to process 600 ktpa of raw coal at rates of approximately 140 tph. The final capacity will be 1.2 Mtpa at a rate of
280 tph. Phase One was begun in August 2013 and is scheduled for completion in April 2014. The Company has not stated a specific construction schedule for Phase Two, but expects
that phase to begin sometime in 2015 and to be completed sometime in 2016. Plant construction and operating schedules are generally structured to correspond to the development and
expansion of Yongsheng, Dayun, and Baiping Coal Mines, which are expected to significantly increase their total raw coal output during the next 3 years.
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Table of Contents
The
Beneficiation Plant will use state of the art processing equipment and process circuitry, e.g.,
- •
- High-capacity desliming screens for raw coal sizing.
- •
- Three-product dense medium cyclone circuitry for coarse coal beneficiation.
- •
- High energy centrifuges for coarse coal product dewatering.
- •
- Froth flotation for fine coal beneficiation.
- •
- Pressure filters for fine coal and fine waste dewatering.
The
above equipment and circuitry meets or exceeds international industry standards for effective coal beneficiation. The Plant is expected to have excellent capability to deal with
varying raw coal characteristics and to make efficient separations that will produce the tonnages and product mix discussed in other sections of this report.
The
Beneficiation Plant will be operated by Jinsha Juli Energy Co. Ltd, a subsidiary (or affiliate) of the Company, to process and upgrade portions of the raw coal
issuing from Yongsheng, Baiping, and Dayun Coal Mines.
The
Company estimates that operating costs associated with the Beneficiation Plant will be approximately RMB28.7 per raw tonne. This operating cost forecast includes the
components typically associated with coal beneficiation facilities, such as manpower, maintenance materials, and electrical power. Operating costs are discussed further in Section 11.0 of
this report.
The
Company estimates capital expenditures for Phase One and Phase Two at RMB54.01 million and RMB19.45 million, respectively. Approximately 9% of that capital will be
associated with environmental protection facilities. Compared to current industry coal beneficiation practice, the Jinsha Juli Plant will be comparatively sophisticated and relatively costly, but its
design indicates the Company's commitment to state of the art technology. Capital expenditures associated with the Plant are discussed further in Section 12.0 of this report.
The
Company's studies show that the Beneficiation Plant will position the Yongsheng, Baiping, and Dayun Coal Mines to compete more effectively in the marketplace and create flexibility
to address a broader range of market requirements than would be possible by selling only raw coals.
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Table of Contents
7.2 EXPANSION AND CONSTRUCTION SCHEDULES
The expansion and construction of each Mine will be completed in two phases, initially achieving the original mine design followed by the optimization mine design
phase. These designs were prepared by JPCM, the entity that produced the original LOM plans and production schedules at each Mine. The Company has modified these production schedules in response to
local conditions, such as government regulations, faults, and drought conditions. Additionally, the Company has taken into account ramp-up periods in the schedule. These were not originally taken into
consideration by JPCM.
The
phased production capacities and permitted capacities are shown in Table 7.2. The Company will require additional government approvals for the planned expansion of production
capacities at the seven Coal Mines.
TABLE 7.2
OVERALL PROJECTED PRODUCTION CAPACITIES AND PERMITTED CAPACITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production Capacity (ktpa) |
|
Coal Mine
|
|
Current Mining
Right Permit (ktpa) |
|
Original Design —
Base |
|
Optimization Design —
Incremental |
|
Total |
|
Baiping |
|
|
150 |
|
|
300 |
|
|
300 |
|
|
600 |
|
Yongsheng |
|
|
600 |
|
|
900 |
|
|
900 |
|
|
1,800 |
|
Dayun |
|
|
600 |
|
|
900 |
|
|
900 |
|
|
1,800 |
|
Gouchang |
|
|
90 |
|
|
110 |
|
|
0 |
|
|
110 |
|
Dayuan |
|
|
300 |
|
|
300 |
|
|
150 |
|
|
450 |
|
Liujiaba |
|
|
300 |
|
|
300 |
|
|
300 |
|
|
600 |
|
Zhulinzhai |
|
|
300 |
|
|
300 |
|
|
150 |
|
|
450 |
|
| |
|
|
|
|
|
|
|
|
|
Total |
|
|
2,340 |
|
|
3,110 |
|
|
2,700 |
|
|
5,810 |
|
| |
|
|
|
|
|
|
|
|
|
The
Company has developed an expansion and construction schedule for each of the seven Coal Mines. The timing of the phased approach is described in Table 7.3
and Figure 7.1.
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Table of Contents
TABLE 7.3
CONSTRUCTION AND PRODUCTION SCHEDULES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parameter
|
|
Baiping |
|
Yongsheng |
|
Dayun |
|
Gouchang |
|
Dayuan |
|
Liujiaba |
|
Zhulinzhai |
|
Current Status (30 April 2013) |
|
|
Commercial Production |
|
|
Under Construction |
|
|
Under Construction |
|
|
Idle |
|
|
Under Construction |
|
|
Commercial Production |
|
|
Commercial Production |
|
Start of Mine Construction of Base Designed Capacity(1) |
|
|
Jun 2009 |
|
|
Nov 2008 |
|
|
May 2012 |
|
|
Dec 2009 |
|
|
Jun 2009 |
|
|
Jul 2009 |
|
|
Jul 2009 |
|
Completion Date of Base Designed Capacity |
|
|
Mar 2011 |
|
|
May 2013 |
|
|
Jan 2015 |
|
|
Nov 2010 |
|
|
Jun 2013 |
|
|
Jun 2012 |
|
|
Oct 2011 |
|
Date of Initial/Expected Commercial Production at Base Design Capacity |
|
|
Jun 2011 |
|
|
Mar 2014 |
|
|
Jul 2015 |
|
|
Apr 2011 |
|
|
Nov 2013 |
|
|
Dec 2012 |
|
|
Apr 2012 |
|
Base Designed Capacity (ktpa) |
|
|
300 |
|
|
900 |
|
|
900 |
|
|
110 |
|
|
300 |
|
|
300 |
|
|
300 |
|
Start of Optimization Mine Design Construction |
|
|
Jan 2015 |
|
|
Jan 2015 |
|
|
Jan 2016 |
|
|
|
|
|
Jan 2015 |
|
|
Jan 2015 |
|
|
Jan 2015 |
|
Construction Period of Optimization Mine Design (months) |
|
|
22 |
|
|
18 |
|
|
29 |
|
|
|
|
|
14 |
|
|
34 |
|
|
16 |
|
Completion Date of Optimization Mine Design |
|
|
Oct 2016 |
|
|
Jun 2016 |
|
|
May 2018 |
|
|
|
|
|
Mar 2016 |
|
|
Oct 2017 |
|
|
Apr 2016 |
|
Start of Commercial Production — Incremental Tonnage |
|
|
May 2017 |
|
|
Jan 2017 |
|
|
Dec 2018 |
|
|
|
|
|
Sept 2016 |
|
|
May 2018 |
|
|
Nov 2016 |
|
Incremental Designed Capacity of Optimization Mine Design (ktpa) |
|
|
300 |
|
|
900 |
|
|
900 |
|
|
|
|
|
150 |
|
|
300 |
|
|
150 |
|
Final Designed Production Capacity (ktpa) |
|
|
600 |
|
|
1,800 |
|
|
1,800 |
|
|
110 |
|
|
450 |
|
|
600 |
|
|
450 |
|
III-70
Table of Contents
- (1)
- Commercial
production was achieved at the Baiping Coal Mine during the base designed capacity construction phase at the permitted annual production
capacity.
Figure 7.1. Construction and production schedule
During the October 2012, May 2013, and October 2013 site visits, and throughout the development of this report, BD
Asia's experts intensively questioned the management and the engineers at each Coal Mine site to determine the depth of planning and the consideration given to the possibility of unforeseen events
associated with the modified scheduling of development and expansion of each Coal Mine. This same process was repeated with the Company's corporate management and engineering team. BD Asia believes
that individual Mine managers and the Company's corporate management are aware of the importance of developing attainable schedules and production targets. BD Asia believes that the Company has made a
concerted effort to develop attainable schedules and production targets for this Updated ITR. The construction schedules shown above reflect delays in the schedule to account for holidays, weather,
and potential delays that could arise from safety issues at neighboring mines. It should be noted that the expansion and optimization schedule prepared by the Company and presented above reflects the
potential that the current Guizhou Province coal mine consolidation program will likely affect approvals for any mine expansions in the Province until the end of March 2014.
III-71
Table of Contents
8.0 COAL PRODUCTION
8.1 HISTORICAL PRODUCTION
Historical production statistics for the seven Mines are not significant in this report because most of the Mines have been under construction and development, or
have been idled for integration, or are new mines. However, some production has occurred at a few of the Mines. This production is
summarized in Table 8.1. In general, it appears that the Company achieved target production values for 2012.
8.2 FORECASTED PRODUCTION
The projected annual coal production volumes through the Year 2019 are shown in Table 8.2. The annual coal production values encompass all coal produced at
each Mine, including the coal produced during the construction and trial periods. Ramp-up periods or trial periods have been projected for each Property at each stage of construction. BD Asia believes
the ramp-up periods are reasonable given the trial period and the proposed mine plans.
The
above forecasts assume that the measures undertaken by the Mines to expand production are completed as forecasted by the Company. In addition, the forecasts are predicated on steady
state market conditions and government policies allowing mining to continue or commence at the Gouchang Coal Mine (Gouchang Coal Mine will be idle through 2014) and then remaining unchanged during the
next several years.
III-72
Table of Contents
TABLE 8.1
HISTORICAL PRODUCTION — MARCH 2011 TO JULY 2013
(KT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mine
|
|
Baiping |
|
Yongsheng |
|
Dayun |
|
Gouchang |
|
Dayuan |
|
Liujiaba |
|
Zhulinzhai |
|
Production Type as of 31 July 2013 |
|
|
Commercial |
|
|
Construction |
|
|
Construction |
|
|
Idle |
|
|
Construction |
|
|
Commercial |
|
|
Commercial |
|
Total from Mar-2010 to Dec-2010 |
|
|
65.0 |
|
|
— |
|
|
— |
|
|
39.5 |
|
|
9.6 |
|
|
84.5 |
|
|
— |
|
Total from Jan-2011 to Dec-2011 |
|
|
159.2 |
|
|
1.5 |
|
|
— |
|
|
96.1 |
|
|
7.2 |
|
|
— |
|
|
9.6 |
|
Total from Jan-2012 to Dec-2012 |
|
|
292.0 |
|
|
75.9 |
|
|
— |
|
|
53.4 |
|
|
0.6 |
|
|
60.7 |
|
|
65.1 |
|
Total from Jan-2013 to July-2013 |
|
|
139.8 |
|
|
84.8 |
|
|
— |
|
|
3.9 |
|
|
3.0 |
|
|
68.8 |
|
|
28.4 |
|
III-73
Table of Contents
TABLE 8.2
COMPANY PROJECTED ANNUAL COAL PRODUCTION VOLUMES
(KTPA)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Baiping |
|
Yongsheng |
|
Dayun |
|
Gouchang |
|
Dayuan |
|
Liujiaba |
|
Zhulinzhai |
|
Total |
|
Total Production Volume |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
290 |
|
|
320 |
|
|
20 |
|
|
— |
|
|
60 |
|
|
140 |
|
|
60 |
|
|
890 |
|
2014 |
|
|
300 |
|
|
600 |
|
|
200 |
|
|
— |
|
|
200 |
|
|
200 |
|
|
180 |
|
|
1,680 |
|
2015 |
|
|
350 |
|
|
950 |
|
|
660 |
|
|
20 |
|
|
320 |
|
|
300 |
|
|
300 |
|
|
2,900 |
|
2016 |
|
|
385 |
|
|
1,400 |
|
|
920 |
|
|
110 |
|
|
450 |
|
|
300 |
|
|
420 |
|
|
3,985 |
|
2017 |
|
|
570 |
|
|
1,800 |
|
|
1,000 |
|
|
110 |
|
|
450 |
|
|
400 |
|
|
450 |
|
|
4,780 |
|
2018 |
|
|
600 |
|
|
1,800 |
|
|
1,485 |
|
|
110 |
|
|
450 |
|
|
600 |
|
|
450 |
|
|
5,495 |
|
2019 — LOM |
|
|
600 |
|
|
1,800 |
|
|
1,800 |
|
|
110 |
|
|
450 |
|
|
600 |
|
|
450 |
|
|
5,810 |
|
Construction and Trial Volumes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
— |
|
|
320 |
|
|
20 |
|
|
— |
|
|
38 |
|
|
— |
|
|
— |
|
|
378 |
|
2014 |
|
|
— |
|
|
50 |
|
|
200 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
250 |
|
2015 |
|
|
50 |
|
|
50 |
|
|
300 |
|
|
— |
|
|
20 |
|
|
— |
|
|
— |
|
|
420 |
|
2016 |
|
|
85 |
|
|
500 |
|
|
20 |
|
|
— |
|
|
75 |
|
|
— |
|
|
95 |
|
|
775 |
|
2017 |
|
|
70 |
|
|
— |
|
|
100 |
|
|
— |
|
|
— |
|
|
100 |
|
|
— |
|
|
270 |
|
2018 |
|
|
— |
|
|
— |
|
|
510 |
|
|
— |
|
|
— |
|
|
100 |
|
|
— |
|
|
610 |
|
2019 — LOM |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Commercial Production Volumes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
290 |
|
|
— |
|
|
— |
|
|
— |
|
|
22 |
|
|
140 |
|
|
60 |
|
|
512 |
|
2014 |
|
|
300 |
|
|
550 |
|
|
— |
|
|
— |
|
|
200 |
|
|
200 |
|
|
180 |
|
|
1,430 |
|
2015 |
|
|
300 |
|
|
900 |
|
|
360 |
|
|
20 |
|
|
300 |
|
|
300 |
|
|
300 |
|
|
2,480 |
|
2016 |
|
|
300 |
|
|
900 |
|
|
900 |
|
|
110 |
|
|
375 |
|
|
300 |
|
|
325 |
|
|
3,210 |
|
2017 |
|
|
500 |
|
|
1,800 |
|
|
900 |
|
|
110 |
|
|
450 |
|
|
300 |
|
|
450 |
|
|
4,510 |
|
2018 |
|
|
600 |
|
|
1,800 |
|
|
975 |
|
|
110 |
|
|
450 |
|
|
500 |
|
|
450 |
|
|
4,885 |
|
2019 — LOM |
|
|
600 |
|
|
1,800 |
|
|
1,800 |
|
|
110 |
|
|
450 |
|
|
600 |
|
|
450 |
|
|
5,810 |
|
Source:- "Project
Champion Projection — 09242013.xls" — Company's model used to generate net income and
cash flows.
III-74
Table of Contents
9.0 COAL MARKETABILITY AND PRODUCTS
9.1 MARKETABILITY OF COAL PRODUCTS
The Company commissioned Fenwei Energy to prepare a study that describes the market for Guizhou anthracite coals. The Company has used the information developed
in that market study to determine an appropriate product mix for the coals produced at the seven Mines. The salient points of the market study follow.
- •
- The potential uses of coal produced at the seven Mines are shown in Table 9.1. To date, coal from the Mines has
been sold exclusively as thermal coal to the power generation industry, so the Company has not fully exploited the potential value of its anthracite products.
TABLE 9.1
MARKET TARGETS FOR THE COMPANY'S
ANTHRACITE COALS
|
|
|
|
| |
Coal Mine
|
|
Market Category |
| |
Baiping |
|
PCI/Chemical/Thermal |
| |
Yongsheng |
|
PCI/Chemical/Thermal |
| |
Dayun |
|
PCI/Chemical/Thermal |
| |
Gouchang |
|
Chemical/Thermal |
| |
Dayuan |
|
Chemical/Thermal |
| |
Liujiaba |
|
Chemical/Thermal |
| |
Zhulinzhai |
|
Chemical/Thermal |
- •
- In the PRC, anthracite reserves account for approximately 12% of the overall coal reserves. As such, Fenwei Energy
believes that anthracite will continue to be in tight supply in the future, despite the fact that industries that use anthracite are gradually changing technologies to reduce the requirement for
anthracite coal or are finding substitutes for anthracite coal.
- •
- Fenwei Energy has projected that the anthracite supply and demand gap in Guizhou Province will be negative between the
Years 2013 and 2020; in other words, more anthracite will be produced in the province than is required by current demand. This is mostly driven by the projected slow growth of anthracite consumers
within the province, especially the metallurgical and chemical industries. Within Guizhou Province, the largest anthracite consumer will remain the electric power industry.
- •
- On the other hand, in the neighboring provinces of Sichuan, Chongqing, Guangdong, Guangxi, and Jiangxi, Fenwei Energy has
projected the future demand for anthracite to be greater than the supply (2013 to 2020). Consequently, the anthracite requirements in these provinces will be imported from either other provinces or
foreign countries.
- •
- The primary industries with the greatest demand for anthracite in these provinces are projected by Fenwei Energy to be the
chemical industry and the thermal power generation industry.
III-75
Table of Contents
- •
- The primary foreign importer of anthracite to southwestern China is Vietnam. The Vietnamese government has expressed its
intention to limit anthracite exports in the future, thus, decreasing the impact of Vietnamese anthracite imports on the southwestern China domestic markets.
- •
- Other supplies of anthracite within the PRC, expressly Shanxi, are at a disadvantage for supplying customers in the
southwestern provinces as a result of the transportation distances; therefore, Guizhou anthracite producers are expected to be more attractive as sources of domestic anthracite in the southwestern
provinces than the producers of anthracite in some of the higher anthracite output provinces, such as Shanxi and Henan.
- •
- The Guizhou transportation network is currently undergoing improvements and expansions for out-of provincial cargo
transport. In particular, the construction of five waterway systems will link the Yangtze River and the Pearl River to northern and southern Guizhou Province, respectively. Rail systems are also
operating within the province allowing for coal transport to the Sichuan, Yunnan, Hunan, Hubei, and Zhejiang Provinces. The road system is being expanded under the 12th Five-Year-Plan that will
result in a highway in each county within the Guizhou Province. The construction of the Hangrui and Xiarong highways will greatly improve the road transportation capabilities of the Bijie Area.
- •
- Fenwei Energy believes the Company has several competitive advantages that will allow the Mines to become important
anthracite producers within Guizhou Province.
- (1)
- The
Company is strategically located in a region rich in anthracite resources in Guizhou with salable reserves.
- (2)
- The
seven Mines are able to produce products that are qualified for use in the chemical production and power generation industries.
- (3)
- The
Guizhou Province is strategically located, allowing anthracite delivery to southwestern China.
- (4)
- The
Company's Mines have lower costs than those in Shanxi and Henan.
- (5)
- Transportation
conditions are improving in the Guizhou Province that will facilitate easier coal deliveries.
- (6)
- The
Company should not be significantly affected by the Guizhou government's proposal to consolidate the coal mining industry within the province. According
to Fenwei Energy, the Company has met the requirements for sufficient reserves, production capacities, plans for gas control, and safety production standards.
III-76
Table of Contents
9.2 FORECASTED PRODUCT MIX
The Company has indicated that most of its 2012 coal production was sold as thermal coal. Coal sales in 2013 and 2014 will continue to be primarily thermal coal
with only a portion sold as chemical coal in 2014. This product mix has been primarily driven by the Guizhou government's requirement for the Company to produce and sell specified tonnages of thermal
coal, which has taken a significant portion of the Company's production capacity. Starting in 2014, the Company intends to beneficiate certain portions of the run-of-mine coal as necessary to enhance
marketability and facilitate the sale of differing grades of coal. The Company has projected increases in chemical coal and PCI-grade coal sales after 2014.
The
assumptions regarding the production and distribution of different coal grades are shown in Table 9.2, Table 9.3, and Table 9.4. The Company projects that, in
the long term, most of the coal will be sold as chemical-grade lump coal. A portion of the coal fines will be washed or not washed, as necessary to produce chemical grade coal fines. In the case of
the Baiping, Yongsheng, and Dayun Coal Mines, a portion of the washed coal fines will be sold as PCI coal (coal mined from the coal seams C5-Baiping, C8-Yongsheng, and M8-Dayun). The unwashed coal
fines will be sold as thermal coal blends. BD Asia believes that, although the projected product mixes may change as the physical and chemical characteristics of the various coal seams are further
quantified, the coal sold from the seven Mines will consist of chemical coal, PCI, and thermal coal grades.
III-77
Table of Contents
TABLE 9.2
BASIS FOR STEADY STATE FINAL PRODUCT MIX
(2019 — EXTENDING THROUGH LOM)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal Product
|
|
Baiping |
|
Yongsheng |
|
Dayun |
|
Gouchang |
|
Dayuan |
|
Liujiaba |
|
Zhulinzhai |
|
As-mined Coal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage as Lump Coal(1) |
|
|
20 |
% |
|
35 |
% |
|
40 |
% |
|
20 |
% |
|
15 |
% |
|
35 |
% |
|
30 |
% |
Percentage as Fine Coal(2) |
|
|
80 |
% |
|
65 |
% |
|
60 |
% |
|
80 |
% |
|
85 |
% |
|
65 |
% |
|
70 |
% |
Fine Coal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unwashed Fine Coal(3) |
|
|
10 |
% |
|
10 |
% |
|
10 |
% |
|
60 |
% |
|
60 |
% |
|
60 |
% |
|
60 |
% |
Washed Fine Coal |
|
|
90 |
% |
|
90 |
% |
|
90 |
% |
|
40 |
% |
|
40 |
% |
|
40 |
% |
|
40 |
% |
Of which: High Ash Anthracite |
|
|
33 |
% |
|
33 |
% |
|
33 |
% |
|
33 |
% |
|
33 |
% |
|
33 |
% |
|
33 |
% |
Washed Fine Coal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PCI |
|
|
50 |
% |
|
50 |
% |
|
50 |
% |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Chemical Coal |
|
|
50 |
% |
|
50 |
% |
|
50 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
- (1)
- Lump
coal to be sold directly as chemical coal products
- (2)
- Fine
coal to be either washed or sold directly as thermal coal
- (3)
- To
be sold as thermal coal
Source:- "Project
Champion Projection — 09242013.xls" — Company's model used to generate net income and
cash flows.
III-78
Table of Contents
TABLE 9.3
PROJECTED PRODUCT MIX DISTRIBUTION BY MINE
(2019 EXTENDING THROUGH LOM)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal Product
|
|
Baiping |
|
Yongsheng |
|
Dayun |
|
Gouchang |
|
Dayuan |
|
Liujiaba |
|
Zhulinzhai |
|
PCI |
|
|
24 |
% |
|
20 |
% |
|
18 |
% |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Chemical Coal |
|
|
44 |
% |
|
54 |
% |
|
58 |
% |
|
41 |
% |
|
38 |
% |
|
52 |
% |
|
49 |
% |
Thermal Coal |
|
|
32 |
% |
|
26 |
% |
|
24 |
% |
|
59 |
% |
|
62 |
% |
|
48 |
% |
|
51 |
% |
(1) Blended Coal |
|
|
12 |
% |
|
10 |
% |
|
9 |
% |
|
32 |
% |
|
34 |
% |
|
26 |
% |
|
28 |
% |
(2) Unwashed Fine Coal |
|
|
— |
|
|
— |
|
|
— |
|
|
27 |
% |
|
28 |
% |
|
22 |
% |
|
23 |
% |
(3) High Ash Anthracite |
|
|
20 |
% |
|
16 |
% |
|
15 |
% |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Total |
|
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
Source:- "Project
Champion Projection — 09242013.xls" — Company's model used to generate net income and
cash flows.
III-79
Table of Contents
TABLE 9.4
OVERALL PRODUCT MIX DISTRIBUTION BY YEAR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal Product
|
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
2018 |
|
2019 — LOM |
|
PCI |
|
|
0 |
% |
|
4 |
% |
|
13 |
% |
|
13 |
% |
|
14 |
% |
|
14 |
% |
|
14 |
% |
Chemical Coal |
|
|
4 |
% |
|
15 |
% |
|
51 |
% |
|
51 |
% |
|
51 |
% |
|
51 |
% |
|
52 |
% |
Thermal Coal |
|
|
96 |
% |
|
81 |
% |
|
26 |
% |
|
25 |
% |
|
23 |
% |
|
24 |
% |
|
22 |
% |
High Ash Anthracite |
|
|
0 |
% |
|
0 |
% |
|
10 |
% |
|
11 |
% |
|
12 |
% |
|
11 |
% |
|
12 |
% |
Total |
|
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
Source:- "Project
Champion Projection 09242013.xls" — The Company's model used to generate net income and cash flows.
III-80
Table of Contents
CHNR
has projected that a majority of the Mine's coal will be sold either as chemical coal for the production of synthetic ammonia or methanol or as thermal coal to the electric
power industry.
In
order to produce the coal products as indicated, certain coals will need to be washed to achieve the appropriate dry ash content for the designated uses. CHNR has anticipated this
condition and has begun construction of a coal washing facility that will beneficiate coals from the Baiping, Yongsheng, and Dayun Coal Mines. Coal tonnages in excess of the Beneficiation Plant's
capacity and coal produced prior to 2014 are planned to be washed by nearby washing facilities owned by other producers at a fixed fee per tonne.
Based
upon its review of the washability data provided by CHNR during the September 2011 ITR, BD Asia believes it is possible for CHNR to produce raw and washed coals that meet
the requirements for CHNR's projected coal products.
BD
Asia has not independently verified the availability of the final markets for CHNR's coal products or the demand for these coal products.
9.3 CUSTOMERS AND TRANSPORTATION
According to the Company, its current coal production is sold to domestic power generation facilities and coal traders via truck transportation by third parties.
At this time, the market available to the Company's coal is somewhat limited given the infrastructure and transportation constraints in the Guizhou Province. This has resulted in high quality
anthracite coal being sold into the lower grade thermal coal market at lower prices than would be expected if the coal was marketed and sold as chemical coal.
The
Company believes the continuing improvement of the transportation infrastructure within the Guizhou Province will increase the potential customer base beginning in 2013. These
improvements include roads, railways and the Wujiang River transportation project. The Company is currently developing a comprehensive sales and business strategy that will allow it to market the coal
production as higher quality coal products, such as PCI coal and chemical coal in addition to the thermal coal products. Other than the indicated product mix discussed earlier, BD Asia has not
reviewed the details of this sales and business plan.
The
current transportation network used by the Company and its primary customers are shown in Table 9.5.
III-81
Table of Contents
TABLE 9.5
CURRENT COAL TRANSPORTATION NETWORK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mine
|
|
Road Transportation |
|
Waterway
Transportation |
|
Railway
Transportation |
|
Current Primary and
Potential Customers |
| Baiping |
|
1. |
|
Gao Ping — Yu Mo — Sha Tu — San He — Kai Yang (140 km) |
|
N/A |
|
N/A |
|
1. |
|
Guizhou Kaiyang Chemical Co., Ltd. |
|
|
2. |
|
Gao Ping — Yu Mo — Sha Tu — San He — San Cha (120 km) |
|
N/A |
|
N/A |
|
2. |
|
Zunyi Sancha Lafarge Cement Co., Ltd. |
|
|
3. |
|
Gao Ping — Yu Mo — Jin Sha — Ya Xi — Zun Yi South (coal distribution center) (110 km) |
|
N/A |
|
3. |
|
Zun Yi South — Guangxi Lai Bin Electricity Plant (845 km) |
|
3. |
|
Guizhou Jinsha Jin Sheng Mining Co., Ltd. |
Yongsheng |
|
1. |
|
Yongsheng Mine — Gao Ping — Yu Mo — Sha Tu — San He — Jiu Chang (160 km) |
|
N/A |
|
N/A |
|
1. |
|
Guizhou Exxon Technology Co., Ltd. (end customer: Jin Jiu Cement Factory) |
|
|
2. |
|
Yongsheng Mine — |
|
N/A |
|
N/A |
|
2. |
|
Guizhou Kaiyang |
| |
|
|
|
Gao Ping — Yu Mo |
|
|
|
|
|
|
|
|
|
|
|
Chemical Co., Ltd. |
| |
|
|
|
— Sha Tu — San He |
|
|
|
|
|
|
|
|
|
2. |
|
Guizhou Kailin |
| |
|
|
|
— Jiu Chang (160 |
|
|
|
|
|
|
|
|
|
|
|
Xifeng Synthetic |
|
|
|
|
km) |
|
|
|
|
|
|
|
|
|
|
|
Ammonia Co., Ltd. |
|
|
3. |
|
Yongsheng Mine — Hua Jue Dock (3 km) |
|
3. |
|
Hua Jue Dock — Xin Yuan Fu Dock (35 km) |
|
3. |
|
Xin Yuan Fu Dock — Xi Feng Xiao Zhai Ba (coal distribution center) (30 km) |
|
3. |
|
Wei Ning Kai Rui Trade Co., Ltd. (end markets: Guangxi, Chongqing, Sichuan, etc.) |
|
|
4. |
|
Yongsheng Mine — Gao Ping — Yu Mo — Jin Sha — Ya Xi — Zun Yi South (coal distribution center) (140 km) |
|
N/A |
|
N/A |
|
N/A |
III-82
Table of Contents
TABLE 9.5
CURRENT COAL TRANSPORTATION NETWORK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mine
|
|
Road Transportation |
|
Waterway
Transportation |
|
Railway
Transportation |
|
Current Primary and
Potential Customers |
| Dayun |
|
1. |
|
Gao Ping — Yu Mo — Jin Sha Qian Bei Electricity Plant (55 km) |
|
N/A |
|
N/A |
|
1. |
|
Guizhou Qianbei Electricity Co., Ltd. (only for coal produced during the drilling process) |
|
|
2. |
|
Gao Ping — Yu Mo — Jin Sha — Ya Xi (85 km) |
|
N/A |
|
N/A |
|
2. |
|
Guizhou Yaxi Electricity Co., Ltd. (only for coal produced during the drilling process) |
Gouchang |
|
1. |
|
Gouchang Mine — Na Yong County — Yang Chang Town (97 km) |
|
N/A |
|
N/A |
|
1. |
|
Guizhou Nayong Electricity Co., Ltd. |
|
|
2. |
|
Gouchang Mine — Bi Jie City (65 km) |
|
N/A |
|
N/A |
|
2. |
|
Bijie Donghua New Energy Co., Ltd. |
|
|
3. |
|
Gouchang Mine — Bi Jie City (65 km) |
|
N/A |
|
N/A |
|
3. |
|
Bijie Jinhe Chemical Co., Ltd. |
|
|
4. |
|
Lan Ba Station Distribution Centre (coal distribution center) (170 km) |
|
N/A |
|
N/A |
|
N/A |
Dayuan |
|
1. |
|
Dayuan Mine — Yangchang Town (15 km) |
|
N/A |
|
N/A |
|
1. |
|
Guizhou Nayong Electricity Co., Ltd. |
|
|
2. |
|
Dayuan Mine — Shui |
|
N/A |
|
2. |
|
Lan Ba Distribution |
|
2. |
|
Guangxi Laibin |
| |
|
|
|
Cheng Lan Ba |
|
|
|
|
|
|
|
Centre — Guangxi |
|
|
|
Electricity Co., Ltd. |
| |
|
|
|
Distribution Centre |
|
|
|
|
|
|
|
Lai Bin, He Shan, |
|
2. |
|
Guangxi Heshan |
| |
|
|
|
(65 km) |
|
|
|
|
|
|
|
etc. (900 km) |
|
|
|
Electricity Co., Ltd. |
|
|
3. |
|
Lan Ba Station Distribution Centre |
|
N/A |
|
3. |
|
Lan Ba Station Distribution Centre |
|
N/A |
III-83
Table of Contents
TABLE 9.5
CURRENT COAL TRANSPORTATION NETWORK
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mine
|
|
Road Transportation |
|
Waterway
Transportation |
|
Railway
Transportation |
|
Current Primary and
Potential Customers |
| Liujiaba |
|
1. |
|
Xin Hua Xiang — Liu Zhi — Shui Cheng — Wang Jia Zhai (180 km) |
|
N/A |
|
N/A |
|
1. |
|
Datang Guizhou Yemazhai Electricity Co., Ltd. |
|
|
2. |
|
Xin Hua Xiang — Liu Zhi (55 km) |
|
N/A |
|
N/A |
|
2. |
|
Guizhou Hong Xin Trade Co., Ltd. |
|
|
3. |
|
Xin Hua Xiang — |
|
N/A |
|
3. |
|
Liu Zhi Station — |
|
3. |
|
Guangxi Laibin |
| |
|
|
|
Liu Zhi (55 km) |
|
|
|
|
|
|
|
Lai Bin (He Shan) |
|
|
|
Electricity Co., Ltd. |
| |
|
|
|
|
|
|
|
|
|
|
|
(800 km) |
|
3. |
|
Guangxi Heshan |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity Co., Ltd. |
|
|
4. |
|
Liu Zhi Station, Na Yu Station |
|
N/A |
|
4. |
|
Liu Zhi Station, Na Yu Station |
|
N/A |
Zhulinzhai |
|
1. |
|
Xin Hua Xiang — Liu Zhi — Shui Cheng — Wang Jia Zhai (180 km) |
|
N/A |
|
N/A |
|
1. |
|
Datang Guizhou Yemazhai Electricity Co., Ltd. |
|
|
2. |
|
Xin Hua Xiang — Liu Zhi (55 km) |
|
N/A |
|
N/A |
|
2. |
|
Guizhou Yong Teng Trade Co., Ltd. |
|
|
3. |
|
Xin Hua Xiang — |
|
N/A |
|
3. |
|
Liu Zhi Station — |
|
3. |
|
Guangxi Laibin |
| |
|
|
|
Liu Zhi (55 km) |
|
|
|
|
|
|
|
Lai Bin (He Shan) |
|
|
|
Electricity Co., Ltd. |
| |
|
|
|
|
|
|
|
|
|
|
|
(800 km) |
|
3. |
|
Guangxi Heshan |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Electricity Co., Ltd. |
|
|
4. |
|
Liu Zhi Station, Na Yu Station |
|
N/A |
|
4. |
|
Liu Zhi Station, Na Yu Station |
|
N/A |
No firm sales contracts are in place; however, the Company has provided BD Asia with copies of four Strategic Cooperation Agreements:
- 1)
- Bijie
Donghua New Energy Company Limited (a methanol producer). This agreement provides for the sale of 20,000 tonnes per month of the
Company's anthracite coal unless the Company has preferential terms from a third party.
- 2)
- Guangxi
Hechi Chemical Company Limited (a fertilizer producer). This agreement provides for the sale of 25,000 tonnes per month of the
Company's anthracite coal unless the Company has preferential terms from a third party.
- 3)
- Guizhou
Kaiyang Chemical Company Limited (a synthetic ammonia project). This agreement does not have a specified tonnage quantity, but provides for
signing monthly or quarterly supply contracts.
- 4)
- Ghizhou
Tianfu Chemical Company Limited (a synthetic ammonia and dimethyl ether project). This agreement does not have a specified tonnage quantity,
but provides for signing monthly or quarterly supply contracts.
III-84
Table of Contents
The
Company expects construction of a port next to the Yongsheng Coal Mine to improve and diversify transportation capabilities. Construction of the port is expected to commence in 2014.
BD Asia considers the port to be conceptual in nature and has not been provided with any design information or feasibility studies for that facility.
10.0 REGULATORY ISSUES
10.1 MINING RIGHTS
Most of the mines visited by BD Asia were acquired by the Company and/or its predecessors during 2010 and 2011 with mining rights granted by the competent
authorities of PRC. Under the "Mineral Resource Law," all the mineral resources are owned by the state. A mining enterprise must obtain a mining or exploration permit for conducting mining or
exploration activities in a specific area in a specific license period. The usage right of surface area will belong to the local people or other lease owners. If mining activities are to be conducted
underground, the mining company is required to acquire the usage right of surface areas if such surface areas will be affected or endangered by mining activity. The permits are generally extendable at
the end of their term or can be expanded in terms of production upon government approval. The Company provided BD Asia with details of permits with license numbers, effective dates, production
capacity, and areas of the permits for the mining rights to the mining properties reviewed for this study and a summarized status of each Mine under construction has been provided. Details of these
permits are shown in Table 10.1. A due diligence review of these permits is outside the scope of BD Asia's review. BD Asia has relied upon the assertions of the Company as to the validity of
these mining rights.
TABLE 10.1
PERMITS FOR MINING RIGHTS
|
|
|
|
|
|
|
|
|
|
|
| |
Property
|
|
Number |
|
Area (km2)
Elevation (m) |
|
Term |
|
Production
Capacity (Mt/year) |
| |
Baiping |
|
|
C5200002011111120121064 |
|
3.0143 1,475-1,250 |
|
2011/11-2014/8 |
|
Licensed for 0.15 |
| |
Yongsheng |
|
|
C5200002012021120124117 |
|
18.234 1,300-750 |
|
20012/2-2027/11 |
|
Licensed for 0.60 |
| |
Dayun |
|
|
C5200002011031120112455 |
|
16.9035 1,380-350 |
|
2011/3-2031/3 |
|
Licensed for 0.60 |
| |
Gouchang |
|
|
C5200002009121120048406 |
|
1.7198 1,850-1,250 |
|
2011/4-2017/4 |
|
Licensed for 0.09 |
| |
Dayuan |
|
|
C5200002011051120118585 |
|
1.649 1,680-1,200 |
|
2013/3-2023/3 |
|
Licensed for 0.30 |
| |
Liujiaba |
|
|
C5200002009091120036374 |
|
3.7891 1,650-1,250 |
|
2011/3-2019/9 |
|
Licensed for 0.30 |
| |
Zhulinzhai |
|
|
C5200002011031120108782 |
|
1.4104 1,530-950 |
|
2011/4-2018/7 |
|
Licensed for 0.30 |
A summary of the main approved permits for the seven Mines is shown in Table 10.2.
III-85
Table of Contents
TABLE 10.2
SUMMARY OF THE MAIN APPROVED PERMITS FOR THE SEVEN MINES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approval Status |
The Main Permits
|
|
Baiping |
|
Yongsheng |
|
Dayun |
|
Gouchang |
|
Dayuan |
|
Liujiaba |
|
Zhulinzhai |
Mining Permit(1) |
|
Issued |
|
Issued |
|
Issued |
|
Issued |
|
Issued |
|
Issued |
|
Issued |
Business License(1) |
|
Issued |
|
Issued |
|
Issued |
|
Issued |
|
Issued |
|
Issued |
|
Issued |
Environmental Impact Approval(1) |
|
Approved |
|
Approved |
|
Approved |
|
Approved |
|
Approved |
|
Approved |
|
Approved |
Environmental Protection Inspection Approval(3) |
|
Test approval issued |
|
N/A |
|
N/A |
|
N/A |
|
N/A |
|
Test approval issued |
|
In process of application |
Discharge Permits(1) |
|
Issued |
|
Will apply upon completion of construction |
|
Will apply upon completion of construction |
|
Issued |
|
Renewal in Progress |
|
Issued |
|
Issued |
Coal Production License(1) |
|
Issued |
|
Anticipated in 2014 |
|
Anticipated in 2015 |
|
Issued |
|
Anticipated in 2013 |
|
Issued |
|
Issued |
Safety Production License(1) |
|
Issued |
|
Anticipated in 2014 |
|
Anticipated in 2015 |
|
Issued |
|
Anticipated in 2013 |
|
Issued |
|
Issued |
Safety Approval/Review(2) |
|
Mine safety conditions reviewed and approved |
|
N/A |
|
N/A |
|
Mine safety conditions reviewed and approved |
|
N/A |
|
Mine safety conditions reviewed and approved |
|
Mine safety conditions reviewed and approved |
Project Design Review/Reply(2) |
|
Operating mine, expansion plans already approved |
|
Design Reviewed and Approved |
|
Design Reviewed and Approved |
|
Already operating |
|
Design Reviewed and Approved |
|
Operating mine, expansion plans already approved |
|
Operating mine, expansion plans already approved |
Temporary Land Use Confirmation |
|
Issued |
|
Issued |
|
Issued |
|
Issued |
|
Issued |
|
Issued |
|
Issued |
III-86
Table of Contents
TABLE 10.2
SUMMARY OF THE MAIN APPROVED PERMITS FOR THE SEVEN MINES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approval Status |
The Main Permits
|
|
Baiping |
|
Yongsheng |
|
Dayun |
|
Gouchang |
|
Dayuan |
|
Liujiaba |
|
Zhulinzhai |
Comments |
|
Operating Mine possesses most of the material permits. Expects to receive mining permit for 0.30 Mtpa in June 2014 which will be upgraded to 0.6 Mtpa upon completion of expansion |
|
Approval of Design facilities has been granted. |
|
On Construction not producing yet. Approval of Design facilities has been granted |
|
Possess all material permits. Idle pending consolidation with neighboring mine |
|
Received mining permit for 0.30. Awaiting pilot and facility safety approvals Design program was issued. |
|
Operating Mine possess most of the materially required permits. |
|
Operating Mine possess most of the materially required permits. |
- (1)
- Operating
mines are required to possess the 6 permits.
- (2)
- Project
Designs are first reviewed upon approval, construction of the Mine will go ahead, after completion of construction a mine safety review conditions
is conducted, if modifications are not required the mines are issued Safety Approval/Reply.
- (3)
- Baiping
and Liujiaba have obtained test approvals. During the test periods the Mines will be required to engage environmental inspectors to carry out
inspections. Thereafter, the guidelines for limits of discharge will be promulgated, then the Mines could be issued long term environmental protection inspection approvals. Zhulinzhai Coal Mine is in
the process of applying for the test approval permit. Meanwhile, the Mine has obtained letters from the relevant PRC governmental authorities to confirm that no penalties will be imposed with respect
to the current practice. Gouchang Coal Mine is idled, therefore no longer applicable. Yongsheng, Dayun and Dayuan Coal Mines have not yet commenced commercial production, therefore this type of permit
is not applicable to those Coal Mines at the moment.
Since the majority of the Mines are under construction and development stage, BD Asia has summarized the safety approval process in
Figure 10.1 for Mines awaiting permission for commercial production. Individual Mine status has also been provided to indicate corresponding stages each Mine has gone through and the remaining
stages, which those Mines under construction will have to go through before safety production and coal productions permits are finally issued. Upon the completion of construction in accordance with
the requirements in the approved "Mine Development Design" (or "Preliminary Design") and the "Safety Guidance" when assessment of the construction meets the mine safety standards, the Mine may
submit an application to the relevant authorities for joint pilot run. The procedures are shown in Figure 10.1 showing approval stages toward commercial production.
III-87
Table of Contents
Figure 10.1. A BD Asia summarized safety approval process for Mines awaiting permission for commercial production
III-88
Table of Contents
10.2 ENVIRONMENTAL, SAFETY, AND SOCIAL MATTERS
10.2.1 Baiping Coal Mine
Baiping Coal Mine is located in Gaoping Village of Jinsha County, occupying an area of 3.0143 km2. The Coal Mine
holds Business License No. 520000000006762 valid until 14 January 2019 issued by Administration for Industry and Commerce of Guizhou Province. BD Asia observed that the Mine holds
most of the required permits for production up to 150 ktpa; however, it is
designed for 300 ktpa. Provision for production above the mining permit has been issued while the Mine is in expansion stage. Mine management plans to increase production to 600 ktpa by
2015 after completion of the expansion phase. A new ventilation shaft has been constructed for improved ventilation. The Mine holds a coal production license, Permit No. 205224240253 issued by
Guizhou Bureau of Energy valid till 17 June 2020 and a safety production permit MK [0764] issued by Guizhou Province Mining Safety Bureau with validity terms of
21 May 2012 until 20 May 2015.
Mine
management has instituted safety training for all workers, as they must receive government training and certification. The Mine manager and safety personnel all have safety
certification. BD Asia was provided copies of these certifications. Baiping Coal Mine is among 14 recently approved mines under the newly introduced gas prevention and control capacity
assessment NengYuanMeiTan No. (2012)278.
Due
to the distance and the road conditions from the nearby town, BD Asia suggested that the Company establish company emergency response teams to support its Mines and associated
facilities since the government support teams would need more than one hour to reach the Mine in case of any emergency.
From
the approval "QianShuiBaoHan [2011] No.104" for Soil and Water Conservation program issued on 8 June 2011, the Mine solid waste disposal
allowance is 7,500 tpa. The allowable area of responsibility is 301.42 hectares. The Mine is under an expansion program, completion of which is scheduled for spring of 2015. BD Asia
observed the need for a larger discharge area. The Mine is located in a mountainous area with limited space. As production increases, the Mine will require more space for stockpiles that will be in
the form of an enclosed structure to avoid air pollution. Currently, the Mine is recycling all the water for Mine and surface use. A bigger wastewater treatment facility has been constructed to
accommodate the Mine's expansion. Surface facilities are scheduled for upgrading after underground construction is completed. Enclosed coal storage facilities have been constructed and the company
promised to improve on dust suppressions on the surface while construction is in progress.
There
are no major impacts from other projects in the Coal Mine area, though there is a mine, Laohu Coal Mine (3.14 km2), which is 500m from the east boundary of the
mine. BD Asia was informed, but did not confirm, that Laohu Coal Mine is mining in a different direction creating no conflict in mining for Baiping Coal Mine. BD Asia did not see a mine map or mine
plan of the Laohu Coal Mine.
As
of 31 July 2013, Baiping Coal Mine had reached land lease agreements covering 41,994m2 with 24 households. Baiping Coal Mine has paid approximately
RMB0.76 million compensation in respect of these agreements. Baiping Coal Mine obtained 10,877m2 of temporary land use rights for 1 year
III-89
Table of Contents
from
the Bureau of Land and Resources of Jinsha County on 30 May 2012, on which the Bureau of Land and Resources of Jinsha County issued Notice of Land Use JinGuoTuZiFa
[2012] No. 49 advising the Mine to follow local laws for another extended period for land use. On 14 January 2013, the Bureau of Land and Natural Resources
of Jinsha issued another notice for temporary land use of additional 31,116.54 m2, making the total Land Use Right to 41,994m2. The temporary land use right shall be
renewed every year.
10.2.2 Yongsheng Coal Mine
The Yongsheng Coal Mine is located in Gaoping town and Huajuexiang of Jinsha County. The Mine is under construction and was not in
production at the time of BD Asia's May 2013 site visit.
The
Company is constructing a coal beneficiation plant and an elevated overland conveyor of about 1.5 km to a river jetty. BD Asia was shown the Beneficiation Plant site and the
site where the port will be constructed. The design plan for the Beneficiation Plant was done by the local design institute and approval for the design has been issued by the Environmental Engineering
Protection Technology Centre of Bijie City and Jinsha County Water Conservation Bureau. The jetty construction will also need to be approved prior to construction. The Plant and conveyor are scheduled
for completion in April 2014.
Application
for Mine pilot run was submitted in March 2013. At the time of BD Asia's October 2013 site visit, the Mine was in the pilot run; nevertheless, application for
Acceptance Inspection has been delayed due to the methane studies required to be conducted by an authorized third party engineering institute. Safety production and coal production permits were
expected to be obtained at the end of 2013. Thereafter, commercial production is expected to commence in March 2014.
Yongsheng
Coal Mine holds Business License No. 520000000072585 valid until June 2015 issued by the Administration for Industry and Commerce of Guizhou Province. The Company
has displaced some villagers and compensated some households who were affected by its activity. Mine management has also acquired land from those less affected and still living in the Mine area. As of
31 December 2012, Yongsheng Coal Mine had reached agreements with 212 households regarding leases, crop compensation, etc., amounting to 119,411m2 of land and has
paid RMB0.98 million for re-location of 5 households. In total, Yongsheng Coal Mine has paid a lump sum of RMB3.34 million compensation in
respect of these agreements and has also paid RMB4.7 million for land acquisition. The Mine is willing to pay RMB0.28 million to compensate the remaining household, as shown in
Table 10.3.
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Table of Contents
TABLE 10.3
SUMMARY OF COMPENSATED HOUSEHOLDS FOR THE MINES UNDER CONSTRUCTION AND HOUSEHOLDS REMAINING TO BE COMPENSATED
AS OF 31 JULY 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yongsheng |
|
Dayun |
|
Dayuan |
|
Zhulinzhai |
|
Total |
Compensated Households for Mines Under Construction — Including Total Amount Paid(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
|
12/2008 to
07/2013 |
|
|
07/2011 to
07/2013 |
|
|
06/2009 to
07/2013 |
|
|
05/2009 to
07/2013 |
|
|
|
Number of Land Compensated Households |
|
|
212 |
|
|
135 |
|
|
145 |
|
|
40 |
|
|
532 |
Amount Paid for Land Compensated Households |
|
|
3,336,269 |
|
|
5,332,993 |
|
|
591,417 |
|
|
1,061,756 |
|
|
10,322,435 |
Number of Relocated Households |
|
|
5 |
|
|
44 |
|
|
26 |
|
|
69 |
|
|
144(1) |
Total Amount to be Paid for Relocated Households |
|
|
976,500 |
|
|
6,890,924 |
|
|
4,170,727 |
|
|
5,324,910 |
|
|
17,363,061 |
Amount Paid for Relocated Households |
|
|
976,500 |
|
|
5,738,987 |
|
|
4,170,727 |
|
|
5,324,910 |
|
|
16,211,124 |
| |
|
|
|
|
|
|
|
|
|
|
Total Amount yet to be Paid for Relocated Households |
|
|
— |
|
|
1,151,937 |
|
|
— |
|
|
— |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
Planned Compensation and Number of Remaining Households to be Compensated as of 30 April 2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Number of Remaining Land Compensated Households |
|
|
— |
|
|
13 |
|
|
— |
|
|
— |
|
|
13 |
Estimated Amount to be Paid for Remaining Land Compensated Households |
|
|
— |
|
|
805,637 |
|
|
4,032,000 |
|
|
114,920 |
|
|
4,952,557 |
Estimated Number of Remaining Households yet to be Relocated |
|
|
1 |
|
|
15 |
|
|
— |
|
|
— |
|
|
16(1) |
Estimated Amount to be Paid for Remaining Relocated Households |
|
|
280,000 |
|
|
2,308,063 |
|
|
— |
|
|
— |
|
|
2,588,063 |
Estimated Completion Time |
|
|
09/30/2013 |
|
|
11/30/2013 |
|
|
N/A |
|
|
N/A |
|
|
|
- (1)
- As
can be seen, the Company has compensated 144 households with 16 households remaining to be relocated after arbitration by the local
government.
III-91
Table of Contents
BD
Asia observed that there are no government protected areas near the mining property. There is a small mine within the leased area of Yongsheng Coal Mine, which is under construction
and not operating. That mine is not expected to have an impact on Yongsheng Coal Mine.
Mine
management has built a de-gasification and methane collection plant on the Mine site close to the main shaft and might use the Mine's methane discharge to produce electricity for
Mine use on a small scale. According to management this is a low methane mine; however, due to government requirements for safe production, construction of the methane de-gasifying plant
is mandatory
An
Environmental Impact Study for Coal Mine Methane de-gasification, water source, and discharge studies was carried out by Guizhou Province Coal Mining Design Institute in
August 2008 with Approval [2007] 476 issued by Guizhou Province Environmental Protection Bureau. Also Safety Approval [2008] 91 by
Provincial Coal Mining Safety and Inspection Bureau of Guizhou Province was issued on 06 October 2008.
Approval
permit BHPGS [2013] No.28 for Beneficiation Plant construction and approval permit JSF [2013]No.55 for water
conservation during Plant construction and operations have all been issued. This coal washing project has been approved by the Jinsha County Development and Reform Bureau on
29 September 2013 (Jin Fa Gai Chan Ye [2013] No.149), has passed the environmental assessment by the Bijie EIA, and has commenced construction. The Plant
and associated facilities are expected to cost RMB73.46 million of which 9.1% (RMB6.65 million) is reportedly designated for programs and facilities related to environmental protection.
Mining
activities in this area will have an impact on the ecology and surrounding vegetation. Soil erosion is occurring. The Beneficiation Plant will have an impact on the environment
surrounding the Coal Mine site since waste dumps are planned to be constructed in the valley next to the Wujian River. Also, a conveyor belt will lead to the Wujian River. Currently, pollution of the
waters in this river is evident, but the Beneficiation Plant is not expected to contribute to such pollution. The Company plans to install "closed" water circuits that would eliminate the need to
discharge dirty process water from the beneficiation system into the river. The Mine has been issued guidelines for environmental protection in the approvals. Mine management assured BD Asia that
Yongsheng Coal Mine will try to prevent pollution of the river by the Plant activities.
The
Liuguang River, passing close to the Mine, is considered to contain surface water of Class II according to Guizhou regulatory authorities. Direct discharges into this river
are prohibited. The Mine is permitted to draw water for Mine use upstream of the river. After use, the water will be treated to reach Class II water standards and it will be discharged
downstream of the Liuguang River where the water standard is Class III according to Guizhou surface water standards.
10.2.3 Dayun Coal Mine
The 600 ktpa mining rights permit was obtained in March 2011. BD Asia was shown Business License
No. 520000000064325 issued to Guizhou Dayun Mining Limited Company on 27 July 2011 by the Administration for Industry and Commerce of Guizhou Province. The Mine has environmental
approval by the Guizhou Province Environmental Bureau No [2010]232 issued on 25 November 2010. Construction of Dayun Coal Mine commenced in
May 2012.
III-92
Table of Contents
Initiation
of construction was delayed over disagreements in re-location of the surrounding villagers. Since some villagers had resisted relocation, the local government intervened to
arbitrate this issue. The Company has planned to re-locate the villagers to Gaoping town. As of 31 July 2013, Dayun Coal Mine had reached land lease agreements with 135 households
and has paid RMB5.33 million for land compensation and leasing rights of 120,346m2 of land, Dayun has paid approximately RMB8.3 million as land acquisition fees regarding
the leases of land to the Bureau of Land and Resources of Jinsha County. Additionally, Dayun Coal Mine had reached re-location agreements with 44 households and has paid approximately
RMB5.73 million for the re-location of the PAPs. It is planning to pay an additional RMB2.31 million as compensation for the remaining 15 households, which averages to
RMB156,600 per household. Detailed compensation at the Mines, under construction, is shown in Table 10.3.
BD
Asia was recently informed that Jinsha county government has stepped in to resolve the re-location conflicts by ultimately adopting a unified re-location compensation standard
characteristic of Jinsha County. The local government is now urging the remaining villagers to speed up construction of their houses in the proposed settlement areas. BD Asia was told that those
remaining villagers have already started receiving their compensations. Nevertheless, the re-location process will still negatively affect construction at Dayun due to the unanticipated delays by the
government to completely resolve this issue. Some villagers do not accept the unified re-location standard set by the government and others claim that their houses and land are worth more than what
they are being paid. However, based on the Company's extensive experience at other Mines, which were faced by similar issues, Feishang hopes that re-location issues at Dayun will not have a big impact
on the development progress; it anticipates completing the re-location by the end of 2013.
Dayun
completed Level 2 quality authentication in March 2013. After the construction assessment is approved, Dayun will submit an application for a joint pilot run, as
shown in Figure 10.1. Pilot run on-site inspection is expected to be completed in June and commence pilot run thereafter. Safety
production and coal production permits are expected to be obtained in November and December of 2013, respectively and commercial production to commence in January 2014.
Dayun
Coal Mine has a construction land use Notice QFYDH [2011] No.708 issued on 31 December 2011 that indicates the total area of
132,490m2 to be used for mining activities. The approval also indicates the need for soil and water conservation as well as the obligation to compensate the PAPs, as this is a new mining
area located in the area where villagers have been living for many years. BD Asia interviewed a group of PAPs in order to hear their views toward establishing a coal mine in this area. The interviewed
villagers appeared willing to re-locate and were welcoming the Company because it will provide employment opportunities to the people living in this area and will convert the subsistence farming area
to an industrial area; however, a few people were still not willing to re-locate due to compensation disagreements. As a result of local government intervention, some involuntary re-location of PAPs
has occurred at this Mine.
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Table of Contents
Mine
management has been advised to conduct a detailed environmental impact assessment in order to evaluate the impact the Mine might have on the people who may not need to be relocated.
BD Asia observed that there was a small community and a school that will not be re-located. BD Asia suggested that management carefully consider the transportation route from the Dayun Coal Mine to
the main paved road during the construction and production periods in order to protect the safety of the local residents.
Seasonal
rivers pass through the Mine area. According to the Guizhou water standards, these are all of Class II water quality standards that need to be preserved during the mining
period. Bijie City Environment Bureau of Guizhou Province has set the limit standard [2010]97 of discharge for Dayun Coal Mine. The standards will allow the following
discharges: COD of 46.61 tpa, Ammonia of 1.44 tpa, SO2 of 21.74 tpa, and "Smoke" of 5.77 tpa.
A
safety reply QMAJJCH [2012] 3 on the preliminary design of Jinsha Gaoping Township Dayun Coal Mine was issued on 13 January 2012, in which
the Mine management was informed upon other issues as follows.
- 1)
- The
Guizhou Coal Mine Design and Research Institute, whose design qualification rating is Class A, is qualified as the responsible body for the safety
section. The Owner, Jinsha Gaoping Dayun Coal Mine of Dayun Mining Co., Ltd, is to be responsible for the review result of the Report.
- 2)
- Since
the mineable seams (M6, M8, M11, and M12) have not been examined for coal and gas outburst hazards, they should, therefore, be regarded as outburst
seams before an outburst hazard examination is conducted, and the relevant outburst prevention rules should be strictly followed. Also, before arranging for the initial mining face, the coal seam
advanced check should be implemented as per the outburst prevention rules and should not be worked upon until any danger of outburst is eliminated.
- 3)
- The
Mine is required to follow the "Provisions on Coal Mine Water Prevention and Control," and further improve its hydrogeological investigation data,
intensify the technical exploration measures, knowing details of all water recharge resources within the region, and prepare a separate water prospecting and discharge design plan before working on
the initial mining face of each seam.
According
to Circular GNMT (2011) No.414 passed on 26 December 2011, all mines in Guizhou Province with production capacities of 300 ktpa and over with
possibility of gas outbursts were required to pass a gas prevention and control test. Dayun Coal Mine and all other Coal Mines of the Company are among the fourteen approved mines for this test
according to approval JNYMT(2012)No 278 issued on 20 August 2012.
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Table of Contents
10.2.4 Gouchang Coal Mine
Gouchang Coal Mine is located in Kunzhai Town in Nayong County of Guizhou Province. The Mine area is economically underdeveloped with
low population density. Subsistence farming and animal husbandry are the main activities.
The
Mine holds all necessary permits. BD Asia was provided with copies of those permits. The Mine has Business License No. 520000000023520 valid until 01 July 2017
and production safety permit No. MK (0395) for 90 ktpa that is valid until 10 April 2014. BD Asia observed that environmental impact approval reference number (2007)
069 was granted to the Mine.
No
villages will be affected by mining. A town road passes through the Mine surface area and according to the government requirements, mining is not permitted under the road. The Mine is
still upgrading the surface facilities; hence, surface dust control still needs to be improved.
Because
of the newly introduced Notice QianNengYuanBan [2013] No. 120 Ref. No. (QFGD-2013-29002) for consolidation of coal mines in Guizhou Province
having production capacity of less than 90 ktpa, Gouchang Coal Mine is considering a merger with a neighboring mine. That mine is privately owned by an individual and is not eligible to undergo
merging and restructuring activities until approved by the local government. That mine has a mining right of 30 ktpa and is still a brownfield with no detailed exploration information. As a
result, there are still uncertainties for this combination; hence, Gouchang Coal Mine is expected to remain idle during Year 2013 and 2014. The Company plans to maintain production of 110 ktpa
from Year 2015 to 2019, upon completion of integration.
BD
Asia has been advised that as of 30 April 2013, Gouchang Coal Mine had reached land lease agreements covering 43,476m2 with the village committee and
30 households. The Company has paid RMB0.57 million in compensation with respect to these agreements. Gouchang Coal Mine obtained temporary land use right from the Bureau of Land and
Resources of Nayong County for 11,329m2 on 04 July 2012 valid until 23 May 2013. On 14 January 2013, an extra 32146.87m2 temporary
land use right was granted to Gouchang Coal Mine. In total, the Company has paid RMB0.68 million for land compensations and temporary land use rights. The temporary land use rights shall be
renewed every year. BD Asia noted that there were no issues of land compensation and re-location at Gouchang Coal Mine.
10.2.5 Dayuan Coal Mine
Dayuan Coal Mine is located in Xinfang Town of Nayong County approximately 7 km from Yangchang thermal power plant. The Mine
currently holds Business License No. 52000000002671 valid until 21 January 2029. Recently, construction at Dayuan was delayed due to the requirement from the local government in
Nayong County for the updating of the geological report and re-application of the new mining permit. BD Asia was informed that the update had been completed and the new mining permit,
C5200002011051120118585 for 300 ktpa indicated in Table 10.1 above, was recently issued on 15 March 2013. The Mine is expected to start commercial coal production in
November 2013.
Due
to the potential effect of mining activities on the community, Dayuan Coal Mine has re-located all villagers who were to be affected by its mining activities. As of
30 April 2013, the Mine had
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reached
compensation agreements for a total of 72.814m2 of land and had paid RMB591,417 with respect to these land compensations. It has also reached re-location agreements with
the village committee of Pingdong Village, Xinfang Town, and Nayong County and 26 households have been re-located since construction started. A re-location expense compensation of
RMB4.2 million has been paid to the relevant households. Additionally, Dayuan Coal Mine has paid approximately RMB113,200 for the temporary land use right of 4,528m2 land
valid until 10 July 2013. On 14 January 2013, Dayuan Coal Mine obtained an extra 62,318.68m2 temporary land use right. According to that confirmation letter,
the temporary land use rights shall be valid for 2 years. The Company plans to pay RMB4.03 million for land compensation in the coming years for the land expected to be disturbed through
subsidence and Mine construction.
Mine
management has built a methane de-gasifying plant. The location of this plant has an effect on the community. A scheme for the protection, treatment and restoration of the
geological environment was carried out by Zhongdi Geological and Mining Institute dated 25 December 2010 and approved by Bijie Environmental Bureau with reference
number [2011]52. Also, an environmental social assessment concerning the effect and benefits of the project in this area was carried out wherein a total number of
108 people were interviewed and 97 responses were received. The interviewees included residents near Dayuan Coal Mine and 8 local government departments. Questions asked included
the impact of the project on the community, major environmental problems in the area, negative influence on the environment of the project, economic influence of the project, and agree/disagree
supporting the project. Of the people interviewed, 85% agreed that this project would benefit the local economy, 100% of the individuals agreed the project will benefit the local residents, and 99% of
the residents agreed with setting up the project. All government agencies gave positive responses to each of the questions on the questionnaire.
The
Dayuan Coal Mine obtained an Environmental Protection Reply QHS [2011]122 on 04 August 2011 regarding the Environmental Impact Assessment
of Dayuan Coal Mine, into which Nayong Laluo Coal Mine and Nayong Dayuan Coal Mine have been integrated. The integrated Mine is now called Nayong County Dayuan Coal Mine with a permitted capacity of
0.30 ktpa, which is to increase to 0.45 ktpa. The reply confirmed that the Environmental Impact Assessment conformed to the local conditions and its environmental protection measures are
adequate. Also, the project construction has conformed to the planning of Guizhou Province coal industry. In this report, the Mine was advised to meet all the required industrial and mining standards
of the PRC. The following recommendations were proposed.
- 1)
- Because
the Mine shaft and shaft field boundary are within the boundaries of the villages, it was recommended to create safety protection pillars and green
belts between the Mine site and communities.
- 2)
- Minimize
the occurrences of subsidence, strengthen environmental protection measures, and reduce solid waste dumping around the Mine area.
- 3)
- Apply
necessary dust suppression and noise reduction measures so as to lessen the impact on the nearby community.
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Table of Contents
- 4)
- Strengthen
environmental water protection plans and optimize the water treatment technology in the Mine's water treatment plant. Also, to improve upon the
recovery rate of wastewater (sewage). The domestic sewage shall be recycled after reaching Grade I of Integrated Wastewater Discharge Standard (GB8978-1996) through treatment; the Mine water shall be
recycled after iron content reaches Grade I of Guizhou Provincial Standard for Discharge of Environmental Pollutants (DB52-1999) and the other indicators should reach Emission Standards for Pollutants
from Coal Industry (GB20436-2006) with usual rate not less than 50%. The remaining wastewater (sewage) shall be discharged into the Nayong River via a special discharge pipe.
- 5)
- The
Mine's coal-fired boiler should be fueled with low-sulfur coal. It was recommended to construct supporting flue gas dust removal facilities. The boiler
flue gas must be discharged via a 30m chimney after reaching the Standard Period II of District II of Emission of Air Pollutants for Oil-burning Gas-fired Boiler (GB13271-2001).
- 6)
- The
standard total discharge limits of the pollutants at the Mine site shall be: COD of 9 tpa, NH3-N of 0.55 tpa, SO2 of 5.64 tpa, Fuse
Dust of 1.45 tpa, and Nitrogen Oxide of 1.54 tpa.
10.2.6 Liujiaba Coal Mine
Liujiaba Coal Mine is located north of Tianba Village in Xinhua Town, approximately 22 km from the Liuzhi Special District. At
the time of BD Asia's site visit in 2011, the Mine was in a trial production period, which was scheduled to be completed on 18 December 2012. As of the submission of this report, BD Asia
was informed that the Mine had completed the trial period and was issued a coal production safety approval on 20 November 2012. It is now under normal production. The Mine is licensed
for 300 ktpa, the mine management plan to increase production to 600 ktpa. The coal from this Mine is sold to a second party who collects the coal and sells it to the power plants in
Liupanshui City.
The
Liujiaba Coal Mine currently holds an extendable Business License No. 520000000003633 issued to Liujiaba Coal Company on 01 March 2011. The environmental and
geological study was carried out by Guizhou Chuan Meiji Technical Company on 06 August 2009 and approved with Approval Permit No. [2009]185. In 2011, an
Environmental Impact Assessment was carried out and the approval QianHuanShan No. [2011]110 was issued on 07 July 2011. The Mine has a safety
approval No. [2009]128 from Guizhou Coal Mine Safety Inspection Bureau. An Environmental Social Impact assessment on this Mine was carried out by Guizhou Coal
Design Company approval [2011]67 was granted. BD Asia was told that Liujiaba Coal Mine has reached land lease agreements covering 49,278m2 with the Tianba
Village committee and 78 households. It has obtained the 49,278m2 temporary land use confirmation letter from the Bureau of Land and Resources of Liupanshui on
01 March 2013. The temporary land use right shall be renewed every 2 years.
BD
Asia was impressed with the training standards for the Mine management and workers. BD Asia was informed that at this Mine there are four levels of training, i.e., country level (Mine Managers),
District level (special workers — methane inspectors, blasters, electricians,
and safety managers), county level (certified coal miners), and Mine level (for all workers at the Mine).
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Soil
and solid waste management at the Liujiaba Coal Mine is being improved. Mine disturbed land is being re-vegetated. The Mine has created stockpile areas from which a portion of the
solid wastes is re-used for Mine infrastructure construction and a portion is also sold to cement manufacturing plants and for road construction. Also, the Mine pays the government a fee for land
reclamation each year. BD Asia was provided with copies of safety installation modifications reply QMAJSZ [2012] 32 for Liujiaba Coal Mine issued on
24 February 2012 by Guizhou Coal Mining Safety Inspection Bureau ShuiChang Department accepting the modifications proposed by Jiangxi Province Coal Mining Design Institute. In accordance
with "Safety Installation of the Coal Mine Construction Project Design Review and Final Acceptance Standards" [AQ 1055-2008], the bureau approved the modifications and provided
supplementary recommendations to the Company that included: improving the ventilation system management; complying with the "Coal Mining Water Prevention Regulation" by improving on the Mine site; and
shaft hydrological works by preparing special water detection and drainage designs. The Mine was reviewed again and acceptance safety reply QianMeiAnJianShuiZi
[2012]106 was issued on 25 October 2012. At the time of BD Asia's May 2013 site visit, the Mine had obtained a coal production permit and was in
commercial production.
10.2.7 Zhulinzhai Coal Mine
Zhulinzhai Coal Mine is located approximately 5 km from Liujiaba Coal Mine. Zhulinzhai Coal Mine shares the same roads with
Liujiaba Coal Mine. The permit area for Zhulinzhai Coal Mine is 1.4104 km2.
The
Mine currently holds an extendable Business License No. 520000000003203 issued on 19 December 2012, a Coal Production License No. 205202030630 valid from
16 April 2012 until 16 April 2031, and a Safety Production Permit MK (0699) valid from 06 March 2012 until 05 March 2015. An environmental
review [2011]21 carried out on 04 April 2011 was approved in June 2011. BD Asia was advised that the Mine design was approved on
17 January 2011 with Approval No. [2011]42.Coal mining companies under construction/integration will be issued both coal production and safety approvals
after a safety review has been conducted upon completion of construction. Zhulinzhai recently obtained approval for this Safety Facilities review and is in commercial production.
The
Zhulinzhai Coal Mine has a permit to draw water from and discharge water into the Sancha River, a tributary of the Wujiang River. A discharge permit with Ref No. (203220130030)
issued on 29 August 2013 by Environmental Protection Bureau of Liuzhi Special District valid until 28 August 2014 was provided to BD Asia for review. The permit will be
renewed every year. BD Asia also had the opportunity to inspect the water treatment facility at Zhulinzhai and observed that the Mine was operating according to the government set standards. BD Asia
also observed that there were no adjacent projects that could affect this project and there are no government protected areas.
PAPs
have been compensated and the remaining households affected by the current road construction are going to be compensated by the Department of Road Construction and Maintenance. A
concession has been reached whereby the mines in this area have been asked to contribute money for road construction and villagers' compensations. Zhulinzhai and Liujiaba Coal Mines have contributed
RMB1.5 million for this road construction and for compensating the affected people. As of 30 April 2013, road construction has reached an advanced stage. BD Asia observed that the
people in this area welcomed the development of this Mine since it is providing employment to the local communities. Some of the villagers have already been employed as construction workers.
III-98
Table of Contents
BD Asia was provided with copies of completion of safety installation devices reply QMAJSZ [2012] No. 27 for Zhulinzhai Coal Mine
issued on 16 February 2012 by Guizhou Coal Mining Safety Inspection Bureau ShuiChang Department on which rectification of safety device installation was accepted and proved to have
reached the design requirements. The Mine management was advised upon other methods to drain the methane before tunnel development and mining; to improve on the gas inspection and ventilation systems;
and to make further improvements and studies on the hydrology and geological data.
Zhulinzhai
Coal Mine management has reached land lease agreements covering 37,913m2 with the Tianba village committee and some households. A confirmation letter for the
temporary land use right, issued by the Bureau of Land and Resources of Liupanshui city, was granted on 01 March 2013. The temporary land use right shall be renewed every 2 years.
The Mine has paid RMB5.32 million for re-location of 69 households. Mine management has also paid approximately RMB1.06 million for land compensation to 40 households and
has set aside an extra RMB114,920 for land compensation at this Mine for those people who might be affected by subsidence.
10.3 OCCUPATIONAL HEALTH AND SAFETY
There have been fatalities at the individual sites prior to and after the Company acquired the Mines. Some accidents that happened before the Company acquired the
Mines were not properly documented. However, those that occurred after Feishang acquired the Mines were documented and BD Asia was informed of the causes in each case. The Company records accidents
per million tonnes of coal for 5 Mines operating or under construction. Table 10.4 shows the accident records at each site before and after Feishang acquired the Mines. A total of
7 fatalities and 35 serious injuries have occurred since 2008. Compensations have been given to the affected families.
During
BD Asia's site visits, the Mines' management described the measures being taken to avoid serious accidents and fatalities. These measures all fall under the government regulated
or mandatory guidelines to avoid fatal accidents resulting from gas outbursts, inundations, and mass roof falls. These measures are stipulated in the latest version of National guidelines for coal
mine safety. Fatal accidents happened prior to change of ownership at Baiping, Dayuan, and Liujiaba Coal Mines. The Company reported that there have been two fatalities since its acquisition of the
Mines on 30 April 2010. The Company informed BD Asia that roof supports have been reinforced at Liujiaba and Baiping. At Dayuan, the underground passageways have been upgraded to avoid
future trolley accidents. Management has also reinforced the use of Personal Protective Equipment (PPE) and instituted weekly safety trainings, etc. In addition to the above measures, mandatory safety
precautions stipulated in the 2012 National Coal Mine Safety Regulations, such as (1) draining the gas before mining the face, (2) measuring methane concentrations before working at the
face, (3) using water pumps and spare pumps underground, and (4) improving ventilation to minimize gas concentrations; have been applied at all the operating Mines. Nevertheless, some
accidents have been reported, e.g., skull fracture, finger knuckle fractures, etc. The Company reports that these were a result of negligence by some
miners who sometimes deliberately worked without hard hats or gloves.
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Table of Contents
TABLE 10.4
DESCRIPTION OF HISTORICAL FATALITIES AND SERIOUS INJURIES
AT THE COMPANY'S MINES(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
|
|
|
Degree of
Accident |
|
|
Mine
|
|
2008 |
|
2009 |
|
2010 |
|
2011 |
|
2012 |
|
2013 |
|
Causes |
Baiping |
|
Fatal |
|
|
2 |
|
|
— |
|
|
1 |
|
|
— |
|
|
— |
|
|
|
|
In 2008, unattended trolley transport accident. (Prior to control by the Company) In 2010, roof falls. |
|
|
Injured |
|
|
1 |
|
|
1 |
|
|
— |
|
|
— |
|
|
3 |
|
|
6 |
|
In 2012 minor finger abrasions. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2013, Thigh fracture, skull fracture, and right ulnar fracture, right foot fracture, right ear laceration and skull fracture. |
Yongsheng |
|
Fatal |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
|
|
|
Injured |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3 |
|
|
— |
|
1 finger abrasion, 1 finger facture, and 1 comminuted fracture of right ankle. Injuries are being ascertained by local agencies. |
Gouchang |
|
Fatal |
|
|
— |
|
|
— |
|
|
1 |
|
|
— |
|
|
— |
|
|
— |
|
Fall from electrical post due to electrical shock after sudden connection of power from source. |
|
|
Injured |
|
|
— |
|
|
— |
|
|
3 |
|
|
4 |
|
|
2 |
|
|
— |
|
In 2010, finger and toe injuries underground. In 2011, finger fracture of 2 workers, leg injury of 1 worker and palm fracture of 1 worker. In 2012, palm fracture of 1 worker and right
foot injury of 1 worker. |
Dayuan |
|
Fatal |
|
|
— |
|
|
— |
|
|
1 |
|
|
— |
|
|
— |
|
|
— |
|
In April 2010, rolling car accident — declined shaft. |
|
|
Injured |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1 |
|
In 2013, left index finger knuckle fracture. |
Liujiaba |
|
Fatal |
|
|
— |
|
|
2 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
In December 2009, while helping at Level 1376, accident was treated as a roof fall. |
|
|
Injured |
|
|
— |
|
|
1 |
|
|
1 |
|
|
1 |
|
|
— |
|
|
1 |
|
In 2009, not specified. In 2010 flying stone from blasting injured 1 worker. In September 2011, 1 person fell while running to avoid the winch. In 2013 right middle finger
fracture. |
Zhulinzhai |
|
Fatal |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
Injured |
|
|
— |
|
|
— |
|
|
4 |
|
|
— |
|
|
1 |
|
|
2 |
|
In 2010, 1 ribs fracture and 3 finger injuries due to lifting. In 2012, finger fracture. In 2013, left thumb fracture. |
- (1)
- Dayun
is a new Mine not yet operating.
III-100
Table of Contents
11.0 OPERATING COSTS
The Mines' actual and forecasted direct cash production costs are shown in Table 11.1. The forecasted costs are reported by the Company to have been
prepared on the basis of the original and optimized Mine plans as well as current management plans and have been incorporated into the BCFM, as discussed later in this report. The actual costs for the
Baiping Coal Mine provide some indication of the accuracy of the forecasts; however, in general, the historical actual costs vary from the forecasts due to the start-up nature of the currently
operating Mines. Generally, the Mines have not reached steady state production levels and the actually incurred costs do not reflect the economies of scale that should be realized when the Mines reach
such levels. Additionally, the Company has reallocated some historical costs on the basis of the nature of the actual incurred costs. This has resulted in some differences between the forecasted costs
and the historical costs between the various cost categories. It should be noted that the actual costs for 2013 through July demonstrate some level of seasonality. The actual unit costs at the
operating Mines are expected to decrease with the onset of the winter months with the economies of scale realized with higher production levels than the summer months.
The
high level of effort put into the cost forecasts for these Mines is apparent in the detail provided to BD Asia. The new plans, developed since the first field visit, appear to be
generally well thought out and well executed. In general, the cost forecasts appear to be conservative with the exception of the maintenance estimate for the four Mines that were originally planned
for manual longwalls. These will ultimately have mechanical longwalls installed. BD Asia believes the cost estimates for the maintenance estimate of the mechanical longwalls could be slightly low.
Given its current level of knowledge of the operations and the current stage of development of each of the Mines, BD Asia believes the costs described in Table 11.1 for each Mine are reasonable
and attainable.
The
Company's forecasted operating costs for the Beneficiation Plant are somewhat less detailed than the Mines, but BD Asia did review a summary of those forecasts. The Company estimates
that operating costs associated with the Beneficiation Plant will be approximately RMB28.7 per raw tonne. Depending upon the battery limits used to define cost components that are included in
such summaries, operating costs for facilities similar to the Jinsha Juli Plant can range from RMB20 to RMB35 per raw tonne. Therefore, BD Asia believes the operating costs forecasted for the
Plant are reasonable.
BD
Asia believes the cash operating costs presented in Table 11.1 and in Sections 13.2.6 and 13.2.7 of this ITR appropriately captures the material aspects of
cash operating costs and that the projected cash costs presented in this ITR are consistent with and meet the intent of Listing Rule 18.03(3). BD Asia understands that, while the Company does
categorize and record its cash operating costs, it does not use the same cost sub-components that are specified in Listing Rule 18.03(3). BD Asia analyzed the Company's cash operating cost
detail in the form customarily used by the Company and although "re-categorization" or restructuring the presentation of individual cash operating cost components would be possible, BD Asia believes
such additional detail will not provide further, material enlightenment for the reader of this ITR. It should be noted that costs associated with administration, product marketing and transport, and
various government levies are further discussed in Section 13.2.7 of this ITR.
III-101
Table of Contents
TABLE 11.1
ACTUAL AND FORECASTED DIRECT PRODUCTION CASH COSTS
(NO BY-PRODUCT CREDITS) — (RMB/TONNE OF SALABLE COAL PRODUCED)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mine
|
|
Tonnage (kt) |
|
Materials |
|
Wages |
|
Power |
|
Maintenance |
|
Other(2) |
|
Washing(3) |
|
Total |
|
Baiping Coal Mine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forecasted Steady State LOM |
|
|
600 |
|
|
27.50 |
|
|
65.40 |
|
|
11.40 |
|
|
0.48 |
|
|
21.95 |
|
22.30 |
|
|
149.03 |
|
2010 Actual (Mar-Dec) |
|
|
65 |
|
|
28.66 |
|
|
72.13 |
|
|
9.21 |
|
|
1.16 |
|
|
0.98 |
|
N/A |
|
|
112.14 |
|
2011 Actual |
|
|
159 |
|
|
27.30 |
|
|
75.12 |
|
|
8.17 |
|
|
2.05 |
|
|
5.31 |
|
N/A |
|
|
117.95 |
|
2012 Actual |
|
|
292 |
|
|
39.59 |
|
|
61.84 |
|
|
7.48 |
|
|
1.78 |
|
|
6.24 |
|
N/A |
|
|
116.93 |
|
2013 Actual (Jan-July) |
|
|
140 |
|
|
41.10 |
|
|
84.61 |
|
|
10.20 |
|
|
0.58 |
|
|
3.71 |
|
N/A |
|
|
137.20 |
|
Yongsheng Coal Mine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forecasted Steady State LOM |
|
|
1,800 |
|
|
13.50 |
|
|
29.55 |
|
|
13.00 |
|
|
0.50 |
|
|
90.05 |
(4) |
16.87 |
|
|
163.47 |
|
Dayun Coal Mine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forecasted Steady State LOM |
|
|
1,800 |
|
|
27.55 |
|
|
65.55 |
|
|
13.00 |
|
|
0.50 |
|
|
22.05 |
|
27.00 |
|
|
155.65 |
|
Gouchang Coal Mine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forecasted Steady State LOM |
|
|
110 |
|
|
30.00 |
|
|
71.30 |
|
|
16.46 |
|
|
0.43 |
|
|
23.52 |
|
16.00 |
|
|
157.71 |
|
2011 Actual |
|
|
96 |
|
|
24.08 |
|
|
96.94 |
|
|
11.42 |
|
|
0.88 |
|
|
0.88 |
|
N/A |
|
|
133.90 |
|
2012 Actual |
|
|
53 |
|
|
23.44 |
|
|
184.14 |
|
|
17.80 |
|
|
1.38 |
|
|
11.30 |
|
N/A |
|
|
238.06 |
|
Dayuan Coal Mine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forecasted Steady State LOM |
|
|
450 |
|
|
27.55 |
|
|
65.55 |
|
|
11.73 |
|
|
1.09 |
|
|
24.10 |
|
17.00 |
|
|
147.03 |
|
Liujiaba Coal Mine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forecasted Steady State LOM |
|
|
600 |
|
|
28.00 |
|
|
69.00 |
|
|
17.10 |
|
|
1.03 |
|
|
22.75 |
|
13.00 |
|
|
150.88 |
|
2012 Actual |
|
|
60.7 |
|
|
102.47 |
|
|
60.59 |
|
|
15.35 |
|
|
— |
|
|
0.07 |
|
N/A |
|
|
178.48 |
|
2013 Actual (Jan-July) |
|
|
68.8 |
|
|
41.43 |
|
|
85.46 |
|
|
16.93 |
|
|
0.05 |
|
|
8.14 |
|
N/A |
|
|
152.00 |
|
Zhulinzhai Coal Mine |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forecasted Steady State LOM |
|
|
450 |
|
|
27.50 |
|
|
69.00 |
|
|
17.10 |
|
|
1.05 |
|
|
22.90 |
|
14.00 |
|
|
151.55 |
|
2012 Actual |
|
|
65.1 |
|
|
81.17 |
|
|
143.35 |
|
|
22.74 |
|
|
2.17 |
|
|
10.32 |
|
N/A |
|
|
259.75 |
|
2013 Actual (Jan-July) |
|
|
28.4 |
|
|
80.73 |
|
|
194.11 |
|
|
33.65 |
|
|
3.97 |
|
|
1.43 |
|
N/A |
|
|
313.89 |
|
Total — LOM Forecast |
|
|
5,810 |
|
|
23.28 |
|
|
55.11 |
|
|
13.54 |
|
|
0.64 |
|
|
43.43 |
|
19.94 |
|
|
155.95 |
|
- (1)
- Steady
State — Projected operating costs upon completion of optimization phase construction.
- (2)
- Includes
Land Collapse Compensation of RMB0.05/tonne and the combined maintenance and safety production funds of RMB20.5/tonne in forecasted values. These
funds have been reallocated accordingly in the historical costs based on the nature of the actual incurred cost.
- (3)
- Basis
of coal washing production cost is RMB50/tonne of coal washed if coal washing is outsourced and RMB28.83/tonne of coal washed if coal washing is done
at the Company's coal washing facility (after 2014).
- (4)
- Includes
mine equipment rental fee of RMB68/tonne.
III-102
Table of Contents
12.0 CAPITAL COSTS
Capital costs for the development of the seven Coal Mines are shown in detail in Table 12.1. The projected capital requirements include the underground
development and surface facilities, as well as the capital costs required for initial equipment purchases. The projected base capacity capital costs are a combination of the capital costs as per the
original mine plan designs, actual expenditures through 2012, the Company's budgeted costs, and additional cost items such as the conversion to mechanical longwalls and the methane drainage and
inspection projects not initially required in the original mine plans. The Company's budgeted costs are based on the construction progress to date and the projected requirements to complete the base
capacity construction phase. The projected capital costs for the incremental increases in capacity above the base capacity are based on the optimized mine designs. BD Asia believes these projections
appear to be well thought-out and well developed. The capital expenditures envisioned by the Company for these aspects of the mining projects are reasonable.
No
capital costs have been included for the optimization phase of the Gouchang Coal Mine.
Table 12.1
includes the estimated capital costs for the port and the Jinsha Juli Beneficiation Plant. BD Asia views these capital cost estimates as conceptual because detailed
pre-feasibility studies consistent with international industry standards, have not been completed for either facility.
BD
Asia did review the basic design, process flow and equipment list for the Beneficiation Plant, all of which have been rather well described by the Company. The combined capital
expenditure for Phases One and Two of the Plant is stated as RMB73.46 million. For a total raw coal feed rate of 280 tph, that expenditure equates to a capital cost of approximately
RMB262,000 per tonne per hour of raw coal
throughput (73,460,000 ÷ 260). Internationally, the rules of thumb currently used when conceptually costing coal beneficiation plants range from RMB140,000 to
RMB205,000 per tonne per hour of raw coal feed. A facility similar to the envisioned Jinsha Juli facility would be expected to be at or above the high end of that range.
The
relatively higher "RMB per tph" figure calculated for the Jinsha Juli Plant is not unexpected, because the proposed Plant includes a number of high-capital-cost devices and systems,
most specifically state of the art pressure filters that will be used to dewater clean coal fines and waste slimes within the facility. Given the nature of the Plant's makeup and capability, the
suggested capital expenditure is reasonable.
In
the absence of details and specifications for the port facility, BD Asia could not develop any opinion with respect to the validity of the capital expenditures stated by the Company
for that element of the project.
III-103
Table of Contents
TABLE 12.1
BCFM TOTAL CAPITAL COSTS AS OF 31 DECEMBER 2012
(RMB MILLIONS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost Item
|
|
Baiping |
|
Yongsheng |
|
Dayun |
|
Gouchang |
|
Dayuan |
|
Liujiaba |
|
Zhulinzhai |
|
Total |
|
Capital Expenditures Required for Completion of Base Capacity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underground Construction |
|
|
3.3 |
|
|
76.8 |
|
|
80.5 |
|
|
— |
|
|
2.4 |
|
|
9.2 |
|
|
0.8 |
|
|
173.0 |
|
Surface Construction |
|
|
5.1 |
|
|
9.9 |
|
|
39.2 |
|
|
0.8 |
|
|
6.4 |
|
|
4.0 |
|
|
2.6 |
|
|
68.0 |
|
Facilities and Equipment |
|
|
14.5 |
|
|
78.4 |
|
|
119.7 |
|
|
3.2 |
|
|
8.2 |
|
|
7.8 |
|
|
1.2 |
|
|
233.0 |
|
Equipment Installation |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Other Expenditures |
|
|
0.5 |
|
|
24.9 |
|
|
55.7 |
|
|
— |
|
|
10.0 |
|
|
1.5 |
|
|
— |
|
|
92.6 |
|
Preliminary Expenditures |
|
|
2.4 |
|
|
14.3 |
|
|
28.5 |
|
|
0.4 |
|
|
— |
|
|
2.1 |
|
|
0.4 |
|
|
48.1 |
|
Coal Washing Facility |
|
|
— |
|
|
73.5 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
73.5 |
|
Port |
|
|
— |
|
|
6.4 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
6.4 |
|
Total |
|
|
25.8 |
|
|
284.2 |
|
|
323.6 |
|
|
4.4 |
|
|
27.0 |
|
|
24.6 |
|
|
5.0 |
|
|
694.6 |
|
Incremental Capital Expenditures Required for Optimized Capacity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underground Construction |
|
|
42.6 |
|
|
38.2 |
|
|
135.5 |
|
|
— |
|
|
12.6 |
|
|
30.0 |
|
|
16.6 |
|
|
275.5 |
|
Surface Construction |
|
|
14.4 |
|
|
4.2 |
|
|
12.5 |
|
|
— |
|
|
5.8 |
|
|
9.2 |
|
|
7.2 |
|
|
53.3 |
|
Facilities and Equipment |
|
|
32.7 |
|
|
66.5 |
|
|
94.8 |
|
|
— |
|
|
16.1 |
|
|
35.4 |
|
|
28.2 |
|
|
273.7 |
|
Equipment Installation |
|
|
5.7 |
|
|
7.4 |
|
|
35.9 |
|
|
— |
|
|
2.6 |
|
|
9.5 |
|
|
1.8 |
|
|
62.9 |
|
Other Expenditures |
|
|
11.4 |
|
|
10.0 |
|
|
27.2 |
|
|
— |
|
|
4.8 |
|
|
10.9 |
|
|
4.4 |
|
|
68.7 |
|
Preliminary Expenditures |
|
|
10.7 |
|
|
12.6 |
|
|
30.6 |
|
|
— |
|
|
4.2 |
|
|
9.5 |
|
|
5.8 |
|
|
73.4 |
|
Total |
|
|
117.5 |
|
|
138.9 |
|
|
336.5 |
|
|
— |
|
|
46.1 |
|
|
104.5 |
|
|
64.0 |
|
|
807.5 |
|
Total Capital Costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underground Construction |
|
|
45.9 |
|
|
115.0 |
|
|
216.0 |
|
|
— |
|
|
15.0 |
|
|
39.2 |
|
|
17.4 |
|
|
448.6 |
|
Surface Construction |
|
|
19.5 |
|
|
14.1 |
|
|
51.7 |
|
|
0.8 |
|
|
12.2 |
|
|
13.2 |
|
|
9.8 |
|
|
121.3 |
|
Facilities and Equipment |
|
|
47.2 |
|
|
144.9 |
|
|
214.5 |
|
|
3.2 |
|
|
24.3 |
|
|
43.2 |
|
|
29.4 |
|
|
506.7 |
|
Equipment Installation |
|
|
5.7 |
|
|
7.4 |
|
|
35.9 |
|
|
— |
|
|
2.6 |
|
|
9.5 |
|
|
1.8 |
|
|
62.8 |
|
Other Expenditures |
|
|
11.9 |
|
|
34.9 |
|
|
82.9 |
|
|
— |
|
|
14.8 |
|
|
12.4 |
|
|
4.4 |
|
|
161.3 |
|
Preliminary Expenditures |
|
|
13.1 |
|
|
26.9 |
|
|
59.1 |
|
|
0.4 |
|
|
4.2 |
|
|
11.6 |
|
|
6.2 |
|
|
121.6 |
|
Beneficiation Plant |
|
|
— |
|
|
73.5 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
73.5 |
|
Port |
|
|
— |
|
|
6.4 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
6.4 |
|
Total |
|
|
143.3 |
|
|
423.1 |
|
|
660.1 |
|
|
4.4 |
|
|
73.1 |
|
|
129.1 |
|
|
69.0 |
|
|
1,502.1 |
|
III-104
Table of Contents
13.0 FINANCIAL ANALYSIS
13.1 INTRODUCTION
BD Asia reviewed the BCFM prepared by the Company titled "Project Champion Projection — 09242013.xls" as received by BD Asia
on 24 September 2013. The technical operating parameters, revenues, operating costs, taxes, and capital costs for the Mines and Properties are integrated into the BCFM, resulting in the
determination of the after-tax net income and cash flow
for each property and the aggregate of the seven projects for 18 years commencing in Year 2013 and ending 2030.
The
objective of BD Asia's evaluation of the BCFM was to validate the economic viability of the seven Mines and Properties in support of the Proved and Probable Reserves reported in this
ITR. This financial evaluation is not intended to represent the fair market value of the seven Mines and Properties. The focus of this financial
evaluation was on the reasonableness of the mining technical inputs into the BCFM and the effect of those inputs on the economic viability of the Mines and Properties; thus, substantiating the
categorization of the reported Proved and Probable Reserves. BD Asia's financial analysis was performed in the context of Reserves and did not address tonnages in lesser categories.
BD
Asia's review relied upon the documents made available to BD Asia, BD Asia's site visits, and BD Asia's experience within the industry. BD Asia believes that the incorporation of the
technical inputs into the BCFM is consistent with generally accepted calculation methodologies used industry-wide. Additionally, BD Asia reviewed the structure of the Company's spreadsheet model and
key mathematical formulas for accuracy and consistency with project documents and technical inputs.
It
should be noted that the BCFM was presented on an after-tax basis and debt financing has been included. BD Asia did not review the terms of the debt financing or interest
calculations.
All
costs and revenues are reported in "real" or constant RMBs without escalation. BD Asia recommends the use of a constant currency approach when modeling cash flows for mining
operations because:
- 1)
- Coal
sales prices have not been annually escalated to reflect the effect of inflation; therefore, it would not be appropriate to annually escalate production
costs.
- 2)
- Errors
or omissions in estimating production costs are further compounded in later years as the operating costs are escalated to reflect the effect
of inflation.
III-105
Table of Contents
The
BCFM is based on 100% interest with the annual projected cash flows adjusted accordingly for the Company's level of interest, as shown in Table 13.1. The NPV for each Mine and
Property is determined on the basis of the Company's level of interest.
TABLE 13.1
COMPANY HOLDINGS IN THE SEVEN MINES
|
|
|
|
|
Coal Mine
|
|
Company's Level
of Interest (%) |
|
Baiping |
|
|
70 |
|
Yongsheng |
|
|
70 |
|
Dayun |
|
|
100 |
|
Gouchang |
|
|
99 |
|
Dayuan |
|
|
99 |
|
Liujiaba |
|
|
99 |
|
Zhulinzhai |
|
|
99 |
|
The
BCFM is based upon certain information and assumptions with respect to future events and conditions. For the purpose of this report, BD Asia has used and relied upon information
provided by sources that BD Asia believes to be reliable. BD Asia believes that the use of such information and assumptions is reasonable for the purposes of this report. However, actual performance
might vary significantly from the assumptions and forecasts due to unanticipated events and circumstances. To the extent that actual future conditions may differ from those assumed herein or provided
by others, the actual results will vary from those forecast in the BCFM.
13.2 TECHNICAL ASSUMPTIONS — BCFM INPUTS
13.2.1 Basis of BCFM Inputs
The basis of the BCFM production volumes and unit production costs are the "original mine designs" and the "optimization mine designs"
for the individual seven Mines and Properties. These designs were prepared by JPCM who produced the LOM plans and production schedules at each Mine. BD Asia believes that taken in combination, the
studies developed by WZMM and JPCM are equivalent to pre-feasibility level representations of the operational and financial aspects of the seven Mines.
III-106
Table of Contents
The
final production capacity at each Mine (except Gouchang) will be accomplished in two phases. The first phase incorporates the design parameters as per the original mine design to
achieve a base production capacity. The original mine designs were prepared by [WZMM] and are described in the documents shown in Table 13.2.
TABLE 13.2
ORIGIN OF ORIGINAL MINE DESIGN PARAMETERS
|
|
|
|
|
|
|
|
|
Number
|
|
Coal Mine |
|
Name of the Report |
|
Year of the Report |
|
| 1 |
|
Baiping |
|
01_Baiping feasibility study.pdf |
|
|
2002 |
|
| 2 |
|
Yongsheng |
|
02_Yongsheng feasibility study.pdf |
|
|
2007 |
|
| 3 |
|
Dayun |
|
03_Dayun feasibility study.pdf |
|
|
2010 |
|
| 4 |
|
Gouchang |
|
04_Gouchang Mine design.pdf |
|
|
2010 |
|
| 5 |
|
Dayuan |
|
05_Dayuan Mine design.doc |
|
|
2009 |
|
| 6 |
|
Liujiaba |
|
06_Liujiaba Mine design.doc |
|
|
2008 |
|
| 7 |
|
Zhulinzhai |
|
07_Linjiaao Mine design.doc |
|
|
2007 |
|
The
optimization mine design reports produced by JPCM in March 2011 are based on the incremental increases in production above the base capacity and do not address the original
mine design parameters in any significant detail. The operating costs and capital costs are also reported on an incremental basis. BD Asia was provided with these reports and has used these reports as
the basis for the review of the BCFM, as it pertains to the optimized mine design, including the production targets, operating costs, and capital costs.
In
the BCFM, the Company modified the original and optimization production volumes and unit production costs to account for more recent management plans and budgets. In particular, these
changes include:
1)- Modifications
to the unit production costs to reflect IFRS requirement of amortizing the fair value of the mining rights over the proven and probable reserves, and others.
- 2)
- Lower
coal production volumes during the first several years of production years to reflect the Company's internal annual budgets and the latest conditions
in Guizhou, including pertinent government regulations. By 2019, the BCFM production volumes are equal to the combined production volumes projected in the original and optimization
mine designs.
- 3)
- Estimations
of a product mix and associated coal product pricing. The original and optimization mine designs assume a single product.
- 4)
- A
15% increase in wages to reflect the Chinese social security requirements.
BD
Asia did not review the underlying assumptions regarding the current management production volumes and costs; however, the management projections appear to be more conservative than
those outlined in the original and optimized mine plans.
III-107
Table of Contents
13.2.2 Cash Flow Timeline
The BCFM is based upon an 18-year period from the Year 2013 through the Year 2030. Each of the seven Coal Mines have been modeled at
its particular stage of development, as discussed in detail earlier in this report. As of 31 July 2013, Baiping, Liujiaba, and Zhulinzhai Coal Mines were in commercial production. The
remaining Mines are under construction and in various stages of completion, including pilot operation. BD Asia believes that all the Mines under construction are well enough advanced to be designated
"Mines" in accordance with the recent SEHK Guidance issued in March 2013.
Steady
state operations are achieved by 2019 with the completion of all the construction phases at each of the seven Coal Mines. These steady state production targets and operating costs
are assumed in the BCFM to continue through the Year 2030.
13.2.3 LOM and Reserves
The BCFM is based on the first 18 years of Proved and Probable Reserves at the seven Coal Mines, as defined by the JORC Code and
evaluated by BD Asia in this report (Table 13.3). At the end of the BCFM analysis period of 18 years, significant tonnages of Proved and Probable Reserves are expected to remain at
essentially all of the Coal Mines.
TABLE 13.3
COMPARISON OF JORC CODE EQUIVALENT RESERVES (AS OF 31 JULY 2013) AND
BCFM PROJECTED PRODUCTION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal Mine
|
|
Proved and
Probable Reserves(3)
(Mt) |
|
Optimized Annual
Design Tonnage
(kt) |
|
Estimated
Mine Life(1)
(years) |
|
BCFM Total
Production Volume
(Mt)(2)
(2013-2030) |
|
Baiping |
|
|
22.48 |
|
|
600 |
|
|
37 |
|
|
9.70 |
|
Yongsheng |
|
|
51.96 |
|
|
1,800 |
|
|
29 |
|
|
28.47 |
|
Dayun |
|
|
97.29 |
|
|
1,800 |
|
|
54 |
|
|
25.89 |
|
Gouchang |
|
|
5.72 |
|
|
110 |
|
|
52 |
|
|
1.67 |
|
Dayuan |
|
|
8.26 |
|
|
450 |
|
|
18 |
|
|
7.33 |
|
Liujiaba |
|
|
13.60 |
|
|
600 |
|
|
23 |
|
|
9.14 |
|
Zhulinzhai |
|
|
9.56 |
|
|
450 |
|
|
21 |
|
|
7.26 |
|
| |
|
|
|
|
|
|
|
|
|
Total |
|
|
208.87 |
|
|
5,810 |
|
|
NA |
|
|
89.45 |
|
| |
|
|
|
|
|
|
|
|
|
- (1)
- Estimated
Mine Life calculated with Proved and Probable Reserves only at the optimized annual design tonnage.
- (2)
- Includes
coal produced during construction and development.
- (3)
- Totals
are subject to rounding adjustment.
13.2.4 Coal Production
The annual production schedule outlined in the BCFM is shown in Table 13.4. The annual production forecasts at each Mine
gradually increases as the production at each Mine is increased with the completion of the expansion and optimization phases. Steady state production is expected to be attained at all seven Coal Mines
by the Year 2019.
III-108
Table of Contents
TABLE 13.4
BCFM FORECASTED ANNUAL COMMERCIAL COAL PRODUCTION BY MINE
(KTPA)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal Mine
|
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
2018 |
|
2019 — LOM |
|
Baiping |
|
|
290 |
|
|
300 |
|
|
300 |
|
|
300 |
|
|
500 |
|
|
600 |
|
|
600 |
|
Yongsheng |
|
|
— |
|
|
550 |
|
|
900 |
|
|
900 |
|
|
1,800 |
|
|
1,800 |
|
|
1,800 |
|
Dayun |
|
|
— |
|
|
— |
|
|
360 |
|
|
900 |
|
|
900 |
|
|
975 |
|
|
1,800 |
|
Gouchang |
|
|
— |
|
|
— |
|
|
20 |
|
|
110 |
|
|
110 |
|
|
110 |
|
|
110 |
|
Dayuan |
|
|
22 |
|
|
200 |
|
|
300 |
|
|
375 |
|
|
450 |
|
|
450 |
|
|
450 |
|
Liujiaba |
|
|
140 |
|
|
200 |
|
|
300 |
|
|
300 |
|
|
300 |
|
|
500 |
|
|
600 |
|
Zhulinzhai |
|
|
60 |
|
|
180 |
|
|
300 |
|
|
325 |
|
|
450 |
|
|
450 |
|
|
450 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
512 |
|
|
1,430 |
|
|
2,480 |
|
|
3,210 |
|
|
4,510 |
|
|
4,885 |
|
|
5,810 |
|
Trial Coal(1) |
|
|
378 |
|
|
250 |
|
|
420 |
|
|
775 |
|
|
270 |
|
|
610 |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
890 |
|
|
1,680 |
|
|
2,900 |
|
|
3,985 |
|
|
4,780 |
|
|
5,495 |
|
|
5,810 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- (1)
- A
trial period will occur at the Mines at the end of each construction phase. The coal produced during this period has been modeled in the BCFM as a credit
toward the cost of construction.
The
Company has indicated that most of its 2012 coal production was sold as thermal coal. Coal sales in 2013 and 2014 will continue to be primarily thermal coal with only a portion sold
as chemical coal in 2014. This product mix has been primarily driven by the Guizhou government's requirement for the Company to produce and sell a minimum amount of thermal coal, which has taken a
significant portion of the Company's production capacity. Starting in 2014, the Company intends to beneficiate certain portions of the run-of-mine coal as necessary to enhance marketability and
facilitate the sale of differing grades of coal.
After
2014, a majority of the coal has been projected by the Company to be sold as either chemical coal for the production of synthetic ammonia or methanol or as thermal coal to the
electric power industry. Some PCI coal will be produced at the Baiping, Yongsheng, and Dayun Coal Mines for use in
the steel industry. The overall product mix is shown in Table 13.5 and was discussed in detail earlier in this report.
TABLE 13.5
PRODUCT MIX DISTRIBUTION BY YEAR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal Product
|
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
2018 |
|
2019 |
|
PCI |
|
|
0 |
% |
|
4 |
% |
|
13 |
% |
|
13 |
% |
|
14 |
% |
|
14 |
% |
|
14 |
% |
Chemical Coal — Lump |
|
|
3 |
% |
|
10 |
% |
|
31 |
% |
|
31 |
% |
|
31 |
% |
|
31 |
% |
|
32 |
% |
Chemical Coal — Fine |
|
|
1 |
% |
|
5 |
% |
|
20 |
% |
|
20 |
% |
|
20 |
% |
|
20 |
% |
|
20 |
% |
Thermal Coal |
|
|
96 |
% |
|
81 |
% |
|
26 |
% |
|
25 |
% |
|
23 |
% |
|
24 |
% |
|
22 |
% |
High Ash Anthracite |
|
|
0 |
% |
|
0 |
% |
|
10 |
% |
|
11 |
% |
|
12 |
% |
|
11 |
% |
|
12 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
|
100 |
% |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Source:- "Project
Champion Projection — 09242013.xls" — Company's model used to generate net income and
cash flows.
III-109
Table of Contents
13.2.5 Coal Sales Price and Revenues
The forecasted sales prices incorporated into the BCFM and provided by the Company are shown in Table 13.6. As per the Company,
the primary source for these prices is from the Fenwei Energy marketing report dated November 2012 and prepared for the Company. Subsequent updates were made by Fenwei Energy and have also been
incorporated by the Company into the BCFM. Fenwei Energy has projected that anthracite prices in Guizhou will generally increase over the next several years as a function of the decreasing anthracite
reserves within the PRC, the Guizhou, and surrounding provinces. The thermal coal and high ash anthracite prices are based on historical prices, as per the Company. All the coal prices are Mine-mouth
prices unless stated otherwise and include all taxes with the exception of the 17% VAT.
TABLE 13.6
BCFM PROJECTED COAL PRICES
(RMB/TONNE, MINE-MOUTH PRICES, EXCLUSIVE OF 17% VAT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year |
|
|
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
2018 |
|
2019 |
|
PCI (base price) |
|
|
541 |
|
|
661 |
|
|
772 |
|
|
778 |
|
|
781 |
|
|
779 |
|
|
774 |
|
Chemical Coal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Lump |
|
|
450 |
|
|
550 |
|
|
642 |
|
|
646 |
|
|
648 |
|
|
648 |
|
|
645 |
|
(2) Fine |
|
|
323 |
|
|
323 |
|
|
407 |
|
|
406 |
|
|
405 |
|
|
408 |
|
|
403 |
|
Thermal Coal (base price) |
|
|
313 |
|
|
313 |
|
|
313 |
|
|
313 |
|
|
313 |
|
|
313 |
|
|
313 |
|
High Ash Anthracite |
|
|
192 |
|
|
192 |
|
|
192 |
|
|
192 |
|
|
192 |
|
|
192 |
|
|
192 |
|
Weighted Average Prices Based on Product Mix |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PCI |
|
|
N/A |
|
|
661 |
|
|
772 |
|
|
778 |
|
|
781 |
|
|
779 |
|
|
774 |
|
Chemical Coal |
|
|
432 |
|
|
476 |
|
|
550 |
|
|
554 |
|
|
554 |
|
|
555 |
|
|
555 |
|
Thermal Coal(1) |
|
|
294 |
|
|
298 |
|
|
313 |
|
|
313 |
|
|
313 |
|
|
313 |
|
|
313 |
|
High Ash Anthracite |
|
|
N/A |
|
|
N/A |
|
|
192 |
|
|
192 |
|
|
192 |
|
|
192 |
|
|
192 |
|
Weighted Average Price for All Sales(2) |
|
|
299 |
|
|
339 |
|
|
479 |
|
|
484 |
|
|
489 |
|
|
488 |
|
|
491 |
|
- (1)
- Lower
thermal coal sales prices have been projected for the Yongsheng Coal Mine in 2013 due to reduced coal quality resulting from faults. Lower thermal
coal prices have also been incorporated for the Liujiaba and Zhulinzhai Coal Mines in 2013 and 2014 due to reduced coal quality resulting from faults (Liujiaba) and the current coal prices being
realized at these mines.
- (2)
- Includes
high ash anthracite by-product sales.
III-110
Table of Contents
Coal
prices in the PRC are dependent upon several factors including, but not limited to: (1) regional demand; (2) regional infrastructure and transportation capabilities;
(3) whether the coal is sold domestically or exported; (4) coal quality; and (5) contracts to off-takers. For this reason, it is important to ensure the coal prices are for a
specific region rather than a general price for the overall of PRC. For comparison to the projected prices, the historical price trends reported by Fenwei Energy for the Guizhou province and region
are shown in Figure 13.1. The overall coal industry in the PRC has seen some price volatility in the past year as a function of coal supply and demand mechanisms throughout the PRC and declines
in the PRC and global economies.
Figure 13.1. PCI and anthracite coal price trends in the Guizhou Province
(Source: Fenwei Energy; Prices quoted above are mine-mouth prices unless otherwise stated)
III-111
Table of Contents
Prices
projected in the BCFM are compared against historical prices in Table 13.7.
TABLE 13.7
COMPARISON OF BCFM-PROJECTED COAL PRICES VERSUS
HISTORICAL COAL PRICES
(RMB/TONNE, MINE-MOUTH PRICES, EXCLUSIVE OF 17% VAT)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Regional
Historical Prices(1) |
|
Coal Product
|
|
BCFM Projected Average
Steady State Prices |
|
2012 |
|
Jan — July
2013 |
|
PCI — Base Price |
|
|
771 |
|
|
952 |
|
|
784 |
|
Anthracite — Large Lump |
|
|
646 |
(2) |
|
1,007 |
|
|
810 |
|
Anthracite — Mid Lump |
|
|
N/A |
|
|
938 |
|
|
778 |
|
Anthracite — Smalls |
|
|
N/A |
|
|
951 |
|
|
729 |
|
Anthracite — Slack |
|
|
406 |
|
|
486 |
(fine) |
|
403 |
(fine) |
Thermal Coal(3) |
|
|
313 |
|
|
323 |
|
|
283 |
|
- (1)
- Source:
http://en.sxcoal.com
- (2)
- Base
price in the BCFM for all lump chemical coals.
- (3)
- Historical
price based on actual prices achieved by the Company in 2012.
The
BCFM-projected average steady state prices are generally conservative compared to the 12-month historical average prices in 2012 and the 7-month historical average prices in 2013.
Since cash flows are most sensitive to commodity prices, BD Asia has prepared several sensitivity analyses incorporating changes to the projected steady state coal prices in the BDFM. These
sensitivity analyses are presented later in this report.
Overall
revenues from all the Mines are projected grow from RMB153.1 million in 2013 to RMB2.72 billion in 2019 (assuming 100% level of interest). The breakdown of revenues
by coal product is shown in Figure 13.2. Chemical coal sales account for 62% of the total revenues while PCI and thermal coal sales account for 23% and 15% of the total revenues, respectively.
Revenues from the sale of high-ash anthracite are treated as a by-product credit to the cost of production and, as such, are not included in the revenues total. The sale of the Company's coal as
chemical coal types is essential to the attainment of projected revenue levels.
III-112
Table of Contents
Total Revenue Distribution by Coal Type
|
|
|
|
|
|
Figure 13.2. |
|
Total revenue distribution by coal type (Note: does not include revenues from the high ash anthracite; those revenues are treated as by-product revenues offsetting operating costs) |
13.2.6 Cost of Production
The BCFM cost of production is based on several factors.
- •
- The weighted average of the operating costs associated with the original mine design base capacity and the incremental
production capacity associated with the optimization mine design.
- •
- The Company's management budgets.
The
steady state cost of production at the seven Mines is shown Table 13.8.
III-113
Table of Contents
TABLE 13.8
BCFM COST OF PRODUCTION — STEADY STATE (LOM)
(RMB/TONNE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost Item
|
|
Baiping |
|
Yongsheng |
|
Dayun |
|
Gouchang |
|
Dayuan |
|
Liujiaba |
|
Zhulinzhai |
|
Production Costs — Cash Costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials |
|
|
27.5 |
|
|
13.5 |
|
|
27.6 |
|
|
30.0 |
|
|
27.6 |
|
|
28.0 |
|
|
27.5 |
|
Wages and Labor |
|
|
65.4 |
|
|
29.6 |
|
|
65.6 |
|
|
71.3 |
|
|
65.6 |
|
|
69.0 |
|
|
69.0 |
|
Power |
|
|
11.4 |
|
|
13.0 |
|
|
13.0 |
|
|
16.5 |
|
|
11.7 |
|
|
17.1 |
|
|
17.1 |
|
Maintenance |
|
|
0.5 |
|
|
0.5 |
|
|
0.5 |
|
|
0.4 |
|
|
1.1 |
|
|
1.0 |
|
|
1.1 |
|
Other(1) |
|
|
21.9 |
|
|
90.5 |
|
|
22.1 |
|
|
23.6 |
|
|
24.2 |
|
|
22.8 |
|
|
22.9 |
|
Coal Washing2 |
|
|
22.3 |
|
|
16.9 |
|
|
27.0 |
|
|
16.0 |
|
|
17.0 |
|
|
13.0 |
|
|
14.0 |
|
By-product Credit(3) |
|
|
(38.0 |
) |
|
(30.9 |
) |
|
(28.5 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Production Costs — Non-cash Costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
21.1 |
|
|
24.2 |
|
|
20.1 |
|
|
26.3 |
|
|
25.1 |
|
|
20.3 |
|
|
24.8 |
|
Mining Right Amortization |
|
|
11.1 |
|
|
2.9 |
|
|
0.9 |
|
|
34.6 |
|
|
27.3 |
|
|
20.9 |
|
|
28.7 |
|
Total Production Costs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash Production Costs |
|
|
111.0 |
|
|
132.6 |
|
|
127.2 |
|
|
157.7 |
|
|
147.1 |
|
|
150.9 |
|
|
151.6 |
|
Total Non-cash Production Costs |
|
|
32.2 |
|
|
29.1 |
|
|
21.0 |
|
|
60.9 |
|
|
52.4 |
|
|
41.2 |
|
|
53.5 |
|
Total Production Costs |
|
|
143.3 |
|
|
161.7 |
|
|
148.2 |
|
|
218.6 |
|
|
199.4 |
|
|
192.1 |
|
|
205.1 |
|
- (1)
- Includes
Coal Mine Safety Fee (RMB10/tonne) and Coal Mine Maintenance Fee (RMB10.5/tonne) and is accrued for use as sustaining capital. Includes mine
equipment rental fee of RMB68/tonne at the Yongsheng Coal Mine.
- (2)
- Basis
of coal washing production cost is RMB50/tonne of coal washed if coal washing is outsourced and RMB28.83/tonne of coal washed if coal washing is done
at the Company's coal washing facility (after 2014).
- (3)
- By-product
credit for sale of high ash anthracite.
III-114
Table of Contents
BD Asia believes the BCFM production costs are reasonable and generally conservative when compared to the original and optimization mine plan
documentation.
Coal
washing costs in Table 13.8 are based on a standard washing cost of RMB28.83 per tonne of coal once the Beneficiation Plant is constructed in 2014. The coal washing
cost is RMB50 per tonne of coal, if the coal washing function is outsourced to nearby coal washing facilities prior to the construction of the Beneficiation Plant and for any coal processed in
excess of the Beneficiation Plant capacity. This cost was determined on the basis of Memorandums of Understanding (MOU) between the Company and neighboring coal washing facilities.
13.2.7 Other Costs and Expenses
Other costs in the BCFM include selling costs, external administrative costs (from Guizhou Puxin) and on-site administrative costs
(Table 13.9). The selling costs include salaries, service fees, loading fees, and maintenance. Transportation costs have not been included as all the coal prices are mine mouth prices and the
customer bears the transportation costs.
BD
Asia has not reviewed the underlying assumptions for these other costs in any detail; however, BD Asia believes these costs appear to be comprehensive.
13.2.8 Taxes and Government Levies
The Mines are subject to several government levies, as shown in Table 13.9. BD Asia has not verified the government levy amounts
or requirements since this is out of BD Asia's scope of work.
III-115
Table of Contents
The
income tax rate is projected at 25% of operating profit (sales income or revenue less operating and other costs).
TABLE 13.9
BCFM OTHER COSTS AND EXPENSES AND GOVERNMENT
LEVIES — STEADY STATE (LOM)
(RMB/TONNE)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost Item
|
|
Baiping |
|
Yongsheng |
|
Dayun |
|
Gouchang |
|
Dayuan |
|
Liujiaba |
|
Zhulinzhai |
|
Selling Expenses |
|
|
8.0 |
|
|
5.6 |
|
|
6.8 |
|
|
14.0 |
|
|
7.9 |
|
|
7.3 |
|
|
10.7 |
|
Administrative Expense — On-Site |
|
|
27.0 |
|
|
11.9 |
|
|
15.5 |
|
|
71.0 |
|
|
37.9 |
|
|
19.5 |
|
|
24.9 |
|
Administrative Expense — External(1) |
|
|
7.5 |
|
|
7.5 |
|
|
7.5 |
|
|
7.5 |
|
|
7.5 |
|
|
7.5 |
|
|
7.5 |
|
Total |
|
|
42.5 |
|
|
25.0 |
|
|
29.8 |
|
|
92.5 |
|
|
53.3 |
|
|
34.3 |
|
|
43.1 |
|
Government Levies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales Related Levies |
|
|
7.8 |
|
|
8.6 |
|
|
8.5 |
|
|
6.3 |
|
|
6.0 |
|
|
10.6 |
|
|
10.3 |
|
Resources Taxes |
|
|
2.5 |
|
|
2.5 |
|
|
2.5 |
|
|
2.5 |
|
|
2.5 |
|
|
8.0 |
|
|
8.0 |
|
Resources Compensation Fee |
|
|
3.5 |
|
|
3.5 |
|
|
3.5 |
|
|
3.6 |
|
|
3.6 |
|
|
6.0 |
|
|
6.0 |
|
Levies on Coal Mines |
|
|
5.7 |
|
|
5.7 |
|
|
5.7 |
|
|
2.7 |
|
|
3.2 |
|
|
5.2 |
|
|
5.2 |
|
Price Adjustment Fee |
|
|
6.8 |
|
|
7.4 |
|
|
7.6 |
|
|
4.1 |
|
|
3.8 |
|
|
5.2 |
|
|
4.9 |
|
Other |
|
|
0.7 |
|
|
0.7 |
|
|
0.7 |
|
|
8.6 |
|
|
8.2 |
|
|
0.2 |
|
|
0.3 |
|
Total |
|
|
27.1 |
|
|
28.4 |
|
|
28.5 |
|
|
27.8 |
|
|
27.3 |
|
|
35.3 |
|
|
34.7 |
|
- (1)
- Includes
cash costs and depreciation. Does not include financing costs.
13.2.9 Capital Costs, Depreciation, and Amortization
Capital expenditures have been included in the BCFM for the completion of the construction phases at the seven Mines
(Table 13.10). The capital expenditure timing is consistent with the construction schedules discussed earlier in this report. BD Asia believes the BCFM capital expenditures
are reasonable.
In
the BCFM received from the Company, the capital expenditures are offset by the revenues generated from the sale of coal during the development and construction phases. It should be
noted that the revenues are determined on the basis of the product mix and coal sales prices discussed earlier. BD Asia believes it might be optimistic to assume the final product mix will be
accomplished during the construction phase (especially the base capacity construction phase). As evidence, almost all coal sales, to date, have been as thermal products.
According
to the Company, sustaining capital has been taken into account through accrued accounts for Coal Mine Safety Fee (RMB10 per tonne) and Coal Mine Maintenance Fee
(RMB10.5 per tonne) and has been included as part of the cost of sales (see Table 13.8).
Capital
expenditures have been depreciated on a per tonne basis (Proved and Probable Reserves) rather than on a straight-line depreciation basis. The fair values of the mining rights
have been amortized over the Proven and Probable Reserves.
III-116
Table of Contents
TABLE 13.10
BCFM TOTAL CAPITAL COSTS BY YEAR
(RMB MILLIONS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coal Mine
|
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
2017 |
|
2018 |
|
2019 |
|
2020 |
|
Total |
|
Baiping |
|
|
18.0 |
|
|
10.9 |
|
|
52.9 |
|
|
40.6 |
|
|
14.4 |
|
|
— |
|
|
— |
|
|
— |
|
|
136.8 |
|
Yongsheng |
|
|
128.3 |
|
|
41.4 |
|
|
71.8 |
|
|
36.9 |
|
|
16.2 |
|
|
3.2 |
|
|
14.7 |
|
|
3.2 |
|
|
315.7 |
|
Yongsheng — Port |
|
|
1.2 |
|
|
4.3 |
|
|
0.9 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
6.4 |
|
Yongsheng — Beneficiation Plant |
|
|
10.9 |
|
|
36.0 |
|
|
10.7 |
|
|
13.2 |
|
|
2.7 |
|
|
— |
|
|
— |
|
|
— |
|
|
73.5 |
|
Dayun |
|
|
137.5 |
|
|
121.4 |
|
|
29.0 |
|
|
150.7 |
|
|
113.1 |
|
|
47.6 |
|
|
36.6 |
|
|
— |
|
|
635.9 |
|
Gouchang |
|
|
3.5 |
|
|
0.2 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
3.7 |
|
Dayuan |
|
|
18.9 |
|
|
10.0 |
|
|
28.6 |
|
|
6.6 |
|
|
4.9 |
|
|
— |
|
|
— |
|
|
— |
|
|
69.0 |
|
Liujiaba |
|
|
19.7 |
|
|
6.8 |
|
|
31.3 |
|
|
32.3 |
|
|
23.4 |
|
|
12.0 |
|
|
— |
|
|
— |
|
|
125.5 |
|
Zhulinzhai |
|
|
3.5 |
|
|
7.5 |
|
|
36.1 |
|
|
13.5 |
|
|
7.2 |
|
|
— |
|
|
— |
|
|
— |
|
|
67.8 |
|
Total |
|
|
341.5 |
|
|
238.5 |
|
|
261.3 |
|
|
293.8 |
|
|
181.9 |
|
|
62.8 |
|
|
51.3 |
|
|
3.2 |
|
|
1,434.3 |
|
Construction Coal Net Cash |
|
|
23.1 |
|
|
32.8 |
|
|
102.3 |
|
|
174.2 |
|
|
61.1 |
|
|
151.0 |
|
|
— |
|
|
— |
|
|
544.5 |
|
Net Capital Costs |
|
|
318.4 |
|
|
205.7 |
|
|
159.0 |
|
|
119.6 |
|
|
120.8 |
|
|
(88.2 |
) |
|
51.3 |
|
|
3.2 |
|
|
889.8 |
|
13.2.10 Working Capital
Changes in working capital were determined for the purpose of calculating the annual cash flows. The projected increases in production,
coal sales prices, and operating expenditures during the first 8 years of the BCFM would be expected to have notable effects on working capital, especially accounts payable, accounts
receivables, and inventory. After steady state operations are achieved, changes to annual working capital would be expected to become minimal or nil. As such, the changes in working capital are
expected to have a greater effect on the cash flows in the earlier years of the analysis period.
The
Company has based changes in working capital on the following assumptions.
- •
- Accounts Payable — 97 days
- •
- Accounts Receivable — 118 days
- •
- Inventory — 70 days
13.2.11 Net Income and Cash Flow Determination
Net income or net profit is determined as the sales revenue less production costs, other costs, and government levies and taxes. To
determine the cash flow, the net income is adjusted for non-cash items, such as depreciation and working capital and cash disbursements, such as capital expenditures.
In
addition, the Company is required by the Guizhou provincial government to contribute to a rehabilitation fund for each Mine. The annual payment is determined as the product of an
imposed base price of RMB5 per tonne, a mining impact index (2 for all of the Mines except the Gouchang Coal Mine, which has an impact index of 1.5) and the designed tonnage capacity. A
ceiling of RMB100
III-117
Table of Contents
million
is imposed for each Mine. After the Mine has completed the required rehabilitation work at the end of the mine life, the Company can apply for the release of the restricted funds and accrued
interest. These funds are also available to the government to complete the rehabilitation work if the Company should be unable. These restricted fund contributions are deducted from the
cash flow.
13.3 DEMONSTRATION OF ECONOMIC VIABILITY
Each of the seven Coal Mines demonstrated a positive undiscounted NPV in the between the Years 2013 and 2019. BD Asia believes the Proved and Probable Reserves
for the seven Coal Mines, as presented earlier in this report, have demonstrated economic viability under reasonable financial assumptions. These results are dependent on the technical inputs
discussed in this report. Material changes in the production operating costs, capital costs, expansion completion dates, production tonnage, and coal sales price could affect these results.
13.4 SENSITIVITY ANALYSIS
To determine the effect of changing several of the base case assumptions, BD Asia prepared a sensitivity analysis. BD Asia believes that certain factors, such as
coal sales price, product mix, production volumes, operating costs, and capital costs, could have a significant effect on the financial performance of the Mines. The objective of the sensitivity
analyses is to determine the effect of varying several key parameters, as a point of comparison to the BCFM. The following parameters were evaluated.
- •
- Coal sales prices generally have the greatest effect on coal mine project economics. The sensitivity to changes in coal
sales prices was determined by varying the coal sales prices shown in Table 13.6 by ±10%, ±20%
and ±30%.
- •
- Projected production volumes have been affected and could be further affected in the future as a result of changes in
government policies, external events such as drought conditions and geologic anomalies such as faulting. The sensitivity to changes in production volumes was determined by varying the production
volumes in Table 13.4 by ±10%, ±20%, and ±30%.
- •
- The cash production costs were varied to determine the effect on NPV (limited to material, wages, power, maintenance, and
coal washing costs). Other costs, such as selling expenses and administrative costs, were not changed. The sensitivity to changes in the production costs was determined by varying the cash costs shown
in Table 13.8 by ±10%, ±20%, and ±30%. The non-cash costs were not changed.
- •
- Since the optimization phase of construction has not been fully initiated at any of the seven Coal Mines, a series of
sensitivities were completed to determine the effect of changing the incremental capital costs associated only with the optimized mine design (Table 13.10) by
±10%, ±20%, and ±30%. The capital expenditures associated with the original mine plans were not
changed because these expenditures are nearly completed.
III-118
Table of Contents
- •
- BD Asia conducted an additional sensitivity analysis reviewing the effect of changing the product mix by assuming the
Company is unable to sell its coal as a premium product (i.e., chemical coals or PCI coal) and all the coal is sold solely as thermal coal throughout
the LOM at all of the Mines. This scenario was applied to the sensitivities in price, production volumes, cash production costs and capital costs.
It
should be noted that in all of these cases, the particular parameter was changed for all seven Coal Mines over the full period of review (2013 through 2030). With the exception of
coal sales prices, it is unlikely that all of the Mines would experience the same increases or decreases in production volumes, production costs, capital expenditures, and product mix at the same time
over the entire period of review. As such, these sensitivity analyses generally present the best or the worst case scenarios in the ranges evaluated. The purpose of the sensitivity analysis is to
determine the robustness of the seven Mines in their totality rather than on an individual basis and to provide an indication of the relative effect that the various operating parameter can have on
the overall economics.
As
demonstrated in Figure 13.3 of the sensitivity factors reviewed, the cash flows and NPVs are most significantly affected by coal sales prices and production volumes. For each
sensitivity parameter reviewed (i.e., coal price, production volume, production cost, capital cost), the NPV demonstrates a greater sensitivity
to the parameter if the coal production is sold solely as thermal coal. This demonstrates the need for the Company to be able to sell a significant portion of its coal into markets other than the
thermal coal market.
III-119
Table of Contents
Undiscounted Cash Flow Sensitivity Analysis
Analysis Period: 2013-2030
|
|
|
|
|
|
Figure 13.3 |
|
NPV (undiscounted) sensitivity analysis — BCFM |
III-120
Table of Contents
14.0 RISK ANALYSIS
In reviewing the Company's coal mines, BD Asia has considered areas where there is perceived technical risk to the operation,
particularly where the risk component could materially impact the projected production and resulting cash flows. The assessment is necessarily subjective and qualitative, relying on the experience of
the professional undertaking the assessment. The following risk matrix definitions have been employed by BD Asia to assign risk factors to the various aspects and components of the Company's seven
Coal Mines (Table 14.1 and Table 14.2). These risk definitions are in accordance with the Chapter 18 Listing Rules and use a combination of the likelihood that a specific risk
will occur and the level of severity of a specific risk to categorize project risks as low, medium, or high. To the extent possible, BD Asia categorizes the risks according to the definitions
footnoted in the matrix in Table 14.1; however, there are instances where a risk may be categorized differently than shown in the matrix, as a result of the nature of a particular risk.
TABLE 14.1
OVERALL RISK ASSESSMENT MATRIX
|
|
|
|
|
|
|
|
|
Consequence of Risk |
Likelihood of Risk (within 7 years)
|
|
Minor(1) |
|
Moderate(2) |
|
Major(3) |
Likely — will probably occur |
|
Medium |
|
High |
|
High |
Possible — may occur |
|
Low |
|
Medium |
|
High |
Unlikely — unlikely to occur |
|
Low |
|
Low |
|
Medium |
- (1)
- Minor Risk: The factor, if uncorrected, will have little or no effect (<10%) on project cash flow
and performance.
- (2)
- Moderate Risk: The factor, if uncorrected, could have a significant effect (10% to 15% or 20%) on the
project cash flow and performance unless mitigated by some corrective action.
- (3)
- Major Risk: The factor poses an immediate danger of a failure, which if uncorrected, will have a material
effect (>15% to 20%) on the project cash flow and performance and could potentially lead to project failure.
TABLE 14.2
PROJECT RISK DETERMINATION FOR COAL MINES OF THE COMPANY
|
|
|
|
|
|
|
|
|
|
|
Risk Description |
|
Likelihood |
|
Consequence
Rating |
|
Risk
Level |
Geographic Location |
|
The mines are located in high topographic relief areas. Summer and winter are moderate with the rainy season in the summer. The rest of year is dry. Risk: Climate could
affect the operations. |
|
Unlikely |
|
Minor |
|
Low |
Infrastructure |
|
The levels of infrastructure are not well developed in any of the Mine areas. Emergency services are generally not quickly
available. Utilities are adequate. Risk: Infrastructure could constrain access to the sites. |
|
Possible |
|
Moderate |
|
Medium |
III-121
Table of Contents
|
|
|
|
|
|
|
|
|
|
|
Risk Description |
|
Likelihood |
|
Consequence
Rating |
|
Risk
Level |
Natural Disasters |
|
From a geological perspective, this risk is related to potential earth tremors. According to China National Standard B50011-2001 "Regulations on the Design of Earthquake Resisting Structures," the region is at an
earthquake intensity prevention level of VI. Basic earthquake acceleration is at 0.05 grams. Historically, the coal field has never experienced a strong earthquake. Risk: Earthquakes could
affect the operations. |
|
Unlikely |
|
Minor |
|
Low |
Geological |
|
Essentially, the geological risk is from the likelihood of unexpected but mild variation in the thicknesses of the seams and
interburdens. Risk: Variations in the seam thickness could affect production rates, run of mine coal quality, and ultimate product mix sold by the Company. |
|
Likely |
|
Minor to Moderate |
|
Medium |
|
|
The geological risk is also related to the likelihood of encountering unexpected anomalies, such as faults in the coal seam.
Faulting is prominent in each of the Mines. The Company believes the faults have been well defined and accounted for in the Mine planning; however, recent experience indicates that unanticipated faulting might be a problem. Risk: Seam anomalies could affect operations. |
|
Likely |
|
Minor to Moderate |
|
Medium |
Resource and
Reserves |
|
BD Asia has not audited the sampling data or conducted independent sampling. The exploration and resource calculations were
completed by government entities that have no stake in the Mines and their work is generally considered reputable. Risk: Incorrect sampling has affected the resource calculations. |
|
Unlikely |
|
Minor |
|
Low |
|
|
BD Asia believes the coal resource estimation database, procedures, and parameters applied by the government agencies to be
reasonable and appropriate. BD Asia believes the mining losses used by the agency, in some cases, are optimistic in multiple stacked seams. Risk: Reserve conversion from in-situ resources has not
been completed properly. |
|
Possible |
|
Minor to Moderate |
|
Low |
|
|
BD Asia believes that the tenure of the Coal Resources and Reserves at the Gouchang Coal Mine is at risk until it is consolidated
with one or more of the surround small mines or a new mine permit is issued. Risk: Gouchang has no JORC compliant Coal Resources and Reserves which represents less than 3% of the Company's total
Coal Reserves. |
|
Possible |
|
Minor |
|
Low |
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|
|
|
|
|
|
|
|
Risk Description |
|
Likelihood |
|
Consequence
Rating |
|
Risk
Level |
Mining and
Extraction |
|
The organization and machinery setup, observed by BD Asia in May 2013, is suitable to the geology of the deposits. The Mine plans are appropriately designed for the deposits, but there is some risk associated with
mining stacked seams in deposits where faulting has not been adequately defined. Risk: The mining methodology is inappropriate for the conditions. |
|
Possible |
|
Moderate |
|
Medium |
|
|
BD Asia believes that the Mine recoveries used in the reserve calculations are achievable for the first 5 years of
operation. The mining losses could be somewhat higher for deeper stacked seams due to the relatively small interburden distances in some cases. Risk: Mine recoveries and losses are
incorrect. |
|
Unlikely |
|
Minor to Moderate |
|
Low |
Coal Production |
|
BD Asia believes the forecasted production for the mines is reasonable and attainable. The production ramp-up periods appear to
reasonable and well thought out. Risk: Equipment and Mine plans are not appropriate to achieve production projections. |
|
Unlikely |
|
Moderate |
|
Low |
|
|
Unforeseen external events have caused significant delays in the past year in achieving construction and production schedules.
Risk: Projected production levels are reduced due to unforeseen circumstances (i.e., government regulations). |
|
Possible |
|
Moderate to Major |
|
Medium to High |
Coal Quality |
|
Coal quality data was made available to BD Asia during the field visit and from translations of the various studies provided to
BD Asia. The large number of coal seams and the individual quality variations from Mine to Mine and seam to seam make overall coal product quality difficult to define. Risk: Coal quality has not
been fully defined. |
|
Unlikely |
|
Major |
|
Medium |
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|
|
|
|
|
|
|
Risk Description |
|
Likelihood |
|
Consequence
Rating |
|
Risk
Level |
Product Mix |
|
Encountering unanticipated faults in the coal seams can result in raw coal ash contents that are higher than planned. Significant periods of fault mining at one or more Mines can create more high ash coal than anticipated,
creating challenges for coal beneficiation and blending systems. Risk: Product mix can be shifted toward higher percentages of low quality — low value coals than planned. |
|
Possible |
|
Minor to Moderate |
|
Medium |
|
|
Government mandated requirements for the continuing production of primarily thermal coal could continue beyond 2014. Risk: Coal revenues will continue to be lower than could be realized with premium coal products. |
|
Possible |
|
Moderate |
|
Medium |
|
|
The Company has targeted anthracite sales for uses other than thermal coal. These coal sales will realize higher coal sales
prices. The sensitivity analysis shows that selling the coal as thermal coal demonstrated higher sensitivities to changes in coal prices, production volumes, and operating and capital costs. Risk: Coal is sold only as thermal coal, thus, reducing revenues and demonstrating greater risk to changes in pricing, production, and costs. |
|
Possible |
|
Moderate to Major |
|
Medium to High |
General Utilization
of the Mines'
Products |
|
The anthracite coal to be mined at all the Mines appears to be of relatively high quality and amenable to diverse markets after
washing. Risk: Coals do not respond to washing. |
|
Unlikely |
|
Moderate |
|
Low |
External
Marketability |
|
When washed, the coals appear to result in comparatively high quality products with a significant portion of the washed coal
possessing physical and chemical characteristics that make them attractive as high value PCI components. The extent to which these coals can be upgraded has not been full quantified. Risk: Coal is
not marketable to markets that offer premium pricing. |
|
Unlikely |
|
Major |
|
Medium |
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|
|
|
|
|
|
|
|
|
Risk Description |
|
Likelihood |
|
Consequence
Rating |
|
Risk
Level |
Environment, Safety, Health, and Community |
|
Environmental oversight activities appear to be well developed and supervised. Compliance with government regulations was observed. Risk: The Company is not in
compliance with regulations. |
|
Unlikely |
|
Moderate |
|
Low |
|
|
The Company has developed or is developing impressive labor and management training programs. Risk: Labor force will be unable to efficiently operate the longwall equipment. |
|
Unlikely |
|
Minor |
|
Low |
|
|
Community communications have been developed. Re-location problems at some mines are still outstanding issues though the Company
has made progress. Risk: Villagers refusing to re-locate and demanding higher compensation. |
|
Possible |
|
Minor to Moderate |
|
Low |
Licenses and Permits |
|
All the Mines appear to have in hand or have applied for all licenses and permits necessary to conduct their mining operations.
Risk: Renewal of permits not on time. |
|
Unlikely |
|
Moderate |
|
Low |
Regulatory Issues |
|
Changes in government policies are unpredictably affecting Feishang's Mine development progress. Policies introduced in other
provinces are now being applied to Guizhou province. The recently introduced gas test review and the integration policy in this province has caused a standoff at Gouchang. It is possible that after completion of the newly introduced industry
consolidation, from 2013 to 31 March 2014, approval for mine expansion might be suspended temporarily. Therefore, Feishang had to conservatively re-schedule Phase II construction of Liujiaba and Zhulinzhai to January 2015.
Risk: Poor safety measures and mining methods at non Feishang Mines will cause the government to introduce more policies, thus, having negative effects on the Company's Mines. |
|
Possible |
|
Minor to Moderate |
|
Low to Medium |
Operating Costs |
|
BD Asia believes the future cost projections are achievable and reasonable. Risk: Operating costs have been under estimated. |
|
Possible |
|
Minor to Moderate |
|
Low to Medium |
Capital Costs |
|
Capital cost forecasts provided to BD Asia are typical for this type of operation. Risk: Capital expenditures have been under estimated. |
|
Possible |
|
Minor to Moderate |
|
Low to Medium |
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|
|
|
|
|
|
Risk Description |
|
Likelihood |
|
Consequence
Rating |
|
Risk
Level |
Coal Sale Prices |
|
Changes in coal sales prices could have a significant impact on the economics of the mines. Risk: Coal prices do not achieve levels projected by Fenwei
Energy. |
|
Possible |
|
Moderate to Major |
|
Medium |
Management and Personnel |
|
Local Mine management and supervisory staff, observed by BD Asia, appeared to be competent in ability and experience. The Company
appears to be progressive in management and supervisory development. Risk: The Company and management are not competent. |
|
Unlikely |
|
Moderate |
|
Low |
BD Asia believes the following aspects of the project present the highest risks.
- 1)
- Surface
transportation in the Mine areas is not well developed, though during the October 2013 site visit, the BD Asia team did observe that upgrading
of local haul roads is being undertaken.
- 2)
- Mining
of the lower stacked seams, particularly with thin interburdens, may reduce the percentage of recovery in the longer term.
- 3)
- Production
ramp-up time required for the new, mechanized longwalls may be longer than anticipated due to lack of experience in this type of mining in the
work force and supervisory staff.
- 4)
- A
reduction or changes in the proportion of PCI and chemical coal sales would have a negative effect on the economics; especially if a greater proportion of
the coal is sold as lower-priced thermal coal.
- 5)
- Encountering
previously unidentified faults in coal seams may impact raw coal quality and production volumes, thus, shifting the product mix toward coal
products of lower quality.
- 6)
- Unanticipated
changes in governmental regulations make forecasting difficult due to the potential for unanticipated delays, changes to operational procedures
and methods, increases to capital and operating costs, and mandated requirements in the products produced for sale.
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APPENDIX IV
SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND
BRITISH VIRGIN ISLANDS COMPANIES LAW
Set out below is a summary of certain provisions of the Memorandum of Association and Articles of Association of our Company and of
certain aspects of BVI company law.
A. SUMMARY OF THE CONSTITUTION OF THE COMPANY
1. Memorandum of Association
The Memorandum of Association was filed on ,
2013 and states, inter alia, that the liability of members of the Company is limited, that the
objects for which the Company is established are unrestricted and the Company shall have full power and authority to carry out any object not prohibited by the Companies Act or any other law of
the BVI.
1.1 Classes of Shares
The Company is authorised to issue ordinary shares. Pursuant to the Memorandum of Association, the maximum number of shares that the Company is authorised to
issue is 1,000,000,000 shares with a par value of HK$0.01.
The
Memorandum of Association is available for inspection at the address specified in Appendix VI — "Documents Available for Inspection".
2. Articles of Association
The Articles of Association were filed on ,
2013 and include provisions to the following effect:
2.1 Directors
(a) Power to allot and issue Shares
Subject to the provisions of the Companies Act and the Memorandum of Association and Articles of Association, the unissued shares in the Company (whether forming
part of its original or any increased number of shares the Company is authorised to issue) shall be at the disposal of the Directors, who may offer, allot, grant options over or otherwise dispose of
them to such persons, at such times and for such consideration, and upon such terms, as the Directors shall determine.
Subject
to the provisions of the Articles of Association and to any direction that may be given by the Company in general meeting and without prejudice to any special rights conferred on
the holders of any existing shares or attaching to any class of shares, any share may be issued with or have attached thereto such preferred, deferred, qualified or other special rights or
restrictions, whether in regard to dividend, voting, return applicable to shares or otherwise, and to such persons at such time and for such consideration as the Directors may determine. Subject to
the Companies Act and to any special rights conferred on any members or attaching to any class of shares, any share may, with the sanction of a special resolution of members, be issued on terms that
it is, or at the option of the Company or the holder thereof, liable to be redeemed.
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(b) Power to dispose of the assets of the Company or any subsidiary
The management of the business of the Company shall be vested in the Directors who, in addition to the powers and authorities by the Articles of Association
expressly conferred upon them, may exercise all such powers and do all such acts and things as may be exercised or done or approved by the Company and are not by the Articles of Association or the
Business Companies Act expressly directed or required to be exercised or done by the Company in general meeting.
(c) Compensation or payment for loss of office
Payment to any Director or past Director of any sum by way of compensation for loss of office or as consideration for or in connection with his retirement from
office (not being a payment to which the Director is contractually entitled) must first be approved by the Company in general meeting.
(d) Loans to Directors
There are provisions in the Articles of Association prohibiting the making of loans to Directors and associates which are equivalent to the restrictions imposed
by the Companies Ordinance.
(e) Financial assistance to purchase Shares
Subject to all applicable laws, the Company may give financial assistance to Directors and employees of the Company, its subsidiaries or any holding company or
any subsidiary of such holding company in order that they may buy shares in the Company or any such subsidiary or holding company. Further, subject to all applicable laws, the Company may give
financial assistance to a trustee for the acquisition of shares in the Company or shares in any such subsidiary or holding company to be held for the benefit of employees of the Company, its
subsidiaries, any holding company of the Company or any subsidiary of any such holding company (including salaried Directors).
(f) Disclosure of interest in contracts with the Company or any of its subsidiaries
No Director or proposed Director shall be disqualified by his office from contracting with the Company either as vendor, purchaser or otherwise nor shall any such
contract or any contract or arrangement entered into by or on behalf of the Company with any person, company or partnership of or in which any Director shall be a member or otherwise interested be
capable on that account of being avoided, nor shall any Director so contracting or being any member or so interested be liable to account to the Company for any profit so realised by any such contract
or arrangement by reason only of such Director holding that office or the fiduciary relationship thereby established, provided that such Director shall, if his interest in such contract or arrangement
is material, declare the nature of his interest at the earliest meeting of the board of Directors at which it is practicable for him to do so, either specifically or by way of a general notice stating
that, by reason of the facts specified in the notice, he is to be regarded as interested in any contracts of a specified description which may be made by the Company.
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A
Director shall not be entitled to vote on (nor shall he be counted in the quorum in relation to) any resolution of the Directors in respect of any contract or arrangement or any
other proposal in which the Director or any of his associates has any material interest, and if he shall do so his vote shall not be counted (nor is he to be counted in the quorum for the
resolution), but this prohibition shall not apply to any of the following matters, namely:
- (i)
- the
giving to such Director or any of his associates of any security or indemnity in respect of money lent or obligations incurred by him or any of them at
the request of or for the benefit of the Company or any of its subsidiaries;
- (ii)
- the
giving of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the
Director or any of his associates has himself/themselves assumed responsibility in whole or in part and whether alone or jointly under a guarantee or indemnity or by the giving of security;
- (iii)
- any
proposal concerning an offer of shares, debentures or other securities of or by the Company or any other company which the Company may promote or be
interested in for subscription or purchase where the Director or any of his associates is/are or is/are to be interested as a participant in the underwriting or sub-underwriting of the offer;
- (iv)
- any
proposal or arrangement concerning the benefit of employees of the Company or any of its subsidiaries including:
- (A)
- the
adoption, modification or operation of any employees' share scheme or any share incentive scheme or share option scheme under which the Director or any
of his associates may benefit;
- (B)
- the
adoption, modification or operation of a pension or provident fund or retirement, death or disability benefits scheme which relates both to Directors,
their associates and employees of the Company or any of its subsidiaries and does not provide in respect of any Director or any of his associates as such any privilege or advantage not generally
accorded to the class of persons to which such scheme or fund relates; and
- (v)
- any
contract or arrangement in which the Director or any of his associates is/are interested in the same manner as other holders of shares or debentures or
other securities of the Company by virtue only of his/their interest in shares or debentures or other securities of the Company.
(g) Remuneration
The Directors shall be entitled to receive by way of remuneration for their services such sum as shall from time to time be determined by the Directors, or the
Company in general meeting or by the Directors, as the case may be, such sum (unless otherwise directed by the resolution by which it is determined) to be divided amongst the Directors in such
proportions and in such manner as they may agree, or failing agreement, equally, except that in such event any Director holding office for less than
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the
whole of the relevant period in respect of which the remuneration is paid shall only rank in such division in proportion to the time during such period for which he has held office. Such
remuneration shall be in addition to any other remuneration to which a Director who holds any salaried employment or office in the Company may be entitled by reason of such employment
or office.
The
Directors shall also be entitled to be paid all expenses, including travel expenses, reasonably incurred by them in or in connection with the performance of their duties as Directors
including their expenses of travelling to and from board meetings, committee meetings or general meetings or otherwise incurred whilst engaged on the business of the Company or in the discharge of
their duties as Directors.
The
Directors may grant special remuneration to any Director, who shall perform any special or extra services at the request of the Company. Such special remuneration may be made payable
to such Director in addition to or in substitution for his ordinary remuneration as a Director, and may be made payable by way of salary, commission or participation in profits or otherwise as may
be agreed.
The
remuneration of an executive Director or a Director appointed to any other office in the management of the Company shall from time to time be fixed by the Directors and may be by way
of
salary, commission, or participation in profits or otherwise or by all or any of those modes and with such other benefits (including share option and/or pension and/or gratuity and/or other benefits
on retirement) and allowances as the Directors may from time to time decide. Such remuneration shall be in addition to such remuneration as the recipient may be entitled to receive as
a Director.
(h) Retirement, appointment and removal
The Directors shall have power from time to time and at any time to appoint any person to be a Director either to fill a casual vacancy or as an addition to the
existing Directors. Any Director so appointed shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election at that meeting.
The
Company may by resolution of members remove any Director (including a Managing Director or other executive Director) before the expiration of his period of office notwithstanding
anything in the Articles of Association or in any agreement between the Company and such Director (but without prejudice to any claim for compensation or damages payable to him in respect of
the termination of his appointment as Director or of any other appointment or office as a result of the termination of his appointment as Director). The Company may by resolution of members appoint
another person in his place. Any Director so appointed shall hold office during such time only as the Director in whose place he is appointed would have held the same if he had not been removed. The
Company may also by resolution of members elect any person to be a Director, either to fill a casual vacancy or as an addition to the existing Directors. Any Director so appointed shall hold office
only until the next following annual general meeting of the Company and shall then be eligible for re-election. No person shall, unless recommended by the Directors, be eligible for election to the
office of Director at any general meeting unless, during the period, which shall be at least seven days, commencing no earlier than the day after the despatch of the notice of the meeting appointed
for such election and ending no later than seven days prior to the date of such meeting, there has been given
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to
the Secretary of the Company notice in writing by a member of the Company (not being the person to be proposed) entitled to attend and vote at the meeting for which such notice is given of
his intention to propose such person for election and also notice in writing signed by the person to be proposed of his willingness to be elected.
There
is no shareholding qualification for Directors nor is there any specified age limit for Directors.
The
office of a Director shall be vacated:
- (i)
- if
he resigns his office by notice in writing to the Company at its registered office or its principal office in Hong Kong;
- (ii)
- if
an order is made by any competent court or official on the grounds that he is or may be suffering from mental disorder or is otherwise incapable of
managing his affairs and the Directors resolve that his office be vacated;
- (iii)
- if,
without leave, he is absent from meetings of the Directors (unless an alternate Director appointed by him attends) for 12 consecutive months,
and the Directors resolve that his office be vacated;
- (iv)
- if
he becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors generally;
- (v)
- if
he ceases to be or is prohibited from being a Director by law or by virtue of any provision in the Articles of Association;
- (vi)
- if
he is removed from office by notice in writing served upon him signed by not less than three-fourths in number (or, if that is not a round number, the
nearest lower round number) of the Directors (including himself) for the time being then in office; or
- (vii)
- if
he shall be removed from office by a resolution of members of the Company under the Articles of Association.
At
every annual general meeting of the Company one-third of the Directors for the time being, or, if their number is not three or a multiple of three, then the number nearest to, but not
less than, one-third, shall retire from office by rotation provided that every Director (including those appointed for a specific term) shall be subject to retirement by rotation at least once every
three years. A retiring Director shall retain office until the close of the meeting at which he retires and shall be eligible for re-election thereat. The Company at any annual general meeting at
which any Directors retire may fill the vacated office by electing a like number of persons to be Directors.
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(i) Borrowing powers
The Directors may from time to time at their discretion exercise all the powers of the Company to raise or borrow or to secure the payment of any sum or sums of
money for the purposes of the Company and to mortgage or charge its undertaking, property and assets (present and future) and uncalled amounts owing on the shares in the Company or any
part thereof.
The
rights of the Directors to exercise these powers may only be varied by a special resolution of members of the Company.
(j) Proceedings of the Board
The Directors may meet together for the despatch of business, adjourn and otherwise regulate their meetings and proceedings as they think fit in any part of the
world. Questions arising at any meeting shall be determined by a majority of votes. In the case of an equality of votes, the chairman of the meeting shall have a second or casting vote.
2.2 Alteration to constitutional documents
No alteration or amendment to the Memorandum of Association or Articles of Association may be made except by special resolution of members of the Company.
2.3 Variation of rights of existing shares or classes of shares
If at any time the authorised shares of the Company is divided into different classes of shares, all or any of the rights attached to any class of shares for the
time being issued (unless otherwise provided for in the terms of issue of the shares of that class) may, subject to the provisions of the Companies Act be varied or abrogated either with the consent
in writing of the holders of not less than three-fourths in nominal value of the issued shares of that class or with the sanction of a special resolution of members of the Company passed at a separate
meeting of the holders of the shares of that class. To every such separate meeting all the provisions of the Articles of Association relating to general meetings shall mutatis
mutandis apply, but so that the quorum for the purposes of any such separate meeting and of any adjournment thereof shall be a person or persons together holding
(or representing by proxy or duly authorised representative) at the date of the relevant meeting not less than one-third in nominal value of the issued shares of that class.
The
special rights conferred upon the holders of shares of any class shall not, unless otherwise expressly provided in the rights attaching to or the terms of issue of such shares, be
deemed to be varied by the creation or issue of further shares ranking pari passu therewith.
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2.4 Alteration to the number of shares the Company is authorised to issue
The members of the Company may from time to time by resolution of members increase the maximum number of shares that the Company is authorised to issue.
The
Company may from time to time by resolution of members:
- (a)
- consolidate
and divide all or any of its shares into shares of larger amount than its existing shares. On any consolidation of fully paid shares and
division into shares of larger amount, the Directors may settle any difficulty which may arise as they think expedient and in particular (but without prejudice to the generality of the
foregoing) may as between the holders of shares to be consolidated determine which particular shares are to be consolidated into each consolidated share, and if it shall happen that any person shall
become entitled to fractions of a consolidated share or shares, such fractions may be sold by some person appointed by the Directors for that purpose and the person so appointed may transfer the
shares so sold to the purchaser thereof and the validity of such transfer shall not be questioned, and so that the net proceeds of such sale (after deduction of the expenses of such sale) may either
be distributed among the persons who would otherwise be entitled to a fraction or fractions of a consolidated share or shares rateably in accordance with their rights and interests or may be paid to
the Company for the Company's benefit;
- (b)
- cancel
any shares which at the date of the passing of the resolution of members of the Company have not been taken or agreed to be taken by any person, and
diminish the maximum number of shares the Company is authorised to issue by the number of the shares so cancelled subject to the provisions of the Companies Act; and
- (c)
- sub-divide
its shares or any of them into shares of smaller amount than is fixed by the Memorandum of Association, subject nevertheless to the provisions of
the Companies Act, and so that the resolution of members whereby any share is sub-divided may determine that, as between the holders of the shares resulting from such sub-division, one or more of the
shares may have any such preferred or other special rights, over, or may have such deferred rights or be subject to any such restrictions as compared with the others as the company has power to attach
to unissued or new shares,
provided
that where shares are consolidated or sub-divided, the aggregate par value of the new shares must be equal to the aggregate par value of the original shares.
2.5 Special resolution — majority required
A "special resolution of members" is defined in the Articles of Association to mean a resolution passed by a majority of not less than three-fourths of the votes
of such members of the Company as, being entitled to do so, vote in person or, in the case of corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a
general meeting of which not less than 21 days' notice specifying the intention to propose the resolution as a special resolution has been duly
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given
and includes a special resolution approved in writing by all of the members of the Company entitled to vote at a general meeting of the Company in one or more instruments each signed by one or
more of such members, and the effective date of the special resolution so adopted shall be the date on which the instrument or the last of such instruments (if more than one)
is executed.
In
contrast, a "resolution of members" is defined in the Articles of Association to mean a resolution passed by a simple majority of the votes of such members of the Company as, being
entitled to do so, vote in person or, in the case of corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting held in accordance with the
Articles of Association and includes a resolution approved in writing by all the members of the Company aforesaid.
2.6 Voting rights
Subject to any special rights, privileges or restrictions as to voting for the time being attached to any class or classes of shares, at any general meeting where
a show of hands is allowed, every member present in person (or, in the case of a member being a corporation, by its duly authorised representative) shall have on vote, and on a poll every member
present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy shall have one vote for each share registered in his name in the register of
members of the Company.
Where
any member of the Company is, under the Listing Rules, required to abstain from voting on any particular resolution or is restricted to voting only for or only against any
particular resolution, any votes cast by or on behalf of such member in contravention of such requirement or restriction shall not be counted.
In
the case of joint registered holders of any share, any one of such persons may vote at any meeting, either personally or by proxy, in respect of such share as if he were solely
entitled thereto; but if more than one of such joint holders be present at any meeting personally or by proxy, that one of the said persons so present being the most or, as the case may be, the more
senior shall alone be entitled to vote in respect of the relevant joint holding and, for this purpose, seniority shall be determined by reference to the order in which the names of the joint holders
stand on the register in respect of the relevant joint holding.
A
member of the Company in respect of whom an order has been made by any competent court or official on the grounds that he is or may be suffering from mental disorder or is otherwise
incapable of managing his affairs may vote by any person authorised in such circumstances to do so and such person may vote by proxy.
Save
as expressly provided in the Articles of Association or as otherwise determined by the Directors, no person other than a member of the Company duly registered and who shall have
paid all sums for the time being due from him payable to the Company in respect of his shares shall be entitled to be present or to vote (save as proxy for another member of the Company), or to be
counted in a quorum, either personally or by proxy at any general meeting.
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At
any general meeting a resolution put to the vote of the meeting is to be decided by way of a poll save that the Chairman may, in good faith, allow a resolution which relates purely to
a procedural or administrative matter as prescribed under the Listing Rules to be voted on by a show of hands.
If
a recognised clearing house (or its nominee) is a member of the Company it may authorise such person or persons as it thinks fit to act as its proxy(ies) or representative(s)
at any general meeting of the Company or at any general meeting of any class of members of the Company provided that, if more than one person is so authorised, the authorisation shall specify the
number and class of shares in respect of which each such person is so authorised. A person authorised pursuant to this provision shall be entitled to exercise the same rights and powers on behalf of
the recognised clearing house (or its nominee) which he represents as that recognised clearing house (or its nominee) could exercise as if such person were an individual member of the
Company holding the number and class of shares specified in such authorisation.
2.7 Annual general meetings
The Company shall in each year hold a general meeting as its annual general meeting in addition to any other general meeting in that year and shall specify the
meeting as such in the notice calling it; and not more than 15 months (or such longer period as the Stock Exchange may authorise) shall elapse between the date of one annual general
meeting of the Company and that of the next.
2.8 Accounts and audit
The Directors shall cause to be kept such books of account as are necessary to give a true and fair view of the state of the Company's affairs and to show and
explain its transactions and otherwise in accordance with the Companies Act.
The
Directors shall from time to time determine whether, and to what extent, and at what times and places and under what conditions, the accounts and books of the Company, or any of
them, shall be open to the inspection of members of the Company (other than a Director) and no such member (not being a Director) shall have any right to inspect any accounts or books or
documents of the Company except as conferred by the Companies Act or as authorised by a resolution of the Directors.
The
Directors shall, commencing with the first annual general meeting, cause to be prepared and to be laid before the members of the Company at every annual general meeting a profit and
loss account for the period, in the case of the first account, since the incorporation of the Company and, in any other case, since the preceding account, together with a balance sheet as at the date
at which the profit and loss account is made up and a Director's report with respect to the profit or loss of the Company for the period covered by the profit and loss account and the state of the
Company's affairs as at the end of such period, an auditor's report on such accounts and such other reports and accounts as may be required by law. Copies of those documents to be laid before the
members of the Company at an annual general meeting shall not less than 21 days before the date of the meeting, be sent in the
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manner
in which notices may be served by the Company as provided in the Articles of Association to every member of the Company and every holder of debentures of the Company provided that the Company
shall not be required to send copies of those documents to any person of whose address the Company is not aware or to more than one of the joint holders of any shares or debentures.
The
Company shall at any annual general meeting appoint an auditor or auditors of the Company who shall hold office until the next annual general meeting. The removal of an auditor
before the expiration of his period of office shall require the approval of an ordinary resolution of the members in general meeting. The remuneration of the auditors shall be fixed by the Company at
the annual general meeting at which they are appointed provided that in respect of any particular year the Company in general meeting may delegate the fixing of such remuneration to
the Directors.
2.9 Notice of meetings and business to be conducted thereat
An annual general meeting and any extraordinary general meeting called for the passing of a special resolution of members shall be called by notice of not less
than 21 days and any other extraordinary general meeting shall be called by not less than 14 days. The notice shall be inclusive of the day on which it is served or deemed to be served
and of the day for which it is given, and shall specify the time, place and agenda of the meeting, particulars of the resolutions to be considered at the meeting and, in the case of special business,
the general nature of that business. The notice convening an annual general meeting shall specify the meeting as such, and the notice convening a meeting to pass a special resolution of members shall
specify the intention to propose the resolution as a special resolution of members. Notice of every general meeting shall be given to the auditors and all members of the Company (other than those who,
under the provisions of the Articles of Association or the terms of issue of the shares they hold, are not entitled to receive such notice from the Company).
Notwithstanding
that a meeting of the Company is called by shorter notice than that mentioned above, it shall be deemed to have been duly called if it is
so agreed:
- (a)
- in
the case of a meeting called as an annual general meeting, by all members of the Company entitled to attend and vote thereat or their proxies; and
- (b)
- in
the case of any other meeting, by a majority in number of the members having a right to attend and vote at the meeting, being a majority together holding
not less than 95 per cent. in nominal value of the shares giving that right.
All
business shall be deemed special that is transacted at an extraordinary general meeting and also all business shall be deemed special that is transacted at an annual general meeting
with the exception of the following, which shall be deemed ordinary business:
- (a)
- the
declaration and sanctioning of dividends;
- (b)
- the
consideration and adoption of the accounts and balance sheets and the reports of the Directors and the auditors and other documents required to be
annexed to the balance sheet;
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- (c)
- the
election of Directors in place of those retiring;
- (d)
- the
appointment of auditors;
- (e)
- the
fixing of, or the determining of the method of fixing of, the remuneration of the Directors and of the auditors;
- (f)
- the
granting of any mandate or authority to the Directors to offer, allot, grant options over or otherwise dispose of the unissued shares of the Company
representing not more than 20 per cent. (or such other percentage as may from time to time be specified in the Listing Rules) in nominal value of its then existing shares and the
number of any securities repurchased pursuant to sub-paragraph (g) below; and
- (g)
- the
granting of any mandate or authority to the Directors to repurchase securities of the Company.
2.10 Transfer of Shares
Transfers of shares may be effected by an instrument of transfer in the usual common form or in such other form as the Directors may approve which is consistent
with the standard form of transfer as prescribed by the Stock Exchange.
The
instrument of transfer shall be executed by or on behalf of the transferor and, unless the Directors otherwise determine, the transferee, and the transferor shall be deemed to remain
the holder of the share until the name of the transferee is entered in the register of members of the Company in respect thereof. All instruments of transfer shall be retained by the Company.
The
Directors may refuse to register any transfer of any share which is not fully paid up or on which the Company has a lien. The Directors may also decline to register any transfer of
any shares unless:
- (a)
- the
instrument of transfer is lodged with the Company accompanied by the certificate for the shares to which it relates (which shall upon the registration
of the transfer be cancelled) and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer;
- (b)
- the
instrument of transfer is in respect of only one class of shares;
- (c)
- the
instrument of transfer is properly stamped (in circumstances where stamping is required);
- (d)
- in
the case of a transfer to joint holders, the number of joint holders to whom the share is to be transferred does not exceed four;
- (e)
- the
shares concerned are free of any lien in favour of the Company; and
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- (f)
- a
fee of such maximum as the Stock Exchange may from time to time determine to be payable (or such lesser sum as the Directors may from time to time
require) is paid to the Company in respect thereof.
If
the Directors refuse to register a transfer of any share they shall, within two months after the date on which the instrument of transfer was lodged with the Company, send to each of
the transferor and the transferee notice of such refusal.
The
registration of transfers may, on 14 days' notice (or on 6 business days' notice in the case of a rights issue) being given by advertisement published on the
Stock Exchange's website or, subject to the Listing Rules, by electronic communication in the manner in which notices may be served by the Company by electronic means as provided in the Articles of
Association or by advertisement published in the newspapers, be suspended and the register of members of the Company closed at such times for such periods as the Directors may from time to time
determine, provided always that the registration of transfers shall not be suspended or the register closed for more than 30 days in any year (or such longer period as the members of the
Company may by resolution of members determine provided that such period shall not be extended beyond 60 days in any year). In the event that there is an alteration of book closure dates, the
Company shall give at least 5 business days' notice before the announced closure, or the new closure, whichever is earlier. If, however, there are exceptional circumstances (e.g. during
a Number 8 or higher typhoon signal and black rainstorm warning) that render the giving of such publication of advertisement impossible, the Company shall comply with these requirements
as soon as practicable.
2.11 Power of the Company to purchase its own Shares
The Company is empowered by the Companies Act and the Articles of Association to purchase its own shares subject to certain restrictions and the Directors may
only exercise this power on behalf of the Company subject to the authority of its members in general meeting as to the manner in which they do so and to any applicable requirements imposed from time
to time by the Stock Exchange and the SFC of Hong Kong.
The
Directors shall not, unless permitted pursuant to the Companies Act, purchase any of the shares in the Company unless immediately after such purchase the value of the Company's
assets exceeds its liabilities and the Company is able to pay its debts as they fall due.
2.12 Power of any subsidiary of the Company to own Shares
There are no provisions in the Articles of Association relating to the ownership of shares by a subsidiary.
2.13 Dividends and other methods of distributions
Subject to the Companies Act and Articles of Association, the Directors may, by resolution of directors, declare a dividend in any currency if they are satisfied,
on reasonable grounds that, immediately after the payment of the dividend, the value of the Company's assets exceeds its liabilities and the Company is able to pay its debts as they fall due.
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Unless and to the extent that the rights attached to any shares or the terms of issue thereof otherwise provide, all dividends shall (as regards any shares
not fully paid throughout the period in respect of which the dividend is paid) be apportioned and paid pro rata according to the amounts paid up on the shares during any portion or portions of
the period in respect of which the dividend is paid. For these purposes no amount paid up on a share in advance of calls shall be treated as paid up on the share.
The
Directors may from time to time pay to the members of the Company such interim dividends as appear to the Directors to be justified by the profits of the Company. The Directors may
also pay half-yearly or at other intervals to be selected by them at a fixed rate if they are of the opinion that the profits available for distribution justify the payment.
The
Directors may retain any dividends or other moneys payable on or in respect of a share upon which the Company has a lien, and may apply the same in or towards satisfaction of the
debts, liabilities or engagements in respect of which the lien exists. The Directors may also deduct from any
dividend or other monies payable to any member of the Company all sums of money (if any) presently payable by him to the Company on account of calls, instalments or otherwise.
No
dividend shall carry interest against the Company.
Whenever
the Directors or the Company in general meeting have resolved that a dividend be paid or declared on the shares in the Company, the Directors may further resolve:
(a) that such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up on the basis that the shares so allotted are to be of the same class as the
class already held by the allottee, provided that the members of the Company entitled thereto will be entitled to elect to receive such dividend (or part thereof) in cash in lieu of such
allotment; or (b) that the members of the Company entitled to such dividend will be entitled to elect to receive an allotment of shares credited as fully paid up in lieu of the whole or such
part of the dividend as the Directors may think fit on the basis that the shares so allotted are to be of the same class as the class already held by the allottee. The Company may upon the
recommendation of the Directors by resolution of members resolve in respect of any one particular dividend of the Company that notwithstanding the foregoing a dividend may be satisfied wholly in the
form of an allotment of shares credited as fully paid without offering any right to members of the Company to elect to receive such dividend in cash in lieu of such allotment.
Unless
otherwise directed by the Directors, any dividend, interest or other sum payable in cash to a holder of shares may be paid by cheque or warrant sent through the post addressed to
the registered address of the member of the Company entitled, or in the case of joint holders, to the registered address of the person whose name stands first in the register of members of the Company
in respect of the joint holding or to such person and to such address as the holder or joint holders may in writing direct. Every cheque or warrant so sent shall be made payable to the order of the
holder or, in the case of joint holders, to the order of the holder whose name stands first on the register of members of the Company in respect of such shares, and shall be sent at his or their risk
and the payment of any such cheque or warrant by the bank on which it is drawn shall operate as a good discharge to the Company in respect of the dividend and/or bonus represented thereby,
notwithstanding that it may subsequently appear that the same has been stolen or that any endorsement
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thereon
has been forged. The Company may cease sending such cheques for dividend entitlements or dividend warrants by post if such cheques or warrants have been left uncashed on two consecutive
occasions. However, the Company may exercise its power to cease sending cheques for dividend entitlements or dividend warrants after the first occasion on which such a cheque or warrant is returned
undelivered. Any one of two or more joint holders may give effectual receipts for any
dividends or other moneys payable or property distributable in respect of the shares held by such joint holders.
Any
dividend unclaimed for six years from the date of declaration of such dividend may be forfeited by the Directors and shall revert to the Company.
The
Directors may, with the sanction of the resolution of members of the Company, direct that any dividend be satisfied wholly or in part by the distribution of specific assets of any
kind, and in particular of paid up shares, debentures or warrants to subscribe securities of any other company, and where any difficulty arises in regard to such distribution the Directors may settle
it as they think expedient, and in particular may disregard fractional entitlements, round the same up or down or provide that the same shall accrue to the benefit of the Company, and may fix the
value for distribution of such specific assets and may determine that cash payments shall be made to any members of the Company upon the footing of the value so fixed in order to adjust the rights of
all parties, and may vest any such specific assets in trustees as may seem expedient to the Directors.
2.14 Proxies
Any member of the Company entitled to attend and vote at a meeting of the Company shall be entitled to appoint another person who must be an individual as his
proxy to attend and vote instead of him and a proxy so appointed shall have the same right as the member to speak at the meeting. A proxy need not be a member of the Company.
Instruments
of proxy shall be in common form or in such other form that complies with the Listing Rules as the Directors may from time to time approve provided that it shall enable a
member of the Company to instruct his proxy to vote in favour of or against (or in default of instructions or in the event of conflicting instructions, to exercise his discretion in respect of)
each resolution to be proposed at the meeting to which the form of proxy relates. The instrument of proxy shall be deemed to confer authority to vote on any amendment of a resolution put to the
meeting for which it is given as the proxy thinks fit. The instrument of proxy shall, unless the contrary is stated therein, be valid as well for any adjournment of the meeting as for the meeting to
which it relates provided that the meeting was originally held within 12 months from such date.
The
instrument appointing a proxy shall be in writing under the hand of the appointor or his attorney authorised in writing, or if the appointor is a corporation either under its seal or
under the hand of an officer, attorney or other person authorised to sign the same.
The
instrument appointing a proxy and (if required by the Directors) the power of attorney or other authority (if any) under which it is signed, or a notarially certified
copy of such power or authority, shall be delivered at the registered office of the Company (or at such other place as may be
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specified
in the notice convening the meeting or in any notice of any adjournment or, in either case, in any document sent therewith) not less than 48 hours before the time appointed for
holding the meeting or adjourned meeting at which the person named in the instrument proposes to vote or, in the case of a poll taken subsequently to the date of a meeting or adjourned meeting, not
less than 48 hours before the time appointed for the taking of the poll and in default the instrument of proxy shall not be treated as valid. No instrument appointing a proxy shall be valid
after the expiration of 12 months from the date named in it as the date of its execution. Delivery of any instrument appointing a proxy shall not preclude a member of the Company from attending
and voting in person at the meeting or poll concerned and, in such event, the instrument appointing a proxy shall be deemed to be revoked.
2.15 Calls on Shares and forfeiture of Shares
The Directors may from time to time make calls upon the members of the Company in respect of any moneys unpaid on their shares (whether on account of the nominal
amount of the shares or by way of premium or otherwise) and not by the conditions of allotment thereof made payable at fixed times and each member of the Company shall (subject to the Company serving
upon him at least 14 days' notice specifying the time and place of payment and to whom such payment shall be made) pay to the person at the time and place so specified the amount called on his
shares. A call may be revoked or postponed as the Directors may determine. A person upon whom a call is made shall remain liable on such call notwithstanding the subsequent transfer of the shares in
respect of which the call was made.
A
call may be made payable either in one sum or by instalments and shall be deemed to have been made at the time when the resolution of the Directors authorising the call was passed. The
joint holders of a share shall be jointly and severally liable to pay all calls and instalments due in respect of such share or other moneys due in respect thereof.
If
a sum called in respect of a share shall not be paid before or on the day appointed for payment thereof, the person from whom the sum is due shall pay interest on the sum from the day
appointed for payment thereof to the time of actual payment at such rate, not exceeding 15 per cent. per annum, as
the Directors may determine, but the Directors shall be at liberty to waive payment of such interest wholly or in part.
If
any call or instalment of a call remains unpaid on any share after the day appointed for payment thereof, the Directors may at any time during such time as any part thereof remains
unpaid serve a notice on the holder of such shares requiring payment of so much of the call or instalment as is unpaid together with any interest which may be accrued and which may still accrue up to
the date of actual payment.
The
notice shall name a further day (not earlier than the expiration of 14 days from the date of service of the notice) on or before which, and the place where, the payment
required by the notice is to be made, and shall state that in the event of non-payment at or before the time and at the place appointed, the shares in respect of which such call was made or instalment
is unpaid will be liable to be forfeited.
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If
the requirements of such notice are not complied with, any share in respect of which such notice has been given may at any time thereafter, before payment of all calls or instalments
and interest due in respect thereof has been made, be forfeited by a resolution of the Directors to that effect. Such forfeiture shall include all dividends and bonuses declared in respect of the
forfeited shares and not actually paid before the forfeiture. A forfeited share shall be deemed to be the property of the Company and may be sold, re-allotted or otherwise disposed of.
A
person whose shares have been forfeited shall cease to be a member of the Company in respect of the forfeited shares but shall, notwithstanding the forfeiture, remain liable to pay to
the Company all moneys which at the date of forfeiture were payable by him to the Company in respect of the shares, together with (if the Directors shall in their discretion so require)
interest thereon at such rate not exceeding 15 per cent. per annum as the Directors may prescribe from the date of forfeiture until payment, and the Directors may enforce payment thereof
without being under any obligation to make any allowance for the value of the shares forfeited, at the date of forfeiture.
2.16 Inspection of register of members
The register of members of the Company shall be kept in such manner as to show at all times the members of the Company for the time being and the shares
respectively held by them. The register may, on 14 days' notice being given by advertisement published on the Stock Exchange's website, or subject to the Listing Rules, by electronic
communication in the manner in which notices may be served by the Company by electronic means as provided in the Articles of Association or by advertisement published in the newspapers be closed at
such times and for such periods as the Directors may from time to time determine either generally or in respect of any class of shares, provided that the register shall not be closed for more than
30 days in any year (or such longer period as the members of the Company may by resolution of members determine provided that such period shall not be extended beyond 60 days in
any year).
Any
register of members held in Hong Kong shall during normal business hours (subject to such reasonable restrictions as the Directors may impose) be open to inspection by any member of
the Company without charge and by any other person on payment of such fee not exceeding HK$2.50 (or such higher amount as may from time to time be permitted under the Listing Rules) as the
Directors may determine for each inspection.
2.17 Quorum for meetings and separate class meetings
No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business, but the absence of a quorum shall not
preclude the appointment, choice or election of a chairman which shall not be treated as part of the business of the meeting.
Two
members of the Company present in person or by proxy shall be a quorum provided always that if the Company has only one member of record the quorum shall be that one member present
in person or by proxy.
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A
corporation being a member of the Company shall be deemed for the purpose of the Articles of Association to be present in person if represented by its duly authorised representative
being the person appointed by resolution of the directors or other governing body of such corporation or by power of attorney, authorise such person as it thinks fit to act as its representative at
the relevant general meeting of the Company or at any relevant general meeting of any class of members of the Company.
The
quorum for a separate general meeting of the holders of a separate class of shares of the Company is described in sub-paragraph 2.3 above.
2.18 Rights of minorities in relation to fraud or oppression
There are no provisions in the Articles of Association concerning the rights of minority shareholders in relation to fraud or oppression.
2.19 Procedure on liquidation
If the Company shall be wound up, and the assets available for distribution amongst the members of the Company as such shall be insufficient to repay the whole of
the amounts paid up on the shares in the Company, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members of the Company in proportion to the nominal
value of such shares, or which ought to have been paid up, at the commencement of the winding up on the shares held by them respectively. And if in a winding up the assets available for distribution
amongst the members of the Company shall be more than sufficient to repay the whole of the amounts paid up on the issued shares in the Company at the commencement of the winding up, the excess shall
be distributed amongst the members of the Company in proportion to the nominal value of such shares at the commencement of the winding up on the shares held by them respectively. The foregoing is
without prejudice to the rights of the holders of shares issued upon special terms and conditions.
If
the Company shall be wound up, the liquidator may, with the authority of a special resolution of members of the Company and any other sanction required by the Companies Act, divide
amongst the members of the Company in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may, for such
purpose, set such value as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members of
the Company. The liquidator may, with the like authority or sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the members of the Company as the
liquidator, with the like authority or sanction and subject to the Companies Act, shall think fit, but so that no member of the Company shall be compelled to accept any assets, shares or other
securities in respect of which there is a liability.
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2.20 Untraceable members
The Company shall be entitled to sell any shares of a member of the Company or the shares to which a person is entitled by virtue of transmission on death or
bankruptcy or operation of law if: (i) all cheques or warrants, not being less than three in number, for any sums payable in cash to the holder of such shares have remained uncashed for a
period of 12 years; (ii) the Company has not during that time or before the expiry of the three month period referred to in (iv) below received any indication of the whereabouts
or existence of the member or person entitled to such shares by death, bankruptcy or operation of law; (iii) during the 12 year period, at least three dividends in respect of the shares
in question have become payable and no dividend during that period has been claimed by the member; and (iv) upon expiry of the 12 year period, the Company has caused an advertisement to
be published in the newspapers or subject to the Listing Rules, by electronic communication in the manner in which notices may be served by the Company by electronic means as provided in the Articles
of Association, giving notice of its intention to sell such shares and a period of three months has elapsed since such advertisement and the Stock Exchange has been notified of such intention. The net
proceeds of any such sale shall belong to the Company and upon receipt by the Company of such net proceeds it shall become indebted to the former member for an amount equal to such
net proceeds.
B. SUMMARY OF BVI COMPANY LAW AND TAXATION
1 Introduction
The Companies Act is derived, to a large extent, from English corporate legislation, although there are significant differences between
the Companies Act and English corporate legislation. Set out below is a summary of certain provisions of the Companies Act, although this summary does not purport to be a complete review of all
matters of corporate law and taxation which may differ from equivalent provisions in jurisdictions with which interested parties may be more familiar.
2 Incorporation
The Company was incorporated in the BVI as BVI Business Company on January 6, 2010 under the Companies Act. The Company is
required to pay an annual fee to the Registrar of Corporate Affairs in the BVI which is based on the number of shares the company is authorised to issue.
3 Shares
One of the major features of the Companies Act is that the concept of share capital has been abolished.
Instead,
a company limited by, or otherwise authorised to issue shares, can now simply state in its memorandum of association the maximum number and classes of shares that the company is
authorised to issue. Companies may also divide their shares (including those shares already in issue) into a larger number of shares or combine them into a smaller number of shares in the same class
or series, provided that the maximum number of shares the company is permitted to issue is not exceeded. On any such division or combination of shares the aggregate par value (if any) of the
new shares must be equal to the aggregate par value of the original shares.
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The
directors of a company can, at their discretion, issue shares in registered or bearer form (although in order to issue bearer shares there must be an express authorisation in the
memorandum of association and such bearer shares must be held by an approved custodian) for such consideration and on such terms as they may determine.
Shares
can be issued for consideration in any form, provided such consideration is not less than par value where the share is a par value share.
If
so authorised by its memorandum of association, a company can issue more than one class of shares and, if so, the memorandum of association must also specify the rights, privileges,
restrictions and conditions which attach to each class.
The
Companies Act provides that companies may issue redeemable shares, shares with no rights, limited rights or preferential rights to share in distributions, or shares with no or
special or limited or conditional voting rights. They may also, subject to their memorandum of association and articles of association, issue bonus shares, partly or nil paid shares, and fractional
shares.
The
Companies Act provides that a company may purchase, redeem or otherwise acquire its own shares, either in accordance with the procedure set out in the Companies Act, or any other
procedure as provided for in the memorandum of association and articles of association of the company.
Under
the provisions in the Companies Act, the directors may make an offer for the company to purchase, redeem or otherwise acquire shares in the company provided that the offer is
either (a) to all shareholders and would, if successful, leave the relative voting and distribution rights unaffected, or (b) to one or more shareholders and consented to in writing by
all shareholders, or is otherwise permitted by the memorandum of association or articles of association. Where the offer is to one or more shareholders, the directors must pass a resolution to the
effect that in their opinion the purchase, redemption or other acquisition would benefit the remaining shareholders, and the proposed offer is fair and reasonable to the company and the remaining
shareholders.
Where
an acquisition by a company of its own shares would be treated as a distribution, the conditions imposed on distributions (detailed in paragraph 5 below) must be met. The
purchase, redemption or other acquisition by a company of its own shares is not deemed to be a distribution where it is effected pursuant to, inter alia, a right of a shareholder to have his
shares redeemed or exchanged for money or other property of the company or where the share is redeemable at the option of the company.
4 Financial Assistance
There is no statutory restriction in the BVI on the provision of financial assistance by a company for the purchase of, or subscription
for, its own or its holding company's shares. Accordingly, a company may provide financial assistance if the directors of the company consider, in discharging their duties of due care, skill and
diligence that they are acting in good faith, for a proper purpose and in the interests of the company, that such assistance can be given.
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5 Dividends and distributions
The directors of a company may only declare a distribution by the company if they are satisfied, on reasonable grounds, that the
company will, immediately after the distribution, satisfy the solvency test set out in section 57(1) of the Companies Act. A company satisfies the solvency test if the value of its assets
exceeds its liabilities and it is able to pay its debts as they fall due.
6 Shareholders' Remedies
The Companies Act has introduced a series of remedies available to shareholders. Where a company engages in activity which breaches the
Companies Act or the company's memorandum of association and articles of association, the court can issue a restraining or compliance order. Shareholders can also bring derivative, personal and
representative actions under certain circumstances. The traditional English basis for shareholders' remedies has also been incorporated into the Companies
Act — where a shareholder of a company considers that the affairs of the company have been, are being or are likely to be conducted in a manner likely to be
oppressive, unfairly discriminating or unfairly prejudicial to him, he may apply to the court for an order on such conduct.
7 Mergers and Consolidations
Under the Companies Act two or more companies, each a "constituent company", may merge or consolidate.
A
merger involves merging two or more companies into one of the constituent companies that will remain as the surviving company and a consolidation involves two or more companies
consolidating into a new company. Subject to the memorandum of association and articles of the company a merger
or consolidation must be authorised by a resolution of shareholders of every class of shares entitled to vote on the merger.
There
are differing procedures depending on the type of merger that is taking place. Under the Companies Act a merger may occur between any of
the following:
- (a)
- Two
or more companies incorporated under the Companies Act;
- (b)
- One
or more companies incorporated under the Companies Act and one or more companies incorporated under the laws of a jurisdiction outside the BVI where the
BVI company is the surviving entity;
- (c)
- One
or more companies incorporated under the Companies Act and one or more companies incorporated under the laws of a jurisdiction outside the BVI where the
foreign company is the surviving entity;
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- (d)
- A
parent company and one or more of its subsidiaries where the companies are incorporated under the Companies Act;
- (e)
- A
parent company and one or more of its subsidiaries where one or more of the companies are incorporated under the Companies Act, one or more are
incorporated under the laws of a jurisdiction outside the BVI and where the BVI company is the surviving company; or
- (f)
- A
parent company and one or more if its subsidiaries where one or more of the companies are incorporated under the Companies Act, one or more are
incorporated under the laws of a jurisdiction outside the BVI and where the foreign company is the surviving entity.
Under
the Companies Act, a shareholder of a company is entitled to payment of the fair value of his shares upon dissenting from:
- (a)
- A
merger, if the company is a constituent company, unless the company is the surviving company and the shareholder continues to hold the same or
similar shares;
- (b)
- A
consolidation, if the company is a constituent company.
The
Companies Act sets out the procedure that must be followed in effecting dissenters' rights. Ultimately, if the company and the dissenter fail to agree on the price to be paid for the
shares owned by the dissenter, then the statutory procedure provides that the fair value of the shares owned by the dissenter is fixed by three appraisers.
8 Redemption of minority shares
Under the Companies Act and subject to the memorandum of association or articles of association of a company, shareholders of a company
holding 90 per cent of the votes of the outstanding shares entitled to vote; and shareholders of a company holding 90 per cent of the votes of the outstanding shares of
each class of shares entitled to vote as a class, may give a written instruction to the company directing it to redeem the shares held by the remaining shareholders. Upon receiving this direction, the
company must redeem the shares it has been directed to redeem and must give written notice to each shareholder stating the redemption price and the manner by which the redemption will
be effected.
The
shareholders having their shares compulsorily redeemed are entitled to receive fair value for their shares and may dissent from the compulsory redemption. The Companies Act sets out
the procedure that must be followed in effecting dissenters' rights. Ultimately, if the company and the dissenter fail to agree on the price to be paid for the shares owned by the dissenter, then the
statutory procedure provides that the fair value of the shares owned by the dissenter is fixed by three appraisers.
9 Disposal of assets
Under the Companies Act and subject to the memorandum of association or articles of association of a company, any sale, transfer,
lease, exchange or other disposition, other than a mortgage, charge or other encumbrance or the enforcement thereof, of more than 50 per cent in value of the assets of the company, if
not made in the usual or regular course of the business carried on by the company, requires the approval of the shareholders.
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The
Companies Act sets out the procedure that must be followed in relation to effecting such a disposal.
10 Accounting and auditing requirements
The Companies Act requires that a company shall cause to be kept proper books of account that (a) are sufficient to show and
explain the company's transactions; and (b) will, at any time, enable the financial position of the company to be determined with reasonable accuracy.
11 Register of shareholders
A BVI Business Company may, subject to the provisions of its articles of association, maintain its principal register of members and
any branch registers at such locations, whether within or outside of the BVI, as its directors may, from time to time, think fit. However either the register of members or a copy of the register of
members of the BVI Business Company has to be kept at the office of its registered agent in the BVI.
There
is no mandatory requirement under the Companies Act for a company to make any filings of shareholder information to the Registrar of Corporate Affairs in the BVI. The names and
addresses of the shareholders are, accordingly, not a matter of public record and are not available for public inspection.
12 Inspection of books and records
Subject to the Companies Act, a shareholder of a company will have general right under the Companies Act to inspect or obtain copies of
the register of members, the register of directors and minutes of meetings and resolutions of members and of those classes of members of which he is a member. However, subject to the company's
memorandum of association and articles of association, the directors may, if they are satisfied that it would be contrary to the company's interests to allow a shareholder to inspect any document
(or part of a document) refuse to permit the shareholder to inspect the document or limit the inspection of the document, including limiting the making of copies or the taking of extracts from
the records.
13 Special resolutions
The Companies Act does not define "special resolution". However a company's memorandum of association and articles of association may
make provisions for varying threshold levels of votes required to pass a resolution and require that certain matters may only be approved if passed by a certain percentage of votes.
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14 Subsidiary owning shares in parent
The Companies Act does not prohibit a BVI company acquiring and holding shares in its parent company. The directors of any subsidiary
making such acquisition must discharge their duties of care and to act honestly and in good faith and in what the director believes to be in the best interests of the company.
Under
the Companies Act:
- (a)
- a
director of a company that is a wholly-owned subsidiary may, when exercising powers or performing duties as a director, if expressly permitted to do so by
the memorandum of association and articles of association of the company, act in a manner which he believes is in the best interests of that company's holding company even though it may not be in the
best interests of the company.
- (b)
- a
director of a company that is a subsidiary, but not a wholly-owned subsidiary, may, when exercising powers or performing duties as a director, if
expressly permitted to do so by the memorandum of association or articles of association of the company and with the prior agreement of the shareholders, other than its holding company, act in a
manner which he believes is in the best interests of that company's holding company even though it may not be in the best interests of the company.
- (c)
- a
director of a company that is carrying out a joint venture between the shareholders may, when exercising powers or performing duties as a director in
connection with the carrying out of the joint venture, if expressly permitted to do so by the memorandum of association or articles of association of the company, act in a manner which he believes is
in the best interests of a shareholder or shareholders, even though it may not be in the best interests of the company.
15 Indemnification
BVI law in general does not limit the extent to which a company's articles of association may provide for indemnification of officers
and directors, subject to the conditions set
out in the Companies Act (e.g. the officer or director has acted honestly and in good faith and in what he believed to be in the best interests of the company and, in the case of criminal
proceedings, that officer or director had no reasonable cause to believe that his conduct was unlawful).
16 Liquidation
A company is placed in liquidation either by an order of the court or by a resolution of directors or shareholders. A liquidator is
appointed whose duties are to collect the assets of the company (including the amount (if any) due from the contributories (shareholders)), settle the list of creditors and discharge the
company's liability to them, rateably if insufficient assets exist to discharge the liabilities in full, and to settle the list of contributories and divide the surplus assets (if any) amongst
them in accordance with the rights attaching to the shares.
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17 Stamp duty on transfers
No stamp duty is payable in the BVI on transfers of shares of BVI companies.
18 Taxation
Companies incorporated or registered under the Companies Act are currently exempt from income and corporate tax. In addition, the BVI
currently does not levy capital gains tax on companies incorporated or registered under the Companies Act.
19 Exchange control
There are no exchange control regulations or currency restrictions in the BVI.
20 General
Maples and Calder, our Company's legal advisers on BVI law, have sent to our Company a letter of advice summarising aspects of BVI
company law. This letter, together with a copy of the Companies Act, is available for inspection as referred to in Appendix VI — "Documents Available for
Inspection". Any person wishing to have a detailed summary of BVI company law or advice on the differences between it and the laws of any jurisdiction with which he/she is more familiar is recommended
to seek independent legal advice.
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APPENDIX V
STATUTORY AND GENERAL INFORMATION
(a) FURTHER INFORMATION ABOUT OUR COMPANY
(A) Incorporation
Our Company was established under the laws of the BVI as a limited liability company on January 6, 2010. Our Company [was
registered] as a non-Hong Kong company under Part XI of the Companies Ordinance since and our place of
business in Hong Kong is at Room 2205, Shun Tak Centre,
200 Connaught Road Central, Sheung Wan, Hong Kong. Mr. Wong Wah On Edward and Mr. Yue Ming Wai Bonaventure have been appointed as the authorized representatives of our Company for
the acceptance of service of process and notices in Hong Kong.
As
our company was incorporated in the BVI, our corporate structure and Articles of Association are subject to the relevant laws and regulations of the BVI. A summary of the relevant
provisions of our Articles of Association and a summary of certain relevant aspects of the laws and regulations of the BVI is set out in
Appendix IV — "Summary of the Constitution of Our Company and British Virgin Islands Companies Law".
(B) Changes in the Share Capital of our Company
Pursuant to the resolutions in writing [passed] by the Directors
on , 2013:
- (a)
- the
authorized share capital of our Company was changed from US$50,000 divided into 50,000 ordinary shares of US$1.00 each to HK$10,000,000 divided
into 1,000,000,000 Shares of HK$0.01 each;
- (b)
- all
issued shares of US$1.00 each were repurchased from CHNR at par and cancelled; and
- (c)
- a
total of 124,554,580 Shares of HK$0.01 each were issued to CHNR for HK$98,380,000.
These
transactions were completed on 2013.
In
addition, as the date of its incorporation on April 14, 2004, the registered share capital of Guizhou Dayun was RMB1 million. On July 27, 2011, the registered
share capital of Guizhou Dayun was increased to RMB150 million.
Save
as disclosed herein, there has been no alteration in the share capital of any member of our Group during the three-year period immediately preceding the date of this listing
document.
(C) Written Resolutions of the Sole Shareholder Dated , 2013
Pursuant to the resolutions in writing [passed] by the then sole Shareholder
on , 2013:
- (a)
- our
Company approved and adopted our Articles of Association conditional upon Listing;
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- (b)
- the
exercise by the Directors during the "relevant period" (as defined below in this paragraph) of all the powers of the Company to allot, issue and
deal with additional Shares and to make or grant offers, agreements and options which will or might require the exercise of such powers during or after the end of the relevant period was approved,
provided that the aggregate nominal amount of Shares allotted or agreed conditionally or unconditionally to be allotted (whether pursuant to an option or otherwise) by the Directors pursuant to the
resolution other than pursuant to:
- (i)
- a
"rights issue" (as defined below in this paragraph); or
- (ii)
- any
scrip dividend or similar arrangement providing for the allotment of Shares in lieu of the whole or part of a dividend on Shares
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listed
and which is recognized by the SFC and the Stock Exchange for this purpose, was approved, provided that the aggregate nominal amount of the Company's Shares which may be repurchased pursuant to
such approval shall not exceed 10 per cent. of the aggregate nominal amount of the Shares in issue as at the date on which dealings in the Shares commence on the Stock
Exchange; and
for
the purpose of this paragraph:
- (i)
- "relevant
period" means the period from the passing of the resolution until the earliest of:
- a.
- the
conclusion of the next annual general meeting of the Company;
- b.
- the
expiration of the period within which the next annual general meeting of the Company is required by law to be held; and
- c.
- the
revocation or variation of the authority given by ordinary resolution of the Shareholders in general meeting; and
- (ii)
- references
to "Shares" include securities which carry a right to subscribe for or purchase shares.
(b) SHARE OPTION SCHEME
The following is a summary of principal terms of the Share Option Scheme of our Company conditionally [approved] by a resolution of the
then sole Shareholder passed on , 2013 (the "Adoption Date"). The terms of the Share Option Scheme are
in compliance with the provisions of Chapter 17 of the
Listing Rules.
Purpose
The purposes of the Share Option Scheme are to provide incentives to participants to contribute to our Company through the grant of
option(s) to subscribe for Shares ("Options") and to enable our Company to recruit high caliber employees and attract or retain human resources that are valuable to our Group.
Eligibility of participants
Eligible participant ("Eligible Participant") means (a) any employee, director or consultant of the Company or any subsidiary;
or (b) any other person who has contributed to the success of the Listing, in each case, as determined by the Board. The eligibility of an Eligible Participant will be determined by the Board
with reference to his or her past and expected commitment and contribution to the Company and/or the subsidiaries of the Company.
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Conditions of the Share Option Scheme
The Share Option Scheme of our Company shall come into effect on the date on which the following conditions
are fulfilled:
- (a)
- the
passing of the resolution by our sole Shareholder to adopt and approve the Share Option Scheme and to authorise the Board to grant Options pursuant to
the Share Option Scheme and to allot and issue Shares pursuant to the exercise of any Options; and
- (b)
- the
approval of the Listing Committee of the Stock Exchange for the listing of and permission to deal in our Shares to be allotted and issued pursuant to
the exercise of Options in accordance with the terms of the Share Option Scheme; and
- (c)
- the
commencement of the dealing in the Shares on the Stock Exchange.
Maximum number of Shares
The maximum number of Shares in respect of which Options may be granted under the Share Option Scheme is that number which is equal to
10% of the issued share capital of our Company as at the Adoption Date, provided, however, that:
- (a)
- the
maximum number of Shares may be "refreshed" with the approval of our Shareholders in a general meeting up to a maximum of 10% of the issued share
capital of our Company at the date of such Shareholders' approval; and
- (b)
- the
total maximum number of Shares which may be issued upon exercise of all outstanding Options granted and yet to be exercised under the Share Option
Scheme and any other share option scheme shall not exceed 30% of the issued share capital of our Company from time to time.
Maximum entitlement of each participant
Unless approved by our Shareholders in a general meeting (with the relevant participant and his associates abstaining from voting), no
participant shall be granted an Option if the total number of Shares issued and to be issued upon exercise of the Options granted to such participant in any 12-month period up to the date of the
latest grant would exceed 1% of the issued share capital of our Company at the time the Option is granted.
The
maximum number of Shares referred to above will be adjusted, in such manner as the auditors for the time being of our Company or an independent financial adviser shall confirm in
writing to the Board in accordance with the provisions relating to adjustment, in the event of any alteration in the capital structure of our Company whether by way of capitalization of profits or
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reserves,
rights issue, consolidation, subdivision or reduction of the share capital of our Company provided that no such adjustment shall be made in the event of an issue of Shares as consideration
in respect of a transaction to which our Company or any of our subsidiaries is a party or an issue of shares pursuant to, or in connection with, any share option scheme, share appreciation rights
scheme or any arrangement for remunerating or incentivizing any employee, consultant or adviser to the Company or any of our subsidiaries.
Offer and grant of Options and option period
On and subject to the terms of the Share Option Scheme, the Board shall be entitled from time to time on any day within 10 years
after the Adoption Date to offer to grant to any participant as the Board may in its absolute discretion select and subject to such conditions (including but not limited to imposition of any
performance target(s) and/or vesting scale) as the Board may think fit an Option to subscribe for such number of Shares (being a board lot or an integral multiple thereof) as the Board may determine
at the subscription price.
An
offer of the grant of an Option shall be made to a participant by letter in such form as the Board may from time to time determine specifying the number of Shares, the subscription
price, any condition (including but not limited to imposition of any performance target(s) and/or vesting scale), the option period in respect of which the offer is made, the date by which the Option
must be accepted being a date not more than 30 days after the offer date and further requiring the participant to undertake to hold the Option on the terms on which it is to be granted and to
be bound by the provisions of the Share Option Scheme. Such offer shall be personal to the participant concerned and shall not be transferable.
The
option period, which is the period during which a grantee may exercise an Option, shall commence on the date on which the offer is accepted and in any event shall end not later than
10 years from the offer date but subject to the early termination provisions of the Share Option Scheme.
Granting Options to connected persons
An offer of the grant of an Option to a Director, chief executive or substantial Shareholder of our Company or any of their respective
associates must be approved by our independent non-executive Directors (excluding any independent non-executive Director who is the grantee of the Options). Where any grant of Options to a substantial
Shareholder or an independent non-executive Director, or any of their respective associates, would result in our Shares issued and to be issued upon exercise of all options already granted and to be
granted (including Options exercised, cancelled and outstanding) to such person in the 12-month period up to and including the date of such grant (a) representing in aggregate over 0.1% of our
Shares in issue from time to time; and (b) having an aggregate value, based on the closing price of our Shares at the date of each grant, in excess of HK$5.0 million, such further grant
of options must be approved by our Shareholders. All connected persons of our Company must abstain from voting in favor at such general meeting.
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Offer period and number accepted
Any offer of the grant of an Option may be accepted or deemed to have been accepted in respect of less than the number of Shares in
respect of which it is offered provided that it is accepted in respect of a board lot or an integral multiple thereof. To the extent that the offer of the grant of an Option is not accepted within
30 days from the date upon which it is made in the manner indicated in this paragraph, it will be deemed to have been irrevocably declined. An Option shall be deemed to have been granted and
accepted and to have taken effect on the relevant offer date when the duplicate letter comprising acceptance of the offer of the grant of the Option duly signed by the grantee together with a
remittance in favor of our Company of HK$1.0 by way of consideration for the grant thereof is received by our Company within the specified time period. Such remittance shall in no circumstances
be refundable.
Restriction on the time of grant of Options
The Board shall not offer the grant of any Option to any participant after a price sensitive event has occurred or a price sensitive
matter has been the subject of a decision, or after any inside information has come to the knowledge of the Company, until such price sensitive or inside information has been published or disclosed in
accordance with the applicable laws, rules and regulations. In particular, no Option may be offered during the period commencing one month immediately preceding the
earlier of:
- (a)
- the
date of the Board meeting (as such date is first notified to the Stock Exchange in accordance with the Listing Rules) for the approval of our
Company's results for any year, half-year, quarterly or any other interim period (whether or not required under the Listing Rules); and
- (b)
- the
deadline for our Company to publish an announcement of our results for any year or half-year under the Listing Rules, or quarterly or any other interim
period (whether or not required under the Listing Rules),
and
ending on the date of the results announcement.
Minimum holding period, vesting and performance target
On and subject to the terms of the Share Option Scheme, the Board may in its absolute discretion grant an Option to any participant
subject to such conditions (including but not limited to imposition of any vesting and performance target(s) and/or minimum holding period) as the Board may think fit.
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Subscription price
The subscription price in respect of any Option shall be a price determined by the Board and notified to a Share Option Scheme
participant (subject to any adjustments made pursuant to the terms and conditions of the Share Option Scheme) which shall be the higher of:
- (a)
- the
closing price of our Shares as stated in the Stock Exchange daily quotations sheet on the relevant offer date, which must be a business day;
- (b)
- the
average closing price of our Shares as stated in the Stock Exchange's daily quotations sheets for the five trading days immediately preceding the
relevant offer date; and
- (c)
- the
nominal value of our Shares.
Exercise of Option
An Option may be exercised in whole or in part (but if in part only, in respect of a board lot or any integral multiple thereof)
in the manner as set out in Share Option Scheme by the grantee (or his or her legal personal representative(s)) giving notice in writing to our Company stating that the Option is thereby
exercised and specifying the number of Shares to be subscribed. Each such notice must be accompanied by a remittance for the full amount of the aggregate subscription price for our Shares in respect
of which the notice is given. Within 21 days after receipt of the notice and the remittance and, where appropriate, receipt of the auditors' certificate pursuant to Share Option Scheme, our
Company shall allot and issue the relevant Shares to the grantee (or his or her legal personal representative(s)) credited as fully paid and issue to the grantee (or his or her legal
personal representative(s)) a share certificate in respect of our Shares so allotted.
Save
as provided in the Share Option Scheme, the Option may be exercised by the grantee, in accordance with the terms of the grant letter at any time or times during the option period
provided that:
- (a)
- in
the event of the grantee ceasing to be an employee, Director or consultant of our Company or any subsidiary for any reason other than his or her death or
disability or the termination of his or her employment on one or more of the grounds specified in the Share Option Scheme, the grantee may exercise the Option that has vested at the date of cessation
of his or her employment (to the extent not already exercised) within the period of one month following the date of such cessation, which date shall be the last actual working day of his
employment with our Company or the relevant subsidiary whether payment in lieu of notice is made or not (if applicable);
- (b)
- in
the event that the grantee ceases to be an employee, Director or consultant of our Company or any subsidiary by reason of death and none of the events
which would be a ground for termination of his employment under the Share Option Scheme has occurred, the legal personal representative(s) of the grantee shall be entitled within a period of one year
from the date of death (or such longer period as the Board may determine) to exercise the Option in full (to the extent not already exercised);
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- (c)
- in
the event that the grantee ceases to be an employee, Director or consultant of our Company or any subsidiary by reason of disability and none of the
events which would be a ground for termination of his employment under the Share Option Scheme has occurred, for the purposes of Option vesting only, the grantee shall be treated as if his her
employment with the Company or the relevant subsidiary continued for the lesser of: (i) three years after the date of disability; and (b) the remaining term of the Option, and during
such time the Option shall continue to vest and remain exercisable;
- (d)
- if
a general offer (whether by way of take-over offer, share repurchase offer or otherwise in like manner but other than by way of scheme of arrangement) is
made to all the holders of Shares (or all such holders other than the offeror and/or any person controlled by the offeror and/or any person acting in association or in concert with the offeror)
and such offer becomes, or is declared, unconditional, the grantee shall be entitled to exercise the Option in full (to the extent not already exercised) to its full extent by giving notice to
the Company at any time after the general offer becomes or is declared unconditional and up to the close of such offer;
- (e)
- in
the event a general offer for Shares by way of scheme of arrangement is made by any person to all the Shareholders and has been approved by the necessary
number of Shareholders at the requisite meetings, the Grantee shall be entitled to exercise the Option (to the extent not already exercised) to its full extent by giving notice to the Company
at any time after the meetings whereby the scheme is approved and up to the record date for determining entitlements under such scheme of arrangement;
- (f)
- in
the event a notice is given by the Company to the Shareholders to convene a Shareholders' meeting for the purpose of approving a resolution to
voluntarily wind-up the Company, the Company shall give notice thereof to all the grantees on the same day as it dispatches to the Shareholders the notice convening the meeting and, each grantee shall
be entitled to exercise the Option (to the extent not already exercised) to its full extent by giving notice to the Company, such notice to be given not later than three business days prior to
the date of the proposed meeting. The Company shall as soon as possible and in any event no later than two business days immediately prior to the date of the proposed meeting, allot and issue such
number of Shares to the grantee which falls to be issued on such exercise of the Option, credited as fully paid. With effect from the date two business days prior to the date of such meeting, the
rights of all grantees to exercise their respective Options shall forthwith be suspended. If, for any reason, the resolution for the voluntary winding-up of the Company is not approved by the
Shareholders, the rights of the grantees to exercise their respective Options shall be restored in full, to the extent that they had not been exercised at the date such rights were suspended, as if
such resolution for the voluntary winding-up of the Company had not been proposed by the Company; and
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- (g)
- if,
pursuant to the Companies Act, a compromise or arrangement (other than a scheme of arrangement) between our Company and our Shareholders and/or
creditors is proposed for the purposes of or in connection with a scheme for the reconstruction of our Company or our amalgamation with any other company or companies, our Company shall give notice
thereof to all grantees on the same date as we dispatch to each Shareholder and/or creditor of our Company a notice summoning the meeting to consider such a compromise or arrangement, and thereupon
each grantee shall be entitled to exercise the Option (to the extent not already exercised) to its full extent by giving notice to the Company, such notice to be given not later than three
business days prior to the date of the proposed meeting. The Company shall as soon as possible and in any event no later than two business days immediately prior to the date of the proposed meeting,
allot and issue such number of Shares to the grantee which falls to be issued on such exercise of the Option, credited as fully paid. With effect from the date that is two business days before the
date of such meeting, the rights of all grantees to exercise their respective Options shall forthwith be suspended. The Board shall endeavor to procure that the Shares issued upon the exercise of the
Options in such circumstances shall for the purposes of such compromise or arrangement form part of the issued share capital of the Company on the effective date thereof and that such Shares shall in
all respects be subject to such compromise or arrangement. If, for any reason, such compromise or arrangement is not approved by the relevant court (whether upon the terms presented to the relevant
court or upon any other terms as may be approved by such court), the rights of the grantees to exercise their respective Options shall, with effect from the date of the making of the order by the
relevant court and to the extent they had not been exercised at the date such rights were suspended, be restored in full as if such compromise or arrangement had not been proposed by
the Company.
Ranking of Shares
Voting, dividend, transfer and other rights, including but not limited to rights arising on liquidation of the Company, shall not
attach to the Options themselves. However, the Shares to be allotted upon the exercise of an Option will be subject to all the provisions of the Articles of Association for the time being in force and
will rank pari passu with the fully paid Shares in issue on the date of exercise, and accordingly will entitle the holders to participate in all dividends and other distributions paid or made
on or after the date of exercise other than any dividend or other distribution previously declared or recommended or resolved to be paid or made if the record date therefor is before the date
of exercise.
Life of Share Option Scheme
Subject to relevant terms of the Share Option Scheme, the Share Option Scheme shall be valid and effective for a period of
10 years commencing on the Adoption Date, after which period no further Options will be offered but the provisions of the Share Option Scheme shall remain in full force and effect to the extent
necessary to give effect to the exercise of any Options granted prior thereto or otherwise as may be required in accordance with the provisions of the Share Option Scheme.
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Administration
The Share Option Scheme of our Company shall be subject to the administration of the Board whose decision (save as otherwise provided)
shall be final and binding on all parties.
Lapse of Options
An Option shall lapse automatically and not be exercisable (to the extent not already exercised) on the
earliest of:
- (a)
- the
expiry of the option period;
- (b)
- the
expiry of any of the periods in relation to the exercise of the Option;
- (c)
- subject
to relevant terms in the Share Option Scheme, the date of the commencement of the winding-up of our Company;
- (d)
- the
date on which the grantee ceases to be an employee, Director or consultant of our Company or any of our subsidiaries by reason of the termination of his
or her employment or service on any one or more of the grounds that he or she has been guilty of serious misconduct, or has committed an act of bankruptcy or has become insolvent or has made any
arrangement or composition with his or her creditors generally, or has been convicted of any criminal offence involving his or her integrity or honesty or (if so determined by the Board or the
board of directors of the relevant subsidiary) on any other grounds on which an employer or principal would be entitled to terminate his or her employment or service at common law or pursuant to any
applicable laws or under the grantee's service contract with our Company or the relevant subsidiary. A resolution of the Board to the effect that the employment or service of a grantee has or has not
been terminated on one or more of the grounds specified above shall be conclusive; and
- (e)
- the
date on which the grantee commits a breach of the terms and conditions in relation to transferability.
Adjustment
In the event of any alteration in the capital structure of our Company whilst any Option remains exercisable, whether by way of
capitalization of profits or reserves, rights issue, consolidation, subdivision or reduction of the share capital of our Company in accordance with applicable laws and regulatory requirements (other
than an issue of Shares as consideration in respect of a transaction to which our Company or any of our subsidiaries is a party or an issue of shares pursuant to, or in connection with, any share
option scheme, share appreciation rights scheme or any arrangement for remunerating or incentivizing any employee, consultant or adviser to the Company or any subsidiary), such corresponding
adjustments (if any) shall be made to:
- (a)
- the
number or nominal amount of Shares, the subject matter of the Option (insofar as it is unexercised);
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- (b)
- the
maximum number of Shares in respect of which Options may be granted under the Share Option Scheme;
- (c)
- the
subscription price; and/or
- (d)
- the
method of exercise of the Option,
as
the auditors or an independent financial adviser shall confirm in writing to the Board that the adjustments satisfy the requirements set out in the note to Rule 17.03(13) of the Listing
Rules or otherwise comply with the Listing Rules or other rules, practices, directions, future guidance or
interpretation of the Listing Rules of or issued by the Stock Exchange in force from time to time. Any such adjustments shall give the Share Option Scheme participant the same proportion of the equity
capital of the Company and any adjustments to the advantage of the Share Option Scheme participant to the exercise price or to the number of Shares subject to the Options must be approved by the
Shareholders in general meeting, and no adjustment may be made to the extent that Shares would be issued at less than their nominal value. The capacity of the auditors or the independent financial
adviser is that of experts and not of arbitrators and their certification shall be final and binding on our Company and the grantees in the absence of manifest error. The costs of the auditors or the
independent financial adviser shall be borne by the Company.
Share capital
The exercise of any Option shall be subject to the Shareholders of our Company in general meeting approving any necessary increase in
the authorized share capital of our Company. Subject thereto, the Board shall make available sufficient authorized but unissued share capital of our Company to meet subsisting requirements on the
exercise of Options.
Cancellation of Options not exercised
The Board may at any time with the consent of and on such terms as may be agreed with the relevant grantee cancel Options previously
granted to but not yet exercised by the grantee. Where any Option is cancelled and new Option is intended to be granted to the same Share Option Scheme participant, the Share Option Scheme must have
available unissued Options (excluding the cancelled Option(s)) within the maximum number of Shares as aforementioned.
Termination of Share Option Scheme
Our Company by ordinary resolution in general meeting or the Board may at any time terminate the operation of the Share Option Scheme
and in such event no further Options will be offered but the provisions of the Share Option Scheme shall remain in force in all other respects. All Options granted prior to such termination shall
continue to be valid and exercisable in accordance with the terms of the Share Option Scheme.
Transferability of Options
An Option shall be personal to the grantee and shall not be assignable and no grantee shall in any way sell, transfer, charge,
mortgage, encumber or create any interest in favor of any third party over or in relation to any Option or attempt so to do, except with the prior written consent of the Board from time
to time.
V-11
Table of Contents
Amendment of Share Option Scheme
The Share Option Scheme may be altered in any respect by resolution of the Board except that the amendments shall not affect adversely
any rights which have accrued to any grantee and provided that the specific provisions in the Share Option Scheme which relate to the matters set out in Rule 17.03 of the Listing Rules shall
not be altered to the advantage of grantees or prospective grantees except with the prior sanction of a resolution of our Shareholders in a general meeting. Any alterations to the terms and conditions
of the Share Option Scheme which are of a material nature or any change to the terms of the Options granted shall be subject to the approval of our Shareholders, save where the alterations take effect
automatically under the existing terms of the Share Option Scheme. After any alteration, the amended terms of the Share Option Scheme must comply with the relevant requirements of the Listing Rules.
Any change to the authority of the Board in relation to any alteration to the terms of the Share Option Scheme shall be subject to the approval of our Shareholders in a general meeting.
(c) PARTICULARS OF SUBSIDIARIES
Our principal subsidiaries are listed in note 1 to the Accountants' Report set out in
Appendix I — "Accountants' Report of the Company" to this listing document.
(d) FURTHER INFORMATION ABOUT OUR BUSINESS
A. Summary of our material contracts
We have entered into the Deed of Non-Competition (not being a contract entered into in the ordinary course of business) within two years preceding the date
of this listing document which is or may be material.
B. Intellectual property rights
(a) Trademarks
As at the Latest Practicable Date, our Company [had applied] for registration of the following trademarks:
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Trademark
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Name of Applicant |
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Class |
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Application Date |
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Application
Number |
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Place of
Application |
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Hong Kong Smartact Limited |
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4, 16, 35, 37 |
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Hong Kong |
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Hong Kong Smartact Limited |
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4, 16, 35, 37 |
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Hong Kong |
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Hong Kong Smartact Limited |
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4, 16, 35, 37 |
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Hong Kong |
V-12
Table of Contents
(b) Domain names
As of the Latest Practicable Date, we had registered the following domain names:
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Domain Name
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Owner |
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Registration Date |
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Expiry Date |
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fsanthracite.com.hk |
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Hong Kong Smartact Limited |
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November 6, 2012 |
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November 9, 2013 |
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fsanthracite.com |
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Hong Kong Smartact Limited |
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November 6, 2012 |
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November 6, 2014 |
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fsanthracite.com.cn |
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Hong Kong Smartact Limited |
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November 6, 2012 |
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November 6, 2014 |
Save
as disclosed herein, there are no patents, trademarks or other intellectual property rights which are material in relation to our business.
(e) DISCLOSURE OF INTERESTS
A. Substantial shareholders
Immediately following completion of the Spin-off, so far as the Directors and our chief executive are aware, the following persons will have an interest or a
short position in the Shares or underlying Shares
which would fall to be disclosed to us and the Stock Exchange under the provisions of Divisions 2 and 3 of part XV of the SFO, or will be directly or indirectly, interested in 10% or more of
the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of our Company:
- (a)
- Long
positions in the Shares or underlying Shares
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Name of Shareholder
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Number of Shares
directly or
indirectly held |
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Approximate
percentage of
issued share
capital (%) |
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Feishang |
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58.1 |
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Laitan Investments |
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(1) |
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58.1 |
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Mr. Li Feilie |
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(2) |
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59.3 |
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Rosetta Stone Capital Limited |
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- (1)
- Laitan
Investments held 100% of the equity interests in Feishang. Accordingly, under the SFO, Laitan Investments was deemed to be interested in the
Shares held by Feishang.
- (2)
- Mr. Li
Feilie held 100% of the equity interests in Laitan Investments. Accordingly, under the SFO, Mr. Li Feilie was deemed to be interested
in the Shares held by Feishang. Mr. Li Feilie also directly
held Shares.
- (b)
- Short
positions in the Shares and underlying Shares — nil.
V-13
Table of Contents
- (c)
- Interests
in other members of our Company
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Name of subsidiary
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Name of shareholder |
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Amount
of registered
capital
contributed |
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Approximate
percentage of
interest
(%) |
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Baiping Mining |
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Yangpu Wanshun Energy Co. Ltd.(1) |
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RMB17,400,000 |
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30 |
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Guizhou Yongfu |
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Yangpu Wanshun Energy Co. Ltd. |
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RMB30,000,000 |
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30 |
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- (1)
- An
Independent Third Party.
Save
as disclosed herein, the Directors are not aware of any person who immediately following completion of the Spin-off will have an interest or a short position in Shares or underlying
Shares
which would be required to be disclosed to us and the Stock Exchange under the provisions of Divisions 2 and 3 of part XV of the SFO, or will be directly or indirectly, interested in 10% or
more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of our Company and are therefore regarded as substantial
shareholders under the Listing Rules.
B. Disclosure of our Directors' interests
Immediately following completion of the Spin-off, the interests and short positions of each Director and chief executive of our Company in the shares, underlying
shares and debentures of our Company and its associated corporations (within the meaning of Part XV of the SFO) which will have to be notified to us and the Stock Exchange pursuant to Divisions
7 and 8 of Part XV of the SFO (including interests and short positions which he is taken or deemed to have under such provisions of SFO) or which will be required, pursuant to
section 352 of the SFO, to be recorded in the register referred to therein or which will be required to be notified to us and the Stock Exchange pursuant to the Model Code for Securities
Transactions by Directors and Listed Issuers contained in the Listing Rules, will be as follows:
- (a)
- Interest
in the share capital of the Company (all being long positions)
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Director or Chief Executive
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Type of interest |
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Number of Shares
interested |
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Approximate
percentage of
issued share
capital (%) |
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| |
Mr. Li Feilie |
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Interests of controlled corporation |
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58.1 |
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Mr. Li Feilie |
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Personal |
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1.2 |
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Mr. Tam Cheuk Ho |
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Personal |
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1.1 |
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Mr. Wong Wah On Edward |
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Personal |
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1.6 |
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V-14
Table of Contents
- (b)
- Interest
in the share capital of Feishang (being the holding company of the Company and therefore an associated corporation of the Company)
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Director or Chief Executive
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Type of interest |
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Number of Shares
interested |
|
Approximate
percentage of
issued share
capital (%) |
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| |
Mr. Li Feilie |
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Interests of controlled corporation |
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100 |
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- (c)
- Interest
in the share capital of Laitan Investments (being the holding company of the Company and therefore an associated corporation of the Company)
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| |
Director or Chief Executive
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Type of interest |
|
Number of Shares
interested |
|
Approximate
percentage of
issued share
capital (%) |
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| |
Mr. Li Feilie |
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Personal |
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100 |
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- (d)
- Interest
in the share capital of CHNR (being a subsidiary of the Company's holding company and therefore an associated corporation of the Company)
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| |
Director or Chief Executive
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Type of interest |
|
Number of Shares
interested |
|
Approximate
percentage of
issued share
capital (%) |
|
| |
Mr. Li Feilie |
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Interests of controlled corporation |
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58.1 |
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Mr. Li Feilie |
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Personal |
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1.2 |
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Mr. Tam Cheuk Ho |
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Personal |
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1.1 |
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Mr. Wong Wah On Edward |
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Personal |
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1.6 |
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C. Particulars of service contracts
Each Director [has entered] into a service contract with the Company for a term up to three years, subject to re-election and
re-appointment.
D. Directors' remuneration
The aggregate amount of benefits in kind granted to our Directors and charged to the consolidated income statements in respect of each of 2010, 2011 and 2012 were
approximately RMB17.0 million, nil and nil, respectively.
V-15
Table of Contents
E. Personal guarantees
Mr. Li Feilie has provided personal guarantees in favor of lenders in connection with banking facilities granted to us. See "Relationship with Our
Controlling Shareholders — Independence from Our Controlling Shareholders — Financial Independence".
F. Connected transactions and related party transactions
Details of the connected transactions and related party transactions of the Company are set out in the section entitled "Connected Transactions" of this listing
document and in the Accountants' Report, the text which is set out in Appendix I — "Accountants' Report of the Company" to this listing document,
respectively.
G. Disclaimers
Save as disclosed in this listing document:
- (a)
- none
of the Directors or chief executive of our Company had any interests and short positions in the shares, underlying shares and debentures of our Company
or any associated corporation (within the meaning of Part XV of the SFO) which will have to be notified to us and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO
(including interests and short positions which he is taken or deemed to have under such provisions of SFO) or which will be required, pursuant to section 352 of the SFO, to be entered in the
register referred to therein, or will be required, pursuant to the Model Code for Securities Transactions by Directors and Listed Companies to be notified to us and the Stock Exchange, in each case
once our Shares are listed;
- (b)
- none
of the Directors or any of the parties listed in the paragraph headed "Qualification of experts" in this Appendix is interested in our promotion, or in
any assets which have, within the two years immediately preceding the issue of this listing document, been acquired or disposed of by or leased to us, or are proposed to be acquired or disposed of by
or leased to our Company;
- (c)
- none
of the Directors or any of the parties listed in paragraph headed "Qualification of experts" in this Appendix is materially interested in any contract
or arrangement subsisting at the date of this listing document which is unusual in its nature or conditions or which is significant in relation to our business;
- (d)
- none
of the parties listed in the paragraph headed "Qualification of experts" in this Appendix:
- i.
- is
interested legally or beneficially in any shares in any member of our Group; or
- ii.
- has
any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of our
Group; and
V-16
Table of Contents
- (e)
- none
of the Directors or their respective associates or any Shareholders of our Company (who to the knowledge of the Directors owns more than 5% of
our issued share capital) has any interest in our five largest suppliers or our five largest customers.
(f) OTHER INFORMATION
A. Estate duty
We have been advised that no material liability for estate duty is likely to fall on our Company or any member of our Group in the BVI, Hong Kong and the PRC,
being jurisdictions in which one or more of the companies comprising our Group were incorporated.
B. Litigation
As of the Latest Practicable Date, save as disclosed in this listing document, our Company is not involved in any material litigation, arbitration or
administrative proceedings. So far as we are aware, no such litigation, arbitration or administrative proceedings are pending or threatened.
C. Joint Sponsors
Each of the Joint Sponsors has declared its independence pursuant to Rule 3A.07 of the Listing Rules.
The
Joint Sponsors have made an application on our behalf to the Listing Committee of the Stock Exchange for listing of, and permission to deal in, our Shares in issue. All necessary
arrangements have been made enabling the Shares to be admitted into CCASS.
D. Preliminary expenses
Our estimated preliminary expenses are approximately HK$1.0 million and are payable by our Company.
E. Compliance adviser
Our Company has agreed to appoint to be
the compliance adviser upon listing in compliance with
Rule 3A.19 of the Listing Rules. Our Company expects to enter into a compliance advisers' agreement with the compliance advisers prior to the Listing Date, the material terms of which are
as follows:
- (a)
- our
Company will appoint as the compliance adviser for the purpose of Rule 3A.19 of the Listing Rules for a period commencing on the
Listing Date and ending on the date on which our Company distributes its annual report incorporating financial results for the first full financial year commencing after the Listing Date in compliance
with Rule 13.46 of the Listing Rules;
V-17
Table of Contents
- (b)
- the
compliance adviser will provide our Company with certain services, including providing our Company with proper guidance and advice as to compliance with
the requirements under the Listing Rules and applicable laws, rules, codes and guidelines and to act as one of our Company's principal channels with the Stock Exchange;
- (c)
- the
compliance adviser will, as soon as reasonably practicable inform us of any amendment or supplement to the Listing Rules announced by the Stock Exchange
from time to time, and of any amendment or supplement to the applicable laws and guidelines;
- (d)
- the
Company will agree to indemnify the compliance adviser for certain actions against the losses incurred by the compliance adviser arising out of or in
connection with the performance by the compliance adviser of their duties under the agreement, or any material breach by the Company of the provisions of the agreement, provided that the indemnity
will not apply to an action or loss which is finally judicially determined to have been caused by the wilful default, fraud or gross negligence on the part of the compliance adviser;
- (e)
- our
Company may terminate the appointment of the compliance adviser if its work is of an unacceptable standard (which cannot be resolved within
30 days); and
- (f)
- the
compliance adviser may terminate their appointment by service of a notice to our Company.
F. Qualification of experts
The qualifications of the experts who have given opinions in this listing document are as follows:
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| |
Name
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Qualification |
| |
[Intentionally omitted] |
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Certified public accountants |
| |
Commerce & Finance Law Offices |
|
Legal advisers to the Company as to PRC law |
| |
Maples and Calder |
|
Legal advisers to the Company as to BVI law |
| |
Behre Dolbear Asia, Inc. |
|
Competent Person |
G. No material adverse change
The Directors confirm that there has been no material adverse change in our financial or trading position
since and that no material changes have
occurred since the date of the Competent Person's Report up to the date of this listing document.
V-18
Table of Contents
H. Miscellaneous
Save as disclosed in this listing document, within the two years preceding the date of this listing document:
- (a)
- we
have not issued nor agreed to issue any share or loan capital of any member of our Group fully or partly paid either for cash or for a consideration
other than cash;
- (b)
- no
share or loan capital of any member of our Group is under option or is agreed conditionally or unconditionally to be put under option;
- (c)
- we
have not issued nor agreed to issue any founder Shares, management Shares or deferred Shares;
- (d)
- our
Company has no outstanding convertible debt securities or debentures;
- (e)
- no
commission, discount, brokerage or other special term has been granted in connection with the issue or sale of any capital of the Company; and
- (f)
- there
is no arrangement under which future dividends are waived or agreed to be waived.
I. Consents
Each of the experts as referred to in the paragraph headed "Qualification of experts" in this Appendix, has given and has not withdrawn their respective written
consents to the issue of this listing document with the inclusion of their reports and/or valuation certificates and/or the references to their names included herein in the form and context in which
they are respectively included.
J. Sufficiency of foreign exchange
For holders of our Shares, cash dividends payments, if any, will be proposed by our Board and paid in Hong Kong dollars. Our Directors are of the view that we
will have sufficient Hong Kong dollars to pay any cash dividends payments as they become due.
V-19
Table of Contents
APPENDIX VI
DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection at the offices of Sullivan & Cromwell (Hong Kong) at
28th Floor, Nine Queen's Road Central, Hong Kong during normal business hours up to and including the date which is 14 days from the date of this listing
document:
- (a)
- the
Memorandum of Association and the Articles of Association of our Company;
- (b)
- the
Accountants' Report of the Company prepared by Ernst & Young, the text of which is set out in
Appendix I — "Accountants' Report of the Company";
- (c)
- the
Accountants' Report of Guizhou Puxin prepared by Ernst & Young, the text of which is set out in
Appendix II — "Accountants' Report of Guizhou Puxin";
- (d)
- the
Competent Person's Report prepared by Behre Dolbear Asia, Inc. as set out in
Appendix III — "Competent Person's Report";
- (e)
- the
material contract referred to in Appendix V — "Statutory and General
Information — Further Information About Our Business — Summary of Our Material Contracts";
- (f)
- the
written consents referred to in Appendix V — "Statutory and General
Information — Other Information — Consents";
- (g)
- the
service agreements referred to in Appendix V — "Statutory and General
Information — Disclosure of Interests — Particulars of Service Contracts";
- (h)
- the
letter of advice issued by Maples and Calder summarizing aspects of BVI company law, the text of which is set out in
Appendix IV — "Summary of the Constitution of our Company and British Virgin Islands Companies Law";
- (i)
- the
BVI Business Companies Act, 2004 (as amended);
- (j)
- the
rules of the Share Option Scheme; and
- (k)
- the
PRC legal opinions dated issued by Commerce & Finance Law Offices, the legal advisors to the
Company as to PRC law in respect of
certain aspects of our Company and the property interests of our Company.
VI-1
