CITIC Limited — Proxy Solicitation & Information Statement 2006

May 8, 2006

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

If you have sold or transferred all your shares in CITIC Pacific Limited, you should at once hand this circular to the purchaser or the transferee or to the licensed securities dealer or registered institution in securities or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

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(Incorporated in Hong Kong with limited liability) (Stock Code: 267)

MAJOR TRANSACTION

ACQUISITION OF MAGNETITE MINING RIGHTS IN WESTERN AUSTRALIA

A letter from the Board is set out on pages 9 to 24 of this circular.

8 May 2006

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Glossary of Technical Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	4
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	9
Appendix I – Australian Laws and Regulations relating to
the Industry, Summary of the terms on
which Mineralogy holds its Mining Rights
and Summary of the terms of the Sub-leases . . . . . . . . . . . . . . . . .	25
Appendix II – Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	35
Appendix III – Financial Information on the Group . . . . . . . . . . . . . . . . . . . . . . . . . . .	41
Appendix IV – Accountants’ Report of Sino-Iron and Balmoral. . . . . . . . . . . . . . . . .	114
Appendix V – Unaudited Pro Forma Financial Information
on the Enlarged Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	146
Appendix VI – Report of Golder Associates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	151
Appendix VII– General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	171

DEFINITIONS

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

“Acquisition of Mining Rights” collectively, the Sino-Iron Acquisition, the Balmoral Acquisition, the granting of the Options under the China Project Option Agreement and the committed capital expenditure of the Company or any of the Enlarged Group in respect of the Project

• “A$”

Australian dollars, the lawful currency of the Commonwealth of Australia

• “associate(s)” or have the meanings ascribed to them respectively under “connected person(s)” the Listing Rules

• “Balmoral” Balmoral Iron Pty Ltd., a company incorporated in Australia

• “Balmoral Acquisition” the acquisition by the Balmoral Purchaser of the Balmoral Shares pursuant to the Balmoral Acquisition Agreement

• “Balmoral Acquisition Agreement”

• the takeover agreement dated 31 March 2006 entered into between Mineralogy, the Balmoral Purchaser, the Company, Mr. Clive Frederick Palmer and Balmoral in respect of the Balmoral Acquisition

• “Balmoral Purchaser”

• ACN 118 927 914 Pty Limited, a company incorporated in Australia and wholly owned by the Company

• “Balmoral Shares”

• the shares in Balmoral to be acquired by the Balmoral Purchaser under the Balmoral Acquisition Agreement

“Board”

the board of Directors

• “China Project Option Agreement”

• the agreement to be entered into between the Company, Mr. Clive Frederick Palmer and Mineralogy in respect of the Options upon completion of the Balmoral Acquisition

• “CITIC Pacific” or CITIC Pacific Limited, a company incorporated in the “Company” Hong Kong whose shares are listed on the Main Board of the Stock Exchange

• “Directors”

directors of the Company

“Enlarged Group” the Group as enlarged by the companies acquired under the Acquisition of Mining Rights

– 1 –

DEFINITIONS

“FOB”	Free on Board, means the seller delivers when the
	goods pass the ship’s rail at the named port of
	shipment
“Golder Associates”	Golder Associates Pty Ltd, an independent technical
	adviser with professional qualification and relevant
	experience in relation to exploration activities
“Group”	the Company and its subsidiaries
“Inflation”	the change in the Australian consumer price index
	(expressed as a percentage)
“Latest Practicable Date”	2 May 2006, being the latest practicable date prior to
	the printing of this circular for the purpose of
	ascertaining certain information contained in this
	circular
“Listing Rules”	the Rules Governing the Listing of Securities on the
	Stock Exchange
“Mining Area”	a specified area marked in red on the map attached to
	Sino-Iron Acquisition Agreement and the Balmoral
	Acquisition Agreement which is located under Mining
	Leases 08/123, 08/124 and 08/125 granted under the
	Mining Act of Western Australia
“Mineralogy” or “Seller”	Mineralogy Pty Ltd., a company incorporated in
	Australia, being the registered holder and beneficial
	owner of the existing issued shares in each of Sino-
	Iron and Balmoral
“Options”	the options to be granted by Mineralogy to the
	Company to acquire up to an additional 4 billion
	tonnes of magnetite ore under the China Project Option
	Agreement
“PRC”	People’s Republic of China, excluding Macau, Taiwan
	and Hong Kong
“Project”	the mining and extraction of magnetite ore from the
	Mining Area and the processing of that magnetite ore
	into products through mine and processing facilities
	or infrastructure to be constructed or installed by
	Sino-Iron, Balmoral and other companies to be
	acquired by the Company to carry on the Project upon
	exercise of the Options

– 2 –

DEFINITIONS

“SFO”	the Securities and Futures Ordinance (Cap. 571 of the
	laws of Hong Kong)
“Share(s)”	share(s) of HK$0.40 each in the share capital of the
	Company
“Shareholder(s)”	holder(s) of Shares in CITIC Pacific
“Sino-Iron”	Sino Iron Pty Ltd., a company incorporated in
	Australia
“Sino-Iron Acquisition”	the acquisition of the Sino-Iron Shares pursuant to the
	Sino-Iron Acquisition Agreement
“Sino-Iron Acquisition	the takeover agreement dated 31 March 2006 entered
Agreement”	into between the Sino-Iron Purchaser, Mineralogy, the
	Company and Sino-Iron in respect of the Sino-Iron
	Acquisition
“Sino-Iron Purchaser”	ACN 118 791 772 Pty Limited, a company incorporated
	in Australia and wholly owned by the Company
“Sino-Iron Shares”	the shares in Sino-Iron to be acquired by the Sino-Iron
	Purchaser under the Sino-Iron Acquisition Agreement
“Stock Exchange”	The Stock Exchange of Hong Kong Limited
“Treasurer of Australia”	the Treasurer of the Commonwealth of Australia
“US$”	United States dollars, the lawful currency of the United
	States
“%”	percentage

(For the purpose of illustration only, the exchange rates of A$1 to HK$5.6 and of US$1 to HK$7.8 are adopted.)

– 3 –

GLOSSARY OF TECHNICAL TERMS

This glossary contains definitions of certain terms used in this circular in connection with the Acquisition of Mining Rights. Some of these may not correspond to standard industry definitions.

“Brockman Iron Formation”	stratigraphic group of iron bearing units in the Pilbara
	region of Western Australia. Consists of the Dales
	Gorge Member at the base, overlain by the Whaleback
	Shale Member, then the Joffre Member and the
	Yandicoogina Shale member at the top
“Cape Preston Resource”	area of potential magnetite resources in Pilbara region
	of Western Australia which includes the George Palmer
	deposit
“concentrates”	the products of ore processing plants, which contain
	higher concentrations of the minerals
“csv format”	comma separated values format
“cut-off grade”	the lowest grade, or quality, of mineralized material
	that qualifies as economically mineable and available
	in a given deposit
“Datamine format”	format of file used by Datamine mining software
“Davis Tube test”	a test to recover the magnetic fraction of the sample
“direct reduced iron”	feed to an electric arc furnace for producing steel in
	mini mills
“drilling”	a technique or process of making a circular hole in the
	ground with a drilling machine to obtain a subsurface
	rock or soil sample
“exploration”	activity to prove the location, volume and quality of
	an ore body
“George Palmer Deposit”	Magnetite bearing deposit in Pilbara region of Western
	Australia
“hot briquette iron”	pressed metallised conglomerate of fine iron particles

– 4 –

GLOSSARY OF TECHNICAL TERMS

• “Indicated Resource”

according to the JORC Code (2004), it is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a reasonable level of confidence. It is based on exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are too widely or inappropriately spaced to confirm geological and/ or grade continuity but are spaced closely enough for continuity to be assumed

• “Inferred Resource”

• according to the JORC Code (2004), it is that part of a Mineral Resource for which tonnage, grade and mineral content can be estimated with a low level of confidence. It is inferred from geological evidence and assumed but not verified geological and/or grade continuity. It is based on information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes which may be limited or of uncertain quality and reliability

• “Joffre Member” iron rich stratigraphic unit within the Brockman Iron Formation

• “JORC” the Joint Ore Reserves Committee, which is sponsored by the Australian mining industry and its professional organizations

• “JORC Code (2004)” the Australasian Code for reporting of Exploration Results, Mineral Resources and Ore Reserves prepared by the JORC, Australian Institute of Geoscientists and Minerals Council of Australia in September 1999 and revised in December 2004, a widely used and internationally recognized code setting out the minimum standards, recommendations and guidelines for public reporting of exploration results, mineral resources and ore reserves

• “MagFe”

• magnetic iron, expressed as a percentage

– 5 –

GLOSSARY OF TECHNICAL TERMS

“Measured Resource”

according to the JORC Code (2004), it is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a high level of confidence. It is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are spaced closely enough to confirm geological and grade continuity

• “metallurgy”

the science and art of separating metals and metallic minerals from their ores by mechanical and chemical processes

“Mineral Resource(s)” or a concentration of occurrence of material of intrinsic “Resource(s)” economic interest in or on the earth’s crust in such form, quality and quantity that there are reasonable prospects for eventual economic extraction, as defined in the JORC Code (2004). The location, quantity, grade, geological characteristics and continuity of a Mineral Resource are known, estimated or interpreted from specific geological evidence and knowledge. Mineral Resources are sub-divided, in order of increasing geological confidence, into Inferred, Indicated and Measured categories

• “mining rights”

the licensed right to mine mineral resources and obtain mineral products in areas where mining activities are legal

• “open pit” or “open pit mining” mining of a deposit from a pit open to surface and usually carried out by stripping of overburden materials

“ore” natural mineral accumulations which can be extracted for use under existing economic conditions and using existing extraction techniques

– 6 –

GLOSSARY OF TECHNICAL TERMS

• “ore grade”

• “Ore Reserve(s)” or “Reserve(s)”

• “pellet”

• “prefeasibility study”

• “Preferred MagFe”

• “Probable Ore Reserve”

the average content of valuable elements or minerals in a parcel of ore, and indicated in, for example, % or g/t

the economically minable part of a Measured and/or Indicated mineral resource. It includes diluting materials and allowances for losses, which may occur when the material is mined. Appropriate assessments and studies have been carried out, and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors, as defined in the JORC Code (2004). These assessments demonstrate at the time of reporting that extraction could reasonably be justified. Ore Reserves are subdivided in order of increasing confidence into Probable Ore Reserves and Proved Ore Reserves

• iron oxide fines that have been agglomerated and sintered. These are suitable as feed to blast furnace or direct reduction feed

an overall study that combines resources, geology, mining, processing and other disciplines to produce a cost estimate to a level of accuracy of ±25%

MagFe value used for estimation based on the reliability of the method used to determine MagFe

according to the JORC Code (2004), it is the economically mineable part of an Indicated, and in some circumstances, a Measured Mineral Resource. It includes diluting materials and allowances for losses which may occur when the material is mined. Appropriate assessments and studies have been carried out, and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justified

– 7 –

GLOSSARY OF TECHNICAL TERMS

“Proved Ore Reserve”

according to the JORC Code (2004), it is the economically mineable part of a Measured Mineral Resource. It includes diluting materials and allowances for losses which may occur when the material is mined. Appropriate assessments and studies have been carried out, and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justified

“QAQC data” quality assurance and quality control data used to check accuracy and precision of drill assays

“ton” metric ton

“Vulcan” mining software “water bore field” underground water reservoir “XRF assays” assays measured using X-ray fluorescence

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LETTER FROM THE BOARD

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(Incorporated in Hong Kong with limited liability)

(Stock Code: 267)

Directors:

Larry Yung Chi Kin (Chairman) Henry Fan Hung Ling (Managing Director) Peter Lee Chung Hing (Deputy Managing Director) Norman Yuen Kee Tong (Deputy Managing Director) Vernon Francis Moore (Executive Director) Li Shilin (Executive Director) Carl Yung Ming Jie (Executive Director) Liu Jifu (Executive Director) Leslie Chang Li Hsien (Executive Director) Chau Chi Yin (Executive Director) Milton Law Ming To (Executive Director) Wang Ande (Executive Director) Willie Chang Hamilton Ho Hau Hay Alexander Reid Hamilton Hansen Loh Chung Hon Norman Ho Hau Chong André Desmarais Peter Kruyt[#]

Registered Office: 32nd Floor CITIC Tower 1 Tim Mei Avenue Central Hong Kong

• Non-executive Director

** Independent Non-executive Director

• Alternate Director to André Desmarais

8 May 2006

To the Shareholders,

Dear Sir or Madam,

MAJOR TRANSACTION

ACQUISITION OF MAGNETITE MINING RIGHTS IN WESTERN AUSTRALIA

INTRODUCTION

The Directors announced on 31 March 2006 that the Company had agreed to a transaction under which it will have, potentially, mining rights over 6 billion tonnes of magnetite ore over the Mining Area in the western Pilbara region of Western Australia

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LETTER FROM THE BOARD

located near the mouth of the Fortescue River. The mining rights will be held through companies the Company may acquire which hold sub-leases (i.e. sub mining rights) from the Seller, an independent third party, which in turn holds the mining rights direct from the Western Australian Government.

Magnetite ore is a ferromagnetic mineral form of iron ore, which can be further processed into concentrate, pellets or hot briquetted iron. These are the essential raw materials for the production of iron at the beginning stage of steel (including special steel) manufacturing process. It is estimated that the conversion ratio of magnetite ore to concentrate/pellet is 3.4 to 1 for this Project. There is no established open market value for magnetite ore.

The mining rights which the Company may acquire will be acquired by buying companies from the Seller, which companies hold sub-leases (i.e. sub mining rights) from the Seller, which in turn holds the mining rights direct from the Western Australian Government.

The sub-leases will continue in force until, for each company the Group acquires from the Seller, the processing of its 1 billion tonnes of magnetite ore which has been taken from the Mining Area has been completed. After each sub-lease expires, the relevant company(s) that the Company has acquired will no longer have the mining rights in the Mining Area.

The magnetite ore will be processed into concentrate and pellets, hot briquetted iron or/and any other product produced from iron ore or magnetite. A royalty is payable to the Seller based on the quantity of magnetite ore extracted and products produced.

In addition, Sino-Iron and Balmoral will arrange the financing of the construction of some of the infrastructure for the Project. The estimated capital expenditure payable for Sino-Iron (i.e. the first 1 billion tonnes of magnetite ore) is US$1,370 million (approximately HK$10,686 million), and the estimated capital expenditure payable for Balmoral (i.e. the second 1 billion tonnes of magnetite ore) is US$1,100 million (approximately HK$8,580 million).

In order for Sino-Iron, Balmoral, or any other company the Group acquires from the Seller to export concentrate produced under the terms of the existing sub-lease, the approval of the Western Australian Government will have to be obtained for the amendment of the agreement between the Seller, the Western Australian Government and other relevant parties. Having made enquiries with the relevant entities (including entities within the Western Australian Government) on this matter, the Directors are confident of obtaining this approval.

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LETTER FROM THE BOARD

The table below summarises the key details of the Project:

Conditions precedents to

Assets to be acquired

Agreement

Consideration

the acquisitions Other terms

Right to extract 1 billion tonnes of magnetite ore in the Mining Area through the acquisition of SinoIron

Right to extract 1 billion tonnes of magnetite ore in the Mining Area through the acquisition of Balmoral

Options to acquire the right to extract up to 4 billion tonnes of magnetite ore in the Mining Area (depending on how much is proven by the Company under the further drilling obligation) through the acquisition of up to 4 further companies, each with the right to extract 1 billion tonnes of magnetite ore in the Mining Area

Sino-Iron	US$215 million	•	Consent from	•	Estimated
Acquisition			Treasurer of		capital
Agreement			Australia		expenditure of
					US$1,370
					million
				•	Royalty
Balmoral	US$200 million	•	Consent from	•	Estimated cost
Acquisition	plus Inflation		Treasurer of		of first drilling
Agreement	between the		Australia		obligation of
	date of the				A$5 million
	Balmoral	•	Completion of
	Acquisition		the Sino-Iron	•	Estimated
	Agreement and		Acquisition		capital
	the completion				expenditure of
	of the Balmoral	•	Another 1		US$1,100
	Acquisition		billion tonnes		million
			of magnetite
			ore in the	•	Royalty
			Mining Area
			(other than the
			1 billion tonnes
			to be available
			to Sino-Iron)
			being proven
China Project	US$100 for	•	Consent from	•	Estimated cost
Option	grant of all		Treasurer of		of further
Agreement	Options		Australia		drilling
					obligation of
	US$200 million	•	Another 4		A$15 million
	plus Inflation		billion tonnes
	between 1		of magnetite	•	Royalty
	March 2006 and		ore (or lesser
	the date of		amount) in the
	completion of		Mining Area
	such acquisition		(other than the
	for the exercise		2 billion tonnes
	of each Option		to be available
			to Sino-Iron
			and Balmoral)
			being proven

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LETTER FROM THE BOARD

The purpose of this circular is to provide you with the particulars of the Acquisition of Mining Rights.

1. THE SINO-IRON ACQUISITION AGREEMENT

Date

31 March 2006

Parties

• (1) Mineralogy, as seller

• (2) Sino-Iron Purchaser, as purchaser

• (3) The Company, as guarantor of the Sino-Iron Purchaser’s obligations under the Sino-Iron Acquisition Agreement

• (4) Sino-Iron

In consideration of the Company and the Sino-Iron Purchaser entering into the Sino-Iron Acquisition Agreement, a separate deed of guarantee was entered into by Mr. Clive Frederick Palmer to guarantee Mineralogy’s obligations to make payments in respect of its obligations and liabilities arising out of certain tax claims or Mineralogy’s warranty under the Sino-Iron Acquisition Agreement that Sino-Iron has no liabilities.

To the best of the knowledge, information and belief of the Directors, having made all reasonable enquiries, the Seller, its ultimate beneficial owner and Mr. Clive Frederick Palmer are third parties independent of the Company and its connected persons.

Assets involved

• sale shares – 10,000 issued shares in Sino-Iron held by the Seller, representing the entire existing issued shares in Sino-Iron.

• subscription shares – a number of shares in Sino-Iron for which the Sino-Iron Purchaser shall subscribe on completion (being the number of shares in an amount required to provide sufficient funds to Sino-Iron to repay all of its debts on completion).

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LETTER FROM THE BOARD

Consideration for Sino-Iron Shares

The Sino-Iron Purchaser agreed to pay a fixed sum of US$215 million (approximately HK$1,677 million) in aggregate to the Seller and Sino-Iron for acquisition of the sale shares and subscription for the subscription shares on the basis that Sino-Iron will be debt free as at completion.

A deposit of US$20 million (approximately HK$156 million) has been paid by the Sino-Iron Purchaser to an escrow agent within five business days after execution of the Sino-Iron Acquisition Agreement and the balance of US$195 million (approximately HK$1,521 million) will be paid to the Seller and Sino-Iron on completion. If completion of the Sino-Iron Acquisition Agreement takes place, any interest on the deposit will be paid to the Seller as additional purchase price. If completion of the Sino-Iron Acquisition fails to take place and the Sino-Iron Acquisition Agreement is terminated, the deposit of US$20 million (together with accrued interest on it) will be returned to the Sino-Iron Purchaser upon termination unless the Sino-Iron Purchaser fails to complete the Sino-Iron Acquisition in breach of the agreement terms.

Conditions and Completion

Completion is conditional upon the Treasurer of Australia consenting, under the Foreign Acquisitions and Takeovers Act 1975, to the acquisition by the Sino-Iron Purchaser of the Sino-Iron Shares.

Completion of the Sino-Iron Acquisition shall take place on the date which is 5 business days after the above condition is satisfied, or such other date as the Seller and the Sino-Iron Purchaser may agree, but in any event no later than 30 June 2006.

Royalty

Sino-Iron agreed to pay to Mineralogy a royalty in respect of magnetite ore taken by Sino-Iron, quarterly during the term of the mining right granted by Mineralogy to Sino-Iron and other parties over the Mining Area.

Such royalty comprises two components:–

1st component (based on the quantity of magnetite ore taken) – A$0.30 (approximately HK$1.68) per tonne of magnetite ore taken by Sino-Iron (adjusted based on Inflation during the previous quarter).

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LETTER FROM THE BOARD

2nd component (based on the quantity of products produced) – An additional royalty is payable quarterly to the Seller by Sino-Iron by reference to the market price of pellets and Mount Newman fines (as reference for the price of concentrate) and is calculated as follows:

• (i) production volume multiplied by 50% and multiplied by the prevailing published annual FOB price (expressed in US dollars per dry metric ton unit) for pellets established by the largest supplier or seller of pellets in Brazil for export and multiplied by 68.1 and multiplied by an applicable rate in the range of 6% to 10% depending on the then prevailing market price for pellets; plus

• (ii) production volume multiplied by 50% and multiplied by the prevailing published annual FOB price (expressed in US dollars per dry metric ton unit) for Mount Newman fines for export and multiplied by 68.1 and further by 1.05 and multiplied by an applicable rate in the range of 6% to 10% depending on the then prevailing market price for concentrates.

Notes:

• (1) The applicable rate for pellets and concentrates is 6% to 10% depending on the prevailing market price for each of those product types.

• (2) If there is a FOB price for Brazil pellets or Mount Newman fines applying for different destinations, the applicable price for use in the formula above will be the published price for shipments to China (if any), or to Asia.

Unless prevented from doing so by an act, matter or thing outside of Sino-Iron’s control, by the doing of, or failing to do, an act by Mineralogy under its mining right/lease agreement with Sino-Iron or otherwise, or a failure to obtain all government approvals necessary for it to do so (provided it has used its best endeavours to obtain such approvals in a timely manner), Sino-Iron is required to produce not less than 6 million tonnes of product no later than seven years from 21 March 2006. If Sino-Iron fails to produce such quantity of products, it must, no later than one month following the end of the seventh year of 21 March 2006, pay to Mineralogy an amount equivalent to the royalty payable on the 6 million tonnes of products. The amount is estimated to be approximately US$42 million (approximately HK$327.6 million) if based on the 2005 market price. Such amount is in addition to the royalty that Sino-Iron shall pay to Mineralogy based on the actual product volume of the same year. The royalty will continue to be payable after the seventh year depending on the quantity of magnetite ore mined and the product volume. There will be no ceiling on such royalty.

– 14 –

LETTER FROM THE BOARD

Sino-Iron has granted to Mineralogy an option to be issued shares in SinoIron equal to 19.9999% of the total shares in Sino-Iron in the event of completion of the listing of shares in Sino-Iron for quotation on any stock exchange before 500,000 tonnes of products having been produced, which option may be exercised as the sole consideration for Mineralogy releasing Sino-Iron from its obligation to pay Mineralogy the second component of royalty described above.

Other than the royalty payable to Mineralogy, Sino-Iron must pay a royalty due to the State Government of Western Australia in respect of magnetite ore taken by Sino-Iron (see “Summary of the terms on which Mineralogy holds its mining rights” in Appendix I).

Capital Expenditure

Sino-Iron will be responsible for the construction and start up of the Project. It has agreed with Mineralogy that it will arrange all the financing to pay for such construction and start up of the Project to be carried out by Sino-Iron (including but not limited to, mining facilities, equipment, production plants, ports, power station, desalination plants, roads, pipelines and all necessary associated infrastructure).

The estimated capital expenditure payable for Sino-Iron is US$1,370 million (excluding the cost of the first drilling obligation described below).

Information relating to Sino-Iron

Under a site lease and right to mine granted by Mineralogy, Sino-Iron has the right to extract from the Mining Area 1 billion tonnes of magnetite ore.

Sino-Iron has the right to use and occupy the Mining Area exclusive for the 24 month period starting on 21 March 2006, after which Mineralogy may grant mining rights to other parties. If within 5 years after 21 March 2006, Sino-Iron has not prepared a development plan and submitted the development plan in connection with proposed mining activities to Mineralogy and the relevant Government Authorities for approval (as required), Mineralogy may give Sino-Iron notice of its intention to terminate the site lease and right to mine. If within 3 months after the giving of such notice, or such other period as Mineralogy may agree, Sino-Iron has not submitted a development plan to Mineralogy and the relevant Government Authorities, then Mineralogy may terminate the site lease and right to mine by notice. Further, if within 7 years after 21 March 2006, Sino-Iron has not commenced development operations, then Mineralogy may give Sino-Iron notice of its intention to terminate the site lease and right to mine. If within 3 months after giving of such notice, or such other period as Mineralogy may agree, Sino-Iron has not commenced development operations, then Mineralogy may terminate the site lease and right to mine by notice. Further details of the terms of the site lease and right to mine granted to Sino-Iron by Mineralogy are set out in Appendix I.

– 15 –

LETTER FROM THE BOARD

Details of the financial information relating to Sino-Iron for each of the three years ended 30 June 2005 and six months ended 31 December 2005 are set out in the accountants’ report in Appendix IV of this circular.

2. THE BALMORAL ACQUISITION AGREEMENT

Date

• 31 March 2006

Parties

• (1) Mineralogy, as seller

• (2) Balmoral Purchaser, as purchaser

• (3) The Company, as guarantor of Balmoral Purchaser’s obligations under the Balmoral Acquisition Agreement

• (4) Mr. Clive Frederick Palmer, as guarantor of certain obligations of Mineralogy under the Balmoral Acquisition Agreement

• (5) Balmoral

Assets involved

• sale shares – 50,000,000 issued shares in Balmoral held by the Seller, representing the entire existing issued shares in Balmoral.

• subscription shares – A number of shares in Balmoral for which the Balmoral Purchaser shall subscribe on completion (being the number of shares in an amount required to provide sufficient funds to Balmoral to repay all of its debts on completion).

At any time within 15 months after the date of the Balmoral Acquisition Agreement, Mr. Clive Frederick Palmer may nominate another company, in any case to the satisfaction of the Company, to replace Balmoral as the company to be sold under the Balmoral Acquisition Agreement. Neither the Company nor the Balmoral Purchaser will be required to pay additional consideration for such substitution. Such substituted company will have identical rights as those which Balmoral is entitled or would be entitled pursuant to the Balmoral Acquisition Agreement, including but without limitation, the right to extract from the Mining Area 1 billion tonnes of magnetite ore.

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LETTER FROM THE BOARD

Consideration for Balmoral Shares

The Company agreed that the Balmoral Purchaser shall pay US$200 million (approximately HK$1,560 million) (plus Inflation between the date of the Balmoral Acquisition Agreement and completion of the Balmoral Acquisition) in aggregate to the Seller and Balmoral for acquisition of the sale shares and subscription for the subscription shares on the basis that Balmoral will be debt free as at completion.

A deposit of US$20 million (approximately HK$156 million) will be paid by the Balmoral Purchaser to an escrow agent within five business days after additional 1 billion tonnes of magnetite ore (on top of the 1 billion tonnes to be made available to Sino-Iron) are proven under the first drilling obligation described below. The balance will be paid to the Seller and Balmoral on completion. If completion of the Balmoral Acquisition Agreement takes place, any interest on the deposit will be paid to the Seller as additional purchase price. If completion of the Balmoral Acquisition fails to take place and the Balmoral Acquisition Agreement is terminated, the deposit of US$20 million (together with accrued interest) will be returned to the Balmoral Purchaser upon termination unless the Balmoral Purchaser fails to complete the Balmoral Acquisition in breach of the agreement terms.

First drilling obligation

The Company will carry out a drilling program to drill at least 100 holes over 18 months from the date of the Balmoral Acquisition Agreement within the Mining Area. Once an additional 1 billion tonnes of magnetite ore (on top of the 1 billion tonnes made available to Sino-Iron) are identified by the Company after commencement of the drilling program, the Company will be under an obligation to acquire Balmoral subject to the consent from the Treasurer of Australia and pursuant to the Balmoral Acquisition Agreement as detailed below. The estimated cost for the drilling program under the first drilling obligation is approximately A$5 million (approximately HK$28 million).

Conditions and Completion

Completion is conditional upon (i) the Treasurer of Australia consenting, under the Foreign Acquisitions and Takeovers Act 1975, to the acquisition by the Balmoral Purchaser of the Balmoral Shares; (ii) the Sino-Iron Acquisition occurring; and (iii) another 1 billion tonnes of magnetite ore resources (other than the 1 billion tonnes to be available to Sino-Iron) being proven under the drilling program described below. Accordingly the Balmoral Acquisition is conditional upon the Sino-Iron Acquisition, but not vice versa.

Completion of the Balmoral Acquisition shall take place on the date which is 5 business days after the last of the above conditions are satisfied or any other date agreed by the Seller and the Balmoral Purchaser, but in any event no later than 31 July 2008.

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LETTER FROM THE BOARD

Royalty

Royalty shall be payable by Balmoral to the Seller on the same basis as mentioned under the Sino-Iron Acquisition Agreement.

Similarly, unless prevented from doing so by an act, matter or thing outside of Balmoral’s control, by the doing of, or failing to do, an act by Mineralogy under its mining right/lease agreement with Balmoral or otherwise, or a failure to obtain all government approvals necessary for it to do so (provided it has used its best endeavours to obtain such approvals in a timely manner), Balmoral is required to have produced not less than 6 million tonnes of product no later than nine years from 21 March 2006. If Balmoral fails to produce such quantity of products, it must, no later than one month following the end of the ninth year of 21 March 2006, pay to Mineralogy an amount equivalent to the royalty payable on the 6 million tonnes of products. The amount is estimated to be approximately US$42 million (approximately HK$327.6 million) if based on the 2005 market price. Such amount is in addition to the royalty that Balmoral shall pay to Mineralogy based on the actual product volume of the same year. The royalty will continue to be payable after the ninth year depending on the quantity of magnetite ore mined and the product volume. There will be no ceiling on such royalty.

As in the case of Sino-Iron, Balmoral has granted to Mineralogy an option to be issued shares in Balmoral equal to 19.9999% of the total shares in Balmoral in the event of completion of the listing of shares in Balmoral for quotation on any stock exchange before 500,000 tonnes of products having been produced, which option may be exercised as the sole consideration for Mineralogy releasing Balmoral from its obligation to pay Mineralogy the royalty based on product produced by Balmoral.

Other than the royalty payable to Mineralogy, Balmoral must pay a royalty due to the State Government of Western Australia in respect of magnetite ore taken by Balmoral (see “Summary of the terms on which Mineralogy holds its mining rights” in Appendix I).

Capital Expenditure

Balmoral will be responsible for the construction and start up of the Project. It has agreed with Mineralogy that it will arrange all the financing to pay for such construction and start up (including but not limited to, mining facilities, equipment, production plants, ports, power station, desalination plants, roads, pipelines and all necessary associated infrastructure).

The estimated capital expenditure payable for Balmoral is US$1,100 million (excluding the further drilling obligation described below).

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LETTER FROM THE BOARD

Some of the infrastructure for which Sino-Iron and Balmoral are required to fund construction is outside the project area of Sino-Iron and Balmoral. According to the preliminary plan which is subject to final feasibility study, infrastructure outside the project area of Sino-Iron and Balmoral may include conveyor belt to the port, port facilities (including jetties, loading and unloading facilities and related infrastructure) and water and power lines and desalination plant (the estimated cost expenditure for which is approximately US$735 million (approximately HK$5,733 million), being part of the US$2,470 million (US$1,370 million for Sino-Iron and US$1,100 million for Balmoral) payable by Sino-Iron and Balmoral for the estimated capital expenditure). Title to those facilities will remain with Mineralogy as it is the owner of the land. However, Sino-Iron and Balmoral will have the right to use the facilities, on paying the operation and maintenance cost and on terms which are fair and equal as compared to other users of those facilities, during the Project life. If there are other projects commenced in the area by participants seeking to use the port or other facilities, those new participants will be obliged to pay an amount to Sino-Iron and Balmoral, to effectively share the capital costs associated with construction of the facilities. The intended capacity of the port to be constructed by Sino-Iron is sufficient to cater for the needs of Balmoral and Sino-Iron in relation to export of the products.

Information relating to Balmoral

Mineralogy has warranted that as at completion of the Balmoral Acquisition Agreement, Balmoral will be debt free with one main asset, namely the right to extract 1 billion tonnes of magnetite ore from the Mining Area.

Balmoral has the right to use and occupy the Mining Area exclusive for the 24 month period starting on 21 March 2008 (subject to Sino-Iron’s rights). If within 5 years after 21 March 2006, Balmoral has not prepared a development plan and submitted the development plan in connection with proposed mining activities to Mineralogy and the relevant Government Authorities for approval (as required), Mineralogy may give Balmoral notice of its intention to terminate the site lease and right to mine. If within 3 months after the giving of such notice, or such other period as Mineralogy may agree, Balmoral has not submitted a development plan to Mineralogy and the relevant Government Authorities, then Mineralogy may terminate the site lease and right to mine by notice. Further, if within 7 years after 21 March 2006, Balmoral has not commenced development operations, then Mineralogy may give Balmoral notice of its intention to terminate the site lease and right to mine. If within 3 months after giving of such notice, or such other period as Mineralogy may agree, Balmoral has not commenced development operations, then Mineralogy may terminate the site lease and right to mine by notice. Further details of the terms of the site lease and right to mine granted to Balmoral by Mineralogy are set out in Appendix I.

Details of the financial information relating to Balmoral for each of the three years ended 30 June 2005 and six months ended 31 December 2005 are set out in the accountants’ report in Appendix IV of this circular.

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LETTER FROM THE BOARD

3. OPTIONS

Upon completion of the Balmoral Acquisition, the Company will enter into the China Project Option Agreement, pursuant to which, in consideration of US$100 (approximately HK$780) to be paid to Mineralogy, the Company will be granted the Options to acquire up to an additional 4 billion tonnes of magnetite ore to be exercised within the following period:–

• in the case of the first option, within four years from the completion of the Sino-Iron Acquisition and the Balmoral Acquisition; and

• in the case of further options, during the period commencing on the completion of the Balmoral Acquisition and concluding on the date which is 120 months from the date of the completion of the Sino-Iron Acquisition.

Each of the options will be exercised in the form of acquisition from Mineralogy or Mr. Clive Frederick Palmer of a company which shall have been granted the sub-lease from Mineralogy having the same rights as Sino-Iron and Balmoral (i.e. having the right to extract 1 billion tonnes of magnetite ore in the Mining Area) for a consideration of US$200 million, adjusted for Inflation between 1 March 2006 and the date of completion of each acquisition.

Further drilling obligation

Pursuant to the China Project Option Agreement, the Company will carry out a further drilling obligation to drill at least 300 holes for up to five years from the date of the Sino-Iron Acquisition Agreement in the Mining Area to endeavour to locate up to additional 4 billion tonnes of magnetite ore (on top of the 1 billion tonnes of magnetite ore

to be made available to Sino-Iron and the 1 billion tonnes of magnetite ore to be made available to Balmoral, aggregating a total of 6 billion tonnes of magnetite ore) and will notify the Seller of at least (on top of the 2 billion tonnes to be available to Sino-Iron and Balmoral) 4 billion tonnes of magnetite ore (or such lesser amount as was located under the further drilling obligation).

The estimated cost for the drilling program under the further drilling obligation is approximately A$15 million (approximately HK$84 million) and will be deducted from the consideration to be paid by the Company in the exercise of any of the Options.

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LETTER FROM THE BOARD

4. EXPLORATION TECHNIQUES AND TECHNICAL STAFF TO BE EMPLOYED

Regarding the exploration of the magnetite deposit, the Company shall use a number of exploration techniques for the sampling of Mineral Resources and measuring the magnetite iron content, including mapping, drilling, geological logging, chemical assaying for Fe, SiO2, Al2O3, CaO, MgO, TiO2, P, S, Mn, K2O, Na2O and LOI. Davis Tube tests will be done on mineralized intervals to determine the recoverable proportion of MagFe in the sample. Sample collected from drill holes will be assayed using XRF techniques such as those previously used (please refer to the report of Golder Associates in Appendix VI). A selection of the samples will be sent for external check assays and used to monitor the precision and accuracy of the sampling and assaying.

The Directors believe that the successful development of the Project will require a large team of experienced technical engineers, scientists and project managers. The Company will establish a professional management and technical team as soon as possible. The target is to employ specialist technical people in both Australia and Mainland China with experience in the areas of geology, mining, exploration, production and surveying. The Company is also considering engaging appropriate consultants in Australia and mainland China to conduct the research and development of the Project. The number of technical staff to be employed will be subject to the Company’s feasibility study and business plan.

5. MANAGEMENT DISCUSSION AND ANALYSIS ON SINO-IRON AND BALMORAL

As at 31 December 2005, the audited net liabilities of Sino-Iron and Balmoral were approximately HK$217 million and HK$87 million respectively.

As at 31 December 2005, the only borrowing of Sino-Iron and Balmoral was an amount due to Mineralogy of approximately HK$217 million and HK$87 million respectively, which represented 100% of their respective net liabilities and resulted in a gearing ratio of 100%.

Details of the financial information relating to Sino-Iron and Balmoral for each of the three years ended 30 June 2005 and six months ended 31 December 2005 are set out in the accountants’ reports set out in Appendix IV of this circular.

For each of the two years ended 30 June 2003 and 2005 and the six months ended 31 December 2005, both Sino-Iron and Balmoral had no profit or loss. For the year ended 30 June 2004, Sino-Iron and Balmoral incurred a net loss of approximately HK$207 million and HK$83 million respectively, representing the rental charges to Sino-Iron and Balmoral for occupying parts of the mining leases of Mineralogy for the year.

As at 31 March 2006, the amount due to Mineralogy by Sino-Iron and Balmoral amounted to approximately HK$213 million and HK$85 million respectively. Both balances will be repaid by funds from share subscription by the Group on completion in accordance with the Sino-Iron Acquisition Agreement and the Balmoral Acquisition Agreement.

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LETTER FROM THE BOARD

6. BASIS OF DETERMINATION OF CONSIDERATION, SOURCE OF FUNDING AND FINANCIAL EFFECTS

The basis for the determination of the consideration for Sino-Iron and Balmoral are that they will both be debt free on completion, with one main asset i.e. each with the right to extract 1 billion tonnes of magnetite ore from the Mining Area.

Golder Associates, an independent technical adviser, has been appointed by the Company to provide an independent technical assessment of the mineral assets in the Mining Area. According to a report issued by Golder Associates dated 24 March 2006, Golder Associates has advised that up to December 2005, the total measured, indicated and inferred resources at the Mining Area were approximately 2,185 million tonnes of magnetite ore. The report from Golder Associates does not opine on the value of the mining rights under the Acquisition of Mining Rights.

The consideration has been determined based on arm’s length negotiation, with reference to the report by Golder Associates and taking into consideration the capital expenditure required for the project, the historical market price for final products, an option for additional resources being granted.

The consideration for acquiring Sino-Iron Shares and Balmoral Shares will be funded by internal resources of the Group. As for capital expenditure, the majority of this will be financed by debt on a project basis with the balance from the internal resources of the Group.

The Acquisition of Mining Rights will increase the Group’s fixed assets and liabilities. It may also result in an increase in the Group’s gearing ratio. It is estimated that the funding requirement of Sino-Iron and Balmoral for the next 24 months will be approximately US$1.4 billion. Taking into account the financial resources available to the Group, including internally generated funds and available banking facilities, and the Company’s intention to finance the majority of the estimated capital expenditure of SinoIron and Balmoral by project finance to be obtained, the Directors of CITIC Pacific are of the opinion that the Group will have sufficient working capital for its present requirements for at least the next 24 months from the date of publication of this circular.

Save as described above, the Acquisition of Mining Rights is not expected to have any material adverse impact on earnings, assets and liabilities of the Group.

7. REASONS AND BENEFITS FOR THE ACQUISITION OF MINING RIGHTS

The Group is engaged in a diversified range of businesses in Hong Kong and mainland China. Its focus is on special steel manufacturing, property development and power generation in mainland China. Other businesses include aviation, civil infrastructure, communications, marketing and distribution.

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LETTER FROM THE BOARD

Both Sino-Iron and Balmoral are principally engaged in the business of mining, extraction and processing of magnetite ore in the Mining Area.

Mineralogy, an independent third party, is principally engaged in the business of mining magnetite ore in Western Australia. Mr. Clive Frederick Palmer is the beneficial owner of Mineralogy.

Looking at 2006, the Board believes that the overall investment and operating environment in Hong Kong and mainland China will remain positive. This will be beneficial to the development of the Enlarged Group’s businesses. Going forward, the Group will focus more on its core businesses that the Group controls and will actively leverage off its expertise. The Company will strive for excellence and endeavour to capture business opportunities to achieve higher returns for shareholders.

The Acquisition of Mining Rights enables the Group to explore for magnetite ore to ensure a stable and long-term supply of raw materials for the furtherance of its special steel manufacturing business and also to invest in a magnetite ore mining business.

The Directors consider that the terms of the Acquisition of Mining Rights are normal commercial terms and are fair and reasonable and in the interests of the shareholders of the Company as a whole.

The Company intends to cooperate with partners of PRC background with expertise in mining and requiring long term supply of iron ore or related product to participate in the Project.

8. COMPLIANCE WITH LISTING RULES

As the applicable percentage ratios computed pursuant to rule 14.04(9) of the Listing Rules in respect of Acquisition of Mining Rights exceed 25% but are under 100%, the Acquisition of Mining Rights constitutes a major transaction for the Company and is subject to the reporting, announcement and shareholders’ approval requirements of Chapter 14 of the Listing Rules and the requirements of Chapter 18 of the Listing Rules.

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LETTER FROM THE BOARD

No shareholder is required to abstain from voting if the Company were to convene a general meeting for the approval of the acquisition of the mining right. The following persons, who are a closely allied group of shareholders of the Company and together beneficially interested in 1,189,654,385 shares representing approximately 54.2% of the issued share capital of the Company, have given a written shareholders’ approval to approve the Acquisition of Mining Rights pursuant to Rule 14.44 of the Listing Rules:

		Percentage of
		total issued
		share capital
	No. of ordinary	of the Company
Name of beneficial	shares beneficially	as of the
shareholder	interested	date hereof
CITIC Hong Kong (Holdings) Limited
(through its wholly-owned subsidiaries)	632,253,285	28.8%
10 Directors having an interest in the
shares of the Company (through their
controlled corporations and/or
personal interest)	557,401,100	25.4%
Total	1,189,654,385	54.2%

Pursuant to Rule 18.09(6) of the Listing Rules, the Company has commissioned Golder Associates, an independent third party, to undertake an independent review of the exploration, mining and processing assets owned by the Group in the Mining Area. Details of the scope of work conducted by Golder Associates are set out in the report of Golder Associates in Appendix VI to this circular.

9. ADDITIONAL INFORMATION

Your attention is drawn to the additional information set out in the appendices to this circular, including various risk factors in relation to, inter alia, the Acquisition of Mining Rights as set out in Appendix II of this circular.

Yours faithfully, By Order of the Board CITIC Pacific Limited Larry Yung Chi Kin Chairman

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APPENDIX I

AUSTRALIAN LAWS AND REGULATIONS RELATING TO THE INDUSTRY, SUMMARY OF THE TERMS ON WHICH MINERALOGY HOLDS ITS MINING RIGHTS AND SUMMARY OF THE TERMS OF THE SUB-LEASES

AUSTRALIAN LAWS AND REGULATIONS RELATING TO THE INDUSTRY

The mining industry is highly regulated in Australia, with each state and the Northern Territory having its own laws and regulations governing the industry in its jurisdiction. Certain Commonwealth legislation can also impact mining activities.

In Western Australia, the necessary approvals to engage in mining activities are typically divided into three categories:

• primary approvals, which relate to obtaining access to the land and securing the approval to use that land for the proposed project;

• secondary approvals, which relate to operational matters; and

• in certain cases, a State Agreement, to establish a framework of rights and obligations for both the developer and the government.

Primary approvals

As noted above, primary approvals relate to obtaining access to the land and securing the approval to use that land for the proposed project. These include access to land and waters, environmental protection, protection of aboriginal heritage and planning and development.

Access to land and waters

The Mining Act 1978 (WA) ( Mining Act ) provides that all minerals (with some exceptions) belong to the Crown. No activities (including prospecting, exploration or mining) in respect of minerals owned by the Crown can be undertaken until the Department of Industry and Resources ( DOIR ) has granted the appropriate mining title.

The Land Administration Act 1997 (WA), administered by the Department of Planning and Infrastructure, also governs the use of Crown land.

The Conservation and Land Management Act 1994 (WA), administered by the Department of Conservation and Land Management, applies where the mining activities may impact conservation areas (biodiversity in ecosystems, species or genetics).

The Native Title Act 1993 (Cth) in Western Australia is administered by the State government (for mineral exploration and mining projects, negotiations are managed by DOIR’s Tenure and Native Title Branch). This Act provides for Aboriginal people to claim native title and sets out a process for negotiation and compensation where the land is to be leased out by the State.

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APPENDIX I

AUSTRALIAN LAWS AND REGULATIONS RELATING TO THE INDUSTRY, SUMMARY OF THE TERMS ON WHICH MINERALOGY HOLDS ITS MINING RIGHTS AND SUMMARY OF THE TERMS OF THE SUB-LEASES

Environmental protection

The Environmental Protection Act 1986 (WA), administered by the Western Australian Department of Environment, establishes an independent five member authority called the Environmental Protection Authority ( EPA ), which assesses proposals that may have significant environmental impacts. The EPA can require an Environmental Impact Assessment.

The Minister makes the final decision, and may take into account factors not considered by the EPA (including considerations from other agencies, such as Health, Conservation and Land Management and Indigenous Affairs, and from Commonwealth assessments described below).

Where the project is likely to have a significant impact on matters of national environmental significance, assessment is also required under the Environmental Protection and Biodiversity Conservation Act 1999 (Cth), administered by the Commonwealth Department of Environment and Heritage. Such matters include:

• listed threatened species and communities

• migratory species protected under international agreements

• Ramsar wetlands of international importance

• the Commonwealth marine environment

• World Heritage properties

• National Heritage places

• Nuclear actions

The Commonwealth may accredit State governments to carry out these assessments in conjunction with the State environmental assessments.

Finally, a project may require works approvals and licences from the Western Australian Department of Environment, which are intended to prevent pollution at both the construction and operation phase of a project.

Protection of Aboriginal Heritage

Developers should commission an Aboriginal heritage survey where a development might impact an Aboriginal site (including artefacts, engravings, paints, mythological places, man made places, ceremonial places, quarry sites and modified trees). If the project will disturb such a site, developers must submit an application for consent, demonstrating that all necessary steps (including archaeological and ethnographic surveys and consultations with relevant Aboriginal people) have been taken to avoid disturbing the site.

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APPENDIX I

AUSTRALIAN LAWS AND REGULATIONS RELATING TO THE INDUSTRY, SUMMARY OF THE TERMS ON WHICH MINERALOGY HOLDS ITS MINING RIGHTS AND SUMMARY OF THE TERMS OF THE SUB-LEASES

The Minister for Indigenous Affairs makes the final decision in relation to any such application, based on general interests of the community and the recommendations of the Aboriginal Cultural Material Committee, which evaluates each site the subject of an application.

Planning and Development

Any development on land situated within the boundaries of a Town Planning Scheme must be approved under the Town Planning and Development Act 1928 (WA) and the Western Australian Planning Commission Act 1985 (WA). Both planning approvals (which determine whether a proposed land use is allowed) and development approvals (which relate to development) are required. The approval process is usually administered by a town, city or shire council or the Western Australian Planning Commission, and the approval is made by the Minister for Planning and Infrastructure.

Secondary approvals

Most projects also require secondary approvals, which relate to the way in which a project is carried out. There are a wide variety of secondary approvals, including:

• wildlife conservation and weed control

• water rights

• storage and use of explosives

• permits to traverse Aboriginal reserves

• access to power transmission or gas distribution systems

• sewage treatment

• occupational health and safety

State Agreements

State Agreements can be negotiated between the Western Australian government and a developer, and must be ratified by the Western Australian Parliament. Their purpose is to set out the rights and obligations of both parties in respect of a particular project, in some cases modifying the requirements relating to primary and secondary approvals set out above.

State Agreements are most common where the proposed project is located in a remote area and requires long term certainty, land tenure and complex approvals.

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APPENDIX I

AUSTRALIAN LAWS AND REGULATIONS RELATING TO THE INDUSTRY, SUMMARY OF THE TERMS ON WHICH MINERALOGY HOLDS ITS MINING RIGHTS AND SUMMARY OF THE TERMS OF THE SUB-LEASES

Terms of State Agreements

State Agreements vary depending on the project covered. Typical provisions include:

• long term security of title under relevant legislation;

• resolving inconsistencies among relevant laws;

• infrastructure provision by the developer and the State;

• incentive arrangements and requirements for secondary processing obligations on the part of the developer;

• submission and approval of development proposals;

• revenue payable to the State through royalties and lease payments;

• provisions giving the State the right to terminate the Agreement if the developer commits a material breach.

Development proposals

Under the State Agreement, the developer is required to submit to the Minister for State Development detailed proposals on the development of the project. The proposals must:

• restate the parties’ obligations under the State Agreement;

• provide further detail on how the parties will meet the obligations;

• outline all approvals that have been obtained (the development proposal cannot be approved until all primary approvals have been obtained);

• set out the development schedule;

• otherwise show that the project is fully cleared to proceed (taking into account project financing, Board approval, etc).

The Minister may approve the development proposal, defer consideration until a further proposal is submitted or require the developer to amend the proposal.

Construction of the project commences after approval of the development proposals.

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APPENDIX I

AUSTRALIAN LAWS AND REGULATIONS RELATING TO THE INDUSTRY, SUMMARY OF THE TERMS ON WHICH MINERALOGY HOLDS ITS MINING RIGHTS AND SUMMARY OF THE TERMS OF THE SUB-LEASES

SUMMARY OF THE TERMS ON WHICH MINERALOGY HOLDS ITS MINING RIGHTS

The DOIR has granted Mineralogy mining leases and other mining tenements under the Mining Act, and Mineralogy’s rights in relation to projects developed under the leases are governed by the State Agreement (described below), which in some cases modify the usual statutory regime described above.

Entry into the State Agreement

In December 2001, the State Government of Western Australia signed a State Agreement with Mineralogy, Sino-Iron and other proponent companies (as ratified, the State Agreement ). This was ratified by the Western Australian Government pursuant to the Iron Ore Processing (Mineralogy Pty Ltd) Agreement Act 2002.

According to the “Western Australian Iron Ore Industry 2003”, published by DOIR, Mineralogy controlled the following iron ore reserves:

	Reserves	Reserves	Measured and Indicated	Inferred resources	Ore
DEPOSIT	at	31/12/02	resources at 31/12/02	at 31/12/02	Type
	Million	Grade	Million Grade	Million Grade
	Tonnes	% Fe	Tonnes % Fe	Tonnes % Fe
Fortescue	800	33.5	– –	3,990 31.80	Br BIF

Area of mining lease and term

The mining leases to which Mineralogy is the registered holder cover an area of 12,500 hectares of land at Cape Preston in the Pilbara Region of Western Australia and expire on 22 June 2014, with an automatic right of renewal for two further periods of 21 years upon Mineralogy submitting a written application. The Mining Leases 08/123, 08/124 and 08/125 in relation to the Project cover 3,000 hectares of land.

Project

Under the State Agreement, Mineralogy (with or without a co-proponent) may submit for the approval of the relevant Minister a project or projects for the production of either high grade iron ore pellets, direct reduced iron (including hot briquetted iron) or steel.

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APPENDIX I

AUSTRALIAN LAWS AND REGULATIONS RELATING TO THE INDUSTRY, SUMMARY OF THE TERMS ON WHICH MINERALOGY HOLDS ITS MINING RIGHTS AND SUMMARY OF THE TERMS OF THE SUB-LEASES

Proposed infrastructure

Each project proposal must set out proposed terms relating to planning for, and the creation, use and maintenance of infrastructure, utilities and accommodation. The State Agreement sets out criteria which must be followed in each of these areas in order to obtain approval of the project.

Broadly speaking, the project proposal made by Mineralogy group provides for the construction of a mine, crusher, concentrator, pellet and plant for production of DRI, tailings dam for catching waste products, power station, conveyor system, roads, materials handling and port complex, desalination plant, water borefields and accommodation complex.

Royalty

The royalty rates payable by Mineralogy to the Western Australian Government are:–

	Lump	Fine	Beneficiated
	ore	ore	ore	Magnetite
Standard Mining Act royalty rates	7.5%	5.625%	5.0%	5.0%
Degree of value-added processing		Concessionary rates
		(related to specific State Agreements)
Low level of processing (e.g. to pellets)	7.0%	5.125%	4.5%	4.5%
Medium level of processing
(e.g. to Direct Reduced Iron)	6.5%	4.625%	4.0%	4.0%
High level of processing (e.g. to steel)	5.5%	3.625%	3.0%	3.0%

Environmental approval

Mineralogy must obtain all environmental approvals that it would be required to obtain if the State Agreement were not in effect. Mineralogy has sought and obtained environmental approvals. Each of the approvals are subject to conditions and requirements which must be strictly complied with, and any departures from the approvals requires further approval.

The environmental approvals, which have been obtained in Mineralogy’s name, in broad terms, provides for the establishment and operation of an iron ore mine, process plant (pelletising, DRI and HBI), accommodation and port facility in the Cape Preston

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APPENDIX I

AUSTRALIAN LAWS AND REGULATIONS RELATING TO THE INDUSTRY, SUMMARY OF THE TERMS ON WHICH MINERALOGY HOLDS ITS MINING RIGHTS AND SUMMARY OF THE TERMS OF THE SUB-LEASES

area, with the following main components (the final specifications for which require further reports, planning and approval):

• conventional open pit mining of the George Palmer ore body;

• stockpiling, waste and tailing storage facilities at the mine site;

• process plant for pelletising, and the production of direct-reduced iron and hot-briquetted iron;

• gas-fired power station;

• an infrastructure corridor (conveyor or haul road) from the mine and process plant site to Cape Preston;

• bridging structures or rock causeway from Cape Preston to Preston Island; and

• stockpiling, seawater desalination plant and port facilities at Cape Preston and off Preston Island.

SUMMARY OF THE TERMS OF THE SUB-LEASES

SINO-IRON SUB-LEASE

The rights and obligations Sino-Iron has in the Mining Area are governed by a Mining Right and Lease Agreement dated 21 March 2006, a Facilities Deed dated 26 October 2001, a Joint Development Agreement dated 12 March 2005 and the Fortescue Project Consolidation Agreement dated 26 October 2001.

Area of mining, sub-lease and term

Sino-Iron has an access licence and rights to extract 1 billion tonnes of magnetite ore in the Mining Area.

Specifically, Sino-Iron has the right to use and occupy the Mining Area (being an area at Cape Preston in the Pilbara Region of Western Australia and part of the area over which Mineralogy is the registered holder of mining rights) for the purpose of exploring and mining ore with at least 17% magnetite content. The mining right and associated site lease continues until Sino-Iron has taken its “total extraction limit” (described below) from the Mining Area. The right to use and occupy the land is exclusive for the 24 month period starting on 21 March 2006, after which Mineralogy may grant mining rights to other parties.

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APPENDIX I

AUSTRALIAN LAWS AND REGULATIONS RELATING TO THE INDUSTRY, SUMMARY OF THE TERMS ON WHICH MINERALOGY HOLDS ITS MINING RIGHTS AND SUMMARY OF THE TERMS OF THE SUB-LEASES

Sino-Iron has the right to carry out or participate in the establishment of a mine within the Mining Area for mining magnetite ore, and to carry out or participate in mining operations for mining and extracting magnetite ore from the Mining Area with the right to take the following quantities of magnetite ore:

• up to that amount of magnetite ore required to produce 12,000,000 tonnes of concentrate, pellets and HBI (in aggregate) per calendar year; and

• up to 1,000,000,000 tonnes in total.

Sino-Iron also has the right to a lease over a site area near the Mining Area on which Sino-Iron may erect processing plants and other facilities. Mineralogy has also granted to Sino-Iron a non-exclusive licence to access other areas adjacent to the Mining Area for purposes incidental to the development of the project, as well as a licence to develop a camp area for construction workers.

Project

Sino-Iron is obliged to process all magnetite ore taken into iron ore concentrates, pellets or hot briquetted iron. Sino-Iron is prohibited from producing for sale or export a total of more than 12,000,000 tonnes of concentrate, pellets and HBI (in aggregate) per calendar year. Unless Mineralogy consents, any iron ore concentrates that are not produced for sale and export must be processed into pellets, and any pellets not produced for sale and export must be processed into HBI. Pellets and HBI must be exported, except where pellets are processed into HBI for export.

On completion of the Sino-Iron Acquisition, CITIC Pacific will be granted the right to exercise all powers of the mine manager. CITIC Pacific will continue to receive all such benefits so long as it exercises the First Option under the China Project Option Agreement. In the event that it does not exercise the First Option, all such rights revert to Mineralogy. The function of the mine manager is to regulate mining operations in the Mining Area, including the appointment of a mining contractor, the grant of third party mining rights and the approval of third party mine participants, cost sharing between different mine participants, mine planning, rates of mining and the determination of quantities and quality of magnetite ore mined.

Proposed infrastructure

Sino-Iron will be responsible for the construction and start up of the Project. It has agreed with Mineralogy that it will arrange all the financing to pay for such construction and start up of the Project to be carried out by Sino-Iron (including but not limited to, mining facilities, equipment, production plants, ports, power station, desalination plants, roads, pipelines and all necessary associated infrastructure).

– 32 –

APPENDIX I

AUSTRALIAN LAWS AND REGULATIONS RELATING TO THE INDUSTRY, SUMMARY OF THE TERMS ON WHICH MINERALOGY HOLDS ITS MINING RIGHTS AND SUMMARY OF THE TERMS OF THE SUB-LEASES

Mineralogy and Sino-Iron are parties to an agreement regulating the manner in which certain facilities are to be constructed and used which also provides for third party use of those facilities.

As stated in Letter from the Board, some of the infrastructure for which Sino-Iron is required to fund is outside the Mining Area.

Royalty and option

Sino-Iron must pay the royalty due to the State Government of Western Australia under the State Agreement in respect of magnetite ore taken by Sino-Iron (see “Summary of the terms on which Mineralogy holds its mining rights”).

Sino-Iron must pay to Mineralogy a royalty in respect of magnetite ore taken and product produced (see Letter from the Board).

Sino-Iron has granted to Mineralogy an option to be issued shares in Sino-Iron equal to 19.9999% of the total shares in Sino-Iron in the event of completion of the listing of shares in Sino-Iron for quotation on any stock exchange before 500,000 tonnes of products having been produced, which option may be exercised as the sole consideration for Mineralogy releasing Sino-Iron from its obligation to pay Mineralogy the royalty based on product produced by Sino-Iron.

Environmental approval

Under the Mining Right and Lease Agreement, Sino-Iron is responsible for obtaining all necessary governmental approvals (including without limitation environmental approvals) relating to its project. Mineralogy may, however, elect to obtain environmental approvals in respect of the project. If so, and Mineralogy wishes to transfer those to SinoIron, Sino-Iron must do anything reasonably necessary to effect the transfer and must indemnify Mineralogy for any costs and expenses Mineralogy incurs by virtue of it having been the proponent and/or continuing to be a co-proponent for Sino-Iron’s project.

Other terms

Mineralogy must apply for, and use reasonable endeavours to obtain, the renewal or extension of the mining leases and other tenements pursuant to which Mineralogy grants Sino-Iron its rights under the Mining Rights and Lease Agreement. Sino-Iron also has a number of specific and more general obligations under the agreements to assist Mineralogy to meet its obligations under the State Agreement.

– 33 –

APPENDIX I

AUSTRALIAN LAWS AND REGULATIONS RELATING TO THE INDUSTRY, SUMMARY OF THE TERMS ON WHICH MINERALOGY HOLDS ITS MINING RIGHTS AND SUMMARY OF THE TERMS OF THE SUB-LEASES

BALMORAL SUB-LEASE

Balmoral has entered into agreements with Mineralogy on substantially the same terms as for Sino-Iron, except that the term commences on 21 March 2008, with a 24 month exclusive occupation and use period (subject to Sino-Iron’s rights) from that date.

OTHER COMPANIES SUB-LEASES

To the extent that CITIC Pacific exercises its rights under the China Project Option Agreement to acquire other companies in accordance with that agreement, Mineralogy will grant those companies with rights in substantially the same terms as the Sino-Iron Mining Rights and Lease Agreement, and will procure that the company becomes a party to the State Agreement and enters into an agreement in substantially the same terms as the Facilities Deed and Consolidation Agreement.

As at the date of this circular, CITIC Pacific is not aware of any claims in relation to exploration rights made or notified by any third parties against the Enlarged Group or vice versa.

– 34 –

APPENDIX II

RISK FACTORS

Any of the risks described below or in the Report of Golder Associates set out in Appendix VI could cause the financial performance of Sino-Iron and Balmoral and/or any of the companies to be acquired upon the exercise of the Options and hence that of the Enlarged Group to differ significantly from the goals, plans, objectives, intentions and expectations expressed in this circular. If any of such risks and uncertainties actually occur, the business, financial condition or operating results of the Enlarged Group could be materially and adversely affected.

Risks relating to the Acquisition of Mining Rights

Fluctuation in the market price of pellets and concentrate

The profitability of the Enlarged Group’s magnetite mining operations may be affected by fluctuations in the market price of pellets and concentrate. As most of the revenue from these operations will come from the sale of pellets and concentrate (whether externally or to the Group’s own special steel business), the earnings from these operations will be closely related to such prices which have historically been cyclical and volatile and which may be influenced by numerous factors beyond the control of the Enlarged Group, including worldwide demand, forward selling activities and general economic conditions.

Capital requirements and funding sources

The estimated capital expenditure payable for Sino-Iron (i.e. the first 1 billion tonnes of magnetite ore) is US$1,370 million (approximately HK$10,686 million), and the estimated capital expenditure payable for Balmoral (i.e. the second 1 billion tonnes of magnetite ore) is US$1,100 million (approximately HK$8,580 million). The Directors intend that the majority of this will be financed by debt on a project basis with the balance from internal resources of the Group. Any mortgage or other security given in favour of a project financier over Sino-Iron’s or Balmoral’s interest in the State Agreement or the relevant mining right/lease agreement will require the consent of the Minister under the State Agreement.

The Enlarged Group’s ability to obtain external financing and the related financing cost is subject to a variety of uncertainties, including the future results of its operations, its financial condition and cash flows, the condition of the global and domestic financial markets and any change in the Enlarged Group’s credit rating.

Uncertainty in relation to major capital infrastructure/some of the infrastructure built outside the Mining Area

The capital expenditure for Sino-Iron will be used to pay for infrastructure which will be needed in order for Sino-Iron to commence mining and production. This includes mining facilities, equipment, production plants, ports, power station, desalination plants, roads, pipelines and all necessary associated infrastructure.

Balmoral will need mining facilities, equipment, production plants, ports, power station, desalination plants, roads, pipelines and all necessary associated infrastructure to be built from its capital expenditure.

– 35 –

APPENDIX II

RISK FACTORS

The building of such infrastructure could be delayed or adversely affected by factors outside the control of the Enlarged Group, including failure to obtain necessary regulatory approvals, technical difficulties and manpower or other resource constraints. However, the environmental approvals, which have been obtained in Mineralogy’s name, in broad terms, provide for the establishment and operation of an iron ore mine, process plant, accommodation and port facility in the Cape Preston area, gas-fired power station, infrastructure corridor from the mine and process plant site to Cape Preston, bridging structures or rock causeway from Cape Preston to Preston Island, and other major components (the final specifications for which require further reports, planning and approval).

The cost of capital expenditure may exceed the Company’s planned investment budget. In particular, the State Agreement requires that preference be given to local contractors, service providers and labour in carrying out the Project and this may impact the costs of the Project. As a consequence of project delays, cost overruns, changes in market circumstances or other factors, the intended economic benefits from these projects may not materialise as budgeted.

Some of the infrastructure for which Sino-Iron and Balmoral are required to fund construction is outside the project area of Sino-Iron and Balmoral: the estimated cost expenditure for which is approximately US$735 million (approximately HK$5,733 million), being part of the US$2,470 million (US$1,370 million for Sino-Iron and US$1,100 million for Balmoral).

Title to those facilities will remain with Mineralogy as it holds the necessary right to occupy the land on which those facilities will be constructed and the contractual arrangements between Mineralogy, Sino-Iron, Balmoral and any further company that may be acquired under the Options provide that Mineralogy will own those facilities. However, Sino-Iron and Balmoral will have the right to use the facilities, on paying the operation and maintenance cost and on terms which are fair and equal as compared to other users of those facilities, during the Project life.

Uncertainty related to exploration

As the availability of the Balmoral Acquisition and the exercise of the Options are conditional upon, inter alia, sufficient levels of magnetite ore being proven, there is no guarantee that either the Balmoral Acquisition or the exercise of the Options can be completed. Thus, the commercial viability of the Acquisition of Mining Rights may depend on such further deposits being proven. However, according to a report issued by Golder Associates dated 8 May 2006, the total resources at the Mining Area were approximately 2,185 million tonnes of magnetite ore which is sufficient for the requirement of Balmoral Acquisition, details of which can be referred to in Appendix VI.

– 36 –

APPENDIX II

RISK FACTORS

Sino-Iron and Balmoral are new ventures for the Group

This is the Group’s first venture into magnetite ore mining and exploration. The Acquisition of Mining Rights is also a greenfield project. Completing the integration of Sino-Iron and Balmoral and any company acquired upon exercise of the Options could present management and organisational challenges and could involve complications or delays. Nevertheless, the Company intends to build up a professional management and technical team as soon as possible. The target is to employ specialist technical people in both Australia and mainland China with experience in the areas of geology, mining, exploration, production and surveying. The Company is also considering engaging appropriate consultants in Australia and mainland China to conduct the research and development of the Project. The Company also intends to cooperate with partners of PRC background with expertise in mining and requiring long-term supply of iron ore or related product to participate in the Project.

Mining rights are under sub-lease

Each of Sino-Iron and Balmoral obtains their right to mine from Mineralogy under the sub-leases granted to each of them by Mineralogy (see Appendix I). Accordingly, their continued right to mine is dependant on Mineralogy itself continuing to have the relevant right to mine. Mineralogy’s right to mine derives from the mining leases granted to it under the Mining Act. In the event that the Options are exercised the right to extract up to a further 4 billion tonnes of magnetite will also be through the acquisition of further companies each of which will have been granted similar rights to those held by Sino-Iron and Balmoral. Accordingly, the rights conferred on those companies will also be dependant on Mineralogy continuing to have the right to undertake mining activity under the mining leases.

It follows that in the event of a breach by Mineralogy of the mining leases, or its insolvency, there is a risk that Mineralogy may no longer have the necessary rights and as a consequence Sino-Iron, Balmoral and any other further companies, would lose the right to continue to carry on a mining activity.

The State Agreement creates a framework under which Mineralogy and other so called co-proponents (which includes Sino-Iron and Balmoral) have access to, in effect, a streamlined procedure for obtaining all necessary governmental approvals for undertaking development work in connection with proposed mining activities. Such development work includes but is not limited to the construction of mining plant, port facilities and processing facilities. In the absence of the State Agreement, Sino-Iron, Balmoral and any further companies would be required to obtain all necessary governmental approvals in the ordinary course by approaching each relevant governmental department and other relevant instrumentality to obtain such approvals rather than relying on the provisions of the State Agreement.

Mineralogy currently has had approval under the State Agreement in relation to two proposals, one of which is a proposal with Sino-Iron. Approval of both proposals was conditional upon the Minister being satisfied that financing for the proposal had been

– 37 –

APPENDIX II

RISK FACTORS

secured. Prior to the entry into the agreements to acquire Sino-Iron and Balmoral, the Minister raised concerns with Mineralogy on the financing. The Directors believe (after having discussed the same with entities within the Western Australian Government) that the acquisition by the Company of Sino-Iron and the conditional acquisition of Balmoral will satisfy the Western Australian Government in relation to the concerns it previously raised with Mineralogy.

If within 5 years after 21 March 2006, Sino-Iron and/or Balmoral has not prepared a development plan and submitted the development plan to Mineralogy and the relevant Government Authorities for approval (as required), Mineralogy may give Sino-Iron and/ or Balmoral notice of its intention to terminate the Mining Right and the Site Lease. If within 3 months after the giving of such notice, or such other period as Mineralogy may agree, Sino-Iron and/or Balmoral has not submitted a development plan to Mineralogy and the relevant Government Authorities, then Mineralogy may terminate the Mining Right and the Site Lease by notice.

If within 7 years after 21 March 2006, Sino-Iron and/or Balmoral has not commenced development operations, then Mineralogy may give Sino-Iron and/or Balmoral notice of its intention to terminate the Mining Right and the Site Lease. If within 3 months after giving of such notice, or such other period as Mineralogy may agree, Sino-Iron and/or Balmoral has not commenced development operations, then Mineralogy may terminate the Mining Right and the Site Lease by notice.

Export of concentrate

The Company intends to cooperate with partners of PRC background with expertise in mining and requiring long-term supply of iron ore or related product to participate in the Project. The acquisition of magnetite ore is also to ensure a stable and sufficient supply of raw materials for the Group’s special steel manufacturing business. Both these objectives require the export of concentrate and/or pellets to the PRC. The State Agreement does not presently permit the approval of projects relating to the export of concentrate. The Sub-lease requires Sino-Iron to export all pellets and HBI.

Accordingly in order for Sino-Iron, Balmoral, or any other companies the Group acquires from the Seller to put forward proposals under the State Agreement for approval, where those proposals involve the establishment of a project for the export of concentrate (as opposed to pellets and HBI) the State Agreement will need to be amended to allow for the approval of such proposals. Further, the environmental approval which Mineralogy has obtained to date in relation to the overall development of the project does not expressly approve the production of concentrate for export although it does entitle the production of a greater amount of concentrate than is required for the production of pellets and HBI and does not expressly prevent the export of any remaining concentrate. It is likely that a further modification to the environmental approval will be required to make it clear that there is an entitlement to export concentrate.

Having made enquiries with the relevant entities (including entities within the Western Australian Government) on this matter, the Directors are confident of obtaining relevant approvals.

– 38 –

APPENDIX II

RISK FACTORS

If the State Agreement were not amended to provide for the approval of proposals that involve the export of concentrate or such an amendment was made but the Minister chose not to approve such a proposal, it remains open for the Enlarged Group to undertake mining activity for the export of concentrate. However, in these circumstances all necessary Governmental and other approvals relating to the construction and operation of the facilities necessary to mine, process and export concentrate (such as mining plant, processing plant and port facilities) would be subject to obtaining all necessary governmental and other approvals and these would have to be obtained in the ordinary course from the relevant governmental and other instrumentalities rather than being approved under the umbrella of the State Agreement. Depending on the market condition, if it is commercially feasible, Sino-Iron, Balmoral, or any other companies the Group acquires from the Seller can produce 100% pellets for export, pellets being already allowed for export.

Exclusive possession

Although the Enlarged Group will have exclusive possession of the Mining Area, in the event CITIC Pacific does not exercise the first option (other than because there are less than 3 billion tonnes of magnetite ore proven including the 2 billion tonnes under the Sino-Iron Acquisition and the Balmoral Acquisition), the Enlarged Group will cease to have exclusivity in the area.

Risk relating to the mining industry

The Enlarged Group will face many operational risks in connection with the Project, including operating limitations imposed by environmental or other regulatory requirements; risks related to the geological structure of the Enlarged Group’s mines and geological disasters that occur during the mining process; and catastrophic events such as fires, earthquakes, explosions, floods or other natural disasters.

The occurrence of any of these events may result in the interruption of the operations of the Enlarged Group and subject the Enlarged Group to losses or liabilities.

There are numerous conditions to environmental approval which must be met before any of the plants or facilities may be constructed, or mining commencing in the Mining Area. A number of further approvals and licences must be obtained under various state legislation in relation to mine safety, port construction and operation, soil conservation, water rights, electricity generation and use, dangerous goods and Aboriginal heritage in respect of the Mining Area.

The resources and reserve estimates for magnetite ore are prepared in accordance with the JORC 2004. Due to limited extent of exploration, diversity and complexity of the geological structures of each mine, the estimates as set out in Appendix VI and any proven magnetite ore deposits under the first drilling obligation or the further drilling obligation may differ from the actual mine reserves in tonnage, quality and feasibility.

– 39 –

APPENDIX II

RISK FACTORS

Risk relating to conducting operation in Australia

Both domestic and international economic factors may have an influence on the value of Sino-Iron, Balmoral or any other company acquired through exercise of the Options. Such factors may include but not be limited to changes in government policy, liquidity of financial markets, world terrorism, natural disasters, interest and exchange rate changes, inflation, trade sanctions and taxation laws.

Sino-Iron, Balmoral and any company acquired through exercise of the Options are all established and will operate under the laws of Australia. The Group is unable to forecast the impact of any changes of legislation over the lifetime of the project.

– 40 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

1. Summary of Consolidated Financial Information For The Three Years Ended 31 December 2005

The following is a summary of the audited consolidated financial information of the Company for each of the three years ended 31 December 2003, 2004 and 2005 as extracted from the respective audited annual accounts of the Company. Due to the adoption of new accounting policies in 2004 and 2005, the 2003 financial information has been restated accordingly.

RESULTS

Turnover Profit before Taxation Taxation Profit for the Year Attributable to Shareholders of the Company Minority Interests ASSETS AND LIABILITIES Total Assets Total Liabilities Minority Interests Equity Attributable to Shareholders of the Company

Year ended 31 December As restated As restated 2005 2004 2003 HK$ million HK$ million HK$ million 26,564 22,912 26,180 4,642 4,274 1,686 (345) (413) (322) 4,297 3,861 1,364 3,989 3,534 1,148 308 327 216 4,297 3,861 1,364 At 31 December As restated As restated 2005 2004 2003 HK$ million HK$ million HK$ million 70,668 59,398 55,659 (29,472) (20,899) (15,880) 41,196 38,499 39,779 (2,093) (1,578) (1,931) 39,103 36,921 37,848

– 41 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

2. Audited Consolidated Financial Statements For The Year Ended 31 December 2005

The following audited financial statements of the Group are extracted from the Company’s annual report for the year ended 31 December 2005.

Consolidated Profit and Loss Account

for the year ended 31 December 2005

in HK$ million Note Turnover 3 Cost of Sales Distribution and Selling Expenses Other Operating Expenses Change in Fair Value of Investment Properties Negative Goodwill Profit from Consolidated Activities 4 & 5 Share of Results of 4 Jointly Controlled Entities Associated Companies Profit before Net Finance Charges and Taxation Finance Charges Finance Income Net Finance Charges 6 Profit before Taxation Taxation 7 Profit for the Year Attributable to: Shareholders of the Company 8 Minority Interests Dividends 9 Earnings per Share for Profit attributable to Shareholders of the Company during the year (HK$) 10 Basic Diluted	2005 26,564 (21,226) (824) (2,196) 520 – 2,838 327 1,984 5,149	2005 26,564 (21,226) (824) (2,196) 520 – 2,838 327 1,984 5,149	As restated 2004 22,912 (18,064) (763) (2,105) 181 126 2,287 488 1,801 4,576
	(560) 53		(410) 108
	(507) 4,642 (345) 4,297 3,989 308 4,297 (2,412) 1.82 1.82		(302) 4,274 (413) 3,861 3,534 327 3,861 (2,411) 1.61 1.61

– 42 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Consolidated Balance Sheet

as at 31 December 2005

in HK$ million Note Non-Current Assets Property, plant and equipment 13 Investment properties 14 Properties under development 15 Leasehold land 16 Jointly controlled entities 18 Associated companies 19 Other financial assets 20 Goodwill 21 Deferred tax assets 29 Derivative financial instruments 28 Current Assets Properties held for sale 13 Inventories 22 Debtors, accounts receivable, deposits and prepayments 23 Cash and bank deposits Current Liabilities Bank loans, other loans and overdrafts secured 27 unsecured 27 Creditors, accounts payable, deposits and accruals 24 Provision for taxation Net Current Assets Total Assets Less Current Liabilities	2005 10,063 8,645 1,849 1,618 10,583 23,300 929 603 158 168 57,916	2005 10,063 8,645 1,849 1,618 10,583 23,300 929 603 158 168 57,916	As restated 2004 7,344 8,115 1,672 1,596 7,852 21,439 1,121 507 94 – 49,740
	1,055 3,427 5,691 2,579		275 2,778 4,188 2,417
	12,752		9,658
	183 2,223 6,628 199		104 707 4,742 249
	9,233 3,519 61,435		5,802 3,856 53,596

– 43 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

in HK$ million Note Non-Current Liabilities Long term borrowings 27 Deferred tax liabilities 29 Derivative financial instruments 28 Net Assets 4 EQUITY Share capital 25 Reserves 26 Proposed dividend Equity attributable to Shareholders of the Company Minority Interests Total Equity	2005 18,812 1,387 40 20,239 41,196 877 36,472 1,754 39,103 2,093 41,196	As restated 2004
		13,769 1,328 –
		15,097 38,499 877 34,290 1,754 36,921 1,578 38,499

– 44 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Balance Sheet

as at 31 December 2005

in HK$ million Note Non-Current Assets Property, plant and equipment 13 Subsidiary companies 17 Jointly controlled entities 18 Associated companies 19 Derivative financial instruments 28 Current Assets Debtors, accounts receivable, deposits and prepayments 23 Cash and bank deposits Current Liabilities Bank loans, other loans and overdrafts unsecured 27 Creditors, accounts payable, deposits and accruals 24 Provision for taxation Net Current (Liabilities)/Assets Total Assets Less Current Liabilities Non-Current Liabilities Long term borrowings 27 Derivative financial instruments 28 Net Assets EQUITY Share capital 25 Reserves 26 Proposed dividend Equity attributable to Shareholders of the Company	2005 27 41,096 1,859 5,631 150 48,763	2005 27 41,096 1,859 5,631 150 48,763	2004 33 39,067 1,314 4,743 – 45,157
	138 56		98 197
	194		295
	810 120 13		33 73 –
	943 (749) 48,014 12,074 40 12,114 35,900 877 33,269 1,754 35,900		106 189 45,346
			9,075 –
			9,075 36,271 877 33,640 1,754 36,271

– 45 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Consolidated Cash Flow Statement

for the year ended 31 December 2005

in HK$ million Cash Flows from Consolidated Activities Profit from Consolidated Activities after Net Finance Charges Net interest expense Income from other financial assets Depreciation Amortisation of leasehold land Impairment losses on other financial assets Impairment losses on properties held for sale Negative goodwill credited to consolidated profit and loss account Disposal of properties under development Loss on disposal of property, plant and equipment Written off of property, plant and equipment Change in fair value of investment properties Change in fair value of financial instruments Profit on disposal of subsidiary companies (Profit)/loss on disposal of jointly controlled entities Impairment losses on jointly controlled entities Impairment losses on loan to an associate company Operating Profit before Working Capital Changes Decrease/(increase) in inventories Increase in debtors, accounts receivable, deposits and prepayments Decrease in creditors, accounts payable, deposits and accruals Effect of foreign exchange rates Cash Generated from Consolidated Activities Interest received Interest paid Income taxes paid Net Cash from Consolidated Activities	2005 2,331 543 (157) 774 38 19 77 – 54 3 – (520) (62) (362) (11) 57 24 2,808 165 (813) (121) 24 2,063 57 (658) (227) 1,235	As restated 2004 1,985 268 (404) 597 33 71 – (126) 247 1 22 (181) – (112) 4 2 – 2,407 (552) (41) (592) (18) 1,204 82 (392) (178) 716

– 46 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

in HK$ million Cash Flows from Investing Activities Purchase of subsidiary companies (net of cash and cash equivalents acquired)(Note a) Purchase of additional interests in subsidiary companies Purchase of properties under development Purchase of property, plant and equipment Investment in jointly controlled entities Investment in associated companies Increase in other financial assets Proceeds on disposal of property, plant and equipment Proceeds on disposal of other financial assets Proceeds on disposal of associated companies Proceeds on disposal of interests in jointly controlled entities Disposal of subsidiary companies (net of cash and cash equivalents disposed)(Note b) Increase in loans to jointly controlled entities Decrease in loans to associated companies Dividend income from associated companies Dividend income from jointly controlled entities Income from other financial assets Net Cash used in Investing Activities Cash Flows from Financing Activities Issue of shares pursuant to the Plan New borrowings Repayment of loans Decrease in minority interests Dividends paid Net Cash from Financing Activities Net Increase/(Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents at 1 January Effect of Foreign Exchange Rate Changes Cash and Cash Equivalents at 31 December Analysis of the Balances of Cash and Cash Equivalents Cash and bank deposits Bank overdrafts_(Note c)_	2005	2005	As restated 2004
	63 (3) (1,323) (1,221) (2,051) (999) (544) 107 5 – 186 476 (351) 391 1,113 106 1		(191) (383) (1,224) (1,314) (3,218) (937) (221) 28 2 2 – 105 (36) 734 792 85 393
	(4,044)		(5,383)
	16 6,703 (1,219) (154) (2,412)		68 4,941 (1,020) (223) (2,189)
	2,934 125 2,381 18 2,524 2,579 (55) 2,524		1,577 (3,090) 5,469 2 2,381 2,417 (36) 2,381

– 47 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Notes to Consolidated Cash Flow Statement

a. Purchase of Subsidiary Companies

During the year, the Group mainly acquired 56.63% interest in Daye Special Steel Co., Ltd. (‘Daye’) and other acquired companies. The amount recognised upon acquisition of Daye in October 2005 of its assets and liabilities are HK$3,392 million and HK$2,413 million respectively. The aggregate amounts recognised, which approximated the carrying amount of the acquired companies at the acquisition date of their assets and liabilities are HK$304 million and HK$202 million respectively. The acquired business contributed aggregate revenues of HK$837 million and aggregate net profit of HK$6 million since acquisition.

The aggregate revenue and aggregate net profit of the acquired companies as though the acquisition for the business combinations effected during the year had been the beginning of that year are HK$4,423 million and HK$64 million respectively.

Details of net assets acquired and goodwill are as follows:

in HK$ million Purchase consideration Cash paid Direct costs relating to the acquisition Accounts receivable Accounts payable Interest in an associated company Interest in an other financial assets Total purchase consideration Fair value of net assets acquired Goodwill	2005 107 – 382 – – 209 698 (657) 41	2004 541 4 – 64 73 – 682 (668) 14

The goodwill is attributable to the development potential of business acquired.

– 48 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

in HK$ million Net Assets Acquired Leasehold land Properties under development Property, plant and equipment Investment Inventories Debtors, accounts receivable, deposits and prepayments Deferred tax assets Cash and bank deposits Bank loans Creditors, accounts payable, deposits and accruals Provision for taxation Minority interests Less: Interest in an associated company Other financial assets Goodwill Satisfied by Cash Accounts Receivable Accounts Payable Analysis of the net (inflow)/outflow of cash and cash equivalents in respect of the purchase of subsidiary companies in HK$ million Cash consideration Cash and bank deposits acquired	2005 30 271 1,589 3 778 783 72 170 (1,090) (1,525) – (424) 657 – (209) 41 489 107 382 – 489 2005 107 (170) (63)	2004 – – 971 – 417 335 – 354 (130) (1,037) (117) (125) 668 (73) – 14 609 545 – 64 609 2004 545 (354) 191

– 49 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

b. Disposal of Subsidiary Companies

	in HK$ million	2005		2004
	Net Assets Disposal
	Property, plant and equipment	27		50
	Properties under development	520		–
	Jointly controlled entities	–		26
	Inventories	–		60
	Debtors, accounts receivable, deposits and prepayments	11		162
	Cash and bank deposits	20		36
	Creditors, accounts payable, deposits and accruals	(401)		(87)
	Bank loans	–		(20)
	Deferred tax assets	–		1
	Minority interests	(47)		(62)
	Goodwill	–		2
		130		168
	Profit on disposal	362		112
	Accounts payable	(26)		–
	Release of reserve	–		(4)
		466		276
	Satisfied by
	Cash	496		141
	Listed Investment	–		113
	Accounts Receivable	–		22
	Interest in Jointly Controlled Entities	(30)		–
		466		276
	Analysis of the net inflow of cash and cash equivalents
	in respect of the disposal of subsidiary companies
	in HK$ million	2005		2004
	Cash consideration	496		141
	Cash and bank deposits disposed of	(20)		(36)
		476		105
c.	Reconciliation of the Balance of Cash and Cash Equivalents in Respect of Bank Loans, Other
	Loans and Overdrafts
	in HK$ million	2005		2004
	Bank loans, other loans and overdrafts	2,406		811
	Bank loans and other loans	(2,351)		(775)
	Bank overdrafts	55		36

– 50 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Consolidated Statement of Changes in Equity

for the year ended 31 December 2005

in HK$ million Note At 1 January, as Previously Reported as Equity At 1 January, as Previously Separately Reported as Minority Interest Prior Year Adjustments Deferred tax arising from fair value change of investment properties Amortisation of leasehold land Share of associated companies Deferred tax arising from fair value change of investment properties Amortisation of leasehold land Adjustment on property, plant and equipment At 1 January, as Restated, before Opening Adjustments Opening Adjustment for the Adoption of HKAS 39 Financial Instruments: Recognition and Measurement Impact on the Company and subsidiary companies Share of associated companies Share of jointly controlled entities At 1 January, as Restated Share of Reserves of Associated Companies Fair value loss on other financial assets Gain/(loss) on cash flow hedge of financial Instruments Share of Reserves of Jointly Controlled Entities Gain on cash flow hedge of financial instruments General reserve Gain on Cash Flow Hedge of Financial Instruments Fair Value Loss on Other Financial Assets Reserves Written Back on Disposal Exchange Translation Differences Net Gain/(Losses) Not Recognised in the Consolidated Profit and Loss Account Profit for the Year Dividends to Shareholders of the Company 9 Minority Interests Share Options Exercised Premium Received Share Capital Issued At 31 December Representing At 31 December after Proposed Final Dividend Proposed Final Dividend 9	2005 37,892 1,578 (661) (87) (204) (10) (9) 38,499 (96) 86 (28) 38,461	2005 37,892 1,578 (661) (87) (204) (10) (9) 38,499 (96) 86 (28) 38,461	As restated 2004 36,548 2,027 (622) (81) (204) (8) (9) 37,651 – – – 37,651
	(67) 350 40 – 163 (17) – 158		– (130) – 11 – – 1 2
	627 4,297 (2,412) 207 16 – 41,196 39,442 1,754 41,196		(116) 3,861 (2,189) (776) 66 2 38,499 36,745 1,754 38,499

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FINANCIAL INFORMATION ON THE GROUP

Notes to the Accounts

1. SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these accounts are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

a. Basis of Preparation

The accounts have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRS”), and under the historical cost convention except as disclosed in the accounting policies below.

In 2005, the Group adopted the following new/revised standards and interpretations of HKFRS, which are relevant to its operations. The 2004 comparatives and 2005 opening balances have been amended as required, in accordance with the relevant requirements.

HKAS 1	Presentation of Financial Statements
HKAS 2	Inventories
HKAS 7	Cash Flow Statements
HKAS 8	Accounting Policies, Changes in Accounting Estimates and Errors
HKAS 10	Events after the Balance Sheet Date
HKAS 12	Income Taxes
HKAS 14	Segment Reporting
HKAS 16	Property, Plant and Equipment
HKAS 17	Leases
HKAS 18	Revenue
HKAS 19	Employee Benefits
HKAS 21	The Effects of Changes in Foreign Exchange Rates
HKAS 23	Borrowing Costs
HKAS 24	Related Party Disclosures
HKAS 27	Consolidated and Separate Financial Statements
HKAS 28	Investments in Associates
HKAS 31	Investments in Joint Ventures
HKAS 32	Financial Instruments: Disclosures and Presentation
HKAS 33	Earnings per Share
HKAS 37	Provisions, Contingent Liabilities and Contingent Assets
HKAS 39	Financial Instruments: Recognition and Measurement
HKAS 40	Investment Property
HK Int 3	Revenue – Pre-completion Contracts for the
	Sale of Development Properties
HK Int 4	Lease – Determination of the Length of Lease Term
	in respect of Hong Kong Land Leases
HK(SIC)-Int 13	Jointly Controlled Entities
HK(SIC)-Int 15	Operating Leases – Incentives
HK(SIC)-Int 21	Income Taxes – Recovery of Revalued Non-Depreciable Assets
HKFRS 2	Share-based Payment

The adoption of new/revised HKFRS does not result in substantial changes to the Group’s accounting policies except for the adoption of HKAS 1 which has affected the presentation of minority interest, share of net after-tax results of associated companies and jointly controlled entities and other disclosures, and also those relating to the accounting treatments of the followings, details of which are set out in the respective accounting policy set out in the accounts:

• i) Financial instruments;

• ii) Pre-completion contracts for sales of properties under development;

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iii) Leases;

iv) Investment properties; and v) Deferred taxation.

Effective from 1 January 2005, HKFRS 2 requires the fair value of share options at grant date to be amortised over the relevant vesting periods to the profit and loss account. However, the Group had no unvested share option outstanding during the year ended 31 December 2005.

The Group has not early adopted the amendments, new standards and interpretations issued by the HKICPA that are not yet effective for the year ended 31 December 2005, and is in the process of assessing their impact on future accounting periods.

b. Basis of Consolidation

The consolidated accounts incorporate the accounts of the Company and all its subsidiary companies made up to the balance sheet date. The results of subsidiary companies acquired or disposed of during the year are included as from the effective dates of acquisition or up to the effective dates of disposal respectively.

c. Goodwill

Positive goodwill arising on acquisition of subsidiary companies, jointly controlled entities and associated companies represents the excess of the cost of the acquisition over the Group’s share of the fair value of the identifiable assets, liabilities and contingent liabilities acquired.

Negative goodwill arising on acquisition of subsidiary companies, jointly controlled entities and associated companies represents the excess of the Group’s share of the fair value of the identifiable assets, liabilities and contingent liabilities acquired over the cost of the acquisition.

Since 1 January 2004, with the early adoption of HKFRS 3 in 2004, positive goodwill will be stated in the consolidated balance sheet as a separate asset or included within jointly controlled entities and associated companies at cost less accumulated impairment losses and subject to impairment testing at least annually. Negative goodwill is recognised in profit and loss immediately on acquisition.

d. Subsidiary Companies

A subsidiary company is a company which is controlled by the Company through direct or indirect interest. Control represents the power to govern the financial and operating policies of that company.

Investments in subsidiary companies are carried in the Company’s balance sheet at cost less any impairment losses. The results of subsidiaries are accounted for by the Company on the basis of dividends received and receivable.

e. Jointly Controlled Entities

A jointly controlled entity is a joint venture in which the Group and other parties undertake an economic activity which is subject to joint control and none of the participating parties has unilateral control over the economic activity.

The consolidated profit and loss account includes the Group’s share of the results of the jointly controlled entities for the year adjusted by impairment losses, if any. The consolidated balance sheet includes the Group’s share of the net assets of the jointly controlled entities and goodwill on acquisition.

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FINANCIAL INFORMATION ON THE GROUP

In the Company’s balance sheet the investments in jointly controlled entities are stated at cost less any impairment losses. The results of jointly controlled entities are accounted for by the Company on the basis of dividends received and receivable.

f. Associated Companies

Associated companies are companies, other than subsidiary companies and jointly controlled entities, in which the Group holds not more than 50 per cent of their equity share capital for the long term and can exercise significant influence in their management.

The consolidated profit and loss account includes the Group’s share of the results of associated companies for the year adjusted by impairment losses, if any. The consolidated balance sheet includes the Group’s share of net assets of the associated companies, after attributing fair values to the net assets at the date of acquisition.

In the Company’s balance sheet the investments in associated companies are stated at cost less impairment losses. The results of associated companies are accounted for by the Company on the basis of dividends received and receivable.

g. Property, Plant and Equipment

Property, plant and equipment are carried at cost less accumulated depreciation and accumulated impairment losses.

Freehold land is not amortised.

Depreciation of the vehicular tunnel was provided with reference to projected usage of the tunnel as compared to the actual tunnel usage.

Property, plant and equipment are depreciated at rates sufficient to write off their cost or valuation, less impairment losses, if any, over their estimated useful lives on a straight line basis at the following annual rates:

• Buildings: 2%-4% or the remaining lease period of the land

• Plant and Machinery: 9%-20%

• Other property, plant and equipment, comprising telecommunications equipment, traffic equipment, cargo lighters, computer installations, motor vehicles, furniture, fixtures and equipment: 10%-25%

The assets’ useful lives are reviewed, and adjusted if appropriate, at each balance sheet

date.

h. Investment Properties

Investment properties are interests in land and/or buildings in respect of which construction work and development have been completed and which are held for their investment potential, these include land held for a currently undetermined future use.

Investment properties are stated in the balance sheet at fair value and reviewed annually. Any gain or loss arising from a change in fair value or from the retirement or disposal of an investment property is recognised in profit or loss account.

In prior years, the change in the fair value of investment properties was recognised in the property valuation reserve. The deficit of this reserve was charged to the profit and loss account and any subsequent increases were credited to the profit and loss account up to the amount previously charged.

– 54 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

i. Properties under Development

Properties under development consist of investments in land for development and buildings under construction and development pending any positive intention either to retain them for investment purposes or to sell them for proceeds. Investments in leasehold land are amortised over the lease term of the land, and are stated at cost less accumulated amortisation and any accumulated impairment losses. Such amortisation cost will be capitalised as the cost of buildings during the construction period. The investments in buildings under construction and development are stated at cost less any accumulated impairment losses.

In prior years, the leasehold land was accounted for at cost less any accumulated impairment.

j. Capitalisation of Development Costs

Property development expenditure, inclusive of interest and professional fees, is capitalised as cost of development.

Borrowing costs incurred on assets under development that take a substantial period of time to get ready for their intended use or sale are capitalised into the carrying value of the assets under development.

The capitalisation rate applied to funds borrowed for the development of the assets is based on the attributable cost of funds to the Group.

All other borrowing costs are charged to the profit and loss account in the period in which they are incurred.

k. Properties Held for Sale

Properties held for sale consisting of leasehold land and building cost are classified under current assets and stated at the lower of cost and net realisable value. Leasehold land is stated at cost less accumulated amortisation and any impairment loss. Building costs are stated at cost less any impairment loss.

l. Trade and Other Receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flow, discounted at the effective interest rate. The amount of the provision is recognised in the profit and loss account.

m. Cash and Cash Equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

n. Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability, including fees and commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges, and transfer taxes and duties. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the profit and loss account over the period of the borrowings using the effective interest method.

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FINANCIAL INFORMATION ON THE GROUP

o. Segment Reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.

p. Revenue Recognition

i) Motor vehicles

Revenue arising from the sale of motor vehicles is recognised when the registration document is issued or on delivery of motor vehicles, whichever is earlier, which are taken to be the point in time when the customer has accepted the goods and the related risks and rewards of ownership. Revenue excludes any government taxes and is after deduction of any trade discounts.

ii) Sales of properties under development and properties held for sale

Before 1 January 2005, sales of properties under development was recognised in the profit and loss account over the course of the development by reference to the proportion of construction costs incurred to date to the estimated total construction costs to completion of the development and the extent of the sales proceeds received, after taking into account due allowance for contingencies.

After 1 January 2005, following the adoption of HK-Int 3 ‘Revenue – PreCompletion Contracts for the Sale of Development Properties’, revenue from sales of properties under development is only recognised when the significant risks and rewards of ownership have been transferred to the buyer. The Group considers that the significant risks and rewards of ownership are transferred when the buildings contracted for sales are completed and the relevant permits essential for the delivery of the properties have been issued by the authorities.

The Group has chosen not to apply HK-Int 3 retrospectively to pre-completion contracts entered into before 1 January 2005 and will continue to account for those contracts using the method of accounting used prior to 1 January 2005.

Income from properties held for sale is recognised at the date when sale agreement is signed.

iii) Sales of goods

Revenue arising from the sale of goods is recognised on the delivery of goods to customers. Revenue is determined after deduction of any trade discounts.

iv) Income from co-operative joint venture

Other income or dividend from co-operative joint venture is recognised when the right to receive is established.

Income from disposal of co-operative joint venture is recognised at the date when sale agreement is signed.

v) Rendering of services

Commission income and revenue arising from the rendering of repairing services are recognised when the goods concerned are sold to customers and when the relevant work is completed respectively.

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FINANCIAL INFORMATION ON THE GROUP

vi) Revenue from the provision of telecommunications services is recognised upon delivery of the services.

vii) Rental income

Rental income is recognised on a straight-line basis over the period of the relevant

leases.

viii) Dividend income

Dividend income is recognised when the right to receive the dividend is established.

Dividends proposed or declared after their balance sheet date by companies in which the Group has an investment are not recognised as revenue at the balance sheet date but on the date when the right to receive is established.

q. Financial Instruments

From 1 January 2004 to 31 December 2004

Co-operative joint ventures in the People’s Republic of China are stated at cost (net of capital repayment) less impairment losses or where appropriate, the cost is amortised over a period no longer than its estimated useful life to the Group.

Interest in other listed and unlisted investments held for the long term are stated at cost less impairment losses. The carrying amounts of individual listed investments are reviewed at each balance sheet date to assess whether the fair values have declined below the carrying amounts. When a decline other than temporary has occurred, the carrying amount of such securities is reduced to its fair value. The amount of the reduction is recognised as an expense in the profit and loss account.

Interest in other listed investments not held for the long term are carried at fair value. At each balance sheet date, the net unrealised gains or losses arising from the changes in fair value of such investments are recognised in the profit and loss account. Profits or losses on disposal of such investments, representing the difference between the net sales proceeds and the carrying amounts, are recognised in the profit and loss account as they arise.

From 1 January 2005 onwards

The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and reevaluates this designation at every reporting date.

i) Financial assets at fair value through profit or loss

This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realized within 12 months of the balance sheet date.

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FINANCIAL INFORMATION ON THE GROUP

ii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of trading the receivable. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are included in debtors, accounts receivable, deposits and prepayments in the notes to the accounts.

iii) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in noncurrent assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

On 1 January 2005, the financial assets previously categorised as ‘Investments’ have been reclassified as available-for-sale investments and carried at fair value or cost less impairment loss if their fair value cannot be reliably measured. Gains and losses arising from changes in fair value are recognised in investment revaluation reserve. On the disposal of the investment or when an investment is determined to be impaired, the cumulative gain or loss previously recognised in investment revaluation reserve will be transferred to the profit and loss account.

iv) Derivative financial instruments

Prior to 1 January 2005, derivatives of the Group were not recorded in the financial statements. Following the adoption of HKAS 32 and HKAS 39, all derivatives are stated at fair value. The gain or loss on changes in fair value is recognised generally in the profit and loss account unless the derivative qualifies for hedge accounting. Where a derivative qualifies for hedge accounting and is designated as a cash flow hedge, the effective part and the ineffective part of any unrealised gain or loss on the instrument is recognised directly in hedging reserve and in the profit and loss account respectively. The cumulative gain or loss associated with the effective part of the cash flow hedge recorded in hedging reserve will be recognised in the profit and loss account in the same period or periods during which the gain or loss arising from the hedged transaction is recognised in the profit and loss account.

r. Operating Leases

Leases where substantially all the rewards and risks of ownership of assets remain with the leasing company are accounted for as operating leases. Rentals payable and receivable under operating leases are accounted for on a straight line basis over the respective periods of the leases.

s. Impairment of Assets

The Group reviews the carrying amounts of assets including goodwill for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, the impairment to be recognised in the profit and loss account is measured by the amount by which the carrying amount of the assets exceeds the recoverable amount.

t. Inventories

Inventories comprising mainly motor vehicles, spare parts, electrical appliances, food, trading items and steels are valued at the lower of cost and net realisable value. Cost represents the actual cost of purchase or production and is calculated on the first-in first-out, specific identification or weighted average basis as appropriate. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

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FINANCIAL INFORMATION ON THE GROUP

u. Foreign Currencies

The consolidated financial statements are presented in Hong Kong dollars, which is the Company’s functional and presentation currency.

Transactions in foreign currencies are translated into Hong Kong dollars at the rates ruling at the transaction dates.

Assets and liabilities of subsidiary companies, jointly controlled entities and associated companies, together with all other monetary assets and liabilities expressed in foreign currencies, are translated into Hong Kong dollars at the rates of exchange ruling at the balance sheet date. Results in foreign currencies are translated at the average rates of exchange ruling during the year.

Exchange differences arising from the retranslation of the net investment in foreign entities, and of financial instruments which are designated as hedges of such investment, are taken directly to exchange reserve. On the disposal of these investments, such exchange differences are recognised in the consolidated profit and loss account as part of the profit or loss on disposal. All other exchange differences are dealt with in the consolidated profit and loss account.

Goodwill and fair value adjustments arising on acquisition of a foreign entity after 1 January 2005 are treated as assets and liabilities of the foreign entity and translated at the rate of exchange ruling at the balance sheet date, such differences are taken directly to exchange reserve.

v. Deferred Taxation

A balance sheet liability method is adopted whereby deferred tax is recognised in respect of temporary differences between the tax bases of assets and liabilities and their carrying amounts. Provision for withholding tax that will arise on the remittance of retained earnings is only made where there is a current intention to remit such earnings. Deferred tax assets are recognised to the extent that the future utilisation is probable.

Prior to 1 January 2005, deferred tax on changes in fair value of investment properties arising from revaluation was recognised on the basis that the recovery of the carrying amount would be through sale and was calculated at the tax rate applicable on eventual sale.

Following the adoption of HKAS-Int 21, the deferred tax arising from revaluation of the investment properties is recognised on the basis that the recovery of the carrying amount of the properties would be through use and calculated at the applicable profits tax rate.

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FINANCIAL INFORMATION ON THE GROUP

The Group has applied the new accounting policies retrospectively except for HKAS 32, HKAS 39, HKAS 40 and HK-Int 3 (Notes 1(q), (h) and p(ii) above refers) which are applied prospectively in accordance with the transitional provisions. These effects are summarised as follows:

in HK$ million Effects on periods prior to 2004 Increase in amortisation of leasehold land Increase in deferred tax Decrease in share of results of associated companies Decrease in retained profits Effects on 2004 Increase in amortisation of leasehold land Increase in deferred tax Decrease in share of results of an associated company Decrease for the year ended 31 December 2004 Decrease in retained profits as at 31 December 2004	HKAS 16 – – (9) (9) – – – – (9)	HKAS 17 (81) – (8) (89) (6) – (2) (8) (97)	Effects on adopting HK(SIC)- Int 21 HKAS 40 – – (622) – (204) – (826) – – – (39) – – – (39) – (865) –	HKAS 32 & 39 – – – – – – – – –	Total (81) (622) (221) (924) (6) (39) (2) (47) (971)

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FINANCIAL INFORMATION ON THE GROUP

HKAS 16 Effects on 1 January 2005 Decrease in fair value change of financial instruments – Increase in amortisation of finance charges – Increase in taxation – Increase in share of fair value change on investment properties of associated companies – Decrease in share of results of associated companies – Increase in share of results of jointly controlled entities – Increase/(decrease) in retained profits – Decrease in hedging reserve – Increase in investment revaluation reserve – Increase in share of investment revaluation reserve of associated companies – Decrease in share of fair value change on investment properties of associated companies – Decrease in hedging reserve of jointly controlled entities – Decrease in hedging reserve of an associated company – (Decrease)/Increase in reserves – Decrease in equity attributable to the shareholders of the Company – Decrease in equity attributable to the shareholders of the Company as at 1 January 2005 (9) Effects on 2005 Increase in amortisation of leasehold land – Decrease in deferred tax – Increase in fair value change of financial instruments – Increase in fair value change on investment properties and related deferred tax – Increase in share of fair value change on investment properties and related deferred tax of associated companies – Decrease in share of results of associated company – (Decrease)/increase in profit for the year –	HKAS 16 – – – – – – –	HKAS 16 – – – – – – –	HKAS 17 – – – – – – –	HKAS 17 – – – – – – –	Effects on adopting HK(SIC)- Int 21 HKAS 40 – – – – – – – 524 – – – – – 524	Effects on adopting HK(SIC)- Int 21 HKAS 40 – – – – – – – 524 – – – – – 524	Effects on adopting HK(SIC)- Int 21 HKAS 40 – – – – – – – 524 – – – – – 524	Effects on adopting HK(SIC)- Int 21 HKAS 40 – – – – – – – 524 – – – – – 524	HKAS 32 & 39 (20) (3) (14) – (26) 9 (54)	HKAS 32 & 39 (20) (3) (14) – (26) 9 (54)	Total (20) (3) (14) 524 (26) 9 470	Total (20) (3) (14) 524 (26) 9 470
	– – – – – –		– – – – – –		– – – – – –		– – – (524) – –		(101) 42 126 – (37) (14)			(101) 42 126 (524) (37) (14)
			– – (97) (4) – – – – (2) (6)		– – (865) – 3 – (70) (39) – (106)		(524) – – – – – 520 372 – 892		16 (38) (38) – – 62 – – – 62		(508) (38) (1,009) (4) 3 62 450 333 (2) 842

The effect of Prior Year Adjustments on basic and diluted earning per share is immaterial.

– 61 –

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FINANCIAL INFORMATION ON THE GROUP

2. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions 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.

i) Investment properties

The fair values of investment properties are determined annually by independent qualified valuers on open market value in existing use basis calculated on the net income allowing for reversionary potential.

In making the judgment, considerations have been given to assumptions that are mainly based on market conditions existing at the balance sheet date and appropriate capitalisation rates.

ii) Estimated impairment of goodwill

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in Note 1(s). For the purposes of impairment testing goodwill acquired has been allocated to individual cash-generated units which are revised for impairment based on forecast operating performance and cash flows. Cash flow projections are prepared on the basis of reasonable assumptions effective of the prevailing and future market conditions, and are discounted appropriately.

iii) Income taxes

The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. Where the final tax outcome is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

Recognition of deferred tax assets, which principally related to tax losses, depends on the management’s expectation of future taxable profit that will be available against which the tax losses can be utilised. The outcome of their actual utilisation may be different.

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FINANCIAL INFORMATION ON THE GROUP

3. TURNOVER

The principal activity of the Company is holding its subsidiary companies and the principal activities of its principal subsidiary companies are set out in Note 35 to the accounts.

Turnover of the Group comprises the total invoiced value of goods supplied net of government taxes where applicable, and services rendered to customers, fees from provision of telecommunication services, gross proceeds from sale of investments and properties, amounts received and receivable in respect of dividends, income from co-operative joint ventures, toll income, gross property rental and godown and cold storage income, analysed as follows:

in HK$ million Sales of goods Services rendered to customers Dividend income from unlisted other financial assets Toll income Others	Group 2005 2004 22,255 18,599 1,669 1,924 155 400 607 503 1,878 1,486 26,564 22,912	Group 2005 2004 22,255 18,599 1,669 1,924 155 400 607 503 1,878 1,486 26,564 22,912
		22,912

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FINANCIAL INFORMATION ON THE GROUP

4. SEGMENT INFORMATION

Segment information is presented in respect of the Group’s business and geographical segments. Business segment information is chosen as the primary reporting format because this is more relevant to the Group’s internal financial reporting.

a Turnover and Segment Profit

An analysis of the Group’s turnover and profit from consolidated activities and share of results of jointly controlled entities and associated companies by business are as follows:

in HK$ million Special Steel Manufacturing Property_(Note) Aviation Power Generation Communications Marketing & Distribution(Note) Civil Infrastructure Others Change in Fair Value of Investment Properties _Less: General and Administratio Expenses Net finance charges Taxation Profit for the year	Turnover 2005 2004 12,160 7,177 1,409 768 – – 155 400 1,219 1,449 10,984 12,078 637 536 – 504 – – n – – 26,564 22,912	Share of results of Share of Profit from jointly results of consolidated controlled associated Group Segment Segment activities entities companies total allocations profit As As As As As restated restated restated restated restated 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 2005 2004 1,083 872 – – – – 1,083 872 – – 1,083 872 675 421 – – 495 253 1,170 674 78 72 1,248 746 – – 44 25 1,006 1,369 1,050 1,394 – – 1,050 1,394 121 342 245 205 (2) 46 364 593 – – 364 593 4 9 (140) 59 110 78 (26) 146 – – (26) 146 377 398 28 24 (8) 4 397 426 (78) (72) 319 354 427 322 114 90 50 51 591 463 – – 591 463 – 124 36 85 – – 36 209 – – 36 209 520 181 – – 333 – 853 181 – – 853 181 (369) (382) – – – – (369) (382) – – (369) (382) 2,838 2,287 327 488 1,984 1,801 5,149 4,576 – – 5,149 4,576 (507) (302) (345) (413) 4,297 3,861

Note: The presentation of segment turnover is same as turnover with an exception of segment allocations attributable to property segment as disclosed above.

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FINANCIAL INFORMATION ON THE GROUP

An analysis of the Group’s turnover by geographical area is as follows:

Hong Kong Mainland China Japan Others	Group 2005 2004 8,756 8,230 16,452 13,650 480 484 876 548 26,564 22,912	Group 2005 2004 8,756 8,230 16,452 13,650 480 484 876 548 26,564 22,912
		22,912

b Assets and Liabilities

An analysis of the Group’s segment assets and liabilities by business segment is as follows:

Segment assets As restated in HK$ million 2005 2004 Special Steel Manufacturing 12,101 7,518 Property 13,602 11,816 Aviation – – Power Generation 204 659 Communications 1,032 1,382 Marketing & Distribution 4,946 4,497 Civil Infrastructure 1,217 1,304 Others 635 279 Segment assets/ (liabilities) 33,737 27,455 Corporate 2,890 2,558 Provision for taxation Net deferred tax liabilities	Investments in jointly controlled entities As restated 2005 2004 967 578 1,101 – 582 543 3,576 2,745 1,179 1,260 277 297 1,534 1,248 1,367 1,181 10,583 7,852 – –	Investments in associated companies As restated 2005 2004 – – 8,996 8,751 11,815 11,195 1,906 989 298 292 194 123 91 89 – – 23,300 21,439 – –	Segment liabilities As restated 2005 2004 (3,589) (2,302) (1,046) (417) – – (34) – (402) (496) (1,337) (1,360) (36) (36) – – (6,444) (4,611) (21,442 ) (14,711)	Total As restated 2005 2004 9,479 5,794 22,653 20,150 12,397 11,738 5,652 4,393 2,107 2,438 4,080 3,557 2,806 2,605 2,002 1,460 61,176 52,135 (18,552 ) (12,153 (199 ) (249 (1,229 ) (1,234 41,196 38,499	Total As restated 2005 2004 9,479 5,794 22,653 20,150 12,397 11,738 5,652 4,393 2,107 2,438 4,080 3,557 2,806 2,605 2,002 1,460 61,176 52,135 (18,552 ) (12,153 (199 ) (249 (1,229 ) (1,234 41,196 38,499
					52,135 (12,153 (249 (1,234
					38,499

An analysis of the Group’s segment assets by geographical area is as follows:

in HK$ million Hong Kong Mainland China Japan Others	Group As restated 2005 2004 11,638 11,476 21,116 14,993 503 503 480 483 33,737 27,455	Group As restated 2005 2004 11,638 11,476 21,116 14,993 503 503 480 483 33,737 27,455
		27,455

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FINANCIAL INFORMATION ON THE GROUP

5. PROFIT FROM CONSOLIDATED ACTIVITIES

Group As restated in HK$ million 2005 2004 The profit from consolidated activities is arrived at after crediting Dividend income from unlisted other financial assets 155 400 Rental income from investment properties Gross income 461 428 Less: Direct outgoings (87) (75) 374 353 other operating leases 130 174 Profit on disposal of subsidiary companies 362 112 Group As restated in HK$ million 2005 2004 And after charging Cost of inventories 19,261 15,863 Staff costs 1,548 1,417 included in cost of sales, distribution and selling expenses and other operating expenses Auditors’ remuneration 16 14 Contributions to staff retirement schemes 86 52 Depreciation of property, plant and equipment 774 590 Amortisation of leasehold land 38 33 Impairment losses on other financial assets 19 71 Impairment losses on properties held for sale 77 – Management fee payable to CITIC Hong Kong (Holdings) Limited (‘CITIC HK’) 2 2 Operating lease rentals land and buildings 122 120	Group As restated in HK$ million 2005 2004 The profit from consolidated activities is arrived at after crediting Dividend income from unlisted other financial assets 155 400 Rental income from investment properties Gross income 461 428 Less: Direct outgoings (87) (75) 374 353 other operating leases 130 174 Profit on disposal of subsidiary companies 362 112 Group As restated in HK$ million 2005 2004 And after charging Cost of inventories 19,261 15,863 Staff costs 1,548 1,417 included in cost of sales, distribution and selling expenses and other operating expenses Auditors’ remuneration 16 14 Contributions to staff retirement schemes 86 52 Depreciation of property, plant and equipment 774 590 Amortisation of leasehold land 38 33 Impairment losses on other financial assets 19 71 Impairment losses on properties held for sale 77 – Management fee payable to CITIC Hong Kong (Holdings) Limited (‘CITIC HK’) 2 2 Operating lease rentals land and buildings 122 120	Group As restated in HK$ million 2005 2004 The profit from consolidated activities is arrived at after crediting Dividend income from unlisted other financial assets 155 400 Rental income from investment properties Gross income 461 428 Less: Direct outgoings (87) (75) 374 353 other operating leases 130 174 Profit on disposal of subsidiary companies 362 112 Group As restated in HK$ million 2005 2004 And after charging Cost of inventories 19,261 15,863 Staff costs 1,548 1,417 included in cost of sales, distribution and selling expenses and other operating expenses Auditors’ remuneration 16 14 Contributions to staff retirement schemes 86 52 Depreciation of property, plant and equipment 774 590 Amortisation of leasehold land 38 33 Impairment losses on other financial assets 19 71 Impairment losses on properties held for sale 77 – Management fee payable to CITIC Hong Kong (Holdings) Limited (‘CITIC HK’) 2 2 Operating lease rentals land and buildings 122 120	Group As restated in HK$ million 2005 2004 The profit from consolidated activities is arrived at after crediting Dividend income from unlisted other financial assets 155 400 Rental income from investment properties Gross income 461 428 Less: Direct outgoings (87) (75) 374 353 other operating leases 130 174 Profit on disposal of subsidiary companies 362 112 Group As restated in HK$ million 2005 2004 And after charging Cost of inventories 19,261 15,863 Staff costs 1,548 1,417 included in cost of sales, distribution and selling expenses and other operating expenses Auditors’ remuneration 16 14 Contributions to staff retirement schemes 86 52 Depreciation of property, plant and equipment 774 590 Amortisation of leasehold land 38 33 Impairment losses on other financial assets 19 71 Impairment losses on properties held for sale 77 – Management fee payable to CITIC Hong Kong (Holdings) Limited (‘CITIC HK’) 2 2 Operating lease rentals land and buildings 122 120
	461 (87)		428 (75)
	374 353 130 174 362 112 Group As restated 2005 2004 19,261 15,863 1,548 1,417 16 14 86 52 774 590 38 33 19 71 77 – 2 2 122 120

The Group’s total future minimum lease payments receivable under non-cancellable operating leases are as follows:

in HK$ million Within 1 year After 1 year but within 5 years After 5 years	2005 400 323 7 730	2004 373 277 10
		660

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FINANCIAL INFORMATION ON THE GROUP

6. NET FINANCE CHARGES

in HK$ million Finance charges Interest expense Bank loans and overdrafts wholly repayable within five years Bank loans not wholly repayable within five years Other loans wholly repayable within five years Other loans not wholly repayable within five years Amount capitalised Other finance charges Fair value gains on financial instruments Finance income Interest income	Group 2005 2004 325 47 24 1 90 78 268 268 707 394 (111) (18) 26 34 (62) – 560 410 (53) (108) 507 302

7 . TAXATION

Hong Kong profits tax has been calculated at the rate of 17.5% (2004: 17.5%) on the estimated assessable profit for the year. Overseas taxation has been calculated on the estimated assessable profit for the year at the rates of taxation prevailing in the countries in which the Group operates. Tax provisions are reviewed regularly to take into account changes in legislation, practice and status of negotiations.

in HK$ million Current income tax Hong Kong profits tax Overseas taxation Deferred taxation (Note 29) Change in fair value of investment properties Origination and reversal of other temporary difference	Group As restated 2005 2004 165 269 105 109 70 36 5 (1) 345 413

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FINANCIAL INFORMATION ON THE GROUP

The taxation on the Group’s profit before taxation differs from the theoretical amount that would arise using the taxation rate of the home country of the Company as follows:

in HK$ million Profit before taxation Less: share of results of jointly controlled entities associated companies Calculated at taxation rate of 17.5% (2004: 17.5%) Effect of different taxation rates in other countries Income and expenses not subject to taxation Utilisation of unrecognised tax losses this year and net of tax losses not recognised Under provision in prior years Others Taxation charge	Group As restated 2005 2004 4,642 4,274 (327) (488 (1,984) (1,801 2,331 1,985 408 347 (74) 24 (64) (125 14 1 31 134 30 32 345 413	Group As restated 2005 2004 4,642 4,274 (327) (488 (1,984) (1,801 2,331 1,985 408 347 (74) 24 (64) (125 14 1 31 134 30 32 345 413
		1,985
		347 24 (125 1 134 32
		413

8. PROFIT ATTRIBUTABLE TO SHAREHOLDERS OF THE COMPANY

The Group’s profit attributable to shareholders of the Company is dealt with in the accounts of the Company to the extent of HK$1,995 million (2004: HK$1,300 million).

9. DIVIDENDS

in HK$ million 2004 Final dividend paid: HK$0.80 (2003: HK$0.70) per share 2005 Interim dividend paid: HK$0.30 (2004: HK$0.30) per share 2005 Final dividend proposed: HK$0.80 (2004: HK$0.80) per share Dividend per share_(HK$)_	2005 1,754 658 1,754 2,412 1.10	2004 1,532
		657 1,754
		2,411
		1.10

10. EARNINGS PER SHARE

The calculation of earnings per share is based on profit attributable to shareholders of HK$3,989 million (2004: HK$3,534 million).

The basic earnings per share is based on the weighted average number of 2,192,532,243 shares in issue during the year (2004: 2,190,347,374 shares in issue). The diluted earnings per share is based on 2,195,068,005 shares (2004: 2,191,793,568 shares) which is the weighted average number of shares in issue during the year plus the weighted average number of 2,535,762 shares (2004: 1,446,194 shares) deemed to be issued at no consideration if all outstanding options had been exercised.

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FINANCIAL INFORMATION ON THE GROUP

11. DIRECTORS EMOLUMENTS

The remuneration of every Director for the year ended 31 December 2005 is set out below:

in HK$ million Name of Director Larry Yung Chi Kin Henry Fan Hung Ling Peter Lee Chung Hing Norman Yuen Kee Tong Vernon Francis Moore Carl Yung Ming Jie Yao Jinrong Leslie Chang Li Hsien Li Shilin Liu Jifu Chang Zhenming Willie Chang Hamilton Ho Hau Hay Alexander Reid Hamilton Hansen Loh Chung Hon Norman Ho Hau Chong Andrè Desmarais	Salaries, allowances and benefits Discretionary Retirement Fees in kind bonuses benefits 0.15 3.20 25.60 0.01 0.15 2.98 21.80 0.01 0.15 1.69 17.00 0.07 0.15 4.29 5.00 0.14 0.15 1.99 4.00 0.01 0.15 0.84 1.50 0.04 0.15 0.64 1.50 – 0.11 1.05 6.00 0.07 0.15 0.49 1.00 – 0.15 0.50 5.00 – 0.07 0.36 – – 0.30 – – – 0.15 – – – 0.30 – – – 0.25 – – – 0.20 – – – 0.15 – – – 2.88 18.03 88.40 0.35	2005 Total 28.96 24.94 18.91 9.58 6.15 2.53 2.29 7.23 1.64 5.65 0.43 0.30 0.15 0.30 0.25 0.20 0.15 109.66	2004 Total 30.29 25.85 19.94 10.08 14.26 2.53 2.23 – 1.64 5.66 1.64 0.30 0.15 0.30 0.25 0.20 0.15
			115.47

The five highest paid individuals of the Group during the year were also directors and their emoluments are reflected in the analysis presented above.

During the year, no share options were granted (2004: 7,600,000) to directors of the Company under the CITIC Pacific Share Incentive Plan 2000.

The executive directors as marked ‘*’ of the above being considered as key management personnel of the Group.

12. RETIREMENT BENEFITS

With the consent of the majority of its members, the Group ceased making contributions to The CITIC Group Retirement Plan (‘ORSO Plan’), one of its principal retirement schemes in Hong Kong, with effect from 1 August 2003. The ORSO Plan will be operated as a closed fund and continue to be managed by an independent trustee according to the provisions of the Trust Deed and Rules.

All ORSO Plan members were enrolled onto the CITIC Group Mandatory Provident Fund Scheme (‘MPF Scheme’) – with a choice of either the Fidelity Retirement Master Trust or the Hang Seng Mandatory Provident Fund – SuperTrust. Contributions to the MPF Scheme as well as forfeited amounts derived from the employer voluntary contributions are administered in accordance with the terms and provisions of the master trusts.

Assets of the ORSO Plan and the MPF Scheme are held separately in funds under the custody of the respective trustees.

Retirement benefits for employees in China and other locations are based primarily on local mandatory requirements.

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FINANCIAL INFORMATION ON THE GROUP

13. PROPERTY, PLANT AND EQUIPMENT

a Group

in HK$ million

Self-used Vehicular Plant and Others properties tunnel machinery (Note ii) Total

Cost

At 1 January 2004, as previously reported Transfer to leasehold land As restated Exchange adjustments Additions through acquisition of subsidiary companies others Disposals through disposal of subsidiary companies others Reclassification Impairment loss At 31 December 2004		3,611 (1,373) 2,238 7 – 130 (29) (15) 32 –			1,983 – 1,983 – – 9 – – – –			2,237 – 2,237 4 954 551 (33) (40) 196 –			2,417 – 2,417 10 17 666 (23) (85) (228) (1)			10,248 (1,373) 8,875 21 971 1,356 (85) (140) – (1)
		2,363			1,992			3,869			2,773			10,997

Accumulated depreciation

At 1 January 2004, as previously reported Transfer to leasehold land As restated Exchange adjustments Charge for the year Written back on disposals through disposal of subsidiary companies others At 31 December 2004 Net book value At 31 December 2004		665 (179) 486 2 49 (11) (7) 519 1,844			622 – 622 – 92 – – 714 1,278			824 – 824 1 215 (14) (22) 1,004 2,865			1,247 – 1,247 3 234 (10) (58) 1,416 1,357			3,358 (179) 3,179 6 590 (35) (87) 3,653 7,344

– 70 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

in HK$ million

Self-used Vehicular Plant and Others properties tunnel machinery (Note ii) Total

Cost

At 1 January 2005, as previously reported Transfer to leasehold land As restated Exchange adjustments Additions through acquisition of subsidiary companies others Disposals through disposal of subsidiary companies others Transfer to investment properties Reclassification At 31 December 2005		4,165 (1,802) 2,363 16 491 30 – (10) (32) 308			1,992 – 1,992 – – 8 – – – –			3,869 – 3,869 83 1,095 413 – (42) – (139)			2,773 – 2,773 18 3 1,533 (31) (210) – (169)			12,799 (1,802) 10,997 117 1,589 1,984 (31) (262) (32) –
		3,166			2,000			5,279			3,917			14,362

Accumulated depreciation

At 1 January 2005, as previously reported Transfer to leasehold land As restated Exchange adjustments Charge for the year Written back on disposals through disposal of subsidiary companies others Reclassification At 31 December 2005 Net book value At 31 December 2005		725 (206) 519 2 69 – (5) 1			714 – 714 – 94 – – –			1,004 – 1,004 24 347 – (21) (1)			1,416 – 1,416 6 264 (4) (130) –			3,859 (206) 3,653 32 774 (4) (156) –
		586 2,580			808 1,192			1,353 3,926			1,552 2,365			4,299 10,063

Notes:

• i) As at 31 December 2005, certain of the Group’s self-used properties and plant and machinery with the aggregate carrying value of HK$483 million (2004: HK$497 million) were pledged to secure banking facilities granted to a subsidiary company and a third party.

• ii) Other property, plant and equipment comprise traffic equipment, cargo lighters, computer installations, telecommunications equipment, motor vehicles, furniture, fixtures and equipment.

– 71 –

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FINANCIAL INFORMATION ON THE GROUP

in HK$ million Analysis of additions by business Special Steel Manufacturing Property Communications Marketing & Distribution Civil Infrastructure Others Corporate Analysis of additions by geographical area Hong Kong Mainland China Japan & Others Analysis of depreciation by business Special Steel Manufacturing Property Communications Marketing & Distribution Civil Infrastructure Corporate Analysis of impairment loss by business Communications b Company in HK$ million Cost At 1 January Additions Disposal At 31 December Accumulated depreciation At 1 January Charge for the year Written back on disposal At 31 December Net book value At 31 December	Group As restated 2005 2004 3,287 1,978 19 23 123 141 135 167 9 12 – 1 – 5 3,573 2,327 197 198 3,367 2,096 9 33 3,573 2,327 406 254 36 15 104 86 132 126 96 96 – 13 774 590 – 1 Motor vehicles, equipment, furniture and fixtures 2005 2004	Group As restated 2005 2004 3,287 1,978 19 23 123 141 135 167 9 12 – 1 – 5 3,573 2,327 197 198 3,367 2,096 9 33 3,573 2,327 406 254 36 15 104 86 132 126 96 96 – 13 774 590 – 1 Motor vehicles, equipment, furniture and fixtures 2005 2004	Group As restated 2005 2004 3,287 1,978 19 23 123 141 135 167 9 12 – 1 – 5 3,573 2,327 197 198 3,367 2,096 9 33 3,573 2,327 406 254 36 15 104 86 132 126 96 96 – 13 774 590 – 1 Motor vehicles, equipment, furniture and fixtures 2005 2004
	99 5 (3)		95 4 –
	101		99
	66 11 (3)		55 11 –
	74 27		66 33

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FINANCIAL INFORMATION ON THE GROUP

c The tenure of the self-used properties of the Group is as follows:

in HK$ million Leasehold properties held In Hong Kong Leases of over 50 years Leases of between 10 to 50 years Leases of less than 10 years In Mainland China Leases of between 10 to 50 years Properties held overseas Freehold	2005 24 1,030 76 1,811 225 3,166	2004 24 1,057 76 967 239
		2,363

d Property, plant and equipment and properties held for sale under current assets of the Group let under operating leases to generate rental income are as follows:

in HK$ million Cost Accumulated depreciation/ amortisation Net book value at 31 December 2005 Depreciation charges/ amortisation for the year	Self-used properties 21 (2) 19 –	Property, plant and equipment 269 (131) 138 9	Property, plant and equipment total 290 (133) 157 9	Properties held for sale 310 (55
				255
				4

14. INVESTMENT PROPERTIES

a

in HK$ million At 1 January Exchange adjustments Additions Disposals Change in fair value of investment properties Transfer from properties held for sale Transfer from property, plant and equipment Transfer from properties under development Transfer from leasehold land At 31 December	2005 8,115 (35) – (3) 520 6 32 2 8 8,645	2004 7,923 11 1 (1 181 – – – –
		8,115

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FINANCIAL INFORMATION ON THE GROUP

b The investment properties were revalued at 31 December 2005 by the following independent, professionally qualified valuers.

Properties located in	Valuers
Hong Kong and Shanghai	Knight Frank Hong Kong Limited
Japan	Tekko Building Co., Limited

c Investment properties let under operating leases to generate rental income are as follows:

in HK$ million 2005 Valuation at 31 December 8,623 d The tenure of investment properties of the Group is as follow: in HK$ million 2005 Leasehold properties held In Hong Kong Leases of over 50 years 682 Leases of between 10 to 50 years 3,287 In Mainland China Leases of over 50 years 950 Leases of between 10 to 50 years 3,464 Properties held overseas Freehold 262 8,645	2004 8,115
	2004 601 2,995 950 3,300 269
	8,115

15. PROPERTIES UNDER DEVELOPMENT

a The Group’s interests in properties under development are analysed as follows:

in HK$ million Cost At 1 January Prior years adjustment Capitalisation of amortisation of leasehold land Amortisation of leasehold land As restated Exchange adjustments Additions through acquisition of subsidiary companies others Capitalised leasehold land amortisation Disposals through disposal of subsidiary companies others Amortisation of leasehold land Transfer to investment properties Transfer to properties held for sale Net book value At 31 December	2005 1,707 18 (53) 1,672 18 271 1,323 27 (520) (56) (27) (2) (857) 1,849	2004 713 8 (42
		679 – – 1,224 10 – (230 (11 – –
		1,672

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FINANCIAL INFORMATION ON THE GROUP

• b The tenure of properties under development of the Group is as follow:

in HK$ million Leasehold properties held In Hong Kong Leases of between 10 to 50 years In Mainland China Leases of over 50 years Leases of between 10 to 50 years	2005 – 1,471 378 1,849	2004 889 622 161
		1,672

Interest capitalised in properties under development amounts to HK$58 million (2004: HK$9 million).

16. LEASEHOLD LAND

a The Group’s interests in leasehold land represent prepaid operating lease payments and their net book value are analysed as follows:

in HK$ million Cost At 1 January Exchange adjustments Additions through acquisition of subsidiary companies others Transfer to investment properties Amortisation of leasehold land Net book value At 31 December in HK$ million Analysis of additions by business Special Steel Manufacturing Marketing & Distribution Analysis of additions by geographical area Mainland China Analysis of amortisation by business Special Steel Manufacturing Property	2005 1,596 13 30 21 (8) (34) 1,618 2005 41 10 51 51 51 13 21 34	2004 1,194 – – 429 – (27
		1,596
		2004 429 –
		429
		429
		429
		5 22
		27

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FINANCIAL INFORMATION ON THE GROUP

	b	The tenure of leasehold land of the Group is as follow:
		in HK$ million	2005	2004
		Leasehold land held
		In Hong Kong
		Leases of between 10 to 50 years	927	947
		In Mainland China
		Leases of between 10 to 50 years	691	649
			1,618	1,596
17.	SUBSIDIARY COMPANIES
			Company
	in HK$ million		2005	2004
	Unlisted shares, at cost less impairment losses		364	169
	Amounts due by subsidiary companies		48,173	45,814
	Amounts due to subsidiary companies		(7,441)	(6,916)
			41,096	39,067
	Particulars of the principal subsidiary companies are shown in Note 35.

18. JOINTLY CONTROLLED ENTITIES

in HK$ million Share of net assets Goodwill At 1 January Addition At 31 December Loans due from jointly controlled entities_(Note b) Loans due to jointly controlled entities(Note b) _in HK$ million Unlisted shares, at cost Loans due from jointly controlled entities Loans due to jointly controlled entities	Group 2005 2004 8,279 5,850	Group 2005 2004 8,279 5,850	Group 2005 2004 8,279 5,850
	208 133		168 40
	341 208 8,620 6,058 2,105 1,932 (142) (138) 10,583 7,852 Company 2005 2004 1,524 789 475 660 (140) (135) 1,859 1,314

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FINANCIAL INFORMATION ON THE GROUP

Note:

• a. Included in jointly controlled entities is Western Harbour Tunnel Company Limited (‘WHTCL’) whose year end is 31 July which is not coterminous with the Group. The results of WHTCL has been equity accounted for based on its management accounts for the period from 1 January 2005 to 31 December 2005.

• b. Loans due from jointly controlled entities and loans due to jointly controlled entities are interest bearing at market rates except for an amount of approximately HK$1,050 million (2004: HK$783 million loans from jointly controlled entities) loans to jointly controlled entities, which are non-interest bearing. These loans have no fixed repayment terms.

• c. The following amounts represent the Group’s share of the assets and liabilities, and sales and results of jointly controlled entities and are included in the consolidated balance sheet and profit and loss account using the equity method:

in HK$ million Assets Non-current assets Current assets Liabilities Non-current liabilities Current liabilities Net assets Income Expenses Profit for the year Proportionate interest in jointly controlled entity’s commitment	2005 13,044 7,644 20,688	2005 13,044 7,644 20,688	2004 10,468 4,677 15,145
	(7,686) (5,207)		(5,099) (4,274)
	(12,893) 7,795 5,419 (5,114) 305 698		(9,373) 5,772 3,803 (3,479) 324 1,004

• d. Particulars of the principal jointly controlled entities are shown in Note 35.

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FINANCIAL INFORMATION ON THE GROUP

19. ASSOCIATED COMPANIES

in HK$ million Share of net assets Goodwill At 1 January Addition Disposal At 31 December Loans due from associated companies_(Note b) Loans due to associated companies(Note b) _Investment at cost Unlisted shares Shares listed in Hong Kong Market value of listed shares in HK$ million Investment at cost Unlisted shares Shares listed in Hong Kong Loans due from associated companies Loans due to associated companies Market value of listed shares Dividend income from associated companies during the year is as in HK$ million Listed associated companies Unlisted associated companies	Group As restated 2005 2004 16,087 14,138	Group As restated 2005 2004 16,087 14,138	Group As restated 2005 2004 16,087 14,138
	1,825 9 (5)		1,856 – (31)
	1,829 1,825 5,406 5,501 (22) (25) 23,300 21,439 7,105 6,142 8,591 8,591 15,696 14,733 11,644 12,632 Company 2005 2004 2,197 1,245 931 931 3,128 2,176 2,522 2,586 (19) (19) 5,631 4,743 970 1,053 follows: Group 2005 2004 559 558 546 326 1,105 884

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FINANCIAL INFORMATION ON THE GROUP

Note:

• a. Included in associated companies is Hong Kong Resort Company Limited (‘HKR’) whose year end is 31 March which is not coterminous with the Group. The results of HKR has been equity accounted for based on its management accounts for the period from 1 January 2005 to 31 December 2005.

• b. Loans due from associated companies and loans due to associated companies are interest bearing at market rates except for an amount of approximately HK$14 million (2004: HK$25 million) loans from/to associated companies, which are non-interest bearing. These loans have no fixed repayment terms.

• c. Particulars of the principal associated companies are shown in Note 35.

Summary financial information of the associated companies:

in HK$ million Assets Liabilities Revenue Profit	Group 2005 2004 154,959 145,189 97,108 92,964 69,721 58,373 5,957 8,203	Group 2005 2004 154,959 145,189 97,108 92,964 69,721 58,373 5,957 8,203
		92,964
		58,373
		8,203

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FINANCIAL INFORMATION ON THE GROUP

20. OTHER FINANCIAL ASSETS

in HK$ million Co-operative joint ventures Unlisted investments, at fair value/cost Amounts due by co-operative joint ventures Less: Amortisation Listed investment, at fair value/cost Shares listed in Hong Kong Shares listed in overseas Unlisted investments Shares, at cost Add:_Advances made _Less: Impairment Less: Advances received Performance guarantee deposit Market value of listed shares	Group 2005 2004	Group 2005 2004	Group 2005 2004
	65 53		1,317 57
	118 –		1,374 (673)
	118		701
	530 144		– 374
	674		374
	26 16		70 19
	42 (25)		89 (40)
	17 (2)		49 (3)
	15 122 929 674		46 – 1,121 680

Amortisation represents amortisation of investment in Power in prior year.

Pursuant to Daye Special Steel Co. Ltd.’s share reform plan proposal subsequently approved in January 2006 (‘the Share Reform Plan’), a performance guarantee deposit of approximately RMB 127 million was paid by a subsidiary company to Shenzhen Stock Exchange. In accordance with the Share Reform Plan, the deposit will be frozen until March 2007 and it represents 20% of the total consideration for acquiring all the freely transferable shares at RMB 3.8 per share. Details of the Share Reform Plan are set out in the Company’s circular to shareholders dated 22 December 2005.

Particulars of the principal co-operative joint ventures are shown in Note 35.

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FINANCIAL INFORMATION ON THE GROUP

21. GOODWILL

		Subsidiary
in HK$ million		companies
Cost and net book value
At 1 January 2005, as previously reported		272
Prior Year Adjustments
Deferred tax arising from fair value change of investment properties		235
As restated		507
Fair value adjustments_(Note)_		55
Additions		41
Disposals		–
At 31 December 2005		603
Cost and net book value
At 1 January 2004, as previously reported		258
Prior Year Adjustments
Deferred tax arising from fair value change of investment properties		235
As restated		493
Additions		14
Disposals		–
At 31 December 2004		507
Analysed by:
	Subsidiary companies
in HK$ million	2005	2004
Special Steel Manufacturing	74	–
Property	235	235
Communications	118	96
Marketing & Distribution	169	169
Civil Infrastructure	7	7
	603	507

Note:

Fair value adjustments are in respect of the acquisition of a subsidiary in 2004, principally due to adjustments to the value of fixed assets and tax payable.

22. INVENTORIES

in HK$ million Raw material Work-in-progress Finished goods Others	2005 652 506 2,182 87 3,427	2004 489 294 1,992 3
		2,778

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FINANCIAL INFORMATION ON THE GROUP

23. DEBTORS, ACCOUNTS RECEIVABLE, DEPOSITS AND PREPAYMENTS

in HK$ million Trade debtors Within 1 year Over 1 year Accounts receivable, deposits and prepayments	Group 2005 2004 1,649 1,754 45 179 1,694 1,933 3,997 2,255 5,691 4,188	Company 2005 2004 – – – – – – 138 98 138 98	Company 2005 2004 – – – – – – 138 98 138 98
			– 98
			98

Note:

• i) Trade debtors are net of provision and the ageing is classified based on invoice date.

• ii) The Group has a defined credit policy for the respective business units.

• iii) The carrying amounts of debtors, accounts receivables, deposits and prepayments approximates their fair value.

• iv) Accounts receivables, deposits and prepayments included derivative financial assets of HK$12 million.

24. CREDITORS, ACCOUNTS PAYABLE, DEPOSITS AND ACCRUALS

in HK$ million Trade creditors Within 1 year Over 1 year Accounts payable, deposits and accruals	Group 2005 2004 2,833 1,608 214 94 3,047 1,702 3,581 3,040 6,628 4,742	Company 2005 2004 – – – – – – 120 73 120 73	Company 2005 2004 – – – – – – 120 73 120 73
			– 73
			73

Note:

i) Accounts payable, deposits and accruals included derivative financial liabilities of HK$17 million.

– 82 –

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FINANCIAL INFORMATION ON THE GROUP

25. SHARE CAPITAL

Number of shares of HK$0.40 each Authorised At 31 December 2004 and 2005 3,000,000,000 Issued and fully paid At 1 January 2005 2,192,040,160 Issue of shares pursuant to the Plan 880,000 At 31 December 2005 2,192,920,160	HK$ million 1,200
	877 –
	877

Changes subsequent to the year end:

Since 1 January 2006 to the date of this report, the Company issued and allotted a total of 360,000 shares at HK$18.20 per share and 85,000 shares at HK$19.90 per share upon the exercise of share options which were granted under the Plan.

Share Option Plan:

Under the CITIC Pacific Share Incentive Plan 2000 (‘the Plan’) adopted on 31 May 2000, the Board may invite any director, executive or employee of the Company or any of its subsidiary companies to subscribe for options over the Company’s shares on payment of HK$1 per acceptance. The subscription price determined by the Board will be at least the higher of (i) the closing price of the Company’s share as stated in the Stock Exchange’s daily quotations sheet on the date of grant; (ii) the average closing price of the Company’s share as stated in the Stock Exchange’s daily quotations sheets for the five business days immediately preceding the date of grant and (iii) the nominal value of the Company’s shares. The maximum number of shares over which options may be granted under the Plan shall not exceed 10% of (i) the issued share capital of the Company from time to time or (ii) the issued share capital of the Company as at the date of adopting the Plan, whichever is the lower.

Since adoption of the Plan, the Company have granted two lots of share options on 28 May 2002 and 1 November 2004 respectively. On 28 May 2002 options to subscribe for a total of the 11,550,000 shares in the Company representing 0.53% of the issued share capital, at the exercise price of HK$18.20 per share, were granted under the Plan. The closing price of the Company’s share immediately before the date of grant was HK$18.10. On 1 November 2004 options to subscribe for a total of the 12,780,000 shares in the Company representing 0.58% of the issued share capital, at the exercise price of HK$19.90 per share, were granted under the Plan. The closing price of the Company’s share immediately before the date of grant was HK$19.90. All options granted and accepted can be exercised in whole or in part within 5 years from the date of grant. All were accepted, and none were cancelled, but options for 500,000 shares in the Company have lapsed in the period up to 31 December 2005.

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Movements in the number of share options outstanding and their related weighted average exercise prices are as follows:

		2005	2005		2004	2004
		Average			Average
		exercise			exercise
	price in HK$				price in HK$
		per share		Options	per share	Options
At 1 January				20,750,000		11,550,000
Granted				–	19.90	12,780,000
Exercised		18.61		(880,000)	18.96	(3,580,000)
Lapsed		18.20		(500,000)		–
At 31 December				19,370,000		20,750,000
Details of share options exercised		during the year:
		Exercise price			Number of shares
Period		HK$			2005	2004
11 January to 21	September 2005	18.20			670,000	1,980,000
28 February to 6	December 2005	19.90			210,000	1,600,000
					880,000	3,580,000

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26. RESERVES

a Group

in HK$ million At 1 January 2004, as previously reported Prior year adjustments Deferred tax arising from fair value change of investment properties Amortisation of leasehold land Share of associated companies Deferred tax arising from fair value change of investment properties Amortisation of leasehold land Adjustment on property, plant and equipment As restated Share of reserves of associated companies Share of reserves of jointly controlled entities Exchange translation differences Issue of shares pursuant to the Plan Reserves written back on disposal Transfer from profits Profit attributable to shareholders of the Company Dividends_(Note 9)_ At 31 December 2004	Capital Share redemption premium reserve 24,782 19 – – – – – – – – – – 24,782 19 – – – – – – 66 – – – – – – – – – 24,848 19	Investment property Exchange revaluation fluctuation Goodwill reserve reserve (2,499 ) 523 (194 ) – – – – – – – – – – – – – – – (2,499 ) 523 (194 ) – 1 (131 ) – – – – – 2 – – – 5 – (2 ) – – – – – – – – – (2,494 ) 524 (325 )	General reserve 182 – – – – – 182 – 11 – – (2 ) 53 – – 244	Retained profits 12,860 (622 ) (81 ) (204 ) (8 ) (9 ) 11,936 – – – – – (53 ) 3,534 (2,189 ) 13,228	Total 35,673 (622 ) (81 ) (204 ) (8 ) (9 ) 34,749 (130 ) 11 2 66 1 – 3,534 (2,189 ) 36,044

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Investment Capital property Investment Exchange Share redemption revaluation revaluation fluctuation General in HK$ million premium reserve Goodwill reserve reserve reserve reserve Representing At 31 December 2004 after proposed final dividend 2004 Final dividend proposed Retained by Company and subsidiary companies 24,848 19 (2,494 ) – – 6 226 Jointly controlled entities – – – – – – 15 Associated companies – – – 524 – (331 ) 3 24,848 19 (2,494 ) 524 – (325 ) 244 Investment Capital property Investment Exchange Share redemption revaluation revaluation fluctuation Hedging General in HK$ million premium reserve Goodwill reserve reserve reserve reserve reserve At 1 January 2005, as previously reported 24,848 19 (2,494 ) 524 – (325 ) – 244 Prior year adjustments Deferred tax arising from fair value change of investment properties – – – – – – – – Amortisation of leasehold land – – – – – – – – Share of associated companies Deferred tax arising from fair value change of investment properties – – – – – – – – Amortisation of leasehold land – – – – – – – – Adjustment on property, plant and equipment – – – – – – – – As restated, before opening adjustments 24,848 19 (2,494 ) 524 – (325 ) – 244 Opening adjustment for the adoption of HKAS 39 – – – – 168 – (152 ) – Opening adjustment for the adoption of HKAS 40 – – – (524 ) – – – – At 1 January, as restated 24,848 19 (2,494 ) – 168 (325 ) (152 ) 244	Investment Capital property Investment Exchange Share redemption revaluation revaluation fluctuation General in HK$ million premium reserve Goodwill reserve reserve reserve reserve Representing At 31 December 2004 after proposed final dividend 2004 Final dividend proposed Retained by Company and subsidiary companies 24,848 19 (2,494 ) – – 6 226 Jointly controlled entities – – – – – – 15 Associated companies – – – 524 – (331 ) 3 24,848 19 (2,494 ) 524 – (325 ) 244 Investment Capital property Investment Exchange Share redemption revaluation revaluation fluctuation Hedging General in HK$ million premium reserve Goodwill reserve reserve reserve reserve reserve At 1 January 2005, as previously reported 24,848 19 (2,494 ) 524 – (325 ) – 244 Prior year adjustments Deferred tax arising from fair value change of investment properties – – – – – – – – Amortisation of leasehold land – – – – – – – – Share of associated companies Deferred tax arising from fair value change of investment properties – – – – – – – – Amortisation of leasehold land – – – – – – – – Adjustment on property, plant and equipment – – – – – – – – As restated, before opening adjustments 24,848 19 (2,494 ) 524 – (325 ) – 244 Opening adjustment for the adoption of HKAS 39 – – – – 168 – (152 ) – Opening adjustment for the adoption of HKAS 40 – – – (524 ) – – – – At 1 January, as restated 24,848 19 (2,494 ) – 168 (325 ) (152 ) 244	Retained profits 8,133 660 4,435 13,228 Retained profits 14,199 (661 ) (87 ) (204 ) (10 ) (9 ) 13,228 (54 ) 524 13,698	Total 34,290 1,754 36,044 30,738 675 4,631 36,044 Total 37,015 (661 ) (87 ) (204 ) (10 ) (9 ) 36,044 (38 ) – 36,006
	244 – –
	244

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Capital Share redemption in HK$ million premium reserve At 1 January, as restated 24,848 19 Share of reserves of associated companies – – Share of reserves of jointly controlled entities – – Exchange translation differences – – Gain on cash flow hedge of financial instruments – – Fair value loss on other financial assets – – Transfer from profits – – Issue of shares pursuant to the Plan 16 – Profit attributable to shareholders of the Company – – Dividends_(Note 9) – – At 31 December 2005 24,864 19 _Representing At 31 December 2005 after proposed final dividend 2005 Final dividend proposed Retained by Company and subsidiary companies 24,864 19 Jointly controlled entities – – Associated companies – – 24,864 19	Investment property Investment Exchange revaluation revaluation fluctuation Goodwill reserve reserve reserve (2,494 ) – 168 (325 ) – – (67 ) – – – – – – – – 158 – – – – – – (17 ) – – – – – – – – – – – – – – – – – (2,494 ) – 84 (167 ) (2,494 ) – 25 164 – – – – – – 59 (331 ) (2,494 ) – 84 (167 )	Hedging reserve (152 ) 350 40 – 163 – – – – – 401 62 3 336 401	General reserve 244 – – – – – 57 – – – 301 283 15 3 301	Retained profits 13,698 – – – – – (57 ) – 3,989 (2,412 ) 15,218 7,305 996 6,917 15,218	Total 36,006 283 40 158 163 (17 ) – 16 3,989 (2,412 ) 38,226 36,472 1,754 38,226 30,228 1,014 6,984 38,226

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b Company

Capital redemption Hedging Share Retained in HK$ million reserve reserve premium profits At 1 January 2004 19 – 24,782 11,416 Issue of shares pursuant to the Plan – – 66 – Profit for the year available for distribution_(Note 8) – – – 1,300 Dividends(Note 9) – – – (2,189) At 31 December 2004 19 – 24,848 10,527 _Representing At 31 December 2004 after proposed final dividend 2004 Final dividend proposed

Total 36,217 66 1,300 (2,189) 35,394 33,640 1,754 35,394

Capital redemption Hedging Share Retained in HK$ million reserve reserve premium profits At 1 January 2005, as previously reported 19 – 24,848 10,527 Opening adjustments for the adoption of HKAS 39 – (110) – (33) As restated 19 (110) 24,848 10,494 Issue of shares pursuant to the Plan – – 16 – Gain on cash flow hedge of financial instruments – 173 – – Profit for the year available for distribution_(Note 8) – – – 1,995 Dividends(Note 9) – – – (2,412) At 31 December 2005 19 63 24,864 10,077 _Representing At 31 December 2005 after proposed final dividend 2005 Final dividend proposed

Total 35,394 (143) 35,251 16 173 1,995 (2,412) 35,023 33,269 1,754 35,023

Distributable reserves of the Company at 31 December 2005, calculated under section 79B of the Hong Kong Companies Ordinance, amounted to HK$10,077 million (2004: HK$10,527 million).

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27. BORROWINGS

a

in HK$ million Bank loans unsecured secured Other loans unsecured Amounts repayable within one year included under current liabilities	Group 2005 2004 14,804 9,522 519 108 15,323 9,630 4,713 4,290 20,036 13,920 (1,224) (151) 18,812 13,769	Company 2005 2004 12,101 8,322 – – 12,101 8,322 780 780 12,881 9,102 (807) (27) 12,074 9,075

Note:

• i) Bank loans and other loans of the Group not wholly repayable within five years amounted to HK$7,229 million (2004: HK$4,733 million).

• ii) The Company has issued a US$100,000,000 Senior Note due 15 February 2006 (‘the Notes’). The Notes will rank in right of payment pari passu to all other indebtedness of the Company. Interest on the Notes is payable semi-annually in arrears at 7.37% per annum. The Notes was fully repaid upon maturity subsequent to the year end.

• iii) On 1 June 2001, CITIC Pacific Finance (2001) Limited, a wholly owned subsidiary of the Company, issued and sold a total of US$450 million principal amount of 7.625% guaranteed notes due 2011 (‘Guaranteed Notes’) for refinancing the indebtedness of the Company and for general corporate purposes, to investors pursuant to the purchase agreements dated 24 May 2001 and 1 June 2001. All of the Guaranteed Notes remained outstanding at the end of the year.

• iv) On 26 October 2005, CITIC Pacific Finance (2005) Limited, a wholly owned subsidiary of the Company, issued and sold JPY8.1 billion in aggregate principal amount of guaranteed floating rate note due 2035 (‘JPY Notes’) to investors for general corporate purposes pursuant to the subscription agreement dated 26 October 2005. All of the JPY Notes remained outstanding at the end of the year.

• v) Bank loans and other loans, other than the JPY Notes, are fully repayable up to 2012 and bear interest at the prevailing market rate.

• vi) As at 31 December 2005, certain of the Group’s inventories, time deposit, accounts receivable, leasehold land and self-used properties with the aggregate carrying value of HK$585 million (2004: HK$538 million) were pledged to secure loans and banking facilities granted to certain subsidiary companies of the Group.

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b The maturity of the Group’s and the Company’s long term liabilities is as follows:

in HK$ million Bank loans are repayable in the first year in the second year in the third to fifth years inclusive after the fifth year Other loans are repayable in the first year in the second year in the third to fifth years inclusive after the fifth year	Group 2005 2004	Group 2005 2004	Group 2005 2004	Group 2005 2004	Company 2005 2004	Company 2005 2004	Company 2005 2004
	440 2,167 9,416 3,300		151 834 7,422 1,223		27 526 8,248 3,300		27 154 6,918 1,223
	15,323		9,630		12,101		8,322
	784 – – 3,929		– 780 – 3,510		780 – – –		– 780 – –
	4,713 20,036		4,290 13,920		780 12,881		780 9,102

c The exposure of the Group’s total borrowings to interest-rate changes and the contractual repricing dates are as follows:

in HK$ million One At 31 December 2004 Total borrowings Effect of interest rate swap At 31 December 2005 Total borrowings Effect of interest rate swap	year or less 10,100
	2,750
	16,456
	4,575

Part of the interest rate exposure are hedged by interest rate swaps. Details see descriptions under ‘Derivative transactions’ on page 48 of the 2005 Annual Report.

The effective interest rates of the Group were as follows:

	2005	2004
Total borrowings	4.3%	3.4%

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• d The carrying amounts of borrowings approximate their fair value. The fair values are estimated as the present value of future cash flows, discounted at current market interest rates for similar financial instruments.

• e The carrying amounts of the total borrowings are denominated in the following currencies:

Group in HK$ million 2005 2004 Hong Kong dollar 12,745 8,364 US dollar 4,519 4,491 Renminbi 3,351 1,053 Other currencies 603 672 21,218 14,580 in HK$ million The Group has the following undrawn borrowing facilities Floating rate expiring within one year expiring beyond one year	Company 2005 2004 11,516 7,667 857 860 – – 511 581 12,884 9,108 2005 2004 1,767 1,836 8,390 7,063 10,157 8,899	Company 2005 2004 11,516 7,667 857 860 – – 511 581 12,884 9,108 2005 2004 1,767 1,836 8,390 7,063 10,157 8,899
		9,108
		2004 1,836 7,063
		8,899

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28. DERIVATIVE FINANCIAL INSTRUMENTS

Financial risk management

The Group exposes to a variety of financial risk. The Group employs a combination of financial instruments, including derivative products, to manage its exposure to financial risk.

Risk management is centralized at head office level in accordance with the Group’s risk management policy. The policy provided written principles and guidelines for financial risk management, use of derivative transactions and measurement of derivative transactions.

a. Exposure to interest rate fluctuations

Most of the Group’s bank borrowings are on floating rate basis. Interest rate risk arises from the movement in interest rate.

The Group aims to maintain a suitable mixture of fixed rate/floating rate borrowings in order to stabilize interest costs of a long period of time despite rate movements. Interest rate hedging ratio is determined after taking into consideration of the general market condition and trend, the Group’s overall cash flow pattern, interest coverage ratio and etc. Interest rate swap, forward rate agreement and interest rate option may be employed to maintain the desired hedging ratio.

b. Exposure to foreign currency fluctuations

The Group’s reporting currency is HKD. Foreign currency risk arises from the assets/ liabilities which are denominated in currencies other than HKD. Foreign exchange swap or forward contract (include non-deliverable forward) and foreign exchange option may be employed to minimize the net exposure to foreign currency fluctuations. Currently, the Renminbi is not a free convertible currency. In addition, ‘Registered Capital’, which is usually accounted for no less than 25% of the total project investment amount, is required to be paid in US or HK Dollars. As a result, the Group has exposure to the Renminbi.

c. Credit exposure

When depositing surplus funds or entering into derivative contracts, the Group controls its exposure to non-performance of counterparties by transacting only with those institutions that have investment grade. Credit monitoring procedures will also be applied. In addition, the counterparties’ lending exposure to the Group is also an important consideration as a means to control credit risk.

d. Liquidity risk

Liquidity risk is prudently managed by maintaining sufficient amount of available committed credit facilities. In addition, the Group actively manages and extends its debt maturity profile to ensure that the Group’s maturing debt each year will not exceed the anticipated cash flow and the Group’s ability to refinance the debt in that year.

For more detailed descriptions, please refer to ‘Group Liquidity and Capital Resources’ section in the Annual Report.

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in HK$ million Interest-rate swaps Forward foreign exchange contracts _Less:_current portion Interest-rate swaps Forward foreign exchange contracts	2005 Group Assets Liabilities 169 41 11 16 180 57 5 5 7 12 12 17 168 40	2005 Group Assets Liabilities 169 41 11 16 180 57 5 5 7 12 12 17 168 40
		41 16
		57
		5 12
		17 40

Interest-rate swaps

The notional principal amounts of the outstanding interest-rate swap contracts at 31 December 2005 were HK$11,400 million (2004: HK$9,770 million).

in HK$ million Interest-rate swaps Forward foreign exchange contracts _Less:_current portion Interest-rate swaps Forward foreign exchange contracts	2005 Company Assets Liabilities 151 41 7 10 158 51	2005 Company Assets Liabilities 151 41 7 10 158 51	2005 Company Assets Liabilities 151 41 7 10 158 51
			41 10
			51
	5 3		5 6
	8 150		11 40

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29. DEFERRED TAXATION

a. Group

Deferred taxation are calculated in full on temporary differences under the liability method using a principal taxation rate of 17.5% (2004: 17.5%). The components of deferred tax (assets) and liabilities recognised in the consolidated balance sheet and the movements during the year is as follows:

Depreciation Revaluation of allowances in investment properties excess of related and valuation of depreciation Losses other properties Others As As As As restated restated restated restated in HK$ million 2005 2004 2005 2004 2005 2004 2005 2004 Deferred tax arising from At 1 January 510 503 (107) (102) 818 779 13 13 Exchange adjustment (3) 2 – – (3) 1 (3) 1 Acquisition of subsidiaries – – (72) – – – – – Charged to revaluation reserve – – – – 1 2 – – Charged/(Credited) to consolidated profit and loss account 66 5 (61) (5) 70 36 – (1) At 31 December 573 510 (240) (107) 886 818 10 13 in HK$ million 2005 Net deferred tax assets recognised on the consolidated balance sheet (158) Net deferred tax liabilities recognised on the consolidated balance sheet 1,387 1,229		Total As restated 2005 2004 1,234 1,193 (9) 4 (72) – 1 2 75 35 1,229 1,234 2004 (94) 1,328 1,234

b. Deferred Tax Assets Unrecognised

The Group has not recognised deferred tax assets in respect of the following items:

in HK$ million Deductible temporary difference Tax losses Taxable temporary difference	Group As restated 2005 2004 727 933 3,570 3,694 (237) (168) 4,060 4,459

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in HK$ million Deductible temporary difference Tax losses	Company 2005 2004 15 11 402 339 417 350	Company 2005 2004 15 11 402 339 417 350
		350

Note: Deductible temporary differences and tax losses in certain tax jurisdictions of HK$158 million (2004: HK$206 million) will expire within the next five years. The rest of the amount does not expire under current tax legislation.

c. Deferred Tax Liabilities Not Recognised

At 31 December 2005, temporary differences relating to the undistributed profits of subsidiaries amounted to HK$641 million (2004: HK$715 million). Deferred tax liabilities of HK$131 million (2004: HK$145 million) have not been recognised in respect of the tax that would be payable on the distribution of these retained profits as the company controls the dividend policy of these subsidiaries and it has been determined that it is probable that profits will not be distributed in the foreseeable future.

30. CAPITAL COMMITMENTS

in HK$ million Authorised but not contracted for_(Note) Contracted but not provided for(Note) _in HK$ million Contracted but not provided for	Group 2005 2004 759 1,159 3,538 3,370 Company 2005 2004 – 1,229

Note: The capital commitments of authorised but not contracted for and contracted but not provided for of the Group in respect of property, plant and equipment amount to HK$759 million (2004: HK$1,159 million) and HK$1,891 million (2004: HK$2,087 million) respectively. The balance of contracted but not provided for represents amount committed for investments in special steel manufacturing of HK$1,421 million (2004: nil), power generation of HK$173 million (2004: HK$1,108 million) and others of HK$53 million (2004: HK$175 million).

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31. OPERATING LEASE COMMITMENTS

The future aggregate minimum lease payments under non-cancellable operating leases at 31 December are as follows:

in HK$ million Properties commitments Within 1 year After 1 year but within 5 years After 5 years Other commitments Within 1 year After 1 year but within 5 years After 5 years	Group 2005 2004	Group 2005 2004	Group 2005 2004	Group 2005 2004	Company 2005 2004	Company 2005 2004	Company 2005 2004
	109 115 39		88 103 32		18 21 –		6 – –
	263		223		39		6
	24 67 38		38 66 54		– – –		– – –
	129 392		158 381		– 39		– 6

32. CONTINGENT LIABILITIES

• a. The Company together with other beneficial shareholders of Western Harbour Tunnel Company Limited (‘WHTCL’) have agreed jointly and severally to guarantee the Government of the Hong Kong Special Administrative Region that WHTCL will complete the Western Harbour Crossing (‘Crossing’) within budget of approximately HK$7.5 billion including repair costs to be incurred after the operation date of the Crossing but before the issuance of the Maintenance Certificate. The Crossing was completed in April 1997 with total cost of approximately HK$6.8 billion, pending the issuance of the Maintenance Certificate.

The beneficial shareholders of WHTCL have agreed that in relation to any claim made or asserted under the aforesaid guarantee, as between themselves, the total of all liabilities in respect of a claim thereunder and of all costs, charges and expenses suffered or incurred by any of them resulting therefrom or attributable thereto shall be shared by them in proportion to their respective ultimate ownership in WHTCL.

• b. The Company has provided a guarantee on the US$450 million Guaranteed Notes issued by a wholly owned subsidiary of the Company.

• c. The Company has provided a guarantee on the JPY8.1 billion Guaranteed Floating Rate Notes issued by a wholly owned subsidiary of the Company.

• d. The Company has provided a several guarantee of up to 60% to support banking facilities of RMB531 million and US$65 million to Jilin Xinli Power Cogeneration Co., Ltd.

• e. The Company has provided a guarantee to support a banking facility of up to RMB400 million granted to a subsidiary of Shijiazhuang Iron & Steel Co. Ltd. (‘Shijiazhuang Steel’). The Company has entered into an acquisition agreement to acquire Shijiazhuang Steel and the transaction is pending for regulatory approval.

• f. The Company has provided several guarantees of up to 79.998% to support banking facilities of up to HK$528 million granted to a subsidiary of the Company.

• g. The Company has provided a guarantee to support a banking facility of RMB600 million granted to a subsidiary of the Company.

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• h. The Company has provided guarantees to support banking facilities of up to RMB600 million granted to a subsidiary of the Company.

• i. The Company has provided guarantees to support banking facilities of RMB200 million and US$10 million granted to a subsidiary of the Company. The US$10 million facility was not utilised as at 31 December 2005.

• j. Hubei Xin Yegang Co. Ltd., a 95% owned subsidiary of the Company, has provided guarantees to support banking facilities of up to RMB1,050 million granted to another subsidiary of the Company, Daye Special Steel Co., Ltd., and banking facilities of up to RMB33 million to Daye Steel Group companies.

• k. The Company has provided guarantees to support banking facilities of up to RMB410 million granted to a wholly owned subsidiary of the Company. These facilities were not utilised as at 31 December 2005.

• l. The Company has provided a guarantee to support a banking facility of up to RMB100 million granted to a wholly owned subsidiary of the Company. This facility was not utilised as at 31 December 2005.

33. POST BALANCE SHEET EVENTS

On 20 January 2006, the Company entered into joint venture agreements and a framework agreement with PRC parties in relation to Phase 2 and Phase 3 of the Shanghai Shipyard Land Development Project respectively. Under the agreements, the Company agreed to make a total investment of approximately HK$2.37 billion for Phase 2 and approximately HK$3.53 billion for Phase 3.

On the same date, a wholly-owned subsidiary of the Company disposed an interest in a property company for a consideration of HK$6.18 billion (subject to completion adjustment).

34. APPROVAL OF ACCOUNTS

The accounts were approved by the Board of Directors on 22 March 2006.

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35. PRINCIPAL SUBSIDIARY COMPANIES, JOINTLY CONTROLLED ENTITIES AND ASSOCIATED COMPANIES

The following are the principal subsidiary companies, jointly controlled entities and associated companies of the Group which in the opinion of the directors, principally affect the results and net assets of the Group. To give full details of all companies would in the opinion of the directors result in particulars of excessive length.

Place of incorporation/ Attributable Principal place of operation to the Name Kind of legal entity Group % Power Generation Jointly controlled entities Huaibei Guoan Power People’s Republic of China 12.5 Company Ltd. Sino-foreign equity joint venture Inner Mongolia Fengtai People’s Republic of China 35 Electric Power Generation Sino-foreign equity Company Limited joint venture Jiangyin Ligang Electric People’s Republic of China 54.31 Power Generation Foreign investment Company Limited stock company Jilin Xinli Power Cogeneration People’s Republic of China 60 Co., Ltd. Sino-foreign equity joint venture Kaifeng Xinli Power People’s Republic of China 50 Generation Co., Ltd.§ Sino-foreign equity joint venture Sunburst Energy Development People’s Republic of China 65 Co., Ltd. Sino-foreign equity joint venture Widewin Investments Limited§ British Virgin Islands 37.5 Wuxi Taihu Lake Pumped People’s Republic of China 70 Storage Power Co., Ltd. Sino-foreign equity joint venture 江陰利電能源材料有限公司 People’s Republic of China 54.31 Sino-foreign equity joint venture Jiangsu Ligang Electric People’s Republic of China 56.31 Power Company Sino-foreign equity Limited joint venture

Interest in equity Particulars of shares held by issued shares† No. of Par Company Subsidiary shares value Principal activities % % – 12.5 – – Building, possession and operation of power plant and sale of electricity – 35 – – Coal-fired power station operation and management – 54.31 1,170,000,000 RMB1 Electric power plant construction and operation – 60 – – Coal-fired co-generation power plant construction and operation and related business – 50 – – Coal-fired power station operation – 65 – – Investment holding – 37.5 – – Investment holding – 70 – – Pumped storage hydraulic power plant construction – 54.31 – – Coal related businesses and provision of maintenance and technical services for electrical appliances – 56.31 – – Electric power plant construction and operation

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Place of incorporation/ Attributable Principal place of operation to the Name Kind of legal entity Group % Zhengzhou Xinli Electric People’s Republic of China 50 Power Co., Ltd. Sino-foreign equity joint venture Associated companies North United Power People’s Republic of China 20 Corporation Sino-foreign equity joint venture Tunnels Subsidiary companies New Hong Kong Tunnel Hong Kong 70.8 Company Limited Jointly controlled entities Eastern Harbour Crossing Hong Kong 50 Company Limited§ Hong Kong Tunnels and Hong Kong 35 Highways Management Company Limited Western Harbour Tunnel Hong Kong 35 Company Limited§ Environmental Jointly controlled entities Changzhou CGE Water People’s Republic of China 24.01 Co., Ltd. Sino-foreign equity joint venture Ecoserve Limited Hong Kong 50 Associated companies Enviropace Limited Hong Kong 20 Green Valley Landfill, Limited Hong Kong 30 South China Transfer Limited Hong Kong 30	Interest in equity shares held by Company Subsidiary % % – 50 20 – – 70.8 – 50 – 35 – 35 – 24.01 – 50 – 20 – 30 – 30	Particulars of issued shares† No. of Par shares value Principal activities – – Electric power plant construction and operation – – Investment holding and generation of electricity and heat and related businesses 75,000,000 HK$10 Tunnel operation – – Tunnel operation – – Management, operation and maintenance of the Cross Harbour Tunnel – – Franchise to construct and operate the Western Harbour Crossing – – Production and supply of tap water – – Design, construction and operation of refuse transfer station – – Design, construction, operation and management of chemical waste treatment plant – – Landfill construction and operation – – Design, construction and operation of transfer station

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Place of incorporation/ Attributable Principal place of operation to the Name Kind of legal entity Group % 上海老港生活垃圾處置 People’s Republic of China 30 有限公司 Sino-foreign equity joint venture Communications Subsidiary companies AAA Internet Limited Hong Kong 100 Asia Pacific Internet Hong Kong 75 Exchange Limited CITIC Concept 1616 Hong Kong 100 Limited CITIC Consultancy Hong Kong 100 1616 Limited CITIC Data 1616 Hong Kong 100 Limited CITIC Media 1616 Hong Kong 100 Limited (Formerly CITIC Mobile Services 1616 Limited) CITIC Networks 1616 Limited Hong Kong 100 CITIC Pacific Communications Bermuda 100 Limited CITIC Telecom 1616 Limited Hong Kong 100 CITIC TeleSoft 1616 Limited Hong Kong 100 CPCNet Hong Kong Limited Hong Kong 100 CPCNet Japan Limited Japan 100 CPCNet Singapore Private Singapore 100 Limited

Interest in equity Particulars of shares held by issued shares† No. of Par Company Subsidiary shares value Principal activities % % – 30 – – Design, construction and operation of landfill – 100 2 HK$1 Provision of internet services – 75 100,000 HK$1 Provision of internet services – 100 2 HK$1 Provision of telecommunications services – 100 2 HK$1 Provision of telecommunications consultancy services – 100 2 HK$1 Provision of data transmission services – 100 1 HK$1 Provision of telecommunications services – 100 2 HK$1 Provision of telecommunications services – 100 100,000 HK$1 Investment holding – 100 2 HK$1 Provision of international telecommunications services – 100 2 HK$1 Provision of software development services – 100 394,866,986 HK$1 Provision of telecommunications services – 100 10,000 JPY1,000 Provision of telecommunications services – 100 2 S$1 Provision of telecommunications services

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APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Place of incorporation/ Attributable Principal place of operation to the Name Kind of legal entity Group % Dalian CP Digital People’s Republic of China 73.30 Technology Co., Ltd. Sino-foreign equity joint venture Data Communication Hong Kong 100 Services Limited Global Link Information Hong Kong 100 Services Limited Vision Network Limited Hong Kong 100 World Navigation Limited Hong Kong 100 Wonder Delight Enterprises Inc. British Virgin Islands 100 廣州市泰富信通技術 People’s Republic of China 100 有限公司 Wholly foreign-owned enterprise 廣州市泰富信通科技 People’s Republic of China 100 有限公司 Wholly foreign-owned enterprise 易邦科技（廣州）有限公司 People’s Republic of China 85 Wholly foreign-owned enterprise 火石軟件（廣州）有限公司 People’s Republic of China 85 Wholly foreign-owned enterprise Jointly controlled entities CITIC Guoan Co., Ltd. People’s Republic of China 50 Sino-foreign equity joint venture CPCNet Macau Limited Macau 55 China Interactive Sports People’s Republic of China 50 Technology Company Wholly foreign-owned Limited enterprise	Interest in equity shares held by Company Subsidiary % % – 73.30 – 100 – 100 – 100 – 100 – 100 – 100 – 100 – 85 – 85 – 50 – 55 – 50	Particulars of issued shares† No. of Par shares value Principal activities N/A N/A Broadband network and related businesses 1,000 HK$1 Provision of 38,000,000✟ HK$1 telecommunications equipment 300,000 HK$10 Provision of internet services 2,250,000 HK$1 Provision of internet services 1,000 HK$1 Provision of international 2,000,000✟ HK$1 telecommunications services 1 US$1 Provision of e-commerce services N/A N/A Provision of internet value added services N/A N/A Provision of internet value added services N/A N/A Provision of value added telecom services N/A N/A Software development – – Investment holding – – Provision of internet and e-commerce services – – Provision of sports related online services

– 101 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Place of incorporation/ Attributable Principal place of operation to the Name Kind of legal entity Group % Associated companies Companhia de Macau 20 Telecomunicacoes de Macau S.A.R.L. Aviation Jointly controlled entities Air China Cargo People’s Republic of China 25 Sino-foreign equity joint venture Associated companies Cathay Pacific Airways Hong Kong 25.42 Limited# Hong Kong Dragon Hong Kong 28.50 Airlines Limited Swire Aviation Limited Hong Kong 33.33 Marketing & Distribution Subsidiary companies Adachi Trading Company Japan 100 Limited Consolidated Parts & Hong Kong 100 Accessories Sales Centre Limited Dah Chong Hong (Canada) Canada 100 Ltd. Dah Chong Hong – Dragonair Hong Kong 70 Airport GSE Service Limited Dah Chong Hong (Engineering) Hong Kong 100 Limited Dah Chong Hong Holdings Hong Kong 100 Limited	Interest in equity shares held by Company Subsidiary % % 20 – 25 – 2.12 23.30 – 28.50 – 33.33 – 100 – 100 – 100 – 70 – 100 – 100	Particulars of issued shares† No. of Par shares value Principal activities – – Telecommunications services – – Operation of international and domestic air-cargo services and related ground services – – Airlines and related services – – Aviation – – Investment in Hong Kong Air Cargo Terminals Limited with 10% effective interest 250 JPY50,000 Trader of motor vehicle spare parts 1,000 HK$100 Trader of motor vehicle spare parts 650,000 CAN$1 General import/export and investment holding 10,000 HK$1 Provision of airport ground support equipment maintenance services 245,950 HK$100 Engineering services 21,031,837 HK$10 Investment holding

– 102 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Place of incorporation/ Attributable Principal place of operation to the Name Kind of legal entity Group %* Dah Chong Hong, Limited Hong Kong 100 Dah Chong Hong (Japan) Japan 100 Limited Dah Chong Hong Motors Hong Kong 100 (China) Limited Dah Chong Hong (Motor Hong Kong 100 Leasing) Limited Dah Chong Hong (Motor Hong Kong 100 Service Centre) Limited Dah Chong Hong Motors Hong Kong 100 (Nissan – China) Limited Dah Chong Hong Trading Singapore 100 (Singapore) Pte. Ltd. DAS Aviation Support Limited Hong Kong 70 DAS Nordisk Limited Hong Kong 49 DCH Beverage Solutions Hong Kong 100 Limited DCH Logistics Company Hong Kong 100 Limited DCH Motors (Bentley) Limited Hong Kong 100 DCH Motors Ltd. Canada 100 Epic Motors Limited Hong Kong 100	Interest in equity shares held by Company Subsidiary % % – 100 – 100 – 100 – 100 – 100 – 100 – 100 – 70 – 49 – 100 – 100 – 100 – 100 – 100	Particulars of issued shares† No. of Par shares value Principal activities 50,000 HK$1,000 Investment holding; general importers, retailers and exporters dealing in foodstuffs, electrical appliances and other products 480,000 JPY1,000 Importer and exporter of foodstuffs, motor vehicles and garments; property investment and investment holding 20,000 HK$100 Investment holding 10,000 HK$10 Motor leasing 2,000 HK$100 Motor vehicle repairing and servicing 2 HK$10 Motor vehicle distributor 3,500,000 S$1 Investment holding and trading of foodstuffs 10,000 HK$1 Distributor of air cargo equipment and related spare parts 10,000 HK$1 Repairs and maintenance services for air cargo containers and sale of related spare parts 60,000 HK$10 Trading 10,000 HK$10 Provision of warehouse and transportation services 2 HK$1 Motor vehicle distributor 100 CAN$1 Motor vehicle distributor 22,000 HK$10 Motor vehicle distributor

– 103 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Place of incorporation/ Attributable Principal place of operation to the Name Kind of legal entity Group % Gentech Vehicle Engineering Hong Kong 100 Limited Harmony Motors Limited Hong Kong 100 Honest Motors, Limited Hong Kong 100 Japan Auto Parts Company Hong Kong 100 Limited Jiangmen Dah Chong People’s Republic of China 100 Hong –Sims Industrial Wholly foreign-owned Development Limited enterprise Metro Motors Limited Hong Kong 100 Premium Motors Limited Hong Kong 100 Regal Motors, Limited Hong Kong 100 Reliance Motors, Limited Hong Kong 100 Sims Trading Company Limited Hong Kong 100 Shanghai DCH Food People’s Republic of China 100 Industries Ltd. Wholly foreign-owned enterprise Triangle Auto Pte Ltd Singapore 100 Triangle Motors Limited Hong Kong 100 Triangle Motors (China) Hong Kong 100 Limited Twin Tiger International Hong Kong 100 Limited 江門大昌慎昌食品加工倉儲 People ’s Republic of China 100 有限公司 Wholly foreign-owned enterprise Jointly controlled entities Shiseido Dah Chong Hong Hong Kong 50 Cosmetics Limited	Interest in equity shares held by Company Subsidiary % % – 100 – 100 – 100 – 100 – 100 – 100 – 100 – 100 – 100 – 100 – 100 – 100 – 100 – 100 – 100 – 100 – 50	Particulars of issued shares† No. of Par shares value Principal activities 166,000 HK$1 Trading of special function vehicles 1,000 HK$100 Motor vehicle distributor 3,000 HK$1,000 Motor vehicle distributor 1,000 HK$100 Trader of motor vehicle spare parts N/A N/A Construction and development of industrial factories and warehouses 3,000,000 HK$1 Motor vehicle distributor 2 HK$1 Motor vehicle distributor 2,000 HK$100 Motor vehicle distributor 3,000 HK$1,000 Motor vehicle distributor 3,000 HK$100 Wholesaling N/A N/A Food processing and trading 3,000,000 S$1 Motor vehicle distributor 30,000 HK$100 Motor vehicle distributor 2 HK$10 Investment holding and trading of motor vehicles 2 HK$1 Trading N/A N/A Processing of food products and provision of logistics services – – Trading in cosmetic products

– 104 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Place of incorporation/ Attributable Principal place of operation to the Name Kind of legal entity Group % Associated companies Alto China Limited§ Hong Kong 50 Shanghai Shineway DCH People’s Republic of China 22 Tyson Co., Ltd.§ Sino-foreign equity joint venture Victory (HK) Industries Hong Kong 20 International Company Limited Wal-Mart East China Stores People’s Republic of China 35 Co., Ltd. Wholly foreign-owned enterprise Property* Subsidiary companies Admarch Limited Hong Kong 100 Admarch Property Management Hong Kong 100 Company, Limited Borgia Limited Hong Kong 100 Broadway Centre Property Hong Kong 100 Management Company Limited Campbellton Development Hong Kong 100 Limited Famous Land Limited Hong Kong 100 Glenridge Company Limited Hong Kong 100 Hang Luen Chong Investment Hong Kong 100 Company, Limited Hang Luen Chong Property Hong Kong 100 Management Company, Limited Hang Wah Chong Investment Hong Kong 100 Company Limited Lindenford Limited Hong Kong 100 Neostar Investment Limited Hong Kong 100	Interest in equity shares held by Company Subsidiary % % – 50 – 22 – 20 – 35 – 100 – 100 – 100 – 100 – 100 – 100 – 100 – 100 – 100 – 100 – 100 – 100	Particulars of issued shares† No. of Par shares value Principal activities – – Distributor of audio equipment and components – – Production and selling of meat and related food products – – Sales and distribution of household electrical appliances – – Hypermarket business 2 HK$10 Property investment 2 HK$1 Property management 2 HK$10 Property investment 2 HK$1 Property management 2 HK$1 Property development 2 HK$1 Property investment 2 HK$10 Property investment 80,000 HK$100 Property investment 2 HK$1 Property management 50,000 HK$100 Property investment 2 HK$10 Property investment 2 HK$1 Property investment

– 105 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Place of incorporation/ Attributable Principal place of operation to the Name Kind of legal entity Group % Pacific Grace Limited Hong Kong 100 Shanghai Super Property People’s Republic of China 100 Co., Ltd. Wholly foreign-owned enterprise Tendo Limited Hong Kong 100 Yee Lim Godown & Cold Hong Kong 100 Storage Limited 上海中信泰富廣場有限公司 People’s Republic of China 80 Sino-foreign equity joint venture 上海老西門新苑置業 People’s Republic of China 100 有限公司 Sino-foreign co-operative joint venture 無錫太湖景發展有限公司 People’s Republic of China 70 Sino-foreign equity joint venture 無錫太湖苑置業有限公司 People’s Republic of China 70 Sino-foreign equity joint venture 無錫太湖美生態環保有限公司 People’s Republic of China 70 Sino-foreign equity joint venture 中信泰富（上海）物業管理 People’s Republic of China 100 有限公司 Wholly foreign-owned enterprise CITIC Pacific (Yangzhou) People’s Republic of China 100 Properties Co., Ltd. Wholly foreign-owned enterprise 寧波信富置業有限公司 People’s Republic of China 99 Sino-foreign co-operative joint venture 中信泰富萬寧發展有限公司 People’s Republic of China 100 Wholly foreign-owned enterprise*	Interest in equity shares held by Company Subsidiary % % – 100 – 100 – 100 – 100 – 80 – 100 – 70 – 70 – 70 – 100 – 100 – 99 – 100	Particulars of issued shares† No. of Par shares value Principal activities 2 HK$1 Property investment N/A N/A Property investment and management 2 HK$10 Property investment 1,000,000 HK$1 Operate a dry and cold storage godown N/A N/A Property investment and management N/A N/A Property development N/A N/A Sports related services N/A N/A Property investment and development N/A N/A Environmental protection N/A N/A Property management N/A N/A Property development N/A N/A Property development N/A N/A Property development

– 106 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Place of incorporation/ Attributable Principal place of operation to the Name Kind of legal entity Group % 中信泰富萬寧（聯合）開發 People’s Republic of China 80 有限公司 Limited liability company 上海珠街閣房地產開發 People’s Republic of China 100 有限公司 Wholly foreign-owned enterprise 上海雄泰置業有限公司 People’s Republic of China 100 Wholly foreign-owned enterprise Jointly controlled entities 上海瑞明置業有限公司 People’s Republic of China 49 Sino-foreign equity joint venture Associated companies CITIC Tower Property Hong Kong 40 Management Company Limited Festival Walk Holdings Limited§ Hong Kong 50 Goldon Investment Limited Hong Kong 40 Hong Kong Resort Company Hong Kong 50 Limited§ Kido Profits Limited British Virgin Islands/ 15 Hong Kong Shinta Limited§ Hong Kong 20 Industrial Manufacturing Subsidiary companies Jiangyin Xingcheng Special People’s Republic of China 79.56 Steel Works Co., Ltd. Sino-foreign equity joint venture Jiangyin Xingcheng Steel People’s Republic of China 80 Products Co., Ltd. Sino-foreign equity joint venture Jiangyin Xingcheng Storage People’s Republic of China 80 and Transportation Co., Ltd. Sino-foreign equity joint venture	Interest in equity shares held by Company Subsidiary % % – 80 – 100 100 – 49 – – 40 – 50 – 40 – 50 – 15 – 20 – 79.56 – 80 – 80	Particulars of issued shares† No. of Par shares value Principal activities N/A N/A Property development N/A N/A Property development N/A N/A Property development – – Property development – – Property management – – Property investment – – Property investment – – Property development – – Property development – – Property investment N/A N/A Steel making N/A N/A Steel making N/A N/A Loading and unloading business

– 107 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Place of incorporation/ Attributable Principal place of operation to the Name Kind of legal entity Group % Jiangsu CP Xingcheng People’s Republic of China 77.78 Special Steel Co., Ltd. Sino-foreign equity joint venture Wuxi Xingcheng Steel People’s Republic of China 80 Products Co., Ltd. Sino-foreign equity joint venture 江陰泰富興澄特種材料 People’s Republic of China 79 有限公司 Sino-foreign equity joint venture Hubei Xin Yegang Co., Ltd. People’s Republic of China 95 Sino-foreign equity joint venture Daye Special Steel Co., Ltd. People’s Republic of China 56.63 Sino-foreign joint stock limited company Finance Subsidiary companies CITIC Pacific Finance (2001) British Virgin Islands 100 Limited Idealand Investment Inc. Republic of Panama 100 CITIC Pacific Finance (2005) British Virgin Islands 100 Limited Associated companies Cheer First Limited§ Hong Kong 40 Treasure Trove Limited Hong Kong 50 Way Chong Finance Limited Hong Kong 50 Others Subsidiary companies CITIC Pacific China Holdings People’s Republic of China 100 Limited Wholly foreign-owned enterprise 上海滬信東倉儲有限公司 People’s Republic of China 100 Sino-foreign co-operative joint venture	Interest in equity shares held by Company Subsidiary % % – 77.78 – 80 – 79 – 95 – 56.63 100 – – 100 100 – – 40 – 50 – 50 – 100 – 100	Particulars of issued shares† No. of Par shares value Principal activities N/A N/A Steel making N/A N/A Production and sale of ferrous metal materials N/A N/A Production and sale of hot iron and the related products N/A N/A Steel making N/A N/A Steel making 1,000 US$1 Financing 100 US$1 Financing 1 US$1 Financing – – Financing – – Financing – – Provision of hire purchase and leasing finance N/A N/A Investment holding N/A N/A Logistic development

– 108 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Place of incorporation/ Attributable Principal place of operation to the Name Kind of legal entity Group % Jointly controlled entities CITIC Capital Markets Hong Kong 50 Holdings Limited Associated companies 上海國睿生命科技有限公司 People’s Republic of China 24.94 Sino-foreign equity joint venture	Interest in equity shares held by Company Subsidiary % % – 50 24.94 –	Particulars of issued shares† No. of Par shares value Principal activities – – Investment holding – – Research and development of tissue engineering products

Note:

• Represented ordinary shares, unless otherwise stated.

• ✟ Non-voting deferred shares – the rights, privileges and restrictions of which are set out in the Articles of Association of the respective company.

• § The above companies are the affiliated companies have been given to financial assistance and guarantees given for facilities granted by the Company and/or its subsidiary company as at 31 December 2005.

• Extracts from the published accounts of Cathay Pacific Airways Limited, a significant associated company of the Group, are shown on pages 110 and 111.

– 109 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

Extract from Published Accounts of Cathay Pacific Airways Limited

a. Consolidated Profit and Loss Account

for the year ended 31 December 2005

in HK$ million

in HK$ million Turnover Passenger services Cargo services Catering, recoveries and other services Total Turnover Expenses Staff Inflight service and passenger expenses Landing, parking and route expenses Fuel Aircraft maintenance Aircraft depreciation and operating leases Other depreciation and operating leases Commissions Others Operating Expenses Operating Profit Finance charges Finance income Net finance charges Share of profits of associates Profit before Tax Taxation Profit for the year Profit Attributable to Cathay Pacific shareholders Minority interests Dividends Interim – paid Final – proposed Earnings per Share(HK¢) Basic Diluted Shareholders’ Funds per Share (HK$)	2005	2005	2004
	30,274 12,852 7,783		26,407 11,395 4,959
	50,909		42,761
	(9,025) (2,033) (6,947) (15,588) (4,527) (4,893) (790) (555) (2,408)		(8,842) (1,758) (6,121) (9,321) (3,784) (4,379) (814) (529) (1,966)
	(46,766) 4,143		(37,514) 5,247
	(1,605) 1,161		(1,628) 1,045
	(444) 269 3,968 (500) 3,468 3,298 170 3,468 676 947 1,623 97.7 97.4 10.3		(583) 298 4,962 (446) 4,516 4,417 99 4,516 674 1,520 2,194 131.4 130.7 9.8

– 110 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

b. Consolidated Balance Sheet

as at 31 December 2005

in HK$ million Assets and Liabilities Non-current assets and liabilities Fixed assets Intangible assets Investments in associates Other long-term receivables and investments Long-term liabilities Related pledged security deposits Net long-term liabilities Retirement benefit obligations Deferred taxation Net non-current assets Current assets and liabilities Stock Trade and other receivables Liquid funds Current portion of long-term liabilities Related pledged security deposits Net current portion of long-term liabilities Trade and other payables Unearned transportation revenue Taxation Net current assets Net assets Capital and Reserves Share capital Reserves Funds attributable to Cathay Pacific shareholders Minority interests Total equity	2005	2005	2004
	50,156 260 1,731 5,453		50,259 348 1,743 5,589
	57,600		57,939
	(27,745) 8,853 (18,892) (72) (6,460) (25,424)		(27,698) 10,036 (17,662) (102) (7,280) (25,044)
	32,176		32,895
	657 6,538 13,459		524 5,347 11,474
	20,654		17,345
	(4,849) 1,286 (3,563) (7,625) (3,864) (2,527) (17,579)		(7,096) 2,127 (4,969) (7,163) (3,622) (1,497) (17,251)
	3,075 35,251 676 34,292 34,968 283 35,251		94 32,989 674 32,181 32,855 134 32,989

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APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

3. Indebtedness of the Group

As at the close of business on 31 March 2006, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group had outstanding borrowings of approximately HK$19,043 million, comprising bank loans of approximately HK$15,106 million (being secured bank loans of approximately HK$659 million and unsecured bank loans of approximately HK$14,447 million respectively) and unsecured other loans of HK$3,937 million.

The Directors confirm that there has been no material change in the contingent liabilities of the Group since 31 December 2005. The details of the contingent liabilities of the Group as at 31 December 2005 is set out in Note 32 to CITIC Pacific’s audited consolidated financial statements for the year ended 31 December 2005 on page 96 of this Circular.

As at 31 March 2006, certain of the Group’s self-used properties, plant and machineries with an aggregate carrying value of HK$483 million were pledged to secure banking facilities granted to a subsidiary company and a third party.

As at 31 March 2006, save as disclosed above and apart from intra-group liabilities, the Group did not have any debt securities issued and outstanding, or authorized/otherwise created but un-issued, any other term loans (secured, unsecured, guaranteed or not), any other borrowings or indebtedness in the nature of borrowing including bank overdrafts and liabilities under acceptance (other than normal trade bills) or acceptance credits or hire purchase commitments (whether secured/unsecured, guaranteed or not), any other mortgages and charges, any other contingent liabilities.

Foreign currency amounts have translated into Hong Kong dollars at the rates of exchange prevailing at the close of business on 31 March 2006.

4. Indebtedness of Sino-Iron and Balmoral

As at 31 March 2006, the only borrowing of Sino-Iron and Balmoral was amount due to Mineralogy of approximately HK$213 million and HK$85 million respectively. Both balances will be repaid by funds from share subscription by the Group on completion in accordance with the Sino-Iron Acquisition Agreement and the Balmoral Acquisition Agreement.

Foreign currency amounts have translated into Hong Kong dollars at the rates of exchange prevailing at the close of business on 31 March 2006.

– 112 –

APPENDIX III

FINANCIAL INFORMATION ON THE GROUP

5. Working Capital

Taking into account the financial resources available to the Enlarged Group, including internally generated funds and the available banking facilities, and the Company’s intention to finance the majority of the estimated capital expenditure of Sino Iron and Balmoral by project finance to be obtained, the Directors of the Company are of the opinion that the Enlarged Group will have sufficient working capital for its present requirements for at least the next 24 months from the date of publication of this circular.

6. No Material Adverse Change

Save for the Acquisition as disclosed in the Letter from the Board as in this circular, and the circular dated 10 February 2006 in respect of the Shanghai Shipyard Land Development Project and disposal of 50% interest in Festival Walk, the Directors of CITIC Pacific confirm that there is no material change in the financial and operating position of the Group since 31 December 2005 (being the date to which the latest audited financial statements of the Group were made up).

– 113 –

APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

8th Floor Prince’s Building 10 Chater Road Hong Kong 8 May 2006

The Board of Directors Sino Iron Pty Ltd

Dear Sirs,

We set out below our report on the financial information relating to Sino Iron Pty Ltd (the “company”) in Sections I to IV, including the balance sheets as at 30 June 2003, 2004 and 2005, and 31 December 2005, and the related income statements and statements of changes in equity of the company for each of the years ended 30 June 2003, 2004 and 2005, and for the six months ended 31 December 2005 (the “relevant periods”), and the notes thereto (collectively the “Financial Information”), together with the unaudited financial information of the company including the income statement and statement of changes in equity for the six months ended 31 December 2004 and the notes thereto (the “31 December 2004 Corresponding Information”), for inclusion in the circular of CITIC Pacific Limited (“CITIC”) dated 8 May 2006 (the “Circular”).

The company was incorporated in Australia on 16 December 1992 and is engaged in mining exploration and associated services.

As at the date of this report, no audited financial statements have been prepared for the company as they were not required to prepare audited financial statements under the relevant rules and regulations applicable to the company in Australia.

The books and records of the company for each of the years ended 30 June 2003, 2004 and 2005 and for the six months ended 31 December 2005 have been prepared in accordance with all applicable accounting principles generally accepted in Australia.

No financial statements of the company have been prepared and audited subsequent to 31 December 2005.

BASIS OF PREPARATION

The Financial Information, together with the 31 December 2004 Corresponding Information, has been prepared by the management of the company, on the basis set out in note 2(b(i)) in Section IV after making such adjustments as are appropriate. Adjustments have been made, for the purpose of this report, to restate their books and records to conform with Hong Kong Financial Reporting Standards (“HKFRSs”), which collectively term includes all applicable individual Hong Kong Financial Reporting Standards, Hong

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APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and the disclosure requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

RESPONSIBILITIES

The management of the company is responsible for preparing the Financial Information which gives a true and fair view. In preparing the Financial Information which gives a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently, that judgements and estimates are made which are prudent and reasonable and that the reasons for any significant departure from applicable accounting standards are stated.

It is our responsibility to form an independent opinion, based on our audit, on the Financial Information.

BASIS OF OPINION

As a basis for forming an opinion on the Financial Information, for the purpose of this report, we have carried out appropriate audit procedures in respect of the financial statements of the company for each of the years ended 30 June 2003, 2004 and 2005 and for the six months ended 31 December 2005 in accordance with Hong Kong Standards on Auditing issued by the HKICPA and carried out such additional procedures as we considered necessary in accordance with Auditing Guideline “Prospectus and the Reporting Accountant” issued by the HKICPA. We have not audited any financial statements of the company in respect of any period subsequent to 31 December 2005.

An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the Financial Information. It also includes an assessment of the significant estimates and judgements made by the management of the company in the preparation of the Financial Information, and of whether the accounting policies are appropriate to the circumstances of the company, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the Financial Information is free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of Financial Information. We believe that our audit provides a reasonable basis for our opinion.

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APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

OPINION

In our opinion, for the purpose of this report, all adjustments considered necessary have been made and the Financial Information, on the basis set out in note 2(b(i)) in Section IV, gives a true and fair view of the company’s results and changes in equity for the relevant periods and the company’s state of affairs as at 30 June 2003, 2004 and 2005, and 31 December 2005.

REVIEW WORK PERFORMED

For the purpose of this report, we have also reviewed the 31 December 2004 Corresponding Information, for which the management of the company are responsible, in accordance with Statement of Auditing Standard 700 “Engagements to review interim financial reports” issued by the HKICPA.

A review consists principally of making enquiries of management and applying analytical procedures to the 31 December 2004 Corresponding Information and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the 31 December 2004 Corresponding Information.

REVIEW CONCLUSION

On the basis of our review of the 31 December 2004 Corresponding Information, which does not constitute an audit, for the purpose of this report, we are not aware of any material modifications that should be made to the unaudited financial information presented for the six months ended 31 December 2004.

– 116 –

APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

(I) INCOME STATEMENTS

Year ended 30 June Section(IV) 2003 2004 2005 Note HK$’000 HK$’000 HK$’000 Other operating expenses – (207,015) – Loss before taxation 3 – (207,015) – Income tax 4 – – – Loss for the year/period – (207,015) – Loss per share Basic 6 – HK$(20,702) – Diluted 6 N/A N/A N/A	Six months ended 31 December 2005 2004 HK$’000 HK$’000 (unaudited) – – – – – – – – – – N/A N/A	Six months ended 31 December 2005 2004 HK$’000 HK$’000 (unaudited) – – – – – – – – – – N/A N/A
		– –
		–
		–
		N/A

The accompanying notes in section IV form part of the Financial Information.

– 117 –

APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

(II) BALANCE SHEETS

Section(IV) Note Non-current liabilities Amount due to immediate holding company 7 NET LIABILITIES CAPITAL AND RESERVES Share capital 8(i) Reserves TOTAL EQUITY 8	2003 HK$’000 – – 52 (52) –	30 June 2004 HK$’000 207,015 (207,015) 52 (207,067) (207,015)	31 December 2005 2005 HK$’000 HK$’000 227,301 217,466 (227,301) (217,466) 52 52 (227,353) (217,518) (227,301) (217,466)

The accompanying notes in section IV form part of the Financial Information.

– 118 –

APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

(III) STATEMENTS OF CHANGES IN EQUITY

Year ended 30 June Section(IV) 2003 2004 2005 Note HK$’000 HK$’000 HK$’000 Equity attributable to the equity shareholder of the company: Balance at 1 July – – (207,015) ------------ ------------ ------------ Net (losses)/gains recognised directly in equity: Exchange differences on translation of the financial statements of the company 8 – – (20,286) ------------ ------------ ------------ Loss for the year/period 8 – (207,015) – Total recognised (expense)/ profit for the year/period – (207,015) (20,286) ------------ ------------ ------------ Total equity at 30 June/ 31 December – (207,015) (227,301)

Six months ended 31 December 2005 2004 HK$’000 HK$’000 (unaudited) (227,301) (207,015) ------------ ------------ 9,835 (26,090) ------------ ------------ – – 9,835 (26,090) ------------ ------------ (217,466) (233,105)

The accompanying notes in section IV form part of the Financial Information.

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APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

(IV) NOTES TO THE FINANCIAL INFORMATION

1. GENERAL INFORMATION

Sino Iron Pty Ltd (“the company”) is a company incorporated and domiciled in Australia and has its registered office and principal place of business at Level 11, 135 Wickham Street, Spring Hill, 4004, Queensland, Australia.

The company has remained dormant since 1 July 2004.

2. PRINCIPAL ACCOUNTING POLICIES

(a) Statement of compliance

The Financial Information set out in this report has been prepared in accordance with principal accounting policies set out below. These accounting policies are in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong.

The Financial Information presented also complies with the disclosure requirements of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited.

The accounting policies set out below have been applied consistently to all periods presented in the Financial Information.

(b) Basis of preparation and measurement

i) Basis of preparation

The company had net liabilities of HK$217,466,000 as at 31 December 2005 (30 June 2003: HK$Nil; 30 June 2004: HK$207,105,000; 30 June 2005: HK$227,301,000). Financial Information set out in this report has been prepared under the going concern basis, notwithstanding that the company was in net liabilities position as at 31 December 2005, on the basis that Mineralogy Pty Ltd, the immediate holding company has undertaken to provide continuing financial support to the company as may be necessary to ensure its continuing operation as a going concern.

ii) Basis of measurement

The measurement basis used in the preparation of the Financial Information is the historical cost basis.

HKFRS 1, First-time Adoption of Hong Kong Financial Reporting Standards, has been applied in preparing the Financial Information. The Financial Information is the first set of the company’s Financial Information prepared in accordance with HKFRSs. There is no significant adjustment required to be made on the transition from Australian GAAP to HKFRS on the company’s financial results and position.

– 120 –

APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

(c) Cash flow statement

Cash flow statements had not been prepared because the company did not have any cash flows during the relevant periods nor did it have any cash or cash equivalents at any point throughout the relevant periods.

The expenses which have resulted from the operations of the company were non-cash transactions with its immediate holding company, and the amounts involved have all been accounted for as inter-company current account movements.

(d) Other payables

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

(e) Income tax

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

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

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

Apart from certain limited exceptions, all deferred tax liabilities and all deferred tax assets, to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.

The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from the initial recognition of assets or liabilities that affect neither accounting nor taxable profit.

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

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

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APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the company has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met:

• in the case of current tax assets and liabilities, the company intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or

• in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:

• the same taxable entity; or

• different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.

(f) Translation of foreign currencies

The company’s functional currency is Australian dollars.

Foreign currency transactions during the relevant periods are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the balance sheet date. Exchange gains and losses are recognised in the income statement.

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

In preparing the Financial Information which is presented in Hong Kong dollars, the results of the company’s operations are translated into Hong Kong dollars at the exchange rates approximating the exchange rates ruling at the dates of the transactions. Balance sheet items are translated into Hong Kong dollars at the exchange rates ruling at the respective balance sheet dates. The resulting exchange differences are recognised directly in a separate component of equity.

(g) Related parties

For the purposes of the Financial Information, parties are considered to be related to the company if the company has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the company and the party are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the company where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the company or of any entity that is a related party of the company.

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APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

3. LOSS BEFORE TAXATION

Loss before taxation is arrived at after charging

					Six	months
		Year	ended 30 June		ended 31 December
		2003	2004	2005	2005	2004
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
						(unaudited)
Auditors’	remuneration	–	–	–	–	–
Operating	lease charges	–	(207,015)	–	–	–

4. INCOME TAX IN THE INCOME STATEMENT

(a) Income tax

The company is subject to Australian Income Tax throughout the relevant periods, which is determined based on 30% of the estimated assessable profits for the year.

No provision for Australian Income Tax has been made in the Financial Information as the company did not earn any assessable income during the relevant periods.

In accordance with the accounting policy set out in note 2(e), the company has not recognised deferred tax assets in respect of cumulative tax losses of HK$207,015,000 (30 June 2003: HK$Nil; 30 June 2004: HK$207,015,000 and 30 June 2005: HK$207,015,000) as it is not probable that future taxable profits against which the losses can be utilised will be available under the tax jurisdiction in Australia. The tax losses do not expire under the current tax legislation.

(b) Reconciliation between income tax expense and accounting loss at applicable tax rates:

Loss before taxation Notional tax on loss before taxation Tax effect of unused tax losses not recognised Actual tax expense	Year 2003 HK$’000 – – – –	ended 30 June 2004 2005 HK$’000 HK$’000 (207,015) – (62,105) – 62,105 – – –	Six months ended 31 December 2005 2004 HK$’000 HK$’000 (unaudited) – – – – – – – –	Six months ended 31 December 2005 2004 HK$’000 HK$’000 (unaudited) – – – – – – – –
				– –
				–

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APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

5. DIRECTORS’ REMUNERATION AND STAFF COSTS

Directors: Clive F Palmer Jean Mensink Liam Scanlan	Year 2003 HK$’000 – – – –	ended 30 June 2004 2005 HK$’000 HK$’000 – – – – – – – –	Six months ended 31 December 2005 2004 HK$’000 HK$’000 (unaudited) – – – – – – – –	Six months ended 31 December 2005 2004 HK$’000 HK$’000 (unaudited) – – – – – – – –
				–

The company did not pay any salaries to its staff during the relevant periods.

6. LOSS PER SHARE

(a) Basic loss per share

The calculation of basic loss per share is based on the loss attributable to shareholders of HK$Nil (30 June 2003: HK$Nil; 30 June 2004: HK$207,015,000 and 30 June 2005: HK$Nil) and the 10,000 ordinary shares in issue during the relevant periods.

(b) Diluted loss per share

The diluted loss per share for the relevant periods is not presented as there were no activities which would have any dilutive effect on the loss per share for the relevant periods.

7. AMOUNT DUE TO IMMEDIATE HOLDING COMPANY

Amount due to immediate holding company is unsecured, interest-free and has no fixed repayment terms.

8. CAPITAL AND RESERVES

At 1 July 2002 and 30 June 2003 Loss for the year At 30 June 2004 Exchange differences on translation of financial statements of the company At 30 June 2005 Exchange differences on translation of financial statements of the company At 31 December 2005	Share capital (note i) HK$’000 52 – 52 – 52 – 52	Retained Exchange profits reserve (note ii) HK$’000 HK$’000 (52) – (207,015) – (207,067) – – (20,286) (207,067) (20,286) – 9,835 (207,067) (10,451)	Total HK$’000 – (207,015
			(207,015 (20,286
			(227,301 9,835
			(217,466

Notes:

(i) Share capital

During the relevant periods, the company had 10,000 shares of AUD1 each (equivalent to HK$5.2 each) which were issued and fully paid.

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APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

(ii) Exchange reserve

Exchange reserve represents foreign exchange differences arising from the translation of the financial statements of the company into the presentation currency of Hong Kong dollars in preparing the Financial Information.

(iii) Distributability of reserves

There was no aggregate amount of reserves available for distribution to equity shareholders of the company as at 31 December 2005 and during the relevant periods.

9. FINANCIAL INSTRUMENTS

Financial liabilities of the company include the amount due to its immediate holding company. The company did not hold or issue financial instruments for trading purposes at the balance sheet dates.

(a) Liquidity risk

The company’s policy is to monitor regularly current and expected liquidity requirements to ensure that sufficient funds are obtained from its holding company to meet its liquidity requirements in the short and longer terms.

(b) Fair value

The amount due to immediate holding company is unsecured, interest-free and has no fixed repayment terms. Given these terms, it is not meaningful to disclose its fair value.

10. RELATED PARTY TRANSACTIONS

In addition to the transactions and balances disclosed elsewhere in these financial statement for the relevant periods, the company entered into the following material related party transactions:

				Six months	Six months
	Year	ended 30 June		ended 31 December
	2003	2004	2005	2005	2004
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
					(unaudited)
Mineralogy Pty Ltd
Rent commission and
reimbursements paid
to the parent entity
during the year	–	207,015	–	–	–

The amount represents the rental payment paid to the immediate holding company for occupying parts of the immediate holding company’s mining leases for the year ended 30 June 2004.

11. ULTIMATE HOLDING COMPANY

The directors consider that the company’s parent company and ultimate controlling party during the relevant periods is Mineralogy Pty Ltd.

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APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

12. POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE RELEVANT PERIODS

Up to the date of issue of the Financial Information, the HKICPA has issued the following amendments, new standards and interpretations which are not yet effective for the relevant periods and which have not been adopted in the Financial Information:

	Effective for
	accounting periods
	beginning on or after
HKFRS 6, Exploration for and evaluation of mineral resources	1 January 2006
HK (IFRIC) 4, Determining whether an arrangement contains a lease	1 January 2006
HK (IFRIC) 5, Rights to interests arising from decommissioning,
restoration and environmental rehabilitation funds	1 January 2006
Amendments to HKAS 19, Employee benefits
– Actuarial gains and losses, group plans and disclosures	1 January 2006
Amendments to HKAS 39, Financial instruments:
Recognition and measurement:
– Cash flow hedge accounting of forecast intragroup transactions	1 January 2006
– The fair value option	1 January 2006
– Financial guarantee contracts	1 January 2006
HKAS 1, Presentation of financial statements	1 January 2006
HKAS 27, Consolidated and separate financial statements	1 January 2006
HKFRS 3, Business combinations	1 January 2006
HKFRS 7, Financial instruments: disclosures	1 January 2007
Amendments to HKAS 1, Presentation of financial statements:
capital disclosures	1 January 2007

The company is in the process of making an assessment of what the impact of these amendments, new standards and new interpretations is expected to be in the period of initial application. So far it has concluded that while the adoption of them may result in new or amended disclosures, it is unlikely to have a significant impact on the company’s results of operations and financial position.

(V) SUBSEQUENT EVENTS

Pursuant to the Mining Right/Lease Agreement between Mineralogy Pty Ltd (“Mineralogy”) and the company dated 21 March 2006 (the “Agreement”), the company was granted an access licence and the rights to extract 1 billion tonnes of magnetite ore (the “project”) in the Mining Area situated in the western Pilbara region of Western Australia. The mining rights are obtained by Mineralogy direct from the Western Australian Government.

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APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

As at 31 December 2005, the total measured, indicated and inferred resources at the Mining Area were approximately 2,185 million tonnes of magnetite ore, based on current Australasian Joint Ore Reserve Committee Code (JORC, 2004) which were reviewed and assessed by Golder Associates Pty Ltd, a firm of independent technical experts.

Capital expenditure

Under the Agreement, the company will be responsible for the mining and extraction of magnetite ore from the Mining Area and the processing of that magnetite ore into products through mine and processing facilities or infrastructure to be constructed or installed by the company (the “mining project”). The company has agreed with Mineralogy that it will arrange all the financing to pay for such construction and start up of the mining project to be carried out by the company (including but not limited to, mining facilities, equipment, production plants, ports, power station, desalination plants, roads, pipelines and all necessary associated infrastructure).

Some of the infrastructure for which the company is required to fund construction is outside the project area of the company. Title to these facilities will remain with Mineralogy as it is the owner of the land. However, the company will have the right to use the facilities, on paying the operation and maintenance cost and on terms which are fair and equal as compared to other users of these facilities, during the project life. If there are other projects commenced in the area by participants seeking to use these facilities, those new participants will be obliged to pay an amount to the company to effectively share the capital costs associated with the construction of the facilities. The total estimated capital expenditure required for the mining project is US$1,370 million (approximately HK$10,686 million).

Royalty

The company also agreed to pay to Mineralogy a royalty in respect of magnetite ore taken by the company, quarterly during the term of the mining right granted. Such royalty comprises two components:

• i) based on the quantity of magnetite ore taken, A$0.3 (approximately HK$1.68) will be paid per tonne of magnetite ore taken by the company (adjusted based on inflation during the previous quarter); and

• ii) based on the quantity of products produced, an additional royalty is payable quarterly to Mineralogy by reference to the market price of pellets and Mount Newman fines (as reference for the price of concentrate).

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APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

Unless prevented from doing so by an act, matter or thing outside of the company’s control, the company is required to produce not less than 6 million tonnes of product no later than seven years from 21 March 2006. If the company fails to produce such quantity of products, it must no later than one month following the end of the seventh year of 21 March 2006, pay to Mineralogy an amount equivalent to the royalty payable on the 6 million tonnes of products. The amount is estimated to be approximately US$42 million (approximately HK$327.6 million) if based on the 2005 market price. Such amount is in addition to the royalty that the company shall pay to Mineralogy based on the actual product volume of the same year. The royalty will continue to be payable after the seventh year depending on the quantity of magnetite ore mined and the product volume. There will be no ceiling on such royalty.

The second component of royalty will cease to be payable if Mineralogy exercises the option granted to Mineralogy under the Agreement to acquire shares in the company in the event that the company is listed on any stock exchange before 500,000 tonnes of products have been produced.

Site Remediation

Under the terms and conditions of the Agreement or as and when required by law (“Legal Requirements”), the company shall carry out all sites remediation work (“Site Remediation Work”) that may be required as a result of the company’s activities. In particular, following the mine closure, the company will remove and dispose of all the company’s project facilities in accordance with the Legal Requirements, and will carry out all necessary Site Remediation Work.

In order to make provision and to provide security for payment of future Site Remediation Costs as they become payable, Mineralogy will establish a Site Remediation Fund (“the Fund”). The company will make annual payments into the Fund as determined by Mineralogy based on Mineralogy’s best prevailing estimate of the amount of future Site Remediation Costs, and the amount (if any) already contributed by the company into the Fund on a yearly basis. Based on the available information, no reasonable estimate of the Site Remediation Costs can be determined by Mineralogy at present for the company.

On 31 March 2006, a wholly owned subsidiary of CITIC Pacific Limited (“CITIC”) entered into an agreement with Mineralogy (the “Sino-Iron Acquisition Agreement”) to acquire the entire interest in the company for US$215 million (approximately HK$1,677 million). Majority of their capital expenditure for the mining project will be financed by debt on a project basis with the balance being funded by CITIC.

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APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

(VI) SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the company in respect of any period subsequent to 31 December 2005.

Yours faithfully, KPMG Certified Public Accountants Hong Kong

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APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

8th Floor Prince’s Building 10 Chater Road Hong Kong 8 May 2006

The Board of Directors Balmoral Iron Pty Ltd

Dear Sirs,

We set out below our report on the financial information relating to Balmoral Iron Pty Ltd (the “company”) in Sections I to IV, including the balance sheets as at 30 June 2003, 2004 and 2005, and 31 December 2005, and the related income statements and statements of changes in equity of the company for each of the years ended 30 June 2003, 2004 and 2005, and for the six months ended 31 December 2005 (the “relevant periods”), and the notes thereto (collectively the “Financial Information”), together with the unaudited financial information of the company including the income statement and statement of changes in equity for the six months ended 31 December 2004 and the notes thereto (the “31 December 2004 Corresponding Information”), for inclusion in the circular of CITIC Pacific Limited (“CITIC”) dated 8 May 2006 (the “Circular”).

The company was incorporated in Australia on 30 December 1992 and is engaged in mining exploration and associated services.

As at the date of this report, no audited financial statements have been prepared for the company as they were not required to prepare audited financial statements under the relevant rules and regulations applicable to the company in Australia.

The books and records of the company for each of the years ended 30 June 2003, 2004 and 2005 and for the six months ended 31 December 2005 have been prepared in accordance with all applicable accounting principles generally accepted in Australia.

No financial statements of the company have been prepared and audited subsequent to 31 December 2005.

BASIS OF PREPARATION

The Financial Information, together with the 31 December 2004 Corresponding Information, has been prepared by the management of the company, on the basis set out in note 2(b(i)) in Section IV after making such adjustments as are appropriate. Adjustments have been made, for the purpose of this report, to restate their books and records to conform with Hong Kong Financial Reporting Standards (“HKFRSs”), which collectively term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”) and the disclosure requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited.

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APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

RESPONSIBILITIES

The management of the company is responsible for preparing the Financial Information which gives a true and fair view. In preparing the Financial Information which gives a true and fair view, it is fundamental that appropriate accounting policies are selected and applied consistently, that judgements and estimates are made which are prudent and reasonable and that the reasons for any significant departure from applicable accounting standards are stated.

It is our responsibility to form an independent opinion, based on our audit, on the Financial Information.

BASIS OF OPINION

As a basis for forming an opinion on the Financial Information, for the purpose of this report, we have carried out appropriate audit procedures in respect of the financial statements of the company for each of the years ended 30 June 2003, 2004 and 2005 and for the six months ended 31 December 2005 in accordance with Hong Kong Standards on Auditing issued by the HKICPA and carried out such additional procedures as we considered necessary in accordance with Auditing Guideline “Prospectus and the Reporting Accountant” issued by the HKICPA. We have not audited any financial statements of the company in respect of any period subsequent to 31 December 2005.

An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the Financial Information. It also includes an assessment of the significant estimates and judgements made by the management of the company in the preparation of the Financial Information, and of whether the accounting policies are appropriate to the circumstances of the company, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance as to whether the Financial Information is free from material misstatement. In forming our opinion we also evaluated the overall adequacy of the presentation of Financial Information. We believe that our audit provides a reasonable basis for our opinion.

OPINION

In our opinion, for the purpose of this report, all adjustments considered necessary have been made and the Financial Information, on the basis set out in note 2(b(i)) in Section IV, gives a true and fair view of the company’s results and changes in equity for the relevant periods and the company’s state of affairs as at 30 June 2003, 2004 and 2005, and 31 December 2005.

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APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

REVIEW WORK PERFORMED

For the purpose of this report, we have also reviewed the 31 December 2004 Corresponding Information, for which the management of the company are responsible, in accordance with Statement of Auditing Standard 700 “Engagements to review interim financial reports” issued by the HKICPA.

A review consists principally of making enquiries of management and applying analytical procedures to the 31 December 2004 Corresponding Information and based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the 31 December 2004 Corresponding Information.

REVIEW CONCLUSION

On the basis of our review of the 31 December 2004 Corresponding Information, which does not constitute an audit, for the purpose of this report, we are not aware of any material modifications that should be made to the unaudited financial information presented for the six months ended 31 December 2004.

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APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

(I) INCOME STATEMENTS

Year ended 30 June Section(IV) 2003 2004 2005 Note HK$’000 HK$’000 HK$’000 Other operating expenses – (82,806) – Loss before taxation 3 – (82,806) – Income tax 4 – – – Loss for the year/period – (82,806) – Loss per share Basic 6 – HK$(1.66) – Diluted 6 N/A N/A N/A	Six months ended 31 December 2005 2004 HK$’000 HK$’000 (unaudited) – – – – – – – – – – N/A N/A	Six months ended 31 December 2005 2004 HK$’000 HK$’000 (unaudited) – – – – – – – – – – N/A N/A
		– –
		–
		–
		N/A

The accompanying notes in section IV form part of the Financial Information.

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APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

(II) BALANCE SHEETS

Section(IV) Note Non-current liabilities Amount due to immediate holding company 7 NET LIABILITIES CAPITAL AND RESERVES Share capital 8(i) Reserves TOTAL EQUITY 8	2003 HK$’000 – – 52 (52) –	30 June 2004 HK$’000 82,806 (82,806) 52 (82,858) (82,806)	31 December 2005 2005 HK$’000 HK$’000 90,920 86,986 (90,920) (86,986) 52 52 (90,972) (87,038) (90,920) (86,986)

The accompanying notes in section IV form part of the Financial Information.

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APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

(III) STATEMENTS OF CHANGES IN EQUITY

Year ended 30 June Section(IV) 2003 2004 2005 Note HK$’000 HK$’000 HK$’000 Equity attributable to the equity shareholder of the company: Balance at 1 July – – (82,806) ------------ ------------ ------------ Net (losses)/gains recognised directly in equity: Exchange differences on translation of the financial statements of the company 8 – – (8,114) ------------ ------------ ------------ Loss for the year/period 8 – (82,806) – Total recognised (expense)/ profit for the year/period – (82,806) (8,114) ------------ ------------ ------------ Total equity at 30 June/ 31 December – (82,806) (90,920)

Six months ended 31 December 2005 2004 HK$’000 HK$’000 (unaudited) (90,920) (82,806) ------------ ------------ 3,934 (10,436) ------------ ------------ – – 3,934 (10,436) ------------ ------------ (86,986) (93,242)

The accompanying notes in section IV form part of the Financial Information.

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APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

(IV) NOTES TO THE FINANCIAL INFORMATION

1 GENERAL INFORMATION

Balmoral Iron Pty Ltd (“the company”) is a company incorporated and domiciled in Australia and has its registered office and principal place of business at Level 11, 135 Wickham Street, Spring Hill, 4004, Queensland, Australia.

The company has remained dormant since 1 July 2004.

2 PRINCIPAL ACCOUNTING POLICIES

(a) Statement of compliance

The Financial Information set out in this report has been prepared in accordance with principal accounting policies set out below. These accounting policies are in accordance with all applicable Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), accounting principles generally accepted in Hong Kong.

The Financial Information presented also complies with the disclosure requirements of the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited.

The accounting policies set out below have been applied consistently to all periods presented in the Financial Information.

(b) Basis of preparation and measurement

i) Basis of preparation

The company had net liabilities of HK$86,986,000 as at 31 December 2005 (30 June 2003: HK$Nil; 30 June 2004: HK$82,806,000; 30 June 2005: HK$90,920,000). Financial Information set out in this report has been prepared under the going concern basis, notwithstanding that the company was in net liabilities position as at 31 December 2005, on the basis that Mineralogy Pty Ltd, the immediate holding company has undertaken to provide continuing financial support to the company as may be necessary to ensure its continuing operation as a going concern.

ii) Basis of measurement

The measurement basis used in the preparation of the Financial Information is the historical cost basis.

HKFRS 1, First-time Adoption of Hong Kong Financial Reporting Standards, has been applied in preparing the Financial Information. The Financial Information is the first set of the company’s Financial Information prepared in accordance with HKFRSs. There is no significant adjustment required to be made on the transition from Australian GAAP to HKFRS on the company’s financial results and position.

(c) Cash flow statement

Cash flow statements had not been prepared because the company did not have any cash flows during the relevant periods nor did it have any cash or cash equivalents at any point throughout the relevant periods.

The expenses which have resulted from the operations of the company were non-cash transactions with its immediate holding company, and the amounts involved have all been accounted for as inter-company current account movements.

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APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

(d) Other payables

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

(e) Income tax

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

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

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

Apart from certain limited exceptions, all deferred tax liabilities and all deferred tax assets, to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.

The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from the initial recognition of assets or liabilities that affect neither accounting nor taxable profit.

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

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

Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the company has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met:

• in the case of current tax assets and liabilities, the company intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously; or

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APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

• in the case of deferred tax assets and liabilities, if they relate to income taxes levied by the same taxation authority on either:

• the same taxable entity; or

• different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.

(f) Translation of foreign currencies

The company’s functional currency is Australian dollars.

Foreign currency transactions during the relevant periods are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the balance sheet date. Exchange gains and losses are recognised in the income statement.

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

In preparing the Financial Information which is presented in Hong Kong dollars, the results of the company’s operations are translated into Hong Kong dollars at the exchange rates approximating the exchange rates ruling at the dates of the transactions. Balance sheet items are translated into Hong Kong dollars at the exchange rates ruling at the respective balance sheet dates. The resulting exchange differences are recognised directly in a separate component of equity.

(g) Related parties

For the purposes of the Financial Information, parties are considered to be related to the company if the company has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the company and the party are subject to common control or common significant influence. Related parties may be individuals (being members of key management personnel, significant shareholders and/or their close family members) or other entities and include entities which are under the significant influence of related parties of the company where those parties are individuals, and post-employment benefit plans which are for the benefit of employees of the company or of any entity that is a related party of the company.

3 LOSS BEFORE TAXATION

Loss before taxation is arrived at after charging

					Six	months
		Year	ended 30 June		ended 31 December
		2003	2004	2005	2005	2004
		HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
						(unaudited)
Auditors’	remuneration	–	–	–	–	–
Operating	lease charges	–	(82,806)	–	–	–

– 138 –

APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

4 INCOME TAX IN THE INCOME STATEMENT

(a) Income tax

The company is subject to Australian Income Tax throughout the relevant periods, which is determined based on 30% of the estimated assessable profits for the year.

No provision for Australian Profits Tax has been made in the Financial Information as the company did not earn any assessable income during the relevant periods.

In accordance with the accounting policy set out in note 2(e), the company has not recognised deferred tax assets in respect of cumulative tax losses of HK$82,806,000 (30 June 2003: HK$Nil; 30 June 2004: HK$82,806,000 and 30 June 2005: HK$82,806,000) as it is not probable that future taxable profits against which the losses can be utilised will be available under the tax jurisdiction in Australia. The tax losses do not expire under the current tax legislation.

(b) Reconciliation between income tax expense and accounting loss at applicable tax rates:

Loss before taxation Notional tax on loss before taxation Tax effect of unused tax losses not recognised Actual tax expense	Year 2003 HK$’000 – – – –	ended 30 June 2004 2005 HK$’000 HK$’000 (82,806) – (24,842) – 24,842 – – –	Six months ended 31 December 2005 2004 HK$’000 HK$’000 (unaudited) – – – – – – – –	Six months ended 31 December 2005 2004 HK$’000 HK$’000 (unaudited) – – – – – – – –
				– –
				–

5 DIRECTOR’S REMUNERATION AND STAFF COSTS

				Six	months
	Year	ended 30	June	ended 31 December
	2003	2004	2005	2005	2004
Director:	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
					(unaudited)
Clive F Palmer	–	–	–	–	–

The company did not pay any salaries to its staff during the relevant periods.

6 LOSS PER SHARE

(a) Basic loss per share

The calculation of basic loss per share is based on the loss attributable to shareholders of HK$Nil (30 June 2003: HK$Nil; 30 June 2004: HK$82,806,000 and 30 June 2005: HK$Nil) and the 50,000,000 ordinary shares in issue during the relevant periods.

– 139 –

APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

(b) Diluted loss per share

The diluted loss per share for the relevant periods is not presented as there were no activities which would have any dilutive effect on the loss per share for the relevant periods.

7 AMOUNT DUE TO IMMEDIATE HOLDING COMPANY

Amount due to immediate holding company is unsecured, interest-free and has no fixed repayment terms.

8 CAPITAL AND RESERVES

At 1 July 2002 and 30 June 2003 Loss for the year At 30 June 2004 Exchange differences on translation of financial statements of the company At 30 June 2005 Exchange differences on translation of financial statements of the company At 31 December 2005	Share capital (note i) HK$’000 52 – 52 – 52 – 52	Retained Exchange profits reserve (note ii) HK$’000 HK$’000 (52) – (82,806) – (82,858) – – (8,114) (82,858) (8,114) – 3,934 (82,858) (4,180)	Total HK$’000 – (82,806) (82,806) (8,114) (90,920) 3,934 (86,986)

Notes:

(i) Share capital

During the relevant periods, the company had 50,000,000 shares of AUD0.0002 each (equivalent to HK$0.00104 each) which were issued and fully paid.

(ii) Exchange reserve

Exchange reserve represents foreign exchange differences arising from the translation of the financial statements of the company into the presentation currency of Hong Kong dollars in preparing the Financial Information.

(iii) Distributability of reserves

There was no aggregate amount of reserves available for distribution to equity shareholders of the company as at 31 December 2005 and during the relevant periods.

9 FINANCIAL INSTRUMENTS

Financial liabilities of the company include the amount due to its immediate holding company. The company did not hold or issue financial instruments for trading purposes at the balance sheet dates.

(a) Liquidity risk

The company’s policy is to monitor regularly current and expected liquidity requirements to ensure that sufficient funds are obtained from its holding company to meet its liquidity requirements in the short and longer terms.

– 140 –

APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

(b) Fair value

The amount due to immediate holding company is unsecured , interest free and has no fixed repayment terms. Given these terms, it is not meaningful to disclose its fair value.

10 RELATED PARTY TRANSACTIONS

In addition to the transactions and balances disclosed elsewhere in the Financial Information for the relevant periods, the company entered into the following material related party transactions:

				Six months	Six months
	Year	ended 30 June		ended 31	December
	2003	2004	2005	2005	2004
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
					(unaudited)
Mineralogy Pty Ltd
Rent commission and
reimbursements paid
to the parent entity
during the year	–	82,806	–	–	–

The amount represents the rental payment paid to the immediate holding company for occupying parts of the immediate holding company’s mining leases for the year ended 30 June 2004.

11 ULTIMATE HOLDING COMPANY

The directors consider that the company’s parent company and ultimate controlling party during the relevant periods is Mineralogy Pty Ltd.

– 141 –

APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

12 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE RELEVANT PERIODS

Up to the date of issue of the Financial Information, the HKICPA has issued the following amendments, new standards and interpretations which are not yet effective for the relevant periods and which have not been adopted in the Financial Information:

	Effective for
	accounting periods
	beginning on or after
HKFRS 6, Exploration for and evaluation of mineral resources	1 January 2006
HK (IFRIC) 4, Determining whether an arrangement contains a lease	1 January 2006
HK (IFRIC) 5, Rights to interests arising from decommissioning,
restoration and environmental rehabilitation funds	1 January 2006
Amendments to HKAS 19, Employee benefits
– Actuarial gains and losses, group plans and disclosures	1 January 2006
Amendments to HKAS 39, Financial instruments:
Recognition and measurement:
– Cash flow hedge accounting of forecast intragroup transactions	1 January 2006
– The fair value option	1 January 2006
– Financial guarantee contracts	1 January 2006
HKAS 1, Presentation of financial statements	1 January 2006
HKAS 27, Consolidated and separate financial statements	1 January 2006
HKFRS 3, Business combinations	1 January 2006
HKFRS 7, Financial instruments: disclosures	1 January 2007
Amendments to HKAS 1, Presentation of financial statements:
capital disclosures	1 January 2007

The company is in the process of making an assessment of what the impact of these amendments, new standards and new interpretations is expected to be in the period of initial application. So far it has concluded that while the adoption of them may result in new or amended disclosures, it is unlikely to have a significant impact on the company’s results of operations and financial position.

(V) SUBSEQUENT EVENTS

Pursuant to the Mining Right/Lease Agreement between Mineralogy Pty Ltd (“Mineralogy”) and the company dated 21 March 2006 (“the Agreement”), the company was granted an access licence and the rights to extract 1 billion tonnes of magnetite ore (“the project”) in the Mining Area situated in the western Pilbara region of Western Australia (“the Mining Area”). The mining rights are obtained by Mineralogy direct from the Western Australian Government.

– 142 –

APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

As at 31 December 2005, the total measured, indicated and inferred resources at the Mining Area were approximately 2,185 million tonnes of magnetite ore, based on current Australasian Joint Ore Reserve Committee Code (JORC, 2004) which were reviewed and assessed by Golder Associates Pty Ltd, a firm of independent technical experts.

Capital expenditure

Under the Agreement, the company will be responsible for the mining and extraction of magnetite ore from the Mining Area and the processing of that magnetite ore into products through mine and processing facilities or infrastructure to be constructed or installed by the company (the “mining project”). The company has agreed with Mineralogy that it will arrange all the financing to pay for such construction and start up of the mining project to be carried out by the company (including but not limited to, mining facilities, equipment, production plants, ports, power station, desalination plants, roads, pipelines and all necessary associated infrastructure).

Some of the infrastructure for which the company is required to fund construction is outside the project area of the company. Title to these facilities will remain with Mineralogy as it is the owner of the land. However, the company will have the right to use the facilities, on paying the operation and maintenance cost and on terms which are fair and equal as compared to other users of these facilities, during the project life. If there are other projects commenced in the area by participants seeking to use these facilities, those new participants will be obliged to pay an amount to the company to effectively share the capital costs associated with the construction of the facilities. The total estimated capital expenditure required is US$1,100 million (approximately HK$8,580 million).

Royalty

The company also agreed to pay to Mineralogy a royalty in respect of magnetite ore taken by the company, quarterly during the term of the mining right granted. Such royalty comprises two components:

• i) based on the quantity of magnetite ore taken, A$0.3 (approximately HK$1.68) will be paid per tonne of magnetite ore taken by the company (adjusted based on inflation during the previous quarter); and

• ii) based on the quantity of products produced, an additional royalty is payable quarterly to Mineralogy by reference to the market price of pellets and Mount Newman fines (as reference for the price of concentrate).

– 143 –

APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

Unless prevented from doing so by an act, matter or thing outside of the company’s control, the company is required to produce not less than 6 million tonnes of product no later than nine years from 21 March 2006. If the company fails to produce such quantity of products, it must no later than one month following the end of the ninth year of 21 March 2006, pay to Mineralogy an amount equivalent to the royalty payable on the 6 million tonnes of products. The amount is estimated to be approximately US$42 million (approximately HK$327.6 million) if based on the 2005 market price. Such amount is in addition to the royalty that the company shall pay to Mineralogy based on the actual product volume of the same year. The royalty will continue to be payable after the ninth year depending on the quantity of magnetite ore mined and the product volume. There will be no ceiling on such royalty.

The second component of royalty will cease to be payable if Mineralogy exercises the option granted to Mineralogy under the Agreement to acquire shares in the company in the event that the company is listed on any stock exchange before 500,000 tonnes of products have been produced.

Site Remediation

Under the terms and conditions of the Agreement or as and when required by law (“Legal Requirements”), the company shall carry out all site remediation work (“Site Remediation Work”) that may be required as a result of the company’s activities. In particular, following the mine closure, the company will remove and dispose of all the company’s project facilities in accordance with the Legal Requirements, and will carry out all necessary Site Remediation Work.

In order to make provision and to provide security for payment of future Site Remediation Costs as they become payable, Mineralogy will establish a Site Remediation Fund (“the Fund”). The company will make annual payments into the Fund as determined by Mineralogy based on Mineralogy’s best prevailing estimate of the amount of future Site Remediation Costs, and the amount (if any) already contributed by the company into the Fund on a yearly basis. Based on the available information, no reasonable estimate of the Site Remediation Costs can be determined by Mineralogy at present for the company.

On 31 March 2006, a wholly-owned subsidiary of CITIC Pacific Limited (“CITIC”) agreed to acquire the entire equity interest of the company from Mineralogy Pty Ltd (the “Balmoral Acquisition Agreement”), conditional upon additional 1 billion tonnes of magnetite ore resources being proven by CITIC after it completes an agreed drilling program over the Mining Area. CITIC will carry out a drilling program to drill at least 100 holes over 18 months from the date of the Balmoral Acquisition Agreement within the Mining Area. Once an additional 1 billion tonnes of magnetite ore are identified by CITIC after commencement of the drilling program, CITIC will be under an obligation to acquire the company for US$200 million (approximately HK$1,560 million) and adjusted for the change in the Australian consumer price

– 144 –

APPENDIX IV ACCOUNTANTS’ REPORT OF SINO-IRON AND BALMORAL

index between the date of the Balmoral Acquisition Agreement and the completion date of the acquisition. Completion of the acquisition is subject to the consent from the Treasurer of Australia and pursuant to the Balmoral Acquisition Agreement. Majority of their capital expenditure on the mining project will be financed by debt on a project basis with the remaining balance being funded by CITIC.

(VI) SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the company in respect of any period subsequent to 31 December 2005.

Yours faithfully, KPMG Certified Public Accountants Hong Kong

– 145 –

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

UNAUDITED PRO FORMA FINANCIAL INFORMATION

1. Unaudited pro forma statement of the assets and liabilities of the Enlarged Group

The following is the unaudited pro forma statement of the assets and liabilities of the Enlarged Group prepared to illustrate the effect of the Sino-Iron Acquisition and Balmoral Acquisition on the assets and liabilities of the Enlarged Group as if the acquisitions had been completed on 31 December 2005. The unaudited pro forma statement of the assets and liabilities of the Enlarged Group was prepared based on the Group’s unadjusted statement of assets and liabilities as at 31 December 2005 extracted from the audited consolidated balance sheet of the Group as at 31 December 2005, as set out in the Annual Report of CITIC Pacific, after making pro forma adjustments as set out in notes 2 to 4 below.

This unaudited pro forma statement of the assets and liabilities of the Enlarged Group has been prepared for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the financial position of the Enlarged Group as at 31 December 2005 or at any future date.

Non-current assets Property, plant and equipment Investment properties Properties under development Leasehold land Jointly controlled entities Associated companies Other financial assets Goodwill Intangible assets – Mining Rights Deferred tax assets Derivative financial instruments		As at 31 December 2005
	Group HK$ million (Note 1) 10,063 8,645 1,849 1,618 10,583 23,300 929 603 – 158 168 57,916 --------------	Pro forma adjustments Other pro forma Sino-Iron Balmoral adjustments HK$ million HK$ million HK$ million (Note 2) (Note 3) (Note 4) – – – – – – – – – – – – – – – – – – – – – – – 1,029 – – 3,431 – – – – – – – – 4,460 -------------- -------------- --------------	Enlarged Group HK$ million 10,063 8,645 1,849 1,618 10,583 23,300 929 1,632 3,431 158 168
		Sino-Iron HK$ million (Note 2) – – – – – – – – – – – – --------------
			62,376 --------------

– 146 –

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

As at 31 December 2005

		As at 31 December 2005
Current assets Properties held for sale Inventories Debtors, accounts receivable, deposits and prepayments Cash and bank deposits Current liabilities Bank loans, other loans and overdrafts – secured – unsecured Creditors, accounts payable, deposits and accruals Provision for taxation Net current assets Total assets less current liabilities Non-current liabilities Long term borrowings Deferred tax liabilities Derivative financial instruments Net assets	Group HK$ million (Note 1) 1,055 3,427 5,691 2,579 12,752 -------------- 183 2,223 6,628 199 9,233 -------------- 3,519 -------------- 61,435 -------------- 18,812 1,387 40 20,239 -------------- 41,196	Pro forma adjustments Other pro forma Sino-Iron Balmoral adjustments HK$ million HK$ million HK$ million (Note 2) (Note 3) (Note 4) – – – – – – – – – – – – – – – -------------- -------------- -------------- – – – – – – 217 87 (304) – – – 217 87 (304) -------------- -------------- -------------- (217) (87) 304 -------------- -------------- -------------- (217) (87) 4,764 -------------- -------------- -------------- – – 3,431 – – 1,029 – – – – – 4,460 -------------- -------------- -------------- (217) (87) 304	Enlarged Group HK$ million 1,055 3,427 5,691 2,579
		Sino-Iron HK$ million (Note 2) – – – – – -------------- – – 217 – 217 -------------- (217) -------------- (217) -------------- – – – – -------------- (217)
			12,752 -------------- 183 2,223 6,628 199
			9,233 --------------
			3,519 --------------
			65,895 -------------- 22,243 2,416 40
			24,699 --------------
			41,196

– 147 –

APPENDIX V UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

Notes to the unaudited pro forma statement of the assets and liabilities of the Enlarged Group

1. The balances are extracted from the audited consolidated balance sheet of the Group as at 31 December 2005.

2. The balances are extracted from the balance sheet of Sino-Iron as at 31 December 2005 in the accountants’ report as set out in Appendix IV to this circular.

3. The balances are extracted from the balance sheet of Balmoral as at 31 December 2005 in the accountants’ report as set out in Appendix IV to this circular

4. The adjustments represent the following:

5. i. estimated aggregate cash consideration of HK$3,431 million including US$215 million and US$200 million for the acquisition of the sale shares and subscription for the subscription shares of Sino-Iron and Balmoral respectively as well as other costs directly attributable to the acquisitions. The consideration is financed by way of a loan of HK$3,431 million.

6. ii. repayment of the debt of Sino Iron and Balmoral amounting to approximately HK$304 million before the completion of the acquisitions by funds from share subscriptions pursuant to the acquisition agreements.

7. iii. recognition of intangible assets – Mining Rights, goodwill and the related estimated deferred tax liabilities.

8. The Company is in the course of assessing the fair values of assets and liabilities of Sino-Iron and Balmoral and the mining rights. The final amounts of the fair values of the assets and liabilities of Sino-Iron and Balmoral, including intangible assets, deferred tax liabilities and goodwill, may be different from those amounts as presented above.

9. For the purpose of the pro forma statement of the assets and liabilities, the balances stated in United States dollars (“US$”) have been translated to Hong Kong dollars (“HK$”) at an exchange rate of US$1 = HK$7.8.

10. No adjustment has been made to reflect any trading results or other transactions of the Group, Sino-Iron and Balmoral entered into subsequent to 31 December 2005. Also, no adjustment has been made to reflect any future capital expenditure.

– 148 –

APPENDIX V UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

2. LETTER ON UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

The following is the text of a letter, received from the auditors of the Company, PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, in respect of the unaudited pro forma financial information for the purpose of its incorporation in this circular.

羅兵咸永道會計師事務所

PricewaterhouseCoopers 22/F, Prince’s Building Central, Hong Kong

The Directors CITIC Pacific Limited

8 May 2006

Dear Sirs,

We report on the unaudited pro forma financial information of CITIC Pacific Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”) set out on pages 146 to 148 under the heading of “Unaudited Pro Forma Financial Information of the Enlarged Group” (the “unaudited pro forma financial information”) in Appendix V of the Company’s circular dated 8 May 2006, in connection with the acquisition of magnetite mining rights in Western Australia (the “Acquisition”) by the Company (the “Circular”). The unaudited pro forma financial information has been prepared by the Directors of the Company, for illustrative purposes only, to provide information about how the Acquisition might have affected the relevant financial information of the Group. The basis of preparation of the unaudited pro forma financial information is set out on pages 146 to 148 of the Circular.

Respective Responsibilities of Directors of the Company and Auditors

It is the responsibility solely of the Directors of the Company to prepare the unaudited pro forma financial information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the unaudited pro forma financial information and to report our opinion

– 149 –

APPENDIX V

UNAUDITED PRO FORMA FINANCIAL INFORMATION ON THE ENLARGED GROUP

to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of Opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the Group’s unadjusted statement of assets and liabilities as at 31 December 2005 with the audited consolidated balance sheet of the Group as at 31 December 2005, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the Directors of the Company.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the unaudited pro forma financial information has been properly compiled by the Directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

The unaudited pro forma financial information is for illustrative purposes only, based on the judgements and assumptions of the Directors of the Company, and because of its hypothetical nature, it does not provide any assurance or indication that any event will take place in the future and may not be indicative of the financial position of the Group as at 31 December 2005 or any future date.

Opinion

In our opinion:

• (a) the unaudited pro forma financial information has been properly compiled by the Directors of the Company on the basis stated;

• (b) such basis is consistent with the accounting policies of the Group; and

• (c) the adjustments are appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

Yours faithfully,

PricewaterhouseCoopers Certified Public Accountants Hong Kong

– 150 –

APPENDIX VI

REPORT OF GOLDER ASSOCIATES

This technical report has been prepared by Dr William John Shaw, FAusIMM, FAIG, CPGeo, RPGeo who is a mining geologist with over 30 years experience in the estimation, reporting and auditing of mineral resources and ore reserves and a full-time employee of Golder Associates Pty Ltd.

The technical report was compiled in conjunction with other personnel from Golder and an independent metallurgical sub-consultant, all of whom have relevant specialist experience in the evaluation of various technical aspects of mining projects, appropriate to this study.

INTRODUCTION

Scope

Golder Associates Pty Ltd (Golder) was requested by CITIC Pacific Limited (CITIC Pacific) to carry out an audit of all information supporting the resources estimated by Mineralogy Pty Ltd (Mineralogy) for the George Palmer deposit of the Cape Preston Resource as part of their analysis for a potential equity investment in this project. Following a review of the Mineral Resource for the George Palmer magnetite deposit (Golder, 2006) and the subsequent signing of an agreement between CITIC Pacific and Mineralogy, Golder was requested to carry out a review of all information supporting the Ore Reserves estimated by Mineralogy for the George Palmer deposit of the Cape Preston Resource.

Golder has produced two technical reports, the first auditing the 2005 resource estimate provided by Mineralogy and the second reviewing a 2003 Ore Reserve statement provided by Mineralogy. This Technical Report is a synopsis of the detailed analysis in these two reports provided to CITIC Pacific.

Conclusions are presented throughout the text in italic font .

This work was based entirely on information made available by CITIC Pacific and Mineralogy, including work by RSG Global, Hellman & Schofield and Promet. Golder engaged the services of Mineral Engineering Technical Services Pty Ltd (METS) to provide an independent assessment of the available mineralogical and metallurgical information.

Golder has carried out this review of the Ore Reserves provided by Mineralogy to CITIC Pacific using the current Joint Ore Reserves Committee Code (JORC Code, 2004) which is a recognised international code for the reporting or Mineral Resources and Ore Reserves.

Golder used available mining, metallurgy, plant design, marketing and economic scenarios to form an opinion on the Ore Reserves, in particular as to whether they can be economically mined and processed. However, taking into consideration the suggestion of CITIC Pacific that the proposed scenario does not necessarily reflect the eventual development plan that CITIC Pacific may adopt, so as to avoid confusion that these designs are adopted by CITIC Pacific, it is agreed by CITIC Pacific and Golder that technical details and the economic scenario evaluated by Golder are not presented in this technical circular.

– 151 –

APPENDIX VI

REPORT OF GOLDER ASSOCIATES

GEOLOGY AND RESOURCE

Introduction

Available data inputs

Recent resource reports that were available for Golder to review are shown in Table1.

Table 1 Geology reports used for the Review

Report Title	Originator	Date
Report on the Ore Reserves of the	YRS Offshore	March 2001
George Palmer Deposit Mining Leases	Research Services
M08/124 and M08/125, WA. Austeel Pty Ltd
Resource Evaluation of the George Palmer	Hellman & Schofield	February 2002
Iron Ore Deposit, Pilbara, WA
Revised Resource Estimate and Potential	Hellman & Schofield	December 2005
Mineralisation for the George Palmer Iron
Ore Deposit, Pilbara, WA

Other documentation and presentations that were provided are shown in Table 2.

Table 2 Draft reports and spreadsheets provided to Golder

Title	File Name	Originator	Date
Geology and Resources of the	GP06.ppt	Hellman &	March 2006
George Palmer Deposit		Schofield
International Minerals Project	IM 12 Mtpa 0602.ppt	Promet	February 2006

The following data for the George Palmer deposit was supplied by H & S:

• Raw drill hole data in CSV format.

• Composite drill hole data in Datamine format.

• Block model in Datamine format.

• Geology strings in Datamine format.

• Mineralisation, geology and topography wireframes in Datamine format.

– 152 –

APPENDIX VI

REPORT OF GOLDER ASSOCIATES

Summary of analysis work done by Golder

The following activities have been conducted by Golder:

• Visited the George Palmer deposit and core yard.

• Discussed with H & S personnel the work that has been conducted and clarified issues that arose during the reviews.

• Available documentation was reviewed.

• Imported drill holes, strings, wireframes and block model data into Vulcan.

• Reviewed drill hole spacing and interpretations.

• Reviewed available QAQC data and density data.

• Reviewed general resource estimation methodology.

• Performed independent block model validations.

• Performed grade-tonnage curve sensitivity analysis.

• Reviewed resource classification.

Drilling

Drilling at the George Palmer deposit has occurred at irregular intervals since 1978, with over 80% of the drilling being completed since 2000. A total of 139 holes have been drilled, of which 14 are diamond core and the remainder are reverse circulation percussion. The total area covered by the 139 holes is about 325 hectares, which only represents around one quarter of the specified area out of Mining Leases 08/123, 124 and 125 that Mineralogy offered to CITIC Pacific for drilling and magnetite ore mining. The holes are categorised as shown in Table 3. The PH, Z and Y series holes were drilled with a face sampling hammer and Arnold Van der Heyden (pers. comm.) believes that the A and M series would have used the same method. The average drill spacing in the central part of the deposit is 100 m x 100 m with the spacing expanding to about 200 m x 200 m at the southern and northern ends of the deposit. A drill hole location plan is shown in Figure 1. The Mineralogy drilling procedures are industry standard. A summary of the data available for the current review is presented in Table 3.

Drill hole BB1 is a metallurgical hole that has not been assayed. The remaining core is stored in the core yard in Karratha and was viewed during the site visit. A shaft has also been sunk vertically to a depth of 60 m, then from the base it has been extended 20 m to the east and 20 m to the west. The shaft is located near the collar of drill hole BB1 and most of the material from the shaft is stored in drums at the core yard.

– 153 –

APPENDIX VI

REPORT OF GOLDER ASSOCIATES

Table 3 Drilling summary for George Palmer Deposit

Series Year BAL 1978 CB 1992 M 1993 BB 2000 A 2000 PH 2001 Z 2005 Y 2005 Total	Number Drill Type 4 Diamond (NQ) 3 Diamond (NQ) 16 Percussion 1 Diamond (PQ) 38 6 Diamond (NQ) and 32 Percussion 40 RC Percussion 15 Percussion 22 Percussion 139	Metres 771 385 2,719 75 4,973 6,331 2,823 3,846
		21,923

Figure 1 Drill hole locations and estimation domains at the George Palmer deposit

==> picture [248 x 332] intentionally omitted <==

Hellman and Schofield (2002) discussed the drill hole validation process and the need to completely rebuild the database from the original sources due to the identification of numerous errors. The validation process appears to have been reasonably thorough, however Golder has identified several potential errors in the database.

– 154 –

APPENDIX VI

REPORT OF GOLDER ASSOCIATES

The database CSV files were imported into an MS Access database with referential integrity applied and routinely checked using Golder in-house software.

Drill-holes were validated by verifying:

• collar depth with final sample depth;

• collar RL with topographic data where possible;

• any overlapping intervals or gaps in the down-hole data;

• grid survey problems;

• duplicate hole numbers and coordinates, geological and assay intervals; and

• nominal surveys vs. precise surveys.

The assay database contains a variety of data including: Davis Tube test results, XRF assays, normative magnetic iron calculated from XRF results and magnetically recoverable iron derived from geophysics. Van der Heyden (2002) details the type of data associated with each series of holes and the checks and corrections that were performed on the data.

The MagFe value used for estimation is the “Preferred MagFe value” based on the reliability of the method used to determine MagFe. The Davis Tube test is the most accurate method of measuring magnetically recoverable iron. Nearly 50% of the data has MagFe determined from a Davis Tube test. About 47% of the preferred MagFe data has MagFe derived from the magnetic susceptibility by calibrating it with the Davis Tube tests. This is the next most accurate method. About 3% of the preferred MagFe data has a normative MagFe derived from the XRF data and is considered the least accurate.

This use of a Preferred MagFe value ensures that the most reliable data available is used. This data quality information should be incorporated into the block model by recording the proportion of samples of high, medium or low quality that have been used to estimate each block. This can then be used to assist in the resource classification process, by potentially downgrading the classification of blocks that rely heavily on the lowest quality data.

In addition to Fe, the following elements are assayed by XRF: SiO2, Al2O3, CaO, MgO, TiO 2, P, S, Mn, K2O, Na2O and LOI. None of these elements are used in the interpretation or modelling process as they have no impact on the final product due to their removal during processing.

There are detailed procedures for drill hole sampling and logging (Van der Heyden, 2005). These procedures are acceptable and meet industry standards.

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The recent percussion holes have been sampled at 1 m intervals with generally acceptable recoveries where the samples are dry. Recoveries for wet samples tend to be lower, particularly in the older holes (Van der Heyden, 2002). The diamond core is halved using a diamond saw and 1 m samples of the half-core are sent for assay. However the core hole that was accessible during the site visit (A38) had quarter core sent for sampling and three quarters of the core remained in the core tray.

A set of standard logging codes has been produced for the 2005 drilling to record details like stratigraphy, lithology, oxidation, hardness, moisture, colour and mineralogy. These codes have been used for PH, Y and Z series holes and are included in the database provided to Golder. Logs for the older holes are not included in the database, however Van der Heyden (2002) notes that some do exist but are generally in a long-hand descriptive form. Where no lithology logs exist, an interpretation has been made from the geophysical logs.

Some recommendations for improvement in the assay database were made, including a requirement for more dry bulk density data and more QAQC data, but overall the assay database was accepted as reasonable for the purpose of resource estimation.

Geology and mineralisation modelling

The regional and local geology is reasonably well understood and documented. The following summary is from Van der Heyden (2005).

“The George Palmer iron deposit consists of the Joffre Member of the Brockman Iron Formation. The Joffre Member is overlain by shales of the Yandicoogina Shale and underlain by the Whaleback Shale and Dales Gorge BIF Members of the Brockman Iron Formation. The Joffre Member normally has an undisturbed stratigraphic thickness of around 360 m. The average interpreted thickness at George Palmer is around 300 m, where the BIF strikes between 15º and 20º east of north and dips consistently around 45º to the west northwest. A series of faults disrupt the stratigraphic sequence and in places juxtapose the BIF unit against itself, increasing the potentially mineable width of BIF and reducing the requirement to mine waste. Folding has not been observed on a scale that would affect resource estimates.”

A geology plan is provided in Figure 2. Large areas of the George Palmer deposit are not drilled and the geology interpretation relies heavily on surface geophysics and outcrop mapping. As noted in Van der Heyden (2005), drilling in some areas extended the resource and in other areas faulting was encountered that truncated the resource and fragmented the BIF units. While the resource is generally reasonably continuous, future drilling will encounter areas of structural complexity that may require closer-spaced drilling to provide confidence in the interpretation of faults.

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==> picture [320 x 529] intentionally omitted <==

Figure 2 Plan view of geology at George Palmer (Blue = Joffre Member)

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The George Palmer deposit has been subdivided into six estimation domains (Table 4) whose boundaries are defined by the major faults (Figure 1). These have been modelled as wireframe solids. The remainder of the deposit is assigned to Domain 7. Within the estimation domains, the stratigraphic boundaries (Table 5) have been interpreted and wireframed as a series of sub-parallel surfaces.

Table 4 George Palmer Stratigraphic Zones

Formation	Member	Sub-Unit	Zone
McRae Shale	–	–	0
Brockman Iron	Dales Gorge	–	10
Brockman Iron	Dales Gorge	D1	11
Brockman Iron	Dales Gorge	D2	12
Brockman Iron	Dales Gorge	D3	13
Brockman Iron	Dales Gorge	D4	14
Brockman Iron	Whaleback Shale	–	20
Brockman Iron	Joffre	–	30
Brockman Iron	Joffre	J1 (JA)	31
Brockman Iron	Joffre	J2 (JB-JE)	32
Brockman Iron	Joffre	J3 (JF-JI)	33
Brockman Iron	Joffre	J4 (JJ-JL)	34
Brockman Iron	Yandicoogina Shale	–	40
–	Dolerite Dykes	–	50

(from van der Heyden, 2005)

Table 5 Estimation Domains

Domain	Description
1	North of Northern Fault
2	Between Northern and Central faults
3	Between Central and Eastern faults
4	North-East of Eastern Fault
5	Between Domains 6 and 4
6	Between Domains 2 and 4
7	South-Eastern Area (remainder)

(from van der Heyden, 2005)

The oxide has been modelled as a wireframe surface. The depth of oxidation averages about 40 m but is deeper around some faults and shaly units.

Dolerite dykes have been modelled as wireframe solids and cross-cut the underlying stratigraphy.

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There has been no water table interpreted for the George Palmer deposit. Water is often encountered during drilling and samples are often wet. Van der Heyden (2002) notes that percussion sample recovery was lower in some older holes below the water table. Smearing of grades can occur when samples are wet.

Recommendations regarding improvements to the modelling were made, however Golder accepted that the domaining of the deposit for analysis and estimation is geologically based and considered reasonable and appropriate.

Resource estimates

The general approach and methods used were considered acceptable and reasonable for resource estimation. Simple Kriging (SK) was applied for the 2005 estimate, based on 5 m downhole composites, within domains defined as hard boundaries, using a 3-pass grade interpolation plan.

Validation of the statistics, variography and grade interpolation were carried out by Golder. Validation tests indicated that the resource estimates produced by Hellman and Schofield (Van der Heyden, 2005) were acceptable.

Regarding the estimation of the resources, Golder (2006) concluded that:

• The grade estimation plan used for George Palmer appears to be reasonable, based on variography, mineralisation continuity and sample spacing.

• The 2005 George Palmer resource estimate shows some smoothing but is a reasonable representation of the in situ resource. No mining selectivity is assumed and so the expectation is that the mining would block size would be equivalent to the model parent block size of 24 m by 50 m by 12 m.

• Validation tests indicated acceptable conformance to the composite data for MagFe and Fe. Results for the dry bulk density (SG) indicate that the resource model is biased high relative to the data. This is not significant overall given the resource tonnages available in the deposit but may impact on eventual detailed mine planning and scheduling if not addressed.

Resource estimates and classification

Golder (2006) noted that the current resource classification is very basic, has not been modified to account for geological factors or data quality, and potentially leads to an over-statement of resources.

The Measured Resources may be an area of risk as they are supported by a relatively low number of samples in the estimation. Additional drilling is required to support the classification of the Resources as Measured and hence Golder produced a re-classified resource estimate based on criteria that are considered more appropriate.

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Golder compared the 2002 resource model with the 2005 model that we have validated but apart from commenting on these results and the differences in methodology no other analysis was made of the 2002 model because the data sets are different (there was additional drilling after the 2002 model was reported).

A comparison of the 2002 Hellman and Schofield (H&S) model with the 2005 H&S model and the 2005 model reclassified by Golder is shown in Table 6. The resources are in the Mining Leases 08/123, 124 and 125. The drilling completed between the 2002 and 2005 models was mostly at 200 m x 200 m spacing to the north and south of the central portion with a few drill holes also drill to the west. Due to the wide drill spacing, the additional drilling is required to upgrade the classification of the Resources to Measured. Golder produced a re-classified resource estimate based on criteria that are considered more appropriate.

Table 6 Resource estimate comparisons

Measured Indicated Inferred Total	2002 H&S Model Tonnes MagFe Fe % (Mt) (%) (%) 299 22.6 32.2 13.1% 663 22.8 32.1 29.0% 1326 23.2 31.3 58.0% 2289 23.0 31.7 100.0%	2005 H&S Model Tonnes MagFe Fe % (Mt) (%) (%) 328 22.4 32.0 13.0% 980 22.5 31.6 39.2% 1196 21.7 30.7 47.8% 2503 22.1 31.2 100.0%	Tonnes (Mt) 189 851 1145 2185	2005 Golder Reclassification MagFe Fe (%) (%) 22.4 32.2 22.6 31.8 21.8 30.8 22.1 31.3	% 8.7% 38.9% 52.4%
					100.0%

Based on this analysis, Golder has reduced the total Measured Resource from 328 Mt to 189 Mt, i.e. to 58% of that claimed by Mineralogy. This is a very large reduction in material which, under the JORC Code, should be estimated with a high degree of confidence. Golder is also of the view that it is premature to be reporting Measured Resources over those parts of the deposit where additional drilling is still required. It is noted that CITIC Pacific will carry out an additional 100 hole drilling program to upgrade the classification of resources.

Golder concluded that the resource tonnes and grade estimates were reasonable and that, based on Golder’s suggested reclassification, the 2005 resource model contains: 189 Mt of Measured, 851 Mt of Indicated and 1145 Mt of Inferred Resource above the cut-off grade of 15% MagFe with an average grade of 22.1% MagFe. The total area covered by the 139 holes is about 325 hectares, which only represents around one quarter of the specified area out of Mining Leases 08/123, 124 and 125 that Mineralogy offered to CITIC Pacific for drilling and magnetite ore mining. It is noted that CITIC Pacific will arrange further drilling to identify additional resources in the Mining Lease area.

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MINING

Synopsis of project

The project was initially investigated by Hannah Mining in the late 1960s and has been studied in various project phases by Mineralogy to produce DR pellets and concentrate for export. The project, as examined to evaluate Ore Reserves, consisted of concentrate and pellets being sold at a suitable grade for the market either as blast furnace (BF) grade or as direct reduced iron (DR) grade.

Mineralogy Pty Ltd (Mineralogy) holds the exploration lease for the Balmoral magnetite deposits which are located in the western Pilbara region near the mouth of the Fortescue River.

The Balmoral lease contains extensive outcrop of Brockman Iron Formation. Within the Balmoral Lease the George Palmer deposit is contained within Mining Leases 08/123, 124 and 125. The George Palmer deposit contains extensive outcrop and structural repetition of the Joffre Member which is considered to offer the benefit of a lower mine stripping ratio.

Mineral Resources defined for the George Palmer deposit are mostly in the Joffre Member. Faulting gives approximately a 1 km wide ore zone with a resource area of approximately 3.8km x 1.2 km. Oxidation in the mineralized material occurs to a depth of about 40 m.

Mining studies

RSG Global Pty Ltd (RSG) carried out a number of mining studies for Mineralogy. These studies included pit optimisation, mine design and mine production scheduling for the George Palmer Iron Ore Deposit to a scoping level. The study results are contained in Hearne et al (2003), Hearne & Blair (2003) and Warries (2002). However although there have been a number of mining and processing studies there has been no overall Feasibility Study completed and therefore much of the work does not tie together well.

For the purposes of this review Golder was provided with two pit shells which were the basis for previous Ore Reserve reporting in 2003 (van der Heyden et al, 2003). The two pits have a total length of about 3 km, width of about 1.2 km and a maximum depth of about 300 m. The pits are located on the Mining Leases 08/123, 124 and 125.

The optimisations and mine planning work at the time were based on the Hellman & Schofield Resource model (van der Heyden, 2002). Mining costs were developed by RSG (Blair, 2002) with processing, administration costs and pellet recoveries being prepared by Promet.

This data is now three years old and costs, prices and exchange rates have changed. However it is felt that the pit shells selected as part of the optimisation studies and then used to carry out the pit designs are still reasonable.

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Open pit optimisation

Either no dilution and ore loss or only very small amounts (2% dilution at 9% MagFe and 99.5% mining recovery) was used in the RSG work as the George Palmer Iron Ore Deposit demonstrates good continuity and the losses were considered unlikely to be significant. This is probably a reasonable assumption based on present knowledge and level of study. This would need to be further investigated as part of a future feasibility study.

The Project is based on processing costs estimated for a ’Once Built’ scenario where the front end of the concentrator is limiting at low grades. This scenario thus requires a minimum grade before the plant is at full capacity – typical of a plant once it has been erected.

The optimisation work for the two pits was carried out in a similar manner with optimisations being carried out using only Measured and Indicated material and then including the Inferred material. The shells selected for pit designs were suitable and the Ore Reserves were reported on the designs based on the Measured and Indicated optimisation only, which is good practice.

Geotechnical considerations

The mining design study by RSG (Hearne, Blair, Warries and Cruickshanks, 2003) stated that “The geotechnical work which has been undertaken so far has not been targeted at developing the pit slope data, so the pit slopes, for the proposed pit, have been selected as a base case in the absence of any other information. An overall pit wall slope of 45 degrees was used for this work. The pit wall slope angle is inclusive of ramps.”

The geotechnical work carried out to date is insufficient to define the appropriate slope angles for the final mine design.

Hydrogeological considerations

A comprehensive analysis of the hydrogeological setting and the impact on the proposed pit design has not been prepared at this stage.

Pit design

The pits were designed using the parameters summarised in Table 7. They are reasonable parameters to use for pit design for this level of study. However there is no particular basis for the overall slopes and geotechnical work will have to be carried out for a Feasibility Study.

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Table 7 Pit design parameters

Inter-ramp slope angles	45º
Berm width	10 m every 24 m
Batter	65º
Ramp width	30 m
Gradient	10%
Turning radius	25 m

Resources within pit designs

Table 8 provides a summary of the Ore Reserves defined by RSG using the 2002 resource model (van der Heyden, et al , 2003). A 17% MagFe cut-off was used as the basis for the reserve determination. This is above the marginal cut-off grade and is therefore conservative. The 17% MagFe was chosen by Promet to achieve a suitable product grade through the plant. Table 8 also shows a summary of the in-pit Mineral Resources as determined by Golder using the 2005 H&S geological model (Heyden 2005). Finally Table 8 provides a summary of the Mineral Resources using the 2005 H&S resource model and the resource classification recommended by Golder (2006). Note that the tonnes within the pits remain unchanged but the Measured material has been downgraded to some extent with the Indicated remaining about the same. These categorisation terms are used in accordance with definitions provided in the JORC Code (2004) as detailed in the glossary. The tonnages and grades in the three sets of estimates are directly comparable. The difference between ore reserves (H&S) and in pit resources (Golder) is solely due to consideration of economic viability.

The overall strip ratio for the two pits is estimated to be 0.64 t/t when the Inferred material is included with the ore. This is reasonable as further drilling during development of the mine is expected to upgrade this material as the mine progresses.

Overall the models give substantially the same results with the estimate after Golder’s reclassification of the 2005 model and the 2003 Ore Reserves being almost exactly the same.

Table 8 Comparison of Ore Reserves and In Pit Resources

Proven Probable Total Reserves Inferred Total In-Pit Resources	RSG Reserves using 2005 Model using 2005 Model using 2002 Model H&S classification Golder classification Mt MagFe% Mt MagFe% Mt MagFe% 265.8 22.7 Measured 269.2 22.6 Measured 175.1 22.5 529.5 22.9 Indicated 592.4 22.6 Indicated 618.7 22.7 795.3 22.8 Total M+I 861.6 22.6 Total M+I 793.8 22.6 145.5 23.4 Inferred 100.0 22.3 Inferred 164.7 22.6 Total In-Pit Total In-Pit 940.8 22.9 Resources 961.6 22.6 Resources 958.5 22.6	RSG Reserves using 2005 Model using 2005 Model using 2002 Model H&S classification Golder classification Mt MagFe% Mt MagFe% Mt MagFe% 265.8 22.7 Measured 269.2 22.6 Measured 175.1 22.5 529.5 22.9 Indicated 592.4 22.6 Indicated 618.7 22.7 795.3 22.8 Total M+I 861.6 22.6 Total M+I 793.8 22.6 145.5 23.4 Inferred 100.0 22.3 Inferred 164.7 22.6 Total In-Pit Total In-Pit 940.8 22.9 Resources 961.6 22.6 Resources 958.5 22.6
		22.6 22.6

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Conclusion from review of mining studies

Ore Reserves based on the 2002 resource model were reported in 2003 by van der Heyden et al in a letter dated 17 September 2003 to International Minerals Pty Ltd, a subsidiary of Mineralogy. Despite the lack of geotechnical and hydrogeological studies, the methodology and economic parameters used to define potentially economic open pits are considered acceptable. Golder has intersected the 2005 resource model with the 2003 pit designs and considers that the total contained tonnages and grades are not materially different to those provided by Mineralogy.

The 2003 pit designs are considered to be still reasonable for Ore Reserve estimation. Recent cost increases are offset by increases in the price of the expected products and the possibility of amalgamating the two pits in the 2003 design.

Golder reclassified the 2005 resource model and significantly downgraded the tonnage of Measured Resource. This directly impacts on the tonnage of Proved Ore Reserves and indicates some uncertainty of the confidence in defining the resource. There are a number of risk factors in this project, further discussed below, which mean that at this time, in Golder’s opinion, the tonnages and grades of expected production are not yet sufficiently clearly determined. Consequently Golder does not accept the Proved Ore Reserves previously stated and considers these to be Probable Ore Reserves. Golder accepts that the total tonnes and grade in the 2003 Ore Reserve statement can be reasonably considered to be Probable Reserves, i.e. the total Probable Reserve of 795.3 Mt @ 22.8% MagFe.

The risk factors that Golder considers are material Modifying Factors under JORC (2004) that impact on the translation of Measured Resources to Proved Ore Reserves are:

• Lack of a mining schedule detailing the tonnes and grade of ore and expected products in annual increments, against which production can be later reconciled, for the 2005 development scenario proposed, wherein the years of initial production regarded as the payback period are sufficiently demonstrated to be based on appropriately defined Measured Resources.

• Insufficient analysis of the geotechnical and hydrogeological aspects of the pit design.

• Insufficient demonstration of the production of acceptable marketable products from representative ore samples that reflect spatial variability within the proposed pits, such as would result from pilot plant testing.

• The lack of letters of intent or similar marketing or sales agreements for the off-take of production as Pellets and Concentrate.

Golder is not aware of any technical obstacles preventing the current In-Pit Measured Resources being eventually defined as Proved Ore Reserves following such further studies which would be included in a conventional feasibility study.

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METALLURGY

Introduction

The Red Book Study (International Minerals, 2005) is the most comprehensive study carried out so far for the project and this study has covered the critical areas of the processing. Prefeasibility and feasibility studies have not yet been carried out. There is no doubt that more work is required. Very little engineering has been completed. Basic engineering and detailed engineering are both required before construction could commence.

Metallurgical studies

Ore characteristics

The ore is a typical laminated, metamorphosed oxide-facies iron formation in which the original chert or jasper bands have been recrystallised into distinguishable grains of quartz and the iron is present as thin layers of hematite, magnetite, or martite.

For the metallurgical studies, the expected grade of ore mined from the George Palmer resource was assumed to be 22.8% MagFe with 32.2% weight recovery to which has been applied a 2% dilution factor and then an appropriate magnetite plant yield depending on the concentrate quality of BF or DR varying between 94.0% and 91.2%. The expected ore feed is comparable to Golder’s analysis of the mineable component of the InPit resources based on the 2005 resource model.

Metallurgical testwork

Golder’s analysis of the metallurgical testwork and proposed plant design indicated comprehensive studies had been carried out to substantially test the economic viability of producing concentrates and pellets in the scenario presented to Golder.

Conclusions from metallurgical review

The metallurgical testwork that has been undertaken is minimal and does not include spatial orebody variability testing. It is unknown if the composites tested are in fact representative. While this is sometimes difficult, a demonstration of this should be attempted.

For a project of this scale there is a very strong case for pilot plant testing of both the beneficiation and the pelletising process. This would result in an improved design and reduced process risk. There is also likely to be a ramp-up to full production and a “learning curve” delay in achieving market quality pellets. The piloting would also result in a more accurately defined project and could result in CAPEX and OPEX savings.

The concentrate production using crushing, grinding and magnetic separation is relatively straight forward. The achievement of silica levels below 1.5% will be difficult. There are a number of stages of rejection of silica including a final reverse flotation process. The production of pellets with the desired characteristics and quality suitable for the end user will be technically challenging.

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The scale of the project is large and so are the consequent risks. Major mining houses that have undertaken projects of this scale frequently have issues with cost over-runs and delays to the schedule. Such large projects are complex and difficult to project manage.

The energy cost will be a major driver for the project and unless gas prices are locked in this could pose a major risk. The possibility of beneficiation using sea water and then washing the concentrate with potable water would reduce the desalination demand. The pellet plant would need potable quality water.

Because of insufficient basic engineering, components of the capital cost estimate (CAPEX) are consistent with a Prefeasibility Study only. The approach taken to address this risk is to use fixed price tenders provided by nominated suppliers for all major aspects of the project engineering.

OTHER MODIFYING FACTORS

Golder has been advised that appropriate leases, agreements and environmental permits have been established, or have reasonable expectations of being established to enable the definition of Ore Reserves for the George Palmer Deposit.

The infrastructure required for the project is considerable, particularly for water and power. A 30-km service corridor will link the mine and plant site to a new port at Cape Preston. Product handling, ship-loading and shipping facilities will be installed to handle up to 140,000 DWT vessels with loading rates of up to 8,000 t/hr. A shipping channel will be dredged to a depth of 16.5 m.

Specialist technical people have not been appointed and the company does not have such people on staff at the moment. Successful development will require a large team of experienced technical engineers, scientists and project managers.

Golder has been provided with an economic analysis (King, 2005) prepared by Mineralogy, but has not examined this in detail. This analysis indicates that the project has a demonstrated economic viability, based on the sale of 12 Mtpa of product. A Discounted Cash Flow of the equity streams has been developed. The financial analysis is not conventional since capital costs have not been included in the DCF analysis. Nevertheless, NPV of the equity stream exceeds the direct estimated capital costs in 2005 dollars.

The economic analysis in King (2005) is based on the aggregation of a number of independent studies and the assumption that the provision of lump sum quotations by various service providers (e.g. for contract mining, construction of the Pellet Plant, and for various other facilities) is sufficient to constrain risk.

Golder notes that CITIC Pacific has not commissioned a feasibility study yet.

The economic analysis of King (2005) can not be used for a feasibility study, however Golder recognises that comprehensive studies have been carried out, and accepts that the studies in principle demonstrate the viability of the project. Golder has not carried out a detailed evaluation

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of the economics of the project and cannot comment on the methodology, the parameters used or the assumptions made in the study by King (2005). Golder notes that this study is not necessarily a reflection of the eventual project to be developed, considering the depth of study of some aspects of the project. It is also noted that King (2005) does not represent CITIC Pacific’s view or design for the project. CITIC Pacific will carry out its own study. CITIC Pacific intends to process the magnetite are to concentrate and pellets which would be sold at a suitable grade for the market either as blast furnace grade or as direct reduced iron grade. The detailed production policy shall be subject to a feasibility study and a business plan.

RISK SUMMARY

Project strengths

The project has many positive attributes:

• The Mineral Resource is very large

• The resource is relatively close to the coast

• Mining would be relatively simple

• The ore is magnetite which responds positively to magnetic separation

• The ore contains little phosphorous, alumina or other deleterious elements (except silica)

• Producing concentrates is not technologically difficult and high quality DR pellets can be produced

• Large quantities of natural gas are close by for power generation and pelletizing.

Project risks

There are some risks associated with the proposed project:

• The scale of the project is very large

• A fine grind of 28 microns is required for the concentrate which dictates a large power demand

• Achieving silica levels less than 1.5% will be challenging to consistently maintain product quality as there is a requirement for constant monitoring by technically competent personnel skilled at flotation

• Large amounts of power are required for which the price is not contractually established

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• Large amounts of process water must be produced from sea water

• A very large desalination plant is required

• A large infrastructure needs to be installed

Given the large scale of the project a staged development, producing concentrate and then pellets would reduce the risks. Most operators who process magnetite ores produce pellets as a saleable product.

Although the design uses proven technology, a pellet plant represents an area of high risk, because:

• If the pellet quality of products is poor and not acceptable even as blast furnace feed, then the product will not be saleable and the project will not be economically viable.

• Pellet quality must be acceptable to the market, however achieving this quality is not straightforward. It takes time and significant technical input to get satisfactory consistent product results. There is likely to be a ramp-up to full production and achieving the desired pellet specification consistently could take a number of years.

• It is a high temperature process so refractory life is a major consideration.

Dr W J Shaw

Principal,

Ore Evaluation Services Golder Associates Pty Ltd 1 Havelock Street West Perth Western Australia 6005

8 May 2006

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REFERENCES

Baffinland Iron Corporation, 2005,

Iron Ore Industry Trends and Analysis – 30 September 2005, Online , accessed on 7/4/2006.

Blair, A., 2002,

Mining Cost Benchmarking Study, RSG Global Pty Ltd, November 2002.

Burns, A., 2005,

ASX Announcement – Mauritania Iron Ore Prices for 2005, Sphere Investments Limited, 10 March 2005.

Golder, 2006,

Audit of the Cape Preston Magnetite Resource – George Palmer Deposit, Report by Golder Associates Pty Ltd dated 24 March 2006.

Hearne, J. and Blair, A., 2003,

International Minerals Iron Ore Project – Mine Design for the Fortescue Deposit Two Separate Pit Operations, RSG Global Pty Ltd, March 2003.

Hearne, J., Blair, A., Warries, H. and Cruickshanks, S., 2003,

International Minerals Iron Ore Project – Mine Design and Scheduling for the George Palmer Deposit South Pit, RSG Global Pty Ltd, April 2003.

Hellman & Schofield, 2006,

Geology and Resources of the George Palmer Deposit, GP06.ppt. Report by Hellman & Schofield, March.

JORC, 2004,

Australasian Code for Reporting of 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, Australian Institute of Geoscientists and Minerals Council of Australia (JORC), effective 17 December 2004.

King, J. F., 2005,

Analysis of iron ore pellet and concentrates project in Western Australia. Report prepared for International Minerals Pty Ltd, May.

International Minerals, 2005,

The International Minerals Pilbara Project 1 (12 Mtpa), Volumes 1 to 11. Report dated 21 May, referred to as the “Red Book Study”.

van der Heyden, A., 2002,

Resource Evaluation of the George Palmer Iron Ore Deposit, Pilbara, WA. Report by Hellman & Schofield.

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van der Heyden, A., Warries, H., Povey, B.C. and King, J.F., 2003,

Mineral Resource and Ore Reserve Statement for International Minerals, Letter by Promet Engineers and Hellman and Schofield Pty Ltd to Professor Clive Palmer, International Minerals Pty., dated 17 September 2003.

van der Heyden, A., 2005,

Revised Resource Estimate and Potential Mineralisation for the George Palmer Iron Ore Deposit, Pilbara, WA. Report by Hellman & Schofield.

YRS Offshore Research Services, 2001,

Report on the Ore Reserves of the George Palmer Deposit Mining Leases M08/124 and M08/125, WA Austeel Pty Ltd.

Warries, H., 2002,

George Palmer Iron Ore Project – Mine Engineering Scoping Study, RSG Global Pty Ltd, November 2002.

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APPENDIX VII

GENERAL INFORMATION

1. RESPONSIBILITY STATEMENT

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

2. DISCLOSURE OF INTERESTS

(a) Interests of Directors and chief executive in securities

Save as disclosed below, as at the Latest Practicable Date, none of the Directors and the chief executive of the Company had any interest or short position in the shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of the SFO) which were required, pursuant to section 352 of the SFO, to be entered into the register referred to therein, or were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interest and short position which he was taken or deemed to have under such provisions of the SFO) or the Model Code for Securities Transactions by Directors of Listed Companies set out in the Listing Rules:

(i) Shares in the Company:

Number of Shares

				Trusts and	Percentage of
	Personal	Corporate	Family	similar	issued share
Name of Director	interests	interests	interests	interests	capital
					(%)
Larry Yung Chi Kin		400,381,000			18.250
Henry Fan Hung Ling		1,728,000		44,600,000	2.112
Peter Lee Chung Hing	500,000				0.023
Norman Yuen Kee Tong	33,000				0.002
Vernon Francis Moore				3,200,000	0.146
Liu Jifu	40,000				0.002
Leslie Chang Li Hsien	30,000				0.001
Chau Chi Yin	236,000				0.011
Milton Law Ming To	3,000				0.0001
Wang Ande	50,000				0.002
Hansen Loh Chung Hon	1,050,000	500,000 1	500,0001		0.071
André Desmarais		105,230,0002	75,000		4.800
Peter Kruyt	34,100				0.002
(alternate director to
Mr André Desmarais)

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APPENDIX VII

GENERAL INFORMATION

Notes:

1. The corporate interests and the family interests of the relevant Director duplicate each other as the 500,000 Shares are held through a company in which the relevant Director and his family are interested.

2. Out of 105,230,000 Shares, 5,000,000 Shares are held by a corporation controlled by the relevant Director and 100,230,000 Shares are held indirectly by a corporation of which the relevant Director is the President and Co-Chief Executive Officer.

(ii) Share options in the Company

			Options
		Number of	lapsed/	Number of	Percentage of
		Share options	cancelled/	Share options	issued share
Directors	Date of Grant	granted	exercised	Outstanding	capital %
Larry Yung Chi Kin	28 May 2002	2,000,000	Nil	104,000,000	4.741
	1 Nov 2004	2,000,000
	5 Dec 2005	100,000,000
		(Note)
Peter Lee Chung Hing	28 May 2002	1,000,000	Nil	2,000,000	0.091
	1 Nov 2004	1,000,000
Norman Yuen Kee Tong	28 May 2002	500,000	Nil	1,000,000	0.046
	1 Nov 2004	500,000
Vernon Francis Moore	28 May 2002	1,000,000	Nil	2,000,000	0.091
	1 Nov 2004	1,000,000
Li Shilin	28 May 2002	300,000	Nil	300,000	0.014
Carl Yung Ming Jie	28 May 2002	300,000	Nil	800,000	0.036
	1 Nov 2004	500,000
Liu Jifu	28 May 2002	300,000	Nil	800,000	0.036
	1 Nov 2004	500,000
Leslie Chang Li Hsien	28 May 2002	300,000	Nil	800,000	0.036
	1 Nov 2004	500,000
Chau Chi Yin	28 May 2002	300,000	Nil	800,000	0.036
	1 Nov 2004	500,000
Milton Law Ming To	28 May 2002	300,000	50,000	750,000	0.034
	1 Nov 2004	500,000
Wang Ande	1 Nov 2004	250,000	50,000	200,000	0.009

Note: These 100,000,000 Share options were granted by CITIC Hong Kong (Holdings) Limited (“CITIC HK”), a substantial shareholder of the Company (within the meaning of the Listing Rules).

– 172 –

APPENDIX VII

GENERAL INFORMATION

• (iii) Shares in the associated corporation:

Number of ordinary shares in Cathay Pacific Airways Limited

					Percentage
				Trusts	to the
	Personal	Corporate	Family	and similar	issued share
Name of Director	interests	interests	interests	interests	capital
					(%)
Hansen Loh Chung Hon	450,000				0.013

• (iv) Share options in an associated corporation, CITIC Capital Markets Holdings Limited:

			Options
		Number of	lapsed/	Number of	Percentage
		share options	cancelled/	share options	of issued
Directors	Date of Grant	granted	exercised	outstanding	share capital
					(%)
Peter Lee Chung Hing	2 March 2005	15,000	Nil	25,000	0.089
	4 April 2006	10,000
Vernon Francis Moore	2 March 2005	15,000	Nil	25,000	0.089
	4 April 2006	10,000
Leslie Chang Li Hsien	2 March 2005	15,000	Nil	25,000	0.089
	4 April 2006	10,000

The above options were granted by CITIC Capital Markets Holdings Limited.

None of the Directors has had any direct or indirect interest in any assets which have since 31 December 2005 (being the date to which the latest published audited financial statements of the Company were made up) been acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group.

There is no contract or arrangement subsisting at the Latest Practicable Date in which any of the Directors is materially interested and which is significant in relation to the business of the Enlarged Group.

– 173 –

APPENDIX VII

GENERAL INFORMATION

(b) Substantial shareholders of the Company

As at the Latest Practicable Date, save as disclosed herein, so far as was known to any Director or chief executive of the Company, no person (other than a Director or chief executive of the Company or their respective associates) had any interest or short position in the Shares or underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO:

(i) Interest in the Shares

		Percentage
Name	Number of Shares	to the issued
	of the Company	share capital
		(%)
CITIC Group	632,253,285	28.819
CITIC HK	632,253,285	28.819
Heedon Corporation	496,386,285	22.626
Honpville Corporation	310,988,221	14.175

CITIC HK is a substantial shareholder of the Company (within the meaning of the Listing Rules) indirectly through the following wholly owned subsidiary companies:

		Percentage to
Name of subsidiary	Number of Shares	the issued
companies of CITIC HK	of the Company	share capital
		(%)
Affluence Limited	43,266,000	1.972
Winton Corp.	30,718,000	1.400
Westminster Investment Inc.	101,960,000	4.648
Jetway Corp.	20,462,000	0.933
Cordia Corporation	32,258,064	1.470
Honpville Corporation	310,988,221	14.175
Hainsworth Limited	82,601,000	3.765
Southpoint Enterprises Inc.	10,000,000	0.456

Each of Affluence Limited, Winton Corp., Westminster Investment Inc., Jetway Corp., Cordia Corporation, Honpville Corporation, Hainsworth Limited and Southpoint Enterprises Inc. holds the Shares beneficially. Accordingly, Honpville Corporation is a substantial shareholder of the Company (within the meaning of the Listing Rules).

– 174 –

APPENDIX VII

GENERAL INFORMATION

CITIC Group is the direct holding company of CITIC HK. CITIC HK is the direct holding company of Heedon Corporation, Hainsworth Limited, Affluence Limited and Barnsley Investments Limited. Heedon Corporation is the direct holding company of Winton Corp., Westminster Investment Inc., Jetway Corp., Kotron Company Ltd. and Honpville Corporation and Kotron Company Ltd. is the direct holding company of Cordia Corporation. Barnsley Investments Limited is the direct holding company of Southpoint Enterprises Inc. Accordingly, the interests of CITIC Group in the Company duplicate the interests of CITIC HK in the Company. The interests of CITIC HK in the Company duplicate the interests in the Company of all its direct and indirect subsidiary companies as described above. The interests of Heedon Corporation in the Company duplicate the interests in the Company of all its direct and indirect subsidiary companies as described above. The interests of Barnsley Investments Limited in the Company duplicate the interests in the Company of its direct subsidiary company as described above and the interests of Kotron Company Ltd. in the Company duplicate the interests in the Company of its direct subsidiary company as described above.

• (ii) Short position in the Shares

		Percentage to
	Number of Shares	the issued
Name	of the Company	share capital
		(%)
CITIC Group	100,000,000	4.56
CITIC HK	100,000,000	4.56

These are in respect of options granted by CITIC HK, a substantial shareholder of the Company (within the meaning of the Listing Rules), to Mr. Larry Yung Chi Kin.

– 175 –

APPENDIX VII

GENERAL INFORMATION

As at the Latest Practicable Date, save as disclosed below, none of the Directors was a director or employee of a company which had an interest or short position in the Shares and underlying Shares which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, was, directly or indirectly, interested in ten per cent. or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Group:

	Name of company which
	had such discloseable	Position within
Name of Director	interest or short position	such company
Larry Yung Chi Kin	CITIC Group	Director
	CITIC HK	Director
	Heedon Corporation	Director
	Honpville Corporation	Director
	Earnplex Corporation	Director & shareholder
	Bloomfield Enterprises Corp.	Director & shareholder
	Rockhampton Investments	Director & shareholder
	Limited
Henry Fan Hung Ling	CITIC HK	Director
Vernon Francis Moore	CITIC HK	Director
	Heedon Corporation	Director
	Honpville Corporation	Director
Li Shilin	CITIC Group	Director
Carl Yung Ming Jie	Earnplex Corporation	Director
Liu Jifu	CITIC HK	Director
Leslie Chang Li Hsien	Honpville Corporation	Director

– 176 –

APPENDIX VII

GENERAL INFORMATION

(c) Substantial shareholding in other members of the Enlarged Group

As at the Latest Practicable Date, save as disclosed herein, so far as was known to any Director or chief executive of the Company, no person (other than a Director or chief executive of the Company or their respective associates or a member of the Enlarged Group) was, directly or indirectly, interested in ten per cent. or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of the Enlarged Group:

			Percentage of
Name of subsidiary	Name of shareholder	issued share capital
Adwood Company Limited	Silverstone Assets Limited		30%
New Hong Kong Tunnel	Kumagai International Limited		13.875%
Company Limited
Sims Trading (Macau) Company	Mr. Ma Iao Hang		10%
Limited	Mr. Ma Chi Seng		10%
	Mr. Ka Lon Ho		10%
Maxiwin Assets Holdings Ltd.	Koling Enterprises Corp.		18.18%
Modus Enterprises Holdings Inc.	Koling Enterprises Corp.		26.67%
Dah Chong Hong – Dragonair	Hong Kong Dragon Airlines Limited		30%
Airport GSE Service Limited
Triangle – Isuzu Motors Limited	Isuzu Motors Limited		40%
DAS Nordisk Limited	Hydro Asia Pacific Pte. Ltd.		30%
DAS Aviation Support Limited	Hong Kong Dragon Airlines Limited		30%
Bright Billion Limited	Jungle Investment Limited		10%
Alixon Co. Ltd.	RFC Management Limited		10%
Prosperity Motors Limited	Xin Kang Heng Holdings Limited		40%
Fishman Technology Limited	Mr. Wu Xisang		15%
Firestone Technology Holdings	Mr. Wu Xisang		15%
Limited
Easyband Broadband Holdings	Mr. Wu Xisang		15%
Limited

– 177 –

APPENDIX VII

GENERAL INFORMATION

			Percentage of
Name of subsidiary	Name of shareholder	issued share capital
Dah Chong Hong Motor Service	Xin Kang Heng Holdings Limited		40%
Centre (Macau) Limited
Dong Chong Motors (China)	Tokyo Boeki Ltd.		32.25%
Limited
Hang Shun Fat Company, Limited	Honorway Investments Limited		11.8%
	Wideland Investors Limited		11.8%
	Mr. Leung Kau Kui, deceased		11.8%
Wah Luen Fung Company, Limited	Marvel Sweet Management Ltd.		15%
	Wideland Investors Limited		15%
Asia Pacific Internet Exchange	HKIX Hong Kong Ltd.		25%
Limited
Ko Lok Investment Company,	Marvel Sweet Management Ltd.		40%
Limited
Goldenburg Properties Limited	Gorich Traders Limited		30%
Dah Chong Hong (Macao)	Mr. Ma Iao Hang		20%
Engineering Limited	Mr. Liu Chak Wan		20%
Dah Chong Hong Macau Total	CBA Investments Company Limited		35%
Supply Chain Management	Cheong Wah Hong Corporation –		10%
Company Limited	Enterprises and Investments Limited
Dah Chong Hong Macau Food	CBA Investments Company Limited		35%
Supply Company Limited	Cheong Wah Hong Corporation –		10%
	Enterprises and Investments Limited
Dah Chong Hong Macau Logistics	CBA Investments Company Limited		35%
Warehouse Company Limited	Cheong Wah Hong Corporation –		10%
	Enterprises and Investments Limited
DCH Supply Chain Management	Excel Epoch International Limited		20%
Company Limited
Mainstream Holdings Limited	IBP Caribbean Inc.		45%
Regal Heights Limited	Perdue Farms Incorporated		40%
Winway Investments Holdings Corp.	Rising Sun Investments Holdings	Ltd.	38%

– 178 –

APPENDIX VII

GENERAL INFORMATION

Join Resources Limited	Swire Properties Limited	16.67%
Name of subsidiary being
a joint venture company
established in the PRC
without the concept of		Percentage of
general meetings (#)	Name of shareholder	registered capital
Guangdong Jing Yun Distribution	Guangdong Huada Distribution	10%
Co., Ltd.	Company
無錫太湖景發展有限公司	無錫市國聯發展（集團）有限公司	30%
(Wuxi Taihu Jing Development	(Wuxi Guo Lian Development
Co., Ltd.)	Group Co., Ltd.)
無錫太湖苑置業有限公司	無錫市國聯發展（集團）有限公司	30%
(Wuxi Taihu Yuan Property	(Wuxi Guo Lian Development Group
Co., Ltd.)	Co., Ltd.)
無錫太湖美生態環保有限公司	無錫市國聯發展（集團）有限公司	30%
(Wuxi Taihu Mei Environmental	(Wuxi Guo Lian Development Group
Co., Ltd.)	Co., Ltd.)
Jiangsu CP Xingcheng Special Steel	Jiangyin Steel Mill	10.6%
Co., Ltd.	Bright Trinity Enterprises Ltd.	11.62%
Jiangyin Xingcheng Steel Products	Jiangyin Steel Mill	11.7%
Co., Ltd.
Jiangyin Xingcheng Storage and	Jiangyin Steel Mill	11.7%
Transportation Co., Ltd.
Wuxi Xingcheng Steel Products	Jiangyin Steel Mill	11.7%
Co., Ltd.
Kunming Dah Chong Motor	雲南客車廠(Yunnan Coach Factory)	30%
Service Co., Ltd.
Guangdong Dah Chong Foodstuffs	Guangdong International Trade	30%
Co., Ltd.	Travel Service Ltd.
Qingdao Adachi Paints and	New Asia Pacific Group Co. Ltd.	25%
Chemical Materials Co., Ltd.
Shanghai DCH Jiangnanfeng	Shanghai Agriculture Investment	12.67%
Co., Ltd.	Holding Co., Ltd.
	Shanghai Pudong Huilun Enterprise	10.56%
	Holding Co., Ltd.

– 179 –

APPENDIX VII

GENERAL INFORMATION

Name of subsidiary being
a joint venture company
established in the PRC
without the concept of		Percentage of
general meetings (#)	Name of shareholder	registered capital
Shenzhen Zhongliangdachang	COFCO (Shenzhen) Co., Ltd.	30%
Foodstuffs Co., Ltd.
Dalian CP Digital Technology	大連儀表集團有限公司	19.5%
Co., Ltd.	(Dalian Instrument Group Co.,	Ltd.)
上海中信泰富廣場有限公司	Shanghai Jingan City Trading	10%
(Shanghai CITIC Square	Group Company
Co., Ltd.)
中信泰富萬寧（聯合）開發有限公司	萬寧市土地開發整理儲備中心	20%
(CITIC Pacific Wanning United	(Wanning Municipality
Development Company Limited)	Land Reserve Bureau)

• Although the information relating to these joint venture companies have been set out under this section, such joint venture companies established in the PRC under the relevant laws thereof have a different capital structure from, and do not have the same concept of shareholders general meetings as, subsidiaries of the Company established in other jurisdictions.

3. MATERIAL ADVERSE CHANGE

Save as disclosed in this circular, the Directors are not aware of any material adverse change in the financial or trading position of the Group since 31 December 2005, the date to which the latest published audited accounts of the Company were made up.

4. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by the Enlarged Group within two years immediately preceding the Latest Practicable Date which are or may be material:

• (a) the Sino-Iron Acquisition Agreement (with the following agreements annexed: the State Agreement dated 5 December 2001, the Facilities Deed dated 26 October 2001 as varied, the Sub-Lease dated 25 October 2001 as varied and as amended and restated by the Mining Right and Lease Agreement dated 21 March 2006, the Fortescue Project Consolidation Agreement dated 26 October 2001 (as varied), the Joint Development Agreement dated 12 March 2005 and the Tax Sharing Agreement dated 21 March 2006);

– 180 –

APPENDIX VII

GENERAL INFORMATION

• (b) the Balmoral Acquisition Agreement (with the following agreements annexed: the State Agreement dated 5 December 2001, the Facilities Deed dated 26 October 2001 as varied, the Sub-Lease dated 25 October 2001 as varied and as amended and restated by the Mining Right and Lease Agreement dated 21 March 2006, the Fortescue Project Consolidation Agreement dated 26 October 2001 as varied and the Tax Sharing Agreement dated 21 March 2006);

• (c) the acquisition and capital injection agreement dated 11 November 2005 entered into between CITIC Pacific, State-owned Assets Supervision and Administration Commission of the Government of Hebei Province and Hebei Zhongfu Investment Limited in respect of acquisition of 65% interest in Shijiazhuang Iron & Steel Co., Ltd. for a consideration of RMB1,478,293,192.41;

• (d) the joint venture contract, the articles of association and the capital injection agreement all dated 16 August 2005 entered into between CITIC Pacific and China State Shipbuilding Corporation (“CSSC”) and its group companies (“CSSC Group”) in respect of the investment for a 49% interest in the Phase 1 of the Shanghai Shipyard Land Development Project (“the Shipyard Project”). The total investment amount of Phase 1 will be approximately US$481,429,500; the joint venture contract, the articles of association and the capital injection agreement all dated 20 January 2006 entered into between CITIC Pacific and CSSC Group in respect of the investment for a 49% interest in the Phase 2 of the Shipyard Project. The total investment amount of Phase 2 will be approximately US$1,306,110,000; a framework agreement dated 20 January 2006 entered into between CITIC Pacific and CSSC in respect of the investment for a 49% interest in the Phase 3 of the Shipyard Project. The total investment amount of Phase 3 will be approximately US$923,000,000; and

• (e) the sale and purchase agreement dated 20 January 2006 entered into between Newmarket Holdings Limited (a wholly owned subsidiary of CITIC Pacific), Swire Properties Limited, CITIC Pacific and Swire Pacific Limited in respect of the disposal of Group’s entire 50% interest in Festival Walk for a consideration of HK$6,180 million (subject to adjustment based on the completion accounts).

5. EXPERTS

• (a) The qualifications of the experts who have given advice contained in this circular are set out as follows:

Name Qualification Golder Associates mining geologist KPMG Certified Public Accountants PricewaterhouseCoopers Certified Public Accountants

– 181 –

APPENDIX VII

GENERAL INFORMATION

• (b) Each of Golder Associates, KPMG and PricewaterhouseCoopers has confirmed that it has no shareholding in any member of the Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

• (c) Each of Golder Associates, KPMG and PricewaterhouseCoopers has confirmed that it does not have any interest, direct or indirect, in any assets which have been acquired or disposed of by or leased to any member of the Enlarged Group, or which are proposed to be acquired or disposed of by or leased to any member of the Enlarged Group since 31 December 2005, being the date to which the latest published audited consolidated financial statements of the Company were made up.

• (d) Each of Golder Associates, KPMG and PricewaterhouseCoopers has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its letter or report (as the case may be) and references to its name in the form and context in which it appears.

• (e) The letter from Golder Associates in relation to Mining Area is given as of 8 May 2006 for incorporation herein.

6. LITIGATION

As at the Latest Practicable Date, none of the members of the Enlarged Group was engaged in any litigation or claim of material importance and, so far as the Directors were aware, no litigation or claim of material importance was pending or threatened against any member of the Enlarged Group.

There are no claims in relation to exploration rights or mining rights made or notified either by third parties against any member of the Enlarged Group or vice versa.

7. SERVICE CONTRACTS

There is no existing or proposed service contracts between any of the Directors and any member of the Enlarged Group, other than contracts expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation).

8. INTEREST IN ASSETS

As at the Latest Practicable Date, none of the Directors nor Golder Associates has any interest, direct or indirect, in the promotion of, or in any assets which have been, within the two years immediately preceding the date of this circular, acquired or disposed of by or leased to any member of the Group, or are proposed to be acquired or disposed of by or leased to any member of the Group.

– 182 –

APPENDIX VII

GENERAL INFORMATION

9. COMPETING INTEREST

In so far as the Directors are aware, none of the Directors or their respective associates has any interest in a business which competes or is likely to compete with the business of the Group.

10. GENERAL

• (a) The secretary of the Company is Ms. Alice Tso Mun Wai, ACIS, MA and the qualified accountant of the Company appointed pursuant to Rule 3.24 of the Listing Rules is Mr. Leslie Chang Li Hsien, HKICPA, AICPA, NYSSCPA.

• (b) The registered office of the Company is at 32nd Floor, CITIC Tower, 1 Tim Mei Avenue, Central, Hong Kong.

• (c) The share registrars of the Company is Tengis Limited, 26th Floor, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong.

• (d) The English text of this circular shall prevail over the Chinese text.

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection on any weekday (Saturdays and Sundays excepted) during business hours at the registered office of the Company at 32nd Floor, CITIC Tower, 1 Tim Mei Avenue, Central, Hong Kong from the date of this circular up to and including 25 May 2006:

• (a) the memorandum and articles of association of the Company;

• (b) the audited accounts of the Company for each of the two years ended 31 December 2005;

• (c) the accountants’ report of Sino-Iron and Balmoral set out in Appendix IV to this circular;

• (d) the letter from PricewaterhouseCoopers on the unaudited pro forma financial information on the Enlarged Group set out in Appendix V to this circular;

• (e) the technical report of Golder Associates set out in Appendix VI to this circular;

• (f) each of the material contracts as referred to in the paragraph headed “Material Contracts” in this appendix;

• (g) the written consents from KPMG and PricewaterhouseCoopers as referred to in the paragraph headed “Experts” in this appendix;

• (h) the written consent from Golder Associates as referred to in the paragraph headed “Experts” in this appendix;

• (i) the circular of the Company dated 10 February 2006; and

• (j) this circular.

– 183 –