THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

The circular is for information purpose only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities of the Company.

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Winbox International (Holdings) Limited, you should at once hand this circular together with the enclosed form of proxy to the purchaser(s) or the transferee(s) or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser(s) or the transferee(s).

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, 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 circular.

WINBOX INTERNATIONAL (HOLDINGS) LIMITED 永保時國際（控股）有限公司

(Incorporated in the Cayman Islands with limited liability) (Stock code: 474)

VERY SUBSTANTIAL ACQUISITION SPECIFIC MANDATE TO ISSUE NEW SHARES INCREASE IN AUTHORISED SHARE CAPITAL

AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

Financial Adviser to the Company

A letter from the board of directors of Winbox International (Holdings) Limited is set out on pages 7 to 67 of this circular.

A notice convening an extraordinary general meeting of Winbox International (Holdings) Limited to be held at The Focal Point, Worldwide Executive Centre, Level 10, World-Wide House, 19 Des Voeux Road Central, Hong Kong on 13 January 2010, at 2:30 p.m., is set out on pages 545 to 547 of this circular. A form of proxy for use at the extraordinary general meeting is enclosed. Whether or not you intend to attend and vote at the extraordinary general meeting or any adjourned meeting (as the case may be) in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and return it to the branch share registrar and transfer office of the Company in Hong Kong, Computershare Hong Kong Investor Services Limited at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible, but in any event not less than 48 hours before the time appointed for holding such meeting or any adjourned meeting. Completion and return of the form of proxy will not preclude you from attending and voting in person at the extraordinary general meeting or any adjourned meeting (as the case may be) should you so wish.

28 December 2009

CONTENTS

				Page
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from	the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
1.	Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
2.	The S&P Agreement . . . . . . . . . . . . . . . . . . . . . . .	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
3.	Financing of the Acquisitions and Specific Mandate to Issue New Shares . . . . . . . . . . . . . .			15
4.	Consideration Shares . . . . . . . . . . . . . . . . . . . . . . .	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
5.	Convertible Notes . . . . . . . . . . . . . . . . . . . . . . . . .	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
6.	Effect on Shareholding Structure . . . . . . . . . . . . .	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
7.	Increase in Authorised Share Capital . . . . . . . . . .	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
8.	Information on the Purchaser . . . . . . . . . . . . . . . .	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
9.	Information on the Target Group . . . . . . . . . . . . .	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
10.	Due Diligence Findings on the Target Group . . .	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	28
11.	Qualified Opinions in the Accountants’ Reports of the Target Group . . . . . . . . . . . . . . . . . .			35
12.	Introduction to the Coal Industry . . . . . . . . . . . . .	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	37
13.	The Mines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	41
14.	Financial Effects of the Acquisition on the Group	. .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	56
15.	Information on the Vendors . . . . . . . . . . . . . . . . .	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	57
16.	Reasons for the Acquisitions . . . . . . . . . . . . . . . .	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	58
17.	Future Plans and Strategies . . . . . . . . . . . . . . . . . .	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	58
18.	Risks Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	60
19.	General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	65
20.	EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	66
21.	Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . .	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	66
Appendix I	— Financial information on the Group	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	68
Appendix II — Accountants’ report of Merrymaking		Investments . . . . . . . . . . . . . . . . . . . . . .		107
Appendix III — Accountants’ report of Pleasing Results			. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	151
Appendix IV — Accountants’ report of Wuhai City Menggang . . . . . . . . . . . . . . . . . . . . . . . . .				172
Appendix V — Accountants’ report of Tianyu Gongmao			. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	216

– i –

CONTENTS

			Page
Appendix VI	—	Accountants’ report of Tianyu Coal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	245
Appendix VII	—	Unaudited pro forma financial information on the Enlarged Group . . . . . . .	268
Appendix VIII	—	Management discussion and analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	280
Appendix IX	—	Property valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	320
Appendix X	—	Technical assessment report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	346
Appendix XI	—	Valuation of Wuhai City Menggang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	510
Appendix XII	—	General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	532
Notice of EGM	. . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	545

– ii –

DEFINITIONS

In this circular, the following expressions have the following meanings unless the context requires otherwise:

‘‘Acquisitions’’	the acquisitions of the entire issued share capital of each of
	Merrymaking Investments and Pleasing Results by the Purchaser
	from the Vendors pursuant to the S&P Agreement;
‘‘Articles of Association’’	the articles of association of the Company;
‘‘associate(s)’’	has the meaning ascribed to it in the Listing Rules;
‘‘Board’’	the board of Directors;
‘‘Brilliant Wise’’	Brilliant Wise Limited (輝惠有限公司), a company incorporated
	in Hong Kong with limited liability;
‘‘BVI’’	British Virgin Islands;
‘‘Company’’	Winbox International (Holdings) Limited (永保時國際(控股)有限
	公司), a company incorporated in the Cayman Islands with
	limited liability, the Shares of which are listed on the Main Board
	of the Stock Exchange;
‘‘Completion’’	completion of the Acquisitions in accordance with the terms and
	conditions of the S&P Agreement;
‘‘Completion Date’’	the date on which Completion shall take place in accordance with
	the terms of the S&P Agreement;
‘‘Concert Parties’’	means parties acting in concert within the meaning of the
	Takeovers Code;
‘‘Consideration Shares’’	the RP Consideration Shares and the TRXY Consideration
	Shares;
‘‘connected person(s)’’	has the meaning ascribed to it in the Listing Rules;
‘‘Convertible Notes’’	the RP Convertible Notes and the TRXY Convertible Notes;
‘‘Conversion Price’’	the conversion price of HK$0.88 per Conversion Share;
‘‘Conversion Rights’’	the right of Noteholder(s) (and their respective assignees or
	transferees) at any time on any business day before the Maturity
	Date, to convert the whole or part of the principal amounts of the
	Convertible Notes into Shares;
‘‘Conversion Shares’’	Shares to be issued upon conversion of the Convertible Notes;
‘‘Directors’’	the directors of the Company;

– 1 –

DEFINITIONS

‘‘EGM’’	an extraordinary general meeting of the Company to be held on
	13 January 2010, at 2:30 p.m. (or any adjournment thereof) for
	the Shareholders to consider and, if thought fit, to approve or
	satisfy, among others, (i) the S&P Agreement and the
	Supplemental Agreement and the transactions contemplated
	therein; (ii) the allotment and issue of the Consideration Shares;
	(iii) the issue of the Convertible Notes; (iv) the allotment and
	issue of the Conversion Shares; (v) the proposed increase in
	authorised share capital; and (vi) the grant of the Specific
	Mandate under the Placing;
‘‘Enlarged Group’’	the Group as enlarged by the Acquisitions;
‘‘Favour Mind’’	Favour Mind Limited (輝意有限公司), a company incorporated in
	Hong Kong with limited liability;
‘‘Group’’	the Company and its subsidiaries;
‘‘Guantao’’	Guantao Law Firm, the legal advisers of the Company as to PRC
	laws and regulations in respect of the Acquisitions;
‘‘Hong Kong’’	the Hong Kong Special Administrative Region of the PRC;
‘‘HK$’’	Hong Kong dollar(s), the lawful currency of Hong Kong;
‘‘Independent Third Party(ies)’’	persons who, as far as the Directors are aware after having made
	all reasonable inquiries, are not connected persons of the
	Company within the meaning of the Listing Rules;
‘‘Issue Price’’	HK$0.88 per Consideration Share;
‘‘Last Trading Date’’	28 August 2009, being the last trading day prior to the entering
	into of the S&P Agreement;
‘‘Latest Practicable Date’’	22 December 2009, being the latest practicable date prior to the
	printing of this circular for the purpose of ascertaining certain
	information contained in this circular;
‘‘Listing Rules’’	the Rules Governing the Listing of Securities on the Stock
	Exchange;
‘‘Maturity Date’’	on the date falling 8 years after the date of issue of the
	Convertible Notes;
‘‘Max Joyce’’	Max Joyce Limited (穎豐有限公司), a company incorporated in
	Hong Kong with limited liability;

– 2 –

DEFINITIONS

‘‘Merrymaking Investments’’
Merrymaking Investments Limited, a company incorporated in the BVI with limited liability;
‘‘Mine No. 1’’

a mine situated in Wuhai City, Inner Mongolia Autonomous Region of the PRC (內蒙古自治區烏海市), having an estimated total land area of approximately 2.4016 square kilometres, as more particularly identified by the location coordinates as set out in the Mine No. 1 Mining Operation Permit;

‘‘Mine No. 4’’
a mine situated in Wuhai City, Inner Mongolia Autonomous Region of the PRC (內蒙古自治區烏海市), having an estimated total land area of approximately 4.0299 square kilometres, as more particularly identified by the location coordinates as set out in the Mine No. 4 Mining Operation Permit;
‘‘Mine No. 1 Mining Operation Permit’’
Mining Operation Permit (採礦許可證) dated 6 December 2007 (No. 1500000720658) granted by Department of Land and Resources of Inner Mongolia Autonomous Region, the PRC (內蒙古自治區國土資源廳) in respect of the exclusive mining rights of Mine No. 1 for a period of 3 years commencing from 6 December 2007 to 6 December 2010 (both dates inclusive). Such permit authorises the holder to produce 0.3 Mt per annum;
‘‘Mine No. 4 Mining Operation Permit’’
Mining Operation Permit (採礦許可證) dated 6 December 2007 (No. 1500000720655) granted by Department of Land and Resources of Inner Mongolia Autonomous Region, the PRC (內蒙古自治區國土資源廳) in respect of the exclusive mining rights of Mine No. 4 for a period of 3 years commencing from 6 December 2007 to 6 December 2010 (both dates inclusive). Such permit authorises the holder to produce 0.3 Mt per annum;
‘‘Mines’’
Mine No. 1 and Mine No. 4;
‘‘Mining Operation Permits’’
the Mine No. 1 Mining Operation Permit and the Mine No. 4 Mining Operation Permit;
‘‘Note Certificate(s)’’

the certificate(s) to be issued in respect of the Convertible Notes;

‘‘Noteholder(s)’’ the holder(s) of the Convertible Note(s);
‘‘RMB’’

Renminbi yuan, the lawful currency of the PRC;

‘‘Placing’’

the Relevant Placing and/or a series of other proposed placing(s) of new Shares by the Company with an aggregate gross proceeds of not less than US$90 million (equivalent to approximately HK$697.60 million) as described in the paragraph headed ‘‘Financing of the Acquisitions and Specific Mandate to Issue New Shares’’ in this circular;

– 3 –

DEFINITIONS

‘‘Placing Shares’’

the new Shares which may be allotted and issued by the Company pursuant to the Placing;

‘‘Pleasing Results’’
Pleasing Results Ltd., a company incorporated in the BVI with limited liability;
‘‘PRC’’ the People’s Republic of China;
‘‘Purchaser’’
Win Team Investments Limited, a company incorporated in the BVI and a wholly owned subsidiary of the Company;
‘‘Real Power’’
Real Power Holdings Limited, a company incorporated in the BVI with limited liability, which is owned as to 75% by TRXY and as to 25% by China Capital Group Ltd, which is a company incorporated in Hong Kong with limited liability owned by 4 individuals, all of whom are third parties independent of and not connected with the Company and its connected persons. The principal business activity of Real Power is investment holding;
‘‘Relevant Placing’’
the proposed placing of new Shares by the Company with a gross proceeds of not less than US$60 million (equivalent to approximately HK$465.07 million), the closing of which will take place simultaneously with the completion of the acquisition of the entire issued share capital of Merrymaking Investments by the Purchaser pursuant to the S&P Agreement;
‘‘RP Consideration Shares’’
319,840,476 new Shares (subject to adjustments) to be issued and allotted by the Company to Real Power under the S&P Agreement as part of the RP Total Consideration;
‘‘RP Convertible Notes’’
the convertible note(s) in the aggregate principal amount of US$100.32 million (equivalent to approximately HK$777.61 million) (subject to adjustments) to be issued by the Company in favour of Real Power to satisfy part of the RP Total Consideration pursuant to the S&P Agreement with the benefit of and subject to the note conditions;
‘‘RP Total Consideration’’
the total consideration for the acquisition of the entire issued share capital of Merrymaking Investments, being US$144.38 million (equivalent to approximately HK$1,119.07 million);
‘‘S&P Agreement’’
the sales and purchase agreement dated 1 September 2009 entered into between the Company, the Purchaser and the Vendors (as amended by the Supplemental Agreement);
‘‘SFO’’
The Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong);

– 4 –

DEFINITIONS

‘‘Share(s)’’ ordinary share(s) of HK$0.05 each in the share capital of the Company;
‘‘Shareholder(s)’’ holder(s) of Shares;
‘‘Specific Mandate’’ a specific mandate to be granted by the Shareholders at the EGM to authorize the Board to allot and issue for not more than 982,533,802 new Shares under the Placing;
‘‘SRK’’ SRK Consulting China Ltd., the independent technical adviser to undertake an independent technical review of the Mines;
‘‘Stock Exchange’’ The Stock Exchange of Hong Kong Limited;
‘‘Supplemental Agreement’’ the agreement dated 22 December 2009 entered into between the Company, the Purchaser and the Vendors amending the terms of the S&P Agreement;
‘‘Takeovers Code’’ The Code on Takeovers and Mergers issued by Securities and Futures Commission;
‘‘Target Group’’ Merrymaking Investments and its subsidiaries including Favour Mind, Brilliant Wise, Wuhai City Menggang, Tianyu Gongmao and Tianyu Coal; and Pleasing Results and its subsidiary Max Joyce;
‘‘Tianyu Coal’’ 天譽煤炭有限公司 (Tianyu Coal Company Limited*), a limited liability company established in the PRC;
‘‘Tianyu Gongmao’’ 天裕工貿有限公司 (Tianyu Gongmao Company Limited*), a limited liability company established in the PRC;
‘‘TRXY’’ TRXY Development (HK) Limited, a company incorporated in Hong Kong with limited liability which is owned by 2 individuals, both of whom are third parties independent of and not connected with the Company and its connected persons. The principal business activity of TRXY is investment holding;
‘‘TRXY Consideration Shares’’
83,392,884 new Shares (subject to adjustments) to be issued and allotted by the Company to TRXY under the S&P Agreement as part of the TRXY Total Consideration;
‘‘TRXY Convertible Notes’’
the convertible note(s) in the aggregate principal amount of US$26.16 million (equivalent to approximately HK$202.74 million) (subject to adjustments) to be issued by the Company in favour of TRXY to satisfy part of the TRXY Total Consideration pursuant to the S&P Agreement with the benefit of and subject to the note conditions;

– 5 –

DEFINITIONS

‘‘TRXY Total Consideration’’ the total consideration for the acquisition of the entire issued share capital of Pleasing Results, being US$65.63 million (equivalent to approximately HK$508.67 million);
‘‘UBS’’ UBS AG, Hong Kong Branch, a registered institution under the SFO for type 1 (dealing in securities), type 4 (advising on securities), type 6 (advising on corporate finance), type 7 (providing automated trading activities) and type 9 (asset management) regulated activities as defined under the SFO;
‘‘US$’’ United States dollars, the lawful currency of the United States; ‘‘Valuer’’ LCH (Asia-Pacific) Surveyors Limited; ‘‘Vendors’’ Real Power and TRXY; ‘‘Warranties’’ the representation, warranties, undertakings or indemnities made or given by/to the Vendors by/to the Purchaser;
‘‘Wuhai City Menggang’’ 烏海市蒙港實業發展有限公司 (Wuhai City Menggang Industrial Development Co., Limited*), a Sino-foreign equity joint venture company established in the PRC;
‘‘Zhong Tie’’ 中鐵信託有限責任公司 (Zhong Tie Trust Company Limited*); and
‘‘%’’ per cent.
The English names are only translations from their Chinese names. In case of inconsistency, the Chinese names shall prevail.

Translation of US$ to Hong Kong dollars and to Renminbi Yuan are based on the exchange rates of US$1.00 to HK$7.7511 and RMB6.83010 respectively for illustrative purpose only. Such translations should not be construed as a representation that the relevant amounts have been, could have been, or could be converted at that or any other rate or at all.

– 6 –

LETTER FROM THE BOARD

WINBOX INTERNATIONAL (HOLDINGS) LIMITED

永保時國際（控股）有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 474)

Executive Directors:

Ms. Choi Hon Hing (Chairman) Ms. Fung Wing Yee, Wynne Mr. Ng Cheuk Fan, Keith

Non-executive Directors: Ms. Fung Wing Ki, Vicky Mr. Mok Chiu Kuen

Independent Non-executive Directors:

Dr. Tam Hok Lam, Tommy, J.P. Dr. Hui Ka Wah, Ronnie, J.P. Mr. Leung Man Chun, Paul

Registered Office: Cricket Square Hutchins Drive P.O. Box 2681 Grand Cayman KY1-1111 Cayman Islands

Principal Place of Business in Hong Kong: 2nd Floor, Ching Cheong Industrial Building 1–7 Kwai Cheong Road Kwai Chung New Territories Hong Kong

28 December 2009

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION SPECIFIC MANDATE TO ISSUE NEW SHARES INCREASE IN AUTHORISED SHARE CAPITAL AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

1. INTRODUCTION

As announced by the Company on 7 September 2009, the Company, the Purchaser and the Vendors entered into the S&P Agreement on 1 September 2009, pursuant to which the Purchaser conditionally agreed (i) to acquire from Real Power, and Real Power conditionally agreed to dispose of, the entire issued share capital of Merrymaking Investments for the RP Total Consideration, being US$144.38 million (equivalent to approximately HK$1,119.07 million); and (ii) to acquire from TRXY, and TRXY conditionally agreed to dispose of, the entire issued share capital of Pleasing Results for the TRXY Total Consideration, being US$65.63 million (equivalent to approximately HK$508.67 million).

– 7 –

LETTER FROM THE BOARD

The RP Total Consideration will be satisfied (i) as to US$7.74 million (equivalent to approximately HK$60.00 million) in cash; (ii) as to US$36.31 million (equivalent to approximately HK$281.46 million) (subject to adjustments) by the issue of 319,840,476 RP Consideration Shares (subject to adjustments) to Real Power at the Issue Price; and (iii) as to US$100.32 million (equivalent to approximately HK$777.61 million) (subject to adjustments) by the issue of the RP Convertible Notes to Real Power. The TRXY Total Consideration will be satisfied (i) as to US$30.00 million (equivalent to approximately HK$232.53 million) in cash; (ii) as to US$9.47 million (equivalent to approximately HK$73.39 million) (subject to adjustments) by the issue of 83,392,884 TRXY Consideration Shares (subject to adjustments) to TRXY at the Issue Price; and (iii) as to US$26.16 million (equivalent to approximately HK$202.74 million) (subject to adjustments) by the issue of the TRXY Convertible Notes to TRXY.

The Board proposes to conduct the Placing by way of issue and allotment of new Shares. Completion of the S&P Agreement shall be conditional, upon, among others, the completion of the Placing. It is expected that the Placing will raise a gross amount of not less than US$90.00 million (equivalent to approximately HK$697.60 million). The Directors intend to obtain the Specific Mandate from the Shareholders at the EGM to authorise the Board to allot and issue the Placing Shares under the Placing.

The Acquisitions constitute very substantial acquisitions for the Company under Chapter 14 of the Listing Rules. Pursuant to Rule 14.49 of the Listing Rules, the Acquisitions are therefore subject to the approval of the Shareholders at the EGM.

The purpose of this circular is to give Shareholders, among other things, (i) further details of the Acquisitions, the Placing and the proposed increase in authorised share capital of the Company; and (ii) a notice of the EGM at which resolutions will be proposed to consider and, if thought fit, approve the S&P Agreement and the transactions contemplated thereunder, the allotment and issue of the Consideration Shares, the allotment and issue of the Convertible Notes, the allotment and issue of the Conversion Shares, the grant of the Specific Mandate for the Placing and the proposed increase in the authorised share capital of the Company.

– 8 –

LETTER FROM THE BOARD

2. THE S&P AGREEMENT

Date

1 September 2009

Parties

(i) The Company;
(ii) The Purchaser (i.e. Win Team Investments Limited, a wholly owned subsidiary of the Company);
(iii) Real Power, as vendor of the entire issued share capital of Merrymaking Investments; and
(iv) TRXY, as vendor of the entire issued share capital of Pleasing Results.

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, the Vendors and their respective ultimate beneficial owners, are third parties independent of and not connected with the Company and its connected persons.

(a) Subject Matter

Upon Completion, the Company will own the entire equity interest in Wuhai City Menggang through Merrymaking Investments and Pleasing Results and the results of Merrymaking Investments and Pleasing Results will be consolidated in the financial statements of the Group.

– 9 –

LETTER FROM THE BOARD

Immediately before Completion, the shareholding structure of the Target Group is set out below:

==> picture [282 x 124] intentionally omitted <==

==> picture [328 x 139] intentionally omitted <==

This 31.25% equity interest in Wuhai City Menggang was transferred to Max Joyce from Zhong Tie, which is an Independent Third Party, on 11 November 2009.

On 3 January 2008, Max Joyce, a wholly-owned subsidiary of Pleasing Results, entered into an equity transfer agreement with Zhong Tie to acquire 31.25% equity interest in Wuhai City Menggang at a consideration calculated at RMB100,000,000 x (1 + 13.5%/360 x N). N is the number of days for the period from 19 July 2007 to the settlement date of total consideration. On 13 March 2009, Max Joyce entered into a supplementary agreement with Zhong Tie, starting from 19 January 2009, the consideration is calculated at the sum of RMB120,250,000 and RMB100,000,000 x 18%/360 x M. M is the number of days from 19 January 2009 to the settlement date of total consideration. On 18 September 2009, Max Joyce entered into a further supplementary agreement with Zhong Tie, the consideration for the purchase of the 31.25% equity interest in Wuhai City Menggang was determined at RMB136,200,000. The consideration was determined between Zhong Tie and Max Joyce based on arm’s length discussion and on normal commercial terms.

Out of the transfer consideration of RMB136,200,000, RMB30,000,000 has been paid by Max Joyce and the remaining shall be payable on or before 28 January 2010.

Each of the Vendors has confirmed that it does not have any relationship (including prior business relationship) with Zhong Tie other than the transfer of the 31.25% equity interest in Wuhai City Menggang as mentioned above.

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, as at the Latest Practicable Date, each of Real Power, TRXY, Zhong Tie and their respective ultimate beneficial owners did not have any interest in the Company other than pursuant to the Acquisitions.

– 10 –

LETTER FROM THE BOARD

Upon Completion of the Acquisitions, the shareholding structure of the Target Group will be as follow:

==> picture [81 x 130] intentionally omitted <==

==> picture [80 x 43] intentionally omitted <==

==> picture [255 x 154] intentionally omitted <==

==> picture [80 x 44] intentionally omitted <==

(b) Consideration

Pursuant to the S&P Agreement, the Purchaser has conditionally agreed to acquire, and Real Power has conditionally agreed to dispose of, the entire issued share capital of Merrymaking Investments at a consideration for US$144.38 million (equivalent to approximately HK$1,119.07 million), which will be satisfied (i) as to US$7.74 million (equivalent to approximately HK$60.00 million) in cash; and (ii) as to US$36.31 million (equivalent to approximately HK$281.46 million) (subject to adjustments) by the issue of 319,840,476 RP Consideration Shares (subject to adjustments) to Real Power at the Issue Price; and (iii) as to US$100.32 million (equivalent to approximately HK$777.61 million) (subject to adjustments) by the issue of the RP Convertible Notes to Real Power.

Under the S&P Agreement, the Purchaser has also conditionally agreed to acquire, and TRXY has conditionally agreed to dispose of, the entire issued share capital of Pleasing Results for US$65.63 million (equivalent to approximately HK$508.67 million), which will be satisfied (i) as to US$30.00 million (equivalent to approximately HK$232.53 million) in cash; (ii) as to US$9.47 million (equivalent to approximately HK$73.39 million) (subject to adjustments) by the issue of 83,392,884 TRXY Consideration Shares (subject to adjustments) to TRXY at the Issue Price; and (iii) as to US$26.16 million (equivalent to approximately HK$202.74 million) (subject to adjustments) by the issue of the TRXY Convertible Notes to TRXY.

– 11 –

LETTER FROM THE BOARD

On 22 December 2009, the Company, the Purchaser and the Vendors entered into the Supplemental Agreement pursuant to which it has been agreed that in respect of the cash portion of the TRXY Total Consideration of US$30.00 million (equivalent to approximately HK$232.53 million), RMB106 million (or the equivalent of US$, being approximately US$15.52 million) shall be payable to Zhong Tie for the settlement of the balance of consideration in respect of the transfer of the 31.25% equity interest in Wuhai City Menggang between Max Joyce and Zhong Tie, and the balance of the cash portion of the TRXY Total Consideration shall be deposited in an interest bearing bank account (the ‘‘Special Purpose Account’’) jointly operated by the Purchaser and the Vendors as security for the potential liabilities and indemnity obligations on the part of the Vendors, the details of which are set out in the paragraph ‘‘Due Diligence Findings on the Target Group — Indemnity’’. Any amount remaining in the Special Purpose Account net of any claims made by the Company and/or the Purchaser pursuant to the S&P Agreement (if any) shall be released to TRXY upon the expiry of the 24-month period following the Completion as part settlement of the TRXY Total Consideration.

Pursuant to the S&P Agreement, the Purchaser shall pay the cash portion of US$7.74 million (equivalent to approximately HK$60.00 million) of the RP Total Consideration to Real Power as deposit within 14 days after the signing of the S&P Agreement. As at the Latest Practicable Date, the Purchaser has already settled such cash portion of the RP Total Consideration through its internal resources. Such deposit is fully refundable by Real Power to the Purchaser in the event that the Acquisitions do not proceed to Completion for whatever reasons.

The exact numbers of the RP Consideration Shares and the TRXY Consideration Shares and the principal amounts of the RP Convertible Notes and the TRXY Convertible Notes may be subject to adjustments based on market conditions for the Placing between the date of the S&P Agreement and Completion. Pursuant to the Supplemental Agreement, depending on the final number of Placing Shares issued pursuant to the Placing, the numbers of the Consideration Shares may have to be reduced so as to ensure that the Consideration Shares will not represent more than 25% of the issued share capital of the Company upon Completion and the proportion of the relevant monetary amount representing the reduced Consideration Shares shall be satisfied by the issue of additional Convertible Notes to the relevant Vendors. The above adjustments between the mix of the Consideration Shares and the Convertible Notes will not result in a change in the overall amount of the RP Total Consideration and TRXY Total Consideration.

Subject to fulfilment of the conditions precedent set forth in the paragraph headed ‘‘Conditions’’ below and on the Completion Date, the Purchaser shall settle (i) the remaining RP Total Consideration by way of delivering to Real Power the definitive certificate(s) for the RP Consideration Shares and the Note Certificate(s) for the RP Convertible Notes; and (ii) the TRXY Total Consideration by way of payment of the cash portion of US$30.00 million (equivalent to approximately HK$232.53 million) in the manner as stipulated in the Supplemental Agreement as described above, and by delivering to TRXY the definitive certificate(s) for the TRXY Consideration Shares and the Note Certificate(s) for the TRXY Convertible Notes.

As part of the Company’s due diligence review, the Company has appointed the Valuer to opine on the valuation of Wuhai City Menggang. SRK, a mineral industry consulting firm which has appropriate qualification and relevant experience in the type of exploitation and processing activities proposed to be undertaken by the Company, has been engaged as the technical adviser.

– 12 –

LETTER FROM THE BOARD

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, the Valuer and SRK and their respective ultimate beneficial owners are third parties independent of the Company and its connected persons. The Technical Assessment Report prepared by SRK is set out in Appendix X to this circular and the valuation report prepared by the Valuer is set out in Appendix XI to this circular.

The RP Total Consideration and the TRXY Total Consideration were based on normal commercial terms and determined after arm’s length negotiations between the Vendors and the Purchaser after considering a number of factors, including but not limited to, (i) the fair value of Wuhai City Menggang of US$367.00 million (equivalent to approximately HK$2,844.65 million) as determined by the Valuer; (ii) the quality of the Mines, which according to SRK, is of medium ash, high Gross Calorific Value (CV) and high volatile bituminous B coal with excellent coking properties; and (iii) the size of the Mines, which according to SRK, has large total coal resources of 72.45Mt and total coal reserves of 43.86Mt. The valuation on the fair value of Wuhai City Menggang was prepared by the Valuer using the Guideline Merged and Acquired Company Method under the Market Approach and reference was also made to the transaction record of closely held coal mine companies for the past 18 months as publicly announced.

(c) Conditions

Completion of the Acquisitions shall be conditional upon the fulfilment of the following conditions precedent:

(a) the Purchaser being satisfied in its absolute discretion with the results of the due diligence review and investigation on the members of the Target Group and the Mines;
(b) the Purchaser having received a legal opinion issued by a reputable PRC law firm in respect of the Target Group and the Mines covering such matters as may be required by the Purchaser, in form and substance acceptable to the Purchaser;
(c) the Purchaser having received a legal opinion issued by a reputable law firm in the BVI acceptable to the Purchaser, in form and substance acceptable to the Purchaser;
(d) the Purchaser having received a technical report issued from SRK relating to the state and condition of the Mines covering such matters as may be required by the Purchaser, in form and substance acceptable to the Purchaser;
(e) the Purchaser having received a valuation report issued from the Valuer relating to the valuation of the Mines covering such matters as may be required by the Purchaser, in form and substance acceptable to the Purchaser;
(f) the passing of the resolutions by Shareholders in EGM for approving the S&P Agreement (as amended by the Supplemental Agreement) and the transactions contemplated thereunder (including without limitation the increase in authorised share capital of the Company and the Placing) in accordance with the relevant requirements of the Listing Rules;
(g) the completion of the Relevant Placing (Note);

– 13 –

LETTER FROM THE BOARD

(h) the completion of the transfer of 31.25% equity interest in Wuhai City Menggang from Zhong Tie to Max Joyce;
(i) the Listing Committee of the Stock Exchange granting the listing of, and permission to deal in the RP Consideration Shares, the TRXY Consideration Shares, the Shares to be converted under the RP Convertible Notes and the TRXY Convertible Notes and any Placing Shares to be issued under the Relevant Placing and/or the Placing;
(j) all necessary consents, approval and authorisations having been obtained from all relevant authorities in the PRC and in any other applicable jurisdiction in connection with the transactions contemplated under the S&P Agreement (as amended by the Supplemental Agreement), the implementation of the transactions contemplated hereunder and all other matters incidental hereto;
(k) there being no event existing or having occurred and no condition being in existence which would constitute a material breach of the Warranties by any of the Vendors;
(l) no relevant government, governmental, quasi-governmental, statutory or regulatory body, court or agency having granted any order or made any decision that restrict or prohibit the implementation of the transactions contemplated in the S&P Agreement (as amended by the Supplemental Agreement);
(m) the Warranties by the Vendors remaining true and not misleading in all material respects at Completion; and
(n) the Warranties by the Purchaser remaining true and not misleading in all material respects at Completion.

Note: This condition has been changed to ‘‘the completion of the Placing’’ pursuant to the Supplemental Agreement.

In respect of the conditions set out in paragraphs (d) and (e) above, the Purchaser would expect (i) SRK to include in its technical report a thorough assessment and material information about the Mines including, among others, the size, resource/reserve, production rate, the quality of the coal produced, the location, history and layout of the Mines and the resource and reserve estimation; and (ii) the Valuer to include in its report an independent opinion on the fair value of the entire equity interest of Wuhai City Menggang based on valuation basis and assumptions that are acceptable to the Purchaser.

Neither the Vendors, the Purchaser nor the Company shall have the right to waive any of the conditions in paragraphs (f), (g) (i), (j) and (l) above. The Purchaser or the Company may at its discretion waive any one or more of the conditions in paragraphs (a)–(e), (h), (k) and (m) and the Vendors may at their discretion waive the condition in paragraph (n). As agreed by the parties under the S&P Agreement, to the extent that the condition set out in paragraph (h) is waived by the Purchaser, the Purchaser shall have the right (but not obligation) to elect to complete the acquisition of the entire issued share capital of Merrymaking Investments notwithstanding that the completion of the acquisition of the entire issued share capital of Pleasing Results does not take place simultaneously, and the Purchaser would only have to settle the RP Total Consideration

– 14 –

LETTER FROM THE BOARD

(without any adjustment). In this connection, Zhong Tie has already completed its transfer of 31.25% equity interest in Wuhai City Menggang to Max Joyce on 11 November 2009. The Directors have decided that completion of Acquisitions of the entire issued share capital of Merrymaking Investments and the entire issued share capital of Pleasing Results are to be taken place simultaneously. For details, please refer to the paragraph ‘‘Due Diligence Findings on the Target Group — Share Charges’’.

In the event of any of the above conditions shall not be fulfilled (or waived) by 19 March 2010 (or such later date as the parties hereto may agree in writing), the S&P Agreement shall be null and void and of no further effect and no party to the S&P Agreement shall have any further liability to any other parties under or in connection with the S&P Agreement without prejudice to the rights of any such parties in respect of any antecedent breaches.

As at the Latest Practicable Date, conditions set out in paragraphs (d), (e) and (h) above have been fulfilled.

(d) Completion

Completion will take place on the second business day after the date on which the last of all the conditions of the S&P Agreement as set out in the paragraph headed ‘‘Conditions’’ of this circular (except for those conditions which may be waived by the relevant party) have been fulfilled, or such other date as the parties shall agree in writing.

Subject to and upon Completion, each of the Vendors shall have the right to nominate one person as a director of the Company, and the Company shall procure that such nomination be presented to the general meeting of the Company for approval by the Shareholders.

3. FINANCING OF THE ACQUISITIONS AND SPECIFIC MANDATE TO ISSUE NEW SHARES

(a) The Placing

The Board proposes to raise not less than US$90 million by the issue of up to 982,533,802 (representing approximately 233.53% of the issued Shares as at the Latest Practicable Date and 70.02% of the issued share capital of the Company as enlarged by the Placing) new Shares to professional and institutional investors by way of private placement subject to Shareholders’ approval. Such Placing Shares are proposed to be listed on the Stock Exchange and it is expected that the Placing Shares will be placed to not less than six placees and the placees of the Placing and their respective ultimate beneficial owners will be third parties independent of and not connected with the Vendors, the Company and its connected persons. It is also expected that none of the placees will become a substantial shareholder of the Company upon completion of the Placing. The issue price of the Placing Shares will not be determined until the signing of the Placing Agreement. The final issue price of the Placing Shares will be determined in accordance with the basis as outlined in the paragraph ‘‘Structure of the Placing — Basis for determining the issue price’’ below. The proposed use of proceeds from the Placing is set out in paragraph ‘‘Uses of the proceeds from the Placing’’ below.

– 15 –

LETTER FROM THE BOARD

The Company has engaged UBS as the placement agent for the Placing. However, as at the Latest Practicable Date, no placing agreement in respect of the Placing has been entered into by the Company and the issue price of the Placing Shares has not been determined. The Directors intend to obtain Shareholders’ approval to grant the Specific Mandate to facilitate the allotment and issue of Placing Shares under the Placing at the EGM, instead of seeking a separate approval by the Shareholders after the entering into of the placing agreement. The Company has no intention to undertake any equity fund raising, including but not limited to the Placing, which will lead to a change in control of the Company (for the purposes of the Takeovers Code).

Completion of the Acquisitions shall be conditional upon, among others, the completion of the Placing.

(b) Structure of the Placing

Type of securities Ordinary Shares to be issued:

Maximum number of Shares to be issued:

Not more than 982,533,802 new Shares (representing approximately 233.53% of the issued Shares as at the Latest Practicable Date and 70.02% of the issued share capital of the Company as enlarged by the Placing) will be issued pursuant to the Placing. The final number of Shares to be issued is subject to the adjustments (in case of sub-division or consolidation of Shares) made by the Board as may be authorised by the Shareholders at the EGM

Nominal value:

HK$0.05 per Share. On the basis that there will be not more than 982,533,802 new Placing Shares to be issued pursuant to the Placing Shares, the maximum aggregate nominal value of the Placing Shares will be HK$49,126,690.1.

Rights attached to Share:

The Shares to be issued under the Placing will rank pari passu with the existing Shares in all respects

Method of issue:

The issue will be conducted by way of Placing

Basis for determining the issue price:

The price shall be determined on arm’s length basis, by reference to a number of considerations, including but not limited to prevailing market conditions, the prevailing market price of the Shares and investor demand for the Shares at the relevant time. The final issue price for the Placing will be determined prior to the signing of the placing agreement in respect of the Placing and an announcement in relation thereto will be issued by the Company.

– 16 –

LETTER FROM THE BOARD

In any event, the issue price for the Placing must not represent a discount of 20% or more of the lower of:

. The closing price of the Shares quoted on the Stock Exchange immediately prior to the date of the announcement by the Company of the Placing; and
. The average closing price of the Shares quoted on the Stock Exchange:
in the five trading days;
in the ten trading days; and
in the twenty trading days,

immediately prior to the date of the announcement by the Company of the Placing

The issue price for the Placing shall be no less than HK$0.71 (‘‘Minimum Placement Price’’), which represents:

. 36.61% discount to the closing price of the Shares quoted on the Stock Exchange as at the Latest Practicable Date;
. 31.07% discount to the five trading day’s average closing price of the Shares quoted on the Stock Exchange up to and including the Latest Practicable Date;
. 33.02% discount to the ten trading day’s average closing price of the Shares quoted on the Stock Exchange up to and including the Latest Practicable Date;
. 35.16% discount to the twenty trading day’s average closing price of the Shares quoted on the Stock Exchange up to and including the Latest Practicable Date; and
. 19.32% discount to Issue Price of HK$0.88 per Consideration Shares.

The Minimum Placement Price is determined on arm’s length basis with reference to a number of factors, including but not limited to prevailing market conditions, historical trading prices of the Shares and discount to the Issue Price of HK$0.88 per Consideration shares of not more than 20%. Based on the above, the Directors consider the Minimum Placement Price to be fair and reasonable.

– 17 –

LETTER FROM THE BOARD

Minimum gross The Placing must raise a minimum amount of US$90.00 proceeds to be million (equivalent to approximately HK$697.60 million) raised:

(c) Conditions to the Placing

Upon the grant of the Specific Mandate, and if the Directors proposed to place new Shares pursuant to the Specific Mandate, the Placing will be conditional upon:

(a) the grant of the Specific Mandate by the Shareholders to the Board having been obtained at the EGM;
(b) the entering into of a placing agreement by, among other parties, the Company and the placing agent(s) and the placing agreement not being terminated in accordance with its terms; and
(c) the Listing Committee of the Stock Exchange granting listing of and permission to deal in the Placing Shares to be issued and placed pursuant to the Placing.

An application will be made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Placing Shares.

(d) Uses of the proceeds from the Placing

Based on the estimated proceeds of US$90.00 million (equivalent to approximately HK$697.60 million) to be received by the Company under the Placing, the Company intends to use the proceeds for the following purposes:

(i) as to about US$30.00 million (equivalent to approximately HK$232.53 million) for settlement of the cash portion of TRXY Total Consideration, out of which US$15.52 million (equivalent to approximately RMB106 million) will be used to settle the balance of consideration payable to Zhong Tie by Max Joyce in respect of the transfer of the 31.25% equity interest in Wuhai City Menggang, and the balance of the cash portion of the TRXY Total Consideration will be deposited in the Special Purpose Account;
(ii) as to about US$30.00 million (equivalent to approximately HK$232.53 million) for the repayment of the loans of the Target Group due to related companies, out of which RMB150 million (equivalent to approximately HK$170 million) will be applied towards payment of the unpaid registered capital of the Wuhai City Menggang which in turn will be applied towards the settlement of the shareholder’s loan owed by Wuhai City Menggang to Zhong Tie;
(iii) as to about US$12.00 million (equivalent to approximately HK$93.01 million) for the civil and earthwork for Mine No. 4 and washing plant;
(iv) as to about US$13.00 million (equivalent to approximately HK$100.77 million) for the mechanical and electrical work for Mine No. 4 and washing plant; and

– 18 –

LETTER FROM THE BOARD

(v) as to about US$5.00 million (equivalent to approximately HK$38.76 million) as working capital of the Group.

In the event that the proceeds from the Placing is more than US$90.00 million (equivalent to approximately HK$697.60 million), the Directors intend to apply the amount of additional proceeds to be received by the Company for the CAPEX requirement for Mine No. 1, Mine No. 4 and washing plant as disclosed in this circular and general working capital of the Target Group.

(e) Fund raising activity of the Company in the 12 months immediately preceding the Latest Practicable Date

Other than the exercise of share options pursuant to the Pre-Listing Share Option Scheme and the Share Option Scheme of the Company, there was no fund raising activity conducted by the Company in the 12 months immediately preceding the Latest Practicable Date.

(f) Validity of the Specific Mandate

The Specific Mandate, if granted, will commence from the date of passing of the relevant resolutions at the EGM and will lapse on the expiration of the three-month period following the date of passing of the relevant resolutions at date of the EGM.

The issue price under the Placing will be determined with reference to the trading prices of the Shares in accordance with the basis as disclosed in ‘‘Basis for determining the issue price’’. Also, the Placing provides the Company with a way to finance the Acquisitions and the future business development of the Target Group. Therefore, the Directors believe that the transactions contemplated under the Specific Mandate are fair and reasonable to the Shareholders as a whole.

4. CONSIDERATION SHARES

The Issue Price of the Consideration Shares of HK$0.88 per Consideration Share represents:

(i) a discount of approximately 21.43% to the closing price of HK$1.12 per Share as quoted on the Stock Exchange as at the Latest Practicable Date;
(ii) a discount of approximately 26.67% to the closing price of HK$1.20 per Share as quoted on the Stock Exchange on the Last Trading Date;
(iii) a discount of approximately 24.40% to the average closing price of about HK$1.16 per Share as quoted on the Stock Exchange for the last 5 trading days up to and including the Last Trading Date;
(iv) a discount of approximately 22.81% to the average closing price of HK$1.14 per Share as quoted on the Stock Exchange for the last 10 trading days up to and including the Last Trading Date;
(v) a discount of approximately 7.47% to the average closing price of HK$0.95 per Share as quoted on the Stock Exchange for the last 30 trading days up to and including the Last Trading Date ; and

– 19 –

LETTER FROM THE BOARD

(vi) a premium of approximately 104.47% over the net assets value attributable to equity holders of the Company of approximately HK$0.43 per Share as at 31 March 2009 based on the audited financial statement of the Group for the year ended 31 March 2009.

The Issue Price of the Consideration Shares of HK$0.88 per Consideration Share was determined after arm’s length negotiations between the parties with reference to the net asset value of the Group and the trading prices of the Shares. Based on the above, the Directors consider the Issue Price to be fair and reasonable. The Consideration Shares represent approximately 95.84% of the existing issued share capital of the Company, approximately 48.94% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares (without taking into consideration any Placing Shares to be allotted and issued pursuant to the Placing and any Conversion Shares which may be issued and allotted pursuant to the Convertible Notes) and approximately 20.81% of the issued share capital of the Company as enlarged by the allotment and issue of both the Consideration Shares and the Conversion Shares, assuming full conversion of the Convertible Notes and the Conversion Shares were to be issued at the Conversion Price but without taking into consideration any Placing Shares to be allotted and issued pursuant to the Placing. The Placing of new Shares will have a dilution effect on the then existing issued share capital of the Company. Pursuant to the S&P Agreement, the Company, the Purchaser and the Vendors have agreed that upon Completion, the Consideration Shares will not represent more than 25% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares and the Placing Shares, and the Vendors together with their respective Concert Parties will not hold more than 25% of the issued share capital of the Company in aggregate upon Completion. It is therefore expected that completion of the Acquisitions will not result in a change in control of the Company.

Each of the Vendors has undertaken to the Purchaser and the Company that it shall not, and shall procure that its nominee shall not, without the prior written consent of the Purchaser and the Company, transfer or otherwise dispose of any of the Consideration Shares within 6 months following Completion.

The Consideration Shares will be allotted and issued under a specific mandate proposed to be granted subject to the approval of the Shareholders at the EGM. An application will be made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Consideration Shares. Please refer to the paragraph ‘‘Effect On Shareholding Structure’’ for the effect of the issue and allotment of the Consideration Shares on the shareholding structure of the Company.

5. CONVERTIBLE NOTES

To satisfy part of the RP Total Consideration and the TRXY Total Consideration, the Company will issue (i) the RP Convertible Notes in the aggregate principal amount of US$100.32 million (equivalent to approximately HK$777.61 million) (subject to adjustments) to Real Power; and (ii) the TRXY Convertible Notes in the aggregate principal amount of US$26.16 million (equivalent to approximately HK$202.74 million) (subject to adjustments) to TRXY.

The following is a summary of the principal terms of the Convertible Notes:

Maturity Date : The date falling on the eighth anniversary of the issue of the Convertible Notes

– 20 –

LETTER FROM THE BOARD

Redemption

: The Company shall repay such principal moneys outstanding under the Convertible Notes to the Noteholders on the Maturity Date

The Company may redeem up to US$2.33 million (the ‘‘Redemption Cap’’) at its option at any time prior to the Maturity Date if any obligations for specific indemnity arise or incur on the part of any of the holders of the Convertible Notes pursuant to the S&P Agreement and redeem such amount as it deems sufficient to cover the loss or damages that it may incur or suffer by way of a set-off against the then outstanding principal amount of the Convertible Notes on dollar-to-dollar basis. Save as the aforesaid, the Convertible Notes are not subject to early redemption.

Interest : The outstanding principal amounts under the Convertible Notes will not bear any interest
Status and Transferability : The Convertible Notes may be transferred or assigned in its entirety or in part at any time before the Maturity Date, subject to approval of the Stock Exchange (if required), provided that the note certificates in respect of the Convertible Notes with the outstanding principal amount representing the Redemption Cap will be deposited with and kept by the Company as security for the performance of the holders of the Convertible Notes of their indemnification obligations under the S&P Agreement until the Maturity Date
Conversion : Upon full conversion of the Convertible Notes at the Conversion Price, an aggregate of 1,114,037,092 Conversion Shares (subject to adjustments) will be issued by the Company (representing approximately 264.79% of the existing issued share capital of the Company, approximately 57.48% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares and the Conversion Shares, assuming full conversion of the Convertible Notes and the Conversion Shares were to be issued at the Conversion Price but without taking into consideration any Placing Shares to be allotted and issued pursuant to the Placing)

The Conversion Rights shall not be exercised by the Noteholders if, immediately following the conversion:

(i) the Company will be unable to meet the public float requirement under the Listing Rules; or

– 21 –

LETTER FROM THE BOARD

(ii) the relevant Noteholder together with the parties acting in concert with it will hold or control such amount of the Company’s voting power at general meetings as may trigger a mandatory general offer under the Takeovers Code; or
(iii) the outstanding amount of the Convertible Notes will be less than the Redemption Cap

Lock-up

Conversion Price

: Subject to the restrictions of the exercise of Redemption Rights, the Noteholder shall not, and shall procure that its nominee shall not, without the prior written consent of the Company, transfer or otherwise dispose of all or any of the Convertible Notes or the Conversion Shares (as the case may be) (1) as to an amount representing two-thirds of the face value of the Convertible Notes within the first twelve-month period following Completion; and (2) as to an amount representing one-third of the face value of the Convertible Notes within the second twelve-month period following Completion

: HK$0.88 per Share, subject to usual anti-dilution adjustments in certain events such as share consolidation, share subdivision and capitalisation issue of profits or reserves. Each adjustment to the Conversion Price will be certified by an executive director of the Company

The Conversion Price of HK$0.88 per Conversion Shares represents:

(i) a discount of approximately 21.43% to the closing price of HK$1.12 per Share as quoted on the Stock Exchange as at the Latest Practicable Date;
(ii) a discount of approximately 26.67% to the closing price of HK$1.20 per Share as quoted on the Stock Exchange on the Last Trading Date;
(iii) a discount of approximately 24.40% to the average of the closing prices of HK$1.16 per Share as quoted on the Stock Exchange for the last 5 trading days up to and including the Last Trading Date;
(iv) a discount of approximately 22.81% to the average of the closing prices of HK$1.14 per Share as quoted on the Stock Exchange for the last 10 trading days up to and including the Last Trading Date;

– 22 –

LETTER FROM THE BOARD

(v) a discount of approximately 7.47% to the average of the closing prices of HK$0.95 per Share as quoted on the Stock Exchange for the last 30 trading days up to and including the Last Trading Date; and
(vi) a premium of approximately 104.47% to the net assets value attributable to equity holders of the Company of approximately HK$0.43 per Share as at 31 March 2009 based on the audited financial statement of the Group for the year ended 31 March 2009

The Conversion Price was determined after arm’s length negotiations between the Company and the Vendors with reference to the Issue Price

Listing : No application will be made for the listing of the Convertible Notes on the Stock Exchange or any other stock exchange

The Conversion Shares to be issued as a result of the exercise of the Conversion Rights will rank pari passu in all respects with all other Shares in issue on the date on which the relevant holder(s) of the convertible Notes is/are registered as the holder(s) of the Conversion Shares following the exercise of the Conversion Rights.

The Conversion Shares will be allotted and issued pursuant to the specific mandate to be sought at the EGM and will be allotted and issued upon exercise of the Conversion Rights by the Noteholders. An application will be made to the Listing Committee of the Stock Exchange for the listing of, and permission to deal in, the Conversion Shares. Please refer to the paragraph ‘‘Effect On Shareholding Structure’’ for the effect of the full conversion of the Convertible Notes on the shareholding structure of the Company.

6. EFFECT ON SHAREHOLDING STRUCTURE

The following table summarises the shareholding structure of the Company (i) as at the Latest Practicable Date; (ii) immediately after Completion and the allotment and issue of the Consideration Shares, assuming the issue and allotment of the maximum number of the Placing Shares; (iii)

– 23 –

LETTER FROM THE BOARD

immediately after Completion and the allotment and issue of the Consideration Shares, assuming the issue and allotment of the maximum number of the Placing Shares and the full exercise of the Conversion Rights, each prepared on the basis that there would be no change in the issued share capital of the Company after the Latest Practicable Date other than as stated in each scenario, and without any adjustment between the mix of the Consideration Shares and the Convertible Notes pursuant to the Supplemental Agreement.

Shareholders Mr. Fung Ka Pun and his family members Xiao Wenge Real Power and its Concert Parties TRXY and its Concert Parties Public shareholders Total:	As at the Latest Practicable Date and before Completion No. of Shares Approximate Percentage 111,821,510 26.58% 50,000,000 11.88% 0 0.00% 0 0.00% 258,903,751 61.54% 420,725,261 100.00%	FOR ILLUSTRATIVE PURPOSE ONLY Immediately after Completion and the allotment and issue of the Consideration Shares, assuming the issue and allotment of the maximum number of the Placing Shares (Notes 1, 2 & 5) No. of Shares Approximate Percentage 111,821,510 6.19% 50,000,000 2.77% 319,840,476 17.71% 83,392,884 4.62% 1,241,437,553 68.71% 1,806,492,423 100.00%	FOR ILLUSTRATIVE PURPOSE ONLY Immediately after Completion and the allotment and issue of the Consideration Share, assuming the issue and allotment of the maximum number of the Placing Shares and the full exercise of the Conversion Rights (Note 1, 3, 4 & 6) No. of Shares Approximate Percentage 111,821,510 3.83% 50,000,000 1.71% 1,203,483,024 41.21% 313,787,428 10.74% 1,241,437,553 42.51% 2,920,529,515 100.00%	FOR ILLUSTRATIVE PURPOSE ONLY Immediately after Completion and the allotment and issue of the Consideration Share, assuming the issue and allotment of the maximum number of the Placing Shares and the full exercise of the Conversion Rights (Note 1, 3, 4 & 6) No. of Shares Approximate Percentage 111,821,510 3.83% 50,000,000 1.71% 1,203,483,024 41.21% 313,787,428 10.74% 1,241,437,553 42.51% 2,920,529,515 100.00%
				100.00%

– 24 –

LETTER FROM THE BOARD

Notes:

The above table and figures are based on the assumption that completion of the acquisition of the entire issued share capital of Merrymaking Investments and Pleasing Results will take place simultaneously and based on the assumption that the maximum number of Shares (i.e. 982,533,802) will be issued pursuant to the Placing.
Pursuant to the S&P Agreement, the Company, the Purchaser and the Vendors have agreed that upon Completion, the Consideration Shares will not represent more than 25% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares and the Placing Shares, and the Vendors together with their respective Concert Parties will not hold more than 25% of the issued share capital of the Company in aggregate upon Completion.
The Conversion Rights shall not be exercised by the Noteholders if, immediately following the conversion (i) the Company will be unable to meet the public float requirement under the Listing Rules; (ii) the relevant Noteholder together with the parties acting in concert with it will hold or control such amount of the Company’s voting power at general meetings as may trigger a mandatory general offer under the Takeovers Code; or (iii) the outstanding amount of the Convertible Notes will be less than the Redemption Cap.
This column is solely for illustrative purpose. The Convertible Notes is subject to limitations as set out in Note 3 above with regards to the exercise of the Conversion Rights by the Noteholders according to the terms of the Convertible Notes. The figures in this column are based on the assumption that the maximum number of Shares (i.e. 982,533,802) will be issued pursuant to the Placing.
The Consideration Shares comprise of 319,840,476 RP Consideration Shares (subject to adjustments) and 83,392,884 TRXY Consideration Shares (subject to adjustments). The numbers of RP Consideration Shares and TRXY Consideration Shares were arrived at by dividing the respective relevant portions of the RP Total Consideration and the TRXY Total Consideration (ie. US$36,312,216 (equivalent to HK$281,459,620) (subject to adjustments) and US$9,467,784 (equivalent to HK$73,385,738) (subject to adjustments) respectively) by the Issue Price of HK$0.88.
The Conversion Shares comprise of 883,642,548 Conversion Shares (subject to adjustments) to be issued to Real Power and 230,394,544 Conversion Shares (subject to adjustments) to be issued to TRXY upon full exercise of the Conversion Rights. The numbers of such Conversion Shares were arrived at by dividing the respective principal amounts of the RP Convertible Notes and the TRXY Convertible Notes (ie. US$100,321,947 (equivalent to HK$777,605,443) (subject to adjustments) and US$26,157,216 (equivalent to HK$202,747,199) (subject to adjustments) respectively) by the Conversion Price of HK$0.88.

As indicated above, it is expected that the completion of the Acquisitions will result in a potential massive dilution effect to all the existing shareholding in the Company with the issue of the Consideration Shares, the Placing Shares and the Conversion Shares. Having considered (i) this unique opportunity for the Group to diversify its business by investing in high-quality coal mines and the longterm benefits that will be generated from the Acquisitions as set out in the paragraph headed ‘‘Reasons for the Acquisitions’’; (ii) the fact that the potential dilution effect of the issue of the Consideration Shares, the Placing Shares and the Conversion Shares will have a proportionate impact on all the existing shareholders of the Company; (iii) the issue of the Consideration Shares and the Convertible Notes as consideration for the Acquisitions and the application of part of the proceeds from the Placing towards the settlement of the consideration could relieve the potential cashflow pressure on the Company if the consideration is to be otherwise settled in cash instead of by equity; and (iv) the consideration for the Acquisitions has been, and the Placing Price will be, determined on a fair and reasonable basis, the Directors consider that the Acquisitions are in the best interest of the Company and the Shareholders as a whole notwithstanding the potential shareholding dilution effect that it may bring to the existing Shareholders.

– 25 –

LETTER FROM THE BOARD

7. INCREASE IN AUTHORISED SHARE CAPITAL

In facilitating the issue of the Consideration Shares, the Conversion Shares and the Placing Shares, the Board intends to put forward a proposal to the Shareholders to increase the authorised ordinary share capital of the Company from HK$100,000,000, divided into 2,000,000,000 Shares of HK$0.05 each, to HK$250,000,000, divided into 5,000,000,000 Shares of HK$0.05 each, by the addition of HK$150,000,000, divided into 3,000,000,000 Shares. These new Shares, upon issued, shall rank pari passu in all respects with the existing Shares. Such increase shall be conditional upon the approval of an ordinary resolution by the Shareholders at the EGM. As at the Latest Practicable Date, 420,725,261 Shares were in issue. It is expected that the issue of the Consideration Shares, the Conversion Shares and the Placing Shares exceeds the available unissued and authorised ordinary share capital of the Company. Accordingly, the above proposal to increase the authorised share capital will be proposed at the EGM.

The proposed increase in the authorised share capital of the Company is subject to approval of the Shareholders at the EGM.

The Acquisitions are conditional on the increase in share capital being approved by the Shareholders at the EGM and the increase in authorised share capital is not conditional on the approval or completion of the Acquisitions. No Shareholders will be required to abstain from voting on the resolution to approve the increase in the authorised share capital of the Company at the EGM.

8. INFORMATION ON THE PURCHASER

Win Team Investments Limited is an investment holding company incorporated in the BVI with limited liability and a wholly owned subsidiary of the Company. The Group is principally engaged in the design, manufacturing, and sales of packaging products, the major customers of which are internationally recognised branded and luxury consumer merchandise such as watches, pens, jewellery, gifts and accessories. The Board has agreed that the Company has no current understanding or agreement to dispose of any of its existing businesses after the Acquisitions and it is intended that the current business operation of the Group will continue to be carried out after the Acquisitions.

9. INFORMATION ON THE TARGET GROUP

The Target Group is primarily engaged in exploitation of coal business, coal mining, coal sales and development of underground coking coal mine in Inner Mongolia Autonomous Region, PRC. The Target Group is not engaged in exploration of coal.

Merrymaking Investments is an investment holding company incorporated in the BVI. Other than its shareholding in Favour Mind and Brilliant Wise, Merrymaking Investments had no business and assets as at the Latest Practicable Date. Each of Favour Mind and Brilliant Wise is an investment holding company. Wuhai City Menggang is a Sino-foreign equity joint venture enterprise established in the Inner Mongolia Autonomous Region in the PRC. As at the Latest Practicable Date, Wuhai City Menggang was owned as to 25% by Favour Mind, as to 43.75% by Brilliant Wise and as to 31.25% by Max Joyce. Each of Pleasing Results and Max Joyce is also an investment holding company. The 31.25% equity interest in Wuhai City Menggang which is currently held by Max Joyce was transferred from Zhong Tie, which is an Independent Third Party, on 11 November 2009. Max Joyce and Zhong Tie have previously entered into an equity transfer agreement pursuant to which Zhong Tie agreed to transfer its 31.25% equity interest in Wuhai City Menggang to Max Joyce at a cash consideration of

– 26 –

LETTER FROM THE BOARD

RMB136.2 million, out of which RMB30 million has been paid and the remaining shall be payable on 28 January 2010. If the Placing cannot be completed by 28 January 2010 and the remaining transfer consideration is not to be settled by Max Joyce on 28 January 2010 and Zhong Tie does not agree to grant further extension for repayment, Zhong Tie shall be entitled to take action against Max Joyce and enforce its rights under certain share charges thus taking control of the relevant equity interests in Wuhai City Menggang, Tianyu Gongmao and/or Tianyu Coal. In such event, the Acquisitions will not proceed to Completion. For details of the share charges, please refer to the paragraph ‘‘Due Diligence Findings on the Target Group — Share Charges’’ below. Upon Completion, Pleasing Results will, through Max Joyce, indirectly own approximately 31.25% equity interest in Wuhai City Menggang.

The registered capital of Wuhai City Menggang is HK$320 million, out of which a total of approximately HK$170 million have not been paid up by Brilliant Wise and Favour Mind. Out of the unpaid registered capital of approximately HK$170 million, HK$21 million was due to be paid by Brilliant Wise on 24 September 2008 but remained unpaid as of the Latest Practicable Date. It is intended that such HK$170 million unpaid registered capital of Wuhai City Menggang will be paid upon Completion by using part of the proceeds from the Placing of US$30 million which have been earmarked for the settlement of loans of the Target Group due to related companies. The entire paid-up capital of Wuhai City Menggang will in turn be applied towards the settlement of the shareholders’ loan owed by Wuhai City Menggang to Zhong Tie in the amount of approximately RMB150 million (equivalent to approximately HK$170 million). Wuhai City Menggang holds the entire equity interest in Tianyu Gongmao and Tianyu Coal. The registered capital of Tianyu Gongmao and Tianyu Coal are RMB46 million and RMB43 million, respectively, which have been fully paid up.

Set out below is a summary of the audited consolidated results of Merrymaking Investments and its subsidiaries (the ‘‘Merrymaking Group’’) for the two financial years ended 31 December 2007 and 2008 and the six months ended 30 June 2009:

			Period from
			28 November 2007
	Six months	Year ended	(date of
	ended 30 June	31 December	incorporation) to
	2009	2008	31 December 2007
	HK$’000	HK$’000	HK$’000
		(notes 1 & 2)
Merrymaking Group
Net (loss)/profit before taxation	(24,511)	382,648	(45)
Net (loss)/profit after taxation	(24,464)	382,807	(45)

Notes:

As Merrymaking Investments acquired Wuhai City Menggang and its subsidiaries (the ‘‘Menggang Group’’) indirectly on 4 June 2008, the net profit before and after taxation of the Merrymaking Group for the year ended 31 December 2008 as set out above only included results of the Menggang Group for the period from 5 June 2008 to 31 December 2008.

In this connection, as Merrymaking Investments acquired the Menggang Group indirectly on 4 June 2008, the excess of the Merrymaking Investment’s interests in the net fair value of the Menggang Group’s identifiable assets, liabilities and contingent liabilities over the cost of a business combination was recognized immediately as gain on bargain purchase of HK$421,665,000 in the consolidated income statement for the year ended 31 December 2008.

– 27 –

LETTER FROM THE BOARD

Based on its audited consolidated results, Pleasing Results and its subsidiaries recorded a loss of HK$18,000 for the year ended 31 December 2008, and did not record any profit or loss for the period from 27 November 2007 (being the date of incorporation of Pleasing Results) to 31 December 2007 and the six months ended 30 June 2009.

For the respective accountants’ reports of Merrymaking Investments, Pleasing Results, Wuhai City Menggang, Tianyu Gongmao and Tianyu Coal, please refer to Appendices II to VI to this circular. A management discussion and analysis of the financial condition and results of the operations of members of the Target Group is set out in Appendix VIII to this circular.

10. DUE DILIGENCE FINDINGS ON THE TARGET GROUP

During the course of its due diligence review and investigations on the members of the Target Group pursuant to the S&P Agreement, the Purchaser has uncovered certain issues in relation to the Target Group which may be relevant to the Shareholders in considering the Acquisitions. Some of the more important findings are set out below:

(a) Litigation

Pursuant to an equity transfer agreement dated 18 August 2007 (the ‘‘Equity Transfer Agreement’’) between Wuhai City Menggang and the then equity-holders of Tianyu Gongmao (the ‘‘Original Equity-holders’’), Wuhai City Menggang agreed to acquire the entire equity interest in Tianyu Gongmao from the Original Equity-holders at a cash consideration of RMB90 million, of which only RMB45 million has been paid by Wuhai City Menggang. As advised by Wuhai City Menggang, it has not settled the remaining consideration of RMB45 million because there is a dispute over the production capacity of Tianyu Gongmao. It is the view of Wuhai City Menggang that the actual production capacity of Tianyu Gongmao (i.e. 129,600 tons per annum) when it was taken over from the Original Equity-holders was substantially lower than what was agreed between Wuhai City Menggang and the Original Equity-holders under the relevant Equity Transfer Agreement (i.e. 300,000 tons per annum). After taking over Tianyu Gongmao from the Original Equity-holders, further investments have been made by Wuhai City Menggang to Mine No. 1 to increase its production capacity. Currently, Mine No. 1 has the ability to produce up to 300,000 tons per annum.

A civil claim was brought by the Original Equity-holders to the PRC court against Wuhai City Menggang and pursuant to the first instance judgment handed down by the Wuhai City Intermediate People’s Court (烏海市中級人民法院) in April 2009, Wuhai City Menggang was ordered to pay the remaining consideration of RMB45 million and the breach of contract fixed damages of RMB9 million to the Original Equity-holders. Wuhai City Menggang has appealed to the Inner Mongolia Autonomous Region Superior People’s Court (內蒙古自治區高級人民法院) against the first instance judgment and also applied for, among others, the court’s order for the verification of the production capacity of Tianyu Gongmao. Based on the appeal case progress statement dated 27 November 2009 issued by Beijing Deheng law office (北京市德恒律師事務所), being the law firm engaged by Wuhai City Menggang for handling such litigation, the Court has already approved Wuhai City Menggang’s application for verification of Tianyu Gongmao’s production capacity. The parties are currently in negotiation about the selection of valuer responsible for the handling of the relevant verification. The verification result will form the basis for the management of Wuhai City Menggang to further negotiate with the Original Equity-holders for a downward adjustment of the transfer consideration. Pursuant to the Supplemental Agreement,

– 28 –

LETTER FROM THE BOARD

the Vendors have agreed to specifically indemnify the Purchaser and the Company against any loss or damages that may be incurred by the Company or the Group as a result of such claim by the Original Equity-holders including the remaining consideration of RMB45 million, the breach of contract fixed damages of RMB9 million and any other costs and expenses incurred as a result of such claim. As advised by Guantao, the transfer of the equity interest in Tianyu Gongmao has been duly registered with the Department of Commerce (商務廳) and the Administration for Industry and Commerce (工商局) of Inner Mongolia, the PRC and Wuhai City Menggang has already been registered as the sole holder of the 100% equity interest in Tianyu Gongmao. The shareholder’s rights and title of Wuhai City Menggang in Tianyu Gongmao are binding and enforceable against any third party and could only be challenged through a judicial procedure.

Under the Equity Transfer Agreement, the Original Equity-holders shall have the right to elect to repurchase the entire equity interest in Tianyu Gongmao from Wuhai City Menggang at the original transfer consideration so long as any part of the transfer consideration remains unsettled. However, Guantao has advised that since the case has already entered into a judicial procedure, and the Original Equity-holders have already opted for the payment of the remaining consideration and breach of contract damages during the appeal process as above-mentioned, they shall not be entitled to elect for the repurchase of the equity interest in Tianyu Gongmao from Wuhai City Menggang pursuant to the Equity Transfer Agreement during the appeal process unless the case is returned by the Inner Mongolia Autonomous Region Superior People’s Court (內蒙古自治區高級人民法院) to the Wuhai City Intermediate People’s Court (烏海市中級人民法院) for retrial. As advised by Guantao, based on the Civil Procedure of the PRC (民事訴訟法), the case will be returned to the first instance court for re-trial only in 2 circumstances, namely (i) there is a violation of the prescribed procedure that may affect the correctness of the original judgment; or (ii) there are wrong or unclear facts, or insufficient evidences, which affect the correctness of the original judgment. Based on the fact that both the Original Equity-holders and Wuhai City Menggang have raised no objection against the procedure of the trial of the Wuhai City Intermediate People’s Court (烏海市中級人民法院) and the fact that the Court has already approved Wuhai City Menggang’s application for verification of Tianyu Gongmao’s production capacity during the appeal process such that the case does not have the problems of unclear facts or insufficient evidences anymore, it is the opinion of Guantao that the case will not be returned to the first instance court for re-trial, and thus the right of the Original Equity-holders to repurchase the entire equity interest in Tianyu Gongmao from Wuhai City Menggang under the Equity Transfer Agreement cannot be exercised anymore.

Upon the application of the Original Equity-holders, the Wuhai City Intermediate People’s Court (烏海市中級人民法院) handed down the Civil Judgment (Wu Zhong Fa (2008) Min Yi Chu Zi No. 30) (烏中法(2008)民一初字第30號) on 19 January 2009 to freeze the entire equity interests in Tianyu Gongmao held by Wuhai City Menggang pending the outcome of the case. Pursuant to such order, Wuhai City Menggang shall not be allowed to transfer or pledge its interest in, or receive any dividend from, Tianyu Gongmao. The operation of Wuhai City Menggang and its subsidiaries however is not affected by such order or the litigation.

– 29 –

LETTER FROM THE BOARD

(b) Share Charges

As mentioned in the paragraph ‘‘The S&P Agreement — Subject Matter’’, the 31.25% equity interest in Wuhai City Menggang which is currently owned by Max Joyce was transferred from Zhong Tie on 11 November 2009. Max Joyce and Zhong Tie have previously entered into an equity transfer agreement pursuant to which Zhong Tie agreed to transfer its 31.25% equity interest in Wuhai City Menggang to Max Joyce at a cash consideration of RMB136,200,000, out of which RMB30 million has been paid as at the Latest Practicable Date. Zhong Tie has also provided a shareholders’ loan of RMB150 million to Wuhai City Menggang, the interest rate of such shareholders’ loan was 13.5% per annum during the period before 19 January 2009 and 18% per annum with effect from 19 January 2009. The relevant parties have agreed to secure such shareholders’ loan by share charges on (i) the 25% equity interest in Wuhai City Menggang held by Favour Mind; and (ii) the entire equity interest in Tianyu Gongmao and Tianyu Coal held by Wuhai City Menggang. As at the Latest Practicable Date, registration of the share charge on the entire equity interest in Tianyu Coal has been completed and the relevant share charge has become effective. Zhong Tie is entitled to request the share charges on the 25% equity interest in Wuhai City Menggang and the entire equity interest in Tianyu Gongmao be registered with the relevant PRC authority at any time such that these share charges shall become effective immediately. Pursuant to the relevant agreements, Wuhai City Menggang shall repay the aforesaid shareholder’s loan to Zhong Tie, and Max Joyce shall settle the remaining transfer consideration of the 31.25% equity interest in Wuhai City Menggang by no later than 28 January 2010. If the shareholders’ loan is not to be repaid or the transfer consideration is not to be settled by 28 January 2010, Zhong Tie shall be entitled to enforce its rights under the share charges and take control of the relevant equity interests in Wuhai City Menggang, Tianyu Gongmao and/or Tianyu Coal. Given that the entire equity interests in Tianyu Gongmao held by Wuhai City Menggang has been frozen pending the final outcome of the relevant litigation as disclosed in the paragraph ‘‘Litigation’’ above, consent from the Wuhai City Intermediate People’s Court (烏海市中級人民法院) must be obtained before Zhong Tie’s share charge over the equity interest of Tianyu Gongmao can be registered or exercised.

Pursuant to the Supplemental Agreement, it has been agreed between the Company, the Purchaser and the Vendors that out of the entire cash portion of the TRXY Total Consideration of US$30.00 million (equivalent to approximately HK$232.53 million), RMB106 million (or the equivalent of US$, being approximately US$15.52 million) shall be payable by the Purchaser directly to Zhong Tie upon Completion for the settlement of the balance of consideration in respect of the transfer of the 31.25% equity interest in Wuhai City Menggang between Max Joyce and Zhong Tie. Please refer to the paragraph headed ‘‘The S&P Agreement — Consideration’’. It is also intended that the shareholder’s loan of RMB150 million owed to Zhong Tie by Wuhai City Menggang will be settled upon Completion by using part of the proceeds of the Placing. In light of the above share charges and the potential risks that the respective equity interest in Wuhai City Menggang, Tianyu Gongmao and Tianyu Coal may be taken over by Zhong Tie if Max Joyce does not settle the transfer consideration and/or Wuhai City Menggang does not repay the shareholders’ loan owed to Zhong Tie as mentioned above, the Directors have decided that completion of Acquisition of the entire issued share capital of Merrymaking Investments will not take place unless completion of the Acquisition of the entire issued share capital of Pleasing Results is to be taken place at the same time. Accordingly, it is expected that all of the above share charges on the

– 30 –

LETTER FROM THE BOARD

equity interest of Wuhai City Menggang, Tianyu Gongmao and Tianyu Coal will be discharged on or before Completion as all the outstanding transfer consideration and the shareholder’s loan will have been settled by then with the above arrangement in place.

(c) Charges on Mining Rights

Pursuant to the two loan agreements entered into between Wuhai City Menggang and Zhong Tie on 17 December 2007 and 29 July 2008 respectively, the mining rights of Mine No. 1 and Mine No. 4 were charged to Zhong Tie by Wuhai City Menggang. These legal charges had not been registered with the relevant PRC legal authorities as at the Latest Practicable Date. According to Guantao, these legal charges are not legally effective due to two reasons, firstly, they have not been properly registered with the relevant PRC legal authorities and secondly, Wuhai City Menggang is not the legal owner of these mining rights and has no authority to charge such mining rights to any third parties. Without the endorsement of Tianyu Coal and Tianyu Gongmao as legal owners, Wuhai City Menggang would not be able to register such legal charges with the relevant PRC legal authorities, hence, would not be legally effective. Based on the above, the management of the Target Group does not consider these charges would have a material impact on the business and operation of the Target Group.

(d) Suspension of production of Mine No. 1

According to the Measures for Expediting the Standardised Development of Safety and Quality in Coal Mines and the Acceptance Procedures thereof and for Issuance (Renewal) of Coal Production Licences based on Stringent Conditions in the Inner Mongolia Autonomous Region (Nei Mei Ju Zi [2009] No. 182) (內蒙古自治區關於加快煤礦安全質量標準化建設及驗收進度和嚴格核發（換）煤炭生產許可證的辦法) (內煤局字[2009]182號) (the ‘‘Notice’’), all the underground and open-cast coal mine situated in the Inner Mongolia Autonomous Region must attain the prescribed safety standard by the end of 2010. Otherwise, the relevant mines may be subject to fines and penalties or be ordered by the relevant PRC authority to cease its operations for an indefinite period. Tianyu Gongmao has been carrying out various technical and quality improvements at Mine No. 1 pursuant to the request of the local PRC mining management authority since July 2009 and production has been suspended since August 2009. In light of the Notice, Wuhai City Menggang has decided to continuously suspend the production phase of Tianyu Gongmao during the period from October 2009 to March 2010 for the purpose of implementing further technical improvements. It is expected that the technical improvements will be completed by March 2010 and production will then be resumed. It is also expected that upon completion of these technical improvements, Tianyu Gongmao will not only attain the prescribed national mining safety standard, but will also attain an annual production capacity of 0.40 mt–0.45 mt. The Vendors have agreed under the Supplemental Agreement to specifically indemnify the Purchaser against any loss and damages that may be incurred by the Company and the Group as a result of the failure of Tianyu Gongmao to complete the necessary improvement of production qualities and mine operation safety in accordance with the Notice. As advised by Guantao, according to the (Measures for Administration of Coal Production Licences（煤炭生產許可證管理辦法）and the Special Measures of the State Council for Prevention of Safety Related Incidents in Coal Production Business) (國務院關於預防煤礦生產安全事故的特別規定), the potential

– 31 –

LETTER FROM THE BOARD

maximum fines and penalties for Tianyu Gongmao’s failure to complete the necessary improvement of production qualities in accordance with requirement and deadline imposed by the Notice is RMB150,000.

(e) Third-party coal processing facilities

A decommissioned coal washing plant is situated within the mining area of each of Mine No. 1 and Mine No. 4. These decommissioned washing plants are owned by third parties and the Group is not able to ascertain their legality. As advised by Guantao, in the event that the third party coal processing facilities situated within Mine No. 1 and Mine No. 4 are deemed legal so that these facilities are allowed to continue to operate, the Group’s mining operation and coal resources would then have to be subject to these third party rights. On the other hand, if the facilities are deemed illegal, Tianyu Gongmao and Tianyu Coal shall have the right to report such matter to the relevant governmental authority in the Wuhai City, the PRC, and request the authority to give orders for the demolition of the illegal facilities or the relevant third party to provide compensation to Tianyu Gongmao and Tianyu Coal. Guantao has also advised that Tianyu Gongmao and Tianyu Coal will not be responsible for any loss, consequences and/or compensation liability arising from the operation of the illegal facilities by the third party under the PRC laws and regulations.

In any event, the coal resources estimate in respect of Mine No. 1 as prepared by SRK has already taken into consideration the existence of these third party coal processing facilities given that safety pillars have already been fixed in the relevant premises, and SRK has already excluded the coal underlying the areas occupied by these facilities in its coal resources estimation. As confirmed by SRK, any subsequent closure of these facilities in Mine No. 1 due to illegality would only increase its coal reserve estimate.

With respect to Mine No. 4, Guantao has advised that the third party coal processing facilities situated in Mine No. 4 has not obtained the necessary administrative approval from the Office of Mineral Resources Reserves, the Department of Land and Resources (國土資源廳礦產資源儲量處) of the Inner Mongolia Autonomous Zone for its construction over the coal resources in Mine No. 4. As such, the relevant third party coal processing facilities are in breach of the Mineral Resources Law of the PRC (中華人民共和國礦產資源法) and the Circular for Regulating Approval of Construction Projects Located on Sites Atop Mineral Resources（關於規範建設項目壓覆礦產資源審批工作的通知）and their construction over the coal resources in Mine No. 4 is deemed illegal. On such basis, Tianyu Coal will not be responsible for any loss, consequences and/ or compensation liability that may be incurred by such third party coal processing facilities by reason of Tianyu Coal’s lawful mining activities carried out in Mine No. 4. Tianyu Coal is therefore allowed to extract the coal reserve underlying such facilities and will not suffer any potential loss of coal resources by reason of the existence of such third party coal processing facilities within Mine No. 4. The management of the Target Group has confirmed that these third party processing facilities are just coal washing plants which process coal purchased from other parties, and have never carried out any extraction of coal resources of Mine No. 4. Based on the above, the existence and operation of these third party facilities have never caused any loss of reserve of Mine No. 4.

– 32 –

LETTER FROM THE BOARD

(f) Non-compliance and contravention of certain PRC laws and regulations

During the Company’s conduct of the due diligence review and investigations on the members of the Target Group and the Mines, certain potential liabilities and non-compliance or contravention of the relevant PRC laws and regulations by members of the Target Group have been uncovered. These include, among others: (i) the delay in applying for the change of registered address of Wuhai City Menggang in the foreign exchange registration certificate (外匯登記), tax certificate (state tax and local tax) (稅務許可證) (國稅和地稅) and business licence (企業法人營業執照); (ii) failure to make the necessary payment and contribution towards the housing social security, the social security fund and accident insurance in compliance with the relevant PRC laws and regulations for the employees of Wuhai City Menggang, Tianyu Gongmao and/or Tianyu Coal; (iii) failure to obtain certain land use rights certificates and/or building ownership certificates for properties necessary for operation and manufacturing purposes by Tianyu Gongmao and Tianyu Coal; (iv) failure to make necessary change in business scope set out in the tax certificate (state tax) (稅務登記證) (國稅) of Tianyu Coal; and (v) the late payment of HK$21 million registered capital of Wuhai City Menggang by Brilliant Wise.

All of these non-compliance or contravention of the relevant PRC laws and regulations may attract fines and penalties from the relevant PRC authorities. In this connection, the Vendors have agreed under the Supplemental Agreement to specifically indemnify the Purchaser against any loss or damages that may be incurred by the Company and the Group as a result of the above noncompliance and contravention. As advised by Guantao, based on the relevant PRC laws and regulations, the estimated aggregate fines and penalties in respect of the non-compliance and contravention as set out in (i) to (iv) above that can be currently quantified will not likely be more than RMB2.35 million. In respect of the late payment of HK$21 million registered capital of Wuhai City Menggang by Brilliant Wise as set out in (v) above, Brilliant Wise may be subject to a maximum penalty of HK$3,150,000 imposed by the Administration for Industry and Commence of the Inner Mongolia Autonomous Region (內蒙古自治區工商局).

The management of the Target Group has confirmed that the Target Group has already undertaken certain steps to rectify those non-compliance and contravention of the PRC laws and regulations in accordance with the recommendations of its PRC legal advisers. In particular, the Target Group has undertaken, among others, following actions:

(a) Target Group has been liaising with the relevant authorities for (i) the payment of the additional contribution in association with housing social security work related to accidental insurance; and (ii) the obtaining of the building ownership certificate and the land use right certificate for properties necessary for operation and manufacturing purposes for Mine No. 1;
(b) Mine No. 1 has been undergoing technical improvements in order to meet the safety requirements of the local mine safety management bureau which is expected to be completed on or before 31 December 2010;
(c) Application has been made for change of business scope of Tianyu Coal and it is expected that the change will be completed by the end of December 2009; and

– 33 –

LETTER FROM THE BOARD

(d) The management of the Target Group has been reviewing its internal procedure to ensure that necessary payment and contribution will be properly made towards the social security fund and accident insurance for employees of Tianyu Gongmao and accident insurance coverage will be under constant review.

After completion of the Acquisitions, the Group will continue to rectify any remaining noncompliance and issues.

(g) Indemnity

Pursuant to the Supplemental Agreement, the Vendors have provided a specific indemnity to the Purchaser and the Company against all or any loss or damages that may be incurred or suffered by the Company or the Group as a result of or in connection with the following:

(i) the outstanding litigation between Wuhai City Menggang and the Original Equityholders in respect of the outstanding transfer consideration as disclosed in the paragraph ‘‘Litigation’’ above for an indemnified amount consisting of (a) the remaining consideration of RMB45 million; (b) the breach of contract fixed damages of RMB9 million; and (c) the other costs and expenses incurred as a result of such dispute;
(ii) the potential fines and penalties for Tianyu Gongmao’s failure to complete the necessary improvement of production qualities in accordance with the requirement and deadline imposed by the Notice as disclosed in the paragraph ‘‘Suspension of production of Mine No. 1’’ above for an indemnified amount of RMB150,000;
(iii) the potential fines and penalties to be imposed on various members of the Target Group in respect of the non-compliance and contravention of certain PRC laws and regulations as disclosed in the paragraph ‘‘Non-compliance and contravention of certain PRC laws and regulations’’ above for an indemnified amount of RMB2.35 million;
(iv) the potential fines and penalties to be imposed on Brilliant Wise in respect of the late payment of registered capital of Wuhai City Menggang as disclosed in the paragraph ‘‘Non-compliance and contravention of certain PRC laws and regulations’’ above for an indemnified amount of HK$3,150,000;
(v) the additional interests accrued on the outstanding loans of the Target Group for a total indemnified amount of US$6.73 million (equivalent to approximately HK$52.16 million); and
(vi) other breaches of representations and warranties by the Vendors already uncovered during the due diligence review and investigations.

It is estimated that the total maximum potential losses and liabilities in respect of the above inadequacies of the Target Group that have been uncovered during the due diligence review would amount to US$16.81 million. In this connection, the Vendors have agreed to provide security and a set-off arrangement in respect of their above specific indemnity obligations under the Supplemental Agreement.

– 34 –

LETTER FROM THE BOARD

Pursuant to the Supplemental Agreement, the Purchaser shall be entitled to set off any sums due to it by the Vendors in connection with or as a result of the above indemnity obligations of either Vendor against the monies in the Special Purpose Account (representing approximately US$14.48 million) as settlement of part of the TRXY Total Consideration, and to the extent that the balance in the Special Purpose Account is not sufficient to keep the Purchaser or the Company fully indemnified, the Company shall have the right to set off any such sums against the amount outstanding in the Convertible Notes at its discretion. Any such set off shall be (i) subject to a maximum cap of US$2.33 million; and (ii) be regarded as a redemption or repayment of the relevant Convertible Note(s) on a dollar-to-dollar basis and the outstanding principal of the relevant Convertible Note(s) shall be reduced accordingly. Please refer to the paragraph headed ‘‘The S&P Agreement — Consideration’’ for details of the Special Purpose Account and the paragraph headed ‘‘Convertible Notes’’ for early redemption of the Convertible Notes.

To the best of their knowledge based on the information available and the advice of Guantao, the Directors consider that such secured amount would be adequate for the purpose of indemnifying the Purchaser and the Group for any claims against the Vendors in respect of the above potential losses and liabilities as identified during the due diligence review and investigation. In the event that the actual amount of losses and liabilities exceeds the secured amount of US$16.81 million or there are other breaches of representations and warranties further identified which would lead to actual losses and liabilities of the Group after Completion, the Purchaser or the Group will have to initiate legal proceedings against the Vendors and make claim(s) against the Vendors pursuant to the general indemnification provisions under the S&P Agreement. The Company will take all reasonable steps including taking appropriate legal actions against the Vendors if they do not honour their obligations under the indemnity. Pursuant to the Supplemental Agreement, the Special Purpose Account will be maintained for a 24-month period following Completion and any amounts standing therein after then will be released to the Vendors. In respect of Convertible Bonds, the secured amount of US$2.33 million representing the Redemption Cap will have a term of 8 years equivalent to the term of the Convertible Bonds. It has also been agreed by the parties that the general indemnification provision as contained in the S&P Agreement will have a term of 8 years. No action shall be taken by the Purchaser or the Company for any breach of representations and warranties following the expiry of the eighth anniversary of the Completion. The Directors consider that the respective term of the specific and general indemnification provisions as contained in the S&P Agreement and the Supplemental Agreement is sufficiently long to protect the Group after Completion.

11. QUALIFIED OPINIONS IN THE ACCOUNTANTS’ REPORTS OF THE TARGET GROUP

The respective accountants’ reports of Merrymaking Investments, Pleasing Results, Wuhai City Menggang, Tianyu Gongmao and Tianyu Coal are set out in Appendices II to VI to this circular. As shown in these accountants’ reports, the accountants have issued qualified opinions in these reports. In this connection, the management of the Target Group has confirmed that the Target Group will implement internal control systems in the following areas:

(a) Sales and accounts receivable

. Set authorization procedures and transaction limits for sales transactions particularly for cash sales;

– 35 –

LETTER FROM THE BOARD

. Record sales to goods dispatch note in sequential order; authorize and document all void or missing good dispatch notes;
. Prepare sales register on regular and timely basis to ensure all sales are recorded; and
. Seek customer’s acknowledgement for the receipt of goods.

(b) Inventories

. Perform inventory counting exercise regularly to ensure the quantities and conditions of inventories are properly recorded;
. Quantify the error at each inventory counting date and consider whether it is significant and requires adjustment;
. Record deliveries to goods received note in sequential order; and
. Prepare purchase orders in sequential order in order to ensure all purchases are recorded.

(c) Salaries and allowances

. Implement a human resources system to record all of the staff’s personal information including employment contract, personal profile of staff etc;
. Use electronic attendance record system in recording staff attendance in order to ensure that the computation of the salaries and allowances is correct and prevent the risk of the fraudulent attendance record made by staff; and
. Re-engineer and review the work process and procedures for processing the payment of salaries and allowances. Salaries report showing the basis of computation of salaries and allowances should be acknowledged by the staff if payment method is by cash.

– 36 –

LETTER FROM THE BOARD

12. INTRODUCTION TO THE COAL INDUSTRY

According to the definition from the World Coal Institute, coal is a combustible, sedimentary, organic rock, which is composed mainly of carbon, hydrogen and oxygen. It is formed from vegetation, which has been consolidated between other rock strata and altered by the combined effects of pressure and heat over millions of years to form coal seams. Not only does coal provide electricity, it is also an essential fuel for steel and cement production, and other industrial activities.

==> picture [366 x 201] intentionally omitted <==

Source: World Coal Institute

According to the World Coal Institute, it has been estimated that there are over 847 billion tonnes of proven coal reserves worldwide. Coal reserves are available in almost every country worldwide, with recoverable reserves in around 70 countries. At current production levels, proven coal reserves are estimated to last 122 years. In contrast, proven oil and gas reserves are equivalent to around 42 and 60 years at current production levels respectively.

According to the World Coal Institute, the global production of hard coal would grow at a compound annual growth rate (‘‘CAGR’’) of 6.0% between 2004 and 2008, with an estimate of around 5,845Mt of hard coal produced globally in 2008. Most of global coal production was expected to be consumed in the country in which it would be produced; only an estimate of around 938Mt or 16% of the global hard coal production was expected to be destined for the international coal market in 2008. The top five hard coal producers in 2008 were expected to be China, USA, India, Australia and Russia. China was expected to be the single largest producer of hard coal in the world in 2008, producing an estimate of around 2,761Mt or 47% of the global output. The production of China was expected to be more than double that of the next largest producer, the USA, which was expected to produce an estimate of around 1,007Mt or 17% of the global output in the same year. Between 2004 and 2008, China’s

– 37 –

LETTER FROM THE BOARD

production of hard coal would increase at a CAGR of 9.0%, considerably higher than the rest of the world, which increased at a CAGR of 3.6%. China’s share of global hard coal production would also increase from 42% to 47% during this period.

Exhibit 1: Global production of hard coal

==> picture [40 x 154] intentionally omitted <==

==> picture [48 x 160] intentionally omitted <==

==> picture [113 x 173] intentionally omitted <==

==> picture [40 x 161] intentionally omitted <==

Source: World Coal Institute

(a) Top ten hard coal producer (2008e)

China	2,761Mt	Indonesia	246Mt
USA	1,007Mt	South Africa	236Mt
India	490Mt	Kazakhstan	104Mt
Australia	325Mt	Poland	84Mt
Russia	247Mt	Colombia	79Mt

Source: World Coal Institute

(b) Introduction to the coking coal industry

Coking coal, also commonly known as metallurgical coal, is a subgroup of bituminous coal, and typically has high carbon and energy content, and low moisture content. Coking coal is commonly used in the process of iron and steel manufacturing, and therefore the fortunes of the coking coal industry are highly correlated to the iron and steel industry.

According to the World Coal Institute, in 2008, around 717Mt or 12% of the total hard coal production globally is currently used by the steel industry and almost 70% of total global steel production is dependent on coal. Of the 717Mt of total hard coal used in the steel industry, approximately 262Mt or 37% was traded internationally in 2008.

– 38 –

LETTER FROM THE BOARD

(c) China coal mining industry

Coal mining is the one of the key growth engines for China’s economy development. While the country is trying to increase dependence on alternative energy sources, coal is still the most important energy source. According to National Bureau of Statistic, China’s reliance on coal consumption as a source of energy has been relatively stable in recent years, increasing from 67.8% in 2000 to 68.7% in 2008.

According to China Coal Resource, China has a total coal reserve of around 182.5 billion tonnes and total coal resource of around 826.3 billion tonnes. Coal resource and reserve in China is unevenly distributed. The main regions with the richest coal resource and reserve in China include the Shanxi, Shaanxi and Guizhou provinces as well as autonomous regions of Inner Mongolia and Xinjiang. Among which, Inner Mongolia has the largest coal resource and second largest reserve in China, accounting for 25.3% and 26.1% of the total resource and reserve, respectively.

Exhibit 2: Distribution of coal resources and reserves in China

==> picture [122 x 66] intentionally omitted <==

==> picture [108 x 40] intentionally omitted <==

Source: China Coal Resource

(d) China coking coal demand, supply and price

The production of coking coal in China is unevenly distributed, with production being mainly concentrated in areas including Shanxi, Shaanxi, Anhui, Shandong and Guizhou provinces as well as the Inner Mongolian autonomous region, with Shanxi Province being the largest producing region.

China has been a net importer of coking coal in recent years, as domestic production has been insufficient to cope with domestic consumption. In 2008, according to the World Coal Institute, China imported around 10Mt of coking coal and exported around 5Mt of coking coal, resulting as a net importer of 5Mt of coking coal. China’s import of coking coal is typically sourced from neighboring coal producing regions such as Australia and Indonesia.

China’s net import of coking coal is expected to increase in the short- to medium-term as the fast economic growth and industrial development of China continues to fuel demand for iron ore and steel products. China’s strong appetite for coking coal presents incentives and opportunities for

– 39 –

LETTER FROM THE BOARD

domestic producers to ramp up production and explore new and high quality coking coal deposits. However, production ramp ups and new discoveries may be difficult to achieve in the short- to medium-term, and hence certain challenges remain on the domestic supply of coking coal in China in the short- to medium-term.

Exhibit 3: China’s import and export of coking coal

==> picture [383 x 151] intentionally omitted <==

Source: World Coal Institute

According to China Coal Resources, the price of coking coal traded in the Wuhai City, averaged RMB997 per tonne between February to November of 2009, with the price ranging from RMB850 to RMB1,200 per tonne. As at the latest date available, the price of coking coal was RMB1,100 per tonne.

Exhibit 4: Price of coking coal[1] in Wuhai City

==> picture [363 x 44] intentionally omitted <==

Source: China Coal Resource

Note: Quality of coal is sulphur dry basis 1%, ash 10%, caking index (G) 67, VR 22%

– 40 –

LETTER FROM THE BOARD

13. THE MINES

The contents of this section have been extracted from the Technical Assessment Report prepared by SRK as contained in Appendix X to this circular and must therefore be read in conjunction with and in the context of the Technical Assessment Report itself. Please refer to the Technical Assessment Report for a detailed discussion on all the technical aspects of the Mines.

The Technical Assessment Report has been prepared to the standard of, and is considered by SRK to be, a Technical Assessment Report under the guidelines of the Valmin Code. The Valmin Code is the code adopted by the Australasian Institute of Mining and Metallurgy (‘‘AusIMM’’) and the standard is binding upon all AusIMM members. The Valmin Code incorporates the Joint Ore Reserves Committee (‘‘JORC’’) Code for the reporting of Mineral Resources and Coal Reserves.

(a) Mining license

As mentioned in the Technical Assessment Report as set out in Appendix X to this circular, the Target Group holds a Mining License valid from 6 December 2007 until 6 December 2010 for the Tianyu Gongmao Coal Mine (Mine No. 1). The License area is 2.402 km[2] and authorises the Target Group to produce 0.3Mt per annum. The Target Group also holds a Mining License valid from 6 December 2007 until 6 December 2010 for the Tianyu Coal Mine (Mine No. 4). The License area is 4.0299 km[2] and authorises annual coal production of 0.3Mt. Both licenses are approved by the Inner Mongolia Bureau of Land and Resource. Existing legislation allows the Target Group to apply for renewal of the mining licence prior to the renewal date.

Mine No. 1 has a production capacity of 0.3Mt per annum. The Target Group plans to bring the production of Mine No. 1 to 0.45Mtpa by 2011. The Target Group expects to apply for amendment to the mining license and production permit for Mine No. 1 in March 2010, authorising them to produce 0.45Mtpa.

Mine No. 4 has a designed production capacity of 1.2Mtpa. The Target Group expects to apply for amendment to the license for Mine No. 4 authorising them to produce 1.2Mt annually and receive this authorization by mid-July 2010. The Target Group plans to bring the production of Mine No. 4 up to 1.5Mtpa by 2012 and will need to upgrade both the Feasibility Study and mining license for Mine No. 4.

Pursuant to the PRC legal opinion issued by Guantao, all mines in the PRC have to obtain six licences, permits, approvals and certificates, namely business licence (企業法人營業執照), mining operation permit (採礦許可證), safety production approval (安全生產許可證), coal mine production approval (煤炭生產許可證), certificate of the qualification of mine operating chief officer (礦長資格證) and certificate of the safety qualification of the mine operating chief officer (礦長安全資格證).

Mine No. 1 has obtained all the above six licences, permits, approvals and certificates. However, as an entity engaged in the coal production, as referred to in the above, the production of Mine No. 1 has been temporarily suspended for further technical improvements to complete the necessary improvement of production qualities and mine operation safety in accordance with the Notice.

– 41 –

LETTER FROM THE BOARD

Mine No. 4 has obtained the business licence (企業法人營業執照) and mining operation permit (採礦許可證). It was still in the process of obtaining the remaining approvals and certificate as at the Latest Practicable Date. As confirmed by Guantao, Mine No. 4 would not be able to carry out mining operation until all the relevant approvals have been obtained. According to the PRC legal opinion issued by Guantao, should Mine No. 4 be able to produce relevant application materials to the relevant government bureau and satisfy with production qualities and mine operation safety in accordance with the Notice, it is of an opinion that there is no legal obstacle for Mine No. 4 to obtain the remaining approvals and certificates under PRC laws. Pursuant to the PRC legal opinion issued by Guantao, under the relevant PRC laws and regulations, Mine No. 4 is entitled to apply for the relevant approvals if it is able to meet certain operating specifications and conditions. Although the Target Group has already formulated development plans for Mine No. 4, the development stages are inter-linked with each other and it is therefore difficult to predict the exact time when such operating specifications and conditions will be attained. The Group will closely monitor the progress of the development and will apply for the relevant approvals when such operating specifications and conditions are met. In any event, the current plan is to complete the construction of Mine No. 4 such that it will become operational within 2010.

A Technical Assessment Report in respect of the Mines issued by SRK which has been engaged to review relevant aspects of the Mines, is set out in Appendix X to this circular.

As similar with any other investments, the Company is currently not in a position to ascertain the timing and amount of any return or benefits that may be generated from the new business of the Target Group. However, having considered the unique opportunity brought by the Target Group to diversify the business of the Group by investing in the high-quality coal mines and the potential long-term benefits that will be generated from the Acquisitions, the Directors consider that the Acquisitions are in the best interest of the Company and the Shareholders as a whole.

(b) Geology

Mine No. 1 and Mine No. 4 are located within the north-western sector of the extensive, Ordos basin in the Inner Mongolia Autonomous Region. The economical coal seams within the two mines belong to the Early Permian Shanxi Formation and the Late Carboniferous Taiyuan Formation. A total of six well developed, high rank, coking coal seams are preserved at the Mine No. 1 (i.e. 9-1, 9-2, 10, 16-1, 16-2 and 16-3) and seven relatively thick seams are preserved at Mine No. 4 Coal Mine (8-1, 9-2, 9-3, 10, 16-1, 16-2 and 17). The overall geological conditions at Mine No. 1 and Mine No. 4 are favorable for underground coal extraction, with a somewhat simple structural framework, overall good roof conditions, limited seam gas and relatively stable, high rank coal seams.

– 42 –

LETTER FROM THE BOARD

(c) Coal Resource and Reserve

Since 1999 China adopted a new numerically based classification of resource and reserve which supersedes an alphabetically based classification that existed for some time in China’s coal industry. The two systems are shown below and an equivalent JORC classification has been derived.

JORC Code Resource	Previous	Chinese ‘‘Resource’’ Category
Category	System	Current System
Measured	A	111b, 121b, 2M11, 2M21, 2S11, 2S21, 331
Indicated	B	122b, 2M22, 2S22, 332
Inferred	C	333
Unclassified under JORC	D	334
		Chinese ‘‘Reserve’’
JORC Code Reserve Category		Category
Proven		111
Probable		121,122

According to SRK, the resource estimation process at Mine No. 1 and Mine No. 4 was a geological block method, which is a standard that is commonly used in the industry. The area is divided into smaller blocks which would have reasonably homogeneous conditions in terms of seam thickness and quality, as well as level of reliability of data points. The area of these blocks is determined by planimeter. An average seam thickness is determined for the block using an unweighted average of the borehole or channel sample log of seam thickness data. An average density of a seam is determined and applied to all the blocks. The tonnage for each block is therefore derived by multiplying the area by the average seam thickness of the block by the average seam density. A detailed explanation of this method and comparison of Chinese National standards (the Chinese resource classification (‘‘Chinese Code’’)) to JORC Code standards and classifications is attached in Appendix 1 of the Technical Assessment Report.

Coal Resource

SRK reviewed the coal resource under the Chinese Code and is of the view that it can be broadly compared with the JORC Code (Australian Code for Reporting of Exploration Results, Minerals Resources and Coal Reserves).

The total resource estimate of Mine No. 1 and Mine No. 4 are 24.70Mt and 47.75Mt, respectively, under Chinese Code. The resource estimate was conducted in accordance to Chinese Code using geological block method.

– 43 –

LETTER FROM THE BOARD

A summary of resource estimate is shown in the following table:

Mine ID Mine No. 1 Mine No. 4 Total		Category	Category	2S22 (Mt) 6.30 0.00 6.30	Total (Mt) 24.70 47.75
	121b (Mt) 4.04 0.00 4.04	122b (Mt) 11.56 32.67 44.23	333 (Mt) 2.80 15.08 17.88
					72.45

Source: Technical Assessment Report

SRK has not re-estimated the resource and only conducted a thorough check of documents provided. SRK opines that an Exploration Report (‘‘ER’’) in accordance with the ‘‘Notice on Strengthening Management of Coal Mine construction Projects’’ (Fa Gai Neng Yuan, 2006, No. 1039) is needed for both mines, because of inconsistencies in the Verification Report (‘‘VR’’) and the Approved-Verification Report (‘‘AVR’’). In addition, SRK recommends drilling two additional boreholes in area of Mine No. 1 and four additional boreholes in area of Mine No. 4. Additional boreholes would provide good control and validation of old exploration works. In the case of Mine No. 4, additional boreholes would refine course and displacement of fault F19. SRK opines that resource tonnage may increase because resource estimate method used is conservative. SRK conducted resource estimate check run on the sub-set of data of coal seam 9-1 and 16-1 at Mine No. 4 licence using original borehole data. The result arrived at a range of 8% to 18% higher. SRK opines that while resource tonnage is rather conservative, the details of the resource quality need to be verified by the drilling recommended above because the historical exploration methods used were not focused on resource quality as are the present standards (JORC or DZ/T0215-2002).

– 44 –

LETTER FROM THE BOARD

There are some differences between Chinese Code and JORC Code. However the principles used in both codes are similar. JORC is more strict on core recovery (95% or more) versus Chinese Code (75% or more) and in quality assurance and control procedures. As such SRK opines that resource estimate of Mine No. 1 and Mine No. 4 is reasonable and rather conservative in terms of tonnage. However, coal quality determination and distribution does not comply with JORC Code. Consequently the following broad resource comparison with JORC categories for Mine No. 1 and Mine No. 4 can be made:

Mine No. 1 Measured Resource Indicated Resource Inferred Resource SUB-TOTAL Mine No. 4 Measured Resource Indicated Resource Inferred Resource SUB-TOTAL TOTAL	Mt 0.00 15.60 2.80
	18.40
	0.00 22.12 11.36
	33.48
	51.88

Given the incomplete core recovery record, lack of original analysis data and lack of security procedures, SRK opines that resource categories 121b, 122b and 2S22 could be broadly compared with Indicated Resource and category 333 could be compared with Inferred Resource.

The Mine No. 1 resource of 15.60Mt (categories 121b and 122b) is broadly comparable to JORC Indicated Resource. In the case of Mine No. 1 category 2S22 resource is classified as subeconomic according to Chinese Code, because it is blocked by permanent pillars. The 2.8Mt (category 333) is broadly comparable with JORC Inferred Resource.

The Mine No. 4 resource of 22.12Mt (category 122b) is broadly comparable to JORC Indicated Resource. The 11.36Mt (category 333) is broadly comparable with JORC Inferred Resource.

Coal Reserve

The coal reserve of both mines was estimated according to Chinese Code by determination of industrial resource and deducting permanent pillars, technological pillars and mining loss from industrial resource. The total reserve estimate of Mine No. 1 and Mine No. 4 are 10.94Mt and 32.92Mt, respectively.

– 45 –

LETTER FROM THE BOARD

The reserve summary is presented in the following table:

Seam ID 8 8–1 9–1 9–2 9–3 10 16–1 16–2 16 17 Subtotal Total	Mine No. 1 (Mt) Mine No. 4 (Mt) N/A N/A N/A 4.33 2.98 N/A 0.98 5.51 N/A 2.96 1.69 2.58 3.50 12.16 0.75 2.44 1.04 N/A N/A 2.93 10.94 32.92 43.86	Mine No. 4 (Mt) N/A 4.33 N/A 5.51 2.96 2.58 12.16 2.44 N/A 2.93 32.92

Source: Technical Assessment Report

Reserve for Mine No. 1 is estimated in the Preliminary Mine Design (‘‘PMD’’). Reserve of Mine No. 4 was reviewed in the Feasibility Study (‘‘FS’’). The PMD of Mine No. 1 defines 10.94Mt of reserve. SRK noted that industrial resource in the PMD, which is the input for conversion to reserve, does not match with industrial resource calculated based on the AVR. The industrial resource calculated based on the AVR Resource is 3.75Mt lower than industrial resource stated in the PMD. SRK opines that the source of possible error must be located and addressed in the new PMD. The reserve of Mine No. 1 needs verification. There is a possibility for an increase of reserve by up to 30% by cancelling the permanent pillar of the Xinguang Coal Washing Plant facilities. If this protection pillar can be cancelled, the new PMD would be needed to revise the development of eastern sector of Mine No. 1 and re-estimate new reserve. Total reserve of Mine No. 4 is 32.92Mt as compared with the FS result of 34.57Mt. The difference is caused by the FS using 87% recovery factor at seam 16-1 instead of 80%.

In terms of converting the resource into reserve, the Chinese Code allows for some Inferred Resource (category 333) to be converted into reserve. The JORC Code is stricter and only allows the Measured and Indicated Resource to be converted into reserve, not Inferred Resource. As a result, SRK noted that reserve categories under the Chinese Code and JORC Code cannot be compared directly.

SRK opines that the reserve estimate has been presented in a reliable manner and is reasonable and rather conservative in terms of tonnage. In comparison with the JORC Code, the part of the reserve that is converted from Inferred Resource (category 333) cannot be compared with the JORC Code. Since the PMD and FS do not discriminate between reserve converted form individual Chinese Code categories it is virtually impossible to identify part of reserve that is comparable with JORC Probable Reserve.

– 46 –

LETTER FROM THE BOARD

Since PMD and FS do not take into consideration of the boundary of resource categories and have included category 333 into reserve estimate, comparison of JORC reserve category with PMD and FS reserve category is not possible. The JORC Code only allows for the conversion of Measured and Indicated Resource to Proved and/or Probable Reserves. However SRK opines that Chinese Code reserve is reasonable for both mines.

Nevertheless, SRK undertook a thorough check and estimate that approximately 80% of Mine No. 1 and 60% of Mine No. 4 reserve (together amounting to 28.50Mt) could be broadly comparable with Probable Reserve under the JORC Code.

The reserve and resource consist of medium ash, high Gross Calorific Value (CV), and high volatile bituminous B coal. The coal has excellent coking properties as indicated by Crucible Swelling Number (CSN) ranging from 5 to 7. Seams 8, 9 and 10 are of low to medium sulphur content and coal seams 16 and 17 are of high sulphur content.

Coal seam characteristics of the resource estimate are shown in following table:

									Gross
					Coal Seam		Ash		calorific
				Economical	thickness	Dips	Air dried	Sulphur Dry	value Dry
Mine				Coal Seams	(m)	(˚)	(%)	(%)	(MJ/kg)
Mine	No.	1	9-1,	9-2, 10, 16-1,	0.46–3.22	6–10	6.69–39.16	0.22–2.04	N/A
				16-2 & 16-3
Mine	No.	4	8-1,	9-2, 9-3, 16-1,	0.70–5.21	17–23	10.07–44.92	0.34–4.12	20.96–29.85
				16-2 & 17

Source: Technical Assessment Report

(d) Mining

Mine No. 1 is a an operating underground coal mine. Production has been suspended since August 2009 for technical and quality improvements. Prior to the suspension, the mine produced 93,325t of raw coal in the first eight months of 2009. The mine is opened by four declines which targets three mining sectors in coal seam 9 and one mining sector in coal seam 16. Mining method is conventional retrieve long wall method with full caving. Two panels are producing coal of which one is located towards the east of the Decline in Seam 9 West and the second is located towards the west of the Decline in Seam 16 East. Mine transport is conducted through chain conveyors in panels and by 1.5 tonne tubs hoisted to the surface in declines. The hoisting aspect is currently the biggest bottleneck of the operation. The Target Group plans to replace the hoisting transport with a conveyor belt fitted in the main declines, which is expected to increase the handling capacity to 0.4Mtpa.

Mine No. 4 is a development stage underground coal mine. The mine’s FS proposes mine development using the existing two declines and return airway shaft for mine entry and developing two levels targeting upper and lower seam groups. Roadways would be driven north-south along the eastern boundary of the mining license and retrieve fully mechanised long wall mining, with full caving as the mining method. Two sets of fully mechanised long wall mining equipment would be deployed in the mine depending on the seam thickness and parting thickness. The target

– 47 –

LETTER FROM THE BOARD

production is 1.2Mtpa according to the mine’s FS. Construction work is expected to be completed by 2010. The Target Group plans to bring production of Mine No. 4 to 1.5Mtpa by 2012, which will involve feasibility study update and mining license upgrade.

A summary of the raw coal production forecast is presented in the following table:

Mine Unit Mine No. 1 (Mt) Mine No. 4 (Mt) TOTAL (Mt)			Year	Year		2014 0.45 1.50 1.95	TOTAL 2.32 5.90
	2009 0.10 0.00 0.10	2010 0.42 0.20 0.62	2011 0.45 1.20 1.65	2012 0.45 1.50 1.95	2013 0.45 1.50 1.95
							8.22

Source: Technical Assessment Report

The forecast production schedule has been reviewed in the Technical Assessment Report. SRK opines that the forecast production schedule is achievable with exception of Mine No. 1 in year 2010, whereby the existing mining license and coal production permit of 0.3Mtpa must be upgraded to 0.45Mtpa before production can be increased to 0.45Mtpa in 2010. The Target Group expects to apply for the upgraded mining license and coal production permit in March 2010.

(e) Coal Washing

The proposed 3Mtpa Tianyu Coal Washing Plant is located within the Mine No. 4 mining license area and lies to the northwest of Mine No. 4 main decline. The design of the Tianyu Coal Washing Plant was reviewed in the Technical Assessment Report and SRK considered that it meets the requirements for the proposed 3Mtpa washing capacity. The heavy media cyclone was selected as the coal processing method.

The raw coal produced from the Mines would form part of the run-of-mine (‘‘ROM’’) coal feed to the Tianyu Coal Washing Plant. The Mine No. 4 coal would be fed to the Tianyu Coal Washing Plant by conveyor belt and the Mine No. 1 coal together with the coal purchased from nearby independent third party sources would be delivered on trucks, which would provide the Tianyu Coal Washing Plant with a cost advantage due to the close proximity of the coal feeds. In addition to the washed coking coal that would be sold to steel producers, the middling coal and waste rock would be sold to power plants and brick works nearby. The Tianyu Coal Washing Plant will utilize the existing infrastructure of Mine No. 4.

– 48 –

LETTER FROM THE BOARD

The table below shows the ROM feed needed for the 3mtpa washing plant and the intermediate products to be produced.

Product Coking Coal Middling Waste Rock Tailing ROM Coal Feed		Quantity Output (t/h) (t/d) (Mtpa) 218.85 3501.64 1.16 252.95 4047.18 1.34 89.18 1426.88 0.47 7.20 115.2 0.04 568.18 9090.91 3.00	Quality
	Yield (%) 38.52 44.52 15.70 1.27 100.00		Ash content (%) Total moisture (%) 10.39 10.02 25.88 7.82 63.69 13.35 38.19 26.00 26.00

Source: Technical Assessment Report

According to the yield in the table above, for every 1 tonne of raw coal processed by the Tianyu Coal Washing Plant, approximately 38.5% results in coking coal and 44.5% results in middling coal. The remaining balance of 17.0% consists of waste rock and tailings. The Target Group are of the view that the yield for coking coal would be further increased once the raw coal from the Mines is blended with the high quality coal that is purchased from independent third parties.

A total construction period of 7 months is required according to the feasibility study. Of the 7 months, 5.5 months will be required for construction work and the remaining 1.5 months will be required for installation.

(f) Safety

Wuhai Kangtai Safety Technology Limited completed the Safety Check and Acceptance Assessment Report of Mine No. 1 on 25 September 2007. The Safety Production Permit No. [2008]CD002 for the 300,000tpa Tianyu Gongmao Coal Mine was issued by the Inner Mongolia Safety Bureau of Coal Mine on 7 January 2008 and expires on 1 November 2011. There have been no major accidents at Mine No. 1, and occupational health and safety accident and incident statistics are not recorded.

No safety approvals and/or permits for Mine No. 4 have been sighted as part of the Technical Assessment Report review, as the mine is still under development. The Mine No. 4 feasibility study report provides a range of proposed safety design and management measures, which have yet to be transferred into an operational management plan and/or procedures. No records of occupational health, safety accident and incident statistics for Mine No. 4 are available as the mine is still under development.

– 49 –

LETTER FROM THE BOARD

(g) Future Capital Expenditure (CAPEX)

The following table summarises the Company’s future CAPEX plans for the Mines until the end of 2010:

Mine Unit Mine No. 1 (RMB million) Mine No. 4 (RMB million) Washing Plant (RMB million) Total (RMB million)	Year Till 20091 2010 31.52 6.11 0.00 333.22 0.00 171.38 31.52 510.71	Total 37.63 333.22 171.38
	Till 20091 31.52 0.00 0.00 31.52
		542.23

Source: Technical Assessment Report

Note 1: Represent the total CAPEX for Mine No. 1 in 2009 which have already been incurred.

The future CAPEX for the Mines has been reviewed in the Technical Assessment Report and SRK considered that it is reasonable based on the CAPEX of similar size mines in the Ordos basin.

The CAPEX of RMB31.52 million for Mine No. 1 in 2009 has already been incurred. The Company has earmarked US$25 million of the proceeds from the Placement for CAPEX planned in 2010. Any shortfall in future CAPEX is expected to be financed through a combination of cash flow generated from the coal mining operations as well as from the Company, debt financing to be arranged such as bank loans, and capital raised through the equity market.

(h) Operating Expenditure (OPEX)

According to Mine No. 1’s PMD estimate, the major operation cost inputs to the project are material expenses, electrical power and maintenance. The operating cost of Mine No. 1 is estimated to be 24.04RMB/t and the total production cost to be 32.83RMB/t. According to the Technical Assessment Report, the operation cost and total production cost estimated in the PMD are considered low compared to similar sized coal mines within China, and that OPEX of Mine No. 1 should be more comparable to that of Mine No. 4.

According to Mine No. 4’s FS, the operation cost of Mine No. 4 is estimated to be 93.69RMB/t and total production cost to be 104.52RMB/t. According to the Technical Assessment Report, the operation cost and total production cost estimated in the FS are in line with similar sized coal mines in China.

According to the Mine No. 4’s updated FS, the processing cost of the Tianyu Coal Washing Plant is 18.90RMB/t and the total production cost is 198.90RMB/t. The difference between these two costs is 180.00RMB/t, which represents the cost of purchasing the entire coal feed from independent third parties at an arm’s length price, an assumption made when the updated FS was prepared. In reality, the majority of the coal feed would be sourced from Mine No. 1 and Mine No. 4 directly. According to the Technical Assessment Report, the total production cost is reasonable.

– 50 –

LETTER FROM THE BOARD

(i) Key Strengths of the Mines

The Company believes the following to be the key strengths of the Mines:

(a) Large and high quality coal Mineral Resource and Reserve base

According to the Technical Assessment Report, the Mines possess a large and high quality Mineral Resource and Reserve coal base, with total Mineral Reserve of 43.86mt and Mineral Resource of 72.45mt, as classified under the Chinese Code. Of the Mineral Resource of Mine No. 1, 15.6mt (categories 121b and 122b) is broadly compared to JORC Indicated Resource and 2.8mt (category 333) is broadly comparable to JORC Inferred Resource. Of the Mineral Resource of Mine No. 4, 22.12mt (category 122b) is broadly comparable to JORC Indicated Resource and 11.36mt (category 333) is broadly comparable to JORC Inferred Resource. Of the total Mineral Reserve, approximately 80% of Mine No. 1 and 60% of Mine No. 4 reserve (together amounting to 28.50Mt) could be broadly comparable with Probable Reserve under the JORC Code.

Based on the Mineral Reserve of 10.94mt for Mine No. 1 and 32.92mt for Mine No. 4, under the Chinese Code, the life of Mine No. 1 and No. 4 is approximately 24 years and 22 years on the basis of the 2012 annual production target of 0.45mt and 1.5mt of coal, respectively. The Company believes there is potential to extend the life of the mines and Mineral Resource and Reserve base given its future intentions to conduct further exploration work within the rest of the mining license area.

According to the Technical Assessment Report, the five Permo-Carboniferous coal seams in the Mine No. 1 and Mine No. 4 area are black, lustrous, and bright banded. The proximate analysis of the coal seams from the Early Permian Shanxi Formation and Late Carboniferous Taiyuan Formation suggests high volatile bituminous B coal quality, in accordance with the American Society for Testing and Materials (‘‘ASTM’’) standards. The coal is of medium ash and high Gross Calorific Value (‘‘CV’’). The coal also has excellent coking properties as indicated by Crucible Swelling Number (‘‘CSN’’) ranging from 5 to 7, which is an important property for the coke sector.

(b) Low cost structure

According to the Technical Assessment Report, the Mines have a low estimated operating cost structure that is comparable with mines of similar size in China. Its low cost structure is largely due to a combination of reasons, including the high quality of coal, the close proximity of the coal washing plant to the Mines, and general availability of raw materials. In addition, given Wuhai City’s long history in operating coal mines, it provides access to a large base of relatively low cost and highly skilled Chinese workforce.

As a result of these factors, the operating cost for Mine No. 4 is estimated to be approximately RMB104.52 per tonne of coal, while the Technical Assessment Report suggests that the operating cost of Mine No. 1 will be similar to Mine No. 4. In line with the view of the Technical Assessment Report, the Target Group acknowledges that the estimated operating cost of Mine No. 1 going forward should be similar to the estimated operating cost of RMB104.52 per tonne of coal for Mine No. 4 as prepared under the PMD. Mine No. 1 has

– 51 –

LETTER FROM THE BOARD

now been in operation between September 2008 and August 2009 and actual operating cost recorded so far between January to June of 2009 is RMB93.94 per tonne of coal. The management is of the view that the operating cost estimate for Mine No. 1 prepared under the PMD will not affect the cost management, budgeting, or operations of the Mines in any material way.

Moreover, the Company believes there is room for further reduction in cost as the mine production ramps up and achieves higher efficiency and greater economies of scale in the near future. The management adopts a strict cost management approach and will continually seek to improve efficiency and lower the costs of operating the Mines.

(c) Fast growth profile

The Company has set out clear strategic development plans and targets to rapidly grow its coal business. Mine No. 1, which is currently in production stage, is expected to ramp up to target mine production of 0.45mt in 2011. Mine No. 4, which is currently in preproduction phase, is expected to commence mine production in 2010 and ramp up to target mine production of 1.50mtpa in 2012.

According to the Technical Assessment Report, the total raw coal production profile of the Mines is expected to grow considerably over the next 4 years, ramping up from 0.10mt in 2009, to 0.62mt in 2010, 1.65mt in 2011, and reaching target production of 1.95mt in 2012.

The Company has concrete plans to construct the 3.0mtpa Tianyu Coal Washing Plant, which will provide adequate capacity to process all the raw coal produced on site at the Mines, together with additional raw coal purchased from independent third parties. The coal washing plant is expected to be commissioned before the end of 2010.

Prior to the completion of the Tianyu Coal Washing Plant construction, all the coal produced from the Mines would be unwashed and sold as raw coal. The Target Group has already entered into short term contracts with various domestic coal washing plants in the region for the sale of such raw coal. Once the Tianyu Coal Washing Plant is commissioned, the new facility would be able to wash the coal and increase the quality and average selling price of the coal products. Although no purchase agreements or contracts have been reached with any customer, the Target Group is currently in touch with various steel factories and electricity companies on the sale of its coal products. The management of the Company intends to retain most of the key senior management of the Target Group, who are very familiar with the coal market in China, particularly the demand and supply situation in the Inner Mongolia Region, and are of the view that demand will considerably outstrip supply in the short to medium term, and that the Company will not have problems locating buyers for their coal products in the near future.

(d) Located in the well-established Ordos basin

The Mines are located along the foothills of the north-south oriented Zhuozi Shan Fold Thrust Belt, within the north-western sector of the extensive, coalbearing, intracratonic Ordos basin in north-central China. The Ordos basin is well-established for its energy resources in China. The basin stretches approximately 700km north-south and 500km east-west, and is the

– 52 –

LETTER FROM THE BOARD

second largest sedimentary basin in China. The Ordos basin is China’s largest coal basin, with extensive coal deposits of Jurassic, Permian, and Carboniferous age. Coal seams in the Permo-Carboniferous Shanxi and Taiyuan Formations are very well developed throughout the basin.

(e) Close proximity to transportation links and infrastructure

There is good road access for the Mines. A short unsealed mine access road (approximately 1km in length) connects the Mines to the Qipangjing-Wuhai Highway, which is situated to the north of the Mine No. 1, and connects the project site to Wuhai City (approximately 31km to the north). The No. 109 State Highway (Beijing — Lhasa Highway) is situated approximately 11km to the south of the project area. There is also good road access (i.e. sealed roads) linking the project site to Hainan District (approximately 6km to the east).

The Mines have good access to a reliable supply of water and electricity. Electrical power supply for the Mines is sourced from the local power supply grid, which is operated by the Wuhai Electric Power Bureau and has sufficient capacity to meet the project’s requirements, according to the Company. Water supply is sourced from the local scheme water supply, operated by the Hainan District Water Company. The water is supplied via a 2km pipeline and has sufficient capacity to meet the project’s requirements, according to the Company.

(f) Strong fundamentals of the China coal sector

Please refer to the Industry Overview section for a detailed discussion.

According to the World Coal Institute, the global production of hard coal would grow at a CAGR of 6.0% between 2004 and 2008, with an estimate of around 5,845Mt of hard coal produced globally in 2008. Most of global coal production was expected to be consumed in the country in which it would be produced; only an estimate of around 938Mt or 16% of the global hard coal production was expected to be destined for the international coal market in 2008. The top five hard coal producers in 2008 were expected to be China, USA, India, Australia and Russia. China was expected to be the single largest producer of hard coal in the world in 2008, producing an estimate of around 2,761Mt or 47% of the global output. The production of China was expected to be more than double that of the next largest producer, the USA, which was expected to produce an estimate of around 1,007Mt or 17% of the global output in the same year. Between 2004 and 2008, China’s production of hard coal would increase at a CAGR of 9.0%, considerably higher than the rest of the world, which increased at a CAGR of 3.6%. China’s share of global hard coal production would also increase from 42% to 47% during this period.

Coking coal is a scarce resource in China and the rest of the world. The fortunes of coking coal, which is commonly used in the process of iron and steel manufacturing, are highly correlated to the iron and steel industry. The rapid development of China’s iron and steel industry in recent years has led to the increase in coking coal consumption in China. As

– 53 –

LETTER FROM THE BOARD

the iron and steel industry in China continues to boom in light of the economic recovery and the spending from the Government’s stimulus plan, the industry is expected to support strong and sustained demand for coking coal products in China going forward.

According to the World Coal Institute, a global industry association, total import and net import of coking coal into China reached 7mt and 1mt in 2006, 6mt and 3mt in 2007 and 10mt and 5mt in 2008, respectively. China’s net import of coking coal has increased steadily over this period as the country is unable to support its domestic coking coal consumption with domestic production alone. China’s net import of coking coal is expected to increase in the short- to medium-term as the fast growth rate of China continues to fuel demand for iron and steel products.

(g) Strong track record of key management team members

It is the intention of the Directors to retain most of the key personnel of the Target Group. The Target Group has a domestically reputable professional management team in place to closely manage the project at the Mines. The management team consists of engineers, geologists, technicians and project managers that have expertise in the coal mining business and experience in managing coal projects in Inner Mongolia and China. A majority of the management team of the Target Group received tertiary education and specialised in mining, coal exploration and electrical engineering related studies. All of them have accumulated over 20 years of experience in coal mining industries and with related management experience in various coal mining companies before joining the Target Group. We believe the management team’s experience in coal is a key factor that will contribute to the smooth-running and successful expansion of the Mines. A summary of the key personnel of the Target Group who are expected to be retained with the Enlarged Group are presented below:

. Mr. Ma Lishan, 58, Chairman of the Target Group (Since 2009). Mr Ma is responsible for overlooking the entire coal mining business of the Target Group, including Tianyu Gongmao and Wuhai City Menggang. Mr. Ma graduated from Beijing Foreign Studies University where he received a bachelor’s degree in 1975. Mr. Ma served various managerial positions in the PRC food, edible oils and wine industries and has extensive experience in corporate management. Mr. Ma served as an executive director and managing director of China Foods Limited which had been listed on the Main Board of the Stock Exchange from 1996 to 2005. Mr. Ma has been the independent non-executive Director of Silver Base Group Holdings Ltd and executive director of Sino Resources Group Ltd. In 2009, Mr. Ma joined Sunac China Holdings Ltd as an independent non-executive Director.
. Mr. Shang Rui, 50, Chief Engineer and Associate General Manager of Wuhai City Menggang (Since 2007). Mr. Shang is responsible for the technical management of the fully-owned subsidiary Mines (No. 1 and No. 4) and coal washing plant. Mr. Shang graduated with a Master Degree in coal mining at Shanxi Mining Institute. He has over 20 years of working experience in Inner Mongolia, and spent 16 years working at Wuda Bureau of Mining, covering various roles in coal mining and management.

– 54 –

LETTER FROM THE BOARD

. Mr. Yan Zichun, 58, Senior Engineer and Manager of Tianyu Gongmao (Mine No. 1, Since 2009). Mr. Yan is responsible for the management of Mine No. 1. Mr. Yan studied at Wuda Mining University and has been working at Mines Suhaitu for over 25 years, and left there as Associate Mine Manager for safety aspects of production. He was later appointed in 2007 as the Mine Manager of the Mines Yangbaoqu, Ordos.
. Mr. Liu Futang, 54, Engineer in coal mining and Associate Mine Manager of Tianyu Gongmao (Mine No. 1, Since 2009). Mr. Liu is responsible for coal mining and production of Mine No. 1. Mr. Liu studied coal mining at Wuda Mining University. He began his early career at Mine Huangbaici, as technician and quality controller for 16 years, and later joined Wuda Xinxing Twelfth Mine Company as Chief Engineer in 2003 and became Associate Mine Manager of production in 2006 of Mines Baiyun Wusu.
. Mr. Mao Zhaoxiong, 47, Engineer in Electrical and Associate Mine Manager of Tianyu Gongmao (Mine No. 1, Since 2009). Mr. Mao is responsible for the electrical and technology aspects of the Mines. Mr. Mao studied electrical engineering at Wuda Mining University. Mr. Mao worked in the mechanical factory of Wuda Bureau of Mining for 20 years till 2003 and joined Typosun Company in 2004 as the sales manager of north-western region. In 2006, he was appointed as the Associate Manager of electrical at Mine Changtan, Ordos.
. Mr. Wang Yongli, 56, Associate Mine Manager of Tianyu Gongmao (Mine No. 1, Since 2009). Mr. Wang is responsible for the safety aspects of production. Mr. Wang studied in Inner Mongolia Mining Industry College and started the early career at Mine Suhaitu, and became the Manager of Marble factory, Wuda Bureau of Mining for 13 years. From 1995, he worked as the Associate Mine Manager of Mining at a multi-divisional company under Wuda Bureau of Mining and at Mine No.2 Tianyu.
. Mr. Ding Baoguo, 58, Senior Engineer and Chief Engineer of Tianyu Gongmao (Mine No. 1, Since 2009). Mr Ding is responsible for the technical management of Mine No. 1. Mr. Ding studied at Wuda Mining University and has spent 23 years at Mine Suhaitu, Wuda Bureau of Mining. He was appointed as the Chief Engineer of the Mine Lida, Wuhai City, in 2004 before he joined Tianyu Gongmao.

To further strengthen the coal mining expertise of the Target Group, the Directors have recently appointed a mining consultant with extensive mining experience. The consultant’s qualifications are presented below:

. Mr. Zhang Kesheng, 64, Consultant of Winbox. Senior Engineer (Professor), advisor of Jingmei Group. Mr. Zhang graduated from Mining Department, Beijing Mineral College in 1970. He has worked in the Mine Mentougou, Beijing Bureau of Mining for 18 years since 1970 as technician, deputy director and Chief Engineer. He was appointed as Associate Chief Engineer and Chief Engineer during his work in Beijing of Mining and Jingmei Group from 1993 to 2007.

– 55 –

LETTER FROM THE BOARD

Upon Completion, the Target Group will have the right to nominate two members to the board of directors. It is the Vendors’ intention to nominate suitable candidates to the board of directors upon Completion, which will be subject to shareholder voting at the EGM.

14. FINANCIAL EFFECTS OF THE ACQUISITION ON THE GROUP

Upon Completion, the Company will own the entire issued share capital of Merrymaking Investments and Pleasing Results, and the net assets and the results of Merrymaking Investments and Pleasing Results will be consolidated in the financial statements of the Group.

(a) Overview of the business of the Group

The size of the global consumer market suffered a decline in early 2009 as a result of the continuation of the widespread global economic turmoil started in late 2008. During the six-month period ended 30 September 2009, turnover of the Group dropped significantly due to more cautious orders placed by major customers in the United State and Europe. Even though the turnover dropped significantly, the net profit margin has been slightly improved in the six-month period ended 30 September 2009 which was mainly due to the change in fair value on investments held for trading, gain on disposal of certain available-for-sale investments as a result of the recovery of global financial markets since the second quarter of 2009 and more effective cost control over the operation of the business of the Group. The Group is cautiously optimistic of an improvement in its business as it believes that the global economic environment is gradually improving. Furthermore, the more effective cost control implemented by the Group since 2008 will also contribute to reduce operation costs and improve profit margin for the rest of 2009 and the years beyond.

(b) Assets, liabilities and net assets

The Group had audited consolidated total assets as at 31 March 2009 of approximately HK$198,029,000. As shown in the section headed ‘‘Unaudited pro forma financial information on the Enlarged Group’’ in Appendix VII to this circular, had completion of the acquisition of entire interests of Merrymaking Investments and Pleasing Results been taken place on 31 March 2009, the pro forma total assets of the Enlarged Group would have been approximately HK$2,369,527,000, representing increase of approximately 1,097%.

The Group had audited consolidated total liabilities as at 31 March 2009 of approximately HK$20,932,000. As shown in the section headed ‘‘Unaudited pro forma financial information on the Enlarged Group’’ in Appendix VII to this circular, had completion of the acquisition of entire interests of Merrymaking Investments and Pleasing Results been taken place on 31 March 2009, the pro forma total liabilities of the Enlarged Group would have been approximately HK$1,313,375,000, representing increase of approximately 6,174%.

The Group had audited consolidated net assets attributable to equity holders of the Company as at 31 March 2009 of approximately HK$177,097,000. As shown in the section headed ‘‘Unaudited pro forma financial information on the Enlarged Group’’ in Appendix VII to this circular, had completion of the acquisition of entire interests of Merrymaking Investments and

– 56 –

LETTER FROM THE BOARD

Pleasing Results been taken place on 31 March 2009, the pro forma total net assets of the Enlarged Group attributable to equity holders of the Company would have been approximately HK$1,056,152,000, representing increase of approximately 496%.

Shareholders should refer to Appendix VII to this circular for details of the bases and assumptions adopted for the preparation of the unaudited pro forma financial information of the Enlarged Group.

(c) Earnings

The Group recorded an audited consolidated loss of approximately HK$22,871,000, for the year ended 31 March 2009. Had completion of the acquisition of entire interests of Merrymaking Investments and Pleasing Results been taken place on 1 April 2008, the pro forma net loss would have been approximately HK$88,878,000.

Shareholders should refer to Appendix VII to this circular for details of the bases and assumptions adopted for the preparation of the unaudited pro forma financial information of the Enlarged Group.

(d) Gearing positions

The total liabilities of the Enlarged Group would be approximately HK$1,313,375,000 had the acquisition of entire interests of Merrymaking Investments and Pleasing Results been completed on 31 March 2009, whilst the total assets of the Enlarged Group as of the same date would be approximately HK$2,369,527,000.

Based on the above pro forma financial information, the pro forma gearing ratio (total liabilities-to-total assets ratio) of the Enlarged Group had the completion of acquisitions of entire interests of Merrymaking Investments and Pleasing Results been taken place on 31 March 2009 would be approximately 55.4%.

Shareholders should refer to Appendix VII to this circular for details of the bases and assumptions adopted for the preparation of the unaudited pro forma financial information of the Enlarged Group.

15. INFORMATION ON THE VENDORS

To the best of the Director’s knowledge, information and belief, having made all reasonable enquiries, the Vendors and their respective ultimate beneficial owners, are third parties independent of and not connected with the Company and its connected persons.

Save as the Acquisitions, the Company has no previous transactions with the Vendors and their respective ultimate beneficial owners which would require to be aggregated with the Acquisitions pursuant to Rule 14.22 of the Listing Rules.

– 57 –

LETTER FROM THE BOARD

16. REASONS FOR THE ACQUISITIONS

The Acquisitions would allow the Group to diversify its sources of income and business risks by investing in the coal exploitation business as the Target Group is primarily engaged in exploitation of coal business, coal mining, coal sales and development of underground coking coal mine. In view of the world’s increasing demand for natural resources and the increase in the prices of coking coal over the past years, the Directors are optimistic about the future prospects and demand for coal. With the strong and sustainable growth momentum of the PRC economy and the continuous development of the cities, infrastructure and real estate sectors as well as accelerated industrialization and urbanization in PRC, the Directors are of the view that the demand for coking coal and other steel making raw materials particularly from within the PRC should continue to be buoyant. The Directors therefore believe that the Acquisitions provide an opportunity for the Group to diversify its business activities and to enhance investment returns for the Group and shareholders’ value.

Although a number of issues were discovered after the due diligence exercise, the Group managed to protest its position and get a specific indemnity from the Vendors by entering into the Supplemental Agreement. For details of the issues and indemnity, please refer to the section headed ‘‘Due Diligence Findings on the Target Group’’ of the Letter of the Board.

The Directors, including the independent non-executive Directors, consider that the terms of the Acquisitions (including the RP Total Consideration and the TRXY Total Consideration and the payment methods thereof) are fair and reasonable and on normal commercial terms and in the interest of the Company and the Shareholders as a whole.

17. FUTURE PLANS AND STRATEGIES

New Business

The Company’s long term vision is to become one of the largest companies focused on the resource sector in the PRC, with a nearer term objective to become one of the largest coking coal players in the PRC by production through consolidation in the highly fragmented sector. The Company intends to achieve this vision through the following strategies:

(a) Actively seek out acquisition opportunities so as to add to its coal resource base and invest in suitable opportunities in other resources

To the extent that when suitable opportunities arise, the Company would add to its coal resource base or invest in suitable opportunities in other resources, which is in line with the Company’s vision.

(b) Generate near-term value through completion of the Acquisition of the Mines and the ramp up of production

The Company seeks to generate near-term value for Shareholders by completing the Acquisition and aggressively expand the coal production of the Mines pursuant to the development plan as reviewed in the Technical Assessment Report. The Directors are of the view that the Acquisitions represent a unique opportunity to acquire the Mines with a large coal resource base which contain high quality coal that can be mined at relatively low costs.

– 58 –

LETTER FROM THE BOARD

The Mines are at an advanced stage of development. Mine No. 1 is already at a producing stage with a target production of 0.42 Mt in 2010 and expected to reach its production capacity of 0.45 Mt in 2011. Mine No. 4 is at an advanced stage of development with a target production of 0.20 Mt in 2010, 1.2 Mt in 2011, and expected to reach its production capacity of 1.5 Mt in 2012.

(c) Completion of the Tianyu Coal Washing Plants construction

The planned completion of the Tianyu Coal Washing Plant construction at the Mine No. 4 license area by November 2010 would increase the quality and average sales price of coal products sold by the Target Group considerably. The Tianyu Coal Washing Plant has a production capacity of 3.0 mt per annum and would directly process the raw coal feed produced from the Mines. The Target Group also plans to purchase high quality raw coal from independent third parties to blend together with the coal produced from the Mines to increase the overall quality and quantity of the coal products, which is expected to sell at a significant premium to the sales price of unwashed raw coal.

(d) Retain most of the key personnel of the Target Group to ensure continuity of the operation of the Mines and further strengthen the team by hiring external consultants

As mentioned in the ‘‘Key Strengths of the Mines’’ section above, it is the intention of the Directors to retain most of the key personnel of the Target Group. The Target Group has a domestically reputable professional management team in place to closely manage the Mines. All of them have accumulated over 20 years of experience in coal mining industries and with related management experience in various coal mining companies before joining the Target Group. We believe the management team’s experience in coal is a key factor that will contribute to the smooth-running and successful expansion of the Mines.

Existing Business

Looking ahead, the Group is optimistic that sales will eventually pick up and be back to the levels prior to the 2008-2009 financial crisis as economic recovery gathers pace. The Group sees unique opportunities to consolidate its position as a premier packaging manufacturer as the packaging industry continues to evolve such that customers are becoming more cautious and stringent towards product safety and quality standards in view of the world’s call for environmental concerns, and more aware of social accountability. These developments favour larger, reputable manufacturers as the new standards, coupled with the financial downturn that dried up credit and sales, tend to further weaken or even wipe out smaller manufacturers in the region, and customers also seek to reduce such risks by consolidating their vendor base.

With this in mind, the Group will continue to invest in quality and continue to upgrade its equipment and facilities to improve efficiency and ensure compliance with current and upcoming safety and environmental standards. It is the Group’s belief that continuous investment in facilities is key to success and sustainability in the manufacturing industry. The Group is currently developing new plant facilities in Qiao Tou, Dongguan, the PRC. The Group believes that the new production facilities will increase the Group’s production capacity and thereby enable the Group to

– 59 –

LETTER FROM THE BOARD

handle further demand from the Group’s customers and benefit from the economies of scales in the long run. In addition, the Group also plans to install new machinery at its new production facilities to cater for the needs of the more diversified product requirements of the customers.

As the China economy continues to boom, and thus the growth of Mainland demand for high quality and luxury goods, the Group believes that China will not only be the ‘‘Factory of the World’’, but that high quality brand names originating from the Mainland will also evolve. With its experience in the production of high quality packaging, the Group is well-positioned to capture this upcoming growth market and expand in this geographical segment.

18. RISKS FACTORS

Possible risk factors which may be faced by the Company are as follows:

(a) Risks relating to the business of the Target Group

The estimated geological resources of mineral resources may differ from the actual mine resources in tonnage and quality. Any material discrepancies may adversely affect the profitability of the Group’s mining operations.
The reserves and resources data set forth in this circular represent estimates. Such estimates are judgments based on knowledge, experience and industry practice. Estimates which were valid when originally made may need to be updated when new information or techniques become available. By nature, reserves and resources estimates depend to some extent on interpretations and deductions which may prove to be inaccurate. The estimates may change as a result of further information becomes available. As such, this may result in alterations to operation and development plans of the Mines, which may, in turn, adversely affect the business, financial condition and results of operations of the Target Group. Reserves and resources estimates of the Mines were reported in accordance with the Chinese Code, which is the national standard set by the PRC Government. SRK opines that resources estimate of Mine No. 1 and Mine No. 4 is reasonable and rather conservative in terms of tonnage and the reserves estimate has been presented in reliable manner and is reasonable and rather conservative in terms of tonnage. As mentioned in the Technical Assessment Report, SRK opines that the resources under the Chinese Code can be broadly comparable to the JORC Code. SRK undertake through check and estimate and further opines that the reserves estimates report under the Chinese Code, approximately 80% of the Mine No. 1 of 10.94mt and 60% of the Mine No. 4 reserves of 32.92mt is broadly comparable with Probable Reserve. Investors should note that the Chinese Code is not an international recognised standard and can only be broadly comparable to JORC Code which is an international recognised standard. Since the recording of the Mines’ resources and reserves estimates was not in full compliance with the JORC Code requirements, SRK was required under the JORC Code to state in the Technical Assessment Report that the resources and reserves estimates of the Mines do not fully comply with the JORC Code standard.

– 60 –

LETTER FROM THE BOARD

As substantially all of the revenue of the Mines is derived from coal and coal-related operations, the Group’s mining business and results of operations are therefore substantially dependent on the domestic and international supply of and demand for coal. Hence, the probability of the Group’s mining operations may be affected by fluctuations in the market price of coal. As the future revenue from these operations will come from the sale of coal, the earnings from such operations will be closely related to such prices which maybe influenced by numerous factors beyond the control of the Group. Historically, the domestic and international markets for coal and coalrelated products have at times experienced alternating periods of increased demand and excess supply (see Exhibit 3 in the Industry Overview section). The fluctuations in supply and demand are caused by numerous factors beyond the Group’s control, which include, but are not limited to (i) global and domestic economic and political conditions and competition from other energy sources; (ii) the rate of growth and expansion in industries with high coal demand, such as the power and steel industries; and (iii) the indirect influence on domestic coal prices (see Exhibit 4 in the Industry Overview section) by the PRC Government through its regulation of on-grid tariffs and the allocation of transportation capacity on the national rail system. There can be no assurance that the domestic or international demand for coal and coal-related products will continue to grow, or that the domestic or international markets for coal and coalrelated products will not experience excess supply. A significant decline in demand for or an over-supply of, coal and coal related products may have a material adverse effect on the business, results of operations and financial condition of Group’s mining operations.
The Group’s mining operations will face many operational risks, which include risks related to the geological structure of the Mines and geological disasters that occur during the mining process; and catastrophic events such as fires, earthquakes, floods or other natural disasters.
The coal business requires significant and continuous capital investment; the major mine coal production projects may not be completed as planed, may exceed the original budgets and may not achieve the intended economic results or commercial viability. Actual capital expenditures for the new business may significantly exceed the Company’s budgets because of various factors beyond the Company’s control, which in turn may affect the Company’s financial condition.
This is the Group’s first venture into the coal mining and production industries which could present management challenges. The Company and its current management have no experience in the mining industry. However, the Company intends to retain some of the key senior management of the Target Group and to build up a professional management and technical team with expertise in the mining area as soon as possible after Completion to cope with the possible challenges. Since the Company does not have significant experience in the new business, it is not in a position to assure the timing and amount of any return or benefits that may be received from the new business. If any mining projects in which the Company attempts to develop does not progress as planned, the Company may not recover the funds and resources it has spent, and this may affect the Company.

– 61 –

LETTER FROM THE BOARD

The Company is entering a new business in Inner Mongolia, which the Company presently does not have any business in. There can be a risk related to the likelihood that changes in the business environment will occur that reduce the profitability of doing business in Inner Mongolia. The change of political and economic conditions in Inner Mongolia may adversely affect the Company.
The Group has a limited operating history as an independent entity, which may affect the efficiency of operations and ability to evaluate business and growth potential. The Group may also experience difficulties in managing future growth and the increased scale of operations.
The Group’s business may be adversely affected by shortages in electricity and water supply or increases in electricity and water prices. The Group consumes a substantial amount of electricity and water in connection with coal mining and coal processing operations. It is expected that the Group’s demand for electricity and water to increase as our production capabilities increase and our business grows. Any shortages or disruption in electricity or water supply could lead to lengthy production shutdowns and increased costs related to recommencement of operations. Insufficient electricity or water supply may force the Group to limit or delay production, which could have a material adverse effect on the business, financial condition or results of operations. Any significant increase in electricity and water prices will increase the production costs and may adversely affect results of operations if the Group is not able to pass the increased costs on to customers.
The Directors believe that the effective operation of the Group depends, to a significant extent, upon the experience and continued efforts of the Group’s key management personnel. If the Group loses the service of the key management personnel and are not able to replace any such personnel with someone who has similar knowledge or experience, the Group’s business may be disrupted and results of operations may be materially and adversely affected.

(b) Risks relating to the industry and local rules and regulations of the Target Group

The coal industry in the PRC is subject to extensive regulation by the PRC government. The operations under the Mines may be materially and adversely affected by any future changes in the government regulations and policies.
Mining operations are subject to environmental protection laws and regulations in the PRC. The expenditure for environmental regulatory compliance will increase if the environmental protection laws become more stringent.
The Group may be unable to renew our mining right permits. Under the Mineral Resources Law of the PRC (中華人民共和國礦產資源法) (the ‘‘Mineral Resources Law’’), all mineral resources in China are owned by the State. Typically, duration for which mining right permits are granted cannot exceed the projected number of years of service of a mine and the consideration for such mining right permits is appraised on the basis of such service period.

– 62 –

LETTER FROM THE BOARD

Any policy or regulatory changes in China may cause us to incur significant compliance costs, increase our capital requirement or adversely affect our business operations and prospects. The Group, like other coal producers located in China, are subject to extensive national, provincial and local government regulations, policies and controls, which govern many aspects of China’s coal industry, including, among other things, (i) granting and renewal of mining rights; (ii) granting of production licenses; (iii) production safety and casualty rates; (iv) pricing of coal transport services; (v) adoption of temporary measures to limit increases in coal prices; (vi) taxes and fees; and (vii) environmental, health and safety standards.
The operations of the Mines are carried out in the PRC. Any adverse changes in economic policy and legal development in the PRC will affect the revenue generated.

(c) Risks relating to the Acquisitions

Upon conduct of the due diligence exercise, it has come to the Company’s knowledge that certain situations in respect of the Target Group may result in or bring about potential losses and liabilities of the Group after completion of the Acquisitions, these include, among others, (i) the dispute between Wuhai City Menggang and the Original Equity-holders over the remaining consideration for the acquisition of Tianyu Gongmao, as set out in the paragraph headed ‘‘Due Diligence Findings on the Target Group — Litigation’’; (ii) certain non-compliance and contravention of the relevant PRC laws and regulations by members of the Target Group as set out in the paragraph headed ‘‘Due Diligence Findings on the Target Group — Non-compliance and contravention of certain PRC laws and regulations’’; and (iii) the suspension of the production of Mine No. 1 as described in the paragraph headed ‘‘Due Diligence Findings on the Target Group — Suspension of the production of Mine No. 1’’. Pursuant to the Supplemental Agreement, the Purchaser has secured a specific indemnity from the Vendors in respect of these potential losses and liabilities. It has been further agreed that the Purchaser shall be entitled to set off any sums due to it by the Vendors in respect of their specific indemnity obligations against (i) the entire cash amount in the Special Purpose Account (representing approximately US$14.48 million) and (ii) the outstanding principal amount of the Convertible Notes subject to a cap of US$2.33 million. As such, the total amount secured for the Vendors’ potential indemnity liability is US$16.81 million. In the event that any of these potential losses and liabilities are realized and their actual amount exceeds the secured amount of US$16.81 million or there are other breaches of representations and warranties further identified which would lead to actual losses and liabilities of the Group after Completion, the Purchaser or the Group shall have to take action against the Vendors and make claim(s) against the Vendors pursuant to the general indemnification provisions under the Supplemental Agreement. The Company will take all reasonable steps including taking appropriate legal actions against the Vendors if they do not honour their obligations under the indemnification provisions under the S&P Agreement and/or the Supplemental Agreement. Should the Purchaser or the Group is not able to recover such losses from the Vendors for whatever reasons, the Group will have to bear such losses and liabilities accordingly.

– 63 –

LETTER FROM THE BOARD

As disclosed in the paragraph ‘‘Due Diligence Findings on the Target Group — Litigation’’, the entire equity interests in Tianyu Gongmao held by Wuhai City Menggang has been frozen pending the final outcome of the relevant litigation pursuant to the Civil Judgment (Wu Zhong Fa (2008) Min Yi Chu Zi No. 30) (烏中法(2008)民一初字第30號) issued by the Wuhai City Intermediate People’s Court (烏海市中級人民法院) on 19 January 2009. Before the release of such freezing measures, Wuhai City Menggang shall not be allowed to transfer or pledge its equity interest in Tianyu Gongmao nor obtain any proceeds such as dividends and bonus declared by Tianyu Gongmao. The inability of Wuhai City Menggang to receive any dividends, bonus and other economic benefit from Tianyu Gongmao will adversely affect the potential profit of Wuhai City Menggang that may be obtained from Tianyu Gongmao. However, the frozen measures would not deny the capacity of Wuhai City Menggang as the sole shareholder of Tianyu Gongmao. During the operation of the freezing measures, Wuhai City Menggang is still able to exercise its shareholder’s common rights such as nomination and voting rights. On such basis, the results of Tianyu Gongmao can still be consolidated in the accounts of the Enlarged Group after Completion.
In compliance with the Measures for Expediting the Standardised Development of Safety and Quality in coal Mines and the Acceptance Procedures thereof and for Issuance (Renewal) of Coal Production Licences Based on Stringent Conditions in the Inner Mongolia Autonomous Region (Nei Mei Ju Zi [2009] No. 182) (內蒙古自治區關於加快煤礦安全質量標準化建設及驗收進度和嚴格核發（換）煤炭生產許可證的辦法) (內煤局字[2009]182號) (the ‘‘Notice’’), all the underground and open-cast coal mine, Tianyu Gongmao has suspended its operation since August 2009 for the purpose of carrying out various technical and quality improvements at Mine No. 1 in order to attain the prescribed safety standard. Such improvement must be completed by the end of 2010 according to the Notice. It is currently expected that Tianyu Gongmao will be able to complete the implementation of the required technical and quality improvements by March 2010. If Tianyu Gongmao cannot complete the implementation before 2010 in compliance with the Notice for whatever reasons, Mine No. 1 may be subject to fines and penalties or be ordered by the relevant PRC authority to cease its operations for an indefinite period. In that case, Mine No. 1 will not be allowed to be put into operation and the prospects of the Group’s mining operation will be adversely affected.
The Mining Operation Permits of both Mine No. 1 and Mine No. 4 will be expired on 6 December 2010. According to Guantao, the application for renewal of the Mining Operation Permits is an administrative and procedural issue only, which subject to application materials being submitted to the relevant government bodies on or before 30 days from the date of expiry of the permits, they do not foresee there is any legal impediment or obstacle for either Mine No. 1 or Mine No. 4 to renew such permits. However, the Company gives no assurance that the Mining Operation Permits can be or will be renewed in time. Should the Mining Operation Permits cannot be renewed on or before 6 December 2010, Mine No. 1 and Mine No. 4 will not be able to operate legally under PRC law.

– 64 –

LETTER FROM THE BOARD

Tianyu Coal has not obtained certain land use rights certificates as mentioned in the paragraph headed ‘‘Information of the Target Group — Non-compliance and contravention of certain PRC laws and regulations’’. Pursuant to the opinion given by Guantao, failure to obtain the land use right certificates by Tianyu Coal means that it does not have the right to use, own, receive profits generated from the relevant piece of land and cannot transfer, dispose of or pledge their interest on that piece of land. In addition, Tianyu Coal may be regarded by the land bureau as an illegal user of the relevant piece of land and may be subject to a maximum fine of approximately RMB2.3 million (equivalent to approximately US$0.34 million) which was calculated on the basis of a fine of up to RMB30 per square meter in accordance with the relevant PRC laws and regulations, and the constructions erected on the land in question may also be subject to confiscation. Moreover, Tianyu Coal will not be able to apply for building ownership certificates for constructions on the relevant piece of land without first obtaining the land use right certificate. As at the Latest Practicable Date, Tianyu Coal had already settled all the consideration and land grant fee for the relevant property and can proceed to apply for the land use rights certificates at any time subject to the payment of the maximum fine of RMB2.3 million. It is expected that Tianyu Coal will proceed to apply for the land use rights certificates as soon as practicable. Guantao has advised that subject to the consent of the relevant PRC authority, it does not foresee there is any material legal impediment for Tianyu Coal to apply for and obtain such land use rights certificates.

19. GENERAL

The Acquisitions constitute a very substantial acquisition for the Company under the Listing Rules and therefore are subject to approval by the Shareholders at the EGM under Rule 14.49 of the Listing Rules. To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, neither the Vendors nor any of its associates holds any Share as at the Latest Practicable Date and no Shareholder has a material interest in the Acquisitions, and therefore no Shareholder is required to abstain from voting on the resolution to approve the Acquisitions at the EGM.

Resolutions will be proposed at the EGM to approve (i) the S&P Agreement and the Supplemental Agreement and the transactions contemplated thereunder; (ii) the allotment and issue of Consideration Shares; (iii) the allotment and issue of Convertible Notes; (iv) the allotment and issue of the Conversion Shares; (v) the proposed increase in the authorised share capital; and (vi) the Placing, the grant of a Specific Mandate to allot and issue new Shares in connection with the Placing and to authorise the Board to determine and deal with at its discretion and with full authority, matters relating thereto (including but not limited to the specific timing of the issue, final number of new Shares to be issued (not more than 982,533,802 Shares), offering mechanism, pricing mechanism, issue price (not lower than HK$0.71 in any event), target subscribers and the number and proportion of Shares to be issued to each subscriber). It should be noted that the Placing, upon approval by the Shareholders at the EGM, is still subject to the approval of the Stock Exchange as to the listing and dealings in the new Shares on the Stock Exchange.

– 65 –

LETTER FROM THE BOARD

20. EGM

The EGM will be held at The Focal Point, Worldwide Executive Centre, Level 10, World-Wide House, 19 Des Voeux Road Central, Hong Kong on 13 January 2010, at 2:30 p.m.. A notice convening the EGM is set out on pages 545 to 547 of this circular.

Enclosed is a form of proxy for use at the EGM. Whether or not you intend to attend and vote at the EGM in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon and return it to the branch share registrar of the Company in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible, but in any event not less than 48 hours before the time appointed for holding such meeting or any adjourned meeting (as the case may be). Completion and return of the form of proxy will not preclude you from attending and voting in person at the EGM or any adjourned meeting (as the case may be) should you so wish.

21. RECOMMENDATION

Given that (a) the Company has obtained a specific indemnity from the Vendors in respect of the potential loss or damages that may be incurred by the Group as identified during the due diligence review including, but not limited to, the matters as set out in the paragraphs ‘‘Litigation’’, ‘‘Suspension of production of Mine No. 1’’ and ‘‘Non-compliance and contravention of certain PRC laws and regulations’’ under the paragraph ‘‘Due Diligence Findings on the Target Group’’; (b) the specific indemnity given by the Vendors is secured up to a total amount of US$16.81 million by the monies standing in the Special Purpose Account and the Convertible Notes with the outstanding principal amount representing the Redemption Cap, which are readily available for the purpose of making up any loss that might be suffered by the Group; (c) the secured indemnified amount of US$16.81 million was reached on a reasonable basis as set out in the paragraph ‘‘Indemnity’’ under the paragraph ‘‘Due Diligence Findings on the Target Group’’ and that to the best of their knowledge based on the information available and the advice of the Company’s PRC legal advisers, the Directors consider that such secured amount would be adequate for the purpose of the relevant specific indemnity given by the Vendors; (d) all the subsisting share charges over the equity interests of Wuhai City Menggang, Tianyu Gongmao and Tianyu Coal will be discharged on or before Completion as mentioned in the paragraph ‘‘Share Charges’’ under the paragraph ‘‘Due Diligence Findings on the Target Group’’, the Directors therefore consider that the terms of the Acquisitions are still fair and reasonable and in the interests of the Shareholders and the Company as a whole despite certain inadequacies in respect of the Target Group have been uncovered during the due diligence process.

Having considered both the reasons and benefits to be generated from the Acquisitions as set out on page 58 of this circular, the Directors (including the independent non-executive Directors) consider that the terms of S&P Agreement (as amended by the Supplemental Agreement) and the Placing are fair and reasonable so far as the Shareholders are concerned and on normal commercial terms and that the Acquisitions and the Placing are in the best interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of the ordinary resolutions to

– 66 –

LETTER FROM THE BOARD

be proposed at the EGM to approve (i) the S&P Agreement and the Supplemental Agreement and the transactions contemplated thereunder; (ii) the allotment and issue of the Consideration Shares; (iii) the allotment and issue of the Convertible Notes; (iv) the allotment and issue of the Conversion Shares; and (v) the proposed increase in the authorised share capital; and (vi) the Placing and the grant of the Specific Mandate at the EGM.

By Order of the Board Winbox International (Holdings) Limited Choi Hon Hing Chairman

– 67 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. SUMMARY OF FINANCIAL INFORMATION OF THE GROUP

Set out below is a summary of the audited financial results of the Group for the three years ended 31 March 2007, 2008 and 2009 as extracted from the respective published audited financial statements.

Financial Summary

Results

Revenue Profit (loss) for the year attributable to equity holders of the Company	Year ended 31 March 2007 2008 2009 HK$’000 HK$’000 HK$’000 (Note) 156,508 176,803 166,506 28,051 22,180 (22,871)

Assets and Liabilities

Total assets Total liabilities Equity attributable to equity holders of the Company	As at 31 March 2007 2008 HK$’000 HK$’000 (Note) 217,629 251,724 (29,625) (44,313) 188,004 207,411 188,004 207,411	2009 HK$’000 198,029 (20,932) 177,097 177,097

Note: The Company was incorporated in the Cayman Islands on 30 September 2005 and became the holding company of the Group with effect from 16 May 2006 as a result of a reorganisation scheme as set out in the prospectus dated 24 May 2006 issued by the Company. Accordingly, the results of the Group for the year ended 31 March 2007 have been prepared on a combined basis as if the current group structure had been in existence throughout the year concerned.

– 68 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

AUDITED FINANCIAL STATEMENTS OF THE GROUP FOR THE YEAR ENDED 31 MARCH 2009

The following is the audited financial statements of the Group for the year ended 31 March 2009 as extracted from the annual report of the Company for the year ended 31 March 2009.

Consolidated Income Statement

For the year ended 31 March 2009

Notes Revenue 7 Cost of sales Gross profit Other income, gain and loss 9 Distribution and selling costs Administrative expenses Change in fair value of investments held for trading Change in fair value of derivative financial instruments Impairment loss recognised in respect of available-for-sale investments Impairment loss recognised in respect of investment property Finance costs 10 (Loss) profit before taxation Taxation 11 (Loss) profit for the year 12 Dividends recognised as distribution 15 (Loss) earnings per share 16 — Basic (HK cents) — Diluted (HK cents)	2009 HK$’000 166,505 (128,560) 37,945 (451) (3,708) (28,622) (7,941) 855 (19,076) (185) (157) (21,340) (1,531) (22,871) 10,287 (5.57) (5.57)	2008 HK$’000 176,803 (121,171) 55,632 7,654 (4,226) (29,981) 4,156 (4,039) (2,200) — (47) 26,949 (4,769) 22,180 10,141 5.48 5.37

– 69 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Balance Sheet

At 31 March 2009

Notes Non-current assets Property, plant and equipment 17 Prepaid lease payments 18 Investment property 19 Goodwill 20 Available-for-sale investments 21 Pledged bank deposits 30 Deferred tax asset 29 Current assets Inventories 23 Trade receivables 24 Bills receivable 24 Other receivables, deposits and prepayments 24 Investments held for trading 22 Tax recoverable Bank balances and cash 24 Current liabilities Trade payables 25 Other payables, deposits received and accruals 25 Derivative financial instruments 26 Bank borrowings 27 Tax payable Net current assets Total assets less current liabilities Non-current liability Retirement benefits obligations 35 Net assets Capital and reserves Share capital 28 Reserves Equity attributable to equity holders of the Company	2009 HK$’000 14,847 3,382 1,090 10,523 34,156 5,317 205 69,520 29,417 15,876 1,557 12,112 12,500 2,388 54,659 128,509 6,700 12,802 — — 373 19,875 108,634 178,154 1,057 177,097 20,574 156,523 177,097	2008 HK$’000 17,134 3,469 1,307 12,670 33,010 — —
		67,590
		33,394 25,650 490 18,256 29,779 1,001 75,564
		184,134
		14,468 19,211 4,107 4,853 473
		43,112
		141,022
		208,612 1,201
		207,411
		20,281 187,130
		207,411

– 70 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

For the year ended 31 March 2009

Share capital HK$’000 20,000	Share premium HK$’000 —	Statutory surplus reserve HK$’000 (note a) —	Share option reserve HK$’000 2,508	Asset revaluation reserve HK$’000 —	Asset revaluation reserve HK$’000 —	Asset revaluation reserve HK$’000 —	Asset revaluation reserve HK$’000 —	Asset revaluation reserve HK$’000 —
— —	— —	— —	— —
— — —	— — —	— — —	— — —
—	—	—	—
281 — — — —	985 1,529 — — —	— — 2,100 — —
20,281	2,514	2,100	3,094
— —	— —	— —	— —
— — —	— — —	— — —	— — —
—	—	—	—	5,627	—
293 — — — —	1,026 1,531 — — —	— — 181 — —			— — — — —	— — — — —
20,574	5,071	2,281	2,664	1,916	(5,754)	8,456	141,889	177,097

– 71 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes:

(a) As stipulated by the relevant laws and regulations of the People’s Republic of China (‘‘PRC’’), before distribution of the net profit each year, a subsidiary, Winbox Plastic Manufacturing (Shenzhen) Company Limited (‘‘Winbox Plastic Manufacturing (Shenzhen)’’) established in the PRC shall set aside 10% of its net profit after taxation to the statutory surplus reserve. During the year ended 31 March 2009, the board of directors of Winbox Plastic Manufacturing (Shenzhen) approved the transfer of approximately HK$181,000 (2008: HK$2,100,000) from retained profits to the statutory surplus reserve, which representing 10% of the accumulated net profit after taxation (as determined in accordance with the relevant accounting principles and financial regulations applicable to companies established in the PRC) for the year ended 31 March 2009 (2008: for the period from 1 January 2004 to 31 December 2006). The reserve fund can only be used, upon approval by the board of directors of Winbox Plastic Manufacturing (Shenzhen) and by the relevant authority, to offset accumulated losses or increase capital.
(b) Special reserve of HK$5,754,000 represents the difference between the nominal amount of share capital issued by Winbox (BVI) Limited and the Company and the nominal amount of the share capital of the acquired subsidiaries and Winbox (BVI) Limited respectively arisen from a group reorganisation occurred in prior years.

– 72 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

For the year ended 31 March 2009

OPERATING ACTIVITIES (Loss) profit before taxation Adjustments for: Dividend income from available-for-sale investment Interest income Finance costs Allowance for slow moving inventories Depreciation of property, plant and equipment and investment property Release of prepaid lease payments Share-based payments Gain on disposal of property, plant and equipment and prepaid lease payments Gain on disposal of available-for-sale investments Change in fair value of investments held for trading Change in fair value of derivative financial instruments Impairment loss recognised in respect of available-for-sale investments Impairment loss recognised in respect of investment property Operating cash flows before movements in working capital Decrease (increase) in inventories Decrease (increase) in trade receivables (Increase) decrease in bills receivable Decrease (increase) in other receivables, deposits and prepayments Decrease in investments held for trading (Decrease) increase in trade payables (Decrease) increase in other payables, deposits received and accruals Cash generated from operations Income tax paid NET CASH FROM OPERATING ACTIVITIES	2009 HK$’000 (21,340) (59) (2,329) 157 — 1,650 87 1,101 — — 7,941 (855) 19,076 185 5,614 3,465 9,518 (1,072) 5,962 9,128 (7,384) (5,890) 19,341 (3,274) 16,067	2008 HK$’000 26,949 (1,233) (3,696) 47 3,337 1,720 87 2,115 (207) (510) (4,156) 4,039 2,200 — 30,692 (3,755) (9,411) 76 (4,629) 20,111 4,916 3,167 41,167 (8,364) 32,803

– 73 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

INVESTING ACTIVITIES Purchases of property, plant and equipment Purchases of available-for-sale investments Proceeds from disposal of property, plant and equipment and prepaid lease payments Proceeds from disposal of available-for-sale investments Cash return from available-for-sale investment due to capital reduction Interest received Dividends received from available-for-sale investments Increase in pledged bank deposits NET CASH USED IN INVESTING ACTIVITIES FINANCING ACTIVITIES Dividend paid Interest paid Repayment of borrowings New bank borrowings raised Issuance of new shares NET CASH USED IN FINANCING ACTIVITIES NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT END OF THE YEAR, REPRESENTED BY Bank balances and cash	2009 HK$’000 (770) (20,474) — 1,904 1,113 1,939 59 (5,317) (21,546) (10,287) (157) (4,853) — 1,319 (13,978) (19,457) 75,564 (1,448) 54,659	2008 HK$’000 (3,167) (25,802) 1,362 704 — 3,306 1,233 — (22,364) (10,141) (47) — 4,853 1,266 (4,069) 6,370 64,476 4,718 75,564

– 74 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Notes to the Consolidated Financial Statements

For the year ended 31 March 2009

1. GENERAL

The Company was incorporated in the Cayman Islands on 30 September 2005 as an exempted company with limited liability under the Companies Law, Cap. 22 (Laws 3 of 1961, as consolidated and revised) of the Cayman Islands. The Company is a public limited company and its shares are listed on the Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’). The addresses of the registered office and principal place of business of the Company are disclosed in the ‘‘Corporate Information’’ section to the annual report.

The principal activities of the Company are investment holding and provision of management service to its subsidiaries. The principal activities of its subsidiaries are set out in note 36.

The Group’s consolidated financial statements are presented in Hong Kong dollars (‘‘HKD’’), which is also the functional currency of the Company.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (‘‘HKFRSs’’)

In the current year, the Group has applied the following amendments and interpretations (‘‘new HKFRSs’’) issued by the Hong Kong Institute of Certified Public Accountants (‘‘HKICPA’’), which are or have become effective.

HKAS 39 & HKFRS 7 (Amendments) Reclassification of financial assets HK(IFRIC)-INT 12 Service concession arrangements HK(IFRIC)-INT 14 HKAS 19 — The limit on a defined benefit asset, minimum funding requirements and their interaction

The adoption of these new HKFRSs had no material effect on how the results and financial position for the current or prior accounting periods have been prepared and presented. Accordingly, no prior period adjustment has been required.

The Group has not early applied the following new and revised standards, amendments or interpretations that have been issued but are not yet effective.

HKFRSs (Amendments) Improvements to HKFRSs[1] HKFRSs (Amendments) Improvements to HKFRSs 2009[2] HKAS 1 (Revised) Presentation of financial statements[3] HKAS 23 (Revised) Borrowing costs[3] HKAS 27 (Revised) Consolidated and separate financial statements[4] HKAS 32 & 1 (Amendments) Puttable financial instruments and obligations arising on liquidation[3] HKAS 39 (Amendment) Eligible hedged items[4] HKFRS 1 & HKAS 27 (Amendments) Cost of an investment in a subsidiary, jointly controlled entity or associate[3] HKFRS 2 (Amendment) Vesting conditions and cancellations[3] HKFRS 3 (Revised) Business combinations[4] HKFRS 7 (Amendment) Improving disclosures about financial instruments[3] HKFRS 8 Operating segments[3] HK(IFRIC)-INT 9 & HKAS 39 Embedded derivatives[5] (Amendments) HK(IFRIC)-INT 13 Customer loyalty programmes[6] HK(IFRIC)-INT 15 Agreements for the construction of real estate[3] HK(IFRIC)-INT 16 Hedges of a net investment in a foreign operation[7] HK(IFRIC)-INT 17 Distributions of non-cash assets to owners[4] HK(IFRIC)-INT 18 Transfers of assets from customers[8]

1 Effective for annual periods beginning on or after 1 January 2009 except the amendments to HKFRS 5, effective for annual periods beginning on or after 1 July 2009.
2 Effective for annual periods beginning on or after 1 January 2009, 1 July 2009 and 1 January 2010, as appropriate. 3 Effective for annual periods beginning on or after 1 January 2009.
4 Effective for annual periods beginning on or after 1 July 2009.

– 75 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

5 Effective for annual periods ending on or after 30 June 2009.
6 Effective for annual periods beginning on or after 1 July 2008.
7 Effective for annual periods beginning on or after 1 October 2008. 8 Effective for transfers on or after 1 July 2009.

The adoption of HKFRS 3 (Revised) may affect the Group’s accounting for business combination for which the acquisition date is on or after 1 April 2010. HKAS 27 (Revised) will affect the accounting treatment for changes in the Group’s ownership interest in a subsidiary. The Directors of the Company anticipate that the application of the other new and revised standards, amendments and interpretations will have no material impact on the results and the financial position of the Group.

3. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements have been prepared under the historical cost basis, except for certain financial instruments, which are measured at fair value.

The consolidated financial statements have been prepared in accordance with HKFRSs issued by the HKICPA. In addition, the consolidated financial statements include applicable disclosures required by the Rules Governing the Listing of Securities on the Stock Exchange and by the Hong Kong Companies Ordinance.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Business combinations

The acquisition of businesses is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combinations. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under HKFRS 3 Business Combinations are recognised at their fair values at the acquisition date.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.

Goodwill

Goodwill arising on an acquisition of a subsidiary represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the relevant subsidiary at the date of acquisition. Such goodwill is carried at cost less any accumulated impairment losses.

Capitalised goodwill arising on an acquisition of a subsidiary is presented separately in the consolidated balance

sheet.

– 76 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

For the purposes of impairment testing, goodwill arising from an acquisition is allocated to each of the relevant cashgenerating units, or groups of cash-generating units, that are expected to benefit from the synergies of the acquisition. A cash-generating unit to which goodwill has been allocated is tested for impairment annually, and whenever there is an indication that the unit may be impaired. For goodwill arising on an acquisition in a financial year, the cash-generating unit to which goodwill has been allocated is tested for impairment before the end of that financial year. When the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the unit first, and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in the consolidated income statement. An impairment loss for goodwill is not reversed in subsequent periods.

On subsequent disposal of the relevant cash-generating unit, the attributable amount of goodwill capitalised is included in the determination of the amount of profit or loss on disposal.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold and services provided in the normal course of business, net of discounts and sales related taxes.

Revenue from sales of goods is recognised when the goods are delivered and title has passed.

Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount.

Rental income from operating leases is recognised in the consolidated income statement on a straight-line basis over the term of relevant lease.

Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.

Property, plant and equipment

Property, plant and equipment including land and buildings held for use in the production or supply of goods or services, or for administrative purposes are stated at cost less subsequent accumulated depreciation and accumulated impairment losses.

Depreciation is provided to write off the cost of items of property, plant and equipment, over their estimated useful lives and after taking into account of their estimated residual value, using the straight line method.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the consolidated income statement in the year in which the item is derecognised.

Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation.

On initial recognition, investment properties are measured at cost, including any directly attributable expenditure. When an owner-occupied property becomes an investment property, the cost and accumulated depreciation of the owneroccupied property at the date of transfer are transferred to investment property. Subsequent to initial recognition, investment properties are stated at cost less subsequent accumulated depreciation and any accumulated impairment losses. Depreciation is charged so as to write off the cost of investment properties over their estimated useful lives and after taking into account of their residual values, using the straight-line method.

– 77 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from its disposals. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated income statement in the year in which the item is derecognised.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessor

Rental income from operating leases is recognised in the consolidated income statement on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised as an expense on a straight-line basis over the lease term.

The Group as lessee

Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are recognised as a reduction of rental expense over the lease term on a straight-line basis.

Leasehold land and building

The land and building elements of a lease of land and building are considered separately for the purpose of lease classification, unless the lease payments cannot be allocated reliably between the land and building elements, in which case, the entire lease is generally treated as a finance lease and accounted for as property, plant and equipment. To the extent the allocation of the lease payments can be made reliably, leasehold interests in land are accounted for as operating leases.

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recorded in the respective functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchanges prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the period in which they arise. Exchange differences arising on the retranslation of nonmonetary items carried at fair value, are included in profit or loss for the period except for exchange differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which cases, the exchange differences are also recognised directly in equity.

For the purpose of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into the presentation currency of the Group (i.e. HKD) at the rate of exchange prevailing at the balance sheet date, and their income and expenses are translated at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the exchange rates prevailing at the dates of transactions are used. Exchange differences arising, if any, are recognised as a separate component of equity (the translation reserve). Such exchange differences are recognised in profit or loss in the period in which the foreign operation is disposed of.

Goodwill and fair value adjustments on identifiable assets acquired and liabilities assumed arising on an acquisition of a foreign operation are treated as assets and liabilities of that foreign operation and retranslated at the rate of exchange prevailing at the balance sheet date. Exchange differences arising are recognised in the translation reserve.

– 78 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Borrowing costs

All borrowing costs are recognised as and included in finance costs in the consolidated income statement in the period in which they are incurred.

Retirement benefit costs

Payments to the Group’s defined contribution retirement benefit plans are charged as an expense when employees have rendered service entitling them to the contributions.

The Group also operates a defined benefit retirement benefit plan. The cost of providing benefits is dependent on the length of services and the obligation arises when the services are rendered. Measurement of that obligation reflects the probability that payment will be required and the length of time of which payment is expected to be made.

The amount recognised in the consolidated balance sheet represents the present value of the defined benefit obligation.

Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated income statement because it excludes items of income and expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.

Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax base used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Impairment losses on tangible assets other than goodwill (see the accounting policy in respect of goodwill above)

At balance sheet date, the Group reviews the carrying amounts of its assets (other than goodwill) to determine whether there is any indication that those assets have suffered an impairment loss. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment loss is recognised as an expense immediately.

– 79 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the weighted average method. Net realisable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing, selling and distribution.

Financial instruments

Financial assets and financial liabilities are recognised on the consolidated balance sheet when a group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Financial assets

The Group’s financial assets are classified into one of three categories, including financial assets at fair value through profit or loss (‘‘FVTPL’’), loans and receivables and available-for-sale financial assets. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter period.

Interest income is recognised on an effective interest basis for debt instruments.

Financial assets at FVTPL

Financial assets at FVTPL of the Group comprise of investments held for trading. A financial asset is classified as held for trading if:

. it has been acquired principally for the purpose of selling in the near future; or
. it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or
. it is a derivative that is not designated and effective as a hedging instrument.

At each balance sheet date subsequent to initial recognition, financial assets at FVTPL are measured at fair value, with changes in fair value recognised directly in profit or loss in the period in which they arise. The net gain or loss recognised in profit or loss excludes any dividend or interest earned on the financial assets.

– 80 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including trade receivables, bills receivable, other receivables, deposits, pledged bank deposits and bank balances and cash) are carried at amortised cost using the effective interest method, less any identified impairment losses.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as financial assets at FVTPL, loans and receivables or held-to-maturity investments. At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are measured at fair value. Changes in fair value are recognised in equity, until the financial asset is disposed of or is determined to be impaired, at which time, the cumulative gain or loss previously recognised in equity is removed from equity and recognised in profit or loss (see accounting policy on impairment loss on financial assets below).

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured, they are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition (see accounting policy on impairment loss on financial assets below).

Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected.

For an available-for sale equity investment, a significant or prolonged decline in the fair value of that investment below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include:

. significant financial difficulty of the issuer or counterparty; or
. default or delinquency in interest or principal payments; or
. it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 30 to 60 days, observable changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortised cost, an impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

– 81 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

For financial assets measured at amortised cost, if, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment losses was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Impairment losses on available-for-sale equity investments will not be reversed in profit or loss in subsequent periods. Any increase in fair value subsequent to impairment loss is recognised directly in equity. For available-for-sale debt investments, impairment losses are subsequently reversed to profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

Financial liabilities and equity

Financial liabilities and equity instruments issued by a group entity are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The Group’s financial liabilities are generally classified into financial liabilities at FVTPL and other financial liabilities.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

Interest expense is recognised on an effective interest basis.

Financial liabilities at FVTPL

Financial liabilities at FVTPL of the Group comprise of investments held for trading. A financial liability is classified as held for trading if:

. it has been incurred principally for the purpose of repurchasing in the near future; or
. it is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or
. it is a derivative that is not designated and effective as a hedging instrument.

At each balance sheet date subsequent to initial recognition, financial liabilities at FVTPL are measured at fair value, with changes in fair value recognised directly in profit or loss in the period in which they arise. The net gain or loss recognised in profit or loss excludes any interest paid on the financial liabilities.

Other financial liabilities

Other financial liabilities including trade payables, other payables, deposits received and bank borrowings are subsequently measured at amortised cost, using the effective interest method.

– 82 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

Derivative financial instruments

Derivatives that do not qualify for hedge accounting are deemed as held for trading. Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately.

Derecognition

Financial assets are derecognised when the rights to receive cash flows from the assets expire or, the financial assets are transferred and the Group has transferred substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised directly in equity is recognised in profit or loss.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Share-based payment transactions

Equity-settled share-based payment transactions

Share options granted to employees and others providing similar services

The fair value of services received determined by reference to the fair value of share options granted at the grant date is expensed on a straight-line basis over the vesting period, with a corresponding increase in equity (share option reserve).

At each balance sheet date, the Group revises its estimates of the number of options that are expected to ultimately vest. The impact of the revision of the estimates during the vesting period, if any, is recognised in profit or loss, with a corresponding adjustment to share option reserve.

At the time when the share options are exercised, the amount previously recognised in share option reserve will be transferred to share premium. When the share options are forfeited after the vesting date or are still not exercised at the expiry date, the amount previously recognised in share option reserve will be transferred to retained profits.

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

The key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are discussed below.

Estimated impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash- generating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. Where the actual cash flows are less than expected, a material impairment loss may arise. As at 31 March 2009, the carrying amount of goodwill is approximately HK$10,523,000 (2008: HK$12,670,000). Details of the recoverable amount calculation are disclosed in note 20.

– 83 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

5. CAPITAL RISK MANAGEMENT

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from prior year.

The Group defines the capital of the Group as the total shareholder’s equity comprising issued share capital, reserves and retained profits.

The directors of the Company review the capital structure on a continuous basis. As part of this review, the directors consider the cost of capital and the risks associates with each class of capital. Based on recommendations of the directors, the Group will balance its overall capital structure through the payment of cash dividends, new share issues, as well as the issue of new debts or the repayment of existing debt.

6. FINANCIAL INSTRUMENTS

(a) Categories of financial instruments

Financial assets Financial assets at FVTPL — Held for trading Loans and receivables (including cash and cash equivalents) Available-for-sale investments Financial liabilities Financial liabilities at FVTPL — Held for trading Amortised cost	2009 HK$’000 12,500 86,858 34,156 133,514 — 14,006 14,006	2008 HK$’000 29,779 117,030 33,010
		179,819
		4,107 34,831
		38,938

(b) Financial risk management objectives and policies

The Group’s financial instruments include trade receivables, bills receivable, other receivables, pledged bank deposits, bank balances and cash, trade payables, other payables, bank borrowings, available-for-sale investments, investments held for trading and derivative financial instruments. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

There has been no significant change to the Group’s exposure to market risks or the manner in which it manages and measures the risk from prior year.

Market risk

Foreign currency risk management

Several subsidiaries of the Company have foreign currency sales and purchases, which expose the Group to foreign currency risk. In addition, the loans from foreign operation of approximately HK$31,220,000 denominated in Renminbi and the loans to foreign operations of approximately HK$7,788,000 denominated in Euro within the Group also expose the Group to foreign currency risk. These intra-group loans do not form part of the Group’s net

– 84 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

investment in foreign operations. The Group currently does not have a foreign currency hedging policy. However, the management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arises.

The carrying amounts of the Group’s foreign currency denominated monetary assets and liabilities excluding intra-group balances at the reporting date are as follows:

United States Dollars (‘‘USD’’) Euro (‘‘EUR’’) Australian Dollars Others	Assets 2009 2008 HK$’000 HK$’000 33,374 52,688 9,335 22,832 6,028 7,493 2,437 4,857	Liabilities 2009 2008 HK$’000 HK$’000 710 2,580 92 1,653 — — 248 6,646

Sensitivity analysis

As HKD is pegged to USD, the Group does not expect any significant foreign currency exposure arising from the fluctuation of the USD/HKD exchange rates. The following table details the Group’s sensitivity to a 5% increase in HKD against currencies other than USD, assuming all other variables were held constant. 5% is the sensitivity rate used by directors in the assessment of the reasonably possible change in foreign exchange rates. A positive number below indicates a decrease in loss for the year ended 31 March 2009 and an increase in profit for the year ended 31 March 2008 where HKD strengthens 5% against currencies other than USD. For a 5% weakening of HKD against the currencies other than USD, there would be an equal and opposite impact on the loss/profit, and the balances below would be negative.

Decrease in loss (2008: increase in profit) for the year	2009 HK$’000 1,602	2008 HK$’000 701

Interest rate risk management

The Group is exposed to cash flow interest rate risk in relation to bank balances carried prevailing market interest rate. The interest rate risk on bank balances is limited because of the short maturity.

The Group is also exposed to fair value interest rate risk in relation to fixed rate bank borrowings as at 31 March 2008. In the opinion of the directors, the Group’s exposure to interest rate risk is insignificant and hence sensitivity analysis is not disclosed.

The Group currently does not have an interest rate hedging policy. However, the management monitors interest rate exposure and will consider hedging significant interest rate exposure should the need arises.

Price risk management

The Group is exposed to other price risk through its available-for-sale investments, investments held for trading and derivative financial instruments. Derivative financial instruments represent investment schemes entered by the Group with financial institutions. The Group is obligated to purchase or sell listed equity securities at a series of pre-determined times, based on the price calculated with a pre-specified formula. As the underlying securities of these derivatives are equity securities, they expose the Group to equity price risk. The directors of the Company manage the exposure by maintaining a portfolio of equity investments with different risk profiles.

– 85 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The sensitivity analysis below have been determined based on the exposure to other price risks at the reporting date. The sensitivity analysis included those available-for-sale investments and held for trading investments carried at fair values. For available-for-sale investments measured at cost less impairment as the fair value could not be measured reliably, they have not been included in the sensitivity analysis. If the prices of the respective availablefor-sale investments and held for trading investments had been 10% higher, assuming all other variables were held constant, the impact to the Group would be:

Decrease in loss (2008: increase in profit) for the year Increase in equity (2008: increase in equity) for the year	2009 HK$’000 1,250 1,377	2008 HK$’000 1,648
		1,445

If the prices of respective available-for-sale investments and held for trading investments had been 10% lower, assuming all other variables were held constant, the impact to the Group would be:

Increase in loss (2008: decrease in profit) for the year Decrease in equity (2008: decrease in equity) for the year	2009 HK$’000 2,627 —	2008 HK$’000 1,648
		1,445

10% change in equity price represents the directors’ assessment of the reasonably possible change in price. In directors’ opinion, the sensitivity analysis is unrepresentative of the inherent price risk as the year end exposure does not reflect the exposure during the year.

Credit risk

The Group’s maximum exposure to credit risk in the event of the counterparties failure to perform their obligations as at 31 March 2009 in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the consolidated balance sheet. The Group has concentration of credit risk in respect of the trade receivables. As at 31 March 2009 and 2008, five customers comprised over 80% of the Group’s trade receivables. In order to minimise the credit risk, the Group has monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s credit risk is significantly reduced.

The Group has a concentration of credit risk on liquid funds deposited with a few major banks. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

Liquidity risk

The Group manages its liquidity risk by monitoring and maintaining a level of cash and cash equivalents deemed adequate by the management to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. The management monitors the utilisation of bank borrowings and ensures compliance with loan covenants.

For derivative financial instruments, which were to be settled on gross basis, as at 31 March 2008, the Group had approximately HK$14.6 million contractual cash outflow in return with listed securities within 1 year. As at 31 March 2009, the Group has no such contractual cash outflow as the contracts related to the derivative financial instruments were matured during the year ended 31 March 2009.

– 86 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities. It has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.

Weighted average effective interest rate % 2009 Non-derivative financial liabilities Trade payables — Other payables and deposits received — 2008 Non-derivative financial liabilities Trade payables — Other payables and deposits received — Bank borrowings 3.5	Between 1 to 3 months HK$’000 6,700 7,306 14,006 12,533 15,510 4,859 32,902	Between 4 to 12 months HK$’000 — — — 1,935 — — 1,935	Total undiscounted cash flows HK$’000 6,700 7,306 14,006 14,468 15,510 4,859 34,837	Total carrying amount HK$’000 6,700 7,306
				14,006
				14,468 15,510 4,853
				34,831

(c) Fair value

The fair value of financial assets and financial liabilities are determined as follows:

. the fair value of held-for-trading investments and available-for-sale investments with standard terms and conditions and traded in active liquid markets are determined with reference to quoted market bid prices;
. the fair value of club debentures is determined by reference to the market prices in the secondary markets;
. the fair value of other financial assets and financial liabilities (excluding derivative financial instruments) is determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions;
. the fair value of derivative financial instruments is determined using option pricing model (including Monte Carlo Simulation and binomial model).

The directors consider that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the consolidated financial statements approximate to their fair values.

7. REVENUE

Revenue represents the amounts received and receivable for goods sold by the Group to outside customers, less sales tax and sales returns during the year.

– 87 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

8. SEGMENT INFORMATION

The directors report the geographical segments as the Group’s primary segment information.

Geographical segments

The following table provides an analysis of the Group’s sales by geographical market in which the customers are located, irrespective of the origin of the goods.

Consolidated income statement

Revenue Segment results Other income, gain and loss Unallocated corporate expenses Change in fair value of investments held for trading Change in fair value of derivative financial instruments Impairment loss recognised in respect of available-for-sale investments Impairment loss recognised in respect of investment property Finance costs (Loss) profit before taxation Taxation (Loss) profit for the year	Hong 2009 HK$’000 52,998	Kong 2008 HK$’000 40,423	North America 2009 2008 HK$’000 HK$’000 9,940 14,986 720 3,676	North America 2009 2008 HK$’000 HK$’000 9,940 14,986 720 3,676	Europe 2009 2008 HK$’000 HK$’000 96,485 114,519 10,117 20,873	Europe 2009 2008 HK$’000 HK$’000 96,485 114,519 10,117 20,873	Others 2009 2008 HK$’000 HK$’000 7,082 6,875 444 1,600	Others 2009 2008 HK$’000 HK$’000 7,082 6,875 444 1,600	Consolidated 2009 2008 HK$’000 HK$’000 166,505 176,803 21,082 38,337 (451) 7,654 (15,467) (16,912) (7,941) 4,156 855 (4,039) (19,076) (2,200) (185) — (157) (47) (21,340) 26,949 (1,531) (4,769) (22,871) 22,180
	9,801	12,188	720	3,676	10,117	20,873	444	1,600

Consolidated balance sheet

Hong Kong North America Europe Others 2009 2008 2009 2008 2009 2008 2009 2008 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 ASSETS Segment assets 7,204 9,703 695 3,196 44,489 54,015 465 1,730 Other segment assets Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities — — — — 4,307 6,038 — — Unallocated corporate liabilities Consolidated total liabilities	Consolidated 2009 2008 HK$’000 HK$’000 52,853 68,644 16,493 18,329 128,683 164,751 198,029 251,724 4,307 6,038 16,625 38,275 20,932 44,313	Consolidated 2009 2008 HK$’000 HK$’000 52,853 68,644 16,493 18,329 128,683 164,751 198,029 251,724 4,307 6,038 16,625 38,275 20,932 44,313
	198,029	251,724
	4,307 16,625	6,038 38,275
	20,932	44,313

– 88 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Other information

	Hong	Kong	North America	North America	Europe		Others		Consolidated	Consolidated
	2009	2008	2009	2008	2009	2008	2009	2008	2009	2008
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000 HK$’000		HK$’000 HK$’000		HK$’000	HK$’000
Additions to property, plant and
equipment	299	—	—	—	61	368	410	2,799	770	3,167
Depreciation of property, plant and
equipment
Allocated	—	—	—	—	1,039	1,239	—	—	1,039	1,239
Unallocated									579	481
Release of prepaid lease payments	87	87	—	—	—	—	—	—	87	87
Allowance for slow moving
inventories	—	—	—	—	—	1,337	—	2,000	—	3,337

Note: Certain property, plant and equipment of the Group can be allocated by the location of customers in Europe. Other segment assets represent prepaid lease payments and part of the property, plant and equipment, which cannot be allocated by location of customers as in the opinion of the directors, there is no appropriate basis on which allocation can be made.

The following is an analysis of the carrying amount of segment assets at the balance sheet date, and additions to property, plant and equipment during the year, analysed by the geographical area in which the assets are located:

Hong Kong The PRC Europe	Carrying amount of segment assets 2009 2008 HK$’000 HK$’000 22,259 27,054 12,629 15,110 34,458 44,809 69,346 86,973	Additions to property, plant and equipment 2009 2008 HK$’000 HK$’000 299 2,165 410 634 61 368 770 3,167	Additions to property, plant and equipment 2009 2008 HK$’000 HK$’000 299 2,165 410 634 61 368 770 3,167
			3,167

Business segment

The Group is mainly engaged in the sale of quality plastic and paper boxes for luxury consumer goods. Accordingly, no segmental analysis on business segment is presented.

9. OTHER INCOME, GAIN AND LOSS

Dividend income from listed investments held-for-trading Dividend income from listed available-for-sale investments Gain on disposal of property, plant and equipment and prepaid lease payments Gain on disposal of available-for-sale investments Interest earned on bank deposits Interest earned on unlisted available-for-sale investments Interest earned on listed debt securities held for trading PRC government tax refund from reinvestment of a subsidiary (note) Net foreign exchange (loss) gain Sundry income	2009 HK$’000 766 59 — — 1,376 390 563 1,540 (5,757) 612 (451)	2008 HK$’000 1,113 1,233 207 510 2,262 390 1,044 — 570 325
		7,654

– 89 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Note: According to a letter issued by the People’s Republic of China (‘‘PRC’’) local tax authority dated 27 May 2008, Grand Cast Limited was eligible to receive tax refund of approximately RMB1,362,000 (equivalent to approximately HK$1,540,000) due to the additional investment of HK$18,000,000 made to its subsidiary, Winbox Plastic Manufacturing (Shenzhen), by utilising the dividend from the retained profits of Winbox Plastic Manufacturing (Shenzhen) for the three years ended 31 December 2006.

10. FINANCE COSTS

Interest on bank borrowings wholly repayable within five years	2009 HK$’000 157	2008 HK$’000 47

11. TAXATION

Current tax: Hong Kong Other jurisdictions Overprovision in prior years: Hong Kong Deferred tax: Current year (note 29) Taxation for the year	2009 HK$’000 99 2,036 2,135 (399) 1,736 (205) 1,531	2008 HK$’000 2,198 2,571
		4,769 —
		4,769 —
		4,769

On 26 June 2008, the Hong Kong Legislative Council passed the Revenue Bill 2008 which reduced corporate profits tax rate from 17.5% to 16.5% effective from the year of assessment 2008/2009. Therefore, Hong Kong Profits Tax is calculated at 16.5% (2008: 17.5%) on the estimated assessable profit for the year.

Taxation arising in other jurisdictions is calculated at the rates prevailing in the relevant jurisdictions.

On 16 March 2007, the PRC promulgated the Law of the PRC on Enterprise Income Tax (the ‘‘New Law’’) by Order No. 63 of the President of the PRC. On 6 December 2007, the State Council of the PRC issued Implementation Regulations of the New Law. The New Law and Implementation Regulations change the tax rate from 15% to 25% from 1 January 2008. Pursuant to the Implementation Regulations of the New Law, the Company’s wholly owned subsidiary, Winbox Plastic Manufacturing (Shenzhen) is entitled to use a tax rate of 18% for the period from 1 April 2008 to 31 December 2008 and 20% for the period from 1 January 2009 to 31 March 2009 (1.4.2007 to 31.12.2007: 15%; 1.1.2008 to 31.3.2008: 18%), being the applicable tax rate for foreign invested enterprise in the area of Shenzhen Special Economic Zone 深圳經濟特區 for the year.

French profits tax is calculated at 33.3% (2008: 33.3%) of the estimated assessable profit for the Company’s wholly owned subsidiary, Dardel S.A.S. (‘‘Dardel’’) for the year.

– 90 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The taxation for the year can be reconciled to the (loss) profit before taxation per the consolidated income statement as follows:

(Loss) profit before taxation Tax at Hong Kong Profits Tax rate of 16.5% (2008: 17.5%) Tax effect of expenses not deductible for tax purposes Tax effect of income not taxable for tax purposes Effect of different tax rate of subsidiaries operating in other jurisdiction Overprovision in respect of prior years Tax effect of estimated tax losses not recognised Income tax concession Utilisation of estimated tax losses previously not recognised Deferred tax on withholding tax arise from PRC subsidiary Taxation for the year 12. (LOSS) PROFIT FOR THE YEAR (Loss) profit for the year has been arrived at after charging (crediting): Auditor’s remuneration Allowance for slow moving inventories (included in cost of sales) Cost of inventories recognised as an expense Depreciation of property, plant and equipment and investment property Release of prepaid lease payments Operating lease rentals in respect of rented premises Staff costs: Directors’ emoluments Other staff costs — salaries, bonus and other allowances — retirement benefit scheme contributions — share-based payments	2009 HK$’000 (21,340) (3,521) 5,248 (940) 881 (399) 44 33 — 185 1,531 2009 HK$’000 780 — 128,560 1,650 87 4,775 2,650 43,499 4,345 498 50,992	2008 HK$’000 26,949 4,716 1,924 (2,233) 1,027 — — (551) (114) — 4,769 2008 HK$’000 825 3,337 121,171 1,720 87 3,388
	2,650 43,499 4,345 498 50,992	3,343 40,350 4,668 933 49,294

– 91 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

13. DIRECTORS’ EMOLUMENTS

The emoluments paid or payable to each of the six (2008: six) directors were as follows:

Executive directors: Choi Hon Hing Fung Wing Ki, Vicky Fung Wing Yee, Wynne Non-executive directors: Tam Hok Lam, Tommy Hui Ka Wah, Ronnie Leung Man Chun, Paul	Fee HK$’000 — — — 70 70 70	Salaries and other allowances HK$’000 546 195 215 — — —	2 Bonus HK$’000 (Note) 550 200 100 — — —	009 Retirement benefit scheme contributions HK$’000 12 9 10 — — —	Share- based payments HK$’000 177 132 132 54 54 54	Total HK$’000 1,285 536 457 124 124 124	Fee HK$’000 — — — 70 70 70	Salaries and other allowances HK$’000 584 210 226 — — —	2 Bonus HK$’000 (Note) 600 200 100 — — —	008 Retirement benefit scheme contributions HK$’000 12 9 10 — — —	Share- based payments HK$’000 382 286 286 76 76 76	Total HK$’000 1,578 705 622 146 146 146
	210	956	850	31	603	2,650	210	1,020	900	31	1,182	3,343

Note: Bonus was determined by the remuneration committee having regard to the performance of directors and the Group’s operating result.

During the year, no emoluments were paid by the Group to any of the directors as an inducement to join or upon joining the Group or as compensation for loss of office. None of the directors has waived any emoluments during the year.

14. EMPLOYEE’S EMOLUMENTS

Of the five individuals with the highest emoluments in the Group, one (2008: three) was director of the Company whose emoluments is included in the disclosures in note 13 above. The emoluments of the remaining four individuals (2008: two individuals) were as follows:

Salaries and other allowances Bonus Retirement benefit scheme contributions Share-based payments	2009 HK$’000 3,456 165 235 87 3,943	2008 HK$’000 2,169 337 206 76
		2,788

– 92 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The emoluments were within the following bands:

Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000 HK$1,500,001 to HK$2,000,000	2009 No. of employees 2 1 1	2008 No. of employees — 1 1

During the year, no emoluments or discretionary bonus were paid by the Group to the above highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office.

15. DIVIDENDS

Dividends recognised as distribution — HK$0.025 (2008: HK$0.025) per share Proposed final dividends	2009 HK$’000 10,287 4,938	2008 HK$’000 10,141
		10,287

The final dividend for the year ended 31 March 2009 of HK$0.012 (2008: HK$0.025) per share, amounting to approximately HK$4,938,000 (2008: HK$10,287,000), has been proposed by the directors and is subject to approval by the shareholders at the forthcoming annual general meeting.

16. (LOSS) EARNINGS PER SHARE

The calculation of the basic and diluted (loss) earnings per share attributable to the ordinary equity holders of the Company is based on the following data:

(Loss) earnings (Loss) earnings for the purpose of basic and diluted (loss) earnings per share Number of shares Weighted average number of ordinary shares for the purpose of basic (loss) earnings per share Effect of dilutive potential ordinary shares: Share options Weighted average number of ordinary shares for the purpose of diluted (loss) earnings per share	2009 HK$’000 (22,871) ’000 410,335 — 410,335	2008 HK$’000 22,180
		’000 404,504 8,479
		412,983

Note: The computation of diluted loss per share for the year ended 31 March 2009 did not assume the exercise of the Company’s outstanding share options since their exercise would reduce loss per share.

– 93 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

17. PROPERTY, PLANT AND EQUIPMENT

Freehold land HK$’000 507 91 — — —	Buildings on freehold land HK$’000 7,005 1,267 33 — —	Buildings on freehold land HK$’000 7,005 1,267 33 — —	Buildings on freehold land HK$’000 7,005 1,267 33 — —	Buildings on freehold land HK$’000 7,005 1,267 33 — —	Buildings on freehold land HK$’000 7,005 1,267 33 — —	Buildings on freehold land HK$’000 7,005 1,267 33 — —	Motor vehicles Total HK$’000 HK$’000 172 37,757 — 1,719 — 3,167 — (1,624) (161) (1,944) 11 39,075 — (1,770) 241 770 252 38,075 157 21,801 — 372 5 1,720 — (317) (161) (1,635) 1 21,941 — (331) 65 1,618 65 23,228 186 14,847 10 17,134	Motor vehicles Total HK$’000 HK$’000 172 37,757 — 1,719 — 3,167 — (1,624) (161) (1,944) 11 39,075 — (1,770) 241 770 252 38,075 157 21,801 — 372 5 1,720 — (317) (161) (1,635) 1 21,941 — (331) 65 1,618 65 23,228 186 14,847 10 17,134
			4,091 — —				11 — 241	39,075 (1,770) 770
497	6,899	7,346	4,091	7,318	3,497	8,175	252	38,075
— — — — —	403 93 171 — —
— — —			3,049 — 293				1 — 65	21,941 (331) 1,618
—	725	2,092	3,342	6,713	2,417	7,873	65	23,228
497	6,174	5,254	749	605	1,080	302	186	14,847
598	7,638	5,401	1,042	637	1,414	394	10	17,134

Depreciation is provided to write off the cost of items of property, plant and equipment over their estimated useful lives and after taking into account of their estimated residual value, using the straight-line method, at the following rates per annum:

Freehold land	Nil
Buildings on freehold land	2%
Buildings	2%
Leasehold improvements	20%
Plant and machinery	20%
Furniture, fixtures and equipment	20%
Moulds	20%
Motor vehicles	25%

The freehold land and buildings on freehold land of the Group are located outside Hong Kong.

– 94 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

As at balance sheet date, buildings of HK$499,000 (2008: HK$510,000) are located outside Hong Kong and remaining buildings of HK$4,755,000 (2008: HK$4,891,000) are located in Hong Kong. The buildings of the Group are held under mediumterm lease.

18. PREPAID LEASE PAYMENTS

The Group’s prepaid lease payments comprise: Leasehold land in Hong Kong Leasehold land outside Hong Kong	2009 HK$’000 2,643 739 3,382	2008 HK$’000 2,713 756
		3,469

The leasehold land of the Group is held under medium-term lease and charged to consolidated income statement on a straight-line basis over the lease terms.

19. INVESTMENT PROPERTY

COST At 1 April 2007 Transfer from property, plant and equipment At 31 March 2008 and 31 March 2009 DEPRECIATION AND IMPAIRMENT At 1 April 2007 Transfer from property, plant and equipment At 31 March 2008 Provided for the year Impairment loss recognised At 31 March 2009 CARRYING VALUES At 31 March 2009 At 31 March 2008	HK$’000 — 1,624
	1,624
	— 317
	317 32 185
	534
	1,090
	1,307

The fair value of the Group’s investment property at 31 March 2009 was HK$1,090,000 (2008: HK$1,323,000). The fair value has been arrived at based on a valuation carried out by RHL Appraisal Ltd., independent valuers not connected with the Group. The valuation was determined by reference to recent market prices for similar properties.

The above investment property is located in Hong Kong, held under medium lease term and depreciated on a straight-line basis over the term of the lease of 50 years.

– 95 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

20. GOODWILL

COST At 1 April 2007 Exchange adjustments At 31 March 2008 Exchange adjustments At 31 March 2009	HK$’000 10,730 1,940
	12,670 (2,147)
	10,523

Goodwill acquired in a business combination is allocated to a cash generating unit (‘‘CGU’’) arising from Dardel, a subsidiary in France principally engaged in sale of quality plastic and paper boxes for luxury consumer goods for the purpose of goodwill impairment testing.

The basis of the recoverable amount of the above CGU and the major underlying assumptions are summarised below:

The recoverable amount of the CGU is determined based on value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the year. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGU. The growth rates are based on industry growth forecast. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market.

The Group prepares cash flow forecast derived from the most recent financial budget approved by management for the next five years based on an estimated growth rate of 4% (2008: 4%). Cash flows for further five years are extrapolated at zero growth rate, which is determined based on past performance and management’s expectations for the market development.

The rate used to discount the forecast cash flow is 14% (2008: 19%).

The directors considered that no impairment loss is required in respect to the goodwill based on the result of the impairment test.

21. AVAILABLE-FOR-SALE INVESTMENTS

Available-for-sale investments include: Equity securities listed in Hong Kong, at fair value Equity securities listed outside Hong Kong, at fair value Unlisted equity securities, at cost Club debentures, at fair value Unlisted debt securities, at fair value	2009 HK$’000 9,036 2,025 15,705 2,710 4,680 34,156	2008 HK$’000 10,755 3,696 11,805 2,464 4,290
		33,010

Fair values of listed equity securities are based on quoted market bid price.

The unlisted equity securities are measured at cost less impairment at each balance sheet date because the range of reasonable fair value estimates is so significant that the directors of the Company are of the opinion that their fair values cannot be measured reliably. During the year ended 31 March 2009, the Group received cash return of HK$1,113,000 due to capital reduction of a private company, which represented a recovery of part of the cost of the unlisted equity securities.

Club debentures are stated at fair values which have been determined by reference to the market prices in the secondary markets.

– 96 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Unlisted debt securities represent debt securities in the principal amount of US$500,000 (or equivalent to HK$3,900,000) issued by a private company incorporated in Cayman Islands. The debt securities can be converted into shares of this private company if the initial public offering of shares of this private company is successful. The debt securities carry interest at 10% per annum and expected to be settled together with the principal amount on 1 January 2012. In the opinion of the directors, the amount of the embedded conversion option is insignificant.

22. INVESTMENTS HELD FOR TRADING

Investments held for trading include: Equity securities listed in Hong Kong, at fair value Equity securities listed outside Hong Kong, at fair value Unlisted debt securities, at fair value	2009 HK$’000 3,229 1,033 8,238 12,500	2008 HK$’000 11,477 5,004 13,298
		29,779

Fair values of investments held for trading are based on quoted market bid price.

The investments in debt securities offer the Group the opportunity for return through interest income and trading gains. These debt securities have fixed maturity and will be matured from the year of 2009 to 2011 (2008: 2008 to 2011) and fixed coupon rate ranged from 3.625% to 6.25% (2008: 3.625% to 6.25%) per annum.

The investments held for trading of approximately HK$9,364,000 (2008: HK$7,346,000) are denominated in currencies other than the functional currency of the respective group entities.

23. INVENTORIES

Raw materials Work in progress Finished goods	2009 HK$’000 14,748 4,941 9,728 29,417	2008 HK$’000 14,380 12,059 6,955
		33,394

24. OTHER CURRENT FINANCIAL ASSETS

Trade and bills receivables

Trade receivables Bills receivable	2009 HK$’000 15,876 1,557 17,433	2008 HK$’000 25,650 490
		26,140

Included in the Group’s trade and bills receivables are receivables of approximately HK$12,444,000 (2008: HK$15,649,000) denominated in USD which is the currency other than the functional currency of the respective group entities.

– 97 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

The Group allows an average credit period of 30 to 60 days (2008: 30 to 60 days) to its customers. The aged analysis of trade and bills receivables is stated as follows:

0 to 30 days 31 to 60 days 61 to 90 days 91 to 180 days	2009 HK$’000 13,276 3,060 468 629 17,433	2008 HK$’000 16,401 6,107 2,626 1,006
		26,140

In determining the recoverability of trade and bills receivables, the Group considers any change in the credit quality of the trade receivables from the date credit was initially granted up to the report date. The Group considers the trade and bills receivables are determined to be impaired if they are aged for more than 180 days based on the management past experience. The directors believe that there is no further credit provision required as at both balance sheet dates.

Included in the Group’s trade receivable balance are debtors with aggregate carrying amount of approximately HK$3,109,000 and HK$6,554,000 as at 31 March 2009 and 2008, respectively, which are past due at the reporting date for which the Group has not provided for impairment loss as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group does not hold any collateral over these balances. The average age of these trade receivables is 62 days and 72 days in the year of 2009 and 2008 respectively.

Ageing of trade receivables which are past due but not impaired

Overdue by 1 to 30 days Overdue by 31 to 60 days Overdue by 61 to 180 days	2009 HK$’000 1,758 590 761 3,109	2008 HK$’000 2,922 2,626 1,006
		6,554

Other receivables and deposits comprise amounts receivable from third parties and recoverable within one year.

Included in the Group’s other receivables are receivables of approximately HK$8,332,000 (2008: HK$11,075,000) denominated in currencies other than the functional currency of the respective group entities.

Bank balances and cash comprise cash held by the Group and short-term bank deposits carrying effective interest at approximate 14% (2008: 2.6%) per annum.

The bank balances and cash of approximately HK$21,034,000 (2008: HK$53,800,000) are denominated in currencies other than the functional currency of the respective group entities.

– 98 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

25. OTHER CURRENT FINANCIAL LIABILITIES

Trade payables principally comprise amounts outstanding for trade purchases. The average credit period taken for trade purchases is 30 to 60 days (2008: 30 to 60 days). The aged analysis of trade payables is stated as follows:

0 to 30 days 31 to 60 days 61 to 90 days 91 to 180 days	2009 HK$’000 3,879 1,660 765 396 6,700	2008 HK$’000 6,532 3,007 2,280 2,649
		14,468

Included in the Group’s trade payables are payables of HK$1,049,000 (2008: HK$4,519,000) denominated in currencies other than the functional currency of the respective group entities. Other payables principally comprise amounts outstanding for ongoing costs.

26. DERIVATIVE FINANCIAL INSTRUMENTS

As at 31 March 2008, the Group entered into six investment schemes with financial institutions. Under the investment schemes, the Group was a party that had an obligation to purchase or sell listed equity securities at a series of predetermined times, based on the price calculated by a pre-specified formula. All of the contracts had a maximum term of one year. The financial institutions could terminate the contracts when the market prices of the underlying equity securities were higher than a predetermined price. The fair value of investments were determined using option pricing model (including Monte Carlo Simulation and binomial model).

The Group executed a deeds of charge in favour of the financial institutions to facilitate the Group to enter into the investment schemes and obtain bank borrowing (as set out in note 27). The deeds were secured by the charge over the assets of the Group held by these financial institutions, including investments held for trading, available-for-sale investments and bank balances. At 31 March 2009, total assets of the Group charged in favour of the banks were approximately HK$39,100,000 (2008: HK$65,200,000).

As at 31 March 2009, there were no outstanding investment schemes and bank borrowings. The deeds of charge were used to secure the unutilised facilities.

27. BANK BORROWINGS

Bank borrowings — secured	2009 HK$’000 —	2008 HK$’000 4,853

At 31 March 2008, bank borrowings were denominated in Swiss Franc, carrying fixed interest rate at 3.5% per annum and was secured by a floating charge on certain assets of the Group deposited in the bank, including held for trading, available-for-sale investments and bank balances. At 31 March 2008, total assets of the Group charged in favour of the bank was approximately HK$46,600,000.

– 99 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

28. SHARE CAPITAL

Authorised: At 1 April 2007, 31 March 2008 and 2009, ordinary shares of HK$0.05 each Issued and fully paid: At 1 April 2007, ordinary shares of HK$0.05 each Exercise of share options (note a) At 31 March 2008, ordinary shares of HK$0.05 each Exercise of share options (note b) At 31 March 2009, ordinary shares of HK$0.05 each	Number of shares 2,000,000,000 400,000,000 5,626,144 405,626,144 5,866,582 411,492,726	Share capital HK$’000 100,000
		20,000 281
		20,281 293
		20,574

Details of the changes in the Company’s share capital for the year ended 31 March 2008 and 2009 are as follows:

(a) On 12 June 2007, share options for 5,626,144 of HK$0.05 each were exercised at the exercise price of HK$0.225. Details of options outstanding and movements during the year are set out in note 33.
(b) On 12 June 2008, share options for 5,866,582 of HK$0.05 each were exercised at the exercise price of HK$0.225. Details of options outstanding and movements during the year are set out in note 33.

All the shares which were issued during the year rank pari passu with the then existing shares in all respects.

29. DEFERRED TAXATION

The following are the major deferred tax assets (liabilities) recognised and movements thereon during the current and prior reporting periods:

At 1 April 2007 and 31 March 2008 (Charge) credit to consolidated income statement At 31 March 2009	Withholding tax arise from PRC subsidiaries (Note) HK$’000 — (185) (185)	Tax losses HK$’000 — 390 390	Total HK$’000 — 205
			205

Note: Under the New Law of the PRC, withholding tax is imposed on dividends declared in respect of profits earned by PRC subsidiaries from 1 January 2008 onwards.

For the purposes of the consolidated balance sheet presentation, certain deferred tax assets and liabilities have been offset.

At the balance sheet date, the Group had unused estimated tax losses of HK$2,855,000 (2008: HK$225,000) available for offset against future profits. A deferred tax asset has been recognised in respect of HK$2,364,000 (2008: Nil) of such losses. No deferred tax asset has been recognised in respect of the remaining tax losses of HK$491,000 (2008: HK$225,000) due to the unpredictability of future profit streams. Other tax losses may be carried forward indefinitely.

– 100 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

30. PLEDGED BANK DEPOSITS

Pledged bank deposits represented deposits pledged to banks to secure banking facilities granted to the Group, and carry average interest rate of 2.2% per annum. As at 31 March 2009, they have been pledged to secure undrawn facilities.

31. PLEDGE OF ASSETS

At 31 March 2009, other than the deed secured by the charge over the assets of the Group as disclosed in notes 26 and 27 and the pledged bank deposit as disclosed in note 30, the Group has pledged its leasehold land and buildings with a carrying value of HK$3,220,000 (2008: HK$3,322,000) to secure general banking facilities granted to the Group.

32. OPERATING LEASE COMMITMENTS

At the balance sheet date, the Group had commitments for future minimum lease payments under non-cancellable operating leases in respect of rented premises which fall due as follows:

Within one year In the second to fifth year inclusive	2009 HK$’000 5,657 6,546 12,203	2008 HK$’000 4,315 4,131
		8,446

Operating lease payments represent rentals payable by the Group for certain of its office and factory premises. Leases are negotiated for lease term of two to five years (2008: two to three years) and rentals are fixed over the relevant lease term.

33. SHARE OPTION SCHEMES

The Company had two share option schemes, including pre-listing share option scheme (the ‘‘Pre-Listing Scheme’’) and share option scheme (the ‘‘Post-Listing Scheme’’), which were both adopted on 16 May 2006. The terms and conditions of the PreListing Scheme and the Post-Listing Scheme are set out below.

(A) Pre-Listing Scheme

The major terms of the Pre-Listing Scheme are summarised as follows:

(i) The purpose was to provide incentives to the participants;
(ii) The participants included directors of the Company or its subsidiaries, senior management and other employees of the Group;
(iii) The maximum number of shares in respect of which options might be granted under the Pre-Listing Scheme shall not exceed 19,555,261 shares;
(iv) In relation to each grantee of the options granted under Pre-Listing Scheme, the right of the grantee to exercise the option shall vest in three stages: 30% of share options granted (rounded down to the nearest whole number of shares) will vest from the expiry of one year from the listing date (6 June 2006) up to the day immediately before the fourth anniversary of the listing date; 30% of share options granted (rounded down to the nearest whole number of shares) will vest from the expiry of two years from the listing date up to the day immediately before the fifth anniversary of the listing date; and 40% of the share options granted (round down to the nearest whole number of shares) will vest from the expiry of three years from the listing date up to the day immediately before the sixth anniversary of the listing date;
(v) The exercise price of an option is HK$0.225 per share; and
(vi) No further options will be granted under the Pre-Listing Scheme after the day immediately prior to the date of listing of the Company’s shares.

– 101 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

(B) Post-Listing Scheme

The major terms of the Post-Listing Scheme are summarised as follows:

(i) The purpose was to provide incentives to the participants;
(ii) The participants included any full-time or part-time employees, executives and officers of the Company and any of its subsidiaries (including executive, non-executive directors and independent non-executive directors of the Company and any of its subsidiaries) and business consultants and legal and other professional advisors of the Company or its subsidiaries which, in the opinion of the Company’s board of directors, has or had made contribution to the Group;
(iii) The maximum number of shares in respect of which options might be granted under the Post-Listing Scheme must not exceed 30% of the issued share capital of the Company from time to time. The number of shares issued and to be issued in respect of which options granted and may be granted to any individual in any 12 months period is not permitted to exceed 1% of the shares of the Company in issue at any point in time, without prior approval from the Company’s shareholders. Options granted to a substantial shareholder or an independent non-executive director in excess of 0.1% of the Company’s share capital or with a value in excess of HK$5 million must be approved in advance by the Company’s shareholders;
(iv) In relation to each grantee of the options granted under the Post-Listing Scheme, the right of the grantee to exercise the option shall vest in three stages: 30% of share options granted (rounded down to the nearest whole number of shares) will vest from the expiry of one year from the acceptance date of the option (the ‘‘Acceptance Date’’) up to the day immediately before the fourth anniversary of the Acceptance Date; 30% of share options granted (rounded down to the nearest whole number of shares) will vest from the expiry of two years from the Acceptance Date up to the day immediately before the fifth anniversary of the Acceptance Date; and 40% of the share options granted (round down to the nearest whole number of shares) will vest from the expiry of three years from the Acceptance Date up to the day immediately before the sixth anniversary of the Acceptance Date;
(v) The exercise price of an option will be determined by the board of directors of the Company and will not be less than the highest of:
. the closing price of the share on the date of grant;
. the average closing price of the share for the 5 business days immediately preceding the date of grant;
. the nominal value of the share; and
(vi) A consideration of HK$1 is payable on acceptance of the offer of grant of options.

– 102 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Details of the share options outstanding and movements during the two years were as follows:

		Numb	er of share options	er of share options
Outstanding at 1 April 2007 1,333,294 1,333,294 1,777,725 999,979 999,979 1,333,304 999,979 999,979 1,333,304 — — — — — — — — — — — — 2,533,330 2,533,330 3,377,764 — — — — — —	Granted during the year (Note a) — — — — — — — — — 120,000 120,000 160,000 120,000 120,000 160,000 120,000 120,000 160,000 180,000 180,000 240,000 — — — 150,000 150,000 200,000 90,000 90,000 120,000	Exercised during the year (Note b) (1,333,294) — — (999,979) — — (999,979) — — — — — — — — — — — — — — (2,292,892) — — — — — — — —	Outstanding at 1 April 2008 — 1,333,294 1,777,725 — 999,979 1,333,304 — 999,979 1,333,304 120,000 120,000 160,000 120,000 120,000 160,000 120,000 120,000 160,000 180,000 180,000 240,000 240,438 2,533,330 3,377,764 150,000 150,000 200,000 90,000 90,000 120,000	Exercised during the year (Note c) — (1,333,294) — — (999,979) — — (999,979) — — — — — — — — — — — — — (240,438) (2,292,892) — — — — — — —	Lapsed during the year — — — — — — — — — — — — — — — — — — — — — — — — (45,000) (45,000) (60,000) — — —	Outstanding 31 March 2009 — — 1,777,725 — — 1,333,304 — — 1,333,304 120,000 120,000 160,000 120,000 120,000 160,000 120,000 120,000 160,000 180,000 180,000 240,000 — 240,438 3,377,764 105,000 105,000 140,000 90,000 90,000 120,000
19,555,261	2,600,000	(5,626,144)	16,529,117	(5,866,582)	(150,000)	10,512,535
0.225	0.823	0.225	0.319	0.225	0.860	0.371
			240,438			975,438

(a) The fair value of the share options granted to non-executive directors and employees under the Post-Listing Scheme on 8 June 2007 and 18 March 2008, determined at the date of grant using the Black-Scholes Option Pricing Model was approximately HK$676,000 and HK$89,000, respectively. 600,000 options were granted to Mr. Fung Ka Pun who provides services to the Group that are similar to services provided by employees of the Group. Therefore, the fair value of the services provided by him is determined by reference to the fair value of share options granted on grant date of HK$238,000.
(b) The weighted average closing price of the Company’s shares at the dates of exercise was HK$0.452 per share.
(c) The weighted average closing price of the Company’s shares at the dates of exercise was HK$0.662 per share.
(d) Mr. Fung Ka Pun is a substantial shareholder of the Company.

– 103 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

In determining the fair value of the share options granted during both years, the Black-Scholes Option Pricing Model has been used. The input into the model were as follows:

	8 June 2007	18 March 2008	Notes
Share price	HK$0.86	HK$0.49	a
Exercise price	HK$0.86	HK$0.536
Expected life of options	4–6 years	4–6 years	b
Expected volatility	62%–72%	99%–117%	c
Expected dividend yield	2.9%	5.1%	d
Risk free rate	4.63%	2.73%

Notes:

(a) The prices of the Company’s share at 16 May 2006, 8 June 2007 and 18 March 2008 are HK$0.55, HK$0.86 and HK$0.49 per share, respectively.
(b) The expected life of option ranges from 4 to 6 years from the date of grant.
(c) Expected volatility is determined by using the historical volatility of the price of the Company.
(d) Expected dividend yield is determined by the directors based on the historical record and the expected future performance of the Group.

The Black-Scholes Option Pricing Model has been used to estimate the fair value of the options. The variables and assumptions used in computing the fair value of the share option are based on directors’ best estimate. The value of an option varies with different variables of certain subjective assumptions.

In the current year, share option expenses of approximately HK$1,101,000 (2008: HK$2,115,000) have been recognised with a corresponding credit in the Group’s share options reserve.

34. RELATED PARTY TRANSACTIONS

During the year, the Group entered into the following related party transactions:

Services fee paid to a related company (Note)	2009 HK$’000 42	2008 HK$’000 82

Note: The beneficial owner of this related company is also a director of the Company.

During the year ended 31 March 2008, the Company issued 600,000 share options to Mr. Fung Ka Pun. Details of the share options are set out in note 33.

The remuneration of directors and other members of key management during the year was as follows:

Salaries and other short-term benefits Post-employment benefits Share-based payments	2009 HK$’000 4,401 222 638 5,261	2008 HK$’000 4,426 237 1,259
		5,922

The remuneration of directors and key executive is determined by the remuneration committee having regard to the performance of individuals and market trends.

– 104 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

35. RETIREMENT BENEFIT SCHEMES

The Group operated a pension scheme under rules and regulations of Mandatory Provident Fund Schemes Ordinance (‘‘MPF Scheme’’). The assets of the MPF Scheme are held separately in an independently administrated fund. The Group has chosen to follow the minimum statutory contribution requirement of 5% of eligible Hong Kong employees’ monthly relevant income but limited to the cap of HK$1,000 per month. The contributions are charged to the consolidated income statement as incurred.

The employees of the Group’s subsidiaries in the PRC and a subsidiary in France are members of state-managed retirement benefit schemes operated by respective local governments. The subsidiaries are required to contribute a specific percentage of their payroll costs to the retirement benefit schemes. The only obligation of the Group with respect to the retirement benefit scheme is to make the specified contributions.

During the year, the total amounts contributed by the Group to the schemes and cost charged to the consolidated income statement of HK$4,376,000 (2008: HK$4,699,000) represents contribution paid or payable to the schemes by the Group at rates specified in the rules of the schemes.

Defined benefit plan

The Group operates an unfunded defined benefit plan for qualifying employees of its subsidiary in France. Under the scheme, the employees are entitled to retirement benefits which is based on the estimated final salary and the length of the service to the retirement. No other post-retirement benefits are provided.

36. PARTICULARS OF PRINCIPAL SUBSIDIARIES OF THE COMPANY

Details of the Company’s subsidiaries at 31 March 2009 and 2008 are as follows:

			Issued and
	Place of		fully paid up	Proportion of nominal
	incorporation or		share capital/	value of issued share
	registration/	Class of	registered	capital/registered capital
Name of subsidiary	operations	shares held	capital	held by the	Company	Principal activities
				Directly	Indirectly
Winbox (BVI) Limited	The British Virgin	Ordinary	US$460	100%	—	Investment holding
	Islands (‘‘BVI’’)
Dardel	France	Ordinary	EUR470,000	—	100%	Sale of quality plastic and
						paper boxes for luxury
						consumer goods
Fairich Investment Limited	Hong Kong	Ordinary	HK$2	—	100%	Investment holding
First Light Investments	BVI	Ordinary	US$1	—	100%	Provision of sub-contracting
Limited						services (intra group
						service)
Grand Cast Limited	Hong Kong	Ordinary	HK$2	—	100%	Investment holding
Golden Hope Holdings	Hong Kong	Ordinary	HK$1	—	100%	Investment holding
Limited
Winbox Company Limited	Hong Kong	Ordinary	Ordinary shares	—	100%	Sale of quality plastic and
			HK$5,500,000			paper boxes for luxury
						consumer goods
			Non-voting
			deferred shares
			HK$5,500,000
			(Note 1)

– 105 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

			Issued and
	Place of		fully paid up	Proportion of nominal
	incorporation or		share capital/	value of issued share
	registration/	Class of	registered	capital/registered capital
Name of subsidiary	operations	shares held	capital	held by the	Company	Principal activities
				Directly	Indirectly
Winbox Plastic	The PRC (Note 2)	Contributed	HK$30,000,000	—	100%	Manufacture and sale of
Manufacturing		capital				quality plastic and paper
(Shenzhen)						boxes for luxury
						consumer goods and
						the provision of
						sub-contracting services
						(intra group service)
Winpac Europe Limited	United Kingdom	Ordinary	£500,000	—	100%	Investment holding
Winpac International	Hong Kong	Ordinary	HK$2	—	100%	Investment holding
Limited
Winpac Trading Co.	Hong Kong	Ordinary	HK$500,000	—	100%	Sale of quality plastic and
Limited						paper boxes for luxury
						consumer goods
Winpac SARL	France	Ordinary	EUR10,000	—	100%	Property holding

Notes:

(1) The holders of the non-voting deferred shares are not entitled to receive notice of or to attend or vote at any general meeting of this subsidiary, and not entitle to participate in the profits of this subsidiary. On a winding up, the holders of the non-voting deferred shares are entitled to be paid out of the surplus assets a return of the capital paid up on such shares after a total of HK$100,000,000 has been distributed in respect of each of the shares.
(2) Wholly foreign-owned enterprise.

None of the subsidiaries had any debt securities outstanding at the end of the year or at any time during the year.

The above table lists the subsidiaries of the Company which, in the opinion of the directors, principally affected the results or assets of the Group. To give details of other subsidiaries would, in the opinion of the directors, result in particulars of excessive length.

– 106 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

The following is the text of a report received from Morison Heng in respect of the accountants’ report on Merrymaking Investments for the period from 28 November 2007 (date of incorporation) to 31 December 2007, for the year ended 31 December 2008 and for the six months ended 30 June 2009, for inclusion in this circular.

28 December 2009

The Directors

Winbox International (Holdings) Limited 2/F., Ching Cheong Industrial Building 1–7 Kwai Cheong Road Kwai Chung, New Territories Hong Kong

Dear Sirs,

We set out below our report on the financial information (the ‘‘Financial Information’’) of Merrymaking Investments Limited (‘‘Merrymaking Investments’’) and its subsidiaries (collectively referred to as the ‘‘Merrymaking Group’’) for the period from 28 November 2007 (date of incorporation of Merrymaking Investments) to 31 December 2007, for the year ended 31 December 2008 and for the six months ended 30 June 2009 (the ‘‘Relevant Periods’’) issued by Winbox International (Holdings) Limited (the ‘‘Company’’), a company incorporated in Cayman Islands with its shares listed on the Main Board of The Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’) dated 28 December 2009 (the ‘‘Circular’’) in connection with the proposed very substantial acquisition of the entire issued share capital of Merrymaking Investments.

Merrymaking Investments was incorporated in British Virgin Islands on 28 November 2007 as a private company with limited liability and is principally engaged in investment holding during the Relevant Periods.

As at the date of this report, Merrymaking Investments has direct and indirect interests in the subsidiaries as follows:

			Percentage	of
	Place of	Issued and	equity interest	held
	incorporation	fully paid up	by Merrymaking
Name of subsidiary	and operations	share capital	Investments		Principal activities
			Direct	Indirect
Brilliant Wise Limited	Hong Kong	10,000 ordinary	100%	—	Investment holding
(‘‘Brilliant Wise’’)		shares of HK$1 each
Favour Mind Limited	Hong Kong	10,000 ordinary	100%	—	Investment holding
(‘‘Favour Mind’’)		shares of HK$1 each
Wuhai City Menggang	Peoples’ Republic of	HK$320,000,000	—	68.75%	Investment holding
Industrial	China (‘‘PRC’’)
Development Co.,
Ltd. (‘‘Wuhai City
Menggang’’)

– 107 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

			Percentage	of
	Place of	Issued and	equity interest	held
	incorporation	fully paid up	by Merrymaking
Name of subsidiary	and operations	share capital	Investments		Principal activities
			Direct	Indirect
Tianyu Coal Company	PRC	RMB43,000,000	—	68.75%	Development of
Limited (‘‘Tianyu					underground coking
Coal’’)					coal mine
Tianyu Gongmao	PRC	RMB46,000,000	—	68.75%	Exploration of coal
Company Limited					business, coal
(‘‘Tianyu					mining, coal sales
Gongmao’’)					and development of
					underground coking
					coal mine

The financial year end date of Merrymaking Investments is 31 December. No statutory audited financial statements have been prepared for Merrymaking Investments since its date of incorporation as it was incorporated in a country where there is no statutory audit requirement. No statutory audited financial statements have been prepared for Brilliant Wise since its date of incorporation as it has not carried out any business, except for investment holding.

The statutory financial statements of Favour Mind for the period from 6 June 2006 (date of incorporation of Favour Mind) to 31 December 2007 were prepared in accordance with the Small and Medium-sized Entity Financial Reporting Standard issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’). They were audited by C.F. Li & Co. Certified Public Accountants. No statutory financial statements have been prepared for Favour Mind since 1 January 2008 as it has not carried out any business, except for investment holding.

The PRC statutory financial statements of Wuhai City Menggang, Tianyu Coal and Tianyu Gongmao were prepared in accordance with the relevant accounting principles and financial regulations applicable to companies established in PRC. They were audited by the following certified public accountants registered in the PRC.

				Certified Public
Name			Period covered	Accountants
Wuhai	City	Menggang	1 December 2006 (date of incorporation)	Wuhai Zhongxin Certified
			to 31 December 2007 and year ended	Public Accountants
			31 December 2008	Company Limited
Tianyu	Coal		Years ended 31 December 2006	Wuhai Chengxin Certified
			and 2007	Public Accountants
				Company Limited
Tianyu	Coal		Year ended 31 December 2008	Wuhai Zhongxin Certified
				Public Accountants
				Company Limited

– 108 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

			Certified Public
Name		Period covered	Accountants
Tianyu	Gongmao	6 July 2006 (date of incorporation) to	Wuhai Chengxin Certified
		31 December 2006 and year ended	Public Accountants
		31 December 2007	Company Limited
Tianyu	Gongmao	Year ended 31 December 2008	Inner Mongolia Kezheng
			Certified Public
			Accountants Company
			Limited

For the purpose of this report, the directors of Merrymaking Investments have prepared the consolidated financial statements of the Merrymaking Group for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (‘‘HKFRSs’’) issued by the HKICPA (the ‘‘Underlying Financial Statements’’). We have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 ‘‘Prospectuses and the Reporting Accountant’’ as recommended by the HKICPA.

The Financial Information set out in this report has been prepared from the Underlying Financial Statements on the basis set out in note 4 to the Financial Information. No adjustments were deemed necessary by us to the Underlying Financial Statements in preparing our report for inclusion in the Circular.

The Underlying Financial Statements are the responsibility of the directors of the Merrymaking Investments, who approve their issues. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements to form an opinion on the Financial Information and to report our opinion to you.

Basis for disclaimer of opinion

1. Inventories

We were appointed as reporting accountant on 27 August 2009 which was subsequent to the end of the Merrymaking Group’s Relevant Periods and thus did not observe the counting of the physical inventories at the beginning of the period/year. We were unable to satisfy ourselves by alternative means concerning inventory quantities and conditions held at 31 December 2008 and 30 June 2009. Since the value of the opening inventories will have an impact on the results and cash flows, we were unable to determine whether adjustments might have been necessary in respect of the results for the period/year reported in the consolidated statement of comprehensive income and the net cash flows from operating activities reported in the consolidated statement of cash flows. In addition, no sufficient stock records and other evidence have been provided to us to substantiate the carrying amounts of inventories of approximately HK$948,000 and HK$761,000 as at 31 December 2008 and 30 June 2009 respectively as included in the consolidated statement of financial position were free from material misstatement.

– 109 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

Sales

Merrymaking Group had recorded sales of coals amounting to HK$917,000 and HK$6,793,000 for the year ended 31 December 2008 and the six months ended 30 June 2009 respectively. However, there was no system of internal control over cash sales on which we could rely for the purpose of our audit and there were no satisfactory audit procedures that we could adopt to confirm independently that all the cash sales were properly recorded. Consequently, we were unable to satisfy ourselves as to the accuracy and completeness of the sales were properly recorded and matched in the Relevant Periods.

We have not been able to obtain sufficient appropriate audit evidence to provide a basis for an opinion. Any adjustment to the figure may have consequential significant effect on the results for the Relevant Periods and the net assets at 31 December 2008 and 30 June 2009.

Disclaimer of opinion

Because of the significance of the matters described in the basis for disclaimer of opinion paragraphs, we do not express an opinion on the Financial Information as to whether they give a true and fair view of the state of affairs of Merrymaking Group as at 31 December 2007, 2008 and 30 June 2009 and of its result and cash flows for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards, and as to whether these financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

Report on matters under section 141(4) and 141(6) of the Hong Kong Companies Ordinance

In respect alone of the limitation on our work set out in the basis for disclaimer of opinion paragraph of this report:

we have not obtained all the information and explanations that we considered necessary for the purpose of our audit; and
we were unable to determine whether proper books of account had been kept.

Without qualifying our opinion, we draw attention to note 3 to the Financial Information which indicates that Merrymaking Group had net current liabilities of HK$290,117,000 as at 30 June 2009 and as further set out in note 18 and note 19 to the Financial Information, Merrymaking Group has two mining rights, which will be expired in December 2010. The Financial Information has been prepared on a going concern basis, the validity of which is dependent on the success of the renewal of the mining rights upon its expiration, the continual financial support from ultimate holding company of Merrymaking Investments to finance its future working capital and financial requirement and its ability to generate adequate cash flows from its operations. These conditions, along with other matters as set out in note 3 to the Financial Information, indicates the existence of a material uncertainty which may cast significant doubt about the ability of Merrymaking Group to continue as a going concern.

– 110 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

The comparative consolidated income statement, consolidated statement of comprehensive income, consolidated statement of cash flows and consolidated statement of changes in equity of Merrymaking Group for the six months period ended 30 June 2008, together with the notes thereon (the ‘‘30 June 2008 Financial Information’’), were prepared by the directors of Merrymaking Investments solely for the purpose of this report. We have reviewed the 30 June 2008 Financial Information in accordance with the Hong Kong Standards on Review Engagement 2410 ‘‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’’ issued by the HKICPA. Our review of the 30 June 2008 Financial Information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the 30 June 2008 Financial Information is not prepared, in all material respects, in accordance with the accounting policies consistent with those used in the preparation of the Financial Information, which conform with HKFRSs.

– 111 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

CONSOLIDATED INCOME STATEMENT

Notes Turnover 7 Cost of sales Gross profit/(loss) Other revenue 7 Selling and distribution expenses Other operating expenses Loss from operations Gain on bargain purchase Gain on disposal of a subsidiary Finance costs 8 (Loss)/Profit before taxation 9 Taxation 12 (Loss)/Profit for the period/year Attributable to: Equity holders of Merrymaking Investments Non-controlling interests (Loss)/Profit for the period/year	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) 6,793 — (5,352) (99) 1,441 (99) 2 8 (1,176) (1) (8,862) (3,786) (8,595) (3,878) — 421,665 316 8 (16,232) (1,713) (24,511) 416,082 47 109 (24,464) 416,191 (14,395) 418,309 (10,069) (2,118) (24,464) 416,191	Year ended 31 December 2008 HK$’000 917 (3,557) (2,640) 27 (409) (20,872) (23,894) 421,665 8 (15,131) 382,648 159 382,807 398,750 (15,943) 382,807	Period from 28 November 2007 (date of incorporation) to 31 December 2007 HK$’000 — — — — — (45) (45) — — — (45) — (45) (45) — (45)

– 112 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Loss)/Profit for the period/year Other comprehensive income for the period/year Exchange differences arising on translation of foreign operations Surplus on revaluation on acquisition of additional interests in subsidiaries Total comprehensive income for the period/year Total comprehensive income attributable to: Equity holders of Merrymaking Investments Non-controlling interests	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (24,464) 416,191 (1,063) 10,423 — 69,941 (25,527) 496,555 (15,010) 494,276 (10,517) 2,279 (25,527) 496,555	Year ended 31 December 2008 HK$’000 382,807 8,022 69,941 460,770 473,329 (12,559) 460,770	Period from 28 November 2007 (date of incorporation) to 31 December 2007 HK$’000 (45) — — (45) (45) — (45)

– 113 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Notes Non-current assets Property, plant and equipment 15 Prepaid lease payments 16 Goodwill 17 Exploration and evaluation assets 18 Mining right 19 Deposits 23(a) Current assets Inventories 21 Trade and notes receivables 22 Prepayments, deposits and other receivables 23(b) Amount due from a director 24 Amount due from a shareholder 25 Amount due from immediate holding company 25 Restricted bank deposits 26 Cash at bank and in hand 27 Current liabilities Other payables and accruals 28 Amount due to a related company 29 Amounts due to directors 29 Amount due to ultimate holding company 29 Bank loan 30 Loans from a director 31 Other loans 32 Net current (liabilities)/assets Total assets less current liabilities Non-current liabilities Deferred tax liabilities 33 NET ASSETS	At 30 June 2009 HK$’000 61,095 26,644 — 987,893 377,934 79,327 1,532,893 761 2,519 12,097 — — 78 102 1,907 17,464 75,896 — 100 12 11,356 17,981 202,236 307,581 (290,117) 1,242,776 342,752 900,024	At 31 December 2008 2007 HK$’000 HK$’000 61,318 — 27,228 — — — 988,301 — 380,340 — 79,418 — 1,536,605 — 948 — 1,617 — 5,893 — — 10 19 19 59 59 103 — 671 — 9,310 88 68,324 45 — 10 169 — 12 — — — 17,386 — 191,282 — 277,173 55 (267,863) 33 1,268,742 33 343,191 — 925,551 33	At 31 December 2008 2007 HK$’000 HK$’000 61,318 — 27,228 — — — 988,301 — 380,340 — 79,418 — 1,536,605 — 948 — 1,617 — 5,893 — — 10 19 19 59 59 103 — 671 — 9,310 88 68,324 45 — 10 169 — 12 — — — 17,386 — 191,282 — 277,173 55 (267,863) 33 1,268,742 33 343,191 — 925,551 33
			—
			— — — 10 19 59 — —
			88
			45 10 — — — — —
			55
			33
			33 —
			33

– 114 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

Notes CAPITAL AND RESERVES Share capital 34 Reserves Non-controlling interests	At 30 June 2009 HK$’000 78 440,939 441,017 459,007 900,024	At 31 December 2008 2007 HK$’000 HK$’000 78 78 455,949 (45) 456,027 33 469,524 — 925,551 33

– 115 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

STATEMENT OF FINANCIAL POSITION

Notes Non-current assets Investments in subsidiaries 20 Current assets Amount due from a director 24 Amount due from a shareholder 25 Amount due from immediate holding company 25 Cash at bank and in hand 27 Current liabilities Other payables and accruals 28 Amount due to a related company 29 Amounts due to subsidiaries 20 Amount due to ultimate holding company 29 Net current assets NET ASSETS CAPITAL AND RESERVES Share capital 34 Reserves 35	At 30 June 2009 HK$’000 20 — — 78 8 86 — — 20 62 82 4 24 78 (54) 24	At 31 December 2008 2007 HK$’000 HK$’000 20 — — 10 19 19 59 59 9 — 87 88 — 45 — 10 20 — 62 — 82 55 5 33 25 33 78 78 (53) (45) 25 33

– 116 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to equity shareholders of Merrymaking Investments Share capital Revaluation reserve Statutory reserve Exchange fluctuation reserve (Accumulated losses)/ Retained earnings Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 — — — — — — 78 — — — — 78 — — — — (45) (45) 78 — — — (45) 33 78 — — — (45) 33 — — — 2,570 (19,905) (17,335) — — 145 — (145) — — 69,941 — 4,638 398,750 473,329 78 69,941 145 7,208 378,655 456,027 78 69,941 145 7,208 378,655 456,027 — — 913 — (913) — — — — (615) (14,395) (15,010) 78 69,941 1,058 6,593 363,347 441,017 78 — — — (45) 33 — — — 2,570 (19,905) (17,335) — 69,941 — 6,026 418,309 494,276 78 69,941 — 8,596 398,359 476,974	Attributable to equity shareholders of Merrymaking Investments Share capital Revaluation reserve Statutory reserve Exchange fluctuation reserve (Accumulated losses)/ Retained earnings Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 — — — — — — 78 — — — — 78 — — — — (45) (45) 78 — — — (45) 33 78 — — — (45) 33 — — — 2,570 (19,905) (17,335) — — 145 — (145) — — 69,941 — 4,638 398,750 473,329 78 69,941 145 7,208 378,655 456,027 78 69,941 145 7,208 378,655 456,027 — — 913 — (913) — — — — (615) (14,395) (15,010) 78 69,941 1,058 6,593 363,347 441,017 78 — — — (45) 33 — — — 2,570 (19,905) (17,335) — 69,941 — 6,026 418,309 494,276 78 69,941 — 8,596 398,359 476,974	Attributable to equity shareholders of Merrymaking Investments Share capital Revaluation reserve Statutory reserve Exchange fluctuation reserve (Accumulated losses)/ Retained earnings Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 — — — — — — 78 — — — — 78 — — — — (45) (45) 78 — — — (45) 33 78 — — — (45) 33 — — — 2,570 (19,905) (17,335) — — 145 — (145) — — 69,941 — 4,638 398,750 473,329 78 69,941 145 7,208 378,655 456,027 78 69,941 145 7,208 378,655 456,027 — — 913 — (913) — — — — (615) (14,395) (15,010) 78 69,941 1,058 6,593 363,347 441,017 78 — — — (45) 33 — — — 2,570 (19,905) (17,335) — 69,941 — 6,026 418,309 494,276 78 69,941 — 8,596 398,359 476,974	Attributable to equity shareholders of Merrymaking Investments Share capital Revaluation reserve Statutory reserve Exchange fluctuation reserve (Accumulated losses)/ Retained earnings Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 — — — — — — 78 — — — — 78 — — — — (45) (45) 78 — — — (45) 33 78 — — — (45) 33 — — — 2,570 (19,905) (17,335) — — 145 — (145) — — 69,941 — 4,638 398,750 473,329 78 69,941 145 7,208 378,655 456,027 78 69,941 145 7,208 378,655 456,027 — — 913 — (913) — — — — (615) (14,395) (15,010) 78 69,941 1,058 6,593 363,347 441,017 78 — — — (45) 33 — — — 2,570 (19,905) (17,335) — 69,941 — 6,026 418,309 494,276 78 69,941 — 8,596 398,359 476,974	Attributable to equity shareholders of Merrymaking Investments Share capital Revaluation reserve Statutory reserve Exchange fluctuation reserve (Accumulated losses)/ Retained earnings Total HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 — — — — — — 78 — — — — 78 — — — — (45) (45) 78 — — — (45) 33 78 — — — (45) 33 — — — 2,570 (19,905) (17,335) — — 145 — (145) — — 69,941 — 4,638 398,750 473,329 78 69,941 145 7,208 378,655 456,027 78 69,941 145 7,208 378,655 456,027 — — 913 — (913) — — — — (615) (14,395) (15,010) 78 69,941 1,058 6,593 363,347 441,017 78 — — — (45) 33 — — — 2,570 (19,905) (17,335) — 69,941 — 6,026 418,309 494,276 78 69,941 — 8,596 398,359 476,974	Total equity HK$’000 — 78 (45)
Share capital HK$’000 — 78 — 78 78 — — — 78 78 — — 78 78 — — 78	Revaluation reserve HK$’000 — — — — — — — 69,941 69,941 69,941 — — 69,941 — — 69,941 69,941	Statutory reserve HK$’000 — — — — — — 145 — 145 145 913 — 1,058 — — — —	Exchange fluctuation reserve HK$’000 — — — — — 2,570 — 4,638 7,208 7,208 — (615) 6,593 — 2,570 6,026 8,596	(Accumulated losses)/ Retained earnings HK$’000 — — (45) (45) (45) (19,905) (145) 398,750 378,655 378,655 (913) (14,395) 363,347 (45) (19,905) 418,309 398,359
					33
					33 464,748 — 460,770
					925,551
					925,551 — (25,527)
					900,024
					33 464,748 496,555
					961,336

– 117 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

CONSOLIDATED STATEMENT OF CASH FLOWS

Cash flows from operating activities (Loss)/Profit before taxation Adjustments for: Interest expenses Interest income Gain on disposal of a subsidiary Gain on bargain purchase Depreciation Amortisation of mining right Amortisation of prepaid lease payments Impairment loss of property, plant and equipment Unrealised exchange difference Operating loss before working capital changes (Increase)/Decrease in inventories Increase in trade and notes receivables Increase in prepayments, deposits and other receivables Decrease/(Increase) in amount due from a director Decrease in amount due from a related company Increase in amount due from a shareholder Increase in amount due from immediate holding company Increase/(Decrease) in other payables and accruals (Decrease)/Increase in amount due to a director Increase in amount due to ultimate holding company Increase in amount due to a related company Cash used in operations Interest paid Net cash used in operating activities	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (24,511) 416,082 16,232 1,713 (2) (8) (316) (8) — (421,665) 1,064 134 1,972 — 555 91 — 926 — 1,544 (5,006) (1,191) 184 (17) (904) — (5,901) (337) — 6 — 20 — — — — 7,656 (857) (69) 132 — — — — (4,040) (2,244) (4,457) — (8,497) (2,244)	Year ended 31 December 2008 HK$’000 382,648 15,131 (27) (8) (421,665) 1,007 5 639 926 1,249 (20,095) (289) (1,036) (23,456) 6 20 — — 14,741 (99) 186 — (30,022) (1,567) (31,589)	Period from 28 November 2007 (date of incorporation) to 31 December 2007 HK$’000 (45) — — — — — — — — — (45) — — — (10) — (19) (59) 45 — — 10 (78) — (78)

– 118 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired Interest received Addition of exploration and evaluation assets Purchases of property, plant and equipment Disposal of a subsidiary, net of cash out flow Increase in restricted deposits Net cash (used in)/from investing activities Cash flows from financing activities Bank loan raised Other loans Proceeds from issue of shares Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period/year Effect of foreign exchange rate changes, net Cash and cash equivalents at end of period/year Analysis of balances of cash and cash equivalents Cash at bank and in hand	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) — 3,972 2 8 (722) — (912) (7) — (89) — (101) (1,632) 3,783 11,364 — — — — — 11,364 — 1,235 1,539 671 — 1 (3) 1,907 1,536 1,907 1,536	Year ended 31 December 2008 HK$’000 3,972 27 (251) (4,960) (89) (101) (1,402) — 33,675 — 33,675 684 — (13) 671 671	Period from 28 November 2007 (date of incorporation) to 31 December 2007 HK$’000 — — — — — —
			—
			— — 78
			78
			— — —
			—
			—

– 119 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

NOTES TO THE FINANCIAL INFORMATION

1. CORPORATE INFORMATION

Merrymaking Investments is a limited liability company incorporated in British Virgin Islands. The address of the registered office is P.O. Box 957, Offshore Incorporation Centre, Road Town, Tortola, British Virgin Islands, and the principal place of business is Room 2111, 21/F., West Tower, Shun Tak Centre, 168–200 Connaught Road, Hong Kong.

The principal activity of Merrymaking Investments is investment holding. The principal activities of its subsidiaries are set out in note 20 to the Financial Information.

The Financial Information is presented in Hong Kong dollars, which is the same as the functional currency of Merrymaking Investments.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

During the Relevant Periods, the HKICPA issued a number of new and revised HKFRSs (herein collectively referred to as ‘‘new HKFRSs’’). For the purpose of preparing and presenting the Financial Information of the Relevant Periods, the Merrymaking Group has consistently applied all these new HKFRSs over the Relevant Periods.

The Merrymaking Group has not early applied the following new and revised standards, amendments or interpretations that have been issued but are not yet effective.

HKFRSs (Amendments)	Amendment to HKFRS 5 as part of improvements to HKFRSs issued in 20081
HKFRSs (Amendments)	Improvements to HKFRSs issued in 20092
HKAS 27 (Revised in 2008)	Consolidated and Separate Financial Statements1
HKAS 39 (Amendment)	Eligible Hedged Items1
HKFRS 1 (Revised in 2008)	First-time Adoption of HKFRS1
HKFRS 2 (Amendment)	Amendment to HKFRS 2 Group Cash-settled Share-based Payment Transactions4
HKFRS 3 (Revised)	Business Combinations1
HK(IFRIC)-Int 17	Distributions of Non-cash Assets to Owners1
HK(IFRIC)-Int 18	Transfers of Assets from Customers3

1 Effective for annual periods beginning on or after 1 July 2009
2 Amendments that are effective for annual periods beginning on or after 1 July 2009 and 1 January 2010, as appropriate
3 Effective for transfers on or after 1 July 2009
4 Effective for annual periods beginning on or after 1 January 2010

The adoption of HKFRS 3 (Revised) may affect the accounting for business combination for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. HKAS 27 (Revised) will affect the accounting treatment for changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control, which will be accounted for as equity transactions. The Merrymaking Group is in the process of making an assessment of the potential impact of the other new and revised standards or interpretations. The Merrymaking Group is not yet in a position to determine the impact of these new and revised standards or interpretations on the results of operations and financial position of the Merrymaking Group. These new and revised standards or interpretations may result in changes in the future as to how the results and financial position of the Merrymaking Group are prepared and presented.

3. GOING CONCERN

As at 30 June 2009, the outstanding interest bearing borrowings amounted to approximately HK$231,573,000, which were due for repayment and renewal within the next twelve months. These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Merrymaking Group’s ability to continue as a going concern.

– 120 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

Nevertheless, the directors of Merrymaking Investments have adopted the going concern basis in the preparation of the Financial Information based on the following:

(i) the written intention of continuing financial support provided by Real Power Holdings Limited (‘‘Real Power’’) and TRXY Development (HK) Limited (‘‘TRXY’’), being immediate and ultimate holding companies of Merrymaking Investments, in the future twelve months from the date of approval of the Financial Information;
(ii) as disclosed in the Letter From The Board of this circular, after completion of the sales and purchase agreement dated 1 September 2009 entered into between the Company, Win Team Investments Limited, Real Power and TRXY, the Company may conduct share placement and it is expected that the share placement will raise a gross amount of not less than US$90 million (equivalent to approximately HK$697,600,000), out of which US$30 million (equivalent to approximately HK$232,530,000) is intended to be used for repayment of the loans of the Merrymaking Group, Pleasing Results Limited and Max Joyce Limited; and
(iii) the directors have obtained the PRC authority’s opinion that Tianyu Coal and Tianyu Gongmao compile with the PRC rules and conditions to renew all mining rights upon their expiration. The directors are of opinion that Tianyu Coal and Tianyu Gongmao will be entitled to renew all mining rights upon their expiration accordingly.

Accordingly, the directors of Merrymaking Investments are of the opinion that it is appropriate to prepare the Financial Information on a going concern basis. Should the Merrymaking Group be unable to continue to operate as a going concern, adjustments would have to be made to write-down the value of assets to their recoverable amounts, to provide for further liabilities that might arise and to reclassify non-current assets and non-current liabilities as current assets and current liabilities. The effects of these potential adjustments have not been reflected in the Financial Information.

4. SIGNIFICANT ACCOUNTING POLICIES

Statement of compliance

The Financial Information have been prepared in accordance with all applicable Hong Kong Financial Reporting Standards (‘‘HKFRSs’’), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (‘‘HKASs’’) and Interpretations issued by the HKICPA, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. The Financial Information also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. A summary of the significant accounting policies adopted by the Merrymaking Group is set out below.

Basis of preparation of the Financial Information

The Financial Information has been prepared on the historical cost.

The preparation of Financial Information in conformity with HKFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of HKFRSs that have significant effect on the Financial Information and estimates with a significant risk of material adjustment in the next year are discussed in note 5.

– 121 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

Basis of consolidation

Financial Information incorporates the financial statements of Merrymaking Investments and entities controlled by Merrymaking Investments (its subsidiaries). Control is achieved where Merrymaking Investments has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The results of subsidiaries acquired or disposed of during the period/year are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by other members of the Merrymaking Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Business combinations

The acquisition of businesses is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Merrymaking Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under HKFRS 3 ‘‘Business Combinations’’ are recognised at their fair values at the acquisition date.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Merrymaking Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Merrymaking Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

Goodwill

Goodwill represents the excess of the cost of a business combination over the Merrymaking Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities.

Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to cash generating units and is tested annually for impairment.

Any excess of the Merrymaking Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of a business combination or an investment in an associate is recognised immediately in profit or loss.

Subsidiaries

Subsidiaries are entities controlled by the Merrymaking Group. Control exists when the Merrymaking Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.

An investment in a subsidiary is consolidated into the Financial Information from the date that control commences until the date that control ceases. Intra-group balances and transactions and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the Financial Information. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.

In the Merrymaking Investments’ statement of financial position, investment in a subsidiary is stated at cost less impairment losses.

– 122 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

Revenue recognition

Provided it is probable that the economic benefits will flow to the Merrymaking Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows:

(i) Sale of goods

Revenue is recognised when goods are delivered at the customers’ premises which is taken to be the point in time when the customer has accepted the goods and the related risks and rewards of ownership. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.

(ii) Interest income

Interest income is recognised as it accrues using the effective interest method.

Employee benefits

Defined contribution plan

The employees of the Merrymaking Group are required to participate in a central pension scheme operated by the local municipal government. The Merrymaking Group are required to contribute certain percentage of their payroll costs to the central pension scheme. The contributions are charged to the income statement as they become payable in accordance with the rules of the central pension scheme.

Short-term employee benefits

Employee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date. Nonaccumulating compensated absences such as sick leave and maternity leave are not recognised until the time of leave.

Borrowing costs

All borrowing costs are recognised as expenses in the Relevant Periods in which they are incurred.

Operating lease charges

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged in the income statement on a straight-line basis over the period of the lease.

Taxation

Income tax for the Relevant Periods comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in the income statement except to the extent that they relate to items recognised directly in equity, in which case they are recognised in equity.

Current tax is the expected tax payable on the taxable income for the Relevant Periods, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous years.

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised.

– 123 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the end of the reporting period. Deferred tax assets and liabilities are not discounted.

The carrying amount of a deferred tax asset is reviewed at each end of the reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.

Property, plant and equipment

Property, plant and equipment, other than construction in progress, are stated at historical cost, less accumulated depreciation and impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its present working condition and location for its intended use.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to The Merrymaking Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged in the income statement during the Relevant Periods in which they are incurred.

Other than mining structures, depreciation of each asset is calculated using the straight-line method to allocate its cost less its residual value over its estimated useful life. The estimated useful lives of property, plant and equipment are as follows:

Buildings 10–30 years with 3–5% residual value Tools and other equipment 5–15 years with 3% residual value Mining related machinery and equipment 3–15 years with 3–5% residual value Motor vehicles 5–10 years with 3–5% residual value

Mining structures (including the main and auxiliary mine shafts and underground tunnels) are depreciated on the units of production method utilising only recoverable coal reserves as the depletion base.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each statement of financial position date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are included in the income statement.

Construction in progress

Construction in progress represents property, plant and equipment under construction or pending installation, and is stated at cost less impairment losses. Cost comprises direct costs of construction including borrowing costs attributable to the construction during the period of construction. No provision for depreciation is made on construction in progress until such time as the relevant assets are completed and ready for intended use.

Prepaid lease payment

Prepaid lease payments are stated at cost less accumulated amortisation and impairment losses. Cost represents consideration paid for the rights to use the land on which various buildings and mining structures are situated for periods of 24 and 29 years. Amortisation of land use rights is calculated on a straight-line basis over the period of the land use rights.

Mining right

Mining right is stated at cost less accumulated amortisation and impairment losses and is amortised based on the units of production method utilising only recoverable coal reserves as the depletion base.

– 124 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

Exploration and evaluation assets

Exploration and evaluation assets are recognised at cost on initial recognition. Subsequent to initial recognition, exploration and evaluation assets are stated at cost less any accumulated impairment losses. Exploration and evaluation assets include the cost of mining and exploration rights and the expenditures incurred in the search for mineral resources as well as the determination of the technical feasibility and commercial viability of extracting those resources. When the technical feasibility and commercial viability of extracting mineral resources become demonstrable, previously recognised exploration and evaluation assets are reclassified as either intangible assets or other fixed assets. These assets are assessed for impairment before reclassification.

Impairment of exploration and evaluation assets

The carrying amount of the exploration and evaluation assets is reviewed annually and adjusted for impairment in accordance with HKAS 36 Impairment of Assets whenever one of the following events or changes in circumstances indicate that the carrying amount may not be recoverable (the list is not exhaustive):

(i) the period for which the Merrymaking Group has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed;
(ii) substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned;
(iii) exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the Merrymaking Group has decided to discontinue such activities in the specific area; or
(iv) sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale.

An impairment loss is recognised in the income statement whenever the carrying amount of an asset exceeds its recoverable amount.

Impairment of tangible and intangible assets other than goodwill

At each end of the reporting period, the Merrymaking Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. In addition, intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that they may be impaired. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount under another standard, in which case the reversal of the impairment loss is treated as revaluation increase under that standard.

Inventories

Coal inventories are stated at the lower of weighted average cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

When coal inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognised as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs.

Inventories of ancillary materials, spare parts and small tools used in production are stated at cost less impairment losses for obsolescence.

– 125 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

Trade and other receivables

Trade and other receivables are initially recognised at fair value and thereafter stated at amortised cost less allowance for impairment of doubtful debts, except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for impairment of doubtful debts.

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and short-term highly liquid investments which are readily convertible into known amounts of cash and which are subject to insignificant risks of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Merrymaking Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

Other payables

Other payables are initially recognised at fair value and thereafter stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between the amount initially recognised and redemption value being recognised in the income statement over the period of the borrowings, together with any interest and fees payable, using the effective interest method.

Translation of foreign currencies

Foreign currency transactions during the Relevant Periods are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the end of the reporting period. Exchange gains and losses are recognised in income statement.

Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated using foreign exchange rates ruling at the dates the fair value was determined.

The results of foreign operations are translated into Hong Kong dollars at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Statement of financial position items are translated into Hong Kong dollars at the foreign exchange rates ruling at the end of the reporting period. The resulting exchange differences are recognised directly in statement of comprehensive income.

On disposal of a foreign operation, the cumulative amount of the exchange differences recognised in statement of comprehensive income which relate to that foreign operation is included in the calculation of the profit or loss on disposal.

Related parties

A party is considered to be related to the Merrymaking Group if:

(a) the party, directly, or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with, the Merrymaking Group; (ii) has an interest in the Merrymaking Group that gives it significant influence over the Merrymaking Group; or (iii) has joint control over the Merrymaking Group;
(b) the party is a jointly-controlled entity;
(c) the party is a member of the key management personnel of the Merrymaking Group;
(d) the party is a close member of the family of any individual referred to in (a) or (c);

– 126 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

(e) the party is an entity that is controlled, jointly-controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (c) or (d); or
(f) the party is a post-employment benefit plan for the benefit of employees of the Merrymaking Group, or of any entity that is a related party of the Merrymaking Group.

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

Provision and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Merrymaking Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made.

Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, whose existence will only be confirmed by the occurrence or non-occurrence of one or more future events are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

5. KEY SOURCES OF ESTIMATION UNCERTAINTY

The Merrymaking Group’s financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the Financial Information. The Merrymaking Group bases the assumptions and estimates on historical experience and on various other assumptions that the Merrymaking Group believes to be reasonable and which form the basis for making judgements about matters that are not readily apparent from other sources. On an on-going basis, management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change.

The selection of critical accounting policies, the judgements and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing the Financial Information. The principal accounting policies are set forth in note 4. The Merrymaking Group believes the following critical accounting policies involve the most significant judgements and estimates used in the preparation of the Financial Information.

Coal reserves

Engineering estimates of the Merrymaking Group’s coal reserves are inherently imprecise and represent only approximate amounts because of the subjective judgements involved in developing such information. There are authoritative guidelines regarding the engineering criteria that have to be met before estimated coal reserves can be designated as ‘‘proved’’ and ‘‘probable’’. Proved and probable coal reserves estimates are updated at regular basis have taken into account recent production and technical information about the mine. In addition, as prices and cost levels change from year to year, the estimate of proved and probable coal reserves also changes. This change is considered a change in estimate for accounting purposes and is reflected on a prospective basis in related depreciation and amortisation rates.

Despite the inherent imprecision in these engineering estimates, these estimates are used in determining depreciation expenses, amortisation expenses and impairment loss. Depreciation and amortisation rates are determined based on estimated proved and probable coal reserve quantity (the denominator) and capitalised costs of mining structures and mining rights (the numerator). The capitalised cost of mining structures and mining rights are depreciated and amortised based on the units of coal produced respectively.

Impairments

In considering the impairment losses that may be required for certain of the Merrymaking Group’s assets which include property, plant and equipment, exploration and evaluation assets, mining right, prepaid lease payments, the recoverable amount of the asset needs to be determined. The recoverable amount is the greater of the net selling price and

– 127 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

the value in use. It is difficult to precisely estimate selling price because quoted market prices for these assets may not be readily available. In determining the value in use, expected cash flows generated by these assets are discounted to their present value, which requires significant judgement relating to items such as level of sale volume, selling price and amount of operating costs. The Merrymaking Group uses all readily available information in determining an amount that is reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of items such as sale volume, selling price and amount of operating costs.

In considering the impairment losses that may be required for current receivables and other financial assets, future cashflows need to be determined. One of the key assumptions that have to be applied is about the ability of the debtors to settle the receivables. Notwithstanding that the Merrymaking Group has used all available information to make this estimation, inherent uncertainty exists and actual write-offs may be higher than the amount estimated.

Depreciation

Other than the mining structures, property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets, after taking into account the estimated residual value. The Merrymaking Group reviews the estimated useful lives of the assets regularly. The useful lives are based on the Merrymaking Group’s historical experience with similar assets and taking into account anticipated technological changes. The depreciation expense for future periods is adjusted of there are significant changes from previous estimates.

6. SEGMENT INFORMATION

The Merrymaking Group has adopted HKFRS 8 Operating Segments with effect from 1 January 2009. HKFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Merrymaking Group that are regularly reviewed by the chief operating decision maker, the Merrymaking Group’s directors, in order to allocate resources to the segments and to assess their performance. In contrast, the predecessor Standard (HKAS 14 Segment Reporting) required an entity to identify two sets of segments (business and geographical) using a risks and returns approach, with the entity’s ‘‘system of internal financing reporting to key management personnel’’ serving only as the starting point for the identification of such segments. No segmental analysis was presented in prior years as the Merrymaking Group is principally engaged in investment holding. The application of HKFRS 8 has not resulted in a redesignation of the Merrymaking Group’s reportable segments as compared with the reportable segments determined in accordance with HKAS 14.

The Merrymaking Group’s operating segments are aggregated into a single reportable segment and accordingly no separate segment information is prepared.

7. TURNOVER AND REVENUE

Turnover Sales of coals Other revenue Bank interest income	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) 6,793 — 2 8	Year ended 31 December 2008 HK$’000 917 27	Period from 28 November 2007 (date of incorporation) to 31 December 2007 HK$’000 —
			—

– 128 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

8. FINANCE COSTS

Interest on: Bank borrowing wholly repayable within 5 years Loans from a director wholly repayable within 5 years Other loans wholly repayable within 5 years	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) 480 — 595 450 15,157 1,263 16,232 1,713	Year ended 31 December 2008 HK$’000 — 1,050 14,081 15,131	Period from 28 November 2007 (date of incorporation) to 31 December 2007 HK$’000 — — —
			—

9. (LOSS)/PROFIT BEFORE TAXATION

(Loss)/Profit before taxation is arrived at after charging/(crediting):

Amortisation of mining right Amortisation of prepaid lease payment Auditors’ remuneration Cost of inventories sold Depreciation (note 15) Gain on disposal of a subsidiary Impairment loss on property, plant and equipment Preliminary expenses Staff costs (including directors’ remuneration — note 10) — salaries and allowances — pension scheme contributions	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) 1,972 — 555 91 1 — 5,352 99 1,064 134 (316) (8) — 926 — — 4,529 462 55 —	Year ended 31 December 2008 HK$’000 5 639 6 3,557 1,007 (8) 926 — 4,440 93	Period from 28 November 2007 (date of incorporation) to 31 December 2007 HK$’000 — — — — — — — — — —

– 129 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

10. DIRECTORS’ REMUNERATION

Salaries and allowances Li Shao Yu1 Ma Li Rong1 Ma Li Shan2 Retirement scheme contributions Li Shao Yu1 Ma Li Rong1 Ma Li Shan2 Total Li Shao Yu1 Ma Li Rong1 Ma Li Shan2	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) — — 20 — — — 20 — — — — — — — — — — — 20 — — — 20 —	Year ended 31 December 2008 HK$’000 — — — — — — — — — — — —	Period from 28 November 2007 (date of incorporation) to 31 December 2007 HK$’000 — — —
			—
			— — —
			—
			— — —
			—

1 Appointed on 11 December 2007

2 Appointed on 11 December 2007 and resigned on 17 January 2009

During the Relevant Periods, no emoluments were paid to the directors as an inducement to join or upon joining the Merrymaking Group or as compensation for loss of office. No directors waived or agreed to waive any emoluments during the Relevant Periods.

11. FIVE HIGHEST PAID EMPLOYEES

The emoluments of the five highest paid individuals of the Merrymaking Group during the Relevant Periods are as follows:

Salaries, allowances and benefits in kind Pension scheme contributions	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) 334 52 — — 334 52	Year ended 31 December 2008 HK$’000 433 — 433	Period from 28 November 2007 (date of incorporation) to 31 December 2007 HK$’000 — —
			—

The emoluments of the five individuals with the highest emoluments were within the range of HK$Nil to HK$1,000,000 during the Relevant Periods.

– 130 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

12. TAXATION

Current tax: PRC: — charge for the period/year Deferred tax: PRC: — credit for the period/year	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) — — (47) (109) (47) (109)	Year ended 31 December 2008 HK$’000 — (159) (159)	Period from 28 November 2007 (date of incorporation) to 31 December 2007 HK$’000 — —
			—

The charge for the period/year can be reconciled to the (loss)/profit per the consolidated income statement as follows:

(Loss)/Profit before taxation Tax at the statutory tax rates Income not subject to tax Expenses not deductible for tax Tax allowance for capital expenditure Tax losses not recognised Deferred taxation Taxation credit	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (24,511) 416,082 (6,077) 104,020 (79) (112,430) 3,703 80 (30) (29) 2,483 8,359 (47) (109) (47) (109)	Year ended 31 December 2008 HK$’000 382,648 95,662 (105,145) 3,899 (59) 5,643 (159) (159)	Period from 28 November 2007 (date of incorporation) to 31 December 2007 HK$’000 (45)
			(8) — 8 — — —
			—

Pursuant to the rules and regulations of the British Virgin Islands, Merrymaking Investments is exempt from any income tax in British Virgin Islands.

No provision for the Hong Kong profits tax has been provided during the Relevant Periods as the subsidiaries incorporated in Hong Kong did not have assessable profits subject to Hong Kong profits tax.

The provision for PRC income tax is calculated on the assessable profit of the subsidiaries in the PRC at a statutory income tax rate of 25% during the Relevant Periods.

– 131 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

13. LOSS ATTRIBUTABLE TO EQUITY HOLDERS OF MERRYMAKING INVESTMENTS

Loss attributable to equity holders of Merrymaking Investments is dealt with in the accounts of Merrymaking Investments as follows:

Loss attributable to equity holders	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) 1 2	Year ended 31 December 2008 HK$’000 8	Period from 28 November 2007 (date of incorporation) to 31 December 2007 HK$’000 45

14. LOSS PER SHARE

Loss per share has not been presented as such information is not considered meaningful for the purpose of this report.

15. PROPERTY, PLANT AND EQUIPMENT

Cost At 28 November 2007 (date of incorporation) and 1 January 2008 Acquisition of subsidiaries Additions Exchange realignment At 1 January 2009 Additions Exchange realignment At 30 June 2009 Accumulated depreciation and impairment losses At 28 November 2007 (date of incorporation) and 1 January 2008 Depreciation charge for the year Impairment loss Exchange realignment At 1 January 2009 Depreciation charge for the period Exchange realignment At 30 June 2009 Net book value At 30 June 2009 At 31 December 2008 At 31 December 2007	Buildings HK$’000 — 5,719 — 42 5,761 — (4) 5,757 — 211 — 2 213 174 — 387 5,370 5,548 —	Mining structure HK$’000 — 42,181 — 314 42,495 — (49) 42,446 — 21 926 13 960 105 (1) 1,064 41,382 41,535 —	Mining related machinery and equipment HK$’000 — 8,193 4,081 115 12,389 61 (15) 12,435 — 628 — 9 637 609 — 1,246 11,189 11,752 —	Tools and other equipment HK$’000 — 651 223 8 882 210 (2) 1,090 — 85 — — 85 103 (1) 187 903 797 —	Motor vehicles HK$’000 — 1,077 197 10 1,284 — (2) 1,282 — 62 — — 62 73 — 135 1,147 1,222 —	Construction in progress HK$’000 — — 459 5 464 641 (1) 1,104 — — — — — — — — 1,104 464 —	Total HK$’000 — 57,821 4,960 494
							63,275 912 (73)
							64,114
							— 1,007 926 24
							1,957 1,064 (2)
							3,019
							61,095
							61,318
							—

– 132 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

16. PREPAID LEASE PAYMENTS

Cost At the beginning of period/year Acquisition of subsidiaries Exchange realignment At the end of period/year Accumulated amortisation At the beginning of period/year Charge for the period/year Exchange realignment At the end of period/year Net book value At the end of period/year Analysed for reporting purposes as: Current portion Non-current portion	At 30 June 2009 HK$’000 28,984 — (33) 28,951 647 555 (2) 1,200 27,751 At 30 June 2009 HK$’000 1,107 26,644 27,751	At 31 December 2008 2007 HK$’000 HK$’000 — — 28,770 — 214 — 28,984 — — — 639 — 8 — 647 — 28,337 — At 31 December 2008 2007 HK$’000 HK$’000 1,109 — 27,228 — 28,337 —	At 31 December 2008 2007 HK$’000 HK$’000 — — 28,770 — 214 — 28,984 — — — 639 — 8 — 647 — 28,337 — At 31 December 2008 2007 HK$’000 HK$’000 1,109 — 27,228 — 28,337 —
			—

The leasehold lands situated in PRC are held under medium term lease.

On 12 March 2007, the Wuhai Bureau of City Planning issued Construction Land Use Permits for the coal mine of Tianyu Coal, covering the residential, ventilation and industrial and administrative areas. The Wuhai Land and Resource Bureau will issue the operational land use permit for the coal mine as a component of the project final checking and acceptance process. Prepaid lease payments amounting HK$Nil, HK$14,833,000 and HK$14,500,000 as at 31 December 2007 and 2008 and 30 June 2009 respectively have not yet obtained the title certificates of the land (note 42).

Certain prepaid lease payments were pledged to secure bank loan granted to the Merrymaking Group (note 30).

– 133 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

17. GOODWILL

Cost At the beginning of period/year Acquisition of a subsidiary (note 37(b)(i)) Eliminated upon disposal of a subsidiary (note 37(a)) At the end of period/year Impairment loss At the beginning of period/year Charge for the period/year Exchange realignment At the end of period/year Carrying value At the end of period/year	At 30 June 2009 HK$’000 — — — — — — — — —	At 31 December 2008 2007 HK$’000 HK$’000 — — 4 — (4) — — — — — — — — — — — — —	At 31 December 2008 2007 HK$’000 HK$’000 — — 4 — (4) — — — — — — — — — — — — —
			—
			— — —
			—
			—

18. EXPLORATION AND EVALUATION ASSETS

Cost At 28 November 2007 (date of incorporation) and 1 January 2008 Acquisition of subsidiaries Additions Exchange realignment At 1 January 2009 Additions Exchange realignment At 30 June 2009	Mining right HK$’000 (notes 1 & 2) — 977,925 — 7,279 985,204 — (1,126) 984,078	Others HK$’000 (note 3) — 2,821 251 25 3,097 722 (4) 3,815	Total HK$’000 — 980,746 251 7,304
			988,301 722 (1,130)
			987,893

Notes:

The mining right will be expired in December 2010. The directors of Merrymaking Investments have obtained the PRC authority’s opinion that the Merrymaking Group complies with the PRC rules and conditions to renew the mining right upon its expiration. The directors are of opinion that the Merrymaking Group will be entitled to renew the mining right upon its expiration accordingly.
Pursuant to the two loan agreements entered into between Wuhai City Menggang and an equity holder of Wuhai City Menggang dated 17 December 2007 and 29 July 2008 respectively, the mining right with carrying amount of HK$Nil, HK$985,204,000 and HK$984,078,000 as at 31 December 2007 and 2008 and 30 June 2009 respectively was pledged to secure the other loans (note 32). However, at 30 June 2009, the legal charge has not yet been registered with the relevant authorities in the PRC. In this respect, the directors consider that the relevant legal charge has not yet become effective.
Others represent the geological and geophysical costs, drilling and exploration expenses directly attributable to exploration activities.

– 134 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

19. MINING RIGHT

Cost At the beginning of period/year Acquisition of subsidiaries Exchange realignment At the end of period/year Accumulated amortisation and impairment At the beginning of period/year Charge for the period/year Exchange realignment At the end of period/year Net book value At the end of period/year	At 30 June 2009 HK$’000 380,345 — (435) 379,910 5 1,972 (1) 1,976 377,934	At 31 December 2008 2007 HK$’000 HK$’000 — — 377,534 — 2,811 — 380,345 — — — 5 — — — 5 — 380,340 —	At 31 December 2008 2007 HK$’000 HK$’000 — — 377,534 — 2,811 — 380,345 — — — 5 — — — 5 — 380,340 —
			—
			— — —
			—
			—

The mining right will be expired in December 2010. The directors of Merrymaking Investments have obtained the PRC authority’s opinion that the Merrymaking Group complies with the PRC rules and conditions to renew the mining right upon its expiration. Based on the advice from the Company’s legal counsel, Tianyu Gongmao will be entitled to renew the mining right upon its expiration accordingly.

Pursuant to the two loan agreements entered into between Wuhai City Menggang and an equity holder of Wuhai City Menggang dated 17 December 2007 and 29 July 2008 respectively, the mining right with carrying amount of HK$Nil, HK$380,340,000 and HK$377,934,000 as at 31 December 2007 and 2008 and 30 June 2009 respectively was pledged to secure the other loans (note 32). However, at 30 June 2009, the legal charge has not yet been registered with the relevant authorities in the PRC. In this respect, the directors consider that the relevant legal charge has not yet become effective.

20. INTERESTS IN SUBSIDIARIES

Unlisted shares, at cost Amounts due to subsidiaries	At 30 June 2009 HK$’000 20 (20) —	At 31 December 2008 2007 HK$’000 HK$’000 20 — (20) — — —	At 31 December 2008 2007 HK$’000 HK$’000 20 — (20) — — —
			—

The balances with subsidiaries are unsecured, interest-free and have no fixed terms of repayment. The carrying amounts of these amounts due from/to subsidiaries approximate to their fair values.

– 135 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

Particulars of the principal subsidiaries are as follows:

			Percentage of	Percentage of
	Place of	Issued and	equity interest held
	incorporation	paid up capital/	by Merrymaking
Name of subsidiary	and operations	registered capital	Investments			Principal activities
			directly	indirectly
Brilliant Wise Limited	HK	HK$10,000	100%		—	Investment holding
Favour Mind Limited	HK	HK$10,000	100%		—	Investment holding
Wuhai City Menggang	PRC	HK$320,000,000	—	58%		Investment holding
Industrial
Development Co.,
Ltd.
Tianyu Gongmao	PRC	RMB46,000,000	—	58%		Exploration of coal
Company Limited						business, coal
						mining, coal sales
						and development of
						underground coking
						coal mine
Tianyu Coal Company	PRC	RMB43,000,000	—	58%		Development of
Limited						underground coking
						coal mine
Wuhai Taida Trading	PRC	RMB3,000,000	—	58%		Dormant
Company Limited

On 8 November 2006, Favour Mind Limited entered into an agreement with Beijing Taitong Hengye Trading Development Company Limited, an independent third party, for the incorporation of Wuhai City Menggang. Pursuant to the agreement, Favour Mind Limited would contribute HK$15,000,000, representing 30% equity interest in Wuhai City Menggang. Wuhai City Menggang was incorporated on 1 December 2006.

On 19 July 2007, Favour Mind Limited entered into the first capital injection agreement with Beijing Taitong Hengye Trading Development Company Limited and Zhong Tie Trust Company Limited (formerly known as ‘‘Equity Trust Company Limited’’), an independent third party, to introduce Zhong Tie Trust Company Limited as an investor to Wuhai City Menggang. Pursuant to the agreement, Favour Mind Limited has committed to make additional contribution of HK$30,000,000. The changes in registered capital and equity interests were registered and effective on 29 November 2007. Upon completion of the registration, Favour Mind Limited held 25% equity interest in Wuhai City Menggang at an aggregate investment of HK$45,000,000.

On 25 December 2007, Favour Mind Limited and Brilliant Wise Limited entered into the second capital injection agreement with Beijing Taitong Hengye Trading Development Company Limited and Zhong Tie Trust Company Limited to introduce Brilliant Wise Limited as an investor to Wuhai City Menggang at a consideration of HK$140,000,000. The changes in registered capital and equity interests were registered and effective on 23 January 2008. Upon completion of the registration, Favour Mind Limited and Brilliant Wise Limited held 14.0625% and 43.75% equity interests in Wuhai City Menggang respectively.

On 15 February 2008, Merrymaking Investments acquired the entire issued share capital of Favour Mind Limited from an independent third party and directors of Merrymaking Investments at the total cost of acquisition HK$1,000 and HK$9,000 respectively. Upon completion of the acquisition, Merrymaking Investments indirectly held 14.0625% equity interest in Wuhai City Menggang through Favour Mind Limited.

On 4 June 2008, Merrymaking Investments acquired the entire issued share capital of Brilliant Wise Limited from a related company at the total cost of acquisition HK$10,000. Upon completion of the acquisition, Merrymaking Investments indirectly held 43.75% equity interest in Wuhai City Menggang through Brilliant Wise Limited.

– 136 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

Pursuant to the two loan agreements entered into between Wuhai City Menggang and an equity holder of Wuhai City Menggang dated 17 December 2007 and 29 July 2008 respectively, the entire equity interests in Tianyu Gongmao and Tianyu Coal were pledged to secure the other loans (note 32). However, at 30 June 2009, the share charge in respect of the entire equity interest in Tianyu Gongmao has not yet been registered with the relevant authorities in the PRC. In this respect, the directors consider that the relevant share charge has not yet become effective. Nevertheless, in the opinion of the legal adviser, the equity holder of Wuhai City Menggang is entitled to request the share charge to be registered at any time such that the share charge shall become effective immediately.

21. INVENTORIES

Coal Auxiliary materials, spare parts and tools	At 30 June 2009 HK$’000 683 78 761	At 31 December 2008 2007 HK$’000 HK$’000 541 — 407 — 948 —	At 31 December 2008 2007 HK$’000 HK$’000 541 — 407 — 948 —
			—

All inventories are expected to be recovered within one year.

22. TRADE AND NOTES RECEIVABLES

Trade receivables Notes receivables	At 30 June 2009 HK$’000 2,292 227 2,519	At 31 December 2008 2007 HK$’000 HK$’000 1,617 — — — 1,617 —	At 31 December 2008 2007 HK$’000 HK$’000 1,617 — — — 1,617 —
			—

The Merrymaking Group’s trading terms with its customers generally have no credit terms and non-interest bearing. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that the Merrymaking Group’s trade receivables relate to a large number of diversified customers, there is no significant concentration of credit risk.

The ageing analysis of trade receivables was as follows:

Within 30 days 31 to 60 days 61 to 90 days Over 90 days	At 30 June 2009 HK$’000 675 — — 1,617 2,292	At 31 December 2008 2007 HK$’000 HK$’000 800 — 66 — — — 751 — 1,617 —	At 31 December 2008 2007 HK$’000 HK$’000 800 — 66 — — — 751 — 1,617 —
			—

– 137 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

The ageing analysis of trade receivables net of allowance for doubtful debt that were past due but not impaired are as follows:

Within 30 days 31 to 60 days 61 to 90 days Over 90 days	At 30 June 2009 HK$’000 675 — — 1,617 2,292	At 31 December 2008 2007 HK$’000 HK$’000 800 — 66 — — — 751 — 1,617 —	At 31 December 2008 2007 HK$’000 HK$’000 800 — 66 — — — 751 — 1,617 —
			—

Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Merrymaking Group. Based on past experience, the directors of the Merrymaking Group 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. The Merrymaking Group does not hold any collateral or other credit enhancements over these balances.

Notes receivables are bank accepted bill of exchange with maturity of less than one year.

23. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

The Merrymaking Group

(a) HK$Nil, HK$79,418,000 and HK$79,327,000 as at 31 December 2007 and 2008 and 30 June 2009 was paid as deposits for the acquisition of property, plant and equipment.

The carrying amount of deposit paid approximates to its fair value.

(b) The carrying amount of prepayments, deposits and other receivables approximate to their fair values.

24. AMOUNT DUE FROM A DIRECTOR

					At 30 June	At 31 December	At 31 December
					2009	2008	2007
					HK$’000	HK$’000	HK$’000
Li	Shao	Yu			—	—	10
					Maximum amount outstanding
							Period from
							28 November
							2007 (date of
						Year ended	incorporation)
			Six	months	ended 30 June	31 December	to 31 December
				2009	2008	2008	2007
				HK$’000	HK$’000	HK$’000	HK$’000
					(unaudited)
Li	Shao	Yu		—	—	10	10

The amount due is unsecured, interest-free and repayable on demand.

25. AMOUNT DUE FROM A SHAREHOLDER/IMMEDIATE HOLDING COMPANY

The amounts due are unsecured, interest free and repayable on demand.

– 138 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

26. RESTRICTED BANK DEPOSIT

Restricted bank deposit	At 30 June 2009 HK$’000 102	At 31 December 2008 2007 HK$’000 HK$’000 103 —

Restricted bank deposit represents the deposit set aside for a litigation that claim against Tianyu Gongmao ordered by the court (note 38(ii)).

27. CASH AT BANK AND IN HAND

								GROUP			COMPANY
						At	30 June	At 31 December		At 30 June	At 31 December
							2009	2008	2007	2009	2008	2007
							HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Cash	at	bank	and	in	hand		1,907	671	—	8	9	—

The cash at bank and in hand of the Merrymaking Group included currencies denominated in Renminbi (‘‘RMB’’) which amounted to approximately HK$Nil, HK$577,000 and HK$1,840,000. 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 Merrymaking Group is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

Cash at banks earns interest at floating rates based on daily bank deposit rates. The carrying amounts of the cash at bank and in hand approximate to their fair values.

28. OTHER PAYABLES AND ACCRUALS

The Merrymaking Group

Other payables and accruals Receipts in advance Merrymaking Investments Other payables and accruals	At 30 June 2009 HK$’000 75,425 471 75,896 At 30 June 2009 HK$’000 —	At 31 December 2008 2007 HK$’000 HK$’000 68,324 45 — — 68,324 45 At 31 December 2008 2007 HK$’000 HK$’000 — 45

The directors consider that the carrying amounts of these items approximate to their fair values.

29. AMOUNTS DUE TO A RELATED COMPANY/DIRECTORS/ULTIMATE HOLDING COMPANY

The amounts due are unsecured, interest free and with no fixed terms of repayment.

– 139 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

30. BANK LOAN

Bank loan repayable: — within one year	At 30 June 2009 HK$’000 11,356	At 31 December 2008 2007 HK$’000 HK$’000 — —

The bank loan was secured and carried interest at 80% above the benchmark interest rate announced by the People’s Bank of China. There is no bank borrowing as at 31 December 2007 and 2008.

As at 30 June 2009, the Merrymaking Group’s bank loan was secured by:

(i) A legal charge on the prepaid lease payments. The net book values of the prepaid lease payments approximately HK$13,251,000 as at 30 June 2009 (note 16); and
(ii) Corporate guarantee executed by an independent third party to the extent of HK$11,356,000 as at 30 June 2009.

The carrying amount of bank loan approximates to its fair value.

31. LOANS FROM A DIRECTOR

Loans from a director repayable: — within one year	At 30 June 2009 HK$’000 17,981	At 31 December 2008 2007 HK$’000 HK$’000 17,386 —

The loans were unsecured, interest bearing at 8% per annum and with fixed terms of repayment.

32. OTHER LOANS

Other loans repayable: — within one year	At 30 June 2009 HK$’000 202,236	At 31 December 2008 2007 HK$’000 HK$’000 191,282 —

Pursuant to the two loan agreements entered into between Wuhai City Menggang and an equity holder of Wuhai City Menggang dated 17 December 2007 and 29 July 2008 respectively, the loans were secured by:

(i) A legal charge on the exploration and evaluation assets. The net book value of exploration and evaluation asset was HK$Nil, HK$985,204,000 and HK$984,078,000 as at 31 December 2007 and 2008 and 30 June 2009 respectively (note 18);
(ii) A legal charge on the mining right. The net book value of mining right was HK$Nil, HK$380,340,000 and HK$377,934,000 as at 31 December 2007 and 2008 and 30 June 2009 respectively (note 19);
(iii) Share charges on the equity interests in Wuhai City Menggang owned by Beijing Taitong Hengye Trading Development Company Limited, a minority equity holder of Wuhai City Menggang, and Favour Mind Limited;
(iv) Share charge on the entire equity interest in Tianyu Gongmao;
(v) Share charge on the entire equity interest in Tianyu Coal;

– 140 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

(vi) Corporate guarantees executed by a related company and an independent third party to the extent of HK$Nil, HK$191,282,000 and HK$202,236,000 as at 31 December 2007 and 2008 and 30 June 2009 respectively; and
(vii) Personal guarantee executed by an independent third party to the extent of HK$Nil, HK$191,282,000 and HK$202,236,000 as at 31 December 2007 and 2008 and 30 June 2009 respectively.

However, at 30 June 2009, none of the abovementioned charges as set out in (i) to (iv) were registered with the relevant authorities in the PRC. In this respect, the directors consider that the relevant charges have not yet become effective. Nevertheless, in the opinion of the legal adviser, the equity holder of Wuhai City Menggang is entitled to request the share charge on the entire equity interest in Tinanyu Gongmao to be registered at any time such that the share charge shall become effective immediately.

33. DEFERRED TAX LIABILITIES

At 28 November 2007 (date of incorporation) and 1 January 2008 Acquisition of subsidiaries Credit to consolidated income statement Exchange realignment At 1 January 2009 Credit to consolidated income statement Exchange realignment At 30 June 2009 34. SHARE CAPITAL Authorised: 50,000 ordinary shares of US$1 each Issued and fully paid: 10,000 ordinary shares of US$1 each	Prepaid lease payments HK$’000 — 6,187 (159) 44 6,072 (47) (7) 6,018	Prepaid lease payments HK$’000 — 6,187 (159) 44 6,072 (47) (7) 6,018	Exploration and evaluation assets HK$’000 — 241,574 — 1,798 243,372 — (278) 243,094 At 30 June 2009 HK$’000 390 78	Mining rights Total HK$’000 HK$’000 — — 93,055 340,816 — (159) 692 2,534 93,747 343,191 — (47) (107) (392) 93,640 342,752 At 31 December 2008 2007 HK$’000 HK$’000 390 390 78 78	Total HK$’000 — 340,816 (159) 2,534
					343,191 (47) (392)
					342,752

					78

Merrymaking Investments was incorporated with an authorised share capital of US$50,000, divided into 50,000 ordinary shares of US$1 each.

On 11 December 2007, Merrymaking Investments issued 10,000 ordinary shares of US$1 each at par.

– 141 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

35. RESERVES

At 28 November 2007 (date of incorporation) Total comprehensive income for the period At 31 December 2007 Total comprehensive income for the year At 31 December 2008 Total comprehensive income for the period At 30 June 2009 For the six months ended 30 June 2008 (unaudited) At 1 January 2008 Total comprehensive income for the period At 30 June 2008	Accumulated losses HK$’000 — (45)
	(45) (8)
	(53) (1)
	(54)
	(45) (2)
	(47)

36. CAPITAL MANAGEMENT

The Merrymaking Group manages its capital to ensure that entities in the Merrymaking Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balance. The Merrymaking Group’s overall strategy remains unchanged from prior year.

The capital structure of the Merrymaking Group consists of debt, which includes bank loan, loans from a director, other loans, equity attributable to equity holders of Merrymaking Investments comprising share capital and reserves.

The directors of the Merrymaking Group review the capital structure on a regular basis. As part of this review, the directors consider the cost of capital and the risks associated with each class of capital. Based on recommendations of the directors, the Merrymaking Group will balance its overall capital structure through the new capital issues, the issue of new debt or the redemption of existing debt.

– 142 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

37. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS

(a) Disposal of a subsidiary

(i) On 4 June 2008, Merrymaking Investments disposed of its entire interests in Max Joyce Limited to a related company at a consideration of HK$10,000. The net liabilities of the disposed subsidiary at the date of disposal are summarised as follows:

Net liabilities disposed of: Amount due from a related company Cash at bank Amount due to a director Amount due to ultimate holding company Goodwill eliminated (note 17) Gain on disposal of a subsidiary Consideration Satisfied by cash	HK$’000 10 99 (4) (107)
	(2) 4 8
	10
	10

The business sold during the year ended 31 December 2008 did not contributed to the Merrymaking Group’s turnover and incurred a loss of HK$8,000 which reduced the consolidate profit for the year ended 31 December 2008 by the same amount.

The business sold during the year ended 31 December 2008 contributed net operating cash inflow of HK$99,000 to the Merrymaking Group’s net operating cash outflow.

(ii) On 28 April 2009, the Merrymaking Group disposed of its entire interests in Wuhai Taida Trading Company Limited at a consideration of RMB3,000,000 (equivalent to HK$3,411,000) to Mr. Huang Man Yu, director of Tianyu Coal and Tianyu Gongmao. The net assets of the disposed subsidiary at the date of disposal are summarised as follows:

Net assets disposed of: Other receivables Gain on disposal of a subsidiary Satisfied by: Cash consideration received	HK$’000 3,095
	316
	3,411

The business sold during the six months ended 30 June 2009 did not contribute significantly to the Merrymaking Group’s revenue and net loss for the period.

An analysis of the net inflow of cash and cash equivalents in respect of the disposal of a subsidiary is as follows:

Cash consideration received Cash at bank and in hand disposed of	HK$’000 10 (99)
	(89)

– 143 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

(b) Acquisition of subsidiaries

(i) On 18 January 2008, Merrymaking Investments acquired the entire issued share capital of Max Joyce from immediate holding company at the total cost of acquisition of HK$10,000.

The identifiable assets and liabilities, stating at the fair value and net carrying amount, arising from the acquisition are as follows:

Amount due from intermediate holding company Amount due to a director Net assets acquired Goodwill (note 17) Total cost of acquisition Satisfied by cash	HK$’000 10 (4
	6 4
	10
	10

The business acquired during the year ended 31 December 2008 did not contributed to the Merrymaking Group’s turnover and incurred a loss of HK$8,000 since its acquisition.

Had the business combination been effected at 1 January 2008, the turnover and the loss for the year ended 31 December 2008 would have been HK$Nil and HK$8,000 respectively.

(ii) On 15 February 2008, Merrymaking Investments acquired the entire issued share capital of Favour Mind Limited from an independent third party and directors of Merrymaking Investments at the total cost of acquisition HK$1,000 and HK$9,000 respectively.

The identifiable assets and liabilities, stating at the fair value and net carrying amount, arising from the acquisition are as follows:

Available-for-sale investment Amount due from a related company Cash at bank Other payables and accruals Amount due to a director Amount due to an invested company Loans from a director Net (liabilities)/assets acquired Gain on bargain purchase Total cost of acquisition Satisfied by cash	Acquirees’ carrying amount before business combination HK$’000 44,455 10 161 (11) (162) (30,000) (16,336) (1,883)	Fair value adjustment HK$’000 63,633 — — — — — — 63,633	Fair value HK$’000 108,088 10 161 (11 (162 (30,000 (16,336
			61,750 (61,740
			10
			10

Included in turnover and loss for the year ended 31 December 2008 is HK$Nil and HK$1,053,000 respectively since its acquisition.

– 144 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

Had these business combinations been effected at 1 January 2008, the turnover for the year ended 31 December 2008 would have been HK$Nil, and the loss for the year ended 31 December 2008 would have been HK$1,203,000.

(iii) On 4 June 2008, Merrymaking Investments acquired the entire issued share capital of Brilliant Wise Limited from a related company at the total cost of acquisition of HK$10,000.

The identifiable assets and liabilities, stating at the fair value and net carrying amount, arising from the acquisition are as follows:

Property, plant and equipment Prepaid lease payments Exploration and evaluation assets Mining right Deposits Inventories Trade receivables Prepayments, deposits and other receivables Amounts due from related companies Amount due from ultimate holding company Cash at bank and in hand Other payables and accruals Amount due to a director Other loans Deferred tax liabilities Net assets Minority interests Previous interest held Net assets acquired Gain on bargain purchase Total cost of acquisition Satisfied by cash	Acquirees’ carrying amount before business combination HK$’000 57,821 28,770 339,368 130,146 56,261 651 564 3,739 30,010 67 3,841 (52,944) (100) (143,432) (118,624) 336,138	Fair value adjustment HK$’000 — — 641,378 247,388 — — — — — — — — — — (222,192) 666,574	Fair value HK$’000 57,821 28,770 980,746 377,534 56,261 651 564 3,739 30,010 67 3,841 (52,944) (100) (143,432) (340,816)
			1,002,712 (482,083) (160,694)
			359,935 (359,925)
			10
			10

Included in turnover and loss for the year ended 31 December 2008 is HK$917,000 and HK$21,854,000 respectively since its acquisition.

Had these business combinations been effected at 1 January 2008, the turnover for the year ended 31 December 2008 would have been HK$917,000, and the loss for the year ended 31 December 2008 would have been HK$13,346,000.

(iv) Analysis of the net cash inflow of cash and cash equivalents in respect of the acquisition of subsidiaries are as follows:

Net cash outflow in respect of the acquisition Cash consideration paid Cash at bank acquired	HK$’000 (30) 4,002
	3,972

– 145 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

38. LITIGATION

(i) Pursuant to an equity transfer agreement dated 18 August 2007 (the ‘‘Equity Transfer Agreement’’) between Wuhai City Menggang and the then equity-holders of Tianyu Gongmao (the ‘‘Original Equity-holders’’), Wuhai City Menggang agreed to acquire the entire equity interest in Tianyu Gongmao from the Original Equity-holders at a cash consideration of RMB90 million, of which only RMB45 million has been paid by Wuhai City Menggang. As advised by Wuhai City Menggang, it has not settled the remaining consideration of RMB45 million because there is a dispute over the production capacity of Tiangyu Gongmao. It is the view of Wuhai City Menggang that the actual production capacity of Tianyu Gongmao (i.e. 129,600 tons per annum) when it was taken over from the Original Equity-holders was substantially lower than what was agreed between Wuhai City Menggang and the Original Equity-holders under the relevant Equity Transfer Agreement (i.e. 300,000 tons per annum). After taking over Tianyu Gongmao from the Original Equity-holders, further investments have been made by Wuhai City Menggang to Mine No. 1 to increase its production capacity. Currently, Mine No. 1 has the ability to produce up to 300,000 tons per annum.

A civil claim was brought by the Original Equity-holders to the PRC court against Wuhai City Menggang and pursuant to the first instance judgment handed down by the Wuhai City Intermediate People’s Court (烏海市中級人民法院) in April 2009, Wuhai City Menggang was ordered to pay the remaining consideration of RMB45 million and the breach of contract fixed damages of RMB9 million to the Original Equity-holders. Wuhai City Menggang has appealed to the Inner Mongolia Autonomous Region Superior People’s Court (內蒙古自治區高級人民法院) against the first instance judgment and also applied for, among others, the court’s order for the verification of the production capacity of Tianyu Gongmao. Based on the appeal case progress statement dated 27 November 2009 issued by Beijing Deheng Law Office (北京市德恒律師事務所), being the law firm engaged by Wuhai City Menggang for handling such litigation, the Court has already approved Wuhai City Menggang’s application for verification of Tianyu Gongmao’s production capacity. The parties are currently in negotiation about the selection of valuer responsible for the handling of the relevant verification. The verification result will form the basis for the management of Wuhai City Menggang to further negotiate with the Original Equity-holders for a downward adjustment of the transfer consideration. As advised by Guantao, the transfer of the equity interest in Tianyu Gongmao has been duly registered with the Department of Commerce (商務廳) and the Administration for Industry and Commerce (工商局) of Inner Mongolia, the PRC and Wuhai City Menggang has already been registered as the sole holder of the 100% equity interest in Tianyu Gongmao. The shareholder’s rights and title of Wuhai City Menggang in Tianyu Gongmao are binding and enforceable against any third party and could only be challenged through a judicial procedure.

Upon the application of the Original Equity-holders, the Wuhai City Intermediate People’s Court (烏海市中級人民法院) handed down the Civil Judgment (No. 30, Minyichuzhi, Wuzhongfa (2008) (烏中法(2008)民一初字第30號) on 19 January 2009 to freeze the entire equity interest in Tianyu Gongmao held by Wuhai City Menggang pending the outcome of the case. Pursuant to such order, Wuhai City Menggang shall not be allowed to transfer or pledge its interest in, or receive any dividend from, Tianyu Gongmao. The operation of Wuhai City Menggang and its subsidiaries however is not affected by such order or the litigation.

– 146 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

(ii) Tianyu Gongmao was named as a joint defendant on 13 November 2007 alleging that the Company failed to pay a consideration approximately amounting to RMB82,000 regarding a construction work performed by a plaintiff.

The directors of the Merrymaking Group has reviewed the claims against Tianyu Gongmao and based on the advice from the Merrymaking Group’s legal counsel, are of the view that Tianyu Gongmao has a valid defence to the litigation and, accordingly, has not provided for any claim arising from the litigation, other than the related legal and other costs.

Apart from the actions against Wuhai City Menggang and Tianyu Gongmao disclosed above, there were no other material outstanding writs and litigations against the Merrymaking Group.

39. CAPITAL COMMITMENTS

The Merrymaking Group had the following capital commitments at the end of the reporting period:

Contracted, but not provided for: Addition investment in Wuhai City Menggang Purchase of property, plant and equipment	At 30 June 2009 HK$’000 35,000 108,404 143,404	GROUP At 31 December 2008 2007 HK$’000 HK$’000 — — 108,529 — 108,529 —	GROUP At 31 December 2008 2007 HK$’000 HK$’000 — — 108,529 — 108,529 —
			—

Merrymaking Investments has no capital commitment as at 31 December 2007 and 2008 and 30 June 2009.

40. RELATED PARTY TRANSACTIONS

In addition to those transactions and balances disclosed elsewhere in these Financial Information, the Merrymaking Group had the following significant transactions with the following related parties based on the term mutually agreed between the parties:

Loan interest paid/payable to a director: Li Shao Yu	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) 595 450	Year ended 31 December 2008 HK$’000 1,050	Period from 28 November 2007 (date of incorporation) to 31 December 2007 HK$’000 —

– 147 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

41. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Merrymaking Group’s major financial instruments include cash at bank, bank loan, loans from a director and other loans. Details of these financial instruments are disclosed in the respective notes.

The main risks arising from the Merrymaking Group’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. The board of directors reviews and agrees policies for managing each of these risks and they are summarised below.

Interest rate risk

The Merrymaking Group’s exposure to the risk of changes in market interest rates relates primarily to bank loan with floating interest rates (note 30).

The Merrymaking Group regularly reviews and monitors the mix of fixed and floating interest rate borrowings in order to manage its interest rate risk. Floating rate interest income and expenses are credited/charged to the income statement as earned/incurred.

The Merrymaking Group’s policy is to manage its interest rate risk to reduce or maintain its current level of interest bearing borrowings.

At statement of financial position dates, a hypothetical one percentage point increase/decrease in interest rates on the short-term bank borrowings, that are carried at variable rates would increase/decrease the interest expense as follows:

Increase/decrease in interest expense	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) 114 —	Year ended 31 December 2008 HK$’000 —	Period from 28 November 2007 (date of incorporation) to 31 December 2007 HK$’000 —

Foreign currency risk

The directors of Merrymaking Investments consider that the Merrymaking Group is not exposed to significant foreign currency risk as substantially all the transactions of Merrymaking Group’s PRC subsidiaries are denominated in Renminbi, which is the same as the functional currency of the PRC subsidiaries.

Liquidity risk

The Merrymaking Group is exposed to liquidity risk as at 31 December 2008 and 30 June 2009. The current liabilities of the Merrymaking Group exceed its current assets by HK$267,863,000 and HK$290,117,000 as at 31 December 2008 and 30 June 2009 respectively. The maintenance of Merrymaking Group as a going concern depends on the ongoing support from the ultimate holding company and the Company.

All Merrymaking Group’s financial liabilities as at 31 December 2007 and 2008 and 30 June 2009 are repayable within one year or on demand. In the opinion of the directors of the Merrymaking Group, the preparation of maturity profile is not necessary.

Credit risk

The Merrymaking Group has no significant concentration of credit risk.

– 148 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

42. CONTINGENT LIABILITIES

Environmental contingencies

Due to the underground coal exploitation method adopted by the Merrymaking Group, the Merrymaking Group has not incurred any significant expenditure on environmental rehabilitation since its establishment. There is, however, no assurance that stringent environmental policies and/or standards on environmental rehabilitation will not be implemented by the relevant authorities in the PRC in the future which require the Merrymaking Group to undertake environmental measures. The financial position of the Merrymaking Group may be adversely affected by any environmental liabilities, which may be imposed under such new environmental policies and/or standards.

Title of the land use right

Tianyu Coal, a subsidiary of Merrymaking Investments, has not yet obtained the title certificates for the land (note 16). According to the legal advice, if Tianyu Coal is found to be liable for the non-compliance of the registration of the title certificates for the land, the maximum expected monetary compensation may amount to approximately HK$2,587,000. In the opinion of the director, he does not believe it probable that Tianyu Coal will be found to be liable. In this regard, no provision has therefore been made in respect of this issue.

Non-compliance of PRC laws and regulations

Brilliant Wise Limited, a subsidiary of Merrymaking Investments, has delayed the payment of the registered capital of Wuhai City Menggang amounting to HK$21,000,000. In the opinion of the legal adviser, Brilliant Wise Limited may be subject to a maximum penalty of HK$3,150,000 imposed by Inner Mongolia Autonomous Region Administration for Industry and Commerce.

43. EVENT AFTER THE STATEMENT OF FINANCIAL POSITION DATE

(i) In compliance with Measures on Accelerating Construction and Acceptance of Coal Mine Safety Quality Standardization and Strict Control over Issuing and Renewal of Coal Production Permit by Inner Mongolia Autonomous Region (No. 182 Neimeijuzi (2009) 《( 內蒙古自治區關於加快煤礦安全質量標準化建設及驗收進度和嚴格核發（換）煤炭生產許可證的辦法》 (內煤局字[2009]182號)) (the ‘‘Notice’’), the Merrymaking Group has suspended its operation since August 2009 for the purpose of carrying out various technical and quality improvements at Mine No. 1 in order to attain the prescribed safety standard. Such improvement must be completed by the end of 2010 according to the Notice. The directors expected that the Merrymaking Group will be able to complete the implementation of the required technical and quality improvements by March 2010. If the Merrymaking Group cannot complete the implementation before 2010 in compliance with the Notice for whatever reasons, Mine No. 1 may be subject to fines and penalties or be ordered by the relevant PRC authority to cease its operations for an indefinite period. In that case, Mine No. 1 will not be allowed to be put into operation and the prospects of the Merrymaking Group’s mining operation will be adversely affected.
(ii) Pursuant to an equity transfer agreement dated 3 April 2009 between Favour Mind and the then equity-holder of Wuhai City Menggang (the ‘‘Original Equity-holder’’), Favour Mind agreed to acquire the 10.9375% equity interest in Wuhai City Menggang from the Original Equity-holder at a cash consideration of HK$35 million. The equity transfer was registered on 6 July 2009 and the equity interest in Wuhai City Menggang by Favour Mind was increased from 14.0625% to 25%. The total equity interest in Wuhai City Menggang indirectly owned by Merrymaking Investments was then increased from 57.8125% to 68.75%.
(iii) In September 2009, registration of the share charge on the entire equity interest in Tianyu Coal has been completed and the relevant share charge has become effective.

– 149 –

ACCOUNTANTS’ REPORT OF MERRYMAKING INVESTMENTS

APPENDIX II

44. IMMEDIATE AND ULTIMATE HOLDING COMPANIES

In the opinion of the directors of Merrymaking Investments, the immediate holding company of Merrymaking Investments is Real Power Holdings Limited, which is incorporated in British Virgin Islands and the ultimate holding company is TRXY Development (HK) Ltd., which is incorporated in Hong Kong.

45. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of Merrymaking Investments or its subsidiaries have been prepared in respect of any period subsequent to 30 June 2009.

Yours faithfully, Morison Heng Certified Public Accountants Hong Kong

– 150 –

ACCOUNTANTS’ REPORT OF PLEASING RESULTS

APPENDIX III

The following is the text of a report received from Morison Heng in respect of the accountants’ report on Pleasing Results for the period from 27 November 2007 (date of incorporation) to 31 December 2007, for the year ended 31 December 2008 and for the six months ended 30 June 2009, for inclusion in this circular.

28 December 2009

The Directors

Winbox International (Holdings) Limited 2/F., Ching Cheong Industrial Building 1–7 Kwai Cheong Road Kwai Chung, New Territories Hong Kong

Dear Sirs,

We set out below our report on the financial information (the ‘‘Financial Information’’) of Pleasing Results Limited (‘‘Pleasing Results’’) and its subsidiary (collectively referred to as the ‘‘Pleasing Group’’) for the period from 27 November 2007 (date of incorporation of Pleasing Results) to 31 December 2007, for the year ended 31 December 2008 and for the six months ended 30 June 2009 (the ‘‘Relevant Periods’’) issued by Winbox International (Holdings) Limited (the ‘‘Company’’), a company incorporated in Cayman Islands with its shares listed on the Main Board of The Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’) dated 28 December 2009 (the ‘‘Circular’’) in connection with the proposed very substantial acquisition of the entire issued share capital of Pleasing Results.

Pleasing Results was incorporated in British Virgin Islands on 27 November 2007 as a private company with limited liability and is principally engaged in investment holding during the Relevant Periods.

As at the date of this report, Pleasing Results has direct interests in the subsidiary as follows:

	Place of	Issued and		Percentage of
	incorporation	fully paid up	equity interest held
Name of subsidiary	and operations	share capital	by Pleasing Results		Principal activities
				Direct Indirect
Max Joyce Limited	Hong Kong	10,000 ordinary shares		100% —	Investment holding
(‘‘Max Joyce’’)		of HK$1 each

The financial year end date of Pleasing Results is 31 December. No statutory audited financial statements have been prepared for Pleasing Results since its date of incorporation as it was incorporated in a country where there is no statutory audit requirement. No statutory audited financial statements have been prepared for Max Joyce since its date of incorporation as it has not carried out any business, except for investment holding. For the purpose of this report, we have, however, reviewed all the relevant transactions during the Relevant Periods and carried out such procedures as we considered necessary for inclusion of the Financial Information relating to these companies in the Circular.

For the purpose of this report, the directors of Pleasing Results have prepared the consolidated financial statements of the Pleasing Group for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (‘‘HKFRSs’’) issued by the Hong Kong Institute of Certified Public

– 151 –

ACCOUNTANTS’ REPORT OF PLEASING RESULTS

APPENDIX III

Accountants (the ‘‘HKICPA’’) (the ‘‘Underlying Financial Statements’’). We have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 ‘‘Prospectuses and the Reporting Accountant’’ as recommended by the HKICPA.

The Financial Information set out in this report has been prepared from the Underlying Financial Statements on the basis set out in note 3 to the Financial Information. No adjustments were deemed necessary by us to the Underlying Financial Statements in preparing our report for inclusion in the Circular.

The Underlying Financial Statements are the responsibility of the directors of the Pleasing Results, who approve their issues. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements to form an opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information together with the notes thereon gives, for the purpose of this report, a true and fair view of the state of affairs of Pleasing Group as at 31 December 2007 and 2008 and 30 June 2009 and of its results and cash flows for the Relevant Periods.

The comparative consolidated statement of comprehensive income, consolidated statement of cash flows and consolidated statement of changes in equity of the Pleasing Group for the six months period ended 30 June 2008, together with the notes thereon (the ‘‘30 June 2008 Financial Information’’), were prepared by the directors of Pleasing Results solely for the purpose of this report. We have reviewed the 30 June 2008 Financial Information in accordance with the Hong Kong Standards on Review Engagement 2410 ‘‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’’ issued by the HKICPA. Our review of the 30 June 2008 Financial Information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the 30 June 2008 Financial Information is not prepared, in all material respects, in accordance with the accounting policies consistent with those used in the preparation of the Financial Information, which conform with HKFRSs.

– 152 –

ACCOUNTANTS’ REPORT OF PLEASING RESULTS

APPENDIX III

CONSOLIDATED INCOME STATEMENT

Notes Turnover 6 Administrative expenses Loss from operations Impairment loss of goodwill Gain on disposal of a subsidiary Finance costs Loss before taxation 7 Taxation 9 Loss for the period/year	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) — — — (3) — (3) — — — 1 — — — (2) — — — (2)	Year ended 31 December 2008 HK$’000 — (7) (7) (12) 1 — (18) — (18)	Period from 27 November 2007 (date of incorporation) to 31 December 2007 HK$’000 — —
			— — — —
			— —
			—

– 153 –

ACCOUNTANTS’ REPORT OF PLEASING RESULTS

APPENDIX III

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Loss for the period/year Other comprehensive income for the period/year Total comprehensive income for the period/year	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) — (2) — — — (2)	Year ended 31 December 2008 HK$’000 (18) — (18)	Period from 27 November 2007 (date of incorporation) to 31 December 2007 HK$’000 — —
			—

– 154 –

ACCOUNTANTS’ REPORT OF PLEASING RESULTS

APPENDIX III

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Notes Current assets Amount due from immediate holding company 14 Cash at bank 15 Current liabilities Amount due to a director 16 Amount due to ultimate holding company 16 NET ASSETS CAPITAL AND RESERVES Share capital 17 Accumulated losses	At 30 June 2009 HK$’000 78 99 177 4 113 117 60 78 (18) 60	At 31 December 2008 2007 HK$’000 HK$’000 78 78 99 — 177 78 4 — 113 — 117 — 60 78 78 78 (18) — 60 78	At 31 December 2008 2007 HK$’000 HK$’000 78 78 99 — 177 78 4 — 113 — 117 — 60 78 78 78 (18) — 60 78
			78
			— —
			—
			78
			78 —
			78

– 155 –

ACCOUNTANTS’ REPORT OF PLEASING RESULTS

APPENDIX III

STATEMENT OF FINANCIAL POSITION

Notes Non-current assets Investment in a subsidiary 13 Current assets Amount due from immediate holding company 14 Current liabilities Amount due to a subsidiary 13 Net current assets NET ASSETS CAPITAL AND RESERVES Share capital 17 Accumulated losses 19	At 30 June 2009 HK$’000 10 78 10 68 78 78 — 78	At 31 December 2008 2007 HK$’000 HK$’000 10 — 78 78 10 — 68 78 78 78 78 78 — — 78 78	At 31 December 2008 2007 HK$’000 HK$’000 10 — 78 78 10 — 68 78 78 78 78 78 — — 78 78
			78
			—
			78
			78
			78 —
			78

– 156 –

ACCOUNTANTS’ REPORT OF PLEASING RESULTS

APPENDIX III

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

At 27 November 2007 (date of incorporation) Change in equity: Issue of shares Total comprehensive income for the period At 31 December 2007 At 1 January 2008 Change in equity: Total comprehensive income for the year At 31 December 2008 At 1 January 2009 Change in equity: Total comprehensive income for the period At 30 June 2009 For the six months ended 30 June 2008 (unaudited) At 1 January 2008 Change in equity: Total comprehensive income for the period At 30 June 2008	Share capital HK$’000 — 78 — 78 78 — 78 78 — 78 78 — 78	Accumulated losses HK$’000 — — — — — (18) (18) (18) — (18) — (2) (2)	Total HK$’000 — 78 — 78 78 (18) 60 60 — 60 78 (2) 76

– 157 –

ACCOUNTANTS’ REPORT OF PLEASING RESULTS

APPENDIX III

CONSOLIDATED STATEMENT OF CASH FLOWS

Cash flows from operating activities Loss before taxation Adjustments for: Gain on disposal of a subsidiary Impairment loss on goodwill Operating loss before working capital changes Decrease in amount due from a related company Increase in amount due from immediate holding company Decrease in amount due to ultimate holding company Net cash used in operating activities Cash flows from investing activities Acquisition of a subsidiary, net of cash acquired Net cash outflow from disposal of a subsidiary Net cash from investing activities	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) — (2) — (1) — — — (3) — 10 — — — (77) — (70) — 179 — (10) — 169	Year ended 31 December 2008 HK$’000 (18) (1) 12 (7) 10 — (73) (70) 179 (10) 169	Period from 27 November 2007 (date of incorporation) to 31 December 2007 HK$’000 — — — — — (78) — (78) — — —

– 158 –

ACCOUNTANTS’ REPORT OF PLEASING RESULTS

APPENDIX III

Cash flows from financing activities Proceeds from issue of shares Net cash from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period/year Cash and cash equivalents at end of period/year Analysis of balances of cash and cash equivalents Cash at bank	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) — — — — — 99 99 — 99 99 99 99	Year ended 31 December 2008 HK$’000 — — 99 — 99 99	Period from 27 November 2007 (date of incorporation) to 31 December 2007 HK$’000 78
			78
			— —
			—
			—

– 159 –

ACCOUNTANTS’ REPORT OF PLEASING RESULTS

APPENDIX III

NOTES TO THE FINANCIAL INFORMATION

1. CORPORATE INFORMATION

Pleasing Results is a limited liability company incorporated in British Virgin Islands. The address of the registered office is P.O. Box 957, Offshore Incorporation Centre, Road Town, Tortola, British Virgin Islands, and the principal place of business is Room 2111, 21/F., West Tower, Shun Tak Centre, 168–200 Connaught Road, Hong Kong.

The principal activity of Pleasing Results is investment holding. The principal activities of its subsidiary are set out in note 13 to the Financial Information.

The Financial Information is presented in Hong Kong dollars, which is the same as the functional currency of Pleasing Group.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

During the Relevant Periods, the HKICPA issued a number of new and revised HKFRSs (herein collectively referred to as ‘‘new HKFRSs’’). For the purpose of preparing and presenting the Financial Information of the Relevant Periods, Pleasing Group has consistently applied all these new HKFRSs over the Relevant Periods.

Pleasing Group has not early applied the following new and revised standards, amendments or interpretations that have been issued but are not yet effective.

HKFRSs (Amendments)	Amendment to HKFRS 5 as part of improvements to HKFRSs issued in 20081
HKFRSs (Amendments)	Improvements to HKFRSs issued in 20092
HKAS 27 (Revised in 2008)	Consolidated and Separate Financial Statements1
HKAS 39 (Amendment)	Eligible Hedged Items1
HKFRS 1 (Revised in 2008)	First-time Adoption of HKFRS1
HKFRS 2 (Amendment)	Amendment to HKFRS 2 Group Cash-settled Share-based Payment Transactions4
HKFRS 3 (Revised)	Business Combinations1
HK(IFRIC)-Int 17	Distributions of Non-cash Assets to Owners1
HK(IFRIC)-Int 18	Transfers of Assets from Customers3

1 Effective for annual periods beginning on or after 1 July 2009
2 Amendments that are effective for annual periods beginning on or after 1 July 2009 and 1 January 2010, as appropriate
3 Effective for transfers on or after 1 July 2009
4 Effective for annual periods beginning on or after 1 January 2010

The adoption of HKFRS 3 (Revised) may affect the accounting for business combination for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. HKAS 27 (Revised) will affect the accounting treatment for changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control, which will be accounted for as equity transactions. Pleasing Group is in the process of making an assessment of the potential impact of the other new and revised standards or interpretations. Pleasing Group is not yet in a position to determine the impact of these new and revised standards or interpretations on the results of operations and financial position of Pleasing Group. These new and revised standards or interpretations may result in changes in the future as to how the results and financial position of Pleasing Group are prepared and presented.

3. SIGNIFICANT ACCOUNTING POLICIES

Statement of compliance

– 160 –

ACCOUNTANTS’ REPORT OF PLEASING RESULTS

APPENDIX III

also comply with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. A summary of the significant accounting policies adopted by the Pleasing Group is set out below.

Basis of preparation of the Financial Information

The Financial Information has been prepared on the historical cost.

Basis of consolidation

Financial Information incorporates the financial statements of Pleasing Results and entities controlled by Pleasing Results (its subsidiaries). Control is achieved where Pleasing Results has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by other members of the Pleasing Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Business combinations

The acquisition of businesses is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Pleasing Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under HKFRS 3 ‘‘Business Combinations’’ are recognised at their fair values at the acquisition date.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Pleasing Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Pleasing Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

Goodwill

Goodwill represents the excess of the cost of a business combination over the Pleasing Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities.

Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to cash generating units and is tested annually for impairment.

Any excess of the Pleasing Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of a business combination or an investment in an associate is recognised immediately in profit or loss.

– 161 –

ACCOUNTANTS’ REPORT OF PLEASING RESULTS

APPENDIX III

Subsidiaries

Subsidiaries are entities controlled by the Pleasing Group. Control exists when the Pleasing Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.

In the Pleasing Results’ statement of financial position, investment in a subsidiary is stated at cost less impairment losses.

Impairment of tangible and intangible assets other than goodwill

At each end of the reporting period, the Pleasing Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. In addition, intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that they may be impaired. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Other receivables

Other receivables are initially recognised at fair value and thereafter stated at amortised cost less allowance for impairment of doubtful debts, except where the receivables are interest-free loans made to related parties without any fixed repayment terms or the effect of discounting would be immaterial. In such cases, the receivables are stated at cost less allowance for impairment of doubtful debts.

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and short-term highly liquid investments which are readily convertible into known amounts of cash and which are subject to insignificant risks of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the company’s cash management are also included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

Other payables

Other payables are initially recognised at fair value and thereafter stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

Taxation

– 162 –

ACCOUNTANTS’ REPORT OF PLEASING RESULTS

APPENDIX III

Translation of foreign currencies

Related parties

A party is considered to be related to the Pleasing Group if:

(a) the party, directly, or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with, the Pleasing Group; (ii) has an interest in the Pleasing Group that gives it significant influence over the Pleasing Group; or (iii) has joint control over the Pleasing Group;
(b) the party is a jointly-controlled entity;
(c) the party is a member of the key management personnel of the Pleasing Group;
(d) the party is a close member of the family of any individual referred to in (a) or (c);
(e) the party is an entity that is controlled, jointly-controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (c) or (d); or
(f) the party is a post-employment benefit plan for the benefit of employees of the Pleasing Group, or of any entity that is a related party of the Pleasing Group.

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

– 163 –

ACCOUNTANTS’ REPORT OF PLEASING RESULTS

APPENDIX III

Provision and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Pleasing Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made.

Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

The methods, estimates and judgements the directors used in applying the Pleasing Group’s accounting policies have a significant impact on the Pleasing Group’s financial position and operating results. Some of the accounting policies require the Pleasing Group to apply estimates and judgements, on matters that are inherently uncertain. The critical accounting judgements in applying Pleasing Group’s accounting policies are discussed below.

Estimated impairment of goodwill

Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating unit to which goodwill has been allocated. The value in use calculation requires the Pleasing Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. Where the actual future cash flows are less than expected, a material impairment loss may arise.

5. SEGMENT INFORMATION

The Pleasing Group has adopted HKFRS 8 Operating Segments with effect from 1 January 2009. HKFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Pleasing Group that are regularly reviewed by the chief operating decision maker, the Pleasing Group’s directors, in order to allocate resources to the segments and to assess their performance. In contrast, the predecessor Standard (HKAS 14 Segment Reporting) required an entity to identify two sets of segments (business and geographical) using a risks and returns approach, with the entity’s ‘‘system of internal financing reporting to key management personnel’’ serving only as the starting point for the identification of such segments. No segmental analysis was presented in prior years as the Pleasing Group is principally engaged in investment holding. The application of HKFRS 8 has not resulted in a redesignation of the Pleasing Group’s reportable segments as compared with the reportable segments determined in accordance with HKAS 14.

The Pleasing Group’s operating segments are aggregated into a single reportable segment and accordingly no separate segment information is prepared.

6. TURNOVER AND REVENUE

The Pleasing Group did not generate any revenue during the Relevant Periods.

– 164 –

ACCOUNTANTS’ REPORT OF PLEASING RESULTS

APPENDIX III

7. LOSS BEFORE TAXATION

Loss before taxation is arrived at after charging/(crediting):

Auditors’ remuneration Gain on disposal of a subsidiary Impairment loss on goodwill Preliminary expenses Staff costs (including directors’ remuneration — note 8) — salaries and allowances — pension scheme contributions	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) — — — (1) — — — — — — — —	Year ended 31 December 2008 HK$’000 — (1) 12 — — —	Period from 27 November 2007 (date of incorporation) to 31 December 2007 HK$’000 — — — — — —

8. DIRECTORS’ REMUNERATION

During the Relevant Periods, no emoluments were paid by the Pleasing Group to the directors. In addition, no emoluments were paid to the directors as an inducement to join or upon joining the Pleasing Group or as compensation for loss of office. No directors waived or agreed to waive any emoluments during the Relevant Periods.

9. TAXATION

Hong Kong profits tax has been provided at the rate of 17.5% on the estimated assessable profits arising in Hong Kong for the years ended 31 December 2007 and 2008 and for the six months ended 30 June 2008 and at the rate of 16.5% for the six months ended 30 June 2009. No provision for Hong Kong Profits Tax has been made as the Pleasing Group did not generate any taxable profit in Hong Kong during the Relevant Periods.

No deferred tax assets and liabilities are recognised in the Financial Information as the Pleasing Group did not have material temporary differences arising between the tax bases of assets and liabilities and their carrying amounts at 31 December 2007 and 2008 and 30 June 2009.

10. LOSS ATTRIBUTABLE TO EQUITY HOLDERS OF PLEASING RESULTS

Loss attributable to equity holders of Pleasing Results is dealt with in the accounts of Pleasing Results’ as follows:

Loss attributable to equity holders	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) — —	Year ended 31 December 2008 HK$’000 —	Period from 27 November 2007 (date of incorporation) to 31 December 2007 HK$’000 —

11. LOSS PER SHARE

Loss per share has not been presented as such information is not considered meaningful for the purpose of this report.

– 165 –

ACCOUNTANTS’ REPORT OF PLEASING RESULTS

APPENDIX III

12. GOODWILL

COST At 27 November 2007 (date of incorporation) and 1 January 2008 Acquisition of subsidiaries (note 20(b)) Eliminated upon disposal of a subsidiary (note 20(a)) At 31 December 2008 and 30 June 2009 Impairment At 27 November 2007 (date of incorporation) and 1 January 2008 Impairment loss At 31 December 2008 and 30 June 2009 Carrying value At 31 December 2007, 2008 and 30 June 2009	HK$’000 — 24 (12)
	12
	— 12
	12
	—

During the year ended 31 December 2008, Pleasing Results acquired 100% equity interest in Max Joyce for a consideration of HK$10,000 and incurred a goodwill of HK$12,000, as further detailed in note 20(b)(ii). The goodwill was attributable to the expected future profitability of Max Joyce.

As at 31 December 2008, the directors are of opinion that the recoverable amount of the goodwill based in value-in-use calculation was less than its carrying value, an impairment loss of goodwill of HK$12,000 was recognised accordingly.

13. INTEREST IN A SUBSIDIARY

Unlisted shares, at cost Amount due to a subsidiary	At 30 June 2009 HK$’000 10 (10) —	At 31 December 2008 2007 HK$’000 HK$’000 10 — (10) — — —	At 31 December 2008 2007 HK$’000 HK$’000 10 — (10) — — —
			—

The amount due is unsecured, interest free and with no fixed terms of repayment. The carrying amount of the amount due to a subsidiary approximates to its fair value.

Particulars of the subsidiary are as follows:

		Issued and
		paid-up share/	Percentage of equity
	Place of incorporation	registered	attributable to
Name of subsidiary	and operations	capital	the Company	Principal activities
			Direct Indirect
Max Joyce Limited	Hong Kong	HK$10,000	100 —	Investment holding

14. AMOUNT DUE FROM IMMEDIATE HOLDING COMPANY

The amount due is unsecured, interest free and with no fixed terms of repayment.

– 166 –

ACCOUNTANTS’ REPORT OF PLEASING RESULTS

APPENDIX III

15. CASH AT BANK

					GROUP			COMPANY
			At	30 June	At 31 December		At 30 June	At 31 December
				2009	2008	2007	2009	2008	2007
				HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
Cash	at	bank		99	99	—	—	—	—

Cash at banks earns interest at floating rates based on daily bank deposit rates. The carrying amounts of the cash at bank approximate to their fair values.

16. AMOUNTS DUE TO A DIRECTOR/ULTIMATE HOLDING COMPANY

The amounts due are unsecured, interest free and with no fixed terms of repayment.

17. SHARE CAPITAL

Authorised: 50,000 ordinary shares of US$1 each Issued and fully paid: 10,000 ordinary shares of US$1 each	At 30 June 2009 HK$’000 390 78	At 31 December 2008 2007 HK$’000 HK$’000 390 390 78 78	At 31 December 2008 2007 HK$’000 HK$’000 390 390 78 78
			78

Pleasing Results was incorporated with an authorised share capital of US$50,000, divided into 50,000 ordinary shares of US$1 each.

On 13 December 2007, Pleasing Results issued 10,000 ordinary shares of US$1 each at par.

18. CAPITAL MANAGEMENT

The Pleasing Group’s primary objectives when managing capital are to safeguard Pleasing Group’s ability to continue as a going concern, so that it can continue to provide returns for equity holders and benefits for other stakeholders with the level of risk and by securing access to finance at a reasonable cost.

The Pleasing Group manages capital by regularly monitoring its current and expected liquidity requirements rather than using debt/equity ratio analyses.

Neither the Pleasing Company nor its subsidiary is not subject to externally imposed capital requirements during the Relevant Periods.

19. RESERVES

Pleasing Results did not record any profit or loss during the Relevant Periods.

– 167 –

ACCOUNTANTS’ REPORT OF PLEASING RESULTS

APPENDIX III

20. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS

(a) Disposal of a subsidiary

On 4 June 2008, Pleasing Results disposed of its entire interests in Brilliant Wise Limited to a related company at a consideration of HK$10,000. The net liabilities of the disposed subsidiary at the date of disposal are summarised as follows:

Net liabilities disposed of: Investment in an associate Amount due from a related company Amount due from ultimate holding company Cash at bank Amount due to a director Amount due to an associate Goodwill eliminated (note 12) Gain on disposal of a subsidiary Consideration Satisfied by cash	HK$’000 140,000 10 67 20 (100) (140,000)
	(3) 12 1
	10
	10

An analysis of the net outflow of cash and cash equivalents in respect of the disposal of a subsidiary is as follows:

Cash consideration received Cash at bank and in hand disposed of Net outflow of cash in respect of the disposal of a subsidiary	HK$’000 10 (20)
	(10)

The business sold during the year ended 31 December 2008 did not contributed to the Pleasing Group’s turnover and incurred a loss of HK$1,000 which contributed the consolidated loss for the year ended 31 December 2008 by the same amount.

The business sold during the year ended 31 December 2008 contributed net operating cash outflow of HK$80,000 to the Pleasing Group’s net operating cash outflow.

(b) Acquisition of subsidiaries

(i) On 18 January 2008, Pleasing Results acquired the entire issued share capital of Brilliant Wise Limited from immediate holding company at the total cost of acquisition of HK$10,000.

– 168 –

ACCOUNTANTS’ REPORT OF PLEASING RESULTS

APPENDIX III

The identifiable assets and liabilities, stating at the fair value and net carrying amount, arising from the acquisition are as follows:

Amount due from a related company Cash at bank Other payable Amount due to ultimate holding company Net liabilities acquired Goodwill (note 12) Total cost of acquisition Satisfied by cash	HK$’000 10 100 (100) (12)
	(2) 12
	10
	10

The business acquired during the year ended 31 December 2008 did not contributed to the Pleasing Group’s turnover and incurred a loss of HK$1,000 since its acquisition.

Had the business combination been effected at 1 January 2008, the turnover and the loss for the year ended 31 December 2008 would have been HK$Nil and HK$1,000 respectively.

(ii) On 4 June 2008, Pleasing Results acquired the entire issued share capital of Max Joyce from a related company at the total cost of acquisition of HK$10,000.

The identifiable assets and liabilities, stating at the fair value and net carrying amount, arising from the acquisition are as follows:

Amount due from a related company Cash at bank Amount due to a director Amount due to ultimate holding company Net liabilities acquired Goodwill (note 12) Total cost of acquisition Satisfied by cash	HK$’000 10 99 (4) (107)
	(2) 12
	10
	10

The business acquired during the year ended 31 December 2008 did not contributed to the Pleasing Group’s turnover and incurred a loss of HK$6,000 since its acquisition.

Had the business combination been effected at 1 January 2008, the turnover and the loss for the year ended 31 December 2008 would have been HK$Nil and HK$14,000 respectively.

Net cash inflow in respect of the acquisition Cash consideration paid Cash at bank acquired	HK$’000 (20) 199
	179

– 169 –

ACCOUNTANTS’ REPORT OF PLEASING RESULTS

APPENDIX III

21. CAPITAL COMMITMENTS

The Pleasing Group had the following capital commitments at the end of the reporting period:

Contracted, but not provided for: Acquisition of an associate	At 30 June 2009 HK$’000 145,697	GROUP At 31 December 2008 2007 HK$’000 HK$’000 135,959 —	At 30 June 2009 HK$’000 —	COMPANY At 31 December 2008 2007 HK$’000 HK$’000 — —

On 3 January 2008, Max Joyce, a wholly-owned subsidiary of Pleasing Results, entered into an equity transfer agreement (the ‘‘Agreement’’) with Zhong Tie Trust Company Limited (‘‘Zhong Tie’’), to acquire 31.25% equity interest in Wuhai City Menggang Industrial Development Co., Ltd. (‘‘Wuhai City Menggang’’), at a consideration calculated at RMB100,000,000 6 (1 + 13.5%/360 6 N). N is the number of days for the period from 19 July 2007 to the settlement date of total consideration. On 13 March 2009, Max Joyce entered into a supplementary agreement with Zhong Tie, starting from 19 January 2009, the consideration is calculated at the sum of RMB120,250,000 and RMB100,000,000 6 18%/360 6 M. M is the number of days from 19 January 2009 to the settlement date of total consideration.

22. RELATED PARTY TRANSACTIONS

(i) On 18 January 2008, Pleasing Results acquired the entire issued share capital of Brilliant Wise Limited from immediate holding company, Real Power Holdings Limited at the total cost of acquisition of HK$10,000;
(ii) On 4 June 2008, Pleasing Results acquired the entire issued share capital of Max Joyce from a related company, Merrymaking Investments Limited at the total cost of acquisition of HK$10,000; and
(iii) On 4 June 2008, Pleasing Results disposed the entire issued share capital of Brilliant Wise Limited to a related company, Merrymaking Investments Limited at the total consideration of HK$10,000.

23. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Pleasing Group’s major financial instruments include cash at bank and amount due to ultimate holding company. Details of these financial instruments are disclosed in the respective notes.

The main risks arising from the Pleasing Group’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. The board of directors reviews and agrees policies for managing each of these risks and they are summarised below.

Interest rate risk

The Pleasing Group has no significant interest-bearing assets and liabilities. Cash at bank earns interest at floating rates based on daily bank deposits rates.

The Pleasing Group does not have any derivative instruments to reduce its economic exposure to changes in interest

rates.

Foreign currency risk

The directors of Pleasing Results consider that the Pleasing Group is not exposed to significant foreign currency risk.

Liquidity risk

The liquidity of the Pleasing Group is managed and monitored by maintaining sufficient cash balances. The directors of Pleasing Results consider that the Pleasing Group does not have significant liquidity risk.

– 170 –

ACCOUNTANTS’ REPORT OF PLEASING RESULTS

APPENDIX III

All the Pleasing Group’s financial liabilities are repayable on demand. In the opinion of the directors of Pleasing Results, the preparation of maturity profile is not necessary.

Credit risk

The Pleasing Group has no significant concentration of credit risk.

24. IMMEDIATE AND ULTIMATE HOLDING COMPANIES

In the opinion of the directors of Pleasing Results, the immediate holding company of Pleasing Results is Real Power Holdings Limited, which is incorporated in British Virgin Islands and the ultimate holding company is TRXY Development (HK) Ltd., which is incorporated in Hong Kong.

25. EVENT AFTER THE STATEMENT OF FINANCIAL POSITION DATE

In addition to the capital commitment detailed in note 21 above, on 18 September 2009, Max Joyce entered into a further supplementary agreement with Zhong Tie, the consideration for the purchase of the 31.25% equity interest in Wuhai City Menggang should be RMB136,200,000 and payable on or before 3 December 2009. On 2 November 2009, TRXY Development (HK) Limited on behalf of Max Joyce paid RMB30,000,000 to the designated bank account of Zhong Tie. In this connection, Zhong Tie transferred the 31.25% of the equity interest in Wuhai City Menggang to Max Joyce on 11 November 2009. On the same day, Zhong Tie agreed that the remaining balance purchase consideration of the 31.25% of the equity interest in Wuhai City Menggang amounting to RMB106,200,000 should be payable on or before 23 December 2009. On 23 December 2009, Zhong Tie agreed to extend the payment of remaining balance to 28 January 2010.

26. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of Pleasing Results or its subsidiary have been prepared in respect of any period subsequent to 30 June 2009.

Yours faithfully, Morison Heng Certified Public Accountants Hong Kong

– 171 –

APPENDIX IV ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

The following is the text of a report received from Morison Heng in respect of the accountants’ report on Wuhai City Menggang for the period from 1 December 2006 (date of incorporation) to 31 December 2006, for the years ended 31 December 2007 and 2008 and for the six months ended 30 June 2009, for inclusion in this circular.

28 December 2009

The Directors

Winbox International (Holdings) Limited 2/F., Ching Cheong Industrial Building 1–7 Kwai Cheong Road Kwai Chung, New Territories Hong Kong

Dear Sirs,

We set out below our report on the financial information (the ‘‘Financial Information’’) of Wuhai City Menggang Industrial Development Co., Ltd. (‘‘Wuhai City Menggang’’) and its subsidiaries (collectively referred to as the ‘‘Menggang Group’’) for the period from 1 December 2006 (date of incorporation of Wuhai City Menggang) to 31 December 2006, for the years ended 31 December 2007 and 2008 and for the six months ended 30 June 2009 (the ‘‘Relevant Periods’’) issued by Winbox International (Holdings) Limited (the ‘‘Company’’), a company incorporated in Cayman Islands with its shares listed on the Main Board of The Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’) dated 28 December 2009 (the ‘‘Circular’’) in connection with the proposed very substantial acquisition of the entire issued share capital of Merrymaking Investments Limited, an intermediate holding company of Wuhai City Menggang.

Wuhai City Menggang was incorporated in the Peoples’ Republic of China (the ‘‘PRC’’) on 1 December 2006 as a private company with limited liability and is principally engaged in investment holding during the Relevant Periods.

As at the date of this report, Wuhai City Menggang has direct interests in the subsidiaries as follows:

			Percentage
	Place of	Issued and	of equity interest held
	incorporation	fully paid up	by Wuhai City
Name of subsidiary	and operations	share capital	Menggang directly	Principal activities
Tianyu Coal Company Limited	PRC	RMB43,000,000	100%	Development of
(‘‘Tianyu Coal’’)				underground coking
				coal mine
Tianyu Gongmao Company	PRC	RMB46,000,000	100%	Exploration of coal
Limited (‘‘Tianyu				business, coal
Gongmao’’)				mining, coal sales
				and development of
				underground coking
				coal mine

– 172 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

The financial year end date of Wuhai City Menggang is 31 December. The PRC statutory financial statements of Menggang Group were prepared in accordance with the relevant accounting principles and financial regulations applicable to companies established in PRC. They were audited by the following certified public accountants registered in the PRC.

Name		Period covered	Certified Public Accountants
Wuhai	City Menggang	1 December 2006 (date of incorporation)	Wuhai Zhongxin Certified
		to 31 December 2007 and year ended	Public Accountants
		31 December 2008	Company Limited
Tianyu	Coal	Years ended 31 December 2006 and	Wuhai Chengxin Certified
		2007	Public Accountants
			Company Limited
Tianyu	Coal	Year ended 31 December 2008	Wuhai Zhongxin Certified
			Public Accountants
			Company Limited
Tianyu	Gongmao	6 July 2006 (date of incorporation) to	Wuhai Chengxin Certified
		31 December 2006 and year ended	Public Accountants
		31 December 2007	Company Limited
Tianyu	Gongmao	Year ended 31 December 2008	Inner Mongolia Kezheng
			Certified Public
			Accountants Company
			Limited

For the purpose of this report, the directors of Wuhai City Menggang have prepared the consolidated financial statements of the Menggang Group for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (‘‘HKFRSs’’) issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’) (the ‘‘Underlying Financial Statements’’). We have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 ‘‘Prospectuses and the Reporting Accountant’’ as recommended by the HKICPA.

The Underlying Financial Statements are the responsibility of the directors of the Wuhai City Menggang, who approve their issues. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements to form an opinion on the Financial Information and to report our opinion to you.

– 173 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

Basis for disclaimer of opinion

1. Inventories

We were appointed as reporting accountant on 27 August 2009 which was subsequent to the end of the Menggang Group’s Relevant Periods and thus did not observe the counting of the physical inventories at the beginning of the period/year. We were unable to satisfy ourselves by alternative means concerning inventory quantities and conditions held at 31 December 2007, 2008 and 30 June 2009. Since the value of the opening inventories will have an impact on the results and cash flows, we were unable to determine whether adjustments might have been necessary in respect of the results for the period/year reported in the consolidated statement of comprehensive income and the net cash flows from operating activities reported in the consolidated statement of cash flows. In addition, no sufficient stock records and other evidence have been provided to us to substantiate the carrying amounts of inventories of approximately HK$303,000, HK$948,000 and HK$761,000 as at 31 December 2007 and 2008 and 30 June 2009 respectively as included in the consolidated statement of financial position were free from material misstatement.

2. Sales

Menggang Group had recorded sales of coals amounting to HK$405,000, HK$917,000 and HK$6,793,000 for the years ended 31 December 2007 and 2008 and the six months ended 30 June 2009 respectively. However, there was no system of internal control over cash sales on which we could rely for the purpose of our audit and there were no satisfactory audit procedures that we could adopt to confirm independently that all the cash sales were properly recorded. Consequently, we were unable to satisfy ourselves as to the accuracy and completeness of the sales were properly recorded and matched in the Relevant Periods.

3. Salaries and allowances

Salaries and allowances of HK$800,000 had been included in the consolidated income statement for the year ended 31 December 2008. We are unable to obtain adequate supporting documentations in relation to the above payment. Accordingly, we have been unable to satisfy ourselves as to whether these amounts are fairly stated in the Financial Information.

Disclaimer of opinion

Because of the significance of the matters described in the basis for disclaimer of opinion paragraphs, we do not express an opinion on the Financial Information as to whether they give a true and fair view of the state of affairs of Menggang Group as at 31 December 2007, 2008 and 30 June 2009 and of its results and cash flows for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards, and as to whether these financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

– 174 –

APPENDIX IV ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

Report on matters under section 141(4) and 141(6) of the Hong Kong Companies Ordinance

In respect alone of the limitation on our work set out in the basis for disclaimer of opinion paragraph of this report:

we have not obtained all the information and explanations that we considered necessary for the purpose of our audit; and
we were unable to determine whether proper books of account had been kept.

Without qualifying our opinion, we draw attention to note 3 to the Financial Information which indicates that Menggang Group had net current liabilities of HK$102,125,000 as at 30 June 2009 and as further set out in note 17 and note 18 to the Financial Information, Menggang Group has two mining rights, which will be expired in December 2010. The Financial Information has been prepared on a going concern basis, the validity of which is dependent on the success of the renewal of the mining rights upon its expiration, the continual financial support from ultimate holding company of Wuhai City Menggang to finance its future working capital and financial requirement and its ability to generate adequate cash flows from its operations. These conditions, along with other matters as set out in note 3 to the Financial Information, indicates the existence of a material uncertainty which may cast significant doubt about the ability of Menggang Group to continue as a going concern.

The comparative consolidated income statement, consolidated statement of comprehensive income, consolidated statement of cash flows and consolidated statement of changes in equity of Menggang Group for the six months period ended 30 June 2008, together with the notes thereon (the ‘‘30 June 2008 Financial Information’’), were prepared by the director of Wuhai City Menggang solely for the purpose of this report. We have reviewed the 30 June 2008 Financial Information in accordance with the Hong Kong Standards on Review Engagement 2410 ‘‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’’ issued by the HKICPA. Our review of the 30 June 2008 Financial Information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the 30 June 2008 Financial Information is not prepared, in all material respects, in accordance with the accounting policies consistent with those used in the preparation of the Financial Information, which conform with HKFRSs.

– 175 –

APPENDIX IV ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

CONSOLIDATED INCOME STATEMENT

Notes Turnover 7 Cost of sales Gross profit/(loss) Other revenue 7 Selling and distribution expenses Other operating expenses Loss from operations Gain on bargain purchases Gain on disposal of a subsidiary Finance costs 9 (Loss)/Profit before taxation 8 Taxation 12 (Loss)/Profit for the period/ year	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) 6,793 — (5,352) (736) 1,441 (736) 2 109 (1,177) (39) (7,565) (19,145) (7,299) (19,811) — — 316 — (15,637) (8,710) (22,620) (28,521) 47 37,781 (22,573) 9,260	Years ended 31 December 2008 2007 HK$’000 HK$’000 917 405 (4,206) (473) (3,289) (68) 129 649 (449) (38) (36,509) (7,108) (40,118) (6,565) — 112,674 — — (21,662) (356) (61,780) 105,753 38,409 149 (23,371) 105,902	Period from 1 December 2006 (date of incorporation) to 31 December 2006 HK$’000 — —
			— — — —
			— — — —
			— —
			—

– 176 –

APPENDIX IV ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Loss)/Profit for the period/year Other comprehensive income for the period/year Total comprehensive income for the period/year	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (22,573) 9,260 — — (22,573) 9,260	Years ended 31 December 2008 2007 HK$’000 HK$’000 (23,371) 105,902 — — (23,371) 105,902	Period from 1 December 2006 (date of incorporation) to 31 December 2006 HK$’000 — —
			—

– 177 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Notes Non-current assets Property, plant and equipment 15 Prepaid lease payments 16 Exploration and evaluation assets 17 Mining right 18 Deposits 22(a) Current assets Inventories 20 Trade and notes receivables 21 Prepayments, deposits and other receivables 22(b) Amounts due from equity holders 23 Restricted bank deposits 24 Cash at bank and in hand 25 Current liabilities Other payables and accruals 26 Bank loan 28 Loans from an equity holder 29 Net current (liabilities)/assets Total assets less current liabilities Non-current liabilities Loans from an equity holder 29 Deferred tax liabilities 30 NET ASSETS CAPITAL AND RESERVES Paid up capital 31 Reserves	At 30 2009 HK$’000 61,095 26,644 342,479 130,283 79,327 639,828 761 2,519 12,071 170,025 102 1,840 187,318 75,851 11,356 202,236 289,443 (102,125) 537,703 — (119,162) (119,162) 418,541 320,000 98,541 418,541	June 2008 HK$’000 61,318 27,228 342,149 131,110 79,418 641,223 948 1,617 4,395 171,498 103 577 179,138 68,324 — 191,282 259,606 (80,468) 560,755 — (119,346) (119,346) 441,409 320,000 121,409 441,409	At 31 December 2007 2006 HK$’000 HK$’000 54,752 — 26,670 — 321,776 — 123,399 — 53,345 — 579,942 — 303 — 535 — 3,001 — 31,083 50,000 — — 128,835 — 163,757 50,000 168,021 — — — — — 168,021 — (4,264) 50,000 575,678 50,000 (128,771) — (148,936) — (277,707) — 297,971 50,000 180,000 50,000 117,971 — 297,971 50,000	At 31 December 2007 2006 HK$’000 HK$’000 54,752 — 26,670 — 321,776 — 123,399 — 53,345 — 579,942 — 303 — 535 — 3,001 — 31,083 50,000 — — 128,835 — 163,757 50,000 168,021 — — — — — 168,021 — (4,264) 50,000 575,678 50,000 (128,771) — (148,936) — (277,707) — 297,971 50,000 180,000 50,000 117,971 — 297,971 50,000
				—
				— — — 50,000 — —
				50,000
				— — —
				—
				50,000
				50,000 — —
				—
				50,000
				50,000 —
				50,000

– 178 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

STATEMENT OF FINANCIAL POSITION

Notes Non-currents assets Property, plant and equipment 15 Investments in subsidiaries 19 Deposits 22(a) Current assets Trade receivable 21 Other receivables 22(b) Amounts due from equity holders 23 Amounts due from subsidiaries 19 Cash at bank and in hand 25 Current liabilities Other payables and accruals 26 Amount due to a subsidiary 19 Amounts due to equity holders 27 Amount due to a related company 27 Loans from an equity holder 29 Net current (liabilities)/assets Total assets less current liabilities Non-current liabilities Loans from an equity holder 29 NET ASSETS CAPITAL AND RESERVES Paid up capital 31 Reserves 32	At 30 2009 HK$’000 1,046 284,738 56,615 342,399 568 3,680 170,025 30,775 92 205,140 65,934 — 1,937 430 202,236 270,537 (65,397) 277,002 — 277,002 320,000 (42,998) 277,002	June 2008 HK$’000 1,086 288,475 56,680 346,241 568 276 171,498 34,079 544 206,965 62,696 3,192 — — 191,282 257,170 (50,205) 296,036 — 296,036 320,000 (23,964) 296,036	At 31 December 2007 2006 HK$’000 HK$’000 777 — 183,224 — 53,345 — 237,346 — 535 — 887 — 31,083 50,000 — — 127,607 — 160,112 50,000 78,696 — 3,202 — — — 65 — — — 81,963 — 78,149 50,000 315,495 50,000 (128,771) — 186,724 50,000 180,000 50,000 6,724 — 186,724 50,000	At 31 December 2007 2006 HK$’000 HK$’000 777 — 183,224 — 53,345 — 237,346 — 535 — 887 — 31,083 50,000 — — 127,607 — 160,112 50,000 78,696 — 3,202 — — — 65 — — — 81,963 — 78,149 50,000 315,495 50,000 (128,771) — 186,724 50,000 180,000 50,000 6,724 — 186,724 50,000
				—
				— — 50,000 — —
				50,000
				— — — — —
				—
				50,000
				50,000 —
				50,000
				50,000 —
				50,000

– 179 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

At 1 December 2006 Change in equity: Contributions from equity holders Total comprehensive income for the period At 31 December 2006 At 1 January 2007 Change in equity: Contributions from equity holders Appropriation of maintenance and production funds Exchange realignment Total comprehensive income for the year At 31 December 2007 At 1 January 2008 Change in equity: Contributions from equity holders Appropriation of maintenance and production funds Exchange realignment Total comprehensive income for the year At 31 December 2008 At 1 January 2009 Change in equity: Appropriation of maintenance and production funds Exchange realignment Total comprehensive income for the period At 30 June 2009 For the six months ended 30 June 2008 (unaudited) At 1 January 2008 Change in equity: Contributions from equity holders Appropriation of maintenance and production funds Exchange realignment Total comprehensive income for the period At 30 June 2008	Share capital HK$’000 50,000 — 50,000 50,000 130,000 — — — 180,000 180,000 140,000 — — — 320,000 320,000 — — — 320,000 180,000 140,000 — — — 320,000	Capital reserve HK$’000 — — — — 3,740 — — — 3,740 3,740 — — — — 3,740 3,740 — — — 3,740 3,740 — — — — 3,740	Statutory reserve HK$’000 — — — — — (185) — — (185) (185) — 69 — — (116) (116) 913 — — 797 (185) — (75) — — (260)	Exchange fluctuation reserve HK$’000 — — — — — — 8,329 — 8,329 8,329 — — 26,809 — 35,138 35,138 — (295) — 34,843 8,329 — — 28,206 — 36,535	Retained earnings HK$’000 — — — — — 185 — 105,902 106,087 106,087 — (69) — (23,371) 82,647 82,647 (913) — (22,573) 59,161 106,087 — 75 — 9,260 115,422	Total HK$’000 50,000 —
						50,000
						50,000 133,740 — 8,329 105,902
						297,971
						297,971 140,000 — 26,809 (23,371)
						441,409
						441,409 — (295) (22,573)
						418,541
						297,971 140,000 — 28,206 9,260
						475,437

– 180 –

APPENDIX IV ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

CONSOLIDATED STATEMENT OF CASH FLOWS

Cash flows from operating activities (Loss)/Profit before taxation Adjustments for: Interest expenses Interest income Gain on disposal of subsidiary Gain on bargain purchase Depreciation Amortisation of mining right Amortisation of prepaid lease payments Impairment loss of property, plant and equipment Unrealised exchange difference Operating loss before working capital changes Decrease/(Increase) in inventories Increase in trade and notes receivables Increase in prepayments, deposits and other receivables Decrease/(Increase) in amounts due from equity holders Increase/(Decrease) in other payables and accruals Cash used in operations Interest paid Tax paid Net cash used in operating activities	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (22,620) (28,521) 15,637 8,710 (2) (109) (316) — — — 1,064 794 677 — 555 539 — 912 — 10,360 (5,005) (7,315) 184 (339) (903) — (7,369) (385) 1,471 (468) 7,611 (121,804) (4,011) (130,311) (4,457) — — — (8,468) (130,311)	Years ended 31 December 2008 2007 HK$’000 HK$’000 (61,780) 105,753 21,662 356 (129) (126) — — — (112,674) 1,680 149 5 — 1,094 167 926 1,808 10,223 — (26,319) (4,567) (618) 123 (1,036) (444) (23,642) (52,617) (342) 18,960 (107,530) 5,502 (159,487) (33,043) (1,567) — — (18) (161,054) (33,061)	Period from 1 December 2006 (date of incorporation) to 31 December 2006 HK$’000 — — — — — — — — — —
			— — — — — —
			— — —
			—

– 181 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

Cash flows from investing activities Acquisition of subsidiaries, net of cash acquired Interest received Addition of exploration and evaluation assets Purchases of property, plant and equipment Proceeds from disposal of property, plant and equipment Increase in restricted deposits Net cash used in investing activities Cash flows from financing activities Loan from a equity holder Proceeds from contribution of equity holders Bank loan raised Net cash from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period/year Effect of foreign exchange rate changes, net Cash and cash equivalents at end of period/year Analysis of balances of cash and cash equivalents Cash at bank and in hand	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) — — 2 109 (722) — (912) (746) — — — (101) (1,632) (738) — — — — 11,364 — 11,364 — 1,264 (131,049) 577 128,835 (1) 3,556 1,840 1,342 1,840 1,342	Years ended 31 December 2008 2007 HK$’000 HK$’000 — (101,136) 129 126 (251) — (5,710) (1,942) — 174 (101) — (5,933) (102,778) 33,675 123,276 — 133,740 — — 33,675 257,016 (133,312) 121,177 128,835 — 5,054 7,658 577 128,835 577 128,835	Period from 1 December 2006 (date of incorporation) to 31 December 2006 HK$’000 — — — — — —
			—
			— — —
			—
			— — —
			—
			—

– 182 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

NOTES TO THE FINANCIAL INFORMATION

1. CORPORATE INFORMATION

Wuhai City Menggang Industrial Development Co., Ltd. is a limited liability company incorporated in PRC. The address of the registered office is No. 95, East Moergou Street (Shuangyong Street), Haibowan District, Wuhai City, Inner Mongolia Autonomous Region, PRC (中國內蒙古自治區烏海市海渤灣區摩爾溝東街 (雙擁街)95室) , and the principal place of business is Floor 5, Office Building, No. 7 East Fenghuangling Street, Haibowan District, Wuhai City, Inner Mongolia Autonomous Region, PRC (中國內蒙古自治區烏海市海渤灣區鳳凰岭東街寫字樓五樓).

The principal activity of Wuhai City Menggang is investment holding. The principal activities of its subsidiaries are set out in note 19 to the Financial Information.

The Financial Information is presented in Hong Kong dollars, while the functional currency of Menggang Group is Renminbi.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

During the Relevant Periods, the HKICPA issued a number of new and revised HKFRSs (herein collectively referred to as ‘‘new HKFRSs’’). For the purpose of preparing and presenting the Financial Information of the Relevant Periods, Menggang Group has consistently applied all these new HKFRSs over the Relevant Periods.

Menggang Group has not early applied the following new and revised standards, amendments or interpretations that have been issued but are not yet effective.

HKFRSs (Amendments)	Amendment to HKFRS 5 as part of improvements to HKFRSs issued in 20081
HKFRSs (Amendments)	Improvements to HKFRSs issued in 20092
HKAS 27 (Revised in 2008)	Consolidated and Separate Financial Statements1
HKAS 39 (Amendment)	Eligible Hedged Items1
HKFRS 1 (Revised in 2008)	First-time Adoption of HKFRS1
HKFRS 2 (Amendment)	Amendment to HKFRS 2 Group Cash-settled Share-based Payment Transactions4
HKFRS 3 (Revised)	Business Combinations1
HK(IFRIC)-Int 17	Distributions of Non-cash Assets to Owners1
HK(IFRIC)-Int 18	Transfers of Assets from Customers3

1 Effective for annual periods beginning on or after 1 July 2009
2 Amendments that are effective for annual periods beginning on or after 1 July 2009 and 1 January 2010, as appropriate
3 Effective for transfers on or after 1 July 2009
4 Effective for annual periods beginning on or after 1 January 2010

The adoption of HKFRS 3 (Revised) may affect the accounting for business combination for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 July 2009. HKAS 27 (Revised) will affect the accounting treatment for changes in a parent’s ownership interest in a subsidiary that do not result in a loss of control, which will be accounted for as equity transactions. Menggang Group is in the process of making an assessment of the potential impact of the other new and revised standards or interpretations. Menggang Group is not yet in a position to determine the impact of these new and revised standards or interpretations on the results of operations and financial position of Menggang Group. These new and revised standards or interpretations may result in changes in the future as to how the results and financial position of Menggang Group are prepared and presented.

3. GOING CONCERN

As at 30 June 2009, the outstanding interest bearing borrowings amounted to approximately HK$213,592,000, which was due for repayment and renewal within the next twelve months and, as set out in notes 17 and 18, Tianyu Coal and Tianyu Gongmao each has a mining right for coal mine, which will be expired in December 2010. These conditions indicate the existence of material uncertainties which may cast significant doubt about ability of Tianyu Coal and Tianyu Gongmao to continue as a

– 183 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

going concern and therefore that it may be unable to realize its assets and discharge its liabilities in the normal course of business. These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Menggang Group’s ability to continue as a going concern.

Nevertheless, the directors of Wuhai City Menggang have adopted the going concern basis in the preparation of the Financial Information based on the following:

(i) the written intention of continuing financial support provided by Real Power Holdings Limited (‘‘Real Power’’) and TRXY Development (HK) Limited (‘‘TRXY’’), being intermediate and ultimate holding company of Wuhai City Menggang, in the future twelve months from the date of approval of the Financial Information;
(ii) as disclosed in the Letter From The Board of this circular, after completion of the sales and purchase agreement dated 1 September 2009 entered into between the Company, Win Team Investments Limited, Real Power and TRXY, the Company may conduct share placement and it is expected that the share placement will raise a gross amount of not less than US$90 million (equivalent to approximately HK$697,600,000), out of which US$30 million (equivalent to approximately HK$232,530,000) is intended to be used for repayment of the loans of Merrymaking Investments Limited, Menggang Group; and Pleasing Results Limited and Max Joyce Limited; and
(iii) the directors have obtained the PRC authority’s opinion that Tianyu Coal and Tianyu Gongmao compile with the PRC rules and conditions to renew all mining rights upon their expiration. The directors are of opinion that Tianyu Coal and Tianyu Gongmao will be entitled to renew all mining rights upon their expiration accordingly.

Accordingly, the directors of Wuhai City Menggang are of the opinion that it is appropriate to prepare the Financial Information on a going concern basis. Should Menggang Group be unable to continue to operate as a going concern, adjustments would have to be made to write-down the value of assets to their recoverable amounts, to provide for further liabilities that might arise and to reclassify non-current assets and non-current liabilities as current assets and current liabilities. The effects of these potential adjustments have not been reflected in the Financial Information.

4. SIGNIFICANT ACCOUNTING POLICIES

Statement of compliance

Basis of preparation of the Financial Information

The Financial Information has been prepared on the historical cost.

– 184 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

Basis of consolidation

Financial Information incorporates the financial statements of Wuhai City Menggang and entities controlled by Wuhai City Menggang (its subsidiaries). Control is achieved where Wuhai City Menggang has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by other members of the Menggang Group.

All intra-group transactions, balances, income and expenses are eliminated on consolidation.

Business combinations

The acquisition of businesses is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Menggang Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under HKFRS 3 ‘‘Business Combinations’’ are recognised at their fair values at the acquisition date.

Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Menggang Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Menggang Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.

Goodwill

Goodwill represents the excess of the cost of a business combination over the Menggang Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities.

Goodwill is stated at cost less accumulated impairment losses. Goodwill is allocated to cash generating units and is tested annually for impairment.

Any excess of the Menggang Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of a business combination or an investment in an associate is recognised immediately in profit or loss.

Subsidiaries

Subsidiaries are entities controlled by the Menggang Group. Control exists when the Menggang Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account.

In Wuhai City Menggang’s statement of financial position, investment in a subsidiary is stated at cost less impairment losses.

– 185 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

Revenue recognition

Provided it is probable that the economic benefits will flow to Menggang Group and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows:

(i) Sale of goods

(ii) Service income

Service income is recognised in the Relevant Periods when services are rendered.

(iii) Interest income

Interest income is recognised as it accrues using the effective interest method.

Employee benefits

Defined contribution plan

The employees of the Menggang Group are required to participate in a central pension scheme operated by the local municipal government. The Menggang Group are required to contribute certain percentage of their payroll costs to the central pension scheme. The contributions are charged to the income statement as they become payable in accordance with the rules of the central pension scheme.

Short-term employee benefits

Borrowing costs

All borrowing costs are recognised as expenses in the Relevant Periods in which they are incurred.

Operating lease charges

Taxation

– 186 –

APPENDIX IV ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

Property, plant and equipment

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to Menggang Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged in the income statement during the Relevant Periods in which they are incurred.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each statement of financial position date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are included in the income statement.

Construction in progress

Prepaid lease payment

Prepaid lease payments are stated at cost less accumulated amortisation and impairment losses. Cost represents consideration paid for the rights to use the land on which various buildings and mining structures are situated for periods of 26 years. Amortisation of land use rights is calculated on a straight-line basis over the period of the land use rights.

– 187 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

Mining right

Exploration and evaluation assets

Impairment of exploration and evaluation assets

(i) the period for which the Menggang Group has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed;
(ii) substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned;
(iii) exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the Menggang Group has decided to discontinue such activities in the specific area; or
(iv) sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale.

An impairment loss is recognised in the income statement whenever the carrying amount of an asset exceeds its recoverable amount.

Impairment of tangible and intangible assets other than goodwill

At each end of the reporting period, the Menggang Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. In addition, intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that they may be impaired. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately.

Inventories

– 188 –

APPENDIX IV ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

When coal inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write- down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories is recognised as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs.

Inventories of ancillary materials, spare parts and small tools used in production are stated at cost less impairment losses for obsolescence.

Trade and other receivables

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and short-term highly liquid investments which are readily convertible into known amounts of cash and which are subject to insignificant risks of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the Menggang Group’s cash management are also included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

Other payables

Other payables are initially recognised at fair value and thereafter stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

Interest-bearing borrowings

Translation of foreign currencies

– 189 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

Related parties

A party is considered to be related to the Menggang Group if:

(a) the party, directly, or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with, the Menggang Group; (ii) has an interest in the Menggang Group that gives it significant influence over the Menggang Group; or (iii) has joint control over the Menggang Group;
(b) the party is a jointly-controlled entity;
(c) the party is a member of the key management personnel of the Menggang Group;
(d) the party is a close member of the family of any individual referred to in (a) or (c);
(e) the party is an entity that is controlled, jointly-controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (c) or (d); or
(f) the party is a post-employment benefit plan for the benefit of employees of the Menggang Group, or of any entity that is a related party of the Menggang Group.

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

Provision and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Menggang Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made.

Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

5. KEY SOURCES OF ESTIMATION UNCERTAINTY

The Menggang Group’s financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the Financial Information. The Menggang Group bases the assumptions and estimates on historical experience and on various other assumptions that the Menggang Group believes to be reasonable and which form the basis for making judgements about matters that are not readily apparent from other sources. On an on-going basis, management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change.

The selection of critical accounting policies, the judgements and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing the Financial Information. The principal accounting policies are set forth in note 4. The Menggang Group believes the following critical accounting policies involve the most significant judgements and estimates used in the preparation of the Financial Information.

Coal reserves

Engineering estimates of the Menggang Group’s coal reserves are inherently imprecise and represent only approximate amounts because of the subjective judgements involved in developing such information. There are authoritative guidelines regarding the engineering criteria that have to be met before estimated coal reserves can be designated as ‘‘proved’’ and ‘‘probable’’. Proved and probable coal reserves estimates are updated at regular basis have taken into account

– 190 –

APPENDIX IV ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

recent production and technical information about the mine. In addition, as prices and cost levels change from year to year, the estimate of proved and probable coal reserves also changes. This change is considered a change in estimate for accounting purposes and is reflected on a prospective basis in related depreciation and amortisation rates.

Impairments

In considering the impairment losses that may be required for certain of the Menggang Group’s assets which include property, plant and equipment, exploration and evaluation assets, mining right, prepaid lease payments, the recoverable amount of the asset needs to be determined. The recoverable amount is the greater of the net selling price and the value in use. It is difficult to precisely estimate selling price because quoted market prices for these assets may not be readily available. In determining the value in use, expected cash flows generated by these assets are discounted to their present value, which requires significant judgement relating to items such as level of sale volume, selling price and amount of operating costs. The Menggang Group uses all readily available information in determining an amount that is reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of items such as sale volume, selling price and amount of operating costs.

In considering the impairment losses that may be required for current receivables and other financial assets, future cashflows need to be determined. One of the key assumptions that have to be applied is about the ability of the debtors to settle the receivables. Notwithstanding that the Menggang Group has used all available information to make this estimation, inherent uncertainty exists and actual write-offs may be higher than the amount estimated.

Depreciation

Other than the mining structures, property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets, after taking into account the estimated residual value. The Menggang Group reviews the estimated useful lives of the assets regularly. The useful lives are based on the Menggang Group’s historical experience with similar assets and taking into account anticipated technological changes. The depreciation expense for future periods is adjusted of there are significant changes from previous estimates.

6. SEGMENT INFORMATION

The Menggang Group has adopted HKFRS 8 Operating Segments with effect from 1 January 2009. HKFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Menggang Group that are regularly reviewed by the chief operating decision maker, the Menggang Group’s directors, in order to allocate resources to the segments and to assess their performance. In contrast, the predecessor Standard (HKAS 14 Segment Reporting) required an entity to identify two sets of segments (business and geographical) using a risks and returns approach, with the entity’s ‘‘system of internal financing reporting to key management personnel’’ serving only as the starting point for the identification of such segments. No segmental analysis was presented in prior years as the Menggang Group is principally engaged in investment holding. The application of HKFRS 8 has not resulted in a re-designation of the Menggang Group’s reportable segments as compared with the reportable segments determined in accordance with HKAS 14.

The Menggang Group’s operating segments are aggregated into a single reportable segment and accordingly no separate segment information is prepared.

– 191 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

7. TURNOVER AND REVENUE

The Menggang Group’s turnover, represents the net invoiced value of goods sold, after allowances for returns and trade discounts, but excludes intra-group transactions.

An analysis of turnover and other revenue is as follows:

Turnover Sales of coals Other revenue Bank interest income Consultancy fee income Others	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) 6,793 — 2 109 — — — — 2 109	Years ended 31 December 2008 2007 HK$’000 HK$’000 917 405 129 126 — 514 — 9 129 649	Period from 1 December 2006 (date of incorporation) to 31 December 2006 HK$’000 —
			— — —
			—

8. (LOSS)/PROFIT BEFORE TAXATION

(Loss)/Profit before taxation is arrived at after charging/(crediting):

Amortisation of mining right Amortisation of prepaid lease payments Auditors’ remuneration Cost of inventories sold Depreciation (note 15) Gain on disposal of a subsidiary Impairment loss on property, plant and equipment Staff costs (including directors’ remuneration — note 10) — salaries and allowances — pension scheme contributions	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) 677 — 555 539 1 — 5,352 736 1,064 794 (316) — — 912 4,529 2,428 55 6	Years ended 31 December 2008 2007 HK$’000 HK$’000 5 — 1,094 167 6 8 4,206 473 1,680 149 — — 926 1,808 6,440 1,055 99 24	Period from 1 December 2006 (date of incorporation) to 31 December 2006 HK$’000 — — — — — — — — —

– 192 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

9. FINANCE COSTS

Interest on: Bank borrowing wholly repayable within 5 years Loans from an equity holder wholly repayable within 5 years	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) 480 — 15,157 8,710 15,637 8,710	Years ended 31 December 2008 2007 HK$’000 HK$’000 — — 21,662 356 21,662 356	Period from 1 December 2006 (date of incorporation) to 31 December 2006 HK$’000 — —
			—

10. DIRECTORS’ REMUNERATION

During the Relevant Periods, no emoluments were paid by the Menggang Group to the directors. In addition, no emoluments were paid to the directors as an inducement to join or upon joining the Menggang Group or as compensation for loss of office. No directors waived or agreed to waive any emoluments during the Relevant Periods.

11. FIVE HIGHEST PAID EMPLOYEES

The emoluments of the five highest paid individuals of the Menggang Group during the Relevant Periods are as follows:

Salaries, allowances and benefits in kind Pension scheme contributions	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) 334 333 — — 334 333	Years ended 31 December 2008 2007 HK$’000 HK$’000 575 167 — — 575 167	Period from 1 December 2006 (date of incorporation) to 31 December 2006 HK$’000 — —
			—

The emoluments of the five individuals with the highest emoluments were within the range of HK$Nil to HK$1,000,000 during the Relevant Periods.

– 193 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

12. TAXATION

Current tax: PRC: — charge for the period/year Deferred tax: PRC: — credit for the period/year	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) — — (47) (37,781) (47) (37,781)	Years ended 31 December 2008 2007 HK$’000 HK$’000 — 18 (38,409) (167) (38,409) (149)	Period from 1 December 2006 (date of incorporation) to 31 December 2006 HK$’000 — —
			—

The charge for the period/year can be reconciled to the (loss)/profit per the consolidated income statement as follows:

The Menggang Group

(Loss)/profit before taxation Tax at the statutory tax rates Tax effect of income not subject to tax Tax effect of expenses not deductible for tax Tax allowance for capital expenditure Tax losses not recognised Deferred taxation Taxation credit	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (22,620) (28,521) (5,655) (7,130) (79) — 3,245 1,436 (30) (29) 2,519 5,723 (47) (37,781) (47) (37,781)	Years ended 31 December 2008 2007 HK$’000 HK$’000 (61,780) 105,753 (15,445) 34,898 — (37,182) 3,321 300 (59) (8) 12,183 2,010 (38,409) (167) (38,409) (149)	Period from 1 December 2006 (date of incorporation) to 31 December 2006 HK$’000 —
			— — — — — —
			—

Prior to 1 January 2008, PRC entities were, in general, subject to the statutory income tax rate of 33%, consisting of 30% state tax and 3% local tax, on their assessable profits.

On 16 March 2007, the Fifth Plenary Session of the Tenth National People’s Congress passed the Corporate Income Tax Law of the PRC (‘‘the New Tax Law’’), which takes effect on 1 January 2008. As a result of the New Tax Law, the statutory income tax rate in the PRC has been reduced adopted from 33% to 25%.

The Menggang Group was subject to income at 33% prior to 1 January 2008 and at 25% from 1 January 2008 onwards.

– 194 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

No deferred tax asset has been recognised in the Financial Information as it is uncertain such an asset will crystallise in the foreseeable future.

13. LOSS ATTRIBUTABLE TO EQUITY HOLDERS OF WUHAI CITY MENGGANG

Loss attributable to equity holders of Wuhai City Menggang is dealt with in the accounts of Wuhai City Menggangs’ as follows:

Loss attributable to equity holders	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (18,903) (23,169)	Years ended 31 December 2008 2007 HK$’000 HK$’000 (50,198) (3,477)	Period from 1 December 2006 (date of incorporation) to 31 December 2006 HK$’000 —

14. (LOSS)/EARNINGS PER SHARE

(Loss)/Earnings per share has not been presented as such information is not considered meaningful for the purpose of this report.

– 195 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

15. PROPERTY, PLANT AND EQUIPMENT

The Menggang Group

Cost At 1 December 2006 (date of incorporation) and 1 January 2007 Acquisition of subsidiaries Additions Disposals Exchange realignment At 1 January 2008 Additions Exchange realignment At 1 January 2009 Additions Exchange realignment At 30 June 2009 Accumulated depreciation and impairment losses At 1 December 2006 (date of incorporation) and 1 January 2007 Depreciation charge for the period Impairment loss Exchange realignment At 1 January 2008 Depreciation charge for the year Impairment loss Exchange realignment At 1 January 2009 Depreciation charge for the period Exchange realignment At 30 June 2009 Net book value At 30 June 2009 At 31 December 2008 At 31 December 2007 At 31 December 2006	Buildings HK$’000 — 4,838 627 — 113 5,578 — 348 5,926 — (4) 5,922 — 28 — 1 29 343 — 6 378 174 — 552 5,370 5,548 5,549 —	Mining structure HK$’000 — 40,770 540 (174) 740 41,876 — 2,620 44,496 — (50) 44,446 — — 1,808 75 1,883 21 926 131 2,961 105 (2) 3,064 41,382 41,535 39,993 —	Construction in progress HK$’000 — — — — — — 459 5 464 641 (1) 1,104 — — — — — — — — — — — — 1,104 464 — —	Mining related machinery and equipment HK$’000 — 7,768 — — 140 7,908 4,446 551 12,905 61 (15) 12,951 — 80 — 4 84 1,051 — 18 1,153 609 — 1,762 11,189 11,752 7,824 —	Tools and other equipment HK$’000 — 503 56 — 13 572 349 39 960 210 (1) 1,169 — 12 — 1 13 147 — 3 163 103 — 266 903 797 559 —	Motor vehicles HK$’000 — 108 719 — 31 858 456 59 1,373 — (1) 1,372 — 29 — 2 31 118 — 2 151 73 1 225 1,147 1,222 827 —	Total HK$’000 — 53,987 1,942 (174) 1,037
							56,792 5,710 3,622
							66,124 912 (72)
							66,964
							— 149 1,808 83
							2,040 1,680 926 160
							4,806 1,064 (1)
							5,869
							61,095
							61,318
							54,752
							—

– 196 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

Wuhai City Menggang

Cost At 1 December 2006 (date of incorporation) and 1 January 2007 Additions Exchange realignment At 1 January 2008 Additions Exchange realignment At 1 January 2009 Additions Exchange realignment At 30 June 2009 Accumulated depreciation At 1 December 2006 (date of incorporation) and 1 January 2007 Charge for the year Exchange realignment At 1 January 2008 Charge for the year Exchange realignment At 1 January 2009 Charge for the period Exchange realignment At 30 June 2009 Net book value At 30 June 2009 At 31 December 2008 At 31 December 2007 At 31 December 2006	Other equipments HK$’000 — 56 3 59 121 5 185 32 — 217 — 1 — 1 27 1 29 20 — 49 168 156 58 —	Motor vehicles HK$’000 — 719 30 749 259 50 1,058 — (2) 1,056 — 28 2 30 96 2 128 50 — 178 878 930 719 —	Total HK$’000 — 775 33
			808 380 55
			1,243 32 (2)
			1,273
			— 29 2
			31 123 3
			157 70 —
			227
			1,046
			1,086
			777
			—

– 197 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

16. PREPAID LEASE PAYMENTS

Cost At the beginning of period/year Acquisition of subsidiaries Exchange realignment At the end of period/year Accumulated amortisation At the beginning of period/year Charge for the period/year Exchange realignment At the end of period/year Net book value At the end of period/year Analysed for reporting purposes as: Current portion Non-current portion	At 30 June 2009 HK$’000 29,630 — (33) 29,597 1,293 555 (2) 1,846 27,751 At 30 June 2009 HK$’000 1,107 26,644 27,751	At 31 December 2008 2007 HK$’000 HK$’000 27,887 — — 27,400 1,743 487 29,630 27,887 174 — 1,094 167 25 7 1,293 174 28,337 27,713 At 31 December 2008 2007 HK$’000 HK$’000 1,109 1,043 27,228 26,670 28,337 27,713	2006 HK$’000 — — —
			—
			— — —
			—
			—
			2006 HK$’000 — —
			—

The leasehold lands situated in PRC are held under medium term lease.

On 12 March 2007, the Wuhai Bureau of City Planning issued Construction Land Use Permits for the coal mine of Tianyu Coal, covering the residential, ventilation and industrial and administrative areas. The Wuhai Land and Resource Bureau will issue the operational land use permit for the coal mine as a component of the project final checking and acceptance process. Prepaid lease payments amounting HK$Nil, HK$14,557,000, HK$14,833,000 and HK$14,500,000 as at 31 December 2006, 2007 and 2008 and 30 June 2009 respectively have not yet obtained the title certificates of the land (note 39).

Certain prepaid lease payments were pledged to secure bank loan granted to the Menggang Group (note 28).

– 198 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

17. EXPLORATION AND EVALUATION ASSETS

Cost At 1 December 2006 (date of incorporation) and at 1 January 2007 Acquisition of subsidiaries Exchange realignment At 1 January 2008 Additions Exchange realignment At 1 January 2009 Additions Exchange realignment At 30 June 2009	Mining right HK$’000 (notes 1 & 2) — 313,524 5,577 319,101 — 19,951 339,052 — (388) 338,664	Others HK$’000 (note 3) — 2,628 47 2,675 251 171 3,097 722 (4) 3,815	Total HK$’000 — 316,152 5,624
			321,776 251 20,122
			342,149 722 (392)
			342,479

Notes:

The mining right will be expired in December 2010. The directors of Wuhai City Menggang have obtained the PRC authority’s opinion that the Menggang Group complies with the PRC rules and conditions to renew the mining right upon its expiration. Based on the advice from the Company’s legal counsel, the Menggang Group will be entitled to renew the mining right upon its expiration accordingly.
Pursuant to the two loan agreements entered into between Wuhai City Menggang and an equity holder of Wuhai City Menggang dated 17 December 2007 and 29 July 2008 respectively, the mining right with carrying amount of HK$Nil, HK$319,101,000, HK$339,052,000 and HK$338,664,000 as at 31 December 2006, 2007 and 2008 and 30 June 2009 respectively was pledged to secure the loans from an equity holder (note 29). However, at 30 June 2009, the legal charge has not yet been registered with the relevant authorities in the PRC. In this respect, the directors consider that the relevant legal charge has not yet become effective.
Others represent the geological and geophysical costs, drilling and exploration expenses directly attributable to exploration activities.

– 199 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

18. MINING RIGHT

Cost At the beginning of period/year Acquisition of subsidiaries Exchange realignment At the end of period/year Accumulated amortisation and impairment At the beginning of period/year Charge for the period/year Exchange realignment At the end of period/year Net book value At the end of period/year	At 30 June 2009 HK$’000 131,115 — (150) 130,965 5 677 — 682 130,283	At 31 December 2008 2007 HK$’000 HK$’000 123,399 — — 121,243 7,716 2,156 131,115 123,399 — — 5 — — — 5 — 131,110 123,399	2006 HK$’000 — — —
			—
			— — —
			—
			—

The mining right will be expired in December 2010. The directors of Wuhai City Menggang have obtained the PRC authority’s opinion that the Menggang Group complies with the PRC rules and conditions to renew the mining right upon its expiration. Based on the advice from the Company’s legal counsel, the Menggang Group will be entitled to renew the mining right upon its expiration accordingly.

Pursuant to two loan agreements entered into between Wuhai City Menggang and an equity holder of Wuhai City Menggang dated 17 December 2007 and 29 July 2008, the mining right with carrying amount of HK$Nil, HK$123,399,000, HK$131,110,000 and HK$130,283,000 as at 31 December 2006, 2007 and 2008 and 30 June 2009 respectively was pledged to secure the loans from an equity holder (note 29). However, at 30 June 2009, the legal charge has not yet been registered with the relevant authorities in the PRC. In this respect, the directors consider that the relevant legal charge has not yet become effective.

19. INTERESTS IN SUBSIDIARIES

Unlisted equities, at cost Amounts due from subsidiaries Amount due to a subsidiary	At 30 June 2009 HK$’000 284,738 30,775 — 315,513	At 31 December 2008 2007 HK$’000 HK$’000 288,475 183,224 34,079 — (3,192) (3,202) 319,362 180,022	2006 HK$’000 — — —
			—

The amounts due from/(to) subsidiaries are unsecured, interest-free and have no fixed terms of repayment. The carrying amounts of these amounts due from/to subsidiaries approximate to their fair values.

– 200 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

Particulars of the principal subsidiaries are as follows:

			Percentage of
			equity interest
	Place of	Issued and paid	held by Wuhai
	incorporation	up capital/	City Menggang
Name of subsidiary	and operations	registered capital	directly	Principal activities
Tianyu Gongmao Company	PRC	RMB46,000,000	100%	Exploration of coal business,
Limited				coal mining, coal sales
				and development of
				underground coking coal
				mine
Tianyu Coal Company	PRC	RMB43,000,000	100%	Development of underground
Limited				coking coal mine
Wuhai Taida Trading	PRC	RMB3,000,000	100%	Dormant
Company Limited

Pursuant to the two loan agreements entered into between Wuhai City Menggang and an equity holder of Wuhai City Menggang dated 17 December 2007 and 29 July 2008 respectively, the entire equity interests in Tianyu Gongmao and Tianyu Coal were pledged to secure the loans from an equity holder (note 29). However, at 30 June 2009, the share charge in respect of the entire equity interest in Tianyu Gongmao has not yet been registered with the relevant authorities in the PRC. In this respect, the directors consider that the relevant share charge has not yet become effective. Nevertheless, in the opinion of the legal adviser, the equity holder of Wuhai City Menggang is entitled to request the share charge to be registered at any time such that the share charge shall become effective immediately.

20. INVENTORIES

Coal Auxiliary materials, spare parts and tools	At 30 June 2009 HK$’000 683 78 761	At 31 December 2008 2007 HK$’000 HK$’000 541 — 407 303 948 303	2006 HK$’000 — —
			—

All inventories are expected to be recovered within one year.

21. TRADE AND NOTES RECEIVABLES

The Menggang Group

Trade receivables Notes receivables	At 30 June 2009 HK$’000 2,292 227 2,519	At 31 December 2008 2007 HK$’000 HK$’000 1,617 535 — — 1,617 535	2006 HK$’000 — —
			—

– 201 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

Wuhai City Menggang

		30 June		31 December
		2009	2008	2007	2006
		HK$’000	HK$’000	HK$’000	HK$’000
Trade	receivables	568	568	535	—

The Menggang Group’s trading terms with its customers generally have no credit terms and non-interest bearing. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that the Menggang Group’s trade receivables relate to a large number of diversified customers, there is no significant concentration of credit risk.

The ageing analysis of trade receivables was as follows:

The Menggang Group

Within 30 days 31 to 60 days 61 to 90 days Over 90 days Wuhai City Menggang Over 90 days	At 30 June 2009 HK$’000 675 — — 1,617 2,292 At 30 June 2009 HK$’000 568	At 31 December 2008 2007 HK$’000 HK$’000 800 — 66 — — — 751 535 1,617 535 At 31 December 2008 2007 HK$’000 HK$’000 568 535	2006 HK$’000 — — — —
			—
			2006 HK$’000 —

The ageing analysis of trade receivables net of allowance for doubtful debt that were past due but not impaired are as follows:

The Menggang Group

Within 30 days 31 to 60 days 61 to 90 days Over 90 days	At 30 June 2009 HK$’000 675 — — 1,617 2,292	At 31 December 2008 2007 HK$’000 HK$’000 800 — 66 — — — 751 535 1,617 535	2006 HK$’000 — — — —
			—

– 202 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

Wuhai City Menggang

Over 90 days	At 30 June 2009 HK$’000 568	At 31 December 2008 2007 HK$’000 HK$’000 568 535	2006 HK$’000 —

Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with the Menggang Group. Based on past experience, the directors of the Menggang Group 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. The Menggang Group does not hold any collateral or other credit enhancements over these balances.

Notes receivables are bank accepted bill of exchange with maturity of less than one year.

22. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

(a) The Menggang Group

HK$Nil, HK$53,345,000, HK$79,418,000 and HK$79,327,000 as at 31 December 2006, 2007 and 2008 and 30 June 2009 was paid as deposits for the acquisition of property, plant and equipment.

Wuhai City Menggang

HK$Nil, HK$53,345,000, HK$56,680,000 and HK$56,615,000 as at 31 December 2006, 2007 and 2008 and 30 June 2009 was paid as deposits for the acquisition of property, plant and equipment.

The carrying amount of deposits paid approximate to their fair values.

(b) The carrying amount of prepayments, deposits and other receivables approximate to their fair values.

23. AMOUNTS DUE FROM EQUITY HOLDERS

Beijing Taitong Hengye Trading Development Company Limited Favour Mind Limited Brilliant Wise Limited	At 30 June 2009 HK$’000 25 30,000 140,000 170,025	At 31 December 2008 2007 HK$’000 HK$’000 1,498 1,083 30,000 30,000 140,000 — 171,498 31,083	2006 HK$’000 35,000 15,000 —
			50,000

The amount due are unsecured, interest-free and repayable on demand.

24. RESTRICTED BANK DEPOSIT

Restricted bank deposit	At 30 June 2009 HK$’000 102	At 31 December 2008 2007 HK$’000 HK$’000 103 —	2006 HK$’000 —

Restricted bank deposit represents the deposit set aside for a litigation that claim against Tianyu Gongmao ordered by the court (note 35(ii)).

– 203 –

APPENDIX IV ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

25. CASH AT BANK AND IN HAND

Cash at banks earns interest at floating rates based on daily bank deposit rates. The carrying amounts of the cash at bank and in hand approximate to their fair values.

26. OTHER PAYABLES AND ACCRUALS

The Menggang Group

Other payables and accruals Receipts in advance Wuhai City Menggang Other payables and accruals	At 30 June 2009 HK$’000 75,380 471 75,851 At 30 June 2009 HK$’000 65,934	At 31 December 2008 2007 HK$’000 HK$’000 68,324 168,021 — — 68,324 168,021 At 31 December 2008 2007 HK$’000 HK$’000 62,696 78,696	2006 HK$’000 — —
			—
			2006 HK$’000 —

The directors consider that the carrying amounts of these items approximate to their fair values.

27. AMOUNTS DUE TO EQUITY HOLDERS/A RELATED COMPANY

The amounts due are unsecured, interest-free and with no fixed terms of repayments.

28. BANK LOAN

The Menggang Group

Bank loan repayable: — within one year	At 30 June 2009 HK$’000 11,356	At 31 December 2008 2007 HK$’000 HK$’000 — —	2006 HK$’000 —

The bank loan was secured and carried interest at 80% above the benchmark interest rate announced by the People’s Bank of China. There is no bank borrowing as at 31 December 2006, 2007 and 2008.

As at 30 June 2009, the Menggang Group’s bank loan was secured by:

(i) A legal charge on the prepaid lease payments. The net book values of the prepaid lease payments approximately HK$13,251,000 as at 30 June 2009 (note 16); and
(ii) Corporate guarantee executed by an independent third party to the extent of HK$11,356,000 as at 30 June 2009 respectively.

The carrying amount of bank loan approximates to its fair value.

– 204 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

29. LOANS FROM AN EQUITY HOLDER

The Menggang Group and Wuhai City Menggang

Loans from an equity holder repayable: — within one year — in the second year	At 30 June 2009 HK$’000 202,236 — 202,236	At 31 December 2008 2007 HK$’000 HK$’000 191,282 — — 128,771 191,282 128,771	2006 HK$’000 — —
			—

(i) A legal charge on the exploration and evaluation assets. The net book value of exploration and evaluation asset was HK$Nil, HK$319,101,000, HK$339,052,000 and HK$338,664,000 as at 31 December 2006, 2007 and 2008 and 30 June 2009 respectively (note 17);
(ii) A legal charge on the mining right. The net book value of mining right was HK$Nil, HK$123,399,000, HK$131,110,000 and HK$130,283,000 as at 31 December 2006, 2007 and 2008 and 30 June 2009 respectively (note 18);
(iii) Share charges on the equity interests in Wuhai City Menggang owned by Beijing Taitong Hengye Trading Development Company Limited, a minority equity holder of Wuhai City Menggang, and Favour Mind Limited;
(iv) Share charge on the entire equity interest in Tianyu Gongmao;
(v) Share charge on the entire equity interest in Tianyu Coal;
(vi) Corporate guarantees executed by a related company and an independent third party to the extent of HK$Nil, HK$128,771,000, HK$191,282,000 and HK$202,236,000 as at 31 December 2006, 2007 and 2008 and 30 June 2009 respectively; and
(vii) Personal guarantee executed by an independent third party to the extent of HK$Nil, HK$128,771,000, HK$191,282,000 and HK$202,236,000 as at 31 December 2006, 2007 and 2008 and 30 June 2009 respectively.

– 205 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

30. DEFERRED TAX LIABILITIES

At 1 December 2006 (date of incorporation) and 1 January 2007 Acquisition of subsidiaries (note 34) Credit to consolidated income statement Exchange realignment At 1 January 2008 Credit to consolidated income statement Exchange realignment At 1 January 2009 Credit to consolidated income statement Exchange realignment At 30 June 2009 31. PAID UP CAPITAL Registered capital: At the beginning of period/year Increase in registered capital At the beginning of period/year Paid up capital: At the beginning of period/year Contributions from equity holders At the end of period/year		Prepaid lease payments HK$’000 — 8,240 (167) 139 8,212 (2,620) 480 6,072 (47) (7) 6,018 At 30 June 2009 HK$’000 320,000 — 320,000 320,000 — 320,000		Exploration and evaluation assets HK$’000 — 99,887 — 1,777 101,664 (25,856) 6,026 81,834 — (94) 81,740 2008 HK$’000 180,000 140,000 320,000 180,000 140,000 320,000	Mining rights HK$’000 — 38,377 — 683 39,060 (9,933) 2,313 31,440 — (36) 31,404 At 31 December 2007 HK$’000 50,000 130,000 180,000 50,000 130,000 180,000	Total HK$’000 — 146,504 (167) 2,599 148,936 (38,409) 8,819 119,346 (47) (137) 119,162 2006 HK$’000 50,000 — 50,000 — 50,000 50,000

Wuhai City Menggang was a sino-foreign equity joint venture company established in the PRC on 1 December 2006 with a registered capital of HK$50,000,000.

Wuhai City Menggang had applied for an increase of registered capital by HK$130,000,000 and HK$140,000,000, which has been approved on 29 November 2007 and 23 January 2008 respectively.

– 206 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

32. RESERVES

Wuhai City Menggang

At 1 December 2006 Total comprehensive income for the period At 1 January 2007 Contributions from equity holders Exchange realignment Total comprehensive income for the year At 31 December 2007 Exchange realignment Total comprehensive income for the year At 31 December 2008 Exchange realignment Total comprehensive income for the period At 30 June 2009	Capital reserve HK$’000 — — — 3,740 — — 3,740 — — 3,740 — — 3,740	Exchange fluctuation reserve HK$’000 — — — — 6,461 — 6,461 19,510 — 25,971 (131) — 25,840	Accumulated losses HK$’000 — — — — — (3,477) (3,477) — (50,198) (53,675) — (18,903) (72,578)	Total HK$’000 — —
				— 3,740 6,461 (3,477)
				6,724 19,510 (50,198)
				(23,964) (131) (18,903)
				(42,998)

For the six months ended 30 June 2008 (unaudited)

At 1 January 2008 Exchange realignment Total comprehensive income for the period At 30 June 2008	Capital reserve HK$’000 3,740 — — 3,740	Exchange fluctuation reserve HK$’000 6,461 20,065 — 26,526	Accumulated losses HK$’000 (3,477) — (23,169) (26,646)	Total HK$’000 6,724 20,065 (23,169)
				3,620

Capital reserve

The capital reserve comprises the difference between the actual contributions received from equity holders and the capital registered.

Exchange fluctuation reserve

The exchange fluctuation reserve comprises all foreign exchange differences arising from the translation of the Financial Information.

33. CAPITAL MANAGEMENT

The Menggang Group manages its capital to ensure that entities in the Menggang Group will be able to continue as a going concern while maximising the return to equity holders through the optimisation of the debt and equity balance. The Menggang Group’s overall strategy remains unchanged from prior year.

The capital structure of the Menggang Group consists of debt, which includes bank loan, loans from an equity holder of Wuhai City Menggang, equity attributable to equity holders of Wuhai City Menggang comprising paid-up capital and reserves.

– 207 –

APPENDIX IV ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

The directors of the Menggang Group review the capital structure on a regular basis. As part of this review, the directors consider the cost of capital and the risks associated with each class of capital. Based on recommendations of the directors, the Menggang Group will balance its overall capital structure through the new capital issues, the issue of new debt or the redemption of existing debt.

34. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS

(a) Disposal of a subsidiary

During the six months ended 30 June 2009, Wuhai City Menggang disposed of its entire interests in Wuhai Taida Trading Company Limited at a consideration of HK$3,411,000 to Mr. Huang Man Yu, director of Tianyu Coal and Tianyu Gongmao. The net assets of the disposed subsidiary at the date of disposal are summarised as follows:

Net assets disposed of: Other receivables Gain on disposal of a subsidiary Satisfied by: Cash	HK$’000 3,095
	316
	3,411

An analysis of the net inflow of cash and cash equivalents in respect of the disposal of a subsidiary is as follows:

HK$’000

Cash consideration Cash at bank and in hand disposed of	— —

—

The subsidiary disposed of during the six months ended 30 June 2009 did not contribute significantly to the Menggang Group’s revenue and net loss for the period.

(b) Acquisition of subsidiaries

(i) On 22 November 2007, the Menggang Group acquired the entire paid up capital of Tianyu Gongmao Company Limited from an independent third party at the total cost of acquisition HK$75,694,000.

– 208 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

The identifiable assets and liabilities, stating at the fair value and net carrying amount, arising from the acquisition are as follows:

Property, plant and equipment Prepaid lease payment Mining right Inventories Trade receivables Prepayments, deposits and other receivables Cash at bank and in hand Other payables and accruals Deferred tax liabilities Net (liabilities)/assets acquired Gain on bargain purchase Total cost of acquisition Satisfied by cash: Cash paid for the year ended 31 December 2007 Cash to be paid	Acquirees’ carrying amount before business combination HK$’000 35,038 1,251 4,952 426 71 489 717 (44,820) — (1,876)	Fair value adjustment HK$’000 — 11,749 116,291 — — — — — (42,253) 85,787	Fair value HK$’000 35,038 13,000 121,243 426 71 489 717 (44,820) (42,253)
			83,911 (8,217)
			75,694
			28,386 47,308
			75,694

Included in turnover and loss for the year ended 31 December 2007 is HK$405,000 and HK$2,933,000 respectively since its acquisition.

Had these business combinations been effected at 1 January 2007, the turnover for the year ended 31 December 2007 would have been HK$5,055,000, and the loss for the year ended 31 December 2007 would have been HK$5,981,000.

(ii) On 22 November 2007, the Menggang Group acquired the entire paid up capital of Tianyu Coal Company Limited from an independent third party at the total cost of acquisition HK$101,175,000.

– 209 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

The identifiable assets and liabilities, stating at the fair value and net carrying amount, arising from the acquisition are as follows:

Property, plant and equipment Prepaid lease payment Exploration and evaluation assets Cash at bank and in hand Other payables and accruals Deferred tax liabilities Net (liabilities)/assets acquired Gain on bargain purchase Total cost of acquisition Satisfied by cash: Year ended 31 December 2007 Year ended 31 December 2008	Acquirees’ carrying amount before business combination HK$’000 18,949 1,181 13,461 124 (39,742) — (6,027)	Fair value adjustment HK$’000 — 13,219 302,691 — — (104,251) 211,659	Fair value HK$’000 18,949 14,400 316,152 124 (39,742) (104,251) 205,632 (104,457) 101,175 73,591 27,584 101,175

Included in turnover and loss for the year ended 31 December 2007 is HK$Nil and HK$365,000 respectively since its acquisition.

Had these business combinations been effected at 1 January 2007, the turnover for the year ended 31 December 2007 would have been HK$Nil, and the loss for the year ended 31 December 2007 would have been HK$1,774,000.

(b) Acquisition of subsidiaries

(iii) Analysis of the net cash inflow of cash and cash equivalents in respect of the acquisition of subsidiaries are as follows:

Net cash inflow in respect of the acquisition: Cash consideration paid Cash at bank and in hand acquired	HK$’000 (101,977) 841 (101,136)

35. LITIGATION

(i) Pursuant to an equity transfer agreement dated 18 August 2007 (the ‘‘Equity Transfer Agreement’’) between Wuhai City Menggang and the then equity-holders of Tianyu Gongmao (the ‘‘Original Equity-holders’’), Wuhai City Menggang agreed to acquire the entire equity interest in Tianyu Gongmao from the Original Equity-holders at a cash consideration of RMB90 million, of which only RMB45 million has been paid by Wuhai City Menggang. As advised by Wuhai City Menggang, it has not settled the remaining consideration of RMB45 million because there is a dispute over the production capacity of Tianyu Gongmao. It is the view of Wuhai City Menggang that the actual production capacity of Tianyu Gongmao (i.e. 129,600 tons per annum) when it was taken over from the Original Equity-holders was substantially lower than what was agreed between Wuhai City Menggang and the Original Equity-holders under the relevant Equity Transfer Agreement (i.e. 300,000 tons per annum). After taking over Tianyu Gongmao from the Original Equity-holders, further investments have been made by Wuhai City Menggang to Mine No. 1 to increase its production capacity. Currently, Mine No. 1 has the ability to produce up to 300,000 tons per annum.

– 210 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

A civil claim was brought by the Original Equity-holders to the PRC court against Wuhai City Menggang and pursuant to the first instance judgment handed down by the Wuhai City Intermediate People’s Court (烏海市中級人民法院) in April 2009, Wuhai City Menggang was ordered to pay the remaining consideration of RMB45 million and the breach of contract fixed damages of RMB9 million to the Original Equity-holders. Wuhai City Menggang has appealed to the Inner Mongolia Autonomous Region Superior People’s Court (內蒙古自治區高級人民法院) against the first instance judgment and also applied for, among others, the court’s order for the verification of the production capacity of Tianyu Gongmao. Based on the appeal case progress statement dated 27 November 2009 issued by Beijing Deheng Law Office (北京市德恒律師事務所), being the law firm engaged by Wuhai City Menggang for handling such litigation, the Court has already approved Wuhai City Menggang’s application for verification of Tianyu Gongmao’s production capacity. The parties are currently in negotiation about the selection of valuer responsible for the handling of the relevant verification. The verification result will form the basis for the management of Wuhai City Menggang to further negotiate with the Original Equity-holders for a downward adjustment of the transfer consideration. As advised by Guantao, the transfer of the equity interest in Tianyu Gongmao has been duly registered with the Department of Commerce (商務廳) and the Administration for Industry and Commerce (工商局) of Inner Mongolia, the PRC and Wuhai City Menggang has already been registered as the sole holder of the 100% equity interest in Tianyu Gongmao. The shareholder’s rights and title of Wuhai City Menggang in Tianyu Gongmao are binding and enforceable against any third party and could only be challenged through a judicial procedure.

Upon the application of the Original Equity-holders, the Wuhai City Intermediate People’s Court (烏海市中級人民法院) handed down the Civil Judgment (No. 30, Minyichuzhi, Wuzhongfa (2008) (烏中法 (2008) 民一初字第30號) on 19 January 2009 to freeze the entire equity interest in Tianyu Gongmao held by Wuhai City Menggang pending the outcome of the case. Pursuant to such order, Wuhai City Menggang shall not be allowed to transfer or pledge its interest in, or receive any dividend from, Tianyu Gongmao. The operation of Wuhai City Menggang and its subsidiaries however is not affected by such order or the litigation.

(ii) Tianyu Gongmao was named as a joint defendant on 13 November 2007 alleging that the Company failed to pay a consideration approximately amounting to RMB82,000 regarding a construction work performed by a plaintiff.

The director of the Menggang Group has reviewed the claims against Tianyu Gongmao and based on the advice from the Menggang Group’s legal counsel, are of the view that Tianyu Gongmao has a valid defence to the litigation and, accordingly, has not provided for any claim arising from the litigation, other than the related legal and other costs.

Apart from the actions against Wuhai City Menggang and Tianyu Gongmao disclosed above, there were no other material outstanding writs and litigations against the Menggang Group.

– 211 –

APPENDIX IV ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

36. CAPITAL COMMITMENTS

Capital commitments at the statement of financial position date are as follows:

The Menggang Group and Wuhai City Menggang

Purchase of property, plant and equipment	At 30 June 2009 HK$’000 108,404	At 31 December 2008 2007 HK$’000 HK$’000 108,529 102,142	2006 HK$’000 —

37. RELATED PARTY TRANSACTIONS

In addition to those transactions and balances disclosed elsewhere in these Financial Information, the Menggang Group had the following significant transactions with the following related parties based on the term mutually agreed between the parties:

Interest paid/payable to an equity holder: Zhong Tie Trust Company Limited Consultancy fee paid/payable to an equity holder: Zhong Tie Trust Company Limited	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) 15,157 8,710 2,113 1,819	Years 2008 HK$’000 21,662 3,916	ended 31 December 2007 2006 HK$’000 HK$’000 356 — 758 —	ended 31 December 2007 2006 HK$’000 HK$’000 356 — 758 —
				—

38. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Menggang Group’s major financial instruments include cash at bank and amount due to ultimate holding company. Details of these financial instruments are disclosed in the respective notes.

The main risks arising from the Menggang Group’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. The board of directors reviews and agrees policies for managing each of these risks and they are summarised below.

Interest rate risk

The Menggang Group’s exposure to the risk of changes in market interest rates relates primarily to bank loan with floating interest rates (note 28).

The Menggang Group regularly reviews and monitors the mix of fixed and floating interest rate borrowings in order to manage its interest rate risk. Floating rate interest income and expenses are credited/charged to the income statement as earned/incurred.

The Menggang Group’s policy is to manage its interest rate risk to reduce or maintain its current level of interest bearing borrowings.

– 212 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

Increase/decrease in interest expense	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) 114 —	Years ended 31 December 2008 2007 HK$’000 HK$’000 — —	Period from 1 December 2006 (date of incorporation) to 31 December 2006 HK$’000 —

Foreign currency risk

The Menggang Group has no significant exposure to foreign currency risk as substantially all the Menggang Group’s transaction are denominated in Renminbi.

Liquidity risk

The Menggang Group is exposed to liquidity risk as at 31 December 2007 and 2008 and 30 June 2009. The current liabilities of the Menggang Group exceed its current assets by HK$4,264,000, HK$80,468,000 and HK$102,125,000 as at 31 December 2007 and 2008 and 30 June 2009 respectively. The maintenance of Menggang Group as a going concern depends on the ongoing support from the ultimate holding company and the Company.

All Menggang Group’s financial liabilities as at 31 December 2008 and 30 June 2009 are repayable within one year or on demand. In the opinion of the director of the Menggang Group, the preparation of maturity profile is not necessary.

The following table details the Menggang Group’s remaining contractual maturity for its financial liabilities as at 31 December 2007. For non-derivative financial liabilities, the table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Menggang Group can be required to pay.

The Menggang Group

At 31 December 2007 Other payables and accruals Loans from an equity holder Wuhai City Menggang At 31 December 2007 Other payables and accruals Amount due to a subsidiary Amount due to a related company Loans from an equity holders	Within 1 year or on demand HK$’000 168,021 — 168,021 Within 1 year or on demand HK$’000 78,696 3,202 65 — 81,963	More than 1 year but less than 2 years HK$’000 — 128,771 128,771 More than 1 year but less than 2 years HK$’000 — — — 128,771 128,771	Total HK$’000 168,021 128,771
			296,792
			Total HK$’000 78,696 3,202 65 128,771
			210,734

– 213 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

Credit risk

Menggang Group’s maximum exposure to credit risk in the event of that counterparties fail to perform their obligations as at 31 December 2006, 2007, 2008 and 30 June 2009 in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the consolidated balance sheet.

In order to minimise the credit risk in relation to trade receivables, credit limits and credit terms granted to customers should be approved by delegated officers and follow-up action is taken to recover overdue debts. In addition, the management of Menggang Group reviews the recoverable amount of each individual trade debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of Wuhai City Menggang consider that Menggang Group’s credit risk is significantly reduced.

The credit risk on liquid funds is limited because the majority of the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

Menggang Group’s concentration of credit risk on trade receivables is mainly from five major customers which accounted for 100%, 65%, and 11% of trade receivables mainly from PRC at 31 December 2007, 2008 and 30 June 2009 respectively. Menggang Group has closely monitored the recoverability of trade receivables and taken effective measures to ensure timely collection of outstanding balances.

39. CONTINGENT LIABILITIES

Environmental contingencies

Due to the underground coal exploitation method adopted by the Menggang Group, the Menggang Group has not incurred any significant expenditure on environmental rehabilitation since its establishment. There is, however, no assurance that stringent environmental policies and/or standards on environmental rehabilitation will not be implemented by the relevant authorities in the PRC in the future which require the Menggang Group to undertake environmental measures. The financial position of the Menggang Group may be adversely affected by any environmental liabilities, which may be imposed under such new environmental policies and/or standards.

Title of the land use right

Tianyu Coal, a subsidiary of Wuhai City Menggang, has not yet obtained the title certificates for the land (note 16). According to the legal advice, if Tianyu Coal is found to be liable for the non-compliance of the registration of the title certificates for the land, the maximum expected monetary compensation may amount to approximately HK$2,587,000. In the opinion of the director of Tianyu Coal, he does not believe it probable that Tianyu Coal will be found to be liable. In this regard, no provision has therefore been made in respect of this issue.

40. EVENT AFTER THE STATEMENT OF FINANCIAL POSITION DATE

(i) In compliance with Measures on Accelerating Construction and Acceptance of Coal Mine Safety Quality Standardization and Strict Control over Issuing and Renewal of Coal Production Permit by Inner Mongolia Autonomous Region (No. 182 Neimeijuzi (2009)) 《( 內蒙古自治區關於加快煤礦安全質量標準化建設及驗收進度和嚴格核發（換）煤炭生產許可證的辦法》)（內煤局字[2009]182號）) (the ‘‘Notice’’), the Menggang Group has suspended its operation since August 2009 for the purpose of carrying out various technical and quality improvements at Mine No. 1 in order to attain the prescribed safety standard. Such improvement must be completed by the end of 2010 according to the Notice. The directors expected that the Menggang Group will be able to complete the implementation of the required technical and quality improvements by March 2010. If the Menggang Group cannot complete the implementation before 2010 in compliance with the Notice for whatever reasons, Mine No. 1 may be subject to fines and penalties or be ordered by the relevant PRC authority to cease its operations for an indefinite period. In that case, Mine No. 1 will not be allowed to be put into operation and the prospects of the Menggang Group’s mining operation will be adversely affected.
(ii) In September 2009, registration of the share charge on the entire equity interest in Tianyu Coal has been completed and the relevant share charge has become effective.

– 214 –

ACCOUNTANTS’ REPORT OF WUHAI CITY MENGGANG

APPENDIX IV

41. ULTIMATE HOLDING COMPANY

In the opinion of the directors, the ultimate holding company of Wuhai City Menggang is TRXY Development (HK) Limited, which is incorporated in Hong Kong.

42. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of Wuhai City Menggang or any of its subsidiaries have been prepared in respect of any period subsequent to 30 June 2009.

Yours faithfully, Morison Heng Certified Public Accountants Hong Kong

– 215 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

The following is the text of a report received from Morison Heng in respect of the accountants’ report on Tianyu Gongmao for the period from 6 July 2006 (date of incorporation) to 31 December 2006, for the years ended 31 December 2007 and 2008 and for the six months ended 30 June 2009, for inclusion in this circular.

28 December 2009

The Directors

Winbox International (Holdings) Limited 2/F., Ching Cheong Industrial Building 1–7 Kwai Cheong Road Kwai Chung, New Territories Hong Kong

Dear Sirs,

We set out below our report on the financial information (the ‘‘Financial Information’’) of Tianyu Gongmao Company Limited (‘‘Tianyu Gongmao’’) for the period from 6 July 2006 (date of incorporation of Tianyu Gongmao) to 31 December 2006, for the years ended 31 December 2007 and 2008 and for the six months ended 30 June 2009 (the ‘‘Relevant Periods’’) issued by Winbox International (Holdings) Limited (the ‘‘Company’’), a company incorporated in Cayman Islands with its shares listed on the Main Board of The Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’) dated 28 December 2009 (the ‘‘Circular’’) in connection with the proposed very substantial acquisition of the entire issued share capital of Merrymaking Investments Limited, an intermediate holding company of Tianyu Gongmao.

Tianyu Gongmao was incorporated in the People’s Republic of China (the ‘‘PRC’’) on 6 July 2006 as a private company with limited liability and is principally engaged in coal production and sales of coal during the Relevant Periods.

The financial year end date of Tianyu Gongmao is 31 December. The PRC statutory financial statements of Tianyu Gongmao for the period from 6 July 2006 (date of incorporation of Tianyu Gongmao) to 31 December 2006 and for the years ended 31 December 2007 and 2008 were prepared in accordance with the relevant accounting principles and financial regulations applicable to companies established in PRC. They were audited by the following certified public accountants registered in the PRC.

Period covered	Certified Public Accountants
Year ended 31 December 2008	Inner Mongolia Kezheng Certified Public
	Accountants Company Limited
Year ended 31 December 2007	Wuhai Chengxin Certified Public Accountants
	Company Limited
6 July 2006 (date of incorporation of Tianyu	Wuhai Chengxin Certified Public Accountants
Gongmao) to 31 December 2006	Company Limited

– 216 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

For the purpose of this report, the director of Tianyu Gongmao has prepared the financial statements for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (‘‘HKFRSs’’) issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’) (the ‘‘Underlying Financial Statements’’). We have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 ‘‘Prospectuses and the Reporting Accountant’’ as recommended by the HKICPA.

The Underlying Financial Statements are the responsibility of the director of the Tianyu Gongmao, who approves his issues. The director of the Company is responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements to form an opinion on the Financial Information and to report our opinion to you.

Basis for disclaimer of opinion

1. Inventories

We were appointed as reporting accountant on 27 August 2009 which was subsequent to the end of the Tianyu Gongmao’s Relevant Periods and thus did not observe the counting of the physical inventories at the beginning of the period/year. We were unable to satisfy ourselves by alternative means concerning inventory quantities and conditions held at 31 December 2006, 2007, 2008 and 30 June 2009. Since the value of the opening inventories will have an impact on the loss and cash flows, we were unable to determine whether adjustments might have been necessary in respect of the losses for the period/year reported in the statement of comprehensive income and the net cash flows from operating activities reported in the statement of cash flows. In addition, no sufficient stock records and other evidence have been provided to us to substantiate the carrying amounts of inventories of approximately HK$452,000, HK$303,000, HK$948,000 and HK$761,000 as at 31 December 2006, 2007 and 2008 and 30 June 2009 respectively as included in the statement of financial position were free from material misstatement.

2. Sales

Tianyu Gongmao had recorded sales of coals amounting to HK$3,101,000, HK$5,055,000, HK$917,000 and HK$6,793,000 for the period from 6 July 2006 (date of incorporation) to 31 December 2006, the years ended 31 December 2007 and 2008 and the six months ended 30 June 2009 respectively. However, there was no system of internal control over cash sales on which we could rely for the purpose of our audit and there were no satisfactory audit procedures that we could adopt to confirm independently that all the cash sales were properly recorded. Consequently, we were unable to satisfy ourselves as to the accuracy and completeness of the sales were properly recorded and matched in the Relevant Periods.

– 217 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

Disclaimer of opinion

Because of the significance of the matters described in the basis for disclaimer of opinion paragraphs, we do not express an opinion on the Financial Information as to whether they give a true and fair view of the state of affairs of Tianyu Gongmao as at 31 December 2006, 2007, 2008 and 30 June 2009 and of its results and cash flows for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards, and as to whether these financial statements have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

Report on matters under section 141(4) and 141(6) of the Hong Kong Companies Ordinance

In respect alone of the limitation on our work set out in the basis for disclaimer of opinion paragraph of this report:

we have not obtained all the information and explanations that we considered necessary for the purpose of our audit; and
we were unable to determine whether proper books of account had been kept.

Without qualifying our opinion, we draw attention to note 3 and note 15 to the Financial Information which indicates that Tianyu Gongmao had net current liabilities of HK$12,670,000 as at 30 June 2009 and as further set out in note 15 to the Financial Information, Tianyu Gongmao has mining right, which will be expired in December 2010. The Financial Information has been prepared on a going concern basis, the validity of which is dependent on the success of the renewal of the mining right upon its expiration, the continual financial support from ultimate holding company of Tianyu Gongmao to finance its future working capital and financial requirement and its ability to generate adequate cash flows from its operations. These conditions, along with other matters as set out in note 3 to the Financial Information, indicates the existence of a material uncertainty which may cast significant doubt about the ability of Tianyu Gongmao to continue as a going concern.

The comparative income statement, statement of comprehensive income, statement of cash flows and statement of changes in equity of Tianyu Gongmao for the six months period ended 30 June 2008, together with the notes thereon (the ‘‘30 June 2008 Financial Information’’), were prepared by the director of Tianyu Gongmao solely for the purpose of this report. We have reviewed the 30 June 2008 Financial Information in accordance with the Hong Kong Standards on Review Engagement 2410 ‘‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’’ issued by the HKICPA. Our review of the 30 June 2008 Financial Information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the 30 June 2008 Financial Information is not prepared, in all material respects, in accordance with the accounting policies consistent with those used in the preparation of the Financial Information, which conform with HKFRSs.

– 218 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

INCOME STATEMENT

Notes Turnover 7 Cost of sales Gross profit/(loss) Other revenue 7 Selling and marketing expenses Other operating expenses (Loss)/Profit from operations Finance costs 9 (Loss)/Profit before taxation 8 Taxation 12 (Loss)/Profit for the period/year	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) 6,793 — (5,352) (735) 1,441 (735) 1 2 (1,177) (39) (2,363) (2,326) (2,098) (3,098) (480) — (2,578) (3,098) — — (2,578) (3,098)	Years ended 31 December 2008 2007 HK$’000 HK$’000 917 5,055 (4,206) (4,811) (3,289) 244 4 99 (449) (167) (4,346) (6,157) (8,080) (5,981) — — (8,080) (5,981) — — (8,080) (5,981)	Period from 6 July 2006 (date of incorporation) to 31 December 2006 HK$’000 3,101 (1,553)
			1,548 42 (38) (1,375)
			177 —
			177 —
			177

– 219 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

STATEMENT OF COMPREHENSIVE INCOME

(Loss)/Profit for the period/year Other comprehensive income for the period/year Total comprehensive income for the period/year	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (2,578) (3,098) — — (2,578) (3,098)	Years ended 2008 HK$’000 (8,080) — (8,080)	31 December 2007 HK$’000 (5,981) — (5,981)	Period from 6 July 2006 (date of incorporation) to 31 December 2006 HK$’000 177 —
				177

– 220 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

STATEMENT OF FINANCIAL POSITION

Notes Non-current assets Property, plant and equipment 13 Prepaid lease payments 14 Mining right 15 Current assets Inventories 16 Trade and notes receivables 17 Prepayments, deposits and other receivables 18 Amount due from a fellow subsidiary 19 Amount due from a director 20 Restricted bank deposits 21 Cash at bank and in hand 22 Current liabilities Other payables and accruals 23 Amount due to immediate holding company 24 Amount due to a director 25 Amount due to a former equity holder 25 Bank loan 26 Net current liabilities NET ASSETS/(LIABILITIES) CAPITAL AND RESERVES Paid-up capital 27 Reserves	At 30 June 2009 HK$’000 41,222 1,209 5,321 47,752 761 1,951 5,133 2,083 477 102 1,740 12,247 6,639 6,778 — 144 11,356 24,917 (12,670) 35,082 49,603 (14,521) 35,082	At 31 December 2008 2007 2006 HK$’000 HK$’000 HK$’000 41,216 34,895 28,730 1,238 1,217 1,183 5,350 5,039 4,723 47,804 41,151 34,636 948 303 452 1,049 — 231 1,377 1,121 290 494 — — 370 — — 103 — — 14 1,147 355 4,355 2,571 1,328 3,362 10,179 34,777 10,951 — — — — 8 145 38,509 — — — — 14,458 48,688 34,785 (10,103) (46,117) (33,457) 37,701 (4,966) 1,179 49,603 973 973 (11,902) (5,939) 206 37,701 (4,966) 1,179

– 221 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

STATEMENT OF CHANGES IN EQUITY

At 6 July 2006 (date of incorporation) Change in equity: Contributions from equity holders Appropriation of maintenance and production funds Exchange realignment Total comprehensive income for the period At 31 December 2006 At 1 January 2007 Change in equity: Appropriation of maintenance and production funds Exchange realignment Total comprehensive income for the year At 31 December 2007 At 1 January 2008 Change in equity: Contributions from equity holders Appropriation of maintenance and production funds Exchange realignment Total comprehensive income for the year At 31 December 2008 At 1 January 2009 Change in equity: Appropriation of maintenance and production funds Exchange realignment Total comprehensive income for the period At 30 June 2009 For the six months ended 30 June 2008 (unaudited) At 1 January 2008 Change in equity: Contributions from equity holder Exchange realignment Total comprehensive income for the period At 30 June 2008	Paid-up capital HK$’000 — 973 — — — 973 973 — — — 973 973 48,630 — — — 49,603 49,603 — — — 49,603 973 48,630 — — 49,603	Statutory reserve HK$’000 (note 28) — — 345 — — 345 345 271 — — 616 616 — 144 — — 760 760 914 — — 1,674 616 — — — 616	Exchange fluctuation reserve HK$’000 — — — 29 — 29 29 — (164) — (135) (135) — — 2,117 — 1,982 1,982 — (41) — 1,941 (135) — 2,208 — 2,073	Accumulated losses HK$’000 — — (345) — 177 (168) (168) (271) — (5,981) (6,420) (6,420) — (144) — (8,080) (14,644) (14,644) (914) — (2,578) (18,136) (6,420) — — (3,098) (9,518)	Total HK$’000 — 973 — 29 177 1,179 1,179 — (164) (5,981) (4,966) (4,966) 48,630 — 2,117 (8,080) 37,701 37,701 — (41) (2,578) 35,082 (4,966) 48,630 2,208 (3,098) 42,774

– 222 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

STATEMENT OF CASH FLOWS

Cash flows from operating activities (Loss)/Profit before taxation Adjustments for: Interest expenses Interest income Gain on disposal of property, plant and equipment Depreciation Amortisation of mining right Amortisation of prepaid lease payments Impairment loss on property, plant and equipment Operating (loss)/profit before working capital changes Decrease/(Increase) in inventories (Increase)/Decrease in trade and notes receivables Increase in prepayments, deposits and other receivables Increase in amount due from a fellow subsidiary Increase in amount due from a director Increase/(Decrease) in other payables and accruals (Decrease)/Increase in amount due to immediate holding company (Decrease)/Increase in amount due to a director (Decrease)/Increase in amount due to former equity holder Cash (used in)/from operations Interest paid Net cash (used in)/from operating activities	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (2,578) (3,098) 480 — (1) (2) — — 828 569 23 — 27 27 — — (1,221) (2,504) 186 (339) (904) — (3,761) (439) (1,591) (99) (107) — 3,284 (10,244) (4,164) 3,000 — — — (39,650) (8,278) (50,275) (480) — (8,758) (50,275)	Years ended 2008 HK$’000 (8,080) — (3) — 1,229 5 54 — (6,795) (618) (1,036) (182) (488) (366) (7,360) 10,813 — (40,256) (46,288) — (46,288)	31 December 2007 HK$’000 (5,981) — (7) (29) 1,102 25 50 1,808 (3,032) 174 238 (779) — — (26,035) — (8) 36,972 7,530 — 7,530	Period from 6 July 2006 (date of incorporation) to 31 December 2006 HK$’000 177 — (3) — 297 11 20 —
				502 (442) (226) (235) — — 34,003 — 8 —
				33,610 —
				33,610

– 223 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

Cash flows from investing activities Purchases of property, plant and equipment Proceeds from disposal of property, plant and equipment Purchases of prepaid lease payments Payments for construction in progress Purchases of mining right Interest received Increase in restricted bank deposits Net cash used in investing activities Cash flows from financing activities Proceeds from contribution of equity holders Bank loan raised Net cash from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period/year Effect of foreign exchange rate changes, net Cash and cash equivalents at end of period/year Analysis of balances of cash and cash equivalents Cash at bank and in hand	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (239) (400) — — — — (641) — — — 1 2 — (100) (879) (498) — 48,630 11,364 — 11,364 48,630 1,727 (2,143) 14 1,147 (1) 1,164 1,740 168 1,740 168	Years ended 2008 HK$’000 (4,858) — — (459) — 3 (101) (5,415) 48,630 — 48,630 (3,073) 1,147 1,940 14 14	31 December 2007 HK$’000 (3,136) 603 — (4,269) — 7 — (6,795) — — — 735 355 57 1,147 1,147	Period from 6 July 2006 (date of incorporation) to 31 December 2006 HK$’000 (24,849) — (1,223) (3,539) (4,629) 3 — (34,237) 973 — 973 346 — 9 355 355

– 224 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

NOTES TO THE FINANCIAL INFORMATION

1. CORPORATE INFORMATION

Tianyu Gongmao Company Limited is a limited liability company incorporated in PRC on 6 July 2006. The address of the registered office and the principal place of business is Dongshan Coal Mine of Dilibangwusu Mining Area, Hainan District, Wuhai City, Inner Mongolia Autonomous Region, PRC (中國內蒙古烏海市海南區東山滴瀝邦烏素礦區).

The principal activities of Tianyu Gongmao are coal production and sales of coal.

The Financial Information is presented in Hong Kong dollars, while the functional currency is Renminbi.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

During the Relevant Periods, the HKICPA issued a number of new and revised HKFRSs (herein collectively referred to as ‘‘new HKFRSs’’). For the purpose of preparing and presenting the Financial Information of the Relevant Periods, Tianyu Gongmao has consistently applied all these new HKFRSs over the Relevant Periods.

Tianyu Gongmao has not early applied the following new and revised standards, amendments or interpretations that have been issued but are not yet effective.

HKFRSs (Amendments) Amendment to HKFRS 5 as part of improvements to HKFRSs issued in 2008[1] HKFRSs (Amendments) Improvements to HKFRSs issued in 2009[2] HKAS 27 (Revised in 2008) Consolidated and Separate Financial Statements[1] HKAS 39 (Amendment) Eligible Hedged Items[1] HKFRS 1 (Revised in 2008) First-time Adoption of HKFRS[1] HKFRS 2 (Amendment) Amendment to HKFRS 2 Group Cash-settled Share0based Payment Transactions[4] HKFRS 3 (Revised) Business Combinations[1] HK(IFRIC)-Int 17 Distributions of Non-cash Assets to Owners[1] HK(IFRIC)-Int 18 Transfers of Assets from Customers[3]

1 Effective for annual periods beginning on or after 1 July 2009
2 Amendments that are effective for annual periods beginning on or after 1 July 2009 and 1 January 2010, as appropriate
3 Effective for transfers on or after 1 July 2009
4 Effective for annual periods beginning on or after 1 January 2010

Tianyu Gongmao is not yet in a position to determine the impact of these new and revised standards or interpretations on the results of operations and financial position of Tianyu Gongmao. These new and revised standards or interpretations may result in changes in the future as to how the results and financial position of Tianyu Gongmao are prepared and presented.

3. GOING CONCERN

Tianyu Gongmao incurred a loss of HK$2,578,000 for the six months ended 30 June 2009. In addition, Tianyu Gongmao had net current liabilities of HK$12,670,000 as at 30 June 2009. Nevertheless, the director of Tianyu Gongmao has adopted the going concern basis in the preparation of the Financial Information based on the existence of the written intention of continuing financial support provided by Tianyu Gongmao’s ultimate holding company in the future twelve months from the date of approval of the Financial Information.

Accordingly, the director is of the opinion that it is appropriate to prepare the Financial Information on a going concern basis. Should Tianyu Gongmao be unable to continue to operate as a going concern, adjustments would have to be made to writedown the value of assets to their recoverable amounts, to provide for further liabilities that might arise and to reclassify noncurrent assets and non-current liabilities as current assets and current liabilities. The effects of these potential adjustments have not been reflected in the Financial Information.

– 225 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

4. SIGNIFICANT ACCOUNTING POLICIES

Statement of compliance

Basis of preparation

The Financial Information has been prepared on the historical cost.

The ultimate holding company has confirmed that it will provide such financial assistance as is necessary to maintain Tianyu Gongmao as a going concern. On the strength of this assurance, the Financial Information has been prepared on a going concern basis.

Revenue recognition

Provided it is probable that the economic benefits will flow to Tianyu Gongmao and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows:

(i) Sale of goods

(ii) Interest income

Interest income is recognised as it accrues using the effective interest method.

Employee benefits

Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans and the cost of non-monetary benefits are accrued in the year in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

Borrowing costs

All borrowing costs are recognised as expenses in the Relevant Periods in which they are incurred.

– 226 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

Taxation

Property, plant and equipment

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to Tianyu Gongmao and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged in the income statement during the Relevant Periods in which they are incurred.

Buildings 10–20 years with 5% residual value Mining related machinery and equipment 3–10 years with 5% residual value Tools and other equipment 5 years with 5% residual value Motor vehicles 5–10 years with 5% residual value

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each statement of financial position date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are included in the income statement.

– 227 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

Construction in progress

Prepaid lease payment

Prepaid lease payments are stated at cost less accumulated amortisation and impairment losses. Cost represents consideration paid for the rights to use the land on which various buildings and mining structures are situated for periods of 26 years. Amortisation of land use rights is calculated on a straight-line basis over the period of the land use rights.

Mining right

Inventories

Inventories of ancillary materials, spare parts and small tools used in production are stated at cost less impairment losses for obsolescence.

Trade and other receivables

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and short-term highly liquid investments which are readily convertible into known amounts of cash and which are subject to insignificant risks of changes in value. Bank overdrafts that are repayable on demand and form an integral part of Tianyu Gongmao’s cash management are also included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

Trade and other payables

Trade and other payables are initially recognised at fair value and thereafter stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

Interest-bearing borrowings

– 228 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

Translation of foreign currencies

Related parties

A party is considered to be related to Tianyu Gongmao if:

(a) the party, directly, or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with, Tianyu Gongmao; (ii) has an interest in Tianyu Gongmao that gives it significant influence over Tianyu Gongmao; or (iii) has joint control over Tianyu Gongmao;
(b) the party is a jointly-controlled entity;
(c) the party is a member of the key management personnel of Tianyu Gongmao;
(d) the party is a close member of the family of any individual referred to in (a) or (c);
(e) the party is an entity that is controlled, jointly-controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (c) or (d); or
(f) the party is a post-employment benefit plan for the benefit of employees of Tianyu Gongmao, or of any entity that is a related party of Tianyu Gongmao.

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

Provision and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when Tianyu Gongmao has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made.

Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

5. KEY SOURCE OF ESTIMATION UNCERTAINTY

Tianyu Gongmao’s financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the Financial Information. Tianyu Gongmao bases the assumptions and estimates on historical experience and on various other assumptions that Tianyu Gongmao believes to be reasonable and which form the basis for making judgements about matters that are not readily apparent from other sources. On an on-going basis, management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change.

– 229 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

The selection of critical accounting policies, the judgements and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing the Financial Information. The principal accounting policies are set forth in note 4. Tianyu Gongmao believes the following critical accounting policies involve the most significant judgements and estimates used in the preparation of the Financial Information.

Coal reserves

Engineering estimates of Tianyu Gongmao’s coal reserves are inherently imprecise and represent only approximate amounts because of the subjective judgements involved in developing such information. There are authoritative guidelines regarding the engineering criteria that have to be met before estimated coal reserves can be designated as ‘‘proved’’ and ‘‘probable’’. Proved and probable coal reserves estimates are updated at regular basis have taken into account recent production and technical information about the mine. In addition, as prices and cost levels change from year to year, the estimate of proved and probable coal reserves also changes. This change is considered a change in estimate for accounting purposes and is reflected on a prospective basis in related depreciation and amortisation rates.

Impairments

In considering the impairment losses that may be required for certain of Tianyu Gongmao’s assets which include property, plant and equipment, construction in progress, mining right, prepaid lease payments, the recoverable amount of the asset needs to be determined. The recoverable amount is the greater of the net selling price and the value in use. It is difficult to precisely estimate selling price because quoted market prices for these assets may not be readily available. In determining the value in use, expected cash flows generated by these assets are discounted to their present value, which requires significant judgement relating to items such as level of sale volume, selling price and amount of operating costs. Tianyu Gongmao uses all readily available information in determining an amount that is reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of items such as sale volume, selling price and amount of operating costs.

In considering the impairment losses that may be required for current receivables and other financial assets, future cashflows need to be determined. One of the key assumptions that has to be applied is about the ability of the debtors to settle the receivables. Notwithstanding that Tianyu Gongmao has used all available information to make this estimation, inherent uncertainty exists and actual write-offs may be higher than the amount estimated.

Depreciation

Other than the mining structures, property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets, after taking into account the estimated residual value. Tianyu Gongmao reviews the estimated useful lives of the assets regularly. The useful lives are based on Tianyu Gongmao’s historical experience with similar assets and taking into account anticipated technological changes. The depreciation expense for future periods is adjusted of there are significant changes from previous estimates.

– 230 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

6. SEGMENT INFORMATION

Tianyu Gongmao has adopted HKFRS 8 Operating Segments with effect from 1 January 2009. HKFRS 8 requires operating segments to be identified on the basis of internal reports about components of Tianyu Gongmao that are regularly reviewed by the chief operating decision maker, Tianyu Gongmao’s director, in order to allocate resources to the segments and to assess their performance. In contrast, the predecessor Standard (HKAS 14 Segment Reporting) required an entity to identify two sets of segments (business and geographical) using a risks and returns approach, with the entity’s ‘‘system of internal financing reporting to key management personnel’’ serving only as the starting point for the identification of such segments. The application of HKFRS 8 has not resulted in a redesignation of Tianyu Gongmao’s reportable segments as compared with the reportable segments determined in accordance with HKAS 14.

Tianyu Gongmao’s operating segments are aggregated into a single reportable segment and accordingly no separate segment information is prepared.

7. TURNOVER AND REVENUE

Tianyu Gongmao’s turnover, represents the net invoiced value of goods sold, after allowances for returns and trade discounts.

An analysis of turnover and other revenue is as follows:

Turnover Sales of coals Other revenue Bank interest income Gain on disposal of property, plant and equipment Others	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) 6,793 — 1 2 — — — — 1 2	Years ended 2008 HK$’000 917 3 — 1 4	31 December 2007 HK$’000 5,055 7 29 63 99	Period from 6 July 2006 (date of incorporation) to 31 December 2006 HK$’000 3,101
				3 — 39
				42

– 231 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

8. (LOSS)/PROFIT BEFORE TAXATION

(Loss)/Profit before taxation is arrived at after charging/(crediting):

Auditors’ remuneration Cost of inventories sold Depreciation (note 13) Impairment loss on property, plant and equipment Staff costs (including directors’ remuneration — note 10) — salaries and allowances Amortisation of prepaid lease payments Amortisation of mining right Gain on disposal of property, plant and equipment 9. FINANCE COSTS	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) 18 6 5,352 735 828 569 — — 3,729 1,324 27 27 23 — — —	Years ended 2008 HK$’000 6 4,206 1,229 — 4,248 54 5 —	31 December 2007 HK$’000 3 4,811 1,102 1,808 3,355 50 25 (29)	Period from 6 July 2006 (date of incorporation) to 31 December 2006 HK$’000 1 1,553 297 — 987 20 11 —

erest on: Bank borrowing wholly repayable within 5 years	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) 480 —	Years ended 2008 HK$’000 —	31 December 2007 HK$’000 —	Period from 6 July 2006 (date of incorporation) to 31 December 2006 HK$’000 —

Interest on:

– 232 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

10. DIRECTORS’ REMUNERATION

Directors’ remuneration for the Relevant Periods, disclosed pursuant to the listing rules and section 161 of the Hong Kong Companies Ordinance, is as follows:

Salaries and allowances Mr. Liang Bao Jun1 Mr. Huang Man Yu2 Retirement scheme contributions Mr. Liang Bao Jun1 Mr. Huang Man Yu2 Total Mr. Liang Bao Jun1 Mr. Huang Man Yu2	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) — — — — — — — — — — — — — — — — — —	Years ended 2008 HK$’000 — — — — — — — — —	31 December 2007 HK$’000 116 — 116 — — — 116 — 116	Period from 6 July 2006 (date of incorporation) to 31 December 2006 HK$’000 34 —
				34
				— —
				—
				34 —
				34

1 Appointed on 6 July 2006 and resigned on 22 November 2007

2 Appointed on 22 November 2007

During the Relevant Periods, no emoluments were paid to the directors as an inducement to join or upon joining Tianyu Gongmao or as compensation for loss of office. No directors waived or agreed to waive any emoluments during the Relevant Periods.

11. FIVE HIGHEST PAID EMPLOYEES

The emoluments of the five highest paid individuals of Tianyu Gongmao during the Relevant Periods are as follows:

Salaries, allowances and benefits in kind Pension scheme contributions	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) 303 302 — — 303 302	Years ended 2008 HK$’000 423 — 423	31 December 2007 HK$’000 475 — 475	Period from 6 July 2006 (date of incorporation) to 31 December 2006 HK$’000 115 —
				115

The emoluments of the five individuals with the highest emoluments were within the range of HK$Nil to HK$1,000,000 during the Relevant Periods.

– 233 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

12. TAXATION

PRC Income tax: — charge for the period/year	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) — —	Years ended 2008 HK$’000 —	31 December 2007 HK$’000 —	Period from 6 July 2006 (date of incorporation) to 31 December 2006 HK$’000 —

The charge for the period/year can be reconciled to the (loss)/profit per the income statement as follows:

(Loss)/Profit before taxation Tax at the statutory tax rates Expenses net deductible for tax Income not subject to tax Tax losses not recognised Taxation	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (2,578) (3,098) (644) (775) 280 12 — — 364 763 — —	Years ended 2008 HK$’000 (8,080) (2,020) 23 — 1,997 —	31 December 2007 HK$’000 (5,981) (1,974) — — 1,974 —	Period from 6 July 2006 (date of incorporation) to 31 December 2006 HK$’000 177
				58 — (58) —
				—

Prior to 1 January 2008, PRC entities were, in general, subject to the statutory income tax rate of 33%, consisting of 30% state tax and 3% local tax, on their assessable profits.

Tianyu Gongmao was subject to income at 33% prior to 1 January 2008 and at 25% from 1 January 2008 onwards.

No deferred tax asset has been recognised in the Financial Information as it is uncertain such an asset will crystallise in the foreseeable future.

– 234 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

13. PROPERTY, PLANT AND EQUIPMENT

Cost At 6 July 2006 (date of incorporation) Additions Exchange realignment At 1 January 2007 Additions Disposals Transfer Exchange realignment At 1 January 2008 Additions Exchange realignment At 1 January 2009 Additions Exchange realignment At 30 June 2009 Accumulated depreciation and impairment losses At 6 July 2006 (date of incorporation) Depreciation charge for the period Exchange realignment At 1 January 2007 Depreciation charge for the year Impairment loss Disposals Exchange realignment At 1 January 2008 Depreciation charge for the year Exchange realignment At 1 January 2009 Depreciation charge for the period Exchange realignment At 30 June 2009 Net book value At 30 June 2009 At 31 December 2008 At 31 December 2007 At 31 December 2006	Buildings HK$’000 — 4,032 92 4,124 696 — — 327 5,147 — 322 5,469 — (6) 5,463 — 67 2 69 220 — — 14 303 304 22 629 154 (1) 782 4,681 4,840 4,844 4,055	Mining structure HK$’000 — 14,740 335 15,075 562 — 7,996 1,448 25,081 — 1,568 26,649 — (30) 26,619 — 34 1 35 123 1,808 — 82 2,048 21 129 2,198 105 (2) 2,301 24,318 24,451 23,033 15,040	Mining related machinery and equipment HK$’000 — 5,601 127 5,728 1,263 — — 468 7,459 4,433 523 12,415 61 (14) 12,462 — 168 4 172 633 — — 39 844 793 63 1,700 478 (2) 2,176 10,286 10,715 6,615 5,556	Tools and other equipment HK$’000 — 476 11 487 12 — — 35 534 228 36 798 178 (1) 975 — 28 — 28 97 — — 6 131 104 9 244 75 — 319 656 554 403 459	Motor vehicles HK$’000 — — — — 603 (603) — — — 197 2 199 — — 199 — — — — 29 — (29) — — 7 — 7 16 (1) 22 177 192 — —	Construction in progress HK$’000 — 3,539 81 3,620 4,269 — (7,996) 107 — 459 5 464 641 (1) 1,104 — — — — — — — — — — — — — — — 1,104 464 — 3,620	Total HK$’000 — 28,388 646
							29,034 7,405 (603) — 2,385
							38,221 5,317 2,456
							45,994 880 (52)
							46,822
							— 297 7
							304 1,102 1,808 (29) 141
							3,326 1,229 223
							4,778 828 (6)
							5,600
							41,222
							41,216
							34,895
							28,730

– 235 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

14. PREPAID LEASE PAYMENTS

COST At the beginning of period/year Additions Exchange realignment At the end of year/period ACCUMULATED AMORTISATION At the beginning of period/year Charge for the period/year Exchange realignment At the end of period/year NET BOOK VALUE At the end of period/year Analysed for reporting purpose as: Current portion including in prepayments, deposits and other receivables Non-current portion	At 30 June 2009 HK$’000 1,425 — (1) 1,424 132 27 1 160 1,264 At 30 June 2009 HK$’000 55 1,209 1,264	At 31 December 2008 2007 HK$’000 HK$’000 1,341 1,251 — — 84 90 1,425 1,341 73 20 54 50 5 3 132 73 1,293 1,268 At 31 December 2008 2007 HK$’000 HK$’000 55 51 1,238 1,217 1,293 1,268	2006 HK$’000 — 1,223 28
			1,251
			— 20 —
			20
			1,231
			2006 HK$’000 48 1,183
			1,231

Prepaid lease payments represent land use rights paid to the PRC’s governmental authorities.

Tianyu Gongmao’s prepaid lease payments are held under medium term leases and were pledged to secure bank loan granted to Tianyu Gongmao (note 26).

– 236 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

15. MINING RIGHT

Cost At beginning of period/year Additions Exchange realignment At the end of period/year Accumulated amortisation and impairment At the beginning of period/year Amortisation Exchange realignment At the end of period/year Net book value At the end of period/year	At 30 June 2009 HK$’000 5,395 — (7) 5,388 45 23 (1) 67 5,321	At 31 December 2008 2007 HK$’000 HK$’000 5,077 4,734 — — 318 343 5,395 5,077 38 11 5 25 2 2 45 38 5,350 5,039	2006 HK$’000 — 4,629 105
			4,734
			— 11 —
			11
			4,723

The mining right will be expired in December 2010. The director has obtained the PRC authority’s opinion that Tainyu Gongmao complies with the PRC rules and conditions to renew the mining right upon its expiration. Based on the advice from the Company’s legal counsel, Tianyu Gongmao will be entitled to renew the mining right upon its expiration accordingly.

Pursuant to the two loan agreements entered into between the immediate holding company and an equity holder of the immediate holding company dated 17 December 2007 and 29 July 2008 respectively, the mining right with carrying amount of HK$Nil, HK$5,039,000, HK$5,350,000 and HK$5,321,000 as at 31 December 2006, 2007 and 2008 and 30 June 2009 respectively was pledged to secure the loans from an equity holder of the immediate holding company. However, at 30 June 2009, the legal charge has not yet been registered with the relevant authorities in the PRC. In this respect, the directors consider that the relevant legal charge has not yet become effective.

16. INVENTORIES

Coal Auxiliary materials, spare parts and tools	At 30 June 2009 HK$’000 683 78 761	At 31 December 2008 2007 HK$’000 HK$’000 541 — 407 303 948 303	2006 HK$’000 — 452
			452

All inventories are expected to be recovered within one year.

– 237 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

17. TRADE AND NOTES RECEIVABLES

Trade receivables Notes receivables	At 30 June 2009 HK$’000 1,724 227 1,951	At 31 December 2008 2007 HK$’000 HK$’000 1,049 — — — 1,049 —	2006 HK$’000 166 65
			231

Tianyu Gongmao’s trading terms with its customers generally have no credit terms and non-interest bearing. Overdue balances are reviewed regularly by senior management. In view of the aforementioned and the fact that Tianyu Gongmao’s trade receivables relate to a large number of diversified customers, there is no significant concentration of credit risk.

The ageing analysis of trade receivables was as follows:

Within 30 days 31 to 60 days 61 to 90 days Over 90 days	At 30 June 2009 HK$’000 675 — — 1,049 1,724	At 31 December 2008 2007 HK$’000 HK$’000 800 — 66 — — — 183 — 1,049 —	2006 HK$’000 166 — — —
			166

The ageing analysis of trade receivables net of allowance for doubtful debts that were past due but not impaired are as follows:

Within 30 days 31 to 60 days 61 to 90 days Over 90 days	At 30 June 2009 HK$’000 675 — — 1,049 1,724	At 31 December 2008 2007 HK$’000 HK$’000 800 — 66 — — — 183 — 1,049 —	2006 HK$’000 166 — — —
			166

Receivables that were neither past due nor impaired relate to a large number of diversified customers for whom there was no recent history of default.

Receivables that were past due but not impaired relate to a number of independent customers that have a good track record with Tianyu Gongmao. Based on past experience, the director of Tianyu Gongmao is 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. Tianyu Gongmao does not hold any collateral or other credit enhancements over these balances.

Notes receivables are bank accepted bill of exchange with maturity of less than one year.

– 238 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

18. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

The director considers that the carrying amounts of prepayments, deposits and other receivables approximate to their fair value.

19. AMOUNT DUE FROM A FELLOW SUBSIDIARY

Tianyu Coal Company Limited Tianyu Coal Company Limited	At 30 June At 31 December 2009 2008 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 2,083 494 — — Maximum amount outstanding Six months ended 30 June Years ended 31 December Period from 6 July 2006 (date of incorporation) to 31 December 2006 2009 2008 2008 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 2,083 — 494 — —	2006 HK$’000 —

Wuhai City Menggang Industrial Development Co., Ltd., immediate holding company of Tianyu Gongmao, has beneficial and controlling interest of the above-named company.

20. AMOUNT DUE FROM A DIRECTOR

Mr. Huang Man Yu Mr. Huang Man Yu	At 30 June At 31 December 2009 2008 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 477 370 — — Maximum amount outstanding Six months ended 30 June Years ended 31 December Period from 6 July 2006 (date of incorporation) to 31 December 2006 2009 2008 2008 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) 477 370 370 — —	2006 HK$’000 —

The amount due is unsecured, interest-free and repayable on demand.

– 239 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

21. RESTRICTED BANK DEPOSIT

Restricted bank deposit	At 30 June 2009 HK$’000 102	At 31 December 2008 2007 HK$’000 HK$’000 103 —	2006 HK$’000 —

Restricted bank deposit represents the deposit set aside for a litigation that claim against Tianyu Gongmao ordered by the court (note 30).

22. CASH AT BANK AND IN HAND

Cash at banks earns interest at floating rates based on daily bank deposit rates. The carrying amounts of the cash at bank and in hand approximate to their fair values.

23. OTHER PAYABLES AND ACCRUALS

Other payables and accruals Receipts in advance	At 30 June 2009 HK$’000 6,168 471 6,639	At 31 December 2008 2007 HK$’000 HK$’000 3,362 10,179 — — 3,362 10,179	2006 HK$’000 34,777 —
			34,777

The director considers that the carrying amounts of these items approximate to their fair values.

24. AMOUNT DUE TO IMMEDIATE HOLDING COMPANY

The amount due is unsecured, interest-free and repayable on demand.

25. AMOUNT DUE TO A DIRECTOR/A FORMER EQUITY HOLDER

The amount due is unsecured, interest-free and repayable on demand.

26. BANK LOAN

As at 30 June 2009, a bank loan was secured and carried interest at 80% above the benchmark interest rate announced by the People’s Bank of China. There is no bank loan as at 31 December 2006, 2007 and 2008.

As at 30 June 2009, Tianyu Gongmao’s bank loan was secured by:

(i) A legal charge on the prepaid lease payments. The net book value of the prepaid lease payment approximately HK$1,264,000 (note 14) as at 30 June 2009; and
(ii) Corporate guarantee executed by an independent third party to the extent of HK$11,356,000.

The carrying amount of Tianyu Gongmao’s bank loan approximates to its fair value.

– 240 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

27. PAID UP CAPITAL

Registered capital: At the beginning of period/year Increase in registered capital At the beginning of period/year Paid up capital: At the beginning of period/year Contributions from equity holders At the end of period/year	At 30 June 2009 HK$’000 49,603 — 49,603 49,603 — 49,603	At 31 December 2008 2007 HK$’000 HK$’000 973 973 48,630 — 49,603 973 973 973 48,630 — 49,603 973	2006 HK$’000 973 —
			973
			— 973
			973

Tianyu Gongmao was domestic enterprise established in the PRC on 6 July 2006 with a registered capital of RMB1,000,000.

In January 2008, additional capital contribution totalling RMB45,000,000 (approximately HK$48,630,000) was being made by way of a cash contribution.

28. STATUTORY RESERVES

Pursuant to the relevant PRC regulations for coal mining companies, provision for production maintenance, production safety and other related expenditures are accrued by Tianyu Gongmao at fixed rates based on coal production volume (the ‘‘maintenance and production funds’’).

According to China Accounting Standards Explanatory Notice No. 2 and other relevant accounting regulations issue in December 2008, effective for the year ended 31 December 2008, Tianyu Gongmao is required to make a transfer of the maintenance and production funds from retained earnings to a specific reserve under the statutory surplus reserve. The maintenance and production funds could be utilised when expenses or capital expenditures on production maintenance and production funds could be utilised when expenses or capital expenditures on production maintenance and safety measures are incurred. The amount of maintenance and production funds utilised will be transferred from the specific reserve to retained earnings.

29. CAPITAL MANAGEMENT

Tianyu Gongmao manages its capital to ensure that entities in Tianyu Gongmao will be able to continue as a going concern while maximising the return to equity holders through the optimisation of the debt and equity balance. Tianyu Gongmao’s overall strategy remains unchanged from prior year.

The capital structure of Tianyu Gongmao consists of debt, which includes interest-bearing bank, equity attributable to equity holders of Tianyu Gongmao, comprising paid-up capital and reserves.

The director of Tianyu Gongmao reviews the capital structure on a regular basis. As part of this review, the director considers the cost of capital and the risks associated with each class of capital. Based on recommendations of the director, Tianyu Gongmao will balance its overall capital structure through the new capital issues, the issue of new debt or the redemption of existing debt.

30. LITIGATION

Tianyu Gongmao was named as a joint defendant on 13 November 2007 alleging that the Company failed to pay a consideration approximately amounting to RMB82,000 regarding a construction work performed by a plaintiff.

– 241 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

The Director has reviewed the claims against Tianyu Gongmao and based on the advice from Tianyu Gongmao’s legal counsel, are of the view that Tianyu Gongmao has a valid defence to the litigation and, accordingly, has not provided for any claim arising from the litigation, other than the related legal and other costs.

Apart from the actions against Tianyu Gongmao disclosed above, there were no other material outstanding writs and litigations against Tianyu Gongmao.

31. RELATED PARTY TRANSACTIONS

In addition to those transactions and balances disclosed elsewhere in these Financial Information, Tianyu Gongmao had the following significant transactions with the following related parties based on the term mutually agreed between the parties:

Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) Purchase of property, plant and equipment from a related company: Tianyu Coal Company Limited — — Purchase of land use right from a related company: Tianyu Coal Company Limited — — Purchase of mining right from a related company: Tianyu Coal Company Limited — — Sales of property, plant and equipment to a director: Mr. Liang Bao Jun — — At 30 June 2009 HK$’000 Purchase of property, plant and equipment from a related company: Tianyu Coal Company Limited — Purchase of land use right from a related company: Tianyu Coal Company Limited — Purchase of mining right from a related company: Tianyu Coal Company Limited — Sales of property, plant and equipment to a director: Mr. Liang Bao Jun —	Transaction value Years ended 31 December Period from 6 July 2006 (date of incorporation) to 31 December 2006 2008 2007 HK$’000 HK$’000 HK$’000 — — 24,011 — — 1,223 — — 4,629 — 603 — Balance outstanding At 31 December 2008 2007 2006 HK$’000 HK$’000 HK$’000 — — — — — — — — — — — —	Period from 6 July 2006 (date of incorporation) to 31 December 2006 HK$’000 24,011	Period from 6 July 2006 (date of incorporation) to 31 December 2006 HK$’000 24,011
			1,223
			4,629
			—
			2006 HK$’000 —
			—
			—
			—

– 242 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

32. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

Tianyu Gongmao’s major financial instruments include trade and notes receivables, prepayments, deposits and other receivables, cash at bank and in hand, amount due from a fellow subsidiary, amount due from a director, other payables and accruals, amount due to immediate holding company and amount due to a former equity holder. Details of these financial instruments are disclosed in the respective notes.

The main risks arising from Tianyu Gongmao’s financial instruments are interest rate risk, foreign currency risk, credit risk and liquidity risk. The director reviews and agrees policies for managing each of these risks and they are summarised below.

Interest rate risk

The interest rate of bank loan is disclosed in note 26 to the Financial Information. Director of Tianyu Gongmao believes its exposure to interest rate risk is minimal. Cash at bank earns interest at floating rates based on daily bank deposits rates.

Tianyu Gongmao does not have any derivative instruments to reduce its economic exposure to changes in interest rates.

Increase/decrease in interest expense	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) 114 —	Years ended 2008 HK$’000 —	31 December 2007 HK$’000 —	Period from 6 July 2006 (date of incorporation) to 31 December 2006 HK$’000 —

Foreign currency risk

Tianyu Gongmao has no significant exposure to foreign currency risk as substantially are of Tianyu Gongmao’s transactions are denominated in Renminbi.

Liquidity risk

Tianyu Gongmao is exposed to liquidity risk. The current liabilities of Tianyu Gongmao exceed its current assets by HK$33,457,000, HK$46,117,000, HK$10,103,000 and HK$12,670,000 as at 31 December 2006, 2007 and 2008 and 30 June 2009 respectively. The maintenance of Tianyu Gongmao as a going concern depends on the ongoing support from the ultimate holding company.

All Tianyu Gongmao’s financial liabilities are repayable within one year or on demand. In the opinion of the director of Tianyu Gongmao, the preparation of maturity profile is not necessary.

Credit risk

Tianyu Gongmao’s maximum exposure to credit risk in the event of that counterparties fail to perform their obligations as at 31 December 2006, 2007 and 2008 and 30 June 2009 in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the statement of financial position.

– 243 –

ACCOUNTANTS’ REPORT OF TIANYU GONGMAO

APPENDIX V

In order to minimise the credit risk in relation to trade receivables, credit limits and credit terms granted to customers should be approved by delegated officers and follow-up action is taken to recover overdue debts. In addition, the management of Tianyu Gongmao reviews the recoverable amount of each individual trade debt at each state of financial position position date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the director of Tianyu Gongmao considers that Tianyu Gongmao’s credit risk is significantly reduced.

The credit risk on liquid funds is limited because the majority of the counterparties are banks with high credit-ratings assigned by international credit-rating agencies.

Tianyu Gongmao’s concentration of credit risk on trade receivables is mainly from five major customers which accounted for 27%, 0%, 100% and 9% of trade receivables mainly from the PRC at 31 December 2006, 2007 and 2008 and 30 June 2009 respectively. Tianyu Gongmao has closely monitored the recoverability of trade receivables and taken effective measures to ensure timely collection of outstanding balances.

33. CONTINGENT LIABILITIES

Environmental contingencies

Due to the underground coal exploitation method adopted by Tianyu Gongmao, Tianyu Gongmao has not incurred any significant expenditure on environmental rehabilitation since its establishment. There is, however, no assurance that stringent environmental policies and/or standards on environmental rehabilitation will not be implemented by the relevant authorities in the PRC in the future which require Tianyu Gongmao to undertake environmental measures. The financial position of Tianyu Gongmao may be adversely affected by any environmental liabilities, which may be imposed under such new environmental policies and/or standards.

34. EVENTS AFTER THE STATEMENT OF FINANCIAL POSITION DATE

In compliance with Measures on Accelerating Construction and Acceptance of Coal Mine Safety Quality Standardization and Strict Control over Issuing and Renewal of Coal Production Permit by Inner Mongolia Autonomous Region (No. 182 Neimeijuzi (2009))（《內蒙古自治區關於加快煤礦安全質量標準化建設及驗收進度和嚴格核發（換）煤炭生產許可證辦法》（內煤局字[2009]182號）) (the ‘‘Notice’’), Tianyu Gongmao has suspended its operation since August 2009 for the purpose of carrying out various technical and quality improvements at Mine No. 1 in order to attain the prescribed safety standard. Such improvement must be completed by the end of 2010 according to the Notice. The director expected that Tianyu Gongmao will be able to complete the implementation of the required technical and quality improvements by March 2010. If Tianyu Gongmao cannot complete the implementation before 2010 in compliance with the Notice for whatever reasons, Mine No. 1 may be subject to fines and penalties or be ordered by the relevant PRC authority to cease its operations for an indefinite period. In that case, Mine No. 1 will not be allowed to be put into operation and the prospects of Tianyu Gongmao’s mining operation will be adversely affected.

35. IMMEDIATE AND ULTIMATE HOLDING COMPANIES

In the opinion of the director, the immediate holding company of Tianyu Gongmao is Wuhai City Menggang Industrial Development Co., Ltd., which is incorporated in the People’s Republic of China and the ultimate holding company is TRXY Development (HK) Ltd., which is incorporated in Hong Kong.

36. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of Tianyu Gongmao have been prepared in respect of any period subsequent to 30 June

Yours faithfully, Morison Heng Certified Public Accountants Hong Kong

– 244 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

The following is the text of a report received from Morison Heng in respect of the accountants’ report on Tingyu Coal for the years ended 31 December 2006, 2007 and 2008 and for the six months ended 30 June 2009, for inclusion in this circular.

28 December 2009

The Directors

Winbox International (Holdings) Limited 2/F., Ching Cheong Industrial Building 1–7 Kwai Cheong Road Kwai Chung, New Territories Hong Kong

Dear Sirs,

We set out below our report on the financial information (the ‘‘Financial Information’’) of Tianyu Coal Company Limited (‘‘Tianyu Coal’’) for the years ended 31 December 2006, 2007 and 2008 and for the six months ended 30 June 2009 (the ‘‘Relevant Periods’’) issued by Winbox International (Holdings) Limited (the ‘‘Company’’), a company incorporated in Cayman Islands with its shares listed on the Main Board of The Stock Exchange of Hong Kong Limited (the ‘‘Stock Exchange’’) dated 28 December 2009 (the ‘‘Circular’’) in connection with the proposed very substantial acquisition of the entire issued share capital of Merrymaking Investments Limited, an intermediate holding company of Tianyu Coal.

Tianyu Coal was incorporated in the People’s Republic of China (‘‘PRC’’) on 12 November 2002 as a private company with limited liability and was principally engaged in development of underground coking coal mine during the Relevant Periods.

The financial year end date of Tianyu Coal is 31 December. The PRC statutory financial statements of Tianyu Coal for the years ended 31 December 2006, 2007 and 2008 were prepared in accordance with the relevant accounting principles and financial regulations applicable to companies established in PRC. They were audited by the following certified public accountants registered in the PRC.

Period covered	Certified Public Accountants
Year ended 31 December 2008	Wuhai Zhongxin Certified Public Accountants Company
	Limited
Each of the two years ended	Wuhai Chengxin Certified Public Accountants Company
31 December 2006 and 2007	Limited

For the purpose of this report, the director of Tianyu Coal has prepared the financial statements for the Relevant Periods in accordance with Hong Kong Financial Reporting Standards (‘‘HKFRSs’’) issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’) (the ‘‘Underlying Financial Statements’’). We have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 ‘‘Prospectuses and the Reporting Accountant’’ as recommended by the HKICPA.

– 245 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

The Underlying Financial Statements are the responsibility of the director of the Tianyu Coal, who approves his issues. The directors of the Company are responsible for the contents of the Circular in which this report is included. It is our responsibility to compile the Financial Information set out in this report from the Underlying Financial Statements to form an opinion on the Financial Information and to report our opinion to you.

Basis for qualified opinion

The books and records of Tianyu Coal prior to 31 December 2005 were kept and maintained by the former equity holders of Tianyu Coal. The books and records of Tianyu Coal as made available to us by the current equity holder were incomplete for our audit purposes. Under circumstances as explained above, there were no satisfactory audit procedures to ascertain the existence, accuracy, presentation and completeness of the opening balances and corresponding figures shown in the Financial Information.

Qualified opinion arising from limitation of audit scope

In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary had we been able to satisfy ourselves as to the Financial Information together with the notes thereon gives, for the purpose of this report, a true and fair view of the state of affairs of the Tianyu Coal as at 31 December 2006, 2007 and 2008 and 30 June 2009 and of its results and cash flows for the Relevant Periods.

Without qualifying our opinion, we draw attention to note 3 and note 15 to the Financial Information which indicates that Tianyu Coal had net current liabilities of HK$25,070,000 as at 30 June 2009 and as further set out in note 15 to the Financial Information, Tianyu Coal has mining right, which will be expired in December 2010. The Financial Information has been prepared on a going concern basis, the validity of which is dependent on the success of renewal of the mining right upon its expiration, the continual financial support from ultimate holding company of Tianyu Coal to finance its future working capital and financial requirement and its ability to generate adequate cash flows from its operations. These conditions, along with other matters as set out in note 3 to the Financial Information, indicates the existence of a material uncertainty which may cast significant doubt about the ability of Tianyu Coal to continue as a going concern.

The comparative income statement, statement of comprehensive income, statement of cash flows and statement of changes in equity of Tianyu Coal for the six months period ended 30 June 2008, together with the notes thereon (the ‘‘30 June 2008 Financial Information’’), were prepared by the director of Tianyu Coal solely for the purpose of this report. We have reviewed the 30 June 2008 Financial Information in accordance with the Hong Kong Standards on Review Engagement 2410 ‘‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’’ issued by the HKICPA. Our review of the 30 June 2008 Financial Information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we

– 246 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the 30 June 2008 Financial Information is not prepared, in all material respects, in accordance with the accounting policies consistent with those used in the preparation of the Financial Information, which conform with HKFRSs.

INCOME STATEMENT

Notes Turnover 7 Other revenue 7 Other operating expenses Loss from operations Finance costs 9 Loss before taxation 8 Taxation 12 Loss for the period/year	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) — — — 1 (229) (1,647) (229) (1,646) — — (229) (1,646) — — (229) (1,646)	Years ended 31 December 2008 2007 2006 HK$’000 HK$’000 HK$’000 — — — 1 8 4 (2,265) (1,782) (707) (2,264) (1,774) (703) — — (4,233) (2,264) (1,774) (4,936) — — — (2,264) (1,774) (4,936)

STATEMENT OF COMPREHENSIVE INCOME

Notes Loss for the period/year Other comprehensive income for the period/ year Total comprehensive income for the period/ year	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (229) (1,646) — — (229) (1,646)	Years ended 31 December 2008 2007 2006 HK$’000 HK$’000 HK$’000 (2,264) (1,774) (4,936) — — — (2,264) (1,774) (4,936)

– 247 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

STATEMENT OF FINANCIAL POSITION

Notes Non-current assets Property, plant and equipment 13 Prepaid lease payments 14 Exploration and evaluation assets 15 Deposit paid 16(a) Current assets Prepayments, deposits and other receivables 16(b) Cash at bank and in hand 17 Current liabilities Other payables and accruals 18 Amount due to a fellow subsidiary 19 Amount due to immediate holding company 19 Net current (liabilities)/assets Total assets less current liabilities Non-current liabilities Other loan 20 NET ASSETS/(LIABILITIES) CAPITAL AND RESERVES Paid-up-capital 21 Reserves	At 30 June 2009 HK$’000 18,828 1,164 15,516 22,712 58,220 1,770 8 1,778 767 2,084 23,997 26,848 (25,070) 33,150 — 33,150 46,342 (13,192) 33,150	At 2008 HK$’000 19,015 1,187 14,811 22,738 57,751 1,362 17 1,379 2,090 494 23,128 25,712 (24,333) 33,418 — 33,418 46,342 (12,924) 33,418	31 December 2007 2006 HK$’000 HK$’000 19,079 18,002 1,158 — 13,700 12,775 — — 33,937 30,777 41 53,538 79 26 120 53,564 40,573 17,636 — — — — 40,573 17,636 (40,453) 35,928 (6,516) 66,705 — 71,057 (6,516) (4,352) 5,171 5,171 (11,687) (9,523) (6,516) (4,352)

– 248 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

STATEMENT OF CHANGES IN EQUITY

At 1 January 2006 Change in equity: Appropriation of maintenance and production funds Exchange realignment Total comprehensive income for the year At 31 December 2006 At 1 January 2007 Change in equity: Appropriation of maintenance and production funds Exchange realignment Total comprehensive income for the year At 31 December 2007 At 1 January 2008 Change in equity: Contributions from equity holder Appropriation of maintenance and production funds Exchange realignment Total comprehensive income for the year At 31 December 2008	Share capital HK$’000 5,171 — — — 5,171 5,171 — — — 5,171 5,171 41,171 — — — 46,342	Statutory reserve HK$’000 (Note 22) 1,071 (10) — — 1,061 1,061 (451) — — 610 610 — (76) — — 534	Exchange fluctuation reserve HK$’000 39 — (87) — (48) (48) — (390) — (438) (438) — — 1,027 — 589	Accumulated losses HK$’000 (5,610) 10 — (4,936) (10,536) (10,536) 451 — (1,774) (11,859) (11,859) — 76 — (2,264) (14,047)	Total equity HK$’000 671 — (87) (4,936) (4,352) (4,352) — (390) (1,774) (6,516) (6,516) 41,171 — 1,027 (2,264) 33,418

– 249 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

At 1 January 2009 Change in equity: Exchange realignment Total comprehensive income for the period At 30 June 2009 For the six months ended 30 June 2008 (unaudited) At 1 January 2008 Change in equity: Contributions from equity holder Appropriation of maintenance and production funds Exchange realignment Total comprehensive income for the period At 30 June 2008	Share capital HK$’000 46,342 — — 46,342 5,171 41,171 — — — 46,342	Statutory reserve HK$’000 (Note 22) 534 — — 534 610 — (75) — — 535	Exchange fluctuation reserve HK$’000 589 (39) — 550 (438) — — 1,069 — 631	Accumulated losses HK$’000 (14,047) — (229) (14,276) (11,859) — 75 — (1,646) (13,430)	Total equity HK$’000 33,418 (39) (229) 33,150 (6,516) 41,171 — 1,069 (1,646) 34,078

– 250 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

STATEMENT OF CASH FLOWS

Cash flows from operating activities Loss before taxation Adjustments for: Amortisation of prepaid lease payments Depreciation Impairment loss on property, plant and equipment Interest expenses Interest income Operating loss before working capital changes (Increase)/Decrease in prepayments, deposits and other receivables (Decrease)/Increase in other payables and accruals Increase in amount due to a fellow subsidiary Increase in amount due to immediate holding company Net cash from/(used in) operating activities	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) (229) (1,646) 22 21 166 161 — 912 — — — (1) (41) (553) (410) 2 (1,322) (40,408) 1,591 100 897 91 715 (40,768)	Years ended 31 December 2008 2007 2006 HK$’000 HK$’000 HK$’000 (2,264) (1,774) (4,936) 43 19 — 328 292 348 926 — — — — 4,233 (1) (8) (4) (968) (1,471) (359) (23,750) 55,128 (1,170) (39,224) 20,795 7,103 488 — — 22,835 — — (40,619) 74,452 5,574

– 251 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

Cash flows from investing activities Purchases of property, plant and equipment Purchases of prepaid lease payment Construction in progress additions Purchases of exploration and evaluation assets Proceeds from disposal of property, plant and equipment Interest received Net cash (used in)/from investing activities Cash flows from financing activities Proceeds from contribution of equity holder Increase in other loan Repayment of other loans Interest paid Net cash from/(used in) investing activities Net (decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of period/year Effect of foreign exchange rate changes, net Cash and cash equivalents at end of period/year Analysis of balances of cash and cash equivalents Cash at bank and in hand	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) — — — — — — (722) — — — — 1 (722) 1 — 41,171 — — — — — — — 41,171 (7) 404 17 79 (2) (481) 8 2 8 2	Years ended 31 December 2008 2007 2006 HK$’000 HK$’000 HK$’000 (13) — (389) — (1,170) — — (286) (1,369) (251) — — — 212 — 1 8 4 (263) (1,236) (1,754) 41,171 — — — — 39,332 — (73,165) (39,020) — — (4,233) 41,171 (73,165) (3,921) 289 51 (101) 79 26 124 (351) 2 3 17 79 26 17 79 26

– 252 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

NOTES TO THE FINANCIAL INFORMATION

1. CORPORATE INFORMATION

Tianyu Coal is a limited liability company incorporated in PRC. The address of the registered office is Hainan District, Wuhai City, Inner Mongolia Autonomous Region, PRC (中華人民共和國內蒙古自治區烏海市海南區), and the principal place of business is Dongshan Coal Mine, Hainan District (27 km away from Haila Road), Wuhai City, Inner Mongolia Autonomous Region, PRC (中華人民共和國內蒙古自治區烏海市海南區東山（海拉路27公里）).

The principal activity of Tianyu Coal is development of underground coking coal mine.

The Financial Information is presented in Hong Kong dollars, while the functional currency is in Renminbi.

2. APPLICATION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS

During the Relevant Periods, the HKICPA issued a number of new and revised HKFRSs (herein collectively referred to as ‘‘new HKFRSs’’). For the purpose of preparing and presenting the Financial Information of the Relevant Periods, Tianyu Coal has consistently applied all these new HKFRSs over the Relevant Periods.

Tianyu Coal has not early applied the following new and revised standards, amendments or interpretations that have been issued but are not yet effective.

HKFRSs (Amendments)	Amendment to HKFRS 5 as part of improvements to HKFRSs issued in 20081
HKFRSs (Amendments)	Improvements to HKFRSs issued in 20092
HKAS 27 (Revised in 2008)	Consolidated and Separate Financial Statements1
HKAS 39 (Amendment)	Eligible Hedged Items1
HKFRS 1 (Revised in 2008)	First-time Adoption of HKFRS1
HKFRS 2 (Amendment)	Amendment to HKFRS 2 Group Cash-settled Share-based Payment Transactions4
HKFRS 3 (Revised)	Business Combinations1
HK(IFRIC)-Int 17	Distributions of Non-cash Assets to Owners1
HK(IFRIC)-Int 18	Transfers of Assets from Customers3

1 Effective for annual periods beginning on or after 1 July 2009
2 Amendments that are effective for annual periods beginning on or after 1 July 2009 and 1 January 2010, as appropriate
3 Effective for transfers on or after 1 July 2009
4 Effective for annual periods beginning on or after 1 January 2010

Tianyu Coal is not yet in a position to determine the impact of these new and revised standards or interpretations on the results of operations and financial position of Tianyu Coal. These new and revised standards or interpretations may result in changes in the future as to how the results and financial position of Tianyu Coal are prepared and presented.

3. GOING CONCERN

In preparing the Financial Information, the director has considered the future liquidity of Tianyu Coal. Tianyu Coal had net current liabilities of HK$25,070,000 as at 30 June 2009 and, as set out in note 15, Tianyu Coal has mining right for coal mine, which will be expired in December 2010. These conditions indicate the existence of material uncertainties which may cast significant doubt about the ability of Tianyu Coal to continue as a going concern and therefore that it may be unable to realise its assets and discharge its liabilities in the normal course of business. Nevertheless, the director is of the opinion that Tianyu Coal will be able to finance its working capital and financial requirements given that:

(i) the director has obtained the PRC authority’s opinion that Tianyu Coal complies with the PRC rules and conditions to renew the mining right upon its expiration. The director is of opinion that Tianyu Coal will be entitled to renew all mining rights upon their expiration accordingly;
(ii) Tianyu Coal’s ultimate holding company has agreed to provide financial support to enable it to meet its liabilities in full as and when they fall due; and

– 253 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

(iii) based on a cash flow forecast prepared by Tianyu Coal’s management for the twelve months ending 30 June 2010, Tianyu Coal will be able to generate adequate cash flows from its operation.

Accordingly, the director is of the opinion that it is appropriate to prepare the Financial Information on a going concern basis. Should Tianyu Coal be unable to continue to operate as a going concern, adjustments would have to be made to write-down the value of assets to their recoverable amounts, to provide for further liabilities that might arise and to reclassify non-current assets and non-current liabilities as current assets and current liabilities. The effects of these potential adjustments have not been reflected in the Financial Information.

4. SIGNIFICANT ACCOUNTING POLICIES

Statement of compliance

Basis of preparation

The Financial Information has been prepared on the historical cost.

The ultimate holding company has confirmed that it will provide such financial assistance as is necessary to maintain Tianyu Coal as a going concern. On the strength of this assurance, the Financial Information has been prepared on a going concern basis.

Revenue recognition

Provided it is probable that the economic benefits will flow to Tianyu Coal and the revenue and costs, if applicable, can be measured reliably, revenue is recognised in profit or loss as follows:

Interest income

Interest income is recognised as it accrues using the effective interest method.

Employee benefits

– 254 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

Borrowing costs

All borrowing costs are recognised as expenses in the Relevant Periods in which they are incurred.

Taxation

Property, plant and equipment

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to Tianyu Coal and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged in the income statement during the Relevant Periods in which they are incurred.

Buildings 15–30 years with 3% residual value Computer and office equipment 5–15 years with 3% residual value Plant, machinery and other equipment 6–15 years with 3% residual value Motor vehicles 10 years with 3% residual value

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each statement of financial position date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

– 255 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are included in the income statement.

Construction in progress

Prepaid lease payment

Prepaid lease payments are stated at cost less accumulated amortisation and impairment losses. Cost represents consideration paid for the rights to use the land on which various buildings and mining structures are situated for periods of 30 years. Amortisation of land use rights is calculated on a straight-line basis over the period of the land use rights.

Exploration and evaluation assets

Impairment of exploration and evaluation assets

(i) the period for which Tianyu Coal has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed;
(ii) substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned;
(iii) exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and Tianyu Coal has decided to discontinue such activities in the specific area; or
(iv) sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale.

An impairment loss is recognised in the income statement whenever the carrying amount of an asset exceeds its recoverable amount.

Other receivables

– 256 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and short-term highly liquid investments which are readily convertible into known amounts of cash and which are subject to insignificant risks of changes in value. Bank overdrafts that are repayable on demand and form an integral part of the company’s cash management are also included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

Other payables

Other payables are initially recognised at fair value and thereafter stated at amortised cost unless the effect of discounting would be immaterial, in which case they are stated at cost.

Interest-bearing borrowings

Translation of foreign currencies

Related parties

A party is considered to be related to the Tianyu Coal if:

(a) the party, directly, or indirectly through one or more intermediaries, (i) controls, is controlled by, or is under common control with, Tianyu Coal; (ii) has an interest in Tianyu Coal that gives it significant influence over Tianyu Coal; or (iii) has joint control over Tianyu Coal;
(b) the party is a jointly-controlled entity;
(c) the party is a member of the key management personnel of Tianyu Coal;
(d) the party is a close member of the family of any individual referred to in (a) or (c);
(e) the party is an entity that is controlled, jointly-controlled or significantly influenced by or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (c) or (d); or
(f) the party is a post-employment benefit plan for the benefit of employees of Tianyu Coal, or of any entity that is a related party of Tianyu Coal.

Close family members of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity.

– 257 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

Provision and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when Tianyu Coal has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made.

Where the time value of money is material, provisions are stated at the present value of the expenditures expected to settle the obligation.

5. KEY SOURCES OF ESTIMATION UNCERTAINTY

Tianyu Coal’s financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the Financial Information. Tianyu Coal bases the assumptions and estimates on historical experience and on various other assumptions that Tianyu Coal believes to be reasonable and which form the basis for making judgements about matters that are not readily apparent from other sources. On an on-going basis, management evaluates its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change.

The selection of critical accounting policies, the judgements and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing the Financial Information. The principal accounting policies are set forth in note 4. Tianyu Coal believes the following critical accounting policies involve the most significant judgements and estimates used in the preparation of the Financial Information.

Coal reserves

Engineering estimates of Tianyu Coal’s coal reserves are inherently imprecise and represent only approximate amounts because of the subjective judgements involved in developing such information. There are authoritative guidelines regarding the engineering criteria that have to be met before estimated coal reserves can be designated as ‘‘proved’’ and ‘‘probable’’. Proved and probable coal reserve estimates are updated at regular basis have taken into account recent production and technical information about the mine. In addition, as prices and cost levels change from year to year, the estimate of proved and probable coal reserves also changes. This change is considered a change in estimate for accounting purposes and is reflected on a prospective basis in related depreciation and amortisation rates.

Despite the inherent imprecision in these engineering estimates, these estimates are used in determining depreciation expenses, amortisation expenses and impairment loss. Depreciation and amortisation rates are determined based on estimated proved and probable coal reserve quantity (the denominator) and capitalised costs of mining structures and mining rights (the numerator) respectively. The capitalised cost of mining structures and mining rights are depreciated and amortised based on the units of coal produced respectively.

Impairments

In considering the impairment losses that may be required for certain of Tianyu Coal’s assets which include property, plant and equipment, construction in progress, mining right, prepaid lease payments, the recoverable amount of the asset needs to be determined. The recoverable amount is the greater of the net selling price and the value in use. It is difficult to precisely estimate selling price because quoted market prices for these assets may not be readily available. In determining the value in use, expected cash flows generated by these assets are discounted to their present value, which requires significant judgement relating to items such as level of sale volume, selling price and amount of operating costs. Tianyu Coal uses all readily available information in determining an amount that is reasonable approximation of recoverable amount, including estimates based on reasonable and supportable assumptions and projections of items such as sale volume, selling price and amount of operating costs.

– 258 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

In considering the impairment losses that may be required for current receivables and other financial assets, future cashflows need to be determined. One of the key assumptions that has to be applied is about the ability of the debtors to settle the receivables. Notwithstanding that Tianyu Coal has used all available information to make this estimation, inherent uncertainty exists and actual write-offs may be higher than the amount estimated.

Depreciation

Other than the mining structures, property, plant and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets, after taking into account the estimated residual value. Tianyu Coal reviews the estimated useful lives of the assets regularly. The useful lives are based on Tianyu Coal’s historical experience with similar assets and taking into account anticipated technological changes. The depreciation expense for future periods is adjusted of there are significant changes from previous estimates.

6. SEGMENT INFORMATION

Tianyu Coal has adopted HKFRS 8 Operating Segments with effect from 1 January 2009. HKFRS 8 requires operating segments to be identified on the basis of internal reports about components of Tianyu Coal that are regularly reviewed by the chief operating decision maker, Tianyu Coal’s director, in order to allocate resources to the segments and to assess their performance. In contrast, the predecessor Standard (HKAS 14 Segment Reporting) required an entity to identify two sets of segments (business and geographical) using a risks and returns approach, with the entity’s ‘‘system of internal financing reporting to key management personnel’’ serving only as the starting point for the identification of such segments. No segmental analysis was presented in prior years as Tianyu Coal is principally in development of underground coking coal mine and does not record any turnover during the Relevant Periods. The application of HKFRS 8 has not resulted in a redesignation of Tianyu Coal’s reportable segments as compared with the reportable segments determined in accordance with HKAS 14.

Tianyu Coal’s operating segments are aggregated into a single reportable segment and accordingly no separate segment information is prepared.

7. TURNOVER AND REVENUE

Tianyu Coal is engaged in development of underground coking coal mine.

An analysis of turnover and other revenue is as follows:

Turnover Other revenue Bank interest income	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) — — — 1	Years 2008 HK$’000 — 1	ended 31 December 2007 2006 HK$’000 HK$’000 — — 8 4	ended 31 December 2007 2006 HK$’000 HK$’000 — — 8 4
				4

– 259 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

8. LOSS BEFORE TAXATION

Loss before taxation is arrived at after charging:

	Six months ended	Six months ended
	30 June		Years	ended 31 December
	2009	2008	2008	2007	2006
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
		(unaudited)
Amortisation of prepaid lease
payments	22	21	43	19	—
Depreciation (note 13)	166	161	328	292	348
Impairment loss on property, plant
and equipment	—	912	926	—	—
Staff costs (including directors’
remuneration — note 10)
— salaries and allowances	25	66	111	93	—

9. FINANCE COSTS

Interest on: Bank loans and other loans wholly repayable within five years	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) — —	Years 2008 HK$’000 —	ended 31 December 2007 2006 HK$’000 HK$’000 — 4,233

10. DIRECTORS’ REMUNERATION

During the Relevant Periods, no emoluments were paid by Tianyu Coal to the directors. In addition, no emoluments were paid to the directors as an inducement to join or upon joining Tianyu Coal or as compensation for loss of office. No directors waived or agreed to waive any emoluments during the Relevant Periods.

11. FIVE HIGHEST PAID EMPLOYEES

The emoluments of the five highest paid individuals of the Tianyu Coal during the Relevant Periods are as follows:

Salaries, allowances and benefits in kind Pension scheme contributions	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) 25 52 — — 25 52	Years 2008 HK$’000 70 — 70	ended 31 December 2007 2006 HK$’000 HK$’000 84 — — — 84 —	ended 31 December 2007 2006 HK$’000 HK$’000 84 — — — 84 —
				—

The emoluments of the five individuals with the highest emoluments were within the range of HK$Nil to HK$1,000,000 during the Relevant Periods.

12. TAXATION

Tianyu Coal was subject to PRC Enterprise Income Tax at a rate of 33% prior to 1 January 2008 and 25% from 1 January 2008 onwards. No provision for PRC Enterprise Income Tax has been made as Tianyu Coal did not generate any taxable profit in the PRC during the Relevant Periods.

– 260 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

No deferred tax assets and liabilities are recognised in the Financial Information as Tianyu Coal did not have material temporary differences arising between the tax bases of assets and liabilities and their carrying amounts at 31 December 2006, 2007 and 2008 and 30 June 2009.

13. PROPERTY, PLANT AND EQUIPMENT

COST At 1 January 2006 Additions Transfer Exchange realignment At 31 December 2006 Additions Transfer Disposal Exchange realignment At 31 December 2007 Additions Exchange realignment At 31 December 2008 Additions Exchange realignment At 30 June 2009 ACCUMULATED DEPRECIATION AND IMPAIRMENT LOSSES At 1 January 2006 Charge for the year Exchange realignment At 31 December 2006 Charge for the year Eliminated on disposal Exchange realignment At 31 December 2007 Charge for the year Impairment losses Exchange realignment At 31 December 2008 Charge for the period Exchange realignment At 30 June 2009 NET BOOK VALUE At 30 June 2009 At 31 December 2008 At 31 December 2007 At 31 December 2006	Building at the mining site HK$’000 728 19 — 29 776 — — — 56 832 — 52 884 — — 884 58 34 2 94 26 — 8 128 39 — 9 176 20 — 196 688 708 704 682	Mining structures HK$’000 — 330 9,151 216 9,697 — 6,538 (174) 967 17,028 — 1,064 18,092 — (19) 18,073 — 61 1 62 — — 5 67 — 926 16 1,009 — (1) 1,008 17,065 17,083 16,961 9,635	Construction in progress HK$’000 13,518 1,369 (9,151) 338 6,074 286 (6,540) — 180 — — — — — — — — — — — — — — — — — — — — — — — — — 6,074	Plant, machinery and other equipment HK$’000 1,555 — — 59 1,614 — — — 117 1,731 13 109 1,853 — (3) 1,850 27 224 7 258 236 — 28 522 258 — 36 816 131 — 947 903 1,037 1,209 1,356	Computer and office equipment HK$’000 133 40 — 6 179 — 2 (42) 12 151 — 9 160 — — 160 11 21 1 33 22 (4) 3 54 16 — 3 73 8 — 81 79 87 97 146	Motor vehicles HK$’000 130 — — 4 134 — — — 10 144 — 9 153 — — 153 16 8 1 25 8 — 3 36 15 — 2 53 7 — 60 93 100 108 109	Total HK$’000 16,064 1,758 — 652
							18,474 286 — (216) 1,342
							19,886 13 1,243
							21,142 — (22)
							21,120
							112 348 12
							472 292 (4) 47
							807 328 926 66
							2,127 166 (1)
							2,292
							18,828
							19,015
							19,079
							18,002

– 261 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

All buildings are situated in Inner Mongolia, the PRC and held for Tianyu Coal its own use. The legal title certificates of all buildings are in the process of application.

14. PREPAID LEASE PAYMENTS

COST At the beginning of period/year Additions Exchange realignment At the end of year/period ACCUMULATED AMORTISATION At the beginning of period/year Charge for the period/year Exchange realignment At the end of period/year NET BOOK VALUE At the end of period/year Analysed for reporting purposes as: Current portion Non-current portion	At 30 June 2009 HK$’000 1,295 — (2) 1,293 65 22 (1) 86 1,207 At 30 June 2009 HK$’000 43 1,164 1,207	At 31 December 2008 2007 HK$’000 HK$’000 1,219 — — 1,170 76 49 1,295 1,219 20 — 43 19 2 1 65 20 1,230 1,199 At 31 December 2008 2007 HK$’000 HK$’000 43 41 1,187 1,158 1,230 1,199	2006 HK$’000 — — —
			—
			— — —
			—
			—
			2006 HK$’000 — —
			—

The leasehold lands situated in PRC are held under medium term lease.

On 12 March 2007, the Wuhai Bureau of City Planning issued Construction Land Use Permits for the coal mine of Tianyu Coal, covering the residential, ventilation and industrial and administrative areas. The Wuhai Land and Resource Bureau will issue the operational land use permit for the coal mine as a component of the project final checking and acceptance process. Prepaid lease payments amounting HK$Nil, HK$1,199,000, HK$1,230,000 and HK$1,207,000 as at 31 December 2006, 2007 and 2008 and 30 June 2009 respectively have not yet obtained the title certificates of the land (note 26).

– 262 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

15. EXPLORATION AND EVALUATION ASSETS

COST At 1 January 2006 Exchange realignment At 1 January 2007 Exchange realignment At 1 January 2008 Additions Exchange realignment At 1 January 2009 Additions Exchange realignment At 30 June 2009	Mining right HK$’000 (notes 1 & 2) 9,903 378 10,281 744 11,025 — 689 11,714 — (13) 11,701	Others HK$’000 (note 3) 2,403 91 2,494 181 2,675 251 171 3,097 722 (4) 3,815	Total HK$’000 12,306 469
			12,775 925
			13,700 251 860
			14,811 722 (17)
			15,516

Notes:

The mining right will be expired in December 2010. The director has obtained the PRC authority’s opinion that Tianyu Coal complies with the PRC rules and conditions to renew the mining right upon its expiration. Based on the advice from the Company’s legal counsel, Tianyu Coal will be entitled to renew the mining right upon its expiration accordingly.
Pursuant to the two loan agreements entered into between the immediate holding company and an equity holder of the immediate holding company dated 17 December 2007 and 29 July 2008 respectively, the mining right with carrying amount of HK$Nil, HK$11,025,000, HK$11,714,000 and HK$11,701,000 as at 31 December 2006, 2007 and 2008 and 30 June 2009 respectively was pledged to secure the loans from an equity holder of the immediate holding company. However, at 30 June 2009, the legal charge has not yet been registered with the relevant authorities in the PRC. In this respect, the director considers that the relevant legal charge has not yet become effective.
Others represent the geological and geophysical costs, drilling and exploration expenses directly attributable to exploration activities.

16. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

(a) HK$Nil, HK$Nil, HK$22,738,000 and HK$22,712,000 as at 31 December 2006, 2007 and 2008 and 30 June 2009 was paid as deposits for the acquisition of property, plant and equipment.

The director considers that the carrying amount of deposit paid approximates to its fair value.

(b) The director considers that the carrying amount of prepayments, deposits and other receivables approximate to their fair value.

17. CASH AT BANK AND IN HAND

Cash at bank earns interest at floating rates based on daily bank deposit rates. The carrying amounts of the cash at bank and in hand approximate to their fair values.

– 263 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

18. OTHER PAYABLES AND ACCRUALS

Other payables and accruals	At 30 June 2009 HK$’000 767	At 31 December 2008 2007 HK$’000 HK$’000 2,090 40,573	2006 HK$’000 17,636

The director considers that the carrying amounts of other payables and accruals approximate to their fair values.

19. AMOUNTS DUE TO A FELLOW SUBSIDIARY AND IMMEDIATE HOLDING COMPANY

The amounts due are unsecured, interest free and with no fixed terms of repayment.

20. OTHER LOAN

Repayable: — in the second to fifth years Less: Amount due within one year shown under current liabilities Balance due after one year	At 30 June 2009 HK$’000 — — —	At 31 December 2008 2007 HK$’000 HK$’000 — — — — — —	2006 HK$’000 71,057 —
			71,057

The other loan bears interest at floating bank lending rate, is unsecured and repayable on or before 31 December 2008. The other loan was fully repaid during the year ended 31 December 2007.

21. PAID UP CAPITAL

Registered capital: At the beginning of period/year Increase in registered capital At the beginning of period/year Paid up capital: At the beginning of period/year Contributions from equity holders At the end of period/year	At 30 June 2009 HK$’000 46,342 — 46,342 46,342 — 46,342	At 31 December 2008 2007 HK$’000 HK$’000 5,171 5,171 41,171 — 46,342 5,171 5,171 5,171 41,171 — 46,342 5,171	2006 HK$’000 5,171 —
			5,171
			5,171 —
			5,171

In March 2008, additional capital contribution totalling RMB37,500,000 (equivalent to HK$41,171,000) was being made by way of a cash contribution.

– 264 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

22. STATUTORY RESERVES

Pursuant to the relevant PRC regulations for coal mining companies, provision for production maintenance, production safety and other related expenditures are accrued by Tianyu Coal fixed rates based on coal production volume (the ‘‘maintenance and production funds’’).

According to China Accounting Standards Explanatory Notice No. 2 and other relevant accounting regulations issue in December 2008, effective for the year ended 31 December 2008, Tianyu Coal is required to make a transfer of the maintenance and production funds from retained earnings to a specific reserve under the statutory surplus reserve. The maintenance and production funds could be utilised when expenses or capital expenditures on production maintenance and production funds could be utilised when expenses or capital expenditures on production maintenance and safety measures are incurred. The amount of maintenance and production funds utilised will be transferred from the specific reserve to retained earnings.

23. CAPITAL MANAGEMENT

Tianyu Coal manages its capital to ensure that entities in Tianyu Coal will be able to continue as a going concern while maximising the return to equity holders through the optimisation of the debt and equity balance. Tianyu Coal’s overall strategy remains unchanged from prior year.

The capital structure of Tianyu Coal consists of debt, which includes interest-bearing loan, equity attributable to equity holders of Tianyu Coal, comprising paid-up capital and reserves.

The director of Tianyu Coal reviews the capital structure on a regular basis. As part of this review, the director considers the cost of capital and the risks associated with each class of capital. Based on recommendations of the director, Tianyu Coal will balance its overall capital structure through the new capital issues, the issue of new debt or the redemption of existing debt.

24. RELATED PARTY TRANSACTIONS

In addition to those transactions and balances disclosed elsewhere in these Financial Information, Tianyu Coal had the following significant transactions with the following related parties based on the term mutually agreed between the parties:

Sales of property, plant and equipment to a related company: Tianyu Gongmao Company Limited Sales of land use right to a related company: Tianyu Gongmao Company Limited Sales of mining right to a related company: Tianyu Gongmao Company Limited	Transaction value Six months ended 30 June Years 2009 2008 2008 HK$’000 HK$’000 HK$’000 (unaudited) — — — — — — — — —	ended 31 December 2007 2006 HK$’000 HK$’000 — 24,011 — 1,223 — 4,629	ended 31 December 2007 2006 HK$’000 HK$’000 — 24,011 — 1,223 — 4,629
			1,223
			4,629

– 265 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

	Balance outstanding	Balance outstanding
	As at
30 June	31	December
2009	2008	2007	2006
HK$’000	HK$’000	HK$’000	HK$’000

Sales of property, plant and equipment to a related company: Tianyu Gongmao Company Limited Sales of land use right to a related company: Tianyu Gongmao Company Limited Sales of mining right to a related company: Tianyu Gongmao Company Limited	— — —	— — —	— — —	—
				—
				—

25. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Tianyu Coal’s major financial instruments include prepayments, deposits and other receivables, cash at bank and in hand, other payables and accruals, and amounts due to a fellow subsidiary and immediate holding company. Details of these financial instruments are disclosed in the respective notes.

The main risks arising from the Tianyu Coal’s financial instruments are interest rate risk, foreign currency risk, liquidity risk and credit risk. The director reviews and agrees policies for managing each of these risks and they are summarised below.

Interest rate risk

Tianyu Coal is exposed to interest rate risk through the impact of rate changes on interest bearing borrowings. The interest rate and term of repayment of Tianyu Coal’s other loan are disclosed in note 20 to the Financial Information. Tianyu Coal’s policy is to obtain the most favourable interest rates available for its borrowings.

Except for other loan, it has no significant interest-bearing assets and liabilities. Cash at bank earns interest at floating rates based on daily bank deposits rates.

Tianyu Coal does not use any derivative instruments to reduce its economic exposure to changes in interest rates.

At the end of the reporting period, a hypothetical one percentage point increase/decrease in interest rates on the other loan, that is carried at variable rates would increase/decrease the interest expense as follows:

Increase/decrease in interest expense	Six months ended 30 June 2009 2008 HK$’000 HK$’000 (unaudited) — —	Years 2008 HK$’000 —	ended 31 December 2007 2006 HK$’000 HK$’000 — 711

Foreign currency risk

Tianyu Coal has no significant exposure to foreign currency risk as substantially all of Tianyu Coal’s transactions are denominated in Renminbi.

Liquidity risk

Tianyu Coal is exposed to liquidity risk. The current liabilities of Tianyu Coal exceed its current assets by HK$40,453,000, HK$24,333,000 and HK$25,070,000 as at 31 December 2007 and 2008 and 30 June 2009 respectively. The maintenance of Tianyu Coal as a going concern depends on the ongoing support from the ultimate holding company.

– 266 –

ACCOUNTANTS’ REPORT OF TIANYU COAL

APPENDIX VI

All Tianyu Coal’s financial liabilities as at 31 December 2007 and 2008 and 30 June 2009 are repayable within one year or on demand. In the opinion of the director of Tianyu Coal, the preparation of maturity profile is not necessary.

The following table details Tianyu Coal’s remaining contractual maturity for its financial liabilities as at 31 December 2006. For non-derivative financial liabilities, the table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which Tianyu Coal can be required to pay.

At 31 December 2006 Other payables and accruals Other loan	Carry amount HK$’000 17,636 71,057 88,693	Total contractual undiscounted cash flow HK$’000 17,636 71,057 88,693	Within 1 year or on demand HK$’000 17,636 — 17,636	More than 2 years but less than 5 years HK$’000 — 71,057
				71,057

Credit risk

Tianyu Coal has no significant concentrations of credit risk.

26. CONTINGENT LIABILITIES

Tianyu Coal has not yet obtained the title certificates for the land. According to the legal advice, if Tianyu Coal is found to be liable for the non-compliance of the registration of the title certificates for the land (note 14), the maximum expected monetary compensation may amount to approximately HK$2,587,000. In the opinion of the director, he does not believe it probable that Tianyu Coal will be found to be liable. In this regard, no provision has therefore been made in respect of this issue.

27. IMMEDIATE AND ULTIMATE HOLDING COMPANIES

In the opinion of the director, the immediate holding company of Tianyu Coal is Wuhai City Menggang Industrial Development Co., Ltd., which is incorporated in PRC and the ultimate holding company is TRXY Development (HK) Ltd., which is incorporated in Hong Kong.

28. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of Tianyu Coal have been prepared in respect of any period subsequent to 30 June 2009.

Yours faithfully, Morison Heng Certified Public Accountants Hong Kong

– 267 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX VII

A. ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION

==> picture [72 x 54] intentionally omitted <==

TO THE DIRECTORS OF WINBOX INTERNATIONAL (HOLDINGS) LIMITED

We report on the unaudited pro forma financial information of Winbox International (Holdings) Limited (the ‘‘Company’’) and its subsidiaries (hereinafter collectively referred to as the ‘‘Group’’), which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the proposed: (a) placing of new shares of the Company with a gross proceeds of not less than US$90 million (equivalent to HK$697.60 million); (b) acquisition of 10.94% interests in Wuhai Meng Kong Industrial Development Co. Ltd. (‘‘Wuhai City Menggang’’) by a wholly owned subsidiary of Merrymaking Investments Ltd. (‘‘Merrymaking Investments’’); (c) acquisition of the entire interests in Merrymaking Investments and its subsidiaries; (d) acquisition of 31.25% interests in Wuhai City Menggang by a wholly owned subsidiary of Pleasing Results Ltd. (‘‘Pleasing Results’’); and (e) acquisition of the entire interests in Pleasing Results and its subsidiaries (the Group upon completion of the transactions referred to as the ‘‘Enlarged Group’’) might have affected the financial information of the Group presented in the circular dated 28 December 2009 (the ‘‘Circular’’) (the ‘‘Unaudited Pro Forma Financial Information’’), for inclusion in Appendix VII of the Circular.

Respective responsibilities of directors of the Company and reporting accountants

It is the responsibility solely of the directors of the Company to prepare the Unaudited Pro Forma Financial Information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the ‘‘Listing Rules’’) and with reference to Accounting Guideline 7 ‘‘Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars’’ issued by the Hong Kong Institute of Certified Public Accountants.

It is our responsibility to form an opinion, as required by paragraph 29(7) of Chapter 4 of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 ‘‘Accountants’ Reports on Pro Forma Financial Information in Investment Circulars’’ issued by the Hong Kong Institute of Certified Public Accountants. Our work consisted primarily of comparing the unadjusted financial information with source

– 268 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX VII

documents, considering the evidence supporting the adjustments and discussing the Unaudited Pro Forma Financial Information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purpose of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

The Unaudited Pro Forma Financial Information is for illustrative purpose only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in future and may not be indicative of:

. the financial position of the Enlarged Group as at 31 March 2009 or any future date; or
. the financial results and cash flows of the Enlarged Group for the year ended 31 March 2009 or any future period.

Opinion

In our opinion:

a. the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;
b. such basis is consistent with the accounting policies of the Group; and
c. the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong, 28 December 2009

– 269 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX VII

B. UNAUDITED PRO FORMA FINANCIAL INFORMATION

Introduction

The Unaudited Pro Forma Financial Information of the Enlarged Group with 100% interests in Wuhai City Menggang is prepared as if the proposed: (a) Placing; (b) acquisition of 10.94% interests in Wuhai City Menggang by a wholly owned subsidiary of Merrymaking Investments; (c) acquisition of entire interests in Merrymaking Investments and its subsidiaries; (d) acquisition of 31.25% interests in Wuhai City Menggang by a wholly owned subsidiary of Pleasing Results; and (e) acquisition of entire interests in Pleasing Results and its subsidiaries, have been completed on 31 March 2009 for the unaudited pro forma consolidated balance sheet and at the commencement of the year ended 31 March 2009 for the unaudited pro forma consolidated income statement and consolidated cash flow statement to illustrate the effect of the completion of (a), (b), (c), (d) and (e).

The Unaudited Pro Forma Financial Information has been prepared by the directors of the Company to provide information on the Enlarged Group with 100% interests in Wuhai City Menggang. It is prepared for illustrative purposes only and does not purport to predict what the results and cash flows, or financial position of the Enlarged Group with 100% interests in Wuhai City Menggang would have been on the completion.

– 270 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX VII

Group with	100% interests	in Wuhai City	Menggang as	at 31 March	2009	HK$’000			75,942	30,026	1,090	261,417	987,893	377,934	79,327	34,156	5,317	205	1,853,307		30,178	18,395	1,557	24,209			156	12,500	2,388	102	426,735	516,220
				Pro forma	adjustment	HK$’000	(Note 8)					62,762
				Pro forma	adjustment	HK$’000	(Note 7)																								(232,530)
				Pro forma	adjustment	HK$’000	(Note 6)					188,132																			(35,000)
				Pro forma	adjustment	HK$’000	(Note 5)																								(60,000)
				Pro forma	adjustment	HK$’000	(Note 4)																								697,600
	Pleasing	Results and its	subsidiary as	at 30 June	2009	HK$’000	(Note 3)		—	—	—	—	—	—	—	—	—	—	—		—	—	—	—			78	—	—	—	99	177
Merrymaking	Investments	and its	subsidiaries	as at 30 June	2009	HK$’000	(Note 2)		61,095	26,644	—	—	987,893	377,934	79,327	—	—	—	1,532,893		761	2,519	—	12,097			78	—	—	102	1,907	17,464
			The Group as	at 31 March	2009	HK$’000	(Note 1)		14,847	3,382	1,090	10,523	—	—	—	34,156	5,317	205	69,520		29,417	15,876	1,557	12,112			—	12,500	2,388	—	54,659	128,509
								Non-current assets	Property, plant and equipment	Prepaid lease payments	Investment property	Goodwill	Exploration and evaluation assets	Mining right	Deposits	Available-for-sale investments	Pledged bank deposits	Deferred tax asset		Current assets	Inventories	Trade receivables	Bills receivable	Other receivables, deposits and prepayments	Amounts due from immediate holding	company of Merrymaking Investments and	Pleasing Results	Investments held for trading	Tax recoverable	Restricted bank deposits	Bank balances and cash

– 271 –

APPENDIX VII

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

Group with	100% interests	in Wuhai City	Menggang as	at 31 March	2009	HK$’000			6,700	88,698		104		125	11,356		17,981	202,236	373	327,573	188,647	2,041,954		570,574	71,419	1,057	342,752	1,056,152		904,700	151,452		1,056,152	—	1,056,152
				Pro forma	adjustment	HK$’000	(Note 8)																							(78)	18			(340,005)
				Pro forma	adjustment	HK$’000	(Note 7)																	117,998	14,772					37,527
				Pro forma	adjustment	HK$’000	(Note 6)																							(78)	(440,939)			(119,002)
				Pro forma	adjustment	HK$’000	(Note 5)																	452,576	56,647					143,928
				Pro forma	adjustment	HK$’000	(Note 4)																							697,600
	Pleasing	Results and its	subsidiary as	at 30 June	2009	HK$’000	(Note 3)		—	—		4		113	—		—	—	—	117	60	60		—	—	—	—	60		78	(18)		60	—	60
Merrymaking	Investments	and its	subsidiaries	as at 30 June	2009	HK$’000	(Note 2)		—	75,896		100		12	11,356		17,981	202,236	—	307,581	(290,117)	1,242,776		—	—	—	342,752	900,024		78	440,939		441,017	459,007	900,024
			The Group as	at 31 March	2009	HK$’000	(Note 1)		6,700	12,802		—		—	—		—	—	373	19,875	108,634	178,154		—	—	1,057	—	177,097		25,645	151,452		177,097	—	177,097
								Current liabilities	Trade payables	Other payables, deposits received and accruals	Amounts due to directors of Merrymaking	Investments	Amount due to ultimate holding company of	Merrymaking Investments	Bank borrowings	Loans from a director of Merrymaking	Investments	Other loans	Tax payable		Net current assets (liabilities)	Total assets less current liabilities	Non-current liability	Convertible bond	Derivative financial liabilities	Retirement benefits obligations	Deferred tax liabilities	Net assets	Capital and reserves	Share capital and share premium	Other reserves	Equity attributable to equity holders of the	Company	Minority interests	Total equity

– 272 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX VII

forma	Enlarged	Group with	100% interests	in Wuhai City	Menggang for	the year ended	31 March 2009	HK$’000		167,422	(132,117)	35,305	(424)	(4,117)	(49,501)	—	9	(7,941)	13,664		(19,076)	(185)	(12)	(55,228)	(87,506)	(1,372)	(88,878)		(88,878)	—	(88,878)
						Pro forma	adjustment	HK$’000	(Note 12)																				(15,943)	15,943
						Pro forma	adjustment	HK$’000	(Note 11)										12,809										12,809
						Pro forma	adjustment	HK$’000	(Note 10)							(421,665)													(421,665)
						Pro forma	adjustment	HK$’000	(Note 9)															(39,940)					(39,940)
		Pleasing	Results and its	subsidiary for	the year ended	31 December	2008	HK$’000	(Note 3)	—	—	—	—	—	(7)	—	1	—	—		—	—	(12)	—	(18)	—	(18)		(18)	—	(18)
Merrymaking	Investments	and its	subsidiaries	for the year	The Group for ended 31	the year ended December	31 March 2009 2008	HK$’000 HK$’000	(Note 1) (Note 2)	Revenue 166,505 917	Cost of sales (128,560) (3,557)	Gross profit (loss) 37,945 (2,640)	Other income, gain and loss (451) 27	Distribution and selling costs (3,708) (409)	Administrative expenses (28,622) (20,872)	Gain on bargain purchase — 421,665	Gain on disposal of a subsidiary — 8	Change in fair value of investments held for trading (7,941) —	Change in fair value of derivative financial instruments 855 —	Impairment loss recognised in respect of available-for-sale	investments (19,076) —	Impairment loss recognised in respect of investment property (185) —	Impairment loss recognised in respect of goodwill — —	Finance costs (157) (15,131)	(Loss) profit before taxation (21,340) 382,648	Taxation (1,531) 159	(Loss) profit for the year (22,871) 382,807	Attributable to:	Equity holders of the Company (22,871) 398,750	Minority interests — (15,943)	(22,871) 382,807

– 273 –

APPENDIX VII

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

Group with	100%	interests in	Wuhai City	Menggang for	the year	ended 31	March 2009	HK$’000			(87,506)		(59)	(2,356)	55,228		2,657	5	726	1,101	(9)	—	7,941		(13,664)		19,076		926		185	12	1,249
						Pro forma	adjustment	HK$’000	(Note 11)		12,809														(12,809)
						Pro forma	adjustment	HK$’000	(Note 10)		(421,665)											421,665
						Pro forma	adjustment	HK$’000	(Note 9)		(39,940)				39,940
						Pro forma	adjustment	HK$’000	(Note 7)
						Pro forma	adjustment	HK$’000	(Note 6)
						Pro forma	adjustment	HK$’000	(Note 5)
						Pro forma	adjustment	HK$’000	(Note 4)
	Pleasing	Results and	its subsidiary	for the year	ended 31	December	2008	HK$’000	(Note 3)		(18)		—	—	—		—	—	—	—	(1)	—	—		—		—		—		—	12	—
Merrymaking	Investments	and its	subsidiaries	for the year	ended 31	December	2008	HK$’000	(Note 2)		382,648		—	(27)	15,131		1,007	5	639	—	(8)	(421,665)	—		—		—		926		—	—	1,249
				The Group	for the year	ended 31	March 2009	HK$’000	(Note 1)		(21,340)		(59)	(2,329)	157		1,650	—	87	1,101	—	—	7,941		(855)		19,076		—		185	—	—
										OPERATING ACTIVITIES	(Loss) profit before taxation	Adjustments for:	Dividend income from available-for-sale investment	Interest income	Finance costs	Depreciation of property, plant and equipment and	investment property	Amortisation of mining right	Release of prepaid lease payments	Share-based payments	Gain on disposal of a subsidiary	Gain on bargain purchase	Change in fair value of investments held for trading	Change in fair value of derivative financial	instruments	Impairment loss recognised in respect of available-for-	sale investments	Impairment loss recognised in respect of property,	plant and equipment	Impairment loss recognised in respect of investment	property	Impairment loss recognised in respect of goodwill	Unrealised exchange difference

– 274 –

APPENDIX VII

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

==> picture [361 x 625] intentionally omitted <==

– 275 –

APPENDIX VII

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

==> picture [414 x 625] intentionally omitted <==

– 276 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX VII

4. Notes to unaudited pro forma financial information

Notes:

Figures extracted from the audited consolidated financial statements of the Group as set out in Appendix I to the Circular.
Figures extracted from the Accountant’s Report of Merrymaking Investments as set out in Appendix II to the Circular. Disclaimer of opinion was expressed by Morison Heng, Certified Public Accountants.
Figures extracted from the Accountant’s Report of Pleasing Results as set out in Appendix III to the Circular.
The adjustment reflects the gross cash proceeds of US$90 million (equivalents to HK$697,600,000) assumed to be obtained from the Placing. In the preparation of the Pro Forma Financial Information, maximum number of shares (i.e. 982,533,802) is assumed to be issued pursuant to the Placing. The completion of the acquisition of entire interests in Merrymaking Investments and Pleasing Results shall be conditional, upon, among others, the completion of the Placing. The Placing would not be carried out if the very substantial acquisition is failed to complete.
The adjustment reflects the assumed aggregate consideration of HK$713,151,000 for the acquisition of entire interests in Merrymaking Investments, the completion of which is subject to the completion of the acquisition of 10.94% interest in Menggang as disclosed in note 6 below, including:
(i) HK$60,000,000 represented by cash.
(ii) HK$143,928,000 represented by the issuance of 319,840,476 new shares of the Company at an assumed issuance price of HK$0.45 each, being the quoted market price as at 31 March 2009.

In accordance with HKFRS 3 ‘‘Business Combinations’’, consideration satisfied by issuance of new shares should be determined by market value of the Company’s shares as at the date of obtaining control. In preparing the Unaudited Pro Forma Financial Information, fair value of HK$143,928,000, being 319,840,476 shares to be issued multiplied by the market price of HK$0.45 per share has been taken to be its fair value as if it was issued on 31 March 2009.

(iii) HK$509,223,000 represented by the issuance of convertible bond denominated in United States Dollars. The convertible bond with principal amount of US$100.32 million (equivalent to approximately HK$777,610,000) will not bear interest, and can be converted into 883,642,548 shares of the Company at conversion price of HK$0.88 per share and will be matured on the date falling on the eighth anniversary of the issue of the convertible bond.

In accordance with HKAS 32 ‘‘Financial Instrument: Presentation’’, convertible bond issued by the Company which settlement is not in fixed number of equity instrument is recognised as compound financial instruments in the form of financial liability with embedded derivative. At the date of issue, both the conversion option derivative and liability component are recognised at fair value. In preparing the Unaudited Pro Forma Financial Information, the adjustment of HK$452,576,000 in the unaudited pro forma consolidated balance sheet represents the liability component based on the discounted cash flow method at the discount rate of approximately 7% per annum. HK$56,647,000 represents the estimated fair value of the conversion option derivative of the convertible bond as at 31 March 2009, as if it is issued on 31 March 2009. Fair value of the conversion option derivative is estimated by the directors using option pricing model.

On 3 April 2009, Favour Mind Limited (‘‘Favour Mind’’) a wholly-owned subsidiary of Merrymaking Investments entered into an equity transfer agreement with the then equity-holder of Wuhai City Menggang (the ‘‘Original Equity-holder’’), whereby Favour Mind agreed to acquire 10.94% equity interest in Wuhai City Menggang from the Original Equity-holder at a consideration of HK$35 million. The acquisition was completed subsequent to the balance sheet date of 30 June 2009 of Merrymaking Investments.

– 277 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX VII

For the purpose of preparing the Unaudited Pro Forma Financial Information, the fair value of the identifiable assets and liabilities of Merrymaking Investments is assumed to be the same as their carrying amounts. Goodwill of approximately HK$188,132,000 was arising from the excess of fair values of total consideration of HK$713,151,000 for the acquisition of Merrymaking Investments plus consideration of HK$35,000,000 for the acquisition of 10.94% equity interest of Wuhai City Menggang over the fair values of the assets and liabilities of Merrymaking Investments of HK$441,017,000 and the 10.94% minority interests of Wuhai City Menggang owned by Merrymaking Investments of HK$119,002,000.

The amount of goodwill is subject to change upon the completion of (i) the receipt of the valuation of the fair value of the assets and liabilities acquired; (ii) the identification of any intangible assets and contingent liabilities; and (iii) the valuation of the fair value of shares and convertible bond as consideration of this acquisition.

The adjustment reflects the assumed aggregate consideration of HK$402,827,000 for the acquisition of entire interests in Pleasing Results, the completion of which is subject to the completion of the acquisition of 31.25% interest in Menggang by a subsidiary of Pleasing Results, including:
(i) HK$232,530,000 represented by cash.
(ii) HK$37,527,000 represented by the issuance of 83,392,884 new shares of the Company at an assumed issuance price of HK$0.45 each, being the quoted market price as at 31 March 2009.

In accordance with HKFRS 3 ‘‘Business Combinations’’, consideration satisfied by issuance of new shares should be determined by market value of the Company’s shares as at the date of obtaining control. In preparing the Unaudited Pro Forma Financial Information, fair value of HK$37,527,000, being 83,392,884 shares to be issued multiplied by the market price of HK$0.45 per share has been taken to be its fair value as if it was issued on 31 March 2009.

(iii) HK$132,770,000 represented by the issuance of convertible bond denominated in United States Dollars. The convertible bond with principal amount of US$26.16 million (equivalent to approximately HK$202,740,000) will not bear interest, and can be converted into 230,394,544 shares of the Company at conversion price of HK$0.88 per share and will be matured on the date falling on the eighth anniversary of the issue of the convertible bond.

In accordance with HKAS 32 ‘‘Financial Instrument: Presentation’’, convertible bond issued by the Company which settlement is not in fixed number of equity instrument is recognised as compound financial instruments in the form of financial liability with embedded derivative. At the date of issue, both the conversion option derivative and liability component are recognised at fair value. In preparing the Unaudited Pro Forma Financial Information, the adjustment of HK$117,998,000 in the unaudited pro forma consolidated balance sheet represents the liability component based on the discounted cash flow method at the discount rate of approximately 7% per annum. HK$14,772,000 represents the estimated fair value of the conversion option derivative of the convertible bond as at 31 March 2009, as if it is issued on 31 March 2009. Fair value of the conversion option derivative is estimated by the directors using option pricing model.

For the purpose of preparing the Unaudited Pro Forma Financial Information, the fair value of the identifiable assets and liabilities of Pleasing Results is assumed to be the same as their carrying amounts. Goodwill of approximately HK$62,762,000 was arising from the excess of fair values of total consideration of HK$402,827,000 for the acquisition of Pleasing Results over the fair values of the assets and liabilities of Pleasing Results of HK$60,000 and the 31.25% minority interests of Wuhai City Menggang owned by Merrymaking Investments of HK$340,005,000.

– 278 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

APPENDIX VII

The adjustment reflects the imputed interest expense for the convertible bonds with effective interest rate of 7% per annum, which is reference to the Company’s borrowings for a similar instrument with similar terms.
Gain on bargain purchase of HK$421,665,000 is arising from the acquisitions of Brilliant Wise Limited and Favour Mind, which hold aggregately 57.81% interests in Wuhai City Menggang, by Merrymaking Investments during the year ended 31 December 2008. As if the acquisition of Merrymaking Investments by the Group was completed at 1 April 2008, the gain on bargain purchase should be adjusted to goodwill arising from acquisition of Merrymaking Investments. No adjustment is required as if the acquisition is completed as at 31 March 2009 for the unaudited pro forma consolidated balance sheet.
The adjustments reflect the change in fair value of the conversion option for the year ended 31 March 2009, as if the convertible bonds were issued on 1 April 2008, represented by the derivative financial liabilities of the convertible bonds.
The adjustment reflects the result attributable to 42.19% equity interests in Wuhai City Menggang is transferred to equity holders of the Enlarged Group, as if the acquisition of 10.94% and 31.25% of Wuhai City Menggang by subsidiaries of Merrymaking Investments and Pleasing Results, respectively were completed as at 1 April 2008.
On 15 February 2008 and 4 June 2008, Merrymaking Investments acquired the entire interests in Favour Mind and Brilliant Wise Limited respectively, which aggregately hold 57.81% interests of Wuhai City Menggang, and become their holding company since the respective dates of acquisition. The unaudited pro forma consolidated income statement and unaudited pro forma cash flow statement only includes the results of Favour Mind for the period from 15 February 2008 to 31 December 2008 and Brilliant Wise Limited for the period from 4 June 2008 to 31 December 2008.

– 279 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

The following discussion and analysis of the financial condition and results of operations of the Group and members of the Target Group should be read in conjunction with the respective consolidated financial statements and the related notes of the Group and members of the Target Group included in Appendices I, Il, III, IV, V and VI to this circular.

1. THE GROUP

Financial review for the year ended 31 March 2007

Revenue

The Group’s revenue for the year ended 31 March 2007 increased by approximately 3.6% to HK$156.5 million (2006: HK$151.1 million). The increase was attributable to the better overall economic environment in major markets of the Group that allowed it to generate larger volume of business. Products manufactured by the Group are mainly sold directly to customers located in Europe and North America. For the year ended 31 March 2007, sales to Europe and North America accounted for a total of approximately 78% (2006: 73%) of the Group’s revenue.

Gross Profit

The Group’s gross profit remained at approximately HK$57.7 million (2006: HK$57.8 million) for the year ended 31 March 2007. Gross profit margin decreased slightly from approximately 38.2% for the year ended 31 March 2006 to approximately 36.9% for the year ended 31 March 2007, primarily due to the increase in cost of sales in terms of direct labour costs and appreciation of RMB.

Other Income, Gain and Loss, Change in Fair Value of Investments Held for Trading, Change in Fair Value of Derivative Financial Instruments

For the year ended 31 March 2007, the Group’s other income, gain and loss, change in fair value of investments held for trading and derivative financial instruments aggregately decreased by approximately 18.7% to HK$7.3 million (2006: HK$9.0 million). The drop was mainly due to a decrease in income from investing activities.

Distribution and Selling Costs

The Group’s distribution and selling costs as a percentage of turnover were approximately 2.3% (2006: 2.8%) for the year ended 31 March 2007. The decrease was mainly due to better cost control by employing new transportation vendors with comparatively lower prices.

Administrative Expenses

The Group’s administrative expenses decreased by approximately 13.5% to HK$26.8 million for the year ended 31 March 2007 (2006: HK$31.0 million). The decrease was mainly attributable to the drop in the expenses relating to the listing of the Company in 2006 and better cost control.

– 280 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

Finance Costs

The Group’s finance costs for the year ended 31 March 2007 amounted to approximately HK$0.2 million, which remained at the same level as last financial year.

Taxation

The effective tax rate of the Group has increased from approximately 14.2% to 18.3% for the year ended 31 March 2007. The increase was mainly attributable to the incremental contributions from the French subsidiary which was subject to a higher tax rate and the expiry of the tax holidays of the PRC subsidiary effective from 31 December 2006.

Profit for the Year

The Group’s profit for the year ended 31 March 2007 increased by approximately 4.7% to HK$28.1 million (2006: HK$26.8 million) and the respective net profit margin increased from approximately 17.7% to approximately 17.9% for the year ended 31 March 2007.

Segment Information

For the year ended 31 March 2007

The directors report the geographical segments as the Group’s primary segment information.

Geographical segments

The following table provides an analysis of the Group’s sales by geographical market in which the customers are located, irrespective of the origin of the goods.

Consolidated income statement

Hong 2007 HK$’000 29,273	Kong 2006 HK$’000 34,958	North A 2007 HK$’000 17,667	merica 2006 HK$’000 14,996	Europe 2007 2006 HK$’000 HK$’000 104,467 95,278 24,469 20,508	Europe 2007 2006 HK$’000 HK$’000 104,467 95,278 24,469 20,508	Oth 2007 HK$’000 5,101	ers 2006 HK$’000 5,823	Consol 2007 HK$’000 156,508	idated 2006 HK$’000 151,055
11,760	16,754	5,803	4,050	24,469	20,508	1,591	517

								28,051	26,804

– 281 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

Consolidated balance sheet

Hong Kong North America Europe Others 2007 2006 2007 2006 2007 2006 2007 2006 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 ASSETS Segment assets 7,829 5,685 2,313 3,114 45,815 36,647 954 147 Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities — — — — 7,185 5,283 — — Unallocated corporate liabilities Consolidated total liabilities	Conso 2007 HK$’000 56,911 160,718	lidated 2006 HK$’000 45,593 154,499
	217,629	200,092
	7,185 22,440	5,283 30,195
	29,625	35,478

Staff cost

For the year ended 31 March 2007

Staff costs: Directors’ emoluments Other staff costs — salaries, bonus and other allowances — retirement benefit scheme contributions — share-based payments	2007 HK$’000 3,576 32,232 4,310 1,084 41,202	2006 HK$’000
	3,576 32,232 4,310 1,084	1,665 30,034 3,211 —
	41,202	34,910

Liquidity, Capital Structure and Financial Resources

The Group funded its operations and growth principally from internal funds. At 31 March 2007, the Group had cash and cash equivalents of approximately HK$64.5 million (2006: HK$54.7 million). The Group’s working capital increased to approximately HK$145.0 million (2006: HK$123.9 million). Current ratio (a ratio of total current assets to total current liabilities) increased by approximately 32.7% to 6.1 times (2006: 4.6 times). Gearing ratio (a ratio of total borrowings to total assets other than goodwill) as at 31 March 2007 was maintained at a minimum level of 0% (2006: 0.4%).

For the year ended 31 March 2007, the Group generated a net cash inflow from operating activities of approximately HK$18.1 million (2006: HK$20.7 million). In addition, the Group also obtained net cash inflow from investing activities of approximately HK$1.5 million (2006: outflow of approximately HK$2.7 million). The increase was mainly due to the interest income from investment in debt securities and dividend received from listed shares. The aforesaid cash inflows were partly consumed in financing activities, mainly for the payment of dividend amounted to HK$10 million (2006: HK$20 million).

– 282 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

The Group has executed deeds of charge in favour of the bank and investment dealer/broker to facilitate the purchase of financial instruments. The deeds are secured by the charge over the assets of the Group held by the bank and investment dealer/broker, including investments held for trading, derivative financial instruments and bank balances and cash. As at 31 March 2007, total assets of the Group charged in favour of the bank and investment dealer/broker were approximately HK$58.1 million (2006: HK$32.8 million). The Group has pledged leasehold buildings with a net book value of approximately HK$3.7 million (2006: HK$4.1 million) to secure general banking facilities and other borrowings granted to the Group.

Capital Commitment and Contingent Liabilities

As at 31 March 2007, the Group was committed to capital expenditure of approximately HK$0.1 million (2006: HK$0.2 million) in respect of the acquisition of property, plant and equipment contracted but not provided for in the consolidated financial statements.

Save as disclosed above, there were no significant capital commitments as at 31 March 2007.

The Group had no material contingent liabilities as at the close of business on 31 March 2007.

Exposure to Fluctuations in Exchange Rates

The net foreign exchange gain for the year ended 31 March 2007 was approximately HK$0.4 million. The Group’s foreign exchange risks arise mainly from the mismatch between the currency of its sales, purchases and operating expenses. Its sales are denominated in US dollars, Euros and Hong Kong dollars. The Group’s purchases and expenses are mostly denominated in RMB and Hong Kong dollars, and some in US dollars and Euros. The Group has certain foreign currency investments held for trading and investment in foreign operations, which are exposed to foreign currency exchange risk. For the year ended 31 March 2007, the Group did not have any financial instruments to hedge the foreign exchange rate risk.

Employment and Share Option Schemes

As at 31 March 2007, the Group had a total of 1,454 employees (including those employed through processing agreement) in the PRC, Hong Kong and France. Remuneration packages for the employees are maintained at a competitive level of the jurisdiction, within which employees are attracted, retained and motivated. Remuneration packages are reviewed periodically.

Significant Investments, Material Acquisitions and Disposals

The Group did not have any significant investments, material acquisitions and disposals during the year ended 31 March 2007.

– 283 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

Financial review for the year ended 31 March 2008

Revenue

The Group’s revenue for the year ended 31 March 2008 increased by approximately 13.0% to HK$176.8 million (2007: HK$156.5 million). The increase was attributable to the better overall economic environment in major markets of different geographical segments of the Group that allowed it to generate larger volume of business. Products manufactured by the Group are mainly sold directly to customers located in Europe and North America.

Gross Profit

The Group’s gross profit decreased to approximately HK$55.6 million (2007: HK$57.7 million) for the year ended 31 March 2008. Gross profit margin also decreased from approximately 36.9% for the year ended 31 March 2007 to approximately 31.5% for the year ended 31 March 2008, primarily due to the increase in cost of sales in terms of direct material costs, direct labour costs, appreciation of RMB and the revised Value Added Tax policy in the Mainland China.

Other Income, Gain and Loss, Change in Fair Value of Investments Held for Trading, Change in Fair Value of Derivative Financial Instruments and Impairment Loss on Available-For-Sale Investments

For the year ended 31 March 2008, the Group’s other income, gain and loss and change in fair value of investments held for trading aggregately increased by approximately 67.2% to HK$11.8 million (2007: HK$7.1 million). However, due to the downturn in the stock market since the last quarter of year 2007, a total loss of approximately HK$6.2 million (2007: gain of HK$0.2 million) was recorded in change in fair values of derivative financial instruments and impairment loss on available-for-sale investments held by the Group, which offset the increase in other income.

Distribution and Selling Costs

The Group’s distribution and selling costs as a percentage of turnover were approximately 2.4% (2007: 2.3%) for the year ended 31 March 2008.

Administrative Expenses

The Group’s administrative expenses increased by approximately 11.9% to HK$30.0 million for the year ended 31 March 2008 (2007: HK$26.8 million). The difference was mainly due to increase in staff costs.

Finance Costs

The Group’s finance costs for the year ended 31 March 2008 maintained at a low level of approximately HK$47,000 (2007: HK$0.2 million).

– 284 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

Taxation

The effective tax rate of the Group has decreased from approximately 18.3% to 17.7% for the year ended 31 March 2008. The decrease was mainly attributable to increase in non-taxable income.

Profit for the Year

The Group’s profit for the year ended 31 March 2008 decreased by approximately 20.9% to HK$22.2 million (2007: HK$28.1 million) and the respective net profit margin decreased from approximately 17.9% to approximately 12.5% for the year ended 31 March 2008.

Segment Information

For the year ended 31 March 2008

The directors report the geographical segments as the Group’s primary segment information.

Geographical segments

The following table provides an analysis of the Group’s sales by geographical market in which the customers are located, irrespective of the origin of the goods.

Consolidated income statement

Hong 2008 HK$’000 40,423	Kong 2007 HK$’000 29,273	North A 2008 HK$’000 14,986	merica 2007 HK$’000 17,667	Europe 2008 2007 HK$’000 HK$’000 114,519 104,467 20,873 24,469	Europe 2008 2007 HK$’000 HK$’000 114,519 104,467 20,873 24,469	Oth 2008 HK$’000 6,875	ers 2007 HK$’000 5,101	Consol 2008 HK$’000 176,803	idated 2007 HK$’000 156,508
12,188	11,760	3,676	5,803	20,873	24,469	1,600	1,591

								22,180	28,051

– 285 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

Consolidated balance sheet

Hong Kong North America Europe Others 2008 2007 2008 2007 2008 2007 2008 2007 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 ASSETS Segment assets 9,703 7,829 3,196 2,313 54,015 45,815 1,730 954 Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities — — — — 6,038 7,185 — — Unallocated corporate liabilities Consolidated total liabilities Staff cost For the year ended 31 March 2008	Conso 2008 HK$’000 68,644 183,080	lidated 2007 HK$’000 56,911 160,718
	251,724	217,629
	6,038 38,275	7,185 22,440
	44,313	29,625

Staff costs: Directors’ emoluments Other staff costs — salaries, bonus and other allowances — retirement benefit scheme contributions — share-based payments	2008 HK$’000 3,343 40,350 4,668 933 49,294	2007 HK$’000
	3,343 40,350 4,668 933	3,576 32,232 4,310 1,084
	49,294	41,202

Liquidity, Capital Structure and Financial Resources

The Group funds its operations principally from internal resources. As at 31 March 2008, the Group had cash and cash equivalents of approximately HK$75.6 million (2007: HK$64.5 million). The Group’s working capital slightly decreased to approximately HK$141.0 million (2007: HK$145.0 million). Current ratio (a ratio of total current assets to total current liabilities) also decreased by approximately 29.7% to 4.3 times (2007: 6.1 times), mainly due to the increase in bank borrowings and drop in fair value of financial derivatives. Gearing ratio (a ratio of total borrowings to total assets other than goodwill) as at 31 March 2008 was maintained at a minimum level of approximately 2.0% (2007: 0%).

For the year ended 31 March 2008, the Group generated a net cash inflow from operating activities of approximately HK$32.8 million (2007: HK$18.1 million). On the other hand, the Group incurred a net cash outflow from investing activities of approximately HK$22.4 million (2007: inflow of approximately HK$1.5 million), primarily due to the increase in the purchases of available-for-sale investments, which are mainly listed shares held for long-term investment

– 286 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

purposes. The dividend payment to the Group’s shareholders of approximately HK$10.1 million (2007: HK$10.0 million) constituted the major part of the outflow under the Group financing activities for the year ended 31 March 2008.

The Group has executed deeds of charge in favour of the financial institutions to facilitate the Group to enter into the investment schemes and secure the bank borrowings. The deeds are secured by the charge over the assets of the Group held by these financial institutions, including investments held for trading, available-for-sale investments and bank balances. As at 31 March 2008, total assets of the Group charged in favour of the financial institutions were approximately HK$65.2 million (2007: HK$58.1 million). The Group has pledged its leasehold buildings with a carrying value of approximately HK$3.3 million (2007: HK$3.7 million) to secure general banking facilities granted to the Group.

Capital Commitment and Contingent Liabilities

There were no significant capital commitments as at 31 March 2008.

The Group had no material contingent liabilities as at the close of business on 31 March 2008.

Exposure to Fluctuations in Exchange Rates

The net foreign exchange gain for the year ended 31 March 2008 was approximately HK$0.6 million. The Group’s foreign exchange risks arise mainly from the mismatch between the currency of its sales, purchases and operating expenses. Its sales are denominated in US dollars, Euros and Hong Kong dollars. The Group’s purchases and expenses are mostly denominated in Hong Kong dollars and RMB, and some in US dollars and Euros. The Group has certain foreign currency investments held for trading, available-for-sale investments and investment in foreign operations, which are exposed to foreign currency exchange risk. For the year ended 31 March 2008, the Group did not have any financial instruments to hedge the foreign exchange rate risk and will consider entering into non-deliverable forward contract to minimize the effect of the appreciation of the RMB.

Employment and Share Option Schemes

As at 31 March 2008, the Group had a total of approximately 1,623 employees in the PRC, Hong Kong and France. Remuneration packages for the employees are maintained at a competitive level in the relevant jurisdiction, within which employees are attracted, retained and motivated. Remuneration packages are reviewed periodically.

Significant Investments, Material Acquisitions and Disposals

The Group did not have any significant investments, material acquisitions and disposals during the year ended 31 March 2008.

– 287 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

Financial review for the year ended 31 March 2009

Revenue

The Group’s revenue for the year ended 31 March 2009 decreased by approximately 5.8% to HK$166.5 million (2008: HK$176.8 million). The decrease was attributable to the global economic downturn which caused our major customers in the United States and Europe to become more cautious in placing their orders, particularly in the final quarter of year 2008/09.

Gross Profit

The Group’s gross profit decreased to approximately HK$37.9 million (2008: HK$55.6 million) for the year ended 31 March 2009. Gross profit margin also decreased from approximately 31.5% for the year ended 31 March 2008 to approximately 22.8% for the year ended 31 March 2009, primarily due to the increase in cost of sales in terms of direct material costs, direct labour costs and appreciation of RMB in the first half of the year.

Other Income, Gain and Loss, Change in Fair Value of Investments Held for Trading, Change in Fair Value of Derivative Financial Instruments and Impairment Loss Recognised in respect of Available-For-Sale Investments

The Group invested in various types of financial instruments including fixed income, equity and derivatives with a view to enhance overall return. However, due to the adverse condition and the increasing instability of the global financial markets, a total loss of approximately HK$26.6 million (2008: gain of approximately HK$5.6 million) was recorded in other income, gain and loss, change in fair value of investments held for trading, change in fair value of derivative financial instruments and impairment loss recognised in respect of available-for-sale investments. As at 31 March 2009, the Group did not have any outstanding derivative financial instruments.

Distribution and Selling Costs

The Group’s distribution and selling costs as a percentage of turnover were approximately 2.2% (2008: 2.4%) for the year ended 31 March 2009.

Administrative Expenses

The Group’s administrative expenses decreased by approximately 4.5% to HK$28.6 million for the year ended 31 March 2009 (2008: HK$30.0 million). The difference was mainly due to better cost control.

Finance Costs

The Group’s finance costs for the year ended 31 March 2009 maintained at a low level of approximately HK$0.2 million (2008: HK$47,000).

Taxation

The taxation for the year ended 31 March 2009 decreased by 67.9% to HK$1.5 million. The decrease was mainly attributable to decrease in taxable income.

– 288 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

Loss for the Year

The Group had recorded a loss of approximately HK$22.9 million for the year ended 31 March 2009 (2008: profit of approximately HK$22.2 million) and the respective net margin decreased from a positive 12.5% to a negative 13.7% for the year ended 31 March 2009, mainly due to the loss in change in fair value of investments held for trading and impairment loss recognised in respect of available-for-sale investments as mentioned above.

Segment Information

For the year ended 31 March 2009

The directors report the geographical segments as the Group’s primary segment information.

Geographical segments

The following table provides an analysis of the Group’s sales by geographical market in which the customers are located, irrespective of the origin of the goods.

Consolidated income statement

Revenue Segment results Other income, gain and loss Unallocated corporate expenses Change in fair value of investments held for trading Change in fair value of derivative Financial instruments Impairment loss recognised in respect of available-sales investments Impairment loss recognised in respect of investment property Finance costs (Loss) Profit before taxation Taxation (Loss) Profit for the year	Hong 2009 HK$’000 52,998	Kong 2008 HK$’000 40,423	North A 2009 HK$’000 9,940	merica 2008 HK$’000 14,986	Europe 2009 2008 HK$’000 HK$’000 96,485 114,519 10,117 20,873	Europe 2009 2008 HK$’000 HK$’000 96,485 114,519 10,117 20,873	Oth 2009 HK$’000 7,082	ers 2008 HK$’000 6,875	Consol 2009 HK$’000 166,505	idated 2008 HK$’000 176,803
	9,801	12,188	720	3,676	10,117	20,873	444	1,600

– 289 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

Consolidated balance sheet

Hong Kong North America Europe Others 2009 2008 2009 2008 2009 2008 2009 2008 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 ASSETS Segment assets 7,204 9,703 695 3,196 44,489 54,015 465 1,730 Other segment assets Unallocated corporate assets Consolidated total assets LIABILITIES Segment liabilities — — — — 4,307 6,038 — — Unallocated corporate liabilities Consolidated total liabilities Staff cost For the year ended 31 March 2009	Consol 2009 HK$’000 52,853 16,493 128,683	idated 2008 HK$’000 68,644 18,329 164,751
	198,029	251,724
	4,307 16,625	6,038 38,275
	20,932	44,313

Staff costs: Directors’ emoluments Other staff costs — salaries, bonus and other allowances — retirement benefit scheme contributions — share-based payments	2009 HK$’000 2,650 43,499 4,345 498 50,992	2008 HK$’000
	2,650 43,499 4,345 498	3,343 40,350 4,668 933
	50,992	49,294

Liquidity, Capital Structure and Financial Resources

The Group funds its operations principally from internal resources. As at 31 March 2009, the Group had cash and cash equivalents of approximately HK$54.7 million (2008: HK$75.6 million). The Group’s working capital decreased to approximately HK$108.6 million (2008: HK$141.0 million), mainly due to purchases of additional available-for-sale investments and payment of dividends. Current ratio (a ratio of total current assets to total current liabilities) increased by approximately 51.4% to 6.5 times (2008: 4.3 times). Gearing ratio (a ratio of total borrowings to total assets other than goodwill) as at 31 March 2009 was maintained at a minimum level of 0% (2008: 2.0%).

For the year ended 31 March 2009, the Group generated a net cash inflow from operating activities of approximately HK$16.1 million (2008: HK$32.8 million). On the other hand, the Group incurred a net cash outflow from investing activities of approximately HK$21.5 million (2008: HK$22.4 million), primarily due to additional purchases of available-for-sale investments, which are mainly listed shares held for long-term investment purposes. The dividend payment to

– 290 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

the Group’s shareholders of approximately HK$10.3 million (2008: HK$10.1 million) constituted the major part of the outflow under the Group financing activities for the year ended 31 March 2009.

The Group has executed deeds of charge in favour of the financial institutions to facilitate the Group to enter into the investment schemes and secure the bank borrowings. The deeds are secured by the charge over the assets of the Group held by these financial institutions, including investments held for trading, available-for-sale investments and bank balances. As at 31 March 2009, total assets of the Group charged in favour of the financial institutions were approximately HK$39.1 million (2008: HK$65.2 million). The Group has pledged its leasehold buildings with a carrying value of approximately HK$3.2 million (2008: HK$3.3 million) and bank deposits amounted to approximately HK$5.3 million (2008: nil) to secure general banking facilities granted to the Group. As at 31 March 2009, the Group did not have any outstanding investment schemes and bank borrowings and did not utilise any of the banking facilities granted.

Capital Commitment and Contingent Liabilities

There were no significant capital commitments as at 31 March 2009.

The Group had no material contingent liabilities as at the close of business on 31 March 2009.

Exposure to Fluctuations in Exchange Rates

The net foreign exchange loss for the year ended 31 March 2009 was approximately HK$5.8 million compared to the net foreign exchange gain of approximately HK$0.6 million for the corresponding period in 2008. The Group’s foreign exchange risks arise mainly from the mismatch between the currency of its sales, purchases and operating expenses. Its sales are denominated in US dollars (‘‘USD’’), Euros (‘‘EUR’’) and Hong Kong dollars (‘‘HKD’’). The Group’s purchases and expenses are mostly denominated in HKD and RMB, and some in USD and EUR. The Group has certain foreign currency investments held for trading, available-for-sale investments and investment in foreign operations, which are exposed to foreign currency exchange risk. As HKD is pegged to USD, the Group does not expect any significant foreign currency exposure arising from the fluctuation of the USD/HKD exchange rates. During the year ended 31 March 2009, HKD against EUR and RMB have experienced an increase of approximately 16.9% and a decrease of approximately 1.3% respectively. The unfavourable currency exchange rate movement has had an adverse impact on the Group’s results. The Group currently does not have a foreign currency hedging policy. However, the management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arises.

Employment and Share Option Schemes

As at 31 March 2009, the Group had a total of approximately 1,031 employees in the PRC, Hong Kong and France. Remuneration packages for the employees are maintained at a competitive level in the relevant jurisdiction, within which employees are attracted, retained and motivated. Remuneration packages are reviewed periodically.

– 291 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

Significant Investments, Material Acquisitions and Disposals

The Group did not have any significant investments, material acquisitions and disposals during the year ended 31 March 2009.

Property interests

The table below shows the reconciliation of property interest of the Group from its audited consolidated financial statements as at 31 March 2009 to the unaudited net asset value of the property interests of the Group as at 30 September 2009.

Net book value as at 31 March 2009 (Note) Movement for the six months period ended 30 September 2009 Addition Depreciation of property, plant and equipment, release of prepaid lease payments and depreciation of investment property Exchange realignment Net book value as at 30 September 2009 Valuation surplus Valuation as at 30 September 2009	HK$’000 16,397 — (192) 692 16,897 18,469 35,366

Note: The net book value of the property interests of the Group as at 31 March 2009 represents the total of the net book values of the Group’s freehold land, buildings on freehold land, buildings, prepaid lease payments for leasehold land and investment property as at 31 March 2009.

– 292 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

2. THE TARGET GROUP

A. Merrymaking Investments

Set out below is the management discussion and analysis on Merrymaking Investment Ltd and its subsidiaries (collectively the ‘‘Merrymaking Group’’) for the period from 28 November 2007 (date of incorporation) to 31 December 2007, for the year ended 31 December 2008 and 6 months ended 30 June 2009.

For the year ended 31 December 2007 and 31 December 2008 and 6 months ended 30 June 2009

Revenue Cost of sales Gross profit/(loss) Other revenue Selling and distribution expenses Other operating expenses Loss from operation (Loss)/profit for the period/year	30 June 2009 HK$’000 6,793 (5,353) 1,440 2 (1,176) (8,861) (8,595) (24,464)	31 December 2008 HK$’000 917 (3,557) (2,640) 27 (409) (20,872) (23,894) 382,807	31 December 2007 HK$’000 — — — — — (45) (45) (45)

Revenue

The principal activities of the Merrymaking Group are primarily engaged in investment holding, exploitation of coal business, coal mining, coal sales and development of underground coking coal mine in Inner Mongolia Autonomous Region, PRC.

During the financial year 2007, Merrymaking Investments Ltd. had not yet acquired Wuhai Meng Kong Industrial Development Co., Ltd. Mine No. 1, which was owned by Tianyu Gongmao Co., Ltd., was in operation and produced raw coal for sales. Mine No. 1 has also finished its technical improvement in November 2007. There was no revenue generated during the year.

During the financial year 2008, an internal safety check of Mine No. 1 was carried out in the beginning of the year in accordance with coal industry practice where the site technician reported that some the existing equipment could not satisfy the mining conditions. During that period, production was suspended as a result until the completion of installation of replacement equipment in November 2008. The revenue generated was from the trial production run.

– 293 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

For the six months ended 30 June 2009, production was back to normal after Chinese New Year after inspection and approval by the local coal management authority and coal mine safety inspection bureau in March 2009. As a result, approximately HK$6.8 million revenue was generated, which recorded a gross profit of approximately HK$1.4 million with a loss of approximately HK$8.6 million from operation for that period.

Amount due to ultimate holding company, namely TRXY Development (HK) Limited

As at 30 June 2009, there was an amount of HK$12,000 due to ultimate holding company.

As at 31 December 2008, there was an amount of HK$12,000 due to ultimate holding company.

As at 31 December 2007, there was no amount due to ultimate holding company.

The amount due to ultimate holding company is unsecured, interest free and with no fixed terms of repayment.

Liquidity, Financial Resources and Gearing

Net Assets/Liabilities

Set out below is a summary of the audited accountants’ report of Merrymaking Group as at 31 December 2007, 31 December 2008 and 30 June 2009 which was prepared on the bases as set out in Appendix II to this circular.

	30 June	31 December	31 December
	2009	2008	2007
	HK$’000	HK$’000	HK$’000
Total assets	1,550,357	1,545,915	88
Total liabilities	650,333	620,364	55
Net assets	900,024	925,551	33
Amount due to a related company	—	—	10
*Gearing ratio	15%	13%	—

The gearing ratio is defined as total debts over total assets.

Amount due to a related company is unsecured, interest-free and with no fixed terms of repayment.

Cash & Bank Balances

As at 31 December 2007, 31 December 2008 and 30 June 2009, the Merrymaking Group’s aggregate cash and bank balances amounted to approximately HK$Nil, HK$671,000 and HK$1,907,000 respectively, representing Nil, 7.2% and 10.9% of total current assets respectively.

– 294 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

Borrowings

The details of borrowings relating to the subsidiaries of Merrymaking Group as at 31 December 2007, 31 December 2008 and 30 June 2009 are set out below.

Note Bank loan (a) Loans from a director (b) Other loans (c) Total	30 June 2009 HK$’000 11,356 17,981 202,236 231,573	31 December 2008 HK’000 — 17,386 191,282 208,668	31 December 2007 HK$’000 — — —
			—

Note (a): The bank loan was secured and carried interest at 80% above the benchmark interest rate announced by the People’s Bank of China. There is no bank borrowing as at 31 December 2007 and 2008. The exact interest rate charged for the six months ended 30 June 2009 is 9.558% per annum. Since the bank loan was negotiated on an arm’s length basis with a commercial bank which would have its own internal approval process as regard to the loan interest rate and having taken into consideration the past financial record of Tianyu Gongmao (which is operating at a loss), the Directors are of the view that the interest rate is fair and reasonable

As at 30 June 2009, the Merrymaking Group’s bank loan was secured by:

(i) A legal charge on the prepaid lease payments. The net book value of the prepaid lease payment approximately HK$13,251,000 as at 30 June 2009; and
(ii) Corporate guarantee executed by Wuhai City Chengda Investment and Guarantee Co., Ltd (烏海市盛達投資擔保有限責任公司), which is an Independent Third Party, to the extent of HK$11,356,000 as at 30 June 2009. In relation to such corporate guarantee, Tianyu Gongmao has pledged its land located at Dong Shan, Hainan District, Wuhai, Inner Mongolia Autonomous Region, the PRC to Wuhai City Chengda Investment and Guarantee Co., Ltd (烏海市盛達投資擔保有限責任公司) as security for the guarantee provided by Wuhai City Chengda Investment and Guarantee Co., Ltd (烏海市盛達投資擔保有限責任公司) to Tianyu Gongmao during the period from January 2009 to January 2010 for Tianyu Gongmao’s bank loans. It is expected that the pledge will continue to be in place until the release of the guarantee provided by Wuhai City Chengda Investment and Guarantee Co., Ltd (烏海市盛達投資擔保有限責任公司) to Tianyu Gongmao.

The bank loan is repayable on 13 January 2010 pursuant to the loan agreement.

Note (b): As at 31 December 2008 and 30 June 2009, loans from a director were unsecured, interest bearing at 8% per annum and are repayable on 31 December 2009.

Note (c): The loans were secured by:

(i) A legal charge on the exploration and evaluation assets. The net book value of exploration and evaluation assets was HK$Nil, HK$985,204,000 and HK$984,078,000 as at 31 December 2007 and 2008 and 30 June 2009 respectively;
(ii) A legal charge on the mining right. The net book value of mining right was HK$Nil, HK$380,340,000 and HK$377,934,000 as at 31 December 2007 and 2008 and 30 June 2009 respectively;
(iii) A pledge of the equity interests of Wuhai City Menggang owned by Beijing Tai Tong Heng Ye Trading Development Co., Ltd (北京市泰通恆業貿易發展有限公司) and Favour Mind Limited;

– 295 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

(iv) Corporate guarantees executed by a related company and an independent third party to the extent of HK$Nil, HK$191,282,000 and HK$202,236,000 as at 31 December 2007 and 2008 and 30 June 2009 respectively; and
(v) Personal guarantee executed by an independent third party to the extent of HK$Nil, HK$191,282,000 and HK$202,236,000 as at 31 December 2007 and 2008 and 30 June 2009 respectively.

Except for the above borrowings, there was no other borrowing from bank or financial institution during the period.

Significant Investments Held

Merrymaking Investments Ltd, the ultimate holding company of the Merrymaking Group, was incorporated in BVI with limited liability on 28 November 2007. The company had invested shares at cost in two wholly-owned subsidiaries in 2008, namely Favour Mind Ltd (‘‘Favour Mind’’) and Brilliant Wise Ltd (‘‘Brilliant Wise’’) respectively, which owns 25% and 43.75% share interest of Wuhai Meng Kong Industrial Development Co., Ltd (‘‘Wuhai City Menggang’’) respectively. While Wuhai City Menggang owns 100% issued share capital of Tianyu Gongmao Co., Ltd (‘‘Tianyu Gongmao’’) and Tianyu Coal Company Ltd (‘‘Tianyu Coal’’), these companies own coal Mine No. 1 and Mine No. 4 in Inner Mongolia Autonomous Region, PRC respectively.

Acquisitions and Disposals

Wuhai City Menggang was incorporated in December 2006 as a Sino-foreign owned enterprise to hold equity interests in Tianyu Gongmao and Tianyu Coal.

During the financial year of 2007, after a series of restructuring and capital injection, Favour Mind and Brilliant Wise held 14.06% and 43.75% of equity interest in Wuhai City Menggang.

During the financial year of 2008, Merrymaking Investments had acquired 100% equity interest in both Favour Mind and Brilliant Wise. In the year 2009, Favour Mind had entered into an agreement to acquire another 10.94% of Wuhai City Menggang.

Segmental Information

No business segment analysis and geographical segment analysis was presented since substantially all the turnover and contribution to results were derived from the sale of coal to local electricity production plants.

Foreign Exchange Management

The Merrymaking Group does not hedge its foreign currency risk, as the management does not expect any significant movements in exchange rates among U.S. dollars, Hong Kong dollars and Renminbi. During the relevant periods under review, as the impact of foreign exchange exposure has been insignificant, no hedging or other alternatives have been implemented.

– 296 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

Capital Commitments

Wuhai City Menggang had entered into two purchases agreements in the year of 2007 and 2008 respectively to procure equipments for Mine No. 4, the outstanding commitments for both agreements are as follows:

Contracted, but not provided for: Addition Investment in Wuhai City Menggang Purchases of property, plant and equipment	30 June 2009 HK$’000 35,000 108,404 143,404	31 December 2008 HK$’000 — 108,529 108,529	31 December 2007 HK$’000 — —
			—

The Merrymaking Group has no other capital commitment as at 31 December 2007 and 2008 and 30 June 2009.

Contingent Liabilities

As at 31 December 2007, 31 December 2008 and 30 June 2009, the Merrymaking Group did not have any other material contingent liabilities.

Litigation

(i) Pursuant to an equity transfer agreement dated 18 August 2007 (the ‘‘Equity Transfer Agreement’’) between Wuhai City Menggang and the then equity-holders of Tianyu Gongmao (the ‘‘Original Equity-holders’’), Wuhai City Menggang agreed to acquire the entire equity interest in Tianyu Gongmao from the Original Equity-holders at a cash consideration of RMB90 million, of which only RMB45 million has been paid by Wuhai City Menggang. As advised by Wuhai City Menggang, it has not settled the remaining consideration of RMB45 million because there is a dispute over the production capacity of Tiangyu Gongmao. It is the view of Wuhai City Menggang that the actual production capacity of Tianyu Gongmao (i.e. 129,600 tons per annum) when it was taken over from the Original Equity-holders was substantially lower than what was agreed between Wuhai City Menggang and the Original Equity-holders under the relevant Equity Transfer Agreement (i.e. 300,000 tons per annum). After taking over Tianyu Gongmao from the Original Equity-holders, further investments have been made by Wuhai City Menggang to Mine No. 1 to increase its production capacity. Currently, Mine No. 1 has the ability to produce up to 300,000 tons per annum.

– 297 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

the breach of contract fixed damages of RMB9 million to the Original Equity-holders. Wuhai City Menggang has appealed to the Inner Mongolia Autonomous Region Superior People’s Court (內蒙古自治區高級人民法院) against the first instance judgment and also applied for, among others, the court’s order for the verification of the production capacity of Tianyu Gongmao. Based on the appeal case progress statement dated 27 November 2009 issued by Beijing Deheng Law Office (北京市德恒律師事務所), being the law firm engaged by Wuhai City Menggang for handling such litigation, the Court has already approved Wuhai City Menggang’s application for verification of Tianyu Gongmao’s production capacity. The parties are currently in negotiation about the selection of valuer responsible for the handling of the relevant verification. The verification result will form the basis for the management of Wuhai City Menggang to further negotiate with the Original Equity-holders for a downward adjustment of the transfer consideration. As advised by Guantao, the transfer of the equity interest in Tianyu Gongmao has been duly registered with the Department of Commerce (商務廳) and the Administration for Industry and Commerce (工商局) of Inner Mongolia, the PRC and Wuhai City Menggang has already been registered as the sole holder of the 100% equity interest in Tianyu Gongmao. The shareholder’s rights and title of Wuhai City Menggang in Tianyu Gongmao are binding and enforceable against any third party and could only be challenged through a judicial procedure.

Under the Equity Transfer Agreement, the Original Equity-holders shall have the right to elect to repurchase the entire equity interest in Tianyu Gongmao from Wuhai City Menggang at the original transfer consideration so long as any part of the transfer consideration remains unsettled. However, Guantao has advised that since the case has already entered into a judicial procedure, and the Original Equity-holders have already opted for the payment of the remaining consideration and breach of contract damages during the appeal process as above-mentioned, they shall not be entitled to elect for the repurchase of the equity interest in Tianyu Gongmao from Wuhai City Menggang pursuant to the Equity Transfer Agreement during the appeal process unless the case is returned by the Inner Mongolia Autonomous Region Superior People’s Court (內蒙古自治區高級人民法院) to the Wuhai City Intermediate People’s Court (烏海市中級人民法院) for retrial. As advised by Guantao, based on the Civil Procedure of the PRC (民事訴訟法), the case will be returned to the first instance court for re-trial only in 2 circumstances, namely (i) there is a violation of the prescribed procedure that may affect the correctness of the original judgment; or (ii) there are wrong or unclear facts, or insufficient evidences, which affect the correctness of the original judgment. Based on the fact that both the Original Equity-holders and Wuhai City Menggang have raised no objection against the procedure of the trial of the Wuhai City Intermediate People’s Court (烏海市中級人民法院) and the fact that the Court has already approved Wuhai City Menggang’s application for verification of Tianyu Gongmao’s production capacity during the appeal process such that the case does not have the problems of unclear facts or insufficient evidences anymore, it is the opinion of Guantao that the case will not be returned to the first instance court for re-trial, and thus the right of the Original Equityholders to repurchase the entire equity interest in Tianyu Gongmao from Wuhai City Menggang under the Equity Transfer Agreement cannot be exercised anymore.

– 298 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

Upon the application of the Original Equity-holders, the Wuhai City Intermediate People’s Court (烏海市中級人民法院) handed down the Civil Judgment No. 30, Minyichuzi Wuzhongfa (2008) (烏中法(2008)民一初字第30號) on 19 January 2009 to freeze the entire equity interest in Tianyu Gongmao held by Wuhai City Menggang pending the outcome of the case. Pursuant to such order, Wuhai City Menggang shall not be allowed to transfer or pledge its interest in, or receive any dividend from, Tianyu Gongmao. The operation of Wuhai City Menggang and its subsidiaries however is not affected by such order or the litigation.

(ii) Tianyu Gongmao was named as a joint defendant on 13 November 2007 alleging that the company failed to pay a consideration approximately amounting to RMB82,000 regarding a construction work performed by a plaintiff.

Apart from the actions against Wuhai City Menggang and Tianyu Gongmao disclosed above, there were no other material outstanding writs and litigations against the Merrymaking Group.

Pledge of Assets

As at 31 December 2008 and 30 June 2009, the Merrymaking Group had assets pledged. For details, please refer to notes in Borrowing above.

As at 31 December 2007, The Merrymaking Group had no assets pledged.

Capital Structure

Merrymaking Investments was incorporated with an authorised capital of US$50,000, divided into 50,000 ordinary shares. On 11 December 2007, Merrymaking Investments issued 10,000 ordinary shares of US$1 each at par.

Employment, Share Option Schemes and Training Schemes

As at 31 December 2007, 2008 and 30 June 2009, the Merrymaking Group had a workforce of 162, 148 and 226 employees respectively, and the total remuneration was approximately HK$Nil, HK$4,440,000 and HK$4,529,000 respectively. The Merrymaking Group regards human resource as the core value for the development of the Group. Consistent review will be conducted on human resource requirements and on the job training will be provided so as to promote the overall quality of its staff. As for remuneration package, the Merrymaking Group adopted various salary systems including position salary system and will be reviewed annually. The Merrymaking Group provides Pension Scheme for its employees in the PRC. During the relevant periods under review, no share option was adopted.

– 299 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

Future Plans and Material Investments

It is the intention of the Merrymaking Group to continue with the coal mining and coal sales business. In view of the increasing world’s demand for natural resources and the increase in the prices of coal over the past years, the management is optimistic about the future prospects and demand for coal. With the strong and sustainable growth momentum of the PRC economy and the continuous development of the cities, infrastructure and real estate sectors as well as accelerated industrialization and urbanization in the PRC, it is expected that the demand for coal will continue to grow. The Merrymaking Group will be making further investments in Mine No. 1 and Mine No. 4.

Prospects of New Business

The Merrymaking Group has a plan to build a washing plant to wash the raw coal into coking coal and completion is expected by the latest 2011. If the project is successfully implemented, revenue of the Merrymaking Group can be improved substantially by selling coking coal.

B. Pleasing Results

Stated below is the management discussion and analysis on Pleasing Results Ltd and its subsidiaries (collectively the ‘‘Pleasing Group’’) for the period from 27 November 2007 (date of Incorporation) to 31 December 2007, for the year ended 31 December 2008 and 6 months ended 30 June 2009.

For the period/year ended 31 December 2007 and 31 December 2008 and 6 months ended 30 June 2009, the Pleasing Group did not generate any revenue for the periods under review.

The principal activity of the Pleasing Group is primarily engaged in investment holding.

Amount due to ultimate holding company, namely TRXY Development (HK) Limited

As at 30 June 2009, there was an amount of HK$113,000.00 due to ultimate holding company.

As at 31 December 2008, there was an amount of HK$113,000.00 due to ultimate holding company.

As at 31 December 2007, there was no amount due to ultimate holding company.

– 300 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

Liquidity, Financial Resources And Gearing

Net Assets/Liabilities

Set out below is a summary of the audited accountants’ report of Pleasing Group as at 31 December 2007, 31 December 2008 and 30 June 2009 which was prepared on the bases as set out in Appendix III to this circular.

	30 June	31 December	31 December
	2009	2008	2007
	HK$’000	HK$’000	HK$’000
Total Assets	177	177	78
Total Liabilities	117	117	—
Net assets	60	60	78
Amount due to ultimate holding
company	113	113	—
*Gearing ratio	n/a	n/a	n/a

The gearing ratio is defined as total debts over total assets. As there is no debt in the periods, it is not applicable to account for the gearing ratio.

Cash & Bank Balances

As at 31 December 2007, the Pleasing Group did not have any cash and bank, and at 31 December 2008 and 30 June 2009, the Pleasing Group’s aggregate cash and bank balances amounted to approximately HK$99,000 and HK$99,000 respectively, representing 55.9% and 55.9% of total current assets respectively.

Borrowings

As at 31 December 2007, 31 December 2008 and 30 June 2009, there was no other borrowing from bank or financial institution.

Significant Investments Held

As at 31 December 2007, 31 December 2008 and 30 June 2009, the Pleasing Group did not hold any significant investments during the periods save for the proposed acquisition mentioned below.

Acquisitions and Disposals

Pleasing Results Ltd (‘‘Pleasing Results’’), the ultimate holding company of the Pleasing Group, was incorporated in BVI with limited liabilities on 27 November 2007. On 3 January 2008, Max Joyce Limited (‘‘Max Joyce’’), a wholly owned subsidiary of Pleasing Results had entered into a sales and purchases agreement with Zhong Tie Trust Company Limited (‘‘Zhong Tie’’) where Max Joyce agreed to purchase and Zhong Tie agree to sell 31.25% equity interest of Wuhai City Menggang. Wuhai City Menggang is a Sino-foreign owned enterprise and will become a wholly-owned foreign enterprise upon completion of the

– 301 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

sales and purchases. According to supplemental agreements dated 13 March 2009 and 18 September 2009, the long stop date for completion has extended to on or before 3 December 2009. Wuhai City Menggang owns 100% equity interest in Tianyu Gongmao Company Ltd and Tianyu Coal Company Limited, these companies own coal mines in Inner Mongolia Autonomous Region, PRC.

Nevertheless, the acquisition has not yet been completed on 30 June 2009. As such, Max Joyce has capital commitments outstanding at 30 June 2009 not provided for in the financial statements in respect of the above acquisition. In this connection, no financial cost was recognised for year 2008 and 2009.

The Pleasing Group had not made any other acquisition or disposal during the periods under review.

Segmental Information

No business segment analysis and geographical segment analysis was presented since substantially all the turnover and contribution to results were derived from the sale of coal to local plants.

Foreign Exchange Management

The Pleasing Group does not hedge its foreign currency risk, as the management does not expect any significant movements in exchange rate between, U.S. dollars, Hong Kong dollars and Renminbi. During the relevant periods under review, as the impact of foreign exchange exposure has been insignificant, no hedging or other alternatives have been implemented.

Capital Commitments

The Pleasing Group had the following capital commitments at the end of the reporting period:

	30 June	31 December	31 December
	2009	2008	2007
	HK$’000	HK$’000	HK$’000
Contracted, but not provided for:
Acquisition of an associate	145,697	135,959	—

On 3 January 2008, Max Joyce, a wholly-owned subsidiary of Pleasing Results, entered into an equity transfer agreement (the ‘‘Agreement’’) with Zhong Tie to acquire 31.25% equity interest in Wuhai City Menggang, at a consideration calculated at RMB100,000,000(1+13.5%/360N). N is the number of days for the period from 19 July 2007 to the settlement date of total consideration. On 13 March 2009, Max Joyce entered into a supplementary agreement with Zhong Tie, starting from 19 January 2009, the consideration is calculated at the sum of RMB120,250,000 and RMB100,000,00018%/360M. M is the number of days from 19 January 2009 to the settlement date of total consideration.

– 302 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

Contingent Liabilities

As at 31 December 2007, 31 December 2008 and 30 June 2009, the Pleasing Group did not have any contingent liabilities.

Pledge of Assets

As at 31 December 2007, 31 December 2008 and 30 June 2009, the Pleasing Group had no interest-bearing borrowings and no assets were pledged.

Capital Structure

Pleasing Results was incorporated with an authorised capital of US$50,000, divided into 50,000 ordinary shares. On 13 December 2007, Pleasing Results issued 10,000 ordinary shares of US$1 each at par.

Employment, Share Option Schemes and Training Schemes

As at 31 December 2007, 2008 and 30 June 2009, the Pleasing Group still had no workforce. In the future, The Pleasing Group would regard human resource as the core value for the development of the Group. Consistent review would be conducted on human resource requirements and on the job training will be provided so as to promote the overall quality of its staff. As for remuneration package, the Pleasing Group would adopt various salary systems including position salary system and would be reviewed annually. The Pleasing Group would provide Pension Scheme for its employees in the PRC.

Future Plans and Material Investments

The Pleasing Group has no future plan for material investments or in capital assets. It is the intention of the Pleasing Group to complete the acquisition of Wuhai City Menggang, and continue with the coal mining and coal sales business. In view of the increasing world’s demand for natural resources and the increase in the prices of coal over the past years, the management is optimistic about the future prospects and demand for coal. With the strong and sustainable growth momentum of the PRC economy and the continuous development of the cities, infrastructure and real estate sectors as well as accelerated industrialization and urbanization in PRC, it is expected that the demand for coal will continue to grow. The Pleasing Group is looking at capital improvement improving further in the coming year through its investments in the mines in Inner Mongolia Autonomous Region, PRC.

– 303 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

C. Wuhai City Menggang

Set out below is the management discussion and analysis on Wuhai Meng Kong Industrial Development Co., Ltd and its subsidiaries (collectively the ‘‘Menggang Group’’) for the period from 1 December 2006 (date of incorporation) to 31 December 2006, for the year ended 31 December 2007 and 2008 and 6 months ended 30 June 2009.

For the period/year ended 31 December 2006, 31 December 2007 and 31 December 2008 and 6 months ended 30 June 2009

Revenue Cost of sales Gross profit/(loss) Other revenue Selling and distribution expenses Other operating expenses Loss from operation (Loss)/profit for the period/ year	30 June 2009 HK$’000 6,793 (5,352) 1,441 2 (1,177) (7,565) (7,299) (22,573)	31 December 2008 HK$’000 917 (4,206) (3,289) 129 (449) (36,509) (40,118) (23,371)	31 December 2007 HK$’000 405 (473) (68) 649 (38) (7,108) (6,565) 105,902	31 December 2006 HK$’000 — —
				— — —
				—
				—

Revenue

The principal activities of the Menggang Group are primarily engaged in investment holding, exploitation of coal business, coal mining, coal sales and development of underground coking coal mine in Mine No. 1 and Mine No. 4 in Inner Mongolia Autonomous Region, PRC.

During the financial year 2006, the Menggang Group did not generate any revenue as the company was incorporated on 1 December.

During the financial year 2007, Mine No. 1 was in operation and produced raw coal for sales. Mine No. 1 has also finished its technical improvement in November 2007. For the Menggang Group, only HK$0.4 million revenue has been accounted for since the Menggang Group acquired the entire paid up capital of Tianyu Gongmao Company Ltd on 22 November 2007.

During the financial year 2008, Mine No. 1 did not generate large amount of revenue at normal level, it was mainly due to the production of raw coal had been resumed in the near end of year after the completion of an internal safety check of Mine No. 1 in accordance with

– 304 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

coal industry practice where the site technician reported that some the existing equipment could not satisfy the mining condition. During that period, production was suspended as a result until the completion of installation of replacement equipment in November 2008. Nevertheless, the revenue generated was from the trial production run in the near end of year.

Amount due to ultimate holding company, namely TRXY Development (HK) Limited

As at 30 June 2009, there was no amount due to ultimate holding company.

As at 31 December 2008, there was no amount due to ultimate holding company. As at 31 December 2007, there was no amount due to ultimate holding company.

As at 31 December 2006, there was no amount due to ultimate holding company.

Liquidity, Financial Resources and Gearing

Net Assets/Liabilities

Set out below is a summary of the audited accountants’ report of the Menggang Group as at 31 December 2006, 31 December 2007, 31 December 2008 and 30 June 2009 which was prepared on the bases as set out in Appendix IV to this circular.

	30 June	31 December	31 December	31 December
	2009	2008	2007	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Total Assets	827,146	820,361	743,699	50,000
Total Liabilities	408,605	378,952	445,728	—
Net assets	418,541	441,409	297,971	50,000
*Gearing ratio	26%	23%	17%	—

The gearing ratio is defined as total debts over total assets.

Cash & Bank Balances

As at 31 December 2006, 31 December 2007, 31 December 2008 and 30 June 2009, the Menggang Group’s aggregate cash and bank balances amounted to approximately HK$Nil, HK$128,835,000 HK$577,000 and HK$1,840,000 respectively, representing Nil, 78.67%, 0.32% and 0.98% of total current assets respectively.

– 305 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

Borrowings

The details of borrowings relating to the Menggang Group as at 31 December 2006, 31 December 2007, 31 December 2008 and 30 June 2009 are set out below.

Note Bank loan (a) Loan from an equity holder (b) Total	30 June 2009 HK$’000 11,356 202,236 213,592	31 December 2008 HK$’000 — 191,282 191,282	31 December 2007 HK$’000 — 128,771 128,771	31 December 2006 HK$’000 — —
				—

Note (a): The bank loan was secured and carried interest at 80% above the benchmark interest rate announced by the People’s Bank of China. There is no bank borrowing as at 31 December 2006, 2007 and 2008. The exact interest rate charged for the six months ended 30 June 2009 is 9.558% per annum. Since the bank loan was negotiated on an arm’s length basis with a commercial bank which would have its own internal approval process as regard to the loan interest rate and having taken into consideration the past financial record of Tianyu Gongmao (which is operating at a loss), the Directors are of the view that the interest rate is fair and reasonable.

As at 30 June 2009, Menggang Group’s bank loan was secured by:

(i) A legal charge on the prepaid lease payments. The net book value of the prepaid lease payment approximately HK$13,251,000 as at 30 June 2009; and
(ii) Corporate guarantee executed by Wuhai City Chengda Investment and Guarantee Co., Ltd (烏海市盛達投資擔保有限責任公司), which is an Independent Third Party, to the extent of HK$11,356,000 as at 30 June 2009. In relation to such corporate guarantee, Tianyu Gongmao has pledged its land located at Dong Shan, Hainan District, Wuhai, Inner Mongolia Autonomous Region, the PRC to Wuhai City Chengda Investment and Guarantee Co., Ltd (烏海市盛達投資擔保有限責任公司) as security for the guarantee provided by Wuhai City Chengda Investment and Guarantee Co., Ltd (烏海市盛達投資擔保有限責任公司) to Tianyu Gongmao during the period from January 2009 to January 2010 for Tianyu Gongmao’s bank loans. It is expected that the pledge will continue to be in place until the release of the guarantee provided by Wuhai City Chengda Investment and Guarantee Co., Ltd (烏海市盛達投資擔保有限責任公司) to Tianyu Gongmao.

The bank loan is repayable on 13 January 2010 pursuant to the loan agreement.

Note (b): Loans from an equity holder of Wuhai City Menggang were secured by:

(i) A legal charge on the exploration and evaluation assets. The net book value of exploration and evaluation assets was HK$Nil, HK$319,101,000, HK$339,052,000 and HK$338,664,000 as at 31 December 2006, 2007 and 2008 and 30 June 2009 respectively;
(ii) A legal charge on the mining right. The net book value of mining right was HK$Nil, HK$123,399,000, HK$131,110,000 and HK$130,283,000 as at 31 December 2006, 2007 and 2008 and 30 June 2009 respectively;
(iii) A pledge of the equity interests of Wuhai City Menggang owned by Beijing Tai Tong Heng Ye Trading Development Co., Ltd (北京市泰通恆業貿易發展有限公司) and Favour Mind Ltd;

– 306 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

(iv) Corporate guarantees executed by a related company and an independent third party to the extent of HK$Nil, HK$128,771,000, HK$191,282,000 and HK$202,236,000 as at 31 December 2006, 2007 and 2008 and 30 June 2009 respectively; and
(v) Personal guarantee executed by an independent third party to the extent of HK$Nil, HK$128,771,000, HK$191,282,000 and HK$202,236,000 as at 31 December 2006, 2007 and 2008 and 30 June 2009 respectively.

The loan is repayable on 3 December 2009 pursuant to the loan agreement.

Except for the above borrowings, there was no other borrowing from bank or financial institution during the period.

Significant Investments Held

Wuhai City Menggang, a Sino-foreign equity joint venture company established in the PRC in December 2006, had invested shares at cost in two wholly-owned subsidiaries in 2007, namely they are Tianyu Gongmao and Tianyu Coal respectively, and these companies own Coal Mine No. 1 and Mine No. 4 in Inner Mongolia Autonomous Region, PRC. respectively.

Acquisitions and Disposals

During the financial year of 2007, Wuhai City Menggang had acquired 100% equity interest in both Tianyu Gongmao and Tianyu Coal. On 22 November 2007, the management team of Wuhai City Menggang found that Tianyu Gongmao had certain liabilities outstanding not provided for in the financial statements, which had violated the Equity Transfer Agreement. In this connection, the management team of Wuhai City Menggang requested the Original Equity-holders to indemnify the difference. The consideration of HK$75,694,000 as stated in note 34(b)(i) to the Accountants’ Report of Wuhai City Menggang represented the consideration stated in the Equity Transfer Agreement set off against the indemnity received from the Original Equity-holder. During the financial year 2009, Wuhai City Menggang had entered into share transfer agreement to dispose Wuhai Taida Trading Co., Ltd. (烏海市泰達商貿有限公司).

Segmental Information

Foreign Exchange Management

The Menggang Group does not hedge its foreign currency risk, as the management does not expect any significant movements in exchange rate between, U.S. dollars, Hong Kong dollars and Renminbi. During the relevant periods under review, as the impact of foreign exchange exposure has been insignificant, no hedging or other alternatives have been implemented.

– 307 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

Capital Commitments

Wuhai City Menggang had entered into two purchases agreements in the year 2007 and 2008 respectively to procure equipments for Mine No. 4. The expected time of delivery will be in September 2010. The Menggang Group had capital commitments at the statement of financial position date as follows:

	30 June	31 December	31 December	31 December
	2009	2008	2007	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Purchases of property,
plant and equipment	108,404	108,529	102,142	—

Contingent Liabilities

As at 31 December 2006, 31 December 2007, 31 December 2008 and 30 June 2009, the Menggang Group did not have any other material contingent liabilities.

Litigation

(i) Pursuant to an equity transfer agreement dated 18 August 2007 (the ‘‘Equity Transfer Agreement’’) between Wuhai City Menggang and the then equity-holders of Tianyu Gongmao (the ‘‘Original Equity-holders’’), Wuhai City Menggang agreed to acquire the entire equity interest in Tianyu Gongmao from the Original Equity-holders at a cash consideration of RMB90 million, of which only RMB45 million has been paid by Wuhai City Menggang. As advised by Wuhai City Menggang, it has not settled the remaining consideration of RMB45 million because there is a dispute over the production capacity of Tianyu Gongmao. It is the view of Wuhai City Menggang that the actual production capacity of Tianyu Gongmao (i.e. 129,600 tons per annum) when it was taken over from the Original Equity-holders was substantially lower than what was agreed between Wuhai City Menggang and the Original Equity-holders under the relevant Equity Transfer Agreement (i.e. 300,000 tons per annum). After taking over Tianyu Gongmao from the Original Equity-holders, further investments have been made by Wuhai City Menggang to Mine No. 1 to increase its production capacity. Currently, Mine No. 1 has the ability to produce up to 300,000 tons per annum.

– 308 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

litigation, the Court has already approved Wuhai City Menggang’s application for verification of Tianyu Gongmao’s production capacity. The parties are currently in negotiation about the selection of valuer responsible for the handling of the relevant verification. The verification result will form the basis for the management of Wuhai City Menggang to further negotiate with the Original Equity-holders for a downward adjustment of the transfer consideration. As advised by Guantao, the transfer of the equity interest in Tianyu Gongmao has been duly registered with the Department of Commerce (商務廳) and the Administration for Industry and Commerce (工商局) of Inner Mongolia, the PRC and Wuhai City Menggang has already been registered as the sole holder of the 100% equity interest in Tianyu Gongmao. The shareholder’s rights and title of Wuhai City Menggang in Tianyu Gongmao are binding and enforceable against any third party and could only be challenged through a judicial procedure.

Under the Equity Transfer Agreement, the Original Equity-holders shall have the right to elect to repurchase the entire equity interest in Tianyu Gongmao from Wuhai City Menggang at the original transfer consideration so long as any part of the transfer consideration remains unsettled. However, Guantao has advised that since the case has already entered into a judicial procedure, and the Original Equity-holders have already opted for the payment of the remaining consideration and breach of contract damages during the appeal process as above-mentioned, they shall not be entitled to elect for the repurchase of the equity interest in Tianyu Gongmao from Wuhai City Menggang pursuant to the Equity Transfer Agreement during the appeal process unless the case is returned by the Inner Mongolia Autonomous Region Superior People’s Court (內蒙古自治區高級人民法院) to the Wuhai City Intermediate People’s Court (烏海市中級人民法院) for retrial. As advised by Guantao, based on the Civil Procedure of the PRC (民事訴訟法), the case will be returned to the first instance court for re-trial only in 2 circumstances, namely (i) there is a violation of the prescribed procedure that may affect the correctness of the original judgment; or (ii) there are wrong or unclear facts, or insufficient evidences, which affect the correctness of the original judgment. Based on the fact that both the Original Equity-holders and Wuhai City Menggang have raised no objection against the procedure of the trial of the Wuhai City Intermediate People’s Court (烏海市中級人民法院) and the fact that the Court has already approved Wuhai City Menggang’s application for verification of Tianyu Gongmao’s production capacity during the appeal process such that the case does not have the problems of unclear facts or insufficient evidences anymore, it is the opinion of Guantao that the case will not be returned to the first instance court for re-trial, and thus the right of the Original Equityholders to repurchase the entire equity interest in Tianyu Gongmao from Wuhai City Menggang under the Equity Transfer Agreement cannot be exercised anymore.

Upon the application of the Original Equity-holders, the Wuhai City Intermediate People’s Court (烏海市中級人民法院) handed down the Civil Judgment (No. 30, Minyichuzhi, Wuzhongfa (2008) (烏中法 (2008) 民一初字第30號) on 19 January 2009 to freeze the entire equity interest in Tianyu Gongmao held by Wuhai City Menggang pending the outcome of the case. Pursuant to such order, Wuhai City Menggang shall not be allowed to transfer or pledge its interest in, or receive any dividend from, Tianyu Gongmao. The operation of Wuhai City Menggang and its subsidiaries however is not affected by such order or the litigation.

– 309 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

(ii) Tianyu Gongmao was named as a joint defendant on 13 November 2007 alleging that the Company failed to pay a consideration approximately amounting to RMB82,000 regarding a construction work performed by a plaintiff.

Apart from the actions against Wuhai City Menggang and Tianyu Gongmao disclosed above, there were no other material outstanding writs and litigations against the Menggang Group.

Pledge of Assets

As at 31 December 2007 and 2008 and 30 June 2009, the Menggang Group had assets pledged. For details, please refer to notes in the paragraph headed ‘‘Borrowings’’ above.

As at 31 December 2006, the Menggang Group had no assets pledged.

Capital Structure

Wuhai City Menggang was incorporated on 1 December 2006 as a Sino-foreign equity joint venture company established in the PRC with a registered capital of HK$50 million.

Wuhai City Menggang had applied for an increase of registered capital of HK$130 million to HK$180 million, which has been approved on 29 November 2007.

Wuhai City Menggang had applied for a further increase of registered capital of HK$140 million to HK$320 million, which has been approved on 23 January 2008.

Employment, Share Option Schemes and Training Schemes

As at 31 December 2006, 2007, 2008 and 30 June 2009, the Menggang Group had a workforce of 116, 162, 148 and 226 employees respectively, and the total remuneration was approximately HK$Nil, HK$1,055,000, HK$6,440,000 and HK$4,529,000 respectively. The Menggang Group regards human resource as the core value for the development of the Group. Consistent review will be conducted on human resource requirements and on the job training will be provided so as to promote the overall quality of its staff. As for remuneration package, the Menggang Group adopted various salary systems including position salary system and will be reviewed annually. The Menggang Group provides Pension Scheme for its employees in the PRC. During the relevant periods under review, no share option was adopted.

Future Plans and Material Investments

It is the intention of the Menggang Group to continue with the coal mining and coal sales business. In view of the increasing world’s demand for natural resources and the increase in the prices of coal over the past years, the management is optimistic about the future prospects and demand for coal. With the strong and sustainable growth momentum of

– 310 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

the PRC economy and the continuous development of the cities, infrastructure and real estate sectors as well as accelerated industrialization and urbanization in the PRC, it is expected that the demand for coal will continue to grow. The Menggang Group will be making further investments in Mine No. 1 and Mine No. 4.

Prospects of New Business

The Menggang Group has a plan to build a washing plant to wash the raw coal into coking coal and completion is expected by the latest 2011. If the project is successfully implemented, revenue of the Menggang Group can be improved substantially by selling coking coal.

D. Tianyu Gongmao

Set out below is the management discussion and analysis on Tianyu Gongmao Company Limited (‘‘Tianyu Gongmao’’) for the period from 6 July 2006 (date of incorporation) to 31 December 2006 for the year ended 31 December 2007 and 2008 and 6 months ended 30 June 2009.

For the period/year ended 31 December 2006, 31 December 2007 and 31 December 2008 and 6 months ended 30 June 2009

Revenue Cost of sales Gross profit/(loss) Other revenue Selling and marketing expenses Other operating expenses (Loss)/profit from operation (Loss)/profit for the period/ year	30 June 2009 HK$’000 6,793 (5,352) 1,441 1 (1,177) (2,363) (2,098) (2,578)	31 December 2008 HK$’000 917 (4,206) (3,289) 4 (449) (4,346) (8,080) (8,080)	31 December 2007 HK$’000 5,055 (4,811) 244 99 (167) (6,157) (5,981) (5,981)	31 December 2006 HK$’000 3,101 (1,553) 1,548 42 (38) (1,375) 177 177

Revenue

The principal activities of Tianyu Gongmao are primarily engaged in coal production and sales of coal in Inner Mongolia Autonomous Region, PRC.

During the financial year 2007, Mine No. 1 was in operation and produced raw coal for sales. Mine No. 1 has also finished its technical improvement in November 2007. Revenue has an increase of 63.02% from HK$3.1 million in 2006 to HK$5.1 million in 2007.

– 311 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

During the financial year 2008, revenue has dropped significantly from approximately HK$5.1 million to approximately HK$0.9 million represented a drop of 81.8%, it was mainly due to an internal safety check of Mine No. 1 in the beginning of the year in accordance with coal industry practice where the site technician reported that some the existing equipment could not satisfy the mining conditions. During that period, production was suspended as a result until the completion of installation of replacement equipment in November 2008. The revenue generated was from the trial production run in the near end of year.

For the six months ended 30 June 2009, production was back to normal after Chinese New Year after inspection and approval by the local coal management authority and coal mine safety inspection bureau in March 2009. As a result, approximately HK$6.8 million revenue was generated, which recorded a gross profit approximately HK$1.4 million with a loss of approximately HK$2.6 million from operation during the period.

Amount due to an immediate holding company, namely Wuhai Meng Kong Industrial Development Co., Ltd.

As at 30 June 2009, there was an amount of approximately HK$6,778,000 due to an immediate holding company.

As at 31 December 2008, there was an amount of approximately HK$10,951,000 due to an immediate holding company.

As at 31 December 2007, there was no amount due to an immediate holding company.

As at 31 December 2006, there was no amount due to an immediate holding company.

The amount due is unsecured, interest-free and repayable on demand.

Liquidity, Financial Resources and Gearing

Net Assets/Liabilities

Set out below is a summary of the audited accountants’ report of the Tianyu Gongmao as at 31 December 2006, 31 December 2007, 31 December 2008 and 30 June 2009 which was prepared on the bases as set out in Appendix V to this circular.

	30 June	31 December	31 December	31 December
	2009	2008	2007	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Total Assets	59,999	52,159	43,722	35,964
Total Liabilities	24,917	14,458	48,688	34,785
Net assets/(liabilities)	35,082	37,701	(4,966)	1,179
*Gearing ratio	19%	—	—	—

The gearing ratio is defined as total debts over total assets.

– 312 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

Cash & Bank Balances

As at 31 December 2006, 31 December 2007, 31 December 2008 and 30 June 2009, Tianyu Gongmao’s aggregate cash and bank balances amounted approximately to HK$355,000, HK$1,147,000, HK$14,000 and HK$1,740,000 respectively, representing 26.7%, 44.6%, 0.3% and 14.2% of total current assets respectively.

Borrowings

The details of borrowings relating to Tianyu Gongmao as at 31 December 2006, 31 December 2007, 31 December 2008 and 30 June 2009 are set out below.

		30 June	31 December	31 December	31 December
		2009	2008	2007	2006
		HK$’000	HK$’000	HK$’000	HK$’000
Bank	loan	11,356	—	—	—

As at 30 June 2009, a bank borrowing was secured and carried interest at 80% above the benchmark interest rate announced by the People’s Bank of China. There is no bank borrowing as at 31 December 2006, 2007 and 2008. The exact interest rate charged for the six months ended 30 June 2009 is 9.558% per annum. Since the bank loan was negotiated on an arm’s length basis with a commercial bank which would have its own internal approval process as regard to the loan interest rate and having taken into consideration the past financial record of Tianyu Gongmao (which is operating at a loss), the Directors are of the view that the interest rate is fair and reasonable.

As at 30 June 2009, Tianyu Gongmao’s bank loan was secured by:

(i) A legal charge on the prepaid lease payments. The net book value of the prepaid lease payment approximately HK$1,264,000 as at 30 June 2009; and
(ii) Corporate guarantee executed by Wuhai City Chengda Investment and Guarantee Co., Ltd (烏海市盛達投資擔保有限責任公司), which is an Independent Third Party, to the extent of HK$11,356,000 as at 30 June 2009. In relation to such corporate guarantee, Tianyu Gongmao has pledged its land located at Dong Shan, Hainan District, Wuhai, Inner Mongolia Autonomous Region, the PRC to Wuhai City Chengda Investment and Guarantee Co., Ltd (烏海市盛達投資擔保有限責任公司) as security for the guarantee provided by Wuhai City Chengda Investment and Guarantee Co., Ltd (烏海市盛達投資擔保有限責任公司) to Tianyu Gongmao during the period from January 2009 to January 2010 for Tianyu Gongmao’s bank loans. It is expected that the pledge will continue to be in place until the release of the guarantee provided by Wuhai City Chengda Investment and Guarantee Co., Ltd (烏海市盛達投資擔保有限責任公司) to Tianyu Gongmao.

The bank loan is repayable on 13 January 2010 pursuant to the loan agreement.

– 313 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

Except for the above borrowings, there was no other borrowing from bank or financial institution during the period.

Significant Investments Held

As at 31 December 2006, 31 December 2007, 31 December 2008, 30 June 2009, Tianyu Gongmao did not hold any significant investments during the period.

Acquisitions and Disposals

Tianyu Gongmao had not made any acquisition of disposal during the periods under review.

Segmental Information

Foreign Exchange Management

Tianyu Gongmao does not hedge its foreign currency risk, as the management does not expect any significant movements in exchange rate between, Hong Kong dollars and Renminbi. During the relevant periods under review, as the impact of foreign exchange exposure has been insignificant, no hedging or other alternatives have been implemented.

Contingent Liabilities

As at 31 December 2006, 31 December 2007, 31 December 2008 and 30 June 2009, Tianyu Gongmao did not have any contingent liabilities.

Pledge of Assets

As at 30 June 2009, Tianyu Gongmao had assets pledged. For details, please refer to notes in the paragraph headed ‘‘Borrowing’’ above.

As at 31 December 2006, 31 December 2007, 31 December 2008, Tianyu Gongmao had no assets pledged.

Capital Structure

Tianyu Gongmao was a domestic enterprise established in the PRC on 6 July 2006 with a registered capital of RMB1,000,000.

According to a shareholders resolution passed on 20 January 2008, the registered capital of Tianyu Gongmao was increased by RMB45,000,000 to RMB46,000,000.

– 314 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

Employment, Share Option Schemes and Training Schemes

As at 31 December 2006, 2007, 2008 and 30 June 2009, Tianyu Gongmao had a workforce of 116, 134, 119 and 196 employees respectively, and the total remuneration were approximately HK$987,000, HK$3,355,000, HK$4,248,000 and HK$3,729,000 respectively. Tianyu Gongmao regards human resource as the core value for the development of the Company. Consistent review will be conducted on human resource requirements and on the job training will be provided so as to promote the overall quality of its staff. As for remuneration package, Tianyu Gongmao adopted various salary systems including position salary system and will be reviewed annually. Tianyu Gongmao provides Pension Scheme for its employees in the PRC. During the relevant periods under review, no share option was adopted.

Future Plans and Material Investments

It is the intention of Tianyu Gongmao to continue with the coal mining and coal sales business. In view of the increasing world’s demand for natural resources and the increase in the prices of coal over the past years, the management is optimistic about the future prospects and demand for coal. With the strong and sustainable growth momentum of the PRC economy and the continuous development of the cities, infrastructure and real estate sectors as well as accelerated industrialization and urbanization in the PRC, it is expected that the demand for coal will continue to grow.

Tianyu Gongmao will be making further investments in Mine No. 1 and the management of Tianyu Gongmao is confident that revenue of the company would be improved substantially in the coming years.

E. Tianyu Coal

Set out below is the management discussion and analysis on Tianyu Coal Company Limited (‘‘Tianyu Coal’’) for year/period ended 31 December 2006, 31 December 2007, 31 December 2008 and 6 months ended 30 June 2009.

For the period/year ended 31 December 2006, 31 December 2007 and 31 December 2008 and 6 months ended 30 June 2009

	30 June	31 December	31 December	31 December
	2009	2008	2007	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Turnover	—	—	—	—
Loss for the period/year	(229)	(2,264)	(1,774)	(4,936)
Revenue

The principal activity of Tianyu Coal is primarily engaged in development of underground coking coal mine in Inner Mongolia Autonomous Region, PRC.

Tianyu Coal has not yet to generate any revenue from coal selling.

– 315 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

Amount due to an immediate holding company, namely Wuhai Meng Kong Industrial Development Co., Ltd.

As at 30 June 2009, there was an amount of approximately HK$23,997,000 due to an immediate holding company.

As at 31 December 2008, there was an amount of approximately HK$23,128,000 due to an immediate holding company.

As at 31 December 2007, there was no amount due to an immediate holding company.

As at 31 December 2006, there was no amount due to an immediate holding company.

The amount due is unsecured, interest-free and repayable on demand.

Liquidity, Financial Resources And Gearing

Net Assets/Liabilities

Set out below is a summary of the audited accountants’ report of the Tianyu Coal as at 31 December 2006, 31 December 2007, 31 December 2008 and 30 June 2009 which was prepared on the bases as set out Appendix VI to this circular.

	30 June	31 December	31 December	31 December
	2009	2008	2007	2006
	HK$’000	HK$’000	HK$’000	HK$’000
Total Assets	59,998	59,130	34,057	84,341
Total Liabilities	26,848	25,712	40,573	88,693
Net assets/(liabilities)	33,150	33,418	(6,516)	(4,352)
*Gearing ratio	—	—	—	84%

The gearing ratio is defined as total debts over total assets.

Cash & Bank Balances

As at 31 December 2006, 31 December 2007, 31 December 2008 and 30 June 2009, Tianyu Coal’s aggregate cash and bank balances amounted approximately to HK$26,000, HK$79,000, HK$17,000 and HK$8,000 respectively, representing 0.1%, 65.8%, 1.2% and 0.4% of total current assets respectively.

Borrowings

The details of loan relating to Tianyu Coal as at 31 December 2006, 31 December 2007, 31 December 2008 and 30 June 2009 are set out below.

		30 June	31 December	31 December	31 December
		2009	2008	2007	2006
		HK$’000	HK$’000	HK$’000	HK$’000
Other	loan	—	—	—	71,057

– 316 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

The other loan bears interest at floating bank lending rate, is unsecured and was fully repaid during the year ended 31 December 2007.

Except for the above borrowings, there was no other borrowing from bank or financial institution during the period.

Significant Investments Held

As at 31 December 2006, 31 December 2007, 31 December 2008, 30 June 2009, Tianyu Coal did not hold any significant investments during the period.

Acquisitions and Disposals

Tianyu Coal had not made any acquisition or disposal during the periods under review.

Segmental Information

No business segment analysis and geographical segment analysis was presented since there was no sales of coals generated during that period.

Foreign Exchange Management

Tianyu Coal does not hedge its foreign currency risk, as the management does not expect any significant movements in exchange rate between Hong Kong dollars and Renminbi. During the relevant periods under review, as the impact of foreign exchange exposure has been insignificant, no hedging or other alternatives have been implemented.

Contingent Liabilities

Tianyu Coal has not yet obtained the title certificates for the land. According to the PRC legal advice, if Tianyu Coal is found to be liable for the non-compliance of the registration of the title certificates for the land, the maximum expected monetary compensation may amount to approximately HK$2,587,000. In the opinion of the management of Tianyu Coal, it may not be probable that Tianyu Coal will be found to be liable. In this regard, no provision has therefore been made in respect of this issue.

Pledge of Assets

As at 31 December 2006, 31 December 2007, 31 December 2008 and 30 June 2009, Tianyu Coal had no assets pledged.

Capital Structure

Tianyu Coal was a domestic enterprise established in the PRC on 12 November 2002 with a registered capital of RMB5,500,000.

According to a shareholders resolution passed on 12 March 2008, the registered capital of Tianyu Coal was increased by RMB37,500,000 to RMB43,000,000.

Employment, Share Option Schemes and Training Schemes

As at 31 December 2006, 2007, 2008 and 30 June 2009, Tianyu Coal had a workforce of Nil, 3, 3 and 3 employees respectively, and the total remuneration was approximately HK$Nil, HK$93,000, HK$111,000 and HK$25,000 respectively. Tianyu Coal regards human

– 317 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

resource as the core value for the development of the Company. Consistent review will be conducted on human resource requirements and on the job training will be provided so as to promote the overall quality of its staff. As for remuneration package, Tianyu Coal adopted various salary systems including position salary system and will be reviewed annually. Tianyu Coal provides Pension Scheme for its employees in the PRC. During the relevant periods under review, no share option was adopted.

Future Plans and Material Investments

It is the intention of Tianyu Coal to continue with the development of underground coking coal mine. In view of the increasing world’s demand for natural resources and the increase in the prices of coking coal over the past years, the management is optimistic about the future prospects and demand for coking coal. With the strong and sustainable growth momentum of the PRC economy and the continuous development of the cities, infrastructure and real estate sectors as well as accelerated industrialization and urbanization in the PRC, it is expected that the demand for coking coal will continue to grow. Tianyu Coal will be making further investments in Mine No. 4.

Prospects of New Business

Tianyu Coal has a plan to build a washing plant to wash the raw coal into coking coal and completion is expected by the latest 2011. If the project is successfully implemented, revenue of the Tianyu Coal can be improved substantially by selling coking coal.

Property Interests

The table below shows the reconciliation of property interests of the Target Group from its audited consolidated financial statements as at 30 June 2009 to the unaudited net asset value of the property interests of the Target Group as at 30 September 2009.

Net book value as at 30 June 2009 (Note)
Less: Net book value of property without commercial value
Net book value of property with commercial value as at 30 June 2009
Movement for the three months period ended 30 September 2009
Addition
Depreciation of property, plant and equipment and release of repaid
lease payments
Exchange realignment
Net book value as at 30 September 2009
Valuation surplus
Valuation as at 30 September 2009

HK$’000
33,121
(27,176)
5,945
—
(91)
—
5,854
6,746
12,600

Note: The net book value of the property interests of the Target Group as at 30 June 2009 represents the total of the net book value of the Target Group’s freehold land and building, leasehold buildings and prepaid lease payments for leasehold land as at 30 June 2009.

– 318 –

MANAGEMENT DISCUSSION AND ANALYSIS

APPENDIX VIII

3. INDEBTEDNESS

As at 31 October 2009, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Enlarged Group had outstanding indebtedness as follows:

Borrowings

As at 31 October 2009, the Enlarged Group had outstanding borrowings of approximately HK$278,123,000. The indebtedness comprised the following:

(a) secured bank borrowing of approximately HK$11,487,000 which is secured by: (i) A legal charge on the prepaid lease payments. The carrying value of the prepaid lease payments approximately HK$12,949,000 as at 31 October 2009; and (ii) Corporate guarantee executed by an independent third party to the extent of HK$11,487,000 as at 31 October 2009;
(b) unsecured loan from a director of Merrymaking Investments of approximately HK$18,385,000;
(c) Other loans of approximately HK$213,022,000, which are secured by: (i) A legal charge on the exploration and evaluation assets. The carrying value of exploration and evaluation asset was approximately HK$985,118,000 as at 31 October 2009; (ii) A legal charge on the mining right. The carrying value of mining right was approximately HK$377,687,000 as at 31 October 2009; (iii) A pledge of the equity interests of Wuhai City Menggang owned by Beijing Tai Tong Heng Ye Trading Development Co., Ltd (北京市泰通恒業貿易發展有限公司) and Favour Mind Limited; (iv) Corporate guarantees executed by a related company and an independent third party to the extent of HK$213,022,000 as at 31 October 2009 respectively; and (v) Personal guarantee executed by an independent third party to the extent of HK$213,022,000 as at 31 October 2009;
(d) other unsecured borrowings of approximately HK$229,000, including amounts due to directors of Merrymaking Investments and Pleasing Results of HK$104,000; amounts due to ultimate holding company of Merrymaking Investments and Pleasing Results of HK$125,000; and
(e) consideration payable of HK$35,000,000 for the acquisition of 10.9375% equity interest in Wuhai City Menggang by Favour Mind to the then equity holder of Wuhai City Menggang.

Capital Commitments

As at 31 October 2009, the Enlarged Group had capital commitment contracted, but not provided for in respect of purchase of property, plant and equipment of HK$108,404,000.

Litigations and contingent liabilities

As at 31 October 2009, the Enlarged Group had litigations and contingent liabilities as disclosed in notes 38 and 42 of Appendix II to the circular, respectively.

Save as disclosed above and apart from intra-group liabilities, the Enlarged Group did not have any other outstanding bank or other borrowings, mortgages, charges, debentures or other loan capital, bank overdrafts, loans or other similar indebtedness, guarantee, liabilities under acceptances (other than normal trade bills), acceptance credits, hire purchase or other finance lease commitments or other contingent liabilities.

4. WORKING CAPITAL

The Directors, after due and careful enquiry, are of the opinion that, in the absence of unforeseeable circumstances and after taking into account the Enlarged Group’s existing bank balances and cash, the presence of available banking facilities, the expected internally generated funds and the proceeds from the Placing, the Enlarged Group has sufficient working capital for its present requirements, that is, for twelve months from the date of this circular.

– 319 –

APPENDIX IX

PROPERTY VALUATION

The following is the text of a letter, summary of values and valuation certificates, prepared for the purpose of incorporation in this circular received from RHL Appraisal Ltd., an independent valuer, in connection with its valuation as at 30 September 2009 of the property interests held by Winbox International (Holdings) Limited and/or its subsidiaries in the HKSAR and the PRC and the Target Group.

==> picture [64 x 63] intentionally omitted <==

==> picture [88 x 99] intentionally omitted <==

28 December 2009

The Directors

Winbox International (Holdings) Limited

2/F Ching Cheong Industrial Building Nos. 1–7 Kwai Cheong Road Kwai Chung New Territories HKSAR

Dear Sirs,

INSTRUCTIONS

We were instructed by Winbox International (Holdings) Limited (referred to as the ‘‘Company’’) to value the property interests held by the Company and/or its subsidiaries (hereinafter together referred to as the ‘‘Group’’) located in HKSAR and the People’s Republic of China (the ‘‘PRC’’) and the property interests held by the Target Group and to be acquired which are located in the PRC, we confirm that we have carried out property inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market values of the property interests as at 30 September 2009 (the ‘‘Valuation Date’’).

This letter which forms part of our valuation report explains the basis and methodology of valuation, clarifying assumptions, valuation considerations and limiting conditions of this valuation.

– 320 –

PROPERTY VALUATION

APPENDIX IX

BASIS OF VALUATION

Our valuation of the property interest represents its market value which we would define as intended to mean ‘‘the estimated amount for which a property should exchange on the Valuation Date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion’’.

PROPERTY INTERESTS CATEGORISATION

The property interests held and to be acquired by the Group are categorised as follows:

Group	I	—	Property interests held by the Group for Owner Occupation in HKSAR
Group	II	—	Property interests held by the Group for Investment in HKSAR
Group	III	—	Property interests held by the Group for Owner Occupation in the PRC
Group	IV	—	Property interests leased and occupied by the Group in the PRC
Group	V	—	Property interests held and occupied by the Target Group and to be acquired
			by the Group in the PRC
Group	VI	—	Property interests leased by the Target Group

METHODS OF VALUATION

In valuing the property interests of Group I and Group III, which are held by the Group in HKSAR and the PRC, the direct comparison method have been adopted where comparison based on prices realised on actual sales of comparable properties is made. Comparable properties of similar size, character and location are analysed and carefully weighted against all the respective advantages and disadvantages of each property in order to arrive at a fair comparison of market value.

In valuing the property interests of Group II, which are held for investment by the Group in HKSAR, we have valued the property interests by making reference to comparable sales transaction as available in the relevant market and by taking into the rental income derived from the existing tenancy (if any) with due allowance for the reversionary income potential of the property interests.

In valuing the property interests of Group IV and Group VI, which are leased by the Group and the Target Group respectively in the PRC, we have ascribed no commercial value due either to the relatively short residual term of the leases or the prohibition against subletting or assignment or otherwise due to the lack of substantial profit rent.

In valuing the target property interests of Group V which are going to be acquired by the Group in the PRC, we have adopted a combination of the open market and depreciated replacement cost approaches in assessing the land portions of the property and the buildings and structures standing on the land respectively. Hence, the sum of the two results represents the market value of the property as a whole. In the valuation of the land portions, reference has been made to the comparable sales transactions as available in the subject localities as well as the relevant benchmark land prices. As the nature of the buildings and structures cannot be valued on the basis of market value, they have therefore been valued on the basis of their depreciated replacement cost. The depreciated replacement cost approach considers the cost to reproduce or replace in new condition the property appraised in accordance with current construction costs for similar buildings and structures in the locality, with allowance for accrued depreciation as evidenced by observed condition or obsolescence present, whether

– 321 –

APPENDIX IX

PROPERTY VALUATION

arising from physical, functional or economic causes. The depreciated replacement cost approach generally furnished the most reliable indication of value for the property in the absence of a known market based on comparable sales. The approach is subject to adequate potential profitability of the business.

VALUATION CONSIDERATIONS

In valuing the property interests, we have complied with all the requirements contained in Chapter 5 and Practice Note 12 to the Rules Governing the Listing of Securities issued by The Stock Exchange of Hong Kong Limited; and the HKIS Valuation Standards on Properties (First Edition 2005) published by the Hong Kong Institute of Surveyors effective from 1 January 2005.

In valuing the property interests of the Group in HKSAR held under the Government Lease expiring before 30 June 1997, we have taken account of the stipulations contained in Annex III of the Joint Declaration of the Government of the United Kingdom and the Government of the People’s Republic of China on the question of Hong Kong and the New Territories Leases (Extension) Ordinance 1988 that such leases have been extended without premium until 30 June 2047 and that a rent of three per cent of the then rateable value is charged per annum from the date of extension.

VALUATION ASSUMPTIONS

As the property interests in the PRC are held under long term Government Leases/Land Use Rights Contracts, we have assumed that the Group has free and uninterrupted rights to use the property interests for the whole of the unexpired term of their respective Government Leases/Land Use Rights Contracts without payment of any substantial sum of taxes or expenses. We have valued the property interests on an open market basis assuming sale with vacant possession.

Our valuations have been made on the assumption that the Group sells the property interests in the open market in their existing states without the benefit of a deferred term contracts, leasebacks, joint ventures, management agreements or any similar arrangements, which could serve to affect the values of the property interests.

No allowance has been made in our report for any charges, mortgages or amounts owing on the property interests valued nor for any expenses or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the property interests are free from encumbrances, restrictions and outgoings of an onerous nature, which could affect their values.

TITLE INVESTIGATION

We have been shown copies of various documents including State-owned Land Use Rights Certificates, Real Estate Ownership Certificates and Agreements relating to the property interests in the PRC, caused searches to be made at the Hong Kong Land Registry in respect of Hong Kong property and have made relevant enquiries.

We have not examined the original documents to verify the existing title to the property interests in the PRC and any material encumbrances that might be attached to the property interests or any lease amendments. However, we have relied considerably on the advice given by the Company’s PRC legal adviser, Guantao Law Firm 觀韜律師事務所 on the Group’s title to those property interests.

– 322 –

PROPERTY VALUATION

APPENDIX IX

SOURCE OF INFORMATION

We have relied to a very considerable extent on the information provided by the Company, in particular, but not limited to, the sales records, tenure, planning approvals, statutory notices, easements, particulars of occupancy, floor areas and all other relevant matters. Dimensions, measurements and areas included in the valuation certificates are based on information contained in copies of documents provided to us and are therefore only approximations.

Our valuations are totally dependent on the adequacy and accuracy of the information supplied and/or subsequent assumptions made. Should these prove to be incorrect or inadequate, the accuracy of our valuations may be affected.

LIMITING CONDITIONS

We have inspected the exterior and, where possible, the interior of the property interests. However, no structural survey has been made, but in the course of our inspection, we did not note any serious defects. We are not, however, able to report whether the property interests are free of rot, infestation or any other structural defects. No tests were carried out on any of the services.

We have not carried out detailed site measurements to verify the correctness of the site areas in respect of the property interests but have assumed that the site areas shown on the documents are correct. All documents have been used as reference only and all dimensions, measurements and areas are approximations. No on-site measurement has been taken.

We have had no reason to doubt the truth and accuracy of the information provided to us by the Company. We have also been advised by the Company that no material factors have been omitted from the information supplied. We consider that we have been provided with sufficient information to reach an informed view, and we have no reason to suspect that any material information has been withheld.

Liability in connection with this valuation report is limited to the client to whom this report is addressed and for the purpose for which it is carried out only. We will accept no liability to any other parties or any other purposes.

This report is to be used only for the purpose stated herein, any use or reliance for any other purpose, by you or third parties, is invalid. No reference to our name or our report in whole or in part, in any document you prepare and/or distribute to third parties may be made without written consent.

– 323 –

PROPERTY VALUATION

APPENDIX IX

EXCHANGE RATE

Unless otherwise stated, all monetary sums stated in this report are in Hong Kong Dollars (HK$). Wherever applicable, the conversion of Hong Kong Dollars (HK$) into Renminbi (RMB) is based on the factor of HK$1 to RMB0.88 with reference to the prevailing exchange rate on the Valuation Date.

Our valuations are summarised below and the valuation certificates are attached.

Yours faithfully, For and on behalf of RHL Appraisal Ltd.

Serena S. W. Lau

Ian K. F. Ng

FHKIS AAPI MRICS RPS(GP) MBA(HKU)

MRICS RPS(GP) MBA(HKU) MBA BSc(EstMan) BSc MHKIS MRICS RPS(GP) Managing Director Senior Associate Director

Ms. Serena S. W. Lau is a Registered Professional Surveyor with over 18 years’ experience in valuation of properties in HKSAR, Macau SAR, mainland China and the Asia Pacific Region. Ms. Lau is a Chartered Surveyor of the Royal Institution of Chartered Surveyors, an Associate of Australian Property Institute, a Fellow of The Hong Kong Institute of Surveyors as well as a registered real estate appraiser in the PRC.

Mr. Ian K. F. Ng is a Registered Professional Surveyor with over 6 years’ experience in valuation of properties in HKSAR, Macau SAR and mainland China. Mr. Ng is a Professional Member of The Hong Kong Institute of Surveyors as well as a chartered surveyor of The Royal Institution of Chartered Surveyors.

– 324 –

PROPERTY VALUATION

APPENDIX IX

SUMMARY OF VALUES

Group I — Property interests held by the Group for owner occupation in HKSAR

Market Value in
existing state as at
Property interests 30 September 2009
1. Workshop on 2/F, Ching Cheong Industrial Building, HK$12,000,000 1/7 Kwai Cheong Road, Kwai Chung, New Territories
1. Workshop B on 5/F, Ching Cheong Industrial Building, HK$5,110,000 1/7 Kwai Cheong Road, Kwai Chung, New Territories
1. Car Parking Space No. 1 on G/F, Ching Cheong Industrial Building, HK$400,000 1/7 Kwai Cheong Road, Kwai Chung, New Territories SUB-TOTAL: HK$17,510,000

Group II — Property interests held by the Group for investment in HKSAR

Market Value in existing state as at Property interests 30 September 2009 4. Workshop A on 5/F, Ching Cheong Industrial Building, HK$3,790,000 1/7 Kwai Cheong Road, Kwai Chung, New Territories SUB-TOTAL: HK$3,790,000

Group III — Property interests held by the Group for Owner Occupation in the PRC

Property interests 5. Unit 1308, Block B Savannah, Mission Hills, Golf Avenue, Guanlan Town, Baoan District, Shenzhen, Guangdong Province, the PRC SUB-TOTAL:	Market Value in existing state as at 30 September 2009 HK$2,540,000
	HK$2,540,000

– 325 –

PROPERTY VALUATION

APPENDIX IX

Group IV — Property interests leased and occupied by the Group in the PRC

Property interests

Market Value in existing state as at 30 September 2009

Unit 17B of Block 1, Hu Xin Da Sha, No. 114 Jia Bin Road, Luohu District, Shenzhen, Guangdong Province, the PRC
No Commercial Value
Various buildings located at San Lian Section, Long Guan Road, Longhua Town, Baoan District, Shenzhen, Guangdong Province, the PRC
No Commercial Value
De Tang Ling, No. 68 Fu Sheng Road, Tian Tou Jiao Village, Qiao Tou Town, Dongguan, Guangdong Province, the PRC
No Commercial Value
No. 7 Nan Liu Street, Qiao Dong Road, Qiao Tou Town, Dongguan, Guangdong Province, the PRC
No Commercial Value

SUB-TOTAL: No Commercial Value

Group V — Property interests held by the Target Group and to be acquired by the Group in PRC

Property interests

Market Value in existing state as at 30 September 2009

The Land and Buildings located at Dong Shan, Hainan District, Wuhai, Inner Mongolia Autonomous Region, the PRC

HK$12,600,000

The Land and Buildings located at the north eastern side of Jiao Hua Chang, Hainan District, Wuhai, Inner Mongolia Autonomous Region, the PRC
No Commercial Value

SUB-TOTAL: HK$12,600,000

Group VI — Property interests leased by the Target Group

Property interests

Market Value in existing state as at 30 September 2009

The Fifth Floor of the Office Building (Originally the Agricultural and Pasture Office), Huang Ling Dong Street, Hai Bowan District, Wuhai, Inner Mongolia Autonomous Region, the PRC
No Commercial Value

SUB-TOTAL: No Commercial Value

GRAND-TOTAL: HK$36,440,000

– 326 –

PROPERTY VALUATION

APPENDIX IX

VALUATION CERTIFICATE

Group I — Property interests held by the Company for Owner Occupation in HKSAR

Market Value in Particulars of existing state as at Property Description and tenure occupancy 30 September 2009 1. Workshop on The property comprises a workshop unit As advised by the HK$12,000,000 2/F Ching Cheong located on 2/F within a 14-storey industrial Company, the Industrial Building, building constructed of reinforced concrete property was 1/7 Kwai Cheong Road, completed in 1972. occupied by the Kwai Chung, Group as at the New Territories According to the area measurement from Valuation Date for registered floor plan, the saleable floor area industrial use. 40/460th shares of and of the property is approximately 13,000 in Kwai Chung Town square feet. Lot No. 121 The property is held under New Grant No. 4685 (TW4685) for a term of 99 years commencing from 1 July 1898. It is statutorily renewed until 30 June 2047 subject to payment of Government Rent which is equivalent to 3% of the rateable value of the time being of the property per annum.

Notes:

The registered owner of the property is Winbox Company Limited via an assignment dated 5 October 1990 vide memorial no. TW699932.
The property is subject to Deed of Mutual Covenant vide memorial no. TW104974 dated 13 August 1973.
The property is also subject to
(i) Duplicate Copy of Order under Sec. 28(3) of the Buildings Ordinance vide memorial no. TW926898 dated 24 September 1993.
(ii) Order No. UBZ/U24-28/0001/06 by The Building Authority under S.24(1) of the Buildings Ordinance vide memorial no. 08090300610191 dated 13 June 2007. (Remarks: Re: For Common Part Only)

In our valuation, we have not taken into account the effect of the aforesaid orders under the Buildings Ordinance by the Building Authority and its effect on the value of subject property is not reflected on our valuation.

As at the valuation date, the property is zoned as ‘‘Other Specified Uses (Business)’’ under the Draft Kwai Chung Outline Zoning Plan No. S/KC/22 exhibited on 20 February 2009.

– 327 –

PROPERTY VALUATION

APPENDIX IX

VALUATION CERTIFICATE

Market Value in
Particulars of existing state as at
Property Description and tenure occupancy 30 September 2009
1. Workshops B on 5/F The property comprises a workshop unit As advised by the HK$5,110,000 Ching Cheong located on 5/F within a 14-storey industrial Company, the Industrial Building, building constructed of reinforced concrete property was 1/7 Kwai Cheong Road, completed in 1972. occupied by the Kwai Chung, Group as at the New Territories According to the area measurement from Valuation Date for registered floor plan, the saleable floor area industrial use.
Workshops A & B: of the subject property is: 30/460th shares of and in Kwai Chung Town Workshop B: 4,954 sq.ft or thereabouts. Lot No. 121 The property is held under New Grant No. 4685 (TW4685) for a term of 99 years commencing from 1 July 1898. It is statutorily renewed until 30 June 2047 subject to payment of Government Rent which is equivalent to 3% of the rateable value of the time being of the property per annum.

Notes:

The registered owner of the property is Winbox Company Limited via an assignment dated 5 June 1997 vide memorial no. TW1145219.
The property is subject to Deed of Mutual Covenant vide memorial no. TW104974 dated 13 August 1973.
The property is also subject to
(i) Certified True Copy of Order under Sec. 28(3) of the Buildings Ordinance vide memorial no. TW935714 dated 24 September 1993.
(ii) Order No. UBZ/U24-28/0001/06 by The Building Authority under S.24(1) of the Buildings Ordinance vide memorial no. 08090300610191 dated 13 June 2007. (Remarks: Re: For Common Part Only)

As at the valuation date, the property is zoned as ‘‘Other Specified Uses (Business)’’ under the Draft Kwai Chung Outline Zoning Plan No. S/KC/22 exhibited on 20 February 2009.

– 328 –

PROPERTY VALUATION

APPENDIX IX

VALUATION CERTIFICATE

				Market Value in
			Particulars of	existing state as at
	Property	Description and tenure	occupancy	30 September 2009
3.	Car Parking Space	The property comprises a car parking space	As advised by the	HK$400,000
	No. 1 on G/F, Ching	located on G/F within a 14-storey industrial	Company, the
	Cheong Industrial	building constructed of reinforced concrete	property was
	Building,	completed in 1972.	occupied by the
	1/7 Kwai Cheong Road,		Group as at the
	Kwai Chung,	The property is held under New Grant No.	Valuation Date for
	New Territories	4685 (TW4685) for a term of 99 years	car parking.
		commencing from 1 July 1898. It is
	1/460th shares of and in	statutorily renewed until 30 June 2047
	Kwai Chung Town Lot	subject to payment of Government Rent
	No. 121	which is equivalent to 3% of the rateable
		value of the time being of the property per
		annum.

Notes:

The registered owner of the property is Winbox Company Limited via an assignment dated 5 October 1990 vide memorial no. TW699933.
The property is subject to Deed of Mutual Covenant vide memorial no. TW104974 dated 13 August 1973.
The property is also subject to
(i) Duplicate Copy of Order under Sec. 28(3) of the Buildings Ordinance vide memorial no. TW926898 dated 24 September 1993.
(ii) Order No. UBZ/U24-28/0001/06 by The Building Authority under S.24(1) of the Buildings Ordinance vide memorial no. 08090300610191 dated 13 June 2007. (Remarks: Re: For Common Part Only)

As at the valuation date, the property is zoned as ‘‘Other Specified Uses (Business)’’ under the Draft Kwai Chung Outline Zoning Plan No. S/KC/22 exhibited on 20 February 2009.

– 329 –

PROPERTY VALUATION

APPENDIX IX

VALUATION CERTIFICATE

Group II — Property interests held by the Group for Investment in HKSAR

Property Description and tenure
1. Workshop A on 5/F The property comprises a workshop unit Ching Cheong located on 5/F within a 14-storey industrial Industrial Building, building constructed of reinforced concrete 1/7 Kwai Cheong Road, completed in 1972. Kwai Chung New Territories According to the area measurement from registered floor plan, the saleable floor area
Workshops A & B: of the subject property is: 30/460th shares of and in Kwai Chung Workshop A: 3,669 sq. ft or thereabouts. Town Lot No. 121 The property is held under New Grant No. 4685 (TW4685) for a term of 99 years commencing from 1 July 1898. It is statutorily renewed until 30 June 2047 subject to payment of Government Rent which is equivalent to 3% of the rateable value of the time being of the property per annum.

Market Value in Particulars of existing state as at occupancy 30 September 2009 As advised by the HK$3,790,000 Company, the property was vacant as at the Valuation Date.

Notes:

The registered owner of the property is Winbox Company Limited via an assignment dated 5 June 1997 vide memorial no. TW1145219.
The property is subject to Deed of Mutual Covenant vide memorial no. TW104974 dated 13 August 1973.
The property is also subject to
(i) Certified True Copy of Order under Sec. 28(3) of the Buildings Ordinance vide memorial no. TW935714 dated 24 September 1993.
(ii) Order No. UBZ/U24-28/0001/06 by The Building Authority under S.24(1) of the Buildings Ordinance vide memorial no. 08090300610191 dated 13 June 2007. (Remarks: Re: For Common Part Only)

As at the valuation date, the property is zoned as ‘‘Other Specified Uses (Business)’’ under the Draft Kwai Chung Outline Zoning Plan No. S/KC/22 exhibited on 20 February 2009.

– 330 –

PROPERTY VALUATION

APPENDIX IX

VALUATION CERTIFICATE

Group III — Property interests held by the Group for Owner Occupation in the PRC

Market Value in Particulars of existing state as at Property Description and tenure occupancy 30 September 2009 5. Unit 1308, Block B Savannah is a residential estate developed As advised by the HK$2,540,000 Savannah, within the Mission Hill Golf Course. Company, the Mission Hills, property was Golf Avenue, Guanlan The property is a residential unit on level 13 occupied by the Town, of a 16-storey residential building with a Group as at the Baoan District, gross floor area of approximately 131.49 Valuation Date for Shenzhen, sq.m. and was completed in 2002 residential use. Guangdong Province, the PRC The land use rights of the property were granted for a term of 70 years commencing on 14 November 1994 and expiring on 13 November 2064 for residential use..

Notes:

Pursuant to a Real Estate Ownership Certificate 房地產權證 Shen Fang Di Zi No. 5000172547 registered on 26 October 2005, the property with a gross floor area of approximately 131.49 square metres is held by永保時有限公司 (Winbox Company Limited) for a term of 70 years commencing on 14 November 1994 and expiring on 13 November 2064 for residential use.
永保時有限公司 (Winbox Company Limited) is a 100% interest-owned by the Group.
The property was acquired on 30 September 2005 in a consideration of HK$1,427,739.00.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:
(i) 永保時有限公司 (Winbox Company Limited) legally owns the property and is entitled to freely transfer, occupy, lease, mortgage and dispose of the property with the residual term of its land use rights; and
(ii) the property is not subject to any mortgage.

– 331 –

PROPERTY VALUATION

APPENDIX IX

VALUATION CERTIFICATE

Group IV — Property interests leased and occupied by the Group in the PRC

Market Value in Particulars of existing state as at Property Description and tenure occupancy 30 September 2009 6. Unit 17B of Block 1, The property is for office/residential The property, as at No Commercial Value Hu Xin Da Sha, purpose with a total gross floor area the Valuation Date, No. 114 Jia Bin Road, of approximately 42.5 sq.m. was occupied by 永 Luohu District, 保時有限公司 Shenzhen, The property is subject to a tenancy for Winbox Company Guangdong Province, a term expiring on 31 October 2009 Limited for office the PRC for office use. use.

Notes:

Pursuant to a Real Estate Ownership Building and Land Ownership Certificate 房地產權證 [Shen Fang Di Zi No. 0216427] dated 10 May 1995, the owner is 趙玉冰 (Zhao Yu Bing) and the land use rights term is 50 years from 22 January 1981 to 21 January 2031 for commercial and residential use.
Pursuant to a Shenzhen Real Estate Tenancy Agreement 深圳市房地產租賃合同書 [Shen (Luo) 1255784] dated 1 December 2007 entered into between the lessor (Party A) 趙玉冰 (Zhao Yu Bing), an independent third party and the lessee (Party B) 永保時有限公司 Winbox Company Limited, Party A leased the property to Party B for office use at a monthly rental of RMB2,000 exclusive of management fee, utilities charges and other fee outgoings. The lease term is from 1 November 2007 to 31 October 2009.
永保時有限公司 (Winbox Company Limited) is a 100% interest-owned by the Group.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:
(i) The tenancy agreement was expired on 31 October 2009.

– 332 –

PROPERTY VALUATION

APPENDIX IX

VALUATION CERTIFICATE

Market Value in existing state as at 30 September 2009

Particulars of

Property Description and tenure occupancy 30 September 2009 7. Various buildings The property comprises 2/F, 3/F and 4/F of The property, as at No Commercial Value located at San Lian Block A, Blocks B, C and D which are the the Valuation Date, Section, factories, 2 blocks of dormitory and was occupied by 金 Long Guan Road, ancillary buildings including canteen, guard 保時塑膠製品(深圳) Longhua Town, room and transformer room. The details are 有限公司 (Winbox Baoan District, listed as follows: Plastic Shenzhen, Manufacturing Guangdong Province, GFA (sq.m.) (Shenzhen)) for the PRC Building approx.: manufacturing. Factory A, B, C & D 14,754.96 Dormitory 10,056.02 Other 307.59 Total 25,118.57

The property is subject to various tenancies, please refers to Notes 6–9.

Notes:

Pursuant to three Real Estate Ownership Certificates 房地產權證 [Shen Fang Di Zi No. 5000059771, Shen Fang Di Zi No. 5000059773 and Shen Fang Di Zi No. 5000059774] dated 27 February 2002, the owner of levels 2–4 of Block A (Factory) is 深圳市樺浩泰實業有限公司 (Shenzhen Hua Hao Tai Shi Ye Co., Ltd.) and the land use rights term is 50 years from 18 June 1999 to 17 June 2049 for industrial use.
Pursuant to a Real Estate Ownership Certificate 房地產權證 [Shen Fang Di Zi No. 5000062015] dated 8 April 2002, the owner of Block B (Factory) and Block C (Factory) is 深圳市樺浩泰實業有限公司 (Shenzhen Hua Hao Tai Shi Ye Co., Ltd.) and the land use rights term is 50 years from 18 June 1999 to 17 June 2049 for industrial use.
Pursuant to a Construction Work Planning Inspection and Approval Certificate 建設工程規劃驗收合格證 [Shen Gui Tu She Yan Zi 2004 Long 013 Hao] dated 30 April 2004, the project name is Hua Hao Tai Factory Block D and the land user is 深圳市樺浩泰實業有限公司 (Shenzhen Hua Hao Tai Shi Ye Co., Ltd.).
Pursuant to six Real Estate Ownership Certificates 房地產權證 [Shen Fang Di Zi No. 5000063767, Shen Fang Di Zi No. 5000063766, Shen Fang Di Zi No. 5000063765, Shen Fang Di Zi No. 5000063764, Shen Fang Di Zi No. 5000063763 and Shen Fang Di Zi No. 5000063762] dated 10 May 2002, the owner of levels 1–6 and 6/F of Block A (Dormitory) is 深圳市樺浩泰實業有限公司 (Shenzhen Hua Hao Tai Shi Ye Co., Ltd.) and the land use rights term is 50 years from 18 June 1999 to 17 June 2049 for industrial use.
Pursuant to four Real Estate Ownership Certificates 房地產權證 [Shen Fang Di Zi No. 5000063761, Shen Fang Di Zi No. 5000063760, Shen Fang Di Zi No. 5000063759 and Shen Fang Di Zi No. 5000063758] dated 10 May 2002, the owner of levels 1–4 of Block F (Factory) is 深圳市樺浩泰實業有限公司 (Shenzhen Hua Hao Tai Shi Ye Co., Ltd.) and the land use rights term is 50 years from 18 June 1999 to 17 June 2049 for industrial use.
Pursuant to a Housing Tenancy Agreement 房屋租賃合同 dated 1 March 2001 entered into between the lessor (Party A) 深圳市樺浩泰實業有限公司 (Shenzhen Hua Hao Tai Shi Ye Co., Ltd.) and the lessee (Party B) 金保時塑膠製品(深圳)有限公司 (Winbox Plastic Manufacturing (Shenzhen)), Party A leased the factory Blocks A, B and C together with 2 blocks of dormitory and ancillary buildings in a total GFA of 23,377.23 sq.m. to Party B for a term of 6 years from 1 March 2001 to 28 February 2007. The monthly rental is RMB9.8 per sq.m. or equivalent to

– 333 –

APPENDIX IX

PROPERTY VALUATION

RMB229,096 for the first three years of the lease and at a monthly rental of RMB11 per sq.m. or equivalent to RMB257,149 for the remaining term of the lease. The rental is exclusive of utility charges. Party B is prohibited to assign portion or the whole of the lease without a prior written consent from Party A.

Pursuant to an Agreement 協議書 dated 30 August 2002 entered into between Party A 深圳市樺浩泰實業有限公司 (Shenzhen Hua Hao Tai Shi Ye Co., Ltd.) and Party B 金保時塑膠製品(深圳)有限公司 (Winbox Plastic Manufacturing (Shenzhen)), Party B agreed to vacate level 1 of Block A to Party A. It was also agreed that Party A will compensate Party B by constructing a new Block D at a GFA of not less than 2,900 sq.m. The monthly rental for Block D will be the same of level 1 of Block A which is in the sum of RMB13,720 until the expiry day of the lease. It was further agreed that Party B has an option to renew the lease for not more than 6 years upon the expiry day, i.e. from 1 March 2007 to 28 February 2013. The monthly rental will be calculated on the basis: a) at RMB12 per sq.m. or market rental whichever is less for Blocks A, B and C and b) at RMB5.7 per sq.m. for Block D. In addition, Party A agreed to waive the rental for portion of ancillary buildings of about 200 sq.m. and to reduce the monthly rental from RMB11 per sq.m. to RMB10.8 per sq.m. for the last three years term of the lease.
Pursuant to a Loan and Housing Tenancy Supplement Agreement 貸款協議書和房屋租賃補充協議 dated 12 August 2005 entered into between the Lender/Lessee 金保時塑膠製品(深圳)有限公司 (Winbox Plastic Manufacturing (Shenzhen)) and Borrower/Lessor 深圳市樺浩泰實業有限公司 (Shenzhen Hua Hao Tai Shi Ye Co., Ltd.) and 李汶樺 (Li Men Hua), the lender agreed to loan RMB1,566,000 (or HK$1,500,000) to the borrower at an interest rate 17.5% per annum including those outstanding loan and the period is 1 year. The installment of the principal and the interest will be settled by the monthly rental payable to the Borrower/Lessor. In addition, both parties agreed to renew the lease for a term of 1 year from 1 March 2007 to 28 February 2008 at existing rent and the lessee has the option to renew by giving a one month written notice to the lessor prior to the expiry day of the lease.
Pursuant to a Letter and Payment Receipt 收款收據 dated 27 July 2009 made between Payee (Party A) 深圳市樺浩泰實業有限公司 (Shenzhen Hua Hao Tai Shi Ye Co., Ltd.) and Payer (Party B) 金保時塑膠製品(深圳)有限公司 (Winbox Plastic Manufacturing (Shenzhen)), it is noticed that Party A agreed in August 2007 to renew the lease of the property including levels 1–4 of Factory Block A (except that 1/F was withdrawn on 1 October 2004), levels 1–4 of Factory Block B, levels 1–4 of Factory Block C, levels 1–4 of Factory Block D, levels 1–6 of Dormitory Block A and levels 1–4 of Dormitory Block F for a period of 2 years from 1 March 2008 to 28 February 2010. The GFA of the leased area is 25,118.57 sq.m. and the monthly rental is RMB12.3 per sq.m. or equivalent to RMB308,958. Party B has the option to renew the lease up to 28 February 2013.
金保時塑膠製品（深圳）有限公司(Winbox Plastic Manufacturing (Shenzhen)) is a 100% interest-owned by the Group.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:
(i) Party A owns the levels 2–4 of Block A (Factory), Block B (Factory), Block C (Factory), levels 1–6 of Block A (Dormitory) and levels 1–4 of Block F (Factory) and is entitled to lease the property;
(ii) Party A may not own the Block D and not be entitled to lease the property;
(iii) the tenancy of Block B and 2 blocks of dormitory has not been registered with the local authority; and
(iv) Party B is subject to a risk to any penalties for leasing the above property without registration with the local authority.

– 334 –

PROPERTY VALUATION

APPENDIX IX

VALUATION CERTIFICATE

Market Value in Particulars of existing state as at Property Description and tenure occupancy 30 September 2009 HK$ 8. De Tang Ling, The property comprises a block of 4-storey The property, as at No Commercial Value No. 68 Fu Sheng Road, factory and a total gross floor area of the Valuation Date, Tian Tou Jiao Village, approximately 10,000 sq.m. was occupied by Qiao Tou Town, 金保時塑膠製品 Dongguan, The property is subject to a tenancy for a （深圳）有限公司 Guangdong Province, term expiring on 30 April 2013. (Winbox Plastic the PRC Manufacturing (Shenzhen)) for manufacturing

Notes:

Pursuant to an Agreement 協議書 dated 29 October 2007 entered into between Party A 東莞市橋頭鎮田頭角村村民委員會 (Dongguan Qiao Tou Town Tian Tou Jiao Village Committee) and Party B 金保時塑膠製品(深圳)有限公司 (Winbox Plastic Manufacturing (Shenzhen)), Party A leased the property to Party B at a monthly rental of RMB8.00 per sq.m. exclusive of tax and other outgoings (except the property tax, the land use fee for tenanted property and tenanted property management fee, etc.). The lease term is 5 years from 1 May 2008 to 30 April 2013.
The Agreement mentioned that the property includes a block of office building but the said building has not yet been erected upon site inspection on 18 September 2009.
Pursuant to a reply from the Company to Guantao Law Firm (觀韜律師事務所), it is noticed that the lessor and the lessee had verbally agreed to early terminate the lease on 30 September 2009.
金保時塑膠製品(深圳)有限公司(Winbox Plastic Manufacturing (Shenzhen)) is a 100% interest-owned by the Group.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:
(i) The tenancy agreement was terminated on 30 September 2009.

– 335 –

PROPERTY VALUATION

APPENDIX IX

VALUATION CERTIFICATE

Market Value in Particulars of existing state as at occupancy 30 September 2009

				Particulars of	existing state as at
	Property	Description and tenure		occupancy	30 September 2009
9.	No. 7 Nan Liu Street,	The property comprises 3 blocks of factory,		The property, as at	No Commercial Value
	Qiao Dong Road,	4 blocks of dormitory, a guard room and a		the Valuation Date,
	Qiao Tou Town,	transformer room. The details is listed as		was occupied by 金
	Dongguan,	follow:		保時塑膠製品(深圳)
	Guangdong Province,			有限公司(Winbox
	the PRC		GFA (sq.m.)	Plastic
		Building	approx.:	Manufacturing
				(Shenzhen)) for
		Factory	21,002	manufacturing
		Dormitory	8,120
		Guard Room	82
		Transformer Room	366
		Total	29,570

The property is subject to a tenancy for a

term expiring on 15 September 2014.

Notes:

Pursuant to a Factory Leasing Agreement dated 8 September 2009 entered into between the lessor (Party A) 東莞市橋光實業集團公司 (Dongguan Qiao Guang Shi Ye Ji Tuan Company) and the lessee (Party B) 金保時塑膠製品(深圳)有限公司 (Winbox Plastic Manufacturing (Shenzhen)), Party A leased the property to Party B for industrial use at a monthly rental of RMB6.8 per sq.m. The term of the lease is 5 years from 15 September 2009 to 15 September 2014 There is a rent free period of 60 days from 15 September 2009 to 14 November 2009. The lessee is prohibited to sub-let the property or assign the lease.
金保時塑膠製品(深圳)有限公司 is a wholly-owned subsidiary of the Group.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:
(i) Party A may not own the property and not be entitled to lease the property;
(ii) the tenancy has not been registered with the local authority; and
(iii) Party B is subject to a risk to any penalties for leasing the property.

– 336 –

PROPERTY VALUATION

APPENDIX IX

VALUATION CERTIFICATE

Group V — Property interests held and occupied by the Target Group and to be acquired by the Group in the PRC

Market Value in
Particulars of existing state as at
Property Description and tenure occupancy 30 September 2009
1. The Land and Buildings The property comprises 3 parcels of land, The property, as at HK$12,600,000 located at Dong Shan, buildings and structures erected thereon. the valuation date, Hainan District, Wuhai, was occupied by the Inner Mongolia The site area of the 3 parcels of land is Target Group for Autonomous Region, 56,391.79 sq.m., 15,596.71 sq.m. and coal mining. the PRC 1,912.5 sq.m. respectively, amounting to 73,901 sq.m. The usage is for industrial purpose and the term expiry day is 4 July 2032.
The total GFA of the buildings and structures is about 4,288.7 sq.m. which were completed in between 2004 to 2008 and the details are listed as follow:

	GFA (sq.m.)
Building	approx.:
Staff Dormitory	448
Workers Dormitory	815.7
Winch Room for Ancillary	63
Shaft No. 3
Water Pump Room	23.5
Garage (including Boiler	86
Room)
Staff Dormitory	384
Dormitory	44
Office	340
Workers Dormitory for	287
Main Shaft
Workers Dormitory for	888
Ancillary Shaft
Bungalow	60
Janitor Room	68
On-duty Room	27
Lavatory	30
Lavatory	30
Lavatory for Ancillary	32
Shaft
Lighting and Bathroom	182
Bike	140
Water Pump Room	25
Ground Scales Room	50
Lighting Room	24
Winch Room for Shaft	104.5
No. 9
Heating Room for Shaft	15
No. 9
Heating Room for Eastern	27
Shaft No. 16
Heating Room for Western	36
Shaft No. 16
Transformer Room for	24
Eastern Shaft No. 16
Heating Room	35

The land use rights of the property are held for a term expiring on 4 July 2032 for industrial use.

– 337 –

PROPERTY VALUATION

APPENDIX IX

Notes:

Pursuant to a State-owned Land Use Rights Certificate 國有土地使用權證 [Wu Guo Tu Zi Hai Nan Fen Guo Yong 2007 No. 00026 烏國土資海南分國用2007第00026號] dated 15 May 2007, the owner is 烏海市天裕工貿有限公司 (Wuhai Tian Yu Gong Mao Co., Ltd.). The site area is 56,391.79 sq.m. The nature is on the Government grant basis for industrial use and the term expiry date is 4 July 2032.
Pursuant to a State-owned Land Use Rights Certificate 國有土地使用權證 [Wu Guo Tu Zi Hai Nan Fen Guo Yong 2007 No. 00028 烏國土資海南分國用2007第00028號] dated 15 May 2007, the owner is 烏海市天裕工貿有限公司 (Wuhai Tian Yu Gong Mao Co., Ltd.). The site area is 15,596.71 sq.m. The nature is on the Government grant basis for industrial use and the term expiry date is 4 July 2032.
Pursuant to a State-owned Land Use Rights Certificate 國有土地使用權證 [Wu Guo Tu Zi Hai Nan Fen Guo Yong 2007 No. 00029 烏國土資海南分國用2007第00029號] dated 15 May 2007, the owner is 烏海市天裕工貿有限公司 (Wuhai Tian Yu Gong Mao Co., Ltd.). The site area is 1,912.5 sq.m. The nature is on the Government grant basis for industrial use and the term expiry date is 4 July 2032.
The GFA of the buildings and structures is about 4,288.7 sq.m. including the offices, quarters, stores, bathrooms and equipments rooms as well as ancillary structures such as access roads, partition walls, cement ground, pipelines for lighting and heating, lighting facilities, etc. Pursuant to a Construction Land Planning Permit 建設用地規劃許可證 and a Construction Work Planning Permit 建設工程規劃許可證 [Bu 200703001(Alteration of Name) 補 200703001(名稱變更)] dated 12 March 2007, the site area is 73,901.01 sq.m. and the development scale is 3,321.84 sq.m. for industrial use. The GFA of the above-mentioned buildings and structures exceeds the approved development scale as stipulated in the said planning permit and there are no Building Ownership Certificates available as at the date of valuation.
We have attributed no commercial value to the buildings and structures as mentioned in Note 4 above as the relevant building ownership certificates have not been obtained. For reference purpose, we are of an opinion that the depreciated replacement cost of the buildings and structures as at the Valuation Date should be in the sum of HK$2,800,000 on the assumption that there is no additional land grant fee or any substantial expenses has to be compensated and the construction is in compliance with relevant rules and regulations in obtaining the Building Ownership Certificates.
烏海市天裕工貿有限公司 (Wuhai Tian Yu Gong Mao Co., Ltd.) is a 100% interest-owned by the Target Group.
The property was acquired with consideration of RMB1,253,580.6.
In the course of our valuation, we have assumed that 烏海市天裕工貿有限公司 (Wuhai Tian Yu Gong Mao Co., Ltd.) is entitled to freely dispose of the land use rights of the property.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:
(i) 烏海市天裕工貿有限公司 (Wuhai Tian Yu Gong Mao Co., Ltd.) legally owns the property and is entitled to freely occupy, lease the property with the residual term of its land use rights.

– 338 –

PROPERTY VALUATION

APPENDIX IX

VALUATION CERTIFICATE

Property Description and tenure

The Land and Buildings The property comprises 3 parcels of land located at the north and buildings and structures erected thereon. eastern side of Jiao Hua Chang, Hainan District, The site area of the 3 parcels of land is Wuhai, Inner Mongolia 643.93 sq.m., 1,982.85 sq.m. and 73,295.24 Autonomous Region, sq.m. respectively, amounting to 75,922.02 the PRC sq.m. The usage is for industrial purpose and the land use rights term is 30 years.

Market Value in Particulars of existing state as at occupancy 30 September 2009 The property, as at No Commercial Value the valuation date, was occupied by the Target Group for coal mining.

There is a guard room and lavatory erected on site with a total GFA of about 44 sq.m. together with some lighting facilities. They were completed in 2005 approximately.

The land use rights of the property are held for a term of 30 years for industrial use.

Notes:

Pursuant to a State-owned Land Use Rights Grant Contract (No. GF-2000-2601) dated 20 June 2007 entered into between the assignor 烏海市國土資源局海南分局 (Wuhai Land and Resources Bureau Hainan Office) and the assignee 烏海市天譽煤炭有限責任公司 (Wuhai Tian Yu Mei Tan Co., Ltd.), the latter had acquired a parcel of land located at the north eastern side of Jiao Hua Chang, Hainan District, Wuhai with a site area of 643.93 sq.m. for industrial use and the land use rights term is 30 years upon the day when the land is conveyed to the assignee. The land grant fee is in the sum of RMB9,658.95.
Pursuant to a State-owned Land Use Rights Grant Contract (No. GF-2000-2601) dated 20 June 2007 entered into between the assignor 烏海市國土資源局海南分局 (Wuhai Land and Resources Bureau Hainan Office) and the assignee 烏海市天譽煤炭有限責任公司 (Wuhai Tian Yu Mei Tan Co., Ltd.), the latter had acquired a parcel of land located at the north eastern side of Jiao Hua Chang, Hainan District, Wuhai with a site area of 1,982.85 sq.m. for industrial use and the land use rights term is 30 years upon the day when the land is conveyed to the assignee. The land grant fee is in the sum of RMB29,742.75.
Pursuant to a State-owned Land Use Rights Grant Contract (No. GF-2000-2601) dated 20 June 2007 entered into between the assignor 烏海市國土資源局海南分局 (Wuhai Land and Resources Bureau Hainan Office) and the assignee 烏海市天譽煤炭有限責任公司 (Wuhai Tian Yu Mei Tan Co., Ltd.), the latter had acquired a parcel of land located at the north eastern side of Jiao Hua Chang, Hainan District, Wuhai with a site area of 73,295.24 sq.m. for industrial use and the land use rights term is 30 years upon the day when the land is conveyed to the assignee. The land grant fee is in the sum of RMB1,099,428.60.
We have attributed no commercial value to the property as the relevant land use rights certificates and building ownership certificates of the property have not been obtained. For reference purpose, we are of an opinion that the market value of the property (the land only) as at the Valuation Date is in the sum of HK$14,060,000 assuming that the land use rights certificates have been obtained, the land grant fee had been settled and there is no any substantial fees or expenses has to be compensated and the construction is in compliance with relevant rules and regulations.
The GFA of the buildings and structures is about 44 sq.m. including a guard room and lavatory as well as lighting facilities. Pursuant to a Construction Land Planning Permit 建設用地規劃許可證 [No. 150302032007041] dated 12 December 2007, the site area is 1,982.9 sq.m. for office and service use. Pursuant to a Construction Land Planning Permit (Copy) 建設用地規劃許可證 (副本) [Xin Jian 200703041新建200703041] dated 12 December 2007, the development scale is 1,105.88 sq.m. for office and service uses. Yet there are no Building Ownership Certificates available as at the Valuation Date.

– 339 –

PROPERTY VALUATION

APPENDIX IX

烏海市天譽煤炭有限責任公司 (Wuhai Tian Yu Mei Tan Co., Ltd.) is a 100% interest-owned by the Target Group.
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:
(i) 烏海市天譽煤炭有限責任公司 (Wuhai Tian Yu Mei Tan Co., Ltd.) is not entitled to freely disposed of the property in the market;
(ii) the property is not subject to any mortgage; and
(iii) Subject to the payment of a maximum fine of RMB2,300,000 and the consent of the related PRC authority, 烏海市天譽煤炭有限責任公司 (Wuhai Tian Yu Mei Tan Co., Ltd.) has no legal impediment to apply for and obtain the relevant land use rights certificates.

– 340 –

PROPERTY VALUATION

APPENDIX IX

VALUATION CERTIFICATE

Group VI — Property interests leased by the Target Group

Market Value in Particulars of existing state as at Property Description and tenure occupancy 30 September 2009 12. The Fifth Floor of the The property comprises an office unit of an The property, as at No Commercial Value Office Building office building. the valuation date, (Originally the was occupied by the Agricultural and Pasture The total gross floor area of the property is Target Group for Office), Huang Ling approximately 576 sq.m. and the number of office use. Dong Street, Hai rooms is 16. Bowan District, Wuhai, Inner Mongolia The property is subject to a tenancy for a Autonomous Region, term expiring on 31 March 2010. the PRC

Notes:

Pursuant to a Housing Tenancy Agreement 房屋租賃合同 dated 26 March 2009 entered into between the lessor (Party A) 烏海市錦達煤焦有限責任公司 (Wuhai Jin Da Mei Jiao Co., Ltd.) and the lessee (Party B) Wuhai Meng Kong Industrial Co., Ltd 烏海市蒙港實業有限責任公司 (Wuhai Meng Kong Industrial Co., Ltd.), Party A leased the property to Party B at a monthly rental of RMB10 per sq.m. exclusive of utility charges which is equivalent to an annual rental of RMB69,120 payable upon the signing of the tenancy agreement. The lease term is from 1 April 2009 to 31 March 2010.
Party B is 100% interest-owned by the Target Group
We have been provided with a legal opinion regarding the property interest by the Company’s PRC legal advisers, which contains, inter alia, the following:
(i) Party A may not own the property and not be entitled to lease the property;
(ii) the tenancy has not been registered with the local authority; and
(iii) Party A is subject to a risk to any penalties for leasing the property.

– 341 –

PROPERTY VALUATION

APPENDIX IX

The following is the text of a letter prepared for the purpose of incorporation in this circular received from DTZ Eurexi, an independent valuer, in connection with its valuation as at 30 September 2009 of the property interests held by Winbox International (Holdings) Limited and/or its subsidiaries in France.

==> picture [81 x 75] intentionally omitted <==

Private and Confidential

Private and Confidential Your ref: Winbox Winbox International (Holdings) Limited Our ref: DP/VG/PI 09/0162 2/F Ching Cheong Industrial Building Email: [email protected] 1–7 Kwai Cheong Road Direct tel: +33(0)1 47 48 77 31 Kwai Chung N.T. Date: 28 December 2009 Hong Kong

For the attention of the Directors:

Dear Sirs,

Client: WINBOX International (Holdings) Limited (THE ‘‘COMPANY’’) Property: Three properties located in the Ile de France region Valuation: Valuation as at 30 September 2009

In accordance with your instructions, confirmed in our letter of engagement dated 30 September 2009, we have prepared a valuation of the aforementioned properties. We refer you to our valuation report and the Valuation Procedures and Assumptions dated 30 September for full details. This letter summarises our findings and should be read in conjunction with our report.

We confirm that we have carried out inspections of the properties, made the necessary and relevant searches in line with market practice and obtained such further information as we consider necessary for the purpose of providing the Company with our opinion of the market values of the properties as at 30 September 2009 (the ‘‘date of valuation’’).

We confirm that the valuation has been prepared in accordance with the appropriate sections of the Practice Statements (‘‘PS’’) contained within the RICS Valuation Standards, 6th Edition (the ‘‘Red Book’’) and in accordance with local market practice.

Our valuation is on the basis of Market Value. This is an internationally recognised basis and is defined as:

‘‘The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.’’

Our opinion of Market Value of each of the properties has been primarily derived using comparable recent market transactions on arm’s length terms.

– 342 –

PROPERTY VALUATION

APPENDIX IX

We have assumed that the occupiers of the properties have free and uninterrupted rights to use or to assign the properties for the whole of the respective unexpired terms as granted.

We have relied entirely upon the advice given by the Group and the legal opinion provided by the Group’s legal adviser, regarding the title to each of the properties.

In valuing the properties which are held and occupied by the Group in France, we have valued each of them on a market basis, by Direct comparison or by income capitalisation methods, assuming a sale of the property in its existing state with the benefit of vacant possession. We have made references to comparable sale evidence as is available in the relevant market.

The property which is leased by the group in France is considered to have no commercial value mainly due to lack of significant profit rent.

We have not undertaken any searches to ascertain ownership or title in relation to the subject properties or to verify any information which we may have been provided to us but have relied entirely on this information and have assumed that it is full and correct. In the course of our valuation we have relied to a great extent upon the information provided to us by the Group and the Group’s legal advisors and have accepted advice in respect of such matters including planning, statutory notice, easements, tenure, identification of properties, completion dates of buildings, particulars of occupancy, site and floor areas, site and floor plans and all other relevant matters.

We confirm that we have not measured the properties but have relied entirely upon the floor areas provided by the Group and have assumed that they have been measured in accordance with local market practice and are correct.

We have had no reason to doubt the accuracy of the information provided to us in relation to the subject properties.

We have not made enquiries regarding environmental matters including contamination and flooding, and we have had regard to any information provided by the Group and your legal advisors. We have not undertaken a formal environmental assessment.

Our valuation is based on an Assumption that no contamination or other adverse environmental matters exist in relation to the property sufficient to affect value.

We have not undertaken a condition survey and cannot confirm that the property is free from defects, nevertheless we did not note any defects. We refer you to our full report.

Unless otherwise stated, all sums stated in our valuation report are in €uros.

We herewith enclose a summary of our valuations and certificates, which should be read in conjunction with our full report.

Yours sincerely, David Poole MRICS

Director For and on behalf of DTZ Eurexi

– 343 –

PROPERTY VALUATION

APPENDIX IX

Properties Held and Occupied by the company in France

	Market Value
	(exclusive, Hors
	Droits) as at
Address	30 September 2009
11 bis, rue des Campanules, 77185, Lognes, France	€510,000
160 rue de Picpus, 75012 Paris, France	€510,000

Property leased by the group in France

Address

11 rue Portefoin, 75003 Paris, France

Market Value (exclusive, Hors Droits) as at 30 September 2009 No Commercial value

Market values are reported net of purchaser’s costs as dictated by local market practice, being 6.2% in France.

Property values may change significantly over a relatively short period. Consequently, our valuation may not be valid on any date other than the stated valuation date.

Properties held and occupied by the Group

			Market Value
			(exclusive, Hors
		Particulars of	Droits) as at
Property	Description and tenure	Occupancy	30 September 2009
11 bis, rue des Campanules,	The subject site comprises a single	The property is	€510,000
77185, Lognes, France	building of a rectangular shape, featuring	currently occupied by
	light industrial and office space over a	the Group for office
	ground floor and one upper level.	administration and
		manufacturing use.
	The property has a net floor area of
	approximately 723 sq m. The property is
	held under a free hold tenure and the age
	of the building is approximately 25
	years.(1)
160 rue de Picpus,	The subject property consists of a two	The property is	€510,000
75012 Paris, France	bedroom apartment located on the fourth	currently occupied by
	floor. There is an underground storage	the Group for
	area and an external parking space.	residential use.
	The property has a gross floor area of
	approximately 83 sq m.
	The property is held under a freehold
	tenure and the age of the building is
	approximately 46 years(2).

(1) According to legal opinion, the property is owned by Dardel SAS, a subsidiary of the group.

(2) According to legal opinion, the property is owned by Winpac SARL.
(3) Information of the valuer — David Poole (MRICS) — 8 rue de L’Hotel de Ville, 92200, Neuilly sur Seine, France. Has 8 years of experience valuing the properties of the same category in similar locations

– 344 –

PROPERTY VALUATION

APPENDIX IX

Properties leased by the Group

Description and tenure

Property Description and tenure 11 rue Portefoin, The property comprises a retail premises on the basement, 75003 Paris, France ground and 1st floor of a 5 storey building.

Market Value (exclusive, Hors Droits) as at 30 September 2009

No Commercial Value

The property has an approximate net floor area of 139.5 sq m.

The property is occupied by the group for retail use, leased from SARL du Marais, for a period of 9 years, expiring on 31 December 2009. The age of the building is approximately 125 years.

We have been informed by Bouhenic Baudin & Associes, (lawyers to the group) that the lease is currently being renegotiated for a further 9 years to a level of €17,000 per annum.

– 345 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Independent Technical Review of Tianyu Coal Projects Inner Mongolia, China

Report prepared for

Real Power Holdings Limited and

Winbox International (Holdings) Limited

Report Prepared by

SRK Consulting Engineers and Scientists

December 2009

– 346 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Independent Technical Review of Tianyu Coal Projects Inner Mongolia, China

for

Real Power Holdings Limited and Winbox International (Holdings) Limited

Rm. 2111, 21/F, West Tower, Shun Tak Centre,

168–200 Connaught Road Central, Hong Kong

and

2nd Floor China Cheong Industrial Building, Kwai Cheong Road, New Territories, Hong Kong

SRK Project Number SHK049

SRK Consulting China Ltd

B1205 COFCO Plaza

No. 8 Jianguomennei Dajie, Dongcheng District Beijing China 100005

Contact: Petr Osvald [email protected] www.srk.cn

December 2009

Compiled by:

Endorsed by:

Petr Osvald Senior Coal Consultant

Dr Yonglian Sun Principal Consultant

Authors:

Jinhui Liu Dr Per Michaelsen Petr Osvald Peter Smith

– 347 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

EXECUTIVE SUMMARY

Summary of Principal Objectives

Real Power Holdings Limited (‘‘Real Power’’ or ‘‘the Company’’ or ‘‘the Group’’) requested SRK Consulting China Ltd (‘‘SRK’’) to conduct a technical review in order to compile an independent report which will be published in a circular to be dispatched to shareholders of Winbox International (Holdings) Limited (‘‘Winbox’’). The scope of the review was twofold:

. to conduct a review of the available data, including a site visit to review the geology (resource), mining and environmental issues;
. to compile the data and prepare an independent report on the resources as required. The report will in turn provide potential investors with a clear and un-biased view of the asset and its future production potential.

This review thus summarises the major findings of the SRK work which was conducted during June and September 2009, and states the Coal Resources for the project area in accordance with the Chinese Resource and Reserve Standard.

Outline of Work Program

The work program which included the following items:

. Desktop review of data provided by Real Power and planning for site visit;
. Travel to Wuhai to inspect the Tianyu Gongmao — Mine #1 (‘‘Mine #1’’) and Tianyu — Mine #4 (‘‘Mine #4’’) and discuss technical aspects with the Company staff. Verify the location of the coking plant and coal washing facilities, in respect to the boundaries of mining licences of Mine #1 and Mine #4;
. Review of the data, detailed analysis of available data (including the proposed Tianyu Coal Washing Plant assessment and feasibility study documentation);
. Independent Report editing by SRK as required;
. Completion of a technical report in accordance with relevant sections of Chapter 18 of the Listing Rules of the Stock Exchange of Hong Kong Limited, with exception of 18.09 item 3 which relates to general nature of issuer business as SRK mandate was to review Mine #1, Mine #4 and proposed Tianyu Coal Washing Plant only, and with exception of 18.09 item 8 which relates to the provision of two-year working capital statement.

– 348 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Results

Overall

Mine #1 is an operating mine. Mine #4 has a valid mining license and is in development stage that is expected to be in full production in late 2010. Three declines of Mine #4 have been constructed before Real Power acquired Mine #4; but not yet completed. The mine construction for Mine #4 was abandoned at the time of the SRK Site visit, SRK notes that Tianyu Coal has not commenced any construction of Mine #4 since acquiring the mine in 2006.

The resource was converted into the reserves in accordance with Chinese National Standard. The resource and reserve of Mine #1 indicate discrepancies between the Approved-Verification Report (‘‘AVR’’) and Preliminary Mine Design (‘‘PMD’’).

The Feasibility Study (‘‘FS’’) is completed for Mine #4.

From operational point of view the main bottleneck for stable production of Mine #1 is insufficient hoisting capacity. Mine management has committed to the replacement of hoisting facility by conveyor belt, which is in the progress and is planned to be completed by the end of 2009.

Mine #4 is well designed in Feasibility Study. Feasibility study addresses necessity to conduct exploration, report and update position of major fault F19. SRK recommends validation of old drilling results by four additional boreholes and re-estimation of resource.

Third Party Coal Processing Facilities

Tianyu Gongmao Development Company (‘‘Tianyu Gongmao’’) and Wuhai Tianyu Coal Development Company (‘‘Tianyu Coal’’) have stated in September 2009 that ‘a commissioned coking plant is situated outside the mining area and a decommissioned coal washing plant is situated inside the mining area’. During a follow up site visit on the 12–13 September 2009 SRK was able to verify that the: . Xingguang Coal Coking Plant — owned by the Xingguang Coal Company (Xingguang Coal), is located outside of the Mine #4 mining licence (No. 1500000720655), approximately 75m north of the northern boundary. It comprises a large scale operational coal coking facility.

. Xingguang Coal Washing Plant Facilities — owned by the Xingguang Coal Company is located within the north east corner of the Mine #1 mining licence (No. 1500000750658), approximately 50m south of the north east boundary. It comprises two operational coal washing facilities, an old small scale plant (approximately 150m southwest of the northeast boundary) that has been recently recommissioned and a newly constructed/commissioned plant.
. Erqianqi Coal Washing Plant Facilities — owned by the Yongchuang Coal Company Limited (Yongchuang Coal), is located within north east corner of Mine #4 mining licence (No. 1500000720655), approximately 430m south of the northern boundary. It comprises two old coal washing facilities, a closed/partially decommissioned plant and a plant that is currently being recommissioned.

– 349 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Tianyu Gongmao and Tianyu Coal have stated that the existence of the Xingguang and Erqianqi Coal Washing Plant Facilities within Mine #1 and Mine #4 mining licence areas is illegal. They state that the facilities have been approved by the Ordos City Government, but the facilities are located within the Wuhai City and come under the jurisdiction of the Wuhai City Administration, where the approval has not granted yet. To support this statement, Tianyu Gongmao and Tianyu Coal have quoted the ‘Notice on the boundary of ‘‘Yikezhao Prefecture’’ (Erdos) and Wuhai, Inner Mongolia Administration, No. Neizheng1996-23’ (4 March 1996). This notice makes the following statement in respect to the approval of new/recommissioned coal processing facilities in the stated area; ‘In the conflicting area coal mines can operate until the finishing of resource; plants can operate without expansion; new projects need to be approved by the new government (Wuhai Administration)’ since March 1996.

Tianyu Gongmao and Tianyu Coal are actively seeking confirmation from the Wuhai City in respect to the legal status for these facilities. SRK has been provided with copies of the following two notices from Tianyu Coal in respect to the Erqianqi Coal Washing Plant:

. Notice to Yongchuang Coal (31 August 2009) — informing the Yongchuang Coal that the construction/recommissioning of the Erqianqi Coal Washing Plant is within Tianyu Coal’s mining licence area of Mine #4 and that this construction has not been approved by Wuhai City Administration. Tianyu Coal also notified Yongchuang Coal that no mining safety pillars will be left in this area and Tianyu Coal will take no responsibility for any damages caused by their mining activity.
. Report of Illegal Construction of Washing Plant of Yongchuang Coal Ltd to the Hainan Bureau of Land and Resource (31 August 2009) — notification of the unapproved construction/recommissioning of the Erqianqi Coal Washing Plant within Tianyu Coal’s mining licence area of Mine #4 and requesting appropriate action from the Hainan Bureau of Land and Resource.

Tianyu Gongmao has stated that they have yet to submit similar notices for the Xingguang Coal Washing Plant.

SRK makes the observation that the third party coal processing facilities within the Mine #1 and Mine #4 mining licence areas, will either be deemed legal and will continue to operate or will be deemed illegal and will be issued with Government shutdown orders. SRK notes that several different scenarios may arise with each of these two main outcomes (i.e. depending on the respective agreement conditions). SRK suggests that Tianyu Gongmao and Tianyu Coal give consideration to the following in respect to the two main outcomes:

. Should the facilities be deemed to be legal and continue operating:
Determine if a compensation payment can be made to Tianyu Gongmao and Tianyu Coal for the loss of the coal reserve.
Determine if the boundaries of mining licences No. 1500000720655 and No. 1500000750658 can be amended to exclude the respective facilities.

– 350 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

If these mining licence boundaries can not be amended, then determine if a formal agreement between Tianyu Gongmao/Tianyu Coal and the respective companies can be established, which clearly defines the responsibilities and management of the facilities’ operational liabilities.
. Should the facilities be deemed to be illegal and are given a shutdown order from the Wuhai City Government:
Determine if the shutdown order includes the full decommissioning and removal of the removal of facilities and the subsequent site clean up.
If there are partially decommissioned facilities remaining after the facilities have been closed, then determine the ownership of these facilities. Determine if ownership of these facilities will revert to Tianyu Gongmao and Tianyu Coal (as they are the holders of the mining licences), or will ownership revert to the Wuhai City Government.
If Tianyu Gongmao and Tianyu Coal are the owners of these partially decommissioned facilities, then determine what are the potential assets and liabilities associated with these facilities (i.e. determine what can be salvaged and what will need to be removed).
The closure of the Xingguang Coal Washing Plant facilities on Mine #1 would also allow for the cancelling of the permanent safety pillar in this area and for a subsequent revision of the coal reserve (i.e. SRK estimates that the coal reserve for Mine #1 could be increased by up to 30% by cancelling this safety pillar).
The closure of the Erqianqi Coal Washing Plant facilities on Mine #4 would result in confirmation of the cancelling of the permanent safety pillar in this area, as stated in the Mine #4 verification report, and also provide confirmation that the reserve estimate would remain as stated in the Mine #4 FS.

Geology

Mine #1 and Mine #4 are located within the north-western sector of the extensive, coal-bearing, intracratonic Ordos basin. Significantly, the Ordos basin is China’s largest coal basin, with extensive coal deposits of Carboniferous, Permian and Jurassic age. The economical coal seams within the two mines belong to the Early Permian Shanxi Formation and the Late Carboniferous Taiyuan Formation. These two formations are particularly well developed throughout the Ordos basin.

Significantly, the wide spread Permo-Carboniferous coal measures are unique on a global scale, as they are not equalled in any other geological period before or since. Coal from these systems are economical important to China, as they account for nearly 58% of all Chinese coals. Significantly, among the Permo-Carboniferous coal measures the coals from the Taiyuan and Shanxi Formations comprise 44%. The distribution of these two coal-bearing formations is well documented. They are considered to have developed on a vast coastal plain which extended from Inner Mongolia and Shanxi, to the north and west, to Anhui in the east, covering 1000’s of square kilometres.

– 351 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

The Ordos basin consists of a largely undeformed platform that is surrounded by fold thrust belts that were zones of recurring and intense deformation from at least the late Paleozoic to Cenozoic. The extensive fold thrust belts are characterized by east-west as well as north–south shortening due to significant folding and thrust faulting. The interior sedimentary fill, however, appears to have been affected very little by the inversion tectonics and post depositional deformation. Mine #1 and Mine #4 are located in the foothills of the Zhuozi Shan Fold Thrust Belt (ZSFTB), developed along the northwestern flank of the Ordos basin. The ZSFTB is characterized by significant east-west shortening, generated by a combination of north-south trending folds and thrust fault systems.

The main structures which influence the coal-bearing strata at Mine #1 and Mine #4 Coal Mines are the Xilaifeng and F1 thrust fault systems, the F10 normal fault and the S30 syncline. The vertical displacement of the Xilaifeng and F1 reverse faults is estimated to be >300m, whereas the F10 fault is characterized by a vertical displacement of up to 126m in places. No intrusives have been uncovered within the project area.

A total of six well developed, high rank, coking coal seams are preserved at Mine #1 (i.e. 9-1, 9-2, 10, 16-1, 16-2 and 16-3) whereas seven relatively thick seams are preserved at Mine #4 Coal Mine (8-1, 9-2, 9-3, 10, 16-1, 16-2 and 17). The spatial distribution of these seams shows that seams 8-1, 9-1 and 17 deteriorate towards the northwest. The two best developed seams are 16-1 and 16-2, considered by SRK to represent a transgressive-regressive couplet. Seam 16-1 reach a thickness of 4.13m at Mine #1 and 4.55m at Mine #4, whereas the underlying seam 16-2 is up to 5.21m thick at Mine #4, but only up to 3.22 m at Mine #1. Most seams appear to thicken towards the south-east and as such follow the general sedimentation pattern in the northwest Ordos basin. There is a significant increase in sulphur levels down dip at Mine #4, from an average of 0.73% in Seam 8-1 to an average of 3.09% in Seam 17, which strongly suggests an overall back-stepping paleoshoreline resulting in a upward-shoaling coalbearing succession. The seams are typical of the bright-dull banded, high rank coal from the PermoCarboniferous coal measures in the north-western Ordos basin.

An overview of the geological characteristics is presented in the following table.

Mine	Coal-Bearing System	Formation	Economical Coal Seams	Coal Seam Thickness	Dips	Ash	Sulphur
				(m)	(°)	Ad (%)	Dry Basis (%)
Mine #1	Early Permian — Late Carboniferous	Shanxi & Taiyuan	9-1, 9-2, 10, 16-1, 16-2 & 16-3	0.46–3.22	6–10	6.69–39.16	0.22–2.04
Mine #4	Early Permian — Late Carboniferous	Shanxi & Taiyuan	8-1, 9-2, 9-3, 16-1, 16-2 & 17	0.70–5.21	17–23	10.07–44.92	0.34–4.12

In summary, the overall geological conditions at Mine #1 and Mine #4 are favorable for underground coal extraction, with a somewhat simple structural framework, overall good roof conditions, limited seam gas and relatively stable, high rank coal seams. The comparison of internationally recognized ASTM standard and Chinese Coal Quality Standard is described in Appendix No. 2.

– 352 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Coal Resource and Reserve

SRK reviewed the Chinese estimates of Coal Resources and compared them with the JORC Code (Australian Code for Reporting of Exploration Results, Minerals Resources and Ore reserves).

Since 1999 China adopted a new numerically based classification of Resources/Reserves which supersedes an alphabetically based classification that existed for some time in China’s coal industry. The two systems are shown below and an equivalent JORC classification has been derived.

JORC Code Resource Category	Chinese ‘‘Resource’’ Category	Chinese ‘‘Resource’’ Category	Chinese ‘‘Resource’’ Category
	Previous System		Current System
Measured	A		111b, 121b, 2M11, 2M21, 2S11, 2S21, 331
Indicated	B		122b, 2M22, 2S22, 332
Inferred	C		333
Unclassified under JORC	D		334

JORC Code Reserve Category		Chinese ‘‘Reserve’’ Category
Proven		111
Probable		121, 122

The resource estimation process at Mine #1 and Mine #4 was a geological block method, which is standard in the industry. The area is divided into smaller blocks which would have reasonably homogeneous conditions in terms of seam thickness and quality, as well as level of reliability of data points. The area of these blocks is determined by planimeter. An average seam thickness is determined for the block using an unweighted average of the borehole or channel sample log of seam thickness data. An average density of a seam is determined and applied to all the blocks. The tonnage for each block is therefore derived by multiplying the area by the average seam thickness of the block by the average seam density. A detailed explanation of this method and comparison of Chinese National standards to JORC standards and classifications is attached in Appendix 1.

The exploration drilling data used for Mine #1 and Mine #4 areas were acquired from old exploration conducted in Dilibangwusu and Baiyunwusu coal fields. Mine #1 verification report uses 12 boreholes and Mine #4 verification report is based on 13 boreholes. Number of samples collected and sample analysis were not provided in the Mine #1 and Mine #4 verification reports.

At Mine #1 the borehole spacing of 650m x 220m – 550m was used to define category 121, and spacing of 1,000m x 1,000m was used to define category 122b. Resource with larger spacing than 1,000 x 1,000m grid was assigned to category 333. Resource in protection pillars was assigned to category 2S22.

Mine #4 resource categories were assigned similarly. Grid 1,000m x 1,000m was used for category 122b and grid 2,000m x 2,000m for category 333.

– 353 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Industrial Standard used for the resource estimate is the following:

. Minimum coal seam thickness 0.8m . Maximum ash content 40% (air dried) . Maximum sulphur content 3% (dry)

The summary of resource is reviewed in the following table.

Mine ID	Category	Category	Category	Category	Total
	121b	122b	333	2S22
	(Mt)	(Mt)	(Mt)	(Mt)	(Mt)
Mine #1	4.04	11.56	2.80	6.30	24.70
Mine #4	0.00	32.67	15.08	0	47.75
Total	4.04	44.23	17.88	6.30	72.45

SRK has not re-estimated resource and only conducted thorough check of provided documents. SRK opines that an Exploration Report (‘‘ER’’) in accordance with ‘Notice on Strengthening Management of Coal Mine construction Projects’ (Fa Gai Neng Yuan, 2006, No. 1039) is needed for both mines, because of inconsistencies in Verification Report (‘‘VR’’) and AVR. In addition SRK recommends drilling two additional boreholes in area of Mine #1 and four additional boreholes in area of Mine #4. Additional boreholes would provide good control and validation of old exploration works. In case of Mine #4, additional boreholes would additionally refine course and displacement of fault F19. SRK opines that resource tonnage may increase because resource estimate method used is conservative. SRK conducted resource estimate check run on sub-set of data of coal seam 9 – 1 and 16 – 1 at Mine #4 licence using original borehole data. The result arrived in a range of 8% to 18% higher. SRK opines that while resource tonnage is rather conservative, the details of the resource quality need to be verified by the drilling recommended above. This is because the historical exploration methods used were not focused on resource quality as are the present standards (JORC or DZ/T0215-2002).

There are some differences between Chinese Resource Classification (‘‘Chinese Code’’) and JORC Code. However the principles used in both codes or systems are similar. JORC is more strict on core recovery (95% or more) versus Chinese Code (75% or more) and in QA/QC procedures. AS such SRK opines that resource estimate of Mine #1 and Mine #4 is reasonable and rather conservative in terms of tonnage. However, coal quality determination and distribution does not comply with JORC Code. Consequently the following broad resource comparison with JORC categories for Mine #1 and Mine #4 can be made as:

Mine #1
Measured Resource	0.0Mt
Indicated Resource	15.6Mt
Inferred Resource	2.8Mt
TOTAL	18.4Mt
Mine #4
Measured Resource	0.0Mt
Indicated Resource	22.1Mt
Inferred Resource	11.4Mt
TOTAL	33.5Mt

– 354 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Reserve for Mine #1 is estimated in PMD. Reserve of Mine #4 was reviewed in FS. Reserves of both mines were estimated according to Chinese standard by determination of Industrial Resource and by deducting permanent pillars, technological pillars and mining loss from the Industrial Resource. Since the Chinese system includes also resource of category 333, which is broadly comparable with Inferred Resource of JORC, the reserve category cannot be compared with JORC categories. JORC does not allow conversion of Inferred Resource into reserve. PMD of Mine #1 defines 10.94Mt reserve. SRK noted that Industrial Resource in PMD, which is the input for conversion to reserve, does not match with Industrial Resource calculated based on the AVR. The Industrial Resource calculated based on the AVR Resource is 3.75Mt lower than Industrial Resource stated in the PMD. SRK opines that the source of possible error must be located and addressed in the new PMD. The reserve of Mine #1 needs verification. There is a possibility for an increase of reserve by up to 30% by cancelling the permanent pillar of the Xingguang Coal Washing Plant facilities. If this protection pillar can be cancelled, the new PMD would be needed to revise the development of eastern sector of Mine #1 and re-estimate new reserve. Total reserve of Mine #4 is 32.92Mt as compared with the Feasibility Study result of 34.57Mt. The difference is caused by FS using 87% recovery factor at seam 16–1 instead of 80%. The reserve summary is reviewed in the table below.

Seam ID	Mine #1	Mine #4
	(Mt)	(Mt)
8	N/A	N/A
8-1	N/A	4.33
9-1	2.98	N/A
9-2	0.98	5.51
9-3	N/A	2.96
10	1.69	2.58
16-1	3.50	12.16
16-2	0.75	2.44
16-3	1.04	N/A
17	N/A	2.93
Subtotal	10.94	32.92
Total	43.86

SRK was informed that Inner Mongolia Government intends to move settlement in eastern area of Mine #1 mining licence. SRK recommends PMD reserve estimate is updated after the ER is completed.

In terms of converting the resource into reserve, Chinese Code allow some Inferred Resource (333 category) to be converted into reserve. JORC is stricter and does only allow the measured and indicated category to be converted into reserve, not inferred resource.

In process of conversion both codes have considered mining loss. In addition, JORC considers 8 ‘‘Modifying Factors’’ including mining, processing, economic, marketing, legal, environment, social and governmental considerations.

– 355 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

SRK opines that reserve estimate has been presented in reliable manner and is reasonable and rather conservative in terms of tonnage. In comparison with JORC the part of the reserve is converted from inferred resource and this reserve cannot be compared with JORC. Since PMD and FS does not discriminate between reserve converted form individual Chinese Code categories it is virtually impossible to identify part of reserve comparable with JORC Probable Reserve. SRK undertook thorough check and estimate that approximately 80% of Mine #1 and 60% of Mine #4 reserve could be broadly comparable with Probable Reserve.

Mining

Mining Rights of Mine #1 belongs to Wuhai Tianyu Gongmao Co., Ltd and Mine #4 belongs to Wuhai Tianyu Coal Co., Ltd. Both are approved by Inner Mongolia Bureau of Land and Resource. Existing legislation allows the Company to apply for renewal of the mining licence prior to the renewal date.

Mine ID	Licence No.	Type	Area	Elevation	Date of Issue	Date of Expiry	Production
			(km2)	(m)			(Mtpa)
Mine #1	1500000750658	underground	2.402	580–1150	December-07	December-10	0.3
Mine #4	1500000720655	underground	4.0299	600–1200	6-Dec-2007	6-Dec-2010	0.3

Mine #1 is opened by four declines which targets three mining sectors in coal seam 9 and coal seam 16. These declines serve as coal, man and material transport declines as well as air intake. The return airway decline is fitted by exhaust fan and serves for ventilation only.

Mining method is conventional retrieve long wall method with full caving. Two panels are producing coal. One is located east of Decline in Seam 9 West and works out of coal seam 9. The second one operates west of Decline in Seam 16 East and mines in coal seam 16.

Mine transport is via chain conveyors in panels and by 1.5t tubs hoisted to the surface in declines. The hoisting is the biggest bottleneck of the operation. The Company considers replacement by conveyor belt fitted in main declines, which will ensure continuous coal transport to the surface. SRK opines that this is an excellent idea and recommends stepping into design stage of planning.

Mine #4 is in development stage. Feasibility Study proposes option of using existing two declines and return airway shaft for mine entry and develop two levels targeting upper and lower seam groups. Roadways would be driven north-south along eastern boundary of mining licence and retrieve fully mechanised long wall mining with full caving used as the mining method. Two sets of equipment would be deployed in the mine depending on the seam thickness and parting thickness.

SRK opines that FS is well prepared and mining is viable.

With respect to resource status SRK recommends conducting the exploratory drilling concluded by ER and resource estimate. According to the ER, the FS should review pillars and reserve estimate and update mine development.

– 356 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

SRK was provided with production forecast for 6 year period.

Year	Unit	2009	2010	2011	2012	2013	2014	TOTAL
Mine #1	(Mt)	0.10	0.42	0.45	0.45	0.45	0.45	2.32
Mine #4	(Mt)	0.00	0.20	1.20	1.50	1.50	1.50	5.90
TOTAL	(Mt)	0.10	0.62	1.65	1.95	1.95	1.95	8.22

Tianyu Gongmao stated that the production forecast for 2009 of Mine #1 is updated after the production of Mine #1 was suspended in August 2009, therefore it is lower than the original Operation Plan that was reviewed by SRK.

SRK opines that forecasted production schedule is achievable. It is noted, that existing mining licence (0.3Mtpa) of Mine #1 must be upgraded to 0.45Mtpa, before 2010 production can be increased. The Company states that after the mine upgrade is completed the Company will apply for upgraded mining license and coal production permit. The company expects to apply for upgraded mining licence and coal production permit in March 2010.

SRK recommends upgrading the FS to 1.5Mtpa and apply for mining license of Mine #4 after the upgrade FS is completed.

Tianyu Coal Washing Plant

The design of the Tianyu Coal Washing Plant meets the requirements for the proposed 3Mtpa production capacity.

The proposed Tianyu Coal Washing Plant is located within the Mine #4 mining license area and lies to the northwest of Mine #4 main decline. The Mine #4 production of 1.2Mtpa would form part of ROM coal feed to the plant. As such it reduces coal transportation to minimum. The Mine #4 coal would be fed to the Tianyu Coal Washing Plant by conveyor belt and only coal from external sources would be delivered on trucks. In addition to that the middling coal and waste rock could be sold to power plants and brick works nearby. The Tianyu Coal Washing Plant will utilize the infrastructure of Mine #4.

The test of pulverized coal with granularity 0.25–0.50 mm was undertaken to verify the impact on ash particles liberation. The separating density for both types of pulverized coal is 1.6kg/l and the coal concentrate will meet the requirement. The near-density material is 8.96% from seam #16 coal and 8.31% from seam #9 coal. As such, pulverized coal is liberated and is easy to process.

The heavy media cyclone was selected as the coal processing method.

The non desliming process and single large diameter heavy media cyclone with three products is selected for separation. The desliming process involves removal of slime prior to coal preparation for dense-media cyclone.

The separation consists of the following procedures:

. ROM coal receiving and preparation

– 357 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

. Separation of ROM coal
. Dense-Medium Slime Separation
. Recovery of Medium
. Refill of Medium
. Recovery of Coarse Slime
. Treatment of Slime Water

Balance of coal feed and products is given in the following Table.

Product	Quantity	Quantity	Quantity	Quantity	Quality	Quality
	Yield	Output			Ad	Total Moisture
	(%)	(t/h)	(t/d)	(Mtpa)	(%)	(%)
Coal	38.52	218.85	3501.64	1.16	10.39	10.02
Middling	44.52	252.95	4047.18	1.34	25.88	7.82
Waste Rock	15.70	89.18	1426.88	0.47	63.69	13.35
Tailing	1.27	7.20	115.20	0.04	38.19	26.00
ROM Coal Feed	100.00	568.18	9090.91	3.00	26.00

Dense media consumption per input ROM coal is estimated as 0.98kg/t for coal from seam #9 and 1.09kg/t for coal from seam #16.

The Tianyu Coal Washing Plant is supplied by the Mine #4 6kV and 0.4kV power supply systems. The two-circuit high-voltage power supply used by the coal dressing plant is from different segments of 35/6kV transformer station via cable line. The installed capacity is 4987.91kW. The power supply installation meets the requirements of energy conservation and safety.

The coal-dressing plant with eight independent systems is as follows:

. Centralized production
. Quality and quantity control system
. Automatic dense-medium process parameter monitoring system
. Automatic floatation process parameter monitoring system
. Automatic flocculant preparing and adding system
. Automatic selected ROM coal blending system

– 358 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

. Industrial television monitoring system, scheduling telephone and communication system
. Automatic fire monitoring system

In SRK opinion the eight systems are well designed and take into account the stability and efficiency of the Tianyu Coal Washing Plant production.

Mine #4 ROM coal is delivered to the plant belt conveyor, external coal sources will be delivered by trucks. Washed coal, middling and waste rock are transported to respective storage yard or waste dump via a belt conveyor. Washed coal, middling and waste rock at storage yard or waste dump would be loaded onto customer’s trucks. The dense medium and reagents for the floatation process are all carried in by truck.

FS determines the total construction period as 7 months. Out of that construction work is planned for a total of 5.5 months. The total construction period involves construction preparation, construction, completion and acceptance.

Safety

Wuhai Kangtai Safety Technology Limited completed the Safety Check and Acceptance Assessment Report of Mine #1 on 25 September 2007. The Safety Production Permit No.[2008]CD002 for the 300,000tpa Tianyu Gongmao Coal Mine was issued by the Inner Mongolia Safety Bureau of Coal Mine on 7 January 2008 (expiry 1 November 2011).

No safety approvals and or permits for Mine #4 have been sighted as part of this review.

The Mine #1 Disaster Prevention and Treatment Plan (February 2009) specifies the safety measures in place for the prevention of mine fires, explosions, roof collapses and underground flooding. The Mine #1 Safety Management Plan (February 2009), specifies the organisational responsibilities for the implementation of these safety management measures. No documented occupational health and safety training measures/programs for Mine #1 have been sighted as part of this review.

The Mine #4 Feasibility Study report provides a range of proposed safety design and management measures, these have yet to be transferred into an operational management plan and or procedures. SRK notes that the Mine #4 Feasibility Study report also states that the intention is to have a combined safety management program with Mine #1, including having shared safety facilities and personnel. The Mine #4 Feasibility Study report provides a range of proposed safety training measures; these have yet to be transferred into an operational safety training program.

Tianyu Coal has stated that there have been no major accidents for Mine #1 and also that occupational health and safety accident and incident statistics are not recorded.

No documented measures for the recording of occupational health and safety accident and incident statistics for Mine #4 have been sighted as part of this review.

– 359 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Capital Expenditure (CAPEX) and Operating Expenditure (OPEX)

The development of Mine #1 required, according to the PMD, a cumulative capital investment of RMB31.52 million (M). No record of actual CAPEX spending during Mine #1 construction was available for the review.

According to Design on Combined Transport System for No. 9 and No. 16 West declines, January, 2009 (‘‘DCTS’’) the CAPEX of RMB6.11 M is planned for construction period of 4 months. SRK opines that CAPEX for Mine #1 conveyor system is adequate. The Company plans to complete the conveying system by the end of 2009.

According to Mine #1 PMD estimate the major operation cost inputs to the project are material expenses, electrical power and maintenance. The operating cost of coal from 24.04RMB/t and the Total Production Cost is 32.83RMB/t. SRK opines that Operation Cost and Total Production Cost estimated in PMD are too low, compared to similar sized coal mines within China. SRK has reviewed the production cost record. In 2008 the production cost was 305.4RMB/t and in 2009 production cost dropped down to 93.94RMB/t. It indicates a decrease of production cost along with ramp up production, which is typical for the initial operating period of a mine. SRK opines that production cost of Mine #1 would be similar to that of Mine #4.

The CAPEX of Mine #4 is estimated in FS at RMB333.22 M. Operation cost would be 93.69RMB/t and Total Production Cost is estimated at 104.52RMB/t. The CAPEX is planned to be spent over the construction period of 12 months. The Company intends to commence the construction in the 1st quarter 2010. SRK opines that CAPEX and OPEX estimates for Mine #4 are reasonable.

The Tianyu Coal Washing Plant total investment is RMB171.38 M. CAPEX would be spent over the construction period of 7 months. Total Production Cost of the Tianyu Coal Washing Plant is estimated in FS as 198.90RMB/t. SRK opines that CAPEX and OPEX for Tianyu Coal Washing Plant are reasonable.

SRK was provided with 5 years CAPEX and OPEX forecast. The total CAPEX for year 2010 is 542.23 RMB million. The Company stated that no other CAPEX than 542.23RMB million is planned for the next 5 years. SRK opines that CAPEX estimated by Mine #1 PMD has already been spent and only the outstanding CAPEX for the conveying system remains for 2010.

Year	Unit	till 2009	2010	TOTAL
Mine #1	(RMB Milion)	31.52	6.11	37.63
Mine #4	(RMB Milion)	0.00	333.22	333.22
Washing Plant	(RMB Milion)	0.00	171.38	171.38
TOTAL	(RMB Milion)	31.52	510.71	542.23

OPEX forecast for the next 5 years provided for the review does not follow categories used by either production cost record for 2008 and 2009, or in PMD or FS. As such SRK is in no position to verify the forecast. SRK opines that based on the comparison with the OPEX estimate for Mine #4, that the item ‘Mining Cost’ in the OPEX forecast is underestimated.

– 360 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Infrastructure

Road Access

There is good road access for the Tianyu Coal Projects. The Qipanjing-Wuhai Highway is situated to the north of Mine #1, which connects the project site to Wuhai City (approximately 31km to the north). A short unsealed mine access road (i.e. approximately 1km in length) connects the project site to the Qipanjing-Wuhai Highway. The No. 109 State Highway (Beijing-Lhasa Highway) is situated approximately 11km to the south of the project area. There is also good road access (i.e. sealed roads) linking the project site to Hainan District (approximately 6km to the east).

Electrical Power Supply

The electrical power supply for the Tianyu Coal Projects is sourced from the local power supply grid (via a 35kV high voltage power transmission line). This local power supply grid is operated by the Wuhai Electric Power Bureau. Tianyu Gongmao and Tianyu Coal have stated that the power supply is reliable and has the capacity to meet the project’s requirements. No power supply agreements between the Wuhai Electric Power Bureau and Tianyu Gongmao/Tianyu Coal have been sighted as part of this review.

Water Supply

The water supply for the Tianyu Coal Projects is sourced from the local scheme water supply and from the treated mine water and wastewater noted at the time of the site visit, the treated mine water and wastewater at Mine #1 was being discharged and not reused). The local scheme water supply is operated by the Hainan District Water Company and is supplied to the project site via a 2km pipeline. Tianyu Gongmao and Tianyu Coal have stated that external water supply is reliable and has the capacity to meet the project’s requirements. Water supply agreements between Hainan District Water Company and Tianyu Coal have been sighted as part of this review. No water supply agreement between Hainan District Water Company and Tianyu Gongmao Coal has been sighted.

Workshops and Repair Facilities

Only routine mechanical and electrical repairs are carried out within small workshop facilities at the project site. There is only minor storage of parts and equipment at the project site. Any non-routine repairs are outsourced to repair facilities located within the surrounding mines and or within the Donfeng Township/Hainan District.

Environmental

Business Licence No. 15000000001168 was issued to Tianyu Gongmao Development Company (Tianyu Gongmao) by the Inner Mongolia Administration for Industry and Commerce on 14 May 2008 (expiry 6 December 2010). The licensed business activities for Tianyu Gongmao are coal mining and supply (sales).

Business Licence No. 15000000001150 was issued to Wuhai Tianyu Coal Development Company (Tianyu Coal) by the Inner Mongolia Bureau of Industry and Commerce on 17 February 2007 (expiry 10 July 2009). The licensed business activities for Tianyu Coal are coal mining and supply (sales). No renewal application for Business Licence No. 15000000001150 has been sighted as part of this review.

– 361 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

The following table summarises the status of mining and environmental approvals and permitting for the Tianyu Coal Projects, where the ‘Y’ denotes the report is completed or the permit is granted, and ‘N’ means the report/permit has not been completed or is not available, ‘NYR’ means that report/permit is not yet required for the current operation, ‘NS’ denotes that the permit has not been sighted and ‘n/a’ indicates that it is not applicable.

	Mine #1	Mine #4	Coal Washing Plant
	(300,000tpa)	(1,200,000tpa)	(3,000,000tpa)
Mining Licence	Y	N	n/a
Environmental Impact Assessment Report (EIA)	Y	Y	Y
Approval for EIA	Y	Y	Y
Water and Soil Conservation Plan (WSCP)	NS	Y	NS
Approval for WSCP (from Water and Soil Bureau)	Y	Y	NS
Final Checking and Acceptance Approval (environmental approval to start formal operation)	NS	NYR	NYR
Land Use Permit (operational permit)	Y	NS	NS
Discharge Permit	NS	NYR	NYR
Water Use Permit	n/a	n/a	n/a
	(water supply from local scheme)	(water supply from local scheme)	(water supply from local scheme)

SRK notes that the proposed 450,000tpa production for the current upgrade of Mine #1 (scheduled for completion in February 2010) is above the approved production rate of 300,000tpa stated in the Mining Licence No. 1500000750658. The permitted coal production level for Mine #1 Coal Production Permit (No. 201503030318) is also 300,000tpa. Tianyu Gongmao has stated that applications for amendments to the mining licence and coal production permit will be submitted in March 2010.

No environmental Final Checking and Acceptance report and approval for the 300,000tpa Mine #1 has been sighted as part of this review. However, the Coal Bureau of Hainan District and the Wuhai Bureau of Coal Industry undertook a project completion and acceptance inspection of Mine #1 on 25 November 2007, which was documented in a report on 17 December 2007 with a recommendation to issue the Coal Production Permit. Coal Production Permit No. 201503030318 for the 300,000tpa Tianyu Gongmao Coal Mine was issued by the Inner Mongolia Bureau of Coal Industry, on 25 January 2008 (expiry 25 January 2034).

The Environmental Impact Assessment (EIA) report for the 1,200,000tpa Mine #4 Project was approved by the Inner Mongolia Environmental Protection Bureau (EPB) on the 23 April 2009. This EIA approval allows for the approved mining production for Mining Licence No. 1500000720655 to be

– 362 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

increased from 300,000tpa to 1,200,000tpa. An application to amend Mining Licence No. 1500000720655 along with the 1,200,000tpa mine design can now be submitted to the Inner Mongolia Land and Resources Bureau.

Tianyu Coal has stated that the PMD will be completed during 2010, and that this mine design will be submitted to the Inner Mongolia Coal Industry Department and then the Wuhai City Coal Industry Department for approval. They anticipate receiving this approval by mid 2010, after which they will then submit the application to amend Mining Licence No. 1500000720655, to the Inner Mongolia Land and Resources Bureau. They anticipate receiving the amendment to Mining Licence No. 1500000720655 by the 3rd quarter 2010 and commencing trial production in the 4th quarter of 2010. The application for the project’s environmental Final Checking and Acceptance will be submitted to the Inner Mongolia EPB once the trial production has commenced. Tianyu Coal anticipates receiving the Final Checking and Acceptance approval for the 1,200,000tpa Mine #4 during the later stages of the mine development/ construction (i.e. during 2011).

No Water and Soil Conservation Plan (WSCP) for Mine #1 has been sighted as part of this review, however, the approval for this WSCP has been sighted. The WSCP for the 300,000tpa Mine #1 was approved by the Wuhai Water and Soil Bureau on 3 February 2005.

No WSCP for the 3,000,000tpa Tianyu Coal Washing Plant has been sighted. However, as the facility is located within the Mine #4 mining licence area, the management of the site’s water and soil conservation will be required to meet the provisions set down within the Mine #4 WSCP and approval.

No Discharge Permit for the 300,000tpa Mine #1 has been sighted as part of this review. Tianyu Gongmao has stated that the Inner Mongolia EPB has not issued a Discharge Permit for Mine #1.

No operational Land Use Permits for Mine #4 and the Tianyu Coal Washing Plant have been sighted as part of this review. However, on the 12 March 2007, the Wuhai Bureau of City Planning issued four Construction Land Use Permits for Mine #4, covering the residential, ventilation and industrial and administrative areas. The Wuhai Land and Resource Bureau will issue the operational land use permits for Mine #4 and the Tianyu Coal Washing Plant as a component of the project Final Checking and Acceptance process.

The most significant environmental risks for the Tianyu Coal Projects are:

. Water/wastewater management (i.e. groundwater extraction, surface water discharges and wastewater management).
. Dust management.
. Land disturbance, rehabilitation and site closure.
. Land contamination.

The proposed management of these environmental risks for Mine #4 and the Tianyu Coal Washing Plant are addressed well within the project’s environmental assessment, feasibility and planning reports. The management of these environmental risks for the current operation of Mine #1 is generally in

– 363 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

compliance with the project environmental approval requirements and Chinese National environmental requirements. However, at the time of the follow up site visit (12-13 September 2009), the following site environmental management items present potential environmental non-compliances:

. Dust management — Tianyu Gongmao have constructed a windbreak fence around at the 16 East Decline coal storage and handling yard. However, the enclosure of the surface coal handling systems, use of water sprays on coal stockpiles and the surface sealing of the coal handling yard, have yet to be completed. Tianyu Gongmao has stated that these works will be undertaken during 2010, as part of the proposed Mine #1 upgrade/optimisation works (i.e. upgrade from 300,000tpa to 450,000tpa).
. Site revegetation/greening — to date only limited site revegetation/greening has occurred. However, Tianyu Gongmao has produced a site rehabilitation plan that details the proposed site rehabilitation works. Tianyu Gongmao has stated that these works will be completed during 2010, as part of the proposed Mine #1 upgrade/optimisation works.
. Wastewater management — the treated mine and domestic wastewater is currently discharged and not reused for dust suppression/site revegetation. Tianyu Gongmao has stated that the reuse of this treated wastewater will occur once the proposed dust suppression/revegetation works are completed.

SRK makes the following recommendations in respect of the environmental compliance and management for the Tianyu Coal Projects:

. Project approvals and compliance:
Tianyu Gongmao seeks written confirmation from the Inner Mongolia EPB with respect to the status with the environmental Final Checking and Acceptance approval of Mine #1.
Tianyu Gongmao seeks written confirmation from the Inner Mongolia EPB in respect to the status with the issuing of the Discharge Permit for Mine #1.
.

Environmental monitoring and management:

Develop and implement an operational Environmental Protection and Management Plan (EPMP) for Mine #1 in line with the specifications detailed in the Mine #1 EIA report.
Develop and implement an operational EPMP for Mine #4 and the Tianyu Coal Washing Plant in line with the specifications detailed in Mine #4 and Tianyu Coal Washing Plant EIA reports. This EPMP should also include a contracted site environmental monitoring program with the local environmental monitoring station/ bureau to undertake the site’s environmental monitoring.
Expand the proposed environmental monitoring program for Mine #4 and the Tianyu Coal Washing Plant to also include additional monitoring locations at Mine #1.

– 364 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

. Water management:
Upgrade the current wastewater management for Mine #1 such that all wastewater is collected, treated and reused for site dust suppression, fire protection and greening, in accordance with the project environmental approval conditions.

. Dust management

Fully develop and implement a site dust management program for Mine #1 in accordance with the project environmental approval conditions.

. Hydrocarbon management:

Construct all hydrocarbon storage and handling facilities for the Tianyu Coal Projects with secondary containment (i.e. lined and bunded areas) in accordance with Chinese National environmental requirements and recognised international industry practices.
Expand the waste oil collection system in place for Mine #1 to include waste oil generated at Mine #4 and the Tianyu Coal Washing Plant.

. Solid Waste management:

Enhance and further control the industrial and domestic solid waste disposal at Mine #1 via establishing additional designated waste storage/collection points.
. Contaminated sites:
Develop and implement an operational contaminated sites assessment and management process developed for the Tianyu Coal Projects.

. Site closure planning and rehabilitation:

Develop and implement an operational closure planning process for the Tianyu Coal Projects that is based on the objectives and proposed rehabilitation measures outlined in the Tianyu Gongmao Coal Mine Land Reclamation Program Report (15 June 2009) and Tianyu No. 4 Coal Mine Land Reclamation Program Report (14 June 2009), and also incorporates recognised international industry practices.

. Greenhouse Gas emissions:

Give consideration to developing initiatives to quantify Greenhouse Gas emissions and assess possible emission reduction strategies for the Tianyu Coal Projects.

. Emergency response:

Prepare and implement an operational ERP for Mine #1 that incorporates the emergency response measures specified in Chapter IV of the Mine #1 Disaster Prevention and Treatment Plan (February 2009), and is line with recognised international industry practice.

– 365 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Prepare and implement an ERP for Mine #4 and the Tianyu Coal Washing Plant that incorporates the proposed emergency response measures specified in the project Feasibility Study reports and is line with recognised international industry practice.

. Action Plan:

Develop and implement project action plans with schedules for carrying out the above stated environmental management improvement measures for Mine #1, Mine #4 and the Tianyu Coal Washing Plant, including cost estimates and budgeting.

Social

Mine #1 is located near the Dongfeng Township in the Hainan District approximately 31km south of Wuhai City, with Mine #4 located approximately 700m to the southwest of Mine #1. The main administrative body for the Tianyu Coal Projects is the Inner Mongolia Provincial Government. However, the operational regulation of the Tianyu Coal Projects has been mainly delegated to the Wuhai City and Hainan District. Tianyu Gongmao and Tianyu Coal have stated that the current relationship with the Inner Mongolia Provincial Government, Wuhai City and Hainan District is positive. Tianyu Gongmao and Tianyu Coal have also stated that no non-compliance notices and or other documented regulatory directives in relation to the development and operation of the Tianyu Coal Projects have been received from the Inner Mongolia Provincial Government, Wuhai City and/or Hainan District.

The general surrounding land use for the Tianyu Coal Projects mainly comprises coal mining/ processing and agriculture. The Dongfeng Township and the general regional area for the Tianyu Coal Projects are mainly populated with Han Chinese. There are no reported significant cultural heritage sites, within or surrounding the Tianyu Coal Projects.

Mine #1 is situated on industrial land and the land acquisition process did not require any relocation of residences and a corresponding land acquisition and compensation agreement. Section 7 — Chapter 3-09 (Surface Facilities — General Layout — Land Use and Planning) of the Feasibility Study report for Mine #4 refers to the need for Tianyu Coal to develop a ‘migrant’s relocation plan’ to manage the project’s residential relocation and compensation process. SRK notes that the Feasibility Study report does not provide detail in respect to any residences within the mine area that will require relocation. SRK also notes that during the site visit, no residences were observed within the Mine #4 project site.

No public consultation was undertaken as part of the Mine #1 EIA report. However, a public survey (questionnaire) on the development of Mine #4 was completed as part of the project EIA report. This was conducted in January 2009 within the nearby Dongfeng Township. The survey results showed that there is a high level of public support for the project, and that there is a predominant view that the development of the project will contribute to improvements in the local economy. However, the potential air, noise and solid waste impacts were raised as the key environmental concerns for the project development.

– 366 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Executive	Executive	Summary . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	348
List	of Tables . . . . . . . . . . . . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	371
List	of Figures . . . . . . . . . . . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	372
Disclaimer . . . . . . . . . . . . . . . . . . . .			. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	373
1	Introduction and Scope of Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			374
2	Program Objectives and Work Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			374
	2.1	Program Objectives .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	374
	2.2	Purpose of the Report	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	374
	2.3	Reporting Standard .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	374
	2.4	Work Program . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	375
	2.5	Project Team . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	375
	2.6	Warranty . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	376
	2.7	Statement of SRK Independence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		376
	2.8	SRK Experience . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	377
	2.9	Forward-Looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		377
3	Location, Accessibility, Climate and Physiography of the Project . . . . . . . . . . . . . . . . . . . .			378
	3.1	Location . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	378
	3.2	Mining Tenements . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	379
		3.2.1 Mine #1 . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	379
		3.2.2 Mine #4 . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	380
		3.2.3 Third Party Coking Plant and Coal Washing Facilities . . . . . . . . . . . . . . . . . . .		381
4	Coal	Geological Assessment	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	384
	4.1	Regional Geology . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	384
		4.1.1 Regional Structural Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		386
		4.1.2 Depositional Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		388
	4.2	Mine Geology . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	389
		4.2.1 Tianyu Gongmao — Mine #1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		389
		4.2.2 Mine #4 Geology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		393
5	Coal	Seam Characteristics	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	400
	5.1	Mine #1 . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	400
	5.2	Mine #4 . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	401
6	Coal	Quality . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	403
	6.1	General Coal Characteristics, Proximate Analysis and Ultimate Analysis . . . . . . . . . .		403
		6.1.1 Mine #1 . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	403
		6.1.2 Mine #4 . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	405
	6.2	Coking Property . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	406
		6.2.1 Gas, Coal Dust and Spontaneous Combustion . . . . . . . . . . . . . . . . . . . . . . . . . .		407

– 367 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

7	Exploration History and Exploratory Drilling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Exploration History and Exploratory Drilling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Exploration History and Exploratory Drilling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Exploration History and Exploratory Drilling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	408
	7.1	Geological Working History		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	408
8	Sampling and Data Verification		.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	409
	8.1	Sampling and Sampling Quality Assurance and Quality Control . . . . . . . . . . . . . . . . .			409
9	Resource and Reserve . . . . . . . . .		.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	410
	9.1	Resource Estimation . . . . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	410
	9.2	The Industrial Standard for	Resource Estimate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		411
	9.3	Resource Category Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			412
		9.3.1 Reserve Estimation		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	416
10	Mining	Assessment . . . . . . . . . . . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	419
	10.1	Mine #1 . . . . . . . . . . . . . . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	419
		10.1.1 Mine Layout, Opening and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			419
		10.1.2 Permanent Pillar and		Technological Pillar Design . . . . . . . . . . . . . . . . . . . . . . .	421
		10.1.3 Mining Methods and		Sequence of Seam Extraction . . . . . . . . . . . . . . . . . . . . . .	421
		10.1.4 Production Rate . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	421
		10.1.5 Coal Extraction . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	422
		10.1.6 Development Faces		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	423
		10.1.7 Support . . . . . . . . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	423
		10.1.8 Mine Transport . . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	423
		10.1.9 Ventilation . . . . . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	423
		10.1.10 Water Handling . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	424
		10.1.11 Surface Transport .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	424
	10.2	Mine #4 . . . . . . . . . . . . . . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	425
		10.2.1 Mine Layout, Opening and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			426
		10.2.2 Permanent Pillar and		Technological Pillar Design . . . . . . . . . . . . . . . . . . . . . . .	427
		10.2.3 Mining Methods . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	427
		10.2.4 Development Faces		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	428
		10.2.5 Sequence of Face Advance and Production Rate . . . . . . . . . . . . . . . . . . . . . . . .			428
		10.2.6 Support . . . . . . . . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	429
		10.2.7 Mine Transport . . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	429
		10.2.8 Ventilation . . . . . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	430
		10.2.9 Water Handling . .	.	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	430
	10.3	Production Forecast of Mine		#1 and Mine #4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	431

– 368 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

11	Tianyu	Coal Washing Plant . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	432
	11.1	Coal Washability . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	432
	11.2	Engineering Design . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	432
		11.2.1 ROM Coal Receiving and	Preparation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	433
		11.2.2 Separation of ROM coal .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	433
		11.2.3 Dense-Medium Slime Separation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		433
		11.2.4 Recovery of Medium . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	433
		11.2.5 Refill of Medium . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	434
		11.2.6 Recovery of Coarse Slime	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	434
		11.2.7 Treatment of Slime Water	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	434
	11.3	Mass Balance . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	434
	11.4	Equipment Selection . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	437
	11.5	Power Supply and Distribution and Integrated Automation . . . . . . . . . . . . . . . . . . . . . .		438
	11.6	Civil Construction . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	438
	11.7	Auxiliary Facilities . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	438
	11.8	Transportation . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	439
	11.9	Construction Schedule . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	439
	11.10	Production Scale and Working System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		439
12	Occupational Health and Safety . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	440
	12.1	Safety Approvals and Permits . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	440
	12.2	Occupational Health and Safety Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		440
	12.3	Occupational Health and Safety Training . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		441
	12.4	Historical Occupational Health and Safety Records . . . . . . . . . . . . . . . . . . . . . . . . . . . .		441
13	Capital	and Operating Costs . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	442
	13.1	Capital Expenditure (CAPEX) . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	442
		13.1.1 Mine #1 . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	442
		13.1.2 Mine #4 . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	444
		13.1.3 Mine Construction . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	445
		13.1.4 Civil Engineering . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	445
		13.1.5 Other Investment . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	445
	13.2	Workforce and Production System	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	445
	13.3	Operation Expenditure (OPEX) . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	446
	13.4	Tianyu Coal Washing Plant CAPEX and OPEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		450
	13.5	Total CAPEX and OPEX Forecast	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	451
14	Infrastructure . . . . . . . . . . . . . . . . . . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	452
	14.1	Road Access . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	452
	14.2	Electrical Power Supply . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	452
	14.3	Water Supply . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	452
	14.4	Workshops and Repair Facilities	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	452

– 369 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

15	Environmental Assessment . . . . . . . . . . . .	Environmental Assessment . . . . . . . . . . . .	. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	453
	15.1	Environmental Review Objective .	. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	453
	15.2	Environmental Review Scope and Standards		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	453
	15.3	Status of Environmental Approvals	and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		453
	15.4	Environmental Compliance and Conformance		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	456
	15.5	Land Disturbance . . . . . . . . . . . . . .	. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	462
	15.6	Waste Rock Management . . . . . . . .	. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	464
	15.7	Water Aspects and Impacts . . . . . .	. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	465
	15.8	Air Emissions . . . . . . . . . . . . . . . . . .	. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	466
		15.8.1 Dust Emissions . . . . . . . . . .	. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	466
		15.8.2 Gas Emissions . . . . . . . . . .	. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	468
		15.8.3 Greenhouse Gas Emissions	. . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	469
	15.9	Noise Emissions . . . . . . . . . . . . . . .	. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	469
	15.10	Hazardous Materials Management	. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	470
	15.11	Waste Management . . . . . . . . . . . . .	. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	471
		15.11.1 Waste Oil . . . . . . . . . . . . . .	. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	471
		15.11.2 Solid Wastes . . . . . . . . . . . .	. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	471
		15.11.3 Sewage and Oily Waste Water . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	471
	15.12	Contaminated Sites Assessment . .	. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	472
	15.13	Environmental Protection and Management Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			473
	15.14	Emergency Response Plan . . . . . . .	. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	473
	15.15	Site Closure Planning and Rehabilitation . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	475
	15.16	Evaluation of Environmental Risks	. . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	476
16	Social	Assessment . . . . . . . . . . . . . . . . . . . .	. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	477
	16.1	Social and Community Interaction	. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	477
	16.2	Relationship with Local Government . . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	477
17	Conclusion and Recommendations . . . . .		. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	478
References		. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	483
Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	487
Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	490
	Appendix 1: Resource and Reserve Standards . . . . . .			. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	490
	Appendix 2: Coal Quality Standards . . . . .		. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	493
	Appendix 3: Chinese Environmental Legislative Background . . . . . . . . . . . . . . . . . . . . . . . . . . .				497
	Appendix 4: World Bank/International Finance Corporation (IFC)
		Environmental Standards and Guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			503
	Appendix 5: Mining Licenses . . . . . . . . . . .		. . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	506

– 370 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

LIST OF TABLES

– 371 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

LIST OF FIGURES

– 372 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

DISCLAIMER

The opinions expressed in this review have been based on the information supplied to SRK Consulting by Real Power Holdings Limited. The opinions in this review are provided in response to a specific request from Real Power Holdings Limited to do so. SRK has exercised all due care in reviewing the supplied information. Whilst SRK has compared key supplied data with expected values, the accuracy of the results and conclusions from the review are entirely reliant on the accuracy and completeness of the supplied data. SRK does not accept responsibility for any errors or omissions in the supplied information and does not accept any consequential liability arising from commercial decisions or actions resulting from them.

– 373 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

1 INTRODUCTION AND SCOPE OF REPORT

SRK was commissioned by Real Power Holdings Limited (‘‘Real Power’’) to undertake a due diligence review of the Tianyu Gongmao Coal Mine (Mine #1) and Tianyu — Mine #4 Coal Mine (Mine #4) and the proposed Tianyu Coal Washing Plant near Wuhai city in Inner Mongolia Autonomous Region.

The purpose of the evaluation is to provide an Independent Technical Review (ITR) report in accordance with the Stock Exchange of Hong Kong Limited (HKSE) Chapter 18 of the Listing Rules. This review summarises the major findings of the SRK study.

2 PROGRAM OBJECTIVES AND WORK PROGRAM

2.1 PROGRAM OBJECTIVES

The objective of the program was to conduct site visit to the Real Power assets, review the sites and the available data. Based on review findings SRK Consulting China Ltd (‘‘SRK’’) was to provide a ITR report on Mine #1, Mine #4 and the proposed Tianyu Coal Washing Plant for the Company. SRK was also requested to verify the location of the third party assets; Xingguang Coal Coking Plant, Xingguang Coal Washing Plant Facilities and the Erqinqi Coal Washing Plant Facilities, in respect to the mining licence boundaries of Mine #1 and Mine #4.

2.2 PURPOSE OF THE REPORT

Real Power requested SRK to review the Mine #1 and Mine #4 assets. SRK is required to produce an Independent Technical Report for the Company which will in turn be made available for Winbox International (Holdings) Limited (‘‘Winbox’’) investors.

2.3 REPORTING STANDARD

This report has been prepared to the standard of and is considered by SRK to be, a Technical Assessment Report under the guidelines of the Valmin Code. The Valmin Code is the code adopted by the Australasian Institute of Mining and Metallurgy (AusIMM) and the standard is binding upon all AusIMM members. The Valmin Code incorporates the Joint Ore Reserves Committee Code (JORC) for the reporting of Mineral Resources and Coal Reserves.

This report is not a Valuation Report and does not express an opinion as to the value of mineral assets. Aspects reviewed in this report do include product prices, socio-political issues and environmental considerations; however, SRK does not express an opinion regarding the specific value of the assets and tenements involved.

In this report, identified Mineral Resources and mineable Coal Reserves are quoted using categorisation in accordance with the JORC Code. However, it should not be assumed that these resources and reserves are necessarily JORC Code compliant, at least until further documentation can be obtained on the estimates and they have been formally endorsed by a ‘competent person’ in accordance with the JORC Code.

– 374 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

2.4 WORK PROGRAM

The work program which included the following items:

. Desktop review of data provided by Real Power and planning for site visit;
. Travel to Wuhai to inspect Mine #1 and Mine #4 and discuss technical aspects with the Company staff. Verify location of coking plant and coal washing facilities, in respect to the boundaries of mining licences of Mine #1 and Mine #4;
. Review of the data, detailed analysis of available data (including the proposed Tianyu Coal Washing Plant assessment and feasibility study documentation);
. Independent Report editing by SRK as required;
. Completion of a technical report in accordance with relevant sections of Chapter 18 of the Listing Rules of the Stock Exchange of Hong Kong Limited, with exception of 18.09 item 3 which relates to general nature of issuer business as SRK mandate was to review Mine #1, Mine #4 and proposed Tianyu Coal Washing Plant only, and with exception of 18.09 item 8 which relates to the provision of two-year working capital statement.

2.5 PROJECT TEAM

The SRK team and their areas of responsibility are as in Table 2-1:

Table 2-1: SRK Consultants — Titles and Responsibilities

Name of Consultant	Discipline and Responsibilities
Petr Osvald	Senior Consultant, Resource and Reserve Review, Mining, Project Manager
Dr. Per Michaelsen	Senior Coal Consultant, Geology
Peter Smith	Principal Consultant, Environment
Dr. Fu Xiaoheng	Associate, Coal Washing
Jinhui Liu	Senior Consultant, Resource and Reserve Review
Dr. Yonglian Sun	Principal Consultant, Peer Review
Technical Translators	SRK employed several technical translators with university degree for technical interpretation

Petr Osvald, MSc, Senior Consultant, MAusIMM, is an experienced geologist with 20 years experience in resource estimation, mine geology, mine planning and scheduling and has worked on commodities ranging from tin, tungsten, copper, kaolin, basalt, feldspar, coal to iron. He is specialized in resource management, resource modeling and grade control. Petr had been working as mine manager responsible for exploration, data collection, data interpretation, resource estimate; mine planning, mine management and coal quality control up to end user in the biggest coal mine — Merit Pila in Malaysia for 9 years. Petr Osvald was the manager of this project and compiled this report.

– 375 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Per Michaelsen, PhD, Senior Coal Consultant, MAusIMM, is a senior consultant with SRK China with a specialty in coal-bearing deposits. He completed a doctoral study at James Cook University in Australia in 1999 on the development of Permian coal deposits and basinal dynamics. Per has more than 14 years experience in the field of coal and coal seam gas with work conducted in Australia, China and Mongolia. Per’s essential skills include: JORC compliant exploration program management, evaluation of coal deposits, integrated image and map interpretation; field mapping and structural analysis, due diligence studies and technical reviews. Per has worked with a large number of clients including BHP Billiton, Anglo Coal, Xstrata Coal, Bayfield Ventures and Asia Gold.

Peter Smith, B.Sc. MAusIMM, is the Principal Environmental Engineer with SRK Consulting China. He has worked extensively in Australia and Asia for over a decade on a wide variety of different projects including environmental health and safety. Peter is reviewing the environmental aspects including permitting and compliance.

Fu Xiaoheng, PhD, Professor of China University of Mining and Technology (Beijing), Professor Fu has been working on the Mineral Processing Engineering for 30 years. In addition, Professor Fu has abundant experience on mineral processing, coal preparation, clean coal technology and coal water fuel preparation technology. Professor Fu reviewed Tianyu Coal Washing Plant.

Jinhui Liu, MSc, MAusIMM, has graduated from China University of Geosciences in 2004. Jinhui specialises in exploring and computer modelling of resource. He is proficient with exploration software packages and GIS software as Surpac, Micromine, ERDAS, ENVI, PCI, ARCGIS, MAPINFO, MAPGIS, CAD etc. He has extensive prior experience in geology and geochemical exploration design, resource and reserve estimation for numerous mineral projects and compiling public report. Jinhui assisted Petr in resource review.

Dr. Yonglian Sun, BEng, PhD, FAusIMM, MIEAust, CPEng, is a Principal Consultant and the managing director of SRK China with over 20 years experience in geotechnical engineering, rock mechanics and mining engineering in five countries across four continents. He has extensive international mining experience with an emphasis in site investigation, analysis and modelling of geotechnical issues in open pits, underground mines, tunnels. He also has considerable experience in project management and project evaluation in assisting the mines for the fund-raising and overseas stock listing. Recently, Yonglian has coordinated and worked on a number of due diligence projects like Lingbao Gold, China Coal, and Yueda Holding’s Pb-Zn, and Xinjiang Xinxin Cu-Niprojects. All has been successfully listed in the Stock Exchange of Hong Kong Ltd. Dr. Sun is peer-reviewing the project to ensure the quality meets the required standard.

2.6 WARRANTY

Real Power has represented to SRK that full disclosure has been made of all material information and that, to the best of its knowledge and understanding, such information is complete, accurate and true. SRK has no reason to doubt this representation.

2.7 STATEMENT OF SRK INDEPENDENCE

Neither SRK nor any of the authors of this Review have any material present or contingent interest in the outcome of this report, nor do they have any pecuniary or other interest that could be reasonably regarded as being capable of affecting their independence or that of SRK.

– 376 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

SRK’s fee for completing this Review is based on its normal professional daily rates plus reimbursement of incidental expenses. The payment of that professional fee is not contingent upon the outcome of the report.

2.8 SRK EXPERIENCE

The SRK group employs approximately 900 professionals internationally and has 36 permanently staffed offices in sixteen countries on six continents. In Australia SRK has approximately 100 staff in five offices located at Perth, Sydney, Newcastle, Brisbane and Melbourne. SRK China has one office in Beijing and one branch office in Nanchang, Jiangxi Province employing approximately 30 staff. SRK has provided Independent Expert Reports for the companies and the HKSE as shown in the Table 2-2 below.

Table 2-2: Recent Reports to HKSE by SRK

Company	Year	Nature of Transaction
Yanzhou Coal Limited (listed in HKSE)	2000	Sale of Jining III coal mine by parent company to the listed operating company
Chalco (Aluminium Corporation of China)	2001	Listing on HKSE and New York Stock Exchange
Fujian Zijin Gold Mining Company	2004	Listing on HKSE
Lingbao Gold Limited	2005	Listing on HKSE
Yue Da Holdings Limited (listed in HKSE)	2006	Acquisition of shareholding in mining projects in Yunnan China
China Coal Energy Company Limited (China Coal)	2006	Listing on HKSE
Sino Gold Mining Limited	2007	Dual listing on HKSE
Xinjiang Xinxin Mining Industry Company Limited	2007	Listing on the HKSE
Kiu Hung International Holdings Limited	2008	Acquisition of shareholding in coal projects in Inner Mongolia, China

2.9 FORWARD-LOOKING STATEMENTS

Estimates of mineral resources, coal reserves and mine production are inherently forward-looking statements, which being projections of future performance will necessarily differ from the actual performance. The errors in such projections result from the inherent uncertainties in the interpretation of geologic data, in variations in the execution of mining and processing plants, in the ability to meet construction and production schedules due to many factors including weather, availability of necessary equipment and supplies, fluctuating prices and changes in regulations.

– 377 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

The possible sources of error in the forward-looking statements are addressed in more detail in the appropriate sections of this report. Also provided in the report are comments on the areas of concern inherent in the different areas of the mining and processing operations.

3 LOCATION, ACCESSIBILITY, CLIMATE AND PHYSIOGRAPHY OF THE PROJECT

3.1 LOCATION

Mine #1 is located about 31km south of the Wuhai City of Inner Mongolia Autonomous Region (Figure 3-1). Mine #4 is located about 700 m southwest from Mine #1. Administratively Mine #1 and Mine #4 belong to Dongfeng Town of Hainan District of Wuhai City. Mine #1 and Mine #4 are about 4km east of the administrative centre of Hainan District.

Geographic Coordinate:

. East Longitude: 106º 53' 56@ – 106º 56' 14@
. North Latitude: 39º 26' 21@ – 39º 27' 39@

National Highway 109# (Beijing-Lhasa) passes through the north sector of the mine field. Mine #1 is about 31km away from Wuhai City along the National Highway 109. The site is connected to the highway by an unsealed road (approximately 1km in length).

==> picture [432 x 282] intentionally omitted <==

Figure 3-1: Location of Mine #1 and Mine #4

The access to the project site is excellent.

– 378 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

The site is located on the western edge of Ordos basin. To the west of the site rises a mountain range of Helan Shan Mountain’s foothills. The mine itself is located on a flat plain gently descending from east to west. The highest point at the southeast sector of the coal mine has an elevation of 1,340m above sea level, while the lowest point at the northwest is 1,222m above sea level. The maximum elevation difference is 118m, but in general elevation difference does not exceed 30m.

Given the desert and semi-desert nature of Ordos plateau, vegetation is sparse.

The climate is a semi-desert arid plateau continental climate, characterised by cold winters and hot summers. The highest temperature reaches 36.2°C and the lowest drops to –30.4°C. The annual average precipitation is 247.7mm and the annual evaporation is 3,132.1mm to 3,919.3mm (3486.1mm on average). The majority of rain falls during July to September period. Prevailing wind comes from northwest with an average speed 3.2m/s and maximum 24m/s. The maximum thickness of frozen earth is 1.24m.

According to the Seismological Bureau of Chinese Academy of Science, the coal mine is within the seismic zone. There is possibility of earthquakes up to magnitude 8 in a Richter scale.

The Wuhai area is known for its mineral resources and has developed economy. Apart from coal production, there is cement, building materials industry, coking and chemical industry. Agriculture is focused on animal husbandry.

3.2 MINING TENEMENTS

The Chinese National Mineral Resources Law (1996) allows the Company to apply to the local/ relevant Land and Resources Bureau for renewal of the mining licence prior to the renewal date. The granted extension period for mining is generally the same as the period specified in the current licence. However, this can be negotiated on a case by case basis. The Chinese National Mineral Resources Law (1996) also allows for applications to be submitted for amendments to a mining licence’s area, the licensed mining type/method and the licensed production levels.

3.2.1 Mine #1

The Inner Mongolia Land and Resources Bureau has issued the mining license for the underground Mine #1 with an area of 2.402 km[2] . A summary is shown in Table 3-1 and details are attached in Appendix 5.

Table 3-1: Mining License Details — Mine #1

Licence No.	Type	Area	Elevation	Date of Issue	Date of Expiry	Maximum Production Permitted by Mining License
		(km2)	(m)			(Mtpa)
1500000750658	underground	2.402	580–1150	Dec-2007	Dec-2010	0.3

Tianyu Gongmao has stated that the Wuhai Land and Resource Bureau agree to renew the mining license from December 2010 to December 2013.

– 379 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

The mining tenement is delineated by the coordinates shown in Table 3-2.

Table 3-2: Tenement Coordinates for Mine #1

Vertex ID	Easting (m)	Northing (m)
	(m)	(m)
1	36403340	4370550
2	36404820	4371650
3	36405350	4370400
11	36404500	4370000
12	36404000	4369000

SRK notes that the proposed 450,000tpa production for the current upgrade of Mine #1 (scheduled for completion in February 2010) is above the approved production rate of 300,000tpa stated in the Mining Licence No. 1500000750658. Tianyu Gongmao has stated that applications for amendments to the mining licence and coal production permit will be submitted in March 2010.

3.2.2 Mine #4

The mining licence for Mine #4 occupies an area of 4.0299 km[2] and is located about 700 m southwest from Mine #1. A summary is shown in Table 3-3 and details are attached in Appendix 5.

Table 3-3: Mining License Details — Mine #4

Licence No.	Type	Area	Elevation	Date of Issue	Date of Expiry	Maximum Production Permitted by Mining License
		(km2)	(m)			(Mtpa)
1500000720655	underground	4.0299	600–1200	6-Dec-2007	6-Dec-2010	0.3

The mining tenement coordinates are shown in Table 3-4.

– 380 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Table 3-4: Tenement Coordinates for Mine #4

Vertex Id	Easting	Northing
	(m)	(m)
1	36407250	4369580
2	36407250	4367910
3	36405700	4367910
4	36405200	4370100
5	36405750	4370150
6	36405900	4369850
7	36406020	4370160
8	36407150	4370310
9	36407150	4369580

The Environmental Impact Assessment (EIA) for the 1,200,000tpa Mine #4 Project was approved by the Inner Mongolia Environmental Protection Bureau (EPB) on the 23 April 2009. This EIA approval allows for the approved mining production for Mining Licence No. 1500000720655 to be increased from 300,000tpa to 1,200,000tpa. An application to amend Mining Licence No. 1500000720655 along with the 1,200,000tpa mine design can now be submitted to the Inner Mongolia Land and Resources Bureau. Tianyu Coal has stated that they will submit this application for amending the approved mining production for Mining Licence No. 1500000720655 from 300,000tpa to 1,200,000tpa, after the completion of the Preliminary Mine Design (PMD) during 2010. Tianyu Coal has also stated that they anticipate receiving the amendment of the approved mining production for Mining Licence No. 1500000720655 by the 3rd quarter of 2010, and that the mine development/construction will commence in the 4th quarter of 2010.

SRK noted that the production forecast (Table 10-9) indicates production of 1.5Mtpa in 2012. As the FS target production is 1.2Mtpa, only the FS needs to be updated and mining license upgraded to 1.5Mtpa before 2012.

3.2.3 Third Party Coking Plant and Coal Washing Facilities

Tianyu Gongmao Development Company (Tianyu Gongmao) and Wuhai Tianyu Coal Development Company (Tianyu Coal) have stated in September 2009 that ‘a commissioned third party coking plant is situated outside of the mining area and a decommissioned third party coal washing plant is situated inside the mining area’. During a follow up site visit on the 12–13 September 2009 SRK was able to verify that the:

. Xingguang Coal Coking Plant — owned by the Xingguang Coal Company (Xingguang Coal) is located outside of the Mine #4 mining licence (No. 1500000720655), approximately 75m north of the northern boundary. It comprises a large scale operational coal coking facility.

– 381 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

. Xingguang Coal Washing Plant Facilities — owned by the Xingguang Coal Company is located within the north east corner of the Mine #1 mining licence (No. 1500000750658), approximately 50m south of the north east boundary. It comprises two operational coal washing facilities, an old small scale plant (approximately 150m southwest of the northeast boundary) that has been recently recommissioned and a newly constructed/commissioned plant.
. Erqianqi Coal Washing Plant Facilities — owned by the Yongchuang Coal Company Limited (Yongchuang Coal) is located within north east corner of Mine #4 mining licence (No. 1500000720655), approximately 430m south of the northern boundary. It comprises two old coal washing facilities, a closed/partially decommissioned plant and a plant that is currently being recommissioned.

Tianyu Gongmao and Tianyu Coal have stated that the existence of the newly constructed/ commissioned Xingguang and Erqianqi Coal Washing Plant Facilities within Mine #1 and Mine #4 mining licence areas is illegal. They state that these facilities have been approved by the Ordos City Government, but the facilities are located within the Wuhai City and come under the jurisdiction of the Wuhai City Administration, where the approval has not been granted yet. To support their statement that these newly constructed/commissioned third party facilities are illegal (i.e. not approved by the Wuhai City Administration), Tianyu Gongmao and Tianyu Coal have quoted the ‘Notice on the boundary of ‘‘Yikezhao Prefecture’’ (Erdos) and Wuhai, Inner Mongolia Administration, No. Neizheng1996-23’ (4 March 1996). This notice makes the following statement in respect to the approval of new/recommissioned coal processing facilities in the stated area; ‘In the conflicting area coal mines can operate until the finishing of resource; plants can operate without expansion; new projects need to be approved by the new government (Wuhai Administration)’ since March 1996.

. Notice to Yongchuang Coal (31 August 2009) — informing the Yongchuang Coal that the construction/recommissioning of the Erqianqi Coal Washing Plant is within Tianyu Coal’s mining licence area of Mine #4 and that this construction has not been approved by Wuhai City Administration. Tianyu Coal also notified Yongchuang Coal that no mining safety pillars will be left in this area and Tianyu Coal will take no responsibility for any damages caused by their mining activity.
. Report of Illegal Construction of Washing Plant of Yongchuang Coal Ltd to the Hainan Bureau of Land and Resource (31 August 2009) — notification of the unapproved construction/recommissioning of the Erqianqi Coal Washing Plant within Tianyu Coal’s mining licence area of Mine #4 and requesting appropriate action from the Hainan Bureau of Land and Resource.

Tianyu Gongmao has stated that they are planning to submit similar notices for the Xingguang Coal Washing Plant.

– 382 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

. Should the facilities be deemed to be legal and continue operating:
Determine if Tianyu Gongmao and Tianyu Coal will be compensated for the loss of the coal reserve.
Determine if the boundaries of mining licences No. 1500000720655 and No. 1500000750658 can be amended to exclude the respective facilities.
If these mining licence boundaries can not be amended, then determine if a formal agreement between Tianyu Gongmao/Tianyu Coal and the respective companies can be established, which clearly defines the responsibilities and management of the facilities’ operational liabilities.
. Should the facilities be deemed to be illegal and are given a shutdown order from the Wuhai City Government:
Determine if the shutdown order includes the full decommissioning and removal of facilities and the subsequent site clean up.
If there are partially decommissioned facilities remaining after the facilities have been closed, then determine the ownership of these facilities. Determine if ownership of these facilities will revert to Tianyu Gongmao and Tianyu Coal (as they are the holders of the mining licences), or will ownership revert to the Wuhai City Government.
If Tianyu Gongmao and Tianyu Coal are the owners of these partially decommissioned facilities, then determine what are the potential assets and liabilities associated with these facilities (i.e. determine what can be salvaged and what will need to be removed).
The closure of the Xingguang Coal Washing Plant facilities on Mine #1 would also allow for the cancelling of the permanent safety pillar in this area and for a subsequent upward revision of the coal reserve (i.e. SRK estimates that the coal reserve for Mine #1 could be increased by up to 30% by cancelling this safety pillar).
The closure of the Erqianqi Coal Washing Plant facilities on Mine #4 would result in confirmation of the cancelling of the permanent safety pillar in this area, as stated in the Mine #4 verification report, and also provide confirmation that the reserve estimate would remain as stated in the Mine #4 Feasibility Study (FS).

– 383 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

4 COAL GEOLOGICAL ASSESSMENT

4.1 REGIONAL GEOLOGY

Mine #1 and Mine #4 are located adjacent to one another along the foothills of the north-south oriented Zhuozi Shan Fold Thrust Belt, within the north-western sector of the extensive, coal-bearing, intracratonic Ordos basin in north-central China (Figure 4-1 and Figure 4-3).

The Ordos basin is well known for its energy resources. The basin stretches approximately 700km north-south and 500km east-west, and is the second largest sedimentary basin in China. Significantly, the Ordos basin is China’s largest coal basin, with extensive coal deposits of Jurassic, Permian, and Carboniferous age. Coal seams in the Permo-Carboniferous Shanxi and Taiyuan Formations are very well developed throughout the basin.

The economical important coking coal seams within Mine #1 and Mine #4 belong to the Early Permian Shanxi Formation and the Late Carboniferous Taiyuan Formation. Coals from the PermoCarboniferous age are particularly important in China as they are the main coals used for power generation, accounting for nearly 58% of all Chinese coals. Among them, the Taiyuan and Shanxi Formations account for 27% and 17%, respectively (Luo et al., 2004). In general, the coal seams of the Shanxi Formation are characterized by relatively low sulphur levels probably indicating a fluviallacustrine setting, whereas the coal seams within the Taiyuan Formation are characterized by relatively high sulphur levels, indicating a marine influence on their emplacement (cf. Diessel, 1992, 2006).

The Ordos basin has a Paleozoic history of passive craton sedimentation which is unique to the North China Block, and similar to the Bohai Basin further to the east. The Paleozoic stratigraphic record in the Ordos basin consists of a Cambrian-Ordovician section of predominantly marine limestone and dolomite, and a Carboniferous-Permian section which passes from shallow marine limestone, sandstone and shale low in the section to mostly deltaic and fluvial sandstone and mudstone higher in the section. The stratigraphy of the basin is very similar to other parts of the North China block (Yang et al., 1992, Ritts et al., 2006).

The upper and lower Paleozoic sections are separated by a significant unconformity which spans from Late Ordovician to Early Carboniferous times. The lower Paleozoic section is overlaying Archean gneiss basement. Excellent exposures of the Paleozoic basinal fill sequences are developed along the margins of the Ordos basin, in particular along some sections of the Yellow River.

The Early Mesozoic facies architecture within the Ordos Basin was attributed by Ritts et al., 2004 to reflect a complex interaction of fluvial, lacustrine deltaic and alluvial fan depositional environments. The basinal fill was strongly asymmetric thinning towards Zhuozi Shan to the west, where it reaches 600–800m in thickness. The Ordos Basin has been interpreted by Ritts et al., 2004 as an intraplate extensional basin during Triassic times and as a non-marine foreland basin during Lower to Middle Jurassic times.

– 384 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

==> picture [387 x 509] intentionally omitted <==

Figure 4-1: Geology Map of the Ordos Basin Showing the Project Areas

The Late Jurassic — Early Cretaceous Ordos Basin has experienced east vergent reverse faulting as well as folding along the western margin. A Cretaceous main deformation phase is indicated by abrupt change of sedimentation systems in Late Jurassic.

– 385 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

4.1.1 Regional Structural Framework

The Ordos basin consists of a largely undeformed platform that is surrounded by fold thrust belts (Figure 4-2), that were zones of recurring and intense deformation from at least the late Paleozoic to Cenozoic. The extensive fold thrust belts are characterized by north-south as well as east-west shortening (Darby and Ritts, 2002; Ritts et al., 2001, 2003, 2004, 2006).

The interior sedimentary fill appears to have been very little affected by inversion tectonics and post depositional deformation. However, the Tianyu mining area is located in the foothills of the northsouth trending Zhuozi Shan Fold Thrust Belt (ZSFTB). Consequently, significant faults (i.e. with >300m of vertical displacement in places) are developed within the coal project area.

The ZSFTB is the western part of the more extensive Helan Shan Fold Thrust Belt (HSFTB), which contains thick (up to 4km) sequences of non-marine Triassic strata (Ritts et al., 2004). The two fold thrust belts are separated by a major left-lateral strike-slip fault (i.e. the Wuhai Yellow River Fault), responsible for approximately 62km of lateral displacement (Figures 4-2 and 4-3). The Yellow River is located parallel (i.e. 1km–5km to the west) of this north-south trending fault in the Wuhai region (Figure 4-3).

==> picture [351 x 290] intentionally omitted <==

Figure 4-2: Structural Setting of the Coal-Bearing Ordos Basin

– 386 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

==> picture [259 x 590] intentionally omitted <==

Figure 4-3: Overview of the Zhuozi Fold Thrust Belt Setting

– 387 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Large structures of Triassic age have not been identified in the H-ZSFTB, but small Triassic normal faults have been documented in the western and central sector of the H-ZSFTB. These characteristics most strongly support an extensional origin for the Triassic basin in NW Ordos. The basin is interpreted to have been a north-trending half graben, bound along its western margin by an east-dipping normal fault, presently concealed beneath Quaternary cover west of the HSFTB according to Ritts et al. (2004).

The main structures in the coal district include the Qianlishan-Aerbasi Reverse Fault, the Zhuozishan Anticline, the Gangdeer-Xilaifeng Reverse Fault and the Gangdeer Anticline. The common trend line for all these major structures is nearly north-south according to the available data (Figures 4-2 and 4-3). However, minor normal faults within the project areas trend in a general east-west direction.

4.1.2 Depositional Model

The wide spread Permo-Carboniferous coal measures are unique on a global scale, as they are not equalled in any other geological period before or since. Coal from these systems are economical important to China, as they account for nearly 58% of all Chinese coals. (including 44% from the Taiyuan and Shanxi Formations). The distribution of the Shanxi and Taiyuan Formations is well documented within Chinese as well as the international literature. These coal measures are considered to have developed on a vast coastal plain which extended from Inner Mongolia and Shanxi, to the north and west, to Anhui in the east, covering thousands of square kilometres.

The Carboniferous — Early Permian succession in the Ordos basin is characterized by an overall regression, represented in the rock record as a transition from shallow marine limestone, sandstone and shale low in the section to coal-bearing deposits higher in the section. Within the Early Permian Shanxi — Late Carboniferous Taiyuan coal measures a marked decrease in sulphur levels occur upward. However, the presence of key stratigraphic marine limestone markers within the coal-bearing Taiyuan Formation in many parts of the Ordos basin, (but not in the Wuhai region), shows that the overall regression was punctuated by extensive transgressive events. These events are not just academic, as they had a significant impact on the development and preservation of economical coal seams. The inter digitations of terrestrial and marine limestone deposits strongly suggest that the coal developed proximal to the palaeoshoreline on a vast coastal plain. Some seams developed during transgressions whereas others during subsequent regressions, forming so-called transgressive-regressive couplets (Diessel, 1992, 2006).

The Ordos basin is part of the North China block, and during Permo-Carboniferous times this block apparently formed a separate, large island in the tropical part of the ‘‘Tethys Ocean’’. During the Late Permian the North China plate apparently collided with the Mongolian plate (e.g. Wang et al., 1990 and Ziegler et al., 1997). Research from the Wuda coalfield on the coal-forming floras of seam 6 and 7 from the Shanxi Formation, shows great variability of vegetation and landscapes along the Cathaysian realm during the Late Paleozoic (Pfefferkorn and Wang, 2007). Clearly, in order to support such a diverse peat-forming flora, relatively humid conditions must have prevailed over extended periods. However, well developed red beds in the Early-Middle Permian Shihezi Formation strongly suggest that arid conditions existed during this time. The dramatic shift from humid (coal-bearing) conditions during the Late Carboniferous to Early Permian, to arid (coal-barren) depositional conditions during the late Early Permian, is considered here to be a direct result of the closure of Permo-Carboniferous seaways (i.e. moisture sources). Recent work by Cope et al. (2006) suggest that the aridification of North China

– 388 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

may have been caused by a rain shadow topography effect related to the convergence and ultimate collision between the North China block and the ‘‘Altaid arc terranes’’ of Mongolia. However, the arid conditions during Late Permian times extended further afield, into Russia (red beds) and Europe (Zechstein evaporates and red beds), which implies dramatic environmental changes on a global scale. Significantly, the widespread peat mire systems, the precursors to the coal seams, never re-established on a massive global scale after the Permian.

4.2 MINE GEOLOGY

4.2.1 Tianyu Gongmao — Mine #1

Mine #1 is located in the east of the Yellow River, within the Wuda Coal Field, and proximal to Wuhai City, in the Autonomous Region of Inner Mongolia (Figure 4-3). Administratively the coal mine is governed from Wuhai. The eastern part of the mine area is located only 200m from the northwestern boundary of Mine #4 (Figure 3-1). In this context the two coal mines share many geological similarities such as stratigraphy and depositional and structural dynamics.

Litho-Stratigraphic Framework

The litho-stratigraphic framework of Mine #1 and Mine #4 is nearly identical, generated by the proximity of the two mines, and is covered in detail in the Mine #4 section 4.3, based on the geological verification report combined with observations and measurement made by SRK. No detailed lithostratigraphic information is available from Mine #1. However, the stratigraphic package is considered by SRK to be very similar to Mine #4, which is covered in detail in section 4.3.1.

According to the geological data, six relatively thick seams are well developed within the Mine #1 area; seams 9-1, 9-2, 10, 16-1, 16-2 and 16-3. The two main mineable coal seams are seams 9 and 16, which split into a number of seams. The well developed seams at Mine #4 are slightly different: 8-1, 9-2, 9-3, 10, 16-1, 16-2 and 17; suggesting that seams 8-1, 9-1 and 17 deteriorates towards the northwest.

Structural Framework

The general structural complexity of the project area is moderate. The main structure within Mine #1 is a monocline, which trends approximately 295º–300º (i.e. NW-SE) and dips approximately 17º–23º. No intrusives have been uncovered within the mining area. However, the Permo-Carboniferous coal-bearing strata are deformed by significant faults (i.e. up to 400m of vertical displacement in places). The main structures affecting the coal-bearing strata within the mining district are briefly describe in the following and shown in the three cross-sections (Figures 4-4, 4-5 and 4-6). Furthermore, some of the faults which directly affect the coal-bearing strata within the mining lease are shown in Figure 4-7.

The Xilaifeng thrust fault is located to the east of the mining area, and is characterized by dips of 55º and vertical displacement of approximately 400m. It marks the boundary between the eastern and western mines in the Dilibang Wusu mining area.

– 389 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

The north–south trending F1 thrust fault is located in the western part of the mine area (Figure 4-7). Further north it is considered to be connected to the regional Gangder thrust fault system. The dip angle of the F1 fault is approximately 55º and the vertical displacement is significant (i.e. more than 300m). The F1 fault is intersected by borehole 503 (Figures 4-4, 4-5 and 4-7).
The F2 normal fault is located to the east of borehole 502, just south of the mine boundary. The F2 fault is trending NNW-SSE and characterized by dips of 50º. The vertical displacement is in the order of 2m–3m.
The F4 normal fault is located north of borehole 526. The fault is characterized by a sub-vertical dip angle of 80º and displacement of 5m (Figure 4-5).

==> picture [398 x 202] intentionally omitted <==

Figure 4-4: NW-SE Trending Cross-Section 19 – 19'

– 390 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

==> picture [398 x 269] intentionally omitted <==

Figure 4-5: NW-SE Trending Cross-Section 18 – 18' Showing 3 Faults

The F4 thrust fault is located in the north-western part of the mine and intersected by borehole 523 (Figure 4-7). The fault dips at approximately 79º. The vertical displacement is estimated to be in the order of 7m. This fault is considered to be associated with the F1 thrust fault.
The minor F5 normal fault is located north of borehole 523 in the central part of the mining area. The dip of the fault is nearly vertical (85º) with a minor vertical displacement of 2m–3m.
The minor F6 normal fault is located between boreholes 508 and 529 in the middle of mine (Figure 4–7). The dip and the vertical displacement of the fault is similar to the F5 fault (i.e. 80º and 2m, respectively).

==> picture [407 x 124] intentionally omitted <==

Figure 4-6: NW-SE Trending Cross-Section 17 – 17'

– 391 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

==> picture [410 x 354] intentionally omitted <==

Figure 4-7: Overview of Structures at Mine #1

The F7 normal fault is located to the east of borehole 525 which in turn is located just outside the northwestern boundary of the mine. The fault strikes approximately 10º and dips approximately 80º. The vertical displacement is estimated to be in the order of 6m (Figures 4-5 and 4-6).
The F8 fault is a subvertical normal fault which was intercepted in borehole 1 that is located in the northern part of the mine (Figure 4-7). The fault is characterized by a dip of 75º and a vertical displacement of 5m–6m.

– 392 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

4.2.2 Mine #4 Geology

Mine #4 is located east of the Yellow River, within the Wuda Coal Field, and proximal to Wuhai City, in the Autonomous Region of Inner Mongolia (Figure 4-1). Administratively the coal mine is governed from Wuhai. The mine area is located only 200m from the boundary of Mine #1.

Litho-Stratigraphic Framework

The mining area is predominantly covered by Quaternary deposits. The Early Permian Xiashihezi Formation outcrops within the southeastern part of the mining lease However, the Permo-Carboniferous coal-bearing deposits do not outcrop anywhere within the mining area. The stratigraphic units within the mining area are described briefly here (also see Figure 4-8 and Table 4-1 below):

Quaternary (Q)

The Quaternary deposits consist of conglomerate and other alluvial sediments as well as aeolian sand. This deposit varies in thickness from 0 to approximately 40m in places.

Tertiary (T)

Sedimentary deposits of Tertiary age can be subdivided into two units (i.e. upper and lower) within the mining area. The upper unit consists of sand interbedded with mud, whereas the lower unit consists of reddish sand. The thickness of the Tertiary deposits varies from 0m to > 40m in places.

Upper Permian Series (P2)

The Upper Permian series (P2s) within the mining area is characterized by the Shangshihezi Formation. The formation is eroded in the southeast of the mine field, and only remains in the middle and north-western sector of the mining lease. The thickness varies from 5m–23m. The formation consists of claret, grayish green and mottle sandy mudstone, sandy claystone and greyish green to off-white medium to coarse-grained sandstone. The bounding surface between the Shangshihezi and the underlying Xiashihezi Formation is conformable.

Lower Permian Series (P1)

The Lower Permian Series (P1) is subdivided into an upper and lower stratigraphic unit based on lithological characteristics. Significantly, the upper stratigraphic unit (the Xiashihezi Formation) is coalbarren whereas the lower unit (the Shanxi Formation) is coal-bearing. As such, it represents a dramatic shift in depositional dynamics. Furthermore, the shift is of regional extent, extending far southeast to the Anhui province.

– 393 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

==> picture [343 x 536] intentionally omitted <==

Figure 4-8: Litho-Stratigraphic Summary Log from Mine #4

– 394 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Table 4-1: Stratigraphic Succession in the Tianyu Coal Mining Area

Erathem	Series	System	Formation	Code	Thickness
					(m)
Cenozoic	Quaternary System Tertiary System			Q T	0-40 0–>40
Paleozoic	Permian System	Upper Series	Shangshihezi Formation	P2s	5 to 23
		Lower Series	Xiashihezi Formation	P1x	96.4
		Lower Series	Shanxi Formation	P1s	80-132
	Carboniferous System	Upper Series	Taiyuan Formation	C2t	59.80 to 86.31
		Upper Series	Benxi	C2b	3 to 21
	Ordovician System	Lower Series		O	> 300

The Xiashihezi Formation of the Lower Permian Series (P1x) outcrops in the south-eastern sector of the mining area, and partially thins due to erosion. The thickness varies from 32m– 112.67m (87.04m on average). It consists of off-white medium to coarse-grained sandstone with minor greyish-green sandy mudstone. This formation is divided into 3 subunits based on lithological characteristics, none of which contain coal seams. The bounding surface between the Xiashihezi and the underlying Shanxi Formation is conformable.

Early Permian Shanxi Formation (P1S)

The Early Permian System in Inner Mongolia is economically important as it contains vast coal resources on a regional scale. The Early Permian Shanxi Formation (P1s) is one of the two main coal-bearing formations within the mining area; however these deposits are not exposed within the license area. Significantly, the Shanxi Formation contains 5–11 coal seams, with a combined thickness of 5.05m–7.26m (5.89m on average), with a coal coefficient of 5.3%. However, only 2-4 of these seams are mineable. The combined thickness of these mineable seams varies from 2.84m–6.02m (3.72m on average), with a coal coefficient of 3.3%.

The combined thickness of the formation varies from 80m–132m (111.77m on average). Contact to the underlying coal-bearing Taiyuan Formation is in general conformable within the project area. The Shanxi Formation is subdivided into 4 units based on lithological characteristics. In general, the upper and middle part consist of off-white to greyish black sandstone, sandy mudstone, mudstone and coal, while the lower part is composed of grey to greyish black claystone, sandy mudstone and coal seams. It is abundant in zoolites, and contains coal seams 2–10. The definition of the four stratigraphic sub-units is briefly described in the following.

Basal Unit 1 (P1s1). This unit is developed from the base of the Shanxi Formation to the sandstone bed in the immediate roof of seam 7. The thickness of this unit varies from 13.06m to 30.21m (25.00m on average). It consists of greyish black and dark grey sandy mudstone, mudstone and claystone with coal seams. Significantly, this unit contains seams 7, 8, 9 and 10, among which seams 8-1, 9-2, 9-3 and 10 are among the main mineable coal seams within the mining area.

– 395 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Lower Middle Unit (P1s2). This unit extends from the top of seam 7 to the top of seam 4. The thickness varies from 23.07m–32.34m (25.84m on average). The unit is made up of off-white medium to coarse-grained sandstone with dark grey sandy mudstone. It contains seams 4, 5 and 6, which are all not mineable within the project area.
Upper Middle Unit (P1s3). This unit extends from the top of seam 4 to the top of seam 2. The unit varies in thickness from 11.21m–20.50m. It consists of yellowish grey to greyish green sandy mudstone, mudstone and minor fine-grained and silty sandstone. Furthermore, it contains seams 2 and 3, which are both not mineable in the project area.
Upper Unit (P1s4). The upper unit extends from the roof of seam 2 to the top of the Shanxi Formation. The unit varies in thickness from 32.04m–63.36m (average of 45.85m). It consists of yellowish green sandy mudstone, mudstone and grey medium to coarse-grained sandstone. This unit contains no coal seams.

It is noted that the sandstone/shale ratio is much higher than in the underlying Upper Carboniferous deposits. According to Ritts et al. (2006), the sandstone bodies are mainly characterized by amalgamated lenticular — tabular bodies, interbedded with dominantly red and maroon mudstones. These bodies were measured by Ritts et al. (2006) to be between 8.5m–60m thick within the Zhuozi Shan area (Figure 4-3).

Late Carboniferous Taiyuan Formation (C2t)

The Late Carboniferous System in Inner Mongolia is also very important as these sedimentary deposits contain numerous economical coal seams on a regional scale. The formation contains 4-7 coal seams, with a combined thickness of 3.73m–13.02m (7.71m on average), and a coal coefficient of 11.3%. Among the seven coal seams only 1-4 are mineable within the project area. The combined thickness of the mineable seams varies from 2.31m–12.36m (5.63m on average) with a coal coefficient of 8.2%. The thickness of the formation varies from 59.80m– 86.31m (68.31m on average). The stratigraphical relationship with the under and overlying formations is conformable. The Taiyuan Formation is subdivided into 2 stratigraphic units based on lithological characteristics.

Basal Unit 1 (C2t1). This unit extends from the base of the Taiyuan Formation to the base of the sandstone in the roof of seam 14. The thickness varies from 23.21m–42.05m (34.08m on average). It consists of greyish black sandy mudstone, mudstone interbedded with off-white fine-grained sandstone and siltstone. Importantly it contains seams 14, 15, 16, 17 and 18, among which seam 16 is the main mineable seam in the project area. Seam 16 splits into two seams (i.e. 16-1 and 16-2) with a sandstone bed in the middle. The high sulphur levels (i.e. up to 4% in places) within these two seams, suggest that the 0.43m–5.74m thick sandstone bed could be of intertidal origin, and as such represent a classical transgressive — regressive couplet (cf. Diessel, 2006).
Upper Unit 2 (C2t2). This unit extends from the top of seam 14 to the top of the Taiyuan Formation. The thickness varies from 30.52m–41.97m (34.23m on average). It consists of dark grey sandy mudstone and mudstone with light grey fine-grained and silty sandstone. Furthermore, it contains seams 11, 12 and 13, which are all thin and not mineable.

– 396 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Late Carboniferous Benxi Formation (C2b)

The upper part of the Late Carboniferous Benxi Formation (C2b) was intersected by several boreholes in the mining area. The thickness recorded in the boreholes varies from 3m–21m (9.5m on average). The lithology is characterized by off-white compact and rather hard quartz-rich sandstone and greyish black mudstone which partially contains limonite. The contact between the Benxi Formation and the underlying Ordovician sedimentary rocks is characterized by a parallel unconformity.

Ordovician System (O)

Only a few boreholes in the mining area intersected the upper part of the Ordovician strata. However, based on regional stratigraphic data, the formation is known to be in excess of 300m thick. The lithology mainly consists of bluish grey bioclastic limestone with well developed planar bedding.

Magmatic Intrusives

It is noted that no intrusives have been documented in the mine area.

Structural Framework

The structural complexity of the project area is moderate. The main structure within the Tianyu mining area is a monocline, characterized by gentle dips of approximately 6º–10º. No intrusives have been uncovered within the mining area. However, the Permo-Carboniferous coalbearing strata are deformed by folds and significant faults (i.e. >300m vertical displacement in places).

Table 4-2: Main Faults within the Tianyu Coal Mining Area

Fault	Style	Occurrence	Vertical Displacement (m)	Scale (km)
Xilaifeng Fault	Reverse	Strike approx. North-South Dips 56 ~60°	>300	75
F10	Normal	Strike approximately 75° Dips ~60°	~126	>0.55
F19	Normal	Strike approximately 70° Dips ~70°	NA	>0.46

The main structures which influence the coal-bearing strata within the mining district are the Xilaifeng reverse fault, the F10 normal fault, the F19 normal fault and the S30 syncline (Figure 4- 9). The main structural features are summarized in Table 4-2 above and briefly described in the following:

. The S30 syncline is located along the central eastern part of the Xilaifeng reverse fault, which appears to have influenced this structure to some extent (Figure 4-6).

– 397 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

. The Xilaifeng reverse fault is a significant regional structural feature which extends for approximately 75km (Figures 4-5 and 4-7). It is located in the western part of the mining area, where it can be traced for approximately 2.5km. The fault is characterized by vertical as well as lateral displacement along the fault line. The strike of the fault is nearly north-south, and the dips varies from approximately 56º–60º (i.e. towards the west). Significantly, the vertical displacement is estimated to be over 300m.
. The F10 normal fault is located in the northern part of the mining area, where it can be traced for approximately 550m (Figure 4-9). However the fault extends outside the mining lease, where it joins up with the regional extensive Xilaifeng reverse fault. The trend of the F10 fault is approximately 75º, and the dip is 60º (i.e. towards the northwest). The vertical displacement is approximately 126m.
. The F19 sub-vertical normal fault is located proximal to Exploration Line 3 (Figure 4-9). The F19 fault has a similar trend to the F10 fault, approximately 70º, with a dip of 70º (also towards the northwest). The vertical displacement is approximately 15m. The F19 fault extends for approximately 460m within the mining area. The fault displacement gradually decreases towards the west and pinches out to 0m around borehole 404.

– 398 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

==> picture [446 x 437] intentionally omitted <==

Figure 4-9: Overview of Structures at Mine #4 Coal Seam Characteristics

– 399 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

5 COAL SEAM CHARACTERISTICS

5.1 MINE #1

According to the data made available to SRK, a total of six seams are relatively well developed within the Mine #1 area. These are seams 9-1, 9-2, 10, 16-1, 16-2 and 16-3. The well developed seams at the adjacent Mine #4 are: 8-1, 9-2, 9-3, 10, 16-1, 16-2 and 17. This suggests that seams 8-1, 9-1 and 17 deteriorate rapidly towards the northwest, and as such into the Mine #1 mining area.

The thickness of the coal seams within Mine #1 varies substantially from 5.70m–14.73m, with an average of 10.69m. The two main mineable coal seams in the area are seams 9 and 16, which split into 5 seams.

No detailed coal seam data is available from Mine #1 such as isopach data, spatial ash and sulphur distribution maps and seam splitting patterns. However, based on the site visit coupled with previous work by SRK in the mining district, the seams appear to be typical of the bright-dull banded, high rank coal from the Permo-Carboniferous coal measures in the northwestern Ordos basin. The general coal characteristics for the six main seams are presented in Table 5-1 below.

Table 5-1: General Characteristics of the Economical Coal Seams

Coal Seam	Thickness	Interval	Correlation	Clastic Parting	Roof	Floor	Stability	Mineability
	Min – Max	Min – Max
	Average (points)	Average (points)
Seam 9-1	1.46 – 3.22		Reliable	2 to 4	Claystone — mudstone	Mudstone	Relatively stable	Fully mineable
	2.36 (14)	0.19 – 0.99				Claystone
Seam 9-2	0.54 –1.63	50 (12)	Reliable	0 to 1	Mudstone	Carbonaceous mudstone	Relatively stable	Mostly mineable
	1.00 (15)	3.89 – 7.18			Sandy mudstone	Mudstone
Seam 10	0.75 – 1.56	4.92 (12)	Reliable	0	Sandy mudstone	Sandy mudstone	Stable	Fully mineable
	1.00 (15)	49.89 – 72.11			Fine sandstone
Seam 16-1	1.94 – 4.13	58.36 (12)	Reliable	1 to 2	Sandy mudstone	Sandy mudstone	Relatively stable	Fully mineable
	2.92 (17)	0.24 – 3.1			Mudstone	Carbonaceous claystone
Seam 16-2	46 – 3.22	1.15 (11)	Reliable	>0	Carbonaceous	Carbonaceous mudstone	Relatively stable	Mostly mineable
	0.75 (16)	0.13 – 2.15			Mudstone
Seam 16-3	46 – 3.22	0.58 (15)	Reliable	1	Carbonaceous and sandy mudstone	Claystone	Relatively stable	Mostly mineable
	0.92 (16)

It is highlighted here that the maximum thickness for seams 9-1, 16-2 and 16-3 are identical at 3.22m, which in SRK’s opinion is somewhat unusual.

In general, the six main coal seams appear to be stable-relatively stable within the tenement area.

– 400 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

5.2 MINE #4

The Mine #4 coal mining area is characterized by seven mineable coal seams of PermoCarboniferous age: seams 8-1, 9-2, 9-3, 10, 16-1, 16-2 and 17 (Table 5-2). The information provided to SRK on the characteristics of these coal seams comprised thickness, stability and mineability. None of these coal seams outcrop within the mining area, and as such have all been delineated by exploration drilling. The seven seams appears to be typical of the bright-dull banded, high rank coal from the Permo-Carboniferous coal measures in the northwestern Ordos basin. The general characteristics of each of these seven mineable coal seams are briefly described in the following:

Seam 8-1 occurs in stratigraphic unit #1 in the Shanxi Formation (P1s1), and is developed throughout the mining lease. The seam structure is simple, as it typically contains no or only one clastic parting. The seam thickness varies from 0.76m–1.55m (1.02m on average). The seam is relatively stable. However, it gradually thins out towards the east. The immediate roof consists of off-white mudstone and fine-grained silty sandstone, whereas the immediate floor is composed of greyish brown claystone and greyish black sandy mudstone. The interval between Seam 8-1 and Seam 9-2 is 3.57m–8.06m (4.87m on average).
Seam 9-2 is preserved in the same stratigraphic unit as seam 8-1, and is also developed throughout the project lease. It is mostly mineable, and is characterized by a simple-complex structure. The middle part of the coal seam contains 2–6 layers of clastic partings. The effective thickness for resource and reserve calculations is 0.70m–2.82m (1.39m on average). The seam is stable, and gradually thickens from west to east (which is the opposite trend of the overlying seam 8-1). The immediate roof of seam 9-2 is composed of greyish brown claystone with coal stringers and carbonaceous mudstone, while the floor consists of greyish black mudstone or claystone. The seam is developed proximate to the underlying seam 9-3: 0.05m–1.74m (0.86m on average).
Seam 9-3 is intimately associated with the overlying seam 9-2, which are only separated by 5 cm of clastic sediments in places. The seam is mineable in most of the project area; however an area to the southeast is not mineable. The seam structure is simple, as it generally contains no or only one clastic parting. The seam thickness varies from 0.70m–1.65m (0.95m on average). The seam is relatively stable. The immediate roof is composed of mudstone, while the immediate floor consists of sandy mudstone or fine and silty sandstone. The seam is developed only 2.70m–6.95m (3.94m on average) from the underlying seam 10.
Seam 10 is developed at the base of Unit 1 within the Shanxi Formation, and is preserved throughout the project area. The seam is only relatively stable and only partially mineable. It is poorly developed in the eastern part where it is mostly not mineable. The seam is characterized by a simple structure as it contains no clastic partings. The thickness varies from 0.70m–0.89m (0.75m on average). The immediate roof is composed of mudstone or sandy mudstone, while the immediate floor consists of fine-grained sandstone. Seam 10 is developed 43.89m–66.28m (50.47m on average) above seam 16-1.
Seam 16-1 is developed in the middle-upper part of Unit 1 within the Taiyuan Formation. The seam is mineable in the entire project area, and is characterized by a relatively simple structure. It contains between 1–5 clastic partings, and the thickness varies from 1.33m– 4.55m (3.08m on average). The seam is relatively stable. The immediate roof is composed of

– 401 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

dark gray mudstone or sandy mudstone and partially fine-grained sandstone, while the floor consists of greyish black mudstone or carbonaceous mudstone. The seam is preserved only 0.43m–5.74m (2.86m on average) from the underlying seam 16-2.

Seam 16-2 is developed in the entire area, and is mostly mineable. The thickness varies significantly from 0.70m–5.21m (1.52m on average). The seam has a relatively complex structure with 2–3 clastic partings. It is relatively stable. The immediate roof is composed of sandy mudstone or finegrained sandstone, while the immediate floor consists of greyish finegrained sandstone, siltstone or sandy mudstone. The seam is developed only 3.61m–7.55m (5.25m on average) from the underlying seam 17.
Seam 17 is developed at the base of Unit 1 within the Taiyuan Formation. The seam is developed in the entire area, and is mostly mineable (apart from a triangular area in the western part). The mineable area is characterized by a thickness of 0.70m–2.32 m.

It is noted here that there is a significant increase in sulphur levels down the dip, from an average of 0.73% in Seam 8-1 to an average of 3.09% in Seam 17. Significantly, very high spot values were encountered in the basal seam; up to 4.12% in Seam 17. The sulphur data from the Tianyu project area thus supports the interpretation of the Carboniferous-Permian coal-bearing depositional complex, experiencing an overall regression from the Late Carboniferous Taiyuan coal measures to the Shanxi Formation. Furthermore, the high sulphur levels within seams 10, 16-1, 16-2 and 17 strongly suggest that the coal developed proximal to the palaeoshoreline.

Table 5-2: General Characteristics of the Economical Coal Seams

Coal Seam	Thickness (m)	Stability	Mineability
Seam 8-1	0.76–1.55	Relatively stable	Entire Area
Seam 9-2	0.70–2.82	Stable	Entire Area
Seam 9-3	0.70–1.65	Relatively stable	Entire Area
Seam 10	0.70–0.89	Relatively stable	Partially
Seam 16-1	1.33–4.55	Relatively stable	Entire Area
Seam 16-2	0.70–5.21	Relatively stable	Entire Area
Seam 17	0.70–2.32	Relatively stable	Mostly

– 402 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

6 COAL QUALITY

6.1 GENERAL COAL CHARACTERISTICS, PROXIMATE ANALYSIS AND ULTIMATE ANALYSIS

6.1.1 Mine #1

In general, the coal of the five Permo-Carboniferous coal seams in the Mine #1 and Mine #4 area are black, lustrous, and bright banded. Coal exhibits prominent bedding 2cm to 6cm in seam 9 and intensive bedding slip deformation in seam 16 (Figure 6-1). Cleating is dense and common within the seams.

The proximate analysis of the coal seams from the Early Permian Shanxi Formation and Late Carboniferous Taiyuan Formation suggests high volatile bituminous B coal in accordance with the American Society for Testing and Materials (‘‘ASTM’’) standards. The Proximate Analysis, Gross Calorific Value, Sulphur and Phosphorus content is indicated in the Table 6-1:

==> picture [431 x 324] intentionally omitted <==

Figure 6-1: Brittle Lustrous Coal of Seam 16 in Mine #1

The coal was tested for Moisture (air dried basis) – Mad, Ash Content (dry basis) – Ad, Volatile Matter (dry ash free basis) – Vdaf, Total Sulphur (dry basis) – Std, Plastometer test, Crucible Swelling Number – CSN, Spherical Temperature – ST. Based on the results coal was assigned coal class according to Chinese Coal Classification Standard (GB-5751-86).

– 403 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Table 6-1: Proximate Analysis, Sulphur, Coking and Ash Fusion of Mine #1

Seam ID	State of Coal		Proximate Analysis	Proximate Analysis	Proximate Analysis	Std	Plastometer Test	Plastometer Test	CSN	ST	Coal Class
			Mad	Ad	Vdaf		X	Y
			(%)	(%)	(%)	(%)	(mm)	(mm)		(℃)
8	Raw	Min–Max	0.76–1.47	19.35–33.1	30.90–31.25	0.22–1.20	N/A	N/A	N/A	1,596	1/3JM
		Avg (Samples)	1.02 (10)	26.84 (10)	31.08 (2)	0.50 (10)				(1)
	Washed	Min–Max	0.55–1.28	9.57–15.24	28.70–31.56	0.47–0.82	10.0–34.5	18.0–30.0	6	N/A
		Avg (Samples)	0.73 (10)	11.85 (10)	29.96 (10)	0.57 (10)	24.6 (7)	23.1 (7)	(10)
9-1	Raw	Min–Max	0.68–1.44	28.29–35.84	28.66–30.13	0.52–1.17	N/A	N/A	N/A	N/A	JM25
		Avg (Samples)	0.95 (10)	30.98 (10)	29.40 (2)	0.74 (9)				N/A
	Washed	Min–Max	0.69–1.42	7.91–14.06	0.55–0.78	0.55–0.78	24.5–34.1	14.5–20.5	5–6	N/A
		Avg (Samples)	0.97 (10)	9.76 (10)	0.65 (10)	0.65 (10)	33.7 (7)	17.4 (7)	6 (10)
9-2	Raw	Min–Max	0.68–1.68	19.05–39.16	0.42–0.76	0.42–0.76	N/A	N/A	N/A	N/A	FM36
		Avg (Samples)	0.99 (7)	28.90 (7)	0.61 (7)	0.61 (7)
	Washed	Min–Max	0.91–1.27	7.13–10.15	0.53–0.69	0.53–0.69	3.0–22.0	27.0–34.0	6–7	N/A
		Avg (Samples)	1.08 (7)	9.04 (7)	0.62 (7)	0.62 (7)	12.3 (6)	30.0 (6)	6 (7)
10	Raw	Min–Max	0.58–1.91	12.74–37.62	1.07–2.16	1.07–2.16	N/A	N/A	N/A	1,587	1/3JM, FM36
		Avg (Samples)	0.98 (10)	21.14 (10)	1.64 (8)	1.64 (8)				(1)
	Washed	Min–Max	0.62–1.19	6.69–14.77	0.61–1.16	0.61–1.16	7.0–40.0	22.0–33.0	6	N/A
		Avg (Samples)	0.94 (10)	8.71 (10)	0.76 (10)	0.76 (10)	24.4 (8)	24.8 (8)	(10)
16-1	Raw	Min–Max	0.51–1.15	19.09–36.83	17.15–10.17	1.60–1.04	N/A	N/A	N/A	1,544	JM25, FM36
		Avg (Samples)	0.76 (10)	26.74 (10)	27.93 (2)	2.81 (10)				(1)
	Washed	Min–Max	0.30–0.89	9.44–12.81	24.97–29.23	0.61–1.16	15–18	22–49	6	N/A
		Avg (Samples)	0.66 (10)	10.84 (10)	17.06 (10)	0.76 (10)	17 (8)	29.6 (8)	(10)
16-2	Raw	Min–Max	0.56–1.57	39.67–37.68	N/A	1.27–2.04	N/A	N/A	N/A	N/A	FM36
		Avg (Samples)	0.90 (5)	31.95 (5)	N/A	3.80 (5)
	Washed	Min–Max	0.64–0.93	29.67–37.68	21.93–28.77	1.00–2.04	17–40	13–29	5–6	1,540
		Avg (Samples)	0.80 (8)	31.95	21.32 (5)	1.44 (5)	27.7 (3)	23.7 (3)	(4)	(1)
16-3	Raw	Min–Max	0.47–0.70	22.63–33.58	N/A	1.00–2.04	N/A	N/A	N/A	N/A	JM25, PM26
		Avg (Samples)	0.60 (6)	29.10 (7)	N/A	2 (6)				N/A
	Washed	Min–Max	0.44–0.70	10.52–12.80	23.18–27.85	1.01–1.75	11.5–34	18–31.5	6	N/A
		Avg (Samples)	0.60 (6)	11.59 (6)	26.35 (6)	1.36 (6)	25.6 (4)	23.6 (3)	(6)	N/A
17	Raw	Min–Max	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
		Avg (Samples)	N/A	N/A	N/A	N/A				N/A
	Washed	Min–Max	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
		Avg (Samples)	N/A	N/A	N/A	N/A	N/A	N/A	N/A

The above result of proximate analyses describes quality of clean coal resource. The Proximate Analysis was determined on raw coal and coking properties were tested on washed coal in accordance with Chinese Standard.

The coal is medium ash, high Gross Calorific Value (CV), high volatile bituminous B coal. Coal has excellent coking properties as indicated by Crucible Swelling Number (CSN) ranging from 5 to 7. Seams 8, 9 and 10 are of low to medium sulphur content and coal seams 16 and 17 are of high sulphur content.

The analyses of partings thicker than 3cm and immediate seam roof or seam floor were not available for the review. These would be necessary for assessment of dilution impact on run of mine (ROM) coal quality.

– 404 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

6.1.2 Mine #4

Clean coal quality of Mine #4 is reviewed in following Table 6-2 and Table 6-3.

Table 6-2: Proximate Analysis, Sulphur, Coking and Ash Fusion of Mine #4

Seam ID	State of Coal		Proximate Analysis	Proximate Analysis	Proximate Analysis	Std	Plastometer Test	Plastometer Test	CSN	ST	Coal Class
			Mad	Ad	Vdaf		X	Y
			(%)	(%)	(%)	(%)	(mm)	(mm)		(℃)
8-1	Raw	Min–Max	0.55–1.14	22.68–38.47	29.21–32.53	0.34–2.67	N/A	N/A	N/A	>1,500	1/3JM35
		Avg (Samples)	0.80 (12)	29.48 (12)	30.76 (5)	0.73 (10)				–2
	Washed	Min–Max	0.56–1.09	10.14–13.99	27.10–31.44	0.53–0.66	17–34	17–22	5–6	N/A
		Avg (Samples)	0.82 (10)	11.90 (10)	29.47 (10)	0.58 (8)	29 (7)	20 (7)	6 (10)
9-2	Raw	Min–Max	0.52–1.41	22.91–36.37	27.12–30.98	0.52–1.14	N/A	N/A	N/A	>1,500	JM25
		Avg (Samples)	0.86 (11)	29.12 (11)	29.03 (5)	0.82 (9)				N/A
	Washed	Min–Max	0.54–1.19	8.43–13.92	25.60–29.66	0.55–0.82	30–44	13–19	5–7	N/A
		Avg (Samples)	0.84 (10)	10.86 (10)	27.52 (10)	0.66 (8)	34 (5)	16 (5)	6 (10)
9-3	Raw	Min–Max	0.56–1.12	22.89–30.74	29.72–31.01	0.50–0.78	N/A	N/A	N/A	N/A	1/3JM35
		Avg (Samples)	0.83 (8)	26.40 (8)	30.37 (2)	0.60 (7)
	Washed	Min–Max	0.50–1.17	8.65–11.76	28.28–31.76	0.61–0.71	12–37	21–29	6	N/A
		Avg (Samples)	0.90 (7)	9.87 (7)	29.55 (7)	0.65 (6)	23 (7)	25 (7)	–7
10	Raw	Min–Max	0.47–1.05	14.51–27.62	28.28–33.42	1.37–3.70	N/A	N/A	N/A	1,420– 1,500	FM36
		Avg (Samples)	0.70 (6)	22.53 (6)	30.90 (2)	2.36 (6)				2
	Washed	Min–Max	0.42–1.07	7.93–11.27	28.77–32.40	0.52–1.10	16–38	30–37	6–7	N/A
		Avg (Samples)	0.64 (5)	9.19 (5)	31.29	0.80 (5)	25 (3)	33 (3)	6 (5)
16-1	Raw	Min–Max	0.41–0.80	17.27–34.84	25.01–31.39	1.38–4.00	N/A	N/A	N/A	>1,500	JM26
		Avg (Samples)	0.60 (11)	25.09 (11)	28.20 (6)	2.46 (11)				–2
	Washed	Min–Max	0.32–0.84	7.87–12.44	25.03–31.27	1.22–2.55	19–40	18–29	6–7	N/A
		Avg (Samples)	0.56 (11)	10.81	27.81 (11)	1.67 (11)	28 (9)	24 (9)	6 (10)
16-2	Raw	Min–Max	0.39–0.76	23.11–33.34	28.46–30.02	1.70–3.43	N/A	N/A	N/A	>1,500	FM36
		Avg (Samples)	0.58 (7)	29.81 (8)	29.38 (3)	2.41 (7)				N/A
	Washed	Min–Max	0.45–0.94	8.97–14.85	27.27–30.37	0.87–1.20	17–31	24–35	6–7	N/A
		Avg (Samples)	0.63 (7)	11.53 (7)	29.07 (7)	1.01 (6)	26 (5)	29 (5)	6 (7)
17	Raw	Min–Max	0.44–0.80	17.96–33.42	27.24–34.27	1.64–4.12	N/A	N/A	N/A	1,390– 1,500	FM36
		Avg (Samples)	0.63 (9)	26.89 (9)	31.30 (3)	3.09 (9)				1,450 (2)
	Washed	Min–Max	0.48–0.90	8.90–13.21	26.16–32.77	1.03–1.57	19–27	21–36	6–7	N/A
		Avg (Samples)	0.66 (8)	10.73 (8)	29.14 (8)	1.35 (8)	22 (6)	29 (6)	6 (8)

Similarly to the Mine #1 analyses of partings thicker than 3cm and immediate seam roof or seam floor were not available for the review. These would be necessary for assessment of dilution impact on run of mine (ROM) coal quality.

– 405 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Table 6-3: Calorific Value of Coal at Mine #4

Seam ID	Calorific Value	Calorific Value
	(kcal/kg)	(MJ/kg)
8–1	5,725–5,857	23.97–24.52
9–2	5,118–5,278	21.43–22.10
9–3	6,079	25.45
10	5,754–7,130	24.09–29.85
16–1	5,006–6,074	20.96–25.43
16–2	5,317–5,326	22.26–22.30
17	6,296–6,704	26.36–28.07

The Tianyu Gongmao has stated that the coal quality of seams in Mine #1 and Mine #4 are exactly the same, therefore the calorific value for Mine #1 can be considered the same as Mine #4. SRK opines based on proximity of both mines and very similar coal characteristics that calorific value of Mine #1 coal would be close to Mine #4 calorific value.

Given the system of sampling common in China the above result of proximate analyses describes quality of clean coal resource. The analyses of partings above 3cm and immediate seam roof or seam floor were not available for review. These would be necessary for assessment of dilution impact on ROM coal quality. Especially in case of combined seam extraction as in case of seam 9-2 and seam 9-3 parting and its quality will have significant impact on ROM coal quality. SRK recommends additional testing for parting quality and reserve estimation including dilution tonnage and quality.

Mine #1 and Mine #4 coal is good quality coal with excellent coking properties. Given the medium ash content coal needs to be washed to reduce ash content to 10.5% as it is required for coking coal in the Wuhai coal district. The sulphur content of lower coal seams (Table 6-1 and Table 6-2) some of the coal will require blending to decrease sulphur content in final product. Coking coal with ash content below 10% is generally required by international standard. Coke produced in developed countries has 11.5% ash content on average. Internationally accepted sulphur content of coking coal is generally 0.8%.

6.2 COKING PROPERTY

Small coke-oven test were carried out on bulk samples from coal seams 8-1, 9-2, 16-1 and 16-2 from Mine #4. Produced coke analysis is presented as following:

Shatter Strength M40 68–76.6% Abrasive Strength M10 6.8–10.2% (sample from adit B3 from seam 8-1 indicates M10 of 16.4% and sample from seam 9-2 indicates M10 of 14.4%) Volatile Matter max 1.1% Sulphur Content max 0.65% at coal seam 8-1 and 9-2 Sulphur Content 1.38–1.67% at coal seam 16-1 and 16-2.

– 406 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Coke sulphur content at coal seam 16–1 and 16–2 significantly exceeds limits of Quality Standard of Metallurgic Coke (GB1996-80). Internationally accepted sulphur content is 0.8% in coking coal. The shatter resistance is slightly below usual requirement 80%. The abrasive strength is typically required to be about 7%. Since it is common that a single coal type does not meet such parameters, coking plants typically blend the feedstock from different sources to achieve desired coke parameters.

SRK opines given the proximity of the mines and very similar coal characteristics that above coke properties would be applicable for both mines (Mine #1 and Mine #4).

6.2.1 Gas, Coal Dust and Spontaneous Combustion

According to Qipanjing 57 Coal Mine Detailed Exploration Report, March 1976 (‘‘Qipanjing Report’’) the total gas content is very low in the mine field (0.88ml/g–2.67ml/g). Out of that CH4 content is 5.52–21.73%, CO2 content is 7.75–9.97% and N2 content is 68.99–86.21%. Qipanjing Report document several gas explosions in Wuhai coal district. Therefore, the mines need to adopt preventive measures and proper ventilation system.

Coal Dust: The test for the coal dust explosion confirmed that the coal is explosive. Measures for dust explosion, such as water barriers and dust suppression are compulsory under Coal Industrial Shaft Design Standard (GB 50215-2005).

Spontaneous Combustion of Coal: All coal seams can combust easily and spontaneously. Typical prevention measures are recommended and coal storage should be minimised.

– 407 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

7 EXPLORATION HISTORY AND EXPLORATORY DRILLING

7.1 GEOLOGICAL WORKING HISTORY

Between 1967 and 1971, the detailed drilling geological exploration was conducted by No. 117 Geological Brigade of Inner Mongolia (‘‘No. 117 Brigade’’) in Dilibangwusu mine area of Zhuozishan coal field in Inner Mongolia, and the Geological Report was submitted by No. 117 Brigade in December 1971.

The geological exploration was carried out by No. 117 Brigade in No. 1 detailed exploration area of Baiyunwusu of Zhuozishan coal field from 1985 to 1986 including diamond drilling, geophysical logging, geological, topographic and hydrological mapping, and sampling and coal quality analysis.

The summary of boreholes of inside and closely outside the mining license provided by Real Power is shown in following Figure 7-1.

==> picture [401 x 273] intentionally omitted <==

Figure 7-1: Layout of Boreholes used for Resources Estimation and Mining License Areas of Mine #1 and Mine #4

– 408 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

8 SAMPLING AND DATA VERIFICATION

No. 117 Brigade was responsible for exploration works, drilling and sampling, which was completed in accordance with valid Chinese Standards. SRK checked the relevant boreholes that supported the resources for Mine #1 and Mine #4, and SRK noted that core recovery records were not available for all drilling samples. While Chinese standard allow samples with core recovery ≥75%, JORC requires ≥95% core recovery for samples used in resource quality estimate.

Although Core recovery data was not available for all the boreholes, it is notable that some of the core recovery records are near 90%, which could be accepted by JORC standard core recovery. However geophysical logs were not available for all the boreholes, which makes it impossible to check if samples above 90% recovery are representative in terms of coal quality. As such none of the data available for resource estimate would qualify for JORC standard, although they are meeting Chinese standard.

SRK attempted to verify thickness of the coal seam 16, which was exposed at crosscut and roadway crossing near extraction panel of Mine #1 and available for measurement. Although coal thickness was not fully exposed, the measured part thickness exceeded 4 m.

There were two sets of resource maps provided for Mine #4 — the Feasibility Study of Tianyu Mine #4 Coal Mine Expansion of Inner Mongolia Wuhai Menggang Industrial Development Company Ltd and the Coal Resource/Reserve Verification Report of Tianyu Mine #4 Coal Mine, Baiyunwusu District, Zhuozishan Coal Field, Inner Mongolia. Both reports contained different data for coal seam floor and coal thickness. Therefore SRK decided to run resource check based on original boreholes data on coal seam 9–2 and 16–1. The result indicated tonnage of coal seam 9–2 to be about 18% higher and tonnage of coal seam 16–1 to be about 8% higher than the resource stated in the verification report and FS. Therefore SRK concluded that the resource estimate of No. 117 Brigade is rather conservative.

8.1 SAMPLING AND SAMPLING QUALITY ASSURANCE AND QUALITY CONTROL

China has its own system and requirements for quality assurance and quality control (QA/QC) at various stages of exploration on various types of mineral deposits. The No. 117 Brigade, who have the qualifications to carry out exploration, followed the prescribed procedures for QA/QC, and complied with Chinese regulations. The QA/QC procedures used in the exploration of Coal Mine have strictly observed the existing Chinese Standard, but are not necessarily compliant with the JORC Code (i.e. as the current Chinese reserve codes or regulations are still not internationally recognized). Additionally, the QA/QC standards and exploration technology have evolved substantially since 1971. The main differences between Chinese resource standards and the JORC Code are in the areas of sampling and assaying. The JORC Code is stricter on drill core recovery, qualification of assaying laboratory and insertions of control samples into assaying programs.

Laboratory accreditation, sample collection procedures and analyses records of individual samples were not available for SRK to review.

– 409 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

9 RESOURCE AND RESERVE

Before 1999 China used a letter system to categorise resource and reserves estimates. China has since adopted a three digit system. However, both the systems are different from the criteria used in defining a resource under JORC Code. The comparison between different systems is provided in Appendix 1.

9.1 RESOURCE ESTIMATION

The Resource Verification Report of Tianyu I Mine (Mine #1) was produced by the Inner Mongolia 117 Brigade in June 2003, and approved by the Inner Mongolia Mineral Resource Assessment Centre (undated). SRK reviewed the Approval of Verification Report (AVR) of Mine #1 resource and compared it with the borehole logs provided by Real Power, which is a reliable basis for resource estimation.

The Coal Resource and Reserve Verification of Mine #4 was carried out by Zhenxing Mining Consulting Company of Inner Mongolia, and the subsequent verification report was submitted by Wuhai Tianyu Coal Company Limited in November 2003, which was approved by the Inner Mongolia Mineral Resource Assessment Centre in March 2004. The Mine #4 resource maps were thoroughly checked. The coal seam thickness and elevation of seam roof and seam floor differs in boreholes and both resource maps (report and feasibility study) available. SRK reviewed the original boreholes logs, and concluded that they are reliable for the coal resource in Mine #4.

As the coal deposits dip ranging from 8° to 10°, the geological block method using apparent thickness and horizontal projection was applied for resource estimation. The following formula was used:

Q = S × M × D

Where

Q — Coal Resources (t)

S — Horizontally projected area (m[2] )

M — Coal seam apparent thickness (m)

D — Specific gravity (apparent density) of the seam (t/m[3] )

The Chinese Standard DZ/T0215-2002 gives thorough guidance for Resource Estimation and preparation of Exploration Report. As the data is 25 to 40 years old, the FS recommends that Tianyu Gongmao/Tianyu Coal commission accredited exploration brigade to prepare an Exploration Report in line with the requirements of DZ/T0215-2002. SRK opines that prior to the preparation of this Exploration Report additional drilling should be conducted in both mining licences and results should be incorporated in the new resource estimate. Given the conservative nature of the reviewed resource estimate, there is a possibility that additional drilling may increase the resource of Mine #1 and Mine #4 by about 10%.

– 410 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

9.2 THE INDUSTRIAL STANDARD FOR RESOURCE ESTIMATE

The Industrial Standard used for Resource Estimate is prescribed by Chinese Standard DZ/T02152002. The Tianyu Coal Projects underground mining licenses are for coking coal and fat coal used for making coking coal, and in turn used in the steel industry.

The Industrial Standard used for resource estimate is following:

. Minimum coal seam thickness of 0.7m;
. Maximum ash content of 40%;
. Maximum sulphur content 3% (St. d)

The results of apparent density testing for Mine #1 and Mine #4 used are given in the Table 9-1. No apparent density determination was provided for review, but based on apparent density of coal in Wuhai area SRK opines that the determination is reliable. SRK recommends conducting additional testing of apparent density of partings for reserve and dilution estimates. The apparent density used for resource estimate (Table 9-1) does not take into account the apparent density of any parting and as such resource estimate is rather conservative.

Table 9-1: Coal Apparent Density for Tianyu Coal Seams

Seam ID of Mine #1	8	N/A	9-1	9-2	N/A	10	16-1	16-2	16-3	17
Seam ID of Mine #4	N/A	8-1	N/A	9-2	9-3	10	16-1	16-2	N/A	17
Apparent Density (t/m3)	1.5	1.5	1.43	1.43	1.43	1.43	1.44	1.53	1.44	1.58

The boreholes located in Mine #1 mining licence are summarised in following Table 9-2.

Table 9-2: Summary of Boreholes in Mine #1

Borehole ID	Collar Coordinate	Collar Coordinate
	X	Y
	(m)	(m)
523	36403866	4370358
507	36404326	4369790
510	36404813	4370188
521	36404686	4370373
527	36403795	4368812
525	36403378	4370910
524	36404043	4370134
526	36403693	4369606
508	36403740	4370517
504	36403461	4368836
522	36404115	4371159
310	N/A	N/A

– 411 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

The summary of all boreholes used for resource estimate for Mine #4 is in following Table 9-3.

Table 9-3: Summary of Boreholes in Mine #4

Borehole ID	Collar Coordinate	Collar Coordinate	Collar Coordinate	Depth	Coal Interceptions	Minable Coal Seam	Minable Coal Seam	Minable Coal Seam	Minable Coal Seam
	X	Y	H			Seams	Drilling Quality
	(m)	(m)	(m)	(m)	(No)	(No)	Excellent	Qualified	Not Qualified
8504	4,368,269.7	36,406,962.1	1,243.5	318.6	16	8	6		2
8561	4,369,468.7	36,405,771.5	1,231.1	546.5	16	6	5	1
8567	4,370,186.6	36,406,322.2	1,348.5	501.2	15	4	3	1
404	4,369,036.5	36,407,626.1	1,252.8	325.3	12	6	1	5	1
416	4,369,686.0	36,406,494.2	1,238.5	447.2	15	5	3	2
419	4,369,559.3	36,407,764.2	1,251.9	317.1	14	7	6	1
420	4,370,433.5	36,407,212.0	1,256.0	317.0	15	6	6
422	4,369,954.6	36,407,368.9	1,251.8	355.0	16	5	5
423	4,369,226.9	36,406,649.1	1,241.5	434.5	13	6	4	1	1
429	4,368,599.0	36,405,909.7	1,232.3	467.7	15	4	2	2
102	4,368,809.0	36,408,843.7	1,256.7	293.5	14	6	5	1
3	4,368,512.1	36,408,183.2	1,271.0	262.0	10	6		6
142	4,367,936.7	36,408,340.4	1,313.9	291.7	14	6	6

9.3 RESOURCE CATEGORY CLASSIFICATION

The category of coal resource was assigned based on the boreholes exploration grid.

Mine #1: The spacing of boreholes of 650m × 220m~550m was mandatory for assigning resource to 121b category, 1,000m × 1,000m drilling qualified resource for 122b category; and 333 resource category was assigned to resource where drilling grid exceeded 1,000m × 1,000m. The resource located in protection pillars and presently unavailable for mining was classified as 2S22 category (subeconomic).

Mine #4: 122b resource category required an exploration grid of 1,000m × 1,000m, and 2,000m x 2,000m grid was used for 333 resources.

Summary of resource according to resource category is given in Table 9-4 and Table 9-5.

– 412 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Table 9-4: Resource Summary of Mine #1

Seam	Seam Floor Elevation	Recoverable Resources	Recoverable Resources	Sub-economic Resources	Sub-economic Resources
		Category	Tonnage	Category	Tonnage
	(m)		(Mt)		(Mt)
8	780–1180	121b	0.35	2S22	0.22
		122b	1.05		0.16
		333	0.50		0.23
		Subtotal	1.90		0.61
9-1	780–1180	121b	0.60	2S22	0.52
		122b	2.06		0.38
		333	1.06		0.38
		Subtotal	3.72		1.28
9-2	760–1180	121b	0.10	2S22	0.33
		122b	0.97		0.10
		333	0.81		0.16
		Subtotal	1.88		0.59
10	760–1180	121b	0.32	2S22	0.21
		122b	1.20		0.15
		333	0.43		0.21
		Subtotal	1.95		0.57
16-1	680–1220	121b	1.41	2S22	0.47
		122b	2.87		0.46
		333	0.00		0.24
					0.46
		Subtotal	4.28		1.63
16-2	680–1220	121b	0.00	2S22	0.16
		122b	1.18		0.10
		333	0.00
		Subtotal	1.18		0.26
16-3	680–1220	121b	0.00	2S22	0.13
		122b	1.23		0.12
		333	0.00		0.24
		Subtotal	1.23		0.49
17	670–1200	121b	1.26	2S22	0.16
		122b	1.00		0.00
		333	0.00		0.50
					0.21
		Subtotal	2.26		0.87
Subtotal		121b	4.04	2S22	6.30
		122b	11.56
		333	2.80
		Subtotal	18.40
Total		24.70

The ‘recoverable resources’ are the resources available for mining, while ‘resource blocked by a permanent pillar’ are the resources classified as sub-economic (see the resource category classification for Mine #1 and Mine #4 in Chapter 9.3 above). There is an inconsistent classification of the coal blocked by permanent pillars between the resource statement of the VR and the AVR. While at Mine #1 this resource is classified as 2S22 category and in the case of Mine #4 it is classified as 122b or 333 category.

– 413 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Table 9-5: Resource Summary of Mine #4

Seam	Seam Floor Elevation(m)	Recoverable Resources	Recoverable Resources	Resource Blocked by Permanent Pillar
		Category	Tonnage
	(m)		(Mt)	(Mt)
8-1	600–1200	122b	3.17	1.57
		333	0.93	0.28
		Subtotal	4.10	1.85
9-2		122b	4.10	1.87
		333	1.30	0.18
		Subtotal	5.40	2.05
9-3		122b	1.24	1.11
		333	1.40	0.52
		Subtotal	2.64	1.63
10		122b	0.69	0.26
		333	2.20	0.76
		Subtotal	2.89	1.02
16-1		122b	11.07	4.85
		333	0.98	0.58
		Subtotal	12.05	5.43
16-2		122b	1.33	0.27
		333	2.11	0.25
		Subtotal	3.44	0.52
17		122b	0.52	0.62
		333	2.44	1.15
		Subtotal	2.96	1.77
Subtotal		122b	22.12	10.55
Subtotal		333	11.36	3.72
Subtotal			33.48	14.27
Total			47.75

The recoverable resource is available for the mining and resource blocked by permanent pillar cannot be mined, because permanent pillar must be left intact (see above the resource category classification for Mine #1 and Mine #4).

SRK has not re-estimated resource and has only conducted a thorough check of the provided documents. In respect to the above inconsistencies in the data, AVR and VR (such as some geophysical logs not available, no detailed description of sample collection and sample preparation, and no record of chain of custody) for both individual mines, SRK opines that an Exploration Report in accordance with

– 414 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

‘‘Notice on Strengthening Management of Coal Mine construction Projects (Fa Gai Neng Yuan, 2006, No.1039), is needed for both mines. The Exploration Report is prepared in line with Chinese Standard DZ/T0215/2002 and fully describes process of exploration data collection, data processing, list all exploration data and method of resource estimate. SRK opines that such report will increase confidence level of the resource categories and enable full verification of resource estimate as mentioned in Chapter 9.1 above. In addition, SRK recommends drilling two additional boreholes in area of Mine #1 and four additional boreholes in area of Mine #4. Additional boreholes would provide good control and validation of old exploration works. In case of Mine #4, additional boreholes would additionally refine course and displacement of fault F19. SRK opines that resource tonnage may increase because the resource estimate method currently used is conservative.

SRK opines that resource estimate is reliable and rather conservative in terms of total tonnage. The coal quality determination and coal quality distribution confidence is not satisfactory for JORC Measured Resource. Given the incomplete core recovery record, lack of original analysis data and lack of security procedures, SRK opines that resource categories 121b, 122b and 2S22 could be broadly compared with Indicated Resource and category 333 could be compared with Inferred Resource.

The Mine #1 resource of 15.6 Mt (121b and 122b) is broadly comparable to JORC Indicated Resource (see Table 9-4). In the case of Mine #1 2S22 resource is classified as sub-economic according to Chinese Standard, because it is blocked by permanent pillars. The 2.8 Mt (333) is broadly comparable with JORC Inferred Resource (see Table 9-4).

The Mine #4 resource of 22.12 Mt (122b) is broadly comparable to JORC Indicated Resource (see Table 9-5). The 11.36 Mt (333) is broadly comparable with JORC Inferred Resource (see Table 9-5).

There are some differences between Chinese Resource Classification (“Chinese Code”) and JORC Code. However the principles used in both codes or systems are similar. JORC is more strict on core recovery (95% or more) versus Chinese Code (75% or more) and in QA/QC procedures. AS such SRK opines that resource estimate of Mine #1 and Mine #4 is reasonable and rather conservative in terms of tonnage. However, coal quality determination and distribution does not comply with JORC Code. Consequently the following broad resource comparison with JORC categories for Mine #1 and Mine #4 can be made as follows:

Mine #1
Measured Resource	0.0Mt
Indicated Resource	15.6Mt
Inferred Resource	2.8Mt
TOTAL	18.4Mt
Mine #4
Measured Resource	0.0Mt
Indicated Resource	22.1Mt
Inferred Resource	11.4Mt
TOTAL	33.5Mt

SRK has provided recommendation (Chapter 17) for verifying coal quality and upgrading category 333 into Indicated category.

– 415 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

9.3.1 Reserve Estimation

According to the Chinese Standard procedures, the coal resource was converted by applying factor 0.9 to 333 category of resource and adding modified 333 resource to categories 121b and 122b, which is called Mine Industrial Resource. However, SRK noted that Industrial Resource calculated based on AVR does not match with Industrial Resource used in Preliminary Mine Design (PMD) although PMD states that Industrial Resource is calculated based on Verification Report result. The difference is summarised below in Table 9-6.

Table 9-6: Comparison of Industrial Resource in AVR and PMD

Seam ID	Approval of Verification Report	Preliminary Mine Design	Difference
	(Mt)	(Mt)	(Mt)
9-1	4.86	6.06	1.20
9-2	2.37	2.1	–0.27
10	2.46	2.99	0.53
16-1	5.84	7.35	1.51
16-2	1.44	1.69	0.25
16-3	1.70	2.22	0.52
TOTAL	18.66	22.41	3.75

It is obvious that if PMD used resource summary from AVR for the calculation of Industrial Resource the input for reserve estimate would be by 3.75Mt lower. This is an obvious mistake in the PMD. SRK opines that the new PMD must verify the reserve estimate based on a new ER. SRK opines that Industrial Resource determined from AVR is more reliable than the PMD tonnage.

– 416 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Permanent and technological pillars and mining losses were deducted from Mine Industrial Resource. The PMD determines permanent coal pillars protecting Mining Licence border, faults, village and highway at Mine #1. Similarly permanent pillars are determined in the Feasibility Study for Mine #4. SRK undertook a thorough check by using resource tonnage from the AVR (Table 9-4) and permanent pillars, technological pillars and coal loss determined by PMD and arrived to following result (Table 9-7, Table 9-8):

Table 9-7: Summary of Permanent Pillars of Mine #1 after PMD

Seam ID	Mine Industrial Resource	Permanent Pillars	Permanent Pillars	Permanent Pillars	Permanent Pillars	Permanent Pillars
		Border	Fault	Washing Plant and Highway	Shafts and Infrastructure	Total
	(Mt)	(Mt)	(Mt)	(Mt)	(Mt)	(Mt)
9-1	6.06	0.20	0.22	1.45	0.47	2.34
9-2	2.1	0.07	0.09	0.60	0.19	0.95
10	2.99	0.08	0.09	0.63	0.20	1.00
16-1	7.35	0.21	0.27	1.98	0.52	2.98
16-2	1.69	0.05	0.06	0.55	0.14	0.81
16-3	2.22	0.07	0.08	0.67	0.17	0.99
TOTAL	22.41	0.69	0.80	5.88	1.70	9.06

Table 9-8: Summary of Reserve of Mine #1 after PMD

Seam ID	Designed Resource	Recovery Factor	Mining Losses	Reserve
	(Mt)	(%)	(Mt)	(Mt)
9-1	3.72	80	0.74	2.98
9-2	1.15	85	0.17	0.98
10	1.99	85	0.30	1.69
16-1	4.37	80	0.87	3.50
16-2	0.88	85	0.13	0.75
16-3	1.23	85	0.18	1.04
TOTAL	13.35		2.41	10.94

SRK opines that there is significant difference between AVR and PMD Industrial Resource and therefore the reserve estimate for Mine #1 must be verified. The closure of the Xingguang Coal Washing Plant facilities on Mine #1 would allow for the cancelling of the permanent safety pillar in the north east corner of the Mine #1 mining area and for a subsequent revision of the Mine #1 coal reserve in the PMD. With respect to coal tonnage blocked by combined pillar of the coking plant and highway (Table 9-7) SRK estimates that the coal reserve for Mine #1 could be increased by up to 30% by cancelling the Xingguang Coal Washing Plant safety pillar. Tianyu Gongmao and Tianyu Coal are actively seeking confirmation from the Wuhai City in respect to the legal status for these facilities. SRK recommends a re-estimation of the reserve based on ER and update of permanent pillar status.

– 417 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Table 9-9: Summary of Reserve of Mine #4

Seam ID	Mine Industrial Resource	Permanent Pillars	Permanent Pillars	Design Resource	Technological Pillars	Technological Pillars	Mining Loss	Reserve
		Border	Fault		Declines and Infrastructure	Roadway
	(Mt)	(Mt)	(Mt)	(Mt)	(Mt)	(Mt)	(Mt)	(Mt)
8-1	5.77	0.21	0.09	5.47	0.25	0.12	0.76	4.33
9-2	7.23	0.18	0.03	7.02	0.36	0.17	0.97	5.51
9-3	3.98	0.10	0.05	3.83	0.25	0.10	0.52	2.96
10	3.47	0.12	0.05	3.30	0.17	0.09	0.46	2.58
16-1	17.25	0.48	0.14	16.63	1.02	0.40	3.04	12.16
16-2	3.61	0.12	0.07	3.42	0.44	0.11	0.43	2.44
17	4.19	0.12	0.07	4.00	0.44	0.11	0.52	2.93
TOTAL	45.49	1.33	0.50	43.66	2.93	1.10	6.70	32.92

Reserve of Mine #4 was reviewed in Feasibility Study (FS). Reserves of both mines were estimated according to Chinese standard by determination of industrial resource deducting permanent pillars, technological pillars and mining loss from industrial resource. A check of industrial resource of Mine #4 revealed that mining recovery factor used for coal seam 16–1, which is the medium thick seam, was 87%. FS indicates the recovery factor of 80% for medium thick seams. As such, seam 16–1 recovery factor used in FS to estimate reserve is inconsistent with FS statement that 80% recovery factor is used for thick seams. SRK compared the impact of the different recovery factor on seam 16–1 reserve and arrived to the total reserve of 32.92Mt for Mine #4 in comparison with the FS result 34.57Mt.

Since PMD and FS do not take into consideration of the boundary of resource categories and have included category 333 into reserve estimate, comparison of JORC reserve category with PMD and FS reserve category is not possible. JORC only allows for the conversion of Measured and Indicated Resource to Proved and/or Probable reserves. However SRK opines that Chinese Standard reserve is reasonable for both mines.

SRK has provided recommendation (Chapter 17) for verifying coal quality and upgrading reserve in PMD and FS.

– 418 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

10 MINING ASSESSMENT

10.1 MINE #1

10.1.1 Mine Layout, Opening and Development

Mine infrastructure is well established. The mine is opened by four declines summarised in Table 10-1. Three mine entries are located in the south part of the existing mining licence and one is located in the southeast sector.

Table 10-1: Review of Mine Entries

Decline ID, Shaft ID	Collar Coordinates	Collar Coordinates	Collar Coordinates	Azimuth	Dip Angle	Inclined Length	Net Cross Section	Utilisation
	Easting	Northing	Elevation
	(m)	(m)	(m)	(°)	(°)	(m)	(m2)
Decline Seam 9	36,404,313	4,369,862	1217.15	345	16	650	6.10	Coal transport, Rock transport, Material transport, Air inlet
Decline Seam 16 East	36,404,801	4,370,063	1221.14	346	16	400	6.34	Coal transport, Rock transport, Material transport, Air inlet
Decline Seam 16 West	36,404,357	4,369,664	1223.09	346	16	450	6.10	Coal transport, Rock transport, Material transport, Air inlet
Return Airway Decline	36,404,362	4,369,755	1221.65	344	16	272	8.64	Return Airway, emergency exit

Mine is not developed in individual levels, because existing declines target either seam 9 or seam 16. Both seams are mined as combined seams.

– 419 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Three mining areas are proposed in PMD. Mining Area 1 targets seam 16 east of Decline in Seam 16 East. Mine Area 2 is operating in seam 9 east of Decline in Seam 9. Mine Area 3 target is seam 16 west of Decline in Seam 16 west.

==> picture [351 x 264] intentionally omitted <==

Figure 10-1: Mine #1 Overview

==> picture [193 x 256] intentionally omitted <==

Figure 10-2: Collar of Decline in Seam 16 West – Mine #1

– 420 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

10.1.2 Permanent Pillar and Technological Pillar Design

Safety pillar for mining license boundary, inclines and surface infrastructure are projected at 75° rock displacement angle for Permian and Carboniferous strata and angle rock displacement of 45° in Quarternary less stable sediments. The boundary pillar width on the surface is 20m. Pillar of Xilaifeng reverse fault is 50m.

Dangong-Lhasa Express highway pillar is 120m wide with rock displacement angle 65° and 164m pillar width is designed in seam 16. Qipanjing-Haibowan Expressway and Xingguang Coal Washing facilities are protected by a pillar with an angle of rock displacement equal to 75°.

Technological pillars protecting roadways are 20m wide between roadways and 30m wide along the roadways. The decline protection pillar is 45m wide. Pillar between panels gateway is 20m wide.

10.1.3 Mining Methods and Sequence of Seam Extraction

Retrieving conventional longwall panel technique with full caving is used presently in coal seam 9 and 16. Planned sequence of seam extraction is from top to bottom. The bottom slice of the coal seam is extracted and top slice is collected after support is moved and coal collapses at the rear end of support. Coal is conveyed by armoured conveyor to the decline.

10.1.4 Production Rate

SRK reviewed the Operation Plan for years 2008 and 2009. The production in 2008 was planned at level 33,000 tpa of coal. The actual production of 31,526t fell slightly below the plan (Table 10-2 and Table 10-3). The Operation Plan for 2009 indicates a production ramp of up to 160,000 tpa of coal. For the period from January to August 2008 the Operation Plan assumes production 77,000 t of coal. The actual production of 93,325 t by August 2009 suggests that Mine #1 is able to produce full 160,000 tpa as planned. Tianyu Gongmao stated that since August 2009 mining activity has been suspended and target for year 2009 was revised to 100,000 tpa (see Table 10-9).

Table 10-2: Mine #1 Production Record for year 2008

Period	Production	Accumulated Production
	(t)	(t)
September/08	3,679.55	3,679.55
October/08	3,425.54	7,105.09
November/08	2,098.96	9,204.05
December/08	22,321.84	31,525.89
TOTAL	31,525.89

– 421 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Table 10-3: Mine #1 Production Record for year 2008 and 2009

Period	Production	Accumulated Production
	(t)	(t)
2008	31,525.89	31,525.89
January-09	0.00	31,525.89
February-09	1,216.88	32,742.77
March-09	10,999.10	43,741.87
April-09	22,079.82	65,821.69
May-09	9,709.26	75,530.95
June-09	20,871.55	96,402.50
July-09	19,655.54	116,058.04
August-09	8,792.84	124,850.88
2009	93,324.99
TOTAL	124,850.88

The main obstacle of full 0.3Mtpa production at present is the hoisting system in inclines. The Company has committed to replacing existing system by conveyor belt. SRK reviewed Wuhai Gongmao Ltd. Design on Combined Transport System for No. 9 and No. 16 West declines, January, 2009 (‘‘DCTS’’). The DCTS address inadequacy of existing hoisting system by replacement of hoist with conveyor belt.

10.1.5 Coal Extraction

Mine #1 uses drilling and blasting technique for coal extraction and achieves face advance of 2m/ day, which means that extraction face moves with speed 2m/day.

Face in coal seam 9 has following dimensions:

. height 4m . length 370m . working face length 100m

Panel face recovery is 80%.

Face in coal seam 16 has the following dimensions:

. height 2.5m . length 160m . working face length 60m

Panel face recovery is 80%.

– 422 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

SRK noted that, at present, the mining height at face of coal seam 16 was only 1.5m. Mining personnel provided an explanation that this was due to the movement of the face in the vicinity of protection pillar.

10.1.6 Development Faces

There were no faces being developed at the time of SRK’s site visit.

10.1.7 Support

The entry declines are supported by concrete arch and roadways are supported by wooden frames as indicated in Table 10-4.

Table 10-4: Type of Support in Mine #1

Type of Support	Location	Material	Spacing
Concrete Arch	Declines	Concrete	Continuous
Wooden Frames	Roadways, Gateways	Wood	80cm

10.1.8 Mine Transport

At present the main bottleneck of the mine is hoisting of coal via declines. SRK reviewed DCTS, which address inadequacy of existing hoisting system by replacement of hoist with conveyor belt. The construction is in progress. In Decline in Seam 16 West is completed 300m of sinking and another 150m need to be completed. In Decline in Seam 9 West 50m of sinking needs to be completed. The daily advance is 3m. Apart from extension of declines, the sump coal bin, short ventilation crosscut and short connecting roadway to coal seam 9 needs to be driven. The Decline in Seam 16 West would be fitted by inclined (16°) conveyor belt 1m wide with design speed 1.6–1.8 m/s and capacity 4000t/day.

Material transport is conducted by tubs or flatbed cars hoisted by auxiliary shaft.

Mining personnel transport is on foot.

10.1.9 Ventilation

According to the ventilation design in the PMD, the mine air requirement is 60m[3] /s. Two exhaust fans (FBCDZ16) fitted in return airway decline provide the required ventilation. SRK inspection found ventilation of panels adequate and effective.

– 423 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

10.1.10 Water Handling

Apart from phreatic aquifer in Quaternary loess, which is not saturated by water, given the arid and semi-arid climate, another four aquifers are located in coal bearing Shanxi and Taiyuan Formations. These aquifers are confined by impermeable mudstone layers. The Ordovician karst limestone aquifer is separated from lowest coal seam by 156m of impermeable mudstone.

As such, water inflow to mine is minor and pumping does not present problem. The dewatering of each mining area is described in Table 10-5.

Table 10-5: Dewatering Parameters of Mine #1

Mining Area	Normal Inflow	Max Inflow	Drainage Height	Pump capacity	Pump head (m)
	(m3/h)	(m3/h)	(m)	(m3/h)	(m)
Mining Area 1	10	20	156	14.4	220.4
Mining Area 2	10	20	174	12	257.5
Mining Area 3	10	20	254	13.2	390.6

Based on above characteristics, 3 units of pumps (D12 x 50 x 5 types) are deployed in the western sector of the mine and the eastern decline is dewatered by using D12 x 50 x 8 pumps. Currently one pump is operating, one pump is used as back up and one pump is on care and maintenance.

10.1.11Surface Transport

Coal from the stockpile would be loaded by wheel loaders onto trucks, weighed on the weighbridge and dispatched to end users. Material transport is by flat truck and forklift.

– 424 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

10.2 MINE #4

Mine #4 has a valid mining license and is in development stage that is expected to be in full production in late 2010. Three declines of Mine #4 have been constructed before Real Power acquired Mine #4; but not yet completed. The mine construction for Mine #4 was abandoned at the time of the SRK site visit. SRK notes that Tianyu Coal has not commenced any construction at Mine #4 since acquiring the mine in 2006.

==> picture [358 x 269] intentionally omitted <==

Figure 10-3: Collars Main and Auxiliary Decline – Mine #4

– 425 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

10.2.1 Mine Layout, Opening and Development

The FS proposes mine opening by existing two declines and one return airway shaft (see Table 106 and Figure 10-4). Two levels would be developed. Level 1 at +980m elevation targets coal seams 8-1, 9-1, 9-3 and 10. Level 2 at +900m targets coal seams 16-1 and 16-2. Roadways are driven along eastern boundary of the mining licence in north-south direction. Mine is divided by major fault F19 of east west strike. Southern flank of the deposit would be developed first and northern is expected to be developed later.

==> picture [430 x 491] intentionally omitted <==

Figure 10-4: Mine Entries and 1st Level layout of Mine #4

– 426 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Table 10-6: Review of Mine Entries of Mine #4

Shaft Characteristics	Shaft Characteristics	Main Decline	Auxiliary Decline	Return Airway Shaft
Shaft Coordinate	Northing (X)	4,368,211	4,368,062	4,368,822
	Easting (Y)	36,407,146	36,407,101	36,407,078
Azimuth		6° 3' 6@	6° 3' 6@	0°
Shaft Dip Angle		27° 48' 4@	24° 17' 18@	90°
Pit Colalr Elevation (m)		1253	1256	1246
Shaft Length (m)		813	958	318
Net Diameter (W) (m)		4	2.9	4.5
Net Cross Section (m2)		9.8	8.5	15.9
Shaft Equipment		Belt Conveyor		Staircase
Vertical Depth (m)		108	141	318

10.2.2 Permanent Pillar and Technological Pillar Design

The permanent pillars include the protection pillars of Mining Licence boundary — 20m wide, coal pillars of shaft and industrial field — 15m wide with slope determined by 45° in topsoil and 70° in hard rock (Figure 10-5), fault — 20m wide, village, river and goaf pillars are 20m wide.

The technological pillars in design consist of the pillars of main roadways and gateways. Pillar between roadways is 20m wide and pillar along the roadways is designed to be 30m wide.

==> picture [431 x 159] intentionally omitted <==

Figure 10-5: Cross Section of Mine #4 indicating Declines, and Shaft PiIlar

10.2.3 Mining Methods

Mining methods are designed based on coal thickness. The retrieving fully mechanised longwall face with full caving is the selected mining method. Coal seam 8-1, 10, 16-2 and 17 would be mined separately. Seam 9-2 and 9-3 are combined and seam 16-1 is thick seam therefore different face equipment is selected. Working face equipment is summarised in Table 10-7.

– 427 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Table 10-7: Mining Equipment for Production Faces of Mine #4

Seam Id	Equipment	Type	Technical Characteristics
8-1, 10, 16-2 and 17	Hydraulic Support	ZY4800/8/17	Support height 0.8～1.7m, working resistance 4800kN
	Shearer	MG240/300-WB	Total power 304kW, voltage 1140V
	Armoured Conveyor	SGB630/150C	Power 2×75kW, 1140V, Capacity 400t/h
	Crusher	PEM1000×650	Power 55kW, 660V, Capacity 450t/h
	Back Loader	SZD-630/75P	Power 75kW, 660V, Capacity 450t/h
	Belt Conveyor	SSD800/2x40	Power 2×40kW, 660V, Capacity 400t/h
	Pumps	WRB200/31.5	Power 125kW, 660V
		KMPB320/10	Power 75kW, 660V
9 and 16-1	Hydraulic support	ZY6000/17/38	Supporting height 1.7～3.8m, working resistance 6000kN
	Shearer	MG500/1180-3.3D	Total power 1180kW, voltage 3300V
	Armoured Conveyor	SGZ800/630	Power 2×315kW, 3300V, conveyance capacity 1000t/h
	Back Loader	SZZ900/315	Power 315kW, 3300V, Capacity 1000t/h
	Belt Conveyor	SSJ1000/2x500	Power 2×500kW, 1140V, Capacity 1000t/h
	Pumps	LRB400/31.5	Power 250kW, 1140V
		KMPB320/10	Power 75kW, 1140V

10.2.4 Development Faces

Roadways and gateways would be driven in thin seams using road header technology and in thick seam by conventional drilling and blasting, because of rock parting. After roadways are completed the development of gateways shall commence. Two development faces for next panel would be driven in advance to maintain continuity of production.

The face advance is estimated to be 150m wide in the waste rock and 200m wide in coal. The coal bin and water retention galleries are driven in rock with progress of 800m[3] to 1,000m[3] per month.

10.2.5 Sequence of Face Advance and Production Rate

The sequence of mining is from top seam 8-1 to lower seam 9 and panels will be retrieving from west to east. Two panels would be completed in coal seam 8-1 first and after that coal mining in seam 9 commences.

Production rate of thin seam coal panel is designed at 1,818t/day. The thick seam panel daily production is designed at 4,545t/day.

– 428 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

10.2.6 Support

Support for the mine is designed based on rock type and underground structure type as indicated in the following Table 10-8. SRK notes that the information for Table 10-8 was sourced from the FS and it is lacking in respect to some details on thickness or spacing (i.e. as represented as blank cells in Table 10-8).

Table 10-8: Type of Support in the Mine #4

Location	Type of Support	Net Dimension	Net Dimension	Method	Thickness or Spacing	Net Section	Gross Section
		Width	Height
		(m)	(m)		(mm)	(m2)	(m2)
Main Roadway	Rectangular	4.0	2.6	Rock-bolting, Wiremesh, Shotcreting	100	10.4	12.4
Auxiliary Roadway	Rectangular	4.0	2.6	Rock-bolting, Wiremesh, Shotcreting	100	10.4	12.4
Return Airway Roadway	Rectangular	4.0	2.6	Rock-bolting, Wiremesh, Shotcreting	100	10.4	12.4
Main Gateway (Coal 8-1)	Rectangular	4.0	2.0	Rock-bolts, Wiremesh		8	8.8
Return Airway Gateway (Coal 8-1)	Rectangular	4.0	2.0	Rock-bolts, Wiremesh		8	8.8
Auxiliary Gateway (Coal 8-1)	Rectangular	4.0	2.0	Rock-bolts, Wiremesh		8	8.8
Initial Cut (Coal #8)	Rectangular	6.0	1.6	Rock-bolting, Anchors		8.6	8.6
Main Gateway (Coal 9)	Trapezoidal	2.6	2.3	I-beam	700	8.2	8.8
Return Airway Gateway (Coal 9)	Trapezoidal	2.6	2.3	I-beam	700	8.2	8.8
Auxiliary Gateway (Coal 9)	Trapezoidal	2.6	2.3	I-beam	700	8.2	8.8
Initial Cut (Coal #9)	Rectangular	6.6	3.2	Rock-bolting, Anchors		21.1	22.4

10.2.7 Mine Transport

Main decline will be fitted with 1,000mm conveyor belt that has a capacity of 600t/h with speed 3.5m/s. In SRK’s opinion, the main decline conveyor belt is capable of handling an annual production of up to 2Mtpa, if the mine operates on a 330 day/year — two production shift (8hrs/shift), basis. Therefore it is capable to handle the annual production of 1.2Mtpa as proposed by FS or 1.5Mtpa as indicated in company production forecast.

Coal transport in roadway uses a conveyor belt 1,000mm wide, with speed 3.15m/s and capacity 800t/h.

– 429 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Material transport in auxiliary incline would be organised by 1.5t tubs or flatbed cars and 25t flatbed cars for hydraulic support transport. Cars would be pulled by a tractor. In the roadway, 1.5t tubs or flatbed cars on 600mm rail would be pulled by winch.

Transport of coal in panel is via armoured conveyor and conveyor belt in the gateway. Men transport is on foot. Material would be carried by men to the panel.

10.2.8 Ventilation

The designed ventilation system is a central parallel mine ventilation systems. The ventilation is driven by exhaust fans fitted in return airway shaft. The main decline and auxiliary decline act as air intake. Feasibility Study indicates that existing net section of return airway shaft is insufficient and needs to be increased.

Ventilation capacity is designed with respect to absolute gas conditions, coal dust generation, and spontaneous tendency of coal and ground temperature. Total ventilation capacity is designed at 80m[3] /s. Two axial-flow fans FBCDZ54-8-No.25 with normal capacity 84m[3] /s are proposed for ventilation.

The development faces ventilation would be effected by separate fans.

SRK noted that production forecast for year 2012 onward is 1.5Mtpa, which exceeds production target of the FS, which is 1.2Mtpa, as such ventilation design needs to be updated.

10.2.9 Water Handling

The hydrogeology of the area is the same as Mine #1 and determines mine inflow and dewatering parameters for Level 1 as follows:

.	Normal Inflow	50m3/h
.	Maximum Inflow	70m3/h
.	Pumping Head	282m

The dewatering design of the mine has three pumps (MD85-45x8) with capacity 84m[3] /h. One would be operational, one would be for back up and one pump would be on maintenance.

– 430 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

10.3 PRODUCTION FORECAST OF MINE #1 AND MINE #4

SRK was provided with raw coal production forecast for 6 year period. The forecast is given in following Table 10-9.

Table 10-9: Production Forecast Summary of Mine #1 and Mine #4

Year	Unit	2009	2010	2011	2012	2013	2014	TOTAL
Mine #1	(Mt)	0.10	0.42	0.45	0.45	0.45	0.45	2.32
Mine #4	(Mt)	0.00	0.20	1.20	1.50	1.50	1.50	5.90
TOTAL	(Mt)	0.10	0.62	1.65	1.95	1.95	1.95	8.22

SRK notes that the production of Mine #4 in years 2012 and onwards will exceed production of 1.2 Mt, which is the target production in the FS. SRK recommends updating the FS for production of 1.5Mtpa and addressing this production planning in the PMD for Mine #4.

However, it is important to note that the mining licence of Mine #1 and Mine #4 currently allows for production of 0.3Mtpa for each mine. SRK recommends updating the FS and PMD and mining license according to the production forecast.

The existing mining licence (0.3Mtpa) of Mine #1 must be upgraded to 0.45Mtpa, before production can be increased to 0.4Mtpa in 2010 and to 0.45Mtpa in 2011. The company expects to apply for upgraded mining licence and coal production permit in March 2010.

Tianyu Coal has stated that the PMD for Mine #4 will be completed during 2010, and that this mine design will be submitted to the Inner Mongolia Coal Industry Department and then the Wuhai City Coal Industry Department for approval. They anticipate receiving this approval by mid 2010, after which they will then submit the application to amend Mining Licence No.1500000720655, to the Inner Mongolia Land and Resources Bureau. They anticipate receiving the amendment to Mining Licence No.1500000720655 and commencing trial production by the 3rd quarter of 2010. The application for the project’s environmental Final Checking and Acceptance will be submitted to the Inner Mongolia EPB once the trial production has commenced. Tianyu Coal anticipates receiving the Final Checking and Acceptance approval for the 1,200,000tpa Mine #4 during the later stages of the mine development/ construction (i.e. during 2011). The ramp up of production to 1.2Mtpa is indicated in 2011. The production increase could commence only after the Mining Licence is upgraded to the production of 1.2Mtpa. The same applies for the production increase in 2012 to 1.5Mtpa. To upgrade the mining license to 1.5Mtpa, the FS must be upgraded to the target mine capacity of 1.5Mtpa.

– 431 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

11 TIANYU COAL WASHING PLANT

The design of the Tianyu Coal Washing Plant meets the requirements for the proposed 3Mtpa production capacity.

The proposed Tianyu Coal Washing Plant is located within the Mine #4 mining license area and lies to the northwest of Mine #4 main decline. The Mine #4 production of 1,200,000tpa would form part of ROM coal feed to the plant, which reduces coal transportation to minimum. The Mine #4 coal would be fed to the Tianyu Coal Washing Plant by conveyor belt and only coal purchased from external sources would be delivered on trucks. Any middling coal and waste rock could be sold to power plants and brick works nearby. The Tianyu Coal Washing Plant will utilize the infrastructure of Mine #4.

11.1 COAL WASHABILITY

The coal processing method highly depends on coal washability and final product parameters. The target ash content for the Tianyu Coal Washing Plant product is 10.5%.

The sieve tests, float-sink tests on the ROM coal and on the coal slime were conducted by the Guohua Branch of Shijiazhuang Design and Research Institute of Coal Industry (‘‘Research Institute’’).

The test results indicate that the ROM coal of granularity 0.5–50 mm from coal seam #9 is extremely hard to separate. Separating density to achieve target ash content 10.5% is 1.38kg/l. The percentage of near-density material at 1.38kg/l separating density is 54.1%.

Similarly the ROM coal of granularity 0.5–50 mm from coal seam #16 is extremely hard to separate. Separating density to achieve target ash content 10.5% is 1.38kg/l. In this case the percentage of near-density material at 1.39kg/l separating density is 73.14%.

The Chinese Standard addresses various ranges of capability of coal washing by categories. The categories ‘hard to separate’ and ‘extremely hard to separate’ indicate that it is extremely difficult to achieve target ash content of washed coal and coal loss would be very high during washing process.

The test of pulverized coal with granularity 0.25–0.50 mm were undertaken to verify the impact on ash particles liberation. The separating density for both types of pulverized coal is 1.6kg/l and the coal concentrate will meet the requirement. The near-density material is 8.96% from seam #16 coal and 8.31% from seam #9 coal. As such, pulverized coal is liberated and easy to process.

The heavy media cyclone was selected as the coal processing method.

11.2 ENGINEERING DESIGN

A non-desliming process and single large diameter heavy media cyclone with three products have been selected for separation. The desliming process involves removal of slime prior coal preparation for dense-media cyclone.

The separation consists from following procedures:

. ROM coal receiving and preparation

– 432 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

. Separation of ROM coal
. Dense-Medium Slime Separation
. Recovery of Medium
. Refill of Medium
. Recovery of Coarse Slime
. Treatment of Slime Water

11.2.1 ROM Coal Receiving and Preparation

ROM coal is fed via a hopper and conveyor belt to the vibration screen, with a size of 70mm. The above screen would be manually checked, and metal pieces or lumps of waste rock would be manually removed prior to crushing to -70mm. The crushed coal and below screen would then be blended together.

11.2.2 Separation of ROM coal

Blended coal of 0–70mm size would be directly fed into large diameter of pressure-less densemedia cyclone. Single low density suspension liquid is used to separate coal concentrate, middling and waste rock. Heavy media is removed from all three products by magnetic separators.

Coarse coal concentrate is dewatered by dewatering sieves and fine coal concentrate is dewatered by centrifuge. The final product is than conveyed to the washed coal stockpile.

Middling concentrate is dewatered by sieves and fine middling by centrifuge and both are conveyed to middling stockpile.

The waste rock is dewatered and then sent directly to a waste rock stockpile for temporary storage, prior to being sent off-site for resale/reuse in power generation and construction. The collected waste water is reused as process water.

11.2.3 Dense-Medium Slime Separation

The slime and dense media from the dense-media cyclone is removed from coarse and fine concentrate by dewatering sieve and fed to second dense-media cyclone. In this cyclone fine coal concentrate is separated from coal tailings. Coal concentrate is then diverted into the coal circuit and tailing enters the middling circuit.

11.2.4 Recovery of Medium

The first dense-media cyclone separation divide used dense media into three independent circuits. The coal slime is treated in the second dense-media cyclone. After second dense-media cyclone recovered coal slime is dewatered and diluted media enters magnetic separator. The middling diluted media and tailing from second dense-media cyclone are treated in the middling circuit via magnetic separation. The waste rock diluted media is recovered in waste rock circuit magnetic separator.

– 433 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

11.2.5 Refill of Medium

Recovered magnetite powder is delivered to the clean media barrels.

11.2.6 Recovery of Coarse Slime

Coal slime flows into tumbling screen for dewatering and classification. The oversize is further dewatered by centrifuge and transported to coal storage. The under size is treated as slime water.

11.2.7 Treatment of Slime Water

The slime water from the tumbling screen is collected in the buffer pool of floatation process. Separated coal is collected and transferred to coal concentrate after dewatering. The tailings then enters second floatation cell. The collected concentrate is dewatered by a pressure filter. Tailings are treated by magnetic separation and the first stage tube thickener. Underflow is recovered and then sorted in a centrifuge. The overflow from the first stage tube thickener and liquor from the centrifuge then enters the second stage tube thickener. Underflow is recovered via press filter and filtered liquor is used as recycled water. If necessary, flocculants can be added prior to the 2nd stage tube thickener.

11.3 MASS BALANCE

Balance of coal feed and products is given in following Table 11-1.

Table 11-1: Coal Feed and Production Balance

Product	Quantity	Quantity	Quantity	Quantity	Quality	Quality
	Yield	Output			Ad	Total Moisture
	(%)	(t/h)	(t/d)	(Mtpa)	(%)	(%)
Coal	38.52	218.85	3501.64	1.16	10.39	10.02
Middling	44.52	252.95	4047.18	1.34	25.88	7.82
Waste Rock	15.70	89.18	1426.88	0.47	63.69	13.35
Tailing	1.27	7.20	115.20	0.04	38.19	26.00
ROM Coal Feed	100.00	568.18	9090.91	3.00	26.00

SRK recommend update mass balance based on updated reserve estimate.

Dense media consumption per input ROM coal is estimated as 0.98kg/t for coal from seam #9 and 1.09kg/t for coal from seam #16.

– 434 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Water balance for seam #9 and seam #16 respectively is given below in Table 11-2 and Table 11-3.

Water Balance of Seam #16

Table 11-2: Water Balance for Coal Seam #16 Coal

Item	Item	Item	Quantity
			(t/h)
Input	Circulating Water	Spray at Medium Draining Screen — Coal	400.89
		Spray at Medium Draining Screen — Middling	357.96
		Spray Water at Medium Draining Screen — Waste Rock	65.26
		Water for Floatation	80
		Water Refilled to Dense Medium	142.41
		Subtotal	1046.51
	Water in ROM Coal		42.77
	Fresh Water Refilled to Dense Medium		15.65
	TOTAL		1104.93
Output	Circulating Water		1046.51
	Water Loss in Product	Water Loss in Coal	26.91
		Water Loss in Middling	20.7
		Water Loss in Waste Rock	8.93
		Water Loss in Tailing Slime	1.88
		Subtotal	58.41
	TOTAL		1104.93

– 435 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Table 11-3: Water Balance for Seam #9 Coal

Item	Item	Item	Quantity
			(t/h)
Input	Circulating Water	Spray at Medium Draining Screen — Coal	256.83
		Spray at Medium Draining Screen — Middling	350.48
		Spray Water at Medium Draining Screen — Waste Rock	138.79
		Water for Floatation	230.00
		Water Refilled to Dense Medium	135.86
		Subtotal	1111.96
	Water in ROM Coal		42.77
	Fresh Water Refilled to Dense Medium		23.01
	TOTAL		1177.74
Output	Circulating Water		1111.96
	Water Loss in Product	Water Loss in Coal	21.81
		Water Loss in Middling	22.23
		Water Loss in Waste Rock	18.56
		Water Loss in Tailing Slime	3.18
		Subtotal	65.78
	TOTAL		1177.74

– 436 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

11.4 EQUIPMENT SELECTION

A summary of equipment selection for the Tianyu Coal Washing Plant is broken down in the Table 11-4.

Table 11-4: List of Equipment for Tianyu Coal Washing Plant

Equipment Type	Model	Quantity
Grading Screen for Raw Coal	CS2448, δ=70	1
Crusher	MMD500	1
Dense-medium Cyclone for Raw Coal	3GDMC1500/ 1100AI	1
Dense-medium Cyclone for Slime	SDMC450	1
Dense-medium Cyclone for Slime	SDMC500	1
Sizing and Medium-draining Screen for Clean Coal	DMS3642A	4
Sizing and Medium-draining Screen for Middling	DMS3642A	2
Medium Discharging and Draining Screen for Waste	MDMS3636A	2
Centrifugal Hydroextractor for Fine Clean Coal	HSG1400	2
Centrifugal Hydroextractor for Fine Middling	HSG1400	2
Centrifugal Hydroextractor for Coal Slime	LWZ1400×2000A	1
Centrifugal Hydroextractor for Tailing Slime	LWZ1400×2000A	1
Magnetic Separator for Clean Coal	DMM1219×2972	4
Magnetic Separator for Middling	DMM914×2972	2
Magnetic Separator for Waste	DMM914×2972	1
Floatation Cell	FJC16-4	3
Press Filter for Clean Coal	KX350/2000-U	2
Press Filter for Tailing Coal	KX350/2000-U	1
1-stage Thickener	ITT0808A-I	2
2-stage Thickener	ITT130(C)	2

– 437 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

11.5 POWER SUPPLY AND DISTRIBUTION AND INTEGRATED AUTOMATION

The coal-dressing plant with eight independent systems as follows:

. Centralized production,
. Quality and quantity control system,
. Automatic dense-medium process parameter monitoring system,
. Automatic floatation process parameter monitoring system,
. Automatic flocculant preparing and adding system,
. Automatic selected ROM coal blending system,
. Industrial television monitoring system, scheduling telephone and communication system,
. Automatic fire monitoring system.

In SRK opinion the eight systems are well designed and take into account stability and efficiency of Tianyu Coal Washing Plant production.

11.6 CIVIL CONSTRUCTION

The civil constructions are based on local climate and earthquake conditions and requirements of coal preparation process. The independent foundation of reinforced concrete independent foundation and steel structure, reinforced concrete or steel truss structure.

11.7 AUXILIARY FACILITIES

Auxiliary production works include water supply and drainage, heating and ventilation, and the inspection of production technology.

The treated water from Mine #1 and Mine #4 will be used for fire fighting, while domestic water will be supplied from Hainan District (i.e. via the Mine #4 water supply).

The Tianyu Coal Washing Plant will share the Mine #4 boiler room.

The Tianyu Coal Washing Plant will conduct own coal quality monitoring program. Therefore, the Tianyu Coal Washing Plant will be equipped with sample collection equipment, sample preparation facility and laboratory.

– 438 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

11.8 TRANSPORTATION

Mine #4 ROM coal is delivered to the plant belt conveyor, external coal sources will delivered by trucks. Washed coal, middling and waste rock are transported to respective storage yard or waste dump via a belt conveyor. Washed coal, middling and waste rock at storage yard or waste dump would be loaded onto customer‘s trucks. The dense medium and reagents for the floatation process are all carried in by truck.

11.9 CONSTRUCTION SCHEDULE

The FS determines the total construction period as 7 months. Out of that, construction work is planned for a total of 5.5 months. The total construction period involve construction preparation, construction, completion and acceptance. Tianyu Coal has stated that the construction of Mine #4 is scheduled to commence in April 2010 and planned to be completed in November 2010.

11.10 PRODUCTION SCALE AND WORKING SYSTEM

The Tianyu Coal Washing Plant is designed for processing of 3Mtpa of ROM coal feed. The service life of the Tianyu Coal Washing Plant is 30 years.

The working system consists of two production shifts (16 hrs/d) and one maintenance shift (8hrs/d). Annually 330 days of operation are taken into account.

The total manpower for the Tianyu Coal Washing Plant is 136 personnel out of which 130 personnel are working in production, 5 management personnel and one 1 person for service.

– 439 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

12 OCCUPATIONAL HEALTH AND SAFETY

12.1 SAFETY APPROVALS AND PERMITS

Mine #1

Wuhai Kangtai Safety Technology Limited completed the Safety Check and Acceptance Assessment Report of Tianyu I Mine (i.e. Mine #1), on 25 September 2007. The Safety Production Permit No. [2008]CD002 for the 300,000tpa Mine #1 was issued by the Inner Mongolia Safety Bureau of Coal Mine on 7 January 2008 (expiry 1 November 2011).

Mine #4 / Tianyu Coal Washing Plant

No safety approvals and /or permits for Mine #4 and the Tianyu Coal Washing Plant have been sighted as part of this review. Tianyu Coal has stated that the mine safety permit for Mine #4 will be issued after the completion of the mine construction.

12.2 OCCUPATIONAL HEALTH AND SAFETY PROCEDURES

Mine #1

The Tianyu Gongmao Mine Disaster Prevention and Treatment Plan (February 2009) specifies the safety measures in place for the prevention of mine fires, explosions, roof collapses and underground flooding. The Tianyu Gongmao Mine Safety Management Plan (February 2009), specifies the organisational responsibilities for the implementation of these safety management measures.

SRK observed the following procedures in the course of the site visit:

. brief induction was provided
. some personal protective equipment was provided (helmet, gloves, safety mask, gas meter), no safety glasses, safety boots or ear protection was provided
. water barriers preventing coal dust explosion spreading are in place in the main roadways
. safety monitors for CH4, CO, temperature and wind speed are installed in main roadways and gateways and connected to main dispatch centre
. opening and closing of wind regulating doors is monitored and recorded in dispatch centre
. all entries to the mines and vital areas on the surface are monitored by industrial cameras
. warning signs are located in the mine at various locations to draw attention to possible hazards

– 440 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

No other occupational health and safety procedures for the operation of Mine #1 have been sighted as part of this review.

Mine #4 / Tianyu Coal Washing Plant

The Mine #4 Coal Mine and Tianyu Coal Washing Plant Feasibility Study reports provide a range of proposed safety design and management measures. These have yet to be transferred into an operational safety management plan and or procedures. SRK notes that the Mine #4 Coal Mine Feasibility Study report also states that the intention is to have a combined safety management program with Mine #1, including shared safety facilities and personnel.

12.3 OCCUPATIONAL HEALTH AND SAFETY TRAINING

Mine #1

No documented occupational health and safety training measures/programs for Mine #1 have been sighted as part of this review.

Mine #4 / Tianyu Coal Washing Plant

The Mine #4 Feasibility Study report provides a range of proposed safety training measures. These have yet to be transferred into an operational safety training program.

No documented occupational health and safety training measures/programs for the Tianyu Coal Washing Plant have been sighted as part of this review.

12.4 HISTORICAL OCCUPATIONAL HEALTH AND SAFETY RECORDS

Mine #1

Tianyu Coal has stated that there have been no major accidents for Mine #1. Tianyu Coal has also stated that occupational health and safety accident and incident statistics are not recorded.

Mine #4 / Tianyu Coal Washing Plant

No documented measures for the recording of occupational health and safety accident and incident statistics for Mine #4 and the Tianyu Coal Washing Plant have been sighted as part of this review.

SRK recommends establishing a reliable safety records and statistics.

– 441 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

13 CAPITAL AND OPERATING COSTS

13.1 CAPITAL EXPENDITURE (CAPEX)

The estimated capital expenditure (CAPEX) for Mine #1 and Mine #4 coal mines consist of mine construction (shaft sinking and driving of declines and roadways), civil construction, equipment and installation, other investment. The detailed description of CAPEX items for Mine #1 is not available in PMD. The description of CAPEX items for Mine #4 as provided in FS is in Chapters 13.1.3 and 13.1.4. The contingency for fixed assets is inclusive. Contingency percentage for Mine #1 is not stated in the PMD. The FS of Mine #4 indicates a contingency percentage of 13%.

According to Chinese regulation for enterprises in coal industry, 35% or more of fixed assets capital must be prepared by the Company before launching a project. Other 65% of fixed assets capital may be secured by loans.

Total working cash (sustaining capital) is handled similarly with up to 70% of total working cash may be secured by loans. The total CAPEX of project consists of total fixed assets investment, interest of construction loan and initial working cash, which is regulated by the Chinese mining rules.

13.1.1 Mine #1

The review of CAPEX of Mine #1 as estimated in PMD is given in following Table 13-1.

Table 13-1: Capex Review of Mine #1

Item	CAPEX
	(RMB Million)
Underground Construction	9.33
Civil Construction	1.38
Equipment Procurement	11.04
Installation	5.36
Other	1.32
Sub-total Fixed Assets	28.44
Contingency	1.79
Interest	0.38
Total Investment	30.60
Working capital	0.54
Total CAPEX	31.52

– 442 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

SRK noted that CAPEX estimate for Mine #1 is for mine upgrade only. The Mine #1 upgrade is described in the PMD as the consolidation of the previous small mines within the area of mining license of Mine #1. PMD does not specify items for each item of CAPEX. SRK was not provided with summary of list of assets for Mine #1. Tianyu Gongmao stated that there is no record of actual CAPEX to date, for the Mine #1 upgrade. There is only the PMD CAPEX estimate as broken down in Table 13-1.

SRK reviewed Wuhai Gongmao Ltd. Design on Combined Transport System for No. 9 and No. 16 West Declines, January, 2009 (‘‘DCTS’’). The DCTS addresses inadequacy of existing hoisting system by replacement of hoist with conveyor belt. The conveyor belt requires extension of existing Seam 16 West Decline, sump and pumping station, ventilation decline, roadway connection to Seam 9 and coal bin. The estimated CAPEX for facilities required to upgrade main transport system to conveyor belt is given in Table 13-2 below.

Table 13-2: CAPEX Estimate for Conveyor Belt System of Mine #1

Item	Length	CAPEX
	(m)	(RMB Million)
Seam 16 West Decline Extension	187	0.80
Seam 16 West Water Sump	95	0.38
Seam 16 West Coal Bin	58	0.17
Seam 9 West Roadway	15	0.02
Seam 16 Blind Ventilation Decline	383	1.62
Seam 16 West Conveyor Belt	850	3.12
Total		6.11

SRK opines that CAPEX for Mine #1 conveyor system is adequate. According to DCTS the CAPEX of RMB6.11M is planned for the construction period of 4 months. Construction is planned to be completed by end of 2009.

The Company provided SRK with summary of CAPEX incurred from February 2008 till July 2009 (see Table 13-3). The previous record is not available.

Table 13-3: CAPEX Spending Review for Mine #1 for Period Feb 08–Jul 09

Item	CAPEX
	(RMB Million)
Fixed Assets	2.43
Project Under Construction	0.97
Non-material Assets	0.01
Total	3.42

– 443 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

The RMB0.97M is the CAPEX spent on Mine #1 conveying system till July 2009. No CAPEX other than for conveying system construction is expected by the Company for Mine #1.

13.1.2 Mine #4

SRK was provided with an updated CAPEX chapter of Feasibility Study (see Table 13-4). The updated CAPEX is estimated for production target 1.2Mtpa.

Table 13-4: Summary of CAPEX of Mine #4

Description	CAPEX
	(RMB Million)
Underground Construction	53.88
Civil Construction	27.16
Equipment Procurement	145.18
Installation	33.02
Other	17.80
Sub-total Fixed Assets	277.04
Contingency (13%)	36.02
Interest (6%)	13.15
Total Investment	326.21
Initial working capital	7.01
Total CAPEX	333.22

According to SRK, the updated CAPEX estimate for Mine #4 is reasonable, based on comparison with the CAPEX of similar size mines in Ordos basin.

The FS is takes into account declines developed before Real Power acquired the mine and the FS CAPEX estimate takes into consideration the reconstruction of these declines. The CAPEX is planned to be spent over the construction period of 12 months. The Company intend to commence construction in the 1st quarter 2010.

Since the production forecast indicates an increase of production to 1.5Mtpa in 2012, SRK recommends to updating the CAPEX in the upgraded FS for the 1.5Mtpa capacity.

– 444 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

13.1.3 Mine Construction

Mine Construction includes: preparation of construction, main vertical and incline shafts; auxiliary vertical and incline shafts; air return incline shafts; shaft stations and underground chambers; main haulage roadways; main track roadways; main air roadways; panel development, drainage systems, power supply systems, etc.

13.1.4 Civil Engineering

Civil engineering consists of preparation of construction, equipments from shafts, chambers, station, transportation roadways, air return roadways, panel development, haulage, drainage, ventilation, compress air facilities, production systems on surface, safety monitoring system, telecommunication control centre, supply and drainage of water of field out, heat supply, workshop, environment protection and waste treating facilities.

13.1.5 Other Investment

It includes other capital costs that are not included in the above chapters. SRK notes these ‘other capital costs’ are not currently available and will need to be included the updated FS.

13.2 WORKFORCE AND PRODUCTION SYSTEM

Total 330 days a year are scheduled to achieve annual production 0.3Mtpa. Shift pattern is 3 shifts per day, all production and maintenance is organised between shifts. PMD estimates productivity of 6.4t/ man/shift. The workforce summary is indicated in Table 13-5.

Table 13-5: Workforce of Mine #1

Category	Number
Underground Workers	157
Surface Workers	37
Management	8
TOTAL	202

Tianyu Coal has stated that as the construction of mine 4 has not yet started, no workforce has yet been employed.

– 445 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

13.3 OPERATION EXPENDITURE (OPEX)

SRK reviewed OPEX of Mine #1 based on PMD (Table 13-6). The production cost record provided to SRK for review is available in Table 13-7 and Table 13-8.

Table 13-6: Operating Cost Estimate of Mine #1

Item	Cost (RMB/t)
Material	6.40
Power	4.85
Wage	5.25
Welfare	0.74
Repair	1.95
Compensation for land subsidence	0.10
Other	4.75
Sub-total Operation cost	24.04
Depreciation	3.45
Development fund	2.50
Maintenance	1.75
Amortization	0.44
Finance cost	0.33
Interest of Investment Loan	0.10
Interest of working capital	0.22
Total	32.83

– 446 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

The operating cost for Mine #1 and Total Production Cost appears to be too low according to SRK opinion. SRK has reviewed the production cost record for year 2008 and 2009 as indicated in Table 137and Table 13-8 below.

Table 13-7: Mine #1 Cost Record in 2008

Item	Total	Unit Cost
	(RMB Million)	(RMB/t)
Production Cost	4.24	135.73
Salary	0.60	19.24
Material consumption	0.45	14.27
Electricity	0.42	13.35
Manufacture cost	2.77	88.77
Water	0.00	0.11
Tax	0.09	2.89
Sale cost	0.40	12.80
Management Cost	4.81	153.98
Financial Cost	0.00	–0.07
Other Cost	0.00	0.07
Total	9.55	305.42

Tianyu Coal has stated that the high management cost in 2008 was as a result of the mine being just recently purchased and the associated high level of management commitments and costs. In addition, the mine only operated until September 2008 which also resulted in high production (manufacture) costs. SRK opines that this is typical for the initial stage of mining before production is ramped up to full scale. The 2009 cost record confirms a decreasing trend because of the higher production.

– 447 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Table 13-8: Mine #1 Cost Record in 2009

Item	Total	Unit Cost
	(RMB Million)	(RMB/t)
Production cost	5.35	57.31
Salary	1.91	20.45
Material consumption	0.55	5.89
Electricity	0.53	5.67
Manufacture cost	2.36	25.26
Water	0.00	0.05
Tax	0.20	2.12
Sale cost	0.91	9.78
Management cost	1.86	19.97
Financial cost	0.42	4.52
Other	0.02	0.23
TOTAL	8.77	93.94

In 2008 the Total Production Cost was 305.42 RMB/t and in 2009 production cost dropped down to 93.94 RMB/t. SRK opines that in future Total Production Cost of Mine #1 would be similar to that of Mine #4.

– 448 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Operating cost of Mine #4 was estimated in FS as follows (Table 13-9):

Table 13-9: Operating Cost Estimate of Mine #4

Description	Cost (RMB/t)
Material cost	18.00
Power	12.97
Salary	14.10
Employee welfare fund	2.43
Repair and Maintenance	13.40
Subsidence Compensation	2.00
Other (including RMB3.5 simple reproduction fee)	16.50
Safety	4.00
Sub-total Operational Cost	83.40
Depreciation expense	10.40
Maintenance Cost (on top of RMB3.5 per t included in Operating Cost)	3.50
Safe Production Cost (on top of RMB4 included in Operating Cost)	4.00
Interest of Loan of Working Capital	0.72
Tunnel Fund	2.50
Total	104.52

The operating cost of Mine #4 is comparable with mines of similar size in China.

PMD estimates profitability of Mine #1 based on ROM coal price of 50RMB/t. SRK considers this price too low. As such company could sell ROM coal at current price which is higher. Feasibility Study of Mine #4 estimates coal price of 205RMB/t. The recent steam coal price ex-works in Wuhai coal district is 250RMB/t and coking coal price (FOB) is 850RMB/t. SRK opines that recent coal price can improve the economics of the mining undertaking.

– 449 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

13.4 TIANYU COAL WASHING PLANT CAPEX AND OPEX

Total CAPEX for the Tianyu Coal Washing Plant construction are determined in updated FS and broken down in Table 13-10. The total CAPEX is RMB171.38 M. The CAPEX would be spent over the construction period of 7 months. SRK reviewed the CAPEX and OPEX, but could not verify them, because no detail was provided to justify why CAPEX and OPEX has changed in update of FS. Tianyu Coal stated that FS was updated based on more favourable quotation from supplier.

Table 13-10: CAPEX Estimate of Tianyu Coal Washing Plant

Item	Total
	(RMB million)
Civil Structures	51.12
Equipment	71.42
Installation	14.28
Other	12.92
Working Capital	14.97
Loan Interest	6.66
Total Fixed Assets	171.38

The OPEX annual summary and OPEX per processed tonne of coal is given in following Table 1311.

Table 13-11: OPEX Estimate of Tianyu Coal Washing Plant

Item	Total Annual Cost	Unit Cost
	(RMB million)	(RMB/t)
Material Expenses	6.60	2.20
Feed Coal	540.00	180.00
Power	12.62	4.21
Wage and Welfare	1.64	0.55
Repairs Expense	8.42	2.81
Depreciation and Amortization Charge	19.31	6.44
Financial Cost	1.27	0.42
Other Expenses	6.82	2.27
Total Cost	596.68	198.90
Operating Cost	576.11	192.04
Processing Charges		18.90

SRK opines that the Tianyu Coal Washing Plant CAPEX and OPEX estimates are reasonable.

– 450 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

13.5 TOTAL CAPEX AND OPEX FORECAST

SRK was provided with a total CAPEX Forecast for period 2009–2014 (Table 13-12). The Company advised that only CAPEX planned are upgrade of Mine #1, construction of Mine #4 and construction of Tianyu Coal Washing Plant.

Table 13-12: CAPEX Forecast

Year	Unit	till 2009	2010	TOTAL
Mine #1	(RMB Million)	31.52	6.11	37.63
Mine #4	(RMB Million)	0.00	333.22	333.22
Washing Plant	(RMB Million)	0.00	171.38	171.38
TOTAL	(RMB Million)	31.52	510.71	542.23

SRK noted that CAPEX forecast for Mine #1 includes CAPEX estimated in PMD and DCTS. The CAPEX estimated in PMD has already been spent for existing Mine #1 structures. SRK opines that only the CAPEX remaining for the conveying system estimated in DCTS, is planned for spending (RMB0.97 M has already been spent as indicated in Table 13-3). The CAPEX forecast for Mine #4 and Tianyu Coal Washing Plant is consistent with the existing FS. SRK opines that the CAPEX forecast needs to be updated once the FS for the target production of 1.5Mtpa is prepared.

The Company provided OPEX forecast for period 2010 to 2014. As the cost categories are inconsistent with categories of DCTS and FS as well as with categories from cost record of Mine #1 for 2008 and 2009, SRK cannot verify the cost forecast. SRK noted that the ‘Mining Cost’ item in the OPEX forecast is substantially lower than the OPEX estimate for Mine #4. In SRK’s opinion, the Mining Cost would be similar to the estimates for Mine #4.

– 451 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

14 INFRASTRUCTURE

14.1 ROAD ACCESS

14.2 ELECTRICAL POWER SUPPLY

14.3 WATER SUPPLY

The water supply for the Tianyu Coal Projects is sourced from the local scheme water supply and from the treated mine water and wastewater noted at the time of the site visit, the treated mine water and wastewater at Mine #1 was being discharged and not reused. The local scheme water supply is operated by the Hainan District Water Company and is supplied to the project site via a 2km pipeline. Tianyu Gongmao and Tianyu Coal have stated that external water supply is reliable and has the capacity to meet the project’s requirements. No water supply agreements between Hainan District Water Company and Tianyu Gongmao/Tianyu Coal have been sighted as part of this review.

14.4 WORKSHOPS AND REPAIR FACILITIES

– 452 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

15 ENVIRONMENTAL ASSESSMENT

15.1 ENVIRONMENTAL REVIEW OBJECTIVE

The objective of this environmental review is to identify and or verify the existing and potential environmental liabilities and risks, and assess any associated proposed remediation measures for the Tianyu Coal Projects.

The Tianyu Coal Projects comprise the following operational sites/facilities:

. Mine #1 — 300,000tpa underground coal mine, located near the Dongfeng Township in the Hainan District approximately 31km south of Wuhai City, Inner Mongolia. Owned and operated by Wuhai Tianyu Gongmao Coal Company Limited (Tianyu Gongmao).
. Mine #4 — proposed 1,200,000tpa coal mine, located approximately 700m to the south of Mine #1. Owned by Wuhai Tianyu Coal Development Company Limited (Tianyu Coal).
. Tianyu Coal Washing Plant (proposed) — 3,000,000tpa, proposed to be located within the south east corner of the Mine #4 mining licence area, adjacent to and directly north of the Mine #4 main decline. Owned by Tianyu Coal.

15.2 ENVIRONMENTAL REVIEW SCOPE AND STANDARDS

Environmental compliance and conformance for the Tianyu Coal Projects was determined through the review of the project’s environmental management performance against:

. Chinese National environmental regulatory requirements (Appendix 3).
. World Bank/International Finance Corporation (IFC) environmental standards and guidelines (see Appendix 4).
. Internationally recognised environmental management practices.

15.3 STATUS OF ENVIRONMENTAL APPROVALS AND PERMITS

Mine #1

Business Licence No. 15000000001168 was issued to Tianyu Gongmao Development Company by the Inner Mongolia Administration for Industry and Commerce on 14 May 2008 (expiry 6 December 2010). The licensed business activities for Tianyu Gongmao are coal mining and supply (sales).

Mining Licence No. 1500000720658 for the Tianyu Gongmao Underground Coal Mine was issued by the Inner Mongolia Land and Resources Bureau on 6 December 2007 (expiry 6 December 2010). The approved mining licence area is 2.4016km[2] . The approved mining production is underground coal mining at 300,000tpa.

– 453 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

The Environmental Impact Assessment report (EIA) for the 300,000tpa Mine #1 was produced by the Wuhai Environmental Science Institute in January 2005. This EIA was approved by the Inner Mongolia Environmental Protection Bureau (EPB) on the 9 March 2005.

No Water and Soil Conservation Plan (WSCP) for the 300,000tpa Mine #1 has been sighted as part of this review, however, the approval for this WSCP has been sighted. The WSCP for the 300,000tpa Mine #1 was approved by the Wuhai Water and Soil Bureau on 3 February 2005. In addition, the EIA report contains water and soil conservation measures and the ‘Monitoring Report on Water and Soil Conservation on Tianyu Mine’; produced by the Inner Mongolia Water and Soil Conservation Station (June 2007) has also been sighted.

No environmental Final Checking and Acceptance report and approval for the 300,000tpa Mine #1 has been sighted as part of this review. However, the Coal Bureau of Hainan District and the Wuhai Bureau of Coal Industry undertook a project completion and acceptance inspection of Mine #1 on 25 November 2007, which was documented in a report on 17 December 2007 with a recommendation to issue the Coal Production Permit. The Coal Production Permit (No. 201503030318) for the 300,000tpa Mine #1 was issued by the Inner Mongolia Bureau of Coal Industry, on 25 January 2008 (expiry 25 January 2034). SRK recommends that Tianyu Gongmao seek written confirmation from the Inner Mongolia EPB with respect to the status with the environmental Final Checking and Acceptance approval of Mine #1.

The operational Land Use Permit No. 150095127S for the 300,000tpa Mine #1 was issued by the Inner Mongolia Land and Resource Bureau on 16 May 2007 (expiry 4 July 2032).

No Discharge Permit for the 300,000tpa Mine #1 has been sighted as part of this review. Tianyu Gongmao has stated that the Inner Mongolia EPB has not issued a Discharge Permit for Mine #1. SRK recommends that Tianyu Gongmao seek written confirmation from the Inner Mongolia EPB in respect to the status with the issuing of the Discharge Permit.

No water use/extraction permit is required for the 300,000tpa Mine #1, as the mine water supply is sourced from the local Hainan District scheme water supply system (i.e. operated by the Hainan Water Company). No water supply contract between the Hainan Water Company and Tianyu Gongmao has been sighted as part of this review.

Mine #4

Business Licence No. 15000000001150 was issued to Wuhai Tianyu Coal Development Company by the Inner Mongolia Bureau of Industry and Commerce on 17 February 2007 (expiry 10 July 2009). The licensed business activities for Tianyu Coal are coal mining and supply (sales). No renewal application for Business Licence No. 15000000001150 has been sighted as part of this review.

Mining Licence No. 1500000720655 for the 1,200,000tpa Mine #4 was issued by the Inner Mongolia Land and Resources Bureau on 6 December 2007 (expiry 6 December 2010). The approved mining licence area is 4.0299km[2] . The approved mining production is underground coal mining at 300,000tpa.

– 454 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

The EIA for the 1,200,000tpa Mine #4 Project was produced by the Inner Mongolia Coal Construction Eco-Environmental Institute in January 2009. This EIA was approved by the Inner Mongolia EPB on the 23 April 2009. This EIA approval allows for the approved mining production for Mining Licence No. 1500000720655 to be increased from 300,000tpa to 1,200,000tpa. An application to amend Mining Licence No. 1500000720655 along with the 1,200,000tpa mine design can now be submitted to the Inner Mongolia Land and Resources Bureau.

The WSCP for the 1,200,000tpa Mine #4 was produced by the Inner Mongolia Coal Construction Eco-Environmental Institute in February 2009. This WSCP was approved by the Inner Mongolia Bureau of Water Administration on 13 April 2009.

At the time of the site visit, Tianyu Coal stated that the Final Checking and Acceptance process for the 1,200,000tpa Mine #4 will commence during the later stages of the mine development/construction (i.e. during 2011).

No operational Land Use Permit for Mine #4 has been sighted as part of this review. On the 12 March 2007, the Wuhai Bureau of City Planning issued four Construction Land Use Permits for Mine #4, covering the residential, ventilation and industrial and administrative areas. These permits are for the use of the land for the purpose of construction and not the operational land use permit. The Wuhai Land and Resource Bureau will issue the operational land use permit for Mine #4 as a component of the project Final Checking and Acceptance process.

No water use/extraction permit is anticipated for Mine #4, as the mine water supply will be sourced from the local Hainan District scheme water supply system (i.e. as per the current arrangement between Mine #1 and the Hainan Water Company). The water supply contract between the Hainan Water Company and Tianyu Coal was established in 2004.

Tianyu Coal Washing Plant

The EIA report for the 3,000,000tpa Tianyu Coal Washing Plant was produced by the Inner Mongolia Environmental Sciences Academy in October 2008. This EIA was approved by the Inner Mongolia EPB on the 9 March 2009.

– 455 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

No WSCP for the 3,000,000tpa Tianyu Coal Washing Plant has been sighted. However, as the facility is located within the Mine #4 mining area, the management of the site’s water and soil conservation will be required to meet the provisions set down within the Mine #4 WSCP and approval.

The Feasibility Study report states that the Tianyu Coal Washing Plant project construction period is seven months. The Feasibility Study report also states the trial production period and the project Final Checking and Acceptance process will commence directly after this completion of this construction period. No schedule for the receipt of the project’s Final Checking and Acceptance approval has been sighted.

No water use/extraction permit is anticipated for the Tianyu Coal Washing Plant, as the mine water supply will be sourced from the local Hainan District scheme water supply system (i.e. as per the current arrangement between Mine #1 and the Hainan Water Company). The water supply contract between the Hainan Water Company and Tianyu Coal was established in 2004.

15.4 ENVIRONMENTAL COMPLIANCE AND CONFORMANCE

Mine #1

Tianyu Coal has stated that the average daily mine production for Mine #1 is 800tpd. This equates to annual production of 264,000tpa, which is within the approved mining production rate of 300,000tpa stated in Mining Licence No. 1500000720658.

The Mine #1 EIA and approval make the following relevant statements in respect to the project’s environmental management:

. Land subsidence:
To protect the buildings and constructions within the mining tenement, relevant coal pillars should be reserved in case of subsidence accident.
The Company needs to implement all the measures stated in the report on the land subsidence.
Regular monitoring on the surface subsidence should be carried out.
The waste rock and residue will be filled into the subsidence area, which will be covered by soil of 0.4–0.5m thickness. After treatment, the subsidence area can be used for agriculture, forestation, stockpiling and construction.

– 456 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

The warning signals should be set up in the surface fractures that may not be filled.
The caving method is strictly prohibited for the coal seam near the surface to prevent surface subsidence.

. Waste rock disposal:

Waste Rock Utilisation — mine backfilling, filling subsidence areas and sold for as raw material for producing bricks, cement, power generation and road construction.
Site Selection for Waste Rock Dump — not to be located near residential, water source and natural protection areas (i.e. located within an area of poor vegetation if possible). Site to be inspected and approved by competent authorities.
Waste rock dump — waste rock should be disposed by stages and benches, topsoil should be recovered on the site project and tree planting on the final waste rock dump.

. Dust management:

Industrial yard — The surface production system and transferring points should all be sealed to prevent the dust generation. The ground working face should be equipped with complete dust-prevention and water-sprinkling system.
Coal Stockpile — Water-spraying will be adopted in the open coal stockpile to increase the surface moisture and plant wind breaks in the windward
Transportation — Water-spraying should be conducted on the mine roads.

. Gas emissions (boilers):

Use low sulphur anthracite to reduce the fume and Sulphur Dioxide (SO2) discharge.
Boiler fume will be discharged from the 25m high chimney.

. Wastewater management:

Mine water — The mine water will be neutralised by the lime water and then settled down before the discharge density complies with the agricultural irrigation requirement. To reduce the pollution and save the water resource, the waste water after treatment should be used for greening and road/ground sprinkling. In the winter, the waste water will be storage in the oxidization pond for summer irrigation.

– 457 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Domestic waste water — After treatment through the oxidization pond, the domestic waste water can be used for irrigation.
All the waste water is prohibited from directly discharging into neighbouring area and should be recycled for mine greening program to save water resource. Through the water pipelines implemented in the project area, the waste water will pumped to the water consuming points for production and vegetation. In addition, the waste water may also be the supplementary source for underground water. The waste water recycling will be conducted from April to October each year.

. Noise management:

The high efficiency products with low noise should be selected to reduce the noise pollution.
Muffler and damper should be added on the main fan.
The greening areas should be increased to reduce the noise pollution.
Mufflers should be implemented in the air ducts.

. Site revegetation (greening):

Since the erosion and soil and water loss are very serious in the project area, which is of low vegetation coverage, the greening and reforestation should be implemented. The main plants selected should be arbors and shrubs. The greening area in the industrial yard should be over 20%. The high efficiency products with low noise should be selected to reduce the noise pollution.
Two shelter forest belts, whose widths are respectively 50m and 30m, will set up in the windward and lee side areas out of the enclosing wall. Shrubs will be selected for the windward area while the arbors will be adopted for the lee side area.

The management of these environmental risks for the current operation of Mine #1 is generally in compliance with the project environmental approval requirements and Chinese National environmental requirements. However, at the time of the follow up site visit (12–13 September 2009), the following site environmental management items present potential environmental non-compliances:

. Dust management — Tianyu Gongmao have constructed a windbreak fence around at the 16 East Decline coal storage and handling yard. However, the enclosure of the surface coal handling systems, use of water sprays on coal stockpiles and the surface sealing of the coal handling yard, have yet to be completed. Tianyu Gongmao has stated that these works will be undertaken during 2010, as part of the proposed Mine #1 upgrade/optimisation works (i.e. upgrade from 300,000tpa to 450,000tpa).

– 458 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

. Site revegetation/greening — to date only limited site revegetation/greening has occurred. However, Tianyu Gongmao has produced a site rehabilitation plan that details the proposed site rehabilitation works. Tianyu Gongmao has stated that these works will be completed during 2010, as part of the proposed Mine #1 upgrade/optimisation works.
. Wastewater management — the treated mine and domestic wastewater is currently discharged and not reused for dust suppression/site revegetation. Tianyu Gongmao has stated that the reuse of this treated wastewater will occur once the proposed dust suppression/revegetation works are completed.

Further details on the management of the above potential environmental non-compliances are provided in the following sections.

Tianyu Coal has stated that the Wuhai City EPB undertakes regular site environmental inspections of Mine #1 and that the latest inspection occurred on 18 May 2009. Tianyu Coal stated that the Wuhai City EPB provided verbal feedback from this inspection that the operation was currently in compliance with Chinese environmental requirements (i.e. Wuhai City EPB did not provide a site inspection report to Tianyu Coal). Tianyu Coal has also stated that the Wuhai City EPB has not issued any environmental non-compliance notices and or fines to Mine #1.

Mine #4

The Mine #4 EIA and approval make the following relevant statements in respect to the project’s environmental management:

. Land subsidence:
Safety pillars need to be preserved where for faults there should be 50m wide pillars and 20m for licence boundary; 15 for shafts; 20m for surface building and 30m for main roadway.
Subsidence area needs to signposted.
.

Waste rock disposal:

Waste rock is to be sold to Wuhai Li’an Waste Rock Integral Utilization Company Limited (i.e. for reuse as raw material for producing bricks, cement, power generation and road construction.
.

Waste management (general):

The boiler ash and domestic solid waste are to be collected and treated by the local district.
. Dust management:
Hoods needs to be installed and water needs to be sprayed during coal conveying and storage to control dust.

– 459 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Coal yard needs to be fenced with 12m wall and coal transportation needs to be in covered trucks.
Regular watering of the roads, coal yard and industrial area.

. Gas emissions (boilers):

Boiler gas emission needs to be treated to remove sulphur and ash at less 97% efficiency for sulphur and 40% for ash and discharged through 30m chimney.

.

Wastewater management:

Mine water — to be treated via coagulation-sedimentation + filtration process (i.e. to achieve ‘‘Emission Standards for the Coal Industry’’ — GB20426-2006). Treated mine water is to be collected for reuse in underground fire protection, dust suppression and site greening. Mine water in winter is to be stored in reservoirs for reuse in summer. There is to be no discharge of mine water.
Domestic waste water — to be treated via buried sewage treatment plant (i.e. to achieve ‘‘Integrated Wastewater Discharge Standard’’ — GB8978-1996). Treated wastewater is to be collected for reused in underground fire protection, dust suppression and site greening. There is to be no discharge of domestic wastewater.

. Noise management:

The Company needs to take measures on noise control to meet the standard of ‘‘GB12348-2008’’ level 2.
Muffler and damper should be used on the blowers, main fan and pumps, as well a being placed within insulated buildings.
Greening of the industrial area and mine approach roads should be undertaken to reduce noise.

. Site revegetation (greening):

Undertake rehabilitation on the mined out area and greening works along roads.
Mined out area needs to be backfilled.

. Environmental management:

The Preliminary design needs to cover the environmental components and allocate money for environmental managements.
The construction of environmental facilities should be conducted simultaneously with the main buildings.

– 460 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Formal production can not be started without the final approvals for final check on the environmental facilities completed.
The supervision of the project construction will be undertaken by the Wuhai EPB and the Hainan EPB.

The approval for the Tianyu Coal Mine WSCP (i.e. by the Inner Mongolia Bureau of Water Administration) makes the following additional statements in respect to the project’s water and soil conservation management:

. Ensure that measures stated in the WSCP such as money allocation, construction supervision, monitoring and management are in place during the project construction
. Periodically report to the relative local authorities on the water and soil conservation progress
. Commission qualified company on the compilation of monitoring report and supervision of the project
. Any major change from the plan needs to be approved by relative authorities
. Materials used for water and soil conservation should meet required standards and should be kept a record in the local water bureau.
. After the completion of the project, an application for final check and approvals will need to be submitted to the Inner Mongolia Bureau of Water Administration.

Detailed design for the Mine #4 project has yet to be completed. However the environmental provisions within the 1,200,000tpa Tianyu Coal Mine #4 Technical Expansion Feasibility Study Report (February 2009) are consistent with the above environmental management statements.

Tianyu Coal Washing Plant

The Tianyu Coal Washing Plant EIA and approval make the following relevant statements in respect to the project’s environmental management:

. Dust Management:
Coal handling facilities should be enclosed with a dust collection system installed; coal and waste rock stockpiles need also be fenced (have windbreaks) for dust control; trees should also be plant along the boundary (to act as windbreaks).
. Wastewater management:
Process water should utilise the mine water; direct extraction of groundwater for water supply prohibited.
Construct the wastewater recycling system as stated in the EIA.

– 461 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

. Waste rock/Coal Gangue disposal:
Waste rock/coal gangue should be sold for reuse. Only temporary stockpiling of waste rock is permitted.
. Environmental management:
Environmental facilities need to be designed, constructed and commissioned simultaneously with the project’s main facilities.
Apply for trial production on the completion of the construction. Formal production can not be started without the final approvals for final check on the environmental facilities completed.
The supervision of the project construction will be undertaken by the Wuhai EPB and the Hainan EPB.

Detailed design for the Tianyu Coal Washing Plant project has yet to be completed. However the environmental provisions within the 3,000,000tpa Tianyu Coal Washing Project Feasibility Study Report (May 2008) are consistent with the above environmental management statements.

15.5 LAND DISTURBANCE

The main impact on the surrounding ecological environment is due to disturbance and contamination caused by surface stripping, waste rock and tailings storage, processing plant drainage, processing waste water, explosions, transportation and associated buildings that are erected. If effective measures are not taken to manage and rehabilitate the disturbed areas, the surrounding land can become polluted and the land utilization function will be changed, causing an increase in land desertification, water loss and soil erosion.

Mine #1

The Mine #1 WSCP Approval (3 February 2005) and the WSCP Monitoring Report (June 2007) provide a total project land disturbance area of 37ha, which is broken down into the following project areas:

. Production area (including waste yard and industrial/administration facilities) — 29.88ha.
. Residential area — 4.12ha.
. Mine roads — 3ha.

The Land Reclamation Program Report (June 2009) provides a total project area of 58.88ha, which is broken down into the following project areas:

. Industrial area — 37ha.
. Waste rock dump — 1ha.

– 462 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

. Mined out area — 20.88ha.

No other documented, estimated and/or current surveyed areas of land disturbance for Mine

1 have been sighted as part of this review.

SRK notes the significant inconsistencies between these two surveyed areas of project land disturbance. However, SRK also notes the land disturbance areas provided in the recent Mine #1 Land Reclamation Program Report (June 2009) are generally consistent with those observed during the site visit.

Safety pillars are utilised at Mine #1 for the prevention of land subsidence. The Mine #1 EIA report provides no specific reference to the requirements for the location of these safety pillars. No areas of land subsidence were noted during the site visit.

Mine #4

The Mine #4 EIA report and WSCP both provide an estimated total project area of 19.09ha, of which 6.679ha is comprises a temporary construction area. The EIA report also provides the further breakdown of this total project area:

. Industrial area (including coal/waste rock storage, water treatment facilities and administration facilities) — 9.55ha.
. Water supply pipeline — 2.9ha.
. Power lines and communications cables — 3.34ha.
. Mine roads — 3.3ha.

The Feasibility Study for Mine #4 provides an estimated total project area of 12.4ha, which comprises:

. Mine industrial area — 8.6ha.
. Air shaft area — 0.5ha.
. Air shaft road — 0.2ha.
. Mine access road — 0.34ha.
. Coal transportation road — 2.76ha.

The Mine #4 Land Reclamation Program Report (June 2009) provides a total project area of 13.51ha, which is broken down into the following project areas:

. Industrial area — 8.98ha.
. Roads — 4.53ha.

– 463 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

SRK notes the inconsistencies between the above estimates areas of project land disturbance, in particular, the exclusion within the Feasibility Study and Land Reclamation reports of the estimate of the land areas for the water supply pipeline and power lines/communications cables.

No other documented estimated areas of land disturbance for Mine #1 have been sighted as part of this review.

The Mine #4 EIA report makes the following statement in respect to the prevention of land subsidence; ‘Safety pillars need to be preserved, where there are faults there should be 50m wide pillars and 20m for boundary of the mining licence; 15m for shafts; 20m for surface buildings’. SRK notes that the Feasibility Study for Mine #4 states that safety pillars should be 20m wide for faults, 20m from the boundary of the mining licence and 15m from shafts and surface infrastructure.

Tianyu Coal Washing Plant

The Tianyu Coal Washing Plant EIA and Feasibility Study reports provide an estimated project area of 5.14ha. This encompasses the 4.75ha for the coal handling/washing facility and 0.39ha for administrative and maintenance support facilities. It should be noted that coal/coal gangue rock storage and general site infrastructure is included within the Mine #4 site facilities.

15.6 WASTE ROCK MANAGEMENT

Mine #1

The waste rock generated from the development of Mine #1 is disposed of to a waste rock dump, approximately 1ha in area and located adjacent to the seam 16 decline. Minor amounts of waste rock are generated from the current mining operations. This is stored in the coal yard prior to reuse in backfilling or for sale off-site as raw material for producing bricks, cement, power generation and road construction. No records of the tonnages/volumes of the waste rock stored in the dump and generated in the current mining operations, have been sighted as part of this review.

The Mine #1 EIA does not provide the chemical composition of the waste rock and makes no statement in respect to any potential leaching impacts from the storage of waste rock. However, no evidence was observed during the site visit of any leaching or acid rock drainage (ARD) impacts associated with both the long term storage of the mine development waste rock and the short term storage of minor amounts of operational waste rock.

Mine #4

The Mine #4 EIA and Feasibility Study reports state that there will be no waste rock dump. The mine development waste rock will be reused on site for construction (Feasibility Study report estimates that a total 5,937.36m[3] of mine development waste rock will be generated), and the waste rock generated from mining operations will be sold and reused off-site for power generation and construction (Feasibility Study report estimates that 80m[3] /d 26,400m[3] /yr of operational waste rock will be generated). However, SRK notes that the project description section of the Feasibility Study also states that the operational waste rock will be transported by truck to Mine #1 for reuse as fill in mine subsidence areas.

– 464 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

The Mine #4 EIA and Feasibility Study reports do not provide the chemical composition of the waste rock and make no statements in respect to any potential leaching impacts from the storage of waste rock. However, SRK notes that the waste rock at Mine #4 is essentially an extension of the waste rock types found at Mine #1, and therefore present a similar low risk in respect ARD impacts (i.e. no evidence was observed during the Mine #1 site visit of any waste rock leaching or ARD impacts).

Tianyu Coal Washing Plant

The coal washing process includes a wastewater recovery system which comprises thickening (tails only), centrifuge and pressure filtration. All wastewater is recovered for reuse in the process and dry coal gangue (waste rock) is generated. The Tianyu Coal Washing Plant EIA and Feasibility Study reports estimate that approximately 942,000tpa of this coal gangue will be generated. The Tianyu Coal Washing Plant EIA and Feasibility Study reports state that there will be only temporary storage of this coal gangue on site and that it will be sold and reused off-site for power generation and construction.

15.7 WATER ASPECTS AND IMPACTS

There are no perennial surface water resources within or surrounding the Tianyu Coal Projects. However, the projects are located within the Yellow River catchment system (i.e. approximately 3km east of the Yellow River). The regional water resource for the Tianyu Coal Projects area is groundwater. This regional groundwater resource is managed by the Hainan District Water Company, which is the water supplier for the Tianyu Coal Projects (i.e. water is pumped approximately 2km from the Hainan District to Mine #1). No water supply contract and no records of the volumes of water supplied to (used by) Mine #1, have been sighted as part of this review. However, the Feasibility Study for Mine #4 states that the Hainan District Water Company will supply the project with 195.7m[3] /d of fresh water (i.e. approximately 12% of the total daily water requirement of 1,748m[3] /d, the remainder is sourced from mine water and domestic wastewater). The water supply contract between the Hainan Water Company and Tianyu Coal was established in 2004 (no expiry date).

The Tianyu Coal Projects are located within a water conservation area and are required, via the project environmental approvals, to collect operational wastewater and reuse it for site dust suppression, fire protection and greening.

The Mine #1 EIA report estimates that the volume of wastewater generated annually is 66,300m[3] / yr, which comprises approximately 50% mine water and 50% domestic wastewater (i.e. from showers, laundry). The mine water is currently pumped to a central treatment facility (comprising lime dosing and settling) and then is discharged from site via an open drain. The domestic wastewater is also discharged from site via an open drain. There is no monitoring undertaken of the quantity and quality of these wastewater discharges. SRK recommends that Mine #1 upgrade the mine’s current wastewater management such that all wastewater is collected, treated and reused for site dust suppression, fire protection and greening, in accordance with the project environmental approval conditions.

The Mine #4 Feasibility and EIA reports estimate that the mine water generated will be 1,200m[3] /d (396,000m[3] /yr) and that the domestic waster generated will be 353m[3] /d (116,490m[3] /yr). These reports state that the mine water and the domestic wastewater will be collected for reuse in site dust suppression, fire protection and site rehabilitation.

– 465 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

The Tianyu Coal Washing Plant Feasibility and EIA reports estimate that the process wastewater generated will be 62m[3] /d (20,460m[3] /yr) and that the domestic waster generated will be 12m[3] /d (3,960m[3] /yr). These reports state that the process and domestic wastewater will be collected for reuse in site dust suppression, fire protection and site rehabilitation.

The EIA reports for both mines and the Tianyu Coal Washing Plant do not address the management of stormwater. The Mine #4 Feasibility report refers to the use of existing topography (drainage lines) to drain and discharge site stormwater. SRK recommends that Tianyu Gongmao and Tianyu Coal investigate the feasibility of collecting stormwater runoff from both mine sites and the Tianyu Coal Washing Plant, in sedimentation/collection basins for potential reuse.

The EIA reports for both mines and the Tianyu Coal Washing Plant do not address the potential for site surface flooding. However, the Mine #4 Feasibility report does include a site flooding assessment. The annual rainfall is stated as 150mm, with an annual evaporation of 2,985mm. There is some potential for flooding in the surrounding area. However, the project sites are at a relatively high elevation to the surrounding area, and as such the risk of significant localised flooding is considered to be low. The Mine #4 Feasibility report makes the following statement in respect to the low potential for site surface flooding ‘several villages near the mine industrial field have never experienced any major flooding disaster in their history’.

15.8 AIR EMISSIONS

15.8.1 Dust Emissions

Mine #1

Fugitive dust emission sources for Mine #1 are from coal/waste rock storage and handling, open areas and movement of vehicles and mobile equipment. No significant fugitive dust emissions from these sources were observed during the site visit; however the site wind conditions were calm. No site ambient dust monitoring is undertaken. However, Tianyu Coal stated that there have been no complaints received from the Baijiamao Village in relation to the site’s fugitive dust emissions.

The project EIA report and approval define the following requirements for the site’s fugitive dust management:

. Industrial yard — The surface production system and transferring points should all be sealed to prevent the dust generation. The ground working face should be equipped with complete dust-prevention and water-sprinkling system.
. Coal Stockpile — Water-spraying will be adopted in the open coal stockpile to increase the surface moisture and plant wind breaks in the windward
. Transportation — Water-spraying should be conducted on the mine roads.

None of these dust management practices were observed during the site visit. However, Tianyu Gongmao has since initiated the development of a site dust management program for Mine #1 with the construction of a wind break fence for the coal stockpile yard. A contract to construct

– 466 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

a wind break fence for the fence for the coal stockpile yard has been sighted. This contract is with Shenyang Dongxing Glass Fiber Reinforced Plastics and is dated 24 July 2009.The construction of this wind break fence has commenced (SRK has sighted photos of this construction). Tianyu Gongmao has stated that this construction is scheduled for completion by 20 August 2009. Tianyu Gongmao also stated that occasionally some hand watering of the coal handling/storage area was undertaken. SRK recommends that a site dust management program is fully developed and implemented for Mine #1 in accordance with the project environmental approval conditions.

Mine #4

Fugitive dust emission sources for Mine #4 will be from coal/waste rock storage and handling, open areas and movement of vehicles and mobile equipment.

The Mine #4 EIA report and approval, and Feasibility Study report define the following requirements for the site’s fugitive dust management:

. Construct 12m high wind break around the coal storage area.
. Install water sprinklers within the coal storage area.
. Undertake regular watering of roads, coal yard and industrial area.
. Cover all coal transport trucks.
. Undertake a site revegetation (greening) program.
. Enclosure of coal handling facilities (i.e. conveyors and transfer points).
. Install water sprays within coal handling facilities (i.e. conveyors and transfer points).
. Apply speed limits to vehicle movements.

SRK makes the observation that the above proposed dust management practices are in line with Chinese regulatory requirements and recognised international industry practices.

Tianyu Coal Washing Plant

Fugitive dust emission sources for the Coal Washing will be from coal/waste rock storage and handling, open areas and movement of vehicles and mobile equipment. Most of these potential dust emissions source are shared with Mine #4.

The Tianyu Coal Washing Plant EIA report and approval, and the Feasibility Study report define the following requirements for the site’s fugitive dust management:

. Coal handling facilities should be enclosed with a dust collection system installed.
. Coal and waste rock stockpiles need also be fenced (have windbreaks) for dust control.
. Trees should also be plant along the boundary (to act as windbreaks).

– 467 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

. Coal transportation roads should be cleaned regularly.
. Site roads and unsealed areas should be sprayed with water and/or dust suppressant.

SRK makes the observation that the above proposed dust management practices are in line with Chinese regulatory requirements and recognised international industry practices.

15.8.2 Gas Emissions

Mine #1

Gas emissions for Mine #1 are generated from the site boiler. The gas emissions are managed via the use of low sulphur anthracite as the boiler fuel (to reduce the Sulphur Dioxide SO2 discharges) and discharge of emissions via a 25m high stack. There is no treatment (i.e. dust collection) of the gas emissions prior to discharge. No quality monitoring of the discharged gas emissions is undertaken.

Mine #4/Tianyu Coal Washing Plant

Gas emissions for Mine #4 and the Tianyu Coal Washing Plant will be generated from the site boiler. The Mine #4 EIA report and approval, and the Feasibility Study report state that gas emissions will be managed via:

. Use of low sulphur coal (i.e. sulphur content range from 0.75% to 1.5%).
. Treat gas emissions via a wet cyclone (i.e. for dust collection, SO2 reduction).
. Discharge the treated gas via a 30m high stack (NB — the feasibility Study refers to a 45m high stack).

SRK makes the observation that the above proposed gas emissions management practices are in line with Chinese regulatory requirements and recognised international industry practices.

Ambient Air Quality Monitoring

The Mine #4 EIA report specifies that the project’s operational ambient air monitoring should comprise:

. Monitoring locations — industrial site boundary and residential areas.
. Monitoring parameters — Total Suspended Particulates (TSP) and SO2.
. Monitoring frequency — annually (in winter).

The Tianyu Coal Washing Plant EIA report specifies that the project’s operational ambient air monitoring should comprise:

. Monitoring locations — boundaries of coal storage and handling facilities and at administration and accommodation areas.

– 468 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

. Monitoring parameters — Total Suspended Particulates (TSP) and SO2.
. Monitoring frequency — quarterly in January, April, July and October.

SRK recommends that the proposed ambient air quality monitoring for Mine #4 and the Tianyu Coal Washing Plant be expanded to also include additional monitoring locations at Mine #1.

15.8.3 Greenhouse Gas Emissions

There is no Chinese National legislative requirement for the project to estimate its Greenhouse Gas emissions or to implement any emissions reductions. As such none of the project environmental assessment documentation reviewed address the issue of Greenhouse Gas emissions. However, energy efficiency and the reduction of Greenhouse Gas emissions are now considered as Chinese National policy directives. In addition, these are also components of IFC environmental requirements and are considered as internationally recognised environmental management practices. Therefore, SRK recommends that consideration be given to developing initiatives to quantify Greenhouse Gas emissions and assess possible emission reduction strategies for the Tianyu Coal Projects.

15.9 NOISE EMISSIONS

Mine #1

The main sources of noise emissions for Mine #1 are coal handling equipment, mobile equipment, ventilation fans and pumps. The project EIA report specifies the following noise management measures:

. The high efficiency products with low noise should be selected to reduce the noise pollution.
. Muffler and damper should be added on the main fan.
. The greening areas should be increased to reduce the noise pollution.
. Mufflers should be implemented in the air ducts.

The above noise management measures are generally in place, however, SRK notes that to date only limited site revegetation/greening has occurred, however, this is being addressed through the development and implementation of a site rehabilitation program (see Section 10.15).

Tianyu Gongmao has stated that they have received no public complaints in respect to the project’s noise emissions. No operational ambient noise monitoring is undertaken for Mine #1.

Mine #4 / Tianyu Coal Washing Plant

The main sources of noise emissions for Mine #4 and the Tianyu Coal Washing Plant are coal handling equipment, mobile equipment, ventilation fans and pumps. The Mine #4 and Coal Washing Plant EIA reports and approvals, and the Feasibility Study reports specify the following proposed noise management measures:

– 469 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

. Muffler and damper should be used on the blowers, main fan and pumps, as well a being placed within insulated buildings.
. Greening of the industrial area and mine approach roads should be undertaken to reduce noise.

The Mine #4 and the Tianyu Coal Washing Plant EIA reports and approvals, and the Feasibility Study reports also state that the potential for significant site environmental noise impacts is low, due to the project site topography (i.e. relatively high elevation) and approximately 1.5km distance to the nearest noise sensitive residence. The Mine #4 and Tianyu Coal Washing Plant EIA reports propose that an operational ambient noise monitoring is undertaken (monitoring day/night noise levels annually and/or as required, at the site boundary and in residential areas). SRK recommends that the proposed ambient noise monitoring for Mine #4 and the Tianyu Coal Washing Plant be expanded to also include additional monitoring locations at Mine #1.

15.10 HAZARDOUS MATERIALS MANAGEMENT

Mine #1

The hazardous materials management for Mine #1 comprises the storage and handling of explosives and some minor storage of oils and greases. The maintenance of mobile equipment is carried out off-site, so there only minor oil/grease usage on site for the fixed plant. There are a few 205L drums of oil and grease stored in an uncontained area near the coal handling facilities. Minor spillages of hydrocarbons to the environment were observed in and around this storage location. There is no diesel stored on site; diesel is sourced from an off-site fuel supplier located in the nearby Dongfeng Township.

The explosives for Mine #1 are stored in a dedicated underground secure storage facility in accordance with Chinese National requirements (i.e. a secure facility situated a minimum of 300m from the nearest building).

Mine #4 / Tianyu Coal Washing Plant

The proposed hazardous materials management for Mine #4 and the Tianyu Coal Washing Plant will mainly comprise of the storage and handling of minor amounts of oils and greases (all diesel will be sourced from an off-site fuel supplier located in the nearby Dongfeng Township). There will no explosives onsite storage facility on the Mine #4 site (i.e. only minor amounts of explosive used underground at any one time). The Mine #4 Feasibility Study report states the following in respect to the proposed explosives storage ‘No explosive material store is provided on the ground surface of this mine, instead only a distribution chamber is provided under the ground with the explosives taken from the blasting material store of Tianyu Mine No. 1’.

The Mine #4 and Tianyu Coal Washing Plant EIA and Feasibility Study reports do not specify the projects’ hydrocarbon storage and handling requirements.

SRK recommends that all hydrocarbon storage and handling facilities for the Tianyu Coal Projects are constructed with secondary containment (i.e. lined and bunded areas) in accordance with Chinese National environmental requirements and recognised international industry practices.

– 470 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

15.11 WASTE MANAGEMENT

15.11.1 Waste Oil

Mine #1

Minor amounts of waste oil are generated from the maintenance of fixed equipment. This is stored in 205 litre oil drums in the area near the coal handling facilities (i.e. stored with the oil drums). The waste oil is collected by and taken off-site for reuse/recycling. Tianyu Gongmao stated that there is no contract in place for this and that the volumes of the waste oil collected are not recorded.

Mine #4 / Tianyu Coal Washing Plant

The Mine #4 and Tianyu Coal Washing Plant EIA and Feasibility Study reports do not specify where and how waste oil will be collected and disposed off. SRK recommends that the waste oil collection system in place for Mine #1 be expanded to include waste oil generated at Mine #4 and the Tianyu Coal Washing Plant.

15.11.2 Solid Wastes

Mine #1

Inert solid wastes at Mine #1 are collected and taken off site for disposal by the local Hainan District (i.e. at the local district disposal facility). No documented estimates and/or operational records of the volumes of the solid waste generated have been sighted as part of this review. During the site visit it was noted that there was some historical and current uncontrolled disposal of solid waste (i.e. mainly around the residential area and the waste rock dump). SRK recommends that the industrial and domestic solid waste disposal at Mine #1 be enhanced and controlled via establishing additional designated waste storage/collection points.

Mine #4 / Tianyu Coal Washing Plant

The Mine #4 and Tianyu Coal Washing Plant EIA and Feasibility Study reports specify that the site inert solid domestic and industrial wastes will be collected by the Hainan District and taken off-site for disposal at the local district disposal facility.

15.11.3 Sewage and Oily Waste Water

Mine #1

The domestic sewage and oily waste water for Mine #1 is collected and treated in the following segregated manner:

. The sewage from the site toilets is collected in an open basin where it is collected on regular basis by the local village for reuse as fertiliser.
. The other domestic sewage water (grey wastewater) and minor amounts of oily waste water is discharged (untreated) from site via an open drain.

– 471 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

The EIA approval specifies that there is to be no discharge of wastewater from site, and that all wastewater is to be collected for reuse onsite. SRK recommends that Tianyu Gongmao upgrade the mine’s current wastewater management such that all wastewater is collected, treated and reused for site dust suppression, fire protection and greening, in accordance with the project environmental approval conditions.

Mine #4 / Tianyu Coal Washing Plant

The Mine #4 and Tianyu Coal Washing Plant EIA and Feasibility Study reports specify that the site domestic sewage and oily waste water will be collected within a below ground sewage treatment facility (i.e. treated by aeration and filtration). The treated wastewater will then be stored in a 500m[3] wastewater pond, for later reuse in underground fire protection, dust suppression and site greening (i.e. as per the Mine #4 EIA approval conditions).

15.12 CONTAMINATED SITES ASSESSMENT

The assessment, recording and management of contaminated sites within mining or mineral processing operations, is a recognised international industry practice (i.e. forms part of the IFC Guidelines) and in some cases a National regulatory requirement (e.g. an Australian environmental regulatory requirement). The purpose of this process is to minimise the level of site contamination that may be generated throughout a project’s operation while also minimising the level and extent of site contamination that will need to be addressed at site closure.

A contaminated site or area can be defined as:

‘‘An area that has substances present at above background concentrations that presents or has the potential to present a risk of harm to human health, the environment or any environmental value’’.

Contamination may be present in soil, surface water or groundwater and also may affect air quality through releases of vapours or dust.

Examples of typical contaminated areas within a mining/mineral processing project are spillages to soil/water of hydrocarbons and chemicals, and uncontained storage and spillages to soil/water of ores and concentrates.

The process to assess and record the level of contamination basically involves a combination of visual (i.e. suspected contamination observed from spillages/releases) and soil/water/air sampling and testing (i.e. to confirm contaminant levels). Once the level of contamination is defined, the area’s location and contamination details are then recorded within a site register.

Remediation/clean up of contamination areas involves the collection and removal of the contaminated materials for treatment and appropriate disposal, or in some cases the in-situ treatment of the contaminated (e.g. use of bioremediation absorbents on hydrocarbon spillage). The other key component to the management of contaminated areas is to also remove or remedy the source of the contamination (e.g. place hydrocarbon storage and handling within secondary containment).

– 472 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

While limited evidence of contamination to soil was observed during the site visit (i.e. only minor hydrocarbon spillages around Mine #1 oil storage area), there is a potential to generate contaminated areas. There is no process in place for the Tianyu Coal Projects to assess and remediate any areas of suspected contamination. SRK recommends that an operational contaminated sites assessment and management process be developed for the Tianyu Coal Projects.

15.13 ENVIRONMENTAL PROTECTION AND MANAGEMENT PLAN

The purpose of an operational Environmental Protection and Management Plan (EPMP) is to direct and coordinate the management of the project’s environmental risks. The EPMP documents the establishment, resourcing and implementation of the project’s environmental management programs. The site environmental performance is monitored and feedback from this monitoring is then utilised to revise and streamline the implementation of the EPMP.

Mine #1

Section 10 of the Mine #1 EIA report (Environment Management and Monitoring Plan) details the structure and scope for an operational EPMP, (inclusive of the site’s proposed environmental monitoring program) that is in line with Chinese requirements. However, a fully functioning and documented operational EPMP in line with these EIA specifications has yet to be implemented at Mine #1. In particular no documented contractual agreement with the local environmental monitoring station/bureau for the site environmental monitoring program has been sighted as part of this review. SRK recommends developing, documenting and implementing an operational EPMP for Mine #1 in line with the specifications detailed in Section 10 of the of the Mine #1 EIA report.

Mine #4 / Tianyu Coal Washing Plant

The Mine #4 and Tianyu Coal Washing Plant EIA reports specify the structure and scope for proposed operational EPMP’s that are in line with Chinese requirements. However, fully functioning and documented operational EPMP’s have not been developed and implemented for Mine #4 and the Tianyu Coal Washing Plant. SRK recommends that a combined single operational EPMP, in line with the Mine #4 and Tianyu Coal Washing Plant EIA reports be developed and implemented for Mine #4 and the Tianyu Coal Washing Plant. This EPMP should also include a contracted site environmental monitoring program with the local environmental monitoring station/ bureau to undertake the site’s environmental monitoring.

15.14 EMERGENCY RESPONSE PLAN

The IFC describes an emergency as ‘‘an unplanned event when a project operation loses control, or could lose control, of a situation that may result in risks to human health, property, or the environment, either within the facility or in the local community’’. Emergencies are of a scale that have operational wide impacts, and do not include small scale localised incidents that are covered under operational area specific management measures. Examples of an emergency for a mining/mineral processing project are events such as pit wall collapse, underground mine explosion, the failure of a TSF or a large scale spillage/discharge of hydrocarbons or chemicals.

– 473 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

The recognised international industry practice for managing emergencies is for a project to develop and implement an Emergency Response Plan (ERP). The general elements of an ERP are:

. Administration — policy, purpose, distribution, definitions of potential site emergencies and organisational resources (including setting of roles and responsibilities).
. Emergency response areas — command centres, medical stations, muster and evacuation points.
. Communication systems — both internal and external communications.
. Emergency response procedures — work area specific procedures (including area specific training).
. Checking and updating — prepare checklists (role and action list and equipment checklist) and undertake regular reviews of the plan.
. Business continuity and contingency — options and processes for business recovery from an emergency.

Mine #1

Chapter IV of the Tianyu Gongmao Mine Disaster Prevention and Treatment Plan (February 2009), describes the project’s emergency response process for mine fires, explosions, roof collapses and underground flooding. SRK recommends that an operational ERP for Mine #1 be prepared and implemented that incorporates the emergency response measures specified in Chapter IV of the Tianyu Gongmao Mine Disaster Prevention and Treatment Plan (February 2009), and is line with recognised international industry practice.

Mine #4 / Tianyu Coal Washing Plant

The Mine #4 and Tianyu Coal Washing Plant Feasibility Study reports detail various proposed site emergency measures. SRK recommends that a combined single ERP for Mine #4 and the Tianyu Coal Washing Plant be prepared that incorporates the proposed emergency response measures specified in the project Feasibility Study reports and is line with recognised international industry practice.

– 474 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

15.15 SITE CLOSURE PLANNING AND REHABILITATION

The Chinese National requirements for mine closure are covered under Article 21 of the Mineral Resources Law (1996), the Rules for Implementation of the Mineral Resources Law of the People’s Republic of China (2006), the Land Use Regulations of the People’s Republic of China (1986.6.25) and the Land Rehabilitation Regulation issued by the State Council on October 21, 1988. In summary these legislative requirements cover the need to conduct land rehabilitation, to prepare a site closure report and submit a site closure application for assessment and approval.

The recognised international industry practice for managing site closure is to develop and implement an operational site closure planning process and document this through an operational Closure Plan. This operational closure planning process should include the following components:

. Identify all site closure stakeholders (e.g. government, employees, community etc.).
. Undertake stakeholder consultation to develop agreed site closure criteria and post operational land use.
. Maintain records of stakeholder consultation.
. Establish a site rehabilitation objective in line with the agreed post operational land use.
. Describe/define the site closure liabilities (i.e. determined against agreed closure criteria).
. Establish site closure management strategies and cost estimates (i.e. to address/reduce site closure liabilities).
. Establish a cost estimate and financial accrual process for site closure.
. Describe the post site closure monitoring activities/program (i.e. to demonstrate compliance with the rehabilitation objective/closure criteria).

While the above site closure planning process is not specified within the Chinese National requirements for mine closure, the implementation of this process for a Chinese mining project will:

. Facilitate achieving compliance with these Chinese legislative requirements; and
. Demonstrates conformance to a recognised international industry management practice.

Mine #1

There is currently no operational closure planning process in place for Mine #1 that covers the above components. However, the Mine #1 Land Reclamation Program Report (15 June 2009) provides a site rehabilitation objective, a life of mine rehabilitation plan and proposed measures for organisational responsibilities, public consultation and financial funding. SRK recommends that an operational closure planning process is developed and implemented for Mine #1 based on the objectives and proposed rehabilitation measures outlined in the Mine #1 Land Reclamation Program Report (15 June 2009) and incorporates recognised international industry practices. SRK notes that at the time of the follow up site visit (12–13 September 2009), Tianyu Gongmao had

– 475 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

produced a site rehabilitation plan that details the proposed site rehabilitation works. Tianyu Gongmao has stated that these works will be completed during 2010, as part of the proposed Mine #1 upgrade/optimisation works.

Mine #4/Tianyu Coal Washing Plant

The Tianyu No. 4 Coal Mine Land Reclamation Program Report (14 June 2009) provides a site rehabilitation objective, a life of project rehabilitation plan and proposed measures for organisational responsibilities, public consultation and financial funding. SRK recommends that an operational closure planning process is developed and implemented for Mine #4 and the Tianyu Coal Washing Plant based on the objectives and proposed rehabilitation measures outlined in the Tianyu No. 4 Coal Mine Land Reclamation Program Report (14 June 2009) and incorporates recognised international industry practices.

15.16 EVALUATION OF ENVIRONMENTAL RISKS

The sources of inherent environmental risk are project activities that may result in potential environmental impacts. These project activities have been previously described within this report.

The most significant environmental risks for the Tianyu Coal Projects are:

. Water/wastewater management (i.e. groundwater extraction, surface water discharges and wastewater management).
. Dust management.
. Land disturbance, rehabilitation and site closure.
. Land contamination.

The environmental risks associated with water/wastewater management, dust emissions and land disturbance/rehabilitation can be generally managed if Chinese National environmental standards and regulatory requirements are fully met.

The environmental risks associated with the potential for generating contaminated sites and other site closure liabilities can be effectively managed through the adoption of relevant recognised international industry practices.

– 476 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

16 SOCIAL ASSESSMENT

16.1 SOCIAL AND COMMUNITY INTERACTION

Mine #1 is located near the Dongfeng Township in the Hainan District approximately 31km south of Wuhai City, with Mine #4 and the Tianyu Coal Washing Plant located approximately 700m to the south of Mine #1. The general surrounding land use mainly comprises coal mining/processing and some agriculture. The Dongfeng Township and the general regional area for the Tianyu Coal Projects are mainly populated with Han Chinese. There are no reported significant cultural heritage sites, within or surrounding the Tianyu Coal Projects.

The Hainan District planning policy ‘Relocate Residents in the Mining Area to the City Plan (Wuhai zhengbanfa 2006-47)’ was approved and adopted by the Wuhai Municipal City Government on 11 December 2006. This requires mining companies operating in the Hainan District to develop and implement residential relocation and compensation plans for residences located within their mining areas.

Mine #1 is situated on industrial land and the land acquisition process did not require any relocation of residences and a corresponding land acquisition and compensation agreement. SRK notes that during the site visits, no residences were observed within the Mine #4 and Tianyu Coal Washing Plant project sites. SRK also notes that Section 7 — Chapter 3-09 (Surface Facilities — General LayoutLand Use and Planning) of the Feasibility Study report for Mine #4 also refers to the need for Tianyu Coal, if required, to develop a ‘migrant’s relocation plan’ to manage the project’s residential relocation and compensation process in accordance with the Hainan District residences relocation planning policy #4.

No public consultation was undertaken as part of the Mine #1 EIA report. However, a public surveys (questionnaire) on the development of Mine #4 and the Coal Washing Plant were completed as part of the project EIA reports. These public surveys were conducted within the nearby Dongfeng Township. The Mine #4 public survey was conducted in January 2009 and the Tianyu Coal Washing Plant public survey was conducted in September 2008. The survey results showed a high level of public support for the projects, and a predominant view that the development of the projects will contribute to improvements in the local economy. However, potential air, noise and solid waste impacts were raised as the key environmental concerns for the projects’ development.

16.2 RELATIONSHIP WITH LOCAL GOVERNMENT

The main administrative body for the Tianyu Coal Projects is the Inner Mongolia Provincial Government. However, the operational regulation of the Tianyu Coal Projects has been mainly delegated to the Wuhai City and Hainan District. Tianyu Gongmao and Tianyu Coal have stated that the current relationship with the Inner Mongolia Provincial Government, Wuhai City and Hainan District is positive. Tianyu Gongmao and Tianyu Coal have also stated that no non-compliance notices and or other documented regulatory directives in relation to the development and operation of the Tianyu Coal Projects have been received from the Inner Mongolia Provincial Government, Wuhai City and/or Hainan District.

– 477 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

17 CONCLUSION AND RECOMMENDATIONS

Mine #1 is a developed and operating mine. Mine #4 has a valid mining license and is in development stage that is expected to be in full production in late 2010. Three declines of Mine #4 have been constructed before Real Power acquired Mine #4; but not yet completed. The mine construction for Mine #4 was abandoned at the time of the SRK site visit. SRK notes that Tianyu Coal has not commenced any construction at Mine #4 since acquiring the mine in 2006.

The following third party coal washing facilities are located within the mining licence areas of Mine #1 and Mine #4:

. Xingguang Coal Washing Plant Facilities — owned by the Xingguang Coal, is located within the north east corner of the Mine #1 mining licence (No. 1500000750658), approximately 50m south of the north east boundary. It comprises two operational coal washing facilities, an old small scale plant (approximately 150m southwest of the northeast boundary) that has been recently recommissioned and a newly constructed/ commissioned plant.
. Erqianqi Coal Washing Plant Facilities — owned by the Yongchuang Coal, is located within north east corner of Mine #4 mining licence (No. 1500000720655), approximately 430m south of the northern boundary. It comprises two old coal washing facilities, a closed/ partially decommissioned plant and a plant that is currently being recommissioned.

Tianyu Gongmao and Tianyu Coal have stated that the existence of the newly constructed/ commissioned Xingguang and Erqianqi Coal Washing Plant Facilities within Mine #1 and Mine #4 mining licence areas is illegal. They state that the facilities have been approved by the Ordos City Government, but the facilities are located within the Wuhai City and come under the jurisdiction of the Wuhai City Administration, where the approval has not been granted yet. To support their statement that these newly constructed/commissioned third party facilities are illegal (i.e. not approved by the Wuhai City Administration), Tianyu Gongmao and Tianyu Coal have quoted the ‘Notice on the boundary of ‘‘Yikezhao Prefecture’’ (Erdos) and Wuhai, Inner Mongolia Administration, No. Neizheng1996-23’ (4 March 1996). This notice makes the following statement in respect to approval of new/recommissioned coal processing facilities in the stated area; ‘In the conflicting area coal mines can operate — until the finishing of resource; plants can operate — without expansion; new projects need to be approved by the ’ new government (Wuhai Administration) .

. Notice to Yongchuang Coal (31 August 2009) — informing the Yongchuang Coal that the construction/recommissioning of the Erqianqi Coal Washing Plant is within Tianyu Coal’s mining licence area of Mine #4 and that this construction has not been approved by Wuhai City Administration. Tianyu Coal also notified Yongchuang Coal that no mining safety pillars will be left in this area and Tianyu Coal will take no responsibility for any damages caused by their mining activity.

– 478 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

. Report of Illegal Construction of Washing Plant of Yongchuang Coal Ltd to the Hainan Bureau of Land and Resource (31 August 2009) — notification of the unapproved construction/recommissioning of the Erqianqi Coal Washing Plant within Tianyu Coal’s mining licence area of Mine #4 and requesting appropriate action from the Hainan Bureau of Land and Resource.

Tianyu Gongmao has stated that they are planning to submit similar notices for the Xingguang Coal Washing Plant.

. Should the facilities be deemed to be legal and continue operating:
Determine if a compensation payment can be made to Tianyu Gongmao and Tianyu Coal for the loss of the coal reserve.
Determine if the boundaries of mining licences No. 1500000720655 and No. 1500000750658 can be amended to exclude the respective facilities.
If these mining licence boundaries can not be amended, then determine if a formal agreement between Tianyu Gongmao/Tianyu Coal and the respective companies can be established, which clearly defines the responsibilities and management of the facilities’ operational liabilities.
. Should the facilities be deemed to be illegal and are given a shutdown order from the Wuhai City Government:
Determine if the shutdown order includes the full decommissioning and removal of the facilities and the subsequent site clean up.
If there are partially decommissioned facilities remaining after the facilities have been closed, then determine the ownership of these facilities. Determine if ownership of these facilities will revert to Tianyu Gongmao and Tianyu Coal (as they are the holders of the mining licences), or will ownership revert to the Wuhai City Government.
If Tianyu Gongmao and Tianyu Coal are the owners of these partially decommissioned facilities, then determine what are the potential assets and liabilities associated with these facilities (i.e. determine what can be salvaged and what will need to be removed).
The closure of the Xingguang Coal Washing Plant facilities on Mine #1 would also allow for the cancelling of the permanent safety pillar in this area and for a subsequent revision of the coal reserve (i.e. SRK estimates that the coal reserve for Mine #1 could be increased by up to 30% by cancelling this safety pillar).

– 479 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

The closure of the Erqinqi Coal Washing Plant facilities on Mine #4 would result in confirmation of the cancelling of the permanent safety pillar in this area, as stated in the Mine #4 verification report, and also provide confirmation that the reserve estimate would remain as stated in the Mine #4 FS.

SRK recommends that an Exploration Report in accordance with ‘‘Notice on Strengthening Management of Coal Mine construction Projects (Fa Gai Neng Yuan, 2006, No. 1039) is needed for both mines (see Chapter 6). In addition SRK recommends drilling two additional boreholes in area of Mine #1 and 4 additional boreholes in area of Mine #4. Additional boreholes would provide good control and validation of old exploration works. In the case of Mine #4, additional boreholes would additionally update strike, dip and displacement of fault F19. SRK opines that resource tonnage may increase because resource estimate method used is conservative. Additional drillholes will refine the knowledge of the coal resource quality distribution.

SRK recommends that the additional drilling program, sampling, sample processing and laboratory testing is conducted up to JORC standard.

SRK recommends updating the reserve estimate of Mine #1 and Mine #4 using new exploration data and exploration report. The resolution of the status with the coal washing facilities on the surface is also necessary to update permanent pillars, which has a direct and significant impact on the reserves. As a part of the reserve update is based on additional drilling and updated resource estimate in ER, the ROM coal quality (feed to Tianyu Coal Washing Plant) can be accurately estimated.

SRK recommends updating the Mine #4 FS to the production target of 1.5Mtpa and updating the CAPEX and OPEX for this production target.

SRK recommends proceeding with the upgrading of the Mine #4 mining license to 1.5Mtpa.

SRK recommends updating the mass balance of the Tianyu Coal Washing Plant and related parameters (i.e. reagents and water consumption and production cost) on the basis of the ROM coal quality update.

SRK recommends improving coal production records for the Tianyu Coal Projects on a daily and weekly basis, along with monthly resource reconciliation.

SRK recommends establishing reliable safety statistic as the basis for improving the safety system.

SRK makes the following recommendations in respect of the environmental compliance and management for the Tianyu Coal Projects:

. Project approvals and compliance:

Tianyu Gongmao seek written confirmation from the Inner Mongolia EPB with respect to the status with the environmental Final Checking and Acceptance approval of Mine #1.
Tianyu Gongmao seek written confirmation from the Inner Mongolia EPB in respect to the status with the issuing of the Discharge Permit for Mine #1.

– 480 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

. Environmental monitoring and management:

Develop and implement an operational EPMP for Mine #1 in line with the specifications detailed in the Mine #1 EIA report.
Develop and implement an operational EPMP for Mine #4 and the Tianyu Coal Washing Plant in line with the specifications detailed the Mine #4 and the Tianyu Coal Washing Plant EIA reports. This EPMP should also include a contracted site environmental monitoring program with the local environmental monitoring station/ bureau to undertake the site’s environmental monitoring.
Expand the proposed environmental monitoring program for Mine #4 and the Tianyu Coal Washing Plant to also include additional monitoring locations at Mine #1.

. Water management:

Upgrade the current wastewater management for Mine #1 such that all wastewater is collected, treated and reused for site dust suppression, fire protection and greening, in accordance with the project environmental approval conditions.

. Dust management

Fully develop and implement a site dust management program for Mine #1 in accordance with the project environmental approval conditions.

. Hydrocarbon management:

Construct all hydrocarbon storage and handling facilities for the Tianyu Coal Projects with secondary containment (i.e. lined and bunded areas) in accordance with Chinese National environmental requirements and recognised international industry practices.
Expand the waste oil collection system in place for Mine #1 to include waste oil generated at Mine #4 and the Tianyu Coal Washing Plant.

. Solid Waste management:

Enhance and further control the industrial and domestic solid waste disposal at Mine #1 via establishing additional designated waste storage/collection points.

. Contaminated sites:

Develop and implement an operational contaminated sites assessment and management process be developed for the Tianyu Coal Projects.

– 481 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

. Site closure planning and rehabilitation:
Develop and implement an operational closure planning process for the Tianyu Coal Projects that is based on the objectives and proposed rehabilitation measures outlined in the Mine #1 Land Reclamation Program Report (15 June 2009) and Tianyu No. 4 Coal Mine Land Reclamation Program Report (14 June 2009), and also incorporates recognised international industry practices.

. Greenhouse Gas emissions:

Give consideration to developing initiatives to quantify Greenhouse Gas emissions and assess possible emission reduction strategies for the Tianyu Coal Projects.

. Emergency response:

Prepare and implement an operational ERP for Mine #1 that incorporates the emergency response measures specified in Chapter IV of the Mine #1 Disaster Prevention and Treatment Plan (February 2009), and is line with recognised international industry practice.
Prepare and implement an ERP for Mine #4 and the Tianyu Coal Washing Plant that incorporates the proposed emergency response measures specified in the project Feasibility Study reports and is line with recognised international industry practice.

. Action Plan:

Develop and implement project action plans with schedules for carrying out the above stated environmental management improvement measures for Mine #1, Mine #4 and the Tianyu Coal Washing Plant, including cost estimates and budgeting.

– 482 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

REFERENCES

Mine #1

Wuhai Environmental Science Institute, 300,000tpa Tianyu Gongmao Mine Environmental Impact Assessment Report, January 2005.
Inner Mongolia EPB, Approval for 300,000tpa Tianyu Gongmao Mine Environmental Impact Assessment Report, 9 March 2005.
Inner Mongolia Land and Resource Bureau, Mining Licence No. 1500000720658 for 300,000tpa Tianyu Gongmao Underground Coal Mine, 6 December 2007 (expiry 6 December 2010).
Inner Mongolia Administration of Industry and Commerce, Business Licence No. 15000000001168 for Tianyu Gongmao Development Company, 14 May 2008, (expiry 6 December 2010).
Inner Mongolia Bureau of Coal Industry, Coal Production Permit No. 201503030318 for 300,000tpa Tianyu Gongmao Mine, 25 January 2008 (expiry 25 January 2034).
Wuhai Bureau of City Planning, Construction Land use permit, 16 May 2007. No. [2007]00026.
Wuhai Tianyu Gongmao Company Limited, Emergency Response Plan for 2009, February 2009.
Wuhai Tianyu Gongmao Company Limited, Disaster Plan 300,000tpa Tianyu Gongmao Mine, February 2009.
Wuhai Tianyu Gongmao Company Limited, Safety Management Plan 300,000tpa Tianyu Gongmao Mine, February 2009.
Inner Mongolia 117 Brigade, Resource Verification Report of Tianyu I Mine, 17 June 2003.
Inner Mongolia Mineral Resource Assessment Centre, Assessment on the ‘‘Resource and Reserve Verification Report of Shaft 4 license of Dongshan Coal Mine in Zhuozishan Coal Field, (undated).
Wuhai Kangtai Safety Technology Limited, Safety Check and Acceptance Assessment Report of Tianyu I Mine, 25 September 2007.
Inner Mongolia Safety Bureau of Coal Mine, Safety Production Permit No. MK Safety Permits [2008]CD002 for 300,000tpa Tianyu Gongmao Mine, 7 January 2008 (expiry 1 November 2011).
Wuhai Bureau of Coal Industry, Check and Acceptance Report on Tianyu I Mine 300ktpa Project Wumeijuzi [2007]167, 17 December 2007,
Inner Mongolia Water and Soil Conservation Station, Water and Soil Conservation Monitoring Report, June 2007.
Wuhai Tianyu Gongmao Company Limited, Assets list, 2007.

– 483 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Wuhai Tianyu Gongmao Company Limited, Production Records, 2009.
Wuhai Tianyu Gongmao Company Limited, Coal Analysis Results, 10 June 2009.
China Agricultural University, Land Use and Management Research Centre, Wuhai City Coal Technological Mine Expansion Project Land Reclamation Program Report, 15 June 2009.
Wuhai Water and Soil Bureau, Approval for Water and Soil Conservation Plan for the 300,000tpa Mine #1, Wuhai Tianyu Gongmao Company Limited (No. 2005-2), 3 February 2005.
Inner Mongolia Land and Resource Bureau, Land Use Permit No. 150095127S for the 300,000tpa Mine #1 Wuhai Tianyu Gongmao Company Limited, 16 May 2007 (expiry 4 July 2032).

Mine #4

Inner Mongolia Coal Construction Eco-Environmental Institute, 1,200,000tpa Tianyu Coal Mine #4 Technical Expansion Environmental Impact Assessment Report, January 2009.
Inner Mongolia EPB, Approval for 1,200,000tpa Tianyu Coal Mine #4 Technical Expansion Environmental Impact Assessment Report, 23 April 2009.
China Coal Handan Design Institute, 1,200,000tpa Tianyu Coal Mine #4 Technical Expansion Feasibility Study Report, February 2009.
Inner Mongolia Coal Construction Eco-Environmental Institute, Water and Soil Conservation Plan on Tianyu IV Mine 1.2Mtpa Project, February 2009.
Inner Mongolia Bureau of Water Administration, Approval for Water and Soil Conservation Plan on Tianyu IV Mine 1.2Mtpa Project, 13 April 2009.
Inner Mongolia Mineral Resource Bureau, Mining Licence No. 1500000720655 For 300,000tpa Tianyu No. IV Underground Coal Mine, 6 December 2007 (expiry 6 December 2010).
Inner Mongolia Bureau of Industry and Commerce, Business Licence No. 15000000001150 for Tianyu Coal Development Company, 17 February 2007 (expiry 10 July 2009).
Wuhai Bureau of City Planning, Construction Land Use permit/plan for living place, 12 March 2007.
Wuhai Bureau of City Planning, Construction Land Use permit/plan for ventilation, 12 March 2007.
Wuhai Bureau of City Planning, Construction Land Use permit/plan for industrial site place, 12 March 2007.
Wuhai Bureau of City Planning, Construction Land Use permit/plan for whole site, 12 March 2007.

– 484 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

China Coal Handan Design Institute, Mineral Resource Development Plan of Tianyu IV Mine (1.2Mtpa), June 2009.
Inner Mongolia Hydrogeological Investigation Institute, Geological Disaster Assessment Report on Tianyu IV Mine, February 2009.
Inner Mongolia Zhengxing Consulting Limited, Resource Verification Report of Tianyu IV Mine, 20 November 2003.
Inner Mongolia Mineral Resource Assessment Centre, Assessment on ‘‘Resource Verification Report of Tianyu IV Mine’’, 12 March 2004.
Water supply contract between Hainan City Water Ltd with Tianyu Coal Co., Ltd, To supply water for the construction and operation of Tianyu-Mine #4 Mine, 2004.
China Coal Handan Design Institute, 1,200,000tpa Tianyu Coal Mine #4 Technical Expansion Feasibility Study Report, 25 May 2009.

Tianyu Coal Washing Plant

Coal Industry Design & Research Institute, Shijiazhuang Branch Guohua, Tianyu Wuhai City Coal Company Limited, 3Mtpa Dense-Medium Coal Washing Project Feasibility Study Report, May 2008.
Inner Mongolia Environmental Sciences Academy, Tianyu Wuhai City Coal Company Limited, 3Mtpa Dense-Medium Coal Washing Project Environmental Impact Assessment Report, October 2008.
Inner Mongolia Environmental Protection Bureau, Approval for Tianyu Wuhai City Coal Company Limited, 3Mtpa Dense-Medium Coal Washing Project Environmental Impact Assessment Report, 9 March 2009.

General

Cope, T., Ritts B.D., Darby B.J., Fildani, A. and Graham, S.A.: Carboniferous-Permian sedimentation on the northern margin of North China: Implications for regional tectonics and climate change, International Geology Review, 47, pp 270-296, 2006.

Darby B.J. and Ritts B.D.: Mesozoic contractional deformation in the middle of Asian tectonic collage: the intraplate Western Erdos fold-thrust belt, China, Earth and Planetary Science Letters 205, Issues 1-2, 2002.

Diessel, C.F.K.: Utility of coal petrology for sequence-stratigraphic analysis, International Journal of Coal Geology, Vol 1., p. 100-132, 2006.

Diessel, C.F.K.: Coal-bearing Depositional Systems. Springer Verlag, 1992.

– 485 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Michaelsen, P.: Mass extinction of peat-forming plants and the effect on fluvial styles across the Permo-Triassic boundary, Bowen Basin, Australia. Palaeogeography, Palaeoclimatology, Palaeoecology, 179, 173-188, 2002.

Ritts B.D., Darby B.J., and Cope T.: Early Jurassic Extensional Basin Formation in the Daqing Shan Segment of Yinshan Belt, Northern North China Block, Inner Mongolia, Tectonophysics 339, pp 239–258, 2001.

Ritts B.D. and Darby B.J.: Sedimentation in Response to Complex Continental Intraplate Deformation: Jurrasic-Cretaceous Northwest Erdos, AAPG Annual Convention, 2003.

Ritts B.D., Hanson A. D., Darby B.J., Nanson L. and Berry A.: Sedimentary record of Triassic intraplate extension in North China: evidence from the non-marine NW Erdos Basin, Helan Shan and Zhuozi Shan, Tectonophysics 386, Issues 3-4, 2004.

Ritts B.D., Keele D., Darby B.J., Liu, S.: Ordos Basin Gas Reservoir Outcrop Analogs: Permian Braided Fluvial Sandstone of the Zhuozi Shan and Helan Shan, China., International Geology Review, vol. 48, 573-584, 2006.

Yang, J., Li, K., Zhang, D., and Liu, S.: Petroleum geology of China, Changqing oil field, v. 12. Petroleum Industry Publishing House, 490 p., 1992.

Wuhai Municipal City Government, Hainan District Planning Policy — Relocate Residents in the Mining Area to the City Plan (Wuhai zhengbanfa 2006-47), 11 December 2006.

– 486 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

ABBREVIATIONS

Ad	Ash Content (dry basis)
ARD	Acid Rock Drainage
ASTM	American Society for Testing and Materials
As	The chemical symbol for arsenic
AS	Australian Standard
ASL	above sea level
Au	The chemical symbol for gold
AusIMM	Australasian Institute of Mining and Metallurgy
AVR	Approval of Verification Report
BS	British Standard
C	Celsius
cm	centimetres
cm³	cubic centimetre
CMA	China Metrology Accreditation
COD	Chemical Oxygen Demand
Cu	The chemical symbol for copper
CPP	coal processing plant
CSN	crucible swelling number
CV	calorific value
DCTS	Design on Combined Transport System for No. 9 and No. 16 West
	declines, January, 2009
DMC	dense medium cyclone
dB	decibel, a measure of loudness of sound
deposit	Earth material of any type, either consolidated or unconsolidated,
	that has accumulated by some natural process or agent.
E	east
EHS	Environmental Health and Safety
EIA	Environmental Impact Assessment
EPMP	Environmental Protection and Management Plan
EPB	Environmental Protection Bureau
EPFI	Equator Principles Financial Institutions
ERP	Emergency Response Plan
FS	Feasibility Study
g	grams
g/cm³	grams per cubic centimetre
g/t	grams per tonne
IER	Independent Expert Report
IFC	International Finance Corporation
IPO	Initial Public Offering
ISO	International Standard Organisation
HGI	Hardgrove Grindability Index
HKSE	Stock Exchange of Hong Kong Limited
JORC	Joint Coal Reserves Committee Code
Kcal/kg	kilocalories per kilogram, equivalent to 1,000 calories per kilogram
km	kilometers, equivalent to 1,000 meters

– 487 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

km2	square kilometres
kV	kilovolts, equivalent to 1,000 volts
kVA	kilovolt-ampere, equivalent to 1,000 volt-ampere
kWh	kilowatt-hour, equivalent to 1,000 watt-hour
m3	cubic meters
m3/sec	cubic meters per second
m3/tonne	cubic meters per tonne
mg/m3	milligrams per cubic meter
Mad	Moisture (air dried basis)
MJ/kg	Megajoule per kilogram
mRMB	million Renminbi
Ml	megalitres, equivalent to 1,000,000 litres
MLR	Ministry of Land and Resources of PRC
MPa	Megapascal (Mega Newton per square meter)
m/s	metres per second
Mt	million tonnes
Mtpa	million tonnes per annum
MOU	Memorandum of Understanding
MVA	megavolt-ampere, equivalent to 1,000,000 volt-ampere
MW	megawatt, equivalent to 1,000,000 watt
N	north
Ni	The chemical symbol for nickel
NO2	Nitrogen dioxide
O	The chemical symbol for oxygen
OH&S	occupational health and safety
p.a.	per annum
Pb	The chemical symbol for lead
PMD	Preliminary Mine Design
PPE	Personal protective equipment
PRC	People’s Republic of China
QA/QC	quality assurance/quality control
ROM	run of mine
Report	Independent Expert Report
RMB	Renminbi, the legal currency of China, also known as Yuan
RMB/month	Renminbi per month
RMB/t	Renminbi per tonne
RMB/t/km	Renminbi per tonne per kilometre
S	south
SEIA	Social and Environmental Impact Assessment
SEMS	Social and Environmental Management Systems
SG	specific gravity
SO2	sulphur dioxide
SRK	SRK Consulting China Ltd
SS	Suspended Soil
ST	softening (sphere) temperature
Tianyu Gongmao	Wuhai Tianyu Gongmao Coal Company Limited

– 488 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Tianyu	Coal	Wuhai Tianyu Coal Company Limited
TM		total moisture
TSF		Tailings Storage Facility
TSP		Total Suspended Particulates
tpa		ton per annum
tph		tonnes per hour
t/m3		tonne per cubic meter
USD		United States dollars
Valmin	Code	Code for the Technical Assessment and Valuation of Mineral and
		PetroleumAssets and Securities for Independent Expert Reports
Vdaf		Volatile Matter (dry ash free basis)
Vdmmf		Volatile Matter (dry mineral matter free)
VR		Verification Report
W		west
WSCP		Water and Soil Conservation Plan
WWTP		waste water treatment plants
4		greater than
5		less than
°		degrees
%		percent

– 489 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

APPENDIX

Appendix 1: Resource and Reserve Standards

Introduction

The reserve or resource estimation is complex process which starts from data collection in field, including sample collection, data analysing in laboratories, synthesis of data and geological model development and ends with estimate itself. Based on quantity and quality of these processes resource is made decision on confidence level of data integrity, geological model integrity and based on confidence level is assigned the category.

The JORC and Chinese standard as well as eastern European standards (Czech, Polish, Rusian), which are closely related to Chinese standards reflect that fact very well.

The difference in resource classification is mainly in terminology, nomenclature. The most substantial difference is in classification of feasible resources/reserves and economic resources/reserves.

According to JORC, Mineral resource is a concentrations or occurrences of material of intrinsic economic interest resources in or on the Earth‘s crust in such form, quality and quantity that there are reasonable prospects for eventual economic extraction. The location, quantity, grade geological characteristic and continuity of Mineral Resource are known.

Data Collection

The data collection in field has paramount impact on resource estimation result and category of reserve or resource.

JORC is similar to Chinese or eastern European standards in respect of using good practice in sample collection and analysis. In China analysis are regulated by numerous laboratory standards, which are similar to ISO, ASTM, BS or Australian Standards. The difference is that JORC emphasise integrity of data and database. JORC in addition require that exploration database is validated and auditable.

A broad comparison of resource guide between the Chinese classification scheme and the JORC Code is presented in the following table.

JORC Code Resource Category	Chinese ‘‘Resource’’ Category	Chinese ‘‘Resource’’ Category
	Previous System	Current System
Measured	A	111b, 121b, 2M11, 2M21, 2S11, 2S21, 331
Indicated	B	122b, 2M22, 2S22, 332
Inferred	C	333
Unclassified under JORC	D	334

– 490 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Broad comparison between JORC standard reserve and Chinese Standard reserve is in following table.

JORC Code Reserve	Chinese ‘‘Reserve’’ Category
Proven	111
Probable	121, 122

The reserve according to JORC is part of the resource which is economically recoverable. Therefore mining recovery factor, processing yield and mining losses are applied as “Modifying factors”.

Relationship between JORC Code and the Chinese Reserves System

In China, the methods used to estimate the resources and reserves are generally prescribed by the relevant Government authority, and are based on the level of knowledge for that particular geological style of deposit. The parameters and computational methods prescribed by the relevant authority include cut-off grades, minimum thickness of mineralisation, maximum thickness of internal waste, and average minimum ‘‘industrial’’ or ‘‘economic’’ grades required. The resource classification categories are assigned largely on the basis of the spacing of sampling, trenching, underground tunnels and drill holes.

In the pre-1999 system, Category A generally included the highest level of detail possible, such as grade control information. However, the content of each category B, C & D may vary from deposit to deposit in China, and therefore must be carefully reviewed before assigning to an equivalent “JORC Code type” category. The traditional Categories B, C & D are broadly equivalent to the ‘‘Measured’’, ‘‘Indicated’’, and ‘‘Inferred’’ categories that are provided by the JORC Code and USBM/USGS systems used widely elsewhere in the world. In the JORC Code system the ‘‘Measured Resource’’ category has the most confidence and the ‘‘Inferred’’ category has the least confidence, based on the increasing levels of geological knowledge and continuity of mineralisation.

With regards to the new Chinese Category Scheme, as shown in the following table, the three numbers refer to economic, feasibility/mine design and geological degrees of confidence.

The geology axis — third digit is broadly comparable with JORC as follows:

The geological category code 1 stands for the highest level of confidence of resource quantitative and qualitative continuity. Similarly to Measured Reserves of the JORC Code Chinese Authority prescribes spacing 500m between Observation points. Code 2 is assigned to category of high level of confidence with spacing between 500m and 1,000m, which corresponds with Indicated Resource of JORC. Code 3 with spacing between Observation Points more than 1,000m is broadly equivalent to JORC Inferred Resource, which requires Observation Points 1,000 to 4,000m apart.

The economic axis and feasibility axis correspond with JORC mining metallurgical, economic, marketing, legal, environmental, social and governmental factors — the modifying factors. Chinese reserve category denoted 1 at the first digit broadly correspond with JORC Proved reserve. Chinese reserve category denoted by 2 at the first digit broadly correspond with JORC Probable Reserve.

– 491 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Definition of the new Chinese Category Scheme

Category	Denoted	Comments
Economic	1	The economic viability has been proved by full feasibility study or pre-feasibility under then market condition
	2	It has been proved by either feasibility study or pre-feasibility study that the mining is neither economic nor feasible under then market condition.
	3	Only scoping study has been conducted and the conclusion is inconclusive due to too many unknowns.
Feasibility	1	Full feasibility study has been conducted that can be used to assess the technological and economical viability of the project for the decision making.
	2	Pre feasibility study has been conducted that can be used to decide whether the project is moved on to the detailed exploration or to the full feasibility study.
	3	Scoping study (preliminary economical assessment) has been completed and it is mostly likely to be in the form of brief exploration report.
Geologically controlled	1	It is generally in high level of geological confidence based on the detailed exploration data
	2	It is generally in moderate level of geological confidence based on the general exploration data
	3	It is generally in low level of geological confidence based on the prospecting data
	4	It is potential mineral resource based on the reconnaissance data that needs to be proved.

– 492 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

APPENDIX 2: COAL QUALITY STANDARDS

INTRODUCTION

The coal is classified according to chemical properties and/or according industrial usage.

Presently several classification are in use internationally. The purely scientific classification based on coalification reflected by carbon and hydrogen relation is Seyler classification. The more practical classifications are based on various use of coal.

ASTM classification is based on relation of Fixed Carbon, Volatile Matter and Gross Calorific Value. It is the most worldwide used classification. The ATSM classification does reflect coking properties only by remark whether coal agglomerates or not. This problem is solved by British classification system is using Volatile Matter and Gray-King coke type for coal class and subclass determination. UNECE (United Nations Economic Commission for Europe) approved by ISO is complicated system reflecting Random Reflectance of Vitrinite, Maceral Group Composition Index, Swelling Crucible Number, Ash, Total Sulphur and Gross Calorific Value. Australian System is similar to UNECE classification, but for Reflectance of Vitrinite and Maceral Group Composition Index.

– 493 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Agglomerating Character	Agglomerating Character	Agglomerating Character	Agglomerating Character	Non-aglomerating	Non-aglomerating	Non-aglomerating	Commonly Agglomerating	Commonly Agglomerating	Commonly Agglomerating	Commonly Agglomerating	Commonly Agglomerating	Commonly Agglomerating	Commonly Agglomerating	Commonly Agglomerating	Non-aglomerating	Non-aglomerating
Gross Calorific Value Limits	moistb, mineral matter free	(MJ/kg)	<	—	—	—	—	—	—	32.6	30.2	26.7	24.4	22.1	19.3	14.7
			≥	—	—	—	—	—	32.6	30.2	26.7	24.4	22.1	19.3	14.7	—
		(BTU/lb)	<	—	—	—	—	—	—	14000	13000	11500	10500	9500	8300	6300
			≥	—	—	—	—	—	14000	13000	11500	10500	9500	8300	6300	—
Volatile Matter limits	dry mineral matter free	(%)	<	2	8	14	22	31	—	—	—	—	—	—	—	—
			>		2	8	14	22	31	—	—	—	—	—	—	—
Fixed Carbon limits	dry mineral matter free	(%)	<		98	92	86	78	69	—	—	—	—	—	—	—
			≥	98	92	86	78	69	—	—	—	—	—	—	—	—
Class				Meta-Anthracite	Anthracite	Semi-Anthracite	Low volatile bituminous coal	Medium volatile bituminous coal	High volatile A bituminous coal	High volatile B bituminous coal	High volatile C bituminous coal	Sub-bituminous A coal	Sub-bituminous B coal	Sub-bituminous C coal	Lignite A	Lignite B
Group				Anthracite			Bituminous					Sub-bituminous			Lignite

– 494 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

CHINESE COAL CLASSIFICATION

Chinese Coal Classification (GB5751-86) updated divide three major coal classes (Anthracite, Bituminous Coal and Brown Coal) based on Volatile Matter (Vdaf) and Transmittance PM. The classes are further subdivided based on Volatile Matter (Vdaf), Transmittance PM, Caking Index G, Plastic Layer Thickness Y, Audibert-Arnu dilatation b and Gross Calorific Value GCV (maf). The simplified table of coal classification is given table below:

Class	Symbol	Including Code Number	Vdaf (%)	G	Y (mm)	b (%)	PM (%)	Qgr,maf (MJ/kg)
Anthracite	WY	01, 02, 03	≤10.0
Meagre Coal	PM	11	>10.0–20.0	≤5
Meagre Lean Coal	PS	12	>10.0–20.0	>5–20
Lean Coal	SM	13, 14	>10.0–20.0	>20–65
Coking Coal	JM	24 15, 25	>20.0–28.0 >10.0–28.0	>50–65 >65	≤25.0	(≤100.0)
Fat Coal	FM	16, 26, 36	>10.0–37.0	(>85)*	>25.0	*
1/3 Coking Coal	1/3 JM	35	>28.0–37.0	>65*	≤25.0	(≤220.0)
Gas Fat Coal	QF	46	>37.0	(>85)*	>25.0	(>220.0)
Gas Coal	QM	34 43, 44, 45	>28.0–37.0 >37.0	>50–65 >35	≤25.0	(≤220.0)
1/2 Medium Caking Coal	1/2 ZN	23, 33	>20.0–37.0	>20–50
Weakly Caking Coal	RN	22, 32	>20.0–37.0	>5–30
Non-caking Coal	BN	21, 31	>20.0–37.0	≤5
Long Flame Coal	CY	41,42	>37.0	≤35			>50
Brown Coal	HM	51 52	>37.0 >37.0				≤30 >30–50	≤24

Coals with G >85 are further classified by Y or b into fat coal, gas fat coal and others. If Y >25.0mm, the coal is classified as fat or Gas fat coal; if Y ≤25.0mm, the coal is classified according to Vdaf.
When classified by b, coals with Vdaf ≤28.0% and b >150%, are tentatively taken as fat coals; if Vdaf >28.0% and b >220%, taken as fat coal or gas fat coal. If conflict between b and Y should happen, the result from Y should be taken as the final.
** Coals with Vdaf >37.0%, G ≤5 are further classified by transmittance PM as long flame coal or brown coal.
*** Coal with Vdaf >37.0%, PM >30%–50%, Qgr,maf values are determined; those with Qgr,maf >24 MJ/kg (5700 cal/g) are taken as long flame coal.

– 495 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

RELATIONSHIP BETWEEN INTERNATIONAL STANDARDS AND THE CHINESE COAL CLASSIFICATION SYSTEM

The broad comparison of Chinese and ASTM classifications is illustrated in following table:

Chinese Class	Symbol	Including Code Number	Vdaf (%)	ASTM Class
Anthracite	WY	01, 02, 03	≤10.0	Meta-Anthracite, Anthracite
Meagre Coal	PM	11	>10.0–20.0	Semi Anthracite, Low Volatile Bituminous
Meagre Lean Coal	PS	12	>10.0–20.0
Lean Coal	SM	13, 14	>10.0–20.0
Coking Coal	JM	24 15, 25	>20.0–28.0 >10.0–28.0	Medium Volatile Bituminous
Fat Coal	FM	16, 26, 36	>10.0–37.0	High volatile A bituminous, High volatile B bituminous, High volatile C bituminous, Subbituminous A, Sub-bituminous B, Sub-bituminous C,
1/3 Coking Coal	1/3 JM	35	>28.0–37.0
Gas Fat Coal	QF	46	>37.0
Gas Coal	QM	34 43, 44, 45	>28.0–37.0 >37.0
1/2 Medium Caking Coal	1/2 ZN	23, 33	>20.0–37.0
Weakly Caking Coal	RN	22, 32	>20.0–37.0
Non-caking Coal	BN	21, 31	>20.0–37.0
Long Flame Coal	CY	41,42	>37.0
Brown Coal	HM	51 52	>37.0 >37.0	Lignite A, Lignite B

Note: The Chinese standard uses Vdaf as the classification criteria, while ASTM or British Standard uses Vdmmf. Therefore for accurate conversion of Chinese coal rank to ASTM or British ranks, the particular coal Vdaf needs to be converted to Vdmmf.

– 496 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

APPENDIX 3: CHINESE ENVIRONMENTAL LEGISLATIVE BACKGROUND

The Chinese National Mineral Resources Law (1996), Rules for Implementation of the Mineral Resources Law of the People’s Republic of China (2006) and Environmental Protection Law (1989) provide the main legislative framework for the regulation and administration of mining projects within China. The Environmental Protection Law (1989) provides the main legislative framework for the regulation and administration of mining projects environmental impacts.

The following articles of the Mineral Resources Law (1996) summarise the specific provisions in relation to environmental protection:

. Article 15 Qualification & Approval

Anyone who wishes to establish a mining enterprise must meet the qualifications prescribed by the State, and the department in charge of examination and approval shall, in accordance with law and relevant State regulations examine the enterprise’s mining area, its mining design or mining plan, production and technological conditions and safety and environmental protection measures. Only those that pass the examination shall be granted approval.

. Article 21 Closure Requirements

If a mine is to be closed down, a report must be prepared with information about the mining operations, hidden dangers, land reclamation and utilisation, and environmental protection, and an application for examination and approval must be filed in accordance with relevant State regulations.

. Article 32 Environmental Protection Obligations of Mining License Holders

In mining mineral resources, a mining enterprise or individual must observe the legal provisions on environmental protection to prevent pollution of the environment. In mining mineral resources, a mining enterprise or individual must economise on the use of land. In case cultivated land, grassland or forest land is damaged due to mining, the mining enterprise concerned shall take measures to utilize the land affected, such as by reclamation, tree and grass planting, as appropriate to the local conditions. Anyone who, in mining mineral resources, causes losses to the production and well-being of other persons shall be liable for compensation and shall adopt necessary remedial measures.

The following articles of the Environmental Protection Law (1989) summarise the specific provisions for environmental protection in relation to mining:

. Article 13 Environmental Protection

Units constructing projects that cause pollution to the environment must observe the state provisions concerning environmental protection for such construction projects. The environmental impact statement on a construction project must assess the pollution the project is likely to produce and its impact on the environment and stipulate the preventive and curative measures; the statement shall, after initial examination by the authorities in charge of the construction project, be submitted by specified procedure to the competent department of environmental protection

– 497 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

administration for approval. The department of planning shall not ratify the design plan descriptions of the construction project until after the environmental impact statement on the construction project is approved.

. Article 19 Statement of requirement for Environmental Protection

Measures must be taken to protect the ecological environment while natural resources are being developed or utilised.

. Article 24 Responsibility for Environmental Protection

Units that cause environmental pollution and other public hazards shall incorporate the work of environmental protection into their plans and establish a responsibility system for environmental protection, and must adopt effective measures to prevent and control the pollution and harms caused to the environment by waste gas, waste water, waste residues, dust, malodorous gases, radioactive substances, noise, vibration and electromagnetic radiation generated in the course of production, construction or other activities.

. Article 26 Pollution Prevention & Control

Installations for the prevention and control of pollution at a construction project must be designed, built and commissioned together with the principal part of the project. No permission shall be given for a construction project to be commissioned or used, until its installations for the prevention and control of pollution are examined and considered up to the standard by the competent department of environmental protection administration that examined and approved the environmental impact statement.

. Article 27 Report on Pollution Discharge

Enterprises and institutions discharging pollutants must report to and register with the relevant authorities in accordance with the provisions of the competent department of environmental protection administration under the State Council.

. Article 38 Violation Consequences

An enterprise or institution which violates this Law, thereby causing an environmental pollution accident, shall be fined by the competent department of environmental protection administration or another department invested by law with power to conduct environmental supervision and management in accordance with the consequent damage; in a serious case, the persons responsible shall be subject to administrative sanction by the unit to which they belong or by the competent department of the government.

– 498 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

In addition to the above articles, the following article in the Environmental Impact Assessment (EIA) Law (2002) summarises the provisions in relation to the approval of EIA reports of construction projects and the commencement of construction:

. Article 25 — If the environmental impact assessment documents of construction projects are not examined by the law-stipulated examining and approving department or are not approved after being examined, the examining and approving department of the construction project must not approve its construction and the construction unit must not start construction.

The following articles of the Construction Project Environmental Protection Law (1998) and Regulations on the Administration of Construction Project Environmental Protection (November 1998) summarise the specific provisions for undertaking a project’s Final Checking and Acceptance process:

. Article 20 — The construction unit should, upon completion of a construction project, file an application with the competent department of environmental protection administration that examined and approved the said construction project environmental impact report, environmental impact statement or environmental impact registration form for acceptance checks on completion of matching construction of environmental protection facilities required for the said construction project.

Acceptance checks for completion of construction of environmental protection facilities should be conducted simultaneously with the acceptance checks for completion of construction of the main body project. Where trial production is required for the construction project, the construction unit should, within 3 months starting from the date of the said construction project going into trial production, file an application with the competent department of environmental protection administration that examined and approved the said construction project environmental impact report, environmental impact statement or environmental impact registration form for acceptance checks on completion of matching construction of environmental protection facilities required for the said construction project.

. Article 21 — For construction projects that are built in phases, go into production or are delivered for use in phases, acceptance checks for their corresponding environmental protection facilities should be conducted in phases.
. Article 22 — Competent departments of environmental protection administration should, within 30 days starting from the date of receipt of the application for acceptance checks on completion of construction of the environmental protection facilities, complete the acceptance checks.
. Article 23 — The said construction project may only formally go into production or be delivered for use when the matching construction of the environmental protection facilities required for the construction project has passed acceptance checks.

– 499 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

The following article of the Water & Soil Conservation Law (1991) summarises the provisions for the preparation and approval of Water and Soil Conservation Plans:

. Article 19 — When the construction of a railway, highway or a water project is carried out, a mining or electrical power enterprise or any other large or medium-sized industrial facility; enterprise is established in a mountainous, hilly or sandstorm area, the environmental impact statement for the project must include a water and soil conservation programme approved by the department of water administration. The water and soil conservation programme shall be drawn up in accordance with the provisions of Article 18 of this Law.

Where a township collective mining enterprise is to be set up or an individual is to apply for mining, in accordance with the provisions of the Law on Mineral Resources, in a mountainous, hilly or sandstorm area, a water and soil conservation programme approved by the department of water administration under the people’s government at or above the county level must be submitted before the application for going through the approving procedures for mining operation is made.

Water and soil conservation facilities in a construction project must be designed, constructed and put into operation simultaneously with the principal part of the project. When a construction project is completed and checked for acceptance, the water and soil conservation facilities shall be checked for acceptance at the same time, with personnel from the department of water administration participating.

The following are other Chinese laws that provide environmental legislative support to the Minerals Resources Law (1996) and the Environmental Protection Law (1989):

. Environmental Impact Assessment (EIA) Law (2002).
. Law on Prevention & Control of Atmospheric Pollution (2000).
. Law on Prevention & Control of Noise Pollution (1996).
. Law on Prevention & Control of Water Pollution (1996).
. Law on Prevention & Control Environmental Pollution by Solid Waste (2002).
. Forestry Law (1998).
. Water Law (1988).
. Water Conservancy Industrial Policy (1997).
. Land Administration Law (1999).
. Protection of Wildlife Law (1989).
. Energy Conservation Law (1998).

– 500 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

. Electric Power Law (1995).
. Management Regulations of Prevention & Cure of Tailings Pollution (1992).
. Management Regulations of Dangerous Chemical Materials (1987).

The relevant environmental protection related Chinese legislation that are required to be utilised for project’s design are a combination of the following National design regulations and emissions standards:

. Environment Protection Design Regulations of Construction Project (No. 002) by Environment Protection Committee of State Council of PRC (1987).
. Regulations on the Administration of Construction Project Environmental Protection (1998).
. Regulations for Quality Control of Construction Projects (2000).
. Regulations for Environmental Monitoring (1983).
. Regulations on Nature Reserves (1994).
. Regulations on Administration of Chemicals Subject to Supervision & Control (1995).
. Regulations on Management of Chemicals Subject to Supervision & Control (1995).
. Environment Protection Design Regulations of Metallurgical Industry (YB9066-55).
. Comprehensive Emission Standard of Wastewater (GB8978-1996).
. Environmental Quality Standard for Surface Water (GB3838-1988).
. Environmental Quality Standard for Groundwater (GB/T14848-1993).
. Ambient Air Quality Standard (GB3095-1996).
. Comprehensive Emission Standard of Atmospheric Pollutants (GB16297-1996).
. Emission Standard of Atmospheric Pollutants from Industrial Kiln (GB9078-1996).
. Emission Standard of Atmospheric Pollutants from Boiler (GB13271-2001) — II – stage coal-fired boiler.
. Environmental Quality Standard for Soils (GB15618-1995).
. Standard of Boundary Noise of Industrial Enterprise (GB12348-90).
. Emissions Standard for Pollution from Heavy Industry; Non-Ferrous Metals (GB4913-1985).
. Control Standard on PCB’s for Wastes (GB13015-1991).

– 501 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

. Control Standard on Cyanide for Waste Slugs (GB12502-1990).
. Standard for Pollution Control on Hazardous Waste Storage (GB18597-2001).
. Identification Standard for Hazardous Wastes-Identification for Extraction Procedure Toxicity (GB5085.3-1996). Standard of Landfill and Pollution Control of Hazardous Waste (GB 18598-2001).

– 502 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

APPENDIX 4: WORLD BANK/INTERNATIONAL FINANCE CORPORATION (IFC) ENVIRONMENTAL STANDARDS AND GUIDELINES

In seeking to obtain project financing or to list on a stock exchange, these institutions themselves require the proponent to comply with such documents as the Equator Principles and the IFC Performance Standards and Guidelines. This is exemplified by the following preamble from the Equator Principles (July 2006):

Project financing, a method of funding in which the lender looks primarily to the revenues generated by a single project both as the source of repayment and as security for the exposure, plays an important role in financing development throughout the world. Project financiers may encounter social and environmental issues that are both complex and challenging, particularly with respect to projects in the emerging markets.

The Equator Principles Financial Institutions (EPFIs) have consequently adopted these Principles in order to ensure that the projects we finance are developed in a manner that is socially responsible and reflect sound environmental management practices. By doing so, negative impacts on project-affected ecosystems and communities should be avoided where possible, and if these impacts are unavoidable, they should be reduced, mitigated and/or compensated for appropriately. We believe that adoption of and adherence to these Principles offers significant benefits to ourselves, our borrowers and local stakeholders through our borrowers’ engagement with locally affected communities. We therefore recognise that our role as financiers affords us opportunities to promote responsible environmental stewardship and socially responsible development. As such, EPFIs will consider reviewing these Principles from time-to-time based on implementation experience, and in order to reflect ongoing learning and emerging good practice.

These Principles are intended to serve as a common baseline and framework for the implementation by each EPFI of its own internal social and environmental policies, procedures and standards related to its project financing activities. We will not provide loans to projects where the borrower will not or is unable to comply with our respective social and environmental policies and procedures that implement the Equator Principles.

Table 1 and Table 2 provide a brief summary of the Equator Principles and the IFC Performance Standards respectively. These documents are used by the EPFI’s and stock exchanges in their review of the social and environmental performance of proponent companies.

– 503 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Table A-1: Equator Principles

Equator Principles	Title	Key Aspects (Summary)
1	Review and Categorisation	Categorise such project based on the magnitude of its potential impacts and risks
2	Social and Environmental Assessment	Conduct a Social and Environmental Assessment (‘‘Assessment’’). The Assessment should also propose mitigation and management measures appropriate to the nature and scale of the proposed project.
3	Applicable Social and Environmental Standards	The Assessment will refer to the applicable IFC Performance Standards, and applicable Industry Specific EHS Guidelines (‘‘EHS Guidelines’’) and overall compliance with same.
4	Action Plan and Management System	Prepare an Action Plan (AP) which addresses the relevant findings of the Assessment. The AP will describe and prioritise the actions, mitigation measures, corrective actions and monitoring to manage the impacts and risks identified in the Assessment. Maintain a Social and Environmental Management System that addresses the management of these impacts, risks, and corrective actions required to comply with host country laws and regulations, and requirements of the applicable Standards and Guidelines, as defined in the AP.
5	Consultation and Disclosure	Consult with project affected communities. Adequately incorporate affected communities’ concerns.
6	Grievance Mechanism	Establish a grievance mechanism as part of the management system. to receive and resolve concerns about the project by individuals or groups from among project- affected communities. Inform the affected communities about the grievance mechanism in the course of the community engagement process and ensure that the mechanism addresses concerns promptly and transparently, and is readily accessible to all segments of the affected communities.
7	Independent Review	Independent social or environmental expert will review the Assessment, AP and consultation process to assess Equator Principles compliance.
8	Covenants	Covenant in financing documentation: (a) to comply with all relevant host country social and environmental laws, regulations and permits; (b) to comply with the AP during the construction and operation of the project; (c) to provide periodic reports not less than annually, prepared by in-house staff or third party experts, that (i) document compliance with the AP, and (ii) provide compliance with relevant local, state and host country social and environmental laws, regulations and permits; and (d) to decommission the facilities, where applicable and appropriate, in accordance with an agreed decommissioning plan.
9	Independent Monitoring and Reporting	Appoint an independent environmental and/or social expert, or require that the borrower retain qualified and experienced external experts to verify its monitoring information.
10	EPFI Reporting	Each EPFI adopting the Equator Principles commits to report publicly at least annually about its Equator Principles implementation processes and experience, taking into account appropriate confidentiality considerations.

– 504 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

Table A-2: IFC Performance Standards

IFC Performance Standard	Title	Objective (Summary)	Key Aspects (Summary)
1	Social and Environmental Assessment and Management Systems	Social and EIA and improved performance through use of management systems.	Social & Environmental Management System (S&EMS). Social & Environmental Impact Assessment (S&EIA). Risks and impacts. Management Plans. Monitoring. Reporting. Training. Community Consultation
2	Labour and Working Conditions	EEO. Safety and Health	Implement through the S&EMS. HR policy. Working condition. EEO. Forced & child labour. OH&S.
3	Pollution Prevention and Abatement	Avoid pollution. Reduce Emissions.	Prevent pollution. Conserve resources. Energy efficiency. Reduce waste. Hazardous materials. EPR. Greenhouse
4	Community Health, Safety and Security	Avoid or minimise risks to community.	Implement through the S&EMS. Do risk assessment. Hazardous materials safety. Community exposure. ERP
5	Land Acquisition and Involuntary Resettlement	Avoid or minimise resettlement. Mitigate adverse social impacts	Implement through the S&EMS. Consultation. Compensation. Resettlement planning. Economic displacement
6	Biodiversity Conservation and Sustainable Natural Resource Management	Protect and conserve biodiversity	Implement through the S&EMS. Assessment. Habitat. Protected areas. Invasive species.
7	Indigenous Peoples	Respect. Avoid and minimise impacts. Foster good faith	Avoid adverse impacts. Consultation. Development benefits. Impacts to traditional land use. Relocation.
8	Cultural Heritage	Protect cultural heritage	Heritage Survey. Site avoidances. Consultation.

– 505 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

APPENDIX 5: MINING LICENSES

==> picture [395 x 565] intentionally omitted <==

– 506 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

==> picture [419 x 582] intentionally omitted <==

– 507 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

==> picture [417 x 599] intentionally omitted <==

– 508 –

TECHNICAL ASSESSMENT REPORT

APPENDIX X

==> picture [411 x 562] intentionally omitted <==

– 509 –

VALUATION OF WUHAI CITY MENGGANG

APPENDIX XI

==> picture [193 x 49] intentionally omitted <==

The readers are reminded that the report which follows has been prepared in accordance with the guidelines set by the International Valuation Standards, Eighth Edition, 2007 published by the International Valuation Standards Committee of which the Business Valuation Standards 2005 published by the Hong Kong Business Valuation Forum and the HKIS Valuation Standards on Trade-related Business Assets and Business Enterprises, First Edition, 2004 published by the Hong Kong Institute of Surveyors follow. These standards entitle the valuer to make assumptions which may on further investigation, for instance by the readers’ legal representative, prove to be inaccurate. Any exception is clearly stated below. Headings are inserted for convenient reference only and have no effect in limiting or extending the language of the paragraphs to which they refer. It is emphasised that the findings and conclusion presented below are based on the documents and facts known to the valuer at the date of this report. If additional documents and facts are made available, the valuer reserves the right to amend this report and its conclusion.

17th Floor

Champion Building Nos. 287–291 Des Voeux Road Central Hong Kong

28 December 2009

The Directors

Winbox International (Holdings) Limited

2nd Floor, Ching Cheong Industrial Building

1–7 Kwai Cheong Road Kwai Chung, New Territories Hong Kong

Dear Sirs,

In accordance with the instructions given by the management of Winbox International (Holdings) Limited (hereinafter referred to as the ‘‘Company’’), we have investigated and conducted an agreed-upon procedures valuation of the business enterprise value of 烏海市蒙港實業發展有限公司 together with its subsidiaries (translated as Wuhai City Menggang Industrial Development Co., Ltd. and hereinafter referred to as ‘‘Wuhai City Menggang’’) as at 31 August 2009 (hereinafter referred to as the ‘‘Date of Valuation’’) for the Company’s internal management reference. Our findings and conclusion in this valuation are documented in a valuation report and submitted to the Company at today’s date.

At the request of the management of the Company, we prepared this summary report to summarise our findings and conclusion as documented in the valuation report for the purpose of inclusion in this circular at today’s date for the Company’s shareholders’ reference. Terms herein used without definition shall have the same meanings as in the valuation report, and the assumptions and caveats adopted in the valuation report also applied to this summary report.

– 510 –

VALUATION OF WUHAI CITY MENGGANG

APPENDIX XI

INTRODUCTION

Business enterprise value is defined as the total value of a business. It comprises of monetary assets (net working capital), tangible assets and intangible assets, thereby encompassing all assets of a business enterprise (see Note 1). In other words, the business enterprise value is also equal to the value of its invested capital — common equity, preferred stocks and long-term debts. While there is no universal definition of the term, it is the usual practice for a professional valuer, based on his professional knowledge and experience, to identify the definition for the intended valuation.

In this appraisal (the word appraisal has the same meaning of valuation in this report), we were instructed to analyse and to express an independent opinion of the fair value of the entire equity interest of Wuhai City Menggang (hereinafter referred to as the ‘‘Appraised Asset’’) as at the Date of Valuation (see Note 2), on a going concern basis, and based on documents and information provided by the management of the Company or from the management of Wuhai City Menggang. For the purpose of this valuation, we define the term business enterprise value as the fair value of the Appraised Asset.

The term ‘‘Fair Value’’ is defined by the International Valuation Standards (hereinafter referred to as the ‘‘IVS’’), Eighth Edition, 2007 published by the International Valuation Standards Committee of which the Business Valuation Standards 2005 (hereinafter referred to as the ‘‘BVS’’) published by the Hong Kong Business Valuation Forum and the HKIS Valuation Standards on Trade-related Business Assets and Business Enterprises, First Edition, 2004 (hereinafter referred to as the ‘‘HKIS Standards’’) published by the Hong Kong Institute of Surveyors follow as ‘‘the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction’’. We found that this definition is in line with various accounting standards.

We understand that the management of the Company will refer our work product (in any form of presentation) as part of its business due diligence and we have not been engaged to make specific purchase or sale recommendations. We further understand that the management of the Company will not rely solely on our work, and that the use of our work product will not supplant other due diligence which the management of the Company should conduct in reaching its business decision. Our work is designed solely to provide information that will give the management of the Company a reference in the course of its internal due diligence work to the Appraised Asset.

Notes:

A business enterprise is defined as a commercial, industrial, service, or investment entity, or a combination thereof, pursuing an economic activity.

The announcement on the subject acquisition was made to the public by the Company on 7 September 2009 and with reference to, among others, our valuation report with the Date of Valuation set at 31 August 2009. Thus, the Company and us consider the use of 31 August 2009 in this Circular is in line with the Company’s announcement. We took the view that, unlike real estate property valuation which has an effective period of 3 months, business valuation has no such time limit given that the value of a closely held company is not comparatively volatile as real estate properties.

– 511 –

VALUATION OF WUHAI CITY MENGGANG

APPENDIX XI

COMPANY PROFILE

Wuhai City Menggang, a Sino-foreign equity joint venture company, through its wholly-owned subsidiaries — 天裕工貿有公司 (translated as Tianyu Gongmao Limited and hereinafter referred to as ‘‘Tianyu Gongmao’’) and 天譽煤炭有限公司 (translated as Tianyu Coal Company Limited and hereinafter referred to as ‘‘Tianyu Coal’’), owned the Tianyu Gongmao Coal Mine (hereinafter referred to as ‘‘Mine No. 1’’) and the Tianyu Coal Coal Mine (hereinafter referred to as ‘‘Mine No. 4’’) in the People’s Republic of China (hereinafter referred to as the ‘‘PRC’’ or ‘‘China’’). Both Mine No. 1 and Mine No. 4 (collectively, hereinafter referred to as the ‘‘Mines’’) are lying in Wuhai City, Inner Mongolia Autonomous Region, the PRC.

A. Tianyu Gongmao

We were given to understand that Tianyu Gongmao was first incorporated on 6 July 2006 and was a limited liability enterprise in the mineral extractive industry specialised in coal deposits with the registered capital of RMB46 million. According to a 企業法人營業執照 Enterprise Legal Person Business Licence No. 150000000001168 dated 14 May 2008, the operation term of the company was approximately 4.42 years from 6 July 2006 to 6 December 2010. The business scope of the company was restricted to ‘‘煤炭全產、銷售，建村、礦山機電產品，鐵精粉銷售。(國家法律、行政法規和國務院決定應經審批的，未獲審批前不得生產經營，國家明令禁止的除外)’’ (translated as ‘‘production and marketing of coal; sales of construction material, mining electrical products and iron concentrate (under the approval of State laws, rules and the State Council, any production and operational activities cannot start without approval, except those prohibited by the government)’’). The registered office of Tianyu Gongmao is situated at 海南區滴瀝幫烏素區 (translated as Dilibangwusu District, Hainan Region) of Inner Mongolia Autonomous Region, the PRC.

Tianyu Gongmao holds an exclusive mining right, under a 採礦許可證 Mining Operation Permit for a period of three years, commencing from 6 December 2007 to 6 December 2010 (both dates inclusive) dated 6 December 2007 at No. 1500000720658 and granted by 內蒙古自治區國土資源廳 Department of Land and Resources of the Inner Mongolia Autonomous Region, the PRC. The area of the mining area under this permit was 2.4016 sq. km.

The geographical coordinates of the mine are:

	X	Y
1.	4370550	36403340
2.	4371650	36404820
3.	4370400	36405350
4.	4370000	36404500
5.	4369000	36404000

Under this permit, the mining technique was restricted to underground mining and the scale of production was set at 300,000 tonnes per annum. The depth of mining was set in the range of 1,150 metres (or ‘‘m’’ as used in the report) to 580 m.

– 512 –

VALUATION OF WUHAI CITY MENGGANG

APPENDIX XI

B. Tianyu Coal

We were given to understand that Tianyu Coal was first incorporated on 12 November 2002 and was a limited liability enterprise in the mineral extractive industry specialised in coal deposits with the registered capital of RMB43 million. According to a 企業法人營業執照 Enterprise Legal Person Business Licence No. 150000000001150 dated 16 June 2009, the operation term of the company was approximately 7.67 years from 12 November 2002 to 10 July 2010. The business scope of the company was restricted to ‘‘煤礦機械設備及配件銷售。(法律、行政法規、國務院決定規定應經許可的，未獲許可不得生產經營)’’ (translated as ‘‘sales and marketing of coal mining equipment and accessories (under the approval of State laws, rules and the State Council, any production and operational activities cannot start without approval)’’). The registered office of Tianyu Coal is situated at 烏海市海南區 (translated as Hainan Region, Wuhai City) of Inner Mongolia Autonomous Region, the PRC.

Tianyu Coal holds an exclusive mining right under a 採礦許可證 Mining Operation Permit for a period of three years, commencing from 6 December 2007 to 6 December 2010 (both dates inclusive) dated 6 December 2007 at No. 1500000720655 and granted by 內蒙古自治區國土資源廳 Department of Land and Resources of the Inner Mongolia Autonomous Region, the PRC. The area of the mining area under this permit was 4.0299 sq. km. The geographical coordinates of the mine are:

	X	Y
1.	4369580	36407250
2.	4367910	36407250
3.	4367910	36405700
4.	4370100	36405200
5.	4370150	36405750
6.	4369850	36405900
7.	4370160	36406020
8.	4370310	36407150
9.	4369580	36407150

C. The Mines

For details of the Mines (including the description of reserves/resources and the comments on the Mines), the readers are required to refer to the ‘‘TECHNICAL ASSESSMENT REPORT’’ prepared by SRK Consulting China Ltd presented in Appendix X of this Company’s circular.

– 513 –

VALUATION OF WUHAI CITY MENGGANG

APPENDIX XI

For details and the comments of the real estate properties owned or occupied by Wuhai City Menggang, the readers shall refer to the ‘‘PROPERTY VALUATION’’ prepared by RHL Appraisals Ltd. presented in Appendix IX of this Company’s circular.

OVERVIEW (SEE NOTE)

The Economic Outlook of China

The economy of China is the third largest in the world when measured by nominal GDP (Gross Domestic Product). China remains the main position of the fastest growing economy in the world. The economic growth becomes more broad based by rising of domestic consumption. The major force of economic growth by China’s rapid urbanization, massive investments in construction projects mainly in Beijing and Shanghai as well as some inland cities. Its growth rate for last year was 9.0%. From 1980 to 2006, China’s GDP grow by an average rate of 10% annually. China joined WTO in 2001, doubling the manufacturing output and the foreign exchange reserves accumulated over US$1trn. With the strong growth of China’s economy at a compound annual growth rate of approximately 10.28% from 2001 to 2008, it is expected that China’s economic growth would remain at 7% to 8.5% from 2009 to 2010.

For Inner Mongolia Autonomous Region, despite the Macro Regulation and Control from the Chinese government, the growth rate of the GDP in 2007 was about 19% and the growth rate in 2008 was 17.2%. The following table and chart listed out the development trend of GDP of Inner Mongolia Autonomous Region in recent years (as at the end of each year).

Year			2004	2005	2006	2007	2008
GDP	Growth	(%)	19.4	21.6	18	19	17.2

Source: From National Bureau of Statistics of China

Note: The information provided in this section relating to the mineral extraction industry and market is derived in part or extracted or referred to from various official and unofficial sources. The official sources include various quasi-governmental or world organisation websites (such as gov.cn and National Bureau of Statistics of China). The unofficial sources include information provided by the management of the Company, various websites (including Bloomberg.com, www.chinadaily.com.cn, www.sxcoal.com, www.wikipedia.org, www.roacoal.com, en.wikipedia.org and Yahoo! Finance), newspapers, research reports and journals (such as U.S. Geological Survey) from various industry practitioners or analysts. We need to state that such official and unofficial information have not been prepared or independently verified by us, and may not be consistent with other information complied within or outside the industry. None of our staff involved in preparing this report make any representation as to the correctness or accuracy of such information and accordingly such information should not be unduly relied upon. The readers should conduct his/her due diligence with regard to the correctness and accuracy of such information for his/her own use. Unless otherwise stated, the copyright of the quoted information belongs to the relevant owner.

– 514 –

VALUATION OF WUHAI CITY MENGGANG

APPENDIX XI

==> picture [360 x 165] intentionally omitted <==

Sources: Bloomberg

The Industry

Since 1998, when the Chinese government issued the laws regulating exploration and mining right, operating a mining business in China must first obtain those rights from the government with a price. The business was considered to be opened to foreign investors in 2003 when the Chinese government allowed the transfer of the mining right to all kinds of entitles. It is now easier and more secure than ever for these foreign mining companies to operate in China. Apart from the above, several measures have also been taken to encourage foreign investment and participation in developing China’s mining industry by the government. These measures include the privatisation of the mining sector, streamlining of permitting and approval processes, granting irrevocable exclusive mining right to foreign entities and relaxing rules on repatriation of capital profit. These measures benefit not only the foreign investors but also the local miners in that the cost of mining can be reduced and thus more profit can be generated.

Recent years, the dynamic and growing economy of China had a huge impact on the world mining industry. According to some industry analysts, ‘‘by the mid 2000s China had emerged as a world leader in both production and consumption of mined metals and was the global leader in zinc, and iron ore production, as well as a major source of copper, gold and lead. It also led the world in copper and zinc consumption, while its consumption of iron ore, lead, and gold substantially increased world demand for these metals’’(extracted from ‘‘Mining, Metal’’, Encyclopedia of Global Industries, Thomson Gale, 2006).

Coal, a commodity that initially may appear to be relatively uniform in its physical and chemical characteristics, is actually quite complex with a wide range of properties. The ultimate utilisation of coal, and thus its value, is dependent on these properties.

Various systems for classifying coal have been developed but the one used most extensively by the U.S. coal industry is representative of such systems. This system of classification by rank, which was developed by the American Society for Testing and Materials, is based on fixed carbon content and heat value (expressed as British Thermal Units, or Btu’s, per pound) and calculated on a mineral-matter-free basis. The higher rank coals are classified on fixed carbon content on a dry basis with the lower rank coals being classified on heat value on a moist basis.

– 515 –

VALUATION OF WUHAI CITY MENGGANG

APPENDIX XI

Rank, which is not itself a characteristic of coal, often implies a set of physical characteristics, however. For example, low volatile coal is generally of a friable nature, has a high grindability index, and is usually agglomerating. Thus, although rank is an important aid in determining the general nature and potential use of a given coal, more specific knowledge of a coal’s characteristics and properties is needed in order to fully determine its use and value.

Coal is one of the major power generating resources in the world. Coal is essential for steel, coal, and carbon production. Globally, according to The International Energy 2008 published by Energy Information Administration, the top five producers are China, the USA, India, Australia/New Zealand and Russia. It is expected that the global coal consumption to reach 190.2 quadrillion Btu (approximately 9,510 million short tons of coal, assuming 20 million Btu per short ton) in 2030 from 127.5 quadrillion Btu in 2006 and with China accounting for 51.68% of the world consumption in 2030, compare with 40.78% in 2006. The following chart listed out the amount of world coal consumption for easy reference only.

==> picture [260 x 220] intentionally omitted <==

Source: Bloomberg

– 516 –

VALUATION OF WUHAI CITY MENGGANG

APPENDIX XI

In 2007, China’s consumption for coal was estimated at about 2.892 billion short tons, while the total amount of coal supplied by Chinese coal enterprises was estimated at about 2.804 billion short tons. According to the information of Energy Information Administration, the coal use in China’s electricity sector is projected to increase from 24.9 quadrillion Btu in 2006 to 57.3 quadrillion Btu in 2030. The following chart listed out the data of China’s coal consumption.

==> picture [272 x 231] intentionally omitted <==

Source: Bloomberg

The following is an extraction from a journal with regard to the recent development of the China coal industry — With the country looking to rapidly increase its nuclear power generation, the government is seeking to secure a stable supply of raw materials. Uranium exploration is concentrating on Inner Mongolia and north-west China. The report forecasts the mining industry GDP in China to grow at 13.26% per annum in 2008–2013, reaching US$474 billion by 2013 (China Mining Report Q3 2009).

The coal production in the Inner Mongolia region from 2004 to 2008 is tabled below for readers’ easy reference,

Year		2004	2005	2006	2007	2008
Thousand long tons		170,463	215,627	294,624	361,640	455,851
Source:	Bloomberg

The coal price increased rapidly in the first half of 2008 and, following the financial crisis in late 2008, the coal price dropped significantly. World demand for coking coal increased from 635Mt in 2005 to 706Mt in 2006. China, India, Japan, Russia and Ukraine together accounted for around 74% of total

– 517 –

VALUATION OF WUHAI CITY MENGGANG

APPENDIX XI

global consumption of coking coal in 2006. The largest producers of coking coal are China and Australia (extracted from World Coal Institute (WCI), 2007). Below is the price (in RMB) trend of the China steam coal and coking coal from March 2005 to March 2009 for readers’ easy reference purpose,

==> picture [314 x 128] intentionally omitted <==

Source: Raw data from Bloomberg

VALUATION PROCEDURES ADOPTED

In performing this appraisal, we have adopted the following procedures which were agreed with the management of the Company before the engagement. They were:

. To prepare and submit a list(s) of required document and information regarding the Appraised Asset during the course of valuation. The completeness of our valuation depends on the availability of the required information being supplied by the management of the Company or its appointed personnel.
. To read and based on the content of the supplied material such as the various geology reports, mineral resources estimation, product information, market information and financial information and its related materials such as further exploration program, explanatory statements and relevant correspondence to arrive at our conclusion. In the course of our valuation, we will assume the information that in the materials is correct and we will only verify the provided information when and where possible. However, we will not ascertain the correctness of the information contained in the materials like an auditor in giving an audit opinion.
. To hold discussions with relevant personnel in order to have a better understanding on the Appraised Asset.
. To conduct appropriate research and technical consultation in order to obtain sufficient information for arriving at our conclusions. The extent of research and consultation is at our discretion.
. To value the Appraised Asset using the appropriate premise of value and method(s).
. To document our findings in our appraisal report.

– 518 –

VALUATION OF WUHAI CITY MENGGANG

APPENDIX XI

THE BASIS OF VALUATION AND ASSUMPTIONS

The Appraised Asset is valuated on the basis of fair value in continued use, as a going concern. The continued use premise assumes that the Appraised Asset will be used for the purpose for which it was conceived or is currently carried out.

Our valuation has been made on the assumption that, as at the Date of Valuation,

the existing legally interested parties in the Appraised Asset have free and uninterrupted rights to use or assign the Appraised Asset for the whole of the unexpired terms as granted and any premiums/administrative costs payable have already been fully paid;
the existing legally interested parties in the Appraised Asset successfully completed the detailed mine development program and obtained the expected result within the scheduled time frame;
the detailed mine development program and the subsequent mining operations in the Mines confirmed the quality and quantity expected as in the various geology reports;
the relevant Enterprise Legal Person Business Licences and/or business registration documents (including Tax Registration Certificate) are able to renew after their expiration from time to time in order to achieve the planned extraction phase;
the subsequent feasibility studies and governmental endorsement confirmed the quality and quantity discovered during the mine development stage under various reserve classification commonly adopt in the world or in China (the Solid Minerals Resource Classification (GB/ T17766-1999));
the subject Mining Operation Permits are able to renew after 6 December 2010 from time to time in order to achieve the planned extraction phase (see Note), say 20 years, and business;
all required licences, certificates, consents, or other legislative or administrative authority from any local, provincial, or national government or private entity or organisation have been or can readily be obtained or renewed on which the valuation contained in our report are based;
the Appraised Asset successfully yielded the economic benefits as projected in the Business Plan (and its updates) and the various geology reports;
there will not be material changes in the government policies or political, legal (including legislation or regulations or rules), fiscal (including interest rate and exchange rate), market or economic conditions, and the bases or rates of taxation in the PRC, where the Appraised Asset is situated;

Note: According to GN 14 of the IVS, ‘‘The Minerals Industry generally has a planned extraction phase, though this phase is often extended through Mineral Reserve additions. Once extraction is completed, no more known economically recoverable asset remains in place at that time’’.

– 519 –

VALUATION OF WUHAI CITY MENGGANG

APPENDIX XI

the prospective earnings would provide a reasonable return to the existing legally interested parties in the Appraised Asset and that the existing legally interested parties in the Appraised Asset have adequate working capital to implement the scheduled exploration program, the mining operations and the operation of the by-products processing plants from time to time;
the existing legally interested parties in the Appraised Asset have the rights to transport, produce and sell the extracted coal and its by-products after processing to the market, both locally and internationally;
the existing legally interested parties in the Appraised Asset have adopted reasonable and necessary security measures and have considered several contingency plans against any disruption (such as fire, change of government policy, labour dispute, implementation of serious statutory mining safety measures, geologic formation structurally deformed, soil erosion and other types of unexpected accidence) to the scheduled detailed mine development program and mining operations;
the management of, and the legally interested parties in Wuhai City Menggang have adopted reasonable and necessary measures against any effect of the litigation and non-compliance and contravention of the PRC laws and regulations as disclosed in the Letter From The Board of this circular to the Appraised Asset, and that the relevant risks will not affect the normal operation of Wuhai City Menggang to the Mines; and
the Appraised Asset, as a going concern, can be freely disposed and transferred free of all encumbrances for its existing or approved uses in the market to both local and overseas purchasers without payment of any premium to the government.

Should this not be the case, it will have adverse impact to the reported findings and conclusion herein.

FACTORS CONSIDERED IN THE VALUATION

Unless otherwise stated, the valuation of the Appraised Asset has taken account of all pertinent factors affecting Wuhai City Menggang and its ability, if successful, to generate future investment returns as part of a going concern business. The factors considered in the valuation included, but were not limited to, the following:

. the nature and the characteristics of the Appraised Asset, including the historical background and the ground work for the Mining Operation Permits;
. the use of the Mining Operation Permits as part of a going concern business of Wuhai City Menggang;
. the cost and financial information as contained in various documents;
. technical review of the mining operations and resource/reserve estimation by the technical experts;
. business advices of the by-product processing portion of the Appraised Asset;

– 520 –

VALUATION OF WUHAI CITY MENGGANG

APPENDIX XI

. projected future results based on assumptions made by the appointed personnel from Wuhai City Menggang;
. the nature of the mining rights such as the remaining life and its characteristics;
. the nature and the going concern business of Wuhai City Menggang;
. the existing legally interested parties in the Appraised Asset are able to renew the existing Mining Operation Permits and be part of a going concern business of Wuhai City Menggang;
. the quality of the mining facilities;
. the capability of the existing legally interested parties in the Appraised Asset to raise fund to finance the exploration program, the construction of the mine and its subsequent operations;
. the capability and determination of the existing legally interested parties in the Appraised Asset to follow its planned development schedule;
. the capability and determination of the existing legally interested parties in the Appraised Asset to maintain its clientele and its expansion in the future;
. the capability and determination of the existing legally interested parties in the Appraised Asset to continue the existing marketing strategy of its predicted product, if successful;
. the capability and determination of the existing legally interested parties in the Appraised Asset to construct and implement the scheduled production process to produce relevant mineral resources to attract customers as predicted;
. the capability and determination of the existing legally interested parties in the Appraised Asset to follow the government and industry management quality standards and to review/uplift its standards to catch the industry need from time to time;
. the capability and determination of the existing legally interested parties in the Appraised Asset to protect its mining operations, if successful, against any disruption of the normal operation of the Mines, including but not limited to the litigation and non-compliance and contravention of the PRC laws and regulations, as disclosed in the Letter From The Board of this circular;
. the capability and determination of the existing legally interested parties in the Appraised Asset to maintain a cost effective and stable supply chain of the materials to produce its predicted products;
. the capability and determination of the existing legally interested parties in the Appraised Asset to maintain an experienced management team as part of its going concern business;
. the economic and industry data affecting the Appraised Asset and the coal mining industry in China;
. the market-derived investment returns of similar business; and

– 521 –

VALUATION OF WUHAI CITY MENGGANG

APPENDIX XI

. the risks facing Wuhai City Menggang and the Appraised Asset.

ESTABLISHMENT OF TITLES

Due to the purpose of this engagement, the management of the Company was requested to provide us with necessary documents to support that the legally interested parties in the Appraised Asset have free and uninterrupted rights to assign or to transfer the Appraised Asset (a part of or the whole of) free of all encumbrances and any premiums/administrative costs payable have already been paid in full. However, our procedures to value as agreed with the management of the Company did not require us to conduct legal due diligence on the legality and formality on the way that the legally interested parties obtained the Appraised Asset and the relevant Mining Operation Permits from the relevant authorities. We agreed with the management of the Company that this should be the responsibility of the legal advisor to the management of the Company. Thus, no responsibility or liability is assumed from our part to the origin and continuity of the titles to the Appraised Asset.

For the sake of valuation, we have been provided with copies of the title documents and legal opinions issued by Guantao Law Firms (觀韜律師事務所), lawyers qualified to practice in China, (the ‘‘Legal Opinion’’). According to the Legal Opinion, Brilliant Wise Limited, Favour Mind Limited and Max Joyce Limited have obtained full legal and beneficial title free from all encumbrances in respect of the Appraised Asset. We are given to understand that, collectively, Brilliant Wise Limited, Favour Mind Limited and Max Joyce Limited were wholly owned by the Vendor (as defined in this circular). We also noted that, according to the Legal Opinion, the equity interest in Wuhai City Menggang originally owned by Max Joyce Limited and transferred from Zhong Tie Trust Company Limited is not yet completed. The Legal Opinion states that there should be no legal impediment in completing the transaction. However, we have not inspected the original documents filed in the relevant authorities to verify ownership or to verify any amendment which may not appear on the copies handed to us. We need to state that we are not legal professionals and are not qualified to ascertain the titles and to report any encumbrances that may be registered against the Appraised Asset. In the course of preparing our report, we have relied solely on the copy of the Legal Opinion with regard to the existing legally interested parties in the Appraised Asset. No responsibility or liability is assumed in relation to those opinions or copies of documents.

In our valuation, we have assumed that the legally interested parties in the Appraised Asset have obtained all the approval and/or endorsement from the relevant authorities for operation, and that there would be no legal impediment (especially from the regulators) for the legally interested parties to continue the ownership of the Appraised Asset. Should this not be the case, it will affect our conclusion in this report significantly. The readers are reminded to have their own legal due diligence work on such issues. No responsibility or liability is assumed.

APPROACH TO VALUE

In the process of valuation, we have considered the three generally accepted business enterprise appraisal approaches to value, namely the Market Approach, the Income Approach and the Asset-based Approach. As we are valuing the Appraised Asset on fair value basis and not on the value-in-use basis, we consider that the most appropriate approach to value is the Market Approach. Moreover, we have conducted a ‘‘sanity-check’’ on the value derived from the Market Approach by reviewing the Assetbased Approach and the Income Approach, and found that they are in line with the value derived at.

– 522 –

VALUATION OF WUHAI CITY MENGGANG

APPENDIX XI

The Market Approach

The Market Approach is basically a comparison method to value a business enterprise by comparison to the prices at which other similar business nature companies or interests changed hands in arm’s-length transactions. The underlying theory of this approach is one would not pay more than one would have to pay for an equally desirable alternative. Therefore, the valuer will seek valuation guidance for valuation indication from the prices of other similar companies or equity interests in companies that were sold recently. The right transactions used in analysing for valuation indication need to be sales on an arm’s-length basis, assuming that the buyers and sellers are well informed and have no special motivations or compulsions to buy or to sell. Then, based on those transactions, derive multiples (i.e. financial ratios) to apply to the fundamental financial variables of the subject business enterprise and to arrive at an indicated value of the subject business enterprise. Examples of such multiples are price-to-earnings, price-to-sales (or revenue), price-to-book and price-to-EBITDA (earnings before interest, taxes, depreciation and amortisation).

There are two methods of the Market Approach known as the Guideline Publicly Traded Company Method (by using similar company daily stock transaction prices) and the Guideline Merged and Acquired Company Method. Both methods need to rely on analysing available similar transacted comparables, and the big difference is on the structure of transactions — daily stock transaction prices in public market or mergers and acquisitions as occurred. For the sake of the standards of value in this engagement, we have considered the Guideline Merged and Acquired Company Method.

The Guideline Merged and Acquired Company Method uses multiples derived from actual sales of closely held businesses and mergers and acquisitions transactions involving publicly traded companies. So far as we are aware, we have identified and made reference to mergers and acquisitions transactions of similar companies (closely held) which were principally engaged in the coal mining related business in the PRC and undertaken by companies listed on the Hong Kong Stock Exchange. In the course of our analysis, we have collected a total of 10 guideline transactions throughout the observed period and selected transactions that are supported by a qualified person technical review report for a more detailed comparative analysis and with similar status — operation and/or ready for development. Transactions without a qualified person technical review report were dropped due to insufficient data necessary for the analysis. These transaction records were published in various company circulars which contained technical reports and detail of transactions. Of the 10 guideline transactions, we identified 5 transactions supported by a qualified person technical review report to conduct a comparative analysis in order to form a representative industry benchmark for the valuation. We took the view that in using the Market Approach, comparable transaction(s) with a highest degree of comparability is more important than a wide but inadequate comparative population of guideline transactions. We have referenced the respective consideration per tonne of resources ratio (the ‘‘Consideration/Resources Ratio’’) as our basis of valuation. The comparable transactions were selected on the following criteria:

. The comparable transactions were within 18 months on or before the Date of Valuation;
. The comparable coal mines are located in the PRC;
. The comparable transactions were related to listed companies in Hong Kong;
. The comparable coal mines are either in operation or subject to further development; and
. Detailed technical report is available on the respective transaction.

– 523 –

VALUATION OF WUHAI CITY MENGGANG

APPENDIX XI

Details of the selected comparable transactions are set out as follows,

			Consideration/
Acquirer (Stock Code)	Date of Circular	Consideration1	Resources Ratio2
		(HKD million)	(HKD per tonne)
Asia Coal Limited3 (835.HK)	25 Jun 2009	1,524.53	27.81
China Sonangol Resources	12 Jun 2009	100.00	1.00
Enterprise Limited4 (1229.HK)
GCL Poly Energy Holdings	22 Sep 2008	96.75	1.36
Limited5 (3800.HK)
Wing Hing International Holdings	29 Aug 2008	210.00	3.36
Limited6 (621.HK)
Fushan International Energy Group	25 Jun 2008	10,530.00	55.81
Limited7 (639.HK)

Source: Website of Hong Kong Exchange and Clearing Limited

Notes:

The considerations stated above comprised various combinations of cash, consideration shares, promissory notes or convertible bonds.
The Consideration/Resource Ratio for each of the transactions has been adjusted for the effective interest being acquired as disclosed in the respective circular.
The company acquired two coal mines with the total 331 resources of 11.1Mt and 333 resources of 48.06Mt under the Chinese Classification System. According to the respective technical report, it is opined that the 333 resource is equivalent to inferred resource and the 331 resource closes enough to be rated as measured or indicated resource under JORC Code. One of the mines was in operation stage and the other was in development stage.
The company acquired two coal mines with the total marketable resources of 10.58 Mt, measured resources of 45.51 Mt and indicated resources of 51.48 Mt under JORC Code. Mining right has been obtained for one of the mines only. One of the mines was in operation stage and the other was in the development stage (a Greenfield).
The company acquired a coal mine with total measured resources of 18.13 Mt, indicated resources 24.34 Mt and inferred resources of 2.87 Mt under JORC Code. The mine was in the development stage.
The company acquired five coal mines with total 111b resources of 21.64 Mt, 121b resources of 2.68 Mt, 122b resources of 0.06 Mt, 332 resources of 1.02 Mt, 333 resources of 5.16 Mt and 334 resources of 12.28 Mt under Chinese Classification System According to the respective technical report, it is opined that, broadly, 111b and 121b resource can be comparable with measured resource, 122b, 332 resource can be comparable with indicated resource and 333 resource can be comparable with inferred resource under JORC Code. 2 of the mines were in operation stage while 3 of the mines were in development stage.
The company acquired three coal mines with total measured resources of 48.81 Mt, indicated resources of 122.76 Mt and inferred resources of 12.91 Mt under JORC Code. All mines were in operation stage.
The resources amount presented in notes 3 to 7 above were adjusted for the effective interest being acquired.

– 524 –

VALUATION OF WUHAI CITY MENGGANG

APPENDIX XI

Considerations have been adjusted to reflect the coal market as of different dates of transaction in China. Xinhua Infolink’s Steam Coal Price and Xinhua Infolink’s Coking Coal Price (‘‘Benchmarked Coal Prices’’) were referenced in the course of adjustment. The adjusted consideration were calculated as follows,

Benchmarked Coal Prices at Date of Valuation

consideration x

Benchmarked Coal Prices at acquisition

In the course of valuation, consideration has also been taken on the fact that Mine No. 1 is a developed and operating mine and the development of mine entries has commenced for Mine No. 4.

In our comparative analysis, we noted that the adopted ratios varied among the comparable transactions and we used the weighted average method to leverage the variances. Based on the comparable transactions identified above, a weighted average Consideration/Resources Ratio of 39.22 has been adopted to conclude our valuation.

It is understood that mines at different status such as developing or operating may require different level of capital expenditures and operation costs for their going concern business. However, we take the view that under a perfect and rational market, a rational buyer normally will purchase a mine only if the present value of the expected economic benefits generated by the historical capital expenditures and operation costs is at least equal to the purchase price. Likewise, a rational seller normally will not sell if the present value of the expected economic benefits generated by his historical capital expenditures and operation costs is more than the selling price. Thus, a sale generally will occur only at an amount equal to the economic benefits generated by the historical capital expenditures and costs of the mine being valued. In other words, the historical capital expenditures and operation costs are already factored in the transaction price.

We take the view that future capital expenditures and operation costs are based on the buyer’s inherent business model, level of affordability, scale of operation desired, project financing available, so on and so forth, and are already taken into consideration in their purchase price consideration. This is one of the reasons for the variances among the comparable transactions. As the comparable transactions and the subject are similar in status, by using the weighted average method, such variances could be leveraged.

VALUATION COMMENTS

As we are valuing the entire equity interest of Wuhai City Menggang, no discount on minority or premium on the controlling shareholding has been taken.

By definition, ownership interests in closely held companies are typically not readily marketable, and, by definition not as liquid and as easily converted to cash compared to similar interests in the public companies. Therefore, a share of stock in a privately held company is usually worth less than an otherwise comparable share in a publicly held company. However, the valuation concluded was solely based on the historical comparable transaction record of closely held coal mine companies and thus such factor should have been reflected in the considerations of these comparable transactions.

– 525 –

VALUATION OF WUHAI CITY MENGGANG

APPENDIX XI

MATTER THAT MIGHT AFFECT THE VALUE REPORTED

In the absence of any endorsed feasibility study report or reserve estimation report under any recognised mineral resource and reserve classification systems (see Note) commonly adopted in the world by the relevant authorities as at the date of this report, our work is preliminary in nature and suitable only for making a reference. We need to state that this report is not a detailed evaluation of the feasibility of developing a mine and its subsequent coal washing plant as proposed in the Business Plan; rather, it is an objective evaluation of the future operation, as part of a going concern business of Wuhai City Menggang as proposed in the Business Plan and the various geology reports.

No allowance has been made in our valuation for any charges, mortgages, outstanding premium or amounts owing on the Appraised Asset. Also, no allowance has been made in our valuation for any expenses or depreciation or taxation, which may be incurred in effecting a sale of the Appraised Asset. Unless otherwise stated, it is assumed that the Appraised Asset is free from all encumbrances, restrictions, and outgoings of an onerous nature which could affect its value.

In our valuation, we have assumed that the Appraised Asset is able to sell and purchase in the market without any legal impediment (especially from the regulators). Should this not be the case, it will affect the reported value significantly. The readers are reminded to have their own legal due diligence work on such issues. No responsibility or liability is assumed.

Unless otherwise stated in the Legal Opinion, as at the date of this report, we are unable to identify any adverse news against the Appraised Asset which may affect in the reported value in our report. Thus, we are not in the position to report and comment on its impact (if any) to the Appraised Asset. However, should it be established subsequently that such news did exist as at the Date of Valuation, we reserve the right to adjust the value reported herein.

We understand that Wuhai City Menggang is facing risks of litigation and non-compliance and contravention of the PRC laws and regulations, and we were further advised by the Legal Opinion that such risks may not have significant impact to the normal operation of Wuhai City Menggang and the reserves/resources estimation of the Mines. Should this not be the case, it will have adverse impact to our valuation.

We are not aware of the content of any environmental audit or other environmental investigation or soil survey which may have been carried out on the subject mines and which may draw attention to any contamination or the possibility of any such contamination. In undertaking our work, we have been instructed to assume that no contaminative or potentially contaminative uses have ever been carried out in the subject mines. We have not carried out any investigation into past or present uses, either of the properties or of any neighbouring land, to establish whether there is any contamination or potential for contamination to the subject mines from these uses or sites, and have therefore assumed that none exists. However, should it be established subsequently that contamination, seepage or pollution exists at the subject mines or on any neighbouring land, or that the premises have been or are being put to a contaminative use, this might reduce the value now reported.

Note: Such as 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, generally known as the JORC Code, the United Nations International Framework Classification for Fossil Energy and Mineral Resources, and other systems commonly encountered in the coal industry include those of the London Stock Exchange’s Chapter 19, the U.S. Securities and Exchange Commission’s Industry Guide, and the U.S. Geological Survey’s Circular 891.

– 526 –

VALUATION OF WUHAI CITY MENGGANG

APPENDIX XI

INSPECTION AND INVESTIGATIONS

We conducted a visit to the subject companies before, and due to the agreed-upon procedures basis, we were unable to inspect those parts which were covered, unexposed or inaccessible or not being arranged for inspection. We cannot express an opinion about or advice upon the condition of the Mines and our report should not be taken as making any implied representation or statement about the conditions of the Mines. No structural survey, drilling, sampling, investigation, test or examination, or any means of geological test or engineering or survey has been made in the Mines. No tests were carried out to any utilities (if any) and we are unable to identify those utilities covered, unexposed or inaccessible. The inspection we made was designed to give us have a better understanding on the operation of the subject companies, and it is not intended to produce an error-free asset lists nor a title due diligence on the subject companies. The readers should read this Company’s circular in details to have a better understanding on the risks, financial information, tangible assets and business model of the subject companies.

It is emphasised that the inspection and the use of our report do not purport to be a conditional survey of the Mines. We have assumed that the Mines were free of rot and inherent danger or serious geologic formation structurally deformed and soil erosion. If the management of the Company is proposing to purchase any interest relating to the Mines and wants to satisfy them as to the condition of it, then the management of the Company should obtain a third party surveyor’s detailed inspection and report of their own before deciding whether or not to enter into an agreement for sale and purchase.

The purpose of our inspection is not to have a full scope investigation on the quantity and the quality of the Mines; rather, it is designed to give us a better understanding of the Mines and its surrounding areas. No responsibility or liability is assumed.

We have not carried out on-site measurements or drilling or testing or sampling to verify the correctness of the dimensions, specifications and areas of the Mines, but have assumed that the figures shown on the documents and handed to us are correct. All dimensions, measurements and areas are approximations.

Our engagement and the agreed procedures to work did not include an independent land survey to verify the legal boundaries and the exact location of the Mines. We need to state that we are not in the land survey profession in China, therefore, we are not in the position to verify or ascertain the correctness of the legal boundaries and location of the Mines that appeared on the documents handed to us. No responsibility from our part is assumed. The management of the Company or interested parties in the Project or the Mines should conduct its own due diligence work.

Due to the nature of this engagement, no investigation has been made of the legal title, licence rights or any liabilities attached to the Mines or its related entity or permits. All legal documents disclosed (if any) are for reference only and no responsibility is assumed for any legal matters concerning the legal title and licence rights of the Mines or the Appraised Asset. We have not verified the original documents (if any) furnished to us. Any responsibility for our misinterpretation of the legal documents, therefore, cannot be accepted.

– 527 –

VALUATION OF WUHAI CITY MENGGANG

APPENDIX XI

SOURCES OF INFORMATION AND ITS VERIFICATION

For the purpose of our work, we were furnished with various geology reports and other documents related to the Appraised Asset on going concern basis. These information have been utilised without further verification. We have had no reason to doubt the truth and accuracy of the information that we have been furnished. No responsibility is assumed for the accuracy of the provided information.

For the purpose of this valuation, we were furnished with various copies of the above named or unnamed documents related to this report and these copies have been referenced without further verifying with the relevant bodies and/or authorities. We need to state that we are not attorney of laws by nature, therefore, we are not in the position to advise and comment on the legality and effectiveness of the documents provided by the management of the Company. No responsibility is assumed.

We have relied solely on the information provided by the management of the Company or its appointed personnel without further verification and have fully accepted advice given to us on such matters as planning approvals or statutory notices, procedures to obtain necessary approvals, locations, titles, easements, tenure, occupation, clientele, products (type and class), site areas and all other relevant matters.

Our procedures to value did not include undertaking a feasibility study of the proposed expansion of Wuhai City Menggang. Accordingly we do not express an opinion as to the merit or demerit of any future expansion (if any).

Unless otherwise stated, we have not carried out a valuation on a redevelopment basis on the Mines and the study of possible alternative development options and the related economics do not come within the scope of our report.

We are not contracted to conduct a due diligence to review the existing mining industry and the official policy on grating out mining right of mineral resources in China. In the course of our work, we have solely depended on the advice given by the management of the Company. We are unable to accept any responsibility for the reliability of the advice.

Also, we are not contracted to conduct a detailed geological study or pre-feasibility study or feasibility study or mining report, thus, the report is not a detailed valuation of the feasibility of developing Mine No. 4. In the course of our work, we have solely depended on the various geology reports and advice given by the management of the Company. We are unable to accept any responsibility for the reliability of the advice.

Our engagement did not include an independent land or geological survey to verify the information provided. Since we are not the authorised person to conduct geological survey in China and the enormous resources required in conducting a detailed inspection and survey, we were further instructed to conduct our work based on the information given. We are unable to accept any responsibility for the reliability of the information given.

– 528 –

VALUATION OF WUHAI CITY MENGGANG

APPENDIX XI

Information furnished by others, upon which all or portions of our report are based, is believed to be reliable but has not been verified in all cases. Our procedures to value or work do not constitute an audit, review, or compilation of the information provided. Thus, no warranty is made nor liability assumed for the accuracy of any data, advice, opinions, or estimates identified as being furnished by others which have been used in formulating our report.

When we adopted the work products from other professions, external service/data providers and/or the management of the Company in our valuation, the assumptions and caveats adopted by them in arriving at their opinions also applied in our valuation. The procedures we have taken do not require us to examine all the evidences, like an auditor, in reaching at our opinion. As we have not performed an audit, we are not expressing an audit opinion in our valuation.

We are unable to accept any responsibility for the information that has not been supplied to us by the management of the Company. We have sought and received confirmation from the management of the Company that no material factors have been omitted from the information supplied. The report is based upon the assumption of full disclosure between the Company and us of material and latent facts that may affect the valuation. No responsibility is assumed for withheld information (if any).

Unless otherwise stated, the base currency of our report is United States Dollar (‘‘USD’’), with the adopted exchange rate between Hong Kong Dollar to United States Dollar of HKD1/USD0.129 and between Renminbi Yuan (‘‘RMB’’) to USD of RMB1/USD0.1464.

LIMITING CONDITIONS IN THIS SUMMARY REPORT

This summary report is provided strictly for the sole use of the Company, and the valuer accepts no responsibility whatsoever to any other person. Neither the whole nor any part of this report or any reference made hereto may be included in any published documents, circular or statement, or published in any way, without our written approval of the form and context in which it may appear. Nonetheless, we consent to the publication of this report in this circular to the Company’s shareholders’ reference.

Our findings and conclusion in this summary report are valid only for the stated purpose and only for the Date of Valuation. We or our personnel shall not be required to give testimony or attendance in court or to any government agency by reason of this report, and we accept no responsibility whatsoever to any other person.

No responsibility is taken for changes in market conditions and no obligation is assumed to revise this summary report to reflect events or change of government policy or financial condition or other conditions, which occur subsequent to the date hereof.

In our valuation, we have assumed that no significant adverse impact to the Appraised Asset arisen from the litigation and/or non-compliance and contravention to the PRC laws and regulations as disclosed in the Letter From The Board and the Legal Opinion. Should some or all of the assumptions prove to be inaccurate at a later date, it will affect the reported value significantly.

– 529 –

VALUATION OF WUHAI CITY MENGGANG

APPENDIX XI

Our maximum liability relating to services rendered under this engagement (regardless of form of action, whether in contract, negligence or otherwise) shall be limited to the charges paid to us for the portion of its services or work products giving rise to liability. In no event shall we be liable for consequential, special, incidental or punitive loss, damage or expense (including without limitation, lost profits, opportunity costs, etc.), even if it has been advised of their possible existence.

The Company is required to indemnify and hold us and our personnel harmless from any claims, liabilities, costs and expenses (including, without limitation, attorney’s fees and the time of our personnel involved) brought against, paid or incurred by us at a time and in any way based on the information made available in connection with our report except to the extent that any such loses, expenses, damages or liabilities are ultimately determined to be the result of gross negligence of our engagement team in conducting its work. This provision shall survive even after the termination of this engagement for any reason.

CONCLUSION

Based on the investigation, analysis, stated assumptions, limitations, reasoning and data outlined as above, and on the valuation methods employed, it is our opinion that as of the Date of Valuation, the fair value of the Appraised Asset (before taking into consideration of any transaction costs), is reasonably stated by the amount of UNITED STATES DOLLARS THREE HUNDRED AND SIXTY SEVEN MILLION ONLY (USD367,000,000.00).

STATEMENTS

This report is based on generally accepted procedures and practices that rely extensively on assumptions and considerations, not all of which can be easily quantified or ascertained exactly. While we have exercised our professional judgment in performing the report, the readers are urged to consider carefully the nature of such assumptions which are disclosed in this report and should exercise caution in interpreting this report.

Our report is prepared in line with the guidelines contained in the IVS as well as the BVS and the HKIS Standards. The valuations have been undertaken by valuer, acting as external valuer, qualified for the purpose of the valuation.

We retain a copy of this summary report and the detailed valuation report together with the data from which it was prepared, and these data and documents will, according to the Laws of Hong Kong, keep for a period of 6 years from the date of this report and to be destroyed thereafter. We considered these records confidential, and we do not permit access to them by anyone, with the exception for law enforcement authorities or court order, without the Company’s authorisation and prior arrangement made with us.

– 530 –

VALUATION OF WUHAI CITY MENGGANG

APPENDIX XI

We hereby certify that the fee for this service is not contingent upon our conclusion and we have no present nor prospective interest in the Appraised Asset and the Company.

Yours faithfully, For and on behalf of

LCH (Asia-Pacific) Surveyors Limited

Joseph Ho Chin Choi BSc Pg Dip RPS (GP)

Managing Director

Contributing valuers in the report:

Elsa Ng Hung Mui BSc MSc RPS(GP) Rolando Arcaya BScME ASA

Leslie Wong Tak Chiu BSc

Sam Lai Siu Nam BBA

Note: Mr. Joseph Ho Chin Choi has been conducting asset valuations and advisory work in Hong Kong, Macau, Taiwan, mainland China, Japan, South East Asia, Australia, Scotland, Germany, Finland, Guyana, Argentina, Canada and the United States of America for various purposes since 1988. He obtained the Examination Certificate of the Uniform Standards of Professional Appraisal Practice issued by the American Society of Appraisers in 1996. He has extensive experience in the valuation of various types of intangible assets and power plants, toll road, health products and foodstuffs, mineral extracting, coal and coke, agricultural property assets, financial services, luxurious consumer goods, pharmaceutical and biotechnology, electronic consumer products manufactory, telecommunication, media and information technology related businesses for the listed companies in Hong Kong, Taiwan, mainland China, Singapore, Malaysia, the United Kingdom, Canada and the United States of America. At present, he is a valuer on the List of Property Valuers for Undertaking Valuation for Incorporation or Reference in Listing Particulars and Circulars and Valuations in Connection with Takeovers and Mergers published by the HKIS and a Registered Business Valuer registered with the Hong Kong Business Valuation Forum.

– 531 –

GENERAL INFORMATION

APPENDIX XII

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiry, that to the best of their knowledge and belief, there are no other facts the omission of which would make any statement contained in this circular misleading.

2. SHARE CAPITAL

The authorised and issued capital of the Company as at the Latest Practicable Date were as follows:

HK$

Authorised capital:

2,000,000,000 Shares 100,000,000

Issued and fully paid or credited as fully paid:

420,725,261 Shares in issue as at the Latest Practicable Date 403,233,360 Consideration Shares to be issued (Note 1) 982,533,802 Maximum number of Placing Shares to be issued (Note 2) 1,806,492,423 Maximum number of Shares in issue immediately following completion of the Acquisitions	21,036,263.05 20,161,668.00 49,126,690.10
	90,324,621.15

Notes:

(1) The actual number of Consideration Shares shall be subject to adjustments pursuant to the Supplemental Agreement.

(2) The actual number shall be subject to the actual number of Placing Shares to be issued under the Placing.

All Shares (when issued) rank pari passu in respect of capital, dividends and voting.

3. DISCLOSURE OF INTERESTS

(a) Directors’ and Chief Executives’ interests and short positions in the securities of the Company and its associated corporations

As at the Latest Practicable Date, the interests and short positions of the Directors and the chief executive of the Company in the shares, underlying shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) which were required (a) to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO); or (b) pursuant to section 352 of the SFO, to be entered in the

– 532 –

GENERAL INFORMATION

APPENDIX XII

register referred to therein ; or (c) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the ‘‘Model Code’’), were as follows:

Long positions in ordinary shares and underlying shares of the Company:

				Number of
			Number of	underlying		Approximate
			shares of the	shares of the		percentage of
		Nature of	Company	Company		total issued
Name of Director	Capacity	interest	held	held	Total	share capital
Ms. Choi Hon Hing	Beneficial	Personal	4,744,313	—
	owner	interest
	Interest of a	Corporate	5,581	—
	controlled	interest	(Note 1)
	corporation
	Beneficiary of	Other interest	80,000,000	—
	trust		(Note 2)
	Interest of	Spouse	22,701,092	240,000	107,690,986	25.60%
	spouse	interest		(Note 3)
Ms. Fung Wing Ki,	Beneficial	Personal	2,637,262	—
Vicky	owner	interest
	Beneficiary of	Other interest	80,000,000	—	82,637,262	19.64%
	trust		(Note 2)
Ms. Fung Wing Yee,	Beneficial	Personal	1,733,262	—
Wynne	owner	interest
	Beneficiary of	Other interest	80,000,000	—	81,733,262	19.43%
	trust		(Note 2)
Dr. Tam Hok Lam,	Beneficial	Personal	240,000	160,000	400,000	0.09%
Tommy, J.P.	owner	interest		(Note 4)
Dr. Hui Ka Wah,	Beneficial	Personal	—	160,000	160,000	0.04%
Ronnie, J.P.	owner	interest		(Note 4)
Mr. Leung Man Chun,	Beneficial	Personal	—	160,000	160,000	0.04%
Paul	owner	interest		(Note 4)

Notes:

Ms. Choi Hon Hing has a beneficial interest in Bo Hing Limited (‘‘Bo Hing’’), which was interested in 5,581 shares in the Company as at the Latest Practicable Date, representing approximately 0.001% of the issued share capital of the Company.
The three references to 80,000,000 shares relate to the same block of shares held by Gainbest Investments Limited (‘‘Gainbest’’) which is a company wholly owned by HSBC International Trustee Limited as the trustee of a discretionary trust set up by Mr. Fung Ka Pun, the spouse of Ms. Choi Hon Hing, of which the discretionary objects include but not limited to Ms. Choi Hon Hing, Ms. Fung Wing Ki, Vicky and Ms. Fung Wing Yee, Wynne. Gainbest is a substantial shareholder of the Company and its shareholding in the Company is set out in the section headed ‘‘Substantial Shareholders’ Interests and Short Positions in Shares and Underlying Shares of the Company’’ of this appendix.

– 533 –

GENERAL INFORMATION

APPENDIX XII

These interests represented Ms. Choi Hon Hing’s spouse interest in 240,000 underlying shares in respect of share options granted by the Company to Mr. Fung Ka Pun, spouse of Ms. Choi Hon Hing.
These interests represented the interests in underlying shares in respect of share options granted by the Company to these Directors as beneficial owners under the Share Option Scheme (‘‘Post-Listing Scheme’’) adopted on 16 May 2006.
Ms. Fung Wing Ki, Vicky and Ms. Fung Wing Yee, Wynne are the daughters of Ms. Choi Hon Hing.

Other than as disclosed above, as at the Latest Practicable Date, none of the Directors or their associates had any interests or short positions in any shares, underlying shares and debentures of, the Company or any of its associated corporations (within the meaning of Part XV of the SFO) as recorded in the register required to be kept under Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.

(b) Substantial Shareholders’ Interests and Short Positions in Shares and Underlying Shares of the Company

As at the Latest Practicable Date, the following entities have interests or short positions of 5% or more in the shares and underlying shares of the Company which were recorded in the Register of Substantial Shareholders maintained under Section 336 of the SFO or had otherwise notified to the Company:

		Number of		Approximate
	Number of	underlying		percentage
	shares of the	shares of the		of the total
	Company	Company		issued share
Name	held	held	Capacity	capital
Mr. Fung Ka Pun	80,000,000		Founder of a	25.60%
	(Note 1)		discretionary
			trust
	22,187,592		Interest of
	(Note 2)		controlled
			corporations
	519,081	240,000	Beneficial owner
		(Note 3)
	4,744,313		Interest of spouse
Gainbest Investments	80,000,000		Beneficial owner	19.01%
Limited	(Note 1)

– 534 –

GENERAL INFORMATION

APPENDIX XII

		Number of		Approximate
	Number of	underlying		percentage
	shares of the	shares of the		of the total
	Company	Company		issued share
Name	held	held	Capacity	capital
HSBC International	80,000,000		Trustee of a	19.01%
Trustee Limited	(Note 1)		discretionary
			trust
Xiao Wenge	50,000,000		Beneficial owner	11.88%
Li Yan Jun	36,000,000		Beneficial owner	8.56%
Goodwill International	22,182,011		Beneficial owner	5.27%
(Holdings) Limited

Notes:

Gainbest is a company wholly owned by HSBC International Trustee Limited as the trustee of a discretionary trust set up by Mr. Fung Ka Pun, for the benefit of his family members including but not limited to Ms. Choi Hon Hing, Ms. Fung Wing Ki, Vicky and Ms. Fung Wing Yee, Wynne as discretionary objects. Ms. Choi Hon Hing, Ms. Fung Wing Ki, Vicky and Ms. Fung Wing Yee, Wynne are the directors of Gainbest.
Mr. Fung Ka Pun has beneficial interests in Bo Hing and Goodwill International (Holdings) Limited, which were interested in 5,581 shares and 22,182,011 shares in the Company respectively as at the Latest Practicable Date, representing approximately 5.27% of the issued share capital of the Company.
These interests represented the interests in underlying shares in respect of share options granted by the Company to Mr. Fung Ka Pun as beneficial owner under the Post-Listing Scheme adopted on 16 May 2006.

Other than as disclosed above, as at the Latest Practicable Date, no person (other than Directors) has interests or short positions in the shares or underlying shares of the Company which were recorded in the Register of Substantial Shareholders maintained under Section 336 of the SFO.

Other than as disclosed above, as at the Latest Practicable Date, none of the Directors or any proposed Director is a director or employee of a company which has an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of part XGV of the SFO.

4. DIRECTORS’ OTHER INTERESTS

As at the Latest Practicable Date, so far as the Directors were aware, none of themselves or their respective associates had any interest in a business which competes or may compete with the business of the Enlarged Group or any other conflicts of interests with the Enlarged Group.

– 535 –

GENERAL INFORMATION

APPENDIX XII

As at the Latest Practicable Date, none of the Directors had any interests, either direct or indirect, in any assets which have been acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group since 31 March 2009, being the date to which the latest published audited consolidated financial statements of the Group were made up.

There was no contract or arrangement entered into by any member of the Enlarged Group subsisting at the Latest Practicable Date in which any Director is materially interested and which is significant to the business of the Enlarged Group.

5. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, save as previously disclosed (if any) in the announcement(s) of the Company, the Directors were not aware of any material adverse changes in the financial or trading position of the Group since 31 March 2009, the date to which the latest published audited consolidated accounts of the Group were made up.

6. LITIGATION

As at the Latest Practicable Date, so far as the Directors were aware, none of the members of the Group was engaged in any litigation of material importance and save as disclosed in the paragraph headed ‘‘Due Diligence Findings on the Target Group — Litigation’’ in the Letter from the Board of this circular, no litigation of material importance was known to the Directors to be pending or threatened by or against any member of the Enlarged Group as at the Latest Practicable Date.

7. CORPORATE INFORMATION

BOARD OF DIRECTORS REGISTERED OFFICE Executive Directors Cricket Square Ms. Choi Hon Hing (Chairman) Hutchins Drive Ms. Fung Wing Yee, Wynne P.O. Box 2681 Mr. Ng Cheuk Fan, Keith Grand Cayman KY1-1111 Cayman Islands

Non-executive Director

Ms. Fung Wing Ki, Vicky Mr. Mok Chiu Kuen

Independent Non-executive Directors

Dr. Tam Hok Lam, Tommy, J.P. Dr. Hui Ka Wah, Ronnie, J.P. Mr. Leung Man Chun, Paul

PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE IN CAYMAN ISLANDS Butterfield Fulcrum Group (Cayman) Limited Butterfield House, 68 Fort Street P.O. Box 609, Grand Cayman KY1-1107 Cayman Islands

– 536 –

GENERAL INFORMATION

APPENDIX XII

AUDIT COMMITTEE

Dr. Tam Hok Lam, Tommy, J.P. (Chairman of Committee) Dr. Hui Ka Wah, Ronnie, J.P. Mr. Leung Man Chun, Paul

REMUNERATION COMMITTEE

Dr. Tam Hok Lam, Tommy, J.P. (Chairman of Committee) Dr. Hui Ka Wah, Ronnie, J.P. Mr. Leung Man Chun, Paul Ms. Choi Hon Hing

NOMINATION COMMITTEE

Ms. Choi Hon Hing (Chairman of Committee) Dr. Tam Hok Lam, Tommy, J.P. Dr. Hui Ka Wah, Ronnie, J.P.

COMPANY SECRETARY

Mr. Jip Ki Chi

AUDITOR

Deloitte Touche Tohmatsu Certified Public Accountants 35th Floor One Pacific Place 88 Queensway Hong Kong

HONG KONG BRANCH SHARE

REGISTRAR AND TRANSFER OFFICE

Computershare Hong Kong Investor Services Limited Shops 1712–1716, 17th Floor Hopewell Centre 183 Queen’s Road East Hong Kong

PRINCIPAL PLACE OF BUSINESS IN HONG KONG

2nd Floor, Ching Cheong Industrial Building 1–7 Kwai Cheong Road Kwai Chung, New Territories Hong Kong

PRINCIPAL BANKER

The Hongkong and Shanghai Banking Corporation Limited 1 Queen’s Road Central Hong Kong

Hang Seng Bank Limited 83 Des Voeux Road Central Hong Kong

WEBSITE

www.winboxhk.com

– 537 –

GENERAL INFORMATION

APPENDIX XII

8. SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had any existing or proposed service contract with the Company or any member of the Enlarged Group (excluding contracts expiring or determinable by the Enlarged Group within one year without payment of compensation (other than statutory compensation)).

9. EXPERTS AND CONSENTS

The following are the qualifications of the experts who have provided its advice and reports (as the case may be), which are contained in this circular:

Name	Qualification
Deloitte Touche Tohmatsu (‘‘Deloitte’’)	Certified Public Accountants
DTZ Eurexi (‘‘DTZ’’)	Property valuer
Guantao Law Firm	PRC legal adviser
LCH (Asia-Pacific) Surveyors Limited ( ‘‘LCH’’)	Independent valuer
Morison Heng (‘‘MH’’)	Certified Public Accountants
RHL Appraisal Ltd. (‘‘RHL’’)	Property valuer
SRK Consulting China Ltd.	Independent technical adviser

Deloitte, DTZ, Guantao, LCH, MH, RHL and SRK have given and have not withdrawn their written consents to the issue of this circular with the inclusion herein of their respective letters and reports and/or references to their names in the form and context in which they respectively appear.

As at the Latest Practicable Date, none of Deloitte, DTZ, Guantao, LCH, MH, RHL and SRK was beneficially interested in the share capital of any member of the Enlarged Group, nor did they have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Enlarged Group, nor did they have any interest either direct or indirect, in any assets which had been acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group since 31 March 2009, being the date to which the latest published audited consolidated financial statements of the Group were made up.

10. MATERIAL CONTRACTS

The following contracts had been entered into by the Enlarged Group (not being contracts entered into in the ordinary course of business) within the two years immediately preceding the Latest Practicable Date and are or may be material:

(a) The S&P Agreement;
(b) The Supplemental Agreement;

– 538 –

GENERAL INFORMATION

APPENDIX XII

(c) On 25 December 2007, Beijing Taitong Hengye Trading Development Co., Ltd (北京泰通恒業貿易發展有限公司), Favour Mind, Equity Trust (衡平信託) and Brilliant Wise entered into a Increase in and Expansion of the Share Capital in Wuhai City Menggang Agreement (烏海市蒙港實業發展有限公司增資擴股合同書), pursuant to which both of the total investment amount and the registered capital of Wuhai City Menggang was increased to HK$320 million, and Beijing Taitong Hengye Trading Development Co., Ltd (北京泰通恒業貿易發展有限公司) contributed HK$35 million in cash being 10.94% of the registered capital, Favour Mind contributed HK$45 million in cash being 14.06% of the registered capital, Equity Trust (衡平信託) contributed RMB100 million in cash being 31.25% of the registered capital and Brilliant Wise contributed HK$140 million in cash being 43.75% of the registered capital;
(d) On 3 January 2008, Max Joyce and Zhong Tie entered into a Share Transfer Agreement (股權轉讓協議), pursuant to which Max Joyce acquired 31.25% equity interest in Wuhai City Menggang at a consideration calculated at RMB100,000,000 x (1 + 13.5%/360 x N). N is the number of days for the period from 19 July 2007 to the settlement date of total consideration;
(e) On 28 July 2008, Wuhai City Menggang, Equity Trust (衡平信託), TRXY Holding Co., Ltd (泰融信業控股有限公司), TRXY (Tong Liao) Electronic Technology Co., Ltd (泰融信業
（通遼）電子科技有限公司), Favour Mind, Taitong Hengye Trading Development Co., Ltd (北京泰通恒業貿易發展有限公司) and Mr. Yau Wai Ming entered into a Supplemental Agreement to the Cooperation Framework Agreement (合作框架協議（補充協議）), pursuant to which the conditions of offering the trust loan of RMB30 million was revised to the trustor transferring the trust fund of RMB30 million to the trust account of Equity Trust (衡平信託), Wuhai City Menggang shall repay the principal amount of a loan of RMB50 million before 31 December 2008, the total amount guaranteed by the guarantors was increased to RMB250 million and Wuhai City Menggang shall pay the consultant service fees of RMB3 million by the end of 2007;
(f) On 29 July 2008, Wuhai City Menggang and Equity Trust (衡平信託) entered into a Project Loan Contract (項目借款合同), pursuant to which Wuhai City Mengang borrowed the loan of RMB30 million from Equity Trust (衡平信託) that bears an interest rate of 13.5% per year;
(g) On 3 April 2009, Favour Mind and Beijing Taitong Hengye Trading Development Co., Ltd (北京泰通恒業貿易發展有限公司) entered into a Share Transfer Agreement (股權轉讓協議), pursuant to which Beijing Taitong Hengye Trading Development Co., Ltd (北京泰通恒業貿易發展有限公司) transferred its 10.94% equity interests in Wuhai City Menggang to Favour Mind at the consideration of HK$35 million that shall be settled within 12 months from the execution date of the Share Transfer Agreement;
(h) On 13 March 2009, Max Joyce and Zhong Tie entered into a Supplemental Agreement to the Share Transfer Agreement (股權轉讓協議補充(展期)協議), pursuant to which, starting from 19 January 2009, the consideration of the RMB100 million transferred equity interests in Wuhai City Menggang is calculated at the sum of RMB120,250,000 and RMB100,000,000 x18%/360 x M. M is the number of days from 19 January 2009 to the settlement date of total consideration;

– 539 –

GENERAL INFORMATION

APPENDIX XII

(i) On 13 March 2009, Wuhai City Menggang, Zhong Tie, TRXY Holding Co., Ltd (泰融信業控股有限公司), TRXY (Tong Liao) Electronic Technology Co., Ltd (泰融信業（通遼）電子科技有限公司), Favour Mind, Beijing Taitong Hengye Trading Development Co., Ltd (北京泰通恒業貿易發展有限公司), Mr. Yau Wai Ming, China Railway Erju Co. Ltd Brilliant Wise and Max Joyce entered into a Supplemental Agreement to the Cooperation Framework Agreement in relation to the Term Expansion of the Trust Financing (合作框架協議補充（展期）), pursuant to which both of the term of the RMB150 million loan and the payment period of the consideration for the RMB100 million transferred equity interests in Wuhai City Menggang were expanded and both of the expanded periods are from 19 January 2009 to 18 September 2009;
(j) On 13 March 2009, Wuhai City Menggang and Zhong Tie entered into a Share Charge Contract (權利質押合同), pursuant to which Wuhai City Menggang charged its equity interests of RMB43 million in Tianyu Coal in favour of Zhong Tie to secure the repayment of the RMB250 million trust financing and its related interest and premium;
(k) On 13 March 2009, Wuhai City Menggang, Zhong Tie, TRXY Holding Co., Ltd (泰融信業控股有限公司), TRXY (Tong Liao) Electronic Technology Co., Ltd (泰融信業(通遼)電子科技有限公司), Favour Mind, Beijing Taitong Hengye Trading Development Co., Ltd (北京泰通恒業貿易發展有限公司), and Mr. Yau Wai Ming entered into a Loan Term Expansion Agreement (借款展期協議書), pursuant to which the term of the RMB150 million trust loan borrowed by Wuhai City Menggang from Zhong Tie was expanded and the expanded period is from 19 January 2009 to 18 September 2009, and Wuhai City Menggang shall pay an interest rate of 18% per year during the expanded period;
(l) On 13 March 2009, Favour Mind and China Railway Erju Co., Ltd entered into a Supplemental Agreement to the Share Transfer Agreement in relation to the Term Expansion of the Trust Financing (股權轉讓協議補充（展期）協議), pursuant to which Favour Mind shall transfer its equity interests of HK$15 million in Wuhai City Menggang to China Railway Erju Co., Ltd at the consideration of RMB1 yuan when one of the following conditions is fulfilled i) the termination of the Supplemental Agreement to the Cooperation Framework Agreement in relation to the Term Expansion of the Trust Financing, ii) the failure of Zhong Tie to call in the RMB250 million trust financing offered to Wuhai City Menggang and its related interest and premium on or before 18 September 2009;
(m) On 13 March 2009, Wuhai City Menggang and Zhong Tie entered into a Share Charge Contract (權利質押合同), pursuant to which Wuhai City Menggang charged its equity interests of RMB46 million in Tianyu Gongmao in favour of Zhong Tie to secure the repayment of the RMB250 million trust financing and its related interest and premium;
(n) On 20 April 2009, Wuhai City Menggang and Wang Manyu entered into a Share Transfer Agreement (股權轉讓協議), pursuant to which Wuhai City Menggang transferred its 100% equity interests in Wuhai City Tai Da Commercial and Trading Co., Ltd (烏海市泰達商貿有限公司) to Wang Manyu at the consideration of RMB3 million that shall be settled within 12 months as from the execution date of the Share Transfer Agreement;

– 540 –

GENERAL INFORMATION

APPENDIX XII

(o) On 22 April 2009, Favour Mind and China Railway Erju Co., Ltd entered into a Share Transfer Agreement (股權轉讓協議), pursuant to which Favour Mind shall transfer its equity interests of HK$35 million in Wuhai City Menggang acquired from Beijing Taitong Hengye Trading Co., Ltd (北京泰通恒業貿易發展有限公司) at the consideration of RMB 1 yuan to China Railway Erju Co., Ltd when one of the following conditions is fulfilled i) the termination of the Supplemental Agreement to the Cooperation Framework Agreement in relation to the Term Expansion of the Trust Financing, ii) the failure of Zhong Tie to call in the RMB250 million trust financing offered to Wuhai City Menggang and its related interest and premium on or before 18 September 2009;
(p) On 21 May 2009, Wuhai City Menggang, Zhong Tie, TRXY Holding Co., Ltd (泰融信業控股有限公司), TRXY (Tong Liao) Electronic Technology Co., Ltd (泰融信業（通遼）電子科技有限公司), Favour Mind, Beijing Taitong Hengye Trading Development Co., Ltd (北京泰通恒業貿易發展有限公司), and Mr. Yau Wai Ming entered into a Supplemental Agreement to the Loan Term Expansion Agreement（中鐵協議（合同）09021號借款展期協議書補充協議）, pursuant to which Zhong Tie Trust agreed that the loan interests accrued during the expansion term could be repaid in several instalments before 30 November 2009 provided that Wuhai City Menggang repays the principal of the RMB150 million loan on or before 18 September 2009, and the interests failed to be paid according to the Loan Term Expansion Agreement shall itself bear an interest calculated at a rate of 18% per year for the late payment period;
(q) On 18 September 2009, Max Joyce, Zhong Tie and Wuhai City Menggang entered into a Share Transfer Agreement in respect of the shares in Wuhai City Menggang (烏海市蒙港實業發展有限公司股權轉讓協議), pursuant to which Zhong Tie transferred its 31.25% equity interests in Wuhai City Menggang to Max Joyce at the consideration of RMB136.2 million that shall be settled before 3 December 2009. On 11 November 2009, Zhong Tie confirmed that they would not take action against Max Joyce to claim the share consideration before 23 December 2009 by issuing an extension letter;
(r) On 18 September 2009, Favour Mind and China Railway Erju Co., Ltd entered into a Supplemental Agreement to the Share Transfer Agreement in relation to the Term Expansion of the Trust Financing (Two)（股權轉讓協議補充（展期）協議二）, pursuant to which Favour Mind shall transfer its share capital contribution of HK80 million in Wuhai City Menggang to China Railway Erju Co., Ltd at the consideration of RMB1 yuan when one of the following conditions is fulfilled i) the termination of the Supplemental Agreement to the Cooperation Framework Agreement in relation to the Term Expansion of the Trust Financing (Two), ii) the failure of Wuhai City Menggang to fully repay the loan and its related interests and of Max Joyce to pay the consideration for the transferred shares on or before 3 December 2009;
(s) On 18 September 2009, Wuhai City Menggang, Zhong Tie, TRXY Holding Co., Ltd (泰融信業控股有限公司), TRXY (Tong Liao) Electronic Technology Co., Ltd (泰融信業（通遼）電子科技有限公司), Favour Mind, Beijing Taitong Hengye Trading Development Co., Ltd (北京泰通恒業貿易發展有限公司), and Mr. Yau Wai Ming entered into a Supplemental

– 541 –

GENERAL INFORMATION

APPENDIX XII

Agreement to the Loan Term Expansion (Two) (中鐵協議（合同）09021號借款展期協議書補充協議(二)), pursuant to which term of the RMB150 million was expanded and the expanded term is from 19 September 2009 to 3 December 2009;

(t) On 18 September 2009, Wuhai City Menggang, Zhong Tie, TRXY Holding Co., Ltd (泰融信業控股有限公司), TRXY (Tong Liao) Electronic Technology Co., Ltd (泰融信業（通遼）電子科技有限公司), Favour Mind, Mr. Yau Wai Ming, China Railway Erju Co. Ltd, Brilliant Wise and Max Joyce entered into a Supplemental Agreement to the Cooperation Framework Agreement in relation to the Term Expansion of the Trust Financing (Two) (合作框架協議補充(展期) 二) , pursuant to which both of the term of the RMB150 million trust loan offered to Wuhai City Menggang and the payment period of the consideration of the RMB100 million equity interests transferred to Max Joyce were expanded and both of the expanded periods are from 19 September 2009 to 3 December 2009;
(u) On 18 September 2009, Wuhai City Menggang and Zhong Tie Trust entered into a Share Charge Contract (權利質押合同), pursuant to which Wuhai City Menggang charged its 100% equity interests in Tianyu Coal in favour of Zhong Tie Trust to secure the repayment of the principal and related interests of the RMB150 million loans and the payment of the transferred shares consideration of RMB136.2 million on or before 3 December 2009;
(v) On 13 January 2009, Tianyu Gongmao and Wuhai City Shengda Investment and Guarantee Co., Ltd (烏海市盛達投資擔保有限公司) entered into the Guarantor Entrustment Contract (委託擔保合同), pursuant to which Shenda Investment and Guarantee Co., Ltd (烏海市盛達投資擔保有限公司) promised to act as the guarantor to guarantee Tianyu Gongmao’s repayment of a RMB10 million loan, and the term of loan is from January 2009 to January 2010 and Tianyu Gongmao shall provide counter-guarantee to Wuhai City Investment and Guarantee Co., Ltd (烏海市盛達投資擔保有限公司);
(w) On 13 January 2009, Tianyu Gongmao and Wuhai City Shenda Investment and Guarantee Co., Ltd (烏海市盛達投資擔保有限公司) entered into a Maximum Amount Mortgage Contract (最高額抵押合同), pursuant to which Shenda Investment and Guarantee Co., Ltd (烏海市盛達投資擔保有限公司) guaranteed the Tianyu Gongmao’s repayment of a loan from a commercial bank and Tianyu Gongmao pledged its land use rights of the 73,901 square meters land located at Dong Shan, Hainan District in favour of Shenda Investment and Guarantee Co., Ltd (烏海市盛達投資擔保有限公司) as the counter-guarantee which amounted to RMB10 million;
(x) On 23 May 2009, Tianyu Coal and the Land Use and Management Research Center of China Agricultural University entered into a Contract of Making a Land Reclamation Plan (土地復墾方案編製合同), pursuant to which the Land Use and Management Research Center of China Agricultural University shall make a land reclamation plan for Tianyu Coal and submit on its behalf the land reclamation plan for approval for a total service fee of RMB50,000; and
(y) On 23 May 2009, Tianyu Gongmao and the Land Use and Management Research Center of China Agricultural University entered into a Contract of Making a Land Reclamation Plan (土地復墾方案編製合同), pursuant to which the Land Use and Management Research Center

– 542 –

GENERAL INFORMATION

APPENDIX XII

of China Agricultural University shall make a land reclamation plan for Tianyu Gongmao and submit on its behalf the land reclamation plan for approval for a total service fee of RMB50,000.

Save as the aforesaid, no material contracts (not being contract entered into in the ordinary course of business) had been entered into by any member of the Enlarged Group within the two years immediately preceding the Latest Practicable Date which are or may be material.

11. SECRETARY OF THE COMPANY

The secretary of the Company is Mr. Jip Ki Chi. Mr. Jip was admitted as a Certified Practising Accountant of the Australian Society of Certified Practising Accountants in 1997 and is a fellow member of the Hong Kong Institute of Certified Public Accountants.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the Company’s principal place of business in Hong Kong from the date of this circular up to and including the date of EGM:

(a) the memorandum and articles of association of the Company;
(b) the Directors’ service contracts;
(c) the annual reports of the Company for each of the three financial years ended 31 March 2009;
(d) the accountants’ report on Merrymaking Investment, the text of which is set out in Appendix II to this circular;
(e) the accountants’ report on Pleasing Results, the text of which is set out in Appendix III to this circular;
(f) the accountants’ report on Wuhai City Menggang, the text of which is set out in Appendix IV to this circular;
(g) the accountants’ report on Tianyu Gongmao, the text of which is set out in Appendix V to this circular;
(h) the accountants’ report on Tianyu Coal, the text of which is set out in Appendix VI to this circular;
(i) the report in respect of the unaudited pro forma financial information of the Enlarged Group, the text of which is set out in Appendix VII to this circular;
(j) the property valuation reports respectively prepared and issued by RHL and DTZ, the text of which is set out in Appendix IX to this circular;

– 543 –

GENERAL INFORMATION

APPENDIX XII

(k) the Technical Assessment Report prepared and issued by SRK, the text of which is set out in Appendix X to this circular;
(l) the valuation report prepared and issued by LCH, the text of which is set out in Appendix XI to this circular;
(m) a letter signed by Deloitte in relation to the sufficiency of working capital of the Enlarged Group;
(n) a letter signed by Deloitte setting out their opinion on the adjustments made on the pro forma financial information of the Enlarged Group;
(o) a statement of indebtedness signed by Deloitte in relation to the information of debt, securities, borrowings, charges and contingent liabilities of the Enlarged Group;
(p) the written consents referred to under the section headed ‘‘Experts and Consents’’ in this appendix;
(q) the material contracts referred to in the paragraph headed ‘‘Material Contracts’’ in this appendix; and
(r) a copy of this circular.

13. MISCELLANEOUS

The principal place of business of the Company in Hong Kong is at 2nd Floor, Ching Cheong Industrial Building, 1-7 Kwai Cheong Road, Kwai Chung, New Territories, Hong Kong;
The registered office of the Company is at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands;
The branch share registrar and transfer office of the Company in Hong Kong is Computershare Hong Kong Investor Services Limited at Shop 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong; and
The English text of this circular and the accompanying form of proxy shall prevail over their respective Chinese texts in case of inconsistency.

– 544 –

NOTICE OF EGM

WINBOX INTERNATIONAL (HOLDINGS) LIMITED 永保時國際（控股）有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock code: 474)

NOTICE IS HEREBY GIVEN THAT an extraordinary general meeting (the ‘‘EGM’’) of Winbox International (Holdings) Limited (the ‘‘Company’’) will be held at The Focal Point, Worldwide Executive Centre, Level 10, World-Wide House, 19 Des Voeux Road Central, Hong Kong on 13 January 2010, at 2:30 p.m. for the purposes of considering and, if thought fit, passing, with or without modifications, the following resolutions:

ORDINARY RESOLUTIONS

‘‘THAT the authorized share capital of the Company be increased from HK$100,000,000, divided into 2,000,000,000 shares of HK$0.05 each (‘‘Shares’’), to HK$250,000,000, divided into 5,000,000,000 Shares by the creation of an additional 3,000,000,000 Shares and that the directors of the Company be and are hereby generally and unconditionally authorized to do all such acts and things, to sign and execute all such further documents for and on behalf of the Company by hand, or in case of execution of documents under seal, to do so jointly with any of a second director, a duly authorized representative of the director or the secretary of the Company and to take such steps as he/she may in his/her absolute discretion consider necessary, appropriate, desirable or expedient to give effect to or in connection with the same.’’
‘‘THAT conditional upon passing of resolution 1 above:
(a) the sale and purchase agreement dated 1 September 2009 (the ‘‘S&P Agreement’’) and the supplemental agreement dated 22 December 2009 (the ‘‘Supplemental Agreement’’) entered into by the Company, Win Team Investments Limited (the ‘‘Purchaser’’) and Real Power Holdings Limited and TRXY Development (HK) Limited (together as the ‘‘Vendors’’), pursuant to which the Vendors have conditionally agreed to sell and the Company has conditionally agreed (i) to acquire from Real Power Holdings Limited the entire issued share capital of Merrymaking Investments Limited; and/or (ii) to acquire from TRXY Development (HK) Limited the entire issued share capital of Pleasing Results Ltd.; details of the S&P Agreement and the Supplemental Agreement are set out in the circular of the Company dated 28 December 2009 (the ‘‘Circular’’) (copies of the S&P Agreement and the Supplemental Agreement have been produced to the meeting and initiated for the purposes of identification by the chairman of the meeting) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;

– 545 –

NOTICE OF EGM

(b) the directors of the Company be hereby authorized to (i) issue and allot up to 403,233,360 Shares (the ‘‘Consideration Shares’’); and (ii) issue convertible notes in such principal amount of as may be contemplated and/or adjusted pursuant to the S&P Agreement and the Supplemental Agreement (the ‘‘Convertible Notes’’), pursuant to the S&P Agreement and the Supplemental Agreement as the consideration for the acquisition(s) under the S&P Agreement and the Supplemental Agreement;
(c) the directors of the Company be and are hereby generally and unconditionally authorized to issue and allot such number of Shares (the ‘‘Conversion Shares’’), credited as fully paid, to the holders of the Convertible Notes (or its/their nominee), upon conversion of the Convertible Notes (in part or in full) and that the Conversion Shares, when issued and allotted, shall rank pari passu in all respects with all other Shares in issue as at the date of such issue and allotment; and
(d) any one director of the Company be and is hereby generally and unconditionally authorized to do all such acts and things, to sign and execute all such further documents for and on behalf of the Company by hand, or in case of execution of documents under seal, to do so jointly with any of a second director, a duly authorized representative of the director or the secretary of the Company and to take such steps as he/she may in his/her absolute discretion consider necessary, appropriate, desirable or expedient to give effect to or in connection with the transactions under the S&P Agreement and the Supplemental Agreement.’’
‘‘THAT
(a) the Placing (as defined and described in the Circular) be and is hereby approved and the board of directors of the Company (the ‘‘Board’’) be and is hereby granted a specific mandate to allot and issue new Shares in connection with the Placing (as defined in the Circular), which specific mandate can be exercised once or more than once;
(b) contingent on the Board resolving to issue and allot Shares pursuant to paragraph (3)(a) above, the Board be and is hereby generally and unconditionally authorized to
- (i) determine and deal with at its discretion and with full authority, matters relating to the Placing (as defined and described in the Circular) (including but not limited to the specific timing of issue, final number of new Shares to be issued (in any event not more than 982,533,802 new Shares), offering mechanism, pricing mechanism, issue price (subject to the basis for determining the issue price described on page 16 in the Circular), target subscribers and the number and proportion of Shares to be issued to each subscriber); and

– 546 –

NOTICE OF EGM

(ii) do all such acts and things, to sign and execute all such further documents for and on behalf of the Company by hand, or in case of execution of documents under seal, to do so jointly with any of a second director, a duly authorized representative of the director or the secretary of the Company and to take such steps as he/she may in his/her absolute discretion consider necessary, appropriate, desirable or expedient to give effect to or in connection with the Placing.’’

By Order of the Board Winbox International (Holdings) Limited Jip Ki Chi

Company Secretary

Hong Kong, 28 December 2009

Principal place of business in Hong Kong:

2nd Floor

Ching Cheong Industrial Building 1–7 Kwai Cheong Road Kwai Chung New Territories Hong Kong

Notes:

A member entitled to attend and vote at the above meeting (or at any adjournment thereof) is entitled to appoint one or more proxies to attend and vote in his stead. A proxy need not be a member of the Company.
Where there are joint registered holders of any shares, any one of such persons may vote at the above meeting (or at any adjournment thereof), either personally or by proxy, in respect of such shares as if he were solely entitled thereto; but if more than one of such joint holders be present at the above meeting personally or by proxy, that one of the said persons so present whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof.
In order to be valid, the forms of proxy, together with the power of attorney or other authority (if any) under which it is signed or a certified copy of that power of attorney or authority (such certification to be made by either a notary public or a solicitor qualified to practise in Hong Kong), must be deposited with the branch share registrar and transfer office of the Company in Hong Kong, Computershare Hong Kong Investor Services Limited at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not less than 48 hours before the time fixed for holding the above meeting or any adjournment thereof.
The register of members of the Company will be closed from 12 January 2010 to 13 January 2010 (both days inclusive), during which period no transfer of shares will be registered. In order to qualify for attendance at the EGM, all transfer of shares accompanied by the relevant share certificates must be lodged with the Company’s branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited at Shops 1712–1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong not later than 4:30 p.m. on 11 January 2010.
The translation into Chinese language of this notice is for reference only. In case of any inconsistency, the English version shall prevail.

As at the date hereof, the Board comprises three Executive Directors, namely Ms Choi Hon Hing, Ms Fung Wing Yee, Wynne and Mr Ng Cheuk Fan, Keith; two Non-Executive Directors, namely Ms Fung Wing Ki, Vicky and Mr Mok Chiu Kuen; and three Independent Non-Executive Directors, namely Dr Tam Hok Lam, Tommy, J.P., Dr Hui Ka Wah, Ronnie, J.P. and Mr Leung Man Chun, Paul.

– 547 –

Table	2-1: SRK Consultants — Titles and Responsibilities . . . . .	2-1: SRK Consultants — Titles and Responsibilities . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	375
Table	2-2: Recent Reports to HKSE by SRK . .	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	377
Table	3-1: Mining License Details — Mine #1 .	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	379
Table	3-2: Tenement Coordinates for Mine #1 .	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	380
Table	3-3: Mining License Details — Mine #4 .	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	380
Table	3-4: Tenement Coordinates for Mine #4 .	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	381
Table	4-1: Stratigraphic Succession in the Tianyu Coal Mining Area . . . . . . . . . . . . . . . . . . . . . . . .			395
Table	4-2: Main Faults within the Tianyu Coal Mining Area . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . .	397
Table	5-1: General Characteristics of the Economical Coal Seams		. . . . . . . . . . . . . . . . . . . . . . . . . .	400
Table	5-2: General Characteristics of the Economical Coal Seams		. . . . . . . . . . . . . . . . . . . . . . . . . .	402
Table	6-1: Proximate Analysis, Sulphur, Coking	and Ash Fusion of Mine #1 . . . . . . . . . . . . . . . . .		404
Table	6-2: Proximate Analysis, Sulphur, Coking	and Ash Fusion of Mine #4 . . . . . . . . . . . . . . . . .		405
Table	6-3: Calorific Value of Coal at Mine #4 .	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	406
Table	9-1: Coal Apparent Density for Tianyu Coal Seams . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . .	411
Table	9-2: Summary of Boreholes in Mine #1 .	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	411
Table	9-3: Summary of Boreholes in Mine #4 .	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	412
Table	9-4: Resource Summary of Mine #1 . . . .	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	413
Table	9-5: Resource Summary of Mine #4 . . . .	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	414
Table	9-6: Comparison of Industrial Resource in	AVR and PMD	. . . . . . . . . . . . . . . . . . . . . . . . . . .	416
Table	9-7: Summary of Permanent Pillars of Mine #1 after PMD		. . . . . . . . . . . . . . . . . . . . . . . . . . .	417
Table	9-8: Summary of Reserve of Mine #1 after PMD . . . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . .	417
Table	9-9: Summary of Reserve of Mine #4 . . .	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	418
Table	10-1: Review of Mine Entries . . . . . . . . . .	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	419
Table	10-2: Mine #1 Production Record for year	2008 . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	421
Table	10-3: Mine #1 Production Record for year	2008 and 2009	. . . . . . . . . . . . . . . . . . . . . . . . . . .	422
Table	10-4: Type of Support in Mine #1 . . . . . .	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	423
Table	10-5: Dewatering Parameters of Mine #1	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	424
Table	10-6: Review of Mine Entries of Mine #4	. . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	427
Table	10-7: Mining Equipment for Production Faces of Mine #4		. . . . . . . . . . . . . . . . . . . . . . . . . . .	428
Table	10-8: Type of Support in the Mine #4 . . .	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	429
Table	10-9: Production Forecast Summary of Mine #1 and Mine #4 . . . . . . . . . . . . . . . . . . . . . . . .			431
Table	11-1: Coal Feed and Production Balance	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	434
Table	11-2: Water Balance for Coal Seam #16 Coal . . . . . . . . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . .	435
Table	11-3: Water Balance for Seam #9 Coal . .	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	436
Table	11-4: List of Equipment for Tianyu Coal Washing Plant . .		. . . . . . . . . . . . . . . . . . . . . . . . . . .	437
Table	13-1: CAPEX Review of Mine #1 . . . . . .	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	442
Table	13-2: CAPEX Estimate for Conveyor Belt	System of Mine	#1 . . . . . . . . . . . . . . . . . . . . . . . .	443
Table	13-3: CAPEX Spending Review for Mine	#1 for Period Feb 08–Jul 09 . . . . . . . . . . . . . . . .		443
Table	13-4: Summary of CAPEX of Mine #4 . .	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	444
Table	13-5: Workforce of Mine #1 . . . . . . . . . . .	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	445
Table	13-6: Operating Cost Estimate of Mine #1	. . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	446
Table	13-7: Mine #1 Cost Record in 2008 . . . . .	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	447
Table	13-8: Mine #1 Cost Record in 2009 . . . . .	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	448
Table	13-9: Operating Cost Estimate of Mine #4	. . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	449
Table	13-10: CAPEX Estimate of Tianyu Coal Washing Plant . .		. . . . . . . . . . . . . . . . . . . . . . . . . . .	450
Table	13-11: OPEX Estimate of Tianyu Coal Washing Plant . . . .		. . . . . . . . . . . . . . . . . . . . . . . . . . .	450
Table	13-12: CAPEX Forecast . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . .	451

Figure	3-1: Location of Mine #1 and Mine #4 . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . .	378
Figure	4-1: Geology Map of the Ordos Basin Showing the Project Areas	. . . . . . . . . . . . . . . . . . . .	385
Figure	4-2: Structural Setting of the Coal-Bearing Ordos Basin . . . . . . . .	. . . . . . . . . . . . . . . . . . . .	386
Figure	4-3: Overview of the Zhuozi Fold Thrust Belt Setting . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . .	387
Figure	4-4: NW-SE Trending Cross-Section 19 — 19’ . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . .	390
Figure	4-5: NW-SE Trending Cross-Section 18 — 18’ Showing 3 Faults	. . . . . . . . . . . . . . . . . . . .	391
Figure	4-6: NW-SE Trending Cross-Section 17 — 17’ . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . .	391
Figure	4-7: Overview of Structures at Mine #1 . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . .	392
Figure	4-8: Litho-Stratigraphic Summary Log from Mine #4 . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . .	394
Figure	4-9: Overview of Structures at Mine #4 Coal Seam Characteristics	. . . . . . . . . . . . . . . . . . .	399
Figure	6-1: Brittle Lustrous Coal of Seam 16 in Mine #1 . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . .	403
Figure	7-1: Layout of Boreholes used for Resources Estimation and Mining License Areas of
	Mine #1 and Mine #4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . .	408
Figure	10-1: Mine #1 Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . .	420
Figure	10-2: Collar of Decline in Seam 16 West — Mine #1 . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . .	420
Figure	10-3: Collars Main and Auxiliary Decline — Mine #4 . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . .	425
Figure	10-4: Mine Entries and 1st Level layout of Mine #4 . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . .	426
Figure	10-5: Cross Section of Mine #4 indicating Declines, and Shaft Pillar . . . . . . . . . . . . . . . . .		427

AI assistant

Aceso Life Science Group Limited — Proxy Solicitation & Information Statement 2009

49235_rns_2009-12-27_f7e01647-8d14-41d8-a40b-26bc4efa400b.pdf

VERY SUBSTANTIAL ACQUISITION SPECIFIC MANDATE TO ISSUE NEW SHARES INCREASE IN AUTHORISED SHARE CAPITAL

AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

DEFINITIONS

DEFINITIONS

DEFINITIONS

DEFINITIONS

WINBOX INTERNATIONAL (HOLDINGS) LIMITED

永 保 時 國 際 （ 控 股 ） 有 限 公 司

VERY SUBSTANTIAL ACQUISITION SPECIFIC MANDATE TO ISSUE NEW SHARES INCREASE IN AUTHORISED SHARE CAPITAL AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

1. INTRODUCTION

LETTER FROM THE BOARD

2. THE S&P AGREEMENT

Parties

(a) Subject Matter

LETTER FROM THE BOARD

(b) Consideration

(c) Conditions

(d) Completion

3. FINANCING OF THE ACQUISITIONS AND SPECIFIC MANDATE TO ISSUE NEW SHARES

(a) The Placing

LETTER FROM THE BOARD

(b) Structure of the Placing

LETTER FROM THE BOARD

(c) Conditions to the Placing

(d) Uses of the proceeds from the Placing

(e) Fund raising activity of the Company in the 12 months immediately preceding the Latest Practicable Date

(f) Validity of the Specific Mandate

4. CONSIDERATION SHARES

5. CONVERTIBLE NOTES

LETTER FROM THE BOARD

6. EFFECT ON SHAREHOLDING STRUCTURE

LETTER FROM THE BOARD

7. INCREASE IN AUTHORISED SHARE CAPITAL

8. INFORMATION ON THE PURCHASER

9. INFORMATION ON THE TARGET GROUP

LETTER FROM THE BOARD

10. DUE DILIGENCE FINDINGS ON THE TARGET GROUP

(a) Litigation

(b) Share Charges

(c) Charges on Mining Rights

(d) Suspension of production of Mine No. 1

(e) Third-party coal processing facilities

(f) Non-compliance and contravention of certain PRC laws and regulations

(g) Indemnity

11. QUALIFIED OPINIONS IN THE ACCOUNTANTS’ REPORTS OF THE TARGET GROUP

(a) Sales and accounts receivable

(b) Inventories

(c) Salaries and allowances

12. INTRODUCTION TO THE COAL INDUSTRY

(a) Top ten hard coal producer (2008e)

(b) Introduction to the coking coal industry

(c) China coal mining industry

(d) China coking coal demand, supply and price

13. THE MINES

(a) Mining license

(b) Geology

(c) Coal Resource and Reserve

Coal Resource

LETTER FROM THE BOARD

LETTER FROM THE BOARD

Coal Reserve

(d) Mining

(e) Coal Washing

LETTER FROM THE BOARD

(f) Safety

(g) Future Capital Expenditure (CAPEX)

(h) Operating Expenditure (OPEX)

(i) Key Strengths of the Mines

(a) Large and high quality coal Mineral Resource and Reserve base

(b) Low cost structure

(c) Fast growth profile

(d) Located in the well-established Ordos basin

(e) Close proximity to transportation links and infrastructure

(f) Strong fundamentals of the China coal sector

(g) Strong track record of key management team members

Aceso Life Science Group Limited Proxy Solicitation & Information Statement 2009

永保時國際（控股）有限公司