China Kingstone Mining Holdings Limited

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中國金石礦業控股有限公司

(Incorporated in the Cayman Islands with limited liability)

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This Web Proof Information Pack contains the following information relating to the Company extracted from a draft document:

. Summary
. Definitions
. Glossary
. Risk Factors
. Directors
. Corporate Information
. Industry Overview
. Regulatory Overview
. History and Corporate Development
. Business
. Directors and Senior Management
. Share Capital
. Financial Information
. Future Plans

Appendices

. Appendix I
. Appendix III
Accountants’ Report
Loss Estimate
. Appendix IV — Property Valuation
. Appendix V — Competent Person’s Report
. Appendix VI — Summary of the Constitution of the Company and Cayman Islands Law
. Appendix VII — Statutory and General Information

– i –

SUMMARY

OVERVIEW

We are a marble mining company at the initial stage of production. We currently own and operate one marble mine, the Zhangjiaba Mine, which is the largest beige marble mine in China in terms of marble reserves, according to a certification issued by CSMA in August 2010. The Zhangjiaba Mine, located in Sichuan Province of China, contains 44.2 million m[3] of measured and indicated marble resources, which represents 16.8 million m[3] of proved and probable marble reserves based on a block rate of 38%, according to the Competent Person’s Report. Our mine contains high-quality beige marble reserves, and our principal products are premium beige marble slabs and blocks. We commenced commercial production at our Zhangjiaba Mine in September 2010 and began generating revenue in October 2010. We currently hold a mining permit for an initial term of 10 years granted in February 2011, covering an area of 0.44 km[2] with an elevation from 590 m to 938 m above MSL.

In addition to marble block mining, we plan to construct large-scale marble slab processing facilities in close proximity to our mine. Following the completion of our ramp-up plan in 2014, our mining capacity for marble blocks is expected to reach 150,000 m[3] per annum and our marble slab processing capacity at our processing facilities are expected to reach 3.0 million m[2] per annum. The estimated mine life of our Zhangjiaba Mine is 112 years, based on our current marble reserves and planned marble block mining capacity at 150,000 m[3] . CSMA expects our mining capacity and processing capacity upon completion of our ramp-up plan to be the largest among marble mining companies in China.

Our principal products are marble slabs processed and blocks mined from our marble reserves. According to an independent panel review organized by CSMA, our Pure Beige and Mixed Beige products are premium marble products and our Wood Grain and Gray Net products are mid- to high-end marble products. Our Pure Beige, Mixed Beige, Wood Grain and Gray Net marble account for 51.0%, 32.7%, 6.4% and 9.9% of our marble reserves, respectively, according to the Competent Person’s Report. According to the same panel review organized by CSMA, our mine contains high-quality beige marble reserves, and the color and texture of our marble products are similar to those of wellrecognized, premium international branded marble products currently available in the market, based on the physical specifications and the appearance of our marble samples. Due to these characteristics, our premium marble products are suitable for use in the decoration of high-end commercial and public buildings.

According to the Competent Person’s Report, marble is geologically defined as metamorphosed limestone or dolomite that is thoroughly recrystallized. Commercially in the stone industry, and as used in this document, marble also includes limestone or dolomite that is rock of sedimentary origin primarily composed of calcium carbonate or calcium magnesium carbonate and is polishable. Our principal resource at Zhangjiaba Mine is limestone that is commercially classified as marble.

OUR CURRENT OPERATIONS

Our Zhangjiaba Mine is located in Sichuan Province of China. In August 2009, we obtained a mining permit for our Zhangjiaba Mine that covers a mining area of 0.495 km[2] with an elevation from 750 m to 930 m above MSL to carry out marble mining activities. In February 2011, we obtained a new mining permit that covers substantially the same mining area as our permit obtained in 2009. This mining permit covers a mining area of 0.44 km[2] with an elevation from 590 m to 938 m above MSL.

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SUMMARY

We commenced commercial production at our Zhangjiaba Mine in September 2010 and began generating revenue in October 2010. As we are still at the initial stage of production, our operations may be subject to various risks. See the section headed ‘‘Risk Factors.’’

Production Volume and Contracted Sales

During the period from September to December 2010, we mined a total of 1,145 m[3] of marble blocks. During the same period, we sold a total of 3,000 m[2] of Pure Beige marble slabs, 9,000 m[2] of Mixed Beige marble slabs and 24 m[3] of marble blocks. Until the commencement of the commercial operations of our processing facilities in January 2012, we expect our marble blocks to be processed into marble slabs by third-party processing plants.

The following table sets forth the sales volume, the revenue and the average selling price by product from 1 September 2010 to 3 January 2011, pursuant to a short-term sales contract of marble slabs we entered into with a construction material trading company in September 2010 and two individual transactions of marble blocks we entered into with two independent third parties who are engaged in stone processing:

1 September 2010 to 30 November 2010 Sales volume (m3 (blocks)/m2 (slabs)) . . . . . . . . . . . . . . Revenue (RMB in millions) . . . . . . . . . . . . . . . . . . . . . Average selling price (RMB/m3 (blocks)/ RMB/m2 (slabs))Note. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 December 2010 to 3 January 2011 Sales volume (m3 (blocks)/m2 (slabs)) . . . . . . . . . . . . . . Revenue (RMB in millions) . . . . . . . . . . . . . . . . . . . . . Average selling price (RMB/m3 (blocks)/ RMB/m2 (slabs))Note. . . . . . . . . . . . . . . . . . . . . . . . . . . 1 September 2010 to 3 January 2011 Sales volume (m3 (blocks)/m2 (slabs)) . . . . . . . . . . . . . . Revenue (RMB in millions) . . . . . . . . . . . . . . . . . . . . . Average selling price (RMB/m3 (blocks)/ RMB/m2 (slabs))Note. . . . . . . . . . . . . . . . . . . . . . . . . . .		Marble Slabs	Total 3,000 1.69 563 9,000 4.85 538 12,000 6.54 545	Marble Blocks
	Pure Beige 1,000 0.72 720 2,000 1.44 720 3,000 2.16 720	Mixed Beige 2,000 0.97 487 7,000 3.41 487 9,000 4.38 487
				24 0.08 3,414 — — — 24 0.08 3,414

Note: The average selling price is calculated by dividing the revenue by the corresponding sales volume.

In 2010, we entered into seven legally binding long-term sales contracts. These sales contracts provide for an aggregate sales volume of 1,025,000 m[2] , 1,610,000 m[2] and 2,015,000 m[2] of marble slabs in 2011, 2012 and 2013, respectively, representing 63%, 56% and 45%, respectively, of our total planned marble slab production according to the Competent Person’s Report, at average ex-factory sales prices of RMB830 per m[2] for Pure Beige marble slabs, RMB540 per m[2] for Mixed Beige marble slabs and RMB520 per m[2] for other marble slabs during the terms of such contracts. Our customers are obliged to purchase a minimum of 90% of the volume set out in these sales contracts. These prices compare favorably to the average price of approximately RMB150 per m[2] for other PRC branded marble products, based on data from the Hatch Report. These sales contracts, which are for a period of five years, have been entered into with construction material suppliers in China, which in turn are expected

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SUMMARY

to sell to property developers and construction companies. According to Hatch, China’s marble demand is expected to maintain steady growth. Therefore, our Directors believe that there will be sufficient demand for our planned marble slab production.

The following table sets forth the sales prices and volumes of our marble slabs in our seven longterm sales contracts:

Pure Beige marble slabs . . . . . . . . . Mixed Beige marble slabs. . . . . . . . Other marble slabs (Wood Grain and Gray Net) . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . .	Price Range(1) (RMB/m2) 2011 800–865 355,000 510–568 540,000 500–538 130,000 633–692(3) 1,025,000		Contracted Sales Volume(2) (m2)	Contracted Sales Volume(2) (m2)	Contracted Sales Volume(2) (m2)
			2012 670,000 770,000 170,000 1,610,000	2013 960,000 850,000 205,000 2,015,000	2014 Not less than 1,975,000	2015
						Not less than 1,975,000

Notes:

(1) The sales prices in these contracts are VAT inclusive.
(2) Our customers are obliged to purchase a minimum of 90% of the volume set out in the above table.
(3) This volume weighted average price range is calculated based on price range of the three categories of the products and volume contracted during the period from 2011 to 2013.

According to Hatch, the current market prices of our primary competing beige marble products, Royal Batticino from Iran, Cream Marfil from Spain and Frans Beige from France, are RMB1,300 per m[2] , RMB950 per m[2] and RMB1,200 per m[2] , respectively. These products are sold at higher prices mainly due to their established brand names and high recognition among consumers. The average price of other PRC branded marble products is approximately RMB150 per m[2] . There is no official statistics of standalone prices available for marble blocks, according to Hatch.

Pursuant to these sales contracts, we require our customers to make prepayment of 30% of the sales value upon order of marble slabs. An additional 50% of the sales value is required to be paid upon delivery of the processed marble slabs ex-factory. The remaining 20% will be paid within 10 days after such delivery. In addition, under these sales contracts, we have the right to adjust prices for marble slabs sold beyond the annual supply volume stipulated in the contract. In addition, subject to our customers’ consent, we are entitled to adjust prices of the annual contracted volume according to changes in market conditions each year with one-month’s advance written notice. Our customers are obligated to purchase a minimum of 90% of the annual volume set out in the contracts and are required to pay a penalty of 20% or 30% of the shortfall sales value, which equals the difference between the actual purchased volume and the minimum required volume multiplied by the average selling price set out in the contracts, if they purchase less than 90% of the contracted volume. We are obligated to supply the annual volume set out in the contracts and are required to pay a penalty of 20% of the sales value of the contracted volume we cannot supply.

We believe that these contracts will ensure a steady demand for our products upon the commencement of commercial production of our Zhangjiaba Mine as well as after we reach our full mining and processing capacities of marble blocks and marble slabs in 2014.

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SUMMARY

Mining Method

We utilize the open-pit mining method, which facilitates access and extraction of marble blocks from our marble mine. We also utilize highly-efficient, semi-automatic machinery and equipment and apply mining methods that integrate traditional and innovative production techniques. Based on the Competent Person’s Report, we believe that our mining operations will have a favorable cost structure primarily due to our use of the open-pit mining method, our low average waste to ore strip ratio of 0.07 and the high utilization of our mine as a result of its limited amount of tailings. We commenced commercial production in September 2010. In October and November 2010, we achieved a gross profit margin of 59.5% on a revenue of RMB1.8 million generated during the period. In addition, compared to underground mining, our open-pit mining operations generally do not involve the use of explosive materials or hazardous chemicals, thereby significantly reducing safety and environmental pollution concerns. Although our operations are in an early stage and our ability to successfully achieve our goals remains subject to uncertainty, we believe that, if we are able to continue to benefit from these efficiencies and to enjoy the current price levels for our products, we will be well positioned to improve the profitability of our Zhangjiaba Mine compared to its initial production stage.

Operating Costs

Major components of our cash costs of production are directly related to production volume. Our cash costs of operation mainly include mining costs, processing costs, general and administrative costs, selling costs, environmental protection costs, production taxes, resource compensation levy and other cash cost items. Variations in production volume and the costs of sales associated with top flipping, disintegration, mining, hauling to the processing plants, shaping, slinging, cutting, repairing, polishing and ware-housing are key factors that affect our cash costs of production. We did not incur any cost of sales prior to the commencement of our commercial production in September 2010. In October and November 2010, we generated revenue of RMB1.8 million from sales of our marble products and incurred cost of sales of RMB0.7 million. During the period from September to December 2010, our actual unit cash production cost of the third-party processed marble slabs was RMB325 per m[2] , which was higher than the projected unit cash production costs of the third-party processed marble slabs upon reaching our full mining and processing capacities. The currently higher-than-projected unit cash cost is mainly the result of a combination of the relatively low production volume and high administrative expenses at the initial stage of production. The actual unit cash production cost of the third-party processed marble slabs decreased to RMB196 per m[2] in December 2010 as a result of increased production volume during this month. In addition, according to the Competent Person’s Report, when we reach the planned mining capacity of 150,000 m[3] of marble blocks per annum and processing capacity of 3.0 million m[2] of marble slabs per annum in 2014, the unit cash cost for our self-processed marble slabs (calculated as the sum of mining operating cash cost, slab processing cost and administrative and selling expenses) is estimated to be approximately RMB124 per m[2] , based on a slab-block ratio of 33.7, and our unit cash cost for marble slabs processed by third-party contractors (calculated as the sum of mining operating cash cost, contractor charges, transportation cost and administrative and selling expenses) is estimated to be approximately RMB131 per m[2] in 2014.

Location and Land Use Rights

Our marble mine, the Zhangjiaba Mine, is located in Sichuan Province, which is one of the main marble quarry regions in China. The Zhangjiaba Mine is located approximately 40 km away from Mianyang City, the local economic center in the north-central region of Sichuan Province, and

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SUMMARY

approximately 160 km away from Chengdu, the capital city of Sichuan Province. Our mine is easily accessible by a local highway to Hanzeng Town, which is 5.5 km away and connects to the provincial highway linking to Beichuan County, as well as to the urban area of Jiangyou City. The closest railway depot is approximately 24 km away from our mine. In addition, we have easy access to water and electricity supplies, both of which are key utilities for our mining and processing operations. We plan to construct large-scale marble slab processing facilities in close proximity to our Zhangjiaba Mine to take advantage of our favorable geographical location.

Our Management Team

We have a highly experienced management team comprising industry experts and veterans. Our management team is led by four executive Directors and two senior management members, who together have an average of 20 years of experience and management expertise gained from their involvement in the marble mining and related industries. Our management team has served in various capacities at our Company since our inception and has been instrumental to our development.

RAMP-UP AND EXPANSION PLANS

The [.] of the Company acquired our principal subsidiary, Sichuan Jinshida, in March 2008. We commenced limited preliminary mine construction at our Zhangjiaba Mine in July 2008 and full-scale mine construction in January 2010. We completed the construction of the first two knolls of our mine in the end of 2010. Commercial production at these two knolls commenced in September 2010. We are currently constructing the other two knolls. Following the completion of all four knolls at our Zhangjiaba Mine, we plan to increase our mining capacity for marble blocks to 150,000 m[3] per annum from 2014 onwards. Based on our current marble reserves and planned marble block mining capacity at 150,000 m[3] , the estimated mine life of our Zhangjiaba Mine is approximately 112 years. We also plan to construct large-scale marble slab processing facilities in close proximity to our mine, on which we expect to attain 60% of the planned processing capacity in 2012 and full planned processing capacity in 2013. We expect the marble slab processing facilities to have an aggregate processing capacity of 3.0 million m[2] of marble slabs per annum from 2013 onwards. After reaching our full mining and processing capacities, we expect to continue to outsource approximately 27% of our annual mined marble blocks to the third-party processing plants for slab processing as the volume of the marble slabs

– 5 –

SUMMARY

that can be processed from the marble blocks we mine annually is expected to exceed the full processing capacity at our processing facilities. The timeline below highlights the key development milestones of our ramp-up plan:

Year 2008–2009 . . . . . . . . . . . . . . . 2010 . . . . . . . . . . . . . . . . . . . 2011 . . . . . . . . . . . . . . . . . . . 2012 . . . . . . . . . . . . . . . . . . . 2013 . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . .	Total marble block mining capacity(1) (m3 per annum) — 1,145 45,000 90,000 135,000 150,000	Total marble slab processing capacity(1) (million m2 per annum) — — — 1.8 3.0 3.0	Capital expenditure for the Zhangjiaba Mine(2) (RMB in millions) 21.5 66.2 114.5 80.4 56.7 27.4	Capital expenditure for the processing facilities(2)
				(RMB in millions) — 1.0 181.3 188.0 51.4 —

Notes:

(1) The marble block mining capacity and marble slab processing capacity represent our planned capacities which we intend to fully utilize, and are calculated based on 300 production days per annum, taking into account holidays, weather downtime and equipment maintenance.
(2) The actual capital expenditures for the Zhangjiaba Mine and the marble slab processing facilities for the eleven months ended 30 November 2010 were RMB61.5 million and RMB1.0 million, respectively. As at 30 November 2010, our unutilized planned capital expenditures for the Zhangjiaba Mine and the marble slab processing facilities were approximately RMB283.7 million and RMB420.7 million, respectively. As at 30 November 2010, we had capital commitment of RMB363,000 for our unutilized planned capital expenditure of the Zhangjiaba Mine and nil for the marble slab processing facilities.

The table below illustrates our actual marble block production in 2010 and planned marble block production by volume of various uses at our Zhangjiaba Mine from 2011 to 2015, according to the Competent Person’s Report:

Item Blocks used for self slab production (m3) . . . . . . . . . Blocks used for contract slab production (m3) . . . . . . Blocks used for shaped stone products (m3) . . . . . . . Blocks to be sold directly to customer (m3). . . . . . . . Total marble block mining capacity (m3). . . . . . . .	2010 — 1,121 — 24 1,145	2011 — 45,000 — — 45,000	2012 53,374 30,000 1,800 4,826 90,000	2013 88,957 40,000 3,000 3,043 135,000	2014 88,957 40,000 3,000 18,043 150,000	2015
						88,957 40,000 3,000 18,043
						150,000

Our primary growth strategy is to effectively execute our ramp-up plan to reach the full mining capacity of our Zhangjiaba Mine and full processing capacity at our processing facilities. In addition, we seek to grow through active participation in industry consolidation, which is supported by the local government policy promoting the acquisition of small-scale mines by larger mining enterprises, such as our Company. We believe that the exploration potential beyond our permitted mining area and in other neighboring marble mines in Sichuan Province is high, and that we are well positioned to capitalize on such potential. We regularly seek out and evaluate potential acquisition opportunities. As at the Latest Practicable Date, we did not enter into any definitive agreements with respect to any acquisition. On 30 July 2010, we entered into a legally binding letter of intent with a mining company, an Independent Third Party, under which we have the right to negotiate and consider the acquisition of certain mining rights for a neighboring marble mine containing approximately 3.7 million m[3] of estimated marble resources. This letter of intent will expire at the end of June 2011 and is extendable based on mutual agreement in writing. On 18 January 2011, we entered into another legally binding letter of intent with a

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SUMMARY

stone material company, an Independent Third Party. Pursuant to this letter of intent, we have the right to negotiate and consider the acquisition of certain mining rights for a neighboring marble mine. According to the letter of intent, such mine contains no less than 5.0 million m[3] of estimated marble resources. This letter of intent will expire in one year from the signing date and is extendable based on mutual agreement in writing. The parties expect to enter into transfer agreements for the relevant mining rights and assets upon completion of satisfactory due diligence and agreement on the substantive terms and conditions of the transfers. The transfer consideration for the mining rights and assets is expected to be determined through negotiation on the basis of asset valuation to be conducted by a qualified valuation firm recognized by the parties.

Our ramp-up and expansion plans are subject to a number of assumptions, including:

. resource and reserve estimates;
. our marble block rate, which may be affected by weathering fractures and karst caves;
. schedule of construction and development of our projects, which may be affected by cost overrun and other unexpected financial burden;
. market demand for our marble blocks and slabs products and the price;
. ability to secure and procure technologically sophisticated machinery and equipment; and
. the quality and quality consistency of our products.

As part of our ramp-up and expansion plans, we have made a number of estimates on our future production and processing capacities and volumes as well as our future sales volume and prices of our products, which are based on these and other assumptions. We have sought to take into account the factors that affect these estimates and assumptions. However, we cannot assure you that these estimates will prove to be correct, or that our assumptions and the factors that we have taken into account will prove accurate or complete. For a further description of the risks and uncertainties that we face, see ‘‘Risk Factors.’’

COMPETITIVE STRENGTHS

We believe the following strengths distinguish us from our competitors:

. our Zhangjiaba Mine has abundant marble reserves, significant planned mining and processing capacities and immediate expansion potential;
. our Zhangjiaba Mine produces high-quality marble blocks that can be processed into highend marble slabs commanding premium pricing;
. our efficient mining and processing methods ensure low operating costs;
. we benefit from the convenient location of our Zhangjiaba Mine and processing facilities;
. our mining and production processes are safe and environmentally friendly; and
. we have a strong and experienced management team with extensive industry and management experience.

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SUMMARY

BUSINESS STRATEGIES

Our vision is to become a leading integrated marble business operator in China. We plan to accomplish this goal by pursuing the following strategies:

. ramp up our mining and processing capacities;
. establish a strong customer base and strengthen customer relationships;
. develop high product recognition and strengthen pricing power; and
. expand our marble resources through further expansion and selective acquisitions.

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

The summary financial information of: (i) our consolidated statements of financial position as at 31 December 2008, 31 December 2009 and 30 November 2010, and (ii) consolidated statements of comprehensive income and consolidated cash flows statements for the period from 14 March 2008 to 31 December 2008, the year ended 31 December 2009 and the eleven months ended 30 November 2009 and 2010, as set forth below, are derived from the Accountants’ Report of our Company included in Appendix I to this document. For your convenience, we include in the summary financial information set forth below our consolidated statements of comprehensive income and consolidated cash flows statements for the eleven months ended 30 November 2009. The summary financial information is qualified in its entirety by reference to such Accountants’ Report, including the notes thereto, and should be read in conjunction with the discussions included in the section headed ‘‘Financial Information.’’

Summary Consolidated Statements of Comprehensive Income

Revenue . . . . . . . . . . . . . . . . . . . Cost of sales. . . . . . . . . . . . . . . Gross profit. . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . Selling and distribution costs . . . Administrative expenses . . . . . . . Other expenses . . . . . . . . . . . . . Finance costs . . . . . . . . . . . . . . Loss before tax Income tax benefit. . . . . . . . . . . Loss for the year/period. . . . . . . .	Period from 14 March 2008 to 31 December(1) 2008 — — — 3 (63) (1,200) (720) (25) (2,005) 253 (1,752)	Year ended 31 December Eleven months ended 30 November 2009 2009 2010 (RMB’000) — — 1,771 — — (717) — — 1,054 2 2 31 (270) (244) (472) (2,610) (2,181) (23,134)(2) (690) (203) (728) (2,042) (1,780) (2,129) (5,610) (4,406) (25,378) 241 193 4,143 (5,369) (4,213) (21,235)

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SUMMARY

Notes:

(1) As a result of merger accounting, the financial information of Sichuan Jinshida is included in our consolidated financial information as if the consolidation had occurred since 14 March 2008 when Sichuan Jinshida first came under control of our [.]. As the [.] obtained the control over Sichuan Jinshida on 14 March 2008 and there were no transactions between 1 January 2008 and 13 March 2008 impacting our financial information, our financial information is presented from 14 March 2008.
(2) Our administrative expenses for the eleven months ended 30 November 2010 included expenses in relation to [.].

Summary Consolidated Statements of Financial Position

Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . Net current assets/(liabilities) . . . . . . . . . . . . . . . . . Total assets less current liabilities . . . . . . . . . . . . . . Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . Net assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	As at 31 December 2008 2009 (RMB’000) 40,389 50,455 1,071 6,092 24,208 44,675 (23,137) (38,583) 17,252 11,872 4,524 4,513 12,728 7,359 12,728 7,359	As at 30 November
	2008 40,389 1,071 24,208 (23,137) 17,252 4,524 12,728 12,728	2010
		112,326 98,555 83,162 15,393
		127,719
		350
		127,369
		127,369

Summary Consolidated Statements of Cash Flows

Cash and cash equivalents at beginning of the year/period . . . Net cash flows used in operating activities . . . . . . . . . . . . . . . . . Net cash flows used in investing activities . . . . . . . . . . . . . . . . . Net cash flows from financing activities . . . . . . . . . . . . . . . . . Net increase/(decrease) in cash and cash equivalents. . . . . . . . . . . . Net foreign exchange difference . . Cash and cash equivalents at end of the year/period. . . . . . . . . . . . .	Period from 14 March 2008 to 31 December 2008 972 (1,588) (6,440) 7,795 (233) — 739	Year ended 31 December Eleven months ended 30 November 2009 2009 2010 (RMB’000) 739 739 5,670 (1,966) (1,802) (19,178) (12,489) (10,661) (64,412) 19,386 11,847 167,209 4,931 (616) 83,619 — — (2,548) 5,670 123 86,741	Eleven months ended 30 November	Eleven months ended 30 November
				2010
				5,670 (19,178)
				(64,412)
				167,209
				83,619 (2,548) 86,741

– 9 –

SUMMARY

LOSS ESTIMATE FOR THE YEAR ENDED 31 DECEMBER 2010

The following loss estimate is based on the bases set out in ‘‘Appendix III — Loss Estimate’’ to this document.

Estimated consolidated loss attributable to HK$25.6 million owners of our Company[Note] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (RMB22.0 million)

Note: The bases on which the estimated consolidated loss attributable to our owners for the year ended 31 December 2010 has been prepared are set out in Appendix III to this document.

DIVIDEND POLICY

Following completion of [.], our Shareholders will be entitled to receive any dividends we declare. The payment and amount of any dividends will be at the discretion of the Board and will depend on our general business condition and strategies, cash flows, financial results and capital requirements, interests of our Shareholders, taxation conditions, statutory restrictions, and other factors that our Board deems relevant. The payment of any dividends will also be subject to the Companies Law and our constitutional documents, which indicate that payment of dividends out of our Share premium account is possible on the condition that we are able to pay our debts when they fall due in the ordinary course of business at the time the proposed dividends are to be paid.

Our ability to declare future dividends will also depend on the availability of dividends, if any, received from our PRC operating subsidiaries. Pursuant to the PRC laws, dividends may only be paid out of distributable profits, defined as the retained earnings after tax payments as determined under the PRC GAAP less any recovery of accumulated losses and the required allocations to statutory reserves made by our PRC operating subsidiaries. In general, we will not declare dividends in a year where we do not have any distributable earnings.

We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business, primarily through production ramp-up and selective acquisitions. The Board will review the dividend policy on an annual basis. Cash dividends on our Shares, if any, will be paid in Hong Kong dollars.

– 10 –

SUMMARY

RISK FACTORS

These risks can be broadly categorized into: (i) risks relating to our business; (ii) risks relating to our industry; and (iii) risks relating to conducting business in China. Additional risks and uncertainties that are not presently known to us or that we currently deem immaterial may develop and become material and could also harm our business, financial condition and results of operations.

Risks Relating to Our Business

. As a developing mining company with a limited operating history, we cannot guarantee that we will generate revenue and grow our business as planned.
. Our business operation depends on a single mining project.
. We derive revenue from a limited number of products.
. The quality of our products is subject to uncertainties.
. Our business is exposed to uncertainties in relation to our ramp-up plan.
. We face risks and uncertainties associated with our mining and processing operations.
. Failure to compete effectively with our competitors may adversely affect our business and prospects.
. Our business and product quality are affected by the performance of our third-party contractors.
. Our business depends on the availability of reliable and adequate transportation capacity for our products.
. Our mining project and ramp-up plan are capital intensive.
. If we fail to manage our liquidity situation carefully, our ability to expand and, in turn, our results of operations may be materially and adversely affected.
. We may not be able to achieve the level of profitability as expected.
. Our future growth may depend, in part, on our ability to acquire other marble mines or businesses in our industry.
. We may have difficulty managing our growth effectively.
. Failure to retain our management team and other key personnel could harm our business.
. We may not be able to renew the approvals required to temporarily use the land within some of our mine area and facilities.
. If our rights to lease land from the land owners are subject to a dispute, or if their legality or validity is challenged, our operations could be disrupted.
. Our failure to obtain, retain and renew government approvals, permits and licenses required for our mining activities could materially and adversely affect our business, financial condition and results of operations.
. The occurrence of natural disasters could have a material adverse effect on our operations.

– 11 –

SUMMARY

. Our operations are exposed to risks relating to occupational hazards and production safety.
. Our current insurance cannot adequately cover all losses and liabilities arising from our operations.
. Our [.] have substantial influence over us and their interests may not be aligned with the interests of our other Shareholders.
. We may incur impairment losses related to our mining rights and related assets, which may adversely affect our results of operations.
. Our marble resources and reserves are estimates based on a number of assumptions, and we may produce less than our current estimates.

Risks Relating to Our Industry

. Fluctuations in the market price for our beige marble products could materially and adversely affect our business, financial condition and results of operations.
. We are affected by the level of demand in the real estate development industry, which may experience a significant downturn.
. A decline in public sector construction and reductions in governmental funding could adversely affect our business and results of operations.
. Changes in legal requirements and governmental policies concerning environmental protection and other areas of laws could impact our business.
. Changes to the PRC laws, regulations and governmental policies for the mining industry may restrain our performance and subject us to potential liabilities.

Risks Relating to Conducting Business in China

. Adverse changes in political, social and economic policies of the PRC Government could have a material adverse effect on the overall economic growth of China.
. The PRC legal system is evolving and has inherent uncertainties that could limit the legal protection available to you and us.
. Government control of currency conversion and fluctuation in the exchange rate between the Renminbi and other currencies could negatively affect our financial condition, operations and our ability to pay dividends.
. Changes in the PRC laws, regulations and policies governing our mining activities could adversely affect our business, financial condition and results of operations.
. Enforcement of judgments from non-PRC courts against us or our Directors or officers who live in China could be difficult.
. Compliance with the PRC Labor Contract Law may increase our labor costs.
. Restrictions on foreign investment in the PRC mining industry could materially and adversely affect our business and results of operations.

– 12 –

SUMMARY

. We rely mainly on dividends and other distributions on equity paid by our subsidiaries to fund any cash and financing requirements we have, and any limitation on the ability of our subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business.
. Any outbreak of widespread contagious diseases may have a material adverse effect on our business operations, financial condition and results of operations.
. The EIT Law may affect tax exemptions on dividends received by us and by our Shareholders and may increase our EIT rate.
. PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident Shareholders to personal liability and limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute profits to us, or otherwise adversely affect our financial position.
. Failure to comply with PRC regulations in respect of the registration of our PRC citizen employees’ share options may subject such employees or us to fines and legal or administrative sanctions.
. We face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.

– 13 –

DEFINITIONS

In this document, the following terms have the following meanings unless the context otherwise requires. Certain technical terms are explained in the section headed ‘‘Glossary’’ in this document.

‘‘affiliate(s)’’	any other person, directly or indirectly, controlling or controlled
	by or under direct or indirect common control with a specified
	person;
‘‘Articles’’ or ‘‘Articles of	the articles of association of the Company, conditionally adopted
Association’’	on 24 January 2011, and as amended from time to time;
‘‘associate(s)’’	has the meaning ascribed thereto under [.];
‘‘Board’’ or ‘‘Board of Directors’’	the board of Directors of the Company;
‘‘Business Day’’	any day (other than Saturday and Sunday) on which banks in
	Hong Kong are generally open for normal banking business;
‘‘BVI’’	British Virgin Islands;
‘‘CAGR’’	compound annual growth rate;
‘‘CMMC’’	Chinese Market Monitoring Center (中國市場監測中心);
‘‘Companies Law’’	Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and
	revised) of the Cayman Islands;
‘‘Companies Ordinance’’	Companies Ordinance (Chapter 32 of the Laws of Hong Kong),
	as amended, supplemented or otherwise modified from time to
	time;
‘‘Company’’ or ‘‘the Company’’	China Kingstone Mining Holdings Limited (中國金石礦業控股有
	限公司), an exempted company incorporated in the Cayman
	Islands with limited liability on 29 March 2010;
‘‘Competent Person’s Report’’	the competent person’s report, dated 7 March 2011, prepared by
	Behre Dolbear;
‘‘connected person(s)’’	has the meaning ascribed to it under [.];
‘‘Corporate Reorganization’’	the reorganization arrangements implemented by our Company
	which is more particularly described in the section headed
	‘‘Statutory and General Information — A. Further information
	about the Company — 4. Corporate Reorganization’’ in Appendix
	VII to this document;
‘‘CSMA’’	China Stone Material Association (中國石材協會), a non-profit
	industry association, details of which are disclosed in the section
	headed ‘‘Industry Overview — Sources of Information —
	CSMA’’ in this document;
‘‘CSRC’’	China Securities Regulatory Commission (中國證券監督管理委
	員會);

– 14 –

DEFINITIONS

‘‘Deed of Indemnity’’ a deed of indemnity dated 4 March 2011 entered into between our [.] and the Company for itself and as trustee for its subsidiaries, under which our [.] have given certain indemnities in favour of our Company containing, among others, the indemnities referred to in the paragraph headed ‘‘Other Information — Estate duty, tax and other indemnity’’ in Appendix VII to this document;

‘‘Deed of Non-competition’’ a deed of non-competition dated 4 March 2011 entered into by our [.] in favor of the Company;

‘‘Director(s)’’ director(s) of the Company;
‘‘EIT’’ enterprise income tax; ‘‘GAC’’ General Administration of Customs of PRC (中華人民共和國海關總署);
‘‘GDP’’ gross domestic product; ‘‘Guangzhou Kingstone’’ Kingstone (Guangzhou) Stone Industry Co., Ltd. (金石(廣州)石業有限公司), a limited liability company established under the laws of the PRC on 26 May 2010 and an indirectly wholly owned subsidiary of the Company;

‘‘Hatch’’ an experienced consultant in the mining industry, engaged to provide the Hatch Report for use in whole or in part in this document;

‘‘Hatch Report’’ the industry report ‘‘Marble and Beige Marble Industry Report’’, dated 10 January 2011, prepared by Hatch;
‘‘HK$’’, ‘‘HK dollars’’ or ‘‘Hong Hong Kong dollars, the lawful currency of Hong Kong; Kong dollars’’

‘‘Hong Kong’’ or ‘‘HK’’ Hong Kong Special Administrative Region of the People’s Republic of China; ‘‘Hong Kong Kingstone’’ Kingstone (HK) Group Limited (金石(香港)集團有限公司), a company incorporated under the laws of Hong Kong on 14 April 2010 and an indirectly wholly owned subsidiary of the Company;

‘‘IFRS’’

‘‘IMM’’

International Financial Reporting Standards; Internazionale Marmi e Maccine Carrara S.p.A.;

‘‘Independent Technical Behre Dolbear Asia, Inc., a wholly owned subsidiary of Behre Consultant’’ or ‘‘Behre Dolbear’’ Dolbear & Company, Inc., and an Independent Third Party that specializes in performing studies and providing consulting services worldwide regarding the minerals industry;

‘‘Independent Third Party(ies)’’

a company or companies that is or are not connected person(s);

– 15 –

DEFINITIONS

‘‘Jiucheng Mining’’	Guangzhou Jiucheng Mining Co., Ltd. (廣州久成礦業有限公司),
	a limited liability company established under the laws of the PRC
	on 19 May 2007;
‘‘Kingstone Industrial’’	Kingstone Industrial Investment Limited (金石實業投資有限公
	司), a company incorporated under the laws of the BVI with
	limited liability on 7 April 2010 and a directly wholly owned
	subsidiary of the Company;
‘‘Latest Practicable Date’’	24 February 2011, being the latest practicable date for
	ascertaining certain information in this document prior to the
	publication of this document;
‘‘Macau’’	the Macau Special Administrative Region of the PRC;
‘‘Memorandum’’ or ‘‘Memorandum	the memorandum of association of the Company adopted on 19
of Association’’	August 2010, as amended from time to time;
‘‘MEP’’	Ministry of Environmental Protection of the PRC (中華人民共和
	國環境保護部);
‘‘MLR’’	Ministry of Land and Resources of the PRC (中華人民共和國國
	土資源部);
‘‘MOFCOM’’	Ministry of Commerce of the PRC (中華人民共和國商務部) or
	its predecessor, the Ministry of Foreign Trade and Economic
	Cooperation of the PRC (中華人民共和國對外貿易經濟合作部);
‘‘Mr. Huang’’	Huang Xian You (黃賢優);
‘‘MS China 3’’	MS China 3 Limited, an affiliate of Morgan Stanley;
‘‘NBSC’’	National Bureau of Statistics of China (中華人民共和國國家統計
	局);
‘‘NDRC’’	National Development and Reform Commission of the PRC (中華
	人民共和國國家發展與改革委員會);
‘‘NPC’’	National People’s Congress of the PRC (中華人民共和國全國人
	民代表大會), the national legislative body of the PRC;
‘‘PBOC’’	The People’s Bank of China (中國人民銀行);
‘‘PRC’’ or ‘‘China’’	People’s Republic of China and, for the purpose of this document,
	excludes Hong Kong, Macau and Taiwan;
‘‘PRC Company Law’’	the Company Law of the PRC (中華人民共和國公司法), effective
	on 1 July 1994, as amended, supplemented or otherwise modified
	from time to time;
‘‘PRC Government’’	the central government of the PRC including all government
	subdivisions (including provincial, municipal and other regional
	or local government entities) and instrumentalities thereof or,
	where the context requires, any of them;

– 16 –

DEFINITIONS

‘‘RMB’’ or ‘‘Renminbi’’ Renminbi, the lawful currency of the PRC;

‘‘SAFE’’ State Administration of Foreign Exchange of the PRC (中華人民共和國國家外匯管理局); ‘‘SAT’’ State Administration of Taxation of the PRC (中華人民共和國國家稅務總局); ‘‘SAWS’’ State Administration of Work Safety of the PRC (中華人民共和國國家安全生產監督管理總局); ‘‘Share(s)’’ shares in the share capital of the Company with a nominal or par value of HK$0.1 each;

‘‘Shareholder(s)’’ holder(s) of the Share(s); ‘‘Sichuan Jinshida’’ Sichuan Jiangyou Jinshida Stone Industry Co., Ltd. (四川江油金時達石業有限公司), a limited company established under the laws of the PRC on 20 September 2005 and an indirectly wholly owned subsidiary of the Company;
‘‘State Council’’ the State Council of the PRC (中華人民共和國國務院);

‘‘subsidiary(ies)’’ has the meaning ascribed to it under [.]; ‘‘Track Record Period’’ period comprising the period from 14 March 2008 to 31 December 2008, the year ended 31 December 2009 and the eleven months ended 30 November 2010; ‘‘United States’’ or ‘‘U.S.’’ the United States of America;

‘‘USGS’’ the United States Geological Survey, a fact-finding research organization of the United States government which engages in four major science disciplines concerning biology, geography, geology and hydrology;
‘‘US$’’ or ‘‘U.S. dollars’’ United States dollars, the lawful currency of the United States;
‘‘VAT’’
value added tax;

‘‘we’’, ‘‘our Company’’, China Kingstone Mining Holdings Limited or its predecessors ‘‘us’’ or ‘‘Group’’ and, except where the context otherwise requires, all of its subsidiaries from time to time;

Wongs Investment Development Holdings Group Limited, a company incorporated under the laws of the BVI with limited liability on 15 March 2010, the entire share capital of which is owned by Mr. Huang;

‘‘Wongs Investment’’

‘‘WTO’’ World Trade Organization; ‘‘XiningXining Guoxin’’’’ Xining City Guoxin Investment Holdings Co., Ltd. (西寧市國新投資控股有限公司), a limited liability company established under the laws of the PRC on 18 March 1998, which is ultimately controlled by Mr. Huang; and

‘‘XiningXining Guoxin’’’’

– 17 –

DEFINITIONS

‘‘Zhangjiaba Mine’’ the Zhangjiaba (張家壩) mine, a marble mine located in Zhenjiang Village, Xiangshui County, Jiangyou City of Sichuan Province.

The English names of the PRC nationals, entities, departments, facilities, certificates, titles and the like mentioned in this document are translations from their Chinese names. If there is any inconsistency, the Chinese name shall prevail.

– 18 –

GLOSSARY

This glossary contains definitions of certain terms used in this document in connection with us	This glossary contains definitions of certain terms used in this document in connection with us
and our business. Some of these may not correspond to standard industry definitions.
‘‘block rate’’	the percentage of the marble resources that can be mined out as
	marble stone blocks;
‘‘CaCO3’’	the chemical symbol for calcium carbonate;
‘‘calcite’’	calcium carbonate minerals;
‘‘CaO’’	the chemical symbol for calcium oxide;
‘‘cracks’’	small fractures in the stones;
‘‘designed final pit’’	a final open pit designed by the Building Materials Institute
	based on the Northwestern Sichuan Brigade’s marble resource
	model and an overall pit slope angle of 60º;
‘‘dolomite’’	a sedimentary carbonate rock and a mineral, both composed of
	Calcium magnesium carbonate CaMg(CO3)2 found in crystals,
	commercially referred to as marble;
‘‘drilling’’	a technique or process of making a circular hole in the ground
	with a drilling machine, which is typically used to obtain a
	cylindrical sample of ore;
‘‘exploration’’	activity to prove the location, volume and quality of a mine body;
‘‘footwall’’	the rock immediately underlying a mineral deposit;
‘‘glossy’’	visible light reflected off decorative surfacing marble slabs;
‘‘granite’’	a type of decorative granite stone, including various magmatic
	rocks and metamorphic rocks, with uniform granular structure,
	which is mainly composed of quartz, feldspar and small quantities
	of black minerals, and is of relatively hard texture;
‘‘Gray Net’’	a type of marble with a netted texture formed by some calcite
	veins and veinlets filling its fractures;
‘‘hanging wall’’	the rock immediately overlying a mineral deposit;
‘‘indicated marble resource’’	marble mineral resource that has been sampled by drill holes or
	other sampling procedures at locations too widely spaced to
	ensure continuity, but close enough to give a reasonable
	indication of continuity and where geoscientific data are known
	with a reasonable level of reliability;
‘‘in-situ’’	in its natural position;

– 19 –

GLOSSARY

‘‘karst cave’’ an area in which erosion has produced caverns; ‘‘K2O’’ the chemical symbol for potassium oxide; ‘‘km’’ kilometers; ‘‘km[2] ’’ square kilometer(s); ‘‘limestone’’ rocks of sedimentary origin that primarily are composed of calcium carbonate without or with limited magnesium. Certain crystalline limestone which is polishable is commercially classified as marble in the stone industry. Many decorative marbles are of this class;

‘‘m’’

meters;

‘‘m[2] ’’ or ‘‘sq.m.’’ square meter(s); ‘‘m[3] ’’ cubic meter(s);

‘‘marble’’ rock geologically defined as metamorphosed limestone or dolomite that is thoroughly recrystallized and much or all of the sedimentary and biologic textures are obliterated. Commercially in the stone industry, and as used in this document, marble also includes limestone and dolomite that is polishable. Many decorative marbles are of this class; ‘‘marble block’’ marble stones of certain specifications, which are processed from untrimmed quarry stone (stones of irregular shape directly separated from mines), and used for further processing into slabs;

‘‘marble slabs’’
‘‘measured marble resource’’
marble stones of certain specifications, which are processed from cutting, burnishing and polishing the marble blocks;
marble mineral resource that has been intersected and tested by drill holes or sampling procedures at locations close enough to confirm continuity and where geoscientific data are reliably known;
‘‘metamorphic rock’’ a rock which has undergone profound physical and/or chemical change due to high pressure or heat;
‘‘Mixed Beige’’
‘‘mine life’’
‘‘mining dilution’’
‘‘mining loss’’
‘‘mining rights’’
a type of marble with the primary color of beige mixed with milk white or grayish white colors;
the number of years that a mine is expected to continue operations based on the current mine plan;

the waste material that is taken in the process of mine extraction;

that part of a mine reserve which is not recovered during the mining process;

the rights to mine mineral resources and obtain mineral products in areas where mining activities are licensed;

– 20 –

GLOSSARY

‘‘mm’’	millimeters;
‘‘MSL’’	mean sea level;
‘‘open-pit mining’’	mining of a deposit from a pit open to surface and usually carried
	out by stripping of overburden materials;
‘‘Pure Beige’’	a type of marble with the primary color of pure beige;
‘‘proved and probable reserves’’	reserves that have been based after application of mining recovery
	and dilution facts, on an in-situ identified resource which has
	been categorized as ‘‘indicated’’ and ‘‘measured’’ under the JORC
	Code;
‘‘quarry stone’’	stones separated from mines, which include marble stones;
‘‘spalls’’	small stone materials abandoned during quarrying or processing,
	or fractions or fragments separated from stone slabs;
‘‘tailings’’	the materials left over during the process that separates the
	valuable ore from the waste rocks; and
‘‘Wood Grain’’	a type of marble with alternating color bands similar to the wood
	grain.

– 21 –

RISK FACTORS

These risks can be broadly categorized into: (i) risks relating to our business; (ii) risks relating to our industry; (iii) risks relating to conducting business in China.

RISKS RELATING TO OUR BUSINESS

As a developing mining company with a limited operating history, we cannot guarantee that we will generate revenue and grow our business as planned.

Our operating history is very limited. Sichuan Jinshida, our principal operating entity in the PRC, was established in 2005 and our business is still in an early stage of development. We commenced commercial production at our Zhangjiaba Mine in September 2010. During the Track Record Period, we focused on preparing the Zhangjiaba Mine for commercial production. As a result, we incurred a loss of RMB1.8 million, RMB5.4 million and RMB21.2 million for the period from 14 March 2008 to 31 December 2008, the year ended 31 December 2009 and the eleven months ended 30 November 2010, respectively. In addition, we had negative operating cash flows during the Track Record Period. Our limited operating history makes the evaluation of our business and prediction of our future operating results and prospects difficult. We believe that period-to-period comparisons of our operating results may not be meaningful and the results for any period should not be relied upon as an indication of future performance.

In addition, we have encountered and may continue to encounter risks and uncertainties frequently experienced by companies in the early stages of mine development, including those relating to:

. our ability to manage large-scale mining operations and to maintain effective control over operating costs and expenses;
. our ability to ramp up our capacities according to our plan;
. the quality of our marble slabs and blocks;
. our ability to develop and maintain internal personnel, systems and procedures to ensure compliance with the extensive regulatory requirements applicable to mining industry in the PRC;
. our ability to respond to changes in our regulatory environment;
. our ability to manage the logistics, utility and supply needs of our expanded operations; and
. our ability to implement, monitor and enhance our internal control system.

Our business operation depends on a single mining project.

As at the Latest Practicable Date, we had only one mining project, the Zhangjiaba Mine, which we expect to be our only operating mine in the near term and on which we will depend for substantially all of our operating revenue and cash flows in the near term. The Zhangjiaba Mine is still in its early stages of development, and its operations are subject to a number of operating risks and hazards as described elsewhere in the section headed ‘‘Risk Factors’’ in this document. If we fail to derive the expected economic benefits from the Zhangjiaba Mine due to any delay or difficulty in its development, the occurrence of any event that causes it to operate at less-than-optimal capacity or any other negative development as described elsewhere in this section, our business, financial condition and results of operations could be materially and adversely affected.

– 22 –

RISK FACTORS

We derive revenue from a limited number of products.

Our principal products are marble slabs processed and blocks mined from our marble reserves. Our beige marble products are expected to be used primarily as decorative surfacing materials for high-end commercial and public buildings, such as hotels, office buildings, museums and memorial halls. As a result, our business and profitability is dependent on our end customers’ preference and demand for premium beige marble products. Although the market demand for beige marble products is currently high and the market price of premium beige marble products, including ours, is relatively high compared to products of other colors, an adverse change in market demand, customer preference or market prices for beige marble products could have a material adverse effect on our results of operations.

The quality of our products is subject to uncertainties.

The Zhangjiaba Mine is in an early stage of development. As a result, we cannot assure you that the color, texture, quality and other characteristics of the beige marble slabs processed and blocks mined from our Zhangjiaba Mine will be consistent with the samples currently available to us. In particular, although we have entered into seven legally binding long-term sales contracts, we only made a limited number of deliveries under these contracts as at the Latest Practicable Date. Any failure to meet the requirements of any of these customers due to inferior product quality may result in harm to our reputation and reduction in orders or termination of contracts, which in turn may materially and adversely affect our business and results of operations.

Our business is exposed to uncertainties in relation to our ramp-up plan.

We have a very limited operating history. We are currently investing in the ramp-up of our marble block mining capacity and marble slab processing facilities located near the Zhangjiaba Mine. Our rampup plan requires significant development and construction to bring our mine and processing facilities to the planned levels of production. It may take longer than we currently anticipate to complete our rampup plan and there may be unforeseen delays before our mining facilities and marble slab processing facilities are able to operate at our planned capacity. For example, the near surface portions of the marble deposits are significantly affected by weathering fractures and karst caves, and producing a relatively low marble block rate. We may not be able to achieve our production goals in the upper portion of the deposit because it is highly cracked and crossed by several karst caves, which limits block production. The block rate is expected to reach the estimated 38% when the third bench (starting from approximately 890 m above MSL) of the mine is opened up for extraction, which is expected to take up to 12 months. In addition, at least 20% of the blocks mined from the third bench will be medium or small blocks. We could also experience other difficulties in achieving our planned mining and processing capacities. See ‘‘Business — Our Mineral Resources and Mining Rights — Our Marble Reserves’’ and ‘‘Appendix V — Competent Person’s Report.’’ As a result, any delay in completing our ramp-up, cost overruns, failure to obtain the intended economic benefits from our ramp-up or other reasons may adversely and materially affect our business, financial condition and results of operations.

We face risks and uncertainties associated with our mining and processing operations.

Our mining and processing operations are subject to a number of operating risks and hazards, some of which are beyond our control. These operating risks and hazards include: (i) unexpected maintenance or technical problems; (ii) periodic interruptions for our mining operations due to inclement or hazardous weather conditions and natural disasters; (iii) industrial accidents; (iv) power or fuel supply interruptions; (v) critical equipment failures in our mining and processing operations; and (vi) unusual

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RISK FACTORS

or unexpected variations in the mine and geological or mining conditions, such as instability of the slopes and subsidence of the working areas. These risks and hazards may result in personal injury, damage to, or destruction of, properties or production facilities, environmental damages, business interruptions and damage to our business reputation. In addition, the breakdown of machinery and equipment, difficulties or delays in obtaining replacement machinery and equipment, natural disasters, industrial accidents or other events could temporarily disrupt our operations.

Any disruption for a sustained period to the operations of our mine or processing plants or supporting infrastructure, or any change to the natural environment surrounding our mine, such as landslides, may have a material adverse effect on our business, financial condition and results of operations.

Failure to compete effectively with our competitors may adversely affect our business and prospects.

In the near term, we plan to focus on the domestic PRC beige marble market, which is highly fragmented and competitive. As our premium beige marble products are expected to be used primarily as decorative surfacing materials for high-end commercial and public buildings, such as hotels, office buildings, museums and memorial halls, we not only face the competition from domestic marble miners, but also, more importantly, the marble miners and suppliers from overseas. Such competition is driven by many factors, including marble mine quality, the ability to supply marble blocks in large quantity and with specified and consistent physical and appearance characteristics, brand recognition, transportation distance and delivery convenience and pricing. Some of our competitors may have greater financial, marketing, distribution and other resources and technological development capabilities than we do. In addition, beige marble resources are relatively plentiful in Sichuan, including areas surrounding the Zhangjiaba Mine, and certain other areas of China. If these resources are exploited, we will face additional competition from operators of these mines. Our failure to compete effectively could materially and adversely affect our business, financial condition, results of operations and market position.

Our business and product quality are affected by the performance of our third-party contractors.

We engage third-party contractors for marble slab processing during mine construction and other operations pursuant to service contracts. We currently do not operate any processing facilities and, therefore, we outsource the processing of our marble slabs to third parties. The quality of our marble slabs is affected by the processing quality of our third-party contractors. We may not be able to manage the quality of processing by third-party contractors effectively. As a result, our operations are affected by the performance of our third-party contractors. We may also be unable to successfully develop our own internal reliable processing capacities. If the quality of processing proves inconsistent among our third-party contractors and we are unable to ramp up our own processing capacities, our sales contracts may be terminated and orders may be reduced, which could result in harm to our reputation and price or volume reduction of our product sales, which may in turn materially and adversely affect our business and results of operations. In addition, because we do not have long-term cooperative relationships with each of our third-party contractors, any failure to retain our third-party contractors or seek replacements on favorable terms, or at all, may also have a material adverse effect on our business and results of operations.

Such third-party contractors are required to carry out their work in accordance with the design and schedule of the relevant assignments as well as with our safety and environmental protection standards, which are typically defined in the contracts we sign with them. Our specialized technical management

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personnel typically supervise the work performed by such third-party contractors and regularly inspect safety management. However, we cannot guarantee that we will be able to control at all times the safety and environmental protection standards of the work performed by such third-party contractors to the same extent as when the work is performed by our own employees. Any failure by these third-party contractors to meet our safety and environmental protection standards may result in our liability to third parties and have a material adverse effect on our business, results of operations, financial condition and reputation. In addition, any under-performance or non-performance by these third-party contractors could also affect our compliance with government rules and regulations relating to exploration, mining and workers’ safety.

Our business depends on the availability of reliable and adequate transportation capacity for our products.

We anticipate that most of our customers in the near future will be located in China. Our ramp-up plan and associated higher sales volume could increase demand on both the paved highway and the provincial highway connecting our mine to our customers. If we are, or the local government is, unable to ramp up the capacity of these roadways in a timely manner, or these roadways are significantly damaged or cut off for an extended period of time, the delivery of our products would be significantly affected, and we may lose our customers and be in default of existing sales contracts. In addition, a portion of our products will be transported by national railway system to distant customers. Because the PRC national railway system operator allocates transportation capacity to users based on its assessment of available capacity and such capacity is generally limited, there can be no assurance that adequate railway transport capacity will be made available to our operations, or that we would not experience any material delay in transporting our marble products to our customers.

As transportation costs are generally a significant component of the costs of purchase for our customers, any fluctuation in transportation costs may have an adverse effect on the demand for our products. Any material increase in the transportation costs for products procured from our Zhangjiaba Mine would cause our customers to select suppliers closer to their operations and who are able to supply marble blocks or marble slabs with quality considerably similar to ours or to demand significant lower prices for our products. Any such adverse development could have a material adverse effect on our business, financial condition and results of operations.

Our mining project and ramp-up plan are capital intensive.

We require capital to fund our expenditures associated with our Zhangjiaba Mine and our processing facilities. We currently fund our capital expenditures with capital contributions from our [.] and short-term and long-term bank borrowings. We expect the total capital expenditures to increase our marble block mining capacities at the Zhangjiaba Mine to be RMB366.7 million. During the Track Record Period, our capital expenditure in connection with our ramp-up plan of the marble block mining capacities at the Zhangjiaba Mine totaled RMB83.0 million. We expect the total capital expenditures for construction and equipment procurement for the processing facilities to be RMB421.7 million. During the Track Record Period, we incurred capital expenditure of RMB1.0 million in relation to the processing facilities. However, our estimated capital expenditures for the ramp-up plan and the construction of processing facilities may vary from actual capital expenditures due to our early stages of development. Estimates of project capital are rarely more accurate than ±10% and will be at least ±15% for projects in the development stages, according to the Competent Person’s Report.

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We expect the ramp-up of our Zhangjiaba Mine and the construction of our marble slab processing facilities to be financed by [.], capital contributions from our [.] with the proceeds from the issuance of the Exchangeable Note and our operating cash flows. There can be no assurance that we will generate sufficient cash flows for our intended ramp-up plan, or at all. In the event that we do not have such cash flows, we may be required to seek alternative financing.

Our ability to obtain additional financial resources on acceptable terms is subject to uncertainties with respect to, among others:

. investors’ perception of the appetite for securities of companies engaged in the mining, production and processing of marble;
. conditions in the capital and financial markets in which we may seek to raise funds;
. our future results of operations, financial condition and cash flows;
. the PRC government’s approval and regulation of foreign and domestic investment in companies engaged in marble mining, production and processing;
. economic, political and other conditions in China and the rest of the world;
. the amount of capital that other Chinese entities may seek to raise in the foreign capital markets; and
. the PRC governmental policies relating to foreign currency borrowings.

If we fail to manage our liquidity situation carefully, our ability to expand and, in turn, our results of operations may be materially and adversely affected.

As at 31 December 2009, we had net current liabilities of RMB38.6 million primarily because our mine was in an early stage of development during the year. A net current liability position may impair our ability to make necessary capital expenditures, develop business opportunities or make strategic acquisitions. As at 30 November 2010, we had net current assets of RMB15.4 million. The increase was principally due to the receipt from Wongs Investment of the proceeds from the issuance of the Exchangeable Note with a principal amount of US$15.0 million. Our current ratio, calculated as current assets divided by current liabilities, was 4.4%, 13.6% and 118.5% as at 31 December 2008, 31 December 2009 and 30 November 2010, respectively. Our gearing ratio, calculated as total liabilities divided by total assets, was 69.3%, 87.0% and 39.6% as at 31 December 2008, 31 December 2009 and 30 November 2010, respectively. In addition, we had negative operating cash flows for the year ended 31 December 2009 and the eleven months ended 30 November 2010 as a result of our preparation for the commencement of commercial production. We have historically relied on funding from our [.] and bank borrowings guaranteed by third-party guarantee companies. In the future, we expect to increasingly rely on cash flows from operations to fund our capital expenditure needs. However, there can be no assurance that our business will generate sufficient cash flows from operations in the future to serve any future debts and make necessary capital expenditures. If we are unable to do so, we may be required to seek additional financing, dispose of certain assets or seek to refinance some or all of our future debts. We may also in the future seek to enter into borrowing facilities. If we are unable to repay any of our future debts when they fall due, our creditors may take action to recover such debts, which may have a material adverse effect on our business, financial condition and results of operations. If we are unable to raise additional funding or there is a delay in obtaining such funding, our business, financial condition and results of operations may be materially and adversely affected.

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We may not be able to achieve the level of profitability as expected.

In 2010, we entered into long-term sales contracts with seven customers in China. These sales contracts provide for an aggregate sales volume of 1,025,000 m[2] , 1,610,000 m[2] and 2,015,000 m[2] of marble slabs in 2011, 2012 and 2013, respectively. Our customers are obligated to purchase a minimum of 90% of the annual volume set out in the contracts and are required to pay a penalty of 20% or 30% of the shortfall sales value if they purchase less than 90% of the contracted volume. Our customers are not obligated to renew or extend the existing sales contracts with us. If our customers, for any reason, elect to pay the penalty in lieu of purchase the minimum volume, our profitability will be materially and adversely affected.

Because we have only commenced commercial production in September 2010, we cannot assure you that the quality of our products will meet the expectations of our customers. There also can be no assurance that we will be able to deliver the products pursuant to the long-term sales contracts without any significant delay, or at all. As a result, we may be required to pay the liquidated damage or other remedies due to any failure in due delivery of the products. The sales prices under these contracts are fixed subject to limited adjustments. We may not be able to obtain consents from our customers to adjust the sales prices based on market conditions and we cannot guarantee that our sales under these contracts will result in any profit. In addition, our number of customers is relatively limited, and there is no assurance that we will be able to successfully increase our number of customers or continue to have the similar amount of contracts or purchase commitments at comparable price. Furthermore, as estimates of operating costs are rarely more accurate than ±10% and will be at least ±15% for projects in the development stages according to the Competent Person’s Report, our estimated operating costs for our mining and processing activities may vary from actual operating costs due to our early stages of development. Consequently, we could be adversely affected by lack of purchase orders or commitments from our existing or new customers, material modification, termination, cancellation or non-renewal of our existing sales contracts, any significant decrease in order volume or price, cost overrun or significant delay, any of which could result from a general economic downturn, the entry of new competitors into our primary market, the introduction by others of new or improved production technology, unanticipated shift in customers preference or any other factors affecting the demand for our products. Any of these adverse developments could have a material and adverse effect on our business, financial condition and results of operations.

Our future growth may depend, in part, on our ability to acquire other marble mines or businesses in our industry.

We expect to continue to grow our operations, in part, by acquiring additional mine reserves and strategic businesses in our industry. The continued success of our acquisition plan will depend on our ability to identify and acquire attractive mine reserves at a reasonable price, as well as to integrate acquired resources into our existing operations. Such acquisition plans may also be delayed or adversely affected by various factors, including the failure to obtain the relevant regulatory approvals, the inability to secure sufficient financing to fund our expansion, the occurrence of geotechnical difficulties and constraints on managerial personnel. We cannot assure you that our plans to expand or acquire additional reserves and resources or to make selective acquisitions or enter into joint ventures or other business arrangements will be successful.

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We may have difficulty managing our growth effectively.

Our future expansion, whether through organic growth or acquisitions, requires us to maintain a stable workforce of qualified and skilled workers and efficiently allocate our resources. We must attract, recruit, train and retain qualified personnel effectively to guarantee a stable workforce. In addition, our future expansion may place significant strains on our managerial, operational, technical and financial resources. In order to better allocate our resources to manage our growth, we must hire, recruit and manage our workforce effectively and implement adequate internal controls in a timely manner. In the event that we fail to effectively manage our internal resources, such as our facilities and logistics, and to secure external sources of funding for future growth, we may encounter, among other things, delays in production and operational difficulties. The inability to manage our workforce, internal resources allocation and the associated enlarged scale of our operations effectively could have a material adverse effect on the output and quality of our products, our ability to attract and retain key personnel and our business or prospects.

Failure to retain our management team and other key personnel could harm our business.

We place substantial reliance on the experience and knowledge of our geological experts, technical personnel and management officers. We cannot prevent employees from terminating their respective contracts in accordance with the relevant agreed conditions. Finding suitable replacements for such key personnel could be difficult and time-consuming, and competition for such personnel with rich experience is intense. The loss of the services of one or more members of our key management personnel due to their departure or other reasons could materially and adversely affect our business, financial condition and results of operations.

Our success also depends on the ability of our management team to cooperate effectively as a group. Furthermore, our ability to recruit and train skilled operating and maintenance personnel is a key factor to the success of our business activities. If we fail to recruit, train and retain such personnel, our business, financial condition and results of operations could be materially and adversely affected.

We may not be able to renew the approvals required to temporarily use the land within some of our mine area and facilities.

Our mine is located in Zhenjiang Village, Xiangshui County, Jiangyou City of Sichuan Province. The land within our permitted mining area is collectively owned by the villagers and is designated for agricultural use, including forestry land and other kinds of agricultural land. In order to carry out successful mining and exploration activities, our ability to obtain land use rights is of vital importance. We have obtained approvals to temporarily use an area of approximately 102,614.51 m[2] of land collectively owned by the villagers and begun taking measures to convert land designated for agricultural use into land for industrial use with respect to the land that is used or to be used in the near future by us. For the purpose of using such land, we had signed lease contracts with the relevant land owners, village committee and villagers. The validity periods of the temporary land use rights is two years and will expire between March and July 2012. We intend to apply to renew the existing short-term land use rights. We also intend to apply for short-term land use rights for the parcels of land as needed within the remaining 377,144.55 m[2] of land in the mining area covered by the applicable mining permit of our Zhangjiaba Mine from time to time according to our long-term mining plans. Uncertainties exist as to whether we can renew the existing temporary land use rights or obtain the new temporary land use

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rights. If we fail to renew the existing temporary land use rights or obtain the new temporary land use rights, we may be unable to utilize the full mineral resources and, as a result, our operations might be substantially affected.

If our rights to lease land from the land owners are subject to a dispute, or if their legality or validity is challenged, our operations could be disrupted.

PRC law provides for the registration of land ownership and land-use rights and for the issuance of certificates evidencing land ownership or the right to use land. However, the administrative system for registration of land ownership and land-use rights is not well-developed in rural areas where most of our mining areas are located. As a result, we are generally not able to verify through the land registry system the ownership or land-use rights of the parties from whom we have leased land. Despite our efforts to obtain representations from the land owners, Group 1 and 3 of Zhenjiang Village, that they own the land, possess land-use rights or have the right to sub-contract the land-use right, there is nevertheless a risk that they have not legally and validly granted the right to use the land to us. Moreover, there is a risk that the land owners will, in breach of the terms of the applicable leases, enter into leases with other third parties in respect of land-use rights which they have previously granted to us, or that they have entered into leases with third parties before entering into leases with us.

In addition, there is no specific legal provision in connection with internal voting and meeting procedures of entities like Group 1 or 3 of Zhenjiang Village. Although the leases between these groups and us have been approved by more than half of the attendants who consist of more than two thirds of the representative of villager families at relevant meeting, there is nevertheless a risk that these groups have not undertaken all required actions prior to entering into leases with us.

Our failure to obtain, retain and renew government approvals, permits and licenses required for our mining activities could materially and adversely affect our business, financial condition and results of operations.

Under the Mineral Resources Law of the PRC (中華人民共和國礦產資源法), all mineral resources in China are owned by the State. Mining companies, including our Company, are required to obtain certain government approvals, permits and licenses prior to undertaking any exploration, mining and relevant production activities. The exploration and mining permit is limited to a specific area and time period. Therefore, whether we can carry on mining activities depends on our ability to obtain mining permits and other approvals and permits from relevant PRC authorities and to renew such approvals and permits upon their expiration. The PRC Government’s willingness to issue, renew and not revoke the mining permits materially affects our operation.

Under PRC laws and regulations, before a marble production company can commence production, it must obtain, among other things:

. approval or filing of the relevant project evaluation application from or with the NDRC or its local bureau;
. an environmental impact assessment report, the approval of such report and the approval of the examination and acceptance from MEP or its local bureau;
. a production safety permit from the SAWS or its local bureau; and
. a mining permit from the MLR or its local bureau.

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At present, we hold a mining permit for the Zhangjiaba Mine covering a mining area of 0.44 km[2] with an elevation from 590 m to 938 m above MSL. The mining permit will expire in 2021 and is expected to be renewed upon expiration subject to certain statutory requirements and conditions. We hold a production safety permit which allows us to produce decorative surfacing limestone (飾面用灰岩). The production safety permit will expire on 16 June 2012 and is expected to be renewed for three years, subject to completion of certain administrative examination and approval procedures. These permits and approvals, nevertheless, will expire from time to time. We intend to apply to the competent authorities for an extension upon the expiration of each of our permits, licenses and approvals. Our applications for renewals are subject to a certain degree of government discretion, and there is no guarantee that we will be able to obtain any extension of the permits in the future. In addition, in the event that we identify prospective mine resources, either in the Zhangjiaba Mine or any mines we acquire in the future, there is no assurance that mining permits can be successfully obtained. If we are unable to obtain any of such permits or renew any of current permits upon their expiration, our business and results of operations could be materially and adversely affected. It should also be noted that we may not fully and economically utilize the entire mine resources at the preliminary stage of our project due to strategic concerns.

The occurrence of natural disasters could have a material adverse effect on our operations.

Our mining and marble block processing operations are conducted outdoors. As a result, unfavorable weather conditions in the mining area could affect our operations and business. Inclement weather conditions, including heavy and sustained rainfall, cold weather, heavy fog and snow may cause us to reduce our mining activities and impede our transportation of stone blocks. Adverse weather conditions may also increase our costs and reduce our production output as a result of potential equipment and facility repair and maintenance, power outages, personnel evacuation and similar events. Any resulting damage to our projects or delays in our operation could materially and adversely affect our business and results of operations.

Natural disasters, such as earthquakes, floods, and landslides, could also severely hamper our operations. We did not incur any expenses or suffered any losses during the Track Record Period as a result of any earthquake, flooding, mudslide or any other natural disasters occurred in Sichuan that have had a material adverse effect upon our business, financial condition and results of operations. However, we cannot assure you that such natural disasters will not, among other things, damage our facilities and the surrounding infrastructure, block the access to the Zhangjiaba Mine and result in a suspension of our operations for an unpredictable period of time.

Our operations are exposed to risks relating to occupational hazards and production safety.

As a mining company, we are subject to extensive laws, rules and regulations imposed by the PRC Government regarding production safety. In particular, our exploration and mining operations involve the handling and storage of certain dangerous articles. In addition, our operations involve the use of heavy machinery, which involves inherent risks that cannot be completely eliminated through prevention efforts. We or our third-party contractors may encounter accidents, maintenance or technical difficulties, mechanical failures or breakdowns during the exploration, mining and production processes. The occurrence of such accidents may disrupt or result in a suspension of our operations, increase production costs, result in liability to us and harm our reputation. Such incidents may also result in a breach of the

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conditions of our exploration and mining permits, or any other consent, approvals or authorizations obtained from the relevant authorities, which may result in fines and penalties or even possible revocation of our mining and exploration permits.

Our operations are also subject to manufacturing, operating and handling risks associated with the products we produce and the products we use in our operations, including the related storage and transportation of raw materials, products, hazardous substances and wastes. We are exposed to hazards including discharges or releases of hazardous substances, exposure to dust and the operation of mobile equipment and manufacturing machinery. These risks can subject us to potentially significant liabilities relating to personal injury or death or property damage, and may result in civil or criminal penalties, which could hurt our productivity, profitability and/or reputation. On 25 December 2010, an accident resulting from a failed diamond wire saw deployed for marble cutting operations occurred at the Zhangjiaba Mine. The accident resulted in the death of an employee at the mining site. See ‘‘Business — Occupational Health and Safety’’ for more details.

We cannot assure you that accidents such as fires, equipment mishandling and mechanical failures which may result in property damage, severe personal injuries or even fatalities will not occur during the course of our operations. Should we fail to comply with any relevant laws, regulations or policies or should any accident occur as a result of any of the foregoing events, our business, reputation, financial condition and results of operations may be adversely affected, and we may be subject to penalties, civil liabilities or criminal liabilities. In order to ensure the safety of our employees and the employees of third-party contractors and to avoid any accidents, we have established a set of safety policies that require our employees to have a good understanding of rescue procedures and escape routes. Despite our endeavors to enhance workplace safety, there can be no assurance that accidents will not occur in the future.

Our current insurance cannot adequately cover all losses and liabilities arising from our operations.

Consistent with the practice in mining industry, we have obtained insurance for personal injuries and our vehicles, both of which are compulsory in nature. This practice is in place to protect us from substantial expenditures, however, it does not fully cover us from other potential risks and losses. According to the relevant PRC laws and regulations, we will be liable for losses and costs arising from accidents resulting from fault or omission on the part of us or our employees. Should any accidents happen due to negligence on the part of us or our employees, we could be confronted with civil litigation or criminal litigation and expect to incur substantial losses. In addition, we do not obtain any fire, earthquake insurance or property insurance with respect to our properties, facilities or inventory, except for insurance coverage on our vehicles. In the event that we incur substantial losses or liabilities but we are not insured against such losses or liabilities, or that our insurance is unavailable or inadequate to cover such losses or liabilities, our business, financial condition and results of operations could be materially and adversely affected.

Our customers from time to time could claim that our products do not meet contractual requirements, and users could claim to be harmed by use or misuse of our products. This could give rise to breach of contract, warranty or recall claims, or claims for negligence, product liability, strict liability, personal injury or property damage. Product liability insurance coverage may not be available or adequate in all circumstances.

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There is no assurance that safety measures, processes and policies we have in place for our operations will be sufficient to mitigate or reduce casualties or accidents and to investigate and address claims related to product liabilities. There is also no assurance that our insurance coverage will be sufficient to cover losses associated with material accidents or claims arising from product liabilities, patent infringement, environmental protection liabilities, distributor terminations, commercial contracts, antitrust or competition law, employment law and employee benefit issues, and other regulatory matters. In the event that we incur substantial losses or liabilities and our insurance is unavailable or inadequate to cover such losses or liabilities, our business, financial condition and results of operations may be materially and adversely affected.

Our [.] have substantial influence over us and their interests may not be aligned with the interests of our other Shareholders.

Immediately following [.], our [.] will remain the [.] of the Company with substantial control over its issued share capital. We expect our [.] to remain passive investors. However, we cannot assure that they will not have significant influence over our business and affairs, including, but not limited to, decisions with respect to: (i) mergers or other business combinations; (ii) acquisition or disposition of assets; issuance of additional shares or other equity securities; (iii) timing and amount of dividend payments; and (vi) appointment of managers.

Our [.] may cause us to, or prevent us from, entering into certain transactions, the result of which might not be in, or may conflict with, the best interests of our other Shareholders. We cannot assure you that our [.] will vote on Shareholders’ resolutions in a way that will benefit all of our Shareholders.

We may incur impairment losses related to our mining rights and related assets, which may adversely affect our results of operations.

Based on our accounting policy, our mining rights are amortized over the estimated useful lives of the mine, in accordance with the production plans of the entities concerned and the proved and probable reserves of the mine using the unit of production method, rather than on a straight line basis over the estimated mine life. The process of estimating quantities of reserves is inherently uncertain and complex and requires significant judgments and decisions based on available geological, engineering and economic data. If the value of our mining rights is over-estimated, the over-estimated amounts will be recognized as impairment losses, which in turn may have a material adverse effect on our result of operations.

The carrying amount of the property, plant and equipment, including mining infrastructure and mining rights, are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with the accounting policy as disclosed in the relevant part of this section. Estimating the value in use requires us to estimate future cash flows from the cash-generating units and to choose a suitable discount rate in order to calculate the present value of those cash flows. Any material decrease in the amount of our reserves may result in impairment on the carrying value of our mining rights and related assets, which may have a material adverse effect on our business, financial condition and results of operations.

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Our marble resources and reserves are estimates based on a number of assumptions, and we may produce less than our current estimates.

The marble resource, reserve and the block rate estimates are based on a number of assumptions that have been made by the Independent Technical Consultant in accordance with the JORC Code. See ‘‘Appendix V — Competent Person’s Report’’ in this document. Resource and reserve estimates involve expressions of judgment based on various factors such as knowledge, experience and industry practice, and the accuracy of these estimates may be affected by many factors, including quality of the results of exploration, drilling and analysis of marble samples, as well as the procedures adopted by and the experience of the person making the estimates.

Estimates of the resources, reserves and the block rate at our Zhangjiaba Mine may change significantly when new information becomes available or new factors arise, and interpretations and deductions on which resource, reserve and block rate estimates are based may prove to be inaccurate. Should we encounter mineralization different from that predicted by past drilling, sampling and similar examination, mineral resource and/or reserve estimates may have to be adjusted downward. In addition, if the block rate is required to be adjusted downward based on actual mining results, our marble reserve estimate will also need to be adjusted downward, which will lead to decreased mine life, and our production cost will increase if we were to maintain the same planned production volume. The occurrence of any of the foregoing could materially affect our development and mining plans, which could materially and adversely affect our business and results of operations.

In addition, the mineralogical and chemical composition, bulk density, hardness and water absorption, mechanical properties and radioactivities of marble ultimately mined may differ from those indicated by drilling results. There can be no assurance that the block rates derived from drilling and sampling will be duplicated under on-site conditions or in production scale operations. See ‘‘Business — Our Mineral Resources and Mining Rights — Our Marble Reserves.’’ In the event that the marble mined is of a lower quality than expected, the demand for, and realizable price of, our marble may decrease. Short-term factors relating to reserves may also materially and adversely affect our business and results of operations.

The inclusion of resource and reserve estimates should not be regarded as a representation that all these amounts can be economically exploited and nothing contained herein (including, without limitation, the estimates of mine lives) should be interpreted as assurance of the economic lives of our marble reserves and resources or the profitability of our future operations.

RISKS RELATING TO OUR INDUSTRY

Fluctuations in the market price for our beige marble products could materially and adversely affect our business, financial condition and results of operations.

Our principal products are marble slabs processed and blocks mined from our marble reserves. The prices of our marble blocks and marble slabs are determined mainly by the quality and color of the stone. Nevertheless, the popularity and reputation of the beige marble products also substantially affect the prices of our products. Our marble mine produces beige marble products, which is considered a classic color for marble. However the popularity of our products could lapse due to customers’ changing preference, leading to the fall of the price of our products. In addition, imbalance in the supply of and demand for beige marble products in local, national and global markets could adversely affect the price of our products. Government policies, macro economic factors, global economic environment and other

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factors beyond our control could significantly result in an oversupply or decreased demand for marble products, which in turn would result in fluctuations in the market price. There can be no assurance that the market price of beige marble products will not decline in the future or that such prices will otherwise remain at sufficiently high levels to support our profitability. A significant decline in the market prices of beige marble products could materially and adversely affect our business, financial condition and results of operations.

Virtually all of our revenue and our operating costs are denominated in Renminbi. If Renminbi continues to appreciate against U.S. dollars, our price advantage will gradually diminish. As a result, our customers in China may shift to imports of beige marble products from other countries.

We are affected by the level of demand in the real estate development industry, which may experience a significant downturn.

The demand for marble blocks and marble slabs is affected by the growth of the commercial and residential real estate development industries in China, which could in turn be affected by a number of factors, such as the strength of the commercial and residential property markets, the level of disposable income, consumer confidence, unemployment rate, interest rates, credit availability and volatility in the stock markets. Recently, to ensure the availability of affordable housing, the PRC Government has implemented a series of measures to discourage speculation in the property market in China. On 17 April 2010, the State Council issued the Notice of the State Council Regarding Control of Excessively Prompt Increase in Property Prices in Certain Cities (國務院關於堅決遏制部分城市房價過快上漲的通知) (the ‘‘Guo Fa [2010] No. 10’’). According to Guo Fa [2010] No. 10 and Notice on Further Implementation of the Guo Fa [2010] No. 10 (關於進一步貫徹落實國發[2010]10號文件的通知) issued by the Ministry of Supervision, MLR and Ministry of Housing and Urban-Rural Development on 30 September 2010 and the Notice of General Office of the State Council on Issues of Further Regulation and Control of the Real Estate Market (國務院辦公廳關於進一步做好房地產市場調控工作有關問題的通知), the minimum down payment ratio for second houses was increased to 60%. The State Council also required the mortgage banks to strictly adhere to the policy of charging mortgage rates no less than 110% of the corresponding benchmark lending rate on purchases of second houses. In addition, on 8 March 2010, MLR issued the Notice of the Ministry of Land and Resources Regarding Questions Relating to the Strengthening of Supply and Supervision of Land (國土資源部關於加強房地產用地供應和監管有關問題的通知), which requires execution of land grant contracts within ten days from the land grant. According to such notice, 50% of the land grant fees are required to be paid within one month from execution of contract and the remaining land grant fees are required to be paid according to schedules stated in the contract and no later than one year. In addition, the real estate market in the PRC may also be negatively affected by the reform of real estate tax (房產稅) system in respect of levying real estate tax on individual owned real estate which is not used for business purpose, which has been implemented by certain governmental authorities and may be implemented by the national governmental authorities. Recently, prudent monetary policy (穩健的貨幣政策) was implemented in the PRC and the credit policies may be adjusted accordingly. Specifically, the PBOC raised the reserve requirement ratio by 0.5% each time on 16 November 2010, 29 November 2010 and 20 January 2011. Meanwhile, the interest rate was raised twice, each of 0.25%, on 20 October 2010 and 26 December 2010. Such significant adjustments in monetary instruments may result in tightened liquidity, controlled money supply and credit and reduced capital available for property development and construction activities and may adversely affect the growth rate of the property market. Accordingly, any decrease in residential real estate development and construction activities in general (including a continued decrease in residential construction or a weakening of commercial construction) could result in a decrease in

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demand and associated decrease in sales volume or selling prices of our marble products, reduced profit margin and tightened liquidity available to us, any of which may have a material adverse effect on our business, financial condition and results of operations.

A decline in public sector construction and reductions in governmental funding could adversely affect our business and results of operations.

We expect a large part of our sales volume of our marble slabs will be made to contractors on publicly funded construction projects, such as museums, memorial halls, libraries, hospitals, airports and other government-operated buildings. If, as a result of a loss of government funding, or a protracted delay or a significant reduction in national or provincial budgets, spending on publicly funded construction were to be reduced significantly, our earnings and cash flows could be negatively affected. In addition, public infrastructure construction activities are directly related to the amount of government funding available for such projects. Any decrease in the amount of government funds available for such projects could have a material adverse effect on our business, financial condition and results of operations. Further, any delays in expenditure of stimulus funds designated for public work projects could have a material and adverse effect on us.

Changes in legal requirements and governmental policies concerning environmental protection and other areas of laws could impact our business.

Our operations are affected by numerous national, provincial and local laws and regulations related to environmental protection, land use, occupational health, production safety and other matters that govern our operations. There are inherent risks of liabilities in our business operation, particularly environmental protection liabilities. Our operations also require numerous governmental approvals and permits, which could require us to make significant capital and maintenance expenditures to comply with relevant laws and regulations. These potential liabilities arising from any non-compliance could have an adverse impact on our operations and profitability.

Our revenues are dependent on the continued operations of our mine and marble slab processing facilities in Jiangyou, Sichuan Province. We are subject to various PRC environmental protection regulations relating to a broad range of environmental protection matters, such as land rehabilitation, air emissions, noise control, discharge of wastewater and pollution, waste disposal and radioactive element disposal control relating to our production activities. These environmental protection laws and regulations are complex and constantly evolving and are becoming more stringent. We are not always able to quantify the cost of complying with such laws and regulations. Any violation of the PRC environmental protection regulations could subject us to a substantial fine, damage our reputation, result in delays in production or result in a temporary or permanent closing of some or all of our production facilities. Additionally, if any one of our suppliers fails to comply with environmental protection regulations, we may need to seek alternative supplies of certain materials, which may not be available on favorable terms. We cannot assure you that the national or local authorities will not enact additional laws or regulations or amend or enforce new regulations in a more rigorous manner. Changes in environmental protection regulations may require us or our suppliers to alter production processes, which could result in increased costs and could harm our financial condition and results of operations. In addition, environmental protection liability insurance is not mandatory in the PRC. Any significant environmental protection liability would harm our business, financial condition and results of operations. For further details on our environmental protection compliance, please refer to the section headed ‘‘Business — Environmental Protection and Land Rehabilitation’’ in this document.

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We are also subject to future events, including changes in existing laws or regulations or enforcement policies, or further investigation or evaluation of the potential health hazards of some of our products or business activities, which may result in additional compliance and other costs. Stricter laws and regulations, or more stringent interpretations of existing laws or regulations, may impose new liabilities on us, reduce operating hours, require additional investment by us in pollution control equipment, or impede the opening of new or expanding existing plants or facilities. We could be forced to invest in preventive or remedial action, like pollution control facilities, which could incur substantial costs. Such costs, liabilities or disruptions in operations could materially and adversely affect our business, financial condition and results of operations.

Changes to the PRC laws, regulations and governmental policies for the mining industry may restrain our performance and subject us to potential liabilities.

The PRC local, provincial and central authorities exercise a substantial degree of control over the mining industry in China. Our operations are governed by a wide range of PRC laws, regulations, policies, standards and requirements in relation to, among other things, mine exploration, production of stone products, taxation, labor standards, foreign investment and operation management. Any changes to these laws, regulations, policies, standards and requirements or to the interpretation or enforcement thereof may incur additional compliance efforts and increase in our operating costs and thus adversely affect our business, financial condition and results of operations.

In addition, our operations are subject to PRC laws and regulations relating to occupational health and safety for the mining industry. For additional information regarding the Company’s compliance with respect to occupational health and safety laws and regulations, see ‘‘Business — Occupational Health and Safety.’’ Mining companies that fail to comply with the applicable safety laws and regulations may be subject to fines, penalties or even suspension of operations. At the same time, relevant government authorities regularly conduct safety inspections of the mines and facilities of mining companies. The timing and the outcome of such safety inspections, nevertheless, is hard to predict since their standards are somewhat obscure. Failure to pass the safety inspections may harm our corporate image, reputation and the credibility of our management, and thus have material adverse effect on our financial condition and results of operations.

There is no assurance that we will be able to fully comply with any new PRC laws, regulations, policies, standards and requirements applicable to the stone mining industry or any changes in existing laws, regulations, policies, standards and requirements economically or at all. Furthermore, any such new PRC laws, regulations, policies, standards and requirements or any such changes in existing laws, regulations, policies, standards and requirements may also constrain our future expansion or ramp-up plans and adversely affect our profitability.

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RISKS RELATING TO CONDUCTING BUSINESS IN CHINA

Adverse changes in political, social and economic policies of the PRC Government could have a material adverse effect on the overall economic growth of China.

We conduct substantially all of our business operations in China. As discussed before, China’s economic growth can affect construction industry, which in turn will affect our business. Therefore, our results of operations are sensitive to the economic, political and legal environment in China, and China’s overall GDP growth. The Chinese economy differs from the economies of most developed countries in many respects, including that it:

. has a high level of government involvement;
. is in the early stages of development of a market-oriented economy;
. has experienced rapid growth;
. has a tightly controlled foreign exchange policy; and
. is characterized by inefficient allocation of resources.

While the Chinese economy has undergone significant growth during the past 30 years, the growth has been uneven across different regions and among various economic sectors. A substantial portion of productive assets in China, including mines, remain state-owned and the PRC Government exercises a high degree of control over these assets. In addition, the PRC Government continues to play a significant role in regulating industrial development by imposing industrial policies and regulating allocation of resources by means of setting monetary policy and providing preferential treatment to particular industries or companies.

Financial market in China could also be unpredictable. The PBOC’s statutory deposit ratio and lending guideline imposed on commercial banks may restrain loan market and materially affect our liquidity and access to capital.

Our results of operations and financial condition could also be adversely affected by governmental control over capital investment or changes in environmental protection, health, labor and tax regulations applicable to us.

The PRC legal system is evolving and has inherent uncertainties that could limit the legal protection available to you and us.

The PRC legal system is a civil law system based on written statutes. Unlike common law systems, prior court decisions may be cited for reference but have limited value as precedents, or at all. Since 1979, PRC legal system evolves rapidly and a lot of laws and regulations governing economic matters in general such as foreign investment, corporate organization and governance, commerce, taxation and trade are promulgated by competent authorities. Some of these laws and regulations are relatively new, so the volume of published cases in relation to these laws and regulations are limited. In addition, the interpretations of many laws, regulations and rules are not always consistent and uniform and the enforcement of these laws, regulations and rules involves uncertainties. These uncertainties could limit the legal protections available to us and other foreign investors. Furthermore, any litigation in China may be protracted, resulting in substantial costs and diversion of our resources and management

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attention. As Chinese legal system continues to evolve, we cannot predict the future development in PRC legal system, including promulgation of new laws, changes to existing laws or the interpretation and enforcement thereof.

Government control of currency conversion and fluctuation in the exchange rate between the Renminbi and other currencies could negatively affect our financial condition, operations and our ability to pay dividends.

Virtually all of our revenue is denominated and settled in Renminbi. The PRC Government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade related transactions, can be made in foreign currencies without prior approval from the SAFE or its local counterparts provided that we satisfy certain procedural requirements. However, capital account transactions must be approved by or registered with the SAFE or its local branch. The PRC Government may also at its discretion restrict access in the future to foreign currencies for current account transactions.

Since a significant amount of our future cash flows from operations will be denominated in Renminbi, any fluctuation in exchange rate between RMB and other currencies may limit our ability to purchase goods and services outside of China or otherwise fund our business activities that are conducted in foreign currencies. In addition, if the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our Shareholders.

Changes in the PRC laws, regulations and policies governing our mining activities could adversely affect our business, financial condition and results of operations.

Our operations in China are subject to various laws, regulations and policies. These laws, regulations and policies affect many aspects of our operations, including industry-specific taxes and fees, business qualifications, capital investment and environmental protection and safety standards. We may face significant constraints on our ability to implement our business strategies, to develop or expand our business operations or to maximize profitability due to unfavorable changes. Our business may also be affected by policies proposed by the PRC Government with regard to mine resources. For example, under the regime of scientific approach of development, exploitation of resources shall be conducted on a sustainable basis. These kinds of proposals have a de facto influence in China and may have an impact on our future operations. Besides factors arising from our industry, the macroeconomic control measures implemented by the PRC Government may also have an impact on the demand and supply conditions applicable to our products and affect our business accordingly.

Enforcement of judgments from non-PRC courts against us or our Directors or officers who live in China could be difficult.

The legal framework to which we and our operating subsidiaries are subject is materially different from that of other jurisdictions, including Hong Kong and the United States, particularly with respect to the protection of minority shareholders. However, in 2005, the PRC Company Law (中華人民共和國公司法) was amended to allow shareholders to commence an action against the directors, officers or any third party on behalf of a company under certain limited conditions.

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In addition, China does not enter into treaties providing for the reciprocal recognition and enforcement of civil judgments of courts with certain countries such as the United States, the United Kingdom, and Japan, and therefore enforcement in China of civil judgments of a court in these jurisdictions may be difficult or impossible.

Compliance with the PRC Labor Contract Law may increase our labor costs.

The PRC Labor Contract Law (中華人民共和國勞動合同法) became effective on 1 January 2008. Compliance with the requirements under the PRC Labor Contract Law, in particular the requirements to make severance payments and to conclude non-fixed term employment contracts, may increase our labor costs.

Pursuant to the PRC Labor Contract Law, we have been required to enter into non-fixed term employment contracts with employees who have worked for us for more than ten years or, unless otherwise provided in the PRC Labor Contract Law, for whom a fixed term employment contract has been concluded for two consecutive terms. We may not be able to efficiently terminate non-fixed term employment contracts under the PRC Labor Contract Law without cause. We are also required to make severance payments to fixed term contract employees when the term of their employment contracts expire, unless such employee voluntarily rejects an offer to renew the contract in circumstances where the conditions offered by the employer are the same as or better than those stipulated in the current contract. The amount of severance payment is equal to the monthly wage of the employee multiplied by the number of full years that the employee has worked for the employer, except in circumstances where the employee’s monthly wage is three or more times greater than the average monthly wage in the relevant district or locality, in which case the calculation of the severance payment will be based on a monthly wage equal to three times the average monthly wage multiplied by a maximum of twelve years. A minimum wage requirement has also been incorporated into the PRC Labor Contract Law. Liabilities such as damages or fines may be imposed for any material breach of the PRC Labor Contract Law.

Restrictions on foreign investment in the PRC mining industry could materially and adversely affect our business and results of operations.

In China, foreign companies have been, and are currently, required to operate within a framework that differs from that imposed on domestic PRC companies. For example, the Guidance Catalogue for Foreign Investment Industries (外商投資產業指導目錄) clearly specifies the encouraged and restricted industries for foreign investment. The PRC Government, however, has been opening up opportunities for foreign investment in certain categories of mining projects and this process is expected to continue, especially following China’s accession into the WTO. However, if the PRC Government reverses this trend, or imposes greater restrictions on foreign investment in China, or seeks to nationalize our operations in China, our business and results of operations could be materially and adversely affected. For a description of the laws and regulations applicable to foreign invested mining companies, see ‘‘Regulatory Overview.’’

We rely mainly on dividends and other distributions on equity paid by our subsidiaries to fund any cash and financing requirements we have, and any limitation on the ability of our subsidiaries to make payments to us could have a material adverse effect on our ability to conduct our business.

The Company is a holding company incorporated in Cayman Islands under the Companies Law and we rely mainly on dividends from our subsidiaries in China for our cash requirement. Current PRC regulations permit our subsidiaries to pay dividends to us only out of their accumulated profits, if any,

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determined in accordance with PRC accounting standards and regulations. In addition, our subsidiaries in China are required to set aside certain amount of after-tax profits each year, if any, to fund certain statutory reserves. These reserves, however, are not allowed to be distributed as cash dividends. Furthermore, if our subsidiaries in China incur debt on their own behalf, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us. The inability of our subsidiaries to distribute dividends or other payments to us could materially and adversely affect the results of our operations.

Any outbreak of widespread contagious diseases may have a material adverse effect on our business operations, financial condition and results of operations.

The outbreak, or threatened outbreak, of any severe communicable diseases (such as severe acute respiratory syndrome, avian influenza or H1N1 influenza) in China could materially and adversely affect the overall business sentiments and environment in China, particularly if such outbreak is inadequately controlled. This, in turn, could materially and adversely affect domestic consumption, labor supply and, possibly, the overall GDP growth of China. As our revenue is currently derived from our operations in China, any labor shortages could materially and adversely affect our business and the business of our customers. In addition, if any of our employees are affected by any severe communicable diseases, it could adversely affect or disrupt those areas in which we have operations and materially and adversely affect our financial condition and results of operations as we may be required to close our facilities to prevent the spread of the disease.

The EIT Law may affect tax exemptions on dividends received by us and by our Shareholders and may increase our EIT rate.

According to the Enterprise Income Tax Law (the ‘‘EIT Law’’) passed in 2007 and its implementation rules passed on 28 November 2007 (the ‘‘Implementation Rules’’), the withholding tax exemption under previous tax laws for dividends distributed by foreign invested enterprises (‘‘FIEs’’) to their foreign shareholder(s) will no longer be available under the EIT Law, which generally subjects any dividends distributed by FIEs, such as Guangzhou Kingstone, to up to 10% withholding tax. However, according to the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income (the ‘‘Arrangement’’) (內地和香港特別行政區關於對所得避免雙重徵稅和防止偷漏稅的安排), if the beneficiary of dividends is a Hong Kong tax resident which holds directly at least 25% equity interests in a tax resident enterprise in China, the dividends distributed by the tax resident enterprise in the mainland to its Hong Kong shareholder shall be subject to taxes in China at a rate not higher than 5%. Therefore, the dividends distributed by Guangzhou Kingstone to Hong Kong Kingstone may be subject to such Arrangement and therefore be subject to a withholding tax in China at a rate not higher than 5%. According to the Arrangement, the withholding tax paid in China for such dividends can be credited against Hong Kong taxes, if any, payable by Hong Kong Kingstone.

According to the Notice of the State Administration of Taxation on Issues regarding the Administration of the Dividend Provision in Tax Treaties (國家稅務總局關於執行稅收協定股息條款有關問題的通知) (the ‘‘Notice 81’’) promulgated on 20 February 2009, to apply the dividend provision in relevant tax treaties, including the Arrangement, certain requirements shall be satisfied, among which: (i) the taxpayer shall be the beneficial owner of relevant dividends; and (ii) for corporate recipients that enjoy the tax treatment under the relevant tax treaties as direct owners of a certain proportion of the share capital of a PRC enterprise (usually such certain proportion shall be 25% or 10%, and under the

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Arrangement, it is 25%), such corporate recipients must satisfy the direct ownership thresholds at all times during the 12 consecutive months preceding the receipt of the dividends. Furthermore, the SAT promulgated the Notice on How to Understand and Recognize the Beneficial Owner in Tax Treaties (國家稅務總局關於如何理解和認定稅收協定中‘‘受益所有人’’的通知) on 27 October 2009, which defines the ‘‘beneficial owner’’ as individuals, enterprises or other organizations normally engaged in substantive operations and sets forth certain adverse factors on the recognition of such ‘‘beneficial owner.’’ On 24 August 2009, the State Administration of Taxation issued the Administrative Measures for Non-resident Enterprises to Enjoy Treatments under Tax Treaties (For Trial Implementation) (非居民享受稅收協定待遇管理辦法(試行)) (the ‘‘Administrative Measures’’), which became effective on 1 October 2009 and requires that the non-resident enterprises obtain the approval for enjoying the treatments under tax treaties from the competent tax authorities. No assurance can be given that we can satisfy all the requirements set forth by above laws and regulations and obtain necessary approvals to enjoy the preferential treatment under the Arrangement.

Under the EIT Law and the Implementation Rules, enterprises established under the laws of foreign jurisdictions other than the PRC may nevertheless be considered as PRC tax-resident enterprises for tax purposes (the ‘‘TRE’’) if these enterprises have their ‘‘de facto management organization’’ within the PRC. Under the Implementation Rules, a ‘‘de facto management body’’ is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise.

The Company and Hong Kong Kingstone are currently not treated as TREs under the EIT Law. Since Hong Kong Kingstone’s management is based in China and all members of the Company’s management board reside in China, there is a risk that Hong Kong Kingstone and the Company are regarded as TREs. As a consequence thereof, Hong Kong Kingstone and/or the Company would be subject to EIT in China at a rate of 25% on their worldwide income, except that dividend income paid from one qualified TRE to another due to direct investments is exempted income under the EIT Law.

In addition, should both Hong Kong Kingstone and the Company be considered as TREs, then shareholders which are not TREs and which receive dividends distributed by the Company for earnings derived and sourced within China would be subject to a PRC income tax applicable to such dividends and the Company would be obliged under the EIT Law to withhold PRC income tax on dividends payable to such non-TRE shareholders. A lower withholding tax rate may apply if a non-TRE investor (non-individual) or a non-tax resident individual is from a jurisdiction that has entered into an income tax treaty or agreement with China that allows a lower withholding.

If any of the aforementioned risks materializes, the value of an investment in the Shares of the Company may be materially and adversely affected.

PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident Shareholders to personal liability and limit our ability to inject capital into our PRC subsidiaries, limit our PRC subsidiaries’ ability to distribute profits to us, or otherwise adversely affect our financial position.

On 21 October 2005, the SAFE issued the Notice of the SAFE on Issues Relating to the Administration of Foreign Exchange on Fund Raisings by Domestic Residents Through Offshore Special Purpose Vehicles and Round-trip Investment (關於境內居民通過境外特殊目的公司融資及返程投資外匯管理有關問題的通知) (‘‘the SAFE Circular No. 75’’) which came into force on 1 November 2005,

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requiring PRC residents, including both legal persons and natural persons, who establish offshore companies and inject assets or equity interests in their PRC entities into offshore companies, to register with competent local SAFE branch before establishing or controlling any company outside China, referred to as an ‘‘offshore special purpose company.’’ Under the SAFE Circular No. 75, Mr. Huang, who is a PRC domestic resident and has established control over us, is required to register with the local SAFE branch his ownership in us. It is also required by the SAFE Circular No. 75 that any PRC resident that is the shareholder of an offshore special purpose company shall amend its SAFE registration with the local SAFE branch with respect to that offshore special purpose company in connection with any increase or decrease of capital, transfer of shares, share exchange, merger, division, long-term investment with equity investment or creditor’s right investment and other material capital alteration without involving round-trip investment. According to the relevant guidance with respect to the operational rules on such foreign exchange registration issued by the SAFE to its local branches, in the event that PRC shareholder of an offshore special purpose company fails to make the required SAFE registration and amendment, the PRC subsidiaries of that offshore special purpose company may be prohibited from distributing their profits and the proceeds from any reduction in capital, share transfer, the principal and interests of shareholder’s loans, advance recovery of investment or liquidation to the offshore special purpose company. Failure to comply with the SAFE registration and amendment requirements described above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions. Our current beneficial owner, Mr. Huang, who is a PRC resident has registered with the local SAFE branch as required under the SAFE Circular No. 75 and is applying for amendment of registration with SAFE Sichuan Branch for Guangzhou Kingstone’s acquisition of Sichuan Jinshida and the investment by MS China 3. The failure of these beneficial owner to amend his SAFE registrations in a timely manner pursuant to the SAFE notice or the failure of our future beneficial owner who is a PRC resident to comply with the registration procedures set forth in the SAFE notice may subject such beneficial owner to fines and legal sanctions and may also result in restrictions on our PRC subsidiaries’ ability to distribute profits to us and to remit funds into or out of China or otherwise materially and adversely affect our business.

Failure to comply with PRC regulations in respect of the registration of our PRC citizen employees’ share options may subject such employees or us to fines and legal or administrative sanctions.

Pursuant to the Administrative Measures on Individual Foreign Exchange (個人外匯管理辦法), the Implementation Rules of the Administration Measure for Individual Foreign Exchange (個人外匯管理辦法實施細則) (the ‘‘Individual Foreign Exchange Rules’’), issued on 5 January 2007 by the SAFE and the Operating Rules on the Foreign Exchange Administration of the Involvement of Domestic Individuals in the Employee Stock Ownership Plans and Share Option Schemes of Overseas Listed Companies (境內個人參與境外上市公司員工持股計劃和認股期權計劃等外匯管理操作規程) issued on 28 March 2007 by the SAFE (the ‘‘Circular 78’’), PRC citizens who are granted shares or share options by an overseas listed company according to its employee share option or share incentive plan are required, through the PRC subsidiary of such overseas listed company or other qualified PRC agents, to obtain the approval from the SAFE or its local branches and complete certain other procedures related to the share option or other share incentive plan. In addition, the overseas listed company or its PRC subsidiary or other qualified PRC agent is required to appoint an asset manager or administrator and a custodian bank, as well as to open foreign currency accounts to handle transactions relating to the share option or other share incentive plan. In order to comply with the requirements of the Individual Foreign Exchange Rules and the Circular 78, we will require our domestic employees to obtain relevant approval from the SAFE

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or its local branches when they participate in the [.]. We and our PRC citizen employees who have been granted share options, or PRC option holders, will be subject to these rules. If we or our PRC option holders fail to comply with these rules, we or our PRC option holders may be subject to fines and sanctions.

We face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.

Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises (關於加強非居民企業股權轉讓所得企業所得稅管理的通知), or SAT Circular 698, issued by the SAT on 10 December 2009 with retroactive effect from 1 January 2008, where a foreign investor transfers its indirect equity interest in a PRC resident enterprise by disposing of its equity interests in an overseas holding company, or an ‘‘Indirect Transfer’’, and such overseas holding company is located in a tax jurisdiction that: (i) has an effective tax rate less than 12.5% or (ii) does not tax foreign income of its residents, the foreign investor shall report to the competent tax authority of the PRC resident enterprise this Indirect Transfer. The PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of avoiding PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC withholding tax at a rate of up to 10%. SAT Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction.

There is uncertainty as to the application of SAT Circular 698. For example, while the term ‘‘Indirect Transfer’’ is not clearly defined, it is understood that the relevant PRC tax authorities have jurisdiction regarding requests for information over a wide range of foreign entities having no direct contact with China. Moreover, the relevant authority has not yet promulgated any formal provisions or formally declared or stated how to calculate the effective tax rates in foreign tax jurisdictions, and the process and format of the reporting of an Indirect Transfer to the competent tax authority of the relevant PRC resident enterprise. In addition, there are not any formal declarations with regard to how to determine whether a foreign investor has adopted an abusive arrangement in order to avoid PRC tax. As a result, we may become at risk of being taxed under SAT Circular 698 in the future and we may be required to expend valuable resources to comply with SAT Circular 698 or to establish that we should not be taxed under SAT Circular 698, which may have a material adverse effect on our financial condition and results of operations.

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DIRECTORS

DIRECTORS Name Executive Directors Ms. Chen Tao (陳濤) Mr. Lin Yuhua (林玉華) Mr. Liao Yuanshi (廖原時) Mr. Xiong Wenjun (熊文俊) Non-executive Director Mr. He Ji (何霽) Independent Non-executive Directors Mr. Deng Huiqing (鄧惠青) Mr. Liu Yuquan (劉玉泉) Mr. Chu Ho Hwa, Howard (朱賀華)	Address Room 1503 No 8, Lantingjie Huangzhuangnan Road Baiyun District Guangzhou the PRC Room 201, Door 3, Yard 6 Third Lane of Nanhuqu Chaoyang District Beijing the PRC No 602, Unit 2, Building 28 Xianghuaqi, Houshayu Shunyi District Beijing the PRC A4–6B New World Yishan Garden Shatoujiao Yantian District Shenzhen the PRC Flat A, 25/F Cherry Crest, 3 Kui In Fong Sheung Wan Hong Kong Room 202, Door 4, Building 11 Yihui Jiayuan, Zhanghuanan Road Haidian District Beijing the PRC Room C, Floor 27, Building 1 The Zenith No. 3, Wan Chai Road Hong Kong Flat A, 28/F, Block 2 Garden Terrace 8A Old Peak Road Mid-levels Hong Kong	Nationality
		Chinese Chinese Chinese Chinese Chinese Chinese Chinese Chinese

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CORPORATE INFORMATION

Registered office
Headquarters and principal place of business
in the PRC
Principal place of business in Hong Kong
Company’s website
Authorized representatives
Audit committee
Remuneration committee
Nomination committee

Codan Trust Company (Cayman) Limited
Cricket Square, Hutchins Drive
P.O. Box 2681
Grand Cayman, KY1-1111
Cayman Islands
288 Shicheng Road
Jinpeng Modern Town, Jiangyou City
Sichuan Province
the PRC
43rd Floor, Gloucester Tower, The Landmark
15 Queen’s Road
Central
Hong Kong
www.kingstonemining.com (information contained
in this website does not form part of this document)
Ms. Chen Tao (陳濤)
Room 1503
No. 8, Lantingjie
Huangzhuangnan Road
Baiyun District
Guangzhou
the PRC
Mr. Lou Sai Tong (盧世東)
House 2, 22 Tsing Tai Road
Siu Lam, N.T.
Hong Kong
Mr. Chu Ho Hwa, Howard (朱賀華) (chairman)
Mr. Deng Huiqing (鄧惠青)
Mr. Liu Yuquan (劉玉泉)
Ms. Chen Tao (陳濤) (chairman)
Mr. Liu Yuquan (劉玉泉)
Mr. Deng Huiqing (鄧惠青)
Ms. Chen Tao (陳濤) (chairman)
Mr. Liu Yuquan (劉玉泉)
Mr. Deng Huiqing (鄧惠青)

– 45 –

CORPORATE INFORMATION

Company	secretary	Mr. Lou Sai Tong (盧世東) FAIA, HKICPA
		House 2, 22 Tsing Tai Road
		Siu Lam, N.T.
		Hong Kong
Principal	bankers	Agricultural Bank of China
		Jiangyou City, Jiangyou Branch
		No. 243 Monument Road, Jiangyou City
		Sichuan Province
		the PRC
		Industrial and Commercial Bank of China
		Guangzhou Huacheng Branch
		2/F, International Financial Plaza
		No. 8 Huaxia Road, Zhujiang New Town
		Guangzhou City
		Guangdong Province
		the PRC

– 46 –

INDUSTRY OVERVIEW

INTRODUCTION TO MARBLE

Stone or rock is a naturally occurring solid aggregate of minerals, which also forms the earth’s outer solid layer. Stone is generally of three types, namely, igneous, sedimentary and metamorphic. Stone products that are used commercially include natural stone products and artificial stone products. The principal natural stone products types consist of granite and marble.

The following chart sets forth the different types of stones:

Types of Stones

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Source: Hatch

Marble is geologically defined as metamorphosed limestone or dolomite that is thoroughly recrystallized and much or all of the sedimentary and biologic textures are obliterated. Commercially in the stone industry, and as used in this document, marble is any crystalline rock composed predominantly of calcite, dolomite or serpentine that is polishable. Marble is composed mostly of calcium carbonate (CaCO3) and is irregularly colored due to the composition of mineral impurities. Generally speaking, marble is softer than granite. Marble is an important branch of natural stone.

– 47 –

INDUSTRY OVERVIEW

Marble can be found in a variety of color series, including white, yellow, red, black and green. In general, yellow and white are the most popular color series for natural marble. Beige marble, an important member of the yellow series, is one of the most popular marble products in the world due to its pleasing color and texture.

Marble is of tender texture, graceful style and found in a variety of colors. It is the ideal decorative material for luxury buildings, and is also the traditional material for artistic carvings. Marble can be processed into various shapes and slabs, which can be used as panels for walls and floors, columns of buildings and monumental objects, such as tablets, towers and sculptures. It can also be carved into practical craftworks, such as stationery, lamps, lanterns and utensils. The tailing shredded marble and crushed marble can be further used to make artificial stone products, cement and calcium carbonate powder.

OVERVIEW OF THE MARBLE INDUSTRY

Global Stone and Marble Industry

Resources and distribution

According to U.S. Geological Survey (USGS), stone resources of the world are sufficient to cater to foreseeable needs. Nevertheless, resources can be limited on a local level or occasionally on a regional level due to the lack of a particular type of stone. Marble resources are mainly located in Italy, China, Turkey, Philippines, France, Brazil, USA, India, Morocco, Austria, Russia, Japan, Portugal and Greece. Italy has abundant resources of high quality marble, positioning the nation as a key marble producer and exporter in the world. Turkey is located at the world’s richest natural stone Alps area. There are a mass of marble resources from Anatolia to the Thrace region.

According to the Hatch Report, beige marble resources are rich in Egypt, Turkey, Iran, Spain, Italy, Greece, Portugal, India and Pakistan. China is short of beige marble resources.

Stone and marble production

According to the Hatch Report, global quarry stone output has steadily increased from 89 million tonnes in 2004 to 107 million tonnes in 2009, representing a CAGR of 3.6%. Based on the standard specification of slab, which is 20 mm in thickness and 2.7g per cubic centimeter in density, the production in 2009 equals to 1.98 billion square meters.

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INDUSTRY OVERVIEW

The following graph sets forth the world quarry stone output from 2004 to 2009:

World Quarry Stone Output 2004–2009 (Unit: million tonnes)

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Source: IMM

The world’s top ten natural quarry stone producers include China, India, Iran, Turkey, Italy, Spain, Brazil, Egypt, Portugal and Greece. The output of the top ten quarry stone producing countries collectively accounted for 92.6% of world quarry stone output in 2009.

The following graph sets forth the top ten quarry stone output by country in 2009:

Top Ten Quarry Stone Output by Countries in 2009

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Source: IMM, Hatch

– 49 –

INDUSTRY OVERVIEW

In terms of marble slab production, Italy, China, Spain, Portugal, Greece, Turkey, Philippines, France, Brazil, USA and India are major countries.

Italy has rich and widely spread marble deposits with good texture. It is one of the major resources and producers of marble and holds a significant share of the international marble trade.

According to estimates from IMM and CSMA, China accounted for around 6% of the world’s total marble production in 2009.

Beige marble production

Beige marble slabs are mainly produced in Iran, Egypt, China, Italy and Spain. Due to lack of resources, China mainly relies on imports of beige marble raw materials for the processing of beige marble products. The products from each of the above-mentioned countries are different from one anther, carrying different characteristics. In general, the beige marble slabs produced in Iran, Egypt and Spain are mainly targeted at the export market, while those produced in Italy and China are consumed partly in their domestic markets and partly exported into the foreign markets.

– 50 –

INDUSTRY OVERVIEW

The following table sets forth the main beige marble slabs producing countries and their brands:

Main Beige Marble Slabs Producing Countries and Brands

Origin Iran . . . . . . . . . Egypt . . . . . . . ChinaNote . . . . . Italy . . . . . . . . Spain. . . . . . . . Turkey. . . . . . . Portugal . . . . . . Indonesia . . . . . France . . . . . . . Philippines . . . . Oman and ME .	Brand
	Royal Batticino (莎安娜) New Beige (埃及米黃), Sunny Yellow (金線米黃), Sunny Beige (金碧米黃) Cream Jade (米黃玉), Portor Gold (金鑲玉), Jinying Beige (金影米黃) Botticino Classico (舊米黃), Bianco Teseo (義大利米黃), Bianco Perlino (銀線米黃) Cream Marfil (西班牙米黃), Perlato Svevo (金花米黃) Bianco Botticino (白沙米黃), Cremare Beige (蘇丹米黃) Bianco Botticino (白沙米黃) Citatah Beige (新雅米黃), Beige A1&A2 (富貴米黃) Frans Beige (法國米黃) K-Beige Caramella (菲律賓米黃) Amasya Beige (阿曼米黃)

Origin
Iran . . . . . . . . .
Egypt . . . . . . .
ChinaNote . . . . .
Italy . . . . . . . .
Spain. . . . . . . .
Turkey. . . . . . .
Portugal . . . . . .
Indonesia . . . . .
France . . . . . . .
Philippines . . . .
Oman and ME .

Brand

Royal Batticino (莎安娜)
New Beige (埃及米黃), Sunny Yellow (金線米黃), Sunny Beige (金碧米黃)
Cream Jade (米黃玉), Portor Gold (金鑲玉), Jinying Beige (金影米黃)
Botticino Classico (舊米黃), Bianco Teseo (義大利米黃), Bianco Perlino (銀線
米黃)
Cream Marfil (西班牙米黃), Perlato Svevo (金花米黃)
Bianco Botticino (白沙米黃), Cremare Beige (蘇丹米黃)
Bianco Botticino (白沙米黃)
Citatah Beige (新雅米黃), Beige A1&A2 (富貴米黃)
Frans Beige (法國米黃)
K-Beige Caramella (菲律賓米黃)
Amasya Beige (阿曼米黃)

Source: Chinese Market Monitoring Center (CMMC, 中國市場監測中心), Hatch

Note: As China mainly imports beige marble raw materials for the processing of beige marble slabs, the Chinese beige marble brands, including the ones listed in this table, only account for a small percentage of the slabs processed in China.

According to the Hatch Report, Iran, Egypt, China, Italy, Spain and Turkey are top six beige marble slab producers in 2009.

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INDUSTRY OVERVIEW

The following table sets forth the global beige marble slab output by country in 2009:

Global Beige Marble Slab Output by Country in 2009

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Source: CMMC

Marble consumption

In the last decade, the world’s largest marble consumption regions were those developed countries and regions such as the USA, Europe, South Korea and Japan. In addition, with the fast development of China’s economy, China has also become one of the biggest marble consuming countries.

– 52 –

INDUSTRY OVERVIEW

Beige marble consumption

According to the Hatch Report, Italy, China and Germany are the top three beige marble consuming countries.

The following table sets forth the global beige marble consumption by country in 2009:

Global Beige Marble Consumption by Country in 2009

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Source: CMMC

CMMC summarized the main characteristics of global beige marble market as follows:

. Color preference. The most popular color in the global marble market is beige, followed by black, white, blue, green, pink, red, golden and grey.
. Preference for finished products. The most common beige marble products are thin slabs and tiles, which are used as building materials for floors and walls. Other popular applications include window sill, deck plate, staircase, sculpture (statue), column, fountain, fireplace and mosaic.
. Preference for processing. Antique surface, rubbed surface and honed surface are the most popular processes adopted in the beige marble market.

Marble trade

Marble is traded worldwide. Global marble (including raw materials and products) trade has increased to 15 million tonnes in 2009 from 11 million tonnes in 2005, with a CAGR of 8%. Worldwide marble raw material trade is approximately 10 million tonnes, and marble product trade reached 6 million tonnes in 2009.

In terms of marble raw material exports, Turkey, Egypt, Croatia, Italy and Spain were the top five exporters, whose exports collectively accounted for 72.7% of world’s total marble raw material exports in 2009.

– 53 –

INDUSTRY OVERVIEW

The following table sets forth the global marble raw material exports by country or region from 2005 to 2009:

Global Marble Raw Material Exports by Country or Region 2005–2009 (Unit: thousand tonnes)

Country	2005 6,788 1,586 337 789 938 1,014 170 231 161 71 181 66 1,244	% 100.0 23.4 5.0 11.6 13.8 14.9 2.5 3.4 2.4 1.0 2.7 1.0 18.3	2006 7,714 2,140 375 890 1,102 813 250 282 196 81 156 86 1,343	% 100.0 27.7 4.9 11.5 14.3 10.5 3.2 3.7 2.5 1.1 2.0 1.1 17.4	2007 8,166 2,675 439 982 955 954 287 243 218 108 248 96 961	% 100.0 32.8 5.4 12.0 11.7 11.7 3.5 3.0 2.7 1.3 3.0 1.2 11.8	2008 10,894 3,080 2,102 1,007 1,220 904 295 240 203 156 199 69 1,419	% 100.0 28.3 19.3 9.2 11.2 8.3 2.7 2.2 1.9 1.4 1.8 0.6 13.0	2009 9,552 3,199 1,200 1,075 811 657 313 233 166 164 128 68 1,538	%
World Total. . . . . . . . . . Turkey. . . . . . . . . . . . . . Egypt . . . . . . . . . . . . . . Italy . . . . . . . . . . . . . . . Croatia. . . . . . . . . . . . . . Spain. . . . . . . . . . . . . . . Portugal . . . . . . . . . . . . . Greece . . . . . . . . . . . . . . India . . . . . . . . . . . . . . . Austria. . . . . . . . . . . . . . Belgium . . . . . . . . . . . . . China . . . . . . . . . . . . . . Others . . . . . . . . . . . . . .										100.0 33.5 12.6 11.3 8.5 6.9 3.3 2.4 1.7 1.7 1.3 0.7 16.1

Source: Hatch

The following graph sets forth the breakdown of marble raw material exports by country or region in 2009:

Breakdown of Marble Raw Material Exports by Country or Region in 2009

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Source: Hatch

– 54 –

INDUSTRY OVERVIEW

China is the largest marble raw materials importing country in the world. China’s marble raw material imports accounted for more than half of the world’s marble raw material imports.

The following table sets forth the global marble raw material imports by country or region from 2005 to 2009:

Global Marble Raw Material Imports by Country or Region 2005–2009 (Unit: thousand tonnes)

Country World Total. . . . . . . . . . China . . . . . . . . . . . . . . Italy . . . . . . . . . . . . . . . Egypt . . . . . . . . . . . . . . India . . . . . . . . . . . . . . . Spain. . . . . . . . . . . . . . . Greece . . . . . . . . . . . . . . Lebanon. . . . . . . . . . . . . United Arab Emirates. . . . Switzerland . . . . . . . . . . Tunisia . . . . . . . . . . . . . Jordan . . . . . . . . . . . . . . Others . . . . . . . . . . . . . .	2005 6,095 2,415 478 43 110 226 237 95 87 119 78 168 2,039	% 100.0 39.6 7.8 0.7 1.8 3.7 3.9 1.6 1.4 2.0 1.3 2.8 33.5	2006 8,799 3,398 604 20 155 238 260 89 57 107 71 162 3,638	% 100.0 38.6 6.9 0.2 1.8 2.7 3.0 1.0 0.6 1.2 0.8 1.8 41.3	2007 8,419 4,482 692 15 175 249 308 97 95 112 77 188 1,929	% 100.0 53.2 8.2 0.2 2.1 3.0 3.7 1.2 1.1 1.3 0.9 2.2 22.9	2008 10,254 5,093 664 479 250 314 251 115 110 104 101 179 2,594	%	2009 9,096 5,133 405 385 318 251 197 130 68 105 102 42 1,961	%
								100.0 49.7 6.5 4.7 2.4 3.1 2.4 1.1 1.1 1.0 1.0 1.7 25.3		100.0 56.4 4.5 4.2 3.5 2.8 2.2 1.4 0.7 1.2 1.1 0.5 21.6

Source: Hatch

The following graph sets forth the breakdown of marble raw material imports by country or region in 2009:

Breakdown of Marble Raw Material Imports by Country or Region in 2009

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Source: Hatch

In 2009, world marble product exports totaled 6.0 million tonnes. Turkey, China and Italy were the top three marble products exporting countries in the world, and marble product exports for each of the above three countries exceeded 0.8 million tonnes in 2009, collectively accounting for 65.8% of total world marble product exports.

– 55 –

INDUSTRY OVERVIEW

Historically, Turkey was the largest marble product exporting country. In 2009, China became the largest marble product exporting country in the world.

The following table sets forth the global marble product exports by country or region from 2005 to 2009:

Global Marble Product Exports by Country or Region 2005–2009 (Unit: thousand tonnes)

Country World Total. . . . . . . . . . China . . . . . . . . . . . . . . Turkey. . . . . . . . . . . . . . Italy . . . . . . . . . . . . . . . Spain. . . . . . . . . . . . . . . Portugal . . . . . . . . . . . . . Oman . . . . . . . . . . . . . . India . . . . . . . . . . . . . . . Greece . . . . . . . . . . . . . . Mexico . . . . . . . . . . . . . Indonesia . . . . . . . . . . . . Jordan . . . . . . . . . . . . . . Other . . . . . . . . . . . . . . .	2005 5,579 747 1,255 1,004 263 243 91 113 111 132 69 221 1,330	% 100.0 13.4 22.5 18.0 4.7 4.4 l.6 2.0 2.0 2.4 1.2 4.0 23.8	2006	% 100.0 17.1 22.1 16.3 4.7 3.9 1.5 2.0 1.8 2.3 1.7 3.0 23.6	2007 7,226 1,464 1,571 1,120 342 259 73 158 106 140 109 197 1,687	% 100.0 20.3 21.7 15.5 4.7 3.6 1.0 2.2 1.5 1.9 1.5 2.7 23.3	2008 6,641 1,471 1,567 1,056 295 207 266 140 113 111 100 217 1,098	% 100.0 22.2 23.6 15.9 4.4 3.1 4.0 2.1 1.7 1.7 1.5 3.3 18.0	2009 6,018 1,672 1,424 862 234 187 169 136 100 77 74 24 1,059	%
			6,444 1,103 1,427 1,052 304 249 97 129 113 150 108 195 1,517							100.0 27.8 23.7 14.3 3.9 3.1 2.8 2.3 1.7 1.3 1.2 0.4 17.6

Source: Hatch

The following graph sets forth the breakdown of marble product exports by country or region in 2009:

Breakdown of Marble Product Exports by Country or Region in 2009

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Source: Hatch

– 56 –

INDUSTRY OVERVIEW

The USA is the largest marble product importing country. Its marble product imports reached 1.5 million tonnes in 2009, accounting for 26.7% of total world marble product imports. In addition, South Korea, UAE, Belgium and UK are also large marble products importing countries. Chinese marble product imports, at 34 thousand tonnes in 2009, are relatively low compared to other countries.

The following table sets forth the global marble product imports by country or region from 2005 to 2009:

Global Marble Product Imports by Country or Region 2005–2009 (Unit: thousand tonnes)

Country World Total. . . . . . . . . . USA . . . . . . . . . . . . . . . South Korea . . . . . . . . . . United Arab Emirates. . . . Belgium . . . . . . . . . . . . . Lebanon. . . . . . . . . . . . . Qatar . . . . . . . . . . . . . . . Morocco . . . . . . . . . . . . United Kingdom . . . . . . . Spain. . . . . . . . . . . . . . . Canada . . . . . . . . . . . . . France . . . . . . . . . . . . . . Russian Federation . . . . . China . . . . . . . . . . . . . . Others . . . . . . . . . . . . . .	2005 5,352 2,087 255 193 220 58 69 74 110 159 101 100 100 52 1,774	% 100.0 39.0 4.8 3.6 4.1 1.1 1.3 1.4 2.1 3.0 1.9 1.9 1.9 1.0 33.1	2006 6,662 2,129 274 — 267 70 892 86 136 187 127 144 119 54 2,117	% 100.0 32.0 4.1 — 4.0 1.1 13.4 1.3 2.0 2.8 1.9 2.2 1.8 0.8 31.8	2007	% 100.0 31.6 5.3 3.9 4.2 1.3 4.3 1.4 2.3 3.1 1.7 2.1 1.8 0.6 36.5	2008 6,729 2,341 425 331 283 116 131 116 158 150 143 141 121 45 2,228	% 100.0 34.8 6.3 4.9 4.2 1.7 1.9 1.7 2.3 2.2 2.1 2.1 1.8 0.7 33.1	2009 5,681 1,514 407 312 262 164 157 146 143 133 132 131 78 34 2,068	%
					7,117 2,247 376 277 299 91 304 103 166 218 123 150 126 42 2,595					100.0 26.7 7.2 5.5 4.6 2.9 2.8 2.6 2.5 2.3 2.3 2.3 1.4 0.6 36.4

Source: Hatch

The following graph sets forth the breakdown of marble product imports by country or region in 2009:

Breakdown of Marble Product Imports by Country or Region in 2009

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Source: Hatch

– 57 –

INDUSTRY OVERVIEW

Marble Industry of China

Resources and distribution

China ranks number one in terms of world’s stone resources. Granite resources take the dominant position in stone resources in China. According to the Hatch Report, there were 672 types of marbles in China found in a variety of colors and textures as at 2007, such as red, black, white, green, blue, as well as multicolored. Marble resources in China reached 3,979 million m[3] by the end of 2005, mainly concentrated in Yunnan, Sichuan, Guangxi, Jiangsu and Beijing. Its prospective resources are estimated to be over 20 billion m[3] .

Stone and marble production

According to the Hatch Report, China is the world’s biggest country in terms of stone quarry production, stone products processing, stone consumption and stone trade.

According to the Hatch Report, China’s stone slab production by above-designated-size stone enterprises increased from 152 million square meters in 2005 to 295 million square meters in 2009, representing a CAGR of 18.0%. Above-designated-size enterprises refer to enterprises with sales revenue of RMB5.0 million or more per annum. The production capacity of above-designated-size enterprises account for approximately 50% of the national capacity.

In recent years, China’s marble slab production accounted for approximately 11% of the total stone slab output. In 2009, the marble slab output by above-designated-size stone enterprises in China was 33.97 million m[2] , representing an increase of 33.3% from 2008. The CAGR of marble slab output was 17.3% between 2005 and 2009.

China’s total marble slab production is estimated to be twice as many as that of the abovedesignated-size enterprises. Thus China’s total marble slab production is estimated to be approximately 65 million m[2] in 2009.

– 58 –

INDUSTRY OVERVIEW

The following graph sets forth the marble slab output by Chinese above-designated-sized stone enterprises from 2005 to 2009:

Marble Slab Output of Chinese Above-designated-size Stone Enterprises 2005–2009 (Unit: million sq.m.)

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Source: Hatch
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Fujian, Henan, Jiangxi, Guangdong and Hubei are the top five marble slab producing provinces in China. The following graph sets forth the marble slab output of above-designated-size stone enterprises in 2008:

Marble Slab Output of Above-designated-size Stone Enterprises in 2008

Region or Province Fujian. . . . . . . . . . . . . . . . — Nan’an in Fujian. . . . . Henan. . . . . . . . . . . . . . . . — Nanzhao in Henan. . . . Jiangxi . . . . . . . . . . . . . . . — Wuning in Jiangxi. . . . Guangdong . . . . . . . . . . . . Hubei . . . . . . . . . . . . . . . . — Tongshan in Hubei . . . Shandong . . . . . . . . . . . . . Sub-total. . . . . . . . . . . . . .	Marble Slab Output 2007 2008 (Unit: million sq.m.) 6.07 6.52 5.77 6.26 4.22 3.58 2.38 2.44 2.42 3.41 1.15 2.27 1.91 2.72 1.72 2.04 1.72 1.89 1.82 1.84 18.16 20.11	Proportion to National Total 2008
		25.6% 14.1% 13.4% 10.7% 8.0% 7.2%
		79.0%

Source: Hatch

– 59 –

INDUSTRY OVERVIEW

Marble consumption

There are mainly two widely-used types of stone in China — marble and granite. According to the Hatch Report, marble accounted for more than half of China’s total stone consumption.

Marble has beautiful colors and textures, with high anti-pressure capability and good physical and chemical properties. In the last decade, marble decorative slabs were applied in large quantity in decorative building materials industry in China, not only in luxury public buildings but also in residential buildings. Marble can also be adopted in manufacturing exquisite things, such as furniture, lamps and lanterns, smoking sets and artistic carvings.

According to the Hatch Report, decorative building materials industry is the largest marble consuming sector, accounting for approximately 50% of the total marble consumption. Arts and carvings, of which monumental stone and stone carvings are the most common products, are the second largest application with 30% of the total consumption.

The following graph sets forth the Chinese marble consumption breakdown in 2009:

Chinese Marble Consumption Breakdown (By Tonnage) in 2009

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Source: CSMA, Hatch

According to the Hatch Report, beige marble consumption ranks first in terms of consumption breakdown by color. White and black series marble, such as Chinese White Jade, Snowflake White and Serpanggiante Black (黑木紋), are abundant in quantity and also considered as popular colors in China.

The net import of marble products and marble raw materials in China reached 44.86 million m[2] in 2009, and marble slab production by above-designated-size enterprises reached 33.97 million m[2] . Therefore, the apparent marble consumption was 78.83 million m[2] , representing a 7% increase from 2008 and a CAGR of 18.3% from 2005 to 2009.

– 60 –

INDUSTRY OVERVIEW

The following graph sets forth the Chinese marble apparent consumption from 2005 to 2009:

Chinese Marble Apparent Consumption 2005–2009 (Unit: million sq.m.)

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90
80
70
60
50
40
30
20
10
0
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Source: NBSC, China Customs, CSMA

Notes:

(1) The unit of net import volume has been converted from ‘‘tonne’’ to ‘‘square meter’’ based on density of 2.7 tonnes/ cubic meter, 2 cm of slab thickness and 80% as yield from raw materials to products.
(2) The domestic production only represents the marble slab production of above-designated-size enterprises.

Due to data unavailability, the above apparent consumption does not include marble product production other than marble slab production and only includes marble production by above-designatedsize enterprises, which accounted for approximately 50% of the total marble production. Therefore, the actual marble consumption is estimated to be larger than the apparent consumption.

Marble trade

China is both the world’s largest stone raw material importer and the world’s largest stone product exporter. China imported 8.11 million tonnes of stones (including stone raw materials and stone products) with a value of USD1.45 billion in 2009. The exports were 21.23 million tonnes with a total value of USD3.61 billion.

China is a net importer of marble raw materials and a net exporter of marble products. It has been in surplus in marble trade value as stone enterprises mainly import marble raw materials for processing, and then export the value-added marble products.

China’s imports of marble raw materials continued to rise over the past five years. The import volume increased from 2.41 million tonnes in 2005 to 5.13 million tonnes in 2009, representing a CAGR of 20.7%. Chinese marble product exports volume increased from 0.73 million tonnes in 2005 to 1.66 million tonnes in 2009, representing a CAGR of 23.0%.

– 61 –

INDUSTRY OVERVIEW

The following graph sets forth the Chinese marble trade from 2005 to 2009:

Chinese Marble Trade 2005–2009 (Unit: million tonnes)

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6
5
4
3
2
1
0
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Source: CSMA, Hatch

The following graph sets forth the Chinese marble trade value from 2005 to 2009:

Chinese Marble Trade Value 2005–2009 (Unit: USD million)

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1,000
500
0
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Source: CSMA, Hatch

– 62 –

INDUSTRY OVERVIEW

In 2009, China exported 1.66 million tonnes of marble (including marble raw materials and marble products), an 13.8% increase from 2008. However, impacted by the global economic crisis, the total value of marble exports dropped by 12.0% year on year due to the decrease of export unit prices.

Turkey, Egypt, Iran, Spain and Italy are the main origins of Chinese marble imports.

The following graph sets forth the Chinese marble raw material imports by country in 2009:

Chinese Marble Raw Material Imports by Country in 2009 (By Tonnage)

==> picture [242 x 223] intentionally omitted <==

Source: CSMA, Hatch

Turkey is the largest marble raw material supplier to China. In 2009, Turkey exported 1.82 million tonnes of marble raw materials to China, which accounted for 35.5% of the national total raw material imports. Egypt is the second largest marble raw material supplier to China with 1.26 million tonnes in 2009. Turkey and Egypt collectively represented 60% of China’s marble raw material imports.

China imports significantly less marble products compared to marble raw materials. In 2009, China imported only 33 thousand tonnes of marble products. Spain, Italy, Oman and Chinese Taiwan were the main exporters to China, which accounted for 38.3%, 20.6%, 14.7% and 8.8% respectively of total Chinese marble product imports in 2009.

China exports marble to around 170 countries. It mainly exports marble products. In 2009, China’s marble exports reached 1.66 million tonnes with a value of USD939 million. South Korea, EU, USA ranked top three of the 170 exporting destinations, collectively accounting for 56.3% of the China’s marble exports in 2009. South Korea is the largest marble importer from China. It imported 441 thousand tonnes or 26.5% of Chinese marble product exports in 2009.

– 63 –

INDUSTRY OVERVIEW

The following graph sets forth the Chinese marble product exports by country in 2009:

Chinese Marble Product Exports by Country in 2009 (By Tonnage)

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Source: CSMA, Hatch

China exports much less marble raw materials than marble products. In 2009, China exported 68 thousand tonnes of marble raw materials. Chinese Taiwan, Hong Kong, India, Thailand, and Indonesia were the main destinations for Chinese marble raw material exports which collectively accounted for 80% of the total marble raw material exports in 2009.

Competition

The Chinese stone industry is highly fragmented. According to the Hatch Report, there are approximately 30,000 stone enterprises in China, of which about 6,000 are stone quarry enterprises. According to CSMA, the largest marble mining capacity of a stone quarry enterprise was 100,000 m[3] per year as at August 2010. Due to the low concentration of Chinese stone industry, highly intensive competition among the players is inevitable. There are only several large stone companies in China. A large majority of Chinese stone enterprises are of small-and-medium sized.

According to the Hatch Report, there are about 100 stone enterprises with sales revenue above RMB100.0 million.

– 64 –

INDUSTRY OVERVIEW

The following table sets forth the size and number of Chinese stone enterprises:

Size and Number of Chinese Stone Enterprises

Sales Revenue (RMB/year) ≥100 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50–100 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10–50 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5–10 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . <5 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Number of Enterprises
	~100 ~100 ~500 ~1,100 >20,000

Sales Revenue (RMB/year)
≥100 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
50–100 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10–50 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5–10 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
<5 million . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Number of
Enterprises

~100
~100
~500
~1,100
>20,000

Source: CSMA, Hatch

The following chart sets forth a breakdown of the Chinese stone enterprises in terms of size:

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Source: Hatch

According to Hatch, the biggest current slab production capacity of the major Chinese stone enterprises is approximately 3 million m[2] per annum, including marble and other stone slabs. The following table sets forth the stone production capacity of major Chinese stone enterprises:

Company Best Cheer Stone Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Fujian Hongfa Group Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Xishi Group Development Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . Kangli Stone GroupNote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dongguan Freetrue Marble Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . Fujian Huahui . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shandong Guanlu Building Material Industry Group. . . . . . . . . . . . . . .	Stone Production Capacity
	(million m2) 3.00 3.00 2.60 1.40 1.20 1.00 0.80

Company
Best Cheer Stone Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fujian Hongfa Group Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Xishi Group Development Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . .
Kangli Stone GroupNote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dongguan Freetrue Marble Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . .
Fujian Huahui . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shandong Guanlu Building Material Industry Group. . . . . . . . . . . . . . .

Stone Production Capacity

(million m2)
3.00
3.00
2.60
1.40
1.20
1.00
0.80

Note: Marble only

– 65 –

INDUSTRY OVERVIEW

Beige Marble Industry of China

Beige marble resources

According to the Hatch Report, China has a shortage of beige marble resources, especially highquality beige marbles. Yunnan, Guizhou, Hubei, Jiangxi, Henan and Inner Mongolia are the provinces known for beige marble resources. In 2005, China began to develop a large beige marble deposit in Beichuan Qiang Autonomous County (北川羌族自治縣) of Sichuan. With large reserves, various types, fine texture, bright color and neat surface, beige marble resources in Beichuan are among the best in China.

Beige marble production

Quarry beige marble is mainly shipped from Yunnan, Guizhou and overseas to Guangdong, Fujian, Shandong and Shanghai to further process into beige marble slabs. There are many beige marble processing companies in China and many of them sell finished products under their own brand names.

The following table sets forth the beige marble slab output and sales revenue by the Chinese above-designated-size stone enterprise from 2006 to 2009:

Beige Marble Slab Output and Sales Revenue by the Chinese Above-designated-size Stone Enterprises in 2006–2009 (Unit: million sq.m., RMB billion)

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----- Start of picture text -----

2006 2007 2008 2009
Output (LHS) Sales Revenue (RHS)
----- End of picture text -----

Source: CMMC

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INDUSTRY OVERVIEW

Beige marble consumption

As China is short of beige marble resources, its beige marble consumption is mainly sustained by imports. Key suppliers include Egypt, Turkey, Iran, Spain, Italy and Portugal. The following table sets forth the apparent beige marble consumption from 2005 to 2009:

Chinese Apparent Beige Marble Consumption 2005–2009 (Unit: million sq.m.)

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----- Start of picture text -----

40
35
30
25
20
15
10
5
0
----- End of picture text -----

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==> picture [100 x 170] intentionally omitted <==

Source: Hatch

Notes:

(1) The output only represents the beige marble slab production by above-designated-size enterprises.
(2) It is estimated that about 60% of marble imports were beige marble. Net imports = (Net marble raw materials imports x 80% + Net marble product imports) x 60%; 80% is the yield from marble raw materials to marble products.

In the domestic market, the Hatch Report states that around 70% of the beige marble product consumption is dominated by foreign brands.

The following graph sets forth the estimated Chinese beige marble consumption breakdown by brand:

Chinese Beige Marble Consumption Breakdown by Brand

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Source: CMMC

– 67 –

INDUSTRY OVERVIEW

In China, beige marble is gradually becoming one of the main decorative materials for high-quality buildings. The following table sets forth the breakdown of Chinese beige marble consumption by region in 2009:

Breakdown of Chinese Beige Marble Consumption by Region in 2009

==> picture [247 x 209] intentionally omitted <==

Source: CMMC

Beige marble trade

Beige marble trade cannot be separately identified from general marble trade. According to the Hatch Report, around 60% of marble imports are beige marble products. Chinese quarry beige marble is mainly imported from Turkey, Egypt, Iran, Spain and Italy.

Beige marble competition

As China is short of beige marble resources, there are few large sized enterprises focusing on beige marble production. Therefore, competition among large beige marble companies is not observed.

Marble Prices

International marble prices

Marble prices are relatively stable throughout the world. The United States, the UK and South Korea are important markets for marble imports and consumption according to the Hatch Report. Marble prices in the above three countries are key indicators of international marble prices.

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INDUSTRY OVERVIEW

The following chart sets forth the annual average price of imported marble products in the United States, the UK and South Korea from 2005 to 2009:

Annual Average Price of Imported Marble Products in the United States, the UK and South Korea 2005–2009 (Unit: RMB/m[3] )

==> picture [54 x 7] intentionally omitted <==

----- Start of picture text -----

Source: Hatch
----- End of picture text -----

Chinese marble prices

Chinese marble prices vary from different type, color, figure, texture, production area, and especially the level of porosity. For example, the price of a standard 20 mm thick marble slab in Hubei and Guangxi is RMB60 to RMB70 per m[2] . However, the price of the Chinese White Jade, a famous marble product is around RMB200 to RMB300 per m[2] . Prices for stone products are generally stable compared to those of other major construction materials, such as steel. The average Chinese local marble product price has maintained more or less at RMB150 per m[2] since 2005.

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INDUSTRY OVERVIEW

Average annual price of imported marble raw materials remained in the range of USD158 to USD171 per tonne during 2005 to 2009. The following table sets forth the average annual price of imported marble raw materials in China:

Average Annual Price of Imported Marble Raw Materials in China (Unit: RMB/m[3] )

Source: Hatch

The average annual prices of internationally traded marble products kept on increasing between 2005 to 2008. Average prices of Chinese exported marble products were higher than those of imported marble products. In 2008, export prices reached USD730 per tonne before falling back in 2009 due to the global economic crisis.

The following table sets forth the average annual prices of imported and exported marble products in China:

Average Annual Prices of Imported and Exported Marble Products in China (Unit: RMB/m[3] )

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Source: Hatch

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INDUSTRY OVERVIEW

The prices of imported marble products are lower than those of exports mainly because China mainly imports primary processed marble products instead of further processed marble products and the exports are usually with special color and texture which are priced higher.

Benefited from the fast development of the Chinese construction industry, China’s marble demand is expected to maintain steady growth in the next several years. It is forecasted in the Hatch Report that Chinese marble prices will generally remain stable in the next five years and, with the depletion of resources, the prices of some rare precious beige marble types have the potential to increase in the near future.

Beige marble prices

According to the Hatch Report, the local beige marble slab (600 mm x 600 mm x 20 mm) was priced at a relatively stable price at RMB150 per m[2] during the period from 2005 to 2009. However, the prices of well-known foreign branded beige marbles were much higher. According to Hatch, the selling price of Iran’s Royal Batticino was as high as RMB1,300 per m[2] . The following tables set forth the market prices of foreign and domestic brand beige marble currently available in the PRC market in 2009:

Market Prices of Foreign Brand Beige Marble in 2009

Origin Spain. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . France . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Iran . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Types Cream Marfil Frans Beige Royal Batticino	PriceNote (RMB/m2)
		950 1,200 1,300

Source: Hatch

Note: Prices are quoted for standard 20 mm thick slab.

Market Prices of Domestic Brand Beige Marble in 2009

Market Prices of Domestic Brand Beige Marble in 2009
Company Name Yin Feng Stone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shenzhen Dong Sen Stone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wuning County Yunfu Xin Da Xin Stone Materials . . . . . . . . . . . . . . . . . . . . . Jiangxi Hongde Stone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Guang Lei (Lai Yang City) Stone Material Co. Ltd . . . . . . . . . . . . . . . . . . . . . Shanghai Zhongye (Fujian Huacheng) Stone Materials . . . . . . . . . . . . . . . . . . . Guangxi Longtaitong Stone. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Yunfu Xin Hui Yuan Shi Cai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Shanghai Dishanxiumei Rail Manufacturing Co., Ltd . . . . . . . . . . . . . . . . . . . . Yixing Jieda Stone Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	PriceNote (RMB/m2)
	110 140 120 135 160 150 115 140 185 110

Company Name
Yin Feng Stone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shenzhen Dong Sen Stone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wuning County Yunfu Xin Da Xin Stone Materials . . . . . . . . . . . . . . . . . . . . .
Jiangxi Hongde Stone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Guang Lei (Lai Yang City) Stone Material Co. Ltd . . . . . . . . . . . . . . . . . . . . .
Shanghai Zhongye (Fujian Huacheng) Stone Materials . . . . . . . . . . . . . . . . . . .
Guangxi Longtaitong Stone. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Yunfu Xin Hui Yuan Shi Cai . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shanghai Dishanxiumei Rail Manufacturing Co., Ltd . . . . . . . . . . . . . . . . . . . .
Yixing Jieda Stone Co., Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

PriceNote
(RMB/m2)

110
140
120
135
160
150
115
140
185
110

Source: Hatch

Note: Prices are quoted for standard 20 mm thick slab.

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INDUSTRY OVERVIEW

It is forecasted in the Hatch Report that beige marble prices will generally remain stable in the next five years. With the depletion of resources, prices of some rare precious beige marble types may have the potential to increase in the near future.

INDUSTRY POLICIES AND CODES

Beige marble is one of the main marble colors. From the viewpoints of industry administration and development, the wide range of laws and policies issued by the PRC covers the entire marble industry or relates to the entire stone industry. The following section and the section headed ‘‘Regulatory Overview’’ will introduce in detail the laws and policies on beige marble, marble and the stone industry.

On 7 November 2006, China Promotion Committee for Top Brand Strategy (CMP, 中國名牌戰略推進委員會) issued the List of China Top Brand Products to be Promoted on Priority under 11th Five Year Plan, (中國名牌產品「十一五」重點培育指導目錄). Stone materials for decorative purposes (裝飾石材) are on the list and support will be given to those Chinese stone enterprises which produce stone materials for decorative purposes to help them establish their own intellectual property right and top brand.

Since the coming of the new century, demand for stone products has been on continuous rise and there existed many wildcat miners. Before 2006, the problem that stone industry faced was that many of the small-scaled enterprises were not in alliance. To tighten the control of mining rights and important mineral resources, to improve the rule of payment for mining rights, and to regulate the mining order of mineral resources and to crack down on wildcat miners, MLR, in conjunction with relevant authorities, promulgated several laws and policies. After years of endeavor, the stone mining industry in China has been fundamentally improved and the overall level of stone mining industry in China has been raised substantially.

To further solve the problem of small scale, obsolete technology and equipment, unreasonable arrangement of mine development and disorder of mining activities, the NDRC published and approved the Technical Code for Quarry of Decorative Stone (裝飾石材露天礦山技術規範) on 16 June 2008, which took effect as at 1 December 2008. The Technical Code for Quarry of Decorative Stone was prepared by CSMA after analysis of the existing stone resource developments in order to solve the problem of small scale, obsolete technology and equipment, unreasonable arrangement of mine development and disorder of mining activities. The Code aims to expand the mine scale, improve quarry output and quality, and improve competitiveness of the stone mining industry.

In December 2009, CSMA prepared Tentative Provisions on Up-to-Standard Evaluation of Decorative Stone Mines (裝飾石材礦山達標考評試行辦法) to push the standardized construction and production of stone quarries in China, improve the overall level of stone mining industry, and assist the campaign for qualified production by stone quarries across the country. The Provisions list in detail the evaluation and scoring methods. Certificates and tablets will be issued to the qualified quarries by CSMA, accompanied by promotions in relevant media.

The Specification for Natural Marble for Building Slab (天然大理石建築板材), with status lifted from industry code to state code (GB/T19766-2005), was officially published by the Standardization Administration of China (中國標準化管理委員會) on 18 May 2005, and took effect as at 1 December 2005, which stipulated the classification, technical requirements, test methods, inspection rules, marking, packaging, handling and storage of natural marble slab (天然大理石板材) for building purpose.

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INDUSTRY OVERVIEW

On 5 December 2008, the Standardization Administration of China approved the establishment of the National Technical Commission of Stone Standardization (全國石材標準化技術委員會) of Standardization Administration of China (SAC/TC460), which consisted of three sub-commissions: Subcommission of Codes and Applied Technology (SAC/TC460/SC1, 管理規範和應用技術及規範分技術委員會), Sub-commission of Products and Auxiliary materials (SAC/TC460/SC2, 產品及輔助材料分技術委員會) and Sub-commission of Special Machines (SAC/TC460/SC3, 專用機械分技術委員會). The establishment of Artificial Stone Group was in progress. The purpose of the establishment of the National Technical Commission of Stone Standardization is to address the urgent need to prepare the codes and to set up the relatively-complete system of standards for China’s stone industry.

Currently, there are 48 effective codes relevant to stone materials, 23 of which are state codes, 24 building industry codes and 1 code for import and export inspection & quarantine. There are 33 codes being prepared, 16 of which are state codes and 17 building industry codes; 23 of which are new codes and 10 are revised codes. It is planned that 20 codes will be prepared for artificial stone (terminology and test methods) and 7 state codes will be revised for stone material test methods.

At present, five industrial codes are to be completed and submitted for approval: ‘‘Code for Design of Decorative Stone Material Factory’’; ‘‘Code of Environment of Decorative Stone Material Production’’; ‘‘Code for Design and Use of Decorative Stone Products’’; ‘‘Technical Code for Dump Yard of Decorative Stone Quarry’’; and ‘‘Code for Work Safety in Decorative Stone Material Production.’’

SOURCES OF INFORMATION

Hatch Report

Hatch, an experienced consultant in the mining industry, has been engaged to provide the Hatch Report for use in whole or in part in this document.

Hatch’s Investment & Business Planning (IBP) Practice works with financial institutions, equity funds, accounting firms and legal counsels in an advisory role on due diligence projects, distressed asset assignments, asset appraisal/business valuation, business plan reviews, long term-viability analyses and operation improvement studies. Hatch retains foreign professionals in all major engineering disciplines as well as specialists in project and construction management. Hatch’s IBP Practice has specific related experience in:

. technical and business reviews of mining and metal companies for financial institutions and investors worldwide, including China;
. detailed engineering operations, process and environmental expertise in the production of metals with hands-on operating experience;
. capital project evaluation and monitoring in the mining and metal industry;
. financial and cost accounting experience with miners and metal producers, including operating cost evaluation, benchmarking expertise and expertise in financial and cash flow analysis to support project approval, lending and debt restructuring; and
. mining and metal industry competitive analysis with Hatch database of proprietary project and operating data.

– 73 –

INDUSTRY OVERVIEW

The research and writing of the Hatch Report was a desktop exercise carried out by experienced Hatch professionals who have extensive knowledge of the mining sector. Hatch utilizes its in-house database, independent third-party reports and publicly available data from reputable industry organizations to prepare the Hatch Report. Where necessary, Hatch’s researchers contact companies operating in the industry to gather and synthesize information about the market, prices and other relevant information.

In preparation of this Hatch Report, Hatch has assumed the completeness and accuracy of the information and data that Hatch has relied on. Hatch has confirmed that it is not aware of anything which could possibly lead it to believe that this assumption is unfair, unreasonable or incomplete.

Hatch operates at strict international standards of moral, legal and professional conduct. Hatch guards its reputation for independence and confidentiality with great care. Hatch has more than 15 years of project experience in the PRC and has successfully undertaken assignments on over 150 projects with a capital value in excess of US$3.0 billion.

This document contains information extracted from the Hatch Report in sections such as ‘‘Summary,’’ ‘‘Risk Factors,’’ ‘‘Industry Overview,’’ ‘‘Business’’ and ‘‘Financial Information.’’

We have paid Hatch a total of RMB370,000 in fees for the preparation of the Hatch Report. We believe these fees are reasonable for the preparation of an industry report by an independent third-party consultant.

CSMA

CSMA is a national non-profit industrial association in China formed by stone material enterprises and related social organizations of the trade and organizations. CSMA was established in 1983 and has more than 300 direct members and over 1,500 indirect members engaging in the stone exploitation, processing, maintenance, trade and distribution, scientific research and testing. CSMA mainly serves as a channel of communication for enterprises and organizations in stone industry. Major functions of CSMA include i) assisting government authorities in drafting policies relating to the stone industry; ii) providing technical and market consultancy advices to its members; iii) strengthening the contacts with international stone organizations; and iv) organizing trade exhibitions and fairs. STONE, a magazine sponsored by CSMA is the sole professional stone industrial magazine published nationwide in the PRC. CSMA’s operation is guided and supervised by the State-owned Assets Supervision and Administration Commission of the State Council of the PRC.

Mr. Deng Huiqing, one of our independent non-executive Directors, has been serving as the deputy secretary general and standing deputy director and as the standing deputy secretary general on different committees of the CSMA since April 2002.

In August 2010, CSMA functioned as the sponsor which organized and gathered a panel of 17 industry experts for the purpose of assessment of our marble products. Mr. Deng Huiqing acted as the convener of this expert panel and was one of the experts on the panel. In this expert panel meeting, each of the 17 experts individually assessed our marble products, formed his or her opinion on the marble products, and unanimously adopted the expert opinion collectively issued by such industry experts. We did not pay any fees to CSMA or to any member of the expert panel for the purpose of this expert panel meeting or for the issuance of the relevant certificate.

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INDUSTRY OVERVIEW

CSMA also sponsors and organises similar panel review for other marble and stone companies from time to time and on as-required basis. We have not engaged in any business dealings with the CSMA. We do not rely on the association with or ratings from CSMA for our business operations.

– 75 –

REGULATORY OVERVIEW

PRC LAWS RELATING TO INVESTMENT IN STONE INDUSTRY

Under the Tentative Regulation to Promote the Adjustment of Industrial Structure (促進產業結構調整暫行規定) issued on 2 December 2005 and Guiding Catalogue of Industrial Structure for Adjustment (Version 2005) (產業結構調整指導目錄(2005年本)), the production of high-purity, ultrafine and performance-improved fine processed mineral materials required by high-technology and cleantechnology industries, and the development of technology and fabrication of equipment for such mineral materials, as well as annual production capacity above 200,000 m[3] of quarry stone or 300,000 m[3] of ultra-thin composite stone material are listed as encouraged industries, for which the PRC Government will increase its support.

The Catalogue for the Guidance of Foreign Investment Industries (外商投資產業指導目錄) issued on 31 October 2007, effective on 1 December 2007, provides that foreign enterprises are encouraged to invest in non-metallic minerals stone industry to fine process and produce ultra-fine, grinding, highpurity, refined or performance-improved products.

PRC LAWS RELATING TO THE INDUSTRY

Pursuant to the Mineral Resource Law of the PRC (中華人民共和國礦產資源法) promulgated on 19 March 1986, effective on 1 October 1986 and amended on 29 August 1996 and the Rules for the Implementation of the Mineral Resources Law (中華人民共和國礦產資源法實施細則) promulgated and effective on 26 March 1994, (i) mineral resources are owned by the State with the State Council exercising ownership over such resources on behalf of the State; (ii) the department in charge of geology and mineral resources under the State Council is authorized by the State Council to supervise and administer the exploration and exploitation of mineral resources nationwide. The department in charge of geology and mineral resources, of each province, autonomous region or municipality directly under the Central Government is responsible for the supervision and administration of the exploration and exploitation of mineral resources within its respective administrative regions; and (iii) an enterprise that intends to explore and exploit mineral resources shall apply for each exploration and mining rights separately according to the relevant PRC laws, regulations and policies, and is required to undergo the registration process for each of the exploration and mining rights, unless the mining enterprise which intends to conduct exploration operations for its own production within the defined mining areas has previously obtained mining rights.

Under the Rules for the Implementation of the Mineral Resources Law, a holder of a mining permit (採礦許可證) has the right to and is also obligated to conduct mining activities in the area and within the time period designated in the mining permit. A holder of a mining permit has certain additional rights including, among others, rights to (i) set up necessary production and living facilities within the designated area and (ii) acquire the land use rights necessary for the production. A holder of mining permit has certain additional obligations including, among others, obligations to (i) conduct reasonable exploitation, and protect and fully utilize mineral resources; (ii) pay resources tax and resources compensation levy; (iii) comply with the laws and regulations relating to occupational safety, soil and water conservation, reclamation and environmental protection; and (iv) submit mineral resource reserve and utilization reports to relevant government authorities as required.

The Procedures for the Registration of Mining of Mineral Resources (礦產資源開採登記管理辦法) (‘‘State Council Circular No. 241’’) was promulgated by the State Council and became effective on 12 February 1998. Under the State Council Circular No. 241, anyone with mining rights shall file an application for registration of change(s) with the appropriate registration administration authority within

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the duration of the mining permit term if there is any change in the scope of the mining area, the mainexploited mineral categories, the exploitation mode, the name of the mining enterprise and/or the transfer of the mining right according to the relevant laws. If continuation of mining is necessary after the expiration of the mining permit, the holder of a mining permit shall apply for an extension with the registration authority within 30 days prior to the expiration of the term of the mining permit. If the holder of a mining permit fails to apply for an extension prior to the expiration of the term, the mining permit shall terminate automatically.

In the Notice on Comprehensively Starting the Consolidation and Regulation of Mineral Resource Developments (關於全面整頓和規範礦產資源開發秩序的通知) promulgated on 18 August 2005, the State Council requires all provincial governments to comply with the notice and organize relevant authorities to investigate and rectify various illegal exploration and mining of mineral resources in their respective regions.

In the Notice on Further Standardizing the Administration of Granting the Mineral Rights (關於進一步規範礦業權出讓管理的通知) promulgated on 24 January 2006, the mines were categorized, on basis of the natural existing conditions of mineral resources and extent of past geological investigation, into three classes, with different grant procedures, and the administrative rules on invitation for bid were perfected. According to the notice, marble and granite (大理岩和花崗岩) are categorized in the second class and their exploration rights are granted by open invitation for bid, while limestone (for building purposes) (石灰岩(建築石料用)) is categorized in the third class and its mining rights are granted directly by open invitation for bid, without passing through the bidding process for exploration rights.

The Comments on Consolidation of Mineral Resource Developments (對礦產資源開發進行整合的意見) was issued on 31 December 2006 with the main objective to substantially rectify, by consolidate small-scaled mines, the problems arising out of the existence of numerous small-scaled mining enterprises, and to make mine development more reasonable, enhance the composition of mining enterprises, significantly improve mine safety, ecology and the environment, thereby improving mineral resources’ contribution to sustainable development of the economy and society.

The Notice on Looking aback Campaign for Consolidation and Regulation of Mineral Resource Developments (關於開展整頓和規範礦產資源開發秩序「回頭看」行動的通知) was issued on 27 February 2008. The purpose of the campaign was to investigate and address illegal exploration and mining, with focus on exploration and mining without license, and mining beyond strata or boundary.

To administer the assessment of exploration rights and mining rights, and to ensure the healthy development of the assessment industry, the Tentative Provisions on Administration of Mining Industry Right Assessment (礦業權評估管理辦法(試行)) was issued on 23 August 2008.

PRC LAWS RELATING TO ENVIRONMENTAL PROTECTION

The PRC laws and regulations on environmental protection include the Environmental Protection Law of the PRC (中華人民共和國環境保護法) promulgated and effective on 26 December 1989; the Air Pollution Prevention of the PRC (中華人民共和國大氣污染防治法) revised on 29 April 2000 and effective on 1 September 2000; the Law of the PRC on the Prevention and Control of Water Pollution (中華人民共和國水污染防治法) revised on 28 February 2008 and effective on 1 June 2008 and the related implementing regulations (中華人民共和國水污染防治法實施細則) promulgated and effective on 20 March 2000; the Rules on the Administration concerning Environmental Protection of Construction Projects (建設項目環境保護管理條例) promulgated and effective on 29 November 1998

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and the Regulations on Administration concerning the Environmental Protection Acceptance Check on Construction Projects (建設項目竣工環境保護驗收管理辦法) promulgated on 27 December 2001 and effective on 1 February 2002.

Pursuant to the laws and regulations stated above, an enterprise that discharges and dispenses toxic and hazardous materials including waste water, solid waste and waste gases, shall comply with the applicable national and local standards, as well as report to and register with the applicable environmental protection authority. Failure to comply can result in a warning, an order, or a penalty against the enterprise. Before commencing a construction project, an environmental impact assessment report must be submitted by an enterprise to the relevant environmental protection authority for approval. An acceptance inspection by the relevant environmental protection authority is required before the completed project can commence its operations.

PRC LAWS RELATING TO GEOLOGICAL ENVIRONMENT PROTECTION

Pursuant to the Provisions on the Protection of the Geologic Environment of Mines (礦山地質環境保護規定) promulgated on 2 March 2009 and effective on 1 May 2009, (i) when an applicant for mining rights applies for the mining permit, the applicant shall compile a plan for the protection and restoration of the mine’s geological environment and submit the plan to the competent land and resources authority for approval; (ii) when a mine’s geological environment is destroyed due to mineral mining, the holder of a mining permit shall be responsible for restoration, the cost of the restoration is included in the production cost; and (iii) the holder of a mining permit shall pay the security deposit for the restoration of the geological environment of mines. The standard and measures for the payment of the security deposit for the restoration of the geological environment of mines is implemented in compliance with relevant provisions formulated by each province, autonomous region or municipality.

Pursuant to the Sichuan Province’s Regulations on the Administration of Geological Environment (四川省地質環境管理條例) promulgated and effective on 14 August 1999, and amended on 27 March 2009 (i) it is mandatory to go through the evaluation in respect of the effect on the geological environment for mineral mining; and (ii) the holder of a mining permit shall pay the security deposit for the restoration of the geological environment of mines. Pursuant to the Sichuan Interim Regulations on the Management of Security Deposits for the Restoration of the Geological Environment of Mines (四川省礦山地質環境恢復治理保證金管理暫行辦法) promulgated on 20 March 2008 and effective on 1 May 2008, (i) a holder of mining permit shall pay a security deposit to guarantee performance of its obligations to restore the geological environment of the relevant mines; (ii) the amount of the first installment of the security deposit shall not be less than 20% of the total amount, provided that the effective term of the relevant mining permit is for 11 to 20 years (inclusive) and the remainder of the security deposit shall be paid once a year in an amount that in each case shall not be less than 20% of the remaining amount of the security deposit provided further that the remaining amount of the security deposit shall be fully paid at least one year prior to the expiration of the relevant mining permit; (iii) the entire amount of security deposit collected shall be placed in a special account; (iv) prior to the closure of a mine, the holder of the relevant mining permit shall complete the restoration of the geological environment of the mine, apply for an inspection of the mine and submit a report regarding the restoration of the mine; and (v) the security deposit together with interest shall be refunded if the inspection is satisfactory, otherwise, the relevant land and resources authority shall organize the restoration using the security deposit and the relevant mine owner shall be liable for any shortfall if the security deposit is insufficient.

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PRC LAWS RELATING TO PRODUCTION SAFETY

Pursuant to the Production Safety Law of the PRC (中華人民共和國安全生產法) promulgated on 29 June 2002 and effective on 1 November 2002 and the Law of the PRC on Safety in Mines (中華人民共和國礦山安全法) and its related implementation rules promulgated on 7 November 1992 and 30 October 1996 and effective on 1 May 1993 and 30 October 1996, respectively, (i) safety facilities in mine construction projects must be designed, constructed and put into operation at the same time as the commencement of the principal parts of the projects; (ii) the design of a mine shall comply with the safety rules and technological standards of the mining industry and shall be approved by the relevant authorities; and (iii) such mines may start production or operations only after they have passed the safety check and approval process as required by the relevant PRC laws and administrative regulations.

The Regulation on Work Safety Licenses (安全生產許可證條例) was promulgated and became effective on 13 January 2004. The Measures for the Implementation of Work Safety Licenses for Noncoal Mine Enterprises (非煤礦礦山企業安全生產許可證實施辦法) was promulgated on 17 May 2004, amended on 30 April 2009 and became effective on 8 June 2009. Pursuant to such regulation and measures, (i) the work safety licensing system is applicable to any enterprise engaging in non-coal mining and such enterprise may not produce any products without obtaining a work safety license; (ii) prior to producing any products, the non-coal mining enterprise shall apply for a work safety license, which is valid for three years; (iii) the work safety bureau at or above provincial level are in charge of issuing the work safety license for non-coal mining enterprise; and (iv) if a work safety license needs to be extended, the enterprise must apply for an extension with the administrative authority who issued the original license three months prior to the expiration of the original license.

PRC LAWS RELATING TO STONE TRADING

The Notice on Adjustment to Catalogue of Import & Export Goods subject to Inspection and Quarantine by Import & Export Inspection & Quarantine Authority (關於調整《出入境檢驗檢疫機構實施檢驗檢疫的進出境商品目錄(2009年)》的公告) published in December 2008, effective on 1 January 2009, removed marble (大理石), travertine (石灰華) and related products from the list of goods subject to compulsory inspection, and as a result radioactivity inspection is no longer required for marble (大理石), travertine (石灰華) and related products.

PRC LAWS RELATING TO TAXATION AND FEE

According to the EIT Law which took effect as at 1 January 2008 and its implementation rules, a unified enterprise income tax rate of 25% is applied equally to both domestic enterprises and foreigninvested enterprises.

Pursuant to the Interim Regulations of the PRC on Resource Tax (中華人民共和國資源稅暫行條例) promulgated on 25 December 1993 and effective on 1 January 1994, any enterprise engaged in the exploitation of mineral products within the PRC is subject to pay a resource tax.

According to the Notice on Adjusting Resource Tax Applicable to Limestone, Marble and Granite (財政部、國家稅務總局關於調整石灰石、大理石和花崗石資源稅適用稅額的通知) effective from 1 July 2003, statutory resource tax rate for limestone (石灰石) ranges from RMB0.5 to RMB3.0 per m[3] and statutory resource tax rate for marble ranges from RMB3.0 to RMB10.0 per m[3] . Local governmental authorities are authorized to determine the specific resource tax rate within the foresaid range payable by any mining right holder. Based on such statutory authorization, pursuant to a confirmation letter issued by the State Tax Bureau of Jiangyou City (江油市國家稅務局) on 14 February 2011, the specific

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resource tax rate payable by holders of marble (大理石) mining rights in Jiangyou is RMB10 per m[3] . Pursuant to the Provisions on the Administration of the Collection of Mineral Resources Compensation (礦產資源補償費徵收管理規定) promulgated on 27 February 1994, effective on 1 April 1994 and amended on 3 July 1997, mineral resources compensation shall be paid by the holder of the mining permit if such holder decides to exploit mineral resources within the PRC territory, unless such PRC laws or administrative regulations provide otherwise.

The resource compensation tax is levied at 2% of total revenue and VAT of 17% is included in the sale price of marble blocks, marble slabs and other by-products produced from the Zhangjiaba Mine. We are also subject to city-maintenance-and-construction tax at 7% of VAT, an education levy at 3% of VAT and an additional local education fee at 1% of VAT.

Under the Notice on Adjustment to Rate of Tax Rebate Applicable to Some Goods and Addition to Catalogue of Goods Forbidden for Processing Trade (關於調整部分商品出口退稅率和增補加工貿易禁止類商品目錄的通知) promulgated on 14 September 2006, raw stone material, quarry stone, primarily processed stone material no longer enjoy any export tax rebate, as at 15 September 2006 and shall added into the catalogue of goods forbidden for processing trade, while the 13% export tax rebate applicable to stone products with high added value, such as gravestone, stone carving and engraving remain in effect.

The Notice on Decreased Rate of Tax Rebate for Export of Some Goods (關於調低部分商品出口退稅率的通知) promulgated on 19 June 2007 stipulated that the rate of tax rebate for some deeplyprocessed stone products will be decreased as at 1 July 2007, i.e., the rate of tax rebate applicable to stone products under HS code 68022120 (Travertine Graves & Construction Stone Products (經簡單切銷或鋸開的石灰華及製品)), HS code 68029190 (processed marble, travertine and wax stone products not listed (其他已加工大理石及蠟石及製品(包括已加工石灰華及製品))), HS code 68029290 (processed limestone products not listed (其他已加工石灰石及製品)), HS code 68029390 (processed granite products not listed) and HS code 68029990 (processed stone products not listed) will be decreased from 13% to 5%.

The Notice on Raising the Rate of VAT Rebate Applicable to Export of Commodities such as Labour-intensive Products (關於提高勞動密集型產品等商品增值稅出口退稅率的通知) promulgated on 17 November 2008 stipulated that the rate of export tax rebate for deep-processed stone products with HS code 68022120 (Travertine Graves & Construction Stone Products (經簡單切銷或鋸開的石灰華及製品)), HS code 68029190 (processed marble, travertine and wax stone products not listed (其他已加工大理石及蠟石及製品(包括已加工石灰華及製品))), HS code 68029290 (processed limestone products not listed (其他已加工石灰華及製品)), HS code 68029390 (processed granite products not listed (其他已加工花崗岩及製品)) and HS code 68029990 (processed stone products not listed (其他已加工石灰石及製品)) have increased from 5% to 9%, effective on 1 December 2008.

The Notice on Execution Plan of Customs Tariff 2011 (關於2011年關稅實施方案的通知) promulgated on 2 December 2010, effective on 1 January 2011, stipulated that zero import tax (tentative) continue to apply to all quarry marble (原狀或粗加修正的大理石等) (goods under HS code 25151100, 25151200, 25152000), quarry granite and sandstone (原狀或粗加修正的花崗岩、砂岩等) (goods under HS code 25161100, 25161200, 25162000).

PRC LAWS RELATING TO LAND

Pursuant to the Land Administration Law of the PRC (中華人民共和國土地管理法) promulgated on 25 June 1986 and effective on 1 January 1987 and amended on 28 August 2004, all land in the PRC is either state-owned or collectively owned, depending on the location of the land. All land in the urban

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areas of a city or town is state-owned, and all land in the rural areas of a city or town and all rural land is, unless otherwise specified by law, collectively owned. The state has the right to reclaim land in accordance with law if required for public interest.

On 12 April 1988, the Constitution of the PRC (中國人民共和國憲法) was amended by the NPC to allow the transfer of land use rights for value.

Pursuant to the Interim Regulations of the PRC on Grant and Transfer of the Right to Use Stateowned Urban Land (中華人民共和國城鎮國有土地使用權出讓和轉讓暫行條例) promulgated and effective on 19 May 1990, local governments at or above county level have the power to grant land use rights for specific purposes and for a definite period to a land user pursuant to a contract for the grant of land use rights against payment of a grant premium. All local and foreign enterprises are permitted to acquire land use rights unless the law provides otherwise. The state may not reclaim lawfully granted land use rights prior to expiration of the term of grant. If public interest requires repossession by the state under special circumstances during the term of grant, compensation will be paid by the state. A land grantee may lawfully transfer, mortgage or lease its land use rights to a third-party for the remainder of the term of grant. Upon expiration of the term of grant, renewal is possibly subject to the execution of a new contract for the grant of land use rights and payment of a premium. If the term of the grant is not renewed, the land use rights and ownership of any buildings erected on the land will revert to the state without compensation.

Pursuant to the Interim Regulations of the PRC on Grant and Transfer of the Right to Use Stateowned Urban Land, after land use rights relating to a particular area of land have been granted by the state, unless any restriction is imposed, the party to whom such land use rights have been granted may transfer, lease or mortgage such land use rights for a term not exceeding the term which has been granted by the state. The difference between a transfer and a lease is that a transfer involves the vesting of the land use rights by the transferor in the transferee during the term for which such land use rights are vested in the transferor. A lease, on the other hand, does not involve a transfer of such rights by the lessor to the lessee. Furthermore, a lease, unlike a transfer, does not usually involve the payment of a premium. Instead, a rent is payable during the term of the lease. Land use rights cannot be transferred, leased or mortgaged if the provisions of the land grant contract, with respect to the prescribed period and conditions of investment, development and use of the land, have not been complied with. In addition, different areas of the PRC have different conditions which must have been fulfilled before the respective land use rights can be transferred, leased or mortgaged. All transfers, mortgages and leases of land use rights must be registered with the relevant local land bureaus at municipality or county level. Upon a transfer of land use rights, all rights and obligations contained in the contract pursuant to which the land use rights were originally granted by the state are deemed to be incorporated as part of the terms and conditions of such transfer.

Pursuant to the PRC Law on Administration of Urban Real Estate (中華人民共和國城市房地產管理法) promulgated on 5 July 1994 and effective on 1 January 1995 and amended on 30 August 2007, real property that has not been registered and a title certificate for which has not been obtained in accordance with the law cannot be transferred. If land use rights are acquired by means of grant, the following conditions must have been met before the land use rights may be transferred: (i) the premium for the grant of land use rights must have been paid in full in accordance with the land grant contract and a land use rights certificate must have been obtained; (ii) investment or development must have been made or carried out in accordance with terms of the land grant contract; (iii) where the investment or development belongs to house construction projects, more than 25% of the total amount of investment

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or development must have been made or completed; and (iv) where the investment or development involves a large tract of land, conditions for the use of the land for industrial or other construction purposes have been confirmed.

Pursuant to the Land Administration Law of the PRC, land collectively owned by rural residents is contracted to and operated by the members of respective collective economic entities for uses such as plantation, forestry, livestock husbandry or fishery production. The land use rights of collectively owned land must not be granted, assigned or leased to any party for any non-agricultural uses.

In the case of temporary use of state-owned land or land collectively-owned by farmers for construction projects or by geological survey teams, approval shall be obtained from the land administrative department of the government at or above the county level. Land users shall sign contracts with relevant land administrative department or rural economic collective organizations or village committees for the temporary use of land, depending on the ownership of land and shall pay land compensation fees as stipulated in the contracts for the temporary use of land. The term for the temporary use of land shall generally not exceed two years.

PRC LAWS RELATING TO PREVENTION AND CONTROL OF OCCUPATIONAL DISEASES

Pursuant to the Prevention and Control of Occupational Diseases Law of the PRC (中華人民共和國職業病防治法) promulgated on 27 October 2001 and effective on 1 May 2002, for construction projects, including projects to be constructed, expanded or reconstructed, and projects for technical renovation and introduction which may incur occupational disease hazards, the unit responsible for the construction project shall: (i) during the period of feasibility study, submit to the health administrative department a preliminary assessment report on such hazards; (ii) assess the effect of the control on occupational disease hazards before the construction project is completed for inspection and acceptance; and (iii) adopt protective facilities against occupational diseases. The protective facilities may be put into formal operation and use only after they have passed the inspection by the public health administration department.

Pursuant to the Prevention and Control of Occupational Diseases Law of the PRC, an employing unit shall: (i) establish and improve the responsibility system of occupational disease prevention and treatment, strengthen the administration and improve the level of occupational disease prevention and treatment, and bear responsibility for the harm of occupational diseases engendered therefrom; (ii) purchase social insurance for industrial injury; (iii) adopt effective protective facilities against occupational diseases, and provide protective articles to the laborers for personal use against occupational diseases; (iv) set up alarm equipment, allocate on-spot emergency treatment articles, washing equipment, emergency safety exits and safety zones for poisonous and harmful work places where acute occupational injuries are likely to take place; and (v) inform the employees, according to the facts, of the potential harm of occupational disease as well as the consequences thereof and the protective measures and treatment against occupational diseases when signing a labor contract with employees.

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PRC LAWS RELATING TO LABOR

Pursuant to the PRC Labor Law (中華人民共和國勞動法) promulgated on 5 July 1994 and effective on 1 January 1995 and the PRC Labor Contract Law (中華人民共和國勞動合同法) promulgated on 29 June 2007 and effective on 1 January 2008, if an employment relationship is established between an entity and its employees, written labor contracts shall be prepared. The relevant laws stipulate the maximum number of working hours per day and per week, respectively. Furthermore, the relevant laws also set forth the minimum wages. The entities shall establish and develop systems for occupational safety and sanitation, implement the rules and standards of the State on occupational safety and sanitation, educate employees on occupational safety and sanitation, prevent accidents at work and reduce occupational hazards.

Pursuant to the Interim Regulations on the Collection and Payment of Social Insurance Premiums (社會保險費徵繳暫行條例) promulgated and effective on 22 January 1999 and the Interim Measures concerning the Administration of the Registration of Social Insurance (社會保險登記管理暫行辦法) promulgated and effective on 19 March 1999, basic pension insurance, medical insurance and unemployment insurance are collectively referred to as social insurance. Each of the PRC companies and their employees are required to contribute to the social insurance plan.

Pursuant to the Regulations on Occupational Injury Insurance (工傷保險條例) promulgated on 27 April 2003 and effective on 1 January 2004, as amended on 20 December 2010, and the Interim Measures concerning the Maternity Insurance for Enterprise Employees (企業職工生育保險試行辦法) promulgated on 14 December 1994 and effective on 1 January 1995, PRC companies shall pay occupational injury insurance premiums and maternity insurance premiums for their employees.

Pursuant to the Regulations on the Administration of Housing Fund (住房公積金管理條例) promulgated and effective on 3 April 1999, as amended on 24 March 2002, PRC companies must register with the applicable housing fund management center and establish a special housing fund account in an entrusted bank. Each of the PRC companies and their employees are required to contribute to the housing fund and their respective deposits shall not be less than 5% of an individual employee’s monthly average wage during the preceding year.

PRC LAWS RELATING TO FOREIGN EXCHANGE

Pursuant to the Regulations on Foreign Exchange Control of the PRC (中華人民共和國外匯管理條例) promulgated on 29 January 1996, effective on 1 April 1996 and amended on 5 August 2008, payments made in foreign currencies for international transactions, such as the sale or purchase of goods, are not subject to PRC governmental control or restrictions. Certain organizations in the PRC, including foreign-invested enterprises, may purchase, sell and/or remit foreign currencies at certain banks authorized to conduct foreign exchange business upon providing valid commercial documents to such banks. However, approvals are required for the relevant capital account transactions, such as an overseas investment by a domestic company.

PRC LAWS RELATING TO QUALITY

The revised Product Quality Law of the PRC (中華人民共和國產品質量法) was promulgated on 8 July 2000 and became effective on 1 September 2000. The State Council’s product quality supervision authority is in charge of the nationwide supervision of product quality, while the local product quality supervision authority at or above the county level is responsible for supervising the product quality within its respective administrative region. Producers and sellers shall establish internal quality

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management systems, implement strict job quality specifications and corresponding quality evaluation procedures. The State encourages the enterprises to ensure that the quality of their products achieve and surpass the industrial, national and international standards.

As advised by the PRC legal adviser, Commerce & Finance, except as disclosed in the section headed ‘‘Business’’ to the document, the PRC subsidiaries of our Company have complied with PRC laws and regulations in all material aspects and have obtained all the material permits and licenses for their business operations.

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HISTORY AND CORPORATE DEVELOPMENT

HISTORY AND DEVELOPMENT

The Company was incorporated in the Cayman Islands as an exempted company under the Companies Law on 29 March 2010.

The Company’s subsidiaries include Kingstone Industrial, Hong Kong Kingstone, Guangzhou Kingstone and Sichuan Jinshida, all being wholly owned subsidiaries. Kingstone Industrial and Hong Kong Kingstone, incorporated on 7 April 2010 and 14 April 2010, respectively, are both investment holding companies and were established for the purpose of holding the Company’s interests in Guangzhou Kingstone which in turn holds the equity interests in Sichuan Jinshida. Sichuan Jinshida is the principal operating entity within our Company, and is engaged in the business of exploitation of marble stones, processing of marble stones and sales of marble blocks and marble slabs.

Sichuan Jinshida was established as a limited liability company in the PRC on 20 September 2005 by eight original shareholders (Mr. Leng Dingming, Mr. Zhou Saiyu, Ms. Chen Mei, Ms. Wang Man, Mr. Leng Jun, Mr. Huang Ping, Mr. Yang Xuedong, Mr. Liu Qichuan), all being Independent Third Parties, holding 48%, 34%, 10%, 3%, 2%, 1%, 1%, 1% of the equity interests in Sichuan Jinshida, respectively. The initial registered capital of Sichuan Jinshida was RMB1.08 million.

In April 2006, the eight original shareholders transferred 30% of their respective equity interests in Sichuan Jinshida to Mr. Zhang Daxing, and in the same month, each of Mr. Zhou Saiyu and Mr. Leng Dingming transferred 1.4% of the equity interests in Sichuan Jinshida to Mr. Chen Yi and Ms. Li Ning, respectively. On 21 July 2006, the registered capital of Sichuan Jinshida was increased from RMB1.08 million to RMB3.0 million on pro-rata basis among the then shareholders.

In July 2007 the registered capital of Sichuan Jinshida was increased from RMB3.0 million to RMB4.0 million on pro-rata basis among the then shareholders, and in the same month, Mr. Liu Qichuan, Mr. Yang Xuedong, Mr. Leng Dingming, Ms. Li Ning, Ms. Wang Man, Mr. Leng Jun and Mr. Huang Ping transferred all of their respective remaining equity interests in Sichuan Jinshida to Mr. Zhang Daxing. After these transfers, the equity interest in Sichuan Jinshida was owned as to 69.2% by Mr. Zhang Daxing, 22.4% by Mr. Zhou Saiyu, 7.0% by Ms. Chen Mei and 1.4% by Mr. Chen Yi. On 1 August 2007, Mr. Huang through Jiucheng Mining acquired 30.2%, 12.4%, 7% and 1.4% of the equity interests in Sichuan Jinshida from Mr. Zhang Daxing, Mr. Zhou Saiyu, Ms. Chen Mei and Mr. Chen Yi for considerations of RMB2.67 million, RMB1.09 million, RMB0.62 million and RMB0.12 million, respectively, all of which were determined based on arm’s-length negotiations by reference to the then prevailing market price of limestone and the mining reserve stated in the mining certificate. On the same day, Mr. Zhang Daxing transferred 5%, 5% and 4% of the equity interests in Sichuan Jinshida to Mr. Wu Saijun, Mr. Liu Xingyu and Mr. Zhang Min, respectively. Mr. Zhang Daxing, Mr. Zhou Saiyu, Mr. Chen Yi, Ms. Chen Mei, Mr. Wu Saijun, Mr. Liu Xingyu and Mr. Zhang Min are Independent Third Parties. Jiucheng Mining held the equity interests in Sichuan Jinshida in trust for Mr. Huang. Please see the notes to the table below on page 111. After these acquisitions, the recorded shareholding structure of Sichuan Jinshida was as follows:

Name Jiucheng Mining(1) and (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Zhang Daxing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Zhou Saiyu. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Wu Saijun . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Liu Xingyu. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Zhang Min . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Percentage of shareholding in Sichuan Jinshida
	(%) 51.0 25.0 10.0 5.0 5.0 4.0
	100.0

Name
Jiucheng Mining(1) and (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Zhang Daxing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Zhou Saiyu. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Wu Saijun . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Liu Xingyu. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Zhang Min . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Percentage of
shareholding in
Sichuan Jinshida

(%)
51.0
25.0
10.0
5.0
5.0
4.0

100.0

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HISTORY AND CORPORATE DEVELOPMENT

As a condition for the above acquisition, it was agreed that Jiucheng Mining and Mr. Zhang Daxing had to make additional capital contributions of RMB5.3 million and RMB0.7 million in Sichuan Jinshida on behalf of the then shareholders, respectively, and that the then shareholders’ equity interests in Sichuan Jinshida would remain unchanged after such increase in Sichuan Jinshida’s registered capital. On 31 August 2007, the registered capital of Sichuan Jinshida was increased from RMB4.0 million to RMB10.0 million accordingly.

On 12 January 2008, Mr. Huang through Jiucheng Mining acquired 15%, 10%, 2%, 3% and 4% of the equity interests in Sichuan Jinshida from Mr. Zhang Daxing, Mr. Zhou Saiyu, Mr. Wu Saijun, Mr. Liu Xingyu and Mr. Zhang Min for considerations of RMB6.75 million, RMB1.2 million, RMB0.10 million, RMB1.05 million and RMB0.48 million, respectively, all of which were determined based on arm’s-length negotiation by reference to the then prevailing market price of limestone and the mining reserve stated in the mining certificate. Mr. Huang has represented to us that the considerations paid to Mr. Zhang Daxing and Mr. Liu Xingyu, which were higher than those paid to other then shareholders, reflecting, among other things, their shareholding percentages in Sichuan Jinshida, their roles and responsibilities, and their overall willingness to sell their equity interests in Sichuan Jinshida. Jiucheng Mining held the equity interests in Sichuan Jinshida in trust for Mr. Huang. Please see the notes to the table below on page 111. After these acquisitions, the recorded shareholding structure of Sichuan Jinshida was as follows:

Name Jiucheng Mining(1) and (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Zhang Daxing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Wu Saijun . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Liu Xingyu. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Percentage of shareholding in Sichuan Jinshida
	(%) 85.0 10.0 3.0 2.0
	100.0

Name
Jiucheng Mining(1) and (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Zhang Daxing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Wu Saijun . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Liu Xingyu. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Percentage of
shareholding in
Sichuan Jinshida

(%)
85.0
10.0
3.0
2.0

100.0

On 14 March 2008, Ms. Li Xiaohong, the wife of Mr. Huang, acquired 10%, 3% and 2% of the equity interests in Sichuan Jinshida from Mr. Zhang Daxing, Mr. Wu Saijun and Mr. Liu Xingyu for the consideration of RMB2.85 million, RMB1.2 million and RMB1.05 million, respectively, all of which were determined based on arm’s-length negotiation by reference to the then prevailing market price of limestone and the mining reserve stated in the mining certificate. Ms. Li Xiaohong held the 15% equity interests in Sichuan Jinshida in trust for Mr. Huang. Please see the notes to the table below on page 111. After these acquisitions, the recorded shareholding structure of Sichuan Jinshida was as follows:

Name Jiucheng Mining(1) and (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ms. Li Xiaohong(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Percentage of shareholding in Sichuan Jinshida
	(%) 85.0 15.0
	100.0

According to the then articles of association of Sichuan Jinshida, a quorum of shareholders of at least 90% of the registered capital was required for any shareholders’ meeting to be convened. Upon completion of the transfer of the equity interests on 14 March 2008, Sichuan Jinshida first became under

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control of our [.], Mr. Huang, and the results of operations of Sichuan Jinshida have accordingly been included in our consolidated financial information from such date, which is also the beginning of our Track Record Period. For the year ended 31 December 2007 and the period from 1 January 2008 to 13 March 2008, Sichuan Jinshida did not have any revenue or incur any cost of sales. As at 13 March 2008, Sichuan Jinshida had net current liabilities of RMB2.1 million due to payables for construction of mining infrastructure aggregating RMB2.7 million as at 13 March 2008.

Pursuant to two equity transfer agreements dated 8 October 2008, Jiucheng Mining transferred 5% and 1% of the equity interests in Sichuan Jinshida to Ms. Bai Yanxiao, who is a director of Sichuan Jinshida and Mr. Lei Zhaochun, for nominal considerations. Mr. Lei Zhaochun is an Independent Third Party. These equity interests were transferred from Jiucheng Mining to Ms. Bai Yanxiao and Mr. Lei Zhaochun under the instruction of and in trust for Mr. Huang, as Mr. Huang has represented to us that he believes that Ms. Bai Yanxiao’s local connections in Sichuan Province and Mr. Lei Zhaochun’s knowledge and reputation in the stone industry are beneficial to the development of Sichuan Jinshida. Please see the notes to the table below on page 111. After these transfers, the recorded shareholding structure of Sichuan Jinshida was as follows:

Name Jiucheng Mining(1) and (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ms. Li Xiaohong(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ms. Bai Yanxiao(3) and (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Lei Zhaochun(4) and (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Percentage of shareholding in Sichuan Jinshida
	(%) 79.0 15.0 5.0 1.0
	100.0

Name
Jiucheng Mining(1) and (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ms. Li Xiaohong(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ms. Bai Yanxiao(3) and (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Lei Zhaochun(4) and (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Percentage of
shareholding in
Sichuan Jinshida

(%)
79.0
15.0
5.0
1.0

100.0

Pursuant to an equity transfer agreement dated 16 November 2008, Jiucheng Mining transferred 20% of its equity interests in Sichuan Jinshida to Mr. Zhang Lin for nil consideration. Mr. Zhang Lin is an Independent Third Party. The equity interests were transferred from Jiucheng Mining to Mr. Zhang Lin under the instruction of and in trust for Mr. Huang, as Mr. Huang has represented to us that he believes that Mr. Zhang Lin’s local connections in Sichuan Province is beneficial to the development of Sichuan Jinshida. Pursuant to an equity transfer agreement dated 16 February 2009, Mr. Lei Zhaochun transferred his equity interest, which had been held in trust for Mr. Huang, to Ms. Bai Yanxiao for nominal consideration due to the fact that Mr. Lei Zhaochun resigned from Sichuan Jinshida on his own accord. The equity interests held by Mr. Zhang Lin and Ms. Bai Yanxiao in Sichuan Jinshida were held in trust for Mr. Huang. Please see the notes to the table below on page 111. After these transfers, the recorded shareholding structure of Sichuan Jinshida was as follows:

Name Jiucheng Mining(1) and (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mr. Zhang Lin(5) and (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ms. Li Xiaohong(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ms. Bai Yanxiao(3) and (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Percentage of shareholding in Sichuan Jinshida
	(%) 59.0 20.0 15.0 6.0
	100.0

Name
Jiucheng Mining(1) and (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Zhang Lin(5) and (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ms. Li Xiaohong(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Ms. Bai Yanxiao(3) and (6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Percentage of
shareholding in
Sichuan Jinshida

(%)
59.0
20.0
15.0
6.0

100.0

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HISTORY AND CORPORATE DEVELOPMENT

Notes:

(1) Pursuant to four trust agreements entered into between Mr. Huang and Jiucheng Mining on 3 August 2007, 16 January 2008, 20 October 2008 and 25 November 2008, respectively, the equity interests held by Jiucheng Mining in Sichuan Jinshida were held in trust for Mr. Huang. Our PRC legal adviser, Commerce & Finance, has confirmed that the trust agreements are legal, valid and enforceable under the PRC laws and regulations. Such trust arrangement was terminated on 26 July 2010 when Jiucheng Mining transferred its equity interests in Sichuan Jinshida to Guangzhou Kingstone.
(2) Pursuant to a trust agreement entered into between Mr. Huang and Ms. Li Xiaohong, the wife of Mr. Huang, on 19 March 2008, the equity interests held by Ms. Li Xiaohong in Sichuan Jinshida were held in trust for Mr. Huang. Our PRC legal adviser, Commerce & Finance, has confirmed that the trust agreement is legal, valid and enforceable under the PRC laws and regulations. Such trust arrangement was terminated on 26 July 2010 when Ms. Li Xiaohong transferred her equity interests in Sichuan Jinshida to Guangzhou Kingstone.
(3) Pursuant to two trust agreements entered into between Mr. Huang and Ms. Bai Yanxiao on 20 October 2008 and 16 February 2009, the equity interests held by Ms. Bai Yanxiao in Sichuan Jinshida were held in trust for Mr. Huang. Our PRC legal adviser, Commerce & Finance, has confirmed that the trust agreements are legal, valid and enforceable under the PRC laws and regulations. Such trust arrangement was terminated on 26 July 2010 when Ms. Bai Yanxian transferred her equity interests in Sichuan Jinshida to Guangzhou Kingstone.
(4) Pursuant to a trust agreement entered into between Mr. Huang and Mr. Lei Zhaochun on 8 October 2008, the equity interests held by Mr. Lei Zhaochun in Sichuan Jinshida were held in trust for Mr. Huang. Our PRC legal adviser, Commerce & Finance, has confirmed that the trust agreement is legal, valid and enforceable under the PRC laws and regulations. Such trust arrangement was terminated on 16 February 2009 when Mr. Lei Zhaochun transferred his equity interest in Sichuan Jinshida to Ms. Bai Yanxiao.
(5) Pursuant to a trust agreement entered into between Mr. Huang and Mr. Zhang Lin on 25 November 2008, the equity interests held by Mr. Zhang Lin in Sichuan Jinshida were held in trust for Mr. Huang. Our PRC legal adviser, Commerce & Finance, has confirmed that the trust agreement is legal, valid and enforceable under the PRC laws and regulations. Such trust arrangement was terminated on 26 July 2010 when Mr. Zhang Lin transferred his equity interests in Sichuan Jinshida to Guangzhou Kingstone.
(6) Mr. Huang has represented to us that he believed that it is to Sichuan Jinshida’s benefit to register the legal titles of 85% of the equity interests in Sichuan Jinshida which are beneficially owned by him under trustee arrangements with Mr. Zhang Lin, Ms. Bai Yanxiao, Mr. Lei Zhaochun and Jiucheng Mining, for the following reasons: (i) Mr. Zhang Lin originates from Sichuan, and Ms. Bai Yanxiao is based in Sichuan, as a result, both of them can leverage their local connections in helping to identify, acquire and develop the Zhangjiaba Mine and conducting daily business of Sichuan Jinshida; (ii) Mr. Lei Zhaochun holds a PhD degree in stone economics from and assumes the position of a professor in China University of Geosciences (中國地質大學) and has good reputation and well-established relationship in the stone industry, which is instrumental to the daily operation of Sichuan Jinshida; and (iii) Jiucheng Mining engages in the mining business and is better received by the local government as a legal entity shareholder of a mining company due to its track record in the mining industry. Our PRC legal adviser, Commerce & Finance, has confirmed that there was no legal impediment for Mr. Huang to hold the equity interests in Sichuan Jinshida on his own behalf.

Set out below is the corporate structure of Sichuan Jinshida immediately prior to the Corporate Reorganization:

==> picture [423 x 44] intentionally omitted <==

==> picture [99 x 33] intentionally omitted <==

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HISTORY AND CORPORATE DEVELOPMENT

Notes:

(1) Jiucheng Mining is a limited liability company established in the PRC on 19 May 2007 with a registered capital of RMB8.0 million. The equity interests are owned as to 80% by Xining Guoxin and 20% by Mr. Huang Shiyou, the younger brother of Mr. Huang. Mr. Huang Shiyou holds the 20% equity interests in Jiucheng Mining in trust for Mr. Huang. Xining Guoxin principally engages in investment holding in the PRC and is ultimately controlled by Mr. Huang.
(2) Sichuan Jinshida is a limited liability company established in the PRC on 20 September 2005 with a registered capital of RMB10.0 million. The equity interests were owned as to 59% by Jiucheng Mining, 20% by Mr. Zhang Lin, 15% by Ms. Li Xiaohong who is the wife of Mr. Huang, and 6% by Ms. Bai Yanxiao. Pursuant to the trust agreements entered into between Mr. Huang and Jiucheng Mining, between Mr. Huang and Mr. Zhang Lin, between Mr. Huang and Ms. Li Xiaohong, and between Mr. Huang and Ms. Bai Yanxiao, respectively, the equity interests held by Jiucheng Mining, Mr. Zhang Lin, Ms. Li Xiaohong and Ms. Bai Yanxiao in Sichuan Jinshida were held in trust for Mr. Huang. The term of operation of Sichuan Jinshida as stipulated in its current business license is from 20 September 2005 to 25 May 2012.

CORPORATE REORGANIZATION

Our Company underwent a reorganization, and as a result, the Company became our holding company. The Corporate Reorganization involved the following steps:

Incorporation of the Company

On 29 March 2010, the Company was incorporated in the Cayman Islands as an exempted company under the Companies Law and one nil paid Share of HK$0.10 was allotted and issued to Codan Trust Company (Cayman) Limited. The Share was transferred to Wongs Investment on the same date.

On 15 March 2010, Wongs Investment was incorporated under the laws of the BVI by Mr. Huang. One share of US$1.00 was allotted and issued to Mr. Huang on the same date.

Incorporation of Offshore Companies

Kingstone Industrial

On 7 April 2010, Kingstone Industrial was incorporated under the laws of the BVI by the Company as an investment holding company. One share of US$1.00 was allotted and issued to the Company on the same date.

Hong Kong Kingstone

On 14 April 2010, Hong Kong Kingstone was incorporated under the laws of Hong Kong by Kingstone Industrial as an investment holding company. One share of HK$1.00 was allotted and issued to Kingstone Industrial on the same date.

Establishment of Guangzhou Kingstone

On 26 May 2010, Guangzhou Kingstone was established in Guangzhou under the laws of the PRC by Hong Kong Kingstone as a limited liability company with its registered capital of US$30.0 million. As at the Latest Practicable Date, US$6.0 million was contributed by Hong Kong Kingstone and the remaining US$24.0 million is expected to be contributed within two years since the establishment of Guangzhou Kingstone as provided in its articles of association. Guangzhou Kingstone principally engages in the sales of stone products and provision of related after-sales services.

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HISTORY AND CORPORATE DEVELOPMENT

Acquisition of the Entire Equity Interests in Sichuan Jinshida by Guangzhou Kingstone

On 26 July 2010, Guangzhou Kingstone, Jiucheng Mining, Mr. Zhang Lin, Ms. Li Xiaohong and Ms. Bai Yanxiao entered into four equity transfer agreements, respectively, pursuant to which Jiucheng Mining, Mr. Zhang Lin, Ms. Li Xiaohong and Ms. Bai Yanxiao transferred 59%, 20%, 15% and 6% of the equity interests in Sichuan Jinshida, respectively, to Guangzhou Kingstone for the consideration of RMB5.9 million, RMB2.0 million, RMB1.5 million and RMB0.6 million, respectively, which were determined based on the amount of registered capital of Sichuan Jinshida represented by such equity interests.

Issuance of the Exchangeable Note

On 13 August 2010, MS China 3 entered into a note purchase agreement (the ‘‘Note Purchase Agreement’’) with the Company, Mr. Huang and Wongs Investment, pursuant to which MS China 3 agreed to purchase a note in the aggregate principal amount of US$15.0 million issued by Wongs Investment, exchangeable into the Shares owned and held by Wongs Investment in the Company (the ‘‘Exchangeable Note’’), details of which are set out in the paragraph headed ‘‘— The Exchangeable Note’’ in this section.

Exchange of the Exchangeable Note

MS China 3 would be entitled to exchange the Exchangeable Note into the Shares owned and held by Wongs Investment in the Company prior to [.].

PRC LEGAL COMPLIANCE

On 21 October 2005, the SAFE issued a new public notice (the ‘‘SAFE Circular No. 75’’) which became effective on 1 November 2005. The notice requires PRC residents to register with the local SAFE branch before establishing or controlling any company, or an ‘‘offshore special purpose vehicle’’, outside of the PRC for the purpose of capital financing, and to register again after completing an investment in or acquisition of any operating subsidiaries in the PRC, which we refer to herein as a ‘‘round-trip investment.’’ The term ‘‘PRC resident’’ defined under the SAFE Circular No. 75 includes (i) any PRC individual who holds a PRC identity card or a passport; or (ii) any non-PRC individual who chronically resides in PRC due to economic interest in the PRC. Further, a non-PRC individual who chronically resides in the PRC due to economic interest mainly refers to (i) an individual who domiciles permanently in the PRC, but temporarily leaves the PRC for reasons such as travel, study, medical treatment or work outside the PRC or satisfying a residence requirement in a foreign country, and who returns to his or her permanent domicile in the PRC after the aforementioned reasons cease to exist; or (ii) an individual who holds domestic equity interests in a domestic enterprise; or (iii) an individual who originally held domestic equity interests in a domestic enterprise and has remained the beneficial owner after legal ownership of such interests are converted to equity interests in a foreign-invested enterprise. In addition, any change of shareholding or any other material capital alteration in such offshore special purpose vehicle without involving a round-trip investment shall be filed within 30 days starting from the date of such shareholding transfer or capital alteration. Mr. Huang holds the equity interests in some domestic companies in the PRC and shall be considered as a non-PRC individual who chronically resides in the PRC due to his economic interest in the PRC accordingly. Mr. Huang is applying for amendment of registration with the SAFE Sichuan Branch for Guangzhou Kingstone’s acquisition of Sichuan Jinshida and the investment by MS China 3. As advised by our PRC legal adviser, Commerce & Finance, (i) there is no material legal impediment for Mr. Huang to complete such amendment of

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HISTORY AND CORPORATE DEVELOPMENT

registration; and (ii) except for the above-mentioned amendment of registration, Mr. Huang who falls within the definition of ‘‘PRC resident’’, as such term is defined in the SAFE Circular No. 75, is in compliance with all material SAFE registration requirements under the PRC laws which are applicable to him in respect of his investment in our Company.

THE EXCHANGEABLE NOTE

On 13 August 2010, Wongs Investment, Mr. Huang and the Company entered into a note purchase agreement with MS China 3, an affiliate of Morgan Stanley (the ‘‘Note Purchase Agreement’’). Pursuant to the Note Purchase Agreement, on 19 August 2010, MS China 3 purchased an exchangeable note issued by Wongs Investment with a principal amount of US$15.0 million and a maturity date of 19 August 2013 (the ‘‘Exchangeable Note’’). The proceeds of US$15.0 million were received by Wongs Investment on 20 August 2010. Wongs Investment made a capital contribution to us using the proceeds received from issuance of the Exchangeable Note on 20 August 2010. The proceeds are expected to be utilized for the development and operation of the Zhangjiaba Mine, such as the payment for obtaining of land and mining rights, construction of mining related facilities and purchases of mining and processing equipment. As at 30 November 2010, US$3.3 million was utilized mainly for purchase of mining equipment. Unless redeemed prior to the mandatory exchange as described below, the entire outstanding principal amount of the Exchangeable Note will be mandatorily exchanged into our Shares (the ‘‘Exchange Shares’’) owned and held by our [.], Wongs Investment immediately prior to [.].

The number of Shares into which the Exchangeable Note is exchangeable shall be the quotient of (i) the nominal exchange amount (the ‘‘Nominal Exchange Amount’’); and (ii) the [.]. The Nominal Exchange Amount shall be calculated as the sum of (x) the outstanding principal amount of the Exchangeable Note on the date on which MS China 3 delivers the exchange notice to Wongs Investment (the ‘‘Exchange Date’’), and (y) all accrued and unpaid interest thereon; multiplied by the adjustment factor (as described below). In the event that the Exchange Date occurs on or prior to 19 February 2012, which is 18 months following the date of issuance of the Exchangeable Note, (a) the applicable interest rate to calculate the accrued interest shall be 25% per annum, compounded quarterly, and the interest shall be deemed to have accrued as at the Exchange Date for a full period of 18 months after the date of issuance of the Exchangeable Note and (b) the adjustment factor shall be 1.42. In the event that the Exchange Date occurs after 19 February 2012 but on or prior to the maturity of the Exchangeable Note, and the Exchangeable Note is not otherwise redeemed, (a) the applicable interest rate shall be 20% per annum, compounded quarterly, and the interest shall be deemed to have accrued as at the Exchange Date for a full period of 36 months after the date of issuance of the Exchangeable Note and (b) the adjustment factor shall be 1.16.

In addition, if the [.] is not completed prior to [.], the Exchangeable Note may be redeemed by Wongs Investment at the option of either Wongs Investment or MS China 3. MS China 3 also has the right to request Wongs Investment to redeem the Exchangeable Note upon certain material defaults committed by, inter alios, Wongs Investment, Mr. Huang and us. In the event that the [.] is not completed prior to [.], the maturity date, and the Exchangeable Note is otherwise not redeemed in full early, the Exchangeable Note shall be redeemed by Wongs Investment. The applicable redemption price under the afore-mentioned scenarios is the outstanding principal amount of the Exchangeable Note plus a premium calculated thereon at a rate of 15% per annum, compounded annually.

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HISTORY AND CORPORATE DEVELOPMENT

The parties to the Note Purchase Agreement also entered into a certain shareholders’ and noteholder’s agreement on 19 August 2010 (the ‘‘Rights Agreement’’), pursuant to which MS China 3 was granted certain minority protection rights, including pre-emptive rights and right of first refusal and tag-along right. The Rights Agreement provides that, for such time as at least 50% of the initial principal amount of the Exchangeable Note remains outstanding, MS China 3 shall be entitled to appoint one director to our Board of Directors, pursuant to which Mr. He Ji was appointed as our non-executive Director on 19 August 2010. In addition, MS China 3 also agreed not to transfer the Exchangeable Note, any Share of the Company or any equity securities of Wongs Investment to any non-affiliated third party prior to 19 February 2011, which is six months after the date of the Rights Agreement, without the prior written consent of Wongs Investment. The Rights Agreement provides that neither Mr. Huang nor Wongs Investment may transfer any Shares before the expiration of 18 months after the date of the Rights Agreement without the prior written consent of MS China 3. All such minority protection rights and transfer restrictions are expected to terminate immediately prior to [.] at which the Exchangeable Note is exchanged in full.

The Note Purchase Agreement provides that Wongs Investment, Mr. Huang and the Company jointly and severally indemnify, defend and hold harmless MS China 3 and its affiliates from and against any and all loss resulting from any breach of the transaction documents related to MS China 3’s investment. Our indemnity obligations shall terminate immediately prior to [.]. In addition, Hong Kong Kingstone entered into a deed of loan assignment on 24 August 2010 in favor of MS China 3 to create a security interest in the relevant lender’s rights in respect of a shareholder loan made to Guangzhou Kingstone. Mr. Huang, Wongs Investment, the Company and Kingstone Industrial each entered into deeds of share charge on 19 August 2010 in favor of MS China 3 to create a security interest over all the shares in the issued share capital of (i) Wongs Investment; (ii) the Company; (iii) Kingstone Industrial; and (iv) Hong Kong Kingstone, respectively. Hong Kong Kingstone also entered into a PRC equity charge on 19 August 2010 in favour of MS China 3 to create a security interest over the entire then paid-up registered capital in Guangzhou Kingstone. All such security granted under the Note Purchase Agreement shall be fully released prior to [.].

In determining the investment consideration payable by MS China 3 for the investment, we took into account investment risks that MS China 3 was subject to when making the investment which include (a) the risks involved in our marble mining business, given that our Zhangjiaba Mine was still in the early stages of development and we had not commenced our commercial production until September 2010; (b) the relative value of our Shares, compared to [.]; (c) the illiquidity of the Shares at the time MS China 3 made the investment; (d) the commitment made by MS China 3 not to transfer the Exchangeable Note, any Share of the Company or any equity securities of Wongs Investment to any non-affiliated third party prior to 19 February 2011, which is 6 months after the date of the Rights Agreement, without the prior consent of Wongs Investment; and (e) the rich experience in corporate management and governance of MS China 3, an affiliate of Morgan Stanley, which we believe will significantly benefit the development of our Company through its participation in our company management prior to the completion of [.].

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HISTORY AND CORPORATE DEVELOPMENT

OUR CORPORATE STRUCTURE

Set out below is the shareholding structure of our Group immediately following completion of Corporate Reorganization but before the [.] and the exchange of the Exchangable Note by MS China 3:

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OVERVIEW

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COMPETITIVE STRENGTHS

We believe the following strengths distinguish us from our competitors:

Our Zhangjiaba Mine has abundant marble reserves, significant planned mining and processing capacities and immediate expansion potential.

We own and operate the largest beige marble mine in China in terms of marble reserves, according to a certification issued by CSMA in August 2010. According to the Competent Person’s Report, our Zhangjiaba Mine, located in Sichuan Province of China, contains 44.2 million m[3] of measured and indicated marble resources within the designed final pit. The block rate is expected to be 38% on the insitu marble resources, which is equivalent to an estimated 16.8 million m[3] of proved and probable marble reserves. The reserves are expected to be suitable for the production of premium decorative surfacing marble products. Our current ramp-up plan is to attain a marble block mining capacity of 150,000 m[3] per annum from 2014 onwards. Based on our marble reserves and planned mining capacities, the estimated mine life of our Zhangjiaba Mine is approximately 112 years. We also plan to construct large-scale marble slab processing facilities in close proximity to our mine, on which we expect to attain 60% of the planned processing capacity in 2012 and full planned processing capacity in 2013. We expect the marble slab processing facilities to have an aggregate processing capacity of 3.0 million m[2] of marble slabs per annum from 2013 onwards.

According to the Hatch Report, although there is an overall shortage of premium beige marble resources in China, Sichuan Province has relatively plentiful, high-quality beige marble resources and is considered a major beige marble quarry region in China. Due to the favorable location of our Zhangjiaba Mine, we will be able to significantly increase our mineral resources and reserves because of the high exploration potential beyond our permitted mining area and in other neighboring marble mines in Sichuan Province. We intend to continue expanding our production capacity and we believe that, due to our scale and record of government support, we are well positioned to grow our operations through consolidation of selected acquisition targets. Moreover, in a non-binding strategic framework agreement dated 9 August 2010, we obtained the express support of the Jiangyou City government to acquire and consolidate local marble mines. Pursuant to this strategic framework agreement, the Jiangyou City government has agreed to grant us preferential treatments with respect to land, water, electricity, tax and others as well as to jointly explore opportunities of collaborative arrangements to develop marble resources in Jiangyou City. Detailed preferential treatments and collaborative arrangements are expected to be negotiated with the Jiangyou City government and set out in the definitive acquisition agreement with selected acquisition targets.

Our Zhangjiaba Mine produces high-quality marble blocks that can be processed into high-end marble slabs commanding premium pricing.

Marble has long been highly valued for its beauty, multitude of colors, elegant style and smooth texture. As such, aesthetic value is an important factor in determining the quality of marble. There is an overall shortage of premium beige marble resources, and currently China’s premium beige marble market significantly depends on imports. According to an independent panel review organized by CSMA, our mine contains high-quality beige marble reserves, and the color and texture of our marble products are similar to those of well-recognized, premium international branded marble products currently available in the market, based on the physical specifications and the appearance of our marble

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samples. Due to these characteristics, our premium marble products are suitable for use in the decoration of high-end commercial and public buildings, such as hotels, office buildings, museums and memorial halls.

Benefiting from the quality of our marble, we have been able to enter into long-term sales contracts for our premium marble products at relatively favorable prices. In 2010, we entered into longterm sales contracts with seven customers in China. These sales contracts provide for an aggregate sales volume of 1,025,000 m[2] , 1,610,000 m[2] and 2,015,000 m[2] of marble slabs in 2011, 2012 and 2013, respectively, representing 63%, 56% and 45%, respectively, of our total planned marble slab production according to the Competent Person’s Report, at average ex-factory sales prices of RMB830 per m[2] for Pure Beige marble slabs, RMB540 per m[2] for Mixed Beige marble slabs and RMB520 per m[2] for other marble slabs during the terms of such contracts. Our customers are obliged to purchase a minimum of 90% of the volume set out in these sales contracts. See ‘‘— Customers and Contract Terms.’’ The prices for our products under these contracts are significantly higher than the average price of approximately RMB150 per m[2] for other PRC branded marble products, based on data from the Hatch Report. Because of the high quality of our marble products, we believe that sales prices for our products will increase to a similar level of prices for well-recognized, premium international branded marble products currently available in the market, the average price of which is approximately RMB1,000 per m[2] , after we reach our planned mining and processing capacities. Upon reaching our full planned mining and processing capacities, we believe we will be able to continue to strengthen our pricing power and narrow the price gap between imported premium marble products and our products.

Our efficient mining and processing methods ensure low operating costs.

Our efficient mining and processing methods contribute to low operating costs and greater costefficiency of our operations. Our Zhangjiaba Mine is situated on low knolls and contains large marble stones with thin weathering layers, making it accessible and suitable for open-pit marble mining. Our use of the open-pit mining method, which does not require the specialized machinery, equipment or supporting structures that are necessary for underground mining and is characterized by its low capital expenditure requirements, enables us to mine and process our marble relatively quickly. There are no residents within the permitted mining area and the hydrology and geology of the surrounding region is simple. Our Zhangjiaba Mine is designed to be operated in a descending multi-bench architecture taking into account the morphological and geologic conditions within the deposit. We integrate a variety of cutting techniques, including diamond wire cutting, chain saw cutting, and disc saw cutting, which we believe is highly advanced in the marble mining industry. In addition, we utilize highly-efficient, semiautomatic machinery and equipment to achieve our estimated low-cost production and to maintain our low cost advantage. Moreover, according to the Competent Person’s Report, the average waste to ore strip ratio of our mine is as low as 0.07, which contributes significantly to our low mining costs.

During the period from September to December 2010, our actual unit cash production cost of the third-party processed marble slabs was RMB325 per m[2] , which was higher than the projected unit cash production costs of RMB131 per m[2] for the third-party processed marble slabs upon reaching our full mining and processing capacities. The currently higher-than-projected unit cash cost is mainly the result of a combination of the relatively low production volume and high administrative expenses at the initial stage of production. The actual unit cash production cost of the third-party processed marble slabs decreased to RMB196 per m[2] in December 2010 as a result of increased production volume during this month. According to the Competent Person’s Report, when we reach the planned mining capacity of 150,000 m[3] of marble blocks per annum and processing capacity of 3.0 million m[2] of marble slabs per annum in 2014, the unit cash cost for our self-processed marble slabs (calculated as the sum of mining operating cash cost, slab processing cost and administrative and selling expenses) is estimated to be approximately RMB124 per m[2] , based on a slab-block ratio of 33.7, and our unit cash cost for marble

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slabs processed by third-party contractors (calculated as the sum of mining operating cash cost, contractor charges, transportation cost and administrative and selling expenses) is estimated to be approximately RMB131 per m[2] in 2014. The unit cash cost for our self-processed marble slabs is estimated to be approximately RMB136 per m[2] and RMB122 per m[2] in 2012 and 2013, respectively, after our processing facilities commence commercial operations and before we reach our full marble block mining and marble slab processing capacities.

Based on the average ex-factory sales prices in our long-term sales contracts to date, which are RMB830 per m[2] for Pure Beige Marble slabs, RMB540 per m[2] for Mixed Beige marble slabs and RMB520 per m[2] for other marble slabs, we expect to achieve high profitability if we are able to sustain similar price levels for our products and continue to maintain low operating costs.

We benefit from the convenient location of our Zhangjiaba Mine and processing facilities.

The convenient location of our Zhangjiaba Mine provides us with easy access to readily available infrastructure and transportation networks. Our mine is easily accessible by a local highway to Hanzeng Town, which is 5.5 km away and connects to the provincial highway linking to Beichuan County, as well as to the urban area of Jiangyou City, which is 19 km away from our mine. In addition, we have easy access to water and electricity supplies, both of which are key utilities for our mining and processing operations.

Our marble slab processing facilities will be located in an industrial park at the south side of Jiangyou City, approximately 30 km from our Zhangjiaba Mine. Our marble slab products will be further transported to Mianyang City, the local economic center in north-central region of Sichuan Province, and Chengdu, the capital city of Sichuan Province, which are located 40 km and 160 km, respectively, away from our processing facilities. The closest railway depot is approximately 24 km away from our mine and processing facilities. The short distance enables our customers to transport the marble slabs and other marble products in a timely and cost-efficient manner by highway or railway networks. Unlike mineral stone importers whose products are shipped from overseas by means of costly transportation, our customers are able to access and transport our marble slabs and other marble products at significantly lower costs within a much shorter period of time, thereby further enhancing our competitiveness.

Our mining and production processes are safe and environmentally friendly.

We utilize the open-pit mining method, which facilitates access and extraction of marble blocks from our marble mine, reducing the risk of accidents caused by collapsed mine roofs, mine floods and the leakage of harmful gases. Compared to underground mining, our open-pit mining operations generally do not involve the use of explosive materials or hazardous chemicals, thereby significantly reducing safety and environmental pollution concerns.

We engage in environmentally friendly mining operations. According to the Competent Person’s Report, our Zhangjiaba Mine is categorized as a highly utilizable mine, leaving a limited amount of tailings. In addition, we believe our mining operations are environmentally friendly because our mining process does not involve the use of chemicals, consumes a limited amount of water and does not generate harmful substances. We utilize water during the drilling, cutting and sawing process, water sprays at material transfer points, and water trucks to spray the roads during dry periods to reduce the amount of dust produced during our mining operations. The mine site has also been designed to recycle used water for our production activities and for dust suppression.

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We are confident in our ability to further enhance our safety and environmental protection capabilities, meet the increasingly strict safety and environmental protection standards imposed by the PRC Government and reduce any exposure to potential incremental costs or contingent liabilities relating to safety and environmental protection.

We have a strong and experienced management team with extensive industry and management experience.

Experienced mining technicians and personnel with established industry expertise are critical to the success of marble mining activities and operations. We have a team of carefully selected professionals who are equipped with abundant knowledge of and rich experience in various aspects of our business, including exploration, mine design and construction, mining, processing, and sales and marketing of marble and decorative surfacing stone industry. Certain members of our senior management team possess key management experience and have participated in mine development projects and drafting of technical specifications and national research reports. Our Directors and senior management also possess extensive experience derived from their direct involvement in both our operations and other mineral, natural resource or infrastructure projects. Our management team is led by four executive Directors and two senior management members, who together have an average of 20 years of experience and management expertise, and has been instrumental to the development of our Company. Our management team has served in various capacities at our Company since our inception, including the identification of the Zhangjiaba Mine, the acquisition of our mining assets, the exploration, the mine design and construction, and the execution of our ramp-up plan, demonstrating its strong commitment to our continued growth and success.

The majority of our Directors are qualified geologists and engineers with extensive industry expertise. Our Directors include affiliated members of the Mining Resources Committee of China Stone Material Association (中國石材工業協會礦山資源專業委員會), the Stone Material Standard Committee (石材標委會委員), as well as university lecturers and authors of academic magazines, journals and books. Our chief engineer, Mr. Lin Yuhua, has passed the examination and recognition by the GAC and the NDRC and presided over the drafting of Technical Specifications on Open-pit Quarries of Decorative Stone (裝飾石材露天礦山技術規範) (JC/T1081-2008), which was approved and issued by the NDRC and came into effect on 1 December 2008. Our head of marketing and sales, Mr. Xiong Wenjun, held various positions in a number of stone companies, is a member of the Product and Auxiliary Material Committee of National Stone Standardization Technical Committee (全國石材標準化技術委員會產品及輔助材料分技術委員會) and participated in reviewing stone industry-related standards. For more information on our team of experienced professionals, see ‘‘Directors and Senior Management’’ in this document.

We believe that our Directors and senior management possess the skills, foresight and extensive industry knowledge necessary to capture market opportunities, formulate sound business strategies, assess and manage risks and increase and implement management and production schemes. We also believe that our management team possesses the leadership capabilities and qualifications required to sustain our business and ensure our continued success.

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BUSINESS STRATEGIES

Our vision is to become a leading integrated marble business operator in China. We plan to accomplish this goal by pursuing the following strategies:

Ramp up our mining and processing capacities

We commenced limited preliminary mine construction at our Zhangjiaba Mine in July 2008 and full-scale mine construction in January 2010. We completed the construction of the first two knolls of our mine in the end of 2010. Commercial production at these two knolls commenced in September 2010. We are currently constructing the other two knolls. During the period from September to December 2010, we mined a total of 1,145 m[3] of marble blocks. During the same period, we sold a total of 3,000 m[2] of Pure Beige marble slabs, 9,000 m[2] of Mixed Beige marble slabs and 24 m[3] of marble blocks.

As part of our planned increase in mining and processing capacities, we expect to significantly increase our marble block mining capacities to a total of 45,000 m[3] per annum in 2011, 90,000 m[3] per annum in 2012, 135,000 m[3] per annum in 2013 and 150,000 m[3] per annum from 2014 onwards. See ‘‘— Our Production Operations and Facilities — Mining Process.’’ Total capital expenditures for the rampup of our marble block mining capacities are expected to be RMB366.7 million. We expect the processing facilities to have an aggregate processing capacity of 3.0 million m[2] of marble slabs per annum from 2013 onwards and the total capital expenditures for construction and equipment procurement for our processing facilities to be RMB421.7 million.

Establish a strong customer base and strengthen customer relationships

Our long-term goal is to sell our marble products through a number of select distributors to wellrecognized property developers and construction companies, which are our target end customers. We plan to focus on developing relationships with distributors that have a strong track record, established customer base and broad sales and marketing network. As we ramp up our mining and processing capacities, we intend to secure sales contracts with a larger but defined group of customers, such as property developers and construction companies of landmark projects, to strategically increase market awareness on our premium marble products and enhance our product recognition. As our mining and processing capacities increase and our products gain increased recognition in the market, we expect to have stronger pricing power, which will enable us to sell our products to select end customers that we believe will further promote our products.

Develop high product recognition and strengthen pricing power

We believe that recognition of our marble products among industry professionals is critical to our development and success. As such, we intend to establish cooperative relationships with China Architect and Interior Designer Association and CSMA and plan to work with these and other major associations on landmark projects to further promote and increase sales of our high-quality marble products. We also expect to increase exposure of our products in select trade and other high-end decorative surfacing stone magazines, as well as attend industry forums, trade fairs and exhibitions to establish communications with industry professionals, major property developers, contractors and others who have significant influence over customer preferences and purchasing decisions. Moreover, to achieve further recognition of our products, we plan to market our products for use in landmark construction projects, such as fivestar hotels and major commercial and public buildings, where our marble products can be prominently displayed and showcased. In doing so, we believe that we will be able to set quality standards and keep

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abreast of industry trends, which will enable us to command strong bargaining and pricing power over the relevant products in the market. We expect these measures to enable us to strengthen our corporate profile, enhance our business and achieve high product recognition among both industry professionals and end customers.

Expand our marble resources through further expansion and selective acquisitions

As part of our future plans for acquisitive growth, we plan to continue to carefully evaluate and identify selective expansion and acquisition opportunities. We believe that, due to the high exploration potential beyond our permitted mining area and in other neighboring marble mines in Sichuan Province, we will be able to significantly increase our mineral resources and reserves further through the acquisition of additional exploration and mining rights in the surrounding area or of mining companies with existing mining rights. Moreover, in a non-binding strategic framework agreement dated 9 August 2010, we obtained the express support of the Jiangyou City government to acquire and consolidate local marble mines. As part of the framework agreement, the parties have agreed to further explore the opportunities for potential collaborative arrangements. We intend to actively negotiate the details of preferential treatments and collaborative arrangements with the Jiangyou City government upon finalizing definitive acquisition agreements with acquisition targets. We are currently in the process of identifying and selecting acquisition targets and, as at the Latest Practicable Date, the parties did not commence the negotiation in this regard.

We continue to evaluate acquisition opportunities with exploration potential outside our current mining area to grow our resources and reserves in Sichuan Province. We also seek to expand through acquisitions of high-quality marble mines in other regions of China, with reserves that can be extracted for more than ten years. Our plans for expansion and acquisition will be subject to the following criteria: (i) scale of the resources, reserves or mining operations of the mine; (ii) the amount, mineability and sustainability of the target resources or reserves; (iii) return on acquisition; (iv) the potential synergies that can be achieved through the acquisition; and (v) the enhancement of the overall sustainability of our existing and future businesses. We regularly seek out and evaluate potential acquisition opportunities. As at the Latest Practicable Date, we did not enter into any definitive agreements with respect to any acquisition. On 30 July 2010, we entered into a legally binding letter of intent with a mining company, an Independent Third Party, under which we have the right to negotiate and consider the acquisition of certain mining rights for a neighboring marble mine containing approximately 3.7 million m[3] of estimated marble resources. This letter of intent will expire at the end of June 2011 and is extendable based on mutual agreement in writing. On 18 January 2011, we entered into another legally binding letter of intent with a stone material company, an Independent Third Party. Pursuant to this letter of intent, we have the right to negotiate and consider the acquisition of certain mining rights for a neighboring marble mine. According to the letter of intent, such mine contains no less than 5.0 million m[3] of estimated marble resources. This letter of intent will expire in one year from the signing date and is extendable based on mutual agreement in writing. The parties expect to enter into transfer agreements for the relevant mining rights and assets upon completion of satisfactory due diligence and agreement on the substantive terms and conditions of the transfers. The transfer consideration for the mining rights and assets is expected to be determined through negotiation on the basis of asset valuation to be conducted by a qualified valuation firm recognized by the parties. We expect to identify more acquisition targets that contain marble reserves of a quality similar to that of the marble reserves in our Zhangjiaba Mine and achieve even higher mining capacities as well as significant returns on our investment.

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FUTURE PLANS FOR RAMPING-UP MINING AND PROCESSING CAPACITIES

We commenced limited preliminary mine construction of our Zhangjiaba Mine in July 2008 and full-scale mine construction in January 2010. We completed the construction of the first two knolls of our mine in the end of 2010. We are currently constructing the other two knolls. Following the completion of all four knolls at our Zhangjiaba Mine, we plan to increase our mining capacity for marble blocks to 150,000 m[3] per annum from 2014 onwards. We also plan to construct large-scale marble slab processing facilities in close proximity to our mine, on which we expect to attain 60% of the planned processing capacity in 2012 and full planned processing capacity in 2013. We expect the marble slab processing facilities to have an aggregate processing capacity of 3.0 million m[2] of marble slabs per annum from 2013 onwards. After reaching our full mining and processing capacities, we expect to continue to outsource approximately 27% of our annual mined marble blocks to the third-party processing plants for slab processing as the volume of the marble slabs that can be processed from the marble blocks we mine annually is expected to exceed the full processing capacity at our processing facilities.

The timeline below highlights our key development milestones for our ramp-up plan:

Year 2008–2009 . . . . . . . . . . . 2010 . . . . . . . . . . . . . . . 2011 . . . . . . . . . . . . . . . 2012 . . . . . . . . . . . . . . . 2013 . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . .	Total marble block mining capacity(1) (m3 per annum) — 1,145 45,000 90,000 135,000 150,000	Total marble slab processing capacity(1) (million m2 per annum) — — — 1.8 3.0 3.0	Capital expenditure for the Zhangjiaba Mine(2) (RMB in millions) 21.5 66.2 114.5 80.4 56.7 27.4	Capital expenditure for the processing facilities(2)
				(RMB in millions) — 1.0 181.3 188.0 51.4 —

Notes:

(1) The marble block mining capacity and marble slab processing capacity represent our planned capacities which we intend to fully utilize, and are calculated based on 300 production days per annum, taking into account holidays, weather downtime and equipment maintenance.
(2) The actual capital expenditures for the Zhangjiaba Mine and the marble slab processing facilities for the eleven months ended 30 November 2010 were RMB61.5 million and RMB1.0 million, respectively. As at 30 November 2010, our unutilized planned capital expenditures for the Zhangjiaba Mine and the marble slab processing facilities were approximately RMB283.7 million and RMB420.7 million, respectively, and we expect such capital expenditures to be principally funded by [.]. As at 30 November 2010, we had capital commitment of RMB363,000 for our unutilized planned capital expenditure of the Zhangjiaba Mine and nil for the marble slab processing facilities.

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Item	2010	2011	2012	2013	2014	2015
Blocks used for self slab production (m3) . . . . . . . . . Blocks used for contract slab production (m3) . . . . . . Blocks used for shaped stone products (m3) . . . . . . . Blocks to be sold directly to customer (m3). . . . . . . . Total marble block mining capacity (m3). . . . . . . .	— 1,121 — 24	— 45,000 — —	53,374 30,000 1,800 4,826	88,957 40,000 3,000 3,043	88,957 40,000 3,000 18,043	88,957 40,000 3,000 18,043
	1,145	45,000	90,000	135,000	150,000	150,000

The construction of our Zhangjiaba Mine commenced in July 2008 and will be completed at the end of 2013. The majority of our capital expenditure are expected to take place from 2010 to 2012 as facilities are constructed and equipment is delivered and installed. The development schedule of our ramp-up plan is as follows:

. July 2008 – December 2009: Conducted limited preliminary mine construction activities.
. January 2010 – December 2013: Complete the construction of the main production facilities of the Zhangjiaba Mine. The ramp-up of our mining capacities will commence during this period with full mining capacity by 2014.
. January 2011 – December 2011: The construction of large-scale marble slab processing facilities commences. Equipment is procured, delivered and installed with plant construction being partially completed to attain 60% of the planned processing capacity in 2012.
. January 2012 – December 2012: The ramp-up of our marble slab processing capacities will commence. The construction of large-scale marble slab processing facilities is fully completed and production of various products expands and attains full planned processing capacity in 2013.

We plan to increase our marble block mining capacities at our Zhangjiaba Mine and expect to spend a total of RMB366.7 million, including RMB152.7 million on mine construction, RMB127.6 million on mining equipment, RMB41.3 million on mining rights, RMB40.0 million on land use rights and RMB5.2 million on other expenses to develop our marble resources. During the Track Record Period, our capital expenditure in connection with our ramp-up plan of the marble block mining capacities at the Zhangjiaba Mine totaled RMB83.0 million, including RMB2.3 million in relation to mining rights and RMB1.4 million in relation to prepaid land lease payments. Such capital expenditure was financed by our [.] and through short-term and long-term bank borrowings. In February 2011, we spent RMB39.1 million in relation to the mining rights to obtain the current mining permit that cover 590 m to 938 m above MSL within the 0.44 km[2] mining area of the Zhangjiaba Mine.

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In order to enhance our profitability and better control the quality of our products, we intend to construct marble slab processing facilities that are capable of processing marble slabs and other products as part of our ramp-up plan. We expect to spend a total of RMB421.7 million, including RMB130.7 million on the construction of processing facilities, RMB242.0 million for processing equipment, RMB20.0 million on land use rights and RMB29.0 million on other expenses. We plan to fund the capital expenditure on the marble slab processing facilities through [.]. We are currently in the process of acquiring the land for, and preparing the design of, the processing facilities. The construction of the processing facilities is expected to attain 60% of the planned processing capacity in 2012 and full planned processing capacity in 2013. During the Track Record Period, we incurred capital expenditure of RMB1.0 million in relation to our marble slab processing facilities. To complete the construction of our mine and processing facilities, we are required to obtain the approvals from the authorities in charge of the environmental protection, work safety, land and resources and other relevant aspects. As advised by our PRC legal adviser, Commerce & Finance, if Sichuan Jinshida meets all statutory conditions and requirements, after completion of all statutory procedures required by relevant PRC laws, regulations and all the competent authorities, there is no material legal impediment for Sichuan Jinshida to obtain such approvals. The foresaid statutory conditions and requirements include (without limitation) the following: (i) receipt of the approval on environmental impact assessment report in respect of the mine and processing facilities; (ii) the installation of environmental production equipment of the mine and processing facilities according to the approved environmental impact assessment report; (iii) the passing of the acceptance and inspection of the competent branch of the MEP; (iv) safety assessment with regard to the mine; (v) the design of safe production equipment has been approved by the competent authority and the safe production equipment have been installed according to such design; (vi) the acceptance and inspection of the competent branch of the SAWS; (vii) the use of relevant land for constructing the mine and processing facilities shall be in consistent with the land use planning; (viii) the receipt of land use right, the Construction Work Planning Permit and other required permits for construction of relevant processing facilities. As at the Latest Practicable Date, Sichuan Jinshida satisfied statutory conditions and requirements and obtained (i) the approvals on the construction and operation of the mine from the Work Safety Administration of Sichuan Province; (ii) the approvals on mining and processing 50,000 m[3] per annum of limestone blocks from the Environmental Protection Bureau of Jiangyou City; and (iii) the approval on environmental impact assessment report with respect to the project of mining 150,000 m[3] per annum of limestone blocks from the Environment Protection Department of Sichuan Province.

With the necessary rights, permits, licenses and approvals, we commenced commercial production of marble blocks in September 2010 and intend to commence commercial operations for marble slabs at the beginning of 2012. For information regarding the rights, licenses, permits and approvals we expect to obtain for the commercial production of our marble resources, see ‘‘— Regulatory Compliance Issues.’’ Our plans to develop and produce marble blocks and slabs will require water and electricity supplies. We believe our current and future plans for water and electricity supplies will be sufficient for our marble block and marble slab production. For information regarding our water and electricity sources, see ‘‘— Utilities, Raw Materials, Machinery and Suppliers — Electricity and Water.’’

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OUR MINERAL RESOURCES AND MINING RIGHTS

Overview

As at the Latest Practicable Date, we held the mining rights to one large-scale open-pit marble mine, namely, the Zhangjiaba Mine, which is located in Zhenjiang Village, Xiangshui County, Jiangyou City of Sichuan Province, China. The following table sets forth detailed information on our Zhangjiaba Mine:

Background data: Commercial production commenced . . . . . . . . . . . . . . . . . . . . . . . . . Mining method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Permitted mining right area. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Permitted production capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mining permit number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Resource and reserve data: Measured and indicated marble resources within the designed final pit (m3 as at 31 December 2010). . . . . . . . . . . . . . . . . . . . . . . . . . . . Proved and probable marble reserves (m3 as at 31 December 2010) . . .	Zhangjiaba Mine
	September 2010 Open-pit mining 0.44 km2 400,000 tonnes per year C5107002009017120004753 44.2 million 16.8 million

Background data:
Commercial production commenced . . . . . . . . . . . . . . . . . . . . . . . . .
Mining method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Permitted mining right area. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Permitted production capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mining permit number . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resource and reserve data:
Measured and indicated marble resources within the designed final pit
(m3 as at 31 December 2010). . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proved and probable marble reserves (m3 as at 31 December 2010) . . .

Zhangjiaba Mine

September 2010
Open-pit mining
0.44 km2
400,000 tonnes per year
C5107002009017120004753
44.2 million
16.8 million

Our Marble Reserves

According to the Competent Person’s Report, our Zhangjiaba Mine has 16.8 million m[3] of proved and probable marble reserves, based on 44.2 million m[3] of measured and indicated marble resources and an estimated block rate of 38%. With the planned annual mining capacity of 150,000 m[3] of marble blocks upon completion of our ramp-up plan in 2014, we expect that the reserves in our Zhangjiaba Mine will be sufficient for us to operate for over 100 years. Although the variation in the estimated block rate could occur during the actual mining process, resulting in variation in our marble reserves estimates, the Independent Technical Consultant expects that such variation should not have a significant impact on our mine production for the first 20 to 30 years of the mine life in light of the abundant marble resources at the Zhangjiaba Mine.

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The following map sets forth the approximate geographical location of our marble mine and major transportation infrastructures:

==> picture [290 x 369] intentionally omitted <==

Our mine is located approximately 40 km away from Mianyang City, the local economic center in the north-central region of Sichuan Province, and approximately 160 km away from Chengdu, the capital city of Sichuan Province. Our mine is easily accessible by a local highway to Hanzeng Town, which is 5.5 km away and connects to the provincial highway linking to Beichuan County, as well as to the urban area of Jiangyou City. Our mine is also close to the major national railway network, the BaojiChengdu Railway. For details of the location of our Zhangjiaba Mine and the surrounding transportation infrastructure, please see the map under ‘‘— Our Marble Reserves’’ above. As a result, unlike mineral stone importers whose products are shipped from overseas by means of costly transportation and delivery, our customers are able to purchase our marble blocks and marble slabs at significantly lower transportation costs. Our marble slab processing facilities will also be located in close proximity to developed transportation networks, enabling us to deliver our products in a timely and cost-efficient manner by a combination of roadways and railways.

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Mining Permit, Exploration Permit and Production Safety Permits

Under PRC laws and regulations, mining companies must obtain, at the minimum, a mining permit and the relevant production safety permits for a mining site prior to the commencement of commercial production. For more details, please see ‘‘Regulatory Overview.’’

We acquired Sichuan Jinshida in March 2008, when it held a mining permit to extract cement limestone (水泥用石灰岩) from the Zhangjiaba Mine covering 700 m to 880 m above MSL with a permitted mining area of 0.289 km[2] . In January 2009, we further expanded the permitted mining area covered by the permit from 0.289 km[2] to 0.495 km[2] covering 630 m to 880 m above MSL. In August 2009, we expanded the nature of our mining right to cover both decorative surfacing limestone (飾面用灰岩) and cement limestone (水泥用石灰岩) and the mining permit covered 750 m to 930 m above MSL. In February 2011, we obtained a new mining permit to cover 590 m to 938 m above MSL within substantially the same mining area as our permit obtained in 2009. According to such new mining permit, we may conduct mining activities with respect to decorative surfacing limestone (飾面用灰岩). Such mining permit will expire in 2021 and is expected to be renewed upon expiration subject to certain statutory requirements and conditions. Although from our experience, the government generally approves renewal applications that meet legal requirements, it is not required to approve them. The premium we paid in connection with such permit covers reserves extractable for 30 years based on the current approved capacity of 400,000 tonnes per year. Although PRC rules and regulations do not specify the treatment for overpayments, we expect any overpayment to be applied towards future renewals, and if our permit is not renewed, we do not expect any overpaid premium to be refunded to us.

We obtained the mining rights with permitted mining area of 0.289 km[2] as a result of our acquisition of Sichuan Jinshida for a total consideration of RMB24.48 million. In January 2009, we paid mining rights premium (採礦權價款) with the amount of RMB1.0 million for the additional 4.0 million tonnes of mine reserves resulting from the expansion of the total permitted mining area from 0.289 km[2] to 0.495 km[2] . In September 2009, we paid mining rights premium with the amount of RMB1.3 million for the additional 5.2 million tonnes of mine reserves we further explored. For each mining rights premium which was determined based on the unit price as stipulated in relevants Standard for Calculation of Mining Rights Premium in Mianyang City (綿陽市採礦權價款計算標準) multiply by the additional mine reserves through expansion, it has been paid up by us on one-off basis to the Land and Resource Bureau of Mianyang City. We paid a premium with the amount of RMB39.1 million in connection with the mining rights we obtained in February 2011. The premium we paid covers reserves extractable for 30 years based on the current approved capacity of 400,000 tonnes per year, and was determined according to the valuation result provided by the mining rights premium appraisal institutions selected by the Land and Resource Bureau of Sichuan Province. Such premium has been paid up by us on one-off basis. As at the Latest Practicable Date, there was no outstanding mining rights premium payable by us.

Under PRC laws and regulations, mining companies are required to obtain the necessary production safety permits prior to their commencement of commercial production. We obtained a new production safety permit on 7 September 2010 with the permitted scope of production of decorative surfacing marble limestone and cement limestone. Such new production safety permit will expire on 16 June 2012 and is renewable for three years, subject to completion of certain administrative examination and approval procedures. We have also obtained a formal approval in respect of the inspection and acceptance from the Work Safety Administration of Sichuan Province (四川省安全生產監督管理局) on 19 September 2010.

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OUR PRODUCTS

We specialize in the mining and production of marble blocks and marble slabs. According to an independent panel review organized by CSMA, our mine contains high-quality beige marble reserves, and the color and texture of our marble products are similar to those of well-recognized, premium international branded marble products currently available in the market, based on the physical specifications and the appearance of our marble samples. Among other awardees, we were also awarded a certificate dated 9 September 2010, issued jointly by CSMA and National Stone Material Quality Inspection Center, to certify our beige marble mined from our Zhangjiaba Mine as a ‘‘famous, excellent and premium’’ stone material. The premium quality of our marble products is also supported by the prices that our customers have paid or agreed to pay pursuant to the sales contracts that our customers have entered into with us.

Marble is geologically defined as metamorphosed limestone or dolomite that is thoroughly recrystallized and much or all of the sedimentary and biologic textures are obliterated. Commercially in the stone industry, and as used in this document, marble also includes limestone or dolomite that is rock of sedimentary origin primarily composed of calcium carbonate or calcium magnesium carbonate and is polishable. Our marble resources fall into this latter category.

The geological composition of our marble includes limestone and dolomite. The high degree of purity, hardness and bulk density as well as the low level of porosity of the marble in our Zhangjiaba Mine can be used as premium marble blocks and slabs for decorative surfacing purposes. Although we expect processed marble slabs to be our main product, we also intend to sell a limited volume of marble blocks as well as other by-products.

The primary color of our marble resources in the Zhangjiaba Mine is beige. Some of the resources are pure beige while others are mixed with milk-white or grayish white colors. Based on the color variation, our marble is classified as either Pure Beige or Mixed Beige. Some of the marble resources have well-developed depositional lamination consisting of alternating color bands similar to wood grain, which is referred to as Wood Grain marble. There are some calcite veins and veinlets filling the fractures in the marble, forming a netted texture, which is referred to as the Gray Net marble. Therefore, there are four types of color and texture combinations based on commercial products that will be produced from our Zhangjiaba Mine, namely the Pure Beige, the Mixed Beige, the Wood Grain, and the Gray Net, each of which accounts for 51.0%, 32.7%, 6.4% and 9.9% of the total marble reserves, respectively. We expect that our Pure Beige will achieve the highest sales price, followed by Mixed Beige and then others.

Properties of Our Products

Based on measurements on 19 core rock samples, the bulk density of the marble resources in the Zhangjiaba Mine ranges from 2.51 to 2.73 t/m[3] with an average of 2.61 t/m[3] . The hardness of the marble is 3. The natural water absorption of the marble is generally from 0.2% to 0.8%, averaging 0.54%. Based on the measurements on selective samples, the compressive strength of different types of marble ranges from 27.5 to 63.7 million pascals (‘‘MPa’’), averaging 41.9 MPa. The bending strength ranges from 16.3 to 39.7 MPa, averaging 23.3 MPa. The abrasion resistance is 57 per cm[2] for the Pure Beige, 56 per cm[2] for the Mixed Beige, 28 per cm[2] for the Wood Grain, and 64 per cm[2] for the Gray Net. The abrasion resistance of all four types of marble satisfies the minimum requirement of 10 per cm[2] for natural marble construction material in China (GB/T 19766-2005).

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Marble Slabs

Prior to the commencement of the commercial operations of our processing facilities, we engaged third-party processing plants to process our marble blocks into marble slabs. Upon completion of our marble slab processing facilities, we expect our processing to begin with separating and processing untrimmed quarry stones from marble mines into marble blocks, which we will further process into marble slabs and other decorative surfacing marble products by cutting, burnishing and polishing.

We cut marble blocks into three types of marble slabs, namely, standard 2-cm thick one-sidepolished marble slabs (‘‘one-side-polished marble slabs’’), 2-cm thick cut-to-size marble tiles (‘‘cut-tosize marble tiles’’) and 1-cm thick one-side-polished marble slabs (‘‘thin marble slabs’’). From 2013 onwards, we expect our processing facilities to have an aggregate processing capacity of 3.0 million m[2] of marble slabs per annum, of which 55% will be one-side-polished marble slabs, 35% will be cut-tosize marble tiles and 10% will be thin marble slabs. The sales price for cut-to-size marble tiles is higher than that of one-side-polished marble slabs and thin marble slabs. As at the Latest Practicable Date, we entered into contracts to sell one-side-polished marble slabs to our customers.

Marble slabs are usually used as indoor decorative materials, such as floors and walls. According to an independent panel review organized by CSMA, the color and texture of our marble products are similar to those of the well-recognized, premium international branded marble products currently available in the market, based on the physical specifications and the appearance of our marble samples. Our premium marble products are suitable for use in the decoration of high-end commercial and public buildings, such as hotels, office buildings, museums and memorial halls.

Marble Blocks

We also intend to sell a limited volume of marble blocks, primarily to the overseas market. The sales price of marble blocks varies according to quality, texture, size, supply volume and delivery cycle.

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Sales of Our Products

During the period from September to December 2010, we mined a total of 1,145 m[3] of marble blocks. During the same period, we sold a total of 3,000 m[2] of Pure Beige marble slabs, 9,000 m[2] of Mixed Beige marble slabs and 24 m[3] of marble blocks. The following table sets forth the sales volume, the revenue and the average selling price by product from 1 September 2010 to 3 January 2011, pursuant to a short-term sales contract of marble slabs we entered into with a construction material trading company in September 2010 and two individual transactions of marble blocks we entered into with two independent third parties who are engaged in stone processing:

1 September 2010 to 30 November 2010 Sales volume (m3 (blocks)/m2 (slabs)) . . . . . . . . . . . . . . Revenue (RMB in millions) . . . . . . . . . . . . . . . . . . . . . Average selling price (RMB/m3 (blocks)/ RMB/m2 (slabs))Note . . . . . . . . . . . . . . . . . . . . . . . . 1 December 2010 to 3 January 2011 Sales volume (m3 (blocks)/m2 (slabs)) . . . . . . . . . . . . . . Revenue (RMB in millions) . . . . . . . . . . . . . . . . . . . . . Average selling price (RMB/m3 (blocks)/ RMB/m2 (slabs))Note . . . . . . . . . . . . . . . . . . . . . . . . 1 September 2010 to 3 January 2011 Sales volume (m3 (blocks)/m2 (slabs)) . . . . . . . . . . . . . . Revenue (RMB in millions) . . . . . . . . . . . . . . . . . . . . . Average selling price (RMB/m3 (blocks)/ RMB/m2 (slabs))Note . . . . . . . . . . . . . . . . . . . . . . . .		Marble Slabs	Total 3,000 1.69 563 9,000 4.85 538 12,000 6.54 545	Marble Blocks
	Pure Beige 1,000 0.72 720 2,000 1.44 720 3,000 2.16 720	Mixed Beige 2,000 0.97 487 7,000 3.41 487 9,000 4.38 487
				24 0.08 3,414 — — — 24 0.08 3,414

Note: The average selling price is calculated by dividing the revenue by the corresponding sales volume.

Other Products and By-products

Our other products include a small amount of shaped stone products, such as curved plates, moldings, fireplace components, tables, and special order products. The spalls and crushed stones generated from our mining and processing process can be used for industrial purposes.

As part of our efforts to be socially responsible, in addition to our main marble slab processing facilities, we also plan to construct a small processing plant in close proximity to our Zhangjiaba Mine, as a co-operative effort with local farmers, which will employ some of the local labor to produce small 2-cm thick cut-to-size marble tiles using remaining marble of various shapes and sizes. This processing plant is established to help local economic development and provide training to local citizens. We did not and do not expect to generate any material revenue or incur any material costs or expenses in relation to the operation of such processing plant. The waste materials from marble slab, tile and shaped stone production at our mine and processing plants will be sold at relatively low prices to the local factories as raw materials for their cement and calcium powder production. The projected production for

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the small 2-cm thick cut-to-size marble tiles and the raw materials for cement and calcium carbonate powder from 2014 onwards will be 100,000 m[2] and 626,000 tonnes, respectively. The intent of such cooperative effort is to utilize the entire production volume of the marble blocks mined at our Zhangjiaba Mine and to minimize the final waste rocks from our mining activities.

OUR PRODUCTION OPERATIONS AND FACILITIES

Overview

Our principal products are marble slabs processed and blocks mined from our marble reserves. We commenced limited preliminary mine construction at our Zhangjiaba Mine in July 2008 and full-scale mine construction in January 2010. We completed the construction of the first two knolls of our mine in the end of 2010. Commercial production at these two knolls commenced in September 2010. During the Track Record Period, we focused our business activities on mine planning and construction and infrastructure development. We are currently constructing the other two knolls.

Mining Process

We integrate a variety of cutting techniques in open pits, including diamond wire cutting, chain saw cutting, and disc saw cutting to produce marble blocks. The following diagram sets forth our mining process at our marble mine and the time required for each process based on our calculation for the mining of a standard 90 m[3] marble block:

==> picture [129 x 262] intentionally omitted <==

==> picture [58 x 75] intentionally omitted <==

. Separation: To separate massive stones from the original protolith by sawcutting or cleaving according to the cracks in the mineral body joint.
. Disintegration: To disintegrate separated massive stones into a number of smaller blocks as raw materials of marble blocks. The location of disintegrative sawcutting face is subject to the required size of marble blocks.

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. Hauling: To move the disintegrated marble blocks or raw materials of marble blocks from the mineral bodies in order to create working space for next round of separation.
. Shaping: To saw cut or shape marble blocks, that do not conform to the commercial standard into the required of sizes and specifications.
. Slinging: To sling the marble blocks from the working platform to transportation vehicles for direct sales or centralized storage at the storage site.
. Slag removal: To collect gravel, crushed stones and slag that cannot form marble blocks and remove them from the working platform for transportation or sales.

As part of our planned increase in mining and processing capacities, we expect to significantly increase our marble block mining capacities to a total of 45,000 m[3] per annum in 2011, 90,000 m[3] per annum in 2012, 135,000 m[3] per annum in 2013 and 150,000 m[3] per annum from 2014 onwards. These planned mining capacity amounts are calculated based on our mining operations scheduled for 300 days per year, taking into account holidays, weather downtime and equipment maintenance, with sawing for three eight-hour shifts per day and other activities in two eight-hour shifts per day. Maintenance of the various cutting tools and mobile equipment as well as adequate supplies of spare parts and consumables are critical for maintaining the planned monthly mining production. As a result, repair and support facilities will be constructed to support the planned mining operations.

Marble Slab Processing Process

Marble blocks are saw cut into slabs. Small marble blocks will be processed by simple disc saws to produce marble slabs. Medium and large marble blocks will be processed by gang saws and will be typically used to produce standard 2-cm thick one-side-polished marble slabs. Marble from the upper benches of the open-pit production contain small defects, such as holes, cracks and fossils. Therefore, marble blocks produced during the early stage will often need to be treated with resin to ensure final product quality. This will double the polishing time needed as the slabs will need to be polished twice. As marble quality improves with mining depth, this added polishing step will be reduced to a limited level.

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Our marble slab production processes include saw cutting, drying or adhibiting repairing or masking, curing, polishing and warehousing. The following diagram sets forth our marble slab processing process and the time required for each process:

==> picture [129 x 219] intentionally omitted <==

. Saw cutting: Marble blocks are cut into slabs with circular saws, sand saws or general saws.
. Drying, adhibiting repairing or masking: For cracked stones, stones with holes or easily breakable stones, we use resin gluing or masking to increase their abrasion resistance.
. Polishing: Polishing is a process by which material is precisely removed from a workpiece (or specimen) to produce a desired dimension, surface finish or shape.

Processing Facilities

We plan to construct large-scale marble slab processing facilities in close proximity to our mine, on which we expect to attain 60% of the planned processing capacity in 2012 and full planned processing capacity in 2013. Prior to the completion of our marble slab processing facilities, we engage third-party processing plants to process marble slabs from our marble blocks. We expect to commence our own processing of marble slabs at the beginning of 2012 and reach full processing capacity of 3.0 million m[3] in 2013. After reaching our full mining and processing capacities, we expect to continue to outsource approximately 27% of our annual mined marble blocks to the third-party processing plants for slab processing as the volume of the marble slabs that can be processed from the marble blocks we mine annually is expected to exceed the full processing capacity at our processing facilities. Our processing facilities will be located in an industrial park at the south side of the Jiangyou City, approximately 30 km from our Zhangjiaba Mine, and occupy a total of ten hectares of lands and include our marble slab processing plants and other facilities. The main machinery and equipment used for our processing operations include marble frame saws, gang saws, jib cranes, electric single-girder cranes, slab polishing machines and hydraulic flap machines.

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SALES AND MARKETING

We commenced commercial production at our Zhangjiaba Mine in September 2010. As at the Latest Practicable Date, we had 10 employees performing sales and marketing functions and covering both domestic and overseas markets and have sold marble products to certain construction material suppliers which resell the products to end users. We may also directly sell our products to the end users in the future if we identify any of such sales opportunities. We currently have not engaged any thirdparty distributors to sell our marble products and plan to sell our marble products to well-recognized property developers and construction companies through a number of select distributors that have a strong track record, established customer base and broad sales and marketing network. We are not aware of any spot markets developed for our products, and do not intend to sell in such markets.

We expect to increase exposure of our products in select trade and other high-end decorative surfacing stone magazines, as well as attend industry forums, trade fairs and exhibitions where we can establish communications with industry professionals, major property developers, contractors and others who have significant influence over customer preferences and purchasing decisions. In addition, to achieve further recognition of our products, we plan to market our products for use in landmark construction projects, such as five-star hotels and major commercial and public buildings, where our marble products can be prominently displayed and showcased.

CUSTOMERS AND CONTRACT TERMS

Customers

In 2010, we entered into long-term sales contracts with seven customers in China to sell our marble products. Among the seven customers, six mainly supply construction materials to large-scale property developers, governmental projects, and/or decoration companies and undertake decoration work, and one is primarily engaged in trading. Prior to the commencement of the commercial operations of our processing facilities, we engaged third-party processing plants to process our marble blocks into marble slabs. We also sold a limited volume of marble blocks during the Track Record Period. We intend to develop and strengthen our customer relationships in order to stabilize and grow our revenues, as well as to better service our customers.

Contracts and Pricing

Sales of our products to customers are made pursuant to long-term sales contracts that specify the quantity, price, payment term and manner of delivery. These contracts stipulate a quantity that our customers are obligated to purchase, product specifications and sales price, subject to adjustment terms.

We signed a short-term sales contract with a construction material trading company in September 2010, when we commenced commercial production, to sell an aggregate of 12,000 m[2] of marble slabs, at average ex-factory sales prices of RMB842.5 per m[2] for Pure Beige marble slabs and RMB570 per m[2] for Mixed Beige marble slabs and made deliveries during the period from October to December 2010. The sales contract expired at the end of 2010.

Although we only commenced commercial production in September 2010, we already entered into long-term legally binding sales contracts with seven customers in China in 2010. These sales contracts provide for an aggregate sales volume of 1,025,000 m[2] , 1,610,000 m[2] and 2,015,000 m[2] of marble slabs in 2011, 2012 and 2013, respectively, representing 63%, 56% and 45%, respectively, of our total planned marble slab production according to the Competent Person’s Report. Our customers are obliged

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to purchase a minimum of 90% of the volume set out in these sales contracts. The long-term sales contracts we have entered into are for a period of five years. We expect to make the first delivery under these long-term contracts in March 2011. We plan to enter into more long-term sales contracts to sell the remaining portions of our planned marble slab production. According to Hatch, China’s marble demand is expected to maintain steady growth. Therefore, our Directors believe that there will be sufficient demand for our planned marble slab production.

The following table sets forth the sales prices and volumes of our marble slabs in our seven longterm sales contracts:

term sales contracts:
Pure Beige marble slabs . . Mixed Beige marble slabs. Other marble slabs (Wood Grain and Gray Net) . . Total . . . . . . . . . . . . . . .	Price Range(1) (RMB/m2) 2011 800–865 355,000 510–568 540,000 500–538 130,000 633–692(3) 1,025,000	Contracted Sales Volume(2) (m2)
		2012 670,000 770,000 170,000 1,610,000	2013 960,000 850,000 205,000 2,015,000	2014 Not less than 1,975,000	2015
					Not less than 1,975,000

Notes:

(1) The sales prices in these contracts are VAT inclusive.
(2) Our customers are obliged to purchase a minimum of 90% of the volume set out in the above table.
(3) This volume weighted average price range is calculated based on price range of the three categories of the products and volume contracted during the period from 2011 to 2013.

Under these long-term sales contracts, we have the right to adjust prices for marble slabs sold beyond the annual supply volume stipulated in the contract. In addition, subject to our customers’ consent, we are entitled to adjust prices of the annual contracted volume according to changes in market conditions each year with one-month’s advance written notice. Pursuant to these sales contracts, our customers are obligated to purchase a minimum of 90% of the annual volume set out in the contracts and are required to pay a penalty of 20% or 30% of the shortfall sales value, which equals the difference between the actual purchased volume and the minimum required volume multiplied by the average selling price set out in the contracts, if they purchase less than 90% of the contracted volume. We are obligated to supply the annual volume set out in the contracts and are required to pay a penalty of 20% of the sales value of the contracted volume we cannot supply. These sales contracts do not provide for the customers’ right to return products. We believe that these contracts will ensure a steady demand for our products upon the commencement of commercial production of our Zhangjiaba Mine as well as after we reach our full mining and processing capacities of marble blocks and marble slabs in 2014.

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Payment Terms

Pursuant to the seven long-term sales contracts we have signed as at the Latest Practicable Date, we require our customers to make prepayment of 30% of the sales value upon order of marble slabs. An additional 50% of the sales value is required to be paid upon delivery of the processed marble slabs exfactory. The remaining 20% will be paid within 10 days after such delivery.

The payment terms for our sales contracts to be entered into with our future customers will be agreed between the parties following arm’s length negotiations.

LOGISTICS AND OUTSOURCING

Delivery of Products

Our mine is located approximately 40 km away from Mianyang City, the local economic center in the north-central region of Sichuan Province, and approximately 160 km away from Chengdu, the capital city of Sichuan Province. Our mine is easily accessible by a local highway to Hanzeng Town, which is 5.5 km away and connects to the provincial highway linking to Beichuan County, as well as to the urban area of Jiangyou City. The closest railway depot is approximately 24 km away from our mine. While we are not facing any transportation bottlenecking or other constraints, our business depends on the availability of reliable and adequate transportation capacity for our products. See ‘‘Risk Factors — Risks Relating to Our Business — Our business depends on the availability of reliable and adequate transportation capacity for our products.’’

We sell our products on an ex-mine and ex-factory basis. Our customers are therefore responsible for the transportation costs of marble blocks and marble slabs from our mining site, storage site or marble processing plants to their final destinations.

Third-Party Contractors

We engage third-party processing plants for marble slab processing. Our marble slab processing contractors are independent third parties. Three processing agreements were entered into between our Company and the third-party processing plants in August 2010 and will expire between August and December 2011. Pursuant to these processing agreements, we are required to transport the marble blocks at our own costs to the third-party contractor’s designated plant for storage and pay the processing fees of marble blocks on a monthly basis. The processing fees are determined by the unit processing fee stipulated in each agreement, which range from RMB50 per m[2] to RMB62 per m[2] for one-side-polished marble slabs and the total area of the processed marble slabs measured in square meters. The third-party processing plants are required to process the marble blocks by the quality and specifications stipulated in the agreements. The processed marble slabs may be stored at the plants for three months free of charge, and we may collect the processed marble slabs any time during the three-month period. Pursuant to these processing agreements, if we do not make payment of processing fees 15 days after the agreed payment date, we will be liable for 20% of any late payment. The processing plants are liable for 20% of the processing fees for any unprocessed marble blocks 15 days after the agreed date of completion.

In addition, we have engaged a third-party explosive handling company to carry out explosive assignments for the construction of the remaining two knolls at our Zhangjiaba Mine. The service agreement was entered into between our Company and the third-party explosive handling company on 30 July 2010 and expired upon the completion of the assignments by 31 December 2010. Pursuant to the service agreement, the explosive handling fees are determined by the number of explosive holes with

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prices ranging from RMB30 to RMB70 per hole depending on the depth of the hole, plus labor cost and transportation cost. We are required to make a prepayment of RMB50,000, and the handling fees are settled on a monthly basis. If either party is in breach of the agreement, the breaching party will have to pay a penalty of 10% of the contract value.

In selecting third-party contractors, we require the third-party contractors to have the relevant licenses or permits issued by the competent authorities. As advised by our PRC legal adviser, Commerce & Finance, each of our marble slab processing contractors is required to have a business license that has marble slab processing as part of the scope of business to carry out marble slab processing contracting work pursuant to its processing contract with us, and no separate license to carry out marble slab processing is required. As at the Latest Practicable Date, we engaged three marble slab processing contractors and each of them had provided a business license with marble slab processing as part of its scope of business. We also engaged independent third parties for explosive handling pursuant to service contracts. As advised by our PRC legal adviser, Commerce & Finance, in addition to a valid business license, the third-party contractor which handles explosives is also required to have a blasting operations entity permit, the production safety permit and the construction-enterprise qualification certificate and its employees who handle explosives must have the required qualification. We have received copies of the current business license, the blasting operations entity permit and other qualification/permit held by the third-party contractor and the qualification certificates of three of its employees who handled the explosives for our Zhangjiaba Mine.

UTILITIES, RAW MATERIALS, MACHINERY AND SUPPLIERS

Electricity and Water

We rely on electricity and water for our operations. We have entered into an electricity supply contract with Beichuan Power Grid in July 2009. Pursuant to this contract, we consume industrialized electricity at market rate and make payment on a monthly basis. We also plan to source additional electricity supply from Jiangyou Power Grid in the future.

Water is a key component of our marble block mining and marble slab processing activities. We source our water supply from surface drainages and underground water in our Zhangjiaba Mine. During the wet season (June to September), water flowing from the surface drainages are sufficient to provide the fresh water needed for our existing and planned mining activities and processing facilities. We also have water supply from a water well within our mining area and we have obtained necessary water harvesting permits for taking surface and underground water from the well in July 2010. Our Zhangjiaba Mine is also equipped with water recycling system for our production activities.

Our mining process consumes a limited amount of water and electricity. We believe our current and future supplies for water and electricity will be sufficient.

Materials

We use marble extracted from our Zhangjiaba Mine for our production process and do not plan to purchase marble from third parties. The auxiliary materials used in our production process include diamond saws, pipes, pumps, detonators, diesel fuel and other equipment parts. Because we have recently commenced commercial production at our Zhangjiaba Mine in September 2010, we have only purchased a limited amount of processing materials, such as chromium alloy, kerosene, gasoline, lubricants, metal tools and other consumables, from our suppliers during the Track Record Period.

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Machinery and Equipment

Our mining production activities require various types of machinery and equipment, including chain saw cutting machines, diamond wire cutting machines, disc saw cutting machines, drilling machines, bench overturning equipment and pneumatic block cutters. All of our machineries and equipment for mining are sourced from third-party suppliers in China and overseas. For the period from 14 March 2008 to 31 December 2008, the year ended 31 December 2009 and the eleven months ended 30 November 2010, our total purchases of machinery and equipment amounted to RMB6.3 million, RMB0.5 million and RMB22.3 million, respectively.

Suppliers

All of our suppliers for materials are domestic Independent Third Parties. We maintain a good relationship with our suppliers and did not have any material disputes with any of them during the Track Record Period. During the Track Record Period, our five largest suppliers were suppliers for equipment and processing materials. For the period from 14 March 2008 to 31 December 2008, the year ended 31 December 2009 and the eleven months ended 30 November 2010, purchases from our five largest suppliers collectively accounted for 67.5%, 95.7% and 75.5% of our total supply purchases, respectively. For the eleven months ended 30 November 2010, purchases from the largest supplier accounted for 23.4% of our total supply purchases. To the best knowledge of our Directors, none of our Directors, their respective associates or any of our Shareholders holding more than 5% of our issued capital, is related to or owns any interest in any of our five largest suppliers.

We have not experienced any bankruptcy or default on the part of any suppliers during the Track Record Period.

COMPETITION

As China is short of beige marble resources, there are few domestic large-scale enterprises focusing on beige marble production. Therefore, competition among domestic large beige marble mining companies in China is not observed. According to an independent panel review organized by CSMA, our mine contains high-quality beige marble reserves, and the color and texture of our marble products are similar to those of well-recognized, premium international branded marble products currently available in the market, based on the physical specifications and the appearance of our marble samples. We were also awarded a certificate dated 9 September 2010, issued jointly by CSMA and National Stone Material Quality Inspection Center, to certify our beige marble mined from our Zhangjiaba Mine as a ‘‘famous, excellent and premium’’ stone material. Our premium beige marble products primarily compete with imported marble products in the domestic market, such as Royal Batticino from Iran, Cream Marfil from Spain, Frans Beige from France and others, which account for approximately 70% of the beige marble product consumption in the domestic market, according to the Hatch Report. Our marble products compete with these international brands based on a number of factors, including quality, ability to supply large quantities, brand recognition, short delivery cycle and competitive price. We believe that we are able to provide premium marble products which meet the customers’ needs and preference when competing with imported marble products. We do not intend to directly compete with domestically produced marble products as we believe our products are priced significantly higher and of higher quality.

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QUALITY CONTROL

Most of our products are required to meet strict product specifications and environmental protection standards. We have established and designed a quality control department to ensure that all of our products meet the relevant quality control standards. Our quality control department consists of two dedicated quality control staff, both of whom have more than five years of experience, respectively, in managing and overseeing quality control of stone products. We plan to recruit more quality control personnel in line with our business expansion. We have implemented a quality management system, compiled a quality control manual and implemented a comprehensive quality control system in an effort to maintain quality controls. In accordance with national standards as well as the design plan of our Zhangjiaba Mine, we established mining and extraction policies and specific working guidelines for each working face.

We monitor our products through on-site inspections as well as regular product sample checking. In order to reduce color difference and cracks and ensure consistent specifications, we determine the mining and cutting level and direction, and separate the stones according to the quality, color and formation of the mine. We use infrared color separator to carry out the initial separation of stones at the mining site. We also select prestigious equipment suppliers to ensure the quality of our marble products. As at the Latest Practicable Date, we did not experience any material product liability or other legal claims involving problems relating to the quality of our products.

ENVIRONMENTAL PROTECTION AND LAND REHABILITATION

Environmental Protection

Our operations are subject to a variety of PRC environmental protection laws and regulations, as well as local environmental protection regulations promulgated by local authorities on environmental protection. These laws and regulations govern a broad range of environmental protection matters, such as mining control, land rehabilitation, air emissions, noise control, discharge of wastewater and pollutants, waste disposal and radioactive element disposal control. The PRC Government has taken an increasingly stringent stance on the adoption and enforcement of rigorous environmental protection laws and regulations, which could have a material adverse effect on our financial condition and results of operations. See ‘‘Risk Factors — Risks Relating to Our Industry — Changes in legal requirements and governmental policies concerning environmental protection and other areas of laws could impact our business.’’ in this document.

Our operations generate, among other things, dust and noise pollution. The Environmental Protection Bureau of Jiangyou City (江油市環境保護局), as the competent authority, issued two confirmation letters to confirm that we were in compliance with the relevant environmental protection laws and regulations with respect to our Zhangjiaba Mine as at 14 February 2011. We have been advised by our PRC legal adviser, Commerce & Finance, that the Environmental Protection Bureau of Jiangyou City is the competent authority to issue such confirmation letters and based on such confirmation letters, we have complied with all relevant PRC laws and regulations in all material respects regarding environmental protection as at 14 February 2011. As at the Latest Practicable Date, we were not subject to any environmental protection claims, lawsuits, penalties or administrative sanctions.

We are committed to following environmentally responsible practices and have adopted measures to minimize the impact and risk of our operations on the environment. We utilize water with drilling, cutting and sawing activities, water sprays at material transfer points, and water trucks to spray the roads during dry periods to reduce dust from mining operations. The mine site has also been designed to

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recycle used water for production activities and dust suppression. Production water and rain falling on the mine area are drained to a central sump where the water is settled and cleared of sediment before being recycled back into ongoing production activity. No toxic or hazardous substances are contained in the drainage water. We have a limited amount of tailings because our Zhangjiaba Mine is highly utilizable and, as a result, we do not incur additional handling costs. Methods of noise control include use of silencers, noise and vibration dampening and absorbing materials, isolation and enclosure of noisy equipment, and regular equipment maintenance. We also undertake regular noise, water and air quality monitoring as well as an ongoing reclamation and re-planting program for disturbed areas. During the Track Record Period, we spent approximately RMB60,000, RMB700,000 and nil in respect of regulatory compliance with applicable environment protection requirements in the PRC for the period from 14 March 2008 to 31 December 2008, the year ended 31 December 2009 and the eleven months ended 30 November 2010. Such cost is expected to be approximately RMB450,000 in 2011 in respect of regulatory compliance with applicable environment protection requirements in the PRC. We intend to allocate operating and financial resources to such compliance as required by PRC laws and regulations.

Prior to the launching of our mining project, we engaged the PLA Logistics Academy (中國人民解放軍後勤工程學院環境保護科學研究所) which holds the qualification issued by the MEP to conduct environmental impact assessment, is qualified in providing environmental impact assessment services to us. The environmental impact of our new production ramp-up or other projects will be assessed with a view to minimizing the negative impact on the environment. We also will submit any such expert reports or studies to the relevant local environmental protection bureau for its approval according to relevant PRC laws and regulations. The relevant local environmental protection bureau may conduct regular inspection of our production sites.

Land Rehabilitation

Our mining operations may adversely affect surface and underground land and cause landslides and other types of environmental damage. To manage the adverse effects that the mining industry has on the environment, China has promulgated a series of laws and regulations. Through these laws and regulations, China has established national and local environmental protection legal frameworks applicable to land rehabilitation and reforestation. The rehabilitation of mining sites is a priority of the PRC Government. Under the Land Administration Law of the PRC, promulgated on 25 June 1986, as amended, and the Land Rehabilitation Regulations, issued by the State Council which became effective on 1 January 1989, we must undertake measures to restore a mining site to its original state within a prescribed time frame if our mining activities result in damage to arable land, grassland or forestry land. The rehabilitated land must meet rehabilitation standards, as required by law from time to time, and may only be subsequently used upon examination and approval by the land authorities. Any failure to comply with this requirement or failure to restore the mining site to its original state will result in the imposition of fines, rehabilitation fees and/or rejection of applications for land use rights by the local bureau of land and resources. We have received confirmations from the Land and Resource Bureau of Jiangyou (江油市國土資源局) and the Forestry Bureau of Jiangyou (江油市林業局) to confirm that we do not violate the relevant land rehabilitation and reforestation laws and regulations with respect to our Zhangjiaba Mine as at 5 August 2010 and 30 July 2010, respectively.

Land rehabilitation typically involves the removal of buildings, equipment, machinery and other physical remnants of mining, the restoration of land features in mined areas and dumping sites, and contouring, covering and revegetation of waste rock piles and other disturbed areas. In accordance with the relevant PRC laws and regulations, we have developed an operational closure planning process for

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our Zhangjiaba Mine that is in line with PRC legislative requirements and incorporates recognized international industry practices. Upon the commencement of commercial production at our Zhangjiaba Mine in September 2010, we set aside provisions for land and woodland rehabilitation costs in the amount of RMB1.3 million.

OCCUPATIONAL HEALTH AND SAFETY

We have implemented a corporate safety policy which incorporates national safety standards. We hold a valid safety permit for our Zhangjiaba Mine issued by the Sichuan Provincial Safety and Production Supervision Bureau (四川省安全生產監督管理局) with a validity period from 17 June 2009 to 16 June 2012. We conduct our operations in accordance with the relevant national laws and regulations in relation to occupational health and safety in mining, production, blasting and explosives handling, mineral processing, waste rock disposal, construction, fire protection and fire extinguishment, sanitary provision in material aspects. Mianyang City Health Bureau (綿陽市衛生局) may conduct random inspections pursuant to law.

With respect to matters relating to occupational health and safety, we are subject to, among other PRC laws and regulations, the PRC Production Safety Law (中華人民共和國安全生產法), the PRC Labor Law, the PRC Labor Contract Law and the PRC Law on the Prevention and Treatment of Occupational Diseases (中華人民共和國職業病防治法). Under the PRC Production Safety Law, we are required to maintain safe working conditions as provided in the PRC Production Safety Law and other relevant laws, administrative regulations, national standards and industry standards. We are also required to provide production safety training to our employees. The design, manufacture, installation, use, inspection and maintenance of our equipment are required to conform to the applicable national or industry standards.

Under the PRC Labor Law and the PRC Labor Contract Law, we are required to establish a system for labor safety and sanitation, to abide by applicable rules and standards and to provide training to our employees on relevant rules and standards. We are also required to provide our employees with a work environment that complies with labor safety and sanitation standards set forth in relevant regulations and to provide regular health examinations for our employees engaged in hazardous activities.

Pursuant to the PRC Law on the Prevention and Treatment of Occupational Disease, we are required to: (i) establish and perfect the responsibility system of occupational disease prevention and treatment, strengthen the administration and improve the level of occupational disease prevention and treatment, and bear responsibility for the harm of occupational diseases engendered therefrom; (ii) purchase social insurance for industrial injury; (iii) adopt effective protective facilities against occupational diseases, and provide protective articles to the laborers for personal use against occupational diseases; (iv) set up alarm equipment, allocate on-spot emergency treatment articles, washing equipment, emergency safety exits and safety zones for poisonous and harmful work places where acute occupational injuries are likely to take place; and (v) inform the employees, according to the facts, of the potential harm of occupational disease as well as the consequences thereof and the protective measures and treatment against occupational diseases when signing a labor contract with employees. We have developed and implemented a system to monitor and record employee occupation health and safety statistics.

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As at the Latest Practicable Date, the Directors were not aware of any material accidents involving any personal injury or property damage during the Track Record Period and that we have not been subject to any claims arising from any material accidents involving personal injury or property damage during the Track Record Period that have a material adverse effect on our business, financial condition or results of operation. We believe that we have complied with all relevant material PRC laws and regulations regarding occupational health and safety during the Track Record Period. According to a confirmation issued by the relevant government authority, our PRC legal adviser, Commerce & Finance, is of the opinion that we have complied with the relevant laws and regulations pertaining to occupational health and safety in material respects.

On 25 December 2010, an accident resulting from a failed diamond wire saw deployed for marble cutting operations occurred at the Zhangjiaba Mine. The accident resulted in the death of an employee at the mining site. We promptly reported the accident to Production Safety Supervision Bureau of Jiangyou City (江油市安全生產監督管理局) (‘‘Jiangyou PSSB’’), which is the authority to which such accidents are reported, and co-operated with Jiangyou PSSB in its investigation. On 22 January 2011, Jiangyou PSSB issued a letter with the results of its investigation. In its letter, Jiangyou PSSB concluded that the incident was a rare accident and, at the time of occurrence of the accident, among other things, (i) we and our mining staff were not in violation of the safety production procedures; (ii) the diamond wire saw deployed had a certificate of approval for product specification; and (iii) our management of production safety was in compliance with the relevant PRC laws, regulations and standards.

Since the accident, we have voluntarily enhanced safety measures at the mine to avoid the recurrence of such accident. In particular, we have (i) enlarged the prohibited zone around the location of the diamond wire saw machine and the cutting wire; (ii) installed shields that move along the diamond wire saw machine at the mine to prevent any loose parts of the wire saw from being thrown into the air at high speed and injuring the machine operator; (iii) increased the frequency of trainings for mining staff on production safety; (iv) increased the number of staff involved in production safety monitoring; and (v) generally raised staff awareness on production safety at the mine.

We have made contributions to occupational injury insurance plan for our mining staff as required by the PRC laws and regulations. We have also purchased personal injury insurance for our mining staff. In addition, we have agreed to make any necessary payment to the deceased employee’s spouse to ensure that the total compensation available to the lineal family in connection with the accident will be no less than RMB600,000. The employee’s spouse has agreed in writing with us that we will not be held liable for any other payment other than RMB600,000 or otherwise have further obligations to the deceased employee’s family in connection with the accident. According to our PRC legal adviser, Commerce & Finance, such agreement is valid and legally binding under the PRC laws. Commerce & Finance has also advised us that, based on the letter issued by Jiangyou PSSB, on 22 January 2011: (i) the incident has been identified as a rare accident and we were not required to assume responsibility for such incident; and (ii) no penalty shall be imposed on us by Jiangyou PSSB in connection with such accident. As at the Latest Practicable Date, no civil liability, regulatory sanction or penalty was imposed on us in connection with the accident. We believe that the accident is not expected to have any material adverse impact on our marble mining and processing business.

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INTELLECTUAL PROPERTY

As at the Latest Practicable Date, we are the registered owner of the trademark ‘‘ ’’ and ‘‘ ’’ in Hong Kong. We also filed four trademark applications in the PRC in August 2010 and expect to complete the registration of the trademarks by 2012. See ‘‘Statutory and General Information — B. Further Information About the Business’’ in Appendix VII to this document. We also possess unregistered trade secrets, technologies, know-how, processes and other intellectual property rights.

As a matter of trademark laws in the PRC, registration is not the prerequisite for use of a trademark. We have the legal right to use the trademarks under the applicable laws of the PRC unless such trademarks or similar trademarks have been legally registered on the same or similar products/ service by a third party and/or such use has been successfully challenged by a third party or denied pursuant to any administrative or judicial findings. As at the Latest Practicable Date, we were not involved in any disputes or litigation relating to the infringement of intellectual property rights, nor are we aware of any such claims either pending or threatened.

PROPERTIES

As at the Latest Practicable Date, our Company completed the construction of a property which comprises a parcel of land with a site area of approximately 9,275.9 m[2] and an office building with the gross floor area of approximately 826 m[2] . We obtained the state-owned land use right for the parcel of land on 20 October 2010. In addition, we have also obtained the Construction Land Planning Permit (Di Zi Di No. 10002) and the Construction Work Planning Permit (Jian Zi Di No. 10083) on 6 April 2010, and the Construction Work Commencement Permit of Mianyang (Jian Shi Di [2010] No. 274) issued by Jiangyou City Planning and Construction Bureau (江油市規劃和建設局) on 11 August 2010, respectively, which granted us the permission to construct such office building on such parcel of land. We are in the process of applying for the building ownership certificate with the relevant PRC regulatory authority.

Our Company has also leased 35 parcels (including a parcel of forestland) of land located at Zhenjiang Village, Jiangyou City, Sichuan Province, with a total site area of approximately 153.921 mu (102,614.51 m[2] ) for mining and ancillary purpose. Relevant lease agreements have been entered into between Sichuan Jinshida and relevant land owners and villagers. Pursuant to the land lease agreements entered into between Sichuan Jinshida and relevant land owners and villagers, 34 parcels of land with a total site area of approximately 25.815 mu (17,210.09 sq.m.) are leased to Sichuan Jinshida for various terms with the expiry dates between 30 May 2021 and 25 December 2028 in consideration of annual rent as 400–500 kgs yellow millet (黃穀)/mu or RMB1,100 yuan/mu. According to a land lease agreement entered into between Sichuan Jinshida and the land owner, a parcel of forestland with a site area of approximately 128.106 mu (85,404.43 sq.m.) is leased to Sichuan Jinshida for a term of 8 years expiring on 10 May 2016 at an annual rent of RMB82.5 yuan/mu, subject to a 3% increase biennially. During the Track Record Period, we have paid rental of RMB3.8 million to relevant villagers. Pursuant to six Short-term Land Use Rights Approvals (Jiang Guo Tu Zi Han [2010] Nos. 101 to 106) issued by the Land and Resource Bureau of Jiangyou from 2 March 2010 to 16 April 2010 as well as a Consent Letter dated 30 July 2010 issued by the Forestry Bureau of Jiangyou, our Company has obtained a short-term land use right of such parcels of land. The valid term of such temporary land use right will expire within 2 years since the issue date of relevant Land Use Rights Approvals. As advised by our PRC legal adviser, Commerce & Finance, (i) the Land and Resource Bureau of Jiangyou and the Forestry Bureau of Jiangyou are the competent authorities to issue such Short-term Land Use Right Approvals and the Consent Letter respectively; (ii) we are entitled to use the 35 parcels of land in accordance with valid term, regulation and usage stipulated by the Short-term Land Use Rights

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Approvals, the Consent Letter and relevant lease agreements; (iii) relevant lease agreements are valid and legally binding; and (iv) there is no explicit regulation requiring such lease agreements to be registered with any government authorities. As the land within our permitted mining area is collectivelyowned land, according to relevant PRC laws and regulations, we are only able to obtain the short-term land use rights through statutory approach rather than long-term land use right of such land unless the nature of such collectively-owned land has been converted to state-owned land. Under the PRC law, collectively-owned land may be converted to state-owned land of which long-term land use rights may be granted to the land user by the authorities. We have begun the process in converting collectivelyowned land with a total site area of 153,921 (102,614.5 m[2] ) into state-owned land in August 2010 by filing an application to the Land and Resource Bureau of Jiangyou for the conversion of the collectively-owned land. We are expected to pay the relevant land premium (土地出讓金) related to the land use rights after such land is converted into state-owned land. A portion of such land premium may be utilized by the local authority to pay to the villagers as compensation. According to relevant PRC laws and regulations, we are not required to make any direct payment to villagers as compensation. Based on our verbal consultation with the Land and Resources Bureau of Jiangyou, the current land premium is at a rate of approximately RMB0.1 million per mu (畝). As at the Latest Practicable Date, we did not pay any land premium as we were not required to pay such land premium until we enter into a state-owned land use right grant contract with local authority.

As part of our industry practice, we do not carry out mining operations at our mines over the entire area covered by the applicable mining permit, but rather design our long-term mining plans to include multiple mining operations on smaller parcels of the land. Among all the land covered by the applicable mining permit of our Zhangjiaba Mine, there are several parcels of land, with a total site area of approximately 7,810 m[2] , which will not be used by us according to our mining plans. Furthermore, we will apply for short-term land use rights for the remaining 377,144.55 m[2] land within the mining area covered by the applicable mining permit of our Zhangjiaba Mine or renew the existing short-term land use rights owned by Sichuan Jinshida from time to time according to our long-term mining plans. According to our planned use of land area from 2010 to 2020, we expect to mainly utilize the land for which we have obtained short-term land use rights, with a total area of 102,614.51 m[2] , to satisfy our land use needs prior to 2017. We do not expect to start using the remaining 377,144.55 m[2] of land until 2017.

Pursuant to Implementation Rules on the Mineral Resources Law of the PRC (中華人民共和國礦產資源法實施細則) promulgated and effective on 26 March 1994, we, as the holder of the valid mining permits, have the legal right to obtain, in accordance with the relevant laws and regulations, the land use rights with respect to the parcel(s) of land required to meet our production and construction needs. Furthermore, according to the relevant PRC laws and regulations, we may use collectively-owned land on a short-term basis of not more than two years if we: (i) have been granted short-term land use rights by the competent government authority; and (ii) have entered into land use agreements with the relevant land owner, rural collective economic entity or village committee.

We have obtained undertakings from the Land and Resource Bureau of Jiangyou dated 5 August 2010 and the Forestry Bureau of Jiangyou (江油市林業局) dated 30 July 2010 respectively, confirming that during the effective term of the mining permits for our Zhangjiaba Mine, they will grant new shortterm land use rights or renew the existing short-term land use rights for us in relation to the land within the entire area covered by the applicable mining permit of Zhangjiaba Mine according to the request made by us from time to time. Our PRC legal adviser, Commerce & Finance, have advised us that, (i) the Land and Resource Bureau of Jiangyou and the Forestry Bureau of Jiangyou are the competent authorities to issue the foresaid undertakings and they should satisfy their obligations under such undertakings and grant/renew relevant short-term land use rights accordingly; (ii) there will be no

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material legal impediment for Sichuan Jinshida to obtain or renew relevant short-term land use rights from the Land and Resource Bureau of Jiangyou and the Forestry Bureau of Jiangyou; and (iii) if Sichuan Jinshida holds the relevant short-term land use rights, there will be no material legal impediment for it to renew relevant lease agreements. As at the Latest Practicable date, Sichuan Jinshida held the short-term land use rights to hold and occupy 35 parcels of land with an aggregate area of approximately 102,614.51 m[2] . During the Track Record Period, we did not encounter difficulties in obtaining or renewing the short-term land use rights for our mining operations. Thus we do not foresee that there will be any material obstacles in the obtaining or the renewal of relevant short-term land use rights from the Land and Resource Bureau of Jiangyou and the Forestry Bureau of Jiangyou. The terms of the tenancies of all the land use agreements entered into between Sichuan Jinshida and the relevant villagers are relatively long, the shortest being 8 years. Pursuant to the land use agreements entered into between Sichuan Jinshida and the relevant land owners and the undertaking signed by the relevant village committee and villagers on behalf of the relevant land owners on 8 January 2011, (i) if Sichuan Jinshida needs to continuously use the relevant lands after the expiration of corresponding agreed tenancies, Sichuan Jinshida is entitled to extend such tenancies, so long as Sichuan Jinshida notifies the land owners of such requirement one month prior to the expiration of such agreed tenancies, the relevant land owners shall satisfy Sichuan Jinshida’s requirement and execute new land use agreements with Sichuan Jinshida accordingly; (ii) during the effective term of the mining permits of our Zhangjiaba Mine, the land owners will enter into relevant lease agreements with Sichuan Jinshida in relation to the land within the entire area covered by the applicable mining permit of the Zhangjiaba Mine according to the request made by Sichuan Jinshida from time to time; and (iii) the land owners shall assist Sichuan Jinshida to coordinate its relationship with the relevant villagers and ensure that such villagers will execute the relevant land use agreements with Sichuan Jinshida so that Sichuan Jinshida may continuously use the relevant lands. Based on the aforesaid circumstances, the Company is of the view that there is no difficulty in renewing the land use agreements going forward.

In addition, for the purpose of using relevant lands within the mining area covered by the applicable mining permit of our Zhangjiaba Mine, including the land with a site area of 102,614.51 m[2] of which the corresponding short-term land use rights are held by us and the remaining approximately 377,144.55 m[2] land within our mining area which should be used by us in the future, we have entered into the relevant land use agreements with the relevant land owners, village committee and villagers. According to such land use agreements, the relevant land owners, village committee and villagers have authorized us to use and occupy the land used or to be used by us and covered by the relevant mining permit. The expiry dates of such land lease agreements are between 16 March 2014 and 11 December 2029, and relevant land is leased to Sichuan Jinshida in consideration of (i) annual rent of 400–500 kgs yellow millet (黃穀)/mu; (ii) annual rent of fixed amount RMB75–400 yuan/mu; or (iii) annual rent of RMB73.33–86.43 yuan/mu subject to a 3% increase biennially.

We believe we will be able to successfully obtain or renew relevant short-term land use rights which are necessary for our mining operation. However, as all of our revenue and profits from our mining operations will be derived from open-pit mines operated on relevant land in the future, in the event we are unable to obtain or renew relevant short-term land use rights or land use agreements with the local villagers, we may not be able to utilize the full mineral resources in that land parcel and our operations may be substantially affected.

Our Company has also leased two properties for office purpose respectively located in Jiangyou City, Sichuan Province and Guangzhou City, Guangdong Province with an aggregate lettable area of approximately 243.82 m[2] . As advised by our PRC legal adviser, Commerce & Finance, under PRC law, the lease agreements entered into with our respective lessors are valid and binding and the lessors of such leases have the legal rights to lease such properties to us.

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The property in Guangzhou City with a lettable area of approximately 25 m[2] is leased to Guangzhou Kingstone for a term of one year expiring on 10 May 2011 at nil rent. The lessor of such property is a company that engages in introducing potential investors to and attracting investments in Guangzhou Economic and Technological Development Zone. It frequently offers various incentive and assistance to attract investors with great potential to make investments in Guangzhou Economic and Technological Development Zone. Considering the significance of the Company’s investment in Guangzhou Economic and Technological Development Zone by incorporating Guangzhou Kingstone with a registered capital of US$30.0 million, the lessor leased the property to Guangzhou Kingstone at nil rent for Guangzhou Kingstone’s administrative use. As advised by our PRC legal adviser, Commerce & Finance, the lease agreement is valid and binding. However, such lease agreement has not been registered with competent authority and the relevant parties of the lease may be ordered to rectify this non-compliance within a prescribed period by the competent authority. If such non-compliance cannot be rectified in due course, a fine of RMB1,000 to RMB10,000 may be imposed on relevant parties.

If our Company is evicted from the above properties for any reasons, the [.] have undertaken to indemnify our Company against any damages, losses or liabilities which are or become payable by any members of our Company as a direct or indirect result of any title defects of the land or property of our Company after the [.], particulars of which are set out in the paragraph headed ‘‘Estate Duty, Tax and Other Indemnity’’ in Appendix VII to this document.

Details of the property valuation together with the summary of valuation and valuation certificates from our property valuer are set out in Appendix IV to this document.

REGULATORY COMPLIANCE ISSUES

Based on the advice of our PRC legal adviser, Commerce & Finance, we have obtained all necessary material rights, licenses, permits and approvals to conduct our current exploration, mining and processing activities at our Zhangjiaba Mine under relevant PRC laws and regulations. We have not experienced any difficulties in or rejections of our applications for exploration and mining permits or other rights, licenses or approvals that we have applied for in the past.

EMPLOYEES

As at the Latest Practicable Date, we had a total of 134 full-time employees. Substantially all of our employees are based in China. We have employment contracts with all of our employees with an average term of three years. The standard employment contracts do not include non-competition restrictions. The following table shows a breakdown of our employees by functions:

Functions Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Mining and production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sales and marketing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Number of employees
	15 91 10 8 10
	134

Functions
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mining and production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales and marketing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Number of
employees

15
91
10
8
10

134

Since the Zhangjiaba Mine was in the early stages of development and we only commenced commercial production at the Zhangjiaba Mine in September 2010, and utilization of highly-efficient, semi-automatic machinery and equipment enables the production with relatively less manpower, we believe that the current staffing in mining and production functions is sufficient to meet our production

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requirements. We are currently in the process of training 11 mining and production staff who are under probation, and expects to retain staffs who are qualified to pass the probation period. As our business continues to develop, we intend to hire additional mining and production staff.

We recognize the importance of maintaining good relations with our employees. The remuneration package for our employees generally includes salary and bonuses. We determine employee remuneration based on factors such as qualifications and years of experience. Employees also receive welfare benefits, including medical care, housing subsidies, retirement benefits, occupational injury insurance and other miscellaneous items.

In accordance with the relevant PRC laws and regulations, Sichuan Jinshida is required to, within 30 days from its establishment, complete the corresponding housing fund payment and deposit registration procedures and then contribute the housing fund for its employees according to such PRC laws and regulations. However, Sichuan Jinshida had not registered and contributed housing fund (住房公積金) for its employees until 2 August 2010. Sichuan Jinshida may be ordered to pay the outstanding housing fund within a prescriptive time limit due to such non-compliance. We estimate the maximum liabilities as result of the above-mentioned non-compliance would be approximately RMB285,000. The Mianyang City Housing Fund Management Centre Jiangyou Branch (綿陽市住房公積金管理中心江油分中心) issued confirmations on 6 August 2010 and 14 February 2011, respectively, to confirm that Sichuan Jinshida will not be subject to any penalties for the aforementioned non-compliance and it will not require Sichuan Jinshida to pay the relevant outstanding housing fund. However, we cannot rule out the possibility that Sichuan Jinshida shall be ordered to pay the outstanding housing fund in the future. Hence, the corresponding provision has been made in the Accountants’ Report.

In addition, according to the relevant PRC laws and regulations, Sichuan Jinshida is required to, within 30 days from its establishment, complete the social insurance registration procedure and then contribute relevant social insurance for its employees according to such PRC laws and regulations. However, Sichuan Jinshida had not made such social insurance registration until January 2008 and had not fully contributed social insurance for its employees until August 2010. Sichuan Jinshida may be ordered to pay up the outstanding social insurance within a prescribed time limit due to such noncompliance. Furthermore, any delayed payment of social insurance may be subject to a 0.2% overdue penalty daily from the day past due date, in addition to the payment of the outstanding social insurance payment. We estimate the maximum liabilities as result of the above-mentioned non-compliance would be approximately RMB1,385,000. Jiangyou City Human Resources and Social Security Bureau (江油市人力資源和社會保障局) issued confirmations on 11 August 2010 and 14 February 2011, respectively, to confirm that Sichuan Jinshida will not be subject to any penalties for the aforementioned noncompliance and it will not require Sichuan Jinshida to pay relevant outstanding social insurance. However, we cannot assure you that Sichuan Jinshida will not be ordered to pay up the outstanding social insurance and relevant overdue penalty in the future. Hence, the corresponding provision has been made in the Accountants’ Report.

As advised by our PRC legal adviser, Commerce & Finance, except as otherwise described above, the PRC subsidiaries of the Company have complied with the relevant labor and social welfare laws and regulations in all material aspects.

We have not experienced any significant difficulties with our employees or disruption to our operations due to labor disputes, nor have we experienced any difficulties in the recruitment and retention of experienced staff. Our Directors believe we have a good working relationship with our employees.

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INSURANCE

As at the Latest Practicable Date, except as disclosed in the document, we were in compliance with applicable PRC laws and regulations with respect to required insurances for our employees. As at the Latest Practicable Date, except as disclosed in the document, we also maintained the required PRC employee social benefits insurance in accordance with various PRC laws and regulations as well as local policies. We have duly registered for personal injury insurance and paid required insurance premium for our mining workers. In addition to the insurances for our employees, we obtained property insurance for our hauling vehicles for losses due to fire, earthquakes, floods and a wide range of other disasters. During the Track Record Period, we did not make any claims under our insurance policies that had a material adverse effect on our business, financial condition or results of operations.

Consistent with what we believe to be customary practice in China, we do not maintain any fire, earthquake, liability or other property insurance with respect to our properties, equipment and inventories, with the exception of insurance coverage for our vehicles. We also do not maintain any business interruption insurance or third-party liability insurance against claims for property damage, personal injury and environmental protection liabilities other than third-party liability insurance for our vehicles.

We face comparatively lower levels of operational risk. Our open-pit mining method has a relatively lower level of risk than underground mining. We engage a number of third-party processing contractors to process the marble blocks extracted at our Zhangjiaba Mine. During the Track Record Period, we did not experience any business interruptions or losses or damages to our facilities that had a material adverse effect on our business, financial condition or results of operations. Taking into account the general practice in the PRC mining industry and in light of the fact that our Company has recently commenced commercial production in September 2010, our Directors are of the view that we have sufficient insurance coverage for our current operations. Our Directors and senior management will closely review the risks relating to our operations and adjust our insurance coverage as we continue our business expansion.

Save as disclosed in the section headed ‘‘Risk Factors — Risks Relating to Our Business — Our current insurance cannot adequately cover all losses and liabilities arising from our operations’’ in this document, we considered the insurance coverage on our assets to be adequate as at the Latest Practicable Date. We will continue to review and assess our risks and make necessary adjustments to our insurance practice to meet our needs and comply with industry practices in China.

LEGAL PROCEEDINGS AND COMPLIANCE

As at the Latest Practicable Date, we were not a party to any legal or administrative proceedings. In addition, our Directors are not aware of any claims or proceedings in relation to exploration or mining rights contemplated by government authorities or third parties which would materially and adversely affect our business.

We will ensure that we comply with all applicable PRC laws and regulations in the future by (i) placing in charge the legal department, with assistance from management and administrative staff, to oversee and maintain our compliance with applicable PRC laws and regulations through, among other things, establishing policies to monitor the compliance and strict implementation of the monthly reporting procedures on legal matters to the chief executive officer and the Board; (ii) providing regular trainings or updates in respect of PRC laws and regulations to our Directors on a bi-annual basis, and to senior management and the relevant staff on a monthly basis; and (iii) seeking external legal advice where appropriate and necessary. Our Directors considered that the internal control measures relating to compliance are adequate and effective.

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AN OVERVIEW OF OUR DIRECTORS AND SENIOR MANAGEMENT

We have a management team comprising, principally, four executive Directors and two senior management members, who we believe possess the requisite mining experience to operate the Zhangjiaba Mine. This experience has been derived, in some cases, from many years of involvement in the stone production business, which has been supplemented by other experience and activities which we consider to be directly relevant to the successful implementation and commercialization of largescale, resource-driven projects such as the Zhangjiaba Mine project. We believe that our Directors and senior management possess the skills, foresight and extensive industry knowledge necessary to capture market opportunities, formulate sound business strategies, assess and manage risks, as well as increase and implement management and production plans.

The following table below sets forth information regarding our Directors:

Name Ms. Chen Tao . . . . . . . . . . . Mr. Lin Yuhua . . . . . . . . . . Mr. Liao Yuanshi . . . . . . . . Mr. Xiong Wenjun…. . . . . . Mr. He Ji . . . . . . . . . . . . . . Mr. Deng Huiqing . . . . . . . . Mr. Chu Ho Hwa, Howard . .	Age 36 54 54 51 35 61 46	Appointment Date 4 August 2010 4 August 2010 4 August 2010 4 August 2010 19 August 2010 4 August 2010 2 September 2010	Position Executive Director, Chairman and Chief Executive officer Executive Director Executive Director Executive Director Non-executive Director Independent non- executive Director Independent non- executive Director	Major Responsibilities
				business strategies, overall operations, financing and investment activities of our Company geology, mine design and production and environment safety mining and processing marketing and Sales providing strategic advice to our Company, attending meetings of the Board to perform duties, but not participating in the day-to-day management of our business operations attending meetings of the Board to perform duties, but not participating in the day-to-day management of our business operations attending meetings of the Board to perform duties, but not participating in the day-to-day management of our business operations

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Name Mr. Liu Yuquan . . . . . . . . .	Age 59	Appointment Date 2 September 2010	Position Independent non- executive Director	Major Responsibilities
				attending meetings of the Board to perform duties, but not participating in the day-to-day management of our business operations

EXECUTIVE DIRECTORS

Ms. Chen Tao (陳濤), Executive Director, Chairman and Chief Executive Officer

Ms. Chen, aged 36, was appointed as the executive Director, chairman of the Board and chief executive officer of the Company on 4 August 2010 in view of Ms. Chen’s extensive experience in mining enterprise management. She is primarily responsible for business strategies, overall operations, financing and investment activities of the Company. She has over 6 years of experience in corporate finance, capital management and investment in mines, and mine management, including over two years of work experience in Sichuan Jinshida. Before the acquisition of the Zhangjiaba Mine, she assisted Mr. Huang in identifying and acquiring the Zhangjiaba Mine. She joined us in August 2008. Since her joining, Ms. Chen has established a high-quality management team, and formulated the overall strategy for the mine development of our Company. She was substantially involved in, among others, the studies of mine geology and exploration of the resources, the preparation of the feasibility report and the Competent Person’s Report of the Zhangjiaba Mine, environmental impact assessment, the construction of infrastructure, the design and execution of the ramp-up plan and the marketing strategy. Ms. Chen led a team of experts to carry out a preliminary analysis in respect of the geological conditions of the mining area of Zhangjiaba Mine. Based on the results of this preliminary analysis, Ms. Chen, together with the experts, concluded that the area had a very high potential and should be further explored. Such exploration and discovery led to the expansion of the total permitted mining area of our Zhangjiaba Mine from 0.289 km[2] to 0.495 km[2] . Ms. Chen led the process to successfully convert the Zhangjiaba Mine’s previous exploration permit and mining permit to a new mining permit in February 2011 and obtained all the material government permits and approvals for the construction and mining of the Zhangjiaba Mine and the construction and operating of the processing facilities. She oversaw the design and construction of the Zhangjiaba Mine and the processing facilities. She also led the management team to successfully commence the commercial production of the Zhangjiaba Mine in September 2010. In September 2010, Ms. Chen attended the 45th International Exhibition of Stone Design and Technology on behalf of our Company in Verona, Italy, to exchange views with experts and other industry players on the current development of the stone industry.

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Ms. Chen has 13 years of working experience and she began her mining career in June 2004. Details of such experience are set out in tabular format below.

Term of Office July 1998 – May 2004 June 2004 – July 2008 August 2008 – now	Positions Credit customer manager and deputy general manager for business development, Industry and Commerce Bank of China Guangdong Branch （中國工商銀行廣東省分行） Deputy general manager of corporate finance department, Sunshiny Group Co., Ltd. (賢成集團有限公司), a company principally involved in coal mining activities through its subsidiaries Deputy general manager, Guangdong Mingcheng Mining Co., Ltd. (廣東明成礦業有限公司), a subsidiary of Sunshiny Group Co., Ltd. and a company principally involved in the exploration and extraction of coal mines Deputy general manager, Sichuan Jinshida (since July 2010, she has been a director of Sichuan Jinshida)	Past Experience and Responsibilities
		Ms. Chen was responsible for reviewing and managing bank loans to enterprises. Ms. Chen was responsible for overseeing investment, financing option and identifying and acquiring mining assets. She was involved in the strategic operations including mine-related transactions, and financing options. During this period, she performed due diligence duties on various coal and stone mines, and she participated in and completed various coal mine projects, including acquisitions or transfer of mining right projects of Guizhou Pan County Baiguo Town Baiping Coal Mine (貴州省盤縣柏果鎮柏平煤礦), Guizhou Pan County Banqiao Senlin Coal Mine (貴州省盤縣板橋森林煤礦), Guizhou Pan County Baiguo Town Yunshang Coal Mine (貴州省盤縣柏果鎮雲尚煤礦), Guizhou Renhuai Zhongshu Jiaotong Guangfu Coal Mine (貴州省仁懷中樞交通光富煤礦) and Guizhou Pan County Laochang Town Selvcun Yungui Coal Mine (貴州省盤縣老廠鎮色綠村雲貴煤礦) and was mainly responsible for the exploration and mining rights, commercial negotiations and government liaison for each of the projects. Ms. Chen has been responsible for establishing a high-quality management team, and formulating the overall strategy for the mine development of our Company. She was substantially involved in the studies of mine geology and exploration of resources, the preparation of the feasibility report and the Competent Person’s Report of the Zhangjiaba Mine, environmental impact assessment, the construction of infrastructure, the design and execution of the ramp-up plan and the marketing strategy and etc.

Her broad knowledge and experience in the mining industry and mining companies allows her to coordinate and advise our Directors on the operational, financial and strategic aspects of the Company’s business, which is critical to the success of the Company’s marble mining activities and operations. During the Track Record Period, Ms. Chen did not hold any directorship in listed public companies.

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Ms. Chen graduated from Guangdong University of Foreign Studies (廣東外語外貿大學) and received a diploma in international business English in June 1997. She is qualified as an intermediate level economist (中級經濟師) with a certificate issued by the Ministry of Personnel of the PRC (中華人民共和國人事部).

Mr. Lin Yuhua (林玉華), Executive Director, Head of Geology and Mine Design and Production and Environmental Safety

Mr. Lin, aged 54, was appointed as an executive Director of the Company on 4 August 2010. In April 2009, Mr. Lin joined Sichuan Jinshida as the chief engineer and has been overseeing the geological exploration and construction of the Zhangjiaba Mine and preparation of the geological study and feasibility plan of our mine.

Mr. Lin has approximately 28 years of experience in the mining industry. During the Track Record Period, he did not hold any directorship in listed public companies. Details of such experience are set out in tabular format below.

Term of Office February 1982 – December 1987 January 1988 – December 1989 January 1990 – December 1991	Positions Project leader and assistant engineer, Geology Company of the Construction Materials Ministry, Beijing Geological Survey Brigade, Second Team (建材部地質公司北京地質勘探大隊二分隊) Deputy-captain and engineer, Geology Company of State Construction Materials Bureau, Beijing Geological Survey Brigade, Integrated Team (國家建材局地質公司北京地質勘探大隊綜合隊) Captain and chief engineer, project sponsored by Beijing Geological Survey Brigade, Integrated Team (北京地質勘探大隊綜合隊) and Hainan Tongli Stone Joint Stock Limited Company (海南同利石材股份有限公司)	Past Experience and Responsibilities
		Mr. Lin was responsible for conducting exploration and survey of limestone mines and drafting survey report. Mr. Lin was responsible for geological surveying activities, technology and project management. Mr. Lin was responsible for identifying and exploring mine reserves, improving mine extraction technology and skills and overseeing mine operation.

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Term of Office In 1992 January 1993 – January 1994 February 1994 – October 2001 November 2001 – August 2010 November 2005 – December 2009 June 2006 – December 2009	Positions Director of the Planning Technical Section, China Construction Materials Industry Geological Survey Center (中國建材工業地質勘查中心北京總隊計劃技術科) Deputy director and senior engineer, Mineral Exploration Department of Zhongda Construction Materials and Mineral Resources Company (subordinated to China Construction Materials Industry Geological Survey Center) (中達建材礦產公司(中國建材工業地質勘查中心所屬)礦產開發部) General manager and the director of chief engineers, Chengde Zhongcheng Stone Co., Ltd. (承德中成石業有限公司) and Mineral Department of Zhongda Construction Materials and Mineral Resources Company (中達建材礦產公司礦產部) Director, Industrial Working Department of CSMA (中國石材協會行業工作部) Standing deputy director and member, Expert Committee of the Mineral Stone Resources of CSMA (中國石材協會礦山石材資源專業委員會) Member, Expert Committee of the Stone Application and Maintenance of CSMA (中國石材協會石材應用護理專業委員會)	Past Experience and Responsibilities
		Mr. Lin was responsible for managing limestone mine exploration and identifying non-metal mines. Mr. Lin was responsible for managing extraction activities for non-metal mines and drafting feasibility reports for various mines. Mr. Lin was responsible for managing overall operations of the companies and promoting the popularity of Yanshan green granite produced by the companies. Mr. Lin was responsible for providing advices with regard to the development of mineral resources, mine construction and promoting advanced technologies to stone and mining companies nationwide. Mr. Lin was responsible for providing advices with regard to the development of mineral resources, mine construction and promoting advanced technologies to stone and mining companies nationwide. Mr. Lin was responsible for providing advices with regard to the development of mineral resources, mine construction and promoting advanced technologies to stone and mining companies nationwide.

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Term of Office March 2007 – now December 2008 – now April 2009 – now	Positions Expert judicaire, Beijing Guoke Forensic Expertise Center of Intellectual Property (北京國科知識產權司法鑒定中心) Member, Sub-commission of Codes and Applied Technology of the National Technical Commission of Stone Standardization (全國石材標準化技術委員會管理規範和應用技術及規範分技術委員會) Member and deputy secretary of the Sub-commission, Special Machines of the National Technical Commission of Stone Standardization (全國石材標準化技術委員會專用機械分技術委員會) Chief engineer, Sichuan Jinshida (since July 2010, he has been a director of Sichuan Jinshida)	Past Experience and Responsibilities
		Mr. Lin has mainly been responsible for stone related test and identification. Mr. Lin has mainly been responsible for managing the drafting and revision of stone industry standards and specifications. Mr. Lin has been responsible for overseeing the geological exploration and construction of the Zhangjiaba Mine and preparation of the geological study and feasibility plan of the Zhangjiaba Mine.

Apart from serving the above positions, Mr. Lin has also made various accomplishments and achievements since 1993. He drafted a research report named Current Situation of Chinese Quarrying Industry (中國石材開採業現狀) and he edited a tool book of quarrying industry, Standard Illustrating Handbook on National and Foreign Natural Stone (中外天然石材標準圖鑒). Mr. Lin presided over the drafting of Technical Specifications on Open-pit Quarries of Decorative Stone (裝飾石材露天礦山技術規範) (JC/T10812008), which has been approved and issued by the NDRC and came into effect on 1 December 2008, as well as the Unit Consumption Standards for Processing of Standard Marble and Granite Slabs (大理石、花崗石規格板材加工貿易單耗標準), which has been jointly approved by the General Administration of Customs of the PRC (中華人民共和國海關總署) and the NDRC and has come into effect on 20 September 2010. He also participated in the drafting of or amendments to various important quarrying industry related literatures, including Research on Checking Method of Unit Consumption of Stone Products (石材產品單耗核定方法的研究與探索), national standards for Uniform Coding of Natural Stones (天然石材統一編號), as well as National Occupational Training Materials for Stone Production Workers (石材生產工國家職業培訓講義). He also participated in drafting National Occupational Standards for Stone Production Workers (國家職業標準－石材生產工), which has been submitted to the Ministry of Human Resources and Social Security of the PRC (中華人民共和國人力資源和社會保障部) for approval, as well as industry standards for Quarry Stone of

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Natural Granite (天然花崗石荒料) and Quarry Stone of Natural Marble (天然大理石荒料), which has been submitted to the Ministry of Industry and Information Technology of the PRC (中華人民共和國工業和信息化部) for approval.

Mr. Lin received his bachelor’s degree in geological survey from Hebei Geological Institute (河北地質學院) (currently known as Shijiazhuang University of Economics (石家莊經濟學院)) in August 1982. Mr. Lin holds the title of senior engineer awarded by State Construction Materials Bureau (國家建築材料工業局) in December 1992. He also holds the title of professorial senior engineer awarded by China National Materials Group Corporation Ltd. (中國中材集團公司) in November 2008.

Mr. Liao Yuanshi (廖原時), Executive Director, Head of Mining and Processing

Mr. Liao, aged 54, was appointed as an executive Director of the Company on 4 August 2010. Mr. Liao is a deputy general manager of Sichuan Jinshida. Since January 2010, he has been the technical adviser of Sichuan Jinshida and has been providing specialized instructions on mine construction, mining and selection of quarry machinery and equipment.

Mr. Liao has more than 26 years of experience in mining industry and mining machinery. During the Track Record Period, he did not hold any directorship in listed public companies. Details of such experience are set out in tabular format below.

Term of Office February 1982 – July 1987 July 1987 – March 1991 April 1991 – September 1998 June 1998 – December 2003	Positions Deputy section chief of the technological section, Beijing Machinery Plant (Beijing No. 394 Plant) (北京機械廠(北京394廠) Engineer and deputy manager of the technology and equipment section, China Jianbei Stone Industry Company (中國建北石材工業公司) Senior engineer and deputy manager of the stone products section, China National Materials Group Co., Ltd. (formerly known as China Nonmetallic Minerals Industrial Corporation) (中國中材集團有限公司，其前身為中國非金屬礦工業總公司) Product manager and serve engineer, Beijing representative office of Benetti Macchine S.P.A	Past Experience and Responsibilities
		Mr. Liao was responsible for designing and developing machinery products and overseeing technical management related to production process. Mr. Liao was responsible for the design, development, manufacturing and technical management of stone machinery products and stone machinery equipment, which were used in stone mining and processing. Mr. Liao was responsible for technical management of stone machinery equipment which were used in stone mining and processing. Mr. Liao was responsible for the sales of stone machinery equipment and providing technical support to the clients.

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Term of Office March 2004 – December 2004 January 2005 – January 2010 October 2005 – December 2009 December 2004 – now July 2009 – now April 2010 – now January 2010 – now	Positions Chief engineer, Xinjiang Urumqi Baiqing Industrial Co., Ltd. (新疆烏魯木齊柏青實業有限公司) General manager, Xiamen Xinande Group Co., Ltd. (廈門新安德集團有限責任公司) General manager, Fujian Nanping San Lida Mining Industrial Co., Ltd. (福建南平三立達礦業有限公司) Expert, Expert Committee of the Mineral Stone Resources of CSMA (中國石材協會礦山石材資源專業委員會) Expert, Materials Expert Committee of China Construction and Decoration Association (中國建築裝飾協會材料委員會) Expert, Expert Committee of the Stone Machinery and Tools of CSMA (中國石材協會石材機械與工具專業委員會) Expert, Work Safety Expert Panel of the Non-coal Mines of Fujian Provincial Administration of Work Safety (福建省安監局非煤礦山安全生產專家組) Technical adviser, Sichuan Jinshida (since July 2010, he has been a director of Sichuan Jinshida)	Past Experience and Responsibilities
		Mr. Liao was mainly responsible for technical assessment of the exploration of mining resources and management of the mining techniques. Mr. Liao was responsible for quarrying, mine exploration and mining production, overseeing stone slab production and managing stone export business. Mr. Liao was responsible for providing advices with regard to the development of mineral resources, mine construction and promoting advanced technologies to stone and mining companies nationwide. Mr. Liao has been responsible for providing technical advices. Mr. Liao has been responsible for providing technical advices with regard to stone machinery and tools and promoting advanced technologies to stone and mining companies nationwide. Mr. Liao has been responsible for providing advices on work safety measures for open-pit mining and use of explosive materials in mining. Mr. Liao has been responsible for providing specialized instructions on mine construction, mining and selection of quarry machinery and equipment.

Mr. Liao has also made academic achievements by publishing (as author or co-author) more than 20 papers and translation works related to quarrying and stone products processing on several academic magazines and journals, including Stone (石材) and Overseas Nonmetallic Minerals and Stone (國外非

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金屬礦與寶石). Mr. Liao is the author of the following books: Technologies and Equipment of Quarrying (石材礦山開採技術及設備), Application Techniques of the Diamond Wire Saw in Decorative Stone Slab Production (金剛石串珠鋸在飾面石材生產中的應用技術), Mechanized Mining of Decorative Stone Slabs — Application and Development Diamond Wire Saw (飾面石材的機械化開採 — 金剛石串珠鋸的應用與發展) and Shaped Stone (異型石材).

Mr. Liao received his bachelor’s degree in engineering from East China Engineering Institute (華東工程學院, which is currently known as Nanjing University of Science & Technology (南京理工大學)), in May 1982. From 1988 to 1989, he obtained a certificate issued by the Department of International Cooperation and Development of the Italian Ministry of Foreign Affairs after studying courses related to stone mining techniques at CARRARA in Italy. Mr. Liao also holds the title of senior engineer awarded by State Construction Materials Bureau (國家建築材料工業局) in 1993.

Mr. Xiong Wenjun (熊文俊), Executive Director, Head of Marketing and Sales

Mr. Xiong, aged 51, was appointed as an executive Director of the Company on 4 August 2010. Mr. Xiong is a deputy general manager of Sichuan Jinshida and is primarily responsible for the marketing and sale of our marble products. Since January 2007, Mr. Xiong has assisted Mr. Huang in identifying and acquiring the Zhangjiaba Mine. He has also been the marketing director of Sichuan Jinshida since August 2007.

Mr. Xiong has approximately 28 years of experience in mining industry and geology. During the Track Record Period, he did not hold any directorship in listed public companies. Details of such experience are set out in tabular format below.

Term of Office Positions July 1982 – Teaching assistant, China November 1989 University of Geosciences (中國地質大學) December 1989 – Lecturer, China University of February 1998 Geosciences March 1998 – Deputy general manager, March 2006 Shenzhen Kangli Stone Co., Ltd. (深圳康利石材集團有限公司), one of the largest stone companies in the PRC

Past Experience and Responsibilities Mr. Xiong was responsible for teaching courses on physical geology.

Mr. Xiong was responsible for teaching courses on physical geology and marine geology.

Mr. Xiong was responsible for procurement of blocks which requires significant geological and mining knowledge, managing the stone processing and production activities, assisting the Company to obtain ISO9000 system and overseeing domestic sale. During the tenure with Shenzhen Kangli Stone Co., Ltd., he performed due diligence duties on various stone mines throughout the country, which required substantial knowledge and experience in the scales and geological conditions of the different stone mines, the technologies, equipment and techniques used for mining and the stone processing.

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Term of Office August 2007 – now	Positions Marketing director, Sichuan Jinshida (since July 2010, he has been a director of Sichuan Jinshida)	Past Experience and Responsibilities
		Mr. Xiong has been responsible for the marketing and sale of our marble products.

In addition to the above positions, Mr. Xiong also provided a range of trainings on geology, stone procurement, stone processing, equipment installment, quality control and marketing to the trainees from various stone, design and decoration companies. Mr. Xiong is a member of the Sub-commission of Products and Auxiliary Materials of the National Technical Commission of Stone Standardization (全國石材標準化技術委員會產品及輔助材料分技術委員會) and participated in reviewing stone industryrelated standards. Due to the past academic experiences at top geological university in China and longterm commitment to the management and marketing practice in mineral enterprises, Mr. Xiong has abundant expertise in geological and mining industry as well as practical working experience in stone products marketing. He is familiar with the current stone markets in China and worldwide as well as their developing trends. More than 10 years of managerial experience of mineral enterprises has familiarized him with, among other things, the geological distribution and conditions of marble mines in China, capable of positioning the market and making overall strategic planning.

Mr. Xiong received his bachelor’s degree in coal geology from Wuhan College of Geology (武漢地質學院) in July 1982, and master’s degree in petrology from China University of Geosciences in June 1989. Mr. Xiong has in-depth experience and knowledge in geology, especially in the areas of the chemical composition and structure of minerals, the exploration and recovery of natural resources, and erosion and deposition of rock particles. He is also a certified constructor in China.

NON-EXECUTIVE DIRECTOR

Mr. He Ji (何霽), aged 35, was appointed as an non-executive Director of the Company on 19 August 2010. He is currently an executive director of Morgan Stanley Asia Limited, and he primarily focuses on principal investment activities in the Asia Pacific region, especially China. Prior to joining Morgan Stanley Asia Limited in 2005, he worked in Morgan Stanley and Goldman Sachs in New York. Mr. He received an MBA degree from Columbia Business School, a master’s degree in information systems management from Carnegie Mellon University, as well as a bachelor’s degree in international finance from Renmin University of China (中國人民大學). Mr. He is a CFA charter holder. The appointment of Mr. He will be subject to the terms in the Articles.

INDEPENDENT NON-EXECUTIVE DIRECTORS

Mr. Deng Huiqing (鄧惠青), aged 61, was appointed as an independent non-executive Director of the Company on 4 August 2010. He has over 20 years of experience working in stone industry. From December 1987 to January 1989, he was the deputy office director in China Jianbei Stone Industry Company (中國建北石材工業公司). From January 1989 to January 1997, he worked as the deputy general manager in Shandong Laizhou Yin Lei Stone Products Co., Ltd. (山東萊州銀磊石材有限公司), and he was responsible for marketing and sales of the stone products. He was appointed as the executive secretary of CSMA from July 1996 to January 1997. From January 1997 to April 2002, he worked in China Nonmetallic Minerals Industrial Corporation (中國非金屬礦工業總公司) and held several

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positions including the deputy office director from January 1997 to April 1997, the deputy general manager and general manager of the enterprise management department from April 1997 to March 2001 and the director of party relationship department (黨群工作部) from March 2001 to April 2002. Since April 2002, he has been the deputy secretary general, the standing deputy director of the Expert Committee of the stone Application and Maintenance (石材應用護理專業委員會), where he has been responsible for managing the administrative work of the association, identifying different varieties of stones, conducting on-site visits to different stone mines and providing technical consultancy to stone mining and processing companies, and the standing deputy secretary general of the board of National Stone Standardization Technical Committee (全國石材標準化技術委員會) in the CSMA, where he has been responsible for organizing and managing the drafting and revision of stone industry standards and specifications. During the Track Record Period, Mr. Deng did not hold any directorship in listed public companies.

Mr. Deng graduated from Beijing Building Materials Industry School (北京建築材料工業學校), currently known as Beijing Jinyu Polytechnic (北京金隅科技學校)) majoring in machinery in July 1982 and received a secondary school diploma. He graduated from Beijing Open University (北京廣播電視大學) and received a college diploma in enterprise administration in December 1988. Mr. Deng also holds the title of senior engineer awarded by State Construction Materials Bureau in 1999.

Our Directors (including our independent non-executive Directors) are of the view that Mr. Deng Huiqing’s role in CSMA will not affect his independence to our Company because Mr. Deng’s responsibilities in CSMA primarily include managing the administrative work of the association and providing technical consulting service to stone mining and processing companies, and he does not have any influence on the decision making process of CSMA or any experts panel organized and gathered by the CSMA for technical and market consultancy advises.

In August 2010, CSMA has assessed our marble products. The CSMA functioned as the sponsor which organized and gathered a panel of 17 industry experts for the purpose of assessment of our marble products, during which Mr. Deng Huiqing acted as the convener of this expert panel and one of the experts on the panel. In this expert panel meeting, each of the 17 experts has individually assessed our marble products, formed his/her opinion on our marble products, and unanimously adopted the expert opinion collectively issued by such industry experts. As such, our Company is of the view that Mr. Deng did not have any influence over nor did he have any power to influence the expert opinion adopted by such expert panel in August 2010. We did not pay any fees to CSMA or to any member of the expert panel for the purpose of this expert panel meeting or for the issuance of the relevant certificate.

Mr. Chu Ho Hwa, Howard (朱賀華), aged 46, was appointed as an independent non-executive Director of the Company on 2 September 2010. Mr. Chu has approximately 18 years of experience in finance and investment activities. From September 1992 to August 1999, he worked in ABN AMRO Asia Corporate Finance Limited, and his last position was head of Hong Kong Origination. From February 2001 to February 2006, he worked at the Hongkong and Shanghai Banking Corporation Limited, and his last position was corporate finance director of telecom and media department. From June 2006 to April 2008, he worked as a consultant in Shanghai Century Acquisition Corporation, where he was responsible for sourcing, evaluating and implementing various investment opportunities in China. From September 2008 to June 2009, he was the assistant to the chairman in United Energy Group Limited which is a publicly listed company on the Stock Exchange (stock code: 467), where he was actively involved in the merger and acquisitions. Since July 2009 he was the chief financial officer of Trony Solar Holdings Company Limited which is a publicly listed company on the Stock Exchange

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(stock code: 2468), where he was responsible for the overall financial management of this company. Since May 2010, Mr. Chu has been appointed as an independent non-executive Director in Directel Holding Limited, which is a publicly listed company on the Stock Exchange (stock code: 8337).

Mr. Chu received a bachelor’s degree in electrical engineering from University of Rochester in May 1986. He received a master’s degree in business administration from Columbia University in May 1990. Mr. Chu acquired substantial financial and accounting knowledge during his study in Columbia University for his master’s degree in business management.

Due to his past academic achievements and working experience in various companies, including four publicly listed companies, Mr. Chu has substantial experience in preparing and reviewing financial statements and financial management.

Mr. Liu Yuquan (劉玉泉), aged 59, was appointed as an independent non-executive Director of the Company on 4 August 2010. Prior to that, from May 1985 to September 1998, he worked in Kenluck Technology Co., Ltd. (建運科技有限公司) as the deputy general manager and the general manager of the company successively, where he was responsible for the market expansion and overall management of this company. From November 1998 to December 2009, he was the chairman of the board of directors in Beijing North Yichuan Technology Co., Ltd. (北京北方儀創科技有限責任公司). From October 1998 to December 2009, he worked as the marketing director of China Energy and Mining Limited (中國能源礦業有限公司). Since January 2010, he worked as the general manager of Straits Telecom Limited (海峽通信有限公司). During the Track Record Period, Mr. Liu did not hold any directorship in listed public companies.

Mr. Liu received a diploma in Indonesian from Peking University in January 1974.

SENIOR MANAGEMENT

Mr. Jia Yinggong (賈應功), aged 48, was appointed as the mine manager (礦長) and manager of the equipment department of Sichuan Jinshida in May 2010. He has been primarily responsible for improving the mining technology, supervising the mine production, managing the quality control department and equipment department as well as overseeing the infrastructure construction of the Zhangjiaba Mine. Since his joining, he worked under the strategic instruction from Ms. Chen Tao to formulate the production plan, optimize the production processes and organize various trainings for the workers.

He has 17 years of experience in mine exploration and extraction. Details of such experience are set out in tabular format below.

Term of Office October 1993 – January 2003 January 2003 – May 2010	Positions Mine manager, Guangxi Cenxi Stone Development Co., Ltd. (廣西岑溪市石材開發公司) Mine manager, Wuhan Yongsong Mine Development Co., Ltd. (武漢永松礦業開發有限公司)	Past Experience and Responsibilities
		Mr. Jia was responsible for overseeing the work safety of the mine, evaluating the performance of mine workers and planning the use of raw materials. Mr. Jia was responsible for overseeing the work safety of the mine and evaluating the performance of the mine workers.

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Term of Office May 2010 – now	Positions Mine manager and manager of the equipment department, Sichuan Jinshida	Past Experience and Responsibilities
		Mr. Jia has been responsible for improving the mining technology, supervising the mine production, managing the quality control department and equipment department as well as overseeing the infrastructure construction of the Zhangjiaba Mine.

Mr. Jia received a college diploma (cadres correspondence) in Politics from Engineering Corps Academy of PLA (中國人民解放軍工程兵指揮學院) in July 1990.

Mr. Li Jun (李軍), aged 41, was appointed as the deputy mine manager (副礦長) of the Sichuan Jinshida in May 2010. He has been primarily responsible for assisting the mine manager in overall production management, planning the construction of work safety facilities, managing the transportation in the mine area and quality control of our marble stone products. Prior to joining our Company, he dedicated himself to the mine-related work in Shanxi Xinyue Stone Meterial Development Co., Ltd. (山西鑫岳石材開發有限公司) and assumed various positions in this company.

Mr. Li has 16 years of experience in mining industry. Details of such experience are set out in tabular format below.

Term of Office June 1994 – March 1995 March 1995 – March 1998 March 1998 – August 2005 September 2005 – April 2010 May 2010 – now	Positions Quality control personnel, Shanxi Xinyue Stone Meterial Development Co., Ltd. (山西鑫岳石材開發有限公司) Assistant to the deputy chairman of the board and the office director, Shanxi Xinyue Stone Meterial Development Co., Ltd. Director of mining department, Shanxi Xinyue Stone Material Development Co., Ltd. Mine manager, Shanxi Xinyue Stone Material Development Co., Ltd. Deputy mine manager, Sichuan Jinshida	Past Experience and Responsibilities
		Mr. Li was responsible for assessing the quality of stone blocks and classifying the stone blocks according to their respective qualities. Mr. Li was responsible for formulating the management systems and coordinating the work of various departments. Mr. Li was responsible for overseeing the production work safety, improving the work safety facilities and managing transportation and water and electricity supply in the mine area. Mr. Li was responsible for the overall production and operation of the mine. Mr. Li has been responsible for assisting the mine manager in overall production management, planning the construction of work safety facilities, managing the transportation in the mine area and quality control of our marble stone products.

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Mr. Li received a college diploma in industrial enterprise management engineering from Shanxi Mining College (山西礦業學院) in June 1991.

Mr. Lou Sai Tong (盧世東), aged 43, was appointed as the chief financial officer and company secretary of the Company on 4 August 2010. He is primarily responsible for the overall financial management and administration of the Company. Mr. Lou has over 17 years of professional experience working in international audit firms and as financial officer in various publicly listed companies. He worked as an accountant from June 1993 to August 1996 in Kwan Wong Tan & Fong (currently known as Deloitte Touche Tohmatsu). He then worked as audit senior and supervisor from August 1996 to October 1998 in Coopers & Lybrand (currently known as PricewaterhouseCoopers), Hong Kong, and his last position was supervisor II in Audit Division. From December 1998 to January 1999, he was the accounting manager at Midas Printing Company Limited (勤達印刷有限公司) (currently known as Midas International Holdings Limited (勤達集團國際有限公司)), which is a publicly listed company on the Stock Exchange (stock code: 1172). From June 1999 to May 2000, he was the project analyst of Pillsbury Hong Kong Limited. From June 2000 to July 2004, he worked as the chief financial officer and company secretary of China Everbright Technology Limited (中國光大科技有限公司) (currently known as China Haidian Holdings Limited (中國海澱集團有限公司)), which is a publicly listed company on the Stock Exchange (stock code: 256), where he was responsible for the overall accounting, financial, company secretary and administration operation of this company and its subsidiaries. From August 2004 to November 2005, he worked as the chief financial officer and company secretary of China Shineway Pharmaceutical Group Limited (中國神威藥業集團有限公司), which is a publicly listed company on the Stock Exchange (stock code: 2877), where he was responsible for the overall accounting, financial reporting of this company and its subsidiaries. From December 2005 to October 2008, he worked as the chief financial officer of NT Pharma (Group) Company Limited (泰淩醫藥(集團)有限公司). From October 2008 to July 2010, he worked as the deputy chief financial officer at C&G Environmental Protection Holdings Limited, which is a publicly listed company in Singapore (stock code: SGX: D79). He also assumed the position as chief financial officer at C&G Environmental Protection International Limited during the same period. During the Track Record Period, Mr. Lou did not hold any directorship in listed public companies.

Mr. Lou graduated from University of South Australia and received a master’s degree in business administration in October 1996. He is a member of Association of International Accountants (FAIA) as well as a member of Hong Kong Institute of Certified Public Accountants (HKICPA).

COMPANY SECRETARY

Mr. Lou Sai Tong (盧世東), aged 43, is the company secretary, chief financial officer and authorized representative of the Company. His biographical details are set out above under the paragraph headed ‘‘Senior Management’’ in this section.

BOARD COMMITTEES

Audit Committee

We have established an audit committee on 24 January 2011. The audit committee consists of three independent non-executive Directors, namely: Mr. Liu Yuquan (劉玉泉), Mr. Deng Huiqing (鄧惠青) and Mr. Chu Ho Hwa, Howard (朱賀華), with Mr. Chu Ho Hwa, Howard (朱賀華) being the chairman of the committee.

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The primary duties of the audit committee are to assist our Board in providing an independent view of our financial reporting process, internal control and risk management system, oversee the audit process and perform other duties and responsibilities as assigned by our Board.

Remuneration Committee

We have established a remuneration committee on 24 January 2011. The remuneration committee consists of an executive Director and two independent non-executive Directors, namely: Ms. Chen Tao (陳濤), Mr. Liu Yuquan (劉玉泉) and Mr. Deng Huiqing (鄧惠青), with Ms. Chen Tao (陳濤) being the chairman of the committee.

The primary duties of the remuneration committee are to develop remuneration policies of our Directors, evaluate the performance, make recommendations on the remuneration package of our Directors and senior management and evaluate and make recommendations on employee benefit arrangements.

Nomination Committee

We have established a nomination committee on 24 January 2011. The nomination committee consists of an executive Director and two independent non-executive Directors, namely: Ms. Chen Tao (陳濤), Mr. Liu Yuquan (劉玉泉) and Mr. Deng Huiqing (鄧惠青), with Ms. Chen Tao (陳濤) being the chairman of the committee.

The primary function of the nomination committee is to make recommendations to our Board in relation to the appointment and removal of Directors.

DIRECTORS’ REMUNERATION

Our Directors receive remuneration, including salaries, allowances and benefits in kind, including our contribution to the pension plan on their behalf.

The aggregate amount of remuneration paid by our Company to the five highest paid individuals for each of the period from 14 March 2008 to 31 December 2008, the year ended 31 December 2009 and the eleven months ended 30 November 2010 was approximately RMB281,000, RMB433,000 and RMB1,435,000, respectively.

For each of the period from 14 March 2008 to 31 December 2008, the year ended 31 December 2009, none of the executive Directors and independent non-executive Directors of the Company received remuneration from our Company. For the eleven months ended 30 November 2010, the aggregate remuneration paid to our executive Directors by our Company amounted to RMB744,000.

We expect the annual Directors’ fee and other emoluments payable by our Company for year ended 31 December 2011 to be RMB5.5 million.

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SHARE CAPITAL

The Company’s authorized share capital is as follows:

(HK$)

Authorized share capital:

5,000,000,000 Shares

500,000,000

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FINANCIAL INFORMATION

The following discussion of our financial condition and results of operations should be read in conjunction with (i) our consolidated statements of financial position as at 31 December 2008, 31 December 2009 and 30 November 2010, and (ii) consolidated statements of comprehensive income and consolidated cash flows statements for the period from 14 March 2008 to 31 December 2008, the year ended 31 December 2009 and the eleven months ended 30 November 2010, and, in each case, the related notes set out in the Accountants’ Report included as Appendix I to this document (the ‘‘Consolidated Financial Information’’). Our Consolidated Financial Information have been prepared in accordance with IFRS which may differ in material aspects from generally accepted accounting principles in other jurisdictions.

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

Summary Consolidated Statements of Comprehensive Income

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . Cost of sales. . . . . . . . . . . . . . . . . . . . . . Gross profit. . . . . . . . . . . . . . . . . . . . . . . Other income . . . . . . . . . . . . . . . . . . . . . Selling and distribution costs . . . . . . . . . . Administrative expenses . . . . . . . . . . . . . . Other expenses . . . . . . . . . . . . . . . . . . . . Finance costs . . . . . . . . . . . . . . . . . . . . . Loss before tax Income tax benefit. . . . . . . . . . . . . . . . . . Loss for the year/period. . . . . . . . . . . . . .	Period from 14 March 2008 to 31 December(1) 2008 — — — 3 (63) (1,200) (720) (25) (2,005) 253 (1,752)	Year ended 31 December Eleven months ended 30 November 2009 2009 2010 (RMB’000) — — 1,771 — — (717) — — 1,054 2 2 31 (270) (244) (472) (2,610) (2,181) (23,134)(2) (690) (203) (728) (2,042) (1,780) (2,129) (5,610) (4,406) (25,378) 241 193 4,143 (5,369) (4,213) (21,235)

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Notes:

(1) As a result of merger accounting, the financial information of Sichuan Jinshida is included in our Consolidated Financial Information as if the consolidation had occurred since 14 March 2008 when Sichuan Jinshida first came under control of our [.] As the [.] obtained the control over Sichuan Jinshida on 14 March 2008 and there were no transactions between 1 January 2008 and 13 March 2008 impacting our financial information, our financial information is presented from 14 March 2008.
(2) Our administrative expenses for the eleven months ended 30 November 2010 included expenses in relation to the [.].

Summary Consolidated Statements of Financial Position

Non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . Net current assets/(liabilities) . . . . . . . . . . . . . . . . . Total assets less current liabilities . . . . . . . . . . . . . . Non-current liabilities . . . . . . . . . . . . . . . . . . . . . . Net assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	As at 31 December 2008 2009 (RMB’000) 40,389 50,455 1,071 6,092 24,208 44,675 (23,137) (38,583) 17,252 11,872 4,524 4,513 12,728 7,359 12,728 7,359	As at 30 November
	2008 40,389 1,071 24,208 (23,137) 17,252 4,524 12,728 12,728	2010
		112,326 98,555 83,162 15,393
		127,719
		350
		127,369
		127,369

Summary Consolidated Statements of Cash Flows

Cash and cash equivalents at beginning of the year/period . . . . Net cash flows used in operating activities . . . . . . . . . . . . . . . . . . Net cash flows used in investing activities . . . . . . . . . . . . . . . . . . Net cash flows from financing activities . . . . . . . . . . . . . . . . . . Net increase/(decrease) in cash and cash equivalents. . . . . . . . . . . . . Net foreign exchange difference . . . Cash and cash equivalents at end of the year/period. . . . . . . . . . . . . .	Period from 14 March 2008 to 31 December 2008 972 (1,588) (6,440) 7,795 (233) — 739	Year ended 31 December Eleven months ended 30 November 2009 2009 2010 (RMB’000) 739 739 5,670 (1,966) (1,802) (19,178) (12,489) (10,661) (64,412) 19,386 11,847 167,209 4,931 (616) 83,619 — — (2,548) 5,670 123 86,741	Eleven months ended 30 November	Eleven months ended 30 November
				2010
				5,670 (19,178)
				(64,412)
				167,209
				83,619 (2,548) 86,741

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FINANCIAL INFORMATION

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

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FINANCIAL INFORMATION

Basis of Presentation

The Company was incorporated in the Cayman Islands as an exempted company under the Companies Law on 29 March 2010. In preparation for the [.], we have undergone a [.]. The [.] involved companies under common control and our Company is regarded and accounted for as a continuing group. Accordingly, for the purpose of this report, the financial information set out in the Accountants’ Report has been prepared using the principles of merger accounting. As a result of merger accounting, the financial information of Sichuan Jinshida is included in our Consolidated Financial Information as if the consolidation had occurred from 14 March 2008 when Sichuan Jinshida first came under control of our [.]. As the [.] obtained control over Sichuan Jinshida on 14 March 2008 and there were no transactions between 1 January 2008 and 13 March 2008 impacting our financial information, our financial information is presented from 14 March 2008.

To the extent of interest held by our Shareholders, the financial information has been prepared as if the current corporate structure had been in existence throughout the Track Record Period. The consolidated statements of financial position of our Company as at 31 December 2008 and 2009 and 30 November 2010 have been prepared to present the assets and liabilities of our Company as at the respective dates and as if the current corporate structure had been in existence as at those dates. All income, expenses and unrealized gains and losses resulting from inter-company transactions and intercompany balances within our Company are eliminated on consolidation in full.

Factors Affecting Our Results of Operations and Financial Condition

Our financial condition, results of operations and the period-to-period comparability of our financial results are principally affected by the following factors:

Prices of products

According to an independent panel review organized by CSMA, our Pure Beige and Mixed Beige products are premium marble products and our Wood Grain and Gray Net products are mid- to high-end marble products. Our Pure Beige, Mixed Beige, Wood Grain and Gray Net marble account for 51.0%, 32.7%, 6.4% and 9.9% of our marble reserves, respectively, according to the Competent Person’s Report. We typically set sales prices of our beige marble products by applying certain discount to the selling prices of imported premium beige marble products currently available in the domestic market. Actual sales price is adjusted based on other factors, such as the customer’s purchase volume and delivery cycle. Based on the long-term sales contracts that we entered into with seven customers in 2010, our average ex-factory sales prices are RMB830 per m[2] for Pure Beige marble slabs, RMB540 per m[2] for Mixed Beige marble slabs and RMB520 per m[2] for other marble slabs during the terms of such contracts. These prices compare favorably to the average price of approximately RMB150 per m[2] for other PRC branded marble products, based on data from the Hatch Report, which we believe reflected the high quality of our products. Some of the top quality imported beige marble slabs are priced as high as RMB1,300 per m[2] . The color and texture of our marble products are similar to those of the wellrecognized, premium international branded marble products currently available in the market, including those priced at top end. Because of the high quality of our marble products, we believe that sales prices for our products will increase to a similar level of prices for well-recognized, premium international branded marble products currently available in the market, the average price of which is approximately RMB1,000 per m[2] , after we reach our planned mining and processing capacities. We believe that our customers will recognize the high quality of our marble products, and coupled with the increase in our

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mining and processing capacities upon completion of our ramp-up plan, we expect that we will be able to strengthen our pricing power and narrow the price gap between imported premium marble products and our products.

However, change in our end customers’ preference, fluctuations in the price of marble blocks and marble slabs, due to factors such as an imbalance in the supply and demand for marble stones in local, national and global markets, and the performance of the PRC’s stone industry can also influence the sales price of our products. As at the Latest Practicable Date, we did not foresee any material movement of price trend caused by changes of customer preference.

Sales volume and production volume

The market demand for decorative surfacing marble products in China has been exceeding their supply. The sales volume of our products depends primarily on supply from our mine reserves and our mining and processing capacities. Our plans for expanding our business and operations are largely dependent on our ability to meet production, timing and cost estimates for our current mine development projects. Factors such as obtaining regulatory approval from the appropriate authorities and financing could affect the outlook of our current and future mine projects. The timeline below highlights our key development for our ramp-up plan:

Year 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2012 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2013 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Total marble block mining capacity (m3 per annum) 1,145 45,000 90,000 135,000 150,000	Total marble slab processing capacity
		(m2 per annum) — — 1.8 million 3.0 million 3.0 million

In 2010, we secured long-term sales contracts. These sales contracts provide for an aggregate sales volume of 1,025,000 m[2] , 1,610,000 m[2] and 2,015,000 m[2] of marble slabs in 2011, 2012 and 2013, respectively, representing 63%, 56% and 45%, respectively, of our total planned marble slab production in respective years according to the Competent Person’s Report. Our customers are obliged to purchase a minimum of 90% of the volume set out in these sales contracts. See ‘‘Business — Customers and Contract Terms.’’ We anticipate the domestic market demand for decorative surfacing marble products to continue to increase and our production volume will be consumed in full upon the commencement of our commercial production and after we reach the planned mining and processing capacities. As a result, we expect increases in sales volume to be one of the main drivers of our future revenue growth.

Cash costs of production

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FINANCIAL INFORMATION

actual unit cash production cost of the third-party processed marble slabs was RMB325 per m[2] , which was higher than the projected unit cash production costs of the third-party processed marble slabs upon reaching our full mining and processing capacities. The currently higher-than-projected unit cash cost is mainly the result of a combination of the relatively low production volume and high administrative expenses at the initial stage of production. During the period from September to November 2010, we incurred selling expenses and administrative expenses of RMB138,000 and RMB14.1 million (including expenses in relation to the [.] of RMB8.5 million), respectively. The actual unit cash production cost of the third-party processed marble slabs decreased to RMB196 per m[2] in December 2010 as a result of increased production volume during this month. In addition, according to the Competent Person’s Report, when we reach the planned mining capacity of 150,000 m[3] of marble blocks per annum and processing capacity of 3.0 million m[2] of marble slabs per annum in 2014, the unit cash cost for our selfprocessed marble slabs (calculated as the sum of mining operating cash cost, slab processing cost and administrative and selling expenses) is estimated to be approximately RMB124 per m[2] , based on a slabblock ratio of 33.7, and our unit cash cost for marble slabs processed by third-party contractors (calculated as the sum of mining operating cash cost, contractor charges, transportation cost and administrative and selling expenses) is estimated to be approximately RMB131 per m[2] in 2014.

Product mix

As at the Latest Practicable Date, we entered into contracts to sell one-side-polished marble slabs to construction material suppliers, which in turn are expected to sell to property developers and construction companies. Where the market requires and if we deem commercially sensible, we may also sell marble blocks to third-party stone processing plants. Sales of marble slabs which are processed from our marble blocks usually generate higher margins than those generated from sales of marble blocks. Prior to the commencement of the commercial operations of our processing facilities, we engage thirdparty processing plants to process our marble blocks to marble slabs for sale. We expect to incur lower costs when processing marble slabs in our processing facilities than when engaging third-party stone processing factories to produce marble slabs for us.

We commenced commercial production at our Zhangjiaba Mine in September 2010. During the period from September to December 2010, we mined a total of 1,145 m[3] of marble blocks. During the same period, we sold a total of 3,000 m[2] of Pure Beige marble slabs, 9,000 m[2] of Mixed Beige marble

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FINANCIAL INFORMATION

slabs and 24 m[3] of marble blocks. The following table sets forth the sales volume, the revenue and the average selling price by product from 1 September 2010 to 3 January 2011, pursuant to a short-term sales contract of marble slabs we entered into with a construction material trading company in September 2010 and two individual transactions of marble blocks we entered into with two independent third parties who are engaged in stone processing:

1 September 2010 to 30 November 2010 Sales volume (m3 (blocks)/m2 (slabs)) . . . . . . . . . . . . . . Revenue (RMB in millions) . . . . . . . . . . . . . . . . . . . . . Average selling price (RMB/m3 (blocks)/ RMB/m2 (slabs))Note . . . . . . . . . . . . . . . . . . . . . . . . 1 December 2010 to 3 January 2011 Sales volume (m3 (blocks)/m2 (slabs)) . . . . . . . . . . . . . . Revenue (RMB in millions) . . . . . . . . . . . . . . . . . . . . . Average selling price (RMB/m3 (blocks)/ RMB/m2 (slabs))Note . . . . . . . . . . . . . . . . . . . . . . . . 1 September 2010 to 3 January 2011 Sales volume (m3 (blocks)/m2 (slabs)) . . . . . . . . . . . . . . Revenue (RMB in millions) . . . . . . . . . . . . . . . . . . . . . Average selling price (RMB/m3 (blocks)/ RMB/m2 (slabs))Note . . . . . . . . . . . . . . . . . . . . . . . .		Marble Slabs	Total 3,000 1.69 563 9,000 4.85 538 12,000 6.54 545	Marble Blocks
	Pure Beige 1,000 0.72 720 2,000 1.44 720 3,000 2.16 720	Mixed Beige 2,000 0.97 487 7,000 3.41 487 9,000 4.38 487
				24 0.08 3,414 — — — 24 0.08 3,414

Note: The average selling price is calculated by dividing the revenue by the corresponding sales volume.

Following the ramp-up of our marble slab processing capacity, we plan to reduce the volume of marble blocks sold to third-party processing plants as well as the marble slabs outsourced to thirdparties for processing to focus on sales of marble slabs that are processed in our own facilities. As a result, we believe that we will be able to generate higher profit margins upon ramp-up of our processing capacity.

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FINANCIAL INFORMATION

Economic growth and industry policy in the PRC

Demand for our decorative surfacing marble products is directly related to the level of activities in both private-sector and public-sector construction industries. Construction activities tend to increase when economies are strong, interest rates are favorable, government spending is encouraging and consumers feel confident in the overall economy. In recent years, China has become an important market, and its influence on the global stone industry, including marble, has been increasing. The demand for the high-end decorative surfacing marble products is primarily affected by the growth of the commercial real estate development industries in China, which could in turn be affected by a number of factors, such as the strength of the commercial and residential property markets, the level of disposable income, consumer confidence, unemployment rate, interest rates, credit availability and volatility in the stock markets. In addition, as a result of a loss of government funding, or a protracted delay or a significant reduction in national or provincial budgets, spending on publicly funded construction will also be reduced significantly. See the section headed ‘‘Industry Overview’’ in this document for further details of factors that could affect the demand for our products in the PRC and thus, our revenue and profits.

The PRC local, provincial and central authorities exercise a substantial degree of control over the mining industry in China. Our operations are subject to a range of PRC laws, regulations, policies, standards and requirements in relation to, among other things, mine exploration, development, production, taxation, labor, occupational health and safety, waste treatment and environmental protection and operation management. The PRC Government has full authority to grant, renew and terminate exploration, mining and production permits. While we expect to be able to renew our mining and production permits, if for any reason we are unable to do so, our results of operations would be materially and adversely affected.

Critical Accounting Policies and Estimates

Our principal accounting policies are set forth in Section II Note 3.3 to the Accountants’ Report as set out in Appendix I to this document. IFRS requires that we adopt accounting policies and make estimates and assumptions that our management believes are most appropriate in the circumstances for the purposes of giving a true and fair view of our results and financial condition. The preparation of our financial information requires management to make significant estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, the inherent uncertainty of these significant assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets and liabilities affected in the future. We have identified below the accounting policies that we believe are the most critical to our Consolidated Financial Information and that involve the most significant estimate.

Goodwill impairment

We determine the impairment of goodwill on an annual basis or more frequently, if necessary. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. The value in use requires us to estimate the expected future cash flows from the cash-generating units and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill as at 31 December 2008 and 2009 and 30 November 2010 was RMB3.0 million.

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FINANCIAL INFORMATION

Useful lives of property, plant and equipment

We estimate the useful lives and related depreciation charges for items of property, plant and equipment. This estimation is based on the historical experience of the actual useful lives of items of property, plant and equipment of similar nature and functions. It could change significantly as a result of technical innovations and actions of our competitors. Our management will increase the depreciation charge where useful lives are less than previously estimated, or we will record reserve for technically obsolete assets that have been abandoned.

Impairment of non-financial assets (other than goodwill)

We assess each cash-generating unit annually to determine whether there is any indication of impairment. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made, which is considered to be the higher of the fair value less costs to sell and value in use. The carrying amount of the property, plant and equipment, including mining infrastructure, and mining rights, are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with the relevant accounting policy. Estimating the value in use requires us to estimate future cash flows from the cash-generating units and to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amounts of property, plant and equipment as at 31 December 2008 and 2009 and 30 November 2010 were RMB16.1 million and RMB23.8 million and RMB83.3 million, respectively. The carrying amounts of mining rights as at 31 December 2008 and 2009 and 30 November 2010 were RMB21.4 million and RMB23.7 million and RMB23.7 million, respectively.

Mine reserves

Due to the significant degree of judgment involved in the estimation of our mine reserves the estimated amounts are inherently imprecise and represent only approximate amounts. Authoritative guidelines regarding the engineering criteria have to be met before estimated mine reserves can be designated as ‘‘proved’’ and ‘‘probable.’’ Proved and probable mine reserve estimates are updated on regular intervals taking into account recent production and technical information of mine. In addition, as prices and cost levels change from year to year, estimations for proved and probable mine reserves also changes. This change is considered as a change in estimate for accounting purposes and is reflected on a prospective basis in both depreciation and amortization rates calculated on a units of production basis, and the time period for discounting the rehabilitation provision. Changes in the estimations for mine reserves are also taken into account in impairment assessments of non-current assets.

Deferred tax assets

Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that sufficient taxable profit will be available against which the deductible temporary differences can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based on the likely timing and level of future taxable profits together with future tax planning strategies. The carrying amounts of deferred tax assets as at 31 December 2008 and 2009 and 30 November 2010 were RMB629,000 and RMB852,000 and RMB5.0 million, respectively.

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FINANCIAL INFORMATION

Description of Components of Results of Operations

Revenue

Revenue represents the net invoice value of goods sold, net of VAT, trade discounts and returns and various types of government surcharges, where applicable. Revenue from the sale of goods is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods. As we focused on mine planning, construction and infrastructure development and only commenced commercial production in September 2010, there was no revenue, trade discount or returns prior to September 2010. For the eleven months ended 30 November 2010, our revenue was RMB1.8 million.

Cost of sales

Our cost of sales mainly includes energy costs, staff costs and retirement benefit scheme contributions, depreciation and amortization of land use rights and mining rights, auxiliary materials used in the production process, environmental protection fees, production safety fees and other production costs. We did not incur any cost of sales for the period from 14 March 2008 to 31 December 2008 and the year ended 31 December 2009 prior to the commencement of our commercial production in September 2010. For the eleven months ended 30 November 2010, our cost of sales was RMB0.7 million.

Other income

During the Track Record Period, we had other income, representing the interests of our interestbearing bank deposits. We recorded other income of RMB3,000, RMB2,000 and RMB31,000 for the period from 14 March 2008 to 31 December 2008, the year ended 31 December 2009 and the eleven months ended 30 November 2010, respectively.

Selling and distribution costs

Selling and distribution costs mainly represent costs related to transportation, sample costs, staff costs and other costs. We incurred selling and distribution costs of RMB63,000, RMB270,000 and RMB472,000 for the period from 14 March 2008 to 31 December 2008, the year ended 31 December 2009 and the eleven months ended 30 November 2010, respectively.

Administrative expenses

Administrative expenses mainly represent costs related to staff costs, office charges, consultation and service fees, entertainment costs, taxes other than income tax and other expenses, including provisions for individual income tax in relation to interests on certain borrowings provided by independent third-party individuals. We incurred administrative expenses of RMB1.2 million, RMB2.6 million and RMB23.1 million for the period from 14 March 2008 to 31 December 2008, the year ended 31 December 2009 and the eleven months ended 30 November 2010, respectively.

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FINANCIAL INFORMATION

Other expenses

Our other expenses historically mainly represented our donation for the Sichuan earthquake in May 2008 and loss on disposal of items of property, plant and equipment. We incurred other expenses of RMB720,000, RMB690,000 and RMB728,000 for the period from 14 March 2008 to 31 December 2008, the year ended 31 December 2009 and the eleven months ended 30 November 2010, respectively.

Finance costs

Finance costs represent interest and surcharges on our borrowings. We incurred finance costs of RMB25,000, RMB2.0 million and RMB2.1 million for the period from 14 March 2008 to 31 December 2008, the year ended 31 December 2009 and the eleven months ended 30 November 2010, respectively.

Income tax benefit

Income tax benefit represents current and deferred tax. Income tax benefit is recognized in the consolidated statements of comprehensive income, or in equity if it relates to items that are recognized in the same or a different period directly in equity.

Under the rules and regulations of the Cayman Islands and BVI, we are not subject to any income tax in the Cayman Islands and BVI. We have not made any provisions for Hong Kong profits tax as we had no assessable profits derived from or earned in Hong Kong during the Track Record Period.

On 16 March 2007, the PRC Government promulgated the EIT Law and, on 6 December 2007, the State Council of the PRC issued Implementation Regulations. Under the EIT Law and the Implementation Regulations, effective 1 January 2008, a unified EIT rate is set at 25% for both domestic enterprises and foreign invested enterprises. As a result, our PRC subsidiaries are subject to PRC income tax at a tax rate of 25% for the period from 14 March 2008 to 31 December 2008, the year ended 31 December 2009 and the eleven months ended 30 November 2010.

We recorded income tax benefit of RMB253,000, RMB241,000 and RMB4.1 million for the period from 14 March 2008 to 31 December 2008, the year ended 31 December 2009 and the eleven months ended 30 November 2010, respectively.

Results of Operations

Eleven months ended 30 November 2010 compared with eleven months ended 30 November 2009

Revenue

For the eleven months ended 30 November 2009, as we focused on mine planning, construction and infrastructure development, we did not generate revenue from our operations. Because we commenced commercial production in September 2010, we had revenue of RMB1.8 million for the eleven months ended 30 November 2010.

Cost of sales

For the eleven months ended 30 November 2009, we did not incur any cost of sales prior to the commencement of our commercial production in September 2010. Consequently, for the eleven months ended 30 November 2010, we incurred cost of sales of RMB0.7 million.

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FINANCIAL INFORMATION

Gross profit

For the eleven months ended 30 November 2009, we did not record gross profit because we have not commenced commercial production. For the eleven months ended 30 November 2010, we had gross profit of RMB1.1 million.

Other income

Our other income increased from RMB2,000 for the eleven months ended 30 November 2009 to RMB31,000 for the eleven months ended 30 November 2010 due to increased interest income as a result of the increase in bank deposits.

Selling and distribution costs

Our selling and distribution costs increased from RMB244,000 for the eleven months ended 30 November 2009 to RMB472,000 for the eleven months ended 30 November 2010. The increase was primarily due to the increase in advertisement of our products prior to our commercial production as well as staff costs.

Administrative expenses

Our administrative expenses increased from RMB2.2 million for the eleven months ended 30 November 2009 to RMB23.1 million for the eleven months ended 30 November 2010. The increase was primarily due to the increase in consultation and service fees in relation to [.] and staff costs as a result of our business expansion.

Other expenses

Our other expenses increased from RMB203,000 for the eleven months ended 30 November 2009 to RMB728,000 for the eleven months ended 30 November 2010. The increase was primarily due to foreign exchange losses incurred as a result of the depreciation of U.S. dollars during the eleven months ended 30 November 2010.

Finance costs

Our finance costs increased from RMB1.8 million for the eleven months ended 30 November 2009 to RMB2.1 million for the eleven months ended 30 November 2010. The increase was primarily due to the increase in interest on loans as a result of the increase in the average balance of interest-bearing borrowings.

Income tax benefit

Our income tax benefit increased from RMB193,000 for the eleven months ended 30 November 2009 to RMB4.1 million for the eleven months ended 30 November 2010 due to an increase in loss before tax during the respective period.

Loss for the period

As a result of the foregoing factors, our loss increased from RMB4.2 million for the eleven months ended 30 November 2009 to RMB21.2 million for the eleven months ended 30 November 2010.

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FINANCIAL INFORMATION

Year ended 31 December 2009 compared with period from 14 March 2008 to 31 December 2008

As a result of merger accounting, the financial statements of Sichuan Jinshida, the only PRC operating subsidiary having financial records within our Company during the Track Record Period, are included in our Consolidated Financial Information as if the consolidation had occurred from 14 March 2008 when Sichuan Jinshida first came under control of our [.]. As the [.] obtained the control over Sichuan Jinshida on 14 March 2008 and there were no transactions between 1 January 2008 to 13 March 2008 impacting the financial information, the financial information is presented from 14 March 2008. As a result, the comparisons of our operating results for the period from 14 March 2008 to 31 December 2008 and the year ended 31 December 2009 may not be meaningful.

Revenue

During the period from 14 March 2008 to 31 December 2008 and the year ended 31 December 2009, as we focused on mine planning, construction and infrastructure development and only commenced commercial production in September 2010, we did not generate revenue from our operations.

Cost of sales

During the period from 14 March 2008 to 31 December 2008 and the year ended 31 December 2009, we did not incur any cost of sales prior to the commencement of our commercial production in September 2010.

Other income

We recorded other income of RMB3,000 for the period from 14 March 2008 to 31 December 2008 and RMB2,000 for the year ended 31 December 2009, which were interests from bank deposits.

Selling and distribution costs

We incurred selling and distribution costs of RMB63,000 for the period from 14 March 2008 to 31 December 2008 and RMB270,000 for the year ended 31 December 2009. Our selling and distribution costs in both periods mainly consisted of sample costs and related costs, such as transportation fees and staff costs.

Administrative expenses

We incurred administrative expenses of RMB1.2 million for the period from 14 March 2008 to 31 December 2008 and RMB2.6 million for the year ended 31 December 2009, mainly as a result of our business expansion in 2009, which required more administrative activities during the respective year. We incurred more administrative expenses in 2009 due to the increase in consultation and service fees in relation to (i) obtaining clearance on environmental protection, production safety and air pollution prevention for trial production and (ii) provisions for individual income tax in relation to interests on certain borrowings provided by independent third-party individuals. These borrowings have been repaid in full in June 2010.

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FINANCIAL INFORMATION

Other expenses

We incurred other expenses of RMB720,000 for the period from 14 March 2008 to 31 December 2008 and RMB690,000 for the year ended 31 December 2009. The other expenses for the period from 14 March 2008 to 31 December 2008 included the donation we made during Sichuan earthquake in May 2008 and the losses on disposal of items of property, plant and equipment. We also incurred loss on disposal of an old equipment of RMB666,000 in 2009.

Finance costs

We incurred finance costs of RMB25,000 for the period from 14 March 2008 to 31 December 2008 and RMB2.0 million for the year ended 31 December 2009. The significant change was primarily due to the increase in interest on loans as a result of the increase in the average balance of interestbearing borrowings and the increase in the interest rate in 2009.

Income tax benefit

We recorded income tax benefit of RMB253,000 for the period from 14 March 2008 to 31 December 2008 and RMB241,000 for the year ended 31 December 2009 due to an increase in loss resulted from increased expenses in 2009.

Loss for the year/period

As a result of the foregoing factors, we incurred loss of RMB1.8 million for the period from 14 March 2008 to 31 December 2008 and RMB5.4 million for the year ended 31 December 2009.

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FINANCIAL INFORMATION

Liquidity and Capital Resources

Our primary uses of liquidity are to invest in the development of our mine, to service our indebtedness and to fund our working capital. As at the Latest Practicable Date, we financed our cash requirements through a combination of advances from the [.], interest-bearing bank borrowings, cash generated from operating activities, capital contributions by Wongs Investment using the proceeds from the issuance of the Exchangeable Note and other debt financing.

Cash flows

The following table sets forth a summary of our cash flows information for the periods indicated:

Cash and cash equivalents at beginning of the year/period . . . . . Net cash flows used in operating activities . . . . . . . . . . . . . . . . . . . Net cash flows used in investing activities . . . . . . . . . . . . . . . . . . . Net cash flows from financing activities . . . . . . . . . . . . . . . . . . . Net increase/(decrease) in cash and cash equivalents. . . . . . . . . . . . . . Net foreign exchange difference . . . . Cash and cash equivalents at end of the year/period. . . . . . . . . . . . . . .	Period from 14 March to 31 DecemberNote 2008 972 (1,588) (6,440) 7,795 (233) — 739	Year ended 31 December Eleven months ended 30 November 2009 2009 2010 (RMB’000) 739 739 5,670 (1,966) (1,802) (19,178) (12,489) (10,661) (64,412) 19,386 11,847 167,209 4,931 (616) 83,619 — — (2,548) 5,670 123 86,741

Operating activities

Net cash outflows from operating activities for the eleven months ended 30 November 2010 were RMB19.2 million primarily as a result of a loss before tax for the period in the amount of RMB25.4 million, and adjusted for: (i) an interest on borrowings at RMB2.0 million primarily due to an increase in the balance of borrowing required for our business development; (ii) an increase in other payables and accruals of RMB5.7 million; and (iii) an increase in amount due from Wongs Investment of RMB1.3 million.

Net cash outflows from operating activities for the year ended 31 December 2009 were RMB2.0 million, primarily as a result of a loss before tax for the year in the amount of RMB5.6 million and adjusted for: (i) an interest on borrowings of RMB1.9 million primarily due to an increase in the balance of borrowings required for our business development; (ii) an increase in other payables and accruals of RMB964,000 primarily due to the accrual for staff cost; (iii) depreciation of property, plant and equipment of RMB873,000; (iv) depreciation of property, plant and equipment capitalized of RMB793,000; and (v) loss on disposal of items of property, plant and equipment of RMB666,000.

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FINANCIAL INFORMATION

Net cash outflows from operating activities for the period from 14 March 2008 to 31 December 2008 were RMB1.6 million, primarily as a result of a loss before tax for the period in the amount of RMB2.0 million and adjusted for: (i) loss on disposal of items of property, plant and equipment of RMB337,000; (ii) increase in other payables and accruals of RMB64,000; and (iii) increase in prepayments, deposits and other receivables of RMB61,000.

Investing activities

Net cash flows used in investing activities for the eleven months ended 30 November 2010 were RMB64.4 million due to purchase of items of property, plant and equipment of RMB62.2 million.

Net cash flows used in investing activities for the year ended 31 December 2009 were RMB12.5 million primarily due to: (i) purchase of items of property, plant and equipment of RMB11.5 million; and (ii) payment of mining rights premium of RMB2.3 million relating to the Zhangjiaba Mine; partly offset by proceeds from disposal of items of property, plant and equipment of RMB1.1 million. We received proceeds from government grants of RMB230,000 for the year ended 31 December 2009, which were granted by the local government for supporting the business development of Sichuan Jinshida under a post-earthquake restoration and reconstruction program launched by the local government.

Net cash flows used in investing activities for the period from 14 March 2008 to 31 December 2008 were RMB6.4 million due to purchase of items of property, plant and equipment of RMB6.5 million.

Financing activities

Net cash inflows from financing activities were RMB167.2 million for the eleven months ended 30 November 2010. Our cash inflows from financing activities during the period primarily consisted of: (i) capital injection of RMB143.4 million; (ii) advances from our [.] of RMB52.3 million to support our mine development; and (iii) proceeds from interest-bearing borrowings of RMB70.0 million; partly offset by (i) repayment of interest-bearing borrowings of RMB11.9 million; (ii) repayment to the [.] of RMB79.7 million; and (iii) payment of [.] of RMB4.9 million.

Net cash inflows from financing activities were RMB19.4 million for the year ended 31 December 2009. Our cash inflow from financing activities during the year primarily consisted of: (i) proceeds from interest-bearing borrowings of RMB11.1 million; and (ii) increase in amounts due to our [.] of RMB10.2 million due to advances from our [.] for the financial support of our mine development; partly offset by interest and guarantee costs paid of RMB1.9 million.

Net cash inflows from financing activities were RMB7.8 million for the period from 14 March 2008 to 31 December 2008. Our cash inflow from financing activities during the period primarily consisted of: (i) advances from our [.] of RMB7.0 million for the financial support of our mine development; and (ii) proceeds from interest-bearing borrowings of RMB0.8 million.

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FINANCIAL INFORMATION

Working Capital

Taking into account the financial resources available to us, including the capital injection of RMB143.4 million from our [.], revenue generated from our operations following the commencement of commercial production of our Zhangjiaba Mine and the estimated proceeds from the [.], and in the absence of unforeseen circumstances, our Directors are of the opinion that we have available sufficient working capital for 125% of our present requirements, that is for at least 12 months from the date of this document.

Discussion of Certain Items from the Statements of Financial Position

Intangible assets

The below table sets forth the net book value of our intangible assets as at each of the dates indicated:

Net carrying amount: As at 14 March 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . As at 31 December 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . As at 31 December 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . As at 30 November 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	Mining rights
	(RMB’000) 21,360
	21,360
	23,677
	23,676

Our mining rights represent rights for the mining of marble reserves in our Zhangjiaba Mine located in Jiangyou County, Sichuan Province, China. The Zhangjiaba Mine is operated by Sichuan Jinshida. The local government granted the mining permit to Sichuan Jinshida, expiring on 1 June 2017. The estimated useful life of the mining right is based on its unexpired period. No amortization was made before we commenced commercial production in September 2010.

We obtained the mining rights with permitted mining area of 0.289 km[2] as a result of our acquisition of Sichuan Jinshida in March 2008. In January 2009, we applied to further expand the total permitted mining area of our Zhangjiaba Mine from 0.289 km[2] to 0.495 km[2] . In 2009, we applied to change the nature of our mine from cement aggregates to both decorative surfacing stones and cement aggregates. The application was approved in August 2009. As a result, the net book value of our intangible assets increased in 2009. In February 2011, we obtained our current mining permit covers an area of 0.44 km[2] within an elevation from 590 m to 938 m above MSL. Our mining permit for the Zhangjiaba Mine will expire in 2021 and is renewable upon expiration subject to certain statutory requirements and conditions.

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FINANCIAL INFORMATION

Prepayments, deposits and other receivables

Our prepayments, deposits and other receivables represent prepayment for purchase of raw materials and utilities, deferred [.] costs, prepaid operating lease rentals, short-term deposits and other receivables. The following table sets forth the details of our prepayments, deposits and other receivables as at the dates indicated:

Prepayments for purchase of: — Raw materials. . . . . . . . . . . . . . . . . . . . . . . . . — Utilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — Deferred [.] costs . . . . . . . . . . . . . . . . . . . . . . Prepaid operating lease rentals to be amortized within one year — Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deductable VAT . . . . . . . . . . . . . . . . . . . . . . . . . . Other receivables. . . . . . . . . . . . . . . . . . . . . . . . . . Total current portion. . . . . . . . . . . . . . . . . . . . . .	As at 31 December 2008 2009 (RMB’000) 7 87 10 68 — — 21 30 108 102 — — 186 135 332 422	As at 30 November
	2008 7 10 — 21 108 — 186 332	2010
		267 133 4,863 44 — 3,946 584
		9,837

The carrying amounts of prepayments, deposits and other receivables closely approximate their respective fair values. Deferred [.] costs represent legal and other professional fees relating to [.], which will be deducted from equity when the Company completes the [.]. None of our prepayment, deposits and other receivables is past due or impaired. The financial assets included in the table above relate to receivables for which there was no recent history of default.

As at 30 November 2010, prepayments and other receivables mainly represent deferred [.] costs amounting to RMB4.9 million. Deferred [.] costs represent legal and other professional fees relating to the [.] which will be deducted from equity when we complete the [.].

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FINANCIAL INFORMATION

Other payables and accruals

Our other payables and accruals mainly consist of accrual for the acquisition of property, plants and equipment and payroll and employee welfare payable to our employees as well as provisions for outstanding housing fund and social insurance. The following table sets forth the details of our other payables and accruals as at each of the dates indicated:

Advances from customers . . . . . . . . . . . . . . . . . . . . Accruals related to: — Property, plant and equipment. . . . . . . . . . . . . . — Taxes other than income tax . . . . . . . . . . . . . . . — Payroll and welfare . . . . . . . . . . . . . . . . . . . . . — Interest of borrowings . . . . . . . . . . . . . . . . . . . — [.] costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . Deposits received . . . . . . . . . . . . . . . . . . . . . . . . . Payable for rehabilitation . . . . . . . . . . . . . . . . . . . . Other payables . . . . . . . . . . . . . . . . . . . . . . . . . . .	As at 31 December 2008 2009 (RMB’000) 97 97 2,967 1,758 37 423 559 1,368 22 155 — — 400 100 2,100 1,400 26 95 6,208 5,396	As at 30 November
	2008 97 2,967 37 559 22 — 400 2,100 26 6,208	2010
		116 3,589 578 3,161 227 3,786 176 1,302 103
		13,038

Our other payable and accruals are non-interest-bearing and have average terms of one to three months. The carrying amounts of other payables and accruals approximate to their fair value.

The accrual for property, plant and equipment decreased from RMB3.0 million as at 31 December 2008 to RMB1.8 million as at 31 December 2009 because we made certain payments in 2009. The accrual for payroll and welfare increased from RMB0.6 million as at 31 December 2008 to RMB1.4 million as at 31 December 2009 due to the significant increase in the numbers of our construction workers at our Zhangjiaba Mine in 2009.

The accrual for property, plant and equipment increased from RMB1.8 million as at 31 December 2009 to RMB3.6 million as at 30 November 2010 due to increased purchase of fixed assets in 2010. The accrual for payroll and welfare increased from RMB1.4 million as at 31 December 2009 to RMB3.2 million as at 30 November 2010 due to our recruitment of senior management and directors in 2010. As at 30 November 2010, we also had accrual related to [.] costs of RMB3.8 million, mainly consisting of consultation and service fees in relation to our proposed [.] of the Shares on the [.].

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FINANCIAL INFORMATION

Interest-bearing borrowings

The following table sets forth the details of our interest-bearing borrowings as at each of the dates indicated:

Repayable within one year: Bank loans — Unsecured . . . . . . . . . . . . . . . . . . . . . . . . . — Secured and guaranteed . . . . . . . . . . . . . . . . Other borrowings — Unsecured . . . . . . . . . . . . . . . . . . . . . . . . .	As at 31 December 2008 2009 (RMB’000) — — — 4,000 800 7,860 800 11,860	As at 30 November
	2008 — — 800 800	2010
		70,000 — —
		70,000

As at 31 December 2008, 31 December 2009 and 30 November 2010, our interest-bearing borrowings were denominated in RMB. The carrying amounts of our bank loans are approximate to their fair value.

As at 30 November 2010, our unsecured bank loans amounted to RMB70.0 million, which was borrowed from Guangdong Development Bank and China Construction Bank to repay the shareholder loans and bearing interest at fixed rates per annum in the range from 4.0% to 5.0%.

As at 31 December 2009, the bank loans bore interest at a fixed interest rate of 6.9% per annum and were guaranteed by Jiangyou Yintong Credit Guarantee Co., Ltd. (江油銀通信用擔保有限公司), which is a non-related party engaged in the guarantee business. In accordance with the guarantee agreement entered into among Sichuan Jinshida, Jiangyou Yintong Credit Guarantee Co., Ltd. and Jiucheng Mining, a related party of the Company, Sichuan Jinshida agreed to pay guarantee costs at a rate of 2% on the guaranteed loan principal, and to secure certain property, plant and equipment with a net book value of RMB5.0 million to Jiangyou Yintong Credit Guarantee Co., Ltd.; and Jiucheng Mining agreed to provide a counter-guarantee to Jiangyou Yintong Credit Guarantee Co., Ltd. free of charge. The guarantee was released in August 2010 when we fully repaid those bank loans.

We obtained guarantees from independent third parties during the Track Record Period. As a general practice in China, local commercial banks require guarantees from guarantee companies as a condition to provide bank loans to borrowers with limited scale of business operation. As our mine was in an early stage of development during the Track Record Period and we did not have sufficient assets that are acceptable to the commercial banks as collaterals, we had used third-party guarantees for the purposes of obtaining loans. These guarantees were fully released in August 2010. We do not expect to obtain guarantees from third parties after the [.].

The other borrowings were borrowed from 13 individuals who are independent third parties, and bore interest at a fixed interest rate of 36% per annum. Such borrowings were provided through these individuals’ personal funds. Our [.], Mr. Huang, has entered into a financial support agreement with the Company, under which his provision of funds is subject to the availability of his personal funds. There is no assurance that we may obtain any funding of any amount at any time as we may need from Mr. Huang. During the period when Sichuan Jinshida was in its initial stage of development in 2007 and had little assets to be used as collateral to obtain bank loans, we had sought for alternative sources of

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FINANCIAL INFORMATION

funding, including personal loans from these Independent Third Parties, to finance its capital needs. We have not paid any individual income tax in relation to interests on these borrowings but has made provisions of approximately RMB4,000, RMB365,000 and RMB142,000 as at 31 December 2008, 31 December 2009 and 30 November 2010, respectively. The other borrowings were fully repaid in June 2010.

We have not experienced any default or withdrawal or request for early repayment of bank borrowings during the Track Record Period.

Current assets and current liabilities

The table below sets forth the breakdown of our current assets and current liabilities as at each of the statement of financial position dates:

Current assets Cash and bank balances . . . . . . . . . . Trade receivables . . . . . . . . . . . . . . Prepayments, deposits and other receivable . . . . . . . . . . . . . . . . . . Inventories . . . . . . . . . . . . . . . . . . . Due from Wongs Investment. . . . . . . Current liabilities Interest-bearing borrowings. . . . . . . . Trade payables . . . . . . . . . . . . . . . . Other payables and accruals . . . . . . . Tax payable . . . . . . . . . . . . . . . . . . Due to the [.] . . . . . . . . . . . . . . . . . Net current assets/(liabilities) . . . . .	As at 31 December As at 30 November 2008 2009 2010 (RMB’000) 739 5,670 86,741 — — — 332 422 9,837 — — 712 — — 1,265 1,071 6,092 98,555 800 11,860 70,000 — — 124 6,208 5,396 13,038 — — — 17,200 27,419 — 24,208 44,675 83,162 (23,137) (38,583) 15,393	As at 31 January 2011, the latest practicable date for the purpose of this confirmation
	2008 739 — 332 — — 1,071 800 — 6,208 — 17,200 24,208 (23,137)
		(unaudited) 103,856 675 14,082 1,901 —
		120,514
		99,295 994 14,622 183 —
		115,094
		5,420

During the Track Record Period, we focused our business activities on mine planning and construction, and infrastructure development. Because we only recently commenced commercial production, we did not generate any revenue until October 2010. As a result, we recorded net current liabilities as at 31 December 2008 and 2009 and, as at 30 November 2010, we had net current assets of RMB15.4 million mainly because we received capital contributions from Wongs Investment using the proceeds from the issuance of the Exchangeable Note and generated revenue from sales of our marble products.

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FINANCIAL INFORMATION

Related Party Transactions

During the Track Record Period, Jiucheng Mining, a related party controlled by the [.] of the Company, provided a counter-guarantee free of charge, to a third-party guarantee company, who provided guarantee for our Company’s bank loans with a carrying amount of RMB4.0 million as at 31 December 2009. The Directors consider the counter-guarantee provided by the related party was conducted based on terms more favorable than terms available from an Independent Third Party. These guarantees were fully released in August 2010 and the Company does not expect to obtain guarantees from third parties after the [.].

Pursuant to a financial support agreement between Mr. Huang and Sichuan Jinshida dated 1 April 2008, Mr. Huang agreed, but is not obliged, to provide interest-free funding with a cap amount of RMB100.0 million to Sichuan Jianshida for its mining development for five years from 14 March 2008. The Directors consider the interest-free financial support provided by the [.] was conducted based on terms more favorable than terms available from an Independent Third Party.

Balances with the [.]

Balances with the [.] are interest-free, unsecured and have no fixed term of repayment. The carrying amounts of balances with the [.] approximate to their fair values. The balance with Wongs Investment as at 30 November 2010 has been fully settled in December 2010.

The related party transactions during the Track Record Period are also set out in Note 22 and 28 of the Accountants’ Report attached as Appendix I to this document.

Commitments and Contingent Liabilities

Capital commitments

We did not have capital commitments as at 31 December 2008 and 31 December 2009. As at 30 November 2010, we had capital commitment of RMB363,000 principally for the construction and purchase of property, plant and equipment.

Operating lease arrangements

We lease certain land premises under operating lease arrangements, with lease terms negotiated ranging from eight to fifteen years with an option for renewal after that date, at which time all terms will be renegotiated. As at each of the statement of financial position dates, we had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year . . . . . . . . . . . . . . . . . . . . . . . . . . In the second to fifth years, inclusive . . . . . . . . . . . . After five years. . . . . . . . . . . . . . . . . . . . . . . . . . .	As at 31 December 2008 2009 (RMB’000) 14 27 100 173 180 259 294 459	As at 30 November
	2008 14 100 180 294	2010
		249 399 554
		1,202

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FINANCIAL INFORMATION

Contingent liabilities

On 13 August 2010, MS China 3 entered into a note purchase agreement (the ‘‘Note Purchase Agreement’’) with the Company, Mr. Huang and Wongs Investment, pursuant to which MS China 3 agreed to purchase a note in the aggregate principal amount of US$15.0 million issued by Wongs Investment on 19 August 2010, exchangeable into the Shares owned and held by Wongs Investment (the ‘‘Exchangeable Note’’).

Pursuant to the Note Purchase Agreement, the Company has agreed to indemnify each of MS China 3’s stakeholder and their respective directors, officers and agents (collectively, the ‘‘Indemnified Persons’’) against any losses, claims, damages, liabilities, judgments, fines, obligations, expenses and liabilities of any kind or nature whatsoever, including any investigative, legal and other expenses incurred in connection with, and any amounts paid in settlement of, any pending or threatened legal action or proceeding (collectively, ‘‘Losses’’) that any Indemnified Person may at any time become subject to or liable for in connection with claims by third parties by reason of the status of such stakeholder as stakeholder of the Company or of such director as a director of the Company, as the case may be, other than Losses arising from the gross negligence, willful misconduct, fraud or dishonesty of such Indemnified Person.

Moreover, the Company, Mr. Huang and Wongs Investment have agreed to jointly and severally indemnify, defend and hold harmless MS China 3 from and against any Losses resulting from or arising out of any claims against the Company or the Group relating to any tax liability that arose before the date hereof (whether or not (i) such claims have been disclosed to MS China 3, (ii) such claims arise before or after the date of the Note Purchase Agreement or (iii) MS China 3 has actual or constructive knowledge of such claims) for which full provision or reserve has not been made in the accounts and our management accounts as provided to MS China 3 prior to the date of the Note Purchase Agreement. All of our indemnity obligations will be terminated upon [.].

Except as disclosed above, we did not have any material contingent liabilities or guarantees as at 3 January 2011, the latest practicable date for the purposes of this confirmation.

Capital expenditures

We incurred capital expenditures for the construction, development, technology upgrade of the Zhangjiaba Mine and our marble slab processing facilities during the Track Record Period. The table below sets forth details of our capital expenditures for the dates indicated:

	Year ended 31 December	Year ended 31 December
2009 9,612 2,317 11,929	2010E (RMB’000) 64,816 2,398 67,214	2011E 225,207 70,626 295,833	2012E
			228,383 40,000
			268,383

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FINANCIAL INFORMATION

We commenced commercial production and revenue generating activities for the Zhangjiaba Mine in September 2010. As at the Latest Practicable Date, we financed the development of the Zhangjiaba Mine through a combination of advances from the [.], interest-bearing bank borrowings, cash generated from operating activities, capital contributions by Wongs Investment using the proceeds from the issuance of the Exchangeable Note and other debt financing.

Indebtedness

For details of our borrowings, see ‘‘— Discussion of Certain Items from the Statements of Financial Position — Interest-bearing borrowings.’’

As at 31 January 2011, being the latest practicable date for the purpose of this indebtedness statement, except as otherwise disclosed, we did not have any material changes in our indebtedness.

Off-balance sheet arrangements

We have not entered into any off-balance sheet arrangements or commitments to guarantee the payment obligations of any third parties. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing or hedging or research and development services with us.

Qualitative and quantitative disclosure about market risk

We are exposed to various types of market risks in the ordinary course of our business. The main risks arising from our financial instruments are liquidity risk, interest rate risk and credit risk. We manage our exposure to these and other market risks through regular operating and financial activities. The Board regularly reviews these risks and our financial risk management policy seeks to ensure that adequate resources are available to manage the market risks summarized below and to create value for our Shareholders.

Liquidity risk

We monitor our exposure to a shortage of funds by considering the maturity of both our financial instruments and financial assets and projected cash flows from operations. Our objective is to maintain a balance between continuity of funding and flexibility through the use of interest-bearing borrowings and advances from our [.].

Interest rate risk

Our exposure to interest rate risk relates primarily to our bank deposits and interest-bearing bank loans. The interest rates and terms of repayment of interest-bearing borrowings are disclosed in Section II Note 19 to the Accountants’ Report as set out in Appendix I to this document. We manage our interest rate exposure from all of our interest-bearing borrowings through the use of fixed rates.

In addition, we do not consider that we have any significant exposure to the risk of changes in market interest rates from our bank deposits as a reasonably possible change of 25 basis points in the interest rates would have no material impact on our consolidated statements of comprehensive income during the Track Record Period.

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FINANCIAL INFORMATION

Market price risk

The market prices for marble stones have a significant effect on our results of operation. The fluctuations in prices may be influenced by factors and events that are beyond our control.

Credit risk

We have no significant concentrations of credit risk. The carrying amounts of cash and cash equivalents and other receivables included in the consolidated statements of financial position represent our maximum exposure to credit risk in relation to our financial assets.

Our cash and cash equivalents are mainly deposits with state-owned banks in the PRC. The credit risk of our other financial assets, which comprise other receivables, arises from default of the counterparty, with a maximum exposure equal to the carrying amounts of these instruments. We have no other financial assets which carry significant exposure to credit risk.

During the Track Record Period, we had no concentration of credit risk with any single counterparty.

Foreign currency risk

Our exposure to foreign currency risk relates to our bank deposits denominated in U.S. dollars.

We have not entered into any hedging transactions to manage the potential fluctuation in foreign currencies. Management monitors our foreign currency exposure and will consider hedging significant foreign currency exposure when the needs arise.

The following table demonstrates the sensitivity to a 5.0% change in Renminbi against U.S. dollars. The 5.0% is the rate used when reporting currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in the foreign currency rate. The sensitivity analyses of our exposure to foreign currency risk at the end of each reporting period have been determined based on the adjustment of translation of the monetary assets at the end of each reporting period for a 5.0% of change in Renminbi against U.S. dollars, with all other variables held constant, of our profit before tax (due to changes in the fair value of cash and cash equivalents denominated in U.S. dollars).

Increase/(decrease) in profit before tax: If RMB weakens against US$ . . . . . . . If RMB strengthens against US$ . . . . .	Period from 14 March to 31 December 2008 RMB’000 — —	Year ended 31 December 2009 RMB’000 — —	Eleven months ended 30 November 2009 2010 RMB’000 RMB’000 — 3,390 — (3,390)
			2009 RMB’000 — —

Fair values

Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

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FINANCIAL INFORMATION

The carrying amounts of our financial instruments approximated to their fair values due to the short-term to maturity at each of the statement of financial position dates.

Capital management

Our objectives for managing capital are to safeguard our ability to continue as a going concern in order to provide returns for Shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, our Directors review the capital structure on a regular basis. During the early stages of our mine development, the equity holders of the Company contributed capital based on the needs of these entities. The dividend policy will be established when we start to generate revenues from its activities. Our management will regularly review the capital structure.

The primary objective of our capital management is to ensure that we maintain a strong credit rating and healthy capital ratios in order to support our business and maximize Shareholders’ value.

We manage our capital structure and make adjustments in accordance with changes in economic conditions. To maintain or adjust the capital structure, we may adjust the dividend payment to Shareholders or raise new capital from our investors.

No changes were made in the objectives, policies or processes for managing financial risk during the Track Record Period.

LOSS ESTIMATE FOR THE YEAR ENDED 31 DECEMBER 2010

The following loss estimate is based on the bases set out in ‘‘Appendix III — Loss Estimate’’ to this document.

Estimated consolidated loss attributable to owners of our Company[Note] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . HK$25.6 million (RMB22.0 million)

Note: The estimate consolidated loss attributable to owners of the Company for the year ended 31 December 2010 is extracted from ‘‘Financial information — Loss Estimate’’ section in the document. The bases on which the above loss estimate for the year ended 31 December 2010 had been prepared are summarized in Appendix III to this document.

DIVIDEND POLICY

Following completion of the [.], our Shareholders will be entitled to receive any dividends we declare. The payment and amount of any dividends will be at the discretion of the Board and will depend on our general business condition and strategies, cash flows, financial results and capital requirements, interests of our Shareholders, taxation conditions, statutory restrictions, and other factors that our Board deems relevant. The payment of any dividends will also be subject to the Companies Law and our constitutional documents, which indicate that payment of dividends out of our Share premium account is possible on the condition that we are able to pay our debts when they fall due in the ordinary course of business at the time the proposed dividends are to be paid.

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FINANCIAL INFORMATION

PRC GAAP less any recovery of accumulated losses and the required allocations to statutory reserves made by our PRC operating subsidiaries. In general, we will not declare dividends in a year where we do not have any distributable earnings.

DISTRIBUTABLE RESERVES

As at 30 November 2010, the aggregate amount of reserves available for distribution to our equity holders amounted to RMB127.4 million.

PROPERTY VALUATION

Jones Lang Lasalle Sallmanns Limited, an independent property valuer, has valued our property interests as at 31 December 2010. The text of the letter, summary of valuation and the summary valuation certificates are set out in Appendix IV to this document.

DIRECTORS’ CONFIRMATION ON NO MATERIAL ADVERSE CHANGE

As at the date of this document, our Directors confirm that there has been no material adverse change in the financial or trading positions or prospects of our Company since 30 November 2010, the date of the latest audited financial statements of our Company.

Our Directors confirm that they have performed sufficient due diligence on our Company to ensure that, up to the date of this document, there has been no material adverse change in our financial or trading position or prospects since 30 November 2010, and there has been no events since 30 November 2010 which would materially affect the information shown in the Accountants’ Report, the text of which is set out in Appendix I to this document.

– 170 –

FUTURE PLANS

Please refer to the sections headed ‘‘Business — Business Strategies’’ and ‘‘Business — Future Plans for Ramping-Up Mining and Processing Capacities’’ in this document for a detailed discussion of our future plans.

– 171 –

APPENDIX I

ACCOUNTANTS’ REPORT

[.] 2011

The Directors

China Kingstone Mining Holdings Limited

Dear Sirs,

We set out below our report on the financial information regarding China Kingstone Mining Holdings Limited (the ‘‘Company’’) and its subsidiaries (hereafter collectively referred to as the ‘‘Group’’), prepared on the basis set out in Note 2 of Section II below, for the period from 14 March 2008 (date of the business combination of the Group under common control) to 31 December 2008, the year ended 31 December 2009 and the eleven months ended 30 November 2010 (the ‘‘Relevant Periods’’) and the financial information for the eleven months ended 30 November 2009 (the ‘‘30 November 2009 Financial Information’’), for inclusion in the document of the Company dated [.] 2011 (the ‘‘document’’) in connection with the proposed [.] (the ‘‘[.]’’).

The Company was incorporated in the Cayman Islands on 29 March 2010 as an exempted company with limited liability under the Companies Law, Chapter 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. Pursuant to a group reorganization (the ‘‘Reorganization’’), details of which are further described in the ‘‘History and Corporate Development — Reorganization’’ section in the document, the Company became the holding company of the subsidiaries now comprising the Group. The Reorganization became effective on 30 July 2010.

The Group is principally engaged in the production and sale of marble stones and marble related products and started commercial production in September 2010.

– I-1 –

APPENDIX I

ACCOUNTANTS’ REPORT

Particulars of the subsidiaries of the Company at the date of this report are set out below:

Company name Subsidiaries Directly held: Kingstone Industrial Investment Limited(1), (3) (‘‘Kingstone Industrial’’) Indirectly held: Kingstone (HK) Group Limited(1), (3) (‘‘HK Kingstone’’) 金石(香港)集團有限公司 Kingstone (Guangzhou) Stone Industry Co., Ltd.(1), (3) (‘‘Guangzhou Kingstone’’) 金石(廣州)石業有限公司 Sichuan Jiangyou Golden Time Stone Co., Ltd.(2) (‘‘Sichuan Jinshida’’) 四川江油金時達石業有限公司	Place and date of incorporation/ registration British Virgin Islands 7 April 2010 Hong Kong 14 April 2010 People’s Republic of China (‘‘PRC’’) 26 May 2010 PRC 20 September 2005	Nominal value of issued and paid-up share/ registered paid-up capital US$50,000 HK$10,000 US$30,000,000 RMB10,000,000	Percentage of equity interests attributable to the Company % 100 100 100 100	Principal activities
				Investment holding Investment holding Investment holding Mining, development

Notes:

(1) As at the date of this report, no audited financial statements of these companies have been prepared since their dates of incorporation as these companies have not carried on any business other than the Reorganization described in the ‘‘History and Corporate Development — Reorganization’’ section in the document.
(2) The statutory financial statements of Sichuan Jinshida for the year ended 31 December 2008 were audited by Sichuan Sanzheng Certified Public Accountants Co., Ltd. (四川三正會計師事務所有限責任公司), certified public accountants registered in the PRC. The statutory financial statements of Sichuan Jinshida for the year ended 31 December 2009 were audited by Sichuan Huazheng Certified Public Accountants Co., Ltd. (四川華正會計師事務所有限責任公司), certified public accountants registered in the PRC.
(3) On 13 August 2010, MS China 3 Limited (‘‘MS China 3’’), an independent third party, entered into a note purchase agreement (the ‘‘Note Purchase Agreement’’) with the Company, the [.] of the Company and Wongs Investment Development Holdings Group Limited (‘‘Wongs Investment’’), the holding company of the Company, pursuant to which MS China 3 agreed to purchase a note in the aggregate principal amount of US$15 million issued by Wongs Investment, exchangeable into the shares of the Company owned and held by Wongs Investment (the ‘‘Exchangeable Note’’).

Pursuant to the Note Purchase Agreement, the shares of Wongs Investment, Kingstone Industrial, HK Kingstone, Guangzhou Kingstone and the Company are pledged to MS China 3 as the security of the Exchangeable Note. All such securities granted under the Note Purchase Agreement shall be fully released upon [.].

The English names of certain subsidiaries and auditors registered in the PRC represent the best efforts made by management of the Company to translate their Chinese names as they do not have official English names.

All the companies now comprising the Group have adopted 31 December as their financial year end date. As at the date of this report, no audited financial statements have been prepared by the Company since the date of its incorporation as it was newly incorporated and has not carried out any

– I-2 –

APPENDIX I

ACCOUNTANTS’ REPORT

business other than the Reorganization. The statutory audited financial statements of Sichuan Jinshida were prepared in accordance with generally accepted accounting principles and the relevant financial regulations of the PRC.

For the purpose of this report, the directors of the Company (the ‘‘Directors’’) have prepared the consolidated financial statements of the companies now comprising the Group for the Relevant Periods (the ‘‘IFRS Financial Statements’’) in accordance with International Financial Reporting Standards (‘‘IFRSs’’) issued by the International Accounting Standards Board (the ‘‘IASB’’).

The consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows of the Group for the Relevant Periods, and the consolidated statements of financial position of the Group as at 31 December 2008 and 2009 and 30 November 2010, and the statement of financial position of the Company as at 30 November 2010 together with the notes thereto (collectively the ‘‘Financial Information’’) have been prepared based on the IFRS Financial Statements on the basis set out in Note 2 under Section II ‘‘Notes to Financial Information’’ below, for the purpose of preparing this report for inclusion in the document.

The Directors are responsible for the preparation and the true and fair presentation of the Financial Information, the 30 November 2009 Financial Information and the contents of the document in which this report is included. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; and making accounting estimates that are reasonable in the circumstances. In preparing the Financial Information and the 30 November 2009 Financial Information, it is fundamental that appropriate accounting policies are selected and consistently applied.

It is our responsibility to form an independent opinion and a review conclusion, based on our audit and review on the Financial Information and the 30 November 2009 Financial Information, respectively, and to report our opinion and review conclusion thereon to you.

PROCEDURES PERFORMED IN RESPECT OF THE FINANCIAL INFORMATION

For the purpose of this report, we have carried out an independent audit on the Financial Information in accordance with Hong Kong Standards on Auditing (‘‘HKSAs’’) issued by the Hong Kong Institute of Certified Public Accountants (the ‘‘HKICPA’’), and have carried out such additional procedures as are necessary in accordance with Auditing Guideline 3.340 ‘‘Prospectuses and the Reporting Accountant’’ issued by the HKICPA. No adjustments were considered necessary to adjust the Financial Information in the preparation of this report for inclusion in the document.

PROCEDURES PERFORMED IN RESPECT OF THE 30 NOVEMBER 2009 FINANCIAL INFORMATION

For the purpose of this report, we have also performed a review of the 30 November 2009 Financial Information in accordance with Hong Kong Standard on Review Engagements 2410 ‘‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’’ issued by the HKICPA. A review consists of making enquiries, 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 HKSAs 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 on the 30 November 2009 Financial Information.

– I-3 –

APPENDIX I

ACCOUNTANTS’ REPORT

OPINION IN RESPECT OF THE FINANCIAL INFORMATION

In our opinion, the Financial Information prepared on the basis of presentation set out in Note 2 of Section II below gives, for the purpose of this report, a true and fair view of the consolidated results and cash flows of the Group for each of the Relevant Periods and of the state of affairs of the Group as at 31 December 2008 and 2009 and 30 November 2010 and of the Company as at 30 November 2010.

REVIEW CONCLUSION IN RESPECT OF THE 30 NOVEMBER 2009 FINANCIAL INFORMATION

Based on our review, which does not constitute an audit, nothing has come to our attention that causes us to believe that the 30 November 2009 Financial Information, for the purpose of this report and on the basis set out in note 2 of Section II below, does not give a true and fair view of the consolidated results and cash flows of the Group for the eleven months period ended 30 November 2009.

I. FINANCIAL INFORMATION

Consolidated statements of comprehensive income

Notes Revenue 5 Cost of sales Gross profit Other income 5 Selling and distribution costs Administrative expenses Other expenses Finance costs 6 Loss before tax 6 Income tax benefit 8 Loss for the year/period Other comprehensive loss: Exchange differences on translation of foreign operations Total comprehensive loss for the year/period attributable to owners of the Company Loss per share attributable to ordinary equity holders of the Company: — Basic 9	Period from 14 March to 31 December 2008 RMB’000 — — — 3 (63) (1,200) (720) (25) (2,005) 253 (1,752) — (1,752) N/A	Year ended 31 December 2009 RMB’000 — — — 2 (270) (2,610) (690) (2,042) (5,610) 241 (5,369) — (5,369) N/A	Eleven months ended 30 November 2009 2010 RMB’000 RMB’000 (Unaudited) — 1,771 — (717) — 1,054 2 31 (244) (472) (2,181) (23,134) (203) (728) (1,780) (2,129) (4,406) (25,378) 193 4,143 (4,213) (21,235) — (2,113) (4,213) (23,348) N/A N/A
			2009 RMB’000 (Unaudited) — — — 2 (244) (2,181) (203) (1,780) (4,406) 193 (4,213) — (4,213) N/A

– I-4 –

APPENDIX I

ACCOUNTANTS’ REPORT

Consolidated statements of financial position

Notes Non-current assets Property, plant and equipment 10 Intangible assets 11 Prepaid land lease payments 12 Goodwill 14 Current assets Cash and cash equivalents 16 Prepayments, deposits and other receivables 17 Inventories 18 Due from the holding company 22 Current liabilities Interest-bearing borrowings 19 Trade payables 20 Other payables and accruals 21 Due to the [.] 22 Net current assets/(liabilities) Total assets less current liabilities Non-current liabilities Deferred income 23 Deferred tax liabilities 15 Net assets Equity Equity attributable to owners of the Company Share capital 24 Reserves 25 Total equity	31 December 2008 2009 RMB’000 RMB’000 16,063 23,812 21,360 23,677 — — 2,966 2,966 40,389 50,455 739 5,670 332 422 — — — — 1,071 6,092 800 11,860 — — 6,208 5,396 17,200 27,419 24,208 44,675 (23,137) (38,583) 17,252 11,872 — 230 4,524 4,283 4,524 4,513 12,728 7,359 — — 12,728 7,359 12,728 7,359	30 November 2010
	2008 RMB’000 16,063 21,360 — 2,966 40,389 739 332 — — 1,071 800 — 6,208 17,200 24,208 (23,137) 17,252 — 4,524 4,524 12,728 — 12,728 12,728
		RMB’000 83,292 23,676 2,392 2,966
		112,326
		86,741 9,837 712 1,265
		98,555
		70,000 124 13,038 —
		83,162
		15,393
		127,719
		210 140
		350
		127,369
		— 127,369
		127,369

– I-5 –

APPENDIX I

ACCOUNTANTS’ REPORT

Consolidated statements of changes in equity

At 14 March 2008 Total comprehensive loss for the period At 31 December 2008 and 1 January 2009 Total comprehensive loss for the year At 31 December 2009 and 1 January 2010 Issue of ordinary share** Capital injection Total comprehensive loss for the period At 30 November 2010 (Unaudited) At 1 January 2009 Total comprehensive loss for the period At 30 November 2009	Share capital RMB’000 Note 24 — — — — — — — — — — — —	Capital reserve* RMB’000 Note 25(a) — — — — — — 143,358 — 143,358 — — —	Contributed reserve* RMB’000 Note 25(b) 14,480 — 14,480 — 14,480 — — — 14,480 14,480 — 14,480	Foreign currency translation reserve* RMB’000 — — — — — — — (2,113) (2,113) — — —	Accumulated losses* RMB’000 — (1,752) (1,752) (5,369) (7,121) — — (21,235) (28,356) (1,752) (4,213) (5,965)	Total equity RMB’000 14,480 (1,752) 12,728 (5,369) 7,359 — 143,358 (23,348) 127,369 12,728 (4,213) 8,515

These reserve accounts comprise the combined reserves in the consolidated statements of financial position.
** On 29 March 2010, the Company issued one share with a par value of HK$0.10.

– I-6 –

APPENDIX I

ACCOUNTANTS’ REPORT

Consolidated statements of cash flows

Notes Cash flows from operating activities Loss before tax Adjustments for: Depreciation of property, plant and equipment 6, 10 Less: Depreciation capitalized 6 Amortization of intangible assets 6 Amortization of prepaid land lease payments 6 Loss on disposal of items of property, plant and equipment 6 Interest on borrowings 6 Guarantee costs 6 Foreign exchange loss 6 Interest income 5 Deferred income released Increase in prepayments, deposits and other receivables Increase in inventories Increase in trade payables Increase in amount due from the holding company Increase in other payables and accruals Net cash flows used in operating activities Cash flows from investing activities Purchase of items of property, plant and equipment Proceeds from disposal of items of property, plant and equipment Purchase of mining rights Payment for prepaid land lease payments Proceeds from government grants* Interest received Net cash flows used in investing activities	Period from 14 March to 31 December 2008 RMB’000 (2,005) 345 (287) 58 — — 337 22 — — (3) — (1,591) (61) — — — 64 (1,588) (6,503) 60 — — — 3 (6,440)	Year ended 31 December 2009 RMB’000 (5,610) 873 (793) 80 — — 666 1,946 80 — (2) — (2,840) (90) — — — 964 (1,966) (11,521) 1,117 (2,317) — 230 2 (12,489)	Eleven months ended 30 November 2009 2010 RMB’000 RMB’000 (Unaudited) (4,406) (25,378) 805 1,235 (733) (1,047) 72 188 — 1 — 6 169 256 1,690 1,959 80 120 — 435 (2) (25) — (20) (2,397) (22,458) (79) (606) — (712) — 124 — (1,265) 674 5,739 (1,802) (19,178) (9,687) (62,214) 1,111 175 (2,317) — — (2,398) 230 — 2 25 (10,661) (64,412)
			2009 RMB’000 (Unaudited) (4,406) 805 (733) 72 — — 169 1,690 80 — (2) — (2,397) (79) — — — 674 (1,802) (9,687) 1,111 (2,317) — 230 2 (10,661)

– I-7 –

APPENDIX I

ACCOUNTANTS’ REPORT

Notes Cash flows from financing activities Proceeds from interest-bearing borrowings Capital injection Repayment of interest-bearing borrowings Advance from the [.] Repayment to the ultimate [.] Payment of [.] costs Interest and guarantee costs paid Net cash flows from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year/period Net foreign exchange difference Cash and cash equivalents at end of year/period ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 16	Period from 14 March to 31 December 2008 RMB’000 800 — — 6,995 — — — 7,795 (233) 972 — 739 739	Year ended 31 December 2009 RMB’000 11,060 — — 11,594 (1,375) — (1,893) 19,386 4,931 739 — 5,670 5,670	Eleven months ended 30 November 2009 2010 RMB’000 RMB’000 (Unaudited) 11,060 70,000 — 143,358 — (11,860) 3,789 52,260 (1,375) (79,679) — (4,863) (1,627) (2,007) 11,847 167,209 (616) 83,619 739 5,670 — (2,548) 123 86,741 123 86,741
			2009 RMB’000 (Unaudited) 11,060 — — 3,789 (1,375) — (1,627) 11,847 (616) 739 — 123 123

The proceeds were granted by the local government for supporting the mining development of Sichuan Jinshida under the postquake restoration and reconstruction program launched by the local government.

– I-8 –

APPENDIX I

ACCOUNTANTS’ REPORT

The statement of financial position of the Company

Notes
Non-current assets
Investments in subsidiaries
13
Due from subsidiaries
13
Current assets
Cash and cash equivalents
16
Prepayments, deposits and other receivables
17
Current liabilities
Other payables and accruals
21
Due to subsidiaries
13
Due to the holding company
22
Net current assets/(liabilities)
Total assets less current liabilities
Net assets
Equity
Share capital
24
Reserves
Total equity

30 November
2010
RMB’000
—
139,974
139,974
395
4,863
5,258
4,582
15,463
387
20,432
(15,174)
124,800
124,800
—
124,800
124,800

– I-9 –

APPENDIX I

ACCOUNTANTS’ REPORT

II. NOTES TO FINANCIAL INFORMATION

1. CORPORATE INFORMATION AND REORGANIZATION

The Company was incorporated as an exempted company with limited liability in the Cayman Islands on 29 March 2010 under the Companies Law, Chapter 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands under the name of China Kingstone Mining Holdings Limited. The registered office address of the Company is Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands.

The Group is principally engaged in the production and sale of marble stones and marble related products and started its commercial production in September 2010.

Pursuant to the Reorganization as described in the ‘‘History and Corporate Development — Reorganization’’ section in the document, the Company became the holding company of the subsidiaries now comprising the Group on 30 July 2010.

The holding company of the Company is Wongs Investment Development Holdings Group Limited, which is incorporated in the British Virgin Islands, and the ultimate [.] of the Company is Mr. Huang Xianyou.

2. BASIS OF PRESENTATION

The Reorganization involved companies under common control and the Group is regarded and accounted for as a continuing group. Accordingly, for the purpose of this report, the Financial Information as set out in this report has been prepared on a consolidated basis by applying the principles of merger accounting.

The Financial Information has been prepared as if the current Group structure had been in existence throughout the Relevant Periods, or since their respective dates of acquisition, incorporation or registration, where this is a shorter period.

For subsidiaries historically acquired by the Group during the Relevant Periods, their financial statements are consolidated from their respective dates of acquisition. All income, expenses and unrealized gains and losses resulting from intercompany transactions and intercompany balances within the Group are eliminated on consolidation in full.

Except for Sichuan Jinshida, all other companies now comprising the Group are newly incorporated and engaged in investment holding. As the ultimate [.] obtained the control over Sichuan Jinshida on 14 March 2008, and there were no transactions between 1 January 2008 and 13 March 2008 having impact on the Financial Information, the Relevant Periods commenced from 14 March 2008.

3.1 BASIS OF PREPARATION

The Financial Information has been prepared in accordance with International Financial Reporting Standards (‘‘IFRSs’’) which comprise standards and interpretations issued by the International Accounting Standards Board (the ‘‘IASB’’), and interpretations of the International Financial Reporting Interpretations Committee. All IFRSs effective for the accounting periods commencing from 1 January 2008, 2009 and 2010, together with the relevant transitional provisions, have been adopted by the Group in the preparation of the Financial Information throughout the Relevant Periods, except for IFRS 3 (Revised) and IAS 27 (Revised) that have been adopted by the Group from 1 January 2010.

The accounting policies set out in Note 3.3 of Section II below have been applied consistently to the Financial Information throughout the Relevant Periods, except for those that have been applied from 1 January 2010. The Financial Information also complies with the disclosure requirements of the Hong Kong Companies Ordinance and the applicable disclosure provisions of the Rules Governing the [.] of Securities on the [.].

The Financial Information has been prepared on a historical cost basis and presented in Renminbi (‘‘RMB’’) and all values are rounded to the nearest thousand except when otherwise indicated.

– I-10 –

APPENDIX I

ACCOUNTANTS’ REPORT

3.2 IMPACT OF ISSUED BUT NOT YET EFFECTIVE IFRSS

The Group has not applied the following new and revised IFRSs, that have been issued but are not yet effective, in the Financial Information.

IAS 32 Amendment	Presentation — Classification of Rights Issues1
IFRS 1 Amendment	Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters2
IFRS 1 Amendment	Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters4
IFRIC 19	Extinguishing Financial Liabilities with Equity Instruments2
IAS 24 (Revised)	Related Party Disclosures3
IFRIC 14 Amendments	Prepayments of a Minimum Funding Requirement3
IFRS 7 Amendments	Financial Instruments: Disclosures — Transfers of Financial Assets4
IFRS 9	Financial Instruments5
IAS 12 Amendments	Deferred Tax: Recovery of Underlying Assets5

Apart from the above, the IASB has issued Improvements to IFRSs 2010 which sets out amendments to a number of IFRSs primarily with a view to removing inconsistencies and clarifying wording. The amendments to IFRS 3 and IAS 27 are effective for annual periods beginning on or after 1 July 2010 while the amendments to IFRS 1, IFRS 7, IAS 1, IAS 34 and IFRIC 13 are effective for annual periods beginning on or after 1 January 2011 although there are separate transitional provisions for each standard or interpretation.

1 Effective for annual periods beginning on or after 1 February 2010

2 Effective for annual periods beginning on or after 1 July 2010

3 Effective for annual periods beginning on or after 1 January 2011

4 Effective for annual periods beginning on or after 1 July 2011

5 Effective for annual periods beginning on or after 1 January 2012

6 Effective for annual periods beginning on or after 1 January 2013

The IFRS 1 Amendment relieves first-time adopters of IFRSs from providing the additional disclosures introduced by Improving Disclosures about Financial Instruments (Amendments to IFRS 7) issued in March 2009. As the Group is not a firsttime adopter of IFRSs when IFRS 1 becomes effective, the amendment will not have any financial impact on the Group.

IFRS 9 is the first part of phase 1 of a comprehensive project to entirely replace IAS 39 Financial Instruments: Recognition and Measurement. This phase focuses on the classification and measurement of financial assets. Instead of classifying financial assets into four categories as currently required by IAS 39, an entity shall classify financial assets as subsequently measured at either amortized cost or fair value, on the basis of both the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. This aims to improve and simplify the approach for the classification and measurement of financial assets compared with the requirement of IAS 39.

In October 2010, the IASB added to IFRS 9 the requirements for classification and measurement of financial liabilities. The Group expects to adopt IFRS 9 from 1 January 2013.

IAS 24 (Revised) clarifies and simplifies the definition of related parties. It also provides for a partial exemption of related party disclosure to government-related entities for transactions with the same government or entities that are controlled, jointly controlled or significantly influenced by the same government. The Group expects to adopt IAS 24 (Revised) from 1 January 2011 and the comparative related party disclosures will be amended accordingly. The adoption of the revised standard is unlikely to have any significant impact on the related party disclosures of the Group. The Group is not a government entity.

The IAS 32 Amendment revises the definition of financial liabilities such that rights, options or warrants issued to acquire a fixed number of the entity’s own equity instruments for a fixed amount of any currency are equity instruments, provided that the entity offers the rights, options or warrants pro rata to all of its existing owners of the same class of its own non-derivative equity instruments. The Group expects to adopt the IAS 32 Amendment from 1 January 2011. As the Group currently has no such rights, options or warrants in issue, the amendment is unlikely to have any financial impact on the Group.

The IFRIC 14 Amendments remove an unintended consequence arising from the treatment of prepayments of future contributions in certain circumstances when there is a minimum funding requirement. The amendments require an entity to treat the benefit of an early payment as a pension asset. The economic benefit available as a reduction in future contributions is thus equal to the sum of (i) the prepayment for future services and (ii) the estimated future services costs less the estimated minimum funding

– I-11 –

APPENDIX I

ACCOUNTANTS’ REPORT

requirement contributions that would be required as if there were no prepayments. The Group expects to adopt the IFRIC 14 Amendments from 1 January 2011. As the Group has no defined benefit scheme, the amendments will not have any financial impact on the Group.

IFRIC 19 addresses the accounting by an entity when the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the financial liability. The Group expects to adopt the interpretation from 1 January 2011. The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability are a consideration paid in accordance with IAS 39 Financial Instruments: Recognition and Measurement and the difference between the carrying amount of the financial liability extinguished, and the consideration paid, shall be recognized in profit or loss. The consideration paid should be measured based on the fair value of the equity instrument issued or, if the fair value of the equity instrument cannot be reliably measured, the fair value of the financial liability extinguished. The interpretation will only have a material financial impact on the Group in the event that it undertakes such a transaction in the future.

IFRS 7 Amendments introduce more extensive quantitative and qualitative disclosure requirements regarding transfer transactions of financial assets, including information for understanding the possible effects of any risks that may remain with the entity that transferred the assets. The Group expects to adopt the amendments from 1 January 2012 and the comparative disclosures are not required for any period beginning before that date.

Improvements to IFRSs 2010 issued in May 2010 sets out amendments to a number of IFRSs. The Group expects to adopt all these amendments from 1 January 2011. There are separate transitional provisions for each standard. While the adoption of some of the amendments may result in changes in accounting policies and additional disclosures, none of these amendments are expected to have a significant financial impact on the Group.

3.3 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Subsidiaries

A subsidiary is an entity whose financial and operating policies the Group controls, directly or indirectly, so as to obtain benefits from its activities.

Business combination and goodwill

Business combination from 1 January 2010

Business combinations not under common control are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any noncontrolling interests in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value as at the date through profit or loss.

Goodwill is initially measured at cost being the excess of the consideration transferred over the Group’s net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses in the consolidated statements of financial position as an asset. The carrying amount of goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. The Group performs its annual impairment testing of goodwill as at 31 December. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units.

Impairment is determined by assessing the recoverable amount of the cash-generating unit (or group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the cash-generating unit (or group of cash-generating units) is less than the carrying amount, an impairment loss is recognized. An impairment loss recognized for goodwill is not reversed in a subsequent period.

– I-12 –

APPENDIX I

ACCOUNTANTS’ REPORT

Where goodwill forms part of a cash-generating unit (group of cash-generating units) and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit (or group of cash-generating units) retained.

Business combination prior to 31 December 2009

In comparison to the above-mentioned requirements, the following differences applied:

Business combinations were accounted for using the purchase method. Transaction costs directly attributable to the acquisition formed part of the acquisition costs. The non-controlling interest (formerly known as minority interest) was measured at the proportionate share of the acquiree’s identifiable net assets.

Business combinations achieved in stages were accounted for as separate steps. Any additional acquired share of interest did not affect previously recognized goodwill.

Impairment of non-financial assets other than goodwill

When an indication of impairment exists, or when annual impairment testing for an asset is required (other than goodwill, financial assets and deferred tax assets), the asset’s recoverable amount is estimated. An asset’s recoverable amount is the higher of the asset’s or cash-generating unit’s value in use and its fair value less costs to sell, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is determined for the cash-generating unit to which the asset belongs.

An impairment loss is recognized only if the carrying amount of an asset exceeds its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. An impairment loss is charged to profit or loss in the period in which it arises.

An assessment is made at the end of each reporting period as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such an indication exists, the recoverable amount is estimated. A previously recognized impairment loss of an asset other than goodwill is reversed only if there has been a change in the estimates used to determine the recoverable amount of that asset, but not to an amount higher than the carrying amount that would have been determined (net of any depreciation/amortization) had no impairment loss been recognized for the asset in prior years. A reversal of such an impairment loss is credited to profit or loss in the period in which it arises.

Related parties

A party is considered to be related to the 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 Group; (ii) has an interest in the Group that gives it significant influence over the Group; or (iii) has joint control over the Group;
(b) the party is an associate;
(c) the party is a jointly-controlled entity;
(d) the party is a member of the key management personnel of the Group or its parent;
(e) the party is a close member of the family of any individual referred to in (a) or (d); or
(f) 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 (d) or (e).

Property, plant and equipment and depreciation

Property, plant and equipment, other than construction in progress, are stated at cost less accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after items of property, plant and equipment have been put into operation, such as repairs and maintenance, is normally charged to profit or loss in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment, and where the cost of the item can be measured reliably, the expenditure is capitalized as an additional cost of that asset or as a replacement.

– I-13 –

APPENDIX I

ACCOUNTANTS’ REPORT

Depreciation of items of property, plant and equipment, other than mining infrastructure, is calculated on the straight-line basis to write off the cost of each item of property, plant and equipment to its residual value over its estimated useful life. The estimated useful lives of property, plant and equipment are as follows:

Buildings	10–15 years
Plant and machinery	5–15 years
Office equipment	5 years
Motor vehicles	5–10 years

Depreciation of mining infrastructure is calculated using the Units of Production (‘‘UOP’’) method to write off the cost of the assets proportionately to the extraction of the proved and probable mineral reserves.

Fully depreciated assets are retained in the accounts until they are no longer in use and no further charge for depreciation is made in respect of these assets.

Where parts of an item of property and equipment have different useful lives, the cost of that item is allocated on a reasonable basis among the parts and each part is depreciated separately.

Residual values, useful lives and the depreciation method are reviewed, and adjusted if appropriate, at least at the end of each reporting period.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss on disposal or retirement recognized in profit or loss in the year the asset is derecognized is the difference between the net sales proceeds and the carrying amount of the relevant asset.

Construction in progress represents items of property, plant and equipment under construction, which is stated at cost less any impairment losses, and is not depreciated. Cost comprises the direct costs of construction during the period of construction. Construction in progress is reclassified to the appropriate category of property, plant and equipment when completed and ready for use.

Stripping costs

Stripping costs incurred in the development of a mine before production commences are capitalized in property, plant and equipment as part of the cost of constructing the mine, and subsequently amortized over the life of the mine on a UOP basis.

Intangible assets (other than goodwill)

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is the fair value as at the date of acquisition. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are subsequently amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period.

Mining rights

Mining rights are stated at cost less accumulated amortization and any impairment losses. Mining rights include the cost of acquiring mining licenses, exploration and evaluation costs transferred from exploration rights and assets upon determination that an exploration property is capable of commercial production, and the cost of acquiring interests in the mining reserves of existing mining properties. The mining rights are amortized over the estimated useful lives of the mines, in accordance with the production plans of the entities concerned and the proved and probable reserves of the mines using the UOP method. Mining rights are written off to profit or loss if the mining property is abandoned.

The estimated useful life of the mining right is based on its unexpired period, i.e., no later than 1 June 2017.

Leases

Leases that transfer substantially all the risks and rewards of ownership of assets to the Group, other than legal title, are accounted for as finance leases. At the inception of a finance lease, the cost of the leased asset is capitalized at the present value of the minimum lease payments and recorded together with the obligation, excluding the interest element, to reflect the purchase and financing. Assets held under capitalized finance leases are included in property, plant and equipment and depreciated over the shorter of the lease terms and the estimated useful lives of the assets. The finance costs of such leases are charged to profit or loss so as to provide a constant periodic rate of charge over the lease terms.

– I-14 –

APPENDIX I

ACCOUNTANTS’ REPORT

Leases where substantially all the rewards and risks of ownership of assets remain with the lessor are accounted for as operating leases. Where the Group is the lessee, rentals payable under operating leases, net of any incentives received from the lessor, are charged to profit or loss on the straight-line basis over the lease terms.

Prepaid land lease payments represent the acquisition cost of state-owned land use rights in Mainland China. Prepaid land lease payments under operating leases are initially stated at cost and subsequently recognized on the straight-line basis over the lease terms.

Investments and other financial assets

Initial recognition and measurement

Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, held-tomaturity investments, loans and receivables and available-for-sale financial assets, as appropriate. The Group determines the classification of its financial assets at initial recognition. When financial assets are recognized initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

All regular way purchases and sales of financial assets are recognized on the trade date, that is, the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the market place.

The Group’s financial assets include cash and bank balances, deposits and other receivables.

Subsequent measurement

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement, such assets are subsequently measured at amortized cost using the effective interest rate method less any allowance for impairment. Amortized cost is calculated taking into account any discount or premium on acquisition and includes fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included in profit or loss. The loss arising from impairment is recognized in profit or loss.

Impairment of financial assets

The Group assesses at the end of each reporting period whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘‘loss event’’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that a debtor or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and observable data indicating that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortized cost

For financial assets carried at amortized cost, the Group first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

– I-15 –

APPENDIX I

ACCOUNTANTS’ REPORT

The carrying amount of the asset is reduced either directly or through the use of an allowance account and the amount of the loss is recognized in profit or loss. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Loans and receivables together with any associated allowance are written off when there is no realistic prospect of future recovery.

If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to profit or loss.

Derecognition of financial assets

A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when:

. the rights to receive cash flows from the asset have expired; or
. the Group has transferred its rights to receive cash flows from the asset, or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘‘pass-through’’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.

Financial liabilities

Initial recognition and measurement

Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial liabilities at initial recognition.

All financial liabilities are recognized initially at fair value and in the case of loans and borrowings, plus directly attributable transaction costs.

The Group’s financial liabilities include trade and other payables, amounts due to the [.] and interest-bearing borrowings.

Subsequent measurement

The measurement of financial liabilities depends on their classification as follows:

Loans and borrowings

After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost, using the effective interest rate method unless the effect of discounting would be immaterial, in which case they are stated at cost. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the effective interest rate method amortization process.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. The effective interest rate amortization is included in finance costs in profit or loss.

Financial guarantee contracts

Financial guarantee contracts issued by the Group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. A financial guarantee contract is recognized initially as a liability at its fair value, adjusted for transaction costs that

– I-16 –

APPENDIX I

ACCOUNTANTS’ REPORT

are directly attributable to the issuance of the guarantee. Subsequent to initial recognition, the Group measures the financial guarantee contract at the higher of: (i) the amount of the best estimate of the expenditure required to settle the present obligation at the end of the reporting period; and (ii) the amount initially recognized less, when appropriate, cumulative amortization.

Derecognition of financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged or cancelled, or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and a recognition of a new liability, and the difference between the respective carrying amounts is recognized in profit or loss.

Inventories

Inventories are stated at the lower of cost and net realizable value. Cost is determined on the weighted average basis. Net realizable value is based on estimated selling prices less any estimated costs to be incurred to completion and disposal.

Cash and cash equivalents

For the purpose of the consolidated statements of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short-term highly liquid investments that are readily convertible into known amounts of cash, are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Group’s cash management.

For the purpose of the consolidated statements of financial position, cash and cash equivalents comprise cash on hand and at banks, including term deposits, which are not restricted as to use.

Provisions

A provision is recognized when a present obligation (legal or constructive) has arisen as a result of a past event and it is probable that a future outflow of resources will be required to settle the obligation, provided that a reliable estimate can be made of the amount of the obligation.

When the effect of discounting is material, the amount recognized for a provision is the present value at the end of the reporting period of the future expenditures expected to be required to settle the obligation. The increase in the discounted present value amount arising from the passage of time is included in profit or loss.

Income tax

Income tax comprises current and deferred tax. Income tax relating to items recognized outside profit or loss is recognized outside profit or loss, either in other comprehensive income or directly in equity.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period, taking into consideration interpretations and practices prevailing in the countries in which the Group operates.

Deferred tax is provided, using the liability method, on all temporary differences at the end of the reporting period between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences, except:

. where the deferred tax liability arises from goodwill or the initial recognition of an asset or liability that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
. in respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

– I-17 –

APPENDIX I

ACCOUNTANTS’ REPORT

Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carryforward of unused tax credits and unused tax losses can be utilized, except:

. where the deferred tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and
. in respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are only recognized to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at the end of each reporting period and are recognized to the extent that it has become probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

Government grants

Government grants are recognized at their fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognized as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. Where the grant relates to an asset, the fair value is credited to a deferred income account and is released to profit or loss over the expected useful life of the relevant asset by equal annual installments.

Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The Group assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Group has concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognized:

Sale of goods

Revenue from the sale of goods is recognized when the significant risks and rewards of ownership have been transferred, which is considered to occur when title passes to the customer. This generally occurs when product is physically transferred onto a vessel, train, conveyor or other delivery mechanisms.

Interest income

For all financial instruments measured at amortized cost, interest income or expense is recorded using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Interest income is included in other income in the income statement.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, i.e., assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalized as part of the cost of those assets. The capitalization of such borrowing costs ceases when the assets are substantially ready for their intended use or sale.

– I-18 –

APPENDIX I

ACCOUNTANTS’ REPORT

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs capitalized. All other borrowing costs are expensed in the period in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

Foreign currencies

The Financial Information is presented in RMB, as this is the principal currency of the economic environment on which the Group operate. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Foreign currency transactions recorded by the entities in the Group are initially recorded using their respective functional currency rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rates of exchange ruling at the end of the reporting period. All differences are taken to profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

The assets and liabilities of foreign operations are translated into RMB at the rate of exchange prevailing at end of the reporting period and their income and expenses are translated at the weighted average exchange rates of each reporting period. The exchange differences arising on the translation are recognized in other comprehensive income.

Employee benefits

The Group contributes on a monthly basis to various defined contribution retirement benefit plans organized by relevant municipal and provincial governments in the PRC. The municipal and provincial governments undertake to assume the retirement benefit obligations payable to all existing and future retired employees under these plans and the Group has no further obligation for post-retirement benefits beyond the contributions made. The contributions are charged to profit or loss as they become payable in accordance with the rules of the defined contribution retirement benefit plans.

3.4 SIGNIFICANT ACCOUNTING ESTIMATES

The preparation of the Financial Information requires management to make significant estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the reporting date. However, the inherent uncertainty about these significant assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amounts of the assets and liabilities affected in the future.

Estimation uncertainty

The key assumptions concerning the future and other key sources of estimation uncertainty at the end of the reporting period, 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:

(a) Goodwill impairment

The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an estimate of the expected future cash flows from the cash-generating units and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amount of goodwill at 31 December 2008 and 2009 and 30 November 2010 was RMB2,966,000. More details are given in Note 14.

(b) Useful lives of property, plant and equipment

The Group estimates useful lives and related depreciation charges for its items of property, plant and equipment. This estimate is based on the historical experience of the actual useful lives of items of property, plant and equipment of similar nature and functions. It could change significantly as a result of technical innovations and actions of its competitors. Management will increase the depreciation charge where useful lives are less than those previously estimated, or it will record reserve for technically obsolete assets that have been abandoned.

– I-19 –

APPENDIX I

ACCOUNTANTS’ REPORT

(c) Impairment of non-financial assets (other than goodwill)

The Group assesses each cash-generating unit annually to determine whether any indication of impairment exists. Where an indicator of impairment exists, a formal estimate of the recoverable amount is made, which is considered to be the higher of the fair value less costs to sell and value in use. The carrying amount of the property, plant and equipment, including mining infrastructure, and mining rights are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with the accounting policy as disclosed in the relevant part of this section. Estimating the value in use requires the Group to estimate future cash flows from the cash-generating units and to choose a suitable discount rate in order to calculate the present value of those cash flows. The carrying amounts of property, plant and equipment as at 31 December 2008 and 2009 and 30 November 2010 were RMB16,063,000, RMB23,812,000, and RMB83,095,000, respectively. The carrying amounts of mining rights as at 31 December 2008 and 2009 and 30 November 2010 were RMB21,360,000, RMB23,677,000 and RMB23,676,000, respectively.

(d) Mine reserves

Engineering estimates of the Group’s mine reserves are inherently imprecise and represent only approximate amounts because of the significant judgments involved in developing such information. There are authoritative guidelines regarding the engineering criteria that have to be met before estimated mine reserves can be designated as ‘‘proved’’ and ‘‘probable’’. Proved and probable mine reserve estimates are updated on regular intervals taking into account recent production and technical information about each mine. In addition, as prices and cost levels change from year to year, the estimate of proved and probable mine reserves also changes. This change is considered a change in estimate for accounting purposes and is reflected on a prospective basis in both depreciation and amortization rates calculated on a UOP basis and the time period for discounting the rehabilitation provision. Changes in the estimate of mine reserves are also taken into account in impairment assessments of non-current assets.

(e) Deferred tax assets

Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that sufficient taxable profit will be available against which the deductible temporary differences can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies. The carrying amounts of deferred tax assets as at 31 December 2008 and 2009 and 30 November 2010 were RMB629,000, RMB852,000 and RMB4,851,000, respectively.

4. SEGMENT INFORMATION

For management purposes, the Group is organized into business units based on their products and services. The Group has one operating segment, which is mining development, during the Relevant Periods. Further, all the principal assets employed by the Group are located in Sichuan Province, the PRC. Accordingly, no segment analysis is provided.

Revenue from one customer amounted to RMB1,689,000 arising from sales of marble slabs during the eleven months ended 30 November 2010.

5. REVENUE AND OTHER INCOME

Revenue represents the net invoiced value of goods sold, net of trade discounts and returns and various types of government surcharges, where applicable. The Group commenced its commercial production in September 2010, before when there were no revenue, trade discounts or returns.

Sales revenue Marble slabs Marble blocks Total operating sales revenue Other Income	Period from 14 March to 31 December 2008 RMB’000 — — — 3	Year ended 31 December 2009 RMB’000 — — — 2	Eleven months ended 30 November	Eleven months ended 30 November
			2009 RMB’000 (Unaudited) — — — 2	2010
				RMB’000 1,689 82
				1,771
				31

Other income mainly represents bank interest income during the Relevant Periods.

– I-20 –

APPENDIX I

ACCOUNTANTS’ REPORT

6. LOSS BEFORE TAX

The Group’s loss before tax is arrived at after charging:

Staff costs (including directors’ remuneration (Note 7)): Wages and salaries Pension scheme contributions — Defined contribution scheme Other staff benefits Less: Staff costs capitalized [.] costs Interest on borrowings wholly repayable within five years Guarantee costs* Bank charges Total finance costs Auditors’ remuneration Amortization of intangible assets Amortization of prepaid land lease payments Depreciation of items of property, plant and equipment (Note 10) Less: Depreciation capitalized Foreign exchange loss Operating lease rentals for office Loss on disposal of items of property, plant and equipment	Period from 14 March to 31 December 2008 RMB’000 870 174 208 1,252 (724) 528 — 22 — 3 25 1 — — 345 (287) 58 — 23 337	Year ended 31 December 2009 RMB’000 1,838 368 434 2,640 (1,965) 675 — 1,946 80 16 2,042 1 — — 873 (793) 80 — 31 666	Eleven months ended 30 November	Eleven months ended 30 November
			2009 RMB’000 (Unaudited) 1,627 325 373 2,325 (1,771) 554 — 1,690 80 10 1,780 1 — — 805 (733) 72 — 28 169	2010
				RMB’000 4,368 493 664
				5,525 (2,838)
				2,687 14,848 1,959 120 50
				2,129 1 1 6 1,235 (1,047)
				188 435 274 256

Guarantee costs represented guarantee fees paid to third party guarantors who provided guarantee for the Group’s interestbearing bank loans (Note 19)

– I-21 –

APPENDIX I

ACCOUNTANTS’ REPORT

7. DIRECTORS’ REMUNERATION AND FIVE HIGHEST PAID EMPLOYEES

Details of the remuneration of directors, disclosed pursuant to the [.] and Section 161 of the Hong Kong Companies Ordinance, are as follows:

Fees Other emoluments: Salaries, allowances and benefits in kind Pension scheme contributions	Period from 14 March to 31 December 2008 RMB’000 — — — —	Year ended 31 December 2009 RMB’000 — — — —	Eleven months ended 30 November	Eleven months ended 30 November
			2009 RMB’000 (Unaudited) — — — —	2010
				RMB’000 —
				744 —
				744

(a) Independent non-executive directors

The independent non-executive directors are Mr. Deng Huiqing, Mr. Chu Ho Hwa, Howard and Mr. Liu Yuquan.

There were no emoluments payable to the independent non-executive directors during the Relevant Periods.

(b) Executive directors and non-executive directors

			Salaries,
			allowances and	Pension scheme
	Fees		benefits in kind	contributions	Total
	RMB’000		RMB’000	RMB’000	RMB’000
Eleven months ended 30 November 2010:
Executive:
Chen Tao		—	651	—		651
Lin Yuhua		—	34	—		34
Liao Yuanshi		—	19	—		19
Xiong Wenjun		—	40	—		40
		—	744	—		744

(c) Five highest paid employees

The five highest paid employees during the Relevant Periods fall into the following categories:

	Period from
	14 March to	Year ended
	31 December	31 December	Eleven months		ended 30 November
	2008	2009	2009			2010
Directors	—	—		—		1
Non-directors	5	5			5	4
	5	5			5	5

Details of directors’ remuneration are set out in Note 7 (b) above.

– I-22 –

APPENDIX I

ACCOUNTANTS’ REPORT

Details of the remuneration of the remaining non-director, highest paid employees during the Relevant Periods are as follows:

Salaries, allowances and benefits in kind Pension scheme contributions	Period from 14 March to 31 December 2008 RMB’000 244 37 281	Year ended 31 December 2009 RMB’000 369 64 433	Eleven months ended 30 November	Eleven months ended 30 November
			2009 RMB’000 (Unaudited) 255 41 296	2010
				RMB’000 784 —
				784

The remuneration of each of the individuals in each year/period during the Relevant Period is below HK$1,000,000.

During the Relevant Periods, no emoluments were paid by the Group to any of the persons who are directors of the Company, or the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office.

8. INCOME TAX BENEFIT

Pursuant to the rules and regulations of the Cayman Islands and the British Virgin Islands, the Group is not subject to any income tax in the Cayman Islands and the British Virgin Islands.

No provision for Hong Kong profits tax has been made as the Group had no assessable profits derived from or earned in Hong Kong during the Relevant Periods.

The provision for the PRC corporate income tax (‘‘CIT’’) is based on the respective CIT rates applicable to the subsidiaries located in Mainland China as determined in accordance with the relevant income tax rules and regulations of the PRC for the Relevant Periods. The Group’s subsidiaries located in Mainland China are subject to the PRC CIT rate of 25% from 2008.

The major components of income tax benefit for the Relevant Periods are as follows:

Current — Mainland China PRC CIT for the year/period Deferred tax movement (Note 15) Total tax credit for the year/period	Period from 14 March to 31 December 2008 RMB’000 — (253) (253)	Year ended 31 December 2009 RMB’000 — (241) (241)	Eleven months ended 30 November	Eleven months ended 30 November
			2009 RMB’000 (Unaudited) — (193) (193)	2010
				RMB’000 — (4,143)
				(4,143)

A reconciliation of income tax benefit applicable to loss before tax at the applicable income tax rate in the PRC to income tax benefit of the Group for each of the Relevant Periods is as follows:

Loss before tax Tax at the applicable tax rate of companies within the Group Expenses not deductible for tax* Income tax credit at the Group’s effective rate	Period from 14 March to 31 December 2008 RMB’000 (2,005) (501) 248 (253)	Year ended 31 December 2009 RMB’000 (5,610) (1,403) 1,162 (241)	Eleven months ended 30 November	Eleven months ended 30 November
			2009 RMB’000 (Unaudited) (4,406) (1,102) 909 (193)	2010
				RMB’000 (25,378)
				(6,345) 2,202
				(4,143)

– I-23 –

APPENDIX I

ACCOUNTANTS’ REPORT

Expenses not deductible for tax mainly represent: (i) individual income tax concerning the interest of loans from independent third party individuals. The Company did not withhold the individual income tax when paying the interests for the loans from independent third party individuals. As a result, such provision for individual income tax cannot be deductible for tax; (ii) [.] costs, incurred by the Company for the eleven months ended 30 November 2010 are not expected to be tax deductible.

9. LOSS PER SHARE

No loss per share information is presented as its inclusion, for the purpose of this report, is not considered meaningful due to the Reorganization and the basis of presentation of the results for the Relevant Periods as disclosed in Note 2 above.

10. PROPERTY, PLANT AND EQUIPMENT

Cost: At 14 March 2008 Additions Transfers Disposals At 31 December 2008 and 1 January 2009 Additions Disposals At 31 December 2009 and 1 January 2010 Additions Transfers Disposals At 30 November 2010 Accumulated depreciation: At 14 March 2008 Provided for the period Disposals At 31 December 2008 and 1 January 2009 Provided for the year Disposals At 31 December 2009 and 1 January 2010 Provided for the period Disposals At 30 November 2010 Net carrying amount At 14 March 2008 (Note 26) At 31 December 2008 At 31 December 2009 At 30 November 2010	Buildings RMB’000 362 — 27 — 389 — — 389 35 3,137 (27) 3,534 6 29 — 35 40 — 75 48 (5) 118 356 354 314 3,416	Plant and machinery RMB’000 2,195 6,270 — (498) 7,967 464 (2,304) 6,127 22,318 — — 28,445 354 264 (101) 517 754 (575) 696 902 — 1,598 1,841 7,450 5,431 26,847	Office equipment RMB’000 144 18 — — 162 17 (5) 174 211 — (2) 383 19 19 — 38 31 (2) 67 46 (5) 108 125 124 107 275	Motor vehicles RMB’000 403 — — — 403 292 (101) 594 5,787 — (500) 5,881 56 33 — 89 48 (63) 74 225 (88) 211 347 314 520 5,670	Mining infrastructure RMB’000 — — — — — — — — — 21,908 — 21,908 — — — — — — — 14 — 14 — — — 21,894	CIP RMB’000 4,314 3,534 (27) — 7,821 9,632 (13) 17,440 32,795 (25,045) — 25,190 — — — — — — — — — — 4,314 7,821 17,440 25,190	Total
							RMB’000 7,418 9,822 — (498)
							16,742 10,405 (2,423)
							24,724 61,146 — (529) 85,341 435 345 (101)
							679 873 (640)
							912 1,235 (98)
							2,049
							6,983
							16,063
							23,812
							83,292

As at 31 December 2009, certain property, plant and equipment of the Group with a net carrying amount of approximately RMB4,963,000 were pledged to non-related party guarantors who provided guarantee for the Group’s interest-bearing bank loans (Note 19).

– I-24 –

APPENDIX I

ACCOUNTANTS’ REPORT

11. INTANGIBLE ASSETS

Cost: At 14 March 2008 Additions At 31 December 2008 and 1 January 2009 Additions At 31 December 2009 and 1 January 2010 Additions Transfers At 30 November 2010 Accumulated amortization: At 14 March 2008, 31 December 2008, 31 December 2009 Provided for the period At 30 November 2010 Net carrying amount: At 14 March 2008 (Note 26) At 31 December 2008 At 31 December 2009 At 30 November 2010	Mining rights RMB’000 21,360 — 21,360 2,317 23,677 — — 23,677 — (1) (1) 21,360 21,360 23,677 23,676

The mining rights represent rights for the mining of marble reserves in the Zhangjiaba Mine which is located in Jiangyou County, Sichuan Province, the PRC. The Mine is operated by Sichuan Jinshida. The local government granted the mining permit to Sichuan Jinshida for a term of 10 years to 1 June 2017.

12. PREPAID LAND LEASE PAYMENTS

Cost: At 14 March 2008, 31 December 2008, 31 December 2009 Additions At 30 November 2010 Accumulated amortization: At 14 March 2008, 31 December 2008, 31 December 2009 Provided for the period At 30 November 2010 Net carrying amount: At 14 March 2008, 31 December 2008 31 December 2009 At 30 November 2010	Prepaid land lease payments
	RMB’000 — 2,398
	2,398
	— (6)
	(6)
	—
	2,392

Prepaid land lease payments represent the acquisition cost of state-owned land use rights in Mainland China, which is held under a medium term lease.

– I-25 –

APPENDIX I

ACCOUNTANTS’ REPORT

13. INVESTMENTS IN SUBSIDIARIES

30 November 2010 RMB’000

At cost:

Kingstone Industrial* —

The cost of the investment in Kingstone Industrial is US$1.

The amounts due from/to subsidiaries are unsecured, interest-free and repayable on demand. The carrying amounts of the amounts due from/to subsidiaries approximate to their fair values.

The Directors of the Company are of the opinion that the amount due from subsidiaries will not be collected within the next twelve months.

14. GOODWILL

At cost: At beginning and end of year/period (Note 26)	31 December 2008 2009 RMB’000 RMB’000 2,966 2,966	30 November 2010
	2008 RMB’000 2,966
		RMB’000 2,966

Goodwill arose on the acquisition of Sichuan Jinshida which represented the excess of the cost of the business combination over the Group’s interest in the net fair value of Sichuan Jinshida’s identifiable assets and liabilities as at the date of the acquisition. Goodwill has been allocated to the Sichuan Jinshida cash-generating unit.

Impairment testing of goodwill

The recoverable amount of the cash-generating unit to which goodwill is allocated has been determined based on value-inuse calculation, using cash flow projections based on financial budgets covering a period to the expiry of the existing mining right, i.e., 1 June 2017. The discount rate applied to the cash flow projections is 13.36%.

Key assumptions were used in the value-in-use calculation of the cash-generating unit for each end of reporting period. The following describes each key assumption on which management has based its cash flow projections to undertake impairment testing of goodwill:

Estimated prices — the basis used to determine the value assigned to the estimated prices is based on market research and sales contracts signed with potential customers subsequent to 30 November 2010.

Estimated production volume and cost — the basis used to determine the value assigned to the estimated production volume and cost based on the current mining and processing development plan.

Estimated gross margins — the basis used to determine the value assigned to the estimated gross margins is based on estimated prices less production costs determined as explained above.

Discount rates — the discount rate used is before tax and reflects specific risks relating to the relevant unit.

– I-26 –

APPENDIX I

ACCOUNTANTS’ REPORT

15. DEFERRED TAX

The movements in deferred tax assets are as follows:

At 14 March 2008 (Note 26) Deferred tax credited to the consolidated statement of comprehensive income during the period (Note 8) At 31 December 2008 and 1 January 2009 Deferred tax credited/(charged) to the consolidated statement of comprehensive income during the year (Note 8) At 31 December 2009 and 1 January 2010 Deferred tax credited to the consolidated statement of comprehensive income during the period (Note 8) At 30 November 2010	Excess tax depreciation over book value of property, plant and equipment RMB’000 50 13 63 (40) 23 (21) 2	Losses available for off-setting against future taxable profits RMB’000 321 245 566 263 829 4,170 4,999	Total
			RMB’000 371 258
			629 223
			852 4,149
			5,001

The movements in deferred tax liabilities are as follows:

At 14 March 2008 (Note 26) Deferred tax charged to the consolidated statement of comprehensive income during the period (note 8) At 31 December 2008 and 1 January 2009 Deferred tax credited to the consolidated statement of comprehensive income during the year (Note 8) At 31 December 2009 and 1 January 2010 Deferred tax credited to the consolidated statement of comprehensive income during the period (Note 8) At 30 November 2010	Fair value adjustments arising from acquisition of a subsidiary
	RMB’000 (5,148) (5)
	(5,153) 18
	(5,135) (6)
	(5,141)

As mentioned in Note 8, deferred tax assets and liabilities related to the PRC subsidiaries have been provided at an enacted corporate income tax rate of 25%.

For the presentation purpose, deferred tax assets and liabilities have been offset in the consolidated statements of financial position. The following is an analysis of the deferred tax balances of the Group for financial reporting purposes:

Deferred tax assets recognized in the consolidated statements of financial position Deferred tax liabilities recognized in the consolidated statements of financial position	31 December 2008 2009 RMB’000 RMB’000 629 852 (5,153) (5,135) (4,524) (4,283)	30 November 2010
	2008 RMB’000 629 (5,153) (4,524)
		RMB’000 5,001 (5,141)
		(140)

– I-27 –

APPENDIX I

ACCOUNTANTS’ REPORT

16. CASH AND CASH EQUIVALENTS

Group

Cash at banks	31 December 2008 2009 RMB’000 RMB’000 739 5,670	30 November 2010
	2008 RMB’000 739
		RMB’000 86,741

The Group’s cash and bank balances are all denominated in RMB at each end of reporting period, except for the following:

Cash at banks (HK$) Cash at banks (US$)	RMB equivalent
	31 December 2008 2009 RMB’000 RMB’000 — — — —	30 November
	2008 RMB’000 — —	2010
		RMB’000 69 67,809

The RMB is not freely convertible into other currencies, however, under the PRC’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Group is permitted to exchange RMB for other currencies through banks authorized to conduct foreign exchange business.

Company

Cash at banks (HK$) Cash at banks (US$) Cahs at banks	RMB equivalent 30 November 2010
	RMB’000 9 386
	395

Cash at banks earns interest at floating rates based on daily bank deposit rates. The bank balances are deposited with creditworthy banks with no recent history of default.

The carrying amounts of the cash and cash equivalents in the consolidated statements of financial position approximate to their fair values.

17. PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

Group

Prepayments: Prepayment for purchase of — Raw materials — Utilities — Deferred [.] costs Prepaid operating lease rentals to be amortized within one year — Office Deposits Deductable VAT Other receivables Total	31 December 2008 2009 RMB’000 RMB’000 7 87 10 68 — — 21 30 108 102 — — 186 135 332 422	30 November 2010
	2008 RMB’000 7 10 — 21 108 — 186 332
		RMB’000 267 133 4,863 44 — 3,946 584
		9,837

The carrying amounts of prepayments, deposits and other receivables closely approximate to their respective fair values.

– I-28 –

APPENDIX I

ACCOUNTANTS’ REPORT

Deferred [.] costs represent legal and other professional fees relating to the proposed issuance of the shares of the Company, which will be listed on the main board of the [.], and they will be deducted from equity when the Company completes the [.] of its shares (the ‘‘[.]’’).

None of the above assets is either past due or impaired. The financial assets included in the above relate to receivables for which there was no recent history of default.

Company

As at November 30, 2010, prepayments, deposits and other receivables mainly represent deferred [.] costs amounting to RMB4,863,000. Deferred [.] costs represent legal and other professional fees relating to the [.] which will be deducted from equity when the Company completes the [.].

18. INVENTORIES

	31	December		30 November
	2008	2009		2010
	RMB’000	RMB’000		RMB’000
At cost:
Marble blocks and slabs		—	—	294
Materials and supplies		—	—	418
Total inventories		—	—	712

19. INTEREST-BEARING BORROWINGS

Notes Repayable within one year: Bank loans — unsecured (a) — secured and guaranteed (b) Other borrowings — unsecured (c)	31 December 2008 2009 RMB’000 RMB’000 — — — 4,000 800 7,860 800 11,860	30 November 2010
	2008 RMB’000 — — 800 800
		RMB’000 70,000 — —
		70,000

At each end of reporting period, all interest-bearing borrowings of the Group are denominated in RMB. The carrying amounts of the Group’s bank loans approximate to their fair values.

(a) These unsecured bank loans are borrowed from Guangdong Development Bank and China Construction Bank, with amounts of RMB60,000,000 and RMB10,000,000, respectively, and bear interest at fixed rate per annum in the range from 4% to 5%.
(b) As at 31 December 2009, bank loans bore interest at a fixed interest rate of 6.903% per annum and was guaranteed by Jiangyou Yintong Credit Guarantee Co., Ltd. (江油銀通信用擔保有限公司), which is a non-related party engaged in the guarantee business. In accordance with the guarantee agreement entered into among Sichuan Jinshida, Jiangyou Yintong Credit Guarantee Co., Ltd. and Guangzhou Jiucheng Mining Co., Ltd. (‘‘Jiucheng Mining’’), a related party of the Company, Sichuan Jinshida agreed to pay guarantee costs at a rate of 2% of the guaranteed loan principal, and to secure certain of its property, plant and equipment with a net carrying amount of approximately RMB4,963,000 (Note 10) to Jiangyou Yintong Credit Guarantee Co., Ltd.; and Jiucheng Mining agreed to provide a counterguarantee to Jiangyou Yintong Credit Guarantee Co., Ltd. free of charge.

The guarantee was fully released in August 2010 when the Group fully repaid this bank loan.

(c) The other borrowings were borrowed from several independent third party individuals and bore interest at a fixed interest rate of 36% per annum. The other borrowings were fully repaid in June 2010.

– I-29 –

APPENDIX I

ACCOUNTANTS’ REPORT

20. TRADE PAYABLES

Trade payables	31 December 2008 2009 RMB’000 RMB’000 — —	30 November 2010
	2008 RMB’000 —
		RMB’000 124

The carrying amounts of trade payables closely approximate to their fair values.

Trade payables are non-interest-bearing and are normally settled in 180 days.

An aged analysis of trade payables, based on the invoice date, is as follows:

Outstanding balances with ages: Within 180 days	31 December 2008 2009 RMB’000 RMB’000 — —	30 November 2010
	2008 RMB’000 —
		RMB’000 124

21. OTHER PAYABLES AND ACCRUALS

Group

31 December	31 December	30 November 2010
2008 RMB’000 97 2,967 37 559 22 — 400 2,100 26 6,208	2009
	RMB’000 97 1,758 423 1,368 155 — 100 1,400 95	RMB’000 116 3,589 578 3,161 227 3,786 176 1,302 103
	5,396	13,038
		30 November 2010
		RMB’000 796 3,786
		4,582

Other payables and accruals are non-interest-bearing and have average terms of one to three months.

The carrying amounts of other payables and accruals approximate to their fair values.

– I-30 –

APPENDIX I

ACCOUNTANTS’ REPORT

22. BALANCES WITH RELATED PARTIES

Group and Company

Balances with related parties are interest-free, unsecured and have no fixed term of repayment.

The carrying amounts of the balances with related parties approximate to their fair values.

The balances with the holding company as at 30 November 2010 were fully settled at the end of 2010.

23. DEFERRED INCOME

Deferred income balance represents government grants in relation to certain machinery with a useful life of 10 years.

24. SHARE CAPITAL

The Company was incorporated in the Cayman Islands on 29 March 2010, with authorized share capital of HK$380,000 divided into 3,800,000 ordinary shares of HK$0.10 each. Save for the Reorganization, the Company has not conducted any business since the date of its incorporation. As at 30 November 2010, one ordinary share was issued and fully paid by the holding company, with a par value of HK$0.1.

25. RESERVES

(a) Capital reserve

During the period ended 30 November 2010, the holding company has made additional capital injections aggregating to US$21 million. However, the Company has not issued new ordinary shares to the holding company and temporarily recorded the capital injections in the capital reserve. Pursuant to a written resolution of the sole shareholder on 24 January 2011, the Directors of the Company are authorized to allot and issue a total of [.] shares credited as fully paid at par to the holders of shares on the register of members of the Company at the close of business on 24 January 2011 (or as they may direct) in proportion to their respective shareholdings (save that no shareholder shall be entitled to be allotted or issued any fraction of a share) by way of capitalization of the sum of HK$[.] standing to the credit of the share premium account of the Company and the shares to be allotted and issued pursuant to this resolution shall rank pari passu in all respects with the existing issued shares.

(b) Contributed reserve

The contributed reserve of the Group resulted from the preparation of the Financial Information on the basis of preparation set out in Note 2 of Section II. It represents the aggregate amount of the consideration of RMB24,480,000 paid to the former owners of Sichuan Jinshida by the [.] to obtain the control over Sichuan Jinshida by 14 March 2008 after netting off the investment cost of RMB10 million paid by the Group on the acquisition of the entire equity interest in Sichuan Jinshida from the [.] pursuant to the Reorganization, as if the acquisition had been completed from the beginning of the Relevant Periods. The corresponding liability of the investment cost of RMB10 million payable to the [.] arising from the acquisition pursuant to the Reorganization was classified as a current liability as at 31 December 2008 and 2009 and the balance was settled in November 2010.

26. BUSINESS COMBINATION

On 14 March 2008, the [.] completed the acquisition of a 100% equity interest in Sichuan Jinshida from independent third parties and Sichuan Jinshida was then under the control of the [.]. The total consideration for the acquisition was in the form of cash of RMB24,480,000 that was determined by an arm’s length negotiation among the acquisition parties by reference to the then prevailing market price of marble and the mining reserve stated in the mining certificate.

– I-31 –

APPENDIX I

ACCOUNTANTS’ REPORT

The fair values of the identifiable assets and liabilities of Sichuan Jinshida as at the date of acquisition and the corresponding carrying amounts immediately before the acquisition were as follows:

Notes Property, plant and equipment 10 Intangible assets 11 Deferred tax assets 15 Cash and cash equivalents Prepayments, deposits and other receivables Other payables and accruals Due to the [.] Deferred tax liabilities 15 Net assets Goodwill on acquisition 14 Satisfied by cash	Fair value recognized on acquisition RMB’000 6,983 21,360 371 972 271 (3,090) (205) (5,148) 21,514 2,966 24,480	Previous carrying value
		RMB’000 7,360 391 371 972 271 (3,090 (205 —
		6,070

27. COMMITMENTS AND CONTINGENCY

(a) Capital commitments

The Group did not have capital commitments at 31 December 2008 and 2009. As at 30 November 2010, The Group had the following capital commitments principally for the construction and purchase of property, plant and equipment.

Authorized, but not contracted for Contracted, but not provided for	31 December 2008 2009 RMB’000 RMB’000 — — — —	30 November 2010
	2008 RMB’000 — —
		RMB’000 — 363

(b) Operating lease arrangements

As lessee

The Group leases certain land premises under operating lease arrangements, with leases negotiated for terms ranging from 8 to 15 years with an option for renewal after that date, at which time all terms will be renegotiated.

At each end of reporting period, the Group had total future minimum lease payments under non-cancellable operating leases falling due as follows:

Within one year In the second to fifth years, inclusive After five years	31 December 2008 2009 RMB’000 RMB’000 14 27 100 173 180 259 294 459	30 November 2010
	2008 RMB’000 14 100 180 294
		RMB’000 249 399 554
		1,202

(c) Contingency

On 13 August 2010, MS China 3 Limited (‘‘MS China 3’’) entered into the Note Purchase Agreement with the Company, its holding company, Wongs Investment, pursuant to which MS China 3 agreed to purchase the Exchangeable Note in the aggregate principal amount of US$15 million issued by Wongs Investment, exchangeable into the shares of the Company owned and held by Wongs Investment.

– I-32 –

APPENDIX I

ACCOUNTANTS’ REPORT

Pursuant to the Note Purchase Agreement, the Company has indemnified each of MS China 3’s stakeholder and their directors, officers and agents (collectively, the ‘‘Indemnified Persons’’) against any losses, claims, damages, liabilities, judgments, fines, obligations, expenses and liabilities of any kind or nature whatsoever, including any investigative, legal and other expenses incurred in connection with, and any amounts paid in settlement of, any pending or threatened legal action or proceeding (collectively, ‘‘Losses’’) that any Indemnified Person may at any time become subject to or liable for in connection with claims by third parties by reason of the status of such stakeholder as stakeholder of the Company or of such director as a director of the Company, as the case may be, other than Losses arising from the gross negligence, willful misconduct, fraud or dishonesty of such Indemnified Person.

Moreover, the Company, Wongs Investment and the [.] have undertaken to jointly and severally indemnify, defend and hold harmless MS China 3 from and against any Losses resulting from or arising out of any claims against the Company or the Group relating to any tax liabilities that arose before the date of the Note Purchase Agreement (whether or not (i) such claims have been disclosed to MS China 3, (ii) such claims arise before or after the date hereof or (iii) MS China 3 has actual or constructive knowledge of such claims) for which full provision or reserve has not been made in the accounts and the management accounts of the Group as provided to MS China 3 prior to the date of the Note Purchase Agreement. All of the indemnify obligations will be terminated upon [.].

28. RELATED PARTY TRANSACTIONS

(a) During the Relevant Periods, the Group had the following material transactions with related parties:
(i) As mentioned in Note 19, Jiucheng Mining, a related party controlled by the [.] of the Company, provided a counter-guarantee free of charge, to a third party guarantee company, which provided guarantee for the Group’s bank loans with a carrying amount of RMB4,000,000 as at 31 December 2009. The Directors consider that the counter-guarantee provided by a related party was conducted based on terms more favorable than terms available from an independent third party. These guarantees were fully released in August 2010 and the Company does not expect to obtain guarantee from third parties after the [.].
(ii) Mr. Huang Xianyou is the [.] of the Company. Pursuant to a financial support agreement entered into between Mr. Huang and Sichuan Jinshida on 1 April 2008, Mr. Huang agreed to provide interest-free funding with a cap amount of RMB100 million to Sichuan Jinshida for its mining development for five years from 14 March 2008. The Directors consider that the interest-free financial support provided by the [.] was conducted based on terms more favorable than terms available from an independent third party.
(b) Outstanding balances with related parties:

Details of the Group’s balances with related parties at each end of reporting period are disclosed in Note 22.

29. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The financial assets of the Group mainly include cash and bank balances, deposits and other receivables, which arise directly from its operations. Financial liabilities of the Group mainly include advances from customers, other payables, amounts due to the [.], and interest-bearing borrowings.

Risk management is carried out by the finance department which is led by the Group’s executive directors. The Group’s finance department identifies and evaluates financial risks in close co-operation with the Group’s operating units. The main risks arising from the Group’s financial instruments are liquidity risk, interest rate risk, credit risk and foreign currency risk.

The Group’s financial risk management policy seeks to ensure that adequate resources are available to manage the above risks and to create value for its shareholders. The board regularly reviews these risks and they are summarized below.

Liquidity risk

The Group monitors its exposure to a shortage of funds by considering the maturity of both its financial instruments and financial assets and projected cash flows from operations.

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of interestbearing borrowings and advances from the [.].

– I-33 –

APPENDIX I

ACCOUNTANTS’ REPORT

The maturity profile of the Group’s financial liabilities as at the end of each reporting period, based on the contractual undiscounted payment, is as follows:

31 December 2008

Interest bearing bank and other borrowings Financial liabilities under other payables and accruals Due to the [.] 31 December 2009 Interest bearing bank and other borrowings Financial liabilities under other payables and accruals Due to the [.]	On demand RMB’000 — — 17,200 17,200 On demand RMB’000 — — 27,419 27,419	less than 3 months RMB’000 — 5,489 — 5,489 less than 3 months RMB’000 4,644 3,413 — 8,057	3 to less than 12 months RMB’000 1,064 — — 1,064 3 to less than 12 months RMB’000 8,864 — — 8,864	Over 1 year RMB’000 — — — — Over 1 year RMB’000 — — — —	Total
					RMB’000 1,064 5,489 17,200
					23,753
					Total
					RMB’000 13,508 3,413 27,419
					44,340

30 November 2010

Interest bearing bank and other borrowings Trade payables Financial liabilities under other payables and accruals	On demand RMB’000 — — — —	less than 3 months RMB’000 — 124 8,853 8,977	3 to less than 12 months RMB’000 73,905 — — 73,905	Over 1 year RMB’000 — — — —	Total
					RMB’000 73,905 124 8,853
					82,882

Interest rate risk

The Group’s exposure to interest rate risk relates primarily to the Group’s bank deposits and interest-bearing bank loans. The interest rates and terms of repayment of interest-bearing borrowings are disclosed in Note 19. The Group manages its interest rate exposure from all of its interest-bearing borrowings through the use of fixed rates.

In addition, the Group does not consider that it has any significant exposure to the risk of changes in market interest rates from its bank deposits as a reasonably possible change of 25 basis points in the interest rates would have no material impact on the Group’s consolidated statements of comprehensive income during the Relevant Periods.

Credit risk

The Group has no significant concentrations of credit risk. The carrying amounts of cash and cash equivalents and other receivables included in the consolidated statement of financial position represent the Group’s maximum exposure to credit risk in relation to its financial assets.

– I-34 –

APPENDIX I

ACCOUNTANTS’ REPORT

The Group’s cash and cash equivalents are mainly deposits with state-owned banks in Mainland China. The credit risk of the Group’s other financial assets, which comprise other receivables, with a maximum exposure equal to the carrying amounts of these instruments. The Group has no other financial assets which carry significant exposure to credit risk.

During the Relevant Periods, the Group had no concentration of credit risk with any single counterparty.

Foreign currency risk

The Group’s exposure to foreign currency risk relates to the Group’s bank deposits denominated in US$.

The Group has not entered into any hedging transactions to manage the potential fluctuation in foreign currencies. Management monitors the Group’s foreign currency exposure and will consider hedging significant foreign currency exposure when the needs arise.

The following table demonstrates the sensitivity to a 5.0% change in RMB against US$. The 5.0% is the rate used when reporting currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in the foreign currency rate. The sensitivity analyses of the Group’s exposure to foreign currency risk at the end of each reporting period have been determined based on the adjustment of translation of the monetary assets at the end of each reporting period for a 5.0% of change in RMB against US$, with all other variables held constant, of the Group’s profit before tax (due to changes in the fair value of cash and cash equivalents denominated in US$).

Increase/(decrease) in profit before tax: If RMB weakens against US$ If RMB strengthens against US$	Period from 14 March to 31 December 2008 RMB’000 — —	Year ended 31 December 2009 RMB’000 — —	Eleven months ended 30 November	Eleven months ended 30 November
			2009 RMB’000 (Unaudited) — —	2010
				RMB’000 3,390 (3,390)

Fair values

Fair value estimates are made at a specific point in time and are based on relevant market information and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The carrying amounts of the Group’s financial instruments approximated to their fair values due to the short-term maturity at each end of reporting period.

Capital management

The Group’s objectives for managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Directors review the capital structure on a regular basis. During the start-up stage of the Group, the equity holders of the Company contributed capital based on the needs of the Group. The dividend policy will be established when the Group starts to generate significant revenues from its activities. Management will regularly review the capital structure.

The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratio in order to support its business and maximize shareholders’ value.

The Group manages its capital structure and makes adjustments to in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders or raise new capital from its investors.

No changes were made in the objectives, policies or processes for managing capital risk during the Relevant Periods.

– I-35 –

APPENDIX I

ACCOUNTANTS’ REPORT

30. EVENTS AFTER THE REPORTING PERIOD

On 24 January 2011, written sole shareholder’s resolutions were passed to approve matters described in the paragraph headed ‘‘Statutory and General Information — Further Information about the Company — Written Resolutions of the sole Shareholder passed on 24 January 2011’’ attached as Appendix VII to the document.

III. SUPPLEMENTARY PRE-ACQUISITION FINANCIAL INFORMATION OF SICHUAN JINSHIDA

Pre-acquisition financial information of Sichuan Jinshida for the year ended 31 December 2007 and the period ended 13 March 2008 (the date prior to the effective date of acquisition of Sichuan Jinshida) (the ‘‘Pre-acquisition Periods’’) has been prepared in accordance with the basis of preparation and accounting policies as set out below. This information is referred hereafter as the ‘‘Financial Information of Sichuan Jinshida’’.

Sichuan Jinshida was established in the PRC on 20 September 2005 as a limited liability company. Sichuan Jinshida was in its preliminary marble mining development stage during the Pre-acquisition Periods.

1. FINANCIAL INFORMATION

Statements of comprehensive income

Notes Revenue 2.2 Cost of sales Gross profit Other income 2.2 Selling and distribution costs Administrative expenses Other expenses Finance costs 2.3 Loss before tax 2.3 Income tax benefit 2.4 Loss for the year and total comprehensive loss for the year/period attributable to owners of the Company	Year ended 31 December 2007 RMB’000 — — — 14 (30) (828) (8) (1) (853) 175 (678)	Period from 1 January to 13 March 2008 RMB’000 — — — 5 — (502) (20) — (517) 122 (395)

– I-36 –

APPENDIX I

ACCOUNTANTS’ REPORT

Statements of financial position

Non-current assets Property, plant and equipment Intangible assets Deferred tax assets Current assets Cash and cash equivalents Prepayments, deposits and other receivables Current liabilities Other payables and accruals Due to the [.] Net current assets/(liabilities) Total assets less current liabilities Net assets Equity Equity attributable to owners of the Company Share capital Accumulated losses Total equity Statements of changes in equity At 1 January 2007 Capital injection Total comprehensive loss for the year At 31 December 2008 and 1 January 2008 Total comprehensive loss for the period At 13 March 2008	Notes 2.5 2.6 2.7 2.8 2.9 2.10 2.11 Share capital RMB’000 4,000 6,000 — 10,000 — 10,000	31 December 2007 RMB’000 5,452 391 249 6,092 2,833 98 2,931 2,353 205 2,558 373 6,465 6,465 10,000 (3,535) 6,465 Accumulated losses RMB’000 (2,857) — (678) (3,535) (395) (3,930)	13 March 2008 RMB’000 7,360 391 371 8,122 972 271 1,243 3,090 205 3,295 (2,052) 6,070 6,070 10,000 (3,930) 6,070 Total equity RMB’000 1,143 6,000 (678) 6,465 (395) 6,070

– I-37 –

APPENDIX I

ACCOUNTANTS’ REPORT

Statements of cash flows

Notes Cash flows from operating activities Loss before tax Adjustments for: Depreciation of property, plant and equipment 2.3, 2.5 Less: Depreciation capitalized 2.3 Interest income 2.2 Decrease/(increase) in prepayments, deposits and other receivables Increase/(decrease) in other payables and accruals Net cash flows from operating activities Cash flows from investing activities Purchase of items of property, plant and equipment Purchase of mining rights Interest received Net cash flows used in investing activities Cash flows from financing activities Proceeds from capital injection Advance from the controlling shareholder Net cash flows from financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year/period Cash and cash equivalents at end of year/period ANALYSIS OF BALANCES OF CASH AND CASH EQUIVALENTS Cash and bank balances 2.8	Year ended 31 December 2007 RMB’000 (853) 260 (255) 5 (14) 389 (173) (646) (3,234) (391) 14 (3,611) 6,000 205 6,205 1,948 885 2,833 2,833	Period from 1 January to 13 March 2008 RMB’000 (517) 92 (87) 5 (5) (173) 84 (606) (1,260) — 5 (1,255) — — — (1,861) 2,833 972 972

– I-38 –

APPENDIX I

ACCOUNTANTS’ REPORT

2. NOTES TO THE FINANCIAL INFORMATION OF SICHUAN JINSHIDA

2.1 Principal accounting policies

The financial information of Sichuan Jinshida has been prepared in accordance with the accounting policies set out in Section II, Note 3.3 of this report: Summary of significant accounting policies.

2.2 Revenue and other income

Revenue represents the net invoiced value of goods sold, net of trade discounts and returns and various types of government surcharges, where applicable. As Sichuan Jinshida had not commenced commercial production, there were no revenue, trade discounts or returns during the Pre-acquisition Periods.

Other income represents bank interest income during the Pre-acquisition Periods.

2.3 Loss before tax

Sichuan Jinshida’s loss before tax is arrived at after charging:

Staff costs: Wages and salaries Pension scheme contributions — Defined contribution scheme Other staff benefits Less: Staff costs capitalized Bank charges Auditors’ remuneration Depreciation of items of property, plant and equipment (Note 2.5) Less: Depreciation capitalized Operating lease rentals for office	Year ended 31 December 2007 RMB’000 493 84 65 642 (252) 390 1 7 260 (255) 5 12	Period from 1 January to 13 March 2008 RMB’000 245 61 66 372 (116) 256 — 1 92 (87) 5 7

2.4 Income tax benefit

In accordance with the relevant PRC income tax rules and regulations, prior to 1 January 2008, Sichuan Jinshida was subject to the PRC corporate income tax (‘‘CIT’’) at a statutory rate of 33% on its taxable income.

During the 5th Session of the 10th National People’s Congress, which was concluded on 16 March 2007, the new PRC CIT Law was approved and became effective on 1 January 2008. The new PRC CIT Law introduces a wide range of changes which include, but are not limited to, the unification of the CIT rate for domestic-invested and foreign-invested enterprises at 25%.

– I-39 –

APPENDIX I

ACCOUNTANTS’ REPORT

The major components of income tax benefit for the Pre-acquisition Periods are as follows:

Current — Mainland China PRC CIT for the year/period Deferred tax movement (Note 2.7) Total tax credit for the year/period	Year ended 31 December 2007 RMB’000 — (175) (175)	Period from 1 January to 13 March 2008
		RMB’000 — (122)
		(122)

A reconciliation of income tax benefit applicable to loss before tax at the applicable income tax rate in the PRC to income tax benefit of Sichuan Jinshida for each of the Pre-acquisition Periods is as follows:

Loss before tax Tax at the applicable tax rate of Sichuan Jinshida Expenses not deductible for tax Income tax credit at Sichuan Jinshida’s effective rate	Year ended 13 December 2007 RMB’000 (853) (281) 106 (175)	Period from 1 January to 13 March 2008
		RMB’000 (517)
		(129) 7
		(122)

2.5 Property, plant and equipment

Cost: At 1 January 2007 Additions Transfers At 31 December 2007 and 1 January 2008 Additions At 13 March 2008 Accumulated depreciation: At 1 January 2007 Provided for the year At 31 December 2007 and 1 January 2008 Provided for the period At 13 March 2008 Net carrying amount: At 1 January 2007 At 31 December 2007 At 13 March 2008	Buildings RMB’000 — 417 — 417 — 417 — (9) (9) (7) (16) — 408 401	Plant and machinery RMB’000 921 741 7 1,669 565 2,234 (94) (207) (301) (63) (364) 827 1,368 1,870	Office equipment RMB’000 124 333 — 457 — 457 (11) (33) (44) (15) (59) 113 413 398	Motor vehicles RMB’000 37 93 — 130 6 136 (1) (11) (12) (7) (19) 36 118 117	CIP RMB’000 965 2,187 (7) 3,145 1,429 4,574 — — — — — 965 3,145 4,574	Total
						RMB’000 2,047 3,771 —
						5,818 2,000
						7,818
						(106) (260)
						(366) (92)
						(458)
						1,941
						5,452
						7,360

As at 31 December 2007 and 13 March 2008, there were no pledged property, plant and equipment.

– I-40 –

APPENDIX I

ACCOUNTANTS’ REPORT

2.6 Intangible assets

Cost: At 1 January 2007 Additions At 31 December 20007 and 1 January 2008 Additions At 13 March 2008 Accumulated amortization: At 1 January 2007 and 13 March 2008 Net carrying amount: At 1 January 2007 At 31 December 2007 At 13 March 2008	Mining rights
	RMB’000 — 391
	391 —
	391
	—
	—
	391
	391

2.7 Deferred tax

The movements in deferred tax assets are as follows:

At 1 January 2007 Deferred tax credited to statement of comprehensive income during the year (Note 2.4) At 31 December 2007 and 1 January 2008 Deferred tax credited to statement of comprehensive income during the period (Note 2.4) At 13 March 2008	Excess tax depreciation over book value of property, plant and equipment RMB’000 12 24 36 14 50	Losses available for off-setting against future taxable profits RMB’000 62 151 213 108 321	Total
			RMB’000 74 175
			249 122
			371

As mentioned in Note 2.4, deferred tax assets that are expected to be realized and settled in 2008 and onwards have been provided at an enacted CIT rate of 25%.

2.8 Cash and cash equivalents

Cash at banks

31 December 2007 RMB’000 2,833	13 March 2008
	RMB’000 972

– I-41 –

APPENDIX I

ACCOUNTANTS’ REPORT

Sichuan Jinshida’s cash and bank balances are all denominated in RMB at each end of Pre-acquisition Periods.

Cash at banks earns interest at floating rates based on daily bank deposit rates. The bank balances are deposited with creditworthy banks with no recent history of default.

The carrying amounts of the cash and cash equivalents in the statement of financial position approximate to their fair values.

2.9 Prepayments, deposits and other receivables

Prepayments: Prepayment for purchase of — Raw materials — Utilities Prepaid operating lease rentals to be amortized within one year — Office Deposits Other receivables Total	31 December 2007 RMB’000 2 9 19 3 65 98	13 March 2008
		RMB’000 144 36 12 1 78
		271

The carrying amounts of prepayments, deposits and other receivables closely approximate to their respective fair values.

None of the above assets is either past due or impaired. The financial assets included in the above relate to receivables for which there was no recent history of default.

2.10 Other payables and accruals

Advances from customers Accruals related to: Property, plant and equipment Taxes other than income tax Payroll and welfare Deposits received Payable for rehabilitation Other payables	31 December 2007 RMB’000 97 — 11 124 2 2,100 19 2,353	13 March 2008
		RMB’000 97 622 18 214 2 2,100 37
		3,090

Other payables and accruals are non-interest-bearing and have average terms of one to three months.

The carrying amounts of other payables and accruals approximate to their fair values.

2.11 Balances with the [.]

Balances with the [.] are interest-free, unsecured and have no fixed terms of repayment.

The carrying amounts of balances with the [.] approximate to their fair values.

– I-42 –

APPENDIX I

ACCOUNTANTS’ REPORT

2.12 Related party transactions

(a) During the Pre-acquisition Periods, Sichuan Jinshida had no material transactions with related parties.
(b) Outstanding balances with the [.]:

Details of the Group’s balances with the [.] at each end of Pre-acquisition Periods are disclosed in Note 2.11.

IV. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Group and the Company in respect of any period subsequent to 30 November 2010.

Yours faithfully, Ernst & Young Certified Public Accountants Hong Kong

– I-43 –

APPENDIX III

LOSS ESTIMATE

The estimate of the consolidated loss after taxation and minority interests but before extraordinary items of our Company for the year ended 31 December 2010 is set out in the paragraph headed ‘‘Loss Estimate For The Year Ended 31 December 2010’’ in the section headed ‘‘Financial Information’’ in this document.

(1) BASES

The Directors have prepared the estimate of consolidated loss attributable to owners of our Company for the year ended 31 December 2010 based on the audited consolidated results of our Group for the eleven months ended 30 November 2010 and an estimate of the consolidated results of our Group for the remaining one month ended 31 December 2010.

The estimate has been prepared on a bases consistent in all material respects with the accounting policies currently adopted by our Group as summarized in the Accountants’ Report, the text of which is set out in Appendix I to this document.

– III-1 –

APPENDIX IV

PROPERTY VALUATION

The following is the text of a letter, summary of values and valuation certificates, prepared for the purpose of incorporation in this document received from Jones Lang LaSalle Sallmanns Limited, an independent valuer, in connection with its valuation as at December 31, 2010 of the property interests of the Group.

==> picture [143 x 46] intentionally omitted <==

[.] 2011

The Board of Directors

China Kingstone Mining Holdings Limited

Cricket Square, HutChins Drive P. O. Box 2861 Grand Cayman, KY1-1111 Cayman Islands

Dear Sirs,

In accordance with your instruction to value the properties in which China Kingstone Mining Holdings Limited (the ‘‘Company’’) and its subsidiaries (hereinafter together referred to as the ‘‘Group’’) have interests in the People’s Republic of China (the ‘‘PRC’’), we confirm that we have carried out inspections, made relevant enquiries and searches and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the capital values of the property interests as at December 31, 2010 (the ‘‘date of valuation’’).

Our valuation of the property interests represents the market value which we would define as intended to mean ‘‘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’’.

Due to the nature of the building of property no. 1 and the particular location in which it is situated, there are unlikely to be relevant market comparable sales available, the property interest therefore has been valued on the basis of its depreciated replacement cost.

Depreciated replacement cost is defined as ‘‘the current cost of replacing an asset with its modern equivalent asset less deductions for physical deterioration and all relevant forms of obsolescence and optimization.’’ It is based on an estimate of the market value for the existing use of the land, plus the current cost of replacing the improvements, less deductions for physical deterioration and all relevant forms of obsolescence and optimization. The depreciated replacement cost of the property interest is subject to adequate potential profitability of the concerned business.

We have attributed no commercial value to the property interests in Group II, which are leased by the Group, due either to the short-term nature of the lease or the prohibition against assignment or subletting or otherwise due to the lack of substantial profit rent.

Our valuation has been made on the assumption that the seller sells the property interests in the market without the benefit of a deferred term contract, leaseback, joint venture, management agreement or any similar arrangement, which could serve to affect the values of the property interests.

– IV-1 –

APPENDIX IV

PROPERTY VALUATION

No allowance has been made in our report for any charge, mortgage or amount owing on any of the property interests valued nor for any expense or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the properties are free from encumbrances, restrictions and outgoings of an onerous nature, which could affect their values.

In valuing the property interests, we have complied with all requirements contained in Chapter 5 and Practice Note 12 of the [.]; the RICS Valuation Standards published by the Royal Institution of Chartered Surveyors; the HKIS Valuation Standards on Properties published by the Hong Kong Institute of Surveyors; and the International Valuation Standards published by the International Valuation Standards Council.

We have relied to a very considerable extent on the information given by the Group and have accepted advice given to us on such matters as tenure, planning approvals, statutory notices, easements, particulars of occupancy, lettings, and all other relevant matters.

We have been shown copies of various documents including State-owned Land Use Rights Certificates and official plans relating to the property interests and have made relevant enquiries. Where possible, we have examined the original documents to verify the existing title to the property interests in the PRC and any material encumbrance that might be attached to the property interests or any tenancy amendment. We have relied considerably on the advice given by the Company’s PRC legal adviser — Commerce & Finance, concerning the validity of the property interests in the PRC.

We have not carried out detailed measurements to verify the correctness of the areas in respect of the properties but have assumed that the areas shown on the title documents and official site plans handed to us are correct. All documents and contracts have been used as reference only and all dimensions, measurements and areas are approximations. No on-site measurement has been taken.

We have inspected the exterior and, where possible, the interior of the properties. However, we have not carried out investigation to determine the suitability of the ground conditions and services for any development thereon. Our valuation has been prepared on the assumption that these aspects are satisfactory and that no unexpected cost and delay will be incurred during construction. Moreover, no structural survey has been made, but in the course of our inspection, we did not note any serious defect. We are not, however, able to report whether the properties are free of rot, infestation or any other structural defect. No tests were carried out on any of the services.

We have had no reason to doubt the truth and accuracy of the information provided to us by the Group. We have also sought confirmation from the Group that no material factors have been omitted from the information supplied. We consider that we have been provided with sufficient information to arrive an informed view, and we have no reason to suspect that any material information has been withheld.

Unless otherwise stated, all monetary figures stated in this report are in Renminbi (RMB).

Our valuation is summarized below and the valuation certificates are attached.

Yours faithfully, for and on behalf of

Jones Lang LaSalle Sallmanns Limited

Paul L. Brown

B.Sc. FRICS FHKIS Chief Valuation Adviser

Sam B. Q. Zhu

MRICS Director

Note: Paul L. Brown is a Chartered Surveyor who has 28 years’ experience in the valuation of properties in the PRC and 31 years of property valuation experience in Hong Kong, the United Kingdom and the Asia-Pacific region.

Sam B. Q. Zhu is a Chartered Surveyor who has 13 years’ experience in the valuation of properties in the PRC.

– IV-2 –

APPENDIX IV

PROPERTY VALUATION

SUMMARY OF VALUES

Group I — Property interest held and occupied by the Group in the PRC

No. 1.	Property 2 parcels of land and an office building located at Groups 1 and 3 Zhenjiang Village Xiangshui Town Jiangyou City Sichuan Province The PRC Sub-total:	Capital value in existing stateas at December 31, 2010 RMB 1,392,000 1,392,000	Interest attributable to the Group 100%	Capital value attributable to the Group as at December 31, 2010
				RMB 1,392,000
				1,392,000

Group II — Property interests leased and occupied by the Group in the PRC

No. 2. 3.	Property 35 parcels of land located at Zhenjiang Village Xiangshui Town Jiangyou City Sichuan Province The PRC Units 1413 to 1414, 1417 to 1420 on Level 4, Jinpeng Modern City No. 288 Shicheng Road Jiangyou City Sichuan Province The PRC	Capital value in existing state as at December 31, 2010 RMB No commercial value No commercial value	Interest attributable to the Group 100% 100%	Capital value attributable to the Group as at December 31, 2010
				RMB No commercial value No commercial value

– IV-3 –

APPENDIX IV

PROPERTY VALUATION

No. 4.	Property Unit D3 of a single-storey building No. 4 Jingquan 3rd Road Yong He Area Econ-Tech Development Zone Guangzhou City Guangdong Province The PRC Sub-total: Grand total:	Capital value in existing state as at December 31, 2010 RMB No commercial value Nil 1,392,000	Interest attributable to the Group 100%	Capital value attributable to the Group as at December 31, 2010
				RMB No commercial value
				Nil
				1,392,000

– IV-4 –

APPENDIX IV

PROPERTY VALUATION

VALUATION CERTIFICATE

Group I — Property interest held and occupied by the Group in the PRC

No. 1.	Property 2 parcels of land and an office building located at Groups 1 and 3 Zhenjiang Village Xiangshui Town Jiangyou City Sichuan Province The PRC	Description and tenure The property comprises 2 parcels of land with a total site area of approximately 9,275.9 sq.m. and an office building with a gross floor area of approximately 826 sq.m. erected thereon which was completed in September 2010. The land use rights of the property have been granted for a term with expiry date on October 11, 2060 for industrial use.	Particulars of occupancy The property is currently occupied by the Group for office purpose.	Capital value in existing state as at December 31, 2010
				RMB 1,392,000 100% interest attributable to the Group: RMB1,392,000

Notes:

As advised by the Group, Sichuan Jiangyou Jinshida Stone Industry Co., Ltd. (‘‘Sichuan Jinshida’’) is an indirectly wholly-owned subsidiary of the Company.
Pursuant to 2 State-owned Land Use Rights Grant Contracts — Nos. 510601-2010-0262 and 510601-2010-0263 dated 12 October 2010 entered into between Jiangyou City Bureau of State-owned Land and Resources (江油市國土資源局) and Sichuan Jinshida, the land use rights of 2 parcels of land with a total site area of 9,277 sq.m. were contracted to be granted to Sichuan Jinshida for a term of 50 years expiring on October 10, 2060 for industrial use. The total land premium was RMB1,113,600.
Pursuant to 2 State-owned Land Use Rights Certificates dated October 20, 2010 — Jiang Guo Yong (2010) Di Nos. 2500025 and 2500026 (江國用(2010)第2500025和2500026號), the land use rights of 2 parcels of land with a total gross floor area of approximately 9,275.9 sq.m. have been granted to Sichuan Jinshida expiring on October 11, 2060 for industrial use.
Pursuant to a Construction Land Planning Permit dated April 6, 2010 — Di Zi Di No. 10002 issued by Jiangyou City Planning & Construction Bureau, permission towards the planning of a parcel of land with a site area of approximately 13.92 mu (9,280.05 sq.m.) has been granted to Sichuan Jinshida.
Pursuant to a Construction Work Planning Permit dated April 6, 2010 — Jian Zi Di No. 10083 issued by Jiangyou City Planning & Construction Bureau, an office building with a planned gross floor area of approximately 826 sq.m. has been approved for construction.
Pursuant to a Construction Work Commencement Permit dated August 11, 2010 — Jian Shi Di (2010) No. 274 in favour of Sichuan Jinshida, permission by Jiangyou City Planning & Construction Bureau was given to commence the construction work of the building.
We have not been provided with any Building Ownership Certificate of the building.
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:
a. Sichuan Jinshida has obtained the land use rights of the property and has rights to occupy, use, lease, mortgage and transfer the land use rights of the property in accordance with the valid term stipulated in the State-owned Land Use Rights Certificate legally;
b. Sichuan Jinshida has obtained all requisite construction permits for the property; and
c. The likelihood that Sichuan Jinshida may be penalized by Jiangyou City State-owned Land and Resources Bureau for occupying and using the 2 parcels of land of the property before obtaining the State-owned Land Use Rights Certificates is low.
We have relied on the aforesaid legal opinion and attributed no commercial value to the building. However, for reference purpose, we are of the opinion that the depreciated replacement cost of the building (excluding the land element) as at the date of valuation would be RMB2,249,000 assuming all relevant title certificates have been obtained and the building could be freely transferred.

– IV-5 –

APPENDIX IV

PROPERTY VALUATION

VALUATION CERTIFICATE

Group II — Property interests leased and occupied by the Group in the PRC

No. 2.	Property 35 parcels of land located at Zhenjiang Village Xiangshui Town Jiangyou City Sichuan Province The PRC	Description and tenure The property comprises 35 parcels of land with a total site area of approximately 153.921 mu (102,614.51 sq.m.), which includes a parcel of forestland with a site area of approximately 128.106 mu. (85,404.43 sq.m.) The property is leased to Sichuan Jiangyou Jinshida Stone Industry Co., Ltd. (‘‘Sichuan Jinshida’’, an indirectly wholly- owned subsidiary of the Company) from various independent third parties (refer to notes 1 to 2).	Particulars of occupancy The property is currently occupied by the Group for ancillary purpose.	Capital value in existing state as at December 31, 2010
				RMB No commercial value

Notes:

Pursuant to 34 Land Lease Agreements entered into between Sichuan Jinshida and various independent third parties, 34 parcels of land with a total site area of approximately 25.815 mu (17,210.09 sq.m.) (‘‘Land A’’) are leased to Sichuan Jinshida for various terms with the expiry dates between May 30, 2021 and December 25, 2028 in consideration of annual rent as 400–500 kgs yellow millet per mu or RMB1,100 per mu.
According to the opinion of the Company’s PRC legal advisers, pursuant to relevant approvals issued by Jiangyou City Land and Resources Bureau which indicate that the land use rights in respect of Land A have been approved to be used by Sichuan Jinshida temporarily for a term of 2 years, Sichuan Jinshida has the rights to use Land A in accordance with such approvals and relevant lease agreements within the valid period stipulated by such approvals.
Pursuant to a Confirmation Letter dated July 30, 2010 issued by Jiangyou City Forestry Bureau, Jiangyou City Forestry Bureau has approved Sichuan Jinshida to use a parcel of forestland with a site area of approximately 128.106 mu (85,404.43 sq.m.) (‘‘Land B’’) temporarily for a term expiring on July 30, 2012.

Pursuant to a Forestland Lease Agreement entered into between Sichuan Jinshida and an independent third party, a parcel of forestland with a site area of approximately 312 mu (208,001.04 sq.m.) (‘‘Forestland’’) (including Land B) is leased to Sichuan Jinshida for a term of 8 years expiring on 10 May 2016 at a total rent of RMB660 per mu subject to a 3% increase biennially.

According to the opinion of the Company’s PRC legal advisers, (i) pursuant to (a) relevant approvals issued by Jiangyou City Land and Resources Bureau which indicate that the land use rights in respect of Land B have been approved to be used by Sichuan Jinshida temporarily for a term of 2 years and (b) the aforesaid Confirmation Letter, Sichuan Jinshida has the rights to use Land B in accordance with such approvals, confirmation letter and relevant lease agreement within the valid period stipulated by such approvals and confirmation letter; and (ii) as Sichuan Jinshida has not obtained any proper approvals from local authorities for the remaining portion of Forestland with a site area of approximately 183.894 mu (122,596.61 sq.m.) (‘‘Land C’’), the lease relating to this portion has not become effective.

Pursuant to 111 agreements entered into between Sichuan Jinshida and various independent third parties, there are 111 parcels of land/forestland which adjoin the property and are leased by Sichuan Jinshida, comprising (a) 54 parcels of land with a total site area of approximately 252.44 mu (168,294.17 sq.m.) leased to Sichuan Jinshida for various terms with the expiry dates between April 25, 2023 and August 12, 2059 in consideration of annual rent as 400-500 kgs yellow millet per mu or RMB44 per mu to RMB1,032.64 per mu; and (b) 57 parcels of forestland with a total site area of approximately 402.74 mu (268,494.68 sq.m.) leased to Sichuan Jinshida for various terms with the expiry dates between April 16, 2016 and February 2, 2040 at an annual rent of RMB20 per mu to RMB400 per mu or RMB82.5 per mu subject to a 3% increase biennially.

– IV-6 –

APPENDIX IV

PROPERTY VALUATION

Pursuant to a Mining Permit dated February 21, 2011 issued by the State-owned Land and Resources Bureau of Sichuan Province, the mining permit rights with a mining area of approximately 0.4436 sq.km. are authorized to Sichuan Jinshida for a term commencing from February 21, 2011 and expiring on February 21, 2021. As advised by the Group, portions of the land/forestland parcels mentioned in note 3 with a total site area of approximately 565.714 mu (377,144.55 sq.m.) are included in the mining area prescribed by the Mining Permit (‘‘Land Within Mining Area’’); and the remaining portion with a site area of approximately 89.466 mu (59,644.30 sq.m.) and Land C are located at the outside of mining area (‘‘Land Outside Mining Area’’).
According to the opinion of the Company’s PRC legal advisers, the leases relating to the above mentioned 111 parcels land/forestland will become effective on conditions that (a) Sichuan Jinshida has obtained proper approvals from local authorities for using the Land Within Mining Area; and (b) Sichuan Jinshida has obtained relevant shortterm permits and signed required agreements with all landlords for using the Land Outside Mining Area.
We have relied on the aforesaid legal opinion and excluded the remaining portion mentioned in note 2 and the 111 parcels land/forestland mentioned in note 3 together having a total site area of approximately 839.074 mu (559,385.46 sq.m.) from our valuation.

– IV-7 –

APPENDIX IV

PROPERTY VALUATION

VALUATION CERTIFICATE

No. 3.	Property Units 1413 to 1414, 1417 to 1420 on Level 4 Jinpeng Modern City No. 288 Shicheng Road Jiangyou City Sichuan Province The PRC	Description and tenure The property comprises 6 units on Level 4 of an 8-storey office building completed in about 2005. The property has a total lettable area of approximately 218.82 sq.m. The property is leased to Sichuan Jiangyou Jinshida Stone Industry Co., Ltd. (‘‘Sichuan Jinshida’’, an indirectly wholly- owned subsidiary of the Company) from 2 independent third parties for a term of one year expiring on September 30, 2011 at an annual rent of RMB27,572, exclusive of water and electricity charges.	Particulars of occupancy The property is currently occupied by the Group for office purpose.	Capital value in existing state as at December 31, 2010
				RMB No commercial value

Notes:

Pursuant to 2 Lease Agreements, the property is leased to Sichuan Jinshida from 2 independent third parties for a term of one year expiring on September 30, 2011 at an annual rent of RMB27,572, exclusive of water and electricity charges.
We have been provided with a legal opinion on the legality of the lease agreements to the property issued by the Company’s PRC legal advisers, which contains, inter alia, the following:
a. The lessors have the legal rights to lease the property;
b. The Lease Agreements are legal, valid and binding on both signing parties; and
c. Sichuan Jinshida has the rights to use and occupy the property in accordance with the Lease Agreements.

– IV-8 –

APPENDIX IV

PROPERTY VALUATION

VALUATION CERTIFICATE

No. 4.	Property Unit D3 of a single-storey building No. 4 Jingquan 3rd Road Yong He Area Econ-Tech Development Zone Guangzhou City Guangdong Province The PRC	Description and tenure The property comprises an office unit of a single-storey office building completed in about 2004. The unit has a lettable area of approximately 25 sq.m. The property is leased to Kingstone (Guangzhou) Stone Industry Co., Ltd. (‘‘Guangzhou Kingstone’’, an indirectly wholly-owned subsidiary of the Company.) from an independent third party for a term of one year expiring on May 10, 2011 with free rent.	Particulars of occupancy The property is currently occupied by the Group for office purpose.	Capital value in existing state as at December 31, 2010
				RMB No commercial value

Notes:

Pursuant to a Building Lease Agreement, the property is leased to Guangzhou Kingstone from an independent third party for a term of one year expiring on May 10, 2011 at nil rent.
We have been provided with a legal opinion on the legality of the lease agreement to the property issued by the Company’s PRC legal advisers, which contains, inter alia, the following:
a. The lessor has the legal rights to lease the property;
b. The Building Lease Agreement is legal, valid and binding on both signing parties;
c. Guangzhou Kingstone has the rights to use and occupy the property in accordance with the Building Lease Agreement; and
d. Lack of the registration will not affect the legality of the Building Lease Agreement. However, the relevant parties of the lease may be ordered to rectify this non-compliance within a prescribed period by the competent authority. If such non-compliance can not be rectified in due course, there may be imposed a fine of RMB1,000 to RMB10,000 on the relevant parties.

– IV-9 –

APPENDIX V

COMPETENT PERSON’S REPORT

BEHRE DOLBEAR

BEHRE DOLBEAR ASIA, INC.

founded 1911 MINERALS INDUSTRY ADVISERS

999 Eighteenth Street – Suite 1500, Denver, CO 80202 USA Telephone +1.303.620.0020 Fax +1.303.620.0024

BEIJING DENVER GUADALAJARA HONG KONG LONDON NEW YORK SANTIAGO SYDNEY TORONTO VANCOUVER

www.dolbear.com

==> picture [38 x 9] intentionally omitted <==

The Directors China Kingstone Mining Holdings Limited Cricket Square, Hutchins Drive P.O. Box 2681 Grand Cayman, KY1-1111 Cayman Islands

Gentlemen,

Behre Dolbear Asia, Inc. (‘‘BDASIA’’), a wholly owned subsidiary of Behre Dolbear & Company, Inc. (‘‘Behre Dolbear’’), herewith submits a competent person’s report (‘‘CPR’’) on the Independent Technical Review of the Jiangyou Limestone Dimension Stone Project (the ‘‘Jiangyou Project’’) in Jiangyou City, Sichuan Province, the People’s Republic of China. The address for BDASIA is noted above. This letter of transmittal is part of the CPR.

This CPR covers the Jiangyou Project in Jiangyou City, Sichuan Province in China that is 100% owned and operated by Sichuan Jiangyou Jinshida Company Limited, which is an indirectly 100%owned subsidiary of China Kingstone Mining Holdings Limited (the ‘‘Company’’). This mining property constitutes the primary mining asset of the Company. The Jiangyou Project is a limestone dimension stone mining project currently under construction. BDASIA’s project team visited the Jiangyou Project in March 2010 and June–July 2010.

The purpose of this CPR is to provide an independent technical assessment of the Company’s Jiangyou Project to be included in the document for the Company’s [.] on the main board of The [.] of Hong Kong Limited (‘‘SEHK’’). This CPR has been prepared in accordance with the Rules Governing the [.] of Securities on the SEHK (the ‘‘[.] Rules’’). The reporting standard adopted by this CPR is the VALMIN Code and Guidelines for Technical Assessment and Valuation of Mineral Assets and Mineral Securities for Independent Expert Reports as adopted by the Australasian Institute of Mining and Metallurgy in 1995 and updated in 2005. The limestone resources and reserves defined for the property have been reviewed for conformity with the Australasian Code for Reporting Exploration Results, Mineral Resources and Ore Reserves (the ‘‘JORC Code’’) prepared by the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, the Australian Institute of Geoscientists, and the Minerals Council of Australia in 1999 and revised in 2004.

– V-1 –

APPENDIX V

COMPETENT PERSON’S REPORT

The evidence upon which the estimated limestone resources and reserves are based includes the deposit geology, drilling and sampling information, and project economics. BDASIA formed its view of the limestone resource and reserve estimates based on the site visits of BDASIA’s professionals to the subject mining property, interviews with the Company’s management, site personnel and outside consultants, analysis of the drilling and sampling database, and the procedures and parameters used for the estimates by the Company’s outside consultants.

The BDASIA project team consisted of senior-level mining professionals from Behre Dolbear’s Denver office and New York office in the United States and the Sydney office in Australia. The scope of work conducted by BDASIA included site visits to the reviewed mining property, technical analysis of the project geology, limestone resource and reserve estimates, and review of limestone dimension stone mining, limestone slab and other by-products production, operating costs, capital costs, environmental and social management and occupational health and safety.

BDASIA did not audit the Company’s data, re-estimate the limestone resources, or review the tenement status with respect to any legal or statutory issues.

BDASIA’s CPR comprises an Introduction, followed by reviews of the technical aspects of Geology, Limestone Resources and Reserves, Limestone Dimension Stone Mining, Limestone Slab and Other By-Products Production, Operating and Capital Costs, Environmental and Social Management, and Occupational Health and Safety, and a Risk Analysis of the mining property. BDASIA believes that the CPR adequately and appropriately describes the technical aspects of the mining project and addresses issues of significance and risk.

BDASIA is independent of the Company and its Jiangyou Project. Neither BDASIA nor any of its employees or associates involved in this project holds any share or has any direct or indirect pecuniary or contingent interests of any kind in the Company or its Jiangyou Project. BDASIA is to receive a fee for its services (the work product of which includes this CPR) at its normal commercial rate and customary payment schedules. The payment of BDASIA’s professional fee is not contingent on the outcome of this CPR.

The effective date of this CPR is December 31, 2010 and the Company has advised BDASIA that there is no material change for the Jiangyou Project since the effective date. The sole purpose of this CPR is for the use of the Directors of the Company and its [.] and advisers in connection with the Company’s [.] and should not be used or relied upon for any other purpose. Neither the whole nor any part of this CPR nor any reference thereto may be included in or with or attached to any document or used for any other purpose, without BDASIA’s written consent to the form and context in which it appears. BDASIA consents to the inclusion of this CPR in the Company’s [.] for the purpose of the [.] on the SEHK.

Yours faithfully,

BEHRE DOLBEAR ASIA, INC.

Qingping Deng, Ph.D., CPG Project Manager

Behre Dolbear Project 10-051

– V-2 –

APPENDIX V

COMPETENT PERSON’S REPORT

		TABLE OF CONTENTS
1.0	INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			[V-6]
2.0	QUALIFICATIONS OF BEHRE DOLBEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			[V-10]
3.0	DISCLAIMER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			[V-11]
4.0	PROPERTY DESCRIPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			[V-12]
	4.1	Location, Access and Infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		[V-12]
	4.2	Climate and Physiography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		[V-12]
	4.3	Property Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		[V-13]
	4.4	History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		[V-14]
5.0	GEOLOGY AND DATABASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .			[V-15]
	5.1	Geology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		[V-15]
		5.1.1 Regional Geology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	.	[V-15]
		5.1.2 Deposit Geology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	.	[V-15]
		5.1.3 The Limestone Deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	.	[V-16]
		5.1.4 Color and Texture of the Limestone Resource . . . . . . . . . . . . . . . . . . . . .	.	[V-18]
		5.1.5 Mineralogical and Chemical Composition of the Limestone Resource	.	[V-20]
		5.1.6 Bulk Density, Hardness and Water Absorption of
		the Limestone Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	.	[V-21]
		5.1.7 Mechanic Properties of the Limestone Resources . . . . . . . . . . . . . . . . . . .	.	[V-21]
		5.1.8 Radioactivities of the Limestone Resource . . . . . . . . . . . . . . . . . . . . . . . . .	.	[V-21]
	5.2	Geological Database . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		[V-22]
		5.2.1 Database Used for the Jiangyou Project Limestone Resource Estimates		[V-22]
		5.2.2 Drilling, Logging and Survey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	.	[V-23]
		5.2.3 Sampling, Sample Preparation and Assaying/Testing . . . . . . . . . . . . . . .	.	[V-23]
		5.2.3.1 Limestone Type Standard Samples and Basic Samples . . . . .	.	[V-23]
		5.2.3.2 Chemical Analysis Samples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	.	[V-24]
		5.2.3.3 Samples for Physical Property Measurements . . . . . . . . . . . . .	.	[V-24]

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APPENDIX V COMPETENT PERSON’S REPORT

6.0	LIMESTONE RESOURCES AND RESERVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	LIMESTONE RESOURCES AND RESERVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	[V-25]
	6.1	Limestone Resource/Reserve Classification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	[V-25]
	6.2	General Procedures and Parameters for the Limestone Resource Estimation .	[V-26]
		6.2.1 Determination of Limestone Resource Industrial Requirements . . . . . . .	[V-27]
		6.2.2 Determination of Block Boundaries and Confidence Levels . . . . . . . . . . .	[V-27]
		6.2.3 Limestone Resource Estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	[V-28]
		6.2.4 Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	[V-29]
	6.3	Mineral Resource Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	[V-30]
	6.4	Limestone Dimension Stone Reserve Estimation . . . . . . . . . . . . . . . . . . . . . . . . . . .	[V-30]
	6.5	Limestone Dimension Stone Reserve Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . .	[V-32]
	6.6	Mine Life Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	[V-32]
7.0	POTENTIAL FOR DEFINING ADDITIONAL LIMESTONE RESOURCES . . . . . .		[V-34]
8.0	MINING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		[V-35]
	8.1	Mine Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	[V-35]
	8.2	Mining Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	[V-36]
	8.3	Geotechnical and Hydrological Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	[V-37]
	8.4	Mine Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	[V-38]
9.0	LIMESTONE SLAB AND OTHER BY-PRODUCTS PRODUCTION . . . . . . . . . . . . .		[V-40]
	9.1	Limestone Slab Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	[V-40]
	9.2	Other By-Products Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	[V-42]
10.0	OPERATING COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		[V-43]
11.0	CAPITAL COSTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		[V-48]
12.0	ENVIRONMENTAL AND SOCIAL MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . .		[V-50]
	12.1	Environmental Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	[V-50]
	12.2	Social Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	[V-51]
13.0	OCCUPATIONAL HEALTH AND SAFETY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		[V-52]
14.0	RISK ANALYSIS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		[V-53]

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		LIST OF TABLES
Table	5.1	Chemical Analytical Results of Limestones and Dolomite of the Jiangyou Project	V-21
Table	5.2	Geological Database Statistics for the Jiangyou Project. . . . . . . . . . . . . . . . . .	V-22
Table	6.1	Jiangyou Project Limestone Resource Summary, as of December 31, 2010 . . . .	V-30
Table	6.2	Jiangyou Project Limestone Resource Inside the Final Pit Design,
		as of December 31, 2010. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-31
Table	6.3	Jiangyou Project Limestone Dimension Stone Reserves, as of December 31, 2010	V-32
Table	8.1	Historical and Forecast Limestone Blocks Production for the Jiangyou Project,
		2010–2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-39
Table	9.1	Historical and Forecast Limestone Slab Production for the Jiangyou Project,
		2010–2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-41
Table	9.2	Forecast Other By-Product Production for the Jiangyou Project, 2011–2015. . . .	V-42
Table	10.1	Actual and Forecast Limestone Block Operating/Production Costs for the
		Jiangyou Project, 2010–2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-43
Table	10.2	Actual and Forecast Limestone/Slab Operating/Production Costs for the
		Jiangyou Project, 2010–2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-44
Table	10.3	Forecast Shaped Stone Products Operating/Production Costs for the Jiangyou
		Project, 2011–2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-45
Table	10.4	Forecast By-Products Operating/Production Costs for the Jiangyou
		Project, 2011–2015. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-46
Table	11.1	Actual and Forecast Capital Costs for the Jiangyou Project, 2009–2013 . . . . . .	V-48
		LIST OF FIGURES
Figure	1.1	Location map of the Jiangyou Project. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-6
Figure	5.1	Geology map of the Jiangyou Project mining license area . . . . . . . . . . . . . . . .	V-17
Figure	5.2	Exploration Line 2 section of the Jiangyou Project looking northeast . . . . . . . .	V-18
Figure	5.3	Exploration Line 5 section of the Jiangyou Project looking northeast . . . . . . . .	V-18
Figure	5.4	Four Types of Dimension Stone Products of the Jiangyou Project . . . . . . . . . .	V-19
Figure	6.1	Schematic Mineral Resources and Their Conversion to Ore Reserves . . . . . . . .	V-26
Figure	6.2	Resource classification on the projected plan map for the Jiangyou Project . . . .	V-28

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1.0 INTRODUCTION

China Kingstone Mining Holdings Limited (the ‘‘Company’’) is a company registered in the Cayman Islands. Through its subsidiaries, the Company owns a 100% interest in the Jiangyou limestone (commercially referred to as marble) dimension stone project (the ‘‘Jiangyou Project’’) in Jiangyou City, Sichuan Province of the People’s Republic of China (‘‘PRC’’ or ‘‘China’’) that is 100%-owned and operated by the Company’s indirect subsidiary, Sichuan Jiangyou Jinshida Company Limited (‘‘Jinshida’’). The location of the Jiangyou Project is shown in Figure 1.1.

==> picture [298 x 379] intentionally omitted <==

Figure 1.1 Location map of the Jiangyou Project

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Geologically, limestone is rock of sedimentary origin primarily composed of calcium carbonate without or with limited magnesium; dolomite is a rock of sedimentary origin primarily composed of calcium magnesium carbonate; marble is defined as metamorphosed limestone or dolomite that is thoroughly recrystallized and much or all of the sedimentary and biologic textures are obliterated. However, commercially in the stone industry, marble also includes unmetamorphosed limestone and dolomite that is capable of taking a polish. The limestone resources and reserves discussed in this CPR refer to limestone that is commercially classified as marble in the stone industry.

The Jiangyou Project is a limestone dimension stone mining project currently under development. The project will have a designed production capacity of 150,000 cubic meters per annum (‘‘m[3] pa’’) of limestone blocks, 3.0 million square meters per annum (‘‘Mm[2] pa’’) of limestone slabs, including standard 2-centimeter (‘‘cm’’) thick one-side-polished limestone slab, 2-cm thick cut-to-size limestone tiles, and 1-cm thick one-side-polished limestone slabs, and 200,000 pieces per annum of shaped stone products. In addition, the large quantity of smaller pieces of limestone that are generated from the limestone block and slab production process can be used to produce smaller cut-to-size limestone tiles and raw materials for calcium carbonate powders and cement production. There will also be some contract limestone slab production on an as needed basis. The project will use a combination of block cutting techniques in open pits, including diamond wire cutting, chain saw cutting, and disc saw cutting to produce limestone blocks. Limited preliminary mine construction for the Jiangyou Project started in July 2008, but full-scale mine construction did not start until January 2010. Mine construction is expected to be completed at the end of 2013. Limited commercial production of limestone blocks from the Jiangyou started in September 2010; mine production for limestone blocks is forecasted to ramp up from 45,000 cubic meters (‘‘m[3] ’’) in 2011, to 90,000 m[3] in 2012, to 135,000 m[3] in 2013, and to 150,000 m[3] in 2014. Construction of the limestone slab processing plant will start in early 2011 and is expected to be partially completed in December 2011 and totally completed in December 2012. Limestone slab production from the plant is expected to start in early 2012 and to ramp up from 1.8 Mm[2] pa in 2012 to 3.0 Mm[2] pa in 2013.

[.]

The Board of Directors of the Company engaged Behre Dolbear Asia, Inc. (‘‘BDASIA’’), a whollyowned subsidiary of Behre Dolbear & Company, Inc. (‘‘Behre Dolbear’’), as their independent technical adviser to undertake an independent technical review of the Company’s Jiangyou Project and to prepare a competent person’s report (‘‘CPR’’) in connection with the [.]. This BDASIA CPR is intended to be included in the Company’s [.].

BDASIA’s project team for this technical review consists of senior-level professionals from Behre Dolbear’s offices in Denver, Colorado and New York, New York in the United States and Sydney in Australia. Behre Dolbear personnel contributing to the study and to this CPR include:

. Dr. Qingping Deng (B.S., M.S. and Ph.D.), a senior associate of BDASIA, was BDASIA’s Project Manager and a Project Geologist for this technical review. Dr. Deng is a geologist with more than 26 years of professional experience in the areas of exploration, deposit modeling and mine planning, estimation of mineral resources and ore reserves, geostatistics, cash-flow analysis, project evaluation/valuation, and feasibility studies in North, Central, and South America; Asia; Australia; Europe; and Africa. Dr. Deng is a Certified Professional Geologist with the American Institute of Professional Geologists, a Qualified Professional Member of The Mining and Metallurgical Society of America and a Registered Member of The Society of Mining, Metallurgy, and Exploration, Inc. (‘‘SME’’) and meets all the

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requirements for ‘‘Competent Person’’ as defined in the 2004 Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (‘‘the JORC Code’’) and all the requirements for ‘‘Qualified Person’’ as defined in Canadian National Instrument 43-101. In recent years, he has managed a number of CPR studies for filling with SEHK and other securities exchanges. Dr. Deng is fluent in both English and Chinese. He was the President and Chairman of the board of directors of BDASIA before June 30, 2010.
. Mr. Reinis Sipols (B.S.), a senior associate of Behre Dolbear’s New York office, was BDASIA’s Project Mining Engineer for this review. Mr. Sipols is a mining engineer with over 20 years of operational experience in the mining and construction materials industry with most of those managing urban mining operations. Responsibilities included mine planning, operations management, budgeting, capital improvement project management, environmental compliance, safety and public relations. He was Operations Manager for Tilcon New York with responsibility for integrating and consolidating several acquired companies with a transaction value of US$200 million. Since moving into the consulting industry, he was a Vice President of Spectra Environmental Group responsible for the 30person Poughkeepsie, New York office from 2002 to 2006; he was a Business Development Manager for Behre Dolbear & Company, Inc., then the President and CEO for Behre Dolbear & Company (USA), Inc. from 2006 to 2010. Mr. Sipols holds Professional Engineer licenses in New York, New Jersey and Pennsylvania. He is a licensed blaster in the State of New York, a member of Society of Mining, Metallurgy and Exploration and Society of Explosive Engineers.
. Mr. Sergio Matteoli (B.S. and M.S.), a senior consultant of Behre Dolbear’s Denver office, was BDASIA’s Project Limestone Dimension Stone Geology, Mining and Processing Specialist for this review. Mr. Matteoli is a dimension stones and industrial minerals specialist, based in San Miniato, Italy, with more than 27 years of professional experience in the field of geology and processing of ornamental stones and industrial minerals. He has extensive worldwide experience in the evaluation of deposits for ornamental stone production, and in the establishment of ornamental stone quarries. Mr. Matteoli is a founder and technical director of Geofield srl in Italy, an internationally recognized firm of geological, geo-mechanical and market consultants specializing in the dimension stones and industrial minerals industries. He is a Certified Professional Geologist with the Italian Professional Geologists Association and a member of the Italian Mining Engineers Association. Mr. Matteoli has published extensively on the geology, production and marketing of ornamental stones and industrial minerals and he still cooperate with the Pisa and Florence universities with workshops and seminars dedicated to the post-degree students.
. Ms. Janet Epps (B.S. and M.S.), a senior associate of Behre Dolbear’s Sydney, Australia office, was BDASIA’s Project Environmental, Social, Occupational Health and Safety Specialist. She has over 30 years experience in environmental and community issues management, sustainability, policy development and regulatory consultancy services. Ms. Epps has worked extensively with the private sector, government and the United Nations, the World Bank, the IFC, and the Multilateral Investment Guarantee Agency (‘‘MIGA’’), as well as with the mining industry. She has provided policy advice to governments of developing countries on designated projects and contributed toward sustainable development and

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COMPETENT PERSON’S REPORT

environmental management strategies. She has completed assignments in Australasia, the Pacific, Asia, the Middle East, the CIS countries, Africa, Eastern Europe, South America, and the Caribbean. Ms. Epps is a Fellow of the Australasian Institute of Mining and Metallurgy.

. Mr. David Abbott, Jr. (A.B. and M.S.), a senior associate of Behre Dolbear’s Denver, Colorado, USA office, was BDASIA’s Project Adviser for this study. His expertise is in reserve and resource definition and classification, securities disclosure requirements, and professional ethics and practices. He spent 21 years as a geologist with the U.S. Securities and Exchange Commission (‘‘SEC’’) prior to joining Behre Dolbear in 1996. Much of his work at the SEC involved the investigation of and litigation support for precious and base metals, coal, and industrial minerals mining frauds. Since joining Behre Dolbear, Mr. Abbott has worked on a number of ore reserve audits for financial institutions and/or for filings to be made with the SEC, on due diligence inquiries, and mineral property valuations. He has also worked on litigation support cases involving ore reserve estimates and mining claim validity. Mr. Abbott is a Certified Professional Geologist by the American Institute of Professional Geologists, is a Fellow of and a Chartered Professional (Geology) by the Australasian Institute of Mining and Metallurgy, and is a licensed Professional Geologist in Texas, Utah, and Wyoming. He meets all the requirements for ‘‘Competent Person’’ in Australia and ‘‘Qualified Person’’ in Canada.

BDASIA’s project team, with the exception of Mr. Abbott, traveled to China to visit the Company’s Jiangyou Project in Jiangyou, Sichuan that is reviewed in this CPR. Dr. Deng visited the Jiangyou Project from March 23 to March 24, 2010. Dr. Deng, Messrs Sipols and Matteoli, and Ms Epps visited the Jiangyou Project from June 29 to July 2, 2010. During BDASIA’s visits, discussions were held with technical and management personnel of Jinshida as well as with Jinshida’ outside consultants. Budgets and forecasts from 2010 to 2014 were reviewed, together with longer-term development plans.

This BDASIA CPR contains forecasts and projections prepared by BDASIA, based on information provided by the Company. BDASIA’s assessment of the projected production schedules and capital and operating costs is based on technical reviews of project data and project site visits.

The metric system is used throughout this CPR. The currency used is the Chinese Yuan (‘‘RMB’’) and/or the United States dollar (‘‘US$’’). The exchange rate used in the CPR is RMB6.62 for US$1.00, the rate of the People’s Bank of China prevailing on December 31, 2010.

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2.0 QUALIFICATIONS OF BEHRE DOLBEAR

Behre Dolbear & Company, Inc. is an international minerals industry advisory group which has operated continuously in North America and worldwide since 1911. Behre Dolbear and its parent, Behre Dolbear Group Inc., currently have offices in Beijing, Denver, Guadalajara, London, New York, Santiago, Sydney, Toronto, Vancouver, and Hong Kong.

The firm specializes in performing mineral industry studies for mining companies, financial institutions, and natural resource firms, including mineral resource/ore reserve compilations and audits, mineral property evaluations and valuations, due diligence studies and independent expert reviews for acquisition and financing purposes, project feasibility studies, assistance in negotiating mineral agreements, and market analyses. The firm has worked with a broad spectrum of commodities, including base and precious metals, coal, ferrous metals, and industrial minerals on a worldwide basis. Behre Dolbear has acted on behalf of numerous international banks, financial institutions and mining clients and is well regarded worldwide as an independent expert engineering consultant in the minerals industry. Behre Dolbear has prepared numerous CPRs for mining projects worldwide to support securities exchange filings of mining companies in Hong Kong, China, the United States, Canada, Australia, the United Kingdom, and other countries.

Most of Behre Dolbear’s associates and consultants have occupied senior corporate management and operational roles and are thus well-experienced from an operational view point as well as being independent expert consultants.

BDASIA is a wholly-owned subsidiary of Behre Dolbear established in 2004 to manage Behre Dolbear’s projects in China and other Asian countries. Project teams of BDASIA commonly consist of senior-level professionals from Behre Dolbear’s offices in Denver, Colorado, of the United States, Sydney of Australia, London of the United Kingdom and other worldwide offices. Since its establishment, BDASIA has conducted over 50 technical studies for mining projects in China or mining projects located outside of China to be acquired by SEHK-listed Chinese companies, including preparing CPRs for the [.] of Hunan Nonferrous Metals Corporation Limited, Zhaojin Mining Industry Company Limited, Hidili Industry International Development Limited, Real Gold Mining Limited, China Vanadium Titano-Magnetite Mining Company Limited, and China Gold International Resources Corporation Limited, and for the Shanghai Stock Exchange (‘‘SSE’’) [.] of Western Mining Company Limited. These seven companies were successfully listed on the SEHK/SSE from 2006 to 2010.

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COMPETENT PERSON’S REPORT

3.0 DISCLAIMER

BDASIA has conducted an independent technical review of the Company’s Jiangyou Project and holdings. Site visits have been made to the project site by BDASIA professionals involved in this study. BDASIA has exercised all due care in reviewing the supplied information and believes that the basic assumptions are factual and correct and the interpretations are reasonable. BDASIA has independently analyzed the Company’s data, but BDASIA did not perform an audit on the Company’s data. BDASIA has relied on the data provided by the Company, and the accuracy of the conclusions of the review largely relies on the accuracy of the supplied data. The Company has guaranteed that the data provided for BDASIA’s review is true, accurate, and complete.

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COMPETENT PERSON’S REPORT

4.0 PROPERTY DESCRIPTION

4.1 Location, Access and Infrastructure

The Jiangyou Project is located at the southwestern portion of Jiangyou City, Sichuan Province in China and at the boundary between the Jiangyou City in the east and Beichuan County in the west (Figure 1.1). The project is at a 255° azimuth direction from the Jiangyou City urban area with a linear distance of approximately 15 kilometers (‘‘km’’). The geographic location of the property center is at the longitude of 104°33'42"E and latitude of 31°45'30"N. The project area is administrated by Zhenjiang Village, Xiangshui Township of Jiangyou City, and is an exclave surrounded by the Xiangquan Township of Beichuan County. The limestone slab processing plant of the Jiangyou Project will be located in an industrial park at the south side of the Jiangyou City urban area, with a road distance of approximately 30 km from the Jiangyou Project site. The Jiangyou City has a total area of 2,719 square kilometers (‘‘km[2] ’’) and a population of approximately 880,000.

Access to the Jiangyou Project site is good. There is a local gravel road at the southeastern side of the property; approximately 5.5 km along the road to the northeast from the project site is the town of Hanzeng, where the local gravel road connects with the provincial highway S302. The road distance via the local gravel road then S302 from the project site to the Jiangyou City urban area in the east is approximately 19 km. At the time of BDASIA project team’s site visit to the Jiangyou Project at the end of June 2010, the local gravel road was being upgraded to a paved highway by the local government. Road distance on provincial highway and expressway from Jiangyou is approximately 40 km to Mianyang in the south, which is a local economic center in north-central Sichuan Province, and approximately 160 km to Chengdu, the capital city of Sichuan Province in the south. Jinshida has constructed a gravel mine access road from the local gravel road to the open pit mining area on top of the property. The nearest rail station is at Jiangyou on the Baoji-Chengdu Railroad with a road distance of approximately 24 km. Access to the limestone slab processing plant is excellent as it is located in a developed industrial park on the south side of the Jiangyou City urban area.

Electricity for the project area is currently supplied by a 10-kilovolt (‘‘kV’’) power transmission line passing through the south of the property, which connects to the Tongkou substation in Beichuan County located approximately 5.5 km to the north. There is another 6-kV power transmission line passing through near the property from the An County substation located approximately 30 km to the south, which can also be used as the alternative electricity source of the project. Jinshida had advised BDASIA that electricity supply is sufficient for planned mining and slab production operations.

Water for the Jiangyou Project area was supplied by a sink hole near the Shuangtangou located approximately 1.3 km south of the property when BDASIA conducted the site visit in June 2010. Jinshida has recently drilled a 50-m-deep water well at the south side of the property, which is expected to supply sufficient water for the planned mine production and domestic use in the project area.

Electricity and water for the limestone slab processing plant will be supplied by the industrial part of Jiangyou City.

4.2 Climate and Physiography

The Jiangyou Project is located in a low-mountain region at the southeastern edge of the middle section of the Longmen Mountains. The highest point in the local area is the Erzishan at the north of the property with an elevation of approximately 939 m above mean sea level (‘‘MSL’’), and the lowest point is the Zhangjiaba in the south with an elevation of approximately 590 m above MSL. The property is

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COMPETENT PERSON’S REPORT

located at a southeast-facing slope with a slope angles generally between 20° to 30°, and locally up to 40°. The northern portion of the property is rugged with locally developed cliffs and the southern portion of the property has numerous karst caves and sink holes. The project area is generally covered by dense bushes and trees, but the mining area has generally been de-vegetated by Jinshida in preparation for the open-pit mining operation.

The Jiangyou Project area has a subtropical monsoonal climate with four distinct seasons. Average annual temperature is approximately 15.7°C; July is the hottest month with the highest temperature of approximately 34.5°C and January is the coldest month with the lowest temperature of approximately –3.0°C. Annual precipitation averages approximately 1,300 millimeters (‘‘mm’’), which mostly occurs as rain between June and September. There are on average 211 frost-free days in a year.

Jiangyou is a relatively well-developed city in Sichuan Province. Primary industry in the area includes production of iron and steel, cement, chemical fertilizer, casting, and electricity generation. There are numerous small dimension stone mining and calcium carbonate powder production operations along the local gravel road near the Jiangyou Project. The Jiangyou City is also designated as a cultural heritage city as it is the hometown of the famous Tang-Dynasty poet Li Bai, and Shaolin temple martial art Master Haideng. The area also supports crops such as rice, wheat, corn, peanuts, and silkworm mulberry. Labor supplies are relatively abundant in the area.

Development of the Jiangyou Project is generally supported by the government and local residents because of the tax revenue, employment opportunities, and stimulation for the local economy.

4.3 Property Ownership

Under the ‘‘Mineral Resource Law of the PRC’’, all mineral resources in China are owned by the state. A mining or exploration enterprise may obtain a permit for the mining or exploration right for conducting mining or exploration activities in a specific area during a specified period of validity. The permits are generally extendable at the expiration of their period of validity. The renewal application must be submitted to the relevant government authorities at least 30 days before the expiration of a permit. To renew an exploration permit, all exploration permit fees must be paid and the minimum exploration expenditure must have been made for the area designated under the exploration permit. To renew a mining permit, all mining permit fees and resource compensation fees must be paid to the state for the area designated under the mining permit. A mining permit has both horizontal limits and elevation limits, but an exploration permit has only horizontal limits.

Jinshida currently holds a permit for a mining right of 0.4436 km[2] in area for the Jiangyou Project; this permit was issued by the Land and Resource Bureau of Sichuan Province. The horizontal boundary of the mining license is defined by 8 corner points and its elevation ranges from 590 m to 938 m above MSL. The license number is C5107002009017120004753. This license is valid until February 21, 2021 and is extendable thereafter. The license permits Jinshida to conduct open-pit limestone mining at a rate of 400,000 tonnes per annum (‘‘tpa’’), which is sufficient for the designed capacity of producing 150,000 m[3] pa based on an average bulk density of 2.61 tonnes per cubic meter (‘‘t/m[3] ’’) for the limestones at the Jiangyou Project. All limestone resources and reserves reviewed in this CPR are covered by the mining license.

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Land use right for the mining operation of the Jiangyou Project as well as the limestone slab processing plant in the Jiangyou City industrial park is being obtained by Jinshida. Jinshida was actively working with the relevant government agencies to secure the necessary land use right during BDASIA’s site visit in late June 2010. No problem was foreseen by Jinshida in leasing the land for the Jiangyou Project and the slab processing plant.

According to information provided by Jinshida, limestone dimension stone production from the Jiangyou Project will be subject to a resource tax of RMB10.00/m[3] (US$1.47/m[3] ) and a resource compensation levy of 2% of the revenue. A value added tax (‘‘VAT’’) of 17% will be included in the sale price of limestone blocks, limestone slabs and other by-products produced from the Jiangyou Project, and there is also a city-maintenance-and-construction tax of 7% of the VAT, an education levy of 3% of the VAT, and a local additional education fee of 1% of the VAT. The corporate income tax rate for Jinshida is 25%.

BDASIA has not undertaken a legal due diligence review of Jinshida’ mining license as such work is outside the scope of BDASIA’s technical review. BDASIA has relied upon the Company’s advice as to the validity of the mining license. BDASIA understands that the legal due diligence review of the mining license has been undertaken by the Company’s PRC legal advisers.

4.4 History

The Jiangyou Project was a small limestone quarry producing raw material for cement manufacturing and was facing economic difficulties before 2005. Jinshida was invited by the Jiangyou City government to invest in the project in August 2005 and found that the property has potential to produce high-quality limestone dimension stones because of the beige and light gray color of the limestones. Jinshida decided to convert the property to produce primarily limestone dimension stones from the original sole cement raw material producer.

In order to provide the resource/reserve support for the planned limestone dimension stone operation, Jinshida engaged the Northwestern Sichuan Geology Brigade of Sichuan Provincial Bureau of Geology and Mineral Resources (the ‘‘Northwestern Sichuan Brigade’’) to conduct an exploration program for the Jiangyou property in March 2008. A geology report with limestone resource estimates was completed by the Northwestern Sichuan Brigade in October 2008. The Jiangyou Project mining license was issued to Jinshida by the Land and Resources Bureau of Mianyang City on August 24, 2009. Further more detailed exploration was conducted by the Northwestern Sichuan Brigade in March and April 2010 and a new geology report with updated limestone resource estimation was completed on April 30, 2010.

Based on the updated April 2010 Northwestern Sichuan Brigade geology report, China Building Materials Industry Planning Institute (the ‘‘Building Materials Institute’’) in Beijing conducted a feasibility study for the development of the Jiangyou Project in May 2010. This updated Northwestern Sichuan Brigade geology report and the Building Materials Institute feasibility study report formed the primary basis for BDASIA’s review of the Jiangyou Project in this CPR.

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5.0 GEOLOGY AND DATABASE

5.1 Geology

The Jiangyou Project limestone deposit for the proposed dimension stone production is a marine sedimentary carbonate deposit of Middle Triassic age. The limestone deposit occurs as the northwest dipping limb of a northeast-striking anticline and is generally a massive to thick-bedded, beige to light gray, stratiform deposit. Within the current Jiangyou Project mining license boundary, the deposit is approximately 850 m long along the northeastern strike direction (extending further out of the mining license boundary on both ends), 500 m to 650 m wide on surface out crops, and over 300 m thick.

5.1.1 Regional Geology

The rocks outcropping in the region surrounding the Jiangyou Project include, in stratigraphically ascending order, the Middle-Upper Silurian Hanjiadian Formation shales with limestone interbeds; the Lower Devonian Pingyipu Formation quartz sandstones, siltstones and mudstones, the Ganxi Formation siltstones and mudstones with some thin limestone interbeds, and the Ertaizi Formation limestones; the Lower-Middle Devonian Yangmaba Formation shales with oolitic hematite and limestones with quartz sandstone, siltstone, and black shale interbeds; the Middle Devonian Jinbashi Formation quartz sandstones, siltstones with limestone lenses and thin hematite interbeds, and the Guanwushan Formation limestones with dolomite interbeds; the Lower Carboniferous Zongchanggou Formation limestones with dolomite interbeds; the Upper Carboniferous Huanglong Formation limestones with dolomite interbeds; the Lower Permian Yangxin Formation limestones and dolomites; the Upper Permian Wujiaping Formation limestones, siliceous rocks, and mudstones; the Lower Triassic Feixianguan Formation limestones, calcareous siltstones, and calcareous mudstones; the Jialingjiang Formation dolomites and limestones with mudstone and siltstone interbeds; the Middle Triassic Leikoupu Formation dolomites; and the Tianjingshan Formation limestones with dolomite interbeds; the Upper Triassic Maantang Formation limestone, calcareous mudstones, and siltstones; the Middle Jurassic Qianfoyan Formation siltstones, marlstones, limestones, and mudstones, and the Shaximiao Formation siltstones, mudstones, and greywackes; the Upper Jurassic Suining Formation greywackes, siltstones, and mudstones; and the Lianhuakou Formation conglomerates, sandstones, siltstones, and mudstones; and the Quaternary alluviums, diluviums, and eluviums.

Structures in the region are complex and are characterized by a serious of northeast-trending, northwest-dipping thrust faults and northeast-trending non-symmetric and overturned folds.

5.1.2 Deposit Geology

Stratigraphy within the current Jiangyou Project mining license area include the upper section of the Middle-Triassic Leikoupo Formation dolomites, the lower section of the Middle-Triassic Tianjingshan Formation limestones with dolomite interbeds and the Quaternary alluviums, diluviums, and eluviums.

The Middle-Triassic rocks in the deposit occur on the northwestern limb of the northeast-trending Niuxingshan anticline with a northwest dip at angles from 22° to 36°. No obvious fault and fold structures have been observed in the Jiangyou Project mining license area.

There are two sets of conjugate shear joints developed in the deposit area. The first set is northwestern and southeastern dipping with various dip angles, and is generally parallel to the regional structures. Joint fracture surfaces for this set are generally straight and flat, they are generally closed

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joints with only a thin layer of calcareous fillings. The southeastern dipping joints are generally predominant in this set; the joint density is generally 0.3 to 0.9 per meter, and can be as high as 2 to 3 per meter at the surface.

The second set of conjugate shear joints dip to the northeast and southwest at various dip angles, and is perpendicular to the regional structures. Joint fracture surfaces are generally straight and flat, but some are curved. They are generally closed joints with or without calcareous fillings. The southwestern dipping joints are better developed in this set; the joint density ranges from 0.08 to 0.9 per meter, and are generally less than 0.5 per meter.

Some weathering joints are developed near the surface. These joints generally have variable orientations; the joint surfaces are generally not straight and flat; the joint width decreases rapidly to depth and they generally disappear at a depth of several meters. The open portion of the joint surface is generally filled by yellowish clays. Because of these weathering joints as well as the karst caves, the near surface portion of the limestone deposits will have a very low limestone blocks rate. However, these weathering joints will decrease rapidly to depth, and the blocks rate should increase below the first couple of benches.

5.1.3 The Limestone Deposit

The lower section of the Middle Triassic Tianjingshan Formation is the limestone deposit targeted for dimension stone production in the area. This section is further divided into the following five lithological layers in a stratigraphic ascending order:

Layer No. 1 of the lower section of the Tianjingshan Formation is located in the southeastern portion of the property, near the foot of the hill, and consists of beige and milk-white, thick-bedded to massive, micritic limestones and bioclastic limestones with some grain limestone and dolomitic limestone interbeds. Total thickness of the layer ranges from 124 m to 150 m.

Layer No. 2 is located above Layer No. 1 and in the middle of the hill; it consists of grayish white, thick-bedded to massive calcareous dolomites with micritic sandy limestone interbeds. The appearance of the dolomite in this layer is very similar to that of the surrounding limestones; the dolomite has a slightly lighter color, but it is more tenacious and difficult to break. It is difficult to distinguish the slabs produced from the dolomite and that from the surrounding limestones under the naked eyes. The thickness of the layer is from 18 m to 23 m.

Layer No. 3 is located above Layer No. 2; it consists of milk-white and beige, intermediate- to thick-bedded micritic limestones with some interbedded dolomite-bearing micritic limestones. Total thickness of the layer is from 158 m to 164 m.

Layer No. 4 outcrops on the top of the hill as well as the slopes near the top; it is comprised of beige and grayish white, thick-bedded to massive, sparitic bioclastic limestones with small amount of grain limestone and dolomitic limestone interbeds. Its thickness is from 140 m to 160 m.

Layer No. 5 is located northwest of the mining license area. It consists of grayish white to light gray, thick-bedded to massive, micritic dolomites with a thickness of more than 160 m. This layer is not considered as the mining target as its color is relatively dark than the other layers.

The lower four layers (Layers No. 1, No. 2, No. 3, and No. 4) are considered as the limestone resource for dimension stone production in the Jiangyou Project mining license area. They are separated into the upper limestone resource unit (the ‘‘Upper Unit’’, including Layers No. 3 and No. 4) and the

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lower limestone resource unit (the ‘‘Lower Unit’’, including Layers No. 1 and No. 2). These limestone resource layers have a northeastern strike length of approximately 850 m, and are 500-m to 650-m wide in the northwestern direction and over 300-m thick vertically within the Jiangyou Project mining license area. They dip to the northwest at angles from 22° to 36°. The footwall of the limestone resources is the upper section dolomites of the Middle Triassic Leikoupu Formation, and the hanging wall is the Layer No. 5 dolomites of the lower section of the Tianjingshan Formation.

Karst caves are well developed in the Jiangyou Project area. Some karst caves have been observed at the surface. Each of the 16 drill holes completed on the property has all encountered a number of cave intervals. Based on the statistics from the Northwestern Sichuan Brigade, a total of 130 cave (or fissure) intervals were found in the 16 drill holes, with an interval length of 0.4 m to 8.3 m. The depth of the cave intervals range from 5.4 m to 270.3 m, and the elevation of these caves is from 493.2 m to 897.4 m above MSL. The karst cave percentage for individual drill holes ranges from 2.5% to 14.7% with an average of 8.0%. For limestone resource estimation of the Jiangyou Project, the karst cave volume was deducted from the total limestone volume.

Figure 5.1 is the surface geology map showing the distribution of the different limestone layers in the Jiangyou Project mining license area, and Figures 5.2 and 5.3 are two cross sections showing the vertical distribution of the limestone layers. BDASIA would note that the mining license lower elevation limit shown in Figures 5.2 and 5.3 represents the revised mining license to be issued to the Jiangyou Project.

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Figure 5.1 Geology map of the Jiangyou Project mining license area

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Figure 5. 2 Exploration Line 2 section of the Jiangyou Project looking northeast (Location of the section is shown in Figure 5.1.)

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Figure 5.3 Exploration Line 5 section of the Jiangyou Project looking northeast (Location of the section is shown in Figure 5.1.)

5.1.4 Color and Texture of the Limestone Resource

Color and texture are the two most important parameters for evaluating the limestone quality for dimension stone production. The primary and basic color of the limestone resource in the Jiangyou Project mining license area is beige. Some limestone is pure beige and some is mixed with milk-white or grayish white colors. Based on the color variation, the limestone is classified as Pure Beige and Mixed Beige. Some of the limestones have well developed depositional lamination consisting of alternating

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color bands similar to the wood grain, which is referred to as Wood Grain limestone. Locally, there are some calcite veins and veinlets filling the fractures in the limestone, forming a netted texture, which is referred to as the Gray Net limestone. Therefore, there will be four types of color and texture combinations based on commercial products that will be produced from the limestones in the Jiangyou Project area, that is, the Pure Beige, the Mixed Beige, the Wood Grain, and the Gray Net (Figure 5.4). Based on statistics compiled by the Northwestern Sichuan Brigade, of the total limestone resources and reserves of the Jiangyou Project, the Pure Beige is approximately 51.0%, the Mixed Beige 32.7%, the Wood Grain 6.4%, and the Gray Net 9.9%.

These different types of color and texture are generally gradational in the deposit. In general, in the western portion of the deposit (west of the Exploration Line 4), the primary color is relatively pure beige; the color is getting deeper to the east with more color variation. The wood grain texture is unstable in a limestone layer and it can disappear along strike within a short distance of 20 m to 30 m.

It was expected that the Pure Beige limestone will achieve the highest sale price, followed by the Mixed Beige, the Wood Grain and the Gray net.

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The Pure Beige

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The Mixed Beige

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The Wood Grain The Gray Net
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Figure 5.4 Four Types of Dimension Stone Products of the Jiangyou Project

5.1.5 Mineralogical and Chemical Composition of the Limestone Resource

The mineralogical composition of the limestones in the Jiangyou Project area is generally very pure, consisting of over 99% calcite with no detrimental minerals. The calcite is primarily micritic calcite with small amounts of sparitic calcite and aphanitic calcite. The micritic calcite was deposited from the sea water directly and it has a dirt appearance; some of them have been recrystallized. The sparitic calcite is the cement of grains in the rock or occurs as veins and veinlets; it is generally clear in appearance. The aphanitic calcite is generally the components of the fossils and other fragments in the rock, and it also looks dirty. These fragments are generally sub-angular to sub-rounded in shape and are generally 0.12 mm to 0.25 mm in size. Dolomite becomes the primary mineral in the dolomite layers.

Table 5.1 shows the chemical analytical results of the limestones and dolomites in the Jiangyou Project mining license area. These analytic results also indicate that the limestones are very pure with high CaO content and very minor other components. The dolomite contains some MgO and lower CaO content than the limestones, but the concentrations of other components are also very low in the rock, similar to the limestones. The appearance of the dolomite is very similar to that of the limestone and is also commercially referred to as marble, and Jinshida believes that the different in chemical composition should not affect its use as a dimension stone, with which BDASIA concurs.

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Table 5.1 Chemical Analytical Results of Limestones and Dolomite of the Jiangyou Project

Table 5.1 Chemical Analytical Results of Limestones and Dolomite of the Jiangyou Project	Table 5.1 Chemical Analytical Results of Limestones and Dolomite of the Jiangyou Project	Table 5.1 Chemical Analytical Results of Limestones and Dolomite of the Jiangyou Project	Table 5.1 Chemical Analytical Results of Limestones and Dolomite of the Jiangyou Project	Table 5.1 Chemical Analytical Results of Limestones and Dolomite of the Jiangyou Project	Table 5.1 Chemical Analytical Results of Limestones and Dolomite of the Jiangyou Project
Component					Calcareous Dolomite
	Component	Beige Micritic Limestone	Mixed-Beige Micritic Limestone	Milk-White Bioclastic Limestone	Calcareous Dolomite
	CaO	53.27–55.20	52.23–53.86	51.78	37.40–39.79
	MgO	0.21–1.88	1.52–2.54	3.38	13.42–15.79
	SiO2	0.16–0.82	0.10–0.15	0.08	0.14–0.16
	Fe2O3	0.07–0.15	0.01–0.07	0.01	0.08
	Al2O3	0.02–0.08	0.01–0.03	0.85	0.04–0.05
	K2O	50.05	50.05	50.05	50.05
	Na2O	50.05	50.05	50.05	50.05
	S	50.01	50.01	—	50.01
P	P	50.01	50.01	—	50.01

Note: for comparison, the chemical composition of pure calcite is 56% CaO and 44% CO2, and chemical composition of pure dolomite is 30.4% CaO, 21.9% MgO and 47.7% CO2.

Note: for comparison, the chemical composition of pure calcite is 56% CaO and 44% CO2, and chemical composition of pure dolomite is 30.4% CaO, 21.9% MgO and 47.7% CO2.

5.1.6 Bulk Density, Hardness and Water Absorption of the Limestone Resources

Based on measurements on 19 core/rock samples, the bulk density of the limestone resources in the Jiangyou Project area ranges from 2.51 to 2.73 t/m[3] with an average of 2.61 t/m[3] . The hardness of the limestone is 3. The natural water absorption of the limestones is generally from 0.2% to 0.8%, averaging 0.54%.

5.1.7 Mechanic Properties of the Limestone Resources

Based on the measurements on selective samples, the compressive strength of different types of limestones ranges from 27.5 to 63.7 million pascals (‘‘MPa’’), averaging 41.9 MPa. The bending strength ranges from 16.3 to 39.7 MPa, averaging 23.3 MPa. The abrasion resistance is 57/cm[2] for the Pure Beige, 56/cm[2] for the Mixed Beige, 28/cm[2] for the Wood Grain, and 64/cm[2] for the Gray Net. The abrasion resistance of all four types of limestones satisfies the minimum requirement of 10/cm[2] for natural marble construction material in China (GB/T 19766-2005).

5.1.8 Radioactivities of the Limestone Resource

Based on sample measurements on the Pure Beige, the Mixed Beige, the Wood Grain, and the Gray Net, the internal exposure index (‘‘IRa’’) of the specific radioactivity of natural radioactive nuclides Ra-226, Th-232 and K-40 ranges from 0.03 to 0.34, and the external exposure index (‘‘Ir’’) ranges from 0.02 to 0.19. Based on the National Standard for Construction Material of the PRC (GB6566-2001), the material with IRa less than 1.0 and Ir less than 1.3 is classified as Class A construction material, which means that there is no restriction for its production, sale and utilization. The all four types of limestones of the Jiangyou Project satisfy the radioactivity requirements of Class A construction material. These radioactivity levels also fall within the European Union’s acceptable limit range.

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5.2 Geological Database

5.2.1 Database Used for the Jiangyou Project Limestone Resource Estimates

Databases used for the mineral resource estimation are generated by licensed exploration entities and/or by the mining companies themselves in China. Guidelines specifying the appropriate sampling, sample preparation, and assaying techniques and procedures for different types of mineral deposits are issued by the relevant government authorities. The databases used for mineral resource estimation are generally produced following these set guidelines.

The principal sample types included in the geological database for the Jiangyou Project reviewed in this CPR comprise core samples from surface drilling and surface trench channel samples.

Table 5.2 summarizes the geological database used for the limestone resource estimation for the Jiangyou Project reviewed in this CPR.

Table 5.2 Geological Database Statistics for the Jiangyou Project	Table 5.2 Geological Database Statistics for the Jiangyou Project
Sample Type	Jiangyou Project
Surface Core Drilling
Holes	16
Meters	3,469
Surface Trenching
Cubic Meters	5,989
Core/Rock Limestone Color/Texture Samples
Standard Samples	8
Basic Samples (at 5-m interval)	394
Chemical Analyses	11
Bulk Density Measurements	19
Water Absorption Measurements	19
Compressive Strength Tests	9
Bending Strength Tests	8
Gloss Tests	8
Radioactive Measurements	8
Abrasion Resistance Tests	4

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5.2.2 Drilling, Logging and Survey

The 16 diamond drill holes used for the current limestone resource estimation were completed in 2008 and 2010 by the Northwestern Sichuan Brigade. These holes were drilled on six exploration lines oriented at the azimuth of 155° and with a line spacing of 125 m. These exploration lines were number as Line 1 to Line 6 from the southwest to northeast. Drill hole spacing on the exploration lines ranges from 84 m to 250 m.

The drilling was conducted using Chinese-made drill rigs equipped with wireline core barrels. Drill hole size was generally 130 mm or 110 mm at the top, reducing to 91 mm then to 75 mm to depth. Core recovery was generally good, but was strongly affected by the presence of karst caves. Average drill hole core recovery generally ranges from 73.3% to 93.3%, only one drill hole, ZK6-2 has a core recovery of only 65.4%. Considering the karst cave percentage in the drill holes of 2.5% to 14.9% (averaging 8.0%), the actual core recoveries excluding the karst cave intervals will improve significantly.

All surface drill holes were drilled vertically. Drill hole collar locations were surveyed by a total station after drilling, and down-hole deviation was generally measured in 100-m intervals using downhole survey techniques with drill hole depth checks at the same intervals. Drill cores were logged in detail by a project geologist at the drill site before sampling.

5.2.3 Sampling, Sample Preparation and Assaying/Testing

Surface drilling was the primary exploration method used for the Jiangyou Project geological database. Surface trenches were also developed along the six exploration lines. Samples for limestone dimension stone types, chemical analyses and physical property measurements were collected from the drill holes and the surface trenches.

5.2.3.1 Limestone Type Standard Samples and Basic Samples

The limestone dimension stone type samples include the standard samples and the basic samples. The standard samples were collected by Jinshida from the mining surface at the property. Two sets of standard sample slabs for the Pure Beige, the Mixed Beige, the Wood Grain, and the Gray Net were prepared; the first set consists of slabs of 30 × 30 cm in size, and the second set consists of slabs of 10 × 5 cm in size. These standard samples were polished and their gloss tests were performed by the Central Laboratory of the Environmental and Resource Institute of the Southwestern University of Science and Technology in Mianyang, Sichuan.

The basic samples were collected from drill cores and surface trenches at a samples interval of approximately 5 m. Half core samples were collected by a diamond rock saw, and the core samples were cut to 10 × 5 × 1 cm (for drill hole size more than 75 mm) or 10 × 4 × 1 cm (for drill hole size of 75 mm) blocks by Mianyang Geology and Resource Test Center of Sichuan Geology and Resource Bureau, in Mianyang, Sichuan. Trench basic samples were cut to 10 × 20 × 1 cm blocks. A total of 394 basic samples were collected, approximately 51.0% of the basic samples are the Pure Beige, 32.7% the Mixed Beige, 6.4% the Wood Grain, and 9.9% the Gray Net. Approximately 10% of the basic samples were polished on one surface.

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5.2.3.2 Chemical Analysis Samples

Eleven selective grab samples for the Pure Beige, the Mixed Beige, the Wood Grain, and the Gray Net were collected from the mining surface at the property. These samples were prepared and analyzed for the content of CaO, MgO, SiO2, Fe2O3, Al2O3, K2O, Na2O, S, and P using the wet chemical analysis method by the Mianyang Geology and Resource Test Center. Results of the chemical analysis are summarized in Table 5.1 of this CPR.

5.2.3.3 Samples for Physical Property Measurements

Nineteen selective limestone samples from drill core, surface trenches, and surface outcrops were collected for bulk density measurements. The bulk density of the samples was measured using the waxcoated water immersion method by the Mianyang Geology and Resource Test Center. Results of the measurements are summarized in Section 5.1.6 of this CPR.

Natural water absorption for the 19 selective limestone samples was measured by the Testing Center of the Southwest Geotechnical and Engineering Institute of China Nuclear Industry in Chengdu, Sichuan. The results are summarized in Section 5.1.6.

Compressive strength were measured on 9 sets (two tests each set) of selective limestone sample blocks of each limestone type with a size of 5 × 5 × 5 cm by the Rock and Soil Test Center of the Northwestern Sichuan Engineering and Exploration Institute in Mianyang, Sichuan. Bending strength tests on 8 sets (two tests each set) of selective samples were performed by the Central Laboratory of Environmental and the Resource Institute of the Southwestern University of Science and Technology and the Rock and Soil Test Center of the Northwestern Sichuan Engineering and Exploration Institute in Mianyang, Sichuan. The test results are summarized in Section 5.1.7.

Specific radioactivity, internal exposure index, and external exposure index were measured on four selective samples of each limestone type by the Central Laboratory of Environmental and the Resource Institute of the Southwestern University of Science and Technology. The test results are summarized in Section 5.1.8.

Abrasion resistance on four sets (four samples on each set) of selective samples of each limestone type was tested by the National Construction Material Test Center in Beijing. The test results are summarized in Section 5.1.7.

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6.0 LIMESTONE RESOURCES AND RESERVES

6.1 Limestone Resource/Reserve Classification

The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves, prepared by the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia in September 1999 and revised in December 2004 (‘‘the JORC Code’’) is a mineral resource/ore reserve classification system that has been widely used and is internationally recognized. It has also been used previously in CPRs for mineral resource and ore reserve statements for other Chinese companies reporting to SEHK. The JORC Code is used by BDASIA to report the limestone mineral resources and ore reserves of the Company’s Jiangyou Project in this CPR.

A Mineral Resource is defined in the JORC Code as an identified in-situ mineral occurrence from which valuable or useful minerals may be recovered. Mineral Resources are classified as Measured, Indicated, or Inferred according to the degree of confidence in the estimate:

. a Measured Resource is one which has been intersected and tested by drill holes or other sampling procedures at locations which are close enough to confirm continuity and where geoscientific data are reliably known;
. an Indicated Resource is one which has been sampled by drill holes or other sampling procedures at locations too widely spaced to ensure continuity, but close enough to give a reasonable indication of continuity and where geoscientific data are known with a reasonable level of reliability; and
. an Inferred Resource is one where geoscientific evidence from drill holes or other sampling procedures is such that continuity cannot be predicted with confidence and where geoscientific data may not be known with a reasonable level of reliability.

An Ore Reserve is defined in the JORC Code as that part of a Measured or Indicated Resource which could be mined and from which valuable or useful minerals could be recovered economically under conditions reasonably assumed at the time of reporting. Ore reserve figures incorporate mining dilution and allow for mining losses and are based on an appropriate level of mine planning, mine design and scheduling. Proved and Probable Ore Reserves are based on Measured and Indicated Mineral Resources, respectively. Under the JORC Code, Inferred Mineral Resources are deemed to be too poorly delineated to be transferred into an ore reserve category, and therefore no equivalent Possible Ore Reserve category is recognized or used.

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The general relationships between exploration results, mineral resources and ore reserves under the JORC Code are summarized in Figure 6.1.

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Figure 6.1 Schematic Mineral Resources and Their Conversion to Ore Reserves

Generally, ore reserves are quoted as comprising part of the total mineral resource rather than the mineral resources being additional to the ore reserves quoted. The JORC Code allows for either procedure, provided the system adopted is clearly specified. In this BDASIA CPR, all of the ore reserves are included within the mineral resource statements.

The limestone deposit at the Jiangyou Project is an industrial mineral primarily for dimension stone production, physical properties, such as color and texture, are the most important parameters for the dimension stone limestone quality. Basic samples of color and texture for each 5-m intervals were collected from drill holes and surface trenches for the Jiangyou property. Analytical result of chemical composition is generally not a critical criterion for limestone quality. The limestone deposit is a marine sedimentary deposit with good continuity and homogenous chemical composition and physical properties. Only selective samples were collected to determine the chemical composition and various physical properties of the limestone deposit. The limestone resource will be reported as its volume in unit of cubic meters in this CPR as it is the unit of the limestone dimension stone blocks being sold.

For the limestone dimension stone reserve, mining dilution factor is not relevant, but mining recovery factor is very important and is sometimes difficult to determine accurately, especially at the early stage of the project. Limestone dimension stone reserve will also be reported as its volume in unit of cubic meters.

6.2 General Procedures and Parameters for the Limestone Resource Estimation

The methods used to estimate mineral resources and the parameters used to categorize the mineral resources for a particular type of mineral deposit are generally prescribed by the relevant PRC government authorities in China. The mineral resource estimates are based on strictly defined parameters, which include minimum grades and minimum thicknesses. The mineral resources for a deposit are generally estimated by an independent engineering entity with a government-issued license.

The 2008 and 2010 exploration work as well as the limestone resource estimation for the Jiangyou Project were conducted by the Northwestern Sichuan Brigade, which holds a Class A exploration license for solid minerals issued by the Ministry of Land and Resources of China.

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The drill hole or channel sampling density required to define a certain class of mineral resource depends on the type of deposit. Based on the mineralized body size and complexity, a deposit is classified into certain exploration type before mineral resource estimation. As the limestone deposit at the Jiangyou Project area comprises large stratiform mineralized bodies of hundreds to thousands of meters in dimension with good continuity in both chemical composition and thickness, the deposit was categorized as exploration type I under the Chinese classification system for industrial mineral deposits.

Cross sections and plans with drilling and sampling information for mineral resource estimation were produced by AutoCAD by the Northwestern Sichuan Brigade.

The parallel section method, a polygonal method based on projected cross sections, was used for the limestone resource estimation of the Jiangyou Project by the Northwestern Sichuan Brigade. Based on the limestone resource estimation report provided by the Northwestern Sichuan Brigade and discussions with the Northwestern Sichuan Brigade technical personnel, the general procedures and parameters used in the mineral resource estimation are described below.

6.2.1 Determination of Limestone Resource Industrial Requirements

The limestone in the Jiangyou Project area is a very-fine grained rock. After polishing, it generally shows a pure beige color and a glossy appearance, sometimes with a wood grain or netted texture. The color, texture, and gloss of the limestone make it a good quality decorating rock. The limestone is amenable to mining and processing; it is not easy to break during the mining and cutting process, and can be polished easily. Joints and fissures are relatively under developed in the rock and they are often sealed by late calcite veinlets.

Jinshida has determined that four types of commercial dimension stone products based on color and texture combinations will be produced from the property, that is, the Pure Beige, the Mixed Beige, the Wood Grain, and the Gray Net. Similar limestone products are popular on the market in China and abroad with premium sales prices. According to CSMA, the Pure Beige, which is very similar to the Royal Botticino, a popular and top-end beige dimension stone products from Iran, is expected to have the highest sale price of the four limestone types, followed by Mixed Beige, the Wood Grain, and the Gray Net.

The limestones at Jiangyou are very pure in chemical composition, consisting mostly of calcite. It is a very good source material for calcium carbonate powder and cement production.

The above discussion indicates that the limestone resources meet the industrial requirements for dimension stones as well as for other industrial uses, such as calcium carbonate powder and cement production.

6.2.2 Determination of Block Boundaries and Confidence Levels

In the parallel section mineral resource estimation, a limestone body on a cross section was separated into a number of blocks, with each block assigned a resource confidence level based on the type, density and quality of available geological data. A Measured resource block was defined by surface drilling and surface channel sampling with a data spacing of 100 m to 150 m in both the strike and the dip directions. An Indicated block was defined by a data spacing of 200 m to 300 m. Because of the relatively high drilling and surface trench density at the property, all limestone resource blocks have

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been classified as either Measured or Indicated categories. There is no Inferred limestone resource within the Jiangyou Project mining license area. Figure 6.2 shows the resource classification for the Jiangyou Project on a projected plan map.

==> picture [305 x 368] intentionally omitted <==

Figure 6.2 Resource classification on the projected plan map for the Jiangyou Project

The limestone resource estimation was limited to a lower MSL elevation of 590 m, which is approximately the lower erosion base in the area. Surface topography of the Jiangyou Project mining license area was surveyed by the Northwestern Sichuan Brigade in March 2010, which was used as the topographic control of the current resource estimation. A pit slope angle of 60° was also used to limit the boundary for the limestone resource estimate.

BDASIA believes that the geological interpretation for the Jiangyou Project limestone deposit is reasonable and reliable, which provides a solid basis for the resource/reserve estimation and mine planning.

6.2.3 Limestone Resource Estimation

In the limestone resource estimation process, the corresponding two-dimensional blocks on two neighboring parallel cross sections were used to define a three-dimensional block. The area of the threedimensional block (S) was calculated from the areas of the two-dimensional blocks on cross sections (S1

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and S2), which were measured by computer from AutoCAD drawings. When the area difference for the two blocks on cross sections was less than 40%, the following trapezoid formula was used for the threedimensional block sectional area calculation:

==> picture [99 x 25] intentionally omitted <==

When the area difference for the two blocks on cross sections was more than 40%, the following frustum formula was used for the three-dimensional block sectional area calculation:

==> picture [147 x 40] intentionally omitted <==

When a block on a cross section pinches out, the three-dimensional block sectional area was half the two-dimensional block area if the block pinches out to a line or one third of the two-dimensional block area if the block pinches out to a point.

The volume of the three-dimensional block was determined by multiplying the sectional area (S) by the distance (L) between the two sections. The volume of the mineralized body and deposit were based on the sum of the block volumes.

Volumes occupied by the karst caves were subtracted from the limestone volume estimation based on the average karst cave percentage determined from the 16 existing drill holes.

6.2.4 Discussion

Based on BDASIA’s review, BDASIA considers the geological interpretation and the limestone resource estimation procedures and parameters applied by the Northwestern Sichuan Brigade to the Jiangyou Project to be generally reasonable and appropriate. The deposit is a marine sedimentary deposit with good spatial, chemical composition, and physical property continuity. The Measured category blocks were defined by drill holes and crosscut channels at a data spacing of 100 m to 150 m in both strike and dip directions and have good geological control. The Indicated category blocks were defined by a data spacing of 200 m to 300 m and have a reasonable level of geological control.

Based on reviewing the deposit geology, drilling and sampling data, and procedures and parameters used for the estimation of limestone resources, BDASIA is of the opinion that the Measured and Indicated limestone mineral resources estimated under the 1999 Chinese mineral resource system for the Jiangyou Project by the Northwestern Sichuan Brigade conform to the equivalent JORC mineral resource categories. The economic portion of the Measured and Indicated limestone resources can accordingly be used to estimate Proved and Probable limestone dimension stone reserves.

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6.3 Mineral Resource Statement

The mineral resource estimates under the JORC Code as of December 31, 2010 for the Jiangyou Project, as reviewed by BDASIA, are summarized in Table 6.1. The April 2010 Northwestern Sichuan Brigade limestone resource estimation was dated March 31, 2010. As there was only negligible mine production from March 31, 2010 to December 31, 2010 at the Jiangyou Project, the mineral resources as of December 31, 2010 are exactly the same as that on March 31, 2010. The limestone resource estimates are inclusive of limestone mineralization comprising the limestone dimension stone reserves. The Measured and Indicated limestone resources can be used for limestone dimension stone reserve estimation and mine planning.

Table 6.1 Jiangyou Project Limestone Resource Summary, as of December 31, 2010

JORC Resource Class	Limestone Resource (Mm3)
Measured	16.50
Indicated	28.38
Total	44.88

It should be noted that limestone resources that are not limestone reserves do not have demonstrated economic viability. Investors should be cautioned that the limestone resources may not ultimately be extracted at a profit.

6.4 Limestone Dimension Stone Reserve Estimation

Under the JORC Code, limestone dimension stone reserves comprise that portion of the Measured and Indicated limestone resources that are planned to be mined economically as dimension stones and delivered to the plant for processing or sold in a dimension stone market. Limestone dimension stone reserves and the mine plan for the Jiangyou Project were developed by the Building Materials Institute in Beijing in a feasibility study dated May 2010 using the April 2010 Northwestern Sichuan Brigade limestone resource estimates. Only the Measured and Indicated limestone resources were considered as potential ore in the Building Materials Institute’s limestone dimension stone reserve estimation and mine planning.

Based on the Building Materials Institute’s feasibility study, the limestone deposit will be mined in open pits by a combination of different cutting techniques, including diamond wire cutting, chain saw cutting, and disc saw cutting, which will cut the limestone deposit into rectangular dimension stone blocks of different sizes. Limestone blocks were classified into three size classes in China: Class I, or large, blocks have a block volume of more than 3 m[3] ; Class II, or medium, blocks have a block volume from 1 m[3] to 3 m[3] ; Class III, or small, blocks have a block volume from 0.5 m[3] to 1 m[3] . The sales price of the limestone blocks is related to the block size, and the larger blocks can generally sell for a higher price. Therefore, the project will try to produce Class I, large, limestone blocks as much as possible, but some smaller blocks will have to be produced because of presence of fractures (including joints) and karst caves in the limestone deposit.

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A final open pit was designed by the Building Materials Institute based on the Northwestern Sichuan Brigade’s limestone resource model and an overall pit slope angle of 60°. Other parameters used for the pit design include a bench height of 20 m, a safety berm of 4 m on each bench and a cleaning berm of 8 m on every third bench, and a bench face angle of approximately 72.7°. The designed final pit is approximately 840-m long in the northeast direction and 580-m wide in the northwestern direction at the surface; it is 760 m long and 335 m wide at the pit bottom. The pit contains 17 benches (from 590-m to 910-m). Only the lowest two benches are closed benches for the designed pit. Limestone resources within the designed final pit (excluding the karst cave volume) are approximately 44.15 Mm[3] (Table 6.2), of which 15.74 Mm[3] is the Measure limestone resource and 28.41 Mm[3] is the Indicated limestone resource. There is also a small volume of overburden (consisting of Quaternary soils and weathered limestones with numerous open weathering joints) above the limestone deposit of approximately 3.10 Mm[3] , resulting in a waste:ore strip ratio of 0.07.

Table 6.2 Jiangyou Project Limestone Resource Inside the Final Pit Design, as of December 31, 2010	Table 6.2 Jiangyou Project Limestone Resource Inside the Final Pit Design, as of December 31, 2010	Table 6.2 Jiangyou Project Limestone Resource Inside the Final Pit Design, as of December 31, 2010
JORC Resource Class	Limestone Resource (Mm3)	Waste (Mm3)
Measured	15.74	—
Indicated	28.41	—
Total	44.15	3.10

Mining dilution factor is not applicable for limestone dimension stone block mining, but mining recovery factor or the blocks rate, that is, the percentage of the limestone resources that can be mined out as limestone stone blocks, is a very important parameter to convert the limestone resources in the designed open pit into limestone dimension stone reserves. Accurately determining the blocks rate is not an easy task, especially at the early stage of the operation.

Blocks rate was estimated for the Jiangyou Project by the Northwestern Sichuan Brigade using the graphic methods as well as using the actual preliminary production results. The graphic methods include a two-dimensional estimate and a three-dimensional estimate.

The theoretical graphic two-dimensional and three-dimensional blocks rate calculation for selected areas result in a two-dimensional blocks rate of 24.0% to 53.5%, averaging 39.9%, and an average three-dimensional blocks rate of 51.4%; whereas an actual production blocks rate of 40.5% was calculated from data provided by Jinshida for a small trial mining area comprising a total of 427.0 m[3] in volume with a total of 172.9 m[3] of limestone blocks produced.

The trial mining area is at the upper portion of the limestone deposit. The Building Materials Institute believes that the limestone deposit should generally become more cohesive to depth and a blocks rate of 38% (consisting of a blocks rate of 40% and a block handling loss of 5%) was selected for the limestone dimension stone reserve estimation. BDASIA considers that the selected blocks rate to be generally reasonable at this stage. BDASIA notes that the blocks rate is generally difficult to be determined accurately, and variation could occur to depth in the Jiangyou Project limestone deposit. BDASIA recommends to closely monitor the actual blocks rate in production and adjust the limestone dimension stone reserve estimate according to the actual production blocks rate if necessary. BDASIA would also note that the Jiangyou Project has a limestone resource sufficient for over one hundred years of production at the designed production rate of 150,000 m[3] pa; variation in the blocks rate should not have a significant impact for mine production for the first 20–30 years of the mine life.

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Economic test was conducted on Measured and Indicated limestone resources based on the economic conditions assumed in the May 2010 Building Materials Institute feasibility study for the Jiangyou Project. These assumptions include an average limestone block sales price of RMB3,419/m[3] (US$516/m[3] ) (before VAT) and an estimated average mining operating cost of RMB622/m[3] (US$94.0/ m[3] ) and G&A and others cost of approximately RMB100/m[3] (US$15.1/m[3] ). This test indicates that mining the limestone resources as dimension stone shall be a very profitable operation for the Jiangyou Project.

After applying the estimated blocks rate of 38% on the in-situ limestone resources in Table 6.2, the Proved and Probable limestone dimension stone reserves were estimated from the Measured and Indicated limestone resources in the Jiangyou Project mining license area.

6.5 Limestone Dimension Stone Reserve Statement

Limestone dimension stone reserves as of December 31, 2010 for Jinshida’ Jiangyou Project as estimated by the Building Material Institute and adopted by BDASIA in this CPR are summarized in Table 6.3. The limestone dimension stone reserve estimates include both Proved and Probable reserves, which were converted from Measured and Indicated limestone resources, respectively. Mining recovery factor or the blocks rate for the limestone dimension stone reserve estimates is 38%.

Table 6.3 Jiangyou Project Limestone Dimension Stone Reserves, as of December 31, 2010	Table 6.3 Jiangyou Project Limestone Dimension Stone Reserves, as of December 31, 2010
JORC Reserve Class	Limestone Dimension Stone Reserve (Mm3)
Proved	5.98
Probable	10.80
Total	16.78

In addition to limestone dimension stone reserves estimated in Table 6.3, the smaller pieces of limestones that are insufficient for limestone block production can also be used to produce other byproducts, such as small cut-to-size limestone tiles, limestone mosaics, and as raw materials for calcium carbonate powders and cement production, which will also contribute to the project economics of the Jiangyou Project. Therefore, minimum waste material will be produced from the Jiangyou Project mining operation.

6.6 Mine Life Analysis

The limestone dimension stone reserve mine life of the Jiangyou Project reviewed in this study based on the December 31, 2010 limestone dimension stone reserve estimates of 16.78 million cubic meters (‘‘Mm[3] ’’) and the planned production rate of 150,000 m[3] pa is approximately 112 years. However, as there is a production ramp up process in the beginning and a production ramp down process at the end, the actual mine life of the Jiangyou Project will be several years longer. This limestone reserve mine life may change significantly in the future due to the following reasons:

. acquiring additional mining license area and conduct appropriate level of exploration work can increase the limestone resources and limestone dimension stone reserves of the Jiangyou Project. However, this is obviously not a priority task for the Jiangyou Project at this stage as the current limestone dimension stone reserves have a mine life of approximately 112 years;

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. the actual mining recovery factor, or the blocks rate, might be different from that used for the limestone dimension stone reserve estimation. The reserve mine life will be reduced if the actual mining recovery factor is lower than the planned mining recovery rate, and the reserve mine life will be increased if the actual mining recovery factor is higher than the planned mining recovery rate;
. changes in the production rate would also change the mine life. The mine life would be shortened if the production rate is increased to a level higher than the anticipated long-term production level; and
. changes in the limestone dimension stone mining recovery rate, or the blocks rate, would also change the projected mine life. The mine life would be increased if the blocks rate increases when mining gets into the heart of the limestone deposit.

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7.0 POTENTIAL FOR DEFINING ADDITIONAL LIMESTONE RESOURCES

The limestone resources within the Jiangyou Project mining license and exploration license area has been well defined by the Northwestern Sichuan Brigade, therefore, there is no additional exploration potential for limestone resources within the current mining license and exploration license area.

The limestone deposit that constitutes the limestone resources and limestone dimension stone reserves continuous along strike and in the dip direction outside the current Jiangyou Project mining license and exploration license area, therefore, acquiring additional mining license or exploration license area in the surrounding area of the current Jiangyou Project mining license and exploration license area and conduct appropriate exploration work can significantly increase the limestone resources and reserves for the Jiangyou Project.

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8.0 MINING

8.1 Mine Design

The Jiangyou Project is a limestone dimension stone quarry designed to extract 150,000 m³ of limestone blocks annually. The blocks will then be used primarily as a raw material for a processing plant where limestone slabs and other products will be produced.

The limestone deposit is made up the lower section of the Tianjingshan Formation and the upper section of the Leikoupo Formation of the Triassic Period exposed on four rocky hills located on the northwestern limb of the Niuxingshan anticline. There are no obvious folds and faults within the Jiangyou Project mining license area. The stratigraphic occurrence is stable with a northeastern strike at the azimuth from 62° to 72° and a northwestern dip at angles from 22° to 36°.

The designed final open pit has a bench height of 20 m, a safety bench width of 4 m, and a cleaning bench width of 8 m for every third bench. Working benches are recommended to be between 9 m and 12 m in height to maximize the production of large blocks particularly in areas heavily fractured and containing significant karst caves. Working benches will be vertical with the final mined out slope pulled back to an overall 60° angle. BDASIA considers that this is a conservative final pit slope for a quarry of this type.

Virtually all vegetation has been removed from the mining license area and there is very little overburden. Some weathered limestone with abundant weathering fractures was noted in the top benches of the quarry. This material was being actively stripped off and stockpiled for internal use (such as fill, roads, ramps, etc) or for eventual by-product sale.

A wide haul road has been developed that reaches the top of the central and eastern portions of the mining area with a second spur road being developed to reach the top of the western end of the deposit. The road is adequate for both haulage of equipment and supplies and for moving mined blocks to the staging area at the base of the mountain. Drainage ditches and retaining walls have been installed at various locations along the road to insure its stability.

A large staging area for mined blocks has been constructed at the base of the mountain. It has good access to the local road that runs on the southeastern side of the property. This area will also contain various support facilities and maintenance shops for the mine. There is adequate room to expand these support areas as the quarry is developed and production increases. Adequate water and electrical power resources are available to sustain the mining and support activities on site.

Initial production benches have been developed mostly on the eastern and central portions of the deposit with one bench being developed on the western portion of the deposit. Mining of blocks will ramp up to eventually include several active faces with the mountain being slowly mined down to the elevation of the staging area. The top benches currently in production are affected by karst caves and weathering fractures. Drilling has indicated that there are substantial karst caves throughout the deposit and will have to be managed during the life of the mine. The weathering fracture problem, however, will be minimized once the highest benches of the mine are removed.

According to the mine plan, the mineral resource volume within the designed final pit is approximately 44.15 Mm[3] and the anticipated yield of blocks will be approximately 16.78 Mm[3] over the life of the mine. Rock that is not suitable for dimension stone production will be used for by-product production or sold as raw materials for cement or calcium carbonate powder manufacturing.

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The limited preliminary quarry construction started in July 2008, but full scale quarry construction did not start until January 2010. The construction is expected to be completed in 2013. Limited commercial production of limestone blocks started in September 2010, and the annual production capacity is expected to ramp up from 45,000 m[3] in 2011, to 90,000 m[3] in 2012, and to 135,000 m[3] in 2013. Full production at the rate of 150,000 m[3] pa of limestone blocks will be reached in 2014. At this production rate the mine life is estimated over 110 years.

Quarrying operations are scheduled to be 300 days per year (taking into account holidays, weather downtime and equipment maintenance) with sawing taking place in three 8-hour shifts per day and other activities in two 8-hour shifts per day.

Once quarry development is completed, haul roads finalized, mining equipment installed, and the work force trained, BDASIA believes that the quarry should be able to meet its production targets from this deposit.

8.2 Mining Method

The project feasibility study illustrates that the permitted deposit is large enough and of suitable quality to guarantee that annual production goals can be achieved. This was confirmed by a field visit by BDASIA personnel. The critical element to achieving the desired annual production of 150,000 m[3] of limestone blocks is the proper development of the required several independent quarry working faces. The quarry is designed to be operated in a descending multi-bench architecture taking into account the morphological and geologic conditions within the deposit.

Quarrying will be organized by the opening of many independent extraction benches progressing from east to west (with one area in the southwest of the deposit) equipped with adequate saws, diamond wires, front end loaders, excavators, and cranes to guarantee that production goals will be achieved. This will be difficult in the upper portion of the deposit due to it being extremely cracked and crossed by several karst caves that will limit the production of blocks (especially large higher value blocks). It is therefore planned to expedite the mining of these benches to open up the heart of the deposit and develop adequate working faces. The fracturing pattern of the deposit indicates that a recommended minimum working bench height of 9 m to 12 m be maintained wherever possible to allow for the maximization of large block production. As mining progresses bench widths will be increased to allow the application of additional equipment to expand production.

The feasibility study indicates that extraction will start from the eastern side of the deposit progressing to the west by initially opening up of smaller production faces. These will be enlarged as the upper levels are removed and rock quality improves. Each production face will be approximately 40 m to 60 m in length with a height of 6 m to 9 m. Faces will be oriented 90° from the layering dip (this direction is also marked by the colour veins general direction).

The block mining and cutting equipment needed to guarantee a production volume of up to 1,000 m³ per month for each active face with two-daily working shifts includes:

. 1 chain saw cutting machine
. 2 diamond wire cutting machine (75 KW)
. 3 diamond wire cutting machine (37 KW)
. 1 disc saw cutting machine

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. 1 drilling machine
. 1 bench overturning equipment
. 1 pneumatic block cutter
. 2 electric generator
. 1 air compressor

Front end loaders and excavators will be shared between two or three active faces. Approximately seven to eight loaders and an equal number of excavators will be needed when the mine is fully ramped up for mining operations to proceed efficiently. Additional units may be required as spares and to complete development and support tasks. BDASIA understands that a significant portion of the equipment to be used for the Jiangyou Project will be high-quality commercial products imported from Italy.

As indicated earlier the quarry will be developed by descending benching, so the heavy equipment and the chain saw machines will be shared among active faces being mined on the same level. The horizontal cut required to mine the blocks will be accomplished by means of a chain saw cutting machine and the main vertical cuts by means of two diamond wire cutting machines.

As the benches are developed they will be cut in slices. Thicknesses of slices will be determined by quarry management taking into account the geologic characteristics of the limestone block. The slice cutting will be carried out by the light diamond wire cutting machine after detailed analysis of the slice to avoid the presence of cracks in the blocks to maximize block recovery.

The quarry will be organized into several smaller independent active mining faces equipped with the required assets to maximize block production. Mined blocks will be loaded onto trucks and hauled to the staging area at the base of the mountain for shipment to the processing plant or the customers.

Maintenance of the various cutting tools and mobile equipment and having adequate supplies of spare parts and consumables is critical for maintaining the required monthly production volumes. Repair and support facilities will be constructed to support the planned mining operations.

8.3 Geotechnical and Hydrological Issues

The deposit is constituted of a thick-bedded to massive micritic limestones and micritic bioclastic limestones; the bulk density of the limestones ranges from 2.51 to 2.73 t/m[3] with an average of 2.61; the compressive strength is from 27.5 to 63.7 MPa and bending strength is from 16.3 to 39.7 MPa. The structural plane is mainly joint fissure, and the fracture of layer surface is obsolete. According to the project feasibility study, there is a northwest-southeast and a northeast-southwest conjugated joint, which divides the deposit into wedge-shaped or square block. According to the statistics for 5 fractures point within 165 m[2] , the fracture frequency is from 0.54 to 0.93 pieces/m, with an average of 0.73 pieces/m.

Drill core data indicates substantial voids and karst caves with an average cavity rate of approximately 8.0%. These features do not appear to affect overall slope stability but should be taken into account as specific active mining benches are developed. Local slope instability could be encountered and allowances in the overall production scheduling needs to take these factors into account. The overall deposit is considered competent and stable with very good slope stability. Working

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benches will be vertical but the final overall pit slope angle will be 60°. This is considered conservative and very adequate for this operation. Slope stability, except for local anomalies, is considered excellent and should not materially affect ongoing life of mine operations.

Hydro-geologic factors are not considered to be a significant factor negatively affecting the life of mine operations of the quarry. All of the mining of dimension stone blocks is well above the ground water aquifer and local karst caves and drainage features will move rainwater away from active mining and support facilities. The Building Material Institute did discuss the affects of mine waste water (generally consisting of clean water mixed with rock powders) from cutting operations entering the karst caves and being introduced into the local water system. It is currently felt that the rock powder in the mine waste water will mostly deposit out from the water flows where the flow rate reduces and the remaining water should not have any significant impact on the ground water system.

8.4 Mine Production

The quarry is currently mining the upper benches of the eastern portion of the deposit. The deposit in this area is very cracked because of the presence of the abundant weathering joints. When the BDASIA project team visited the project site in late June 2010, bench heights were no more than 4 m. Recoveries are low and the blocks recovered are relatively small. The current recovery rate cannot be used as a realistic reference as the quarry is in its early stages of development. Using the Italian Botticino quarries as reference, it is possible to forecast that stone from the first two benches will remain highly cracked and that realistic production rates will only be achieved beginning with the third bench. The Company management and BDASIA staff concur that it will take up to 12 months at the current production rate to open up the third bench in the eastern portion of the deposit. Other areas will require additional time to reach quality in-situ stone. Block recovery rates should reach the projected 38% with the opening of this bench but at least 20% of these blocks will be medium or small blocks. The full development of the deposit to the third and lower benches will be required for large block production to be maximized. This process is estimated by management and BDASIA to take up to three years from the end of 2010.

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Table 8.1 illustrates the actual block production for the first eleven months of 2010 and scheduled block production from December 2010 to 2015 by volume of various uses as well as the actual and forecast color and texture type spilt for the limestone block production. BDASIA’s review of the feasibility study, its field visit, meetings with management, and its independent review indicate that these assumptions are reasonable and achievable if the mining plan is fully implemented, staffing is adequate, required equipment is procured, and operated effectively and efficiently.

Table 8.1 Historical and Forecast Limestone Blocks Production for the Jiangyou Project, 2010–2015

Table 8.1 Historical and Forecast Limestone Blocks Production for the Jiangyou Project, 2010–2015	Table 8.1 Historical and Forecast Limestone Blocks Production for the Jiangyou Project, 2010–2015	Table 8.1 Historical and Forecast Limestone Blocks Production for the Jiangyou Project, 2010–2015	Table 8.1 Historical and Forecast Limestone Blocks Production for the Jiangyou Project, 2010–2015	Table 8.1 Historical and Forecast Limestone Blocks Production for the Jiangyou Project, 2010–2015	Table 8.1 Historical and Forecast Limestone Blocks Production for the Jiangyou Project, 2010–2015	Table 8.1 Historical and Forecast Limestone Blocks Production for the Jiangyou Project, 2010–2015	Table 8.1 Historical and Forecast Limestone Blocks Production for the Jiangyou Project, 2010–2015	Table 8.1 Historical and Forecast Limestone Blocks Production for the Jiangyou Project, 2010–2015
Item			Forecast
	Item	Actual	Forecast
		2010 Jan-Nov	2010 Dec	2011	2012	2013	2014	2015
	Limestone Block Production (m3)	415	730	45,000	90,000	135,000	150,000	150,000
	Blocks Used for Self Slab Production (m3)	—	—	—	53,374	88,957	88,957	88,957
	Blocks Used for Contract Slab Production (m3)	391	730	45,000	30,000	40,000	40,000	40,000
	Blocks Used for Shaped Stone Products (m3)	—	—	—	1,800	3,000	3,000	3,000
	Blocks to be Sold Directly to Customer (m3)	24	—	—	4,826	3,043	18,043	18,043
	Color and Texture Type Split for Limestone Block Production
	Pure beige	25.0%	25.0%	25.5%	30.0%	55.0%	55.0%	55.0%
	Mixed beige	75.0%	75.0%	64.5%	60.0%	35.0%	35.0%	35.0%
	Gray net	0.0%	0.0%	10.0%	10.0%	10.0%	10.0%	10.0%
	Wood grain	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%

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9.0 LIMESTONE SLAB AND OTHER BY-PRODUCTS PRODUCTION

9.1 Limestone Slab Processing

The quarry will produce 150,000 m[3] of small (Class III), medium (Class II), and large (Class I) limestone blocks annually when it is fully developed with the large blocks having the highest value. The majority of this volume will be processed into limestone slabs by Jinshida’ processing facility (to be constructed) in Jiangyou City. Limestone slab processing from the plant is projected at 3 Mm[2] pa, of which 55% will be standard, 2-cm-thick, one-side-polished limestone slabs, 35% 2-cm-thick, cut-to-size limestone tiles, and 10% 1-cm-thick, one-side-polished limestone slabs. Contract processors will also be used on an as needed basis for additional limestone slab processing or special orders, especially during the construction and ramp-up period for the Company’s own processing facility.

Small blocks will be processed by block cutting machines to produce the thin slabs and cut-to-size tiles. Medium and large blocks will be processed by gang saws and will be typically used to produce 2- cm-thick one-side-polished limestone slabs. In addition, approximately 200,000 pieces (sets) per year of shaped stone products will also be produced. These include curved plates, moldings, fireplace components, tables, and special order products.

Limestones from the upper benches of the open pit production are characterized with small defects such as holes, cracks, fossils, etc. Therefore, blocks produced in the early years will often need to be treated with resin to insure final product quality. This will double polishing time as the slabs will need to be polished twice. As limestone quality improves with mining depth, this added polishing step will be reduced but not eliminated.

To accomplish the required polishing, the 2-cm slab polishing processing plant flow sheet would

be:

Slabs are pre-polished by an 8-head polishing machine (at a speed of 2 m/min)

;

Resin application and drying

;

Slabs cleaned by an 8-head polishing machine (speed 2 m/min)

;

Slabs are polished by a 14-head polishing machine (speed 1.4 m/min)

The 8-head polishing machine processing slabs with an average width of 1.6 m and 2-cm thickness will have a capacity greater than 1Mm²pa (3 shifts per day for 300 days per year).

The 12-head polishing machine processing slabs with an average width of 1.6 m and 2-cm thickness will have a capacity greater than 800,000 m²pa (3 shifts per day for 300 days per year).

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BDASIA has reviewed the detailed design of the processing facility that will be constructed in Jiangyou City in the project feasibility study. BDASIA considers that the design, proposed layout and the scale and quantity of equipment designated is suitable to achieve the finished product production targets detailed in Table 9.1.

Table 9.1

Historical and Forecast Limestone Slab Production for the Jiangyou Project, 2010–2015

Table 9.1 Historical and Forecast Limestone Slab Production for the Jiangyou Project, 2010–2015	Table 9.1 Historical and Forecast Limestone Slab Production for the Jiangyou Project, 2010–2015	Table 9.1 Historical and Forecast Limestone Slab Production for the Jiangyou Project, 2010–2015	Table 9.1 Historical and Forecast Limestone Slab Production for the Jiangyou Project, 2010–2015	Table 9.1 Historical and Forecast Limestone Slab Production for the Jiangyou Project, 2010–2015	Table 9.1 Historical and Forecast Limestone Slab Production for the Jiangyou Project, 2010–2015	Table 9.1 Historical and Forecast Limestone Slab Production for the Jiangyou Project, 2010–2015	Table 9.1 Historical and Forecast Limestone Slab Production for the Jiangyou Project, 2010–2015	Table 9.1 Historical and Forecast Limestone Slab Production for the Jiangyou Project, 2010–2015
Item			Forecast
	Item	Actual	Forecast
		2010 Jan-Nov	2010 Dec	2011	2012	2013	2014	2015
	Jiangyou Project Slab Processing Plant
	2-cm One-Side-Polished Limestone Slab (m2)		—	—	990,000	1,650,000	1,650,000	1,650,000
	Limestone Blocks Consumed (m3)	—	—	—	27,500	45,833	45,833	45,833
	Slab/Block Ratio (m2/m3)	—	—	—	36	36	36	36
	2-cm Cut-to-Size Limestone Tile (m2)	—	—	—	630,000	1,050,000	1,050,000	1,050,000
	Limestone Blocks Consumed (m3)	—	—	—	21,874	36,457	36,457	36,457
	Tile/Block Ratio (m2/m3)	—	—	—	28.8	28.8	28.8	28.8
	1-cm One-Side-Polished Limestone Slab (m2)	—	—	—	180,000	300,000	300,000	300,000
	Limestone Blocks Consumed (m3)	—	—	—	4,000	6,667	6,667	6,667
	Slab/Block Ratio (m2/m3)	—	—	—	45	45	45	45
	Total Slab Production (m2)	—	—	—	1,800,000	3,000,000	3,000,000	3,000,000
	Limestone Blocks Consumed (m3)	—	—	—	53,374	88,957	88,957	88,957
	Slab/Block Ratio (m2/m3)	—	—	—	33.7	33.7	33.7	33.7
	Shaped Stone Products (piece)	—	—	—	120,000	200,000	200,000	200,000
	Limestone Blocks Consumed (m3)	—	—	—	1,800	3,000	3,000	3,000
	Piece/Block Ratio	—	—	—	66.7	66.7	66.7	66.7
	Contract Slab Processing
	2-cm One-Side-Polished Limestone Slab (m2)	3,165	9,287	1,620,000	1,080,000	1,440,000	1,440,000	1,440,000
	Limestone Blocks Consumed (m3)	90	251	45,000	30,000	40,000	40,000	40,000
Slab/Block Ratio	Slab/Block Ratio	35.2	37	36	36	36	36	36

Since the facility has not been constructed or commissioned, BDASIA cannot comment on plant operations but the proposed work scope and methodology detailed in the feasibility study is reasonable. Management also has the experience and depth of support to construct and commission the facility in the detailed time line and to achieve steady state operation to meet the project finished product production schedule.

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9.2 Other By-Products Production

The block yield from the quarry is estimated to be approximately 38%. The remaining 62% will be made up of unsuitable or damaged blocks, eroded limestone, limestone affected by karst caves, and smaller broken material.

In addition to the primary limestone slab processing plant in Jiangyou City, Jinshida will also construct a small processing plant near the Jiangyou Project site, which will employ some of the local labor to produce small cut-to-size limestone tiles using the remaining limestones of various shape and size. This will enable the Company to achieve additional value from blocks that in many cases would have a very low value. This is due to the labor intensive nature of manufacturing products from small blocks. The waste material from the limestone slab, tile, and shaped stone product production will be sold at very low prices as raw material for cement and calcium carbonate powder production. Table 9.2 summarizes the projected production for the small, 2-cm-thick, cut-to-size limestone tiles and the raw materials for cement and calcium carbonate powder production from 2011 to 2015. The intent is that virtually the entire volume of the limestone mined from the deposit will be used in some form and the final waste rocks from the project will be minimized.

Table 9.2 Forecast Other By-Product Production for the Jiangyou Project, 2011–2015	Table 9.2 Forecast Other By-Product Production for the Jiangyou Project, 2011–2015	Table 9.2 Forecast Other By-Product Production for the Jiangyou Project, 2011–2015	Table 9.2 Forecast Other By-Product Production for the Jiangyou Project, 2011–2015	Table 9.2 Forecast Other By-Product Production for the Jiangyou Project, 2011–2015	Table 9.2 Forecast Other By-Product Production for the Jiangyou Project, 2011–2015
Item	2011	2012	2013	2014	2015
Small 2-cm Cut-to-Size Limestone Tile (m2)	—	60,000	100,000	100,000	100,000
Raw Material for Calcium Carbonate Powder/Cement (t)	—	375,600	563,400	626,000	626,000

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10.0 OPERATING COSTS

Based on information in the Building Materials Institute’s feasibility study report, BDASIA has developed forecast unit limestone block production costs, self limestone slab production costs, contract limestone slab production costs, and production costs for other by-products for the Jiangyou Project from December 2010 to 2015 (Tables 10.1 to 10.4). The actual production costs from January to November 2010 are also summarized in the tables for comparison.

The unit product operating cash costs include mining costs, processing costs, G&A costs, selling costs, environmental protection costs, production taxes, resource compensation levy, and other cash cost items. The total production costs comprise the operating cash costs and depreciation/amortization costs.

Table 10.1

Actual and Forecast Limestone Block Operating/Production Costs for the Jiangyou Project, 2010–2015

Table 10.1 Actual and Forecast Limestone Block Operating/Production Costs for the Jiangyou Project, 2010–2015	Table 10.1 Actual and Forecast Limestone Block Operating/Production Costs for the Jiangyou Project, 2010–2015	Table 10.1 Actual and Forecast Limestone Block Operating/Production Costs for the Jiangyou Project, 2010–2015	Table 10.1 Actual and Forecast Limestone Block Operating/Production Costs for the Jiangyou Project, 2010–2015	Table 10.1 Actual and Forecast Limestone Block Operating/Production Costs for the Jiangyou Project, 2010–2015	Table 10.1 Actual and Forecast Limestone Block Operating/Production Costs for the Jiangyou Project, 2010–2015	Table 10.1 Actual and Forecast Limestone Block Operating/Production Costs for the Jiangyou Project, 2010–2015	Table 10.1 Actual and Forecast Limestone Block Operating/Production Costs for the Jiangyou Project, 2010–2015	Table 10.1 Actual and Forecast Limestone Block Operating/Production Costs for the Jiangyou Project, 2010–2015
Item			Forecast
	Item	Actual	Forecast
		2010 Jan-Nov	2010 Dec	2011	2012	2013	2014	2015
	Mining Cost
	Workforce Employment and Transportation of Workforce(1) (RMB/m3)	419.2	253	253	253	253	253	253
	Consumables (RMB/m3)	87.6	62	62	62	62	62	62
	Fuel, Electricity and Water (RMB/m3)	234.7	128	128	128	128	128	128
	Equipment Maintenance (RMB/m3)	93.2	94	94	94	94	94	94
	Others (RMB/m3)	51.0	84	84	84	84	84	84
	Total Mining Cost (RMB/m3)	885.7	622	622	622	622	622	622
	(US$/m3)	133.8	94.0	94.0	94.0	94.0	94.0	94.0
	G&A and Other Cost
	On and Off-Site Administration (RMB/m3)	11,200.2	1,361	307	26	22	30	35
	Production Taxes and Governmental Charges (RMB/m3)	16.0	321	516	7	3	17	17
	Environmental Protection and Monitoring (RMB/m3)	722.4	0	111	7	5	8	13
	Product Marketing and Transport (RMB/m3)	333.0	137	486	32	26	36	39
	Others (RMB/m3)	1,512.2	215	151	21	15	17	20
	Total G&A and Other Cost (RMB/m3)	13,783.9	2,033	1,572	94	71	106	123
	(US$/m3)	2,082.16	307.1	237.4	14.1	10.7	16.0	18.6
	Total Operating Cash Cost (RMB/m3)(2)	14,669.6	2,655	2,194	716	693	728	745
	(US$/m3)	2,215.94	401.1	331.4	108.1	104.7	110.0	112.6
	Total Production Cost (RMB/m3)	14,917.1	2,939	2,397	966	1,000	1,098	1,147
(US$/m3)	(US$/m3)	2,253.34	443.9	362.0	145.9	151.0	165.9	173.3

Notes:

(1) Transportation of workforce is not separated from the workforce employment cost in the original feasibility study report.

(2) Contingency allowances are included in each item and are not listed separately in the original feasibility study report.

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Table 10.2 Actual and Forecast Limestone Slab Operating/Production Costs for the Jiangyou Project, 2010–2015

Table 10.2 Actual and Forecast Limestone Slab Operating/Production Costs for the Jiangyou Project, 2010–2015	Table 10.2 Actual and Forecast Limestone Slab Operating/Production Costs for the Jiangyou Project, 2010–2015	Table 10.2 Actual and Forecast Limestone Slab Operating/Production Costs for the Jiangyou Project, 2010–2015	Table 10.2 Actual and Forecast Limestone Slab Operating/Production Costs for the Jiangyou Project, 2010–2015	Table 10.2 Actual and Forecast Limestone Slab Operating/Production Costs for the Jiangyou Project, 2010–2015	Table 10.2 Actual and Forecast Limestone Slab Operating/Production Costs for the Jiangyou Project, 2010–2015	Table 10.2 Actual and Forecast Limestone Slab Operating/Production Costs for the Jiangyou Project, 2010–2015	Table 10.2 Actual and Forecast Limestone Slab Operating/Production Costs for the Jiangyou Project, 2010–2015
Item	Actual	Forecast
	2010 Jan-Nov	2010 Dec	2011	2012	2013	2014	2015
Self Limestone Slab Costs
Blocks Operating Cash Cost(1) (RMB/m2)	—	—		21	21	21	22
(US$/m2)	—	—	—	3.2	3.1	3.3	3.3
Slab Processing Cost
Workforce Employment and Transportation of Workforce(2) (RMB/m2)	—	—	—	12	7	7	7
Consumables (RMB/m2)	—	—	—	11	11	11	11
Fuel, Electricity and Water (RMB/m2)	—	—	—	10	10	10	10
Product Transport (RMB/m2)	—	—	—	3	3	3	3
Equipment Maintenance (RMB/m2)	—	—	—	9	7	7	7
Total Slab Processing Cost (RMB/m2)	—	—	—	45	38	38	38
(US$/m2)	—	—	—	6.7	5.7	5.7	5.7
G&A and Other Cost
On and Off-Site Administration (RMB/m2)	—	—	—	13	11	11	12
Production Taxes and Governmental Charges (RMB/m2)	—	—	—	33	32	33	33
Environmental Protection and Monitoring (RMB/m2)	—	—	—	3	2	2	2
Product Marketing (RMB/m2)	—	—	—	15	13	13	13
Others (RMB/m2)	—	—	—	6	6	6	6
Total G&A and Other Cost (RMB/m2)	—	—	—	70	63	65	66
(US$/m2)	—	—	—	10.6	9.6	9.8	10.0
Total Operating Cash Cost (RMB/m2)(3)	—	—	—	136	122	124	126
(US$/m2)	—	—	—	20.5	18.4	18.8	19.0
Total Production Cost (RMB/m2)	—	—	—	153	140	145	148
(US$/m2)	—	—	—	23.1	21.2	21.9	22.3
Contract Limestone Slab Costs
Blocks Operating Cash Cost(1) (RMB/m2)	407.1	79	61	20	19	20	21
(US$/m2)	61.49	11.9	9.2	3.0	2.9	3.1	3.1
Contract Slab Processing Charge (RMB/m2)	60.0	50	51	51	51	51	51
(US$/m2)	9.06	7.5	7.7	7.7	7.7	7.7	7.7
Product Marketing and Transportation Cost (RMB/m2)	110.7	67	60	60	60	60	60
(US$/m2)	16.72	10.2	9.0	9.0	9.0	9.0	9.0
Total Operating Cash Cost (RMB/m2)	577.7	196	172	131	130	131	132
(US$/m2)	87.27	29.6	26.0	19.8	19.7	19.8	19.9
Total Production Cost (RMB/m2)	584.8	204	178	138	139	142	143
(US$/m2)	88.33	30.8	26.8	20.8	21.0	21.4	21.6

Notes:

(1) Unit Blocks Mining Cost was calculated based on the limestone blocks Total Operation Cash Costs as listed in Table 10.1.

(2) Transportation of workforce is not separated from the workforce employment cost in the original feasibility study report.

(3) Contingency allowances are included in each item and are not listed separately in the original feasibility study report.

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Table 10.3 Forecast Shaped Stone Products Operating/Production Costs for the Jiangyou Project, 2011–2015	Table 10.3 Forecast Shaped Stone Products Operating/Production Costs for the Jiangyou Project, 2011–2015	Table 10.3 Forecast Shaped Stone Products Operating/Production Costs for the Jiangyou Project, 2011–2015	Table 10.3 Forecast Shaped Stone Products Operating/Production Costs for the Jiangyou Project, 2011–2015	Table 10.3 Forecast Shaped Stone Products Operating/Production Costs for the Jiangyou Project, 2011–2015	Table 10.3 Forecast Shaped Stone Products Operating/Production Costs for the Jiangyou Project, 2011–2015
Item	2011	2012	2013	2014	2015
Blocks Operating Cash Cost(1) (RMB/piece)	—	11	10	11	11
(US$/piece)	—	1.6	1.6	1.6	1.7
Processing Cost
Workforce Employment and Transportation of Workforce(2) (RMB/piece)	—	46	27	27	27
Consumables (RMB/piece)	—	35	35	35	35
Fuel, Electricity and Water (RMB/piece)	—	12	12	12	12
Equipment Maintenance and Others (RMB/piece)	—	14	11	11	11
Product Transport (RMB/piece)	—	3	3	3	3
Total Processing Cost (RMB/piece)	—	109	88	88	88
(US$/piece)	—	16.5	13.3	13.3	13.3
G&A and Other Cost
On and Off-Site Administration (RMB/piece)	—	3	3	3	3
Production Taxes and Governmental Charges (RMB/ piece)	—	7	7	7	7
Environmental Protection and Monitoring (RMB/piece)	—	1	1	1	1
Product Marketing (RMB/piece)	—	4	3	3	3
Others (RMB/piece)	—	2	1	2	2
Total G&A and Other Cost (RMB/piece)	—	16	15	15	16
(US$/piece)	—	2.4	2.2	2.3	2.4
Total Operating Cash Cost (RMB/piece)(3)	—	136	113	114	115
(US$/piece)	—	20.5	17.1	17.2	17.4
Total Production Cost (RMB/piece)	—	145	123	125	126
(US$/piece)	—	21.9	18.5	18.9	19.1

Notes:

(1) Unit Blocks Mining Cost was calculated based on the limestone blocks Total Operation Cash Costs as listed in Table 10.1.

(2) Transportation of workforce is not separated from the workforce employment cost in the original feasibility study report.

(3) Contingency allowances are included in each item and are not listed separately in the original feasibility study report.

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Table 10.4 Forecast By-Products Operating/Production Costs for the Jiangyou Project, 2011–2015	Table 10.4 Forecast By-Products Operating/Production Costs for the Jiangyou Project, 2011–2015	Table 10.4 Forecast By-Products Operating/Production Costs for the Jiangyou Project, 2011–2015	Table 10.4 Forecast By-Products Operating/Production Costs for the Jiangyou Project, 2011–2015	Table 10.4 Forecast By-Products Operating/Production Costs for the Jiangyou Project, 2011–2015	Table 10.4 Forecast By-Products Operating/Production Costs for the Jiangyou Project, 2011–2015
Item	2011	2012	2013	2014	2015
Small Cut-to-Size Limestone Tile Costs
Slab Processing Cost
Workforce Employment and Transportation of Workforce(1) (RMB/m2)	—	32	19	19	19
Consumables (RMB/m2)	—	9	9	9	9
Fuel, Electricity and Water (RMB/m2)	—	9	9	9	9
Product Transport (RMB/m2)	—	5	5	5	5
Equipment Maintenance and Others (RMB/m2)	—	35	25	25	25
Total Slab Processing Cost (RMB/m2)	—	91	67	67	67
(US$/m2)	—	13.7	10.2	10.2	10.2
G&A and Other Cost
On and Off-Site Administration (RMB/m2)	—	6	4	4	4
Production Taxes and Governmental Charges (RMB/m2)	—	4	4	4	4
Environmental Protection and Monitoring (RMB/m2)	—	1	1	1	1
Product Marketing (RMB/m2)	—	6	4	5	5
Others (RMB/m2)	—	3	2	2	3
Total G&A and Other Cost (RMB/m2)	—	20	15	16	18
(US$/m2)	—	3.0	2.2	2.4	2.6
Total Operating Cash Cost (RMB/m2)(2)	—	110	82	83	85
(US$/m2)	—	16.6	12.4	12.6	12.8
Total Production Cost (RMB/m2)	—	159	127	132	133
(US$/m2)	—	24.0	19.2	19.9	20.1
Calcium Carbonate Powder/Cement Raw Material Costs
Raw Material Production Cost
Workforce Employment and Transportation of Workforce(1) (RMB/t)	—	1.1	0.7	0.7	0.7
Consumables (RMB/t)	—	0.5	0.5	0.5	0.5
Fuel, Electricity and Water (RMB/t)	—	2.6	2.6	2.6	2.6
Product Transport (RMB/t)	—	5.4	5.4	5.4	5.4
Equipment Maintenance and Others (RMB/t)	—	1.3	1.2	1.1	1.1
Total Raw Material Production Cost (RMB/t)	—	10.8	10.3	10.2	10.2
(US$/t)	—	1.63	1.56	1.54	1.54

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Table 10.4 (continued) Forecast By-Products Operating/Production Costs for the Jiangyou Project, 2011–2015

Table 10.4 (continued) Forecast By-Products Operating/Production Costs for the Jiangyou Project, 2011–2015	Table 10.4 (continued) Forecast By-Products Operating/Production Costs for the Jiangyou Project, 2011–2015	Table 10.4 (continued) Forecast By-Products Operating/Production Costs for the Jiangyou Project, 2011–2015	Table 10.4 (continued) Forecast By-Products Operating/Production Costs for the Jiangyou Project, 2011–2015	Table 10.4 (continued) Forecast By-Products Operating/Production Costs for the Jiangyou Project, 2011–2015	Table 10.4 (continued) Forecast By-Products Operating/Production Costs for the Jiangyou Project, 2011–2015	Table 10.4 (continued) Forecast By-Products Operating/Production Costs for the Jiangyou Project, 2011–2015	Table 10.4 (continued) Forecast By-Products Operating/Production Costs for the Jiangyou Project, 2011–2015
Item							2015
	Item	2010	2011	2012	2013	2014	2015
	G&A and Other Cost
	On and Off-Site Administration (RMB/t)	—	—	1.4	1.1	1.1	1.2
	Production Taxes and Governmental Charges (RMB/t)	—	—	0.7	0.7	0.7	0.7
	Environmental Protection and Monitoring (RMB/t)	—	—	0.3	0.2	0.2	0.2
	Product Marketing (RMB/t)	—	—	1.7	1.2	1.2	1.4
	Others (RMB/t)	—	—	0.8	0.6	0.6	0.7
	Total G&A and Other Cost (RMB/t)	—	—	4.9	3.8	3.8	4.2
	(US$/t)	—	—	0.74	0.58	0.57	0.64
	Total Operating Cash Cost (RMB/t)(2)	—	—	15.7	14.1	14.0	14.5
	(US$/t)	—	—	2.37	2.14	2.11	2.18
	Total Production Cost (RMB/t)	—	—	16.1	14.6	14.4	14.9
(US$/t)	(US$/t)	—	—	2.44	2.20	2.18	2.25

Notes:

(1) Transportation of workforce is not separated from the workforce employment cost in the original feasibility study report.

(2) Contingency allowances are included in each item and are not listed separately in the original feasibility study report.

The detailed costs show a standard pattern of being front loaded during the development and rampup phases of the project with a gradual steady decline to a steady state situation by 2014. BDASIA has reviewed the operating cost data projections and found them to be generally reasonable and achievable. Overruns of the detailed projections, if any, will most likely be caused by construction and ramp up delays (equipment delivery delays, unforeseen weather delays, material shortages, etc), shake out issues while new equipment is deployed, and untrained work force issues increasing operating and repair costs. Management has allowed and budgeted for these contingencies and BSASIA concurs that the detailed schedule is reasonable.

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11.0 CAPITAL COSTS

Actual capital expenditure from 2008 to November 2010 and current forecast capital cost from December 2010 to 2014 for the Jiangyou Project are shown in Figure 11.1. Total capital cost for constructing the 150,000 m[3] pa Jiangyou Project (including the limestone mine, primary limestone processing facility and the small limestone processing plant) is currently estimated at RMB788.4 M (US$119.10 M).

Table 11.1 Actual and Forecast Capital Costs for the Jiangyou Project, 2008–2014	Table 11.1 Actual and Forecast Capital Costs for the Jiangyou Project, 2008–2014	Table 11.1 Actual and Forecast Capital Costs for the Jiangyou Project, 2008–2014	Table 11.1 Actual and Forecast Capital Costs for the Jiangyou Project, 2008–2014	Table 11.1 Actual and Forecast Capital Costs for the Jiangyou Project, 2008–2014	Table 11.1 Actual and Forecast Capital Costs for the Jiangyou Project, 2008–2014	Table 11.1 Actual and Forecast Capital Costs for the Jiangyou Project, 2008–2014	Table 11.1 Actual and Forecast Capital Costs for the Jiangyou Project, 2008–2014	Table 11.1 Actual and Forecast Capital Costs for the Jiangyou Project, 2008–2014
Item	Actual		Forecast					Total
	2008–2009	2010 Jan-Nov	2010 Dec	2011	2012	2013	2014
Limestone Mine (M RMB)
Mine Construction	12.08	31.57	4.59	33.34	30.81	31.13	9.13	152.65
Mining Equipment	7.06	28.35	0.13	33.59	34.57	15.59	8.28	127.57
Mining Right	2.32			39.00				41.32
Land		1.40		3.60	15.00	10.00	10.00	40.00
Others		0.18		5.00				5.18
Subtotal	21.46	61.50	4.72	114.52	80.38	56.73	27.41	366.72
Limestone Processing Plants (M RMB)
Processing Plant Construction				87.73	43.00			130.73
Processing Equipment				70.55	120.00	51.40		241.95
Land		1.00		19.00				20.00
Others				4.02	25.00			29.02
Subtotal		1.00	0.00	181.30	188.00	51.40		421.70
Total (M RMB)	21.46	62.50	4.72	295.83	268.38	108.13	27.41	788.42
(M US$)	3.242	9.441	0.713	44.688	40.541	16.334	4.140	119.097

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The majority of capital spending has taken or will take place from 2010 to 2012 as facilities are constructed and equipment is delivered and installed. The project development schedule is:

. July 2008 – December 2009: Limited preliminary mine construction activities.
. January 2010 – December 2013: Complete the construction of the main production facilities of the quarry. Quarry commissioning and ramp-up will begin during this period with full production by 2014. The capital cost in 2014 covers limited equipment replacement and additional land payment.
. January 2011 – December 2011: Processing plant construction is commenced, equipment is procured, delivered, and installed with plant construction being partially completed.
. January 2012 – December 2012: Processing plant is ramped up, shaken out and workforce is trained. Construction is totally completed and production of various products expands and reaches planned capacity.

BDASIA has reviewed the detailed capital cost estimates in the project feasibility study and found them to be reasonable with adequate contingencies for unanticipated issues. The detailed equipment, structures and timeline to deploy and construct these assets is reasonable.

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12.0 ENVIRONMENTAL AND SOCIAL MANAGEMENT

12.1 Environmental Management

Environmental regulatory requirements for the Jiangyou Project under PRC laws and regulations comprises compliance with the National Air Quality Standard (GB3095-1996), Integrated Emission Standard for Air Pollutants (GB16297-1996), Integrated Wastewater Discharge Standard (GB89781996), Noise Standard at Boundary of Industrial Enterprises (GB12348-90) and Energy Conservation Law.

The Jiangyou Project has had an Environmental Impact Statement (‘‘EIS’’) for a 150,000 m[3] pa production rate approved, and an Environmental Consent issued, by Sichuan Province Environmental Protection Bureau (‘‘EPB’’) for the mining activities. Environmental measures to be implemented at the planned operations comprise:

. Dust mitigation: measures comprise use of water with drilling, cutting, and sawing activities; use of water sprays at material transfer points; and water trucks to spray the roads during dry periods. Personal protection devices (‘‘PPE’’) to provide additional personal protection from dust are provided to workers as necessary;
. Water supply and waste water treatment: the site has been designed to recycle used water for production activities and dust suppression. Production water and rain falling on the mine area are drained to a central sump where the water is settled and cleared of sediment before being recycled back into ongoing production activity. No toxic or hazardous substances are contained in the drainage water. Total water consumption for the site is estimated at approximately 34,066 m[3] /day and make-up water comprises approximately 3,200 m[3] /day. Top up and domestic water is taken from wells on the minesite which can provide a good supply. Domestic wastewater is treated to comply with national standards and discharged to the municipal wastewater system;
. Solid waste: there will be little ultimate waste from this operation as smaller sized stones and rubble will be used for by-product production, or sold as raw materials for calcium carbonate powder and cement production. The waste rock will be temporarily stored in the waste rock dump in a valley adjacent to the mine and will be shipped out regularly to ensure the minimum waste storage. This waste rock dump will be provided with appropriate water diversion measures, such as peripheral rainfall diversion drains, to minimize any risk of waste material saturation and associated potential for rock and mudslides;
. Noise control: methods of noise control will include use of silencers, noise and vibration dampening and absorbing materials, isolation and enclosure of noisy equipment, and regular equipment maintenance. Company policy requires PPE use, such as ear muffs or ear plugs, for noise-affected workers;
. Radioactivity of the Limestone Resource: the internal exposure index (‘‘IRa’’) of the specific radioactivity of natural radioactive nuclides Ra-226, Th-232 and K-40 ranges from 0.03 to 0.34, and the external exposure index (‘‘Ir’’) ranges from 0.02 to 0.19. These levels fall within the European Union’s acceptable limit range.
. Environmental monitoring: regular noise, water and air quality monitoring is undertaken under the auspices of the Jiangyou EPB, with random checks conducted by the Sichuan Provincial EPB; and

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APPENDIX V

COMPETENT PERSON’S REPORT

. Rehabilitation: a reclamation and re-planting program for disturbed areas will be ongoing. Waste rock dumps are to be properly rehabilitated upon either completion of their active lives or mine closure.

12.2 Social Management

The Company states that core corporate principles of its mining and processing operations include: the integration of social and economic benefits derived from the operations, the integration of enterprise and local economic development (including local farmers’ income growth) and the demonstration of corporate social responsibility.

In support of these principles, the workforce is and will continue to be largely drawn from the local community — a well established and extensive mining area with many mines, both large and small. The community, therefore, is supportive of mining which is a major contributor to the prosperity of the district. In addition, as a co-operative venture with local residents, the Company will construct a small processing plant, which will employ some of the local labor to produce small cut-to-size tiles using the smaller limestone blocks of various shape and size. The waste material from limestone slab, tile, and shaped stone product production will be sold at very low prices to the local factories as raw material for cement and calcium carbonate powder production.

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APPENDIX V

COMPETENT PERSON’S REPORT

13.0 OCCUPATIONAL HEALTH AND SAFETY

Jinshida implements a corporate safety policy which incorporates national safety standards. Jinshida holds a current safety permit for the mine, issued by the Sichuan Provincial Administration of Work Safety on September 7, 2010, which is valid until June 16, 2012.

Jinshida conducts its operations in accordance with the relevant national laws and regulations covering occupational health and safety (‘‘OH&S’’) in mining, production, blasting and explosives handling, mineral processing, waste rock disposal, environmental noise, emergency response, construction, fire protection and fire extinguishment, sanitary provision, power provision, labor and supervision. Regular reports are submitted to the local health administration department, who also conducts random inspections, as required by law.

The project has maintained a good safety record in the three years since its purchase by Jinshida, with no fatalities or major injuries being sustained. A clinic is maintained on site, with part-time medical personnel supported by a community hospital 5-km away.

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APPENDIX V

COMPETENT PERSON’S REPORT

14.0 RISK ANALYSIS

When compared with many industrial and commercial operations, mining is a relatively high risk business. Although the volume of the limestone in the Jiangyou Project mining license area is relatively easy to determine, the volume percentage of the limestone resources that can be mined out as dimension stones, that is, the blocks rate, is relatively difficult to determine, especially at the early stage of the project.

Estimations of project capital and operating costs are rarely more accurate than ±10% and will be at least ±15% for projects in the development stages. Limestone mining project revenues are subject to variations in limestone block and limestone slab prices and exchange rates, though some of this uncertainty can be removed with long-term contracts.

Jinshida’ Jiangyou Project reviewed in this CPR is at the development stage and the limited commercial production has just occurred. This brings an additional risk for the project.

In reviewing Jinshida’ Jiangyou Project, BDASIA has considered areas where there is perceived technical risk to the operation, particularly where the risk component could materially impact the projected production and resulting cashflows. The assessment is necessarily subjective and qualitative. Risk has been classified as low, moderate, or high based on the following definitions:

. High Risk: the factor poses an immediate danger of a failure, which if uncorrected, could have a material impact (>15%) on the project cash flow and performance and could potentially lead to project failure.
. Moderate Risk: the factor, if uncorrected, could have a significant impact (>10%) on the project cash flow and performance unless mitigated by some corrective action.
. Low Risk: the factor, if uncorrected, could have little or no effect on project cash flow and performance.

Risk Component	Comments
Limestone Resources	The Jiangyou Project limestone deposit is a marine sedimentary
Low Risk	deposit; it consists of large, stratiform mineralized bodies of generally
	thousands of meters in dimension along both the strike and dip
	directions and with good continuity in thickness, chemical composition
	and physical properties. The current limestone resources of the deposit
	were estimated by a polygonal method using surface drill holes and
	surface trenches. The Measured resource was estimated by drilling and
	trench sampling at a data spacing of 100 m to 150 m and the Indicated
	resources was estimated by a data spacing from 200 m to 300 m. The
	karst cave volume was deducted from the resource estimates based on
	an averaging karst cave percentage determined from the drill hole data.
	BDASIA considers the limestone resource estimate reasonable and
	acceptable.

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APPENDIX V

COMPETENT PERSON’S REPORT

Risk Component

Comments

Limestone Dimension Stone
Reserves
Low to Moderate Risk

Proved and Probable limestone dimension stone reserves under the
JORC Code have been defined for the Jiangyou Project based on the
Northwestern Sichuan Brigade April 2010 resource estimation and the
Building Materials Institute’s May 2010 feasibility study report. The
Proved reserve and Probable reserve were estimated from the Measured
resource
and
Indicated
resource
within
the
designed
open
pit,
respectively. The planned mining method is diamond wire saw/chain/
disc saw cutting in open pit. A mining recovery factor, or the blocks
rate, of 38% was used in reserve estimation, which BDASIA considers
reasonable at this stage. BDASIA suggests to closely monitoring the
mining
recovery
factor
during
the
actual
mining
process
of
the
Jiangyou Project, and to use more accurate mining recovery factors
based on actual mining to adjust the limestone dimension stone reserve
estimation for the project, if necessary.
Currently defined limestone dimension stone reserves for the Jiangyou
Project are sufficient to support a mine production at the designed
production capacity of 150, 000 m3pa for over 110 years.

Limestone Block Mining The Jiangyou Project uses standard and tested equipment to mine the Low Risk limestone blocks. The new workforce will need significant training but the Company has currently engaged an operational consultant from Italy to train the workforce and shake out the new equipment. He will also aid in setting up quarry operating procedures and guidelines.

Limestone Slab and Other The proposed processing plant will use standard and accepted By-Products Production equipment but workforce development and plant layout will be critical Low to Moderate Risk to achieve production targets. Management of the Company has sufficient experience in the limestone industry and many members of the senior management are industry veterans and experts. Management has planned an extensive employee training program as the facility is ramped up to mitigate this risk. By-product production should have no problem achieving or exceeding projections.

Infrastructure Access to both the Jiangyou Project mine site and the proposed Low Risk limestone slab processing plant is good. Electricity and water supplies for both sites are readily available and sufficient.

Production Targets The quarry production targets are achievable if the quarry is organized, Low to Moderate Risk staffed and equipped from its earlier phases. The development of the higher quality stone benches is critical as is the large number of working faces. The ramp up period to 2014 should be adequate to mitigate this risk.

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APPENDIX V

COMPETENT PERSON’S REPORT

Risk Component

Comments

Operating Cost
Low to Moderate Risk
Capital Cost
Low to Moderate Risk
Environment and Social Issues
Low Risk

Operating cost estimates appear to be reasonable but development and
startup delays could significantly impact these costs in the short to
medium term. A new workforce will typically increase maintenance
costs and reduce productivity of the mining and processing equipment.
Management has applied reasonable contingencies to mitigate these
factors but workforce development for the higher skilled staff is
critical.
Budgeted capital costs appear to be reasonable but overruns could
occur if construction and shake out issues delay steady state operations.
Additional mobile equipment or cutting equipment may need to be
deployed to achieve steady state operations. Management appears to
have budgeted adequate numbers of cutting tools but delays could
occur if additional saws are unavailable. Used mobile equipment or
contractors could be used in the short term if additional mobile
equipment is required.
Mitigation measures are being put in place to ensure environmental and
social risks are minimized and regulatory environmental requirements
are satisfied. Buildings and infrastructure are being constructed to
withstand a seismic intensity of 8 and a peak ground acceleration of
0.01 g; however, any waste from this mine will be chemically benign,
should a seismic or any other natural hazard occur. The Project appears
to
be
in
compliance
with
PRC
laws
and
regulations,
to
have
appropriately conducted the necessary permitting process and to have
minimized any potential liabilities.

The Project also complies with requirements outlined in the IFC’s Environmental Health & Safety (‘‘EHS’’) Guidelines for Construction Materials Extraction. Occupational Health and Jinshida holds a valid safety permit, seeks to conduct its operations in Safety accordance with national safety regulations and has maintained a good Low Risk safety record.

– V-55 –

APPENDIX VI SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS LAW

Set out below is a summary of certain provisions of the Memorandum and Articles of Association of the Company and of certain aspects of Cayman company law.

The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 29 March 2010 under the Companies Law. The Memorandum of Association (the ‘‘Memorandum’’) and the Articles of Association (the ‘‘Articles’’) comprise its constitution.

1. MEMORANDUM OF ASSOCIATION

(a) The Memorandum states, inter alia, that the liability of members of the Company is limited to the amount, if any, for the time being unpaid on the Shares respectively held by them and that the objects for which the Company is established are unrestricted (including acting as an investment company), and that the Company shall have and be capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit, as provided in section 27(2) of the Companies Law and in view of the fact that the Company is an exempted company that the Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands.
(b) The Company may by special resolution alter its Memorandum with respect to any objects, powers or other matters specified therein.

2. ARTICLES OF ASSOCIATION

The Articles were adopted on 24 January 2011. The following is a summary of certain provisions of the Articles:

(a) Directors

(i) Power to allot and issue shares and warrants

Subject to the provisions of the Companies Law and the Memorandum and Articles and to any special rights conferred on the holders of any shares or class of shares, any share may be issued with or have attached thereto such rights, or such restrictions, whether with regard to dividend, voting, return of capital, or otherwise, as the Company may by ordinary resolution determine (or, in the absence of any such determination or so far as the same may not make specific provision, as the Board may determine). Subject to the Companies Law, the rules of any Designated [.] (as defined in the Articles) and the Memorandum and Articles, any share may be issued on terms that, at the option of the Company or the holder thereof, they are liable to be redeemed.

The Board may issue warrants conferring the right upon the holders thereof to subscribe for any class of shares or securities in the capital of the Company on such terms as it may from time to time determine.

Subject to the provisions of the Companies Law and the Articles and, where applicable, the rules of any Designated [.] (as defined in the Articles) and without prejudice to any special rights or restrictions for the time being attached to any shares or any class of shares, all unissued shares in the

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APPENDIX VI

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS LAW

Company shall be at the disposal of the Board, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times, for such consideration and on such terms and conditions as it in its absolute discretion thinks fit, but so that no shares shall be issued at a discount.

Neither the Company nor the Board shall be obliged, when making or granting any allotment of, offer of, option over or disposal of shares, to make, or make available, any such allotment, offer, option or shares to members or others with registered addresses in any particular territory or territories being a territory or territories where, in the absence of a registration statement or other special formalities, this would or might, in the opinion of the Board, be unlawful or impracticable. Members affected as a result of the foregoing sentence shall not be, or be deemed to be, a separate class of members for any purpose whatsoever.

(ii) Power to dispose of the assets of the Company or any subsidiary

There are no specific provisions in the Articles relating to the disposal of the assets of the Company or any of its subsidiaries. The Directors may, however, exercise all powers and do all acts and things which may be exercised or done or approved by the Company and which are not required by the Articles or the Companies Law to be exercised or done by the Company in general meeting.

(iii) Compensation or payments for loss of office

Pursuant to the Articles, payments to any Director or past Director of any sum by way of compensation for loss of office or as consideration for or in connection with his retirement from office (not being a payment to which the Director is contractually entitled) must be approved by the Company in general meeting.

(iv) Loans and provision of security for loans to Directors

There are provisions in the Articles prohibiting the making of loans to Directors.

(v) Disclosure of interests in contracts with the Company or any of its subsidiaries.

A Director may hold any other office or place of profit with the Company (except that of the auditor of the Company) in conjunction with his office of Director for such period and, subject to the Articles, upon such terms as the Board may determine, and may be paid such extra remuneration therefor (whether by way of salary, commission, participation in profits or otherwise) in addition to any remuneration provided for by or pursuant to any other Articles. A Director may be or become a director or other officer of, or otherwise interested in, any company promoted by the Company or any other company in which the Company may be interested, and shall not be liable to account to the Company or the members for any remuneration, profits or other benefits received by him as a director, officer or member of, or from his interest in, such other company. Subject as otherwise provided by the Articles, the Board may also cause the voting power conferred by the shares in any other company held or owned by the Company to be exercised in such manner in all respects as it thinks fit, including the exercise thereof in favour of any resolution appointing the Directors or any of them to be directors or officers of such other company, or voting or providing for the payment of remuneration to the directors or officers of such other company.

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APPENDIX VI

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS LAW

Subject to the Companies Law and the Articles, no Director or proposed or intended Director shall be disqualified by his office from contracting with the Company, either with regard to his tenure of any office or place of profit or as vendor, purchaser or in any other manner whatsoever, nor shall any such contract or any other contract or arrangement in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company or the members for any remuneration, profit or other benefits realised by any such contract or arrangement by reason of such Director holding that office or the fiduciary relationship thereby established. A Director who to his knowledge is in any way, whether directly or indirectly, interested in a contract or arrangement or proposed contract or arrangement with the Company shall declare the nature of his interest at the meeting of the Board at which the question of entering into the contract or arrangement is first taken into consideration, if he knows his interest then exists, or in any other case, at the first meeting of the Board after he knows that he is or has become so interested.

A Director shall not vote (nor be counted in the quorum) on any resolution of the Board approving any contract or arrangement or other proposal in which he or any of his associates is materially interested, but this prohibition shall not apply to any of the following matters, namely:

(aa) any contract or arrangement for giving to such Director or his associate(s) any security or indemnity in respect of money lent by him or any of his associates or obligations incurred or undertaken by him or any of his associates at the request of or for the benefit of the Company or any of its subsidiaries;
(bb) any contract or arrangement for the giving of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the Director or his associate(s) has himself/themselves assumed responsibility in whole or in part whether alone or jointly under a guarantee or indemnity or by the giving of security;
(cc) any contract or arrangement concerning an offer of shares or debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase, where the Director or his associate(s) is/are or is/are to be interested as a participant in the underwriting or sub underwriting of the offer;
(dd) any contract or arrangement in which the Director or his associate(s) is/are interested in the same manner as other holders of shares or debentures or other securities of the Company by virtue only of his/their interest in shares or debentures or other securities of the Company;
(ee) any contract or arrangement concerning any other company in which the Director or his associate(s) is/are interested only, whether directly or indirectly, as an officer or executive or a shareholder or in which the Director and any of his associates are not in aggregate beneficially interested in 5 percent. or more of the issued shares or of the voting rights of any class of shares of such company (or of any third company through which his interest or that of any of his associates is derived); or
(ff) any proposal or arrangement concerning the adoption, modification or operation of a [.], a pension fund or retirement, death, or disability benefits scheme or other arrangement which relates both to Directors, his associates and employees of the Company or of any of its subsidiaries and does not provide in respect of any Director, or his associate(s), as such any privilege or advantage not accorded generally to the class of persons to which such scheme or fund relates.

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APPENDIX VI

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS LAW

(vi) Remuneration

The ordinary remuneration of the Directors shall from time to time be determined by the Company in general meeting, such sum (unless otherwise directed by the resolution by which it is voted) to be divided amongst the Directors in such proportions and in such manner as the Board may agree or, failing agreement, equally, except that any Director holding office for part only of the period in respect of which the remuneration is payable shall only rank in such division in proportion to the time during such period for which he held office. The Directors shall also be entitled to be prepaid or repaid all travelling, hotel and incidental expenses reasonably expected to be incurred or incurred by them in attending any Board meetings, committee meetings or general meetings or separate meetings of any class of shares or of debentures of the Company or otherwise in connection with the discharge of their duties as Directors.

Any Director who, by request, goes or resides abroad for any purpose of the Company or who performs services which in the opinion of the Board go beyond the ordinary duties of a Director may be paid such extra remuneration (whether by way of salary, commission, participation in profits or otherwise) as the Board may determine and such extra remuneration shall be in addition to or in substitution for any ordinary remuneration as a Director. An executive Director appointed to be a managing director, joint managing director, deputy managing director or other executive officer shall receive such remuneration (whether by way of salary, commission or participation in profits or otherwise or by all or any of those modes) and such other benefits (including pension and/or gratuity and/or other benefits on retirement) and allowances as the Board may from time to time decide. Such remuneration may be either in addition to or in lieu of his remuneration as a Director.

The Board may establish or concur or join with other companies (being subsidiary companies of the Company or companies with which it is associated in business) in establishing and making contributions out of the Company’s monies to any schemes or funds for providing pensions, sickness or compassionate allowances, life assurance or other benefits for employees (which expression as used in this and the following paragraph shall include any Director or ex-Director who may hold or have held any executive office or any office of profit with the Company or any of its subsidiaries) and exemployees of the Company and their dependents or any class or classes of such persons.

The Board may pay, enter into agreements to pay or make grants of revocable or irrevocable, and either subject or not subject to any terms or conditions, pensions or other benefits to employees and exemployees and their dependents, or to any of such persons, including pensions or benefits additional to those, if any, to which such employees or ex-employees or their dependents are or may become entitled under any such scheme or fund as is mentioned in the previous paragraph. Any such pension or benefit may, as the Board considers desirable, be granted to an employee either before and in anticipation of, or upon or at any time after, his actual retirement.

(vii) Retirement, appointment and removal

At each annual general meeting, one third of the Directors for the time being (or if their number is not a multiple of three, then the number nearest to but not less than one third) will retire from office by rotation provided that every Director shall be subject to retirement at an annual general meeting at least once every three years. The Directors to retire in every year will be those who have been longest in office since their last re-election or appointment but as between persons who became or were last re

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APPENDIX VI

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS LAW

elected Directors on the same day those to retire will (unless they otherwise agree among themselves) be determined by lot. There are no provisions relating to retirement of Directors upon reaching any age limit.

The Directors shall have the power from time to time and at any time to appoint any person as a Director either to fill a casual vacancy on the Board or as an addition to the existing Board. Any Director appointed to fill a casual vacancy shall hold office until the first general meeting of members after his appointment and be subject to re-election at such meeting and any Director appointed as an addition to the existing Board shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election. Neither a Director nor an alternate Director is required to hold any shares in the Company by way of qualification.

A Director may be removed by an ordinary resolution of the Company before the expiration of his period of office (but without prejudice to any claim which such Director may have for damages for any breach of any contract between him and the Company) and may by ordinary resolution appoint another in his place. Unless otherwise determined by the Company in general meeting, the number of Directors shall not be less than two. There is no maximum number of Directors.

The office of Director shall be vacated:

(aa) if he resigns his office by notice in writing delivered to the Company at the registered office of the Company for the time being or tendered at a meeting of the Board;
(bb) becomes of unsound mind or dies;
(cc) if, without special leave, he is absent from meetings of the Board (unless an alternate director appointed by him attends) for six (6) consecutive months, and the Board resolves that his office is vacated;
(dd) if he becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors;
(ee) if he is prohibited from being a director by law;
(ff) if he ceases to be a director by virtue of any provision of law or is removed from office pursuant to the Articles.

The Board may from time to time appoint one or more of its body to be managing director, joint managing director, or deputy managing director or to hold any other employment or executive office with the Company for such period and upon such terms as the Board may determine and the Board may revoke or terminate any of such appointments. The Board may delegate any of its powers, authorities and discretions to committees consisting of such Director or Directors and other persons as the Board thinks fit, and it may from time to time revoke such delegation or revoke the appointment of and discharge any such committees either wholly or in part, and either as to persons or purposes, but every committee so formed shall, in the exercise of the powers, authorities and discretions so delegated, conform to any regulations that may from time to time be imposed upon it by the Board.

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APPENDIX VI

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS LAW

(viii) Borrowing powers

The Board may exercise all the powers of the Company to raise or borrow money, to mortgage or charge all or any part of the undertaking, property and assets (present and future) and uncalled capital of the Company and, subject to the Companies Law, to issue debentures, bonds and other securities of the Company, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.

Note: These provisions, in common with the Articles in general, can be varied with the sanction of a special resolution of the Company.
(ix) Proceedings of the Board

The Board may meet for the despatch of business, adjourn and otherwise regulate their meetings as they think fit. Questions arising at any meeting shall be determined by a majority of votes. In the case of an equality of votes, the chairman of the meeting shall have an additional or casting vote.

(x) Register of Directors and Officers

The Companies Law and the Articles provide that the Company is required to maintain at its registered office a register of directors and officers which is not available for inspection by the public. A copy of such register must be filed with the Registrar of Companies in the Cayman Islands and any change must be notified to the Registrar within thirty (30) days of any change in such directors or officers.

(b) Alterations to constitutional documents

The Articles may be rescinded, altered or amended by the Company in general meeting by special resolution. The Articles state that a special resolution shall be required to alter the provisions of the Memorandum, to amend the Articles or to change the name of the Company.

(c) Alteration of capital

The Company may from time to time by ordinary resolution in accordance with the relevant provisions of the Companies Law:

(i) increase its capital by such sum, to be divided into shares of such amounts as the resolution shall prescribe;
(ii) consolidate and divide all or any of its capital into shares of larger amount than its existing shares;
(iii) divide its shares into several classes and without prejudice to any special rights previously conferred on the holders of existing shares attach thereto respectively any preferential, deferred, qualified or special rights, privileges, conditions or restrictions as the Company in general meeting or as the Directors may determine;
(iv) sub-divide its shares or any of them into shares of smaller amount than is fixed by the Memorandum, subject nevertheless to the provisions of the Companies Law, and so that the resolution whereby any share is sub-divided may determine that, as between the holders of

– VI-6 –

APPENDIX VI SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS LAW

the shares resulting from such sub-division, one or more of the shares may have any such preferred or other special rights, over, or may have such deferred rights or be subject to any such restrictions as compared with the others as the Company has power to attach to unissued or new shares; or

(v) cancel any shares which, at the date of passing of the resolution, have not been taken, or agreed to be taken, by any person, and diminish the amount of its capital by the amount of the shares so cancelled.

The Company may subject to the provisions of the Companies Law reduce its share capital or any capital redemption reserve or other undistributable reserve in any way by special resolution.

(d) Variation of rights of existing shares or classes of shares

Subject to the Companies Law, all or any of the special rights attached to the shares or any class of shares may (unless otherwise provided for by the terms of issue of that class) be varied, modified or abrogated either with the consent in writing of the holders of not less than three fourths in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. To every such separate general meeting the provisions of the Articles relating to general meetings will mutatis mutandis apply, but so that the necessary quorum (other than at an adjourned meeting) shall be two persons holding or representing by proxy not less than one third in nominal value of the issued shares of that class and at any adjourned meeting two holders present in person or by proxy whatever the number of shares held by them shall be a quorum. Every holder of shares of the class shall be entitled to one vote for every such share held by him.

The special rights conferred upon the holders of any shares or class of shares shall not, unless otherwise expressly provided in the rights attaching to the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

(e) Special resolution majority required

Pursuant to the Articles, a special resolution of the Company must be passed by a majority of not less than three fourths of the votes cast by such members as, being entitled so to do, vote in person or, in the case of such members as are corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which notice of not less than twenty-one (21) clear days and not less than ten (10) clear Business Days specifying the intention to propose the resolution as a special resolution, has been duly given. Provided that if permitted by the Designated [.] (as defined in the Articles), except in the case of an annual general meeting, if it is so agreed by a majority in number of the members having a right to attend and vote at such meeting, being a majority together holding not less than ninety-five per cent. (95%) in nominal value of the shares giving that right and, in the case of an annual general meeting, if so agreed by all Members entitled to attend and vote thereat, a resolution may be proposed and passed as a special resolution at a meeting of which notice of less than twenty-one (21) clear days and less than ten (10) clear Business Days has been given.

A copy of any special resolution must be forwarded to the Registrar of Companies in the Cayman Islands within fifteen (15) days of being passed.

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APPENDIX VI SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS LAW

An ordinary resolution is defined in the Articles to mean a resolution passed by a simple majority of the votes of such members of the Company as, being entitled to do so, vote in person or, in the case of corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting held in accordance with the Articles.

(f) Voting rights

Subject to any special rights or restrictions as to voting for the time being attached to any shares by or in accordance with the Articles, at any general meeting on a poll every member present in person or by proxy or, in the case of a member being a corporation, by its duly authorised representative shall have one vote for every fully paid share of which he is the holder but so that no amount paid up or credited as paid up on a share in advance of calls or installments is treated for the foregoing purposes as paid up on the share. A member entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way.

At any general meeting a resolution put to the vote of the meeting is to be decided by way of a poll.

If a recognised clearing house (or its nominee(s)) is a member of the Company it may authorise such person or persons as it thinks fit to act as its representative(s) at any meeting of the Company or at any meeting of any class of members of the Company provided that, if more than one person is so authorised, the authorisation shall specify the number and class of shares in respect of which each such person is so authorised. A person authorised pursuant to this provision shall be deemed to have been duly authorised without further evidence of the facts and be entitled to exercise the same powers on behalf of the recognised clearing house (or its nominee(s)) as if such person was the registered holder of the shares of the Company held by that clearing house (or its nominee(s)).

Where the Company has any knowledge that any Shareholder is, under the rules of the Designated [.] (as defined in the Articles), required to abstain from voting on any particular resolution of the Company or restricted to voting only for or only against any particular resolution of the Company, any votes cast by or on behalf of such Shareholder in contravention of such requirement or restriction shall not be counted.

(g) Requirements for annual general meetings

An annual general meeting of the Company must be held in each year, other than the year of adoption of the Articles (within a period of not more than fifteen (15) months after the holding of the last preceding annual general meeting or a period of eighteen (18) months from the date of adoption of the Articles, unless a longer period would not infringe the rules of any Designated [.] (as defined in the Articles)) at such time and place as may be determined by the Board.

(h) Accounts and audit

The Board shall cause true accounts to be kept of the sums of money received and expended by the Company, and the matters in respect of which such receipt and expenditure take place, and of the property, assets, credits and liabilities of the Company and of all other matters required by the Companies Law or necessary to give a true and fair view of the Company’s affairs and to explain its transactions.

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APPENDIX VI

SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS LAW

The accounting records shall be kept at the registered office or at such other place or places as the Board decides and shall always be open to inspection by any Director. No member (other than a Director) shall have any right to inspect any accounting record or book or document of the Company except as conferred by law or authorised by the Board or the Company in general meeting.

A copy of every balance sheet and profit and loss account (including every document required by law to be annexed thereto) which is to be laid before the Company at its general meeting, together with a printed copy of the Directors’ report and a copy of the auditors’ report, shall not less than twenty-one (21) days before the date of the meeting and at the same time as the notice of annual general meeting be sent to every person entitled to receive notices of general meetings of the Company under the provisions the Articles; however, subject to compliance with all applicable laws, including the rules of the Designated [.] (as defined in the Articles), the Company may send to such persons summarised financial statements derived from the Company’s annual accounts and the Directors’ report instead provided that any such person may by notice in writing served on the Company, demand that the Company sends to him, in addition to summarised financial statements, a complete printed copy of the Company’s annual financial statement and the Directors’ report thereon.

Auditors shall be appointed and the terms and tenure of such appointment and their duties at all times regulated in accordance with the provisions of the Articles. The remuneration of the auditors shall be fixed by the Company in general meeting or in such manner as the members may determine.

The financial statements of the Company shall be audited by the auditor in accordance with generally accepted auditing standards. The auditor shall make a written report thereon in accordance with generally accepted auditing standards and the report of the auditor shall be submitted to the members in general meeting. The generally accepted auditing standards referred to herein may be those of a country or jurisdiction other than the Cayman Islands. If so, the financial statements and the report of the auditor should disclose this fact and name such country or jurisdiction.

(i) Notices of meetings and business to be conducted thereat

An annual general meeting shall be called by notice of not less than twenty-one (21) clear days and not less than twenty (20) clear Business Days and any extraordinary general meeting at which it is proposed to pass a special resolution shall (save as set out in sub paragraph (e) above) be called by notice of at least twenty-one (21) clear days and not less than ten (10) clear Business Days. All other extraordinary general meetings shall be called by notice of at least fourteen (14) clear days and not less than ten (10) clear Business Days. The notice must specify the time and place of the meeting and, in the case of special business, the general nature of that business. In addition notice of every general meeting shall be given to all members of the Company other than such as, under the provisions of the Articles or the terms of issue of the shares they hold, are not entitled to receive such notices from the Company, and also to the auditors for the time being of the Company.

Notwithstanding that a meeting of the Company is called by shorter notice than that mentioned above if permitted by the rules of the Designated [.], it shall be deemed to have been duly called if it is so agreed:

(i) in the case of a meeting called as an annual general meeting, by all members of the Company entitled to attend and vote thereat; and

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(ii) in the case of any other meeting, by a majority in number of the members having a right to attend and vote at the meeting, being a majority together holding not less than ninety-five per cent (95%) in nominal value of the issued shares giving that right.

All business shall be deemed special that is transacted at an extraordinary general meeting and also all business shall be deemed special that is transacted at an annual general meeting with the exception of the following, which shall be deemed ordinary business:

(aa) the declaration and sanctioning of dividends;
(bb) the consideration and adoption of the accounts and balance sheet and the reports of the Directors and the auditors;
(cc) the election of Directors in place of those retiring;
(dd) the appointment of auditors and other officers;
(ee) the fixing of the remuneration of the Directors and of the auditors;
(ff) the granting of any mandate or authority to the Directors to offer, allot, grant options over or otherwise dispose of the unissued shares of the Company representing not more than twenty per cent (20%) in nominal value of its existing issued share capital; and
(gg) the granting of any mandate or authority to the Directors to repurchase securities of the Company.

(j) Transfer of shares

All transfers of shares may be effected by an instrument of transfer in the usual or common form or in a form prescribed by the Designated [.] (as defined in the Articles) or in such other form as the Board may approve and which may be under hand or, if the transferor or transferee is a clearing house or its nominee(s), by hand or by machine imprinted signature or by such other manner of execution as the Board may approve from time to time. The instrument of transfer shall be executed by or on behalf of the transferor and the transferee provided that the Board may dispense with the execution of the instrument of transfer by the transferee in any case in which it thinks fit, in its discretion, to do so and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the register of members in respect thereof. The Board may also resolve either generally or in any particular case, upon request by either the transferor or the transferee, to accept mechanically executed transfers.

The Board in so far as permitted by any applicable law may, in its absolute discretion, at any time and from time to time transfer any share upon the principal register to any branch register or any share on any branch register to the principal register or any other branch register.

Unless the Board otherwise agrees, no shares on the principal register shall be transferred to any branch register nor may shares on any branch register be transferred to the principal register or any other branch register. All transfers and other documents of title shall be lodged for registration and registered, in the case of shares on a branch register, at the relevant registration office and, in the case of shares on the principal register, at the registered office in the Cayman Islands or such other place at which the principal register is kept in accordance with the Companies Law.

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The Board may, in its absolute discretion, and without assigning any reason, refuse to register a transfer of any share (not being a fully paid up share) to a person of whom it does not approve or any share issued under any share incentive scheme for employees upon which a restriction on transfer imposed thereby still subsists, and it may also refuse to register any transfer of any share to more than four joint holders or any transfer of any share (not being a fully paid up share) on which the Company has a lien.

The Board may decline to recognise any instrument of transfer unless a fee of such maximum sum as any Designated [.] (as defined in the Articles) may determine to be payable or such lesser sum as the Directors may from time to time require is paid to the Company in respect thereof, the instrument of transfer, if applicable, is properly stamped, is in respect of only one class of share and is lodged at the relevant registration office or registered office or such other place at which the principal register is kept accompanied by the relevant share certificate(s) and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer (and if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do).

The registration of transfers may be suspended and the register closed on giving notice by advertisement in a relevant newspaper and, where applicable, any other newspapers in accordance with the requirements of any Designated [.] (as defined in the Articles), at such times and for such periods as the Board may determine and either generally or in respect of any class of shares. The register of members shall not be closed for periods exceeding in the whole thirty (30) days in any year.

(k) Power for the Company to purchase its own shares

The Company is empowered by the Companies Law and the Articles to purchase its own Shares subject to certain restrictions and the Board may only exercise this power on behalf of the Company subject to any applicable requirements imposed from time to time by any Designated [.] (as defined in the Articles).

(l) Power for any subsidiary of the Company to own shares in the Company and financial assistance to purchase shares of the Company

There are no provisions in the Articles relating to ownership of shares in the Company by a subsidiary.

Subject to compliance with the rules and regulations of the Designated [.] (as defined in the Articles) and any other relevant regulatory authority, the Company may give financial assistance for the purpose of or in connection with a purchase made or to be made by any person of any shares in the Company.

(m) Dividends and other methods of distribution

Subject to the Companies Law, the Company in general meeting may declare dividends in any currency to be paid to the members but no dividend shall be declared in excess of the amount recommended by the Board.

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The Articles provide dividends may be declared and paid out of the profits of the Company, realised or unrealised, or from any reserve set aside from profits which the Directors determine is no longer needed. With the sanction of an ordinary resolution dividends may also be declared and paid out of share premium account or any other fund or account which can be authorised for this purpose in accordance with the Companies Law.

Except in so far as the rights attaching to, or the terms of issue of, any share may otherwise provide, (i) all dividends shall be declared and paid according to the amounts paid up on the shares in respect whereof the dividend is paid but no amount paid up on a share in advance of calls shall for this purpose be treated as paid up on the share and (ii) all dividends shall be apportioned and paid pro rata according to the amount paid up on the shares during any portion or portions of the period in respect of which the dividend is paid. The Directors may deduct from any dividend or other monies payable to any member or in respect of any shares all sums of money (if any) presently payable by him to the Company on account of calls or otherwise.

Whenever the Board or the Company in general meeting has resolved that a dividend be paid or declared on the share capital of the Company, the Board may further resolve either (a) that such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up, provided that the Shareholders entitled thereto will be entitled to elect to receive such dividend (or part thereof) in cash in lieu of such allotment, or (b) that Shareholders entitled to such dividend will be entitled to elect to receive an allotment of shares credited as fully paid up in lieu of the whole or such part of the dividend as the Board may think fit. The Company may also upon the recommendation of the Board by an ordinary resolution resolve in respect of any one particular dividend of the Company that it may be satisfied wholly in the form of an allotment of shares credited as fully paid up without offering any right to Shareholders to elect to receive such dividend in cash in lieu of such allotment.

Any dividend, interest or other sum payable in cash to the holder of shares may be paid by cheque or warrant sent through the post addressed to the holder at his registered address, or in the case of joint holders, addressed to the holder whose name stands first in the register of the Company in respect of the shares at his address as appearing in the register or addressed to such person and at such addresses as the holder or joint holders may in writing direct. Every such cheque or warrant shall, unless the holder or joint holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first on the register in respect of such shares, and shall be sent at his or their risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge to the Company. Any one of two or more joint holders may give effectual receipts for any dividends or other moneys payable or property distributable in respect of the shares held by such joint holders.

Whenever the Board or the Company in general meeting has resolved that a dividend be paid or declared the Board may further resolve that such dividend be satisfied wholly or in part by the distribution of specific assets of any kind.

All dividends or bonuses unclaimed for one year after having been declared may be invested or otherwise made use of by the Board for the benefit of the Company until claimed and the Company shall not be constituted a trustee in respect thereof. All dividends or bonuses unclaimed for six years after having been declared may be forfeited by the Board and shall revert to the Company.

No dividend or other monies payable by the Company on or in respect of any share shall bear interest against the Company.

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(n) Proxies

Any member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at a general meeting of the Company or at a class meeting. A proxy need not be a member of the Company and shall be entitled to exercise the same powers on behalf of a member who is an individual and for whom he acts as proxy as such member could exercise. In addition, a proxy shall be entitled to exercise the same powers on behalf of a member which is a corporation and for which he acts as proxy as such member could exercise if it were an individual member. Votes may be given either personally (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy.

(o) Call on shares and forfeiture of shares

Subject to the Articles and to the terms of allotment, the Board may from time to time make such calls upon the members in respect of any monies unpaid on the shares held by them respectively (whether on account of the nominal value of the shares or by way of premium). A call may be made payable either in one lump sum or by installments. If the sum payable in respect of any call or instalment is not paid on or before the day appointed for payment thereof, the person or persons from whom the sum is due shall pay interest on the same at such rate not exceeding twenty per cent. (20%) per annum as the Board may agree to accept from the day appointed for the payment thereof to the time of actual payment, but the Board may waive payment of such interest wholly or in part. The Board may, if it thinks fit, receive from any member willing to advance the same, either in money or money’s worth, all or any part of the monies uncalled and unpaid or installments payable upon any shares held by him, and upon all or any of the monies so advanced the Company may pay interest at such rate (if any) as the Board may decide.

If a member fails to pay any call on the day appointed for payment thereof, the Board may serve not less than fourteen (14) clear days’ notice on him requiring payment of so much of the call as is unpaid, together with any interest which may have accrued and which may still accrue up to the date of actual payment and stating that, in the event of non payment at or before the time appointed, the shares in respect of which the call was made will be liable to be forfeited.

If the requirements of any such notice are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Board to that effect. Such forfeiture will include all dividends and bonuses declared in respect of the forfeited share and not actually paid before the forfeiture.

A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares but shall, notwithstanding, remain liable to pay to the Company all monies which, at the date of forfeiture, were payable by him to the Company in respect of the shares, together with (if the Board shall in its discretion so require) interest thereon from the date of forfeiture until the date of actual payment at such rate not exceeding twenty per cent. (20%) per annum as the Board determines.

(p) Inspection of register of members

Pursuant to the Articles the register and branch register of members shall be open to inspection for at least two (2) hours on every Business Day by members without charge, or by any other person upon a maximum payment of HK$2.50 or such lesser sum specified by the Board, at the registered office or

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS LAW

such other place at which the register is kept in accordance with the Companies Law or, upon a maximum payment of HK$1.00 or such lesser sum specified by the Board, at the Registration Office (as defined in the Articles), unless the register is closed in accordance with the Articles.

(q) Quorum for meetings and separate class meetings

No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business, but the absence of a quorum shall not preclude the appointment of a chairman.

Save as otherwise provided by the Articles the quorum for a general meeting shall be two members present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy and entitled to vote. In respect of a separate class meeting (other than an adjourned meeting) convened to sanction the modification of class rights the necessary quorum shall be two persons holding or representing by proxy not less than one third in nominal value of the issued shares of that class.

A corporation being a member shall be deemed for the purpose of the Articles to be present in person if represented by its duly authorised representative being the person appointed by resolution of the directors or other governing body of such corporation to act as its representative at the relevant general meeting of the Company or at any relevant general meeting of any class of members of the Company.

(r) Rights of the minorities in relation to fraud or oppression

There are no provisions in the Articles relating to rights of minority Shareholders in relation to fraud or oppression. However, certain remedies are available to Shareholders of the Company under Cayman law, as summarised in paragraph 3(f) of this Appendix.

(s) Procedures on liquidation

A resolution that the Company be wound up by the court or be wound up voluntarily shall be a special resolution.

Subject to any special rights, privileges or restrictions as to the distribution of available surplus assets on liquidation for the time being attached to any class or classes of shares (i) if the Company shall be wound up and the assets available for distribution amongst the members of the Company shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed pari passu amongst such members in proportion to the amount paid up on the shares held by them respectively and (ii) if the Company shall be wound up and the assets available for distribution amongst the members as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid up, or which ought to have been paid up, at the commencement of the winding up on the shares held by them respectively.

If the Company shall be wound up (whether the liquidation is voluntary or by the court) the liquidator may, with the authority of a special resolution and any other sanction required by the Companies Law divide among the members in specie or kind the whole or any part of the assets of the Company whether the assets shall consist of property of one kind or shall consist of properties of

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS LAW

different kinds and the liquidator may, for such purpose, set such value as he deems fair upon any one or more class or classes of property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members. The liquidator may, with the like authority, vest any part of the assets in trustees upon such trusts for the benefit of members as the liquidator, with the like authority, shall think fit, but so that no contributory shall be compelled to accept any shares or other property in respect of which there is a liability.

(t) Untraceable members

Pursuant to the Articles, the Company may sell any of the shares of a member who is untraceable if (i) all cheques or warrants in respect of dividends of the shares in question (being not less than three in total number) for any sum payable in cash to the holder of such shares have remained uncashed for a period of 12 years; (ii) upon the expiry of the 12 year period, the Company has not during that time received any indication of the existence of the member; and (iii) the Company has caused an advertisement to be published in accordance with the rules of the Designated [.] (as defined in the Articles) giving notice of its intention to sell such shares and a period of three (3) months, or such shorter period as may be permitted by the Designated [.] (as defined in the Articles), has elapsed since the date of such advertisement and the Designated [.] (as defined in the Articles) has been notified of such intention. The net proceeds of any such sale shall belong to the Company and upon receipt by the Company of such net proceeds, it shall become indebted to the former member of the Company for an amount equal to such net proceeds.

(u) Subscription rights reserve

The Articles provide that to the extent that it is not prohibited by and is in compliance with the Companies Law, if warrants to subscribe for shares have been issued by the Company and the Company does any act or engages in any transaction which would result in the subscription price of such warrants being reduced below the par value of a share, a subscription rights reserve shall be established and applied in paying up the difference between the subscription price and the par value of a share on any exercise of the warrants.

3. CAYMAN ISLANDS COMPANY LAW

The Company is incorporated in the Cayman Islands under the Companies Law and, therefore, operates subject to Cayman law. Set out below is a summary of certain provisions of Cayman company law, although this does not purport to contain all applicable qualifications and exceptions or to be a complete review of all matters of Cayman company law and taxation, which may differ from equivalent provisions in jurisdictions with which interested parties may be more familiar:

(a) Operations

As an exempted company, the Company’s operations must be conducted mainly outside the Cayman Islands. The Company is required to file an annual return each year with the Registrar of Companies of the Cayman Islands and pay a fee which is based on the amount of its authorised share capital.

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS LAW

(b) Share capital

The Companies Law provides that where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount of the value of the premiums on those shares shall be transferred to an account, to be called the ‘‘share premium account’’. At the option of a company, these provisions may not apply to premiums on shares of that company allotted pursuant to any arrangement in consideration of the acquisition or cancellation of shares in any other company and issued at a premium. The Companies Law provides that the share premium account may be applied by the company subject to the provisions, if any, of its memorandum and articles of association in (a) paying distributions or dividends to members; (b) paying up unissued shares of the company to be issued to members as fully paid bonus shares; (c) the redemption and repurchase of shares (subject to the provisions of section 37 of the Companies Law); (d) writing-off the preliminary expenses of the company; (e) writing-off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company; and (f) providing for the premium payable on redemption or purchase of any shares or debentures of the company.

No distribution or dividend may be paid to members out of the share premium account unless immediately following the date on which the distribution or dividend is proposed to be paid, the company will be able to pay its debts as they fall due in the ordinary course business.

The Companies Law provides that, subject to confirmation by the Grand Court of the Cayman Islands (the ‘‘Court’’), a company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles of association, by special resolution reduce its share capital in any way.

The Articles includes certain protections for holders of special classes of shares, requiring their consent to be obtained before their rights may be varied. The consent of the specified proportions of the holders of the issued shares of that class or the sanction of a resolution passed at a separate meeting of the holders of those shares is required.

(c) Financial assistance to purchase shares of a company or its holding company

Subject to all applicable laws, the Company may give financial assistance to Directors and employees of the Company, its subsidiaries, its holding company or any subsidiary of such holding company in order that they may buy Shares in the Company or shares in any subsidiary or holding company. Further, subject to all applicable laws, the Company may give financial assistance to a trustee for the acquisition of Shares in the Company or shares in any such subsidiary or holding company to be held for the benefit of employees of the Company, its subsidiaries, any holding company of the Company or any subsidiary of any such holding company (including salaried Directors).

There is no statutory restriction in the Cayman Islands on the provision of financial assistance by a company to another person for the purchase of, or subscription for, its own or its holding company’s shares. Accordingly, a company may provide financial assistance if the directors of the company consider, in discharging their duties of care and acting in good faith, for a proper purpose and in the interests of the company, that such assistance can properly be given. Such assistance should be on an arm’s-length basis.

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS LAW

(d) Purchase of shares and warrants by a company and its subsidiaries

Subject to the provisions of the Companies Law, a company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles of association, issue shares which are to be redeemed or are liable to be redeemed at the option of the company or a shareholder. In addition, such a company may, if authorised to do so by its articles of association, purchase its own shares, including any redeemable shares. However, if the articles of association do not authorise the manner of purchase, a company cannot purchase any of its own shares unless the manner of purchase has first been authorised by an ordinary resolution of the company. At no time may a company redeem or purchase its shares unless they are fully paid. A company may not redeem or purchase any of its shares if, as a result of the redemption or purchase, there would no longer be any member of the company holding shares. A payment out of capital by a company for the redemption or purchase of its own shares is not lawful unless immediately following the date on which the payment is proposed to be made, the company shall be able to pay its debts as they fall due in the ordinary course of business.

A company is not prohibited from purchasing and may purchase its own warrants subject to and in accordance with the terms and conditions of the relevant warrant instrument or certificate. There is no requirement under Cayman Islands law that a company’s memorandum or articles of association contain a specific provision enabling such purchases and the directors of a company may rely upon the general power contained in its memorandum of association to buy and sell and deal in personal property of all kinds.

Under Cayman Islands law, a subsidiary may hold shares in its holding company and, in certain circumstances, may acquire such shares.

(e) Dividends and distributions

With the exception of section 34 of the Companies Law, there is no statutory provisions relating to the payment of dividends. Based upon English case law, which is regarded as persuasive in the Cayman Islands, dividends may be paid only out of profits. In addition, section 34 of the Companies Law permits, subject to a solvency test and the provisions, if any, of the company’s memorandum and articles of association, the payment of dividends and distributions out of the share premium account (see paragraph 2(m) above for further details).

(f) Protection of minorities

The Cayman Islands courts ordinarily would be expected to follow English case law precedents which permit a minority shareholder to commence a representative action against or derivative actions in the name of the company to challenge (a) an act which is ultra vires the company or illegal, (b) an act which constitutes a fraud against the minority and the wrongdoers are themselves in control of the company, and (c) an irregularity in the passing of a resolution which requires a qualified (or special) majority.

In the case of a company (not being a bank) having a share capital divided into shares, the Court may, on the application of members holding not less than one fifth of the shares of the company in issue, appoint an inspector to examine into the affairs of the company and to report thereon in such manner as the Court shall direct.

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Any shareholder of a company may petition the Court which may make a winding up order if the Court is of the opinion that it is just and equitable that the company should be wound up or, as an alternative to a winding up order, (a) an order regulating the conduct of the company’s affairs in the future, (b) an order requiring the company to refrain from doing or continuing an act complained of by the shareholder petitioner or to do an act which the shareholder petitioner has complained it has omitted to do, (c) an order authorising civil proceedings to be brought in the name and on behalf of the company by the shareholder petitioner on such terms as the Court may direct, or (d) an order providing for the purchase of the shares of any shareholders of the company by other shareholders or by the company itself and, in the case of a purchase by the company itself, a reduction of the company’s capital accordingly.

Generally claims against a company by its shareholders must be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by the company’s memorandum and articles of association.

(g) Management

The Companies Law contains no specific restrictions on the power of directors to dispose of assets of a company. However, as a matter of general law, every officer of a company, which includes a director, managing director and secretary, in exercising his powers and discharging his duties must do so honestly and in good faith with a view to the best interests of the company and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

(h) Accounting and auditing requirements

A company shall cause proper books of account to be kept with respect to (i) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place; (ii) all sales and purchases of goods by the company; and (iii) the assets and liabilities of the company.

Proper books of account shall not be deemed to be kept if there are not kept such books as are necessary to give a true and fair view of the state of the company’s affairs and to explain its transactions.

(i) Exchange control

There are no exchange control regulations or currency restrictions in the Cayman Islands.

(j) Taxation

Pursuant to section 6 of the Tax Concessions Law (1999 Revision) of the Cayman Islands, the Company has obtained an undertaking from the Governor-in-Cabinet:

(1) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciation shall apply to the Company or its operations; and
(2) that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on or in respect of the shares, debentures or other obligations of the Company.

The undertaking for the Company is for a period of twenty years from 13 April 2010.

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The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands save certain stamp duties which may be applicable, from time to time, on certain instruments executed in or brought within the jurisdiction of the Cayman Islands. The Cayman Islands are not party to any double tax treaties.

(k) Stamp duty on transfers

No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands.

(l) Loans to directors

There is no express provision in the Companies Law prohibiting the making of loans by a company to any of its directors.

(m) Inspection of corporate records

Members of the Company will have no general right under the Companies Law to inspect or obtain copies of the register of members or corporate records of the Company. They will, however, have such rights as may be set out in the Company’s Articles.

An exempted company may, subject to the provisions of its articles of association, maintain its principal register of members and any branch registers at such locations, whether within or without the Cayman Islands, as the directors may, from time to time, think fit. There is no requirement under the Companies Law for an exempted company to make any returns of members to the Registrar of Companies of the Cayman Islands. The names and addresses of the members are, accordingly, not a matter of public record and are not available for public inspection.

(n) Winding up

A company may be wound up compulsorily by order of the Court voluntarily; or, under supervision of the Court. The Court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the Court, just and equitable to do so.

A company may be wound up voluntarily when the members so resolve in general meeting by special resolution, or, in the case of a limited duration company, when the period fixed for the duration of the company by its memorandum or articles expires, or the event occurs on the occurrence of which the memorandum or articles provides that the company is to be dissolved, or, the company does not commence business for a year from its incorporation (or suspends its business for a year), or, the company is unable to pay its debts. In the case of a voluntary winding up, such company is obliged to cease to carry on its business from the time of passing the resolution for voluntary winding up or upon the expiry of the period or the occurrence of the event referred to above.

For the purpose of conducting the proceedings in winding up a company and assisting the Court, there may be appointed one or more than one person to be called an official liquidator or official liquidators; and the Court may appoint to such office such qualified person or persons, either provisionally or otherwise, as it thinks fit, and if more persons than one are appointed to such office, the

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SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS LAW

Court shall declare whether any act hereby required or authorised to be done by the official liquidator is to be done by all or any one or more of such persons. The Court may also determine whether any and what security is to be given by an official liquidator on his appointment; if no official liquidator is appointed, or during any vacancy in such office, all the property of the company shall be in the custody of the Court. A person shall be qualified to accept an appointment as an official liquidator if he is duly qualified in terms of the Insolvency Practitioners Regulations. A foreign practitioner may be appointed to act jointly with a qualified insolvency practitioner.

In the case of a members’ voluntary winding up of a company, the company in general meeting must appoint one or more liquidators for the purpose of winding up the affairs of the company and distributing its assets. A declaration of solvency must be signed by all the directors of a company being voluntarily wound up within twenty-eight (28) days of the commencement of the liquidation, failing which, its liquidator must apply to Court for an order that the liquidation continue under the supervision of the Court.

Upon the appointment of a liquidator, the responsibility for the company’s affairs rests entirely in his hands and no future executive action may be carried out without his approval. A liquidator’s duties are to collect the assets of the company (including the amount (if any) due from the contributories), settle the list of creditors and, subject to the rights of preferred and secured creditors and to any subordination agreements or rights of set-off or netting of claims, discharge the company’s liability to them (pari passu if insufficient assets exist to discharge the liabilities in full) and to settle the list of contributories (shareholders) and divide the surplus assets (if any) amongst them in accordance with the rights attaching to the shares.

As soon as the affairs of the company are fully wound up, the liquidator must make up an account of the winding up, showing how the winding up has been conducted and the property of the company has been disposed of, and thereupon call a general meeting of the company for the purposes of laying before it the account and giving an explanation thereof. At least twenty-one (21) days before the final meeting, the liquidator shall send a notice specifying the time, place and object of the meeting to each contributory in any manner authorised by the company’s articles of association and published in the Gazette in the Cayman Islands.

(o) Reconstructions

There are statutory provisions which facilitate reconstructions and amalgamations approved by a majority in number representing seventy-five per cent. (75%) in value of shareholders or class of shareholders or creditors, as the case may be, as are present at a meeting called for such purpose and thereafter sanctioned by the Court. Whilst a dissenting shareholder would have the right to express to the Court his view that the transaction for which approval is sought would not provide the shareholders with a fair value for their shares, the Court is unlikely to disapprove the transaction on that ground alone in the absence of evidence of fraud or bad faith on behalf of management.

(p) Compulsory acquisition

Where an offer is made by a company for the shares of another company and, within four (4) months of the offer, the holders of not less than ninety per cent. (90%) of the shares which are the subject of the offer accept, the offeror may at any time within two (2) months after the expiration of the said four (4) months, by notice in the prescribed manner require the dissenting shareholders to transfer

– VI-20 –

APPENDIX VI SUMMARY OF THE CONSTITUTION OF THE COMPANY AND CAYMAN ISLANDS LAW

their shares on the terms of the offer. A dissenting shareholder may apply to the Court within one (1) month of the notice objecting to the transfer. The burden is on the dissenting shareholder to show that the Court should exercise its discretion, which it will be unlikely to do unless there is evidence of fraud or bad faith or collusion as between the offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing out minority shareholders.

(q) Indemnification

Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the court to be contrary to public policy (e.g. for purporting to provide indemnification against the consequences of committing a crime).

– VI-21 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

A. FURTHER INFORMATION ABOUT THE COMPANY

1. Incorporation

The Company was incorporated in the Cayman Islands as an exempted company under the Companies Law on 29 March 2010. The Company has established a place of business in Hong Kong and was registered with the Companies Registry as a non-Hong Kong company in Hong Kong with the Company’s principal place of business in Hong Kong at 43rd Floor, Gloucester Tower, The Landmark, 15 Queen’s Road, Central, Hong Kong under Part XI of the Companies Ordinance on 3 September 2010. Mr. Lou Sai Tong of House No. 2, 22 Tsing Sai Road, Siu Lam, N.T., Hong Kong, a Hong Kong resident, has been appointed as the authorized representative of the Company for acceptance of service of process and notices on behalf of the Company in Hong Kong. The Company changed its name from China Kingstone Mining Holdings Ltd. to China Kingstone Mining Holdings Limited 中國金石礦業控股有限公司 on 26 April 2010.

As the Company is incorporated in the Cayman Islands, it operates subject to the relevant laws of the Cayman Islands and to its constitutional documents comprising the Memorandum and the Articles. A summary of various provisions of its constitutional documents and relevant aspects of the Companies Law is set out in Appendix VI to this document.

2. Changes in share capital of the Company

The Company was incorporated in the Cayman Islands on 29 March 2010 with an authorized share capital of HK$380,000 divided into 3,800,000 Shares of HK$0.1 each, one of which was allotted and issued for cash at par to Codan Trust Company (Cayman) Limited. The Share was transferred to Wongs Investment on the same date. On 24 January 2011 the authorized share capital of the Company was increased to HK$500,000,000 divided into 5,000,000,000 Shares of HK$0.10 each.

Save as disclosed in this document, there has been no alteration in the share capital of the Company since its incorporation.

[.]

4. Corporate Reorganization

In preparation for the [.], our Company underwent the Corporate Reorganization. A diagram showing the corporate structure of our Company after the Corporate Reorganization is set out in the section headed ‘‘History and Corporate Development’’ in this document.

Details of the Corporate Reorganization undertaken are as follows:

(a) On 29 March 2010, the Company was incorporated in the Cayman Islands as an exempted company under the Companies Law.
(b) On 7 April 2010, Kingstone Industrial was incorporated under the laws of the BVI by the Company as an investment holding company.
(c) On 14 April 2010, Hong Kong Kingstone was incorporated under the laws of Hong Kong by Kingstone Industrial as an investment holding company.

– VII-1 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

(d) On 26 May 2010, Guangzhou Kingstone was established in Guangzhou under the laws of the PRC by Hong Kong Kingstone as a limited liability company with its registered capital of US$30.0 million.
(e) On 26 July 2010, Guangzhou Kingstone, Jiucheng Mining, Mr. Zhang Lin, Ms. Li Xiaohong and Ms. Bai Yanxiao entered into four equity transfer agreements, respectively, pursuant to which Jiucheng Mining, Mr. Zhang Lin, Ms. Li Xiaohong and Ms. Bai Yanxiao transferred 59%, 20%, 15% and 6% of the equity interests in Sichuan Jinshida, respectively, to Guangzhou Kingstone for the considerations of RMB5.9 million, RMB2.0 million, RMB1.5 million and RMB0.6 million, respectively.

5. Changes in share capital of subsidiaries

The Company’s subsidiaries are listed in the Accountants’ Report, the text of which is set out in Appendix I to this document.

The following alterations in the share capital of a subsidiary of the Company took place within the two years immediately preceding the date of this document:

Sichuan Jinshida

On 26 July 2010, Guangzhou Kingstone, Jiucheng Mining, Mr. Zhang Lin, Ms. Li Xiaohong and Ms. Bai Yanxiao entered into four equity transfer agreements, pursuant to which Jiucheng Mining, Mr. Zhang Lin, Ms. Li Xiaohong and Ms. Bai Yanxiao transferred the equity interest of 59%, 20%, 15% and 6% of the equity interests, respectively, in Sichuan Jinshida to Guangzhou Kingstone for the considerations of RMB5.9 million, RMB2.0 million, RMB1.5 million and RMB0.6 million, respectively.

Save as disclosed in this document and except for as referred to in the paragraph headed ‘‘Corporate Reorganization’’ above in this Appendix, there has been no changes in the share capital of any of the subsidiaries of the Company within the two years immediately preceding the date of this document.

6. Salient features of the Company’s subsidiaries established in the PRC

The salient features of the Company’s subsidiaries established in the PRC are as follows:

(a) Guangzhou Kingstone

Nature of the company:

limited liability company (wholly foreign owned enterprise)

Date of establishment: 26 May 2010

Registered capital: US$30.0 million Term of operation: 30 years

– VII-2 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

Scopes of businesses:

Scopes of businesses: wholesale, commission agency (exclusive of auction) and import and export of building stone projects and building materials; provision of after-sales services and related consulting services (no shop operation). The business of those goods subject to quota license or special administration should be conducted in accordance with the relevant state regulations (except for the products exclusively operated or controlled by the state) The Company’s attributable 100% percentage interest: Owner of the registered Hong Kong Kingstone capital:

(b) Sichuan Jinshida

Nature of the company: limited liability company Date of establishment: 20 September 2005 Registered capital: RMB10.0 million Term of operation: 6 years Scopes of businesses: business activities requiring pre-licensing: open-pit exploitation of limestone used in cement and decorative stone (until 16 June 2012 and can only be conducted by branch company); general business activities: stone processing and sales; installation of stone projects The Company’s attributable 100% percentage interest: Owner of the registered Guangzhou Kingstone capital:

– VII-3 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

B. FURTHER INFORMATION ABOUT THE BUSINESS

1. Summary of material contracts

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by members of our Company within the two years preceding the date of this document and are or may be material:

(a) an equity transfer agreement in Chinese dated 26 July 2010, pursuant to which Jiucheng Mining transferred 59% of the equity interests in Sichuan Jinshida to Guangzhou Kingstone for a consideration of RMB5.9 million;
(b) an equity transfer agreement in Chinese dated 26 July 2010, pursuant to which Mr. Zhang Lin transferred 20% of the equity interests in Sichuan Jinshida to Guangzhou Kingstone for a consideration of RMB2.0 million;
(c) an equity transfer agreement in Chinese dated 26 July 2010, pursuant to which Ms. Li Xiaohong transferred 15% of the equity interests in Sichuan Jinshida to Guangzhou Kingstone for a consideration of RMB1.5 million;
(d) an equity transfer agreement in Chinese dated 26 July 2010, pursuant to which Ms. Bai Yanxiao transferred 6% of the equity interests in Sichuan Jinshida to Guangzhou Kingstone for a consideration of RMB0.6 million;
(e) a note purchase agreement dated 13 August 2010 between MS China 3, the Company, Mr. Huang and Wongs Investment, pursuant to which MS China 3 agreed to purchase the Exchangeable Note;
(f) a deed of share charge dated 19 August 2010, pursuant to which the Company created a charge in favor of MS China 3 the security of such charge consisting of its entire interests in Kingstone Industrial and all proceeds deriving from the legal or beneficial ownership of such share as security for the obligations in connection with the purchase of the Exchangeable Note by MS China 3;
(g) a deed of share charge dated 19 August 2010, pursuant to which Kingstone Industrial created a charge in favor of MS China 3 the security of such charge consisting of its entire interests in Hong Kong Kingstone and all proceeds deriving from the legal or beneficial ownership of such share as security for the obligations in connection with the purchase of the Exchangeable Note by MS China 3;
(h) an agreement on pledge of equity interest in Chinese dated 19 August 2010, pursuant to which Hong Kong Kingstone pledged in favor of MS China 3 its 20% equity interests in Guangzhou Kingstone and all proceeds deriving from such interests as security for the obligations in connection with the purchase of the Exchangeable Note by MS China 3;
(i) a shareholders’ and noteholder’s agreement dated 19 August 2010 among MS China 3, the Company, Mr. Huang and Wongs Investment setting out certain rights of MS China 3 as noteholder of the Exchangeable Note and the management and operation of the Company and of other subsidiaries of the Company;

– VII-4 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

(j) a shareholder loan agreement in Chinese dated 24 August 2010 between Hong Kong Kingstone as the lender and Guangzhou Kingstone as the borrower for a shareholder’s loan of US$ 15 million;
(k) a deed of shareholder loan assignment dated 24 August 2010 between Hong Kong Kingstone, MS China 3 and Guangzhou Kingstone, pursuant to which Hong Kong Kingstone has agreed to assign its rights under the shareholder loan agreement to MS China 3 as security for the obligations in connection with the subscription of the Exchangeable Note by MS China 3;
(l) an agreement on release of pledge of equity interests in Chinese dated 24 February 2011, pursuant to which Hong Kong Kingstone, Guangzhou Kingstone and MS China 3 agreed to release the pledge of the 20% equity interests in Guangzhou Kingstone in favor of MS China 3;

2. Intellectual property rights

The following intellectual property rights are or may be material in relation to our Company’s business:

(a) Trademarks

As at the Latest Practicable Date, our Company was the registered owner of the following trademarks:

Trademark	Registered Owner Sichuan Jinshida Sichuan Jinshida Sichuan Jinshida Sichuan Jinshida Sichuan Jinshida Sichuan Jinshida Sichuan Jinshida Sichuan Jinshida	Place of Registration Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong Hong Kong	Class 19 37 40 42 19 37 40 42	Registration Number 301714798 301714798 301714798 301714798 301714806 301714806 301714806 301714806	Expiry Date
					13 September 2020 13 September 2020 13 September 2020 13 September 2020 13 September 2020 13 September 2020 13 September 2020 13 September 2020

– VII-5 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

As at the Latest Practicable Date, our Company applied for registration of the following trademarks, the registration of which have not yet been granted:

Trade mark	Applicant Sichuan Jinshida Sichuan Jinshida Sichuan Jinshida Sichuan Jinshida	Place of Registration PRC PRC PRC PRC	Application Date 17 August 2010 17 August 2010 23 August 2010 17 August 2010	Class 19 37 40 42	Application Number
					8582362 8582377 8596158 8582400

(b) Domain Names

As at the Latest Practicable Date, our Company registered the following domain name:

Domain name jsmarble.com . . . . . . . . . . . . . . . . . kingstonemining.com . . . . . . . . . . . . kingstonemining.com.cn . . . . . . . . . . kingstonemining.cn . . . . . . . . . . . . . kingstonemining.com.hk . . . . . . . . . . kingstonemining.hk . . . . . . . . . . . . .	Registered Owner Sichuan Jinshida Guangzhou Kingstone Guangzhou Kingstone Guangzhou Kingstone Hong Kong Kingstone Hong Kong Kingstone	Expiry Date
		24 July 2011 11 August 2011 27 August 2011 27 August 2011 6 September 2013 3 September 2013

(c) Mining rights

Details of our Company’s mining rights are set out in the section headed ‘‘Business — Our Mineral Resources and Mining Rights’’ in this document.

C. FURTHER INFORMATION ABOUT DIRECTORS, MANAGEMENT AND STAFF

3. Directors’ service contracts

Each of our executive Directors has entered into a service contract with us for an initial fixed term of three years commencing from the [.] and will continue thereafter until terminated by not less than three months’ notice in writing served by either party on the other.

– VII-6 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

Other than our non-executive Directors, each of our Directors is entitled to a basic salary or director’s fee. Each of the executive Directors is also entitled to a discretionary bonus, provided that the aggregate amount of the bonuses payable to all our executive Directors in respect of any financial year of our Company may not exceed 5% of audited consolidated or combined net profit of (after taxation and minority interests and payment of such bonuses but excluding extraordinary and exceptional items) in respect of that financial year. An executive Director may not vote on any resolution of our Directors regarding the increment of annual salary and the amount of the performance-based bonus payable to him/her.

Name
Ms. Chen Tao . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Lin Yuhua . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Liao Yuanshi . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mr. Xiong Wenjun . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Annual Amount

RMB2.0 million
RMB0.52 million
RMB0.48 million
RMB0.45 million

Save as aforesaid, none of our Directors has or is proposed to have a service contract with us or any of our subsidiaries (other than contracts expiring or determinable by the employer within one year without the payment of compensation (other than statutory compensation)).

4. Directors’ remuneration during the Track Record Period

The Company’s principal policies concerning remuneration of executive Directors are to enable our Company to retain and motivate executive Directors by linking their compensation with performance as measured against corporate objectives. Under the policy, a Director is not allowed to approve his/her own remuneration. The principal elements of our Company’s executive remuneration package include salaries, allowances and benefits in kind, including our contribution to the pension plan on their behalf.

Under the current arrangements, our Directors is entitled to receive an estimate of the aggregate remuneration which, for the financial year ending 31 December 2011, with an amount to RMB5.5 million, excluding the discretionary bonuses payable to our Directors.

The independent non-executive Directors have been appointed for an initial term of three years subject to early termination as stipulated in the appointment letters and the Articles, including retirement by way of rotation at each annual general meeting. Save for Director’s fees, none of the independent non-executive Directors is expected to receive any other remuneration for holding their office as independent non-executive Directors.

5. Agency fees or commissions

Save as disclosed in this document, within the two years preceding the date of this document, no commissions, discounts, brokerages or other special terms have been granted in connection with the issue or sale of any share or loan capital of the Company or any of its subsidiaries.

– VII-7 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

6. Disclaimers

Save as disclosed in this document,

(c) none of our Directors nor the experts named in the paragraph headed ‘‘F. Other Information — 7. Consents of experts’’ below in this Appendix is interested in the promotion of the Company, or in any assets which have been, within the two years immediately preceding the date of this document, acquired or disposed of by or leased to any member of our Company, or are proposed to be acquired or disposed of by or leased to any member of our Company;
(d) none of our Directors is materially interested in any contract or arrangement subsisting as at the date of this document which is unusual in its nature or conditions or which is significant in relation to the business of our Company taken as a whole;
(e) save in connection with the [.], none of the experts named in the paragraph headed ‘‘F. Other Information — 7. Consents of experts’’ below in this Appendix has any shareholding in any member of our Company or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of our Company;
(f) save in connection with the [.], none of the experts named in the paragraph headed ‘‘F. Other Information — 7. Consents of experts’’ below in this Appendix is materially interested in any contract or arrangement subsisting as at the date of this document which is significant in relation to the business of our Company taken as a whole;
(g) no cash, securities or other benefit has been paid, allotted or given within the two years preceding the date of this document to any promoter of the Company nor is any such cash, securities or benefit intended to be paid, allotted or given on the basis of the [.] or related transactions as mentioned in this document;
(h) so far as is known to our Directors, none of our Directors or their associates (as defined in the [.]), or the existing Shareholders who are expected to be interested in 5% or more of the issued shares capital of the Company has any interest in any of the five largest customers or the five largest suppliers of our Company; and
(i) none of our Directors are interested in any business apart from our Company’s business which competes or is likely to compete, directly or indirectly, with the business of our Company.

F. OTHER INFORMATION

1. Estate duty, tax and other indemnity

Each of the [.] (the ‘‘Indemnifiers’’) has entered into the Deed of Indemnity with and in favor of the Company (for itself and as trustee for each of its present subsidiaries) to provide indemnities in respect of, among other matters, any liability for Hong Kong estate duty which might be incurred by any member of our Company and/or its associated companies by reason of any transfer of property (within the meaning of section 35 of the Estate Duty Ordinance, Chapter 111 of the Laws of Hong Kong) to any member of our Company on or before the date on which the [.] becomes unconditional.

Our Directors have been advised that no material liability for estate duty is likely to fall on the Company or any of our subsidiaries under the laws of the Cayman Islands and the BVI, being jurisdictions in which one or more of the companies comprising our Company are incorporated.

– VII-8 –

APPENDIX VII

STATUTORY AND GENERAL INFORMATION

Under the Deed of Indemnity, the Indemnifiers have also given indemnities to our Company on a joint and several basis in relation to taxation which might be payable by any member of our Company in respect of any income, profits or gains earned, accrued or received (or deemed to be so earned, accrued or received) on or before the date on which the [.] become unconditional.

2. Litigation

As at the Latest Practicable Date, no member of our Company was engaged in any litigation, claim or arbitration of material importance and no litigation, claim or arbitration of material importance is known to our Directors to be pending or threatened against any member of our Company.

8. No material adverse change

Our Directors confirm that save as disclosed in this document, there has been no material adverse change in the financial position or trading position of our Company since 30 November 2010 (being the date to which our latest audited consolidated financial statements were made up).

12. Miscellaneous

(a) Save as disclosed in this document,
(i) within the two years preceding the date of this document, no Share or loan capital of the Company or any of its subsidiaries has been issued or agreed to be issued fully or partly paid either for cash or for a consideration other than cash;
(ii) none of our Directors or any of the persons whose names are listed in the paragraph headed ‘‘F. Other Information — 6. Qualifications of experts’’ above in this Appendix had received any commissions, discounts, agency fee, brokerages or other special terms in connection with the issue or sale of any capital of any member of our Company within the two years preceding the date of this document;
(iii) no share or loan capital of the Company or any of its subsidiaries is under option or is agreed conditionally or unconditionally to be put under option;
(iv) our Company has not issued nor agreed to issue any founder shares, management shares or deferred shares;
(v) none of the equity and debt securities of the Company is listed or dealt with in any other [.] nor is any [.] or permission to deal being or proposed to be sought;
(vi) the Company has no outstanding convertible debt securities or debentures;
(vii) within the two years preceding the date of this document, no commission has been paid or payable (except commission to [.]) to any persons for subscription or purchase, agreeing to subscribe or purchase, procuring subscription or purchase or agreeing to procure subscription or purchase of any Shares in the Company;
(viii) there has been no material adverse change in the financial or trading position of our Company since 30 November 2010 (being the date to which the latest audited consolidated financial statements of our Company were made up); and
(ix) our Directors confirm that there has not been any interruption in the business of our Company which may have or have had a significant effect on the financial position of our Company in the 12 months proceeding date of this document.

– VII-9 –

APPENDIX VII STATUTORY AND GENERAL INFORMATION

(b) As at the Latest Practicable Date, there was no restriction in Hong Kong affecting the remittance of profits or repatriation of capital of the Company into Hong Kong from outside Hong Kong.

– VII-10 –

AI assistant

China Kingstone Mining Holdings Limited — Proxy Solicitation & Information Statement 2011

49888_rns_2011-03-18_6ce4424c-ebb0-405f-beba-521e57fafe98.pdf

Web Proof Information Pack of

China Kingstone Mining Holdings Limited

中 國 金 石 礦 業 控 股 有 限 公 司

WARNING

CONTENTS

Appendices

SUMMARY

OVERVIEW

OUR CURRENT OPERATIONS

SUMMARY

Production Volume and Contracted Sales

SUMMARY

SUMMARY

Mining Method

Operating Costs

Location and Land Use Rights

SUMMARY

Our Management Team

RAMP-UP AND EXPANSION PLANS

SUMMARY

SUMMARY

COMPETITIVE STRENGTHS

SUMMARY

BUSINESS STRATEGIES

SUMMARY CONSOLIDATED FINANCIAL INFORMATION

SUMMARY

Summary Consolidated Statements of Financial Position

Summary Consolidated Statements of Cash Flows

SUMMARY

LOSS ESTIMATE FOR THE YEAR ENDED 31 DECEMBER 2010

DIVIDEND POLICY

SUMMARY

RISK FACTORS

Risks Relating to Our Business

SUMMARY

Risks Relating to Our Industry

Risks Relating to Conducting Business in China

SUMMARY

DEFINITIONS

DEFINITIONS

‘‘IFRS’’

DEFINITIONS

DEFINITIONS

DEFINITIONS

GLOSSARY

GLOSSARY

GLOSSARY

RISK FACTORS

RISKS RELATING TO OUR BUSINESS

As a developing mining company with a limited operating history, we cannot guarantee that we will generate revenue and grow our business as planned.

Our business operation depends on a single mining project.

RISK FACTORS

We derive revenue from a limited number of products.

The quality of our products is subject to uncertainties.

Our business is exposed to uncertainties in relation to our ramp-up plan.

We face risks and uncertainties associated with our mining and processing operations.

RISK FACTORS

Failure to compete effectively with our competitors may adversely affect our business and prospects.

Our business and product quality are affected by the performance of our third-party contractors.

RISK FACTORS

Our business depends on the availability of reliable and adequate transportation capacity for our products.

Our mining project and ramp-up plan are capital intensive.

RISK FACTORS

If we fail to manage our liquidity situation carefully, our ability to expand and, in turn, our results of operations may be materially and adversely affected.

RISK FACTORS

We may not be able to achieve the level of profitability as expected.

RISK FACTORS

We may have difficulty managing our growth effectively.

We may not be able to renew the approvals required to temporarily use the land within some of our mine area and facilities.

RISK FACTORS

If our rights to lease land from the land owners are subject to a dispute, or if their legality or validity is challenged, our operations could be disrupted.

RISK FACTORS

The occurrence of natural disasters could have a material adverse effect on our operations.

Our operations are exposed to risks relating to occupational hazards and production safety.

RISK FACTORS

Our current insurance cannot adequately cover all losses and liabilities arising from our operations.

RISK FACTORS

China Kingstone Mining Holdings Limited Proxy Solicitation & Information Statement 2011

中國金石礦業控股有限公司