Aowei Holding Limited — Proxy Solicitation & Information Statement 2014

Apr 28, 2014

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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 Hengshi Mining Investments Limited , you should at once hand this circular to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was affected for transmission to the purchaser or transferee.

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.

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HENGSHI MINING INVESTMENTS LIMITED 恒實礦業投資有限公司

(incorporated in the Cayman Islands with limited liability)

(Stock code: 1370)

DISCLOSABLE AND CONNECTED TRANSACTION ACQUISITION OF 10% EQUITY INTERESTS IN JIHENG MINING

Independent financial adviser to the Independent Board Committee and the Independent Shareholders

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Terms defined in the section headed “Definitions” of this circular have the same meanings when used in this cover page, unless the context otherwise requires.

A letter from the Board is set out on pages 3 to 6 of this circular. A letter from the Independent Board Committee is set out on pages 7 to 8 of this circular. A letter from TC Capital containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 9 to 18 of this circular.

This circular is published on the HKExnews website at http://www.hkexnews.hk and on the website of the Company at http://www.hengshimining.com.

29 April 2014

CONTENTS

		Page
Definitions	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
**Letter from **	the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	3
**Letter from **	the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
**Letter from **	TC Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Appendix	– General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19

DEFINITIONS

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

• “Acquisition”

• the Acquisition of 10% interests in Jiheng Mining from Laiyuan Jiantou by Aowei Mining pursuant to the Equity Transfer Agreement

• “Aowei Mining” or “Transferee”

• Laiyuan County Aowei Mining Investments Co., Ltd. (淶源縣奧威礦業投資有限公司), a company established in the PRC on 8 June 2011 and an indirect wholly-owned subsidiary of the Company acting principally as a subsidiary holding company

• “Board”

the board of Directors

• “Company”

• Hengshi Mining Investments Limited, an exempted company with limited liability incorporated in the Cayman Islands whose issued shares are listed on the Stock Exchange

• “connected persons”

has the meaning ascribed to it under the Listing Rules

• “Director(s)”

the director(s) of the Company

• “Equity Transfer Agreement”

the Equity Transfer Agreement entered into between Aowei Mining and Laiyuan Jiantou on 31 March 2014

• “Group”

• the Company and its subsidiaries

• “Independent Board Committee”

• a committee of the Board comprising all the three independent non-executive Directors, namely, Mr. Ge Xinjian, Mr. Meng Likun and Mr. Kong Chi Mo has been established for the purpose of giving recommendation to the Independent Shareholders regarding the Equity Transfer Agreement and the transactions contemplated thereunder

• “Independent Shareholders”

• the Shareholders who have no material interest in the Equity Transfer Agreement

• “Jiheng Mining”

Laiyuan County Jiheng Mining Co., Ltd. (淶源縣冀恒 礦業有限公司), a limited liability company established in the PRC on 16 August 2010 and an indirect non-wholly owned subsidiary of the Company.

– 1 –

DEFINITIONS

• “Laiyuan Jiantou”

• Laiyuan County Construction and Investment Co., Ltd. (淶源縣建設投資有限公司), a limited liability company established in the PRC and an independent third party

• “Laiyuan Nonferrous Metal”

• Hebei Iron and Steel Group Laiyuan Nonferrous Metals Co., Ltd. (河北鋼鐵集團淶源有色金屬有限公司), a limited liability company established in the PRC, which is an independent third party

• “Latest Practicable Date”

• 24 April 2014, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information referred to in this circular

• “Listing Rules “ the Rules Governing the Listing of Securities on the Stock Exchange

• “PRC”

• the People’s Republic of China which, for the purpose of this circular, excludes the Hong Kong Special Administrative Region, the Macau Special Administrative Region and Taiwan

• “RMB”

• Renminbi, the lawful currency of the PRC

• “SFO”

• the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)

• “Shareholders “

• holders of shares in the Company

• “Stock Exchange”

• The Stock Exchange of Hong Kong Limited

• “subsidiary” or “subsidiaries”

• has the meaning ascribed to it under the Listing Rules

• “TC Capital”

TC Capital Asia Limited, a corporation licensed to carry on Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO

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LETTER FROM THE BOARD

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HENGSHI MINING INVESTMENTS LIMITED 恒實礦業投資有限公司

(incorporated in the Cayman Islands with limited liability)

(Stock code: 1370)

Executive Directors: Mr. Li Yanjun (Chairman) Mr. Leung Hongying Li Ziwei Mr. Xia Guoan Mr. Sun Jianhua Mr. Huang Kai Mr. Tu Quanping

Independent Non-executive Directors: Mr. Ge Xinjian Mr. Meng Likun Mr. Kong Chi Mo

Registered Office: P.O. Box 309 Ugland House Grand Cayman KY1-1104 Cayman Islands

Headquarters: No. 91 Guangping Avenue Laiyuan County Baoding City Hebei Province PRC

Principal Place of Business in Hong Kong: 18/F, Tesbury Centre, 28 Queen’s Road East Wanchai Hong Kong

29 April 2014

To the Shareholders

Dear Sir or Madam,

DISCLOSABLE AND CONNECTED TRANSACTION ACQUISITION OF 10% EQUITY INTERESTS IN JIHENG MINING

INTRODUCTION

The Board announces that on 31 March 2014, Aowei Mining, an indirect wholly-owned subsidiary of the Company, entered into the Equity Transfer Agreement with Laiyuan Jiantou, pursuant to which the Company will acquire the 10% equity interests in Jiheng Mining from Laiyuan Jiantou at a total consideration of RMB118.0 million payable to Laiyuan Jiantou.

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LETTER FROM THE BOARD

Aowei Mining is interested in 90% of the total issued share capital of Jiheng Mining, and Aowei Mining is also an indirect wholly-owned subsidiary of the Company. Laiyuan Jiantou is interested in 10% of the total issued share capital of Jiheng Mining. Therefore, Laiyuan Jiantou is a connected person of the Company under Chapter 14A of the Listing Rules. Therefore, the Acquisition constitutes a connected transaction of the Company.

As the relevant percentage ratios calculated pursuant to Rule 14.07 of the Listing Rules in respect of the Acquisition exceed 5% but are less than 25%, the Acquisition also constitutes a discloseable transaction of the Company under Chapter 14 of the Listing Rules. The Acquisition is therefore subject to the approval by the Independent Shareholders.

THE EQUITY TRANSFER AGREEMENT

Date: 31 March 2014

Parties:

Transferor: Laiyuan Jiantou

Transferee: Aowei Mining

Interests to be acquired:

The interests to be acquired are the 10% interests in Jiheng Mining owned by Laiyuan Jiantou. Following the completion of the Acquisition, Jiheng Mining will become an indirect wholly-owned subsidiary the Company.

Consideration:

The consideration of the Acquisition is RMB118.0 million. Given the state-owned nature of the 10% equity interest in Jiheng Mining, the Acquisition must be publicly conducted on the Hebei Property Rights Exchange Center (河北省產權交易中心) through procedures for the tender, auction or open listing of equity interests with a listed floor price agreed by Laiyuan County State-owned Asset Management Committee (淶源縣國有 資產管理委員會) (the “ Committee ”). Pursuant to the Committee’s approval letter, the listed floor price in relation to the 10% equity interest in Jiheng Mining is determined as RMB118.0 million by the Committee, which is the same as the consideration of the Acquisition. Moreover, the Company considered such listed floor price as fair, reasonable and in the best interest of our Company and its Shareholders as a whole by taking into account the following factors:

• 1) according to the competent person’s report by SRK Consulting China Limited which has been included as an appendix in the Company’s prospectus dated 18 November 2013, the Zhijiazhuang mine operated by Jiheng Mining still enjoys a service life of approximately 10 years;

• 2) the historical production volume of Jiheng Mining has been growing steadily; and

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LETTER FROM THE BOARD

3) the financial information of Jiheng Mining for the year 2013, including but not limited to its net profit, turnover, assets and liabilities.

Payment:

The Transferee shall settle a total consideration of RMB118.0 million in two installments: (i) a refundable down payment of 30% of the total consideration (i.e. RMB35.4 million) shall be paid on the execution date of the Equity Transfer Agreement; and (ii) the remaining consideration (i.e. RMB82.6 million) shall be paid before 16 May 2014, which will be satisfied by way of cash to be deposited with the settlement account designated by the equity exchange market of Baoding city.

INFORMATION OF JIHENG MINING

Jiheng Mining was established with a registered capital of RMB50.0 million in the PRC in August 2010 with 90% equity interests owned by Aowei Mining and 10% by Laiyuan Jiantou. The original purchase cost of the 10% state-owned equity interests in Jiheng Mining owned by Lianyuan Jiantou is RMB20 million, of which 5% was transferred from Laiyuan Nonferrus Metal with a consideration of RMB20 million and the remaining 5% was transferred from Laiyuan Nonferrus Metal with a consideration of nil on January 23, 2014 with relevant governmental approvals duly obtained. Jiheng Mining is principally engaged in iron ore mining and the selection and production of iron ore concentrates.

According to the unaudited management accounts of Jiheng Mining prepared under International Financial Reporting Standards issued by International Accounting Standards Board, the total assets, total liabilities and net assets of Jiheng Mining as at 31 December 2013 amounted to RMB1,054,104,000, RMB517,169,000 and RMB536,935,000, respectively. Net profit before and after taxation amounted to RMB84,657,000 and RMB63,440,000, respectively, for the year 2012 and RMB374,681,000 and RMB280,989,000, respectively, for the year 2013.

REASONS FOR AND BENEFITS OF THE ACQUISITION

The terms of the Equity Transfer Agreement have been arrived at through arm’s length negotiations between Laiyuan Jiantou and Aowei Mining. The Directors (including the independent non-executive directors) are of the view that the terms of the Equity Transfer Agreement are entered into on the basis of normal commercial terms and are fair, reasonable and in the interest of the Company and its Shareholders as a whole by taking into account the following reasons. Firstly, the Acquisition will give Aowei Mining full control of Jiheng Mining, which will enhance efficient implementation of Aowei Mining’s business decisions, strengthen strategic cooperation with Jiheng Mining, and streamline the administrative procedures of Jiheng Mining. According to past practice, Aowei Mining was obligated to consult Laiyuan Jiantou when laying out Jiheng Mining’s major business decisions and administrative procedures given Laiyuan Jiantou’s capacity as a substantial shareholder of Jiheng Mining. As a result of the Acquisition, there is no need to consider Laiyuan Jiantou’s opinion any more, which would facilitate Jiheng Mining’s decision making and administrative procedures planning. Secondly, the Acquisition would eliminate potential connected transactions between the Company and Laiyuan Jiantou, which is a connected person (through holding 10% equity interests in Jiheng Mining) of the Company under Chapter 14A of the Listing Rules, in the future. Thirdly, as Jiheng

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LETTER FROM THE BOARD

Mining has accumulated undistributable profits, the Acquisition would be financially advisable to our Group as it would improve the financial performance of our Group through the consolidation of 10% equity interests of Jiheng Mining.

RECOMMENDATION

The Directors consider that the terms and conditions of the Acquisition and the transactions contemplated thereunder are fair and reasonable and in the best interest of the Company and the Shareholders as a whole. Accordingly, the Board recommends Shareholders to approve the Acquisition.

The Independent Board Committee has been established and given its advice to the Independent Shareholders as to the fairness and reasonableness of the terms of the Equity Transfer Agreement and the transactions contemplated thereunder. The letter from the Independent Board Committee is set out on pages 7 to 8 of this circular.

The Independent Board Committee, having taken into account the advice of TC Capital, considers that the Acquisition is in the ordinary and usual course of business of the Group and the terms of the Equity Transfer Agreement have been negotiated on an arm’s length basis and on normal commercial terms which are fair and reasonable so far as the Independent Shareholders are concerned and in the interests of the Shareholders as a whole and recommends that the Independent Shareholders to approve the Equity Transfer Agreement and the transactions contemplated thereunder.

SHAREHOLDERS’ MEETING WAIVER

No Shareholder has any material interest in the Acquisition and no Shareholder would be required to abstain from voting at a general meeting of the Company (if one was convened) convened to approve the Acquisition. Pursuant to the Rule 14A.43 of the Listing Rules, the Company has obtained a written approval (in lieu of holding a general meeting of the Company) regarding the Acquisition from Mr. Li Yanjun and Mr. Leung Hongying Li Ziwei, with deemed interests in 1,125,000,000 Shares, representing approximately 74.6% of the issued share capital of the Company as at the Latest Practicable Date. Accordingly, no extraordinary general meeting of the Company will be convened for the purposes of considering and approving the Acquisition.

ADDITIONAL INFORMATION

The letter from the Independent Board Committee containing its advice and recommendation is set out on pages 7 to 8 of this circular. The letter from TC Capital containing its advice and recommendation is set out on pages 9 to 18 of this circular.

Your attention is also drawn to the additional information set out in the appendix to this circular.

Yours faithfully, For and on behalf of the Board

Hengshi Mining Investments Limited Mr. Li Yanjun Chairman

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

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HENGSHI MINING INVESTMENTS LIMITED 恒實礦業投資有限公司

(incorporated in the Cayman Islands with limited liability)

(Stock code: 1370)

29 April 2014

To the Independent Shareholders

Dear Sir or Madam,

DISCLOSABLE AND CONNECTED TRANSACTION ACQUISITION OF 10% EQUITY INTERESTS IN JIHENG MINING

We refer to the circular issued by the Company to its Shareholders and dated 29 April 2014 of which this letter forms part. Terms defined in this circular have the same meanings when used in this letter, unless the context otherwise requires.

Under Chapter 14A of the Listing Rules, the transactions contemplated under the Equity Transfer Agreement constitutes a connected transaction for the Company and is thus subject to the approval of the Independent Shareholders.

We have been appointed by the Board to consider the terms of the Equity Transfer Agreement and the transactions contemplated thereunder and whether the Acquisition is in the interest of the Company and the Shareholder as a whole, and to advise the Independent Shareholders as to whether, in our opinion, the terms of the Equity Transfer Agreement and the transactions contemplated thereunder are fair and reasonable so far as the Independent Shareholders are concerned and in the best interests of the Company and its Shareholders as a whole. TC Capital has been appointed as the independent financial adviser to advise us and the Independent Shareholders in this respect.

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LETTER FROM THE INDEPENDENT BOARD COMMITTEE

We wish to draw your attention to the letter from the Board and the letter from the TC Capital as set out in the circular. Having considered the principal factors and reasons considered by, and the advice of TC Capital as set out in its letter of advice, we consider that the Equity Transfer Agreement and the transactions contemplated thereunder are on normal commercial terms, and that the Acquisition is in the best interest of the Company and the Shareholders as a whole. We also consider that the terms of the Equity Transfer Agreement and the transactions contemplated thereunder are fair and reasonable so far as the Independent Shareholders are concerned and in the best interests of the Company and its Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to approve the Equity Transfer Agreement and the transactions contemplated thereunder.

Yours faithfully,

For and on behalf of the Independent Board Committee Mr. Ge Xinjian Mr. Meng Likun Mr. Kong Chi Mo Independent non-executive Directors

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LETTER FROM TC CAPITAL

The following is the full text of the letter of advice to the Independent Board Committee and the Independent Shareholders from TC Capital Asia Limited dated 29 April 2014 prepared for incorporation in this circular.

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TC Capital Asia Limited 天財資本亞洲有限公司

29 April 2014

The Independent Board Committee and the Independent Shareholders of Hengshi Mining Investments Limited

Dear Sir/Madam,

DISCLOSEABLE AND CONNECTED TRANSACTION ACQUISITION OF 10% EQUITY INTERESTS IN JIHENG MINING

INTRODUCTION

We refer to our appointment as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the acquisition of 10% equity interests in Jiheng Mining from Laiyuan Jiantou, which constitutes a discloseable and connected transaction for the Company. Details of the terms of the Equity Transfer Agreement and the Acquisition are set out in the “Letter from the Board” (the “ Board Letter ”) contained in the circular of the Company dated 29 April 2014 (the “ Circular ”) issued to the Shareholders, of which this letter forms part. Terms used in this letter shall have the same meanings as those defined in the Circular, unless otherwise specified.

Background and terms of the Acquisition are set out in the Board Letter in the Circular. Our role as the independent financial adviser is to give our opinion as to whether the terms of the Equity Transfer Agreement are on normal commercial terms, fair and reasonable so far as the Independent Shareholders are concerned and whether the Acquisition is in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole.

As Laiyuan Jiantou is interested in 10% of the total issued share capital of Jiheng Mining, Laiyuan Jiantou is therefore a connected person of the Company under Chapter 14A of the Listing Rules. Accordingly, the Acquisition constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules and is subject to the approval by the Independent Shareholders. In addition, as the relevant percentage ratios calculated pursuant to Rule 14.07 of the Listing Rules in respect of the Acquisition exceed 5% but are less than 25%, the Acquisition also constitutes a discloseable transaction of the Company under Chapter 14 of the Listing Rules.

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LETTER FROM TC CAPITAL

As set out in the Board Letter, no Shareholder has any material interest in the Acquisition and no Shareholder would be required to abstain from voting at a general meeting of the Company (if one was convened) convened to approve the Acquisition. Pursuant to Rule 14A.43 of the Listing Rules, the Company has obtained a written approval (in lieu of holding a general meeting of the Company) regarding the Acquisition from Mr. Li Yanjun and Mr. Leung Hongying Li Ziwei, with deemed interests in 1,125,000,000 Shares, representing approximately 74.6% of the issued share capital of the Company as at the Latest Practicable Date. Accordingly, no extraordinary general meeting of the Company will be convened for the purposes of considering and approving the Acquisition.

In formulating our opinion and recommendation, we have considered, among other things, (i) the Equity Transfer Agreement; (ii) the annual results of the Group for the year ended 31 December 2013 as set out in the announcement of the Company dated 19 March 2014 (the “ 2013 Results Announcement ”); and (iii) other information as set out in the Circular.

We have also relied on all relevant information, opinions and facts supplied and represented by the Company, the Directors and the management of the Company. We have assumed that all such information, opinions, facts and representations contained or referred to in the Circular, for which the Company is fully responsible, were true and accurate in all respects as at the date hereof and may be relied upon. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Company, and the Company has confirmed that no material facts have been withheld or omitted from the information provided and referred to in the Circular, which would make any statement therein misleading.

We consider that we have reviewed sufficient information currently available to reach an informed view and to justify our reliance on the accuracy of the information contained in the Circular so as to provide a reasonable basis for our recommendation. We have not, however, carried out independent verification of the information provided by the Directors and the representatives of the Company, nor have we conducted any form of in-depth investigation into the businesses, affairs, operations, financial position or future prospects of the Company, Aowei Mining, Laiyuan Jiantou and Jiheng Mining and any of their respective subsidiaries and associates.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinions in respect of the Acquisition, we have taken into consideration the following principal factors and reasons:

1. Background and reasons for the Acquisition

Background information of Jiheng Mining

Aowei Mining was established in the PRC in June 2011 and an indirect wholly-owned subsidiary of the Company. Acting principally as a subsidiary holding company, it holds and manages Jingyuancheng Mining, Xinxin Mining and Jiheng Mining.

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LETTER FROM TC CAPITAL

Jiheng Mining was established with a registered capital of RMB50.0 million in the PRC in August 2010 with 90% equity interests owned by Aowei Mining and 10% by Laiyuan Jiantou. The original purchase cost of the 10% state-owned equity interests in Jiheng Mining owned by Lianyuan Jiantou is RMB20 million, of which 5% was transferred from Laiyuan Nonferrus Metal with a consideration of RMB20 million and the remaining 5% was transferred from Laiyuan Nonferrus Metal with a consideration of nil on January 23, 2014 with relevant governmental approvals duly obtained. Jiheng Mining is principally engaged in iron ore mining and the selection and production of iron ore concentrates.

As set out in the 2013 Results Announcement, Jiheng Mining owns and operates Zhijiazhuang Mine which is located in Yangjiazhuang Village, Laiyuan County, Hebei Province in the PRC and the mining rights of Zhijiazhuang Mine cover an area of 0.3337 sq.km. Furthermore, the new dry processing plant of a processing capacity of 2.5 Mtpa has been put into operations in January 2013. Technical renovation and upgrade of the old dry processing plant has been completed in the third quarter. In 2014, a new wet processing plant with a processing capacity of 1.6 Mtpa and auxiliary tailings pond will be constructed.

Background information of Laiyuan Jiantou

Laiyuan Jiantou was established in the PRC in August 2005 and is currently holding 10% interests in Jiheng Mining. Laiyuan Jiantou is engaged in investments in the development of various industries including mining, electricity supply, water conservancy, transportation, environmental protection, tourism, commerce, servicing, agriculture, forestry and livestock.

Financial information of Jiheng Mining

As set out from the Board Letter, the financial information of Jiheng Mining according to its unaudited management accounts prepared under International Financial Reporting Standards issued by International Accounting Standards Board are set out below:

	For the year	For the year
	ended	ended
	31 December	31 December
	2012	2013
	(RMB’000)	(RMB’000)
Net profit (before taxation)	84,657	374,681
Net profit (after taxation)	63,440	280,989
		As at
		31 December
		2013
		(RMB’000)
Total assets		1,054,104
Total liabilities		517,169
Net assets		536,935

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LETTER FROM TC CAPITAL

As illustrated in the table above, the net profit after taxation of Jiheng Mining increased by approximately 342.9% from approximately RMB63.4 million for the year ended 31 December 2012 to approximately RMB281.0 million for the year ended 31 December 2013.

Outlook of the iron ore industry in Hebei Province

As noted from the 2013 Results Announcement, the Group’s iron ores and preliminary concentrates were mainly sold to nearby wet processing plants while iron ore concentrates products were mainly sold to steel mills in central and southern Hebei. Being one of the key raw materials for steel refining, the demand for iron ores in the PRC will be positively related to the demand for steel.

According to information provided by China Iron and Steel Association, China crude ore production increased from approximately 3.5 billion tons in 2005 to approximately 7.5 billion tons in 2013. Furthermore, Hebei Province is the largest steel producing province in China, accounting for approximately 24.2% of China’s total steel production in 2013. According to the Steel Industry Twelfth Five-Year Development Plan (鋼鐵工業”十二五”發展規劃) published by the Ministry of Industry and Information Technology of the PRC, the industrialization and urbanization of rural areas and the associated construction of buildings and transportation networks will increase the demand for steel and it is estimated that the crude steel consumption in the PRC will reach 750 million tons in 2015 and the maximum estimated demand of crude steel will be approximately 770 to 820 million tons in 2015–2020.

Having considered the above, Jiheng Mining is well-positioned to benefit from the growth in the steel industry in the PRC and the policies implemented by the PRC government which is likely to contribute positively towards the revenue of the Group. Accordingly, we concur with the Directors’ view that the Acquisition is in the interests of the Company and the Shareholders as a whole.

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LETTER FROM TC CAPITAL

Reasons for and benefits of the Acquisition

The Company is based in Hebei Province and is primarily engaged in the business of iron ore mining and processing. It currently owns and operates four iron ore mines, namely, Gufen Mine, Wang’ergou Mine, Shuanmazhuang Mine and Zhijiazhuang Mine, all of which are located in Laiyuan County, Hebei Province. Since Jiheng Mining is owned as to 90% by Aowei Mining, which is an indirect wholly-owned subsidiary of the Company, the Acquisition will give Aowei Mining full control of Jiheng Mining, which will enhance efficient implementation of Aowei Mining’s business decisions, strengthen strategic cooperation with Jiheng Mining, and streamline the administrative procedures of Jiheng Mining. According to past practice, Aowei Mining was obligated to consult Laiyuan Jiantou when laying out Jiheng Mining’s major business decisions and administrative procedures given Laiyuan Jiantou’s capacity as a substantial shareholder of Jiheng Mining. As a result of the Acquisition, there is no need to consider Laiyuan Jiantou’s opinion any more and this would facilitate Jiheng Mining’s decision making and administrative procedures planning. In addition, as Laiyuan Jiantou holds 10% of the equity interests in Jiheng Mining, it constitutes a substantial shareholder and thus a connected person of the Company under Chapter 14A of the Listing Rules. As a result, the Acquisition would eliminate potential connected transactions between the Company and Laiyuan Jiantou in the future. Furthermore, based on the unaudited management accounts of Jiheng Mining for the year ended 31 March 2014 provided by the Company, Jiheng Mining has accumulated undistributable profits in excess of RMB500 million as at 31 March 2014. By obtaining full ownership control of Jiheng Mining, the Acquisition would improve the financial performance of the Group through the consolidation of 10% equity interests of Jiheng Mining.

As set out in the 2013 Results Announcement, the Group will adhere to its core strategy of iron ore development through the expansion of production capacities of self-owned mines, the integration of surrounding mines, as well as merger and acquisition and reorganization in core iron ore demand regions, continuous development, and strive to be the leading mining group in China.

Having considered that (i) the Acquisition is in the ordinary and usual course of business of the Group and in line with the Group’s business strategy; (ii) the outlook of the iron ore industry in Hebei Province in the PRC remains positive; (iii) the Acquisition will give Aowei Mining full control of Jiheng Mining, which will enhance efficient implementation of Aowei Mining’s business decisions, strengthen strategic cooperation with Jiheng Mining, and streamline the administrative procedures of Jiheng Mining. According to past practice, Aowei Mining was obligated to consult Laiyuan Jiantou when laying out Jiheng Mining’s major business decisions and administrative procedures given Laiyuan Jiantou’s capacity as a substantial shareholder of Jiheng Mining. As a result of the Acquisition, there is no need to consider Laiyuan Jiantou’s opinion any more and this would facilitate Jiheng Mining’s decision making and administrative procedures planning; (iv) the Acquisition would eliminate potential connected transactions

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LETTER FROM TC CAPITAL

between the Company and Laiyuan Jiantou in the future; and (v) the Acquisition would improve the financial performance of the Group through the consolidation of 10% equity interests of Jiheng Mining, we are of the view that the Acquisition is in the interests of the Company and the Shareholders as a whole.

2. Principle terms of the Equity Transfer Agreement

Assets to be acquired

Pursuant to the Equity Transfer Agreement, the Company agreed to acquire from Laiyuan Jiantou 10% interests in Jiheng Mining at the consideration of RMB118.0 million. As mentioned in the Board Letter, Lianyuan Jiantou’s 10% equity interests in Jiheng Mining is state-owned interest. Lianyuan Jiantou must obtain approval from the Laiyuan County People’s Government (淶源縣人民政府) and the Laiyuan County State-owned Asset Management Committee (淶源縣國有資產管理委員會) (the “ Committee ”) for the transfer of 10% equity interests in Jiheng Mining.

Consideration

As set out in the Board Letter, the consideration for the Acquisition is RMB118.0 million and shall be payable in two installments: (i) a refundable down payment of 30% of the total consideration (i.e. RMB35.4 million) shall be paid on the execution date of the Equity Transfer Agreement; and (ii) the remaining consideration (i.e. RMB82.6 million) shall be paid before 16 May 2014.

According to the Hebei Province People’s Government State-owned Assets Supervision and Administration Commission – About the Transfer Work of Physical Assets of Standardized Enterprises Notice 《河北省人民政府國有資產監督管理委( 員會關於規範企業實物資產轉讓工作的通知》) published by the Hebei Province People’s Government State-owned Assets Supervision and Administration Commission (河北省人民政府國有資產監督管理委員會), the transfer of state-owned assets must be publicly traded on the Hebei Property Rights Exchange Center (河北省產權交易中心). As set out in the Board Letter, the Acquisition must be publicly conducted on the Hebei Property Rights Exchange Center (河北省產權交易中心) through procedures for the tender, auction or open listing of equity interests with a listed floor price agreed by the Committee and pursuant to the Committee’s approval letter, the listed floor price in relation to the 10% equity interests in Jiheng Mining (the “ Listed Floor Price ”) is determined as RMB118.0 million by the Committee, which is the same as the consideration of the Acquisition. The Company considered such listed floor price as fair, reasonable and in the best interest of the Company and its Shareholders as a whole by taking into account the following factors: (1) according to the competent person’s report by SRK Consulting China Limited which has been included as an appendix in the Company’s prospectus dated 18 November 2013, the Zhijiazhuang Mine

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LETTER FROM TC CAPITAL

operated by Jiheng Mining still enjoys a service life of approximately 10 years; (2) the historical production volume of Jiheng Mining has been growing steadily; and (3) the financial information of Jiheng Mining for the year 2013, including but not limited to its net profit, turnover, assets and liabilities. We have reviewed the approval letter from the Committee and noted that the listed floor price in relation to the transfer of the 10% equity interests in Jiheng Mining agreed by the Committee was RMB118.0 million for the tender, auction or open listing of the Hebei Property Rights Exchange Center (河北省產權交易 中心) and hence the consideration is the same as the Listed Floor Price.

In order to determine the fairness and reasonableness of the consideration paid for the Acquisition, we have adopted the comparable approach whereby the consideration paid for the Acquisition is compared to the valuation of its industry peers, as this approach is direct and commonly used valuation methodology. For our purpose of comparison and to the best of our knowledge, effort and endeavor and based on the information available from the website of the Stock Exchange, we have identified an exhaustive list of 7 comparable companies (the “ Comparable Companies ”) based on the following criteria: (i) companies listed on the Stock Exchange; (ii) companies whose principal business is similar to that of Jiheng Mining, i.e. being primarily engaged in the business of iron ore mining in the PRC; and (iii) companies with more than 50% of its total revenue derived from the business of iron ore mining in the PRC in their latest financial year. We consider that the Comparable Companies are fair and representative samples for comparison as the principal business of the Comparable Companies are similar to that of the Group. We have made reference to the price to earnings ratio (“ P/E ”) of the Comparable Companies. P/E ratio is defined as the ratio of a company’s closing share price on the date of signing of the Equity Transfer Agreement to its earnings per share as reported in the latest annual results announcement/annual report of the relevant Comparable Companies. Details of our findings on the Comparable Companies are summarized in the table below:

			Closing price as at
			31 March 2014
			(being the date of
	Stock		the Equity Transfer
Company Name	code	Principal activities	Agreement)	PE Ratio
			HK$
Newton Resources	1231	Mining, ore processing and	0.830	N/A
Limited		sale of iron concentrates		(Note 3)
Hengshi Mining	1370	Iron ore mining and	2.860	6.7
Investments Limited		processing in Hebei
		Province, own and
		operate iron ore mines

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LETTER FROM TC CAPITAL

			Closing price as at
			31 March 2014
			(being the date of
	Stock		the Equity Transfer
Company Name	code	Principal activities	Agreement)	PE Ratio
			HK$
CAA Resources	2112	Iron ore exploration,	1.650	14.1
Limited		mining, crushing and
		benefication; sale of iron
		ore products in the form
		of iron ore concentrates
		and iron ore fines
China Hanking	3788	Iron ore mining and	1.200	8.7
Holdings Limited		production and sale of
		iron ore concentrates
China Zhongsheng	2623	Iron and eliminate ore	1.400	7.4
Resources Holdings		exploration, iron ore
Limited		mining and iron ore
		processing to produce
		iron concentrates
China Nickel	2889	Manufacture and sale of	0.255	N/A
Resources Holdings		iron and steel products in	(Note 1)	(Note 3)
Company Limited		the PRC and the trading
		of ore
Great World Company	8003	Operation of iron mines	0.103	N/A
Holdings Limited		and property investment		(Note 3)
			Average	9.2
			Median	8.1
			Highest	14.1
			Lowest	6.7
Jiheng Mining		Iron ore mining and the		4.2
		selection and production		(Note 2)
		of iron ore concentrates

Notes:

1. The shares of China Nickel Resources Holdings Company Limited had been suspended on the Stock Exchange on 28 and 31 March 2014. Therefore, the closing price on the last trading day before suspension of the shares, being 27 March 2014, was used instead.

2. The implied P/E ratio is calculated based on the consideration of RMB118 million divided by 10% of the net profit after taxation of RMB280,989,000 of Jiheng Mining for the year ended 31 December 2013 prepared under International Financial Reporting Standards issued by International Accounting Standards Board.

3. N/A indicates the Comparable Companies incurred net losses for the latest financial year that was announced on the Stock Exchange.

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LETTER FROM TC CAPITAL

As shown in the table above, the implied P/E ratio as represented by the consideration of the Acquisition of approximately 4.2 times falls below the lower end range of the P/E ratios of the Comparable Companies from approximately 6.7 times to approximately 14.1 times and is lower than the average and median of the P/E ratios of the Comparable Companies of approximately 9.2 times and 8.1 times respectively. Furthermore, the implied P/E ratio as represented by the consideration of the Acquisition of approximately 4.2 times is lower than the P/E ratio of the Company of approximately 6.7 times as at the date of the Equity Transfer Agreement where such market P/E ratio of the Company already reflected the Group’s 90% equity interests in Jiheng Mining. Therefore, the Group can acquire the remaining 10% equity interests in Jiheng Mining at an implied P/E ratio, as represented by the consideration of the Acquisition, lower than the market P/E ratio of the Company.

Having considered that (i) the consideration of the Acquisition is the same as the Listed Floor Price; (ii) the implied P/E ratio as represented by the consideration of the Acquisition is lower than the average and median of the P/E ratios of the Comparable Companies; and (iii) the implied P/E ratio as represented by the consideration of the Acquisition is lower than the P/E ratio of the Company as at the date of the Equity Transfer Agreement, we are of the view that the consideration of the Acquisition is fair and reasonable so far as the Independent Shareholders are concerned.

3. Financial effects of the Acquisition

As at the Latest Practicable Date, Aowei Mining was interested in 90% of the total issued share capital of Jiheng Mining. Following completion of the Acquisition, Aowei Mining will hold 100% equity interests in Jiheng Mining and therefore Jiheng Mining will become a wholly-owned subsidiary of the Company.

Effect on net assets

Jiheng Mining is currently an indirect non-wholly owned subsidiary of the Group. Accordingly, the assets and liabilities of Jiheng Mining are consolidated into the financial statements of the Group. Following completion of the Acquisition, the shareholders’ equity attributable to minority interest is expected to decrease and the shareholders’ equity attributable to owners of the Company is expected to increase after taking into account the increase in the Company’s equity interest in Jiheng Mining upon completion of the Acquisition.

Effect on earnings

Jiheng Mining is currently an indirect non-wholly owned subsidiary of the Group. Accordingly, the financial results of Jiheng Mining are consolidated into the financial statements of the Group. Following completion of the Acquisition, the profit attributable to the minority interest is expected to decrease and profit attributable to the owners of the Company is expected to increase.

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LETTER FROM TC CAPITAL

Effect on working capital

According to the 2013 Results Announcement, the Group had cash and cash equivalents of approximately RMB987.6 million as at 31 December 2013 which is sufficient to settle the consideration of the Acquisition of RMB118.0 million. Therefore, the net current assets of the Group will be decreased by the payment of the consideration of the Acquisition.

It should be noted that the aforementioned analyses are for illustrative purposes only and do not purport to represent how the financial position of the Group will be upon completion of the Acquisition.

RECOMMENDATION

Having considered the principal factors and reasons as discussed above, in particular (i) the Acquisition is in line with the Group’s business strategy; (ii) the outlook of the iron ore industry in Hebei Province in the PRC remains positive; (iii) the Acquisition will give Aowei Mining full control of Jiheng Mining, which will enhance the efficient implementation of Aowei Mining’s business decisions, strengthen strategic cooperation with Jiheng Mining and streamline the administrative procedures of Jiheng Mining. According to past practice, Aowei Mining was obligated to consult Laiyuan Jiantou when laying out Jiheng Mining’s major business decisions and administrative procedures given Laiyuan Jiantou’s capacity as a substantial shareholder of Jiheng Mining. As a result of the Acquisition, there is no need to consider Laiyuan Jiantou’s opinion any more and this would facilitate Jiheng Mining’s decision making and administrative procedures planning; (iv) the Acquisition would eliminate potential connected transactions between the Company and Laiyuan Jiantou in the future; (v) the Acquisition would improve the financial performance of the Group through the consolidation of 10% equity interests of Jiheng Mining; (vi) the consideration of the Acquisition is the same as the Listed Floor Price; (vii) the implied P/E ratio as represented by the consideration of the Acquisition is lower than the average and median of the P/E ratios of the Comparable Companies as well as the P/E ratio of the Company as at the date of the Equity Transfer Agreement, we are of the opinion that the terms of the Equity Transfer Agreement are on normal commercial terms and are fair and reasonable so far as the Independent Shareholders are concerned, and that the Acquisition is in the ordinary and usual course of business of the Group and in the interests of the Company and the Shareholders as a whole.

Accordingly, we would recommend the Independent Shareholders, as well as the Independent Board Committee to recommend the Independent Shareholders, to approve the Equity Transfer Agreement and the transactions contemplated thereunder.

Yours faithfully, For and on behalf of TC Capital Asia Limited Edward Wu

Managing Director

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APPENDIX

GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that, to the best of their knowledge and belief the information contained in this circular is accurate and complete in all material respects and is not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. INTERESTS OF DIRECTORS AND CHIEF EXECUTIVES

Directors’ 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 register referred to therein; or (c) pursuant to Model Code for Securities Transactions by Directors of Listed Issuers contained in Listing Rules, to be notified to the Company and the Stock Exchange, were as follows:

			Percentage of
			the issued share
		Number of	capital of the
Name of Director	Capacity	Shares(1)	Company
Mr. Leung Hongying	Founder of a
Li Ziwei	discretionary trust(2)	1,125,000,000(L)	74.61%
	Interests held jointly
Mr. Li Yanjun	with another person(2)	1,125,000,000(L)	74.61%

Notes:

1. The letter “L” denotes long position in the Shares.

2. Mr. Leung Hongying Li Ziwei is the settler, protector and a beneficiary of the Chak Trust with Credit Suisse Trust Limited as the trustee which holds the entire issued share capital of Hengshi Holdings Limited (holding 100% issued share capital of Hengshi International Investments Limited) through Chak Limited and is the settler, protector and a beneficiary of the Seven Trust with Credit Suisse Trust Limited as the trustee which holds the entire issued share capital of Aowei International Developments Limited through Seven Limited. Pursuant to the Confirmation Letters, Mr. Leung Hongying Li Ziwei and Mr. Li Yanjun acted and will continue to act in concert to make decisions and exercise discretions in respect of the matters of the Chak Trust and the Seven Trust and exercise all voting rights attached to the shares of Hengshi International Investments Limited and Aowei International Developments Limited, respectively. Therefore, Mr. Leung Hongying Li Ziwei and Mr. Li Yanjun are deemed to be interested in the 1,091,250,000 Shares held by Hengshi International Investments Limited (which is 100% owned by Hengshi Holdings Limited) as disclosed above and the 33,750,000 Shares held by Aowei International Developments Limited.

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APPENDIX

GENERAL INFORMATION

Save as disclosed above, as at the Latest Practicable Date, none of the Directors nor the chief executive of the Company had or was deemed to have any interests or short positions in the shares, underlying shares or debentures of the Company or 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 register referred to therein; or (c) pursuant to Model Code for Securities Transactions by Directors of Listed Issuers contained in Listing Rules, to be notified to the Company and the Stock Exchange.

3. INTERESTS OF SUBSTANTIAL SHAREHOLDER

(a) Persons who have an interest or short position which is discloseable under Divisions 2 and 3 of Part XV of the SFO and substantial Shareholders

As at the Latest Practicable Date, so far as was known to the Directors or chief executive of the Company, the persons (other than the Directors or the chief executive of the Company) who had an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other members of the Group, or had any options in respect of such capital are set out below:

			Percentage of
			the issued share
		Number of	capital of the
Name of shareholder	Nature of interest	Shares(1)	Company
Aowei International	Beneficial owner(2)	1,125,000,000(L)	74.61%
Developments Limited
Chak Limited	Interest in controlled	1,125,000,000(L)	74.61%
	corporation(2)
Credit Suisse Trust	Trustee	1,125,000,000(L)	74.61%
Limited
Hengshi Holdings	Interest in controlled	1,125,000,000(L)	74.61%
Limited	corporation(2)
Hengshi International	Beneficial owner(2)	1,125,000,000(L)	74.61%
Investments Limited
Seven Limited	Interest in controlled	1,125,000,000(L)	74.61%
	corporation(2)

Notes:

1. The letter “L” denotes long position in the Shares.

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APPENDIX

GENERAL INFORMATION

1. Hengshi Holdings Limited holds 100% issued share capital of Hengshi International Investments Limited, thus Hengshi Holdings Limited is deemed to be interested in the 1,091,250,000 Shares held by Hengshi International Investments Limited. Chak Limited holds 100% issued share capital of Hengshi Holdings Limited, thus Chak Limited is deemed to be interested in the 1,091,250,000 Shares held by Hengshi International Investments Limited. Seven Limited holds 100% issued share capital of Aowei International Developments Limited, thus Seven Limited is deemed to be interested in the 33,750,000 Shares held by Aowei International Developments Limited. Seven Limited and Chak Limited are controlled by Credit Suisse Trust Limited which are the trustee of the Seven Trust and Chak Trust respectively.

2. Mr. Leung Hongying Li Ziwei and Mr. Li Yanjun are the ultimate controlling shareholders of Chak Limited, Hengshi Holdings Limited, Hengshi International Investments Limited, Seven Limited and Aowei International Developments Limited. Therefore, Chak Limited, Hengshi Holdings Limited, Hengshi International Investments Limited, Seven Limited and Aowei International Developments Limited are deemed to be interested in all the 1,125,000,000 shares. Pursuant to the Confirmation Letters, Mr. Leung Hongying Li Ziwei and Mr. Li Yanjun acted and will continue to act in concert to make decisions and exercise discretions in respect of the matters of the Chak Trust and the Seven Trust and exercise all voting rights attached to the shares of Hengshi International Investments Limited and Aowei International Developments Limited, respectively.

Save as disclosed above, as at the Latest Practicable Date, the Directors and the chief executive of the Company are not aware of any other persons who had an interest or short position in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or who were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meeting of any other members of the Group, or had any options in respect of such capital.

4. DIRECTORS’ INTERESTS IN ASSETS AND CONTRACTUAL ARRANGEMENTS OF THE GROUP

As at the Latest Practicable Date, none of the Directors had any interest, direct or indirect, in any assets which had been acquired or disposed of by or leased to any member of the Group or were proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2013, the date to which the latest published audited consolidated financial statements of the Company were made up, or any contract or arrangement subsisting at the date of this circular in which they are materially interested and which is significant in relation to the business of the Group.

5. DIRECTORS’ SERVICE CONTRACTS WITH ANY MEMBER OF THE GROUP

As at the Latest Practicable Date, there was no existing or proposed service contract (excluding contract expiring or terminable by the employer within one year, without payment of compensation (other than statutory compensation)) between any of the Directors and any member of the Group.

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APPENDIX

GENERAL INFORMATION

6. EXPERT AND CONSENT

The following is the qualification of the expert or professional adviser who has given opinion or advice which are contained in this circular:

Name Qualification

TC Capital Asia Limited a corporation licensed to carry on Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the SFO

TC Capital has given and has not withdrawn its written consent to the issue of this circular with the inclusion herein of its letter and references to its name in the form and context in which they respectively appear. As at the Latest Practicable Date, TC Capital

• (a) did not have any shareholding in or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group; and

• (b) was not interested, directly or indirectly, in any assets which have been acquired or disposed of by or leased to any member of the Group or are proposed to be acquired or disposed of by or leased to any member of the Group since 31 December 2013, being the date to which the latest published audited consolidated financial statements of the Company were made up.

7. MATERIAL ADVERSE CHANGE

The Directors confirm that there has been no material adverse change in the financial or trading position of the Group since 31 December 2013, being the date to which the latest audited consolidated financial statements of the Group were made up.

8. COMPETING INTEREST

As at the Latest Practicable Date, none of the Directors and their respective associates was interested in any business apart from the business of the Group, which competed or was likely to compete, either directly or indirectly, with that of the Group.

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APPENDIX

GENERAL INFORMATION

9. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the principal place of business of the Company in Hong Kong at 18/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong from the date of this circular up to and including 13 May 2014.

• (a) the Equity Transfer Agreement;

• (b) the letter of recommendation from the Independent Board Committee, the text of which is set out on pages 7 to 8 of this circular;

• (c) the letter of advice from TC Capital, the text of which is set out on pages 9 to 18 of this circular; and

• (d) the written consent from TC Capital referred to in the paragraph headed “Expert and consent” in this appendix.

10. MISCELLANEOUS

The English text of this circular shall prevail over the Chinese text in the case of any inconsistency.

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