CWT International Limited — Proxy Solicitation & Information Statement 2007

Dec 9, 2007

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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

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

This circular is for information only. It is not an offer to sell or the solicitation of an offer to acquire, purchase, subscribe or dispose of any securities and neither this circular nor anything herein forms the basis for any contract or commitment whatsoever.

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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SINOFERT HOLDINGS LIMITED

---

(Incorporated in Bermuda with limited liability)

(Stock Code: 297)

MAJOR AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF AN APPROXIMATE 18.49% INTEREST IN QINGHAI SALT LAKE

CONNECTED TRANSACTION ISSUE OF NEW SHARES TO CONNECTED PERSONS

Financial Adviser to Sinofert Holdings Limited

Citi

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

SOMERLEY LIMITED

A letter from the Independent Board Committee (as defined in this circular) is set out on pages 23 to 24 of this circular. A letter from Somerley Limited, the independent financial adviser, containing its advice to the Independent Board Committee and the Independent Shareholders (as defined in this circular) is set out on pages 25 to 59 of this circular.

A notice convening the SGM (as defined in this circular) to be held at Lounge, Mezzanine Floor, Grand Hyatt Hong Kong, 1 Harbour Road, Hong Kong on 28 December 2007 at 9:40 a.m. (or immediately after the conclusion or adjournment of the special general meeting of the Company scheduled to be convened on the same day at 9:30 a.m. at the same venue, whichever is the later) is set out on pages 176 to 177 of this circular. Whether or not you are able to attend the meeting in person, you are requested to complete and return the enclosed form of proxy in accordance with the instructions printed thereon as soon as possible and in any event not less than 48 hours before the time appointed for the holding of the SGM. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the meeting or at any adjourned meeting should you so wish.

* For identification purpose only

10 December 2007

CONTENTS

	Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Letter from the Board. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	6
The Acquisition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	7
The Subscription Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	10
Information on the Company, Sinochem Corporation and Potashcorp. . . . . . . . .	13
Information on Qinghai Salt Lake . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	14
Financial Effect of the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	16
Financial and Trading Prospects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	17
Reasons for and Benefits of the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . .	18
Fund Raising by the Company in the Past 12 Months . . . . . . . . . . . . . . . . . . . .	18
Reasons for and Benefits of the Subscription, Use of Proceeds . . . . . . . . . . . . .	19
Implications under the Listing Rules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	19
SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	20
Procedures for Demanding a Poll. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	21
Further Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Letter from the Independent Board Committee. . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Letter from Somerley. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
Appendix I – Financial Information of the Group . . . . . . . . . . . . . . . . . . . . .	60
Appendix II – Financial Information of Qinghai Salt Lake. . . . . . . . . . . . . . .	118
Appendix III – Pro Forma Financial Information of the Group. . . . . . . . . . . .	161
Appendix IV – General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	165
Notice of SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	176

– i –

DEFINITIONS

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

“Acquisition”	the proposed acquisition of 141,907,561 shares in
	Qinghai Salt Lake, representing approximately 18.49% of
	its total issued share capital
“Acquisition Agreement”	the conditional sale and purchase agreement dated 16
	October 2007 between Sinochem Fertilizer Company
	Limited (as purchaser) and Sinochem Corporation (as
	seller) in relation to the Acquisition
“associate”	has the meaning given to it under the Listing Rules
“Board”	the board of Directors
“Bonds”	the HK$1,300,000,000 listed zero coupon convertible
	bonds due 2011 issued by the Company on 7 August 2006
“Bye-laws”	the bye-laws of the Company
“Citi” or “Citigroup”	Citigroup Global Markets Asia Limited
“Company”	Sinofert Holdings Limited, a company incorporated on 26
	May 1994 in Bermuda with limited liability, the ordinary
	shares of which are listed on the Stock Exchange
“connected person”	has the meaning given to it under the Listing Rules
“Director(s)”	director(s) of the Company
“Group”	the Company and its subsidiaries
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong
“Hong Kong”	Hong Kong Special Administrative Region of the PRC
“Independent Board Committee”	the committee of independent non-executive Directors
	formed to advise the Independent Shareholders in respect
	of the terms of the Acquisition and the Subscription

– 1 –

DEFINITIONS

“Independent Shareholders”	in respect of the Acquisition, shareholders of the
	Company other than Sinochem HK and its associates, and
	in respect of the Subscription, shareholders of the
	Company other than Sinochem HK and PCS Barbados
	and their respective associates
“Latest Practicable Date”	3 December 2007, being the latest practicable date for the
	purpose of ascertaining certain information contained in
	this circular
“Listing Rules”	the Rules Governing the Listing of Securities on The
	Stock Exchange of Hong Kong Limited
“Lock-up Undertaking”	the undertaking given by Sinochem Corporation to the
	holders of A shares in Qinghai Salt Lake in connection
	with the equity division reform scheme of Qinghai Salt
	Lake, which took effect on 29 June 2006
“Non-Competition Undertaking”	the non-competition undertaking dated 6 June 2005
	entered into by Sinochem Corporation in favour of the
	Company
“PCS Barbados”	PCS (Barbados) Investment Company Limited
“PCS Barbados Subscription	194,290,175 new Shares available for subscription by
Shares”	PCS Barbados at the Subscription Price
“Potashcorp”	Potash Corporation of Saskatchewan Inc. and, as
	applicable, its direct and indirect subsidiaries
“PRC”	the People’s Republic of China, which for the purposes of
	this circular excludes Hong Kong, Macau and Taiwan
“PRC GAAP”	generally accepted accounting principles in the PRC
“Purchaser”	Sinochem Fertilizer Company Limited
“Purchaser’s Undertaking”	the undertaking given by the Purchaser under the
	Acquisition Agreement pursuant to which it has agreed to
	be bound by the terms of the Lock-up Undertaking and
	the Voting Undertaking

– 2 –

DEFINITIONS

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

||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
|“Qinghai|Digital”|(Qinghai|Digital|
|Net|Investment|Share|Holding|Group|Co.,|Ltd),|a|
|company|incorporated|in|the|PRC|and|listed|on|the|
|Shenzhen|Stock|Exchange|under|stock|code|000578|
|“Qinghai|Salt|Lake”|(Qinghai|Salt|Lake|Potash|
|Co.|Ltd),|a|joint|stock|limited|liability|company|whose|
|shares|are|listed|on|the|Shenzhen|Stock|Exchange|under|
|stock|code|000792|
|“Qinghai|Salt|Lake|Industry|(Qinghai|Salt|Lake|
|Group”|Industry Group Co. Ltd), a limited liability company who|
|holds|approximately|30.6%|of|the|total|issued|share|
|capital|of|Qinghai|Salt|Lake|
|“RMB”|Renminbi,|the|lawful|currency|of|the|PRC|
|“Sale|Shares”|141,907,561|Qinghai|Salt|Lake|shares,|representing|
|approximately|18.49%|of|the|total|issued|share|capital|of|
|Qinghai|Salt|Lake|
|“SASAC”|State-owned|Assets|Supervision|and|Administration|
|Commission|of|the|State|Council|of|the|PRC|
|“SFO”|the|Securities|and|Futures|Ordinance|(Chapter|571|of|the|
|Laws|of|Hong|Kong)|
|“SGM”|the|special|general|meeting|of|the|Company|to|be|
|convened|to|consider|and,|if|thought|fit,|approve,|among|
|other things, the Acquisition Agreement, the Subscription|
|Agreement|and|the|transactions|contemplated|thereunder|
|“Share|Option|Schemes”|the|share|option|schemes|adopted|by|the|Company|on|26|
|August|2002|and|28|June|2007|
|“Shareholders”|holders|of|Shares|
|“Share(s)”|ordinary|shares|of|HK$0.10|each|in|the|capital|of|the|
|Company|
|“Sinochem|Corporation”|(Sinochem|Corporation),|a|state-|
|owned|enterprise|established|in|the|PRC|formerly|known|
|as|China|National|Chemicals|Import|&|Export|
|Corporation|

----- End of picture text -----

– 3 –

DEFINITIONS

“Sinochem Fertilizer Company a company incorporated in the PRC, and an indirect Limited” wholly-owned subsidiary of the Company “Sinochem HK” Sinochem Hong Kong (Group) Company Limited, a company incorporated in Hong Kong with limited liability which is wholly-owned by Sinochem Corporation “Sinochem HK Subscription 519,995,539 new Shares available for subscription by Shares” Sinochem HK at the Subscription Price “Sinochem Shandong” (Sinochem Shandong Chemical Fertilizer Company Limited), a limited liability company established in the PRC on 31 March 2004 in which Sinochem Corporation holds a direct 51% equity interest

• “Somerley” Somerley Limited, a corporation licensed to carry out Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong) having CE registration number AAJ067 and the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition and the Subscription

• “Stock Exchange” The Stock Exchange of Hong Kong Limited

• “Subscription” the conditional subscription of 519,995,539 Subscription Shares by Sinochem HK and 194,290,175 Subscription Shares by PCS Barbados

• “Subscription Agreement” the subscription agreement entered into between Sinochem HK, PCS Barbados and the Company dated 2 November 2007 in relation to the Subscription

• “Subscription Price” price payable for the Subscription Shares at HK$7.00 per Subscription Share

• “Subscription Shares” the Sinochem HK Subscription Shares and the PCS Barbados Subscription Shares (i.e. 714,285,714 new Shares available for the Subscription at the Subscription Price)

– 4 –

DEFINITIONS

• “Tianji JV”

(Tianji Sinochem Gaoping Chemical Engineering Company Ltd.), a limited liability company established in the PRC on 1 November 2004 in which Sinochem Corporation holds a direct 40% equity interest

• “Top-up Placing”

• the placing of existing shares and subscription of new shares by Sinochem HK, as announced by the Company on 10 July 2007

• “Voting Undertaking” the undertaking given by Sinochem Corporation to holders of A shares in Qinghai Salt Lake that at Qinghai Salt Lake’s annual general meetings held for the financial years of 2006 to 2008, Sinochem Corporation shall propose and vote in favour of all resolutions to approve the distribution of all distributable profits of Qinghai Salt Lake to its shareholders

For the purpose of this circular, unless otherwise indicated, the exchange rate of HK$1.00 = RMB0.9503 has been used for currency translation. Such exchange rates are for the purposes of illustration only and do not constitute a representation that any amount in RMB or HK$ have been, could have been or may be converted at such or any other rates.

– 5 –

LETTER FROM THE BOARD

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SINOFERT HOLDINGS LIMITED

---

(Incorporated in Bermuda with limited liability)

(Stock Code: 297)

Executive Directors: Du Ke Ping (Chief Executive Officer) Harry Yang

Non-Executive Directors: Liu De Shu (Chairman) Song Yu Qing (Deputy Chairman) Chen Guo Gang Stephen Francis Dowdle Wade Fetzer III Independent non-executive Directors: Tse Hau Yin, Aloysius Ko Ming Tung, Edward Tang Tin Sek

Registered Office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

Principal place of business: Units 4601-4610, 46th Floor Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong

10 December 2007

To the Shareholders and, for information only, holders of share options and the Bonds of the Company

Dear Sir/Madam,

MAJOR AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF AN APPROXIMATE 18.49% INTEREST IN QINGHAI SALT LAKE

CONNECTED TRANSACTION ISSUE OF NEW SHARES TO CONNECTED PERSONS

INTRODUCTION

As disclosed in the Company’s circular dated 13 June 2005, Sinochem Corporation granted an option ( Option ) to the Company which allows the Company to acquire Sinochem Corporation’s interests in Qinghai Salt Lake, Tianji JV and Sinochem Shandong respectively at a fair market value.

• For identification purpose only

– 6 –

LETTER FROM THE BOARD

The Company announced on 17 October 2007 that it exercised the Option in respect of the acquisition of Sinochem Corporation’s interest in Qinghai Salt Lake and that on 16 October 2007, the Purchaser, an indirect wholly-owned subsidiary of the Company, entered into the Acquisition Agreement with Sinochem Corporation, pursuant to which the Purchaser conditionally agreed to acquire, and Sinochem Corporation conditionally agreed to sell, 141,907,561 ordinary shares (representing approximately 18.49% of the total issued share capital) in Qinghai Salt Lake for a consideration of RMB47.49 (equivalent to HK$49.97) per Sale Share. The total consideration is approximately RMB6,739.19 million (equivalent to approximately HK$7,091.64 million). The Company announced on 28 November 2007 that the Purchaser has entered into conditional acquisition agreements with Sinochem Corporation to acquire Sinochem Corporation’s interests in Sinochem Shandong and Tianji JV respectively.

The Company also announced that on 2 November 2007, the Company entered into the Subscription Agreement with Sinochem HK and PCS Barbados pursuant to which Sinochem HK and PCS Barbados agreed to subscribe and the Company agreed to issue and allot 714,285,714 Subscription Shares at the Subscription Price of HK$7.00 per Subscription Share.

The Acquisition constitutes a major transaction of the Company under Chapter 14 of the Listing Rules. Furthermore, as Sinochem Corporation is a connected person of the Company by reason of it being a substantial shareholder of the Company, the Acquisition constitutes a connected transaction of the Company and is therefore subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

As each of Sinochem HK and PCS Barbados is a connected person of the Company by reason of it being a substantial shareholder of the Company, the Subscription constitutes a connected transaction of the Company and is therefore subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

The purpose of this circular is to provide you with further information in respect of the Acquisition and the Subscription.

THE ACQUISITION AGREEMENT

Date of the Acquisition Agreement

16 October 2007

Parties

Seller: Sinochem Corporation Purchaser: Sinochem Fertilizer Company Limited, a wholly-owned subsidiary of the Company

– 7 –

LETTER FROM THE BOARD

Interest to be acquired

141,907,561 ordinary shares (representing approximately 18.49% of the total issued share capital) in Qinghai Salt Lake.

Lock-up period

The Sale Shares are subject to the undertaking ( Lock-up Undertaking ) given by Sinochem Corporation to the holders of A shares in Qinghai Salt Lake in connection with the equity division reform scheme of Qinghai Salt Lake, which took effect on 29 June 2006 ( Effective Date ). Pursuant to the Lock-up Undertaking, Sinochem Corporation shall not, for a period of four years commencing on the Effective Date (i.e. from 29 June 2006 to 29 June 2010), trade on the Shenzhen Stock Exchange or otherwise transfer any of Qinghai Salt Lake’s shares held by it which were untradeable prior to the Effective Date (including the Sale Shares) save for transfers to enterprises controlled by it. The Purchaser has given an undertaking under the Acquisition Agreement ( Purchaser’s Undertaking ) pursuant to which it has agreed to be bound by the terms of the Lock-up Undertaking.

Dividend policy

Sinochem Corporation has undertaken to holders of A shares in Qinghai Salt Lake that at Qinghai Salt Lake’s annual general meetings held for the financial years of 2006 to 2008, it shall propose and vote in favour of all resolutions to approve the distribution of all distributable profits of Qinghai Salt Lake to its shareholders ( Voting Undertaking ). Pursuant to the Purchaser’s Undertaking, the Purchaser has agreed to be bound by the terms of the Voting Undertaking.

Board representation

The Purchaser will be entitled to nominate 2 directors to the board of Qinghai Salt Lake.

Consideration

The total consideration for the Sale Shares is RMB6,739.19 million (equivalent to approximately HK$7,091.64 million), which will be payable by the Purchaser in cash in 2 instalments.

The consideration was arrived at after arm’s length negotiations between Sinochem Corporation and the Company based primarily on the pricing mechanism stipulated in the relevant rules and regulations of SASAC governing disposal of listed shares by state-owned enterprises (Sinochem Corporation being a state-owned enterprise). The consideration of approximately RMB47.49 (equivalent to HK$49.97) per Sale Share represents 90% of the 30-trading day average of the daily volume weighted average price of approximately RMB52.77 (equivalent to HK$55.53) per share from 29 August 2007 to 15 October 2007 (being the date preceding the date of signing of the Acquisition Agreement). The consideration per Sale Share of RMB47.49 (equivalent to HK$49.97) also represents a 23.00% discount to

– 8 –

LETTER FROM THE BOARD

Qinghai Salt Lake’s closing price of RMB61.70 (equivalent to HK$64.93) per share on 15 October 2007 and a 16.10% discount to the closing price of RMB56.60 (equivalent to HK$59.56) per share on the Latest Practicable Date.

Conditions of the Acquisition

The Acquisition is conditional upon the following conditions having been satisfied by the parties:

• (i) the senior management committee of Sinochem Corporation having passed resolutions to approve the execution and performance of the Acquisition Agreement;

• (ii) the Independent Shareholders having passed all necessary resolutions to approve the Acquisition Agreement and the transactions contemplated thereunder at a general meeting of the Company in accordance with the Listing Rules; and

• (iii) all necessary consents, permits and other approvals necessary for or in respect of the Acquisition having been obtained from the relevant governmental and regulatory authorities in the PRC, including, without limitation, approval from the SASAC.

None of the conditions above can be waived. Approval from the SASAC in respect of the Acquisition was obtained on 10 November 2006 which was valid for one year from the date of approval.

The Company and the Purchaser are in the process of applying for other approvals from the relevant governmental and regulatory authorities in the PRC in connection with the Acquisition.

Sinochem Corporation has undertaken to use its best endeavours to procure Qinghai Salt Lake and its related parties to render assistance to the Purchaser in respect of all necessary procedures involving the subject sale transfer, including without limitation, audit and share registration.

Payment

The consideration payable to Sinochem Corporation shall be satisfied in 2 installments in the following manner:

• (a) within 5 days of signing of the Acquisition Agreement, the Purchaser shall pay 30% of the consideration ( First Payment ) to Sinochem Corporation in cash; and

• (b) within 3 months of the fulfilment or waiver of the conditions under the section headed “Conditions of the Acquisition”, the remaining 70% of the consideration shall be payable in cash.

– 9 –

LETTER FROM THE BOARD

The Company and the Purchaser have agreed with Sinochem Corporation to defer payment of the First Payment until the Purchaser has obtained all relevant approvals in relation to the increase of the Purchaser’s capital.

Completion

Upon payment of the consideration in full and the transfer and registration of the Sale Shares in the name of the Purchaser, the Acquisition Agreement shall be deemed completed.

Termination

If due to reasons beyond the control of either party (including without limitation force majeure) the Sale Shares are not registered in the name of the Purchaser within 6 months of the satisfaction of the conditions under the section headed “Conditions of the Acquisition”, the Acquisition Agreement will automatically terminate. Sinochem Corporation shall refund the First Payment (together with interest) to the Purchaser within 10 days of termination of the Acquisition Agreement.

If the conditions under the section headed “Conditions of the Acquisition” are not satisfied within 6 months from the date of signing of the Acquisition Agreement, either party has the right to terminate the Acquisition Agreement.

THE SUBSCRIPTION AGREEMENT

Date of Subscription Agreement

2 November 2007

Parties

Issuer: The Company Subscribers: Sinochem HK PCS Barbados

Number of Subscription Shares

Sinochem HK Subscription Shares

The Company has agreed to allot and issue to Sinochem HK, and Sinochem HK has agreed, conditionally as referred to below, to subscribe for the Sinochem HK Subscription Shares. There are no restrictions on the subsequent sale of the Sinochem HK Subscription Shares upon completion of the Subscription.

The Sinochem HK Subscription Shares represent approximately 8.37% of the existing issued share capital of the Company and approximately 7.51% of the issued share capital of the Company as enlarged by the issue of the Subscription Shares.

– 10 –

LETTER FROM THE BOARD

PCS Barbados Subscription Shares

The Company has agreed to allot and issue to PCS Barbados, and PCS Barbados has agreed, conditionally as referred to below, to subscribe for the PCS Barbados Subscription Shares. There are no restrictions on the subsequent sale of the PCS Barbados Subscription Shares upon completion of the Subscription.

The PCS Barbados Subscription Shares represent approximately 3.13% of the existing issued share capital of the Company and approximately 2.81% of the issued share capital of the Company as enlarged by the issue of the Subscription Shares.

Subscription Price

HK$7.00 per Subscription Share, determined based on arm’s length negotiations between the Company, Sinochem HK and PCS Barbados with reference to the market conditions taking into account the recent trading price of the Shares, which represents a premium of approximately 2.04% of the closing price of HK$6.86 quoted on the Stock Exchange on 2 November 2007 (being the date on which the Subscription Agreement was entered into), a discount of approximately 3.05% of the average closing price of HK$7.22 over the last five consecutive trading days up to and including 2 November 2007, a discount of approximately 1.13% of the average closing price of HK$7.08 over the last ten consecutive trading days up to and including 2 November 2007 and a 9.20% premium to the closing price of HK$6.41 on the Latest Practicable Date. The aggregate subscription price for the Subscription Shares is approximately HK$5,000.00 million, which shall be payable by Sinochem HK as to approximately HK$3,639.97 million in respect of the Sinochem HK Subscription Shares and by PCS Barbados as to approximately HK$1,360.03 million in respect of the PCS Barbados Subscription Shares, at completion.

Specific mandate to issue Subscription Shares

The Subscription Shares will be issued under a specific mandate to be sought at the SGM. The specific mandate, if approved, will be valid until the completion or termination of the Subscription Agreement.

Ranking

The Subscription Shares, when fully paid, will rank pari passu in all respects with the existing Shares in issue as at the date of allotment and in particular will rank in full for all dividends and other distributions declared made or paid at any time after the date of the Subscription Agreement.

– 11 –

LETTER FROM THE BOARD

Conditions of the Subscription

The subscription by Sinochem HK and PCS Barbados of the Subscription Shares is conditional upon:

• (i) the passing of the resolutions by the shareholders of the Company at the SGM to approve the specific mandate in respect of the issue of the Subscription Shares to be issued pursuant to the Subscription Agreement;

• (ii) the passing of the resolutions by the shareholders of the Company at the SGM to approve the transactions contemplated under the Acquisition Agreement and the Purchaser’s Undertaking (including the Acquisition, the Lock-up Undertaking and the Voting Undertaking);

• (iii) the Listing Committee of the Stock Exchange granting or agreeing to grant approval for the listing of and permission to deal in such Subscription Shares (subject only to allotment and matters ancillary thereto); and

• (iv) (if necessary) the Bermuda Monetary Authority granting its permission for the allotment and issue of the Subscription Shares.

If the conditions set out above are not fulfilled (or, in respect of the condition set out in (ii) above, waived in writing by the Company) within six months from the date of the Subscription Agreement or such later date as may be agreed between Sinochem HK, PCS Barbados and the Company, the Subscription Agreement shall terminate and none of the parties shall have any claim against the other for costs, damages, compensation or otherwise except in relation to a previous breach and/or any accrued rights or liabilities of any party under the Subscription Agreement.

The Acquisition is not conditional upon the Subscription.

Completion of the Subscription

The Subscription Agreement is expected to be completed at or before 4:00 p.m. on or before the third business day following the fulfilment (or, in respect of condition (ii) above, waived in writing by the Company) of all the conditions above (or such other time or date as Sinochem HK, PCS Barbados and the Company shall agree).

Application for listing

Application will be made to the Listing Committee of the Stock Exchange for the granting of the listing of, and permission to deal in, the Subscription Shares.

– 12 –

LETTER FROM THE BOARD

Effect of Shareholding

The following table summarises the effects on the shareholding structure of the Company pursuant to the Subscription:

Name of Shareholder Sinochem HK PCS Barbados Public Total	As at the Latest Practicable Date No. of Shares % of issued share capital of the Company 3,108,863,335 50.06% 1,161,589,966 18.70% 1,940,170,323 31.24% 6,210,623,624 100.00%	Immediately after completion of the Subscription (Note) No. of Shares % of enlarged issued share capital of the Company 3,628,858,874 52.40% 1,355,880,141 19.58% 1,940,170,323 28.02% 6,924,909,338 100.00%	Immediately after completion of the Subscription (Note) No. of Shares % of enlarged issued share capital of the Company 3,628,858,874 52.40% 1,355,880,141 19.58% 1,940,170,323 28.02% 6,924,909,338 100.00%
			100.00%

Note: The figures assume that other than the Subscription Shares, no Shares are issued (including issue of Shares pursuant to conversion of the Bonds or exercise of the options under the Share Option Schemes) or purchased by the Company on or after the Latest Practicable Date up to the date of completion of the Subscription.

INFORMATION ON THE COMPANY, SINOCHEM CORPORATION AND POTASHCORP

The Company is principally engaged in the production, procurement and sale of fertilizers and related products in the PRC. The main business comprises research and development, production, procurement and distribution of fertilizers and forms a vertically integrated business model combining upstream and downstream businesses. The Company aims to serve the agricultural industry in the PRC by introducing quality resources from overseas and to ensure agricultural safety in the PRC.

The Company’s subsidiaries, including the Purchaser, are also engaged in the production, import, export, distribution, wholesale and retail of fertilizer raw materials and products, as well as research and development and services in the field of fertilizer-related business and products.

Established in 1950, Sinochem Corporation is a key state-controlled enterprise. It holds a 100% equity interest in Sinochem HK, which in turn owns approximately 50.06% of the Company.

– 13 –

LETTER FROM THE BOARD

Sinochem Corporation’s core business is as follows: petroleum, fertilizer, trade, distribution and logistics of chemicals, crude oil, fuel oil and natural rubber futures; overseas oil and gas exploitation and production, refinery, chemical mining and washing, fertilizer and chemicals production; hotel and real estate development and operation. Sinochem Corporation is one of the four major state owned oil companies and the largest fertilizer importer and phosphorus and compound fertilizer manufacturer in the PRC. It is also a major sales and marketing service provider of chemical products in the PRC. Sinochem HK is an investment holding company wholly-owned by Sinochem Corporation and incorporated under the laws of Hong Kong with limited liability.

Potashcorp is a company listed on the Toronto Stock Exchange and the New York Stock Exchange. It holds a 100% equity interest in PCS Barbados, which in turn owns 18.70% of the Company as at the Latest Practicable Date.

Potashcorp is the world’s largest fertilizer enterprise producing the three primary plant nutrients and a leading supplier to three distinct market categories: agriculture, with the largest capacity in the world in potash, third largest in phosphate and fourth largest in nitrogen; animal nutrition, with the world’s largest capacity in phosphate feed ingredients; and industrial chemicals, as the largest global producer of industrial nitrogen products and the world’s largest capacity for production of purified industrial phosphoric acid.

INFORMATION ON QINGHAI SALT LAKE

Qinghai Salt Lake is a state-controlled joint stock limited liability company established in the PRC in 1997 whose shares are traded on the Shenzhen Stock Exchange. Its principal activities are the development, production and distribution of chlorine potassium. Other activities include the development, production and distribution of carnallite and low adopt carnallite and the development, processing and smelting of other mining products.

Qinghai Salt Lake dominates domestic production of potassium fertilizers in the PRC. Located near Chaerhan Salt Lake in Qinghai province, Qinghai Salt Lake owns approximately 90% of the mining rights in that area. Chaerhan Salt Lake has a potassium chloride reserve of 500 million tons.

By the end of 2006, Qinghai Salt Lake had a market share of 20% in the potassium (k) fertilizer market with total production of 1.73 million tons in 2006.

Sinochem Corporation acquired (then) 20% of the issued share capital of Qinghai Salt Lake from its majority shareholder in 2004 for a consideration of RMB460.00 million (equivalent to HK$484.06 million). Pursuant to the equity division reform scheme of Qinghai Salt Lake which took effect in June 2006, Sinochem Corporation’s direct interest in Qinghai Salt Lake was diluted to approximately 18.49%.

– 14 –

LETTER FROM THE BOARD

Based on the audited financial statements of Qinghai Salt Lake, which were prepared based on PRC GAAP, its audited consolidated profits for each of the two years ended 31 December 2005 and 31 December 2006 are as follows:

	Financial year	Financial year
	ended	ended
	31 December	31 December
	2005	2006
	(RMB’ million)	(RMB’ million)
Audited consolidated profit before taxation and	946.63	1,620.50
minority interests	(equivalent to	(equivalent to
	HK$996.14	HK$1,705.25
	million)	million)
Audited consolidated profit after taxation and	515.76	811.93
minority interests	(equivalent to	(equivalent to
	HK$542.73	HK$854.39
	million)	million)

The consolidated net asset value of Qinghai Salt Lake, based on its unaudited financial statements as at 30 June 2007, was RMB1,903.72 million (equivalent to HK$2,003.28 million) (excluding minority shareholders’ interest), or approximately RMB2.48 (equivalent to HK$2.61) per share.

It is currently intended that following completion of the Acquisition, the Company’s indirect interest in Qinghai Salt Lake will be treated as an associated company and will be equity accounted for as the Company considers that it may exercise significant influence (such as right to nominate directors and senior management) over Qinghai Salt Lake.

Shareholding Structure of Qinghai Salt Lake

The shareholding structure of Qinghai Salt Lake before and after completion of the Acquisition is as follows:

Shareholder Qinghai Salt Lake Industry Group* Sinochem Corporation North China Power Sinochem Fertilizer Company Limited Other holders of limited negotiable shares Holders of negotiable shares Total	Shareholding percentage as at the Latest Practicable Date 30.60% 18.49% 3.61% 0% 3.54% 43.76% 100%	Shareholding percentage immediately after completion of the Acquisition 30.60% 0% 3.61% 18.49% 3.54% 43.76%
		100%

• Qinghai Salt Lake Industry Group is owned as to approximately 23.45% by Sinochem Corporation.

– 15 –

LETTER FROM THE BOARD

Potential restructuring of Qinghai Digital involving Qinghai Salt Lake Industry Group and Qinghai Salt Lake

Sinochem Corporation currently holds 23.45% of the equity interest of Qinghai Salt Lake Industry Group. Pursuant to ongoing restructuring arrangements involving Qinghai Salt Lake Industry Group and Qinghai Digital which have been conditionally approved by the China Securities Regulatory Commission on 29 November 2007 (as disclosed by Qinghai Digital in its announcement dated 30 November 2007) , it is anticipated that Qinghai Salt Lake Industry Group will be merged with Qinghai Digital ( Qinghai Merger ). It is expected that the surviving entity after the Qinghai Merger will continue to be listed on the Shenzhen Stock Exchange under stock code 000578, but will be renamed Qinghai Salt Lake Industry Group Stock Company ( Surviving Entity ). The Surviving Entity will continue to hold approximately 30.60% interest in Qinghai Salt Lake. Sinochem Corporation will have an as yet undetermined final interest in the Surviving Entity.

To minimise connected transaction and competition issues between the Surviving Entity and Qinghai Salt Lake, it has been proposed that within one full financial year from the completion of the Qinghai Merger, steps will be taken to effect the merger of the Surviving Entity and Qinghai Salt Lake. Such merger will be conditional upon, among other things, approval by shareholders of the Surviving Entity and shareholders of Qinghai Salt Lake. It is unclear as to how this merger will be carried out, save that the continuing entity is expected to be listed on the Shenzhen Stock Exchange and both Sinochem Corporation and the Company will have interests in the continuing entity. According to the Company’s PRC legal advisers, if the continuing entity carries on any competing business, the Company would have a right under the Non-competition Undertaking to purchase from Sinochem Corporation, and Sinochem Corporation would have an obligation under the Non-competition Undertaking to sell to the Company, Sinochem Corporation’s interest in the continuing entity at fair market value.

FINANCIAL EFFECT OF THE ACQUISITION

Following completion of the Acquisition, the Company’s indirect interest in Qinghai Salt Lake will be treated as an associated company and will be equity accounted for as the Company considers that it may exercise significant influence (such as the right to nominate directors and senior management) over Qinghai Salt Lake.

Effects on Assets/Liabilities

Based on the unaudited pro forma statement of assets and liabilities of the Group on pages 163 and 164 of this circular both assets and liabilities of the Group will be increased by HK$6,957.16 million, being the total consideration for the Acquisition less the bank balance and cash as at 30 June 2007.

– 16 –

LETTER FROM THE BOARD

Effects on Earnings

For the year ended 31 December 2006, and the six month period ended 30 June 2007, profit attributable to shareholders for Qinghai Salt Lake amounted to RMB858.34 million (equivalent to HK$903.23 million) and RMB472.68 million (equivalent to HK$497.40 million) respectively. In the view of the profitable track record of Qinghai Salt Lake and given the financial statements of Qinghai Salt Lake will be equity accounted for in the accounts of the Group, the Acquisition is expected to further enhance the profitability and earnings prospect of the Group.

Consideration for the Acquisition

The consideration for the Acquisition will be funded by the Company in the following manner:

• as to RMB1,987.69 million (equivalent to HK$2,091.64 million) will be funded by internal resources of the Company; and

• as to the balance of approximately RMB4,751.50 million (equivalent to HK$5,000.00 million) will be funded by the proceeds from the Subscription.

FINANCIAL AND TRADING PROSPECTS

Upon completion of the Acquisition, the Company will obtain direct access to scarce upstream potassium resource and potash production capacity, in order to further expand to upstream business and enhance its competitiveness in potash trading business and strengthen its market leader position.

Besides, the Company’s share in Qinghai Salt Lake’s profit would contribute to the Company’s reported profit and dividend received from Qinghai Salt Lake would strengthen the Company’s cash flow. The Directors are of the view that the Company would benefit from Qinghai Salt Lake’s outstanding financial performance and robust growth prospects.

The Company understands that Sinochem Corporation intends to make the enlarged Company the flagship of its agro-chemical business and the Company aims to become a leading vertically integrated agro-chemical company in China.

– 17 –

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE ACQUISITION

The Acquisition will be a transaction of strategic significance to the Company in the following aspects:

• (i) Acquire direct access to scarce resources : China is one of the world’s largest market of potash fertilizers and the largest importing country of potash fertilizers because of its lack of potassium resources. The Company understands that in 2006, import of potash fertilizers accounted for more than 69% of China’s total annual demand, and the country’s potash fertilizer market constantly remains in short supply. Qinghai Salt Lake is the largest potash fertilizer producer in China, representing over 66% of the country’s total production in 2006. Through the Acquisition the Company will obtain direct access to both the feedstock supply and production capabilities of potash fertilizers of Qinghai Salt Lake;

• (ii) Transform the Company into a leading integrated agro-chemical company in China : the Acquisition will enable the Company to transform from a pure-play fertilizer trading company to a comprehensive agrochemical product and service provider in China. Through the Acquisition the Company can integrate its existing competitive advantages in downstream distribution with its newly acquired upstream production capability;

• (iii) Benefit from Qinghai Salt Lake’s robust growth profile : Qinghai Salt Lake has consistently delivered robust growth in both the scale of its operation and its financial performance in the past three years due to the scarcity of potassium resources and the booming domestic market demand for potash fertilizer products. As at 31 December 2006, Qinghai Salt Lake achieved 3-year compounded annual growth rates of 79.2% and 102.8% for its revenue and net profit, respectively. The Acquisition will enable the Company and its shareholders to share the long term growth of Qinghai Salt Lake and benefit from its strong financial performance.

The Directors (including the independent non-executive Directors) of the Company are of the view that the transactions contemplated under the Acquisition Agreement and the Purchaser’s Undertaking (including the Acquisition, the Lock-up Undertaking and Voting Undertaking) are fair and reasonable, on normal commercial terms and in the interests of the Company and its shareholders as a whole.

FUND RAISING BY THE COMPANY IN THE PAST 12 MONTHS

The Company raised net proceeds of approximately HK$2,322.00 million through the Top-up Placing. The net proceeds of the Top-Up Placing are used, as intended, for the following purposes: (i) approximately 50% of such net proceeds for development of the Company’s fertilizer production business; (ii) approximately 30% of such net proceeds for financing the expansion of the Company’s nationwide fertilizer distribution network; and (iii) approximately 20% of such net proceeds for general corporate purposes. The Company has not raised any funds on any issue of equity securities in the 12 months preceding the date of the announcement relating to issue of new shares to connected persons dated 2 November 2007 except for the Top-up Placing.

– 18 –

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE SUBSCRIPTION, USE OF PROCEEDS

As discussed above, the total consideration for the Acquisition is RMB6,739.19 million (equivalent to approximately HK$7,091.64 million). The entire net proceeds from the Subscription amount to approximately HK$5,000.00 million and will be used to finance the Acquisition. The Directors (including the independent non-executive Directors) of the Company consider that the Acquisition represents a strategic opportunity for the Company to, among other things, acquire direct access to resources of scarcity value, establish a fully integrated business model, and share future upsides of Qinghai Salt Lake’s robust growth profile. At the same time, the Subscription also demonstrates each of Sinochem Corporation’s and Potashcorp’s commitment, as major shareholders, to the Company, and their confidence on the Company’s future growth and prospects. The Directors (including the independent non-executive Directors) of the Company are of the view that the Subscription is fair and reasonable, on normal commercial terms and in the interests of the Company and its shareholders as a whole.

IMPLICATIONS UNDER THE LISTING RULES

The Acquisition

The Acquisition Agreement constitutes a major transaction of the Company under Chapter 14 of the Listing Rules. Furthermore, as Sinochem Corporation is a connected person of the Company by reason of it being a substantial shareholder of the Company, the Acquisition Agreement constitutes a connected transaction of the Company and is therefore subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

To the best of the knowledge, information and belief of the Directors of the Company, having made all reasonable enquiries, apart from Sinochem HK and its associates, no other Shareholder will be required to abstain from voting on the resolution(s) to approve the Acquisition at the SGM.

The Subscription

As each of Sinochem HK and PCS Barbados is a connected person of the Company by reason of it being a substantial shareholder of the Company, the Subscription Agreement constitutes a connected transaction of the Company and is therefore subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

To the best of the knowledge, information and belief of the Directors of the Company, having made all reasonable enquiries, apart from Sinochem HK and PCS Barbados and their respective associates, no other Shareholder will be required to abstain from voting on the resolution(s) to approve the Subscription at the SGM.

Citigroup is the financial adviser to the Company in respect of the Acquisition and the Subscription.

– 19 –

LETTER FROM THE BOARD

SGM

Your attention is drawn to pages 176 and 177 of this circular where you will find a notice of the SGM to be held at Lounge, Mezzanine Floor, Grand Hyatt Hong Kong, 1 Harbour Road, Hong Kong on 28 December 2007 at 9:40 a.m. (or immediately after the conclusion or adjournment of the special general meeting of the Company scheduled to be convened on the same day at 9:30 a.m. at the same venue, whichever is the later). An ordinary resolution will be proposed at the SGM to approve the terms of each of the Acquisition Agreement, the Subscription Agreement, and the transactions contemplated thereunder. Voting on the resolutions will be by poll.

Sinochem HK, a wholly-owned subsidiary of Sinochem Corporation and the direct controlling shareholder of the Company, together with any of its associates will abstain from voting on the resolutions to be proposed at the SGM to approve the Acquisition Agreement, the Subscription Agreement, and the transactions contemplated thereunder. So far as the Company was aware having made all reasonable enquiries, Sinochem HK held the voting right in respect of approximately 50.06% of the Company’s issued ordinary share capital as at the Latest Practicable Date; and no voting trust or other agreement or arrangement or understanding has been entered into by or was binding upon Sinochem HK and/or any of its associates and there was no other obligation or entitlement of Sinochem HK and/or any of its associates as at the Latest Practicable Date, whereby Sinochem HK and/or any of its associates has/have or may have temporarily or permanently passed control over the exercise of the voting rights in respect of its/their Shares to a third party, either generally or on a case-by-case basis.

PCS Barbados, a wholly-owned subsidiary of Potashcorp, together with any of its associates will abstain from voting on the resolution to be proposed at the SGM to approve the Subscription Agreement and the transactions contemplated thereunder. So far as the Company was aware having made all reasonable enquiries, PCS Barbados held the voting right in respect of approximately 18.70% of the Company’s issued ordinary share capital as at the Latest Practicable Date, and no voting trust or other agreement or arrangement or understanding has been entered into by or was binding upon PCS Barbados and/or any of its associates as at the Latest Practicable Date, whereby PCS Barbados and/or any of its associates has/have or may have temporarily or permanently passed control over the exercise of the voting rights in respect of its/their Shares to a third party, either generally or on a case-by-case basis.

A form of proxy for use at the SGM is enclosed with this circular. Whether or not you are able to attend the SGM in person, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the branch share registrar and transfer office of the Company in Hong Kong, Tricor Secretaries Limited, 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong as soon as possible and in any event not less than 48 hours before the time appointed for holding the SGM. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the SGM should you so wish.

– 20 –

LETTER FROM THE BOARD

PROCEDURES FOR DEMANDING A POLL

Pursuant to the Bye-laws, at any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands unless voting by way of a poll is required by the Listing Rules or (before or on the declaration of the results of the show of hands or on the withdrawal of any other demand for poll) a poll is demanded (i) by the Chairman of the meeting; or (ii) by at least three Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy for the time being entitled to vote at the meeting; or (iii) by a Shareholder or Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy and representing not less than one-tenth of the total voting rights of all Shareholders having the right to vote at the meeting; or (iv) by a Shareholder or Shareholders present in person or in the case of a Shareholder being a corporation by its duly authorised representative or by proxy and holding shares in the Company conferring a right to vote at the meeting being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total sum paid up on all shares conferring that right; or (v) if required by the Listing Rules, by any Director or Directors, who, individually or collectively, hold proxies in respect of shares representing five per cent. or more of the total voting rights of all Shareholders having the right to vote at such meeting.

RECOMMENDATION

The Directors (including the independent non-executive Directors) consider that the terms of each of the Acquisition Agreement and the Purchaser’s Undertaking (including the Acquisition, the Lock-up Undertaking and the Voting Undertaking) and the Subscription Agreement are fair and reasonable, on normal commercial terms and the entering into of each of the Acquisition Agreement and the Subscription Agreement is in the interests of the Company and the Shareholders as a whole. The Directors therefore recommend the Shareholders to vote in favour of the resolution(s) regarding each of the Acquisition Agreement, the Subscription Agreement, and the transactions contemplated thereunder to be proposed at the SGM.

– 21 –

LETTER FROM THE BOARD

FURTHER INFORMATION

The Independent Board Committee has been appointed to advise the Independent Shareholders in respect of the Acquisition and the Subscription. Somerley has been appointed to advise the Independent Board Committee and the Independent Shareholders in such regard. Accordingly, your attention is drawn to the letter of advice from the Independent Board Committee set out on pages 23 to 24 of this circular, which contains its recommendation to the Independent Shareholders, and the letter from Somerley set out on pages 25 to 59 of this circular, which contains its advice to the Independent Board Committee and the Independent Shareholders.

Your attention is also drawn to the general information set out in the Appendices to this circular.

Yours faithfully, By the order of the Board of Sinofert Holdings Limited Du Ke Ping

Chief Executive Officer

– 22 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [60 x 59] intentionally omitted <==

SINOFERT HOLDINGS LIMITED

---

(Incorporated in Bermuda with limited liability)

(Stock Code: 297)

Independent non-executive Directors: Tse Hau Yin, Aloysius Ko Ming Tung, Edward Tang Tin Sek

Principal place of business: Units 4601-4610, 46th Floor Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong

Registered Office: Clarendon House 2 Church Street Hamilton HM 11 Bermuda

10 December 2007

To the Independent Shareholders

Dear Sir/Madam,

MAJOR AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF AN APPROXIMATE 18.49% INTEREST IN QINGHAI SALT LAKE

CONNECTED TRANSACTION ISSUE OF NEW SHARES TO CONNECTED PERSONS

We refer to the circular to the Shareholders dated 10 December 2007 ( Circular ) of which this letter forms part. Terms defined in the Circular shall have the same meanings when used herein unless the context otherwise requires.

The Independent Board Committee has been formed to advise the Independent Shareholders as to whether, in our opinion, the entering into of each of the Acquisition Agreement, the Subscription Agreement, and the transactions contemplated thereunder are in the interests of the Company and its Shareholders as a whole and the terms of which are fair and reasonable so far as the Independent Shareholders are concerned. Somerley has been appointed to advise the Independent Board Committee and the Independent Shareholders.

* For identification purpose only

– 23 –

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

We wish to draw your attention to the “Letter from Somerley” as set out on pages 25 to 59 of the Circular. We have considered the terms and conditions of the Acquisition Agreement and the Subscription Agreement, the advice of Somerley and the other factors contained in the “Letter from the Board” as set out on pages 6 to 22 of the Circular.

In our opinion, the terms of the Acquisition Agreement and the Purchaser’s Undertaking (including the Acquisition, the Lock-up Undertaking and the Voting Undertaking), and the Subscription Agreement are fair and reasonable so far as the Independent Shareholders are concerned and the Acquisition Agreement and the Purchaser’s Undertaking, and the Subscription Agreement are in the best interests of the Company and the Shareholders as a whole. We also consider that the terms of each of the Acquisition Agreement and the Subscription Agreement are fair and reasonable, on normal commercial terms and in the interests of the Company and its Shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Acquisition Agreement, the Subscription Agreement and the transactions contemplated thereunder.

Yours faithfully, Independent Board Committee of Sinofert Holdings Limited Tse Hau Yin, Aloysius Ko Ming Tung, Edward Tang Tin Sek

– 24 –

LETTER FROM SOMERLEY

The following is the letter of advice from Somerley to the Independent Board Committee and the Independent Shareholders, which has been prepared for the purpose of inclusion in this circular.

SOMERLEY LIMITED

10th Floor

The Hong Kong Club Building 3A Chater Road Central Hong Kong

10 December 2007

• To: the Independent Board Committee and the Independent Shareholders

Dear Sirs,

MAJOR AND CONNECTED TRANSACTION PROPOSED ACQUISITION OF AN APPROXIMATE 18.49% INTEREST IN QINGHAI SALT LAKE

CONNECTED TRANSACTION ISSUE OF NEW SHARES TO CONNECTED PERSONS

INTRODUCTION

We refer to our appointment to advise the Independent Board Committee and the Independent Shareholders in connection with transactions contemplated under the Acquisition Agreement and the Subscription Agreement. Details of the Acquisition Agreement and the Subscription Agreement are contained in the circular to Shareholders dated 10 December 2007 (the “Circular”), of which this letter forms part. Unless the context otherwise requires, capitalised terms used in this letter shall have the same meanings as those defined in the Circular.

The Acquisition constitutes a major acquisition for the Company under the Listing Rules. As Sinochem Corporation, through Sinochem HK, is interested in 50.06% of the issued share capital of the Company, and PCS Barbados is interested in 18.70% of the issued share capital of the Company as at the Latest Practicable Date, Sinochem Corporation, Sinochem HK and PCS Barbados are connected persons of the Company under the Listing Rules. Accordingly, both the Acquisition and the Subscription constitute connected transactions for the Company and are subject to Independent Shareholders’ approval under the Listing Rules. Sinochem HK and its associates will abstain from voting on the ordinary resolutions to be proposed at the SGM to approve the Acquisition Agreement, the Subscription Agreement and the transactions contemplated thereunder which will be taken by way of poll. PCS Barbados and its associates will abstain from voting on the ordinary resolution to be proposed at the SGM to approve the Subscription Agreement and the transactions contemplated thereunder which will be taken by way of poll.

– 25 –

LETTER FROM SOMERLEY

The Independent Board Committee, comprising all the three independent non-executive Directors, namely Messrs. Tse Hau Yin, Aloysius, Ko Ming Tung, Edward and Tang Tin Sek, has been established to make recommendations to the Independent Shareholders on whether the terms of the Acquisition Agreement and the Subscription Agreement are fair and reasonable so far as the Independent Shareholders are concerned and whether the Acquisition and the Subscription are in the interests of the Company and the Shareholders as a whole. We, Somerley Limited, have been appointed to advise the Independent Board Committee and the Independent Shareholders in this regards.

In formulating our opinions and recommendations, we have relied on the information and facts supplied, and the opinions expressed, by the Directors and management of the Group and have assumed that they are true, accurate and complete and will remain true, accurate and complete up to the time of the SGM. We have also sought and received confirmation from the Directors that no material facts have been omitted from the information supplied and opinions expressed to us. We have no reason to believe that any material information has been withheld from us, or to doubt the truth or accuracy of the information provided. We have relied on such information and consider that the information we have received is sufficient for us to reach an informed view. We have not, however, conducted any independent investigation into the business and affairs of the Group or Qinghai Salt Lake.

PRINCIPAL FACTORS AND REASONS CONSIDERED

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

I. INFORMATION ON THE GROUP

1. Business and history of the Group

Following the acquisition of the fertilisers business (“the Reorganisation”) from Sinochem Corporation in June 2005, the Company became the fertiliser flagship of its controlling Shareholder, which is one of the largest state-owned enterprises in the PRC. The Company has been focusing on the PRC fertilisers and agricultural related products sector and is a leading fertilisers enterprise in the PRC. Its principal activities are production, procurement and sale of fertilisers and related products in the PRC which form a vertically integrated business model combining upstream and downstream businesses. The Company sources a variety of fertilisers products and principal raw materials from both overseas and domestic suppliers for sales and production of phosphate based fertilisers and compound fertilisers with high nutrient content. The Company’s products are sold through its own extensive sales and distribution network in the PRC as well as through independent distributors. The Company aims to serve the agricultural industry in the PRC by introducing quality resources from overseas and to ensure agricultural safety in the PRC.

– 26 –

LETTER FROM SOMERLEY

To strengthen and define its business cooperation in the areas of nitrogen fertilisers and potash fertilisers, the Group acquired 4.78% of the total equity interest in Shandong Luxi Chemical Industry Co., Ltd (“Shandong Luxi”) at a consideration of RMB130 million in June 2006. The A-shares of Shandong Luxi are listed on the Shenzhen Stock Exchange. Shangdong Luxi is one of the major fertiliser production enterprises in the PRC and the only fertiliser enterprise in the PRC which has been granted “exemption from government inspection” ( ) for three types of its fertilisers products, namely urea, compound fertilisers and diammonium phosphate.

In November 2006, the Group acquired 4.54% of the total equity interest of Shandong Hualu Hengsheng Chemical Co., Ltd (“Hualu Hengsheng”). Hualu Hengsheng principally engages in the manufacture and sales of chemicals and chemical fertilisers. Shares of Hualu Hengsheng are listed on the Shanghai Stock Exchange.

On 28 October 2007, the Company announced that its wholly-owned subsidiary agreed to subscribe for 30% equity interests in Gansu Wengfu Chemical Co., Ltd. (“Gansu Wengfu”) for a total cash consideration of RMB22.5 million. Gangsu Wengfu is the largest phosphate fertilisers producer in northwest of the PRC. By becoming a strategic partner, the Group could leverage on Gansu Wengfu’s dominant position and develop its distribution network and fertilisers business in northwest of the PRC.

– 27 –

LETTER FROM SOMERLEY

2. Financial results and position of the Group

The following table sets out a summary of the audited financial results of the Company in accordance with the HKFRS for the two years ended 31 December 2005 and 2006 and for the six months periods ended 30 June 2006 and 2007.

(i) Consolidated income statement

Revenue Cost of sales Gross profit Gross profit margin (%) Other income Selling and distribution expenses Administrative expenses Other expense Changes in fair value of derivative financial instrument Share of results of jointly controlled entities Finance costs Profit before taxation Income tax expense Profit for the year/period Attributable to: Equity holders of the Company Minority interests	Year ended 31 December 2005 2006 HK$’000 HK$’000 (Audited) (Audited) 19,248,665 21,126,571 (17,705,872) (19,419,304)	Year ended 31 December 2005 2006 HK$’000 HK$’000 (Audited) (Audited) 19,248,665 21,126,571 (17,705,872) (19,419,304)	Six months ended 30 June 2006 HK$’000 (Unaudited) 10,305,707 (9,466,851)	Six months ended 30 June 2007 HK$’000 (Unaudited) 14,342,060 (13,076,611) 1,265,449 8.82% 30,562 (254,027) (162,391) – (79,179) 16,728 (121,469) 695,673 (152,211) 543,462 530,353 13,109 543,462
	1,542,793 8.02% 67,701 (394,898) (223,204) – – 49,941 (112,376) 929,957 (137,533)	1,707,267 8.08% 126,407 (535,249) (185,403) (19,597) (1,865) 41,037 (128,624) 1,003,973 (99,191)	838,856 8.14% 42,255 (226,299) (72,114) – – 22,111 (50,477) 554,332 (76,802)	1,265,449 8.82% 30,562 (254,027 (162,391 – (79,179 16,728 (121,469
				695,673 (152,211
	792,424	904,782	477,530
	779,421 13,003	896,246 8,536	465,318 12,212	530,353 13,109
	792,424	904,782	477,530

– 28 –

LETTER FROM SOMERLEY

In line with the 12.56% growth in sales volume of fertilisers, the Group’s turnover increased by 9.76% from HK$19,249 million in 2005 to HK$21,127 million in 2006. The Group also realised net profit attributable to Shareholders of HK$896 million in 2006, representing an increase of 14.99% compared to HK$779 million in 2005. These results were helped by the PRC government’s support of the agricultural sector, which has created good opportunities for the fertiliser industry in the PRC. The beneficial policies include abolition of agricultural tax and more generous government subsidies to grain-growers. Such government promotion has led to the steady growth in demand for fertilisers and other agricultural inputs and benefited the growth in the Group’s businesses.

During the first half of 2007, the PRC Government strengthened its macro-control efforts and yet continued to support the agricultural industry. Production was further boosted, grain planting acreage was increased, and fertiliser demand grew at a steady pace. This has created a favourable business environment for the Group.

For the six months period ended 30 June 2007, the Group achieved a total sales volume of 7.90 million tonnes (up by 28.51% over the corresponding period of 2006) which lifted its turnover by 39.17% to HK$14.34 billion compared to the first half of 2006. After excluding the HK$79 million of changes in fair value of derivative component of the convertible loan notes, the Group recorded a net profit of HK$610 million, showing a growth of 30.99% over the first six months of 2006.

The following tables present revenues and results for the Group’s business segments for the two years ended 31 December 2006.

Year ended 31 December 2006 Segment revenues: Segment results: Increase in fair value of investment properties Gain on disposal of investment properties Share of results of jointly controlled entities Finance cost Unallocated income and expense Profit/(loss) before taxation	Sourcing and distribution HK$’000 19,858,824	Production HK$’000 1,267,747	Others HK$’000 –	Total HK$’000 21,126,571 1,084,418 17,306 25,466 41,037 (128,624) (35,630) 1,003,973
	1,043,148 – – – – –	38,190 – – 41,037 – –	3,080 17,306 25,466 – (128,624) (35,630)	1,084,418 17,306 25,466 41,037 (128,624 (35,630
	1,043,148	79,227	(118,402)

– 29 –

LETTER FROM SOMERLEY

Year ended 31 December 2005 Segment revenues: Segment results: Share of results of jointly controlled entities Finance cost Unallocated income and expense Profit/(loss) before taxation	Sourcing and distribution HK$’000 18,286,893	Production HK$’000 961,772	Others HK$’000 –	Total HK$’000 19,248,665 1,012,877 49,941 (112,376) (20,485) 929,957
	955,306 – (83,005) –	51,866 49,941 (27,828) –	5,705 – (1,543) (20,485)	1,012,877 49,941 (112,376 (20,485
	872,301	73,985	(16,323)

Sourcing and distribution

The Group’s sourcing and distribution businesses generated 94.0% of its total revenue for the year ended 31 December 2006. During 2006, the Group set up three new branches in northwest and southwest of the PRC and Guangxi region. Meanwhile, new distribution centres were being built to cover the targeted 1,800 agricultural counties throughout the country, with 312 distribution centres newly added. By the end of 2006, the Group’s distribution network boasted to 1,375 distribution centres and sales outlets, covering 22 agricultural provinces and 80.08% of the country’s arable land. In 2006, sales realised through the distribution network was 7.86 million tonnes, increasing by 0.58 million tonnes over 2005 which pushed the profit in sourcing and distribution division up by 9.21% from HK$955 million in 2005 to HK$1,043 million in 2006.

Production

The production segment contributed about 6.0% of the Group’s total revenue for the year ended 31 December 2006. In 2006 the Group had equity interest in seven fertilisers production enterprises. While improving their production management, these factories also increased production capacity by 0.30 million tonnes, bringing the total capacity to 3.03 million tonnes, representing a growth of 10.98% compared to prior year. Altogether these factories supplied 2.55 million tonnes of various fertilisers (including supplies from enterprises under consignment by Sinochem Corporation) to the Group, up by 0.68 million tonnes, or an increase of 36.36% compared to 2005. In 2006, the Group attached top priorities on expanding the supply mechanism of domestic fertilisers and by strategically invested in nitrogenous manufacturers with competitive strength such as Luxi Chemical and Hualu Hengsheng, which are publicly listed on the Shenzhen and Shanghai stock exchange, respectively.

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(ii) Consolidated balance sheet

The followings are the consolidated balance sheets of the Group as at 31 December 2006 and 30 June 2007.

Non-current assets Property, plant and equipment Investment properties Prepaid lease payments Mining rights Goodwill Interests in jointly controlled entities Available-for-sale investments Deferred tax assets Current assets Inventories Trade and bill receivables Prepaid lease payments Advance payments and other receivables Amounts due from ultimate holding company Bill discounted to banks Pledged bank deposits Bank balances and cash Current liabilities Trade and bill payable Receipts in advance and other payables Dividend payable Bank advances for discounted bills Amounts due to ultimate holding company Derivative financial liabilities Taxation payable Bank borrowings – due within one year Net current assets Total assets less current liabilities	31 December 2006 HK$’000 (Audited) 900,986 14,532 106,766 23,648 356,503 381,656 290,419 9,422	30 June 2007 HK$’000 (Unaudited) 980,470 14,532 105,981 24,383 356,503 388,398 856,976 15,819
	2,083,932 4,364,565 1,272,357 2,233 1,293,856 41,765 1,364,806 6,287 79,274 8,425,143 1,815,256 939,177 – 1,366,647 – 86,457 47,791 99,118 4,354,446	2,743,062
		5,490,920 1,274,307 2,359 1,455,757 – 2,493,605 10,959 134,480
		10,862,387
		2,331,105 358,924 134,195 2,493,605 11,328 163,912 163,070 805,104
		6,461,243
	4,070,697 6,154,629	4,401,144 7,144,206

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Non-current liabilities Bank borrowings – due after one year Convertible loan notes Deferred tax liabilities Net assets Capital and reserves Issued equity Reserves Equity attributable to equity holders of the Company Minority interests Total equity Inventories	31 December 2006 HK$’000 (Audited) 363,152 1,220,407 27,099	30 June 2007 HK$’000 (Unaudited) 439,081 1,256,854 94,207
	1,610,658	1,790,142
	4,543,971	5,354,064
	767,766 3,580,586 4,348,352 195,619	767,900 4,370,445
		5,138,345 215,719
	4,543,971	5,354,064

As at 31 December 2006, the Group’s largest balance sheet item is inventories of HK$4,365 million (accounted for 41.53% of total assets). The inventories mainly are fertilisers merchandise and finished goods of HK$4,092 million. As at 30 June 2007, inventories remained the most significant assets having balance of HK$5,491 million (represented 40.26% of the Group’s total assets). Inventory turnover days shortened from 85 days for the year ended 31 December 2006 to 68 days for the first half of 2007.

Trade and bill receivables

The substantial balance of trade and bill receivables of HK$1,272 million as at 31 December 2006 was attributable to the expansion in business operation during the year. The balance of trade receivables as at 30 June 2007 remained comparable to the year-end balance of 2006. Trade and bill receivables turnovers day shortened from 18 days for year 2006 to 16 days for the six months ended 30 June 2007.

Trade and bill payables

As at 31 December 2006, trade and bill payables were HK$1,815 million. Such a balance inflated to HK$2,331 million as at 30 June 2007, resulting from the increase in purchase of goods to cope with the business development.

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Convertible loan notes

The Group issued 130,000 zero coupon notes with face value of HK$10,000 each on 7 August 2006. The notes holders are entitled to convert the convertible loan notes into ordinary shares of the Company during the period from 22 August 2006 to 23 July 2011 at a conversion price of HK$3.74 per ordinary Share. If the notes have not been converted or early redeemed, they will be redeemed on the maturity date 7 August 2011at 127.23% of their face value. An effective interest rate of 6.82% was charged on the liability component of the convertible loan notes. The increase in balance from HK$1,220 million as at 31 December 2006 to HK1,257 million as at 30 June 2007 represented the accrual of effective interest on the convertible loan notes during the first half of 2007.

II. THE ACQUISITION AND THE SUBSCRIPTION

1. Background to and reasons for the Acquisition and the Subscription

As the Sale Shares are state-owned shares, the transfer of such shares has to be approved by the relevant PRC Government authorities. In order to avoid delaying the Reorganisation, the Sale Shares were retained by Sinochem Corporation at the time of the Reorganisation in 2005. Both Qinghai Salt Lake and the Fertilisers Group engage in the manufacturing and selling of potash fertilisers. In order to minimise any potential competition between Qinghai Salt Lake and the Fertiliser Group, there was an agreement for the sale of potash fertilisers produced by Qinghai Salt Lake to the Fertiliser Group. Sinochem Corporation has granted an option to the Company in 2005 which allows the Company to acquire Sinochem Corporation’s interest in Qinghai Salt Lake at a fair market value.

The approval from the SASAC in respect of the Acquisition was then obtained on 10 November 2006 which will expire one year after its grant. As a result, if the Company wishes to acquire the Sale Shares without risk of regulatory delay, agreement with Sinochem Corporation in relation to the Acquisition had to be reached before early November 2007.

The consumption of potash fertilisers and compound fertilisers in the PRC has grown faster than other types of fertilisers. In general, the soil in the PRC lacks potassium due to the exclusive use of nitrogen-based fertilisers for a prolonged period, making potash fertilisers very useful in the PRC. As a result, the demand for potash fertilisers experienced the sharpest increase among the major types of fertilisers. The PRC very much relies on imported potash fertilisers since there is lacking in natural potassium deposits in the PRC together with a considerable amount of domestic consumption.

Given Qinghai Salt Lake dominates domestic production of potash fertilisers in the PRC and owns approximately 90% of the mining rights in Chaerhan Salt Lake, Qinghai province which has a potassium chloride reserve of 500 million tonnes, we consider it desirable for the Group to become a strategic investor of the PRC leader in the potash fertiliser industry. The strong partnership could facilitate the Group to pursue its business development.

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The Subscription also demonstrates each of Sinochem Corporation’s and PCS Barbados’s commitment, as major Shareholders, to the Company, and their confidence on the Company’s future growth and prospect. The Subscription represents an opportunity for the Company to secure permanent equity capital in volatile market conditions in a cost-effective and time-efficient manner. Net proceeds of approximately HK$5,000 million from the Subscription will be used to finance the Acquisition.

2. Principal terms of the Acquisition Agreement

(i) Consideration and asset acquired

Pursuant to the Acquisition Agreement, the Purchaser has conditionally agreed to acquire the Sale Shares at an aggregate sum of RMB6,739.19 million (approximately HK$7,091.64 million), 30% of which has to be settled within 5 days of signing the Acquisition Agreement, the remaining 70% shall be payable in cash within 3 months of the fulfilment on waiver of the conditions under the paragraph headed “Conditions of the Acquisition” below. The Company and the Purchaser have agreed with Sinochem Corporation to defer payment of the first payment until the Purchaser has obtained all relevant approvals in relation to the increase of the Purchaser’s capital. The net proceeds of approximately HK$5,000 million raised from the Subscription will be used to finance part of the Consideration. The remaining balance of the consideration will be satisfied by the Group’s internal resources.

We are advised by the PRC legal advisers of the Group that there are SASAC rules and regulations governing the consideration in relation to disposal of listed shares by state-owned enterprises. The aggregate purchase price for the Sale Shares has been determined on an arm’s length basis based primarily on the pricing mechanism stipulated in the relevant rules and regulations of SASAC. We have reviewed the Rule 24 of “Interim measures for the administration of state-owned shareholders’ transfer of their shares of listed companies” issued by SASAC on 30 June 2007, the price for the transfer of the shares of the listed companies from the state-owned enterprises cannot be lower than 90% of the daily volume weighted average closing price for the previous thirty trading days from the date of signing the share transfer agreement. As such, the Company has secured the most favourable 10% discount.

The aggregate purchase price for the Sale Shares has been determined on an arm’s length basis based primarily on the pricing mechanism stipulated in the relevant rules and regulations of SASAC governing disposal of listed shares by state-owned enterprises.

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(ii) Undertakings

Lock-up Undertaking

The Sale Shares are subject to the Lock-up Undertaking given by Sinochem Corporation to the holders of A shares in Qinghai Salt Lake in connection with the equity division reform scheme of Qinghai Salt Lake, which took effect on 29 June 2006. Pursuant to the Lock-up Undertaking, Sinochem Corporation shall not, for a period of four years commencing on the Effective Date (i.e. from 29 June 2006 to 29 June 2010), trade on the Shenzhen Stock Exchange or otherwise transfer any of Qinghai Salt Lake’s shares held by it which were untradeable prior to the Effective Date (including the Sale Shares) save for transfers to enterprises controlled by it. The Purchaser has given an undertaking under the Acquisition Agreement pursuant to which it has agreed to be bound by the terms of the Lock-up Undertaking. It is a common practice that those legal person shares which are non-tradable before the equity division reform scheme would still be bound to the trading restriction after the Effective Date. Given that the objective of the Acquisition is making strategic investment in a PRC potash market leader so as to facilitate the Group to pursue its business development, we do not consider that the Lock-up Undertaking a major concern to the Group’s long-term investment purpose.

Voting Undertaking

Sinochem Corporation has undertaken to the holders of A shares in Qinghai Salt Lake that at Qinghai Salt Lake’s annual general meetings held for the financial years of 2006 to 2008, it shall propose and vote in favour of all resolutions to approve the distribution of all distributable profits of Qinghai Salt Lake to its shareholders. Pursuant to the Acquisition Agreement, the Purchaser has agreed to be bound by the terms of the Voting Undertaking. Such a Voting Undertaking is favourable to the shareholders of Qinghai Salt Lake, which the Group will become one of them after completion of the Acquisition.

(iii) Conditions of the Acquisition

The Acquisition is conditional upon, among other things, all necessary consents, permits and other approvals necessary for or in respect of the Acquisition having been obtained from the relevant governmental and regulatory authorities in the PRC, including, without limitation, approval from the SASAC.

Approval from the SASAC in respect of the Acquisition was obtained on 10 November 2006 which will be valid for one year from the date of approval, i.e. till 9 November 2007.

(iv) Board representation

The Purchaser will be entitled to nominate two directors to the board of Qinghai Salt Lake out of its total eleven members.

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3. Strategic nature of the Acquisition

(i) Industrial overview on potash fertilisers market

Potash fertilisers refer to fertilisers containing potassium as the main nutrient. Potassium is used in the production, transportation and accumulation of sugar in plants and maintains electrical balance within the plant cell. It also assists the hardening of plants and their resistance to water stress, pests and diseases. The principal potash fertilisers include potassium chloride and potassium sulphate.

Potash fertilisers market in the PRC

According to a report of FAO Statistics Division of the Food and Agriculture Organisation of the United Nations released in 2004, consumption of fertilisers in the PRC has increased nearly fifty times since 1960s. The main reason for such growth was mainly due to the increase in population and the decline in arable land as a result of industrialisation. The decline in arable land makes fertilisers more important as they enhance agricultural productivity. Potash is one of the three major fertilisers that is widely applied in the global agricultural activities and currently 70% of the PRC’s arable land lacks of potassium which resulted in huge demand for potash fertilisers in the PRC. The PRC has become one of the largest potash consumption countries in the world.

The potash fertilisers industry is a regulated industry in the PRC. Import of potash fertilisers is subject to the administration of the PRC Government and only certain enterprises in the PRC are authorised to import potash fertilisers subject to the tariff-rate quota system. Sales prices of potash fertilisers are also subject to different price control measures imposed by the PRC Government.

Supply and demand for potash fertilisers in the PRC

According to the China Statistical Yearbook 2006 published in February 2007, the PRC’s domestic potash fertilisers production has been soaring since mid 90s, and accounted for 2.1% of the global production capacity by 2006 with reference to 2006 Minerals Yearbook. Domestic potash fertilisers production can only satisfy a minimal domestic demand. As a result, the PRC has to rely on imports to meet the substantial domestic needs.

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As illustrated in the charts below, demand for potash fertilisers increased drastically at an annual growth rate of 10% in the past ten years. Despite domestic production had recorded a substantial increase, over 70% of the total consumption of potash fertilisers was imported from overseas.

Domestic supply and overseas supply of potash fertilisers in the PRC from 2001 to 2005

==> picture [303 x 204] intentionally omitted <==

Source: Sinopec

Potassium chloride productions in the PRC

==> picture [287 x 205] intentionally omitted <==

Domestic production of potassium chloride for the period from 1999 to 2006

Source: International Fertiliser Industry Association

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Historical price of potash fertilisers in the PRC

The chart below illustrates the historic movement of the import of potash fertilisers to the PRC from January 2002 to October 2006:

Import price of potash fertilisers to the PRC

==> picture [307 x 194] intentionally omitted <==

Source: China Petroleum and Chemical Industry Association

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The PRC potash prices were on a rising trend which was driven by the lack of domestic potash reserve and the growing demand for potash fertilisers in the PRC.

Prospect of potash fertilisers market in the PRC

The consumption of fertilisers largely relates to population size and the demand for agricultural products. According to the China Statistical Yearbook 2006, the population of the PRC was approximately 1.31 billion at the end of 2005, which represents an increase of 8.10% in ten years time when compared to 1995. The consumption of potash fertilisers has increased at a much bigger magnitude than the growth in total population by approximately 233% from approximately 3 million tonnes in 1995 to 10 million tonnes in 2005. Such increase in potash fertilisers could have been contributed by the development of the feed crop industry to support the growth in demand for livestock products for food consumption which is in pace with the significant improvement in living standard. According to the FERTECON potash report released in 2006, it is expected that global demand for potash of which PRC is one of the major consumption country accounted for approximately 20% of the global consumption in 2005 will continue to increase in the coming years:

Demand in potash fertilizer

==> picture [301 x 223] intentionally omitted <==

Source: the website of FERTECON

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Given the strong demand for potash fertilisers, the PRC has been expanding its production capacity which has already rose by approximately 9% when compared to 2004 according to the 2006 Minerals Yearbook published in August 2007. It is expected that there would be further enhancement on production capacity under the PRC Government’s encouragement to reduce the PRC’s reliance on import. Competition in the PRC fertilisers industry may also intensify in future with the accession of the PRC to the WTO, as the PRC Government has to open up its domestic market to foreign companies and lift the restriction on foreign companies operating fertilisers retail business in the PRC. The intensified competition may put potash fertilisers price under pressure.

The directors of Qinghai Salt Lake are of the view that due to its extensive distribution network and reputation on high product quality, the impact of future competition in potash fertilizer industry in near future on Qinghai Salt Lake is minimal. Reputation takes time to establish and having considered Qinghai Salt Lake’s position as a clear market leader in the potash fertilisers market in the PRC, we concur with the Directors’ view.

4. Information on Qinghai Salt Lake

(i) Business of Qinghai Salt Lake

Qinghai Salt Lake is a state-controlled joint stock limited liability company established in the PRC in 1997 with a registered capital of approximately RMB767.6 million whose shares are traded on the Shenzhen Stock Exchange. Its principal activities are the development, production and distribution of potassium chloride. Other activities include the development, production and distribution of carnallite and low adopt carnallite and the development, processing and smelting of other mining products. The Qinghai Salt Lake’s potassium fertilisers brand “Yan Qiao” had a market share of the potassium fertilisers in the PRC of approximately 20% for the year of 2006. The Company is one of the major customers of the Qinghai Salt Lake Group. In 2006, sales to the Company accounted for approximately 32.6% of Qinghai Salt Lake’s total revenue, which made the Company the most important distributor of the Qinghai Salt Lake’s “Yan Qiao” potassium fertilisers. At present, Qinghai Salt Lake has a manufacturing capacity to produce 1.73 million tonnes of potassium chloride per year.

Qinghai Salt Lake dominates domestic production of potassium fertilisers in the PRC. Located near Chaerhan Salt Lake in Qinghai province, Qinghai Salt Lake owns approximately 90% of the mining rights in that area. Chaerhan Salt Lake has a potassium chloride reserve of 500 million tonnes.

According to the Mineral Commodity Summaries of 2007 published by U.S. Geological Survey on 12 January 2007, the PRC had 2.6% of total worldwide potash reserve base. The 500 million tonnes potassium chloride reserve represents 97% of total proven reserves in the PRC, which made Chaerhan Salt Lake a scarce resource in the PRC. As Qinghai Salt Lake owns approximately 90% of the mining rights in Chaerhan Salt Lake, it controls the supply of this scarce resource.

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(ii) Financial position of Qinghai Salt Lake

Set out below is the audited consolidated balance sheet of the Qinghai Salt Lake Group as at 30 June 2007 extracted from its accountants’ report prepared in accordance with HKFRS as set out in Appendix II to the Circular.

Non-current assets Property, plant and equipment Prepaid lease payments – non-current portion Available-for-sale investments Deferred tax assets Current assets Inventories Trade and other receivables Prepaid lease payments – current portion Amounts due from related parties Bank balances and cash Current liabilities Trade and other payables Borrowings – amount due within one year Taxation payable Dividend payable Amounts due to related parties Amounts due to ultimate holding company Net current assets Total assets less current liabilities Non-current liabilities Borrowings – amount due after one year Deferred tax liability Net assets	30 June 2007 RMB’000 2,840,246 2,076 3,000 19,560
	2,864,882 523,110 1,010,122 63 35,719 1,497,009
	3,066,023 476,595 100,000 139,506 527,202 188,133 115,408
	1,546,844 1,519,179 4,384,061
	1,178,000 6,859
	1,184,859
	3,199,202

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Capital and reserves Share capital Reserves Equity attributable to equity holders of the company Minority interests Total equity	30 June 2007 RMB’000 767,550 1,145,496
	1,913,046 1,286,156
	3,199,202

Property, plant and equipment

As at 30 June 2007, the major assets of the Qinghai Salt Lake Group were property, plant and equipment, which amounted to RMB2,840.25 million (amounted to 47.89% of its total assets). Its property, plant and equipment mainly are fertilisers processing facilities, transportation equipments and storage facilities of mining sites of Chaerhan Salt Lake and the potassium fertilisers production plants.

Cash and borrowings

As at 30 June 2007, there were cash and cash equivalents of RMB1,497.0 million. All the total borrowings of RMB1,278 million were bank loans with interest rates at 5.58% per annum.

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(iii) Past results of Qinghai Salt Lake

The following are the summaries of the consolidated results of Qinghai Salt Lake Group for each of the three years ended 31 December 2006 and the six months period ended 30 June 2006 and 2007. The accountants’ report on the Qinghai Salt Lake Group prepared in accordance with HKFRS is set out in Appendix II to the Circular.

Revenue Gross profit Gross profit margin Profit before tax Income tax expense Profit for the year/period Minority interests Profit attributable to equity holders of the Company	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 (Audited) (Audited) (Audited) 1,202,916 1,592,965 2,598,755	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 (Audited) (Audited) (Audited) 1,202,916 1,592,965 2,598,755	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 (Audited) (Audited) (Audited) 1,202,916 1,592,965 2,598,755	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) (Unaudited) 1,176,988 1,505,403 831,466 1,078,982 70.64% 71.67% 717,889 1,037,259 (107,769) (156,169) 610,120 881,090 (230,910) (408,412) 379,210 472,678	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (Unaudited) (Unaudited) 1,176,988 1,505,403 831,466 1,078,982 70.64% 71.67% 717,889 1,037,259 (107,769) (156,169) 610,120 881,090 (230,910) (408,412) 379,210 472,678
	707,133 58.78% 551,621 (82,578) 469,043 (168,512)	1,044,738 65.58% 977,522 (146,217) 831,305 (288,986)	1,747,853 67.26% 1,703,144 (255,402) 1,447,742 (589,401)	831,466 70.64% 717,889 (107,769) 610,120 (230,910)	1,078,982 71.67% 1,037,259 (156,169
					881,090 (408,412
	300,531	542,319	858,341	379,210

As a result of the steady rise in the price of potassium chloride products and the growing demand for the potassium fertilisers in the PRC, Qinghai Salt Lake Group’s revenue increased by 32.43% to RMB1,592.97 million in 2005 when compared to 2004. The gross profit margin also jumped from 58.78% in 2004 to 65.58% in 2005 which was brought by the improvement in the production efficiency and the continuing growth in the unit selling price of the Qinghai Salt Lake’s potassium fertilisers product. The profit attributable to shareholders for 2005 achieved a growth of 80.45% when compared to 2004. Such a strong financial performance was in line with the expansion in market share of the potassium fertilisers market in PRC by its brand “Yan Qiao” from 16% to 18%, which was partially offset by changes in the calculation of short-haul transportation fees charged to customers.

During 2006, the market share of the “Yan Qiao” potassium fertilisers in the PRC market further grew to 20%. With a remarkable increase in sales of potassium chloride products and higher average selling prices during the reporting period, the turnover of the Qinghai Salt Lake Group rose from RMB1,592.97 million in 2005 to RMB2,598.76 million in 2006. Profit attributable to shareholders for 2006 amounted to approximately

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RMB858.34 million, representing an increase of 58.27% when compared to RMB542.32 million for 2005. The increment of the profit attributable to shareholders is lower than the 67% growth rate in gross profit which amounted to approximately RMB1,747.85 million for the year ended 31 December 2006. It was mainly due to a new transportation cost charged by the PRC Government during the year.

For the first half of 2007, Qinghai Salt Lake Group’s revenue experienced a growth of 27.90% to RMB1,505.40 million when compared to the corresponding period in 2006. This is contributed by both the increase in sales volumes and the rise of about 5% in selling price of potassium chloride products. The gross profit of RMB1,078.98 million represents an increase of 29.77% as compared to the same period in 2006 of RMB831.47 million. The profit attributable to shareholders had also jumped by 24.65%. Such a growth was mainly due to the improvement in the gross profit margin from 70.64% in the first half of 2006 to 71.67% in the same period of 2007 resulting from the rise in products’ selling prices and the relative stable production cost during the period.

(iv) Share price and trading volume of Qinghai Salt Lake shares

(a) Qinghai Salt Lake share price

The chart below illustrates the movement of the closing price for the Qinghai Salt Lake shares on the Shenzhen Stock Exchange during the period from 1 January 2007 up to the Latest Practicable Date relative to the movement in Shenzhen Stock Exchange Component Index (“SSE Component Index”):

==> picture [312 x 211] intentionally omitted <==

Source: Bloomberg

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The purchase price of RMB47.49 per Qinghai Salt Lake share represents:

• (i) a discount of approximately 16.10% to the closing price of RMB56.60 per Qinghai Salt Lake share as at the Latest Practicable Date;

• (ii) a discount of approximately 20.64% to the average closing price of approximately RMB59.84 per Qinghai Salt Lake share for the 10 trading days up to and including the Latest Practicable Date;

• (iii) a discount of approximately 25.19% to the average closing price of approximately RMB63.48 per Qinghai Salt Lake share for the 30 trading days up to and including the Latest Practicable Date; and

• (iv) a premium of approximately 1,807.23% over the consolidated net asset value of Qinghai Salt Lake of approximately RMB2.49 per share based on the audited accounts as at 31 December 2006.

Following Qinghai Salt Lake’s announcement on 26 January 2007 in relation to its projected growth in its net profit of 50-70% for the year 2006 compared to 2005, the share price of Qinghai Salt Lake shares rose to RMB30.40 on 29 January 2007 from RMB30.10 on 26 January 2007. The share price dropped afterwards and closed at RMB26.39 on 6 February 2007 and remained in a range of between RMB26.40 to RMB32.88 up to 19 April 2007.

From 20 April 2007 up to 7 August 2007, the share price of Qinghai Salt Lake shares rose by 41.20% which was in-line with the overall market. The global stock markets were then affected by the turmoil in the credit markets. The SSE Component Index dropped by approximately 3.12% from 16,193.72 on 8 August 2007 to 15,689.0 on 17 August 2007. During the same period, the closing price of the Qinghai Salt Lake shares fell by approximately 8.48% from RMB43.49 to RMB39.80.

In line with the recovery of stock markets generally, the SSE Component Index increased by 22.94% from 15,689.0 on 17 August 2007 to 19,288.29 on the date of the announcement of the Company in relation to the Acquisition, being 17 October 2007. The closing price of the Qinghai Salt Lake shares rose by 60.43% from RMB39.80 to RMB63.85 during the same period. Following the release of the announcement on 18 October 2007, the closing price of Qinghai Salt Lake share dropped by approximately 3.88% to RMB61.37 on that date. The Qinghai Salt Lake shares closed at RMB56.60 on the Latest Practicable Date.

As illustrated by the chart above, the Qinghai Salt Lake shares have been trading at a level above the purchase price of RMB47.49 per Qinghai Salt Lake share on the market since late August 2007.

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(v) Trading volume of Qinghai Salt Lake shares

The table below sets out the total number of Qinghai Salt Lake shares traded per month for the period from 1 January 2007 to 30 November 2007:

		Monthly trading
	Monthly trading	volume to public
	volume	float
	Number of Qinghai
	Salt Lake shares	% (Note 1)
2007
January	134,048,220	39.91
February	114,530,967	34.10
March	168,591,760	50.20
April	184,944,897	55.06
May	111,454,259	33.18
June	87,668,641	26.10
July	118,338,604	35.23
August	164,336,547	48.93
September	90,269,710	26.88
October	65,709,564	19.56
November	49,944,412	14.87
Average	117,257,962	34.91

Source: Bloomberg

Note 1: Based on the number of total outstanding non-restricted negotiable shares at the end of each month (January 2007 to November 2007: 335,873,328).

Qinghai Salt Lake had approximately 768 million shares in issue as at the 30 November 2007, which approximately 336 million shares are non-restricted negotiable shares. Based on the above table, the average monthly trading volume of Qinghai Salt Lake shares during the period from 1 January 2007 to 30 November 2007 was approximately 117 million, which is approximately 34.91% of its total freely tradable stakes. Since January 2007, the trading volumes increased to range between 14.87% and 55.06% of its total freely tradable shares. Such an increment in trading volume is in-line with the general increase in the overall turnover of the stock market.

(vi) Potential restructuring of Qinghai Salt Lake

Sinochem Corporation currently holds 23.45% of the equity interest of Qinghai Salt Lake Industry Group, the 30.6% controlling shareholder of Qinghai Salt Lake. Pursuant to ongoing restructuring arrangements involving Qinghai Salt Lake Industry Group and Qinghai Digital which have been conditionally approved by the China Securities Regulatory Commission on 29 November 2007 (as disclosed in the announcement of

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LETTER FROM SOMERLEY

Qinghai Salt Lake dated 30 November 2007), it is anticipated that Qinghai Salt Lake Industry Group will be merged with Qinghai Digital and will continue to be listed on the Shenzhen Stock Exchange. The Surviving Entity after the merger will continue to hold approximately 30.6% interest in Qinghai Salt Lake. Sinochem Corporation will have an as yet undetermined interest in the Surviving Entity.

To minimise connected transactions and competition issues between the Surviving Entity and Qinghai Salt Lake, the proposed merger between the Surviving Entity and Qinghai Salt Lake will be taken to effect within one full financial year after the Qinghai Merger. Such merger will be conditional upon, among other things, the approval by shareholders of the Surviving Entity and shareholders of Qinghai Salt Lake. It is unclear as to how this merger will be carried out, save that the continuing entity is expected to be listed on the Shenzhen Stock Exchange and both Sinochem Corporation and the Company will have interests in the continuing entity. According to the Company’s PRC legal advisers, if the continuing entity carries on any competing business, the Company would have a right under the Non-competition Undertaking to purchase from Sinochem Corporation, and Sinochem Corporation would have an obligation under the Noncompetition Undertaking to sell to the Company, Sinochem Corporation’s interest in the continuing entity at fair market value.

Provided that the Company’s interest in Qinghai Salt Lake (i) is not diluted inequitably; and (ii) will be freely tradable on the Shenzhen Stock Exchange after the expiry of the Lock-up Undertaking and that the Non-Competition Undertaking is given in favour of the Company, we are of the view that the potential restructuring of Qinghai Digital involving Qinghai Salt Lake Industry Group and Qinghai Salt Lake should not materially adversely affect the Company’s interest. In any case, the potential restructuring will be subject to approval by the shareholders of Qinghai Salt Lake, of which the Company will be one.

5. Comparable analysis

For the purpose of assessing the consideration for the Acquisition, we have carried out research into other PRC fertilisers manufacturing companies and the basis of their valuation.

Comparison with listed companies:

We have considered the price earnings ratio (“PER”) and price to book ratio (“PBR”) of other listed companies engaged in the fertilisers manufacturing business. For this purpose, we have reviewed other listed companies in the PRC engaging in the fertilisers manufacturing business having their principal markets in the PRC with market capitalisation over RMB5,000 million as at the Latest Practicable Date which we consider similar to Qinghai Salt Lake (the “Comparable Companies”).

For the purpose of assessing the valuation of the Qinghai Salt Lake as represented by the consideration of the Sale Shares, we have identified nine Comparable Companies. The Comparable Companies were mostly engaged in nitrogenous and phosphorus

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LETTER FROM SOMERLEY

fertilisers manufacturing, which is different from the Qinghai Salt Lake’s potash fertilisers manufacturing. However, we could not identify any PRC listed potash manufacturers of size similar to Qinghai Salt Lake. Qinghai Salt Lake practically benefits from monopoly position in domestic potash fertilisers market and enjoys a premium valued by the market. Details of the Comparable Companies are summarised in the table below:

	Stock	Market
Comparables	code	Capitalisation	PER	PBR
		RMB’ million
Yunnan Yuntianhua Co. Ltd.	600096	21,737	37.19	7.77
Shandong Hualu Hengsheng Chemical Co. Ltd.	600426	10,792	30.79	4.20
Sichuan Lutianhua Co. Ltd.	000912	9,436	21.51	4.30
Hubei Yihua Chemical Industry Co. Ltd.	000422	8,624	40.08	6.07
Liaoning Huajin Tongda Chemicals Co. Ltd.	000059	7,063	81.92	3.92
Hebei Cangzhou Dahua Co. Ltd.	600230	5,462	54.00	6.10
Sichuan Meifeng Chemical Industry Co. Ltd.	000731	5,576	17.60	3.49
Jiangsu Chengxing Phosph-Chemical Co. Ltd.	600078	5,336	49.94	2.92
Shangdong Luxi Chemical Co. Ltd.	000830	5,953	40.07	2.87
Average			41.46	4.63
Range – low			17.60	2.87
– high			81.92	7.77
Qinghai Salt Lake
at RMB47.49 per Sale Share	000792	36,451	42.48	19.07

Source: Bloomberg

As noted from the above table, the PER represented by the Acquisition (based on RMB47.49 per Sale Share) are within the range of present rating of the Comparable Companies and slightly higher than the average of the relevant ratios of the Comparable Companies. The PBR represented by the Acquisition was higher than the ratios of other Comparable Companies. However, the value of the mining right of the potassium chloride reserve in Chaerhan Salt Lake is not reflected on the book of Qinghai Salt Lake.

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LETTER FROM SOMERLEY

As noted from the above table, the PER and PBR represented by the Acquisition (based on RMB47.49 per Sale Share) are higher than the present rating of most of the Comparable Companies.

6. The Subscription Agreement

(i) New Shares to be issued

Pursuant to the Subscription Agreement, the Company will allot and issue to Sinochem HK a total of 519,995,539 Sinochem HK Subscription Shares and PCS Barbados a total of 194,290,175 PCS Barbados Subscription Shares at the Subscription Price of HK$7.00 each. The entire net proceeds from the Subscription of approximately HK$5,000 million will be used to finance the Acquisition.

The Sinochem HK Subscription Shares and the PCS Barbados Subscription Shares represent approximately 8.37% and 3.13% respectively of the existing issued share capital of the Company and approximately 7.51% and 2.81% respectively of the issued share capital of the Company as enlarged by the Subscription. The Subscription Shares will rank pari passu in all respects with the Shares in issue as at the date of allotment and issue of the Subscription Shares.

(ii) Conditions of the Subscription Agreement

The Subscription Agreement is conditional upon (i) the passing of the resolutions by the Shareholders at the SGM to approve the specific mandate in respect of the issue of the Subscription Shares to be issued pursuant to the Subscription Agreement; (ii) the passing of the resolutions by the Shareholders at the SGM to approve the transactions contemplated under the Acquisition Agreement and the Purchaser’s Undertaking (including the Acquisition, the Lock-up Undertaking and the Voting Undertaking); (iii) the Stock Exchange granting or agreeing to grant approval for the listing of and permission to deal in the Subscription Shares; and (iv) (if necessary) the Bermuda Monetary Authority granting its permission for the allotment and issue of the Subscription Shares.

(iii) The issue price for the Subscription Shares

Comparison of the issue price for the Subscription Shares with market prices

The issue price of HK$7.0 per Subscription Share represents:

• (a) a premium of approximately 2.04% over the closing price of HK$6.86 per Share as quoted on the Stock Exchange on 2 November 2007 (“Last Trading Day”), being the date of the Subscription Agreement;

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LETTER FROM SOMERLEY

• (b) a discount of approximately 3.05% to the average of the closing prices of the Shares of HK$7.22 per Share as quoted on the Stock Exchange for the last five trading days up to and including 2 November 2007;

• (c) a discount of approximately 1.13% to the average of the closing prices of the Shares of HK$7.08 per Share as quoted on the Stock Exchange for the last ten trading days up to and including 2 November 2007;

• (d) a premium of approximately 10.24% over the average of the closing prices of the Shares of HK$6.35 per Share as quoted on the Stock Exchange for the last 30 trading days up to and including 2 November 2007;

• (e) a premium of 9.20% over the closing price of the Shares of HK$6.41 as at the Latest Practicable Date; and

• (f) a premium of approximately 833.33% over the consolidated net asset value of the Company of approximately HK$0.75 per Share based on the audited accounts as at 31 December 2006.

The chart below shows the daily closing prices of the Shares traded on the Stock Exchange from 1 January 2007 up to and including the Latest Practicable Date (the “Review Period”) relative to the movement in the Hang Seng China Enterprise Index (“HSCE Index”):

==> picture [287 x 185] intentionally omitted <==

Source: Bloomberg

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LETTER FROM SOMERLEY

From 1 January 2007 to 11 April 2007, the closing price of the Shares is steady, which ranged between HK$3.01 and HK$4.58. On 12 April 2007, the Company announced its annual results for the year 2006 with a growth in net profit of approximately 15% compared to 2005, the share price of the Company rose by 5.50% to HK$4.41 on 12 April 2007 from HK$4.18 on 11 April 2007. From 12 April 2007 up to 10 July 2007, the share price of the Company surged by 41.95% from HK$4.41 to HK$6.26. During the same period, the HSCE Index increased by 30.09%.

After the trading hours on 10 July 2007, the Company announced a top-up placement of 400 million Shares to independent third parties at a price of HK$5.90, which represented a discount of approximately 5.75% to the closing price of HK$6.26 per Share quoted on the Stock Exchange on 10 July 2007. On 11 July 2007, the share price of the Company dropped by 6.23% to HK$5.87.

The global stock markets were then affected by the turmoil in the credit markets. The HSCE Index dropped by approximately 15.39% from 13,003.25 on 11 July 2007 to 11,002.52 on 17 August 2007. During the same period, the closing price of the Shares fell by approximately 28.45% from HK$5.87 to HK$4.20.

In line with the recovery of stock markets generally, the HSCE Index increased by 77.56% from 11,002.52 on 17 August 2007 to 19,536.34 on 17 October 2007. The closing price of the Shares rose by 44.29% from HK$4.20 to HK$6.06 during the same period.

After the Company announced the Acquisition on 17 October 2007, the Share price rose by 11.22% to HK$6.74 on 18 October 2007. During the period from 22 October 2007 and up to the Latest Practicable Date, the Shares closed between HK$5.44 and HK$7.52 at an average of HK$6.63.

From the chart shown above, the issue prices of the Subscription Shares represent prices towards the upper end of the range at which the Shares have traded during the Review Period. Although the issue price of the Subscription Shares were at a discount to the latest market prices, such issues were made in the context of enabling the Group to be a significant strategic investor of a PRC potash market leader in pursuance of its future strategy. The upward trend in the market prices of the Shares is partly indicative of the market’s expectation on the synergy that may be brought to the Group by becoming Qinghai Salt Lake’s second largest shareholder.

Taking into account the objectives of the Acquisition and the benefits of the Acquisition for the long-term development of the Group’s strategies, we consider the discounts to be acceptable.

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LETTER FROM SOMERLEY

(iv) Trading volume of Shares

The table below sets out the total number of Shares traded per month for the period from 1 January 2007 to 30 November 2007:

		**Monthly **	trading
	Monthly trading	volume to public
	volume		float
	Number of Shares	% (Note)
2007
January	468,747,888		30.49
February	545,571,259		35.48
March	326,623,845		21.24
April	186,636,269		12.14
May	329,041,717		21.40
June	254,852,376		16.56
July	757,814,533		39.06
August	362,540,183		18.69
September	227,192,476		11.71
October	322,340,168		16.61
November	328,838,457		16.95
Average	373,654,470		21.85

Source: Bloomberg

Note: Based on the number of total issued Shares held by public Shareholders at the end of each month (January 2007 to May 2007: 1,537,496,527; June 2007: 1,538,833,425; July 2007 to November 2007: 1,940,170,323).

The Company had approximately 6,211 million shares in issue as at 30 November 2007, which approximately 1,940 million shares are held by the public Shareholders. Based on the above table, the average monthly trading volume of Shares during the period from 1 January 2007 to 30 November 2007 was approximately 374 million Shares, representing approximately 21.85% of the public float of the Company. In July 2007, the trading volumes of the Shares represented 39.06% of its public float, mainly included the top-up placement of 400 million Shares to independent third parties by the Company on 10 July 2007.

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LETTER FROM SOMERLEY

(v) Comparison with other placings to connected persons

In order to assess the fairness and reasonableness of the terms of the Subscription, we have reviewed placements or subscriptions of shares by companies listed on the Stock Exchange to connected persons, since 1 January 2007 (the “Comparable Transactions”). The results of our research are as follows:

				Premium over/(discount) to	Premium over/(discount) to	Premium over/(discount) to
		Size of	Placing	Last	5 days	10 days
Date of Announcement	Issuer	Placing	Price	trading	average	average
		HK$’million	HK$
11-Jan-07	HKC (Holdings) Ltd	582.01	1.33	(11.33)%	(8.02%)	(2.78)%
	(stock code: 190)
07-Feb-07	New World Cyberbase	222.30	0.285	5.56%	24.78%	27.69%
	Ltd
	(stock code: 276)
09-Feb-07	Citic Resources	319.80	2.46	(5.02)%	2.93%	2.93%
	Holdings Ltd
	(stock code: 1205)
12-Feb-07	HKC (Holdings)	194.95	1.37	(5.52)%	(4.46)%	(1.51)%
	Limited
	(stock code: 190)
12-Jun-07	Celestial Asia	26.0	0.52	(23.50)%	(6.50)%	(0.40)%
	Securities Holdings
	Limited
	(stock code: 1049)
12-Jul-07	Golding Soft Limited	37.01	0.105	(38.24)%	(38.24)%	(38.95)%
	(stock code: 8190)
17-Jul-07	China Mining	172.81	1.10	(34.13)%	(37.50)%	(38.41)%
	Resources Group
	Limited
	(stock code: 340)
29-Aug-07	HKC (Holdings)	4,094.88	2.05	(19.92)%	(7.66)%	(3.30)%
	Limited
	(stock code: 190)
03-Sept-07	Termbray Industries	279.60	1.20	(21.10)%	(26.10)%	(24.40)%
	International
	(Holdings) Limited
	(stock code: 93)
10-Sept-07	Hanny Holdings	144.71	0.29	(23.68)%	(18.54)%	(20.33)%
	Limited
	(stock code: 275)

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LETTER FROM SOMERLEY

				Premium over/(discount) to	Premium over/(discount) to	Premium over/(discount) to
		Size of	Placing	Last	5 days	10 days
Date of Announcement	Issuer	Placing	Price	trading	average	average
	HK$’million		HK$
11-Oct-07	Peaktop International	35.55	0.45	(19.64)%	(17.28)%	(18.63)%
	Holdings Limited
	(stock code: 925)
11-Oct-07	Ching Hing (Holdings)	440	0.55	(11.29)%	(12.97)%	(12.97)%
	Limited
	(stock code: 692)
06-Nov-07	Grand Field Group	30.81	0.39	(18.80)%	0.30%	3.0%
	Holdings Limited
	(stock code: 115)
09-Nov-07	China Eastern Airlines	4,181.59	3.80	(50.60)%	(53.20)%	(53.0)%
	Corporation Limited
	(stock code: 670)
30-Nov-07	Shougang Concord	412	1.03	(6.36)%	(6.02)%	(8.61)%
	Century Holdings
	Limited
	(stock code: 103)
03-Dec-07	Sing Lee Software	8.6	0.271	4.20%	4.60%	1.90%
	(Group) Limited
	(stock code: 8076)
	Average		(Note)	(20.65)%	(19.71)%	(18.61)%
	Range – low		(Note)	(5.02)%	(4.46)%	(0.40)%
	– high		(Note)	(50.60)%	(53.20)%	(53.0)%
2-Nov-07	The Company		7.0	2.04%	(3.05)%	(1.13)%

Source: the official web-site of the Stock Exchange

Note: Exclude issue of shares at a premium over the then prevailing market price of the respective shares.

Based on the above table, discounts for the placing/subscription prices ranged from (i) approximately 50.60% to approximately 5.02%, with an average discount of approximately 20.65% to the closing price of the last trading day immediately prior to the respective date of announcement; (ii) approximately 53.20% to approximately 4.46%, with an average of a discount of approximately 19.71% to the average closing price for the last five trading days up to and including the last trading day immediately prior to the respective date of announcement; and (iii) approximately 53.0% to approximately 0.40%, with an average of a discount of approximately 18.61% to the average closing price for the last ten trading days up to and including the last trading day immediately prior to the respective date of announcement. The premium of the Subscription Price over the closing price of the Shares on the Last Trading Day of approximately 2.04% is favourable to the Company and the Independent Shareholders since most of the placement to connected persons in the market were at discounts to the market prices. The slight discounts of the Subscription Price to the average closing price for the last five trading days and the last ten trading days up to and including the Last Trading Day of approximately 3.05% and 1.13% are at the lower end.

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LETTER FROM SOMERLEY

(vi) Dilution of existing Shareholders’ shareholdings

We set out below the Company’s shareholding structure before and after completion of the Subscription:

Name of Shareholders Sinochem HK PCS Barbados Public Total	As at the Latest Practicable Date No. of Shares % of issued share capital of the Company 3,108,863,335 50.06% 1,161,589,966 18.70% 1,940,170,323 31.24% 6,210,623,624 100.00%	Upon completion of Subscription No. of Shares % of issued share capital of the Company 3,628,858,874 52.40% 1,355,880,141 19.58% 1,940,170,323 28.02% 6,924,909,338 100.00%	Upon completion of Subscription No. of Shares % of issued share capital of the Company 3,628,858,874 52.40% 1,355,880,141 19.58% 1,940,170,323 28.02% 6,924,909,338 100.00%
			100.00%

As illustrated on the above table, the shareholding of public Shareholders will be diluted from approximately 31.24% to 28.02% upon completion of the Subscription. Having taken into account the benefits of the Acquisition to the Company, we are of the view that the level of dilution to the shareholdings of the public Shareholders is acceptable.

(vii) Other means of raising equity capital

The Directors have considered other means of raising permanent equity capital, including by means of a rights issue available to all Shareholders. However, the discount to market price needed to be offered, in our opinion, would have been higher for a rights issue. In addition, there would have been substantial underwriting costs, whereas no fees are payable to the Subscriber, and a greater completion risk in today’s volatile market conditions. For these reasons, the Directors consider the Subscription better controls the market and completion risks and is more cost-effective and time-efficient. We agree with this reasoning. The Company has considered financing the Acquisition by way of bank borrowings and other form of debt financing. The use of debt financing, however, will increase the gearing ratio of the Company and will incur additional finance costs.

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LETTER FROM SOMERLEY

7. Financial effects of the Acquisition

(i) Net assets and gearing

Based on the unaudited proforma statement of assets and liabilities of the Pro forma Group as set out in Appendix III to the Circular, the effect of the Acquisition on the net assets and gearing ratio (defined as total borrowings divided by equity attributable to Shareholders plus total borrowings) of the Group are neutral.

The actual amount of goodwill arises from the Acquisition would be determined on the date of completion of the Acquisition and being the difference between the consideration for the Acquisition and the Purchaser’s share of the fair value of the identified assets, liabilities and contingent liabilities of Qinghai Salt Lake on that date. The Purchaser’s interest in Qinghai Salt Lake is subject to regular impairment assessment. If the recoverable amount of the Purchaser’s interest in Qinghai Salt Lake falls below its carrying amount at the date of impairment assessment, the Purchaser’s interest in Qinghai Salt Lake would be impaired and the difference between the carrying amount and the recoverable amount would be recognised as an expense in the Purchaser’s profit and loss account immediately.

While upon completion of the Subscription, the management of the Company expected that the net assets will be increased by approximately HK$5,000 million, being the net proceeds from the Subscription. Given the net assets base is enlarged, the gearing ratio would be improved accordingly.

(ii) Working capital

Having considered the Voting Undertaking which the Purchaser undertakes to propose and vote in favour of all resolutions to approve the distribution of all distributable profits of Qinghai Salt Lake to its Shareholders, there would be a cash inflow from investing activities to the Group. Such dividend distributed by Qinghai Salt Lake would have a positive impact on the cash flow of the Group.

(iii) Profits and losses

Following completion of the Acquisition, financial statements of Qinghai Salt Lake will be equity accounted for in the accounts of the Group. In view of the profitable track record as shown in the paragraph headed “Past results of Qinghai Salt Lake” above, the Acquisition is expected to have a positive impact on the earnings of the Group.

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LETTER FROM SOMERLEY

DISCUSSION AND ANALYSIS

The Company is the holding company for the fertilisers interests of its ultimate controlling Shareholder, Sinochem Corporation, which is under the leadership of the State Council of the PRC. The Group is principally a trading business, and its representation in production is not strong. Approximately 94% of the Group’s revenue is generated from its downstream sourcing and distribution segments, and the remaining 6% comes from its upstream production activities. As at 31 December 2005, the Group had equity interest in seven fertilisers production companies. The Group took steps to strengthen its production interests by making strategic investments in three other fertilisers production enterprises in 2006.

The Acquisition gives the Group an opportunity to become a strategic partner of a leading potash fertiliser manufacturer in the PRC that could facilitate the Group to pursue its business development. Because of the long-term strategic nature of the investment, we do not regard the Lock-up Undertaking, which has approximately three more years to run, as a major concern. The Company has no plans to sell this stake in the next three years in any event. At the same time, the Voting Undertaking, which provides for Qinghai Salt Lake to pay out substantially all its distributable profits as dividend, as beneficial to the Company by facilitating a strong level of cash return on the investment.

The 2006 annual potash contract negotiations with international suppliers were not concluded until late July 2006. As a result, the import of sea-borne potash fertilisers to the PRC was suspended for the first eight months of 2006, which caused a fall in the Group’s potash sales volume. Given a positive state policy and the increasing market demand for potash fertilisers, the Board believes that a significant investment in a leading PRC potash producer will be a key move in the Group’s strategy to create a more balanced business across the fertiliser supply chain.

The pricing formula for the Sale Shares is largely governed by the regulations of SASAC. Within those regulations, the Company has secured the most favourable basis allowed, that is a 10% discount from the daily volume weighted average closing price for the previous thirty trading days from the announcement date. Because the price of shares in Qinghai Salt Lake was rising strongly during this period, the discount to the closing price on the day of the announcement in relation to the Acquisition was 25.19%. The discount to the closing price on the Latest Practicable Date was 16.10%.

The discount to recent market prices is attractive; if a longer period were taken, say 180 trading days, the average price would be lower than the purchase price. However, as stated above, the stake in Qinghai Salt Lake is a strategic investment for the Group and consequently we do not regard a discount to recent average prices, or a premium over longer-term averages, to be the only determining factor as to whether the Acquisition is fair and reasonable.

The PER at which the Sale Shares are being purchased is 42.48 times, which may be considered high in absolute terms but is lower than the Company’s own PER of 45.37 times at the Subscription Price of HK$7.0. It compares well with the ratings of the nine PRC listed companies we consider most comparable to Qinghai Salt Lake, whose average PER is 41.46 times.

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LETTER FROM SOMERLEY

As at 31 December 2006, Qinghai Salt Lake achieved a three-year compound annual growth rate of 79.2% and 102.8% for its revenue and net profit, respectively. The closing price of Qinghai Salt Lake share has been above the acquisition price of RMB47.49 per Sale Share. Based on the 2006 EPS of RMB1.12, the acquisition price represents a PER of 42.48 times and the closing price of Qinghai Salt Lake share on the Latest Practicable Date of RMB56.60 represents a PER of 50.54 times. Having also considered the benefits of the Acquisition and the validity that the SASAC Approval will expire in less than a month’s time, we consider that the high PER represented by the consideration is justifiable.

The consideration of RMB6,739.19 million (equivalent to RMB47.49 per Sale Share), represents approximately 19.07 times the net asset value (excluding minority interest) of approximately RMB2.49 per share of Qinghai Salt Lake. However, as the value of mining right of the potassium chloride reserves is not reflected on the balance sheet and Qinghai Salt Lake has consistently achieved robust growth in both the scale of its operation and its financial results, we do not regard the net asset backing as a particularly significant factor in assessing the worth of a company in this sector, which in our view is better assessed by reference to earnings and growth prospects.

The Subscription provides the Group with net proceeds of approximately HK$5,000 million, sufficient to fund the balance of the consideration not readily available to the Group in cash. While the issue price of the Subscription Share represents a premium of approximately 2% over prevailing market prices is favourable to the Company since most of the placement of shares to connected persons in the market in 2007 are at discounts to market prices of the shares.

Public Shareholders’ interests in the Company will be diluted from 31.24% at present to 28.02% of the Company’s issued share capital as enlarged by the Subscription. The respective interest of Sinochem HK and PCS Barbados will increase from the existing 50.06% and 18.70% to 52.40% and 19.58% respectively. Given the benefits of the Acquisition, for which the Subscription provides majority of the funding, we consider the level of dilution is justified. The Directors reviewed other possible means of raising equity capital, including a rights issue, and concluded that the Subscription was the most efficient and reliable method of meeting the Company’s needs. We concur with this view.

The Acquisition has a neutral effect on the net assets and liabilities of the Group. The Subscription would enlarge the equity base and hence improve the gearing position of the Group.

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LETTER FROM SOMERLEY

OPINION

Having taken into account the above principal factors and reasons, we consider that the Acquisition Agreement (including the Lock-up Undertaking and the Voting Undertaking) and the Subscription Agreement are on normal commercial terms and entered into in the ordinary and usual course of business of the Group. We further consider that the terms of the Acquisition and the Subscription are fair and reasonable to the Independent Shareholders and in the interests of the Company and the Shareholders as a whole. Accordingly, we advise the Independent Board Committee to recommend, and we ourselves recommend, that the Independent Shareholders vote in favour of the ordinary resolutions to be proposed at the SGM to approve the Acquisition Agreement and the Subscription Agreement.

Yours faithfully, for and on behalf of SOMERLEY LIMITED M. N. Sabine Chairman

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

A. SUMMARY OF FINANCIAL INFORMATION

The audited financial statements of the Group for each of the three years ended 31 December 2006 are unqualified.

The following is a summary of the consolidated income statement and the consolidated balance sheet of the Group for the three years ended 31 December 2006.

Consolidated Income Statement

Turnover Cost of sales Gross profit Other income Selling and distribution expenses Administrative expenses Other expenses Share of results of jointly controlled entities Finance costs Profit before taxation Income tax expense Profit for the year Attributable to: Equity shareholders of the Company Minority interests Dividend – Proposed – Paid Earnings per share Basic Diluted	For the 2006 HK$’000 21,126,571 (19,419,304)	year ended 31 December 2005 2004 HK$’000 HK$’000 19,248,665 11,837,185 (17,705,872) (10,812,113) 1,542,793 1,025,072 67,701 83,423 (394,898) (316,130) (223,204) (118,799) – – 49,941 41,614 (112,376) (47,115) 929,957 668,065 (137,533) (141,254) 792,424 526,811 779,421 510,824 13,003 15,987 792,424 526,811 116,913 – – – HK14.49 cents HK10.12 cents HK14.49 cents HK10.12 cents	year ended 31 December 2005 2004 HK$’000 HK$’000 19,248,665 11,837,185 (17,705,872) (10,812,113) 1,542,793 1,025,072 67,701 83,423 (394,898) (316,130) (223,204) (118,799) – – 49,941 41,614 (112,376) (47,115) 929,957 668,065 (137,533) (141,254) 792,424 526,811 779,421 510,824 13,003 15,987 792,424 526,811 116,913 – – – HK14.49 cents HK10.12 cents HK14.49 cents HK10.12 cents
	1,707,267 126,407 (535,249) (187,268) (19,597) 41,037 (128,624) 1,003,973 (99,191)	1,542,793 67,701 (394,898) (223,204) – 49,941 (112,376) 929,957 (137,533)	1,025,072 83,423 (316,130 (118,799 – 41,614 (47,115
			668,065 (141,254
	904,782	792,424
	896,246 8,536	779,421 13,003	510,824 15,987
	904,782 134,437 116,740 HK15.43 cents HK15.41 cents	792,424 116,913 – HK14.49 cents HK14.49 cents

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

Non-current Assets Investment properties Property, plant and equipment Prepaid lease payments Mining right Interests in jointly controlled entities Investment securities Available-for-sale investments Goodwill Deferred taxation assets Current Assets Inventories Loans receivable Prepaid lease payments Trade and bills receivable Advance payments and other receivables Amount due from ultimate holding company Bills discounted to banks Pledged bank deposits Bank balances and cash Current Liabilities Trade and bills payable Receipts in advance and other payables Bank advances for discounted bills Derivative financial liabilities Taxation payable Borrowings Net Current Assets Total Assets less Current Liabilities Non-current Liabilities Convertible loan notes Borrowings Deferred taxation liabilities Net assets Equity Issued equity Reserves Equity attributable to shareholders of the Company Minority interests Total Equity	At 31 December 2006 2005 HK$’000 HK$’000 14,532 160,000 900,986 726,510 106,766 41,924 23,648 22,839 381,656 367,861 – – 290,419 14,462 356,503 356,503 9,422 2,094	At 31 December 2006 2005 HK$’000 HK$’000 14,532 160,000 900,986 726,510 106,766 41,924 23,648 22,839 381,656 367,861 – – 290,419 14,462 356,503 356,503 9,422 2,094	2004 HK$’000 – 507,994 42,659 – 351,698 14,198 – – 2,048
	2,083,932 4,364,565 – 2,233 1,272,357 1,293,856 41,765 1,364,806 6,287 79,274 8,425,143 1,815,256 939,177 1,366,647 86,457 47,791 99,118 4,354,446 4,070,697 6,154,629 1,220,407 363,152 27,099 1,610,658	1,692,193 4,798,149 – – 846,710 453,839 – 1,417,893 – 66,551 7,583,142 2,448,312 417,284 1,417,893 – 50,608 1,025,052 5,359,149 2,223,993 3,916,186 – 234,088 21,385 255,473	918,597
			3,902,571 205,462 – 533,193 1,052,677 – – – 214,064
			5,907,967
			1,431,328 1,456,682 – – 108,392 1,639,005
			4,635,407
			1,272,560
			2,191,157
			– 130,701 4,154
			134,855
	4,543,971	3,660,713	2,056,302
	767,766 3,580,586 4,348,352 195,619	767,766 2,706,892 3,474,658 186,055	78 1,900,788
			1,900,866 155,436
	4,543,971	3,660,713	2,056,302

– 61 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

B. AUDITED FINANCIAL STATEMENTS

The audited consolidated income statement, consolidated balance sheet, consolidated statement of changes in equity, consolidated cash flow statement and notes to the consolidated financial statements of the Group for the year ended 31 December 2006, as extracted from the Company’s 2006 annual report, are set out below.

Consolidated Income Statement

Notes Turnover 7 Cost of sales Gross profit Other income 8 Selling and distribution expenses Administrative expenses Other expenses Share of results of jointly controlled entities 20 Finance costs 9 Profit before taxation Income tax expense 10 Profit for the year 11 Attributable to: Equity shareholders of the Company Minority interests Dividend – Proposed 14 – Paid Earnings per share 15 Basic Diluted	For the year ended 31 December 2006 2005 HK$’000 HK$’000 21,126,571 19,248,665 (19,419,304) (17,705,872) 1,707,267 1,542,793 126,407 67,701 (535,249) (394,898) (187,268) (223,204) (19,597) – 41,037 49,941 (128,624) (112,376) 1,003,973 929,957 (99,191) (137,533) 904,782 792,424 896,246 779,421 8,536 13,003 904,782 792,424 134,437 116,913 116,740 – HK15.43 cents HK14.49 cents HK15.41 cents HK14.49 cents	For the year ended 31 December 2006 2005 HK$’000 HK$’000 21,126,571 19,248,665 (19,419,304) (17,705,872) 1,707,267 1,542,793 126,407 67,701 (535,249) (394,898) (187,268) (223,204) (19,597) – 41,037 49,941 (128,624) (112,376) 1,003,973 929,957 (99,191) (137,533) 904,782 792,424 896,246 779,421 8,536 13,003 904,782 792,424 134,437 116,913 116,740 – HK15.43 cents HK14.49 cents HK15.41 cents HK14.49 cents
	1,707,267 126,407 (535,249) (187,268) (19,597) 41,037 (128,624) 1,003,973 (99,191)	1,542,793 67,701 (394,898 (223,204 – 49,941 (112,376
		929,957 (137,533
	904,782
	896,246 8,536	779,421 13,003
	904,782 134,437 116,740 HK15.43 cents HK15.41 cents

– 62 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Balance Sheet

Notes Non-current Assets Investment properties 16 Property, plant and equipment 17 Prepaid lease payments 18 Mining right 19 Interests in jointly controlled entities 20 Available-for-sale investments 21 Goodwill 22 Deferred taxation assets 33 Current Assets Inventories 24 Prepaid lease payments 18 Trade and bills receivable 25 Advance payments and other receivables 32 Amount due from ultimate holding company 26 Bills discounted to banks 27 Pledged bank deposits 28 Bank balances and cash 28 Current Liabilities Trade and bills payable 29 Receipts in advance and other payables 32 Bank advances for discounted bills 32 Derivative financial liabilities 30 Taxation payable Borrowings 31 Net Current Assets Total Assets less Current Liabilities Non-current Liabilities Convertible loan notes 30 Borrowings 31 Deferred taxation liabilities 33 Net assets Equity Issued equity 34 Reserves Equity attributable to shareholders of the Company Minority interests Total Equity	At 31 December 2006 2005 HK$’000 HK$’000 14,532 160,000 900,986 726,510 106,766 41,924 23,648 22,839 381,656 367,861 290,419 14,462 356,503 356,503 9,422 2,094	At 31 December 2006 2005 HK$’000 HK$’000 14,532 160,000 900,986 726,510 106,766 41,924 23,648 22,839 381,656 367,861 290,419 14,462 356,503 356,503 9,422 2,094
	2,083,932 4,364,565 2,233 1,272,357 1,293,856 41,765 1,364,806 6,287 79,274 8,425,143 1,815,256 939,177 1,366,647 86,457 47,791 99,118 4,354,446 4,070,697 6,154,629 1,220,407 363,152 27,099 1,610,658	1,692,193
		4,798,149 – 846,710 453,839 – 1,417,893 – 66,551
		7,583,142
		2,448,312 417,284 1,417,893 – 50,608 1,025,052
		5,359,149
		2,223,993
		3,916,186
		– 234,088 21,385
		255,473
	4,543,971	3,660,713
	767,766 3,580,586 4,348,352 195,619	767,766 2,706,892
		3,474,658 186,055
	4,543,971	3,660,713

– 63 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Statement of Changes in Equity

At 1 January 2005 Exchange differences arising on translation of foreign operations, recognised directly in equity Profit for the year Total recognised income for the year Issue of ordinary share, net of issuing expense Acquisition of subsidiaries Contribution from owner Dividend paid to minority shareholders Transfer At 31 December 2005 Surplus on revaluation of available-for-sale investments Deferred taxation liability arising on revaluation of available-for- sale investments Exchange differences arising on translation of foreign operations Total income recognised directly in equity Profit for the year Total income recognised for the year Recognition of equity-settled share-based payments Dividend paid Dividend paid to minority shareholders Disposal of subsidiaries Transfer At 31 December 2006			Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company
	Issued equity HK$’000 78	Merger reserve HK$’000 (Note a) 245,632	Capital reserve HK$’000 (Note b) 270,225	Statutory reserves HK$’000 (Note c) 272,664	Investment revaluation reserve HK$’000 –	Share option reserve HK$’000 –	Translation reserve HK$’000 105	Retained profits HK$’000 1,112,162	Total HK$’000 1,900,866	Minority interests HK$’000 155,436	Total HK$’000 2,056,302
	– –	– –	– –	– –	– –	– –	26,683 –	– 779,421	26,683 779,421	3,684 13,003	30,367 792,424
	–	–	–	–	–	–	26,683	779,421	806,104	16,687	822,791
	482,325 285,363 – – –	– – – – –	– – – – –	– – – – 6,114	– – – – –	– – – – –	– – – – –	– – – – (6,114)	482,325 285,363 – – –	– 9,136 10,208 (5,412) –	482,325 294,499 10,208 (5,412) –
	767,766	245,632	270,225	278,778	–	–	26,788	1,885,469	3,474,658	186,055	3,660,713
	– – –	– – –	– – –	– – –	40,106 (13,235) –	– – –	– – 61,896	– – –	40,106 (13,235) 61,896	– – 7,034	40,106 (13,235) 68,930
	– –	– –	– –	– –	26,871 –	– –	61,896 –	– 896,246	88,767 896,246	7,034 8,536	95,801 904,782
	–	–	–	–	26,871	–	61,896	896,246	985,013	15,570	1,000,583
	– – – – –	– – – – –	– – – – –	– – – – 25,170	– – – – –	5,421 – – – –	– – – – –	– (116,740) – – (25,170)	5,421 (116,740) – – –	– – (2,180) (3,826) –	5,421 (116,740) (2,180) (3,826) –
	767,766	245,632	270,225	303,948	26,871	5,421	88,684	2,639,805	4,348,352	195,619	4,543,971

Notes:

(a) The merger reserve of the Group comprises the difference between the nominal value of the shares of the subsidiaries acquired and the nominal value of the shares issued by the holding companies as consideration for the group restructuring transactions in previous years.

(b) The capital reserve of the Group comprises contributions from owners in respect of settlement of doubtful receivables and transfer of equity interest in a jointly controlled entity to the Group in previous years.

(c) Statutory reserves comprise statutory reserve fund and enterprise expansion fund. In accordance with relevant rules and regulation on foreign investment enterprise established in the People’s Republic of China (the “PRC”), the Company’s PRC subsidiaries are required to transfer an amount of their profit after income tax to the statutory reserve fund, until the accumulated total of the fund reaches 50% of their registered capital. The statutory reserve fund may be distributed to shareholders in the form of bonus issue. The appropriation to the enterprise expansion fund is solely determined by the board of directors of the subsidiaries in the PRC.

– 64 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Consolidated Cash Flow Statement

OPERATING ACTIVITIES Profit before taxation Adjustments for: Share of results of jointly controlled entities Amortisation of prepaid lease payments Depreciation of property, plant and equipment Loss on disposal of property, plant and equipment Increase in fair value of investment properties Interest income Finance costs Dividend income Gain on disposal of trading securities Gain on disposal of investment properties Loss on disposal of subsidiaries Fair value changes in derivative financial instruments Write-back of inventories to net realisable value Recognition of share-based payment expenses Operating cash flows before movements in working capital Decrease (increase) in inventories Increase in trade and bills receivable (Increase) decrease in advance payments and other receivables Increase in amount due from ultimate holding company (Decrease) increase in trade and bills payable Increase (decrease) in receipts in advance and other payables Purchase of trading securities Proceeds from disposal of trading securities Increase in bills discounted to banks Net cash generated from operations Income tax paid NET CASH GENERATED FROM OPERATING ACTIVITIES	For the year ended 31 December 2006 2005 HK$’000 HK$’000 1,003,973 929,957 (41,037) (49,941) 995 1,675 67,788 49,564 261 338 (17,306) (6,000) (20,192) (6,280) 128,624 112,376 (581) (2,602) (9,517) – (25,466) – 3,473 – 1,865 – (28,260) – 5,421 – 1,070,041 1,029,087 568,116 (820,293) (406,018) (297,061) (823,936) 627,821 (41,765) – (1,495,145) 973,652 1,307,492 (1,088,301) (14,455) – 23,972 – 1,841 – 190,143 424,905 (113,017) (191,119) 77,126 233,786	For the year ended 31 December 2006 2005 HK$’000 HK$’000 1,003,973 929,957 (41,037) (49,941) 995 1,675 67,788 49,564 261 338 (17,306) (6,000) (20,192) (6,280) 128,624 112,376 (581) (2,602) (9,517) – (25,466) – 3,473 – 1,865 – (28,260) – 5,421 – 1,070,041 1,029,087 568,116 (820,293) (406,018) (297,061) (823,936) 627,821 (41,765) – (1,495,145) 973,652 1,307,492 (1,088,301) (14,455) – 23,972 – 1,841 – 190,143 424,905 (113,017) (191,119) 77,126 233,786
	1,070,041 568,116 (406,018) (823,936) (41,765) (1,495,145) 1,307,492 (14,455) 23,972 1,841 190,143 (113,017) 77,126	1,029,087 (820,293 (297,061 627,821 – 973,652 (1,088,301 – – –
		424,905 (191,119
		233,786

– 65 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

INVESTING ACTIVITIES Additions to property, plant and equipment Interest received Purchase of available-for-sales investments Acquisition of subsidiaries (net of cash and cash equivalents acquired) Additional investments in jointly controlled entities Dividends received from jointly controlled entities Dividends received on unlisted investments Increase in pledged bank deposits Proceeds from disposal of investment properties Proceeds from disposal of property, plant and equipment Proceeds from disposal of subsidiaries Repayment of loans receivable NET CASH USED IN INVESTING ACTIVITIES FINANCING ACTIVITIES Decrease in amount due to a director Decrease in amount due to a shareholder Capital contributed by minority shareholders of subsidiaries Interest paid Proceeds from issue of shares, net of expenses Proceeds from issue of convertible bonds, net of transaction costs Proceeds from bank loans Repayment of bank loans Dividends paid Dividends paid to minority shareholders of subsidiaries Net cash generated from (used in) financing activities INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR EFFECT OF FOREIGN EXCHANGE RATE CHANGES CASH AND CASH EQUIVALENTS AT END OF THE YEAR	For the year ended 31 December 2006 2005 HK$’000 HK$’000 (300,272) (255,445) 20,192 6,280 (236,632) – – (15,445) (2,927) – 43,134 41,782 581 2,602 (6,287) – 190,642 – 3,552 285 (1,573) – – 205,462 (289,590) (14,479) – (3,271) – (116,941) – 10,208 (95,980) (112,376) – 482,325 1,272,486 – 6,910,972 13,025,875 (7,745,598) (13,653,333) (116,740) – (2,180) (2,371) 222,960 (369,884) 10,496 (150,577) 66,551 214,064 2,227 3,064 79,274 66,551	For the year ended 31 December 2006 2005 HK$’000 HK$’000 (300,272) (255,445) 20,192 6,280 (236,632) – – (15,445) (2,927) – 43,134 41,782 581 2,602 (6,287) – 190,642 – 3,552 285 (1,573) – – 205,462 (289,590) (14,479) – (3,271) – (116,941) – 10,208 (95,980) (112,376) – 482,325 1,272,486 – 6,910,972 13,025,875 (7,745,598) (13,653,333) (116,740) – (2,180) (2,371) 222,960 (369,884) 10,496 (150,577) 66,551 214,064 2,227 3,064 79,274 66,551
	(289,590) – – – (95,980) – 1,272,486 6,910,972 (7,745,598) (116,740) (2,180) 222,960 10,496 66,551 2,227	(14,479
		(3,271 (116,941 10,208 (112,376 482,325 – 13,025,875 (13,653,333 – (2,371
		(369,884
		(150,577 214,064 3,064
	79,274

– 66 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Condensed Financial Statements

1. General

The Company is a public limited company incorporated in Bermuda as an exempted company with limited liability and its shares are listed on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”). Its parent is Sinochem Hong Kong (Group) Company Limited (incorporated in Hong Kong) and its ultimate holding company is Sinochem Corporation (incorporated in the PRC). The address of the registered office is Clarendon House, 2 Church Street Hamilton HM11, Bermuda. The principal place of business of the Company is Units 4601-4610, 46th Floor, Office Tower, Convention Plaza, 1 Habour Road, Wanchai, Hong Kong.

The consolidated financial statements are presented in Hong Kong dollars which is the presentation currency of the Company selected to be consistent with prior years presentation. The functional currencies of the Group’s subsidiaries in PRC and Macao are RMB and United State dollars, respectively.

The Company and its subsidiaries are engaged in sale and production of fertilisers and agricultural related products. The Company’s principal subsidiaries are set out in note 42.

2. Reverse acquisition

On 28 January 2005, the Company entered into an acquisition agreement with Sinochem Hong Kong (Group) Company Limited (“Sinochem HK”) in respect of the acquisition of the entire shareholding of China Fertilizer (Holdings) Company Limited (“China Fertilizer”), a wholly-owned subsidiary of Sinochem HK, for a consideration of HK$5,050 million (the “Transaction”). China Fertilizer and its subsidiaries (collectively the “Fertilizer Group”) are engaged in the sale and production of fertilisers and agricultural related products in the PRC.

The consideration for the acquisition of HK$5,050 million was satisfied by the allotment and issue of 5,050 million new shares (the “Consideration Share”) of the Company to Sinochem HK. Subsequent to the completion date of the Transaction, the Group is principally engaged in the sale and production of fertilisers and agricultural related products.

The Transaction was accounted for as a reverse acquisition under Hong Kong Financial Reporting Standard 3 “Business Combinations” since the issuance of the Consideration Shares resulted in Sinochem HK becoming the controlling shareholder of the Company. For accounting purposes, in preparing these consolidated financial statements, the Fertilizer Group was treated as the acquirer while the Company and its subsidiaries prior to the Transaction, which were mainly engaged in property investment (referred thereafter to as the “Property Group”), were deemed to have been acquired by the Fertilizer Group. The comparative figures of these consolidated financial statements have been prepared as a continuation of the consolidated financial statements of the Fertilizer Group and accordingly:

• (i) the assets and liabilities of the Fertilizer Group are recognised and measured in these consolidated financial statements at their historical carrying values prior to the Transaction;

• (ii) the retained profits and other equity balances of the Fertilizer Group prior to the Transaction are retained in the equity balances in these consolidated financial statements; and

• (iii) the amount recognised as issued equity in these consolidated financial statements, which represents the share capital and share premium in the consolidated balance sheet of the Group, is the sum of the issued share capital of China Fertilizer (the legal subsidiary after the Transaction), the Fertilizer Group’s deemed cost of acquisition of the Property Group, and the subsequent issue of new shares of the Company upon completion of the Transaction. However, the equity structure, being the number and type of shares issued, reflects the equity structure of the Company (the legal parent after the Transaction) including the new shares issued in effecting the Transaction.

The Fertilizer Group applied the purchase method to account for the acquisition of the Property Group. In applying the purchase method, the separately identifiable assets and liabilities of the Property Group were recorded in the consolidated balance sheet at their fair values at the completion date of the Transaction. In addition, goodwill arising on the acquisition of Property Group of approximately HK$356,503,000, being the excess of the cost of acquisition of the Property Group over the sum of the fair values of the separately identifiable assets less liabilities of the Property Group, was recorded. The results of the Property Group have been consolidated to the Group’s consolidated financial statements since the completion date of the Transaction.

– 67 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

3. Application of new and revised Hong Kong Financial Reporting Standards

In the current year, the Group has applied, for the first time, a number of new standards, amendments and interpretations (hereinafter collectively referred to as “new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), which are either effective for accounting periods beginning on or after 1 December 2005 or 1 January 2006. The adoption of the new HKFRSs had no material effect on how the results and financial position for the current or prior accounting periods have been prepared and presented. Accordingly, no prior period adjustment has been required.

At the date of authorisation of these consolidated financial statements, the following Hong Kong Financial Reporting Standards (“HKFRS”), Hong Kong Accounting Standards (“HKAS”) and Interpretations (“HK(IFRIC)”) were issued but not yet effective. The directors of the Company are in the process of making an assessment of the impact of these standards or interpretations:

HKAS 1(Amendment) Capital Disclosures[1] HKFRS 7 Financial Instruments: Disclosures[1] HKFRS 8 Operating Segments[8] HK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies[2] HK(IFRIC)-Int 8 Scope of HKFRS 2[3] HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives[4] HK(IFRIC)-Int 10 Interim Financial Reporting and Impairment[5] HK(IFRIC)-Int 11 Group and Treasury Shares Transactions[6] HK(IFRIC)-Int 12 Service Concession Arrangements[7]

• 1 Effective for annual periods beginning on or after 1 January 2007

• 2 Effective for annual periods beginning on or after 1 March 2006

• 3 Effective for annual periods beginning on or after 1 May 2006

• 4 Effective for annual periods beginning on or after 1 June 2006

• 5 Effective for annual periods beginning on or after 1 November 2006

• 6 Effective for annual periods beginning on or after 1 March 2007

• 7 Effective for annual periods beginning on or after 1 January 2008

• 8 Effective for annual periods beginning on or after 1 January 2009

4. Significant accounting policies

The consolidated financial statements have been prepared on the historical cost basis, except for investment properties and certain financial instruments, which are measured at fair values, as explained in the accounting policies set out below.

The consolidated financial statements have been prepared in accordance with Hong Kong Financial Reporting Standards issued by the HKICPA. In addition, the consolidated financial statements include applicable disclosures required by the Stock Exchange and by the Hong Kong Companies Ordinance.

Basis of consolidation

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

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

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

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

Minority interests in the net assets of consolidated subsidiaries are presented separately from the Group’s equity therein. Minority interests in the net assets consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

– 68 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Business combinations

The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under HKFRS 3 Business Combinations are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with HKFRS 5 Non-Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell.

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

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

Goodwill

Goodwill arising on acquisitions

Goodwill arising on an acquisition of a subsidiary for which the agreement date is on or after 1 January 2005 represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the relevant subsidiary at the date of acquisition. Such goodwill is carried at cost less any accumulated impairment losses.

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

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

On subsequent disposal of a subsidiary, the attributable amount of goodwill capitalised is included in the determination of the amount of profit or loss on disposal.

Jointly controlled entities

Joint venture arrangements that involve the establishment of a separate entity in which venturers have joint control over the economic activity of the entity are referred to as jointly controlled entities.

The results and assets and liabilities of jointly controlled entities are incorporated in the consolidated financial statements using the equity method of accounting. Under the equity method, investments in jointly controlled entities are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group’s share of the profit or loss and of changes in equity of the jointly controlled entities, less any identified impairment loss. When the Group’s share of losses of a jointly controlled entity equals or exceeds its interest in that jointly controlled entity (which includes any long-term interests that, in substance form part of the Group’s net investment in the jointly controlled entities), the Group discontinues recognising its share of further losses. An additional share of losses is provided for and a liability is recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of that jointly controlled entity.

Any excess of the Group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.

– 69 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

When a group entity transacts with a jointly controlled entity of the Group, unrealised profits or losses are eliminated to the extent of the Group’s interest in the jointly controlled entity, except to the extent that unrealised losses provide evidence of an impairment of the asset transferred, in which case, the full amount of losses is recognised.

Revenue recognition

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

Sales of goods

• wholesale sales are recognised when a group entity has delivered products to the customer, the customer has accepted the products and collectibility of the related receivables is reasonably assured.

• retail sales are recognised when a group entity sells a product to the customer. Retail sales are usually in cash.

Sales of services are recognised when services are rendered.

Rental income is recognised on a straight-line basis according to terms of the leases.

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

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

Property, plant and equipment

Property, plant and equipment are stated at cost less subsequent accumulated depreciation and accumulated impairment loss.

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

Buildings 20-30 years Plant, machinery and equipment 10 years Motor vehicles 8 years Furniture and fixtures 4 years

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

Prepaid lease payments

Prepaid lease payments representing prepaid land costs are stated at cost less subsequent accumulated amortisation and accumulated impairment losses. Prepaid lease payments are amortised to the consolidated income statement over the term of relevant land leases.

Investment properties

On initial recognition, investment properties are measured at cost, including any directly attributable expenditure. Subsequent to initial recognition, investment properties are measured using the fair value model. Gains or losses arising from changes in fair value of investment properties are included in profit and loss for the period in which they arise.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Leasing

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

The Group as lessor

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

The Group as lessee

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

Foreign currencies

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

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise except for exchange differences arising from a monetary item that forms part of the Company’s net investment in a foreign operation, in which case, such exchange differences are recognised in equity in the consolidated financial statements. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity, in which case, the exchange differences are also recognised directly in equity.

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

Goodwill and fair value adjustments on identifiable assets acquired arising on an acquisition of a foreign operation on or after 1 January 2005 are treated as assets and liabilities of that foreign operation and translated at the rate of exchange prevailing at the balance sheet date. Exchange differences arising are recognised in the translation reserve.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, are capitalised as part of the cost of those assets. Capitalisation of such borrowing costs ceases when the assets are substantially ready for their intended use or sales. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

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FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Government grants

Government grants are recognised as income over the periods necessary to match them with the related costs. Grants related to depreciable assets are presented as deferred income and are released to income over the useful lives of the assets. Grants related to expense items are recognised in the same period as those expenses are charged in the consolidated income statement and are reported separately as “other income”.

Retirement benefit costs

Payments to the defined contribution retirement plan are charged as expenses when employees have rendered service entitling them to the contributions.

Taxation

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

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

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

Deferred taxation liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and jointly controlled entities, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

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

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

Mining right

Mining right on a phosphate reserve is stated at cost less accumulated amortisation and any accumulated impairment losses. Amortisation for mining right is provided on the unit-of-production basis over the total proven reserves of the relevant area.

Gains or losses arising from derecognition of mining right are measured at the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the consolidated income statement when the asset is derecognised.

Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted-average method.

– 72 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Financial instruments

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

Financial assets

The Group’s financial assets are classified into loans and receivables and available-for-sale financial assets. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace. The accounting policies adopted in respect of each category of financial assets are set out below.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including trade and bills receivable, advance payments and other receivables, amount due from ultimate holding company, bills discounted to banks, pledged bank deposits and bank balances and cash) are carried at amortised cost using the effective interest method, less any identified impairment loss. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Available-for-sale financial assets

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

For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments, they are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired. The amount of the impairment loss is measured as the difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses will not reverse in subsequent periods.

Financial liabilities and equity

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

An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below.

Borrowings

Borrowings are subsequently measured at amortised cost, using the effective interest method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the Group’s accounting policy for borrowing costs.

– 73 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Convertible loan notes

Convertible loan notes issued by the Company are regarded as compound instruments. Derivatives embedded in the host debt contracts are treated as separated derivatives when their economic risks and characteristics are not closely related to those of the host contract (the liability component) and the host contract is not carried at fair value through profit or loss. The conversion option is classified as equity component only if the option can be converted by exchange a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. In the case that the conversion options are not settled by the exchange of a fixed amount for fixed number of equity instrument, the issuer recognises the compound financial instrument in the form of financial liability with embedded derivatives. A call, put, or prepayment option embedded in a host debt contract is not closely related to the host contract unless the option’s exercise price is approximately equal on each exercise date to the amortised cost of the host debt instrument.

At the date of issue, the conversion option derivative, holder redemption option, issuer redemption option (collectively the “derivative component”) and liability component are recognised at their respective fair values.

In subsequent periods, the liability component of the convertible loan notes is carried at amortised cost using the effective interest method. The derivative component is measured at fair value with changes in fair value recognised in profit or loss.

Transaction costs that relate to the issue of the convertible loan notes are allocated to the liability and derivative components in proportion to the allocation of the proceeds. Transaction costs relating to the derivative component is charged to profit or loss immediately. Transaction costs relating to the liability component are included in the carrying amount of the liability portion and amortised over the period of the convertible loan notes using the effective interest method.

Other financial liabilities

Other financial liabilities including trade and bills payable, receipts in advance and other payable and bank advances for discounted bills are subsequently measured at amortised cost, using the effective interest method.

Equity instruments

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

Derivative financial instruments

Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each balance sheet date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

Embedded derivatives

Derivatives embedded in non-derivative host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and the host contracts are not measured at fair value with changes in fair value recognised in profit or loss.

Derecognition

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

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

– 74 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Share-based payment transactions

Equity-settled share-based payment transactions

Share options granted to directors and employees

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

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

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

5. Key sources of estimation uncertainty

In the process of applying the entity’s accounting policies which are described in note 4, the directors of the Company make various estimates based on experience, expectations of the future and other information. Key sources of estimation uncertainty that affect the amounts recognised in the consolidated financial statements are below:

Fair value of derivative financial instruments

Derivative financial instruments are initially measured at fair value on the contract date, and are remeasured to fair value at subsequent reporting dates.

The fair values of derivative financial instruments are subject to the limitation of the Black-ScholesMerton Model which requires input of certain assumptions, including the volatility of share price. Changes in the assumptions which are subjective in nature can materially affect the fair value estimate.

Estimated impairment of goodwill

In determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate the present value. Where the actual future cash flows are less than expected, a material impairment loss may arise. As at 31 December 2006, the carrying amount of goodwill is HK$356,503,000. Details of the recoverable amount calculation are disclosed in note 23.

6. Financial instruments

(a) Financial risk management objectives and policies

The Group’s activities expose it to a variety of financial risks: cash flow and fair value interest rate risk, price risk and credit risk, liquidity risk and cash flow interest rate risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.

Cash flow and fair value interest rate risk

Cash flow interest rate risk is the risk that the cash flows of the financial instruments will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the fair value of the financial instruments will fluctuate because of changes in market interest rates. The Group’s fair value interest rate risk relates primarily to convertible loan notes. The Group is also exposed to cash flow interest rate risk through the impact of rate changes on interest bearing financial assets which are mainly short-term bank deposits and interest-bearing financial liabilities which are mainly bank borrowings. Interest rate risk is managed by the director of the Company on an ongoing basis with the primary objective of limiting the extent to which net interest expense could be affected by adverse movements in interest rates.

– 75 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Price risk

The Group is exposed to equity security price risk through its available-for-sale investments and financial derivative instruments. The directors of the Company closely observe the share price movements of those securities relating to the investments and financial derivative instruments in order to minimise the Group’s exposure to the price risk.

Credit risk

The Group’s maximum exposure to credit risk in the event of the counterparties’ failure to perform their obligations as at 31 December 2006 in relation to each class of recognised financial assets is the carrying amount of those assets as stated in the consolidated balance sheet. The directors of the Company considers that the Group has adequate credit control for determination of credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual trade debt at each balance sheet date to ensure that adequate impairment losses are made for irrecoverable amounts. In this regard, the directors of the Company consider that the Group’s credit risk is significantly reduced.

The credit risk on liquid funds is limited because the counterparties are banks with high credit-rating.

(b) Fair value

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

• (i) The fair value of financial assets and financial liabilities (excluding derivative financial instruments) are determined in accordance with generally accepted pricing models based on discounted cash flow analysis or using prices from observable current market transactions;

• (ii) The fair value of derivative financial instruments is determined based on discounted cash flow analysis using the applicable yield curve for the duration of the instruments for non-optional derivatives, and option pricing models for optional derivatives; and

• (iii) The fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market bid prices, as appropriate.

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

7. Business and geographical segments

For management reporting purposes, the Group is currently organised into three main operating divisions. These divisions are the basis on which the Group reports its primary segment information.

Principal operating divisions and their activities are:

Sourcing and distribution – sourcing and distribution of fertilisers and agricultural related products Production – production and sale of fertilisers Others – provision of rental services

– 76 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Segment information about these business is as follows:

(a) Business segments

2006

	Production HK$’000 1,267,747 606,336 1,874,083 38,190	Others HK$’000 – – – 3,080	Eliminated HK$’000 – (689,903) (689,903) –	Eliminated HK$’000 – (689,903) (689,903) –	Eliminated HK$’000 – (689,903) (689,903) –
			–
s	41,037	17,306 25,466			20,773 (54,538 17,306 25,466 (1,865 41,037 (128,624
					1,003,973 (99,191
Sourcing and distribution Production Others HK$’000 HK$’000 HK$’000 7,915,188 1,539,599 10,072 320,180 36,323 381,656 2,063,329 677,923 13,181 3,314 291,009 5,949 5,013 61,555 1,220 429

– 77 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2005

Sourcing and distribution HK$’000 Turnover External sales 18,286,893 Inter-segment sales 46,672 Total 18,333,565 Inter-segment sales are charged at prevailing market rates. Results Segment results 955,306 Unallocated corporate expenses Share of result of jointly controlled entities Finance costs (83,005) Profit before taxation Income tax expense Profit for the year	Sourcing and distribution HK$’000 Turnover External sales 18,286,893 Inter-segment sales 46,672 Total 18,333,565 Inter-segment sales are charged at prevailing market rates. Results Segment results 955,306 Unallocated corporate expenses Share of result of jointly controlled entities Finance costs (83,005) Profit before taxation Income tax expense Profit for the year	Production HK$’000 961,772 461,331 1,423,103 51,866	Others HK$’000 – – – 5,705	Eliminated HK$’000 – (508,003) (508,003) –	Total HK$’000 19,248,665 – 19,248,665 1,012,877 (20,485) 49,941 (112,376) 929,957 (137,533) 792,424
	(83,005)	49,941 (27,828)	(1,543)		(20,485 49,941 (112,376
					929,957 (137,533

2005

Sourcing and distribution Production Others HK$’000 HK$’000 HK$’000 Assets Segment assets 6,920,489 1,448,033 165,893 Goodwill 320,180 36,323 Interests in jointly controlled entities 367,861 Available-for-sale investments 14,462 Unallocated corporate assets Consolidated total assets Liabilities Segment liabilities 4,361,796 1,089,333 91,500 Unallocated corporate liabilities Consolidated total liabilities Other Information Capital expenditure 338,289 296,482 16 Depreciation and amortisation 5,188 46,018 33 Write-back of provision of receivables (46) (21) Write-down of inventories to net realisable value 36,626

Total HK$’000 8,534,415 356,503 367,861 14,462 2,094 9,275,335 5,542,629 71,993 5,614,622 634,787 51,239 (67) 36,626

– 78 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Geographical segments

In respect of geographical segments, turnover and segment results are based on the country in which the customers are located. No geographical analysis is provided as less than 10% of the Group’s turnover and results are attributable to markets outside the PRC.

Total assets and capital expenditure are where the assets are located. No geographical analysis is provided as less than 10% of the Group’s assets and capital expenditure are located outside the PRC.

8. Other income

Revenue from agency service Rental income Dividend income from unlisted investments Interest income from – loans receivable – bank deposits Government grants (Note) Commission income Gain on disposal of investment properties Increase in fair value of investment properties Exchange gain Loss on disposal of property, plant and equipment Sales from scrapped materials Gain on disposal of trading securities Compensation received Others	2006 HK$’000 – 12,560 581 – 20,192 13,749 – 25,466 17,306 1,374 – 5,543 9,517 12,832 7,287 126,407	2005 HK$’000 7,827 4,525 2,602 2,207 4,073 23,402 5,866 – 6,000 16,768 (338) – – – (5,231) 67,701

Note: This represents government grants received by the Group in accordance with Cai Qi 2004 Number 35 document, pursuant to which companies in the PRC engaging in the production and import of a particular phosphate-based fertiliser are entitled to government subsidy at RMB100 per ton.

9. Finance costs

Interest on bank borrowing: – wholly repayable within five years – not wholly repayable within five years Interest expense on convertible loan notes wholly repayable within five years Bank charges and others	2006 HK$’000 (95,980) – (32,644) – (128,624)	2005 HK$’000 (101,758) (1,543) – (9,075) (112,376)

– 79 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

10. Income tax expense

Current tax: Hong Kong Profits Tax Taxation in jurisdictions other than Hong Kong Deferred taxation credit (charge) (note 33) Taxation attributable to the Company and its subsidiaries	2006 HK$’000 (1,640) (100,769)	2005 HK$’000 (1,443) (130,137) (131,580) (5,953) (137,533)
	(102,409) 3,218	(131,580 (5,953
	(99,191)

Hong Kong Profits Tax is calculated at 17.5% (2005: 17.5%) of the estimated assessable profit for the year.

PRC enterprise income tax has been provided on the estimated assessable profits of subsidiaries operating in the PRC at the applicable rate of income tax of 33% (2005: 33%) Certain subsidiaries of the Group in the PRC are entitled to preferential income tax treatments which are detailed below:

• (a) Sinochem Chongqing Fuling Chemical Fertilizer Company (“Sinochem Fuling”), a 60% owned subsidiary of the Group, is currently subject to a preferential PRC enterprise income tax rate of 15% granted by the local tax bureau of Chongqing City in July 2001. According to the policy for the development of the Western region of the PRC promulgated by the State Council, Sinochem Fuling is entitled to this preferential income tax treatment from 2002 to 2010 provided it is engaged in the projects listed in the Catalogue for Industries, Products and Technologies Currently and Particularly Encouraged by the State for Development (as amended in 2000) and its principal business and revenue from the principal operations accounts for over 70% of its total revenue.

• (b) Fujian Sinochem Zhisheng Chemical Fertilizer Company Limited (“Sinochem Zhisheng”), a 53.19% owned subsidiary of the Group, is currently entitled to a preferential income tax treatment granted by the State Tax Bureau of Fujian province. Pursuant to such preferential income tax treatment, 40% of the amount invested in domestically made machinery by Sinochem Zhisheng in a particular year under its technological renovation project for compound fertiliser production can be applied to set off against the enterprise income tax of the preceding year.

No provision for income tax has been made for certain subsidiaries of the Company in jurisdiction other than Hong Kong and the PRC as those subsidiaries have profit exempted from tax for the year.

A statement of reconciliation of taxation is as follows:

Profit before taxation Tax calculated at the main applicable tax rate of 33% (2005: 33%) Tax effect of expenses not deductible for tax purposes Tax effect of tax exemptions Tax effect of income not taxable for tax purposes Tax effect of share of results of jointly controlled entities Effect of different income tax rates in other jurisdictions Others Income tax expense for the year	2006 HK$’000 1,003,973	2005 HK$’000 929,957 (306,885) (285) 7,566 150,552 16,481 2,178 (7,140) (137,533)
	(331,311) (12,949) 163,312 67,414 13,542 1,836 (1,035)	(306,885 (285 7,566 150,552 16,481 2,178 (7,140
	(99,191)

– 80 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. Profit for the year

Profit for the year has been arrived at after charging (crediting): Depreciation of property, plant and equipment Amortisation of prepaid lease payments Auditors’ remuneration Directors’ emoluments (see note 12) Staff benefits (Note) Total employee benefits expenses Minimum lease payments made in respect of properties Direct operating expenses arising from investment properties that generate rental income Fair value changes in derivative financial instruments Provision for impairment (reversal of provision for impairment) of receivables Loss on disposal of fixed assets Loss on disposal of subsidiaries (Write-back) write-down of inventories to net realisable value	2006 HK$’000 67,788 995 5,949 6,141 127,618	2005 HK$’000 49,564 1,675 5,822 1,099 122,384
	133,759	123,483
	14,959 5,031 1,865 429 261 3,473 (28,260)	10,882 1,130 – (67 338 – 36,626

Note: Included in staff benefits are share-based payments and contributions to retirement benefit schemes for the year of HK$3,137,000 and HK$7,427,000, respectively.

12. Directors’ remuneration

The emoluments paid or payable to each of the ten directors during the year ended 31 December 2006 were as follows:

Mr. Liu De Shu Mr. Song Yu Qing Mr. Du Ke Ping Mr. Harry Yang Dr. Chen Guo Gang Dr. Stephen Francis Dowdle Mr. Ko Ming Tung, Edward Dr. Li Ka Cheung, Eric Dr. Tang Tin Sek Mr. Wade Fetzer III	Fees HK$’000 – – – – – – 260 260 260 – 780	Salaries and other benefits Performance related incentive payments Retirement benefit scheme contribution HK$’000 HK$’000 HK$’000 (Note 1) – – – – 120 – 1,134 652 17 1,033 121 – – – – – – – – – – – – – – – – – – – 2,167 893 17	Salaries and other benefits Performance related incentive payments Retirement benefit scheme contribution HK$’000 HK$’000 HK$’000 (Note 1) – – – – 120 – 1,134 652 17 1,033 121 – – – – – – – – – – – – – – – – – – – 2,167 893 17	Sub-total HK$’000 – 120 1,803 1,154 – – 260 260 260 –	Share- based payments HK$’000 (Note 2) 387 301 994 301 301 – – – – –	Total HK$’000 387 421 2,797 1,455 301 – 260 260 260 –
			17	3,857	2,284	6,141

– 81 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The emoluments paid to directors during the year ended 31 December 2005 were as follows:

Mr. Liu De Shu Mr. Song Yu Qing Mr. Du Ke Ping Ms. Chen Hao Dr. Chen Guo Gang Dr. Stephen Francis Dowdle Mr. Ko Ming Tung, Edward Dr. Li Ka Cheung, Eric Dr. Tang Tin Sek Mr. Chiu Yu Lin, David Mrs. Chu Ho Miu Hing	Fees HK$’000 – – – – – – 176 176 176 – – 528	Salaries and other benefits Performance related incentive payments Retirement benefit scheme contribution HK$’000 HK$’000 HK$’000 (Note 1) – – – – – – 278 293 – – – – – – – – – – – – – – – – – – – – – – – – – 278 293 –	Salaries and other benefits Performance related incentive payments Retirement benefit scheme contribution HK$’000 HK$’000 HK$’000 (Note 1) – – – – – – 278 293 – – – – – – – – – – – – – – – – – – – – – – – – – 278 293 –	Sub-total HK$’000 – – 571 – – – 176 176 176 – –	Share- based payments HK$’000 (Note 2) – – – – – – – – – – –	Total HK$’000 – – 571 – – – 176 176 176 – –
			–	1,099	–	1,099

Note 1: The performance related incentive payments were determined with reference to the operating results, individual performance and comparable market statistics.

Note 2: Share-based payments represent the fair value of share options granted to the relevant directors. For details of options granted, please refer to note 35 to the consolidated financial statements.

13. Employees’ remuneration

Of the five individuals with the highest emoluments in the Group, two (2005: one) were directors of the Company, whose emoluments are included and disclosed in note 12 above. The emoluments of the remaining three (2005: four) individuals were as follows:

Salaries and other benefits Performance related incentive payments Retirement benefit scheme contributions	2006 HK$’000 2,795 1,405 56 4,256	2005 HK$’000 1,982 1,293 87
		3,362

Their emoluments were within the following bands:

	**Number of **	employee(s)
	2006	2005
HK$Nil to HK$1,000,000	–	4
HK$1,000,001 to HK$1,500,000	3	–

– 82 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

14. Dividend

		2006	2005
		HK$’000	HK$’000
Proposed	final dividend of HK2.31 cents per share
(2005:	HK2.01 cents)	134,437	116,913

The final dividend of HK2.31 cents (2005: HK2.01 cents) per share has been proposed by the directors and is subject to approval by the shareholders in the forthcoming annual general meeting.

15. Earnings per share

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

Earnings Earnings for the purpose of basic and diluted earnings per share Number of shares Weighted average number of shares for the purpose of basic earnings per share Effect of dilutive potential shares: – share options Weighted average number of shares for the purpose of diluted earnings per share	2006 HK$’000 896,246 ’000 5,807,950 8,050 5,816,000	2005 HK$’000 779,421
		’000 5,378,099 –
		5,378,099

The computation of diluted earnings per share does not assume the conversion of the Company’s outstanding convertible loan notes since their exercise would result in increase in profit per share.

16. Investment properties

AT FAIR VALUE At the beginning of the year Acquisition of subsidiaries Transfer from property, plant and equipment Increase in fair value recognised in the consolidated income statement Disposals At the end of the year	2006 HK$’000 160,000 – 14,226 17,306 (177,000) 14,532	2005 HK$’000 – 154,000 – 6,000 –
		160,000

The carrying amounts of investment properties situated in Hong Kong and the PRC are as follows:

Medium-term leases in Hong Kong Medium-term leases in the PRC	2006 HK$’000 – 14,532 14,532	2005 HK$’000 160,000 –
		160,000

– 83 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

In the current year, the Group disposed of all its investment properties situated in Hong Kong with carrying amount of HK$177,000,000, which had been measured at fair value before disposal. A gain on disposal of HK$25,466,000 has been recognised in the consolidated income statement.

The Group’s investment properties were valued in respect of the properties’ values as at 31 December 2006 by Knight Frank Petty Limited, an independent qualified professional valuers not connected with the Group. Knight Frank Petty Limited has appropriate qualifications and experiences in the valuation of similar properties in the relevant locations. The valuation, which conforms to Valuation Standards on Properties issued by the Hong Kong Institute of Surveyors, was arrived at by reference to market evidence of transaction prices for similar properties.

All of the Group’s property interests held under operating leases to earn rentals purposes are measured using the fair value model and are classified and accounted for as investment properties.

17. Property, plant and equipment

COST OR VALUATION At 1 January 2005 Exchange realignment Purchase of subsidiaries Additions Disposals Transfer from assets under construction At 31 December 2005 Exchange realignment Additions Transfers from construction in progress Transfer to investment properties Transfer to prepaid lease payment Disposals/write-off At 31 December 2006 DEPRECIATION AND AMORTISATION At 1 January 2005 Exchange realignment Provided for the year Eliminated on disposals At 31 December 2005 Exchange realignment Provided for the year Transfer to investment properties Eliminated on disposals/write-off At 31 December 2006 CARRYING VALUES At 31 December 2006 At 31 December 2005	Buildings HK$’000 149,623 4,191 – – – 72,811	Plant, machinery and equipment HK$’000 211,660 6,102 – 482 (323) 116,636	Motor vehicles HK$’000 17,895 527 – 12,822 (1,864) –	Furniture and fixtures Construction in progress HK$’000 HK$’000 66,705 87,021 1,562 2,495 140 – 5,607 236,534 (336) – 122 (189,569)	Furniture and fixtures Construction in progress HK$’000 HK$’000 66,705 87,021 1,562 2,495 140 – 5,607 236,534 (336) – 122 (189,569)	Total HK$’000 532,904 14,877 140 255,445 (2,523) – 800,843 32,583 300,272 – (18,672) (65,064) (12,429) 1,037,533 24,910 1,759 49,564 (1,900) 74,333 3,753 67,788 (4,446) (4,881) 136,547 900,986 726,510
	226,625 9,175 2,012 55,242 (18,672) – – 274,382 5,593 236 10,296 – 16,125 652 3,424 (4,446) – 15,755	334,557 13,262 3,298 72,791 – – (1,336) 422,572 9,344 1,243 32,790 (320) 43,057 1,972 26,094 – (1,229) 69,894	29,380 1,029 2,315 – – – (910) 31,814 4,509 114 2,432 (1,260) 5,795 228 3,814 – (697) 9,140	73,800 2,948 5,936 19,746 – – (2,955) 99,475 5,464 166 4,046 (320) 9,356 901 34,456 – (2,955) 41,758	136,481 6,169 286,711 (147,779) – (65,064) (7,228) 209,290 – – – – – – – – – –	800,843 32,583 300,272 – (18,672 (65,064 (12,429
						1,037,533
						24,910 1,759 49,564 (1,900
						74,333 3,753 67,788 (4,446 (4,881
						136,547
	258,627 210,500	352,678 291,500	22,674 23,585	57,717 64,444	209,290 136,481

– 84 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

18. Prepaid lease payments

The Group’s prepaid lease payments comprise: Leasehold land in the PRC Long lease Medium-term lease Analysis for reporting purposes as: Current asset Non-current asset	2006 HK$’000 75,145 33,854	2005 HK$’000 41,924 –
	108,999 2,233 106,766	41,924 – 41,924
	108,999	41,924

19. Mining right

The mining right on a phosphate reserve is held by a 60% owned subsidiary which was acquired by the Group on 27 October 2005. The mining right is stated at cost which, in the opinion of directors, represents a close approximation to its fair value as at the date of acquisition based on a valuation performed by an independent professionally qualified valuer, China Assets Appraisal Co., Ltd..

The mining right is due in 2011 and is renewable at minimal cost.

No amortisation was charged during the year as the mining process has not started.

20. Interests in jointly controlled entities

				2006	2005
				HK$’000	HK$’000
Share	of	net	assets	381,656	367,861

Movements of share of net assets of jointly controlled entities are as follows:

At 1 January Additions Share of results before income tax Share of income tax expense Dividends paid Exchange differences At 31 December	2006 HK$’000 367,861 2,927 43,726 (2,689) (43,134) 12,965 381,656	2005 HK$’000 351,698 – 54,967 (5,026 (41,782 8,004
		367,861

– 85 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The summary financial information of the Group’s jointly controlled entities is as follows:

Financial position Non-current assets Current assets Non-current liabilities Current liabilities Net assets The Group’s share of net assets of jointly controlled entities Result for the year Revenue Profit for the year The Group’s share of results of jointly controlled entities	2006 HK$’000 2,487,720 1,107,056 (1,099,831) (1,288,005) 1,206,940 381,656 2,372,920 128,658 41,037	2005 HK$’000 1,243,624 1,064,888 (504,662) (607,505)
		1,196,345
		367,861
		1,283,982
		184,477
		49,941

Details of the principal jointly controlled entities are set out in note 43 to the consolidated financial statements.

21. Available-for-sale investments

Available-for-sale investments at 31 December, comprise: Listed equity securities in the PRC Unlisted equity securities in the PRC Less: impairment losses	2006 HK$’000 281,472 10,232 (1,285) 290,419	2005 HK$’000 – 19,933 (5,471)
		14,462

At the balance sheet date, all listed available-for-sale investments are stated at fair value which have been determined by reference to the market price and the discount rate in connection with the lock-up period. The discount rate ranges from 10.60% to 18.51%.

The unlisted equity securities, representing investments in private entities are measured at cost less impairment at each balance sheet date because the range of reasonable fair value estimates is so significant that the directors of the Company are of the opinion that their fair values cannot be measured reliably.

22. Goodwill

At 1 January 2005 Additions At 31 December 2005 and 2006	HK$’000 – 356,503
	356,503

Particulars regarding impairment testing on goodwill are set out in note 23.

– 86 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

23. Impairment testing on goodwill with indefinite useful lives

As explained in note 7, the Group uses business segments as its primary segment for reporting segment information. For the purposes of impairment testing, goodwill has been allocated to the cash generating units (“CGUs”) of the related segments as follows.

Sourcing and distribution Production	2006 HK$’000 320,180 36,323 356,503	2005 HK$’000 320,180 36,323
		356,503

The recoverable amounts of these CGUs have been determined on the basis of value in use calculations. Their recoverable amounts are based on certain similar key assumptions such as discount rates and growth rates. The directors of the Company estimate discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific relating to the CGUs. The growth rates are based on GDP growth of the PRC economy.

At the balance sheet date, the Group performed impairment review for goodwill based on cash flow forecasts derived from financial budgets approved by directors and a discount rate of 10.05%. Both sets of cash flows beyond the year 2007 are extrapolated using a declining average growth rate of 10.50% for the first eight years and a steady growth rate of 6.30% for the following 6 years. The value in use calculated by using the discount rate is higher than the carrying amounts of CGUs, accordingly, there are no impairments of any of the CGUs containing goodwill with indefinite useful lives.

24. Inventories

Fertiliser merchandise and finished goods Raw materials Work in progress Production supplies	2006 HK$’000 4,091,594 252,689 15,071 5,211 4,364,565	2005 HK$’000 4,679,235 96,768 18,330 3,816
		4,798,149

25. Trade and bills receivable

The Group allows its trade customers with credit periods normally within 120 days. The following is an analysis of trade and bills receivable at the balance sheet date:

Within 90 days 91 days to 180 days 181 days to 360 days Over 360 days	2006 HK$’000 1,264,883 1,463 5,113 898 1,272,357	2005 HK$’000 806,013 39,046 373 1,278
		846,710

– 87 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

26. Amount due from ultimate holding company

The amount represents trade balance due from ultimate holding company. The Group allows 120 days credit period to its ultimate holding company. At 31 December 2006, the balance is aged within 90 days.

27. Bills discounted to banks

The Group discounted certain bills to banks with recourse in exchange for cash. The transactions have been accounted for as collateralised bank advances for the year ended 31 December 2006. The bills discounted to banks and remained outstanding as at 31 December 2006 amounted to HK$1,364,806,000 (2005: HK$1,417,893,000).

28. Pledged bank deposits/bank balances and cash

Pledged bank deposits

The pledged deposits have been placed in designated banks as part of the securities provided for bill facilities granted to the Group.

Bank balance and cash

Bank balances, deposits and cash comprise cash held by the Group and short-term bank deposits with originally maturity of three months or less, and carry interests ranging from 0.72% to 3.95% (2005: 0.70% to 3.15%) per annum.

Included in pledged bank deposits and bank balances and cash are the following amounts denominated in currencies other than the functional currency of the entity to which they relate.

			2006	2005
			HK$’000	HK$’000
United	State	dollars	4,313	4,938

29. Trade and bills payable

The following is an analysis of trade and bills payable at the balance sheet date:

Within 90 days 91 days to 180 days 181 days to 360 days Over 360 days	2006 HK$’000 1,803,563 1,427 2,359 7,907 1,815,256	2005 HK$’000 2,244,443 197,249 6,022 598
		2,448,312

30. Convertible loan notes/derivative financial liabilities

The Company issued 130,000 zero coupon notes with face value of HK$10,000 each on 7 August 2006. The convertible loan notes are denominated in Hong Kong dollars. The notes entitle the holders to convert them into ordinary shares of the Company on or after 22 August 2006 up to and including the close of business on 23 July 2011 or, if the notes shall have been called for redemption before the 7 August 2011 (maturity date), then up to the close of business on a date no later than seven business days prior to the date fixed for redemption at a conversion price of HK$3.74 per ordinary share. If the notes have not been converted or early redeemed, they will be redeemed on the maturity date at 127.23% of the face value of the notes.

– 88 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

At any time after 7 August 2009 and prior to the maturity date, the Company shall have the right to redeem the notes in whole but not in part at the early redemption amount if the closing price of the shares on each of the 30 consecutive trading days immediately prior to the date upon which notice of such redemption is given was at least 130% of the applicable early redemption amount divided by the conversion ratio (as defined in the Terms and Conditions of the convertible loan notes).

On 7 August 2009, the holders shall have the right to require the Company to redeem in whole or in part of the notes at 115.55% of the face value of the notes.

The convertible loan notes contain liability component stated at amortised cost and conversion option, holder redemption option and issuer redemption option (collectively the “derivative component”) stated at fair value. The derivative component is presented on a net basis as the terms and conditions of options under the derivative component are inter-related. Issue costs of HK$29,428,000 are apportioned between the liability component and derivatives component based on their relative fair values at the date of issue. An issue cost of HK$27,513,000 relating to the liability component is included into the fair value of liability component at the date of issue. The effective interest rate of the liability component is 6.82%.

The movement of the liability and derivative components of the convertible loan notes for the year is set out as below:

Amount initially recognised Interest charge Change in fair value At 31 December 2006 Fair value at 31 December 2006 31. Borrowings Bank loans, secured Bank loans, guaranteed Bank loans, unsecured Carrying amount repayable: Within one year In more than one year, but not more than two years In more than two years, but not more than five years In more than five years Less: Amounts due within one year shown under current liabilities Amounts due after one year	Liability component HK$’000 1,187,763 32,644 – 1,220,407 1,282,664 2006 HK$’000 53,747 19,906 388,617 462,270	Derivatives component HK$’000 84,592 – 1,865 86,457 86,457 2005 HK$’000 126,744 13,044 1,119,352 1,259,140 1,025,052 66,491 127,700 39,897 1,259,140 (1,025,052) 234,088
	99,118 94,415 268,737 – 462,270 (99,118)	1,025,052 66,491 127,700 39,897
		1,259,140 (1,025,052
	363,152

– 89 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

An analysis of the carrying amounts of the Group’s total borrowings by type is as follows:

Variable-rate borrowings Fixed-rate borrowings Total borrowings	2006 HK$’000 256,238 206,032 462,270	2005 HK$’000 383,153 875,987
		1,259,140

The ranges of effective interest rates (which are also equal to contracted interest rates) on the Group’s borrowings are as follows:

	2006	2005
Variable-rate borrowings	0%-5.56%	3.94%-4.68%
Fixed rate borrowings	5.56%	4.68%

The Group’s borrowings that are denominated in currencies other the functional currencies of the relevant group entities are set out below:

			2006	2005
			HK$’000	HK$’000
Hong	Kong	dollars	4,850	80,263

At 31 December 2006, bank borrowings amounting to HK$19,906,000 (2005: HK$13,044,000) were guaranteed by a related company of a joint venture partner.

At 31 December 2006, certain property, plant and equipment, prepaid lease payments with carrying values of HK$208,805,000 (2005: HK$252,375,000) were pledged to secured banking facilities granted to the Group.

32. Other financial assets/liabilities

Other financial assets at 31 December 2006 include advance payments and other receivables. Other financial liabilities at 31 December 2006 include receipts in advance and other payables and bank advances for discount bills.

– 90 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

33. Deferred taxation

The following are the deferred taxation liabilities recognised and movements thereon during the current and prior reporting years:

At 1 January 2005 Acquisition of subsidiaries Charge to income for the year Exchange differences At 31 December 2005 Credit to income for the year Charge to equity for the year Release upon disposal Exchange differences At 31 December 2006	Undistributed profits of a subsidiary and jointly controlled entities HK$’000 11,451 – 1,663 276	Revaluation of investment properties HK$’000 – 10,774 1,050 –	Others HK$’000 1,689 354 11,092 165	Total HK$’000 13,140 11,128 13,805 441 38,514 (13,495) 13,235 (11,824) 669 27,099
	13,390 – – – 474	11,824 – – (11,824) –	13,300 (13,495) 13,235 – 195	38,514 (13,495 13,235 (11,824 669
	13,864	–	13,235

The following are the deferred taxation assets recognised and movements thereon during the current and prior reporting years:

At 1 January 2005 (Credit) charge to income for the year Exchange differences At 31 December 2005 (Credit) charge to income for the year Exchange differences At 31 December 2006	Unrealised profits in inventories HK$’000 (8,986) 4,236 (153)	Allowance for inventories HK$’000 – (12,088) (138)	Impairment of property, plant and equipment HK$’000 (2,048) – (46)	Total HK$’000 (11,034) (7,852) (337) (19,223) 10,277 (476) (9,422)
	(4,903) (375) (182)	(12,226) 9,437 (244)	(2,094) 1,215 (50)	(19,223 10,277 (476
	(5,460)	(3,033)	(929)

– 91 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the purpose of balance sheet presentation, certain deferred taxation assets and liabilities have been offset. The following is the analysis of the deferred taxation balances for financial reporting purposes:

Deferred taxation assets Deferred taxation liabilities	2006 HK$’000 (9,422) 27,099 17,677	2005 HK$’000 (2,094) 21,238
		19,144

Deferred taxation assets are recognised for tax losses carried forward to the extent that the realisation of the related tax benefit through the future taxable profits is probable. The Group did not recognise deferred taxation assets in respect of losses amounting to HK$409,234,000 (2005: HK$540,744,000) that can be carried forward against future taxable income.

34. Issued equity

									Number
									of shares
								_(in _	thousands)	HK$’000
At	31	December	2005	and	31	December	2006		5,807,950	767,766

Due to the application of reverse acquisition basis of accounting, the amount of issued equity of the Group as at 31 December 2005, which included share capital and share premium in the consolidated balance sheet, represented the amount of issued equity of the legal subsidiary, China Fertilizer, immediately before the acquisition of HK$78,000, the deemed cost of acquisition of the Property Group of HK$285,363,000, and the issue of new shares of HK$482,325,000 during the year ended 31 December 2005, after deducting the costs of issuing the new shares.

35. Share-based payment transactions

Equity-settled share option scheme

The share option scheme adopted by the Company on 11 September 1996 (“Old Share Option Scheme”) was terminated on 26 August 2002.

A new share option scheme (“New Share Option Scheme”) was adopted pursuant to a resolution passed on 26 August 2002 for the primary purpose of providing incentives to directors and eligible employees, and will expire on 25 August 2012. Under New Share Option Scheme, the Board of Directors of the Company may grant options to eligible employees, including directors of the Company and its subsidiaries, to subscribe for shares in the Company.

At 31 December 2006, the number of shares in respect of which options had been granted and remained outstanding under New Share Option Scheme was 28,445,000 (2005: nil), representing 0.49% (2005: nil) of the shares of the Company in issue as at the date of this report. The total number of option shares available for granting under the New Share Option Scheme at the date of this report is 580,794,982. The total number of shares in respect of which options may be granted under New Share Option Scheme is not permitted to exceed 10% of the shares of the Company in issue at any point in time, without prior approval from the Company’s shareholders. The number of shares issued and to be issued in respect of which options granted and may be granted to any individual in any one year is not permitted to exceed 1% of the shares of the Company in issue at any point in time, without prior approval from the Company’s shareholders. Options granted to substantial shareholders or independent non-executive directors, or any of their respective associates (as defined under the Listing Rules) in the 12-month period up to and including the date of such grant in excess of 0.1% of the Company’s share capital in issue with an aggregate value in excess of HK$5,000,000 must be approved in advance by the Company’s shareholders.

– 92 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The option price is HK$1 which is payable on acceptance of an option. No more than two-thirds of the options are exercisable from 23 January 2008 to 22 January 2009, and the remaining options are exercisable at any time from 23 January 2009 to 22 January 2012. The exercise price was determined by the directors of the Company by reference to the then market trading price of the shares, and was the highest of (i) the closing price of the Company’s shares on the date of grant, (ii) the average closing price of the shares for the five business days immediately preceding the date of grant; and (iii) the nominal value of the Company’s share.

Details of the share option scheme and its granting are as follows:

		Exercisable	Exercise	Number of
Grantees	Date of grant	period	Price	options
			HK$
	(Note 1)		(Note 4)
Mr. LIU De Shu	23 January 2006	23 January 2008 to	1.672	2,033,000
(Note 2)		22 January 2012
Mr. SONG Yu Qing	23 January 2006	23 January 2008 to	1.672	1,582,000
(Note 2)		22 January 2012
Mr. DU Ke Ping	23 January 2006	23 January 2008 to	1.672	5,213,000
(Note 3)		22 January 2012
Mr. CHEN Guo Gang	23 January 2006	23 January 2008 to	1.672	1,582,000
(Note 2)		22 January 2012
Mr. Harry YANG	23 January 2006	23 January 2008 to	1.672	1,582,000
(Note 3)		22 January 2012
Employees	23 January 2006	23 January 2008 to	1.672	16,453,000
		22 January 2012

Notes:

• (1) No more than two-thirds of the options are exercisable from 23 January 2008 to 22 January 2009, and the remaining options are exercisable from 23 January 2009 to 22 January 2012.

• (2) Non-Executive Director of the Company.

• (3) Executive Director of the Company.

• (4) The closing price per share immediately before 23 January 2006, being the date of grant, was HK$1.64.

The following table discloses movements of the Company’s share options held by directors and employees during the year:

Option type 2006 Exercisable at the end of the year Weighted average exercise price	Outstanding at 1/1/2006 – –	Granted during the year 30,010,000 1.672	Forfeited during the year (1,565,000) 1.672	Outstanding at 31/12/2006 28,445,000
				–
				1.672

Options were granted on 23 January 2006 and their estimated fair values are HK$14,662,000.

– 93 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The following table discloses movements of the Company’s share options held by directors and employees during 2005:

Option type 2005 (Note) Weighted average exercise price (Note)	Outstanding at 1/4/2005 2,000,000 0.378	Granted during the year – –	Lapsed during the year (2,000,000) –	Outstanding at 31/12/2005 –
				–

Note: On 5 July 2005, the nominal value of the Company’s ordinary shares of HK$0.10 each was reduced to HK$0.01 each (“Capital Reduction”). Every 10 ordinary shares of HK$0.01 each of the Company was then consolidated into one ordinary share of HK$0.10 each (“Share Consolidation”). The effect of Capital Reduction and Share Consolidation had not been taken into account for 2005 Company’s share option held by directors and employees.

These fair values were calculated using the binomial option pricing model. The inputs into the model were as follows:

		2006
Weighted	average share price	HK$1.672
Exercise	price	HK$1.672
Expected	volatility	33.99%
Expected	life	3.67 – 4.17 years
Risk-free	rate (Note 1)	3.94% and 4.02%
Expected	dividend yield	0.97%

Note 1: Risk free rates 3.94% and 4.02% are used in the computation of the fair value of options exercisable in two years and three years, respectively.

Expected volatility was determined by using the historical volatility of four peer companies’ share price over the previous three years. The expected life used in the model has been adjusted, based on directors’ best estimate, for the effects of non transferability, exercise restrictions and behavioural considerations.

The Group recognised the total expense of HK$5,421,000 for the year ended 31 December 2006 (2005: Nil) in relation to share options granted by the Company.

– 94 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

36. Disposal of subsidiaries

During the year, the Company disposed of certain subsidiaries to independent third parties.

The net assets of these subsidiaries at the date of disposal were as follows:

Net assets disposed of: Property, plant and equipment Inventories Trade and other receivables Dividend receivable Bank balances and cash Trade and other payables Borrowings Net assets disposed of Minority interests Loss on disposal of subsidiaries Satisfied by: Cash Deferred consideration Net cash outflow arising on disposal: Cash considerations received Bank balances and cash disposed of	HK$’000 3,735 24,221 14,030 706 2,022 (25,048) (8,261) 11,405 (3,826) (3,473) 4,106 449 3,657 4,106 449 (2,022) (1,573)

The subsidiaries disposed of in the current year did not contribute significantly to the Group’s cash flows or operating results.

37. Business combinations

• (a) As mentioned in note 2 above, in July 2005, the Company issued 5,050,000,000 ordinary shares in exchange for the entire shareholdings in the Fertilizer Group. Pursuant to HKFRS 3 and as disclosed in note 2, the Fertilizer Group is deemed to be the effective acquirer of the Property Group, reverse acquisition accounting is adopted to account for the Transaction, and accordingly these consolidated financial statements have been prepared as a continuation of the consolidated financial statements of the Fertilizer Group, and the results of the Property Group have been consolidated since the date of completion of the Transaction.

– 95 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Details of the net liabilities of the Property Group assumed and goodwill arising from the Transaction are as follows:

Purchase consideration: – Consideration deemed to have been paid by the Fertilizer Group (Note (i)) – Direct costs relating to the acquisition Total purchase consideration Less: Fair value of net liabilities of the Property Group assumed (Note (ii)) Goodwill	HK$’000 285,363 7,660 293,023 (63,480) 356,503

Notes:

• (i) The fair value of the consideration deemed to have been paid by the Fertilizer Group was based on the fair value of the equity instruments deemed to have been issued by the Fertilizer Group for the acquisition of the Property Group.

• (ii) The separately identifiable assets and liabilities of the Property Group as at the completion date of the Transaction were as follows:

Property, plant and equipment Investment properties Trade receivables Other receivables Cash and cash equivalents Other payables Amount due to a director Amount due to a shareholder Borrowings Deferred income tax liabilities Net liabilities assumed Direct costs relating to the acquisition Cash and cash equivalents in subsidiaries acquired Cash outflow on the acquisition	Fair value HK$’000 140 154,000 1,066 15,410 1,807 (20,345) (3,271) (116,941) (84,218) (11,128) (63,480)	Acquiree’s carrying amount HK$’000 140 154,000 1,066 15,410 1,807 (20,345) (3,271) (116,941) (84,218) (354) (52,706) HK$’000 (7,660) 1,807 (5,853)

The Property Group contributed turnover of HK$4,525,000 and net profit of HK$3,781,000 to the Group for the period from 28 July 2005 (completion date of the Transaction) to 31 December 2005. If the Transaction had occurred on 1 April 2005, the turnover and net profit contributed by the Property Group would have been HK$7,980,000 and HK$5,176,000 respectively.

As extracted from the consolidated financial statements of the Company for the year ended 31 March 2005, the turnover and net profit of the Company and its subsidiaries, which comprise the companies of the Property Group, for the year ended 31 March 2005 were HK$9,951,000 and HK$40,520,000 respectively.

– 96 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

• (b) On 27 October 2005, the Group acquired a 60% of equity interest in Guizhou Kaiyang Qinglongjiang Company Limited (“Qinglongjiang”) at a purchase consideration of HK$13,703,000, of which HK$9,592,000 was paid before the year end. Qinglongjiang is principally engaged in phosphate mining in the PRC. At the date of acquisition, the only major asset of Qinglongjiang is a mining right. The directors of the Company are of the view that the cost of the mining right to the Group amounted to HK$22,839,000 (Note 19) (60% of which amounted to HK$13,703,000), which approximates the fair value of the mining right as at the date of acquisition. Accordingly, there is no goodwill resulted from the acquisition.

The acquired subsidiary made no significant contribution to the turnover and profit of the Group from the date of acquisition to 31 December 2005.

38. Contingent liabilities

At 31 December 2006, the Group had no material contingent liabilities (2005: Nil).

39. Commitments

Assets under construction Contracted but not provided for Authorised but not contracted for Investment in a jointly controlled entity, Yunnan Three-Circles Sinochem Fertilizer Company Limited	2006 HK$’000 187,404 21,655 209,059 139,345 348,404	2005 HK$’000 71,922 8,459
		80,381 134,577
		214,958

40. Operating lease commitments

The Group as lessor

At the balance sheet date, the Group had contracted with tenants for the following future minimum lease payments:

Within one year In the second to fifth year	2006 HK$’000 651 55 706	2005 HK$’000 8,474 3,278
		11,752

The Group as lessee

The Group leases various retail outlets, offices, warehouses under non-cancellable operating lease agreements. The leases have varying terms and renewal rights.

– 97 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

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

Within one year In the second to fifth year Other five years	2006 HK$’000 15,132 7,488 6,741 29,361	2005 HK$’000 8,049 4,205 7,509
		19,763

41. Related party transactions

The related parties that had transactions with the Group during the year were as follows:

Companies beneficially owned by ultimate holding company

U.S. Chem Resources Inc.

( )

US Agri-Chemicals Corporation ( )

Sinochem Guangdong Import & Export Corp. (“Sinochem Guangdong”) ( )

Sinochem Shandong Fertilizer Company Limited (“Sinochem Shandong”) ( )

Sinochem (United Kingdom) Limited ( )

Qinghai Salt Lake Potash Co. Ltd. (“Qinghai Salt Lake”) ( )

Jointly controlled entities

Hubei Sinochem & Orient Fertilizer Company Limited (“Sinochem Orient”) ( )

Yunnan Three Circles-Sinochem-Cargill Fertilizer Company Limited (“Sinochem Cargill”) ( )

Guiyang Sinochem Kailin Fertilizer Company Limited (“Sinochem Kailin”) ( )

Beijing Sinochem Tianji Trading Co., Ltd. ( )

Joint venture partners

Guizhou Kailin (Group) Co., Ltd. (Joint venture partner of Sinochem Kailin) ( )

Yongan Zhisheng Chemical Company Limited

(“Yongan Zhisheng”, joint venture partner of Fujian Sinochem Zhisheng Chemical Fertilizer Company Limited) ( )

An associate of a substantial shareholder of the Company

Canpotex International Pte. Limited (“Canpotex Ltd”)

– 98 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(a) During the year, the Group entered into the following significant transactions with its ultimate holding company, Sinochem Corporation and other related parties:

	2006	2005
	HK$’000	HK$’000
Sales of fertilisers to:
Sinochem Corporation	1,598,714	917,119
Sinochem Guangdong	–	31,247
Sinochem Orient	11,912	16,553
Sinochem Shandong	63,543	46,710
Guizhou Kailin Fertilizer Co Ltd	72,881	–
Purchases of fertilisers from:
Sinochem Corporation	594,832	401,903
Sinochem Guangdong	–	225,635
Sinochem Shandong	427,557	224,362
Sinochem (United Kingdom) Limited	–	407,328
U.S. Chem Resources Inc.	–	27,083
Sinochem Orient	39,965	58,724
Sinochem Kailin	141,351	143,281
Sinochem Cargill	475,582	479,352
Qinghai Salt Lake	849,277	740,494
Beijing Sinochem Tianji Trading Co., Ltd.	92,509	–
Import service fee to:
Sinochem Corporation	268	310
US Agri-Chemicals Corporation	–	241
Sinochem (United Kingdom) Limited	13,756	10,225
Interest income on loans receivable from Sinochem Corporation	–	2,207
Purchase of raw materials from Yongan Zhisheng	38,489	47,692

– 99 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

• (b) At the balance sheet date, the Group had the following significant balances with its related parties under trade and bills receivable, advance payments and other receivables, trade and bills payable and receipts in advance and other payables:

	2006	2005
	HK$’000	HK$’000
Trade receivables:
Sinochem (United Kingdom) Limited	–	19,446
Advance payments to suppliers:
Sinochem Cargill	15,525	13,635
Sinochem Kailin	16,614	9,739
Qinghai Salt Lake	133,672	1,209
Sinochem Orient	8,479	–
Beijing Sinochem Tianji Trading Co., Ltd	71,862	–
Other receivables:
Canpotex Ltd	18,285	–
Trade payables:
Sinochem Corporation	–	5,410
Yongan Zhisheng	10,451	3,878
Sinochem Shandong	25,331	6,214
Canpotex Ltd	781,532	–
Receipts in advance:
Sinochem Shandong	3,760	12
Sinochem Corporation	–	2,302
Other payables:
Sinochem (United Kingdom) Limited	–	10,342

The key management personnel includes solely the directors of the Company and the compensation paid to them is disclosed in note 12.

(c) At the balance sheet date, the Group had the following significant balances with other state-owned enterprises as follows:

	2006	2005
	HK$’000	HK$’000
Trade and other receivables	639,588	289,436
Cash and cash equivalents	55,121	49,203
Trade and bills payable	157,634	126,781
Receipts in advance and other payables	46,872	28,616
Bank advances for discounted bills	242,906	296,845
Borrowings	284,649	626,432

(d) During the year, the Group had the following significant transactions with other state-owned enterprises as follows:

	2006	2005
	HK$’000	HK$’000
Sales of fertilizers	2,171,816	1,795,672
Purchase of fertilizers	5,438,395	2,977,850
Interest income from bank deposits	1,580	1,932
Bank charges	2,432	2,227
Interest expenses on bank loans	72,244	66,179

– 100 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

42. Principal subsidiaries

Particulars of the principal subsidiaries and jointly controlled entities of the Group as at 31 December 2006 are as follows:

==> picture [403 x 597] intentionally omitted <==

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

|||||||||
|---|---|---|---|---|---|---|---|
|Proportion|
|ownership|
|Place|of|Nominal|interest|held|
|incorporation/|value|of|issued|by|the|Principal|
|Name|of|subsidiary|operation|capital|Company|activities|
|Directly|held:|
|China|Fertilizer|(Holdings)|BVI|US$10,002|100%|Investment|
|Company|Limited|holding|
|Wah|Tak|Fung|(B.V.I.)|BVI|US$1,000,000|100%|Investment|
|Limited|holding|
|Indirectly|held:|
|Sinochem|Fertilizer|BVI|US$10,002|100%|Investment|
|(Overseas)|Holdings|Ltd.|holding|
|Sinochem|Fertilizer|Company|PRC|RMB1,800,000,000|100%|Fertiliser|
|Limited|trading|
|(|)|
|Dohigh|Trading|Limited|Hong|Kong|HK$15,000,000|100%|Fertiliser|
|(|)|trading|
|Sinochem|Fertilizer|Macao|Macao|MOP100,000|100%|Fertiliser|
|Commercial|Offshore|trading|
|Limited|
|(|
|)|
|Suifenhe|Xinkaiyuan|Trading|PRC|RMB5,000,000|100%|Fertiliser|
|Company|Limited|trading|
|(|)|
|Sinochem|Chemical|Fertilizer|PRC|RMB5,000,000|100%|Fertiliser|
|Erlianhaote|Company|trading|
|(|
|)|
|Fujian|Sinochem|Zhisheng|PRC|RMB47,000,000|53.19%|Sales|and|
|Chemical|Fertilizer|manufacturing|
|Company|Limited|of|fertilisers|
|(|)|
|Sinochem|Chongqing|Fuling|PRC|RMB80,000,000|60%|Sales|and|
|Chemical|Fertilizer|manufacturing|
|Company|Limited|of|fertilisers|
|(|)|
|Sinochem|Yantai|Crop|PRC|US$241,000|51%|Sales|and|
|Nutrition|Co.,|Ltd|manufacturing|
|(|)|of|fertilisers|

----- End of picture text -----

– 101 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

==> picture [390 x 251] intentionally omitted <==

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

||||||||||
|---|---|---|---|---|---|---|---|---|
|Proportion|
|ownership|
|Place|of|Nominal|interest|held|
|incorporation/|value|of|issued|by|the|Principal|
|Name|of|subsidiary|operation|capital|Company|activities|
|Manzhouli|Kaiming|Fertilizer|PRC|RMB5,000,000|100%|Fertiliser|
|Company|Limited|trading|
|(|)|
|Guizhou|Kaiyang|PRC|RMB500,000|60%|Phosphate|
|Qinglongjiang|Company|mining|
|Limited|
|(|)|
|Fine|Straight|Investments|Hong|Kong|Ordinary:|HK$2|100%|Property|
|Limited|Deferred:|investment|
|(|)|HK$10,000|
|Sanmark|Investments|Limited|Hong|Kong|Ordinary:|100%|Property|
|(|)|HK$200|investment|
|Deferred:|
|HK$82|

----- End of picture text -----

• The non-voting deferred shares practically carry no rights to dividends or to receive notice of or to attend or vote at any general meeting of the respective companies or to participate in any distributions on winding up.

– 102 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

43. Principal jointly controlled entities

==> picture [402 x 495] intentionally omitted <==

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

||||||||||
|---|---|---|---|---|---|---|---|---|
|Proportion|
|ownership|
|Place|of|Nominal|value|interest|held|
|Name|of|jointly|incorporation/|of|issued|by|the|Principal|
|controlled|entity|operation|capital|Company|activities|
|(Note)|
|Indirectly|held:|
|Hubei|Sinochem|&|Orient|PRC|RMB10,000,000|55%|Sales|and|
|Fertilizer|Company|manufacturing|of|
|Limited|fertilizers|
|(|
|)|
|Tianjin|Beifang|Chemical|PRC|RMB3,000,000|60%|Fertiliser|logistics|
|Fertilizer|Logistics|and|
|Delivery|Company|
|Limited|
|(|
|)|
|Guiyang|Sinochem|Kailin|PRC|RMB365,850,000|41%|Sales|and|
|Fertilizer|Company|manufacturing|of|
|Limited|fertilisers|
|(|
|)|
|Yunnan|Three|Circles-|PRC|US$29,800,000|25%|Sales|and|
|Sinochem-Cargill|manufacturing|of|
|Fertilizer|Company|fertilisers|
|Limited|
|(|
|)|
|Yunnan|Three-Circles|PRC|RMB250,000,000|40%|Sales|and|
|Sinochem|Fertilizer|manufacturing|of|
|Company|Limited|fertilisers|
|(|
|)|
|Tianji|Sinochem|Trading|PRC|RMB5,000,000|60%|Fertiliser|trading|
|Co|Ltd|
|(|
|)|

----- End of picture text -----

Note: The Group has joint control over the economic activities of the entities with other joint venture parties.

– 103 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

C. SUMMARY OF UNAUDITED INTERIM FINANCIAL STATEMENTS

The unaudited condensed consolidated income statement, condensed consolidated balance sheet, condensed consolidated statement of changes in equity and condensed consolidated cash flow statement, together with the notes to the condensed financial statements of the Group for the six months ended 30 June 2007 are set out below.

Condensed Consolidated Income Statement

For the six months ended 30 June 2007

Notes Revenue Cost of sales Gross profit Other income Selling and distribution expenses Administrative expenses Changes in fair value of derivative financial instruments Finance costs 4 Share of results of jointly controlled entities Profit before taxation 5 Income tax expense 6 Profit for the period Attributable to: – equity holders of the Company – minority interests Dividends 7 Earnings per share Basic 8 Diluted	Six months ended 30 June 2007 30 June 2006 HK$’000 HK$’000 (unaudited) (unaudited) 14,342,060 10,305,707 (13,076,611) (9,466,851) 1,265,449 838,856 30,562 42,255 (254,027) (226,299) (162,391) (72,114) (79,179) – (121,469) (50,477) 16,728 22,111 695,673 554,332 (152,211) (76,802) 543,462 477,530 530,353 465,318 13,109 12,212 543,462 477,530 134,195 116,740 9.13 HK cents 8.01 HK cents 9.11 HK cents 8.01 HK cents	Six months ended 30 June 2007 30 June 2006 HK$’000 HK$’000 (unaudited) (unaudited) 14,342,060 10,305,707 (13,076,611) (9,466,851) 1,265,449 838,856 30,562 42,255 (254,027) (226,299) (162,391) (72,114) (79,179) – (121,469) (50,477) 16,728 22,111 695,673 554,332 (152,211) (76,802) 543,462 477,530 530,353 465,318 13,109 12,212 543,462 477,530 134,195 116,740 9.13 HK cents 8.01 HK cents 9.11 HK cents 8.01 HK cents
	1,265,449 30,562 (254,027) (162,391) (79,179) (121,469) 16,728 695,673 (152,211)	838,856 42,255 (226,299 (72,114 – (50,477 22,111
		554,332 (76,802
	543,462
	530,353 13,109	465,318 12,212
	543,462 134,195 9.13 HK cents 9.11 HK cents

– 104 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Balance Sheet

At 30 June 2007

Notes Non-current assets Property, plant and equipment 9 Investment properties 9 Prepaid lease payments Mining rights Goodwill Interests in jointly controlled entities Available-for-sale investments 10 Deferred tax assets Current assets Inventories Trade and bill receivables 11 Prepaid lease payments Advance payments and other receivables Amounts due from ultimate holding company Bill discounted to banks Pledged bank deposits Bank balances and cash Current liabilities Trade and bill payables 12 Receipts in advance and other payables Dividend payable Bank advances for discounted bills Amounts due to ultimate holding company Derivative financial liabilities Taxation payable Bank borrowings – due within one year 13 Net current assets Total assets less current liabilities Non-current liabilities Bank borrowings – due after one year 13 Convertible loan notes Deferred tax liabilities Net Assets Capital and reserves Issued equity 14 Reserves Equity attributable to equity holders of the Company Minority interests Total equity	As at 30 June 2007 HK$’000 (unaudited) 980,470 14,532 105,981 24,383 356,503 388,398 856,976 15,819	As at 31 December 2006 HK$’000 (audited) 900,986 14,532 106,766 23,648 356,503 381,656 290,419 9,422
	2,743,062 5,490,920 1,274,307 2,359 1,455,757 – 2,493,605 10,959 134,480 10,862,387 2,331,105 358,924 134,195 2,493,605 11,328 163,912 163,070 805,104 6,461,243 4,401,144 7,144,206 439,081 1,256,854 94,207 1,790,142	2,083,932
		4,364,565 1,272,357 2,233 1,293,856 41,765 1,364,806 6,287 79,274
		8,425,143
		1,815,256 939,177 – 1,366,647 – 86,457 47,791 99,118
		4,354,446
		4,070,697
		6,154,629
		363,152 1,220,407 27,099
		1,610,658
	5,354,064	4,543,971
	767,900 4,370,445 5,138,345 215,719	767,766 3,580,586
		4,348,352 195,619
	5,354,064	4,543,971

– 105 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Statement of Changes in Equity

For the six months ended 30 June 2007

At 1 January 2006 Exchange differences arising on translation of foreign operations recognised directly in equity Profit for the period Total recognised income for the period Disposals of subsidiaries Recognition of equity – settled share based payments Dividend paid Dividends paid to minority shareholders of subsidiaries Transfer At 30 June 2006 Gain on fair value changes of available-for-sale investments Deferred taxation liability arising on fair value changes of available-for sale investments Exchange differences arising on translation of foreign operations Total income recognised directly in equity Profit for the period Total recognised income for the period Disposals of subsidiaries Recognition of equity – settled share based payments Dividends paid to minority shareholders of subsidiaries Transfer At 31 December 2006 Gain on fair value changes of available-for-sale investments Deferred taxation liability arising on fair value changes of available-for- sale investments Exchange differences arising on translation of foreign operations Total income recognised directly in equity Profit for the period Total recognised income for the period Capital contribution from minority interest shareholders Recognition of equity – settled share based payments Dividend declared Shares issued upon conversion of convertible loan notes At 30 June 2007				Attributabl	**e to equity **	holders of th	e Company
	Issued equity HK$’000 767,766 – –	Share premium reserve HK$’000 – – –	Merger reserve HK$’000 245,632 – –	Capital reserve HK$’000 270,225 – –	Statutory reserves HK$’000 278,778 – –	Investment revaluation reserve HK$’000 – – –	Share options reserve HK$’000 – – –	Translation reserve HK$’000 26,788 18,098 –	Retained profits HK$’000 1,885,469 – 465,318	Total HK$’000 3,474,658 18,098 465,318	Minority interests HK$’000 186,055 274 12,212	Total HK$’000 3,660,713 18,372 477,530
	–	–	–	–	–	–	–	18,098	465,318	483,416	12,486	495,902
	– – – – –	– – – – –	– – – – –	– – – – –	– – – – 445	– – – – –	– 2,513 – – –	– – – – –	– – (116,740) – (445)	– 2,513 (116,740) – –	(3,194) – – (1,830) –	(3,194) 2,513 (116,740) (1,830) –
	767,766	–	245,632	270,225	279,223	–	2,513	44,886	2,233,602	3,843,847	193,517	4,037,364
	– – –	– – –	– – –	– – –	– – –	40,106 (13,235) –	– – –	– – 43,798	– – –	40,106 (13,235) 43,798	– – 6,760	40,106 (13,235) 50,558
	– –	– –	– –	– –	– –	26,871 –	– –	43,798 –	– 430,928	70,669 430,928	6,760 (3,676)	77,429 427,252
	–	–	–	–	–	26,871	–	43,798	430,928	501,597	3,084	504,681
	– – – –	– – – –	– – – –	– – – –	– – – 24,725	– – – –	– 2,908 – –	– – – –	– – – (24,725)	– 2,908 – –	(632) – (350) –	(632) 2,908 (350) –
	767,766	–	245,632	270,225	303,948	26,871	5,421	88,684	2,639,805	4,348,352	195,619	4,543,971
	– – –	– – –	– – –	– – –	– – –	360,482 (80,561) –	– – –	– – 104,635	– – –	360,482 (80,561) 104,635	– – 6,240	360,482 (80,561) 110,875
	– –	– –	– –	– –	– –	279,921 –	– –	104,635 –	– 530,353	384,556 530,353	6,240 13,109	390,796 543,462
	–	–	–	–	–	279,921	–	104,635	530,353	914,909	19,349	934,258
	– – – 134	– – – 6,283	– – – –	– – – –	– – – –	– – – –	– 2,862 – –	– – – –	– – (134,195) –	– 2,862 (134,195) 6,417	751 – – –	751 2,862 (134,195) 6,417
	767,900	6,283	245,632	270,225	303,948	306,792	8,283	193,319	3,035,963	5,138,345	215,719	5,354,064

– 106 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Condensed Consolidated Cash Flow Statement

For the six months ended 30 June 2007

Net cash from (used in) operating activities Net cash (used in) from investing activities Purchase of property, plant and equipment Additional investment in available for sale investment Other investing cash flows Net cash (used in) from financing activities Additional borrowings Repayment of borrowings Dividend paid Interest paid Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Effect of foreign exchange rate changes Cash and cash equivalents at the end of the period, comprising bank balances and cash	Six months ended 30 June 2007 30 June 2006 HK$’000 HK$’000 (unaudited) (unaudited) (355,823) 778,557 (97,861) (146,412) (199,739) – 6,429 46,737 (291,171) (99,675) 3,223,000 2,804,000 (2,441,000) (3,279,000) – (116,740) (80,413) (52,429) 701,587 (644,169) 54,593 34,713 79,274 66,551 613 995 134,480 102,259	Six months ended 30 June 2007 30 June 2006 HK$’000 HK$’000 (unaudited) (unaudited) (355,823) 778,557 (97,861) (146,412) (199,739) – 6,429 46,737 (291,171) (99,675) 3,223,000 2,804,000 (2,441,000) (3,279,000) – (116,740) (80,413) (52,429) 701,587 (644,169) 54,593 34,713 79,274 66,551 613 995 134,480 102,259
	(97,861) (199,739) 6,429 (291,171) 3,223,000 (2,441,000) – (80,413) 701,587 54,593 79,274 613	(146,412 – 46,737
		(99,675
		2,804,000 (3,279,000 (116,740 (52,429
		(644,169
		34,713 66,551 995
	134,480

– 107 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Notes to the Condensed Financial Statements

For the six months ended 30 June 2007

1. Basis of Preparation

The condensed consolidated financial statements have been prepared in accordance with the applicable disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the Listing Rules) and with Hong Kong Accounting Standard 34 (“HKAS 34”), Interim Financial Reporting.

2. Principal Accounting Policies

The condensed consolidated financial statements have been prepared on the historical cost basis except for investment properties and certain financial instruments, which are measured at fair values.

The accounting policies used in the condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual financial statements for the year ended 31 December 2006.

In the current interim period, the Group has applied, for the first time, the following new standard, amendment and interpretations (“new HKFRSs”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”), which are effective for the Group’s financial year beginning on 1 January 2007.

HKAS 1 (Amendment) Capital Disclosures[1] HKFRS 7 Financial Instruments: Disclosures[1] HK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies[2] HK(IFRIC)-Int 8 Scope of HKFRS 2[3] HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives[4] HK(IFRIC)-Int 10 Interim Financial Reporting and Impairment[5]

• 1 Effective for annual periods beginning on or after 1 January 2007

• 2 Effective for annual periods beginning on or after 1 March 2006

• 3 Effective for annual periods beginning on or after 1 May 2006

• 4 Effective for annual periods beginning on or after 1 June 2006

• 5 Effective for annual periods beginning on or after 1 November 2006

The adoption of these new HKFRSs had no material effect on the results or financial position of the Group for the current or prior accounting periods. Accordingly, no prior period adjustment has been recognised.

The Group has not early applied the new standards or interpretations that have been issued but not yet effective. The directors of the Company are in the process of making an assessment of the impact of these standards or interpretations.

3. Segment Information

The Group’s primary format for reporting segment information is business segments.

For management purposes, the Group is currently organised into two main operating business:

Sourcing and distribution – sourcing and distribution of fertilisers and agricultural related products Production – production and sales of fertilisers Others – provision of rental services

– 108 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Business segments

Revenue External revenue Inter-segment revenue (Note) Segment result Unallocated corporate expenses Interest income Interest expenses on bank borrowings Interest expenses on convertible loan notes Changes of fair value on derivatives financial instruments Share of results of jointly controlled entities Profit before taxation Income tax expense Profit for the period	Sourcing and distribution HK$’000 13,240,156 63,220 13,303,376 838,403	Six months ended 30 June 2007 Production Others Elimination HK$’000 HK$’000 HK$’000 1,101,904 – – 292,815 – (356,035) 1,394,719 – (356,035) 51,615 – –	Six months ended 30 June 2007 Production Others Elimination HK$’000 HK$’000 HK$’000 1,101,904 – – 292,815 – (356,035) 1,394,719 – (356,035) 51,615 – –	Six months ended 30 June 2007 Production Others Elimination HK$’000 HK$’000 HK$’000 1,101,904 – – 292,815 – (356,035) 1,394,719 – (356,035) 51,615 – –	Total HK$’000 14,342,060 – 14,342,060 890,018 (13,148) 2,723 (80,329) (41,140) (79,179) 16,728 695,673 (152,211) 543,462
	2,297 (52,923)	426 (27,406) 16,728			(13,148 2,723 (80,329 (41,140 (79,179 16,728
					695,673 (152,211

Note: Inter-segment sales are charged at prevailing market rates

– 109 –

APPENDIX I

FINANCIAL INFORMATION OF THE GROUP

Revenue External revenue Inter-segment revenue (Note) Segment result Unallocated corporate expenses Interest income Interest expenses on bank borrowings Share of results of jointly controlled entities Profit before taxation Income tax expense Profit for the period	Sourcing and distribution HK$’000 9,701,841 10,182 9,712,023 545,461	Six months ended 30 June 2006 Production Others Elimination HK$’000 HK$’000 HK$’000 603,866 – – 350,406 – (360,588) 954,272 – (360,588) 47,320 2,646 –	Six months ended 30 June 2006 Production Others Elimination HK$’000 HK$’000 HK$’000 603,866 – – 350,406 – (360,588) 954,272 – (360,588) 47,320 2,646 –	Six months ended 30 June 2006 Production Others Elimination HK$’000 HK$’000 HK$’000 603,866 – – 350,406 – (360,588) 954,272 – (360,588) 47,320 2,646 –	Total HK$’000 10,305,707 – 10,305,707 595,427 (14,253) 1,524 (50,477) 22,111 554,332 (76,802) 477,530
	997 (35,007)	345 (13,384) 22,111	182 (2,086)		(14,253 1,524 (50,477 22,111
					554,332 (76,802

Note: Inter-segment sales are charged at prevailing market rates

4. Finance Costs

Interest on bank borrowings – wholly repayable within five years – not wholly repayable within five years Interest on convertible loan notes	Six months ended 30 June 2007 30 June 2006 HK$’000 HK$’000 (78,995) (48,391) (1,334) (2,086) (41,140) – (121,469) (50,477)

– 110 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. Profit Before Taxation

	Six months ended	Six months ended
	30 June 2007	30 June 2006
	HK$’000	HK$’000
Profit before taxation has been arrived at after charging:
Allowance for inventories	32,665		–
Amortisation of prepaid lease payments	1,300		448
Depreciation of property, plant and equipment	45,404		25,789
and after crediting:
Reversal of allowance for inventories	–		26,353
Government grants	1,166		11,878

6. Income Tax Expense

The charge comprises: Hong Kong Profits Tax Taxation in other jurisdictions Deferred Tax Change of tax rate Deferred taxation credit	Six months ended 30 June 2007 30 June 2006 HK$’000 HK$’000 (6,342) (276 (166,027) (79,449	Six months ended 30 June 2007 30 June 2006 HK$’000 HK$’000 (6,342) (276 (166,027) (79,449
	(172,369) (1,284) 21,442	(79,725 – 2,923
	(152,211)	(76,802

Hong Kong Profits Tax is calculated at 17.5% (2006: 17.5%) on the estimated assessable profit for the period.

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

Certain subsidiaries of the Company were exempted from the PRC Enterprise Income Tax for two years starting from their first profit-making year, followed by a 50% reduction for the next three years. The tax benefit will expire in 2010.

On 16 March 2007, the PRC promulgated the Law of the PRC on Enterprise Income Tax (the “New Law”) by Order No. 63 of the President of the PRC, which will change the tax rate from 33% to 25% for certain subsidiaries from 1 January 2008. The deferred tax balance has been adjusted to reflect the tax rates that are expected to apply to the respective periods when the asset is realised or the liability is settled.

7. Dividend Paid

	Six months ended	Six months ended
	30 June 2007	**30 June **	2006
	HK$’000	HK$’000
Dividend recognised as distribution during the period:
Final dividend of HK$0.0201 per share in respect of 2005	–	116,740
Final dividend of HK$0.0231 per share in respect of 2006	134,195		–

– 111 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

8. Earnings Per Share

(a) The calculation of the basic and diluted earnings per share is based on the following data:

Earnings for the purpose of basic and diluted earnings per share Weighted average number of ordinary shares for the purposes of basic earnings per share Effect of dilutive potential ordinary shares from the share options Weighted average number of ordinary shares for the purposes of diluted earnings per share	Six months ended 30 June 2007 30 June 2006 HK$’000 HK$’000 530,353 465,318 ’000 shares ’000 shares 5,808,127 5,807,950 16,093 4,622 5,824,220 5,812,572	Six months ended 30 June 2007 30 June 2006 HK$’000 HK$’000 530,353 465,318 ’000 shares ’000 shares 5,808,127 5,807,950 16,093 4,622 5,824,220 5,812,572
		’000 shares 5,807,950 4,622
		5,812,572

The computation of diluted earnings per share does not assume the conversion of the Company’s outstanding convertible loan notes as these notes were anti-dilutive.

(b) In order to provide additional information on the Group’s performance, the basic and diluted earning per share excluding the impact of changes of fair value on derivatives is as follows:

Earnings for the purpose of basic and diluted earnings per share Adjustment for: Changes in fair value of derivative component of convertible loan notes Earnings excluding changes in fair value of derivatives component of convertible loan notes Adjusted basic earnings per share Adjusted diluted earnings per share	Six months ended 30 June 2007 30 June 2006 HK$’000 HK$’000 530,353 465,318 79,179 – 609,532 465,318 10.49 cents 8.01 cents 10.47 cents 8.01 cents	Six months ended 30 June 2007 30 June 2006 HK$’000 HK$’000 530,353 465,318 79,179 – 609,532 465,318 10.49 cents 8.01 cents 10.47 cents 8.01 cents
		465,318
		8.01 cents
		8.01 cents

9. Movements in Property, Plant and Equipment and Investment Properties

During the period, the Group spent approximately HK$97.9 million (2006: HK$146.4 million) on the acquisition of property, plant and equipment.

The Group’s investment properties had been revalued in respect of their value as at 31 December 2006 by Knight Frank Petty Limited, a firm of independent professional valuers, on market value basis. The directors considered that the carrying amounts of the Group’s investment properties as at 30 June 2007 do not differ significantly from their fair values at that date.

10. Available-for-Sale Investments

During the period, the Group made new investments by purchasing 4.99% of issued capital of China XLX Fertilizer Ltd, a listed company in Singapore Exchange Limited, of approximately HK$197.09 million and gain on fair value changes of approximately HK$360.48 million is credited to investment revaluation reserves.

– 112 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

11. Trade and Bill Receivables

The Group allows a credit period of approximate 120 days. The aging analysis of trade and bill receivables at the reporting date is as follows:

Within 90 days Between 91-180 days Between 181-365 days Over 365 days	30 June 2007 HK$’000 1,110,785 149,841 12,937 744 1,274,307	31 December 2006 HK$’000 1,264,883 1,463 5,113 898
		1,272,357

12. Trade and Bill Payables

The aging analysis of trade and bill payables at the reporting date is as follows:

Within 90 days Between 91-180 days Between 181-365 days Over 365 days	30 June 2007 HK$’000 2,299,796 20,508 5,782 5,019 2,331,105	31 December 2006 HK$’000 1,803,563 1,427 2,359 7,907
		1,815,256

13. Borrowings

During the period, the Group obtained new bank loans amounting to approximately HK$3,223 million and repaid the bank loans amounting to approximately HK$2,441 million.

Carrying amount repayable: Within one year In more than one year, but not more than two years In more than two years, but not more than five years In more than five years Less: Amounts due within one year shown under current liabilities Amounts due after one year	30 June 2007 HK$’000 805,104 10,613 295,053 133,415	31 December 2006 HK$’000 99,118 94,415 268,737 –
	1,244,185 (805,104)	462,270 (99,118
	439,081	363,152

– 113 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

An analysis of the carrying amounts of the Group’s total borrowings by type is as follows:

Variable-rate borrowings Fixed-rate borrowings Total borrowings	30 June 2007 HK$’000 1,182,609 61,576 1,244,185	31 December 2006 HK$’000 256,238 206,032
		462,270

The ranges of effective interest rates (which are also equal to contracted interest rates) on the Group’s borrowings are as follows:

Variable-rate borrowings Fixed rate borrowings 14. Issued Equity At the beginning of the period/year Issue of new shares of par value of HK$0.10 each: Conversion of convertible loan notes At the end of the period/year 15. Commitments (a) Capital commitments Capital expenditure in respect of property, plant and equipment: Contracted for but not provided for Authorised but not contracted for Investment in a jointly controlled entity: Investment in Yunnan Three-Circles Sinochem Fertilizer Company limited Total	30 June 2007 0%-7.23% 5.56% Six months ended 30 June 2007 HK$’000 767,766 134 767,900 30 June 2007 HK$’000 183,730 21,179	31 December 2006 0%-5.56% 5.56%
		Twelve months ended 31 December 2006 HK$’000 767,766 –
		767,766
		31 December 2006 HK$’000 187,404 21,655
	204,909 143,678	209,059 139,345
	348,587	348,404

– 114 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) Operating lease arrangements

The Group as lessee

The Group had future minimum lease payments under non-cancellable operating leases in respect of rented premises which fall due as follows:

Within one year In the second to fifth year inclusive Over five years	30 June 2007 HK$’000 34,470 40,380 6,671 81,521	31 December 2006 HK$’000 15,132 7,488 6,741
		29,361

The Group as lessor

The Group had contracted with tenants in respect of the rented premises which fall due as follows:

Within one year In the second to fifth year inclusive	30 June 2007 HK$’000 585 14 599	31 December 2006 HK$’000 651 55
		706

16. Related Party Transactions

(a) During the period, the Group entered into the following significant transactions with related parties:

	**Six months **	ended
	30 June 2007	**30 **	June 2006
	HK$’000		HK$’000
Sales of fertilisers to ultimate holding company	606,858		575,403
Sales of fertilisers to related companies (Note)	253,536		11,933
Sales of fertilisers to jointly controlled entities	17,362		1,549
Purchases of fertilisers from ultimate holding company	221,443		358,728
Purchases of fertilisers from related companies (Note)	851,222		731,993
Purchases of fertilisers from jointly controlled entities	530,612		763,564
Import service fee paid to ultimate holding company	215		81
Import service fee paid to related companies (Note)	8,928		8,837
Rental expenses paid to a related company (Note)	2,587		2,147

Note: These companies’ ultimate holding company is Sinochem Corporation which is also the ultimate holding of the Company. Sinochem Corporation was established in the People’s Republic of China.

– 115 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

(b) At the balance sheet date, the Group had the following significant balances with its related parties under advance payments and other receivables, trade payables, receipts in advance and other payables:

Advance payments to suppliers: Sinochem Cargill Sinochem Kailin Qinghai Salt Lake Sinochem Orient Beijing Sinochem Tianji Trading Co., Ltd Trade payables: Yongan Zhisheng Sinochem Shandong Sinochem Kailin Receipts in advance: Sinochem Shandong Other payables: Sinochem (United Kingdom) Limited	30 June 2007 HK$’000 31,173 – 167,730 8,949 50,372	31 December 2006 HK$’000 15,525 16,614 133,672 8,479 71,862
	735 – 13,856 395	10,451 25,331 –
		3,760
	3,372	–

(c) The Group operates in an economic environment currently predominated by entities directly or indirectly owned or controlled by the PRC government (“state-owned enterprises”). In addition, the Group itself is part of a larger group of companies under Sinochem Corporation which is controlled by the PRC government. Apart from the transactions with Sinochem Corporation and fellow subsidiaries and other related parties disclosed as above, the Group also conducts business with other state-owned enterprises. The directors consider those state-owned enterprises are independent third parties so far as the Group’s business transactions with them are concerned.

During the period, the Group entered into the following significant transactions with other state-owned enterprises as follows:

	Six months ended	Six months ended
	30 June 2007	30 June 2006
	HK$’000	HK$’000
Sales of fertilisers	2,294,428	1,143,971
Purchases of fertilisers	2,047,998	1,455,806

(d) Compensation of key management personnel

Salaries and other benefits Retirement benefit scheme contributions	Six months ended 30 June 2007 30 June 2006 HK$’000 HK$’000 7,149 3,926 44 64 7,193 3,990	Six months ended 30 June 2007 30 June 2006 HK$’000 HK$’000 7,149 3,926 44 64 7,193 3,990
		3,990

– 116 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

17. Post Balance Sheet Event

On 10 July 2007, the Company entered into a placing and subscription arrangement with third party investor, pursuant to which the Company agreed to place and issue 400,000,000 ordinary shares of the Company at a price of HK$5.9 per share. These shares rank pari passu with the existing shares of the Company. The placing and subscription arrangement was completed on 24 July 2007.

The net proceeds from the subscription of approximately HK$2,322 million are to be used for development of the Group’s fertiliser production business, financing the expansion of the Group’s nationwide fertiliser distribution network and general corporate purpose.

INDEBTEDNESS

As at the close of business on 31 October 2007, the Group had total outstanding debts of approximately HK$6,450.00 million comprising secured bank borrowings of approximately HK$236.56 million, unsecured bank borrowings of approximately HK$5,204.44 million, convertible bonds with face value of approximately HK$1,009.00 million. The secured bank borrowings were secured by property, plant and equipment with net book value of HK$295.86 million, land use right with carrying amount of HK$47.39 million and bank deposit of HK$5.27 million.

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, no member of the Group had outstanding at the close of business on 31 October 2007 any mortgages, charges, debentures or other loan capital or bank overdrafts, loans, debt securities or other similar indebtedness, or any obligations under hire purchase contracts or finance leases payable or any guarantees or other contingent liabilities.

MATERIAL ADVERSE CHANGE

To the best of the knowledge of the Directors, having made all reasonable enquiries, there has been no material adverse change in the level of indebtedness of the Group since 31 October 2007.

WORKING CAPITAL

Taking into account the estimated net proceeds available to the Group from the Subscription, the Group’s cash and cash equivalents on hand, available banking facilities and cash generated from future operations, the Directors after due and careful enquiry, are of the view that the Group has sufficient working capital for the Group’s present requirements, that is, for at least 12 months from the date of this circular.

– 117 –

APPENDIX II FINANCIAL INFORMATION OF QINGHAI SALT LAKE

The following is the text of a report, prepared for the purpose of incorporation in this circular, received from the Company’s reporting accountant, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong.

==> picture [81 x 39] intentionally omitted <==

10 December 2007

The Directors

Sinofert Holdings Limited

Dear Sirs,

We set out below our report on the financial information (“Financial Information”) regarding Qinghai Salt Lake Potash Co., Ltd. (the “Company”) (“ ”) and its subsidiaries (hereinafter collectively referred to as the “Group”) for each of the three years ended 31 December 2006 and the six months ended 30 June 2007 (the “Relevant Periods”) for inclusion in the circular dated 10 December 2007 (the “Circular”) issued by Sinofert Holdings Limited (“Sinofert”) in connection with the proposed acquisition of an approximate 18.49% equity interest in the Company.

The Company was established in the People’s Republic of China (the “PRC”) with limited liability on 25 August 1997. Its principal activity is production and sales of potash.

At the date of this report, the Company has the following subsidiaries:

==> picture [426 x 228] intentionally omitted <==

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

|||||||||||
|---|---|---|---|---|---|---|---|---|---|
|Issued|and|fully|Attributable|
|Date|and|place|of|paid/paid-in|equity|interest|held|
|Name|of|company|establishment|capital|by|the|Company|Principal|activity|
|Directly|Indirectly|
|held|held|
|25|December|2003|RMB1,100,000,000|50.91%|–|Production|and|
|(Qinghai|Salt|Lake|Developing|PRC|sales|of|potash|
|Co.,|Ltd.)|
|27|November|1996|RMB30,000,000|57.00%|–|Production|and|
|(Qinghai|Salt|Lake|Sanyuan|Potash|PRC|sales|of|potash|
|Co.,|Ltd.)|
|25|September|1998|RMB30,000,000|73.20%|9.13%|Production|and|
|(Qinghai|Jingda|Scientific|PRC|sales|of|potash|
|Co.,|Ltd.)|
|6|December|2005|RMB80,000,000|–|29.07%|Production|and|
|(Qinghai|Salt|Lake|Yuantong|PRC|sales|of|potash|
|Potash|Co.,|Ltd.)|

----- End of picture text -----

All companies adopt 31 December as their financial year end date. The statutory financial statements of the companies in the Group were prepared in accordance with relevant accounting principles and financial regulations applicable to companies established in the PRC, and were audited by the following certified public accountants in the PRC.

– 118 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

==> picture [396 x 643] intentionally omitted <==

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

|||||||||
|---|---|---|---|---|---|---|---|
|Name|of|company|Financial|year|Name|of|auditors|
|31|December|2006|Wulian|Fangyuan|
|(Qinghai|Salt|Lake|Potash|Certified|Public|
|Co.,|Ltd.)|Accountants|
|31|December|2005|Wulian|Fangyuan|
|Certified|Public|
|Accountants|
|31|December|2004|Wulian|United|Certified|
|Public|Accountants|
|31|December|2006|Wulian|Fangyuan|
|(Qinghai|Salt|Lake|Developing|Certified|Public|
|Co.,|Ltd.)|Accountants|
|31|December|2005|Wulian|Fangyuan|
|Certified|Public|
|Accountants|
|31|December|2004|Wulian|United|Certified|
|Public|Accountants|
|31|December|2006|Wulian|Fangyuan|
|(Qinghai|Salt|Lake|Sanyuan|Certified|Public|
|Potash|Co.,|Ltd.)|Accountants|
|31|December|2005|Wulian|Fangyuan|
|Certified|Public|
|Accountants|
|31|December|2004|Wulian|United|Certified|
|Public|Accountants|
|31|December|2006|Wulian|Fangyuan|
|(Qinghai|Jingda|Scientific|Certified|Public|
|Co.,|Ltd.)|Accountants|
|31|December|2005|Wulian|Fangyuan|
|Certified|Public|
|Accountants|
|31|December|2004|Wulian|United|Certified|
|Public|Accountants|
|31|December|2006|Wulian|Fangyuan|
|(Qinghai|Salt|Lake|Yuantong|Certified|Public|
|Potash|Co.,|Ltd.)|Accountants|
|6|December|2005|Wulian|Fangyuan|
|(Date|of|establishment)|Certified|Public|
|to|31|December|2005|Accountants|

----- End of picture text -----

– 119 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

For the purpose of this report, we have undertaken our own independent audits in accordance with the Hong Kong Standards on Auditing issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”), of the consolidated financial statements (the “Underlying Financial Statements”) of the Company prepared under Hong Kong Financial Reporting Standards (the “HKFRS”) for the Relevant Periods.

We have examined the Underlying Financial Statements in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” as recommended by the HKICPA. The Financial Information as set out in this report has been prepared from the Underlying Financial Statements. No adjustments have been made to the Underlying Financial Statements in the preparation of our report for inclusion in the Circular.

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

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair view of the state of affairs of the Group as at 31 December 2004, 2005, 2006 and 30 June 2007 and of the results and cash flows of the Group for each of the three years ended 31 December 2006, and the six months ended 30 June 2007.

The comparative consolidated income statement, statement of changes in equity and cash flow statement of the Group for the six months ended 30 June 2006 together with the notes thereon have been extracted from the Group’s consolidated financial information for the same period (the “30 June 2006 Financial Information”), which was prepared by the directors of the Company solely for the purpose of this report. We have reviewed the 30 June 2006 Financial Information in accordance with the Statement of Auditing Standard 700 “Engagements to review interim financial reports” issued by the HKICPA. Our review consists principally of making enquiries of the Company’s management and applying analytical procedures to the 30 June 2006 Financial 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 30 June 2006 Financial Information. On the basis of our review which does not constitute an audit, we are not aware of any material modifications that should be made to the 30 June 2006 Financial Information.

– 120 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

A. CONSOLIDATED INCOME STATEMENTS

Notes Revenue 5 Cost of sales Gross profit Other income 7 Distribution expenses Administrative expenses Finance costs 8 Profit before tax 9 Income tax expense 11 Profit for the year/period Attributable to: Equity holders of the Company Minority interests Dividend 12 Earnings per share Basic 13	Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 1,202,916 1,592,965 2,598,755 1,176,988 1,505,403 (495,783) (548,227) (850,902) (345,522) (426,421) 707,133 1,044,738 1,747,853 831,466 1,078,982 4,963 174,147 313,222 41,468 123,758 (23,143) (47,662) (117,283) (60,688) (31,443) (72,773) (103,364) (141,429) (47,094) (87,800) (64,559) (90,337) (99,219) (47,263) (46,238) 551,621 977,522 1,703,144 717,889 1,037,259 (82,578) (146,217) (255,402) (107,769) (156,169) 469,043 831,305 1,447,742 610,120 881,090 300,531 542,319 858,341 379,210 472,678 168,512 288,986 589,401 230,910 408,412 469,043 831,305 1,447,742 610,120 881,090 102,340 230,264 383,775 233,775 675,444 0.39 0.71 1.12 0.49 0.62	Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 1,202,916 1,592,965 2,598,755 1,176,988 1,505,403 (495,783) (548,227) (850,902) (345,522) (426,421) 707,133 1,044,738 1,747,853 831,466 1,078,982 4,963 174,147 313,222 41,468 123,758 (23,143) (47,662) (117,283) (60,688) (31,443) (72,773) (103,364) (141,429) (47,094) (87,800) (64,559) (90,337) (99,219) (47,263) (46,238) 551,621 977,522 1,703,144 717,889 1,037,259 (82,578) (146,217) (255,402) (107,769) (156,169) 469,043 831,305 1,447,742 610,120 881,090 300,531 542,319 858,341 379,210 472,678 168,512 288,986 589,401 230,910 408,412 469,043 831,305 1,447,742 610,120 881,090 102,340 230,264 383,775 233,775 675,444 0.39 0.71 1.12 0.49 0.62	Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 1,202,916 1,592,965 2,598,755 1,176,988 1,505,403 (495,783) (548,227) (850,902) (345,522) (426,421) 707,133 1,044,738 1,747,853 831,466 1,078,982 4,963 174,147 313,222 41,468 123,758 (23,143) (47,662) (117,283) (60,688) (31,443) (72,773) (103,364) (141,429) (47,094) (87,800) (64,559) (90,337) (99,219) (47,263) (46,238) 551,621 977,522 1,703,144 717,889 1,037,259 (82,578) (146,217) (255,402) (107,769) (156,169) 469,043 831,305 1,447,742 610,120 881,090 300,531 542,319 858,341 379,210 472,678 168,512 288,986 589,401 230,910 408,412 469,043 831,305 1,447,742 610,120 881,090 102,340 230,264 383,775 233,775 675,444 0.39 0.71 1.12 0.49 0.62	Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 1,202,916 1,592,965 2,598,755 1,176,988 1,505,403 (495,783) (548,227) (850,902) (345,522) (426,421) 707,133 1,044,738 1,747,853 831,466 1,078,982 4,963 174,147 313,222 41,468 123,758 (23,143) (47,662) (117,283) (60,688) (31,443) (72,773) (103,364) (141,429) (47,094) (87,800) (64,559) (90,337) (99,219) (47,263) (46,238) 551,621 977,522 1,703,144 717,889 1,037,259 (82,578) (146,217) (255,402) (107,769) (156,169) 469,043 831,305 1,447,742 610,120 881,090 300,531 542,319 858,341 379,210 472,678 168,512 288,986 589,401 230,910 408,412 469,043 831,305 1,447,742 610,120 881,090 102,340 230,264 383,775 233,775 675,444 0.39 0.71 1.12 0.49 0.62	Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 1,202,916 1,592,965 2,598,755 1,176,988 1,505,403 (495,783) (548,227) (850,902) (345,522) (426,421) 707,133 1,044,738 1,747,853 831,466 1,078,982 4,963 174,147 313,222 41,468 123,758 (23,143) (47,662) (117,283) (60,688) (31,443) (72,773) (103,364) (141,429) (47,094) (87,800) (64,559) (90,337) (99,219) (47,263) (46,238) 551,621 977,522 1,703,144 717,889 1,037,259 (82,578) (146,217) (255,402) (107,769) (156,169) 469,043 831,305 1,447,742 610,120 881,090 300,531 542,319 858,341 379,210 472,678 168,512 288,986 589,401 230,910 408,412 469,043 831,305 1,447,742 610,120 881,090 102,340 230,264 383,775 233,775 675,444 0.39 0.71 1.12 0.49 0.62
	707,133 4,963 (23,143) (72,773) (64,559) 551,621 (82,578)	1,044,738 174,147 (47,662) (103,364) (90,337) 977,522 (146,217)	1,747,853 313,222 (117,283) (141,429) (99,219) 1,703,144 (255,402)	831,466 41,468 (60,688) (47,094) (47,263) 717,889 (107,769)	1,078,982 123,758 (31,443 (87,800 (46,238
					1,037,259 (156,169
	469,043	831,305	1,447,742	610,120
	300,531 168,512	542,319 288,986	858,341 589,401	379,210 230,910	472,678 408,412
	469,043 102,340 0.39	831,305 230,264 0.71	1,447,742 383,775 1.12	610,120 233,775 0.49

– 121 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

B. CONSOLIDATED BALANCE SHEETS

Notes Non-current assets Property, plant and equipment 14 Prepaid lease payments – non-current portion 15 Available-for-sale investments 16 Deferred tax assets 17 Current assets Inventories 18 Trade and other receivables 19 Prepaid lease payments – current portion 15 Amounts due from related parties 20a Bank balances and cash Current liabilities Trade and other payables 22 Borrowings – amount due within one year 23 Taxation payable Dividend payable Amounts due to related parties 20b Amount due to ultimate holding company 21 Net current assets Total assets less current liabilities	At 2004 RMB’000 2,362,933 – 3,000 9,877	31 December At 30 June 2005 2006 2007 RMB’000 RMB’000 RMB’000 2,618,752 2,813,041 2,840,246 – – 2,076 3,000 3,000 3,000 8,895 10,518 19,560	31 December At 30 June 2005 2006 2007 RMB’000 RMB’000 RMB’000 2,618,752 2,813,041 2,840,246 – – 2,076 3,000 3,000 3,000 8,895 10,518 19,560	31 December At 30 June 2005 2006 2007 RMB’000 RMB’000 RMB’000 2,618,752 2,813,041 2,840,246 – – 2,076 3,000 3,000 3,000 8,895 10,518 19,560
	2,375,810 257,690 493,937 – 89,079 749,336 1,590,042 357,971 – 38,604 14,141 25,865 136,182 572,763 1,017,279 3,393,089	2,630,647 457,651 738,316 – 718 759,672 1,956,357 196,874 30,000 94,508 16,407 12,882 211,988 562,659 1,393,698 4,024,345	2,826,559 494,441 1,042,731 – 13,299 1,365,917 2,916,388 400,192 100,000 122,240 5,066 198,553 112,858 938,909 1,977,479 4,804,038	2,864,882
				523,110 1,010,122 63 35,719 1,497,009
				3,066,023
				476,595 100,000 139,506 527,202 188,133 115,408
				1,546,844
				1,519,179
				4,384,061

– 122 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

Notes Non-current liabilities Borrowings – amount due after one year 23 Deferred tax liability 17 Net assets Capital and reserves Share capital 24 Reserves Equity attributable to equity holders of the Company Minority interests Total equity	At 2004 RMB’000 1,315,000 – 1,315,000 2,078,089 767,550 561,641 1,329,191 748,898 2,078,089	31 December At 30 June 2005 2006 2007 RMB’000 RMB’000 RMB’000 1,461,580 1,378,000 1,178,000 – 4,890 6,859 1,461,580 1,382,890 1,184,859 2,562,765 3,421,148 3,199,202 767,550 767,550 767,550 873,696 1,348,262 1,145,496 1,641,246 2,115,812 1,913,046 921,519 1,305,336 1,286,156 2,562,765 3,421,148 3,199,202	31 December At 30 June 2005 2006 2007 RMB’000 RMB’000 RMB’000 1,461,580 1,378,000 1,178,000 – 4,890 6,859 1,461,580 1,382,890 1,184,859 2,562,765 3,421,148 3,199,202 767,550 767,550 767,550 873,696 1,348,262 1,145,496 1,641,246 2,115,812 1,913,046 921,519 1,305,336 1,286,156 2,562,765 3,421,148 3,199,202
			1,184,859
			3,199,202
			767,550 1,145,496
			1,913,046 1,286,156
			3,199,202

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

C. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to equity holders of the Company

	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company
At 1 January 2004 Profit for the year Total recognised income for the year Transfer Dividend Dividend declared by subsidiaries to the minority shareholders Share capital addition (Note a) At 31 December 2004 and 1 January 2005 Profit for the year Total recognised income for the year Transfer Dividend Dividend declared by subsidiaries to the minority shareholders Contributions from minority shareholders of a subsidiary At 31 December 2005 and 1 January 2006 Profit for the year Total recognised income for the year Transfer Dividend Dividend declared by subsidiaries to the minority shareholders Contributions from minority shareholders of a subsidiary At 31 December 2006 and 1 January 2007	Share capital RMB’000 511,700 – – – – – 255,850 767,550 – – – – – – 767,550 – – – – – – 767,550	Capital reserve Statutory and discretionary surplus reserve RMB’000 RMB’000 462,524 58,324 – – – – – 48,110 – – – – (255,850) – 206,674 106,434 – – – – – 84,082 – – – – – – 206,674 190,516 – – – – – 267,702 – – – – – – 206,674 458,218	Statutory public welfare reserve RMB’000 26,688 – – 24,055 – – – 50,743 – – 42,041 – – – 92,784 – – (92,784) – – – –	Retained earnings RMB’000 71,764 300,531 300,531 (72,165) (102,340) – – 197,790 542,319 542,319 (126,123) (230,264) – – 383,722 858,341 858,341 (174,918) (383,775) – – 683,370	Total RMB’000 1,131,000 300,531 300,531 – (102,340) – – 1,329,191 542,319 542,319 – (230,264) – – 1,641,246 858,341 858,341 – (383,775) – – 2,115,812	Minority interests RMB’000 584,278 168,512 168,512 – – (3,892) – 748,898 288,986 288,986 – – (136,365) 20,000 921,519 589,401 589,401 – – (231,988) 26,404 1,305,336	Total RMB’000 1,715,278
							469,043
							469,043
							– (102,340) (3,892) –
							2,078,089
							831,305
							831,305
							– (230,264) (136,365) 20,000
							2,562,765
							1,447,742
							1,447,742
							– (383,775) (231,988) 26,404
							3,421,148

– 124 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

Attributable to equity holders of the Company

	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company	Attributable to equity holders of the Company
At 31 December 2006 and 1 January 2007 Profit for the period Total recognised income for the year Transfer Dividend Dividend declared by subsidiaries to minority shareholders At 30 June 2007 At 31 December 2005 and 1 January 2006 Profit for the period (unaudited) Total recognised income for the period Dividend Dividend declared by subsidiaries to minority shareholders Contributions from minority shareholders of a subsidiary At 30 June 2006 (unaudited)	Share capital RMB’000 767,550 – – – – –	Capital reserve Statutory and discretionary surplus reserve RMB’000 RMB’000 206,674 458,218 – – – – – 12,114 – – – –		Statutory public welfare reserve RMB’000 – – – – – –	Retained earnings RMB’000 683,370 472,678 472,678 (12,114) (675,444) –	Total RMB’000 2,115,812 472,678 472,678 – (675,444) –	Minority interests RMB’000 1,305,336 408,412 408,412 – – (427,592)	Total RMB’000 3,421,148
								881,090
								881,090
								– (675,444 (427,592
	767,550	206,674	470,332	–	468,490	1,913,046	1,286,156	3,199,202
	767,550 – – – – –	206,674 – – – – –	190,516 – – – – –	92,784 – – – – –	383,722 379,210 379,210 (233,775) – –	1,641,246 379,210 379,210 (233,775) – –	921,519 230,910 230,910 – (231,988) 26,404	2,562,765
								610,120
								610,120
								(233,775 (231,988 26,404
	767,550	206,674	190,516	92,784	529,157	1,786,681	946,845	2,733,526

Notes:

• (a) Pursuant to the resolution passed in the 2003 annual general meeting on 29 April 2004, The Company distributed the final dividends for the year 2003 as RMB2.00 plus 5 ordinary shares for each 10 shares held by the shareholders on 15 July 2004. Thereafter the Company’s registered capital was increased from RMB511,700,000 to RMB767,550,000 by creation of 255,850,000 shares of RMB1 each, which were fully transferred from the capital reserve.

• (b) Reserves of the Group other than retained earnings include capital reserve, statutory and discretionary surplus reserve and statutory public welfare reserve, which form part of shareholders’ equity.

Capital reserve comprises surplus between the appraised value of the net assets and the value of shares issued when the Company was converted from a state-owned enterprise to a joint stock limited company, premium of shares issued, capital surplus arising from capital injection from minority shareholders, transfers from retained earnings for those government grants recognised in the income statement under HKFRS but are not distributable in accordance with the legal requirement in the PRC. The capital reserve can be applied for conversion into share capital.

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

Statutory and discretionary surplus reserve

In accordance with relevant PRC Company laws and regulations and the Articles of Association of the Company and its subsidiaries, the Company and its subsidiaries are required to appropriate 10% of their profit after taxation reported in their statutory financial statements prepared under the PRC GAAP to the statutory surplus reserve. Allocation to the discretionary surplus reserve shall be approved by the shareholders in general meeting. The appropriation to statutory surplus reserve may cease if the balance of the statutory surplus reserve has reached 50% of companies’ registered capital.

Statutory and discretionary surplus reserve may be used to make up losses or for conversion into share capital. The Company and its subsidiaries may, upon the approval by a resolution of shareholders’ general meeting, convert their surplus reserve into share capital by issuing new shares to existing shareholders in proportion to their then existing shareholdings or by increasing the nominal value of each share. However, when converting companies’ statutory surplus reserve into share capital, the balance of such reserve remaining unconverted must not be less than 25% of the registered capital.

Statutory public welfare reserve

In accordance with relevant PRC Company laws and regulations and the Articles of Association of the Company and its subsidiaries, the Company and its subsidiaries are required to appropriate 5% to 10% of the profit after taxation as reported in its statutory financial statements prepared under the PRC GAAP to the statutory public welfare reserve. The statutory public welfare reserve shall only apply to collective welfare of staff and workers and welfare facilities remain as properties of the Group.

The statutory public welfare reserve is non-distributable. When the statutory public welfare reserve is utilised, an amount equal to the cost of the assets acquired is transferred to discretionary surplus reserve. On disposal of the relevant asset, the original transfers from the reserve are reversed. Pursuant to a circular 2006 No. 67 issued by Ministry of Finance in 2006, the balance of the statutory public welfare reserve was transferred to statutory surplus reserve.

Basis for profit distribution

In accordance with the Articles of Association of the Company and its subsidiaries, profit available for distribution to shareholders should be based on the amount determined in accordance with the PRC accounting standards and regulations after deduction of the current year’s appropriation to the statutory reserves.

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

D. CONSOLIDATED CASH FLOW STATEMENTS

Operating activities Profit before tax Adjustments for: Interest income Finance costs Depreciation of property, plant and equipment Release of the prepaid lease payment charge Loss on disposal of property, plant and equipment Impairment provided on property, plant and equipment Allowances provided (written-back) for bad and doubtful trade debts Impairment provided (reversed) on other receivables (Reversal of) write-down of inventories Operating cash flows before movements in working capital (Increase) decrease in inventories (Increase) decrease in trade and other receivables (Increase) decrease in amounts due from related parties Increase (decrease) in trade and other payables Increase (decrease) in amounts due to related parties Increase (decrease) in amount due to ultimate holding company	Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 551,621 977,522 1,703,144 717,889 1,037,259 (5,381) (6,337) (10,716) (2,289) (6,197) 64,559 90,337 99,219 47,263 46,238 117,229 147,019 148,656 72,257 77,634 – – – – 5 76 289 14,608 – 163 988 – – – 24,831 1,769 725 256 – (24) 184 2,806 978 – (147) 312 – (104) – – 731,357 1,212,361 1,956,041 835,120 1,179,762 (125,205) (199,961) (36,686) 506 (28,669) (280,884) (247,910) (305,649) (456,171) 32,780 (66,460) 88,361 (12,581) (12,820) (22,420) 105,365 (161,097) 203,318 220,951 76,403 16,228 (12,983) 185,671 183,342 (10,420) (5,895) 75,806 (6,131) (15,525) 2,550	Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 551,621 977,522 1,703,144 717,889 1,037,259 (5,381) (6,337) (10,716) (2,289) (6,197) 64,559 90,337 99,219 47,263 46,238 117,229 147,019 148,656 72,257 77,634 – – – – 5 76 289 14,608 – 163 988 – – – 24,831 1,769 725 256 – (24) 184 2,806 978 – (147) 312 – (104) – – 731,357 1,212,361 1,956,041 835,120 1,179,762 (125,205) (199,961) (36,686) 506 (28,669) (280,884) (247,910) (305,649) (456,171) 32,780 (66,460) 88,361 (12,581) (12,820) (22,420) 105,365 (161,097) 203,318 220,951 76,403 16,228 (12,983) 185,671 183,342 (10,420) (5,895) 75,806 (6,131) (15,525) 2,550	Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 551,621 977,522 1,703,144 717,889 1,037,259 (5,381) (6,337) (10,716) (2,289) (6,197) 64,559 90,337 99,219 47,263 46,238 117,229 147,019 148,656 72,257 77,634 – – – – 5 76 289 14,608 – 163 988 – – – 24,831 1,769 725 256 – (24) 184 2,806 978 – (147) 312 – (104) – – 731,357 1,212,361 1,956,041 835,120 1,179,762 (125,205) (199,961) (36,686) 506 (28,669) (280,884) (247,910) (305,649) (456,171) 32,780 (66,460) 88,361 (12,581) (12,820) (22,420) 105,365 (161,097) 203,318 220,951 76,403 16,228 (12,983) 185,671 183,342 (10,420) (5,895) 75,806 (6,131) (15,525) 2,550	Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 551,621 977,522 1,703,144 717,889 1,037,259 (5,381) (6,337) (10,716) (2,289) (6,197) 64,559 90,337 99,219 47,263 46,238 117,229 147,019 148,656 72,257 77,634 – – – – 5 76 289 14,608 – 163 988 – – – 24,831 1,769 725 256 – (24) 184 2,806 978 – (147) 312 – (104) – – 731,357 1,212,361 1,956,041 835,120 1,179,762 (125,205) (199,961) (36,686) 506 (28,669) (280,884) (247,910) (305,649) (456,171) 32,780 (66,460) 88,361 (12,581) (12,820) (22,420) 105,365 (161,097) 203,318 220,951 76,403 16,228 (12,983) 185,671 183,342 (10,420) (5,895) 75,806 (6,131) (15,525) 2,550	Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 551,621 977,522 1,703,144 717,889 1,037,259 (5,381) (6,337) (10,716) (2,289) (6,197) 64,559 90,337 99,219 47,263 46,238 117,229 147,019 148,656 72,257 77,634 – – – – 5 76 289 14,608 – 163 988 – – – 24,831 1,769 725 256 – (24) 184 2,806 978 – (147) 312 – (104) – – 731,357 1,212,361 1,956,041 835,120 1,179,762 (125,205) (199,961) (36,686) 506 (28,669) (280,884) (247,910) (305,649) (456,171) 32,780 (66,460) 88,361 (12,581) (12,820) (22,420) 105,365 (161,097) 203,318 220,951 76,403 16,228 (12,983) 185,671 183,342 (10,420) (5,895) 75,806 (6,131) (15,525) 2,550
	731,357 (125,205) (280,884) (66,460) 105,365 16,228 (5,895)	1,212,361 (199,961) (247,910) 88,361 (161,097) (12,983) 75,806	1,956,041 (36,686) (305,649) (12,581) 203,318 185,671 (6,131)	835,120 506 (456,171) (12,820) 220,951 183,342 (15,525)	1,179,762 (28,669 32,780 (22,420 76,403 (10,420 2,550

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APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

Cash generated from operations Income tax paid Net cash from operating activities Investing activities Purchase of property, plant and equipment Lease payment on land use rights Proceeds on disposal of property, plant and equipment Interest received Net cash used in investing activities Financing activities New borrowings raised Borrowings repaid Borrowings repaid to ultimate holding company Interest paid Dividends paid Dividends paid by the subsidiaries to minority shareholders Capital contribution by minority shareholders of a subsidiary Net cash used in financing activities Net (decrease) increase in cash and cash equivalents Cash and cash equivalents at beginning of the year/period Cash and cash equivalents at end of the year/period, representing bank balances and cash	Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 374,506 754,577 1,983,983 755,403 1,229,986 (58,812) (89,331) (224,403) (80,374) (145,976) 315,694 665,246 1,759,580 675,029 1,084,010 (287,233) (403,353) (361,613) (111,264) (129,941) – – – – (2,144) 224 226 4,965 – 108 5,381 6,337 10,716 2,289 6,197 (281,628) (396,790) (345,932) (108,975) (125,780) 100,000 176,580 16,420 16,420 – (150,000) – (30,000) – (200,000) – – (93,000) (93,000) – (82,892) (90,337) (100,123) (47,263) (46,238) (97,823) (227,998) (395,116) (154,347) (153,025) (3,236) (136,365) (231,988) (173,067) (427,875) – 20,000 26,404 26,404 – (233,951) (258,120) (807,403) (424,853) (827,138) (199,885) 10,336 606,245 141,201 131,092 949,221 749,336 759,672 759,672 1,365,917 749,336 759,672 1,365,917 900,873 1,497,009	Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 374,506 754,577 1,983,983 755,403 1,229,986 (58,812) (89,331) (224,403) (80,374) (145,976) 315,694 665,246 1,759,580 675,029 1,084,010 (287,233) (403,353) (361,613) (111,264) (129,941) – – – – (2,144) 224 226 4,965 – 108 5,381 6,337 10,716 2,289 6,197 (281,628) (396,790) (345,932) (108,975) (125,780) 100,000 176,580 16,420 16,420 – (150,000) – (30,000) – (200,000) – – (93,000) (93,000) – (82,892) (90,337) (100,123) (47,263) (46,238) (97,823) (227,998) (395,116) (154,347) (153,025) (3,236) (136,365) (231,988) (173,067) (427,875) – 20,000 26,404 26,404 – (233,951) (258,120) (807,403) (424,853) (827,138) (199,885) 10,336 606,245 141,201 131,092 949,221 749,336 759,672 759,672 1,365,917 749,336 759,672 1,365,917 900,873 1,497,009	Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 374,506 754,577 1,983,983 755,403 1,229,986 (58,812) (89,331) (224,403) (80,374) (145,976) 315,694 665,246 1,759,580 675,029 1,084,010 (287,233) (403,353) (361,613) (111,264) (129,941) – – – – (2,144) 224 226 4,965 – 108 5,381 6,337 10,716 2,289 6,197 (281,628) (396,790) (345,932) (108,975) (125,780) 100,000 176,580 16,420 16,420 – (150,000) – (30,000) – (200,000) – – (93,000) (93,000) – (82,892) (90,337) (100,123) (47,263) (46,238) (97,823) (227,998) (395,116) (154,347) (153,025) (3,236) (136,365) (231,988) (173,067) (427,875) – 20,000 26,404 26,404 – (233,951) (258,120) (807,403) (424,853) (827,138) (199,885) 10,336 606,245 141,201 131,092 949,221 749,336 759,672 759,672 1,365,917 749,336 759,672 1,365,917 900,873 1,497,009	Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 374,506 754,577 1,983,983 755,403 1,229,986 (58,812) (89,331) (224,403) (80,374) (145,976) 315,694 665,246 1,759,580 675,029 1,084,010 (287,233) (403,353) (361,613) (111,264) (129,941) – – – – (2,144) 224 226 4,965 – 108 5,381 6,337 10,716 2,289 6,197 (281,628) (396,790) (345,932) (108,975) (125,780) 100,000 176,580 16,420 16,420 – (150,000) – (30,000) – (200,000) – – (93,000) (93,000) – (82,892) (90,337) (100,123) (47,263) (46,238) (97,823) (227,998) (395,116) (154,347) (153,025) (3,236) (136,365) (231,988) (173,067) (427,875) – 20,000 26,404 26,404 – (233,951) (258,120) (807,403) (424,853) (827,138) (199,885) 10,336 606,245 141,201 131,092 949,221 749,336 759,672 759,672 1,365,917 749,336 759,672 1,365,917 900,873 1,497,009	Year ended 31 December Six months ended 30 June 2004 2005 2006 2006 2007 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited) 374,506 754,577 1,983,983 755,403 1,229,986 (58,812) (89,331) (224,403) (80,374) (145,976) 315,694 665,246 1,759,580 675,029 1,084,010 (287,233) (403,353) (361,613) (111,264) (129,941) – – – – (2,144) 224 226 4,965 – 108 5,381 6,337 10,716 2,289 6,197 (281,628) (396,790) (345,932) (108,975) (125,780) 100,000 176,580 16,420 16,420 – (150,000) – (30,000) – (200,000) – – (93,000) (93,000) – (82,892) (90,337) (100,123) (47,263) (46,238) (97,823) (227,998) (395,116) (154,347) (153,025) (3,236) (136,365) (231,988) (173,067) (427,875) – 20,000 26,404 26,404 – (233,951) (258,120) (807,403) (424,853) (827,138) (199,885) 10,336 606,245 141,201 131,092 949,221 749,336 759,672 759,672 1,365,917 749,336 759,672 1,365,917 900,873 1,497,009
	315,694 (287,233) – 224 5,381 (281,628) 100,000 (150,000) – (82,892) (97,823) (3,236) – (233,951) (199,885) 949,221	665,246 (403,353) – 226 6,337 (396,790) 176,580 – – (90,337) (227,998) (136,365) 20,000 (258,120) 10,336 749,336	1,759,580 (361,613) – 4,965 10,716 (345,932) 16,420 (30,000) (93,000) (100,123) (395,116) (231,988) 26,404 (807,403) 606,245 759,672	675,029 (111,264) – – 2,289 (108,975) 16,420 – (93,000) (47,263) (154,347) (173,067) 26,404 (424,853) 141,201 759,672	1,084,010
					(129,941 (2,144 108 6,197
					(125,780
					– (200,000 – (46,238 (153,025 (427,875 –
					(827,138
					131,092 1,365,917
	749,336	759,672	1,365,917	900,873

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

E. NOTES TO THE FINANCIAL INFORMATION

1. GENERAL

The Company is a public limited company established in the PRC on 25 August 1997. The Company’s A shares are listed on the Shenzhen Stock Exchange. Its registered office is located at Chaerhan, Geermu city, Qinghai Province, the PRC.

The ultimate holding company of the Company is Qinghai Salt Lake Industry Group Co., Ltd. which is also established in the PRC.

The Company and its subsidiaries are principally engaged in manufacture and sales of potash and carnallite.

The Financial Information set out in this report is presented in Renminbi (“RMB”), which is the functional currency of the Company and its subsidiaries.

2. ADOPTION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS (“HKFRS”)

The Group has adopted all of the new and revised standards and interpretations issued by the HKICPA that are effective for accounting periods beginning on 1 January 2007 in the preparation of its Financial Information throughout the Relevant Periods.

At the date of authorisation of the Financial Information, the following new and revised HKFRS, Hong Kong Accounting Standards (“HKAS”) and Interpretations (“HK(IFRIC)”) were issued but not yet effective. The directors of the Company anticipate that the application of these standards or interpretations will have no material impact on the results and financial position of the Group.

HKAS 23 (Revised) Borrowing Cost[4] HKFRS 8 Operating Segments[4] HK(IFRIC)-Int 11 HKFRS 2: Group and Treasury Share Transactions[1] HK(IFRIC)-Int 12 Service Concession Arrangements[2] HK(IFRIC)-Int 13 Customer Loyalty Programmes[3] HK(IFRIC)-Int 14 HKAS 19 – The Limit on Defined Benefit Asset, Minimum Funding Requirements and their Interaction[2]

1 Effective for annual periods beginning on or after 1 March 2007

• 2 Effective for annual periods beginning on or after 1 January 2008

• 3 Effective for annual periods beginning on or after 1 July 2008

• 4 Effective for annual periods beginning on or after 1 January 2009

3. SIGNIFICANT ACCOUNTING POLICIES

The Financial Information has been prepared on the historical cost basis.

Basis of consolidation

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

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

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

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

Minority interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. Minority interests in the net assets consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.

Revenue recognition

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

Income from providing services is recognised when the service are provided.

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

Leases

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

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

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are capitalized as part of the cost of those assets. Capitalization of such borrowing costs ceases when the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognised in profit or loss for the period in which they are incurred.

Government grants

Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received, at which time, they are recognised in the consolidated income statement and reported separately as “other income”.

Retirement benefit costs

Payments to defined contribution retirement benefit plans are charged as an expense when employees have rendered service entitling them to the contribution. Payments made to state-managed retirement benefit schemes are dealt with as payments to defined contribution plans where the Group’s obligations under the schemes are equivalent to those arising in a defined contribution retirement benefit plan.

Taxation

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

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

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the consolidated financial statements and the corresponding tax base used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

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

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

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

Property, plant and equipment

Construction in progress represents property, plant and equipment in the course of construction for production or for its own use purposes. Construction in progress is carried at cost, less any recognised impairment loss. Construction in progress is classified to the appropriate category of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other assets, commences when the assets are ready for their intended use.

Other items of property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment losses.

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

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

Impairment

At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Recoverable amount is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash generating unit) is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately.

Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately.

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APPENDIX II

Inventories

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

Financial instruments

Financial assets and financial liabilities are recognised on trade date where the purchase or sale of an investment is under a contract whose terms require delivery of the financial assets and financial liabilities within the timeframe established by the market concerned. Financial assets and financial liabilities are initially measured at fair value. Transactions costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated or not classified as financial assets at fair value through profit or loss, loans and receivables or held-to-maturity investments. For available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments, they are measured at cost less any identified impairment losses at each balance sheet date subsequent to initial recognition. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired. A significant or prolonged decline in the fair value of the available-for-sale financial assets below their cost is considered to be an objective evidence of impairment. The amount of the impairment loss is measured as the difference between the carrying amount of the asset and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses will not reverse in subsequent periods.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. At each balance sheet date subsequent to initial recognition, loans and receivables (including trade and other receivables, bank balances and amounts due from related parties) are carried at amortised cost using the effective interest method, less any identified impairment losses. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Objective evidence of impairment could include significant financial difficulty of the issuer or counterparty; or default or delinquency in interest or principal payments; or it becoming probable that the borrower will enter bankruptcy or financial re-organisation. Impairment losses are reversed in subsequent periods when an increase in the asset’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to a restriction that the carrying amount of the asset at the date of the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

The carrying amount of the loans and receivables is reduced by the impairment loss directly for all loans and receivables with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

Financial liabilities and equity

Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The accounting policies adopted in respect of financial liabilities and equity instruments are set out below.

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APPENDIX II

Financial liabilities

Financial liabilities including bank borrowings, dividend payable, trade and other payables, amounts due to related parties and amount due to ultimate holding company are subsequently measured at amortised cost, using the effective interest method.

Equity instruments

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

Derecognition

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

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

Key sources of estimation uncertainty

The Group makes estimates and assumptions concerning the future. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets in the next financial year are discussed below.

Impairment of property, plant and equipment

The Group assesses annually whether property, plant and equipment have any indication of impairment in accordance with the accounting policy. The recoverable amounts of property, plant and equipment have been determined based on value-in-use calculations. The value-in-use calculation requires the Group to estimate the future cash flows expected to arise from the cash generating unit and a suitable discount rate in order to calculate the present value. These calculations require the use of judgment and estimates, where the actual future cash flows are less than expected, a material impairment loss may arise.

5. REVENUE

An analysis of the Group’s revenue for the Relevant Periods is as follows:

								Six months ended	Six months ended
					**Year **	ended 31 December		30 June
					2004	2005	2006	2006	2007
					RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
								(unaudited)
Sales	of	potash	and	carnallite	1,202,916	1,592,965	2,598,755	1,176,988	1,505,403

6. BUSINESS AND GEOGRAPHICAL SEGMENTS

Business segments

During the Relevant Periods, all consolidated turnover are contributed by the sales of potash and carnallite in Mainland China, and the majority of the Group’s assets are for carrying on the business in production of potash and carnallite. Accordingly, no business segment analysis is presented herein.

Geographical segments

The Group’s operations and sales are located in the PRC only.

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APPENDIX II

7. OTHER INCOME

Government grants (Note 1) Value-added tax refund (Note 2) Interest income Net (loss) gain from sales of the raw materials and others Transportation service income Others	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 794 330 1,209 – 157,903 300,156 5,381 6,337 10,716 (1,603) 254 430 – 9,221 – 391 102 711 4,963 174,147 313,222	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (unaudited) – – 40,138 117,043 2,289 6,197 (966) (280 – – 7 798 41,468 123,758	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (unaudited) – – 40,138 117,043 2,289 6,197 (966) (280 – – 7 798 41,468 123,758
			123,758

Notes:

1. The Company and its subsidiaries received government grants from the respective local municipal governments in relation to the development of the business of the Group. The grants were unconditional and recognised upon receipt.

2. Pursuant to various circulars issued by the State Administration of Taxation and local government authorities, the Group received the refund on value-added tax.

8. FINANCE COSTS

Interest expenses on: Bank borrowings – wholly repayable within five years – not wholly repayable within five years Other borrowings from the ultimate holding company Total borrowing costs Less: Interest capitalised	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 42,381 26,739 34,106 32,932 53,708 62,309 7,579 9,890 3,708	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 42,381 26,739 34,106 32,932 53,708 62,309 7,579 9,890 3,708	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 42,381 26,739 34,106 32,932 53,708 62,309 7,579 9,890 3,708	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (unaudited) 12,026 17,317 31,529 28,921 3,708 –	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (unaudited) 12,026 17,317 31,529 28,921 3,708 –
	82,892 (18,333)	90,337 –	100,123 (904)	47,263 –	46,238 –
	64,559	90,337	99,219	47,263	46,238

Borrowing costs capitalised during the Relevant Periods arose on the general borrowing pool and are calculated by applying a capitalisation rate of 5.67% and 5.57% for the years ended 31 December 2004 and 2006, respectively, to expenditure on qualifying assets.

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

9. PROFIT BEFORE TAX

Profit before tax has been arrived at after charging (crediting):

Wages and salaries Staff welfare Performance bonus Retirement benefits scheme contribution Total staff costs (including directors’ emoluments) Allowance provided (written-back) for bad and doubtful trade debts Impairment provided (reversed) on other receivables (Reversal of) write-down of inventories Auditors’ remuneration Rental payment Release of prepaid lease payment Depreciation of property, plant and equipment Impairment provided on property, plant and equipment Loss on disposal of property, plant and equipment Repairs and maintenance expenditure on property, plant and equipment	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 90,792 96,040 125,448 8,539 12,349 17,121 2,504 3,364 2,922 6,636 8,335 9,643 108,471 120,088 155,134 1,769 725 256 184 2,806 978 312 – (104) 260 270 300 1,138 1,138 1,138 – – – 117,229 147,019 148,656 988 – – 76 289 14,608 1,693 30,701 11,687	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (unaudited) 53,988 61,824 5,939 6,655 1,461 3,655 3,192 4,352 64,580 76,486 – (24) – (147) – – – – 569 569 – 5 72,257 77,634 – 24,831 – 163 5,844 5,415

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APPENDIX II

10. DIRECTOR’S AND EMPLOYEES’ EMOLUMENTS

Directors

Details of emoluments paid by the Group to the directors of the Company during the Relevant Periods are as follows:

Independent non-executive directors – fees Executive directors – fees – salaries and allowances – retirement benefits scheme contributions – performance bonus Independent non-executive directors Ren Xuan (appointed on 29 April 2004) Zhang Quanming (appointed on 29 April 2004) Dong Demin (appointed on 29 April 2004) Wang Tianheng (appointed on 29 April 2004) Executive directors Zheng Changshan (appointed on 29 April 2004) Fang Qinsheng (appointed on 29 April 2004) Xu Shisen (appointed on 29 April 2004) An Pingsui (appointed on 29 April 2004) Wang Xiaomin (appointed on 16 May 2005) Shen Qi (appointed on 16 May 2005) Tang Dexin (appointed on 29 April 2004)	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 40 80 80 – – – 390 520 598 78 104 120 – – – 508 704 798 Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 10 20 20 10 20 20 10 20 20 10 20 20 40 80 80	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 40 80 80 – – – 390 520 598 78 104 120 – – – 508 704 798 Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 10 20 20 10 20 20 10 20 20 10 20 20 40 80 80	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 40 80 80 – – – 390 520 598 78 104 120 – – – 508 704 798 Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 10 20 20 10 20 20 10 20 20 10 20 20 40 80 80	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (unaudited) – – – – 298 298 60 60 – – 358 358 Six months ended 30 June 2006 2007 RMB’000 RMB’000 (unaudited) – – – – – – – – – –	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (unaudited) – – – – 298 298 60 60 – – 358 358 Six months ended 30 June 2006 2007 RMB’000 RMB’000 (unaudited) – – – – – – – – – –
					–
	– 180 144 – – – 144	– 240 192 – – – 192	– 276 221 – – – 221	– 138 110 – – – 110	– 138 110 – – – 110
	468	624	718	358	358

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APPENDIX II

Employees

The emoluments for the five individuals with the highest emoluments in the Group for the Relevant Periods and the six months ended 30 June 2006 included 3 executive directors whose emoluments are set out above. The emoluments of the remaining 2 highest paid individuals for the Relevant Periods are as follows:

Salaries and allowances Retirement benefits scheme contribution	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 240 320 368 48 64 74 288 384 442	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (unaudited) 184 184 37 37 221 221	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (unaudited) 184 184 37 37 221 221
			221

Their emoluments were within the following bands:

						Six months ended	Six months ended
			**Year **	ended 31 December		30 June
			2004	2005	2006	2006	2007
			RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
						(unaudited)
Nil	to	RMB1,000,000	2	2	2	2	2

During the Relevant Periods, no emoluments were paid by the Group to any directors of the Company or the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office. None of the directors waived any emoluments during the Relevant Periods.

11. INCOME TAX EXPENSE

Income tax charge comprises: Enterprise income tax in PRC for the year/period Deferred tax (charge) credit (Note 17) Tax charge for the year/period	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 82,855 145,235 252,135 (277) 982 3,267 82,578 146,217 255,402	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (unaudited) 107,769 163,242 – (7,073) 107,769 156,169	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (unaudited) 107,769 163,242 – (7,073) 107,769 156,169
			156,169

The tax charge for the year/period mainly comprises PRC Enterprise Income Tax of the Company and its subsidiaries which are calculated at rates applicable to the relevant companies for the Relevant Periods.

Pursuant to the relevant laws and regulations in the PRC, the statutory enterprise income tax rate is 33%.

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APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

However, according to the confirmation from local Tax Bureau of Qinghai Province, the Group has been entitled to the concessionary tax rates for companies incorporated in the western area of China throughout the Relevant Periods. Thus, the applicable income tax rate of the Company and its subsidiaries during the Relevant Periods is 15%.

On 16 March 2007, the National People’s Congress promulgated the Law of the People’s Republic of China on Enterprise Income Tax (the “New Law”) by Order No. 63 of the President of the People’s Republic of China which will be effective from 1 January 2008. The New Law will impose a single income tax rate of 25% for both domestic and foreign invested enterprises. The existing Tax Law of the PRC for the Enterprises with Foreign Investment and Foreign Enterprises (the “FIE and FE tax laws”) and Provisional Regulations of the PRC on Enterprise Income Tax (collectively referred to as the “existing tax laws”) will be abolished simultaneously. Currently, the Company and its subsidiaries in the PRC applied tax rate under the existing tax laws to provide for current and deferred tax. Up to the date of this report, the detailed implementation rulings for companies with concessionary tax rates have not been released, thus there is uncertainty as to whether the Company and its subsidiaries will be impacted on such New Law. The directors of the Company will continue to assess the future financial impact upon release of detailed implementation rulings.

The tax charge for the Relevant Periods can be reconciled to the profit per the consolidated income statements as follows:

Profit before tax Tax at domestic income tax rate of 15% Tax effect of income not taxable Tax effect of expenses not deductible Tax charge for the year/period	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 551,621 977,522 1,703,144	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 551,621 977,522 1,703,144	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 551,621 977,522 1,703,144	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (unaudited) 717,889 1,037,259	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (unaudited) 717,889 1,037,259
	82,743 (165) –	146,628 (411) –	255,472 (70) –	107,683 – 86	155,589 – 580
	82,578	146,217	255,402	107,769	156,169

12. DIVIDENDS

					Six months ended	Six months ended
		**Year **	ended 31 December		30 June
		2004	2005	2006	2006	2007
		RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
					(unaudited)
Final	dividend for
the	prior year/period	102,340	230,264	383,775	233,775	675,444

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

13. EARNINGS PER SHARE

During the Relevant Periods, the calculation of the basic earnings per share attributable to the equity holders of the Company is based on the following data:

Earnings

Earnings for the purpose of basic earnings per share (profit for the year/period attributable to equity holders of the Company) Number of shares Weighted average number of shares for the purpose of basic earnings per share	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 300,531 542,319 858,341 Year ended 31 December 2004 2005 2006 ’000 ’000 ’000 767,550 767,550 767,550	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (unaudited) 379,210 472,678 Six months ended 30 June 2006 2007 ’000 ’000 (unaudited) 767,550 767,550

The weighted average number of shares for the purpose of basic earning per share for the year ended 31 December 2004 has been adjusted for the bonus issue of 5 ordinary shares for each 10 shares held by the shareholder on 15 July 2004.

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

14. PROPERTY, PLANT AND EQUIPMENT

COST At 1 January 2004 Additions Transfers Disposals At 31 December 2004 Additions Transfers Disposals At 31 December 2005 Additions Transfers Disposals At 31 December 2006 Additions Transfers Disposals At 30 June 2007 DEPRECIATION AND IMPAIRMENT At 1 January 2004 Provided for the year Write-off Eliminated on disposals At 31 December 2004 Provided for the year Eliminated on disposals At 31 December 2005 Provided for the year Eliminated on disposals At 31 December 2006 Provided for the period Impairment made for the period Eliminated on disposals At 30 June 2007 CARRYING AMOUNT At 30 June 2007 At 31 December 2006 At 31 December 2005 At 31 December 2004	Buildings RMB’000 395,666 2,879 662,142 –	Plant and machinery RMB’000 367,474 19,209 883,887 –	Furniture, fixtures and equipment RMB’000 94,533 2,349 13,191 –	Motor vehicles Construction in progress RMB’000 RMB’000 49,963 1,534,283 2,910 278,219 6,361 (1,565,581) (465) –	Motor vehicles Construction in progress RMB’000 RMB’000 49,963 1,534,283 2,910 278,219 6,361 (1,565,581) (465) –	Total RMB’000 2,441,919 305,566 – (465) 2,747,020 403,353 – (711) 3,149,662 362,517 – (31,424) 3,480,755 129,941 – (429) 3,610,267 266,035 117,229 988 (165) 384,087 147,019 (196) 530,910 148,656 (11,852) 667,714 77,634 24,831 (158) 770,021 2,840,246 2,813,041 2,618,752 2,362,933
	1,060,687 17,784 192,739 – 1,271,210 7,454 89,398 (16,472) 1,351,590 578 14,854 – 1,367,022 73,077 36,164 121 – 109,362 53,676 – 163,038 50,592 (5,133) 208,497 26,493 15,094 – 250,084	1,270,570 54,895 18,635 – 1,344,100 30,058 53,172 (9,658) 1,417,672 18,478 15,687 – 1,451,837 150,632 67,431 867 – 218,930 79,158 – 298,088 82,252 (4,586) 375,754 43,630 7,333 – 426,717	110,073 3,805 208 – 114,086 11,168 714 (1,137) 124,831 17,239 – – 142,070 25,179 9,451 – – 34,630 9,783 – 44,413 11,341 (269) 55,485 5,289 747 – 61,521	58,769 1,278 1,182 (711) 60,518 3,065 – (4,157) 59,426 948 313 (429) 60,258 17,147 4,183 – (165) 21,165 4,402 (196) 25,371 4,471 (1,864) 27,978 2,222 1,657 (158) 31,699	246,921 325,591 (212,764) – 359,748 310,772 (143,284) – 527,236 92,698 (30,854) – 589,080 – – – – – – – – – – – – – – –	2,747,020 403,353 – (711
						3,149,662 362,517 – (31,424
						3,480,755 129,941 – (429
						3,610,267
						266,035 117,229 988 (165
						384,087 147,019 (196
						530,910 148,656 (11,852
						667,714 77,634 24,831 (158
						770,021
	1,116,938 1,143,093 1,108,172 951,325	1,025,120 1,041,918 1,046,012 1,051,640	80,549 69,346 69,673 75,443	28,559 31,448 35,147 37,604	589,080 527,236 359,748 246,921

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

The buildings are located on land in the PRC which are held under medium-term leases. As at 31 December 2006 and 30 June 2007, certain of the Group’s buildings, plant and machinery with an aggregate carrying value of approximately RMB97,868,000 and RMB95,502,000 respectively were pledged to bank to secure certain banking facilities granted to the Group.

The above items of property, plant and equipment, are depreciated over their respective estimated useful lives as stated below on a straight line basis:

Buildings	20 – 40 years
Plant and machinery	8 – 20 years
Furniture, fixtures and equipment	5 years
Motor vehicles	5 – 8 years

During the period ended 30 June 2007, the directors conducted a review of the Group’s production process and determined that a number of manufacturing assets were impaired because they cannot be used in the modified production process. Accordingly, impairment losses of RMB24,831,000 have been recognised in respect of property, plant and equipment in the period ended 30 June 2007. They are recognised in the consolidated income statement and included in the administrative expenses.

15. PREPAID LEASE PAYMENTS

Prepaid lease payments related to land use rights Analysed for reporting purposes as: Non-current assets Current assets	At 31 December 2004 2005 RMB’000 RMB’000 – –	At 31 December 2004 2005 RMB’000 RMB’000 – –	2006 RMB’000 –	At 30 June 2007 RMB’000 2,139
	– –	– –	– –	2,076 63
	–	–	–	2,139

16. AVAILABLE-FOR-SALE INVESTMENTS

						**At **	**31 **	December		At 30 June
					2004			2005	2006	2007
					RMB’000			RMB’000	RMB’000	RMB’000
Unlisted	equity	investment,	at	cost	3,000			3,000	3,000	3,000

The above unlisted equity investments represent the investments in unlisted equity securities issued by private entities in the PRC. The directors have no intention to dispose the investment in the foreseeable future. It is measured at cost less impairment at each balance sheet date because the range of reasonable fair value estimates is so significant that the directors of the Company are of the opinion that its fair value cannot be measured reliably.

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

17. DEFERRED TAXATION

The following are the major deferred tax assets and liabilities recognised and movements thereon during the Relevant Periods:

At 1 January 2004 Credit (charge) to consolidated income statement for the year At 31 December 2004 Credit (charge) to consolidated income statement for the year At 31 December 2005 Credit (charge) to consolidated income statement for the year At 31 December 2006 (Credit) charge to consolidated income statement for the period At 30 June 2007	Allowance for doubtful debts and inventories Temporary difference arising from the depreciation of the properties plant and equipments RMB’000 RMB’000 3,824 5,598 294 (17)	Allowance for doubtful debts and inventories Temporary difference arising from the depreciation of the properties plant and equipments RMB’000 RMB’000 3,824 5,598 294 (17)	Property, plant and equipment impairment provision RMB’000 178 –	Unrealised profit in inventories RMB’000 – –	Other RMB’000 – –	Total RMB’000 9,600 277 9,877 (982) 8,895 (3,267) 5,628 7,073 12,701
	4,118 556 4,674 195 4,869 (35)	5,581 (1,538) 4,043 642 4,685 (532)	178 – 178 – 178 3,724	– – – 786 786 5,885	– – – (4,890) (4,890) (1,969)	9,877 (982
						8,895 (3,267
						5,628 7,073
	4,834	4,153	3,902	6,671	(6,859)

The following analysis of the deferred taxation balances for financial reporting purpose:

Deferred tax assets Deferred tax liabilities	At 31 December 2004 2005 RMB’000 RMB’000 9,877 8,895 – – 9,877 8,895	2006 RMB’000 10,518 (4,890) 5,628	At 30 June 2007 RMB’000 19,560 (6,859) 12,701

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

18. INVENTORIES

Raw materials Finished goods	At 31 December 2004 2005 RMB’000 RMB’000 220,479 286,884 37,211 170,767 257,690 457,651	2006 RMB’000 330,591 163,850 494,441	At 30 June 2007 RMB’000 356,422 166,688
			523,110

19. TRADE AND OTHER RECEIVABLES

Notes Trade receivables (a) Bills receivable (b) Other receivables Advance to suppliers	At 31 December 2004 2005 RMB’000 RMB’000 22,404 59,172 398,210 581,743 21,934 34,363 51,389 63,038 493,937 738,316	2006 RMB’000 12,857 912,685 22,655 94,534 1,042,731	At 30 June 2007 RMB’000 13,816 862,481 11,039 122,786
			1,010,122

(a) Trade receivables

The Group has a policy of allowing an average credit period of 90 days to its trade customers with trading history, otherwise sales on cash terms are required. The Group has made allowances on trade receivables of age over 90 days based on estimated irrecoverable amounts from the sale of goods, determined by reference to past default experience and estimated future cash flows.

Trade receivables Less: allowance for doubtful debts	At 31 December 2004 2005 RMB’000 RMB’000 37,935 75,428 (15,531) (16,256) 22,404 59,172	2006 RMB’000 29,369 (16,512) 12,857	At 30 June 2007 RMB’000 30,304 (16,488
			13,816

The following is an aged analysis of trade receivables at the balance sheet dates:

0 – 90 days 91 – 180 days 181 – 365 days 1 – 2 years 2 – 3 years Over 3 years	At 31 December 2004 2005 RMB’000 RMB’000 18,295 56,239 – 352 1,723 745 391 874 961 366 1,034 596 22,404 59,172	2006 RMB’000 10,813 194 295 563 289 703 12,857	At 30 June 2007 RMB’000 9,597 1,731 1,103 338 246 801
			13,816

– 143 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

The following is an analysis of trade receivables which are past due at each balance sheet date for which the Group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group does not hold any collateral over these balances.

91 – 180 days 181 – 365 days 1 – 2 years 2 – 3 years Over 3 years Average age (number of days)	At 31 December 2004 2005 RMB’000 RMB’000 – 352 1,723 745 391 874 961 366 1,034 596 4,109 2,933 737 650	2006 RMB’000 194 295 563 289 703 2,044 884	At 30 June 2007 RMB’000 1,731 1,103 338 246 801
			4,219
			563

Movement in the allowance for bad and doubtful trade debts

Balance at beginning of the year/period Allowances provided for bad and doubtful debts Amounts recovered during the year/period Balance at end of the year/period	Year 2004 RMB’000 13,762 1,769 – 15,531	ended 31 December 2005 2006 RMB’000 RMB’000 15,531 16,256 725 256 – – 16,256 16,512	Six months ended 30 June 2007 RMB’000 16,512 – (24)
			16,488

The concentration of credit risk is limited due to the customer base being large.

(b) Bills receivable

0 – 90 days 91 – 180 days	At 31 December 2004 2005 RMB’000 RMB’000 373,767 527,810 24,443 53,933 398,210 581,743	2006 RMB’000 649,908 262,777 912,685	At 30 June 2007 RMB’000 726,079 136,402
			862,481

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

20. AMOUNTS DUE TO FROM (TO) RELATED PARTIES

(a) Amounts due from related parties

Fellow subsidiaries A shareholder of the Company’s subsidiary A subsidiary of the Company’s shareholder	At 2004 RMB’000 1,013 45,703 42,363 89,079	31 December At 30 June 2005 2006 2007 RMB’000 RMB’000 RMB’000 718 288 6,529 – 13,011 29,190 – – – 718 13,299 35,719	31 December At 30 June 2005 2006 2007 RMB’000 RMB’000 RMB’000 718 288 6,529 – 13,011 29,190 – – – 718 13,299 35,719
			35,719

The amounts due from related parties under current assets are arising from trade. They are within the normal credit terms of 90 days. They are unsecured, interest-free and repayable on demand.

In determining the recoverability of trade receivables from related parties, the Group considers any change in the credit quality of the amounts due from related parties from the date credit was initially granted up to reporting date. The credit risk is limited due to the good relationship and continuing cooperation. Accordingly, the directors believe that there is no credit provision required.

(b) Amounts due to related parties

Fellow subsidiaries A subsidiary of the Company’s shareholder	At 2004 RMB’000 19,293 6,572 25,865	31 December At 30 June 2005 2006 2007 RMB’000 RMB’000 RMB’000 10,939 18,813 8,138 1,943 179,740 179,995 12,882 198,553 188,133	31 December At 30 June 2005 2006 2007 RMB’000 RMB’000 RMB’000 10,939 18,813 8,138 1,943 179,740 179,995 12,882 198,553 188,133
			188,133

The amounts due to related parties under current liabilities arising from trade, and within the normal credit terms of 90 days. They are unsecured, interest-free and repayable on demand.

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

21. AMOUNT DUE TO ULTIMATE HOLDING COMPANY

Qinghai Salt Lake Industry Group Co., Ltd. – payables arising from trade (Note 1) – interest bearing borrowings (Note 2)	At 31 December 2004 2005 RMB’000 RMB’000 43,182 118,988 93,000 93,000 136,182 211,988	2006 RMB’000 112,858 – 112,858	At 30 June 2007 RMB’000 115,408 –
			115,408

Notes:

1. The amount due to ultimate holding company under current liabilities are arising from trade, and within the normal credit terms of 90 days. They are unsecured, interest-free and repayable on demand.

2. Borrowing was charged at prevailing interest rates announced by the People’s Bank of China. This borrowing was repayable on demand and fully repaid in 2006.

22. TRADE AND OTHER PAYABLES

An analysis of trade and other payables is as follows:

Note Trade payables (a) Other payables Advance from customers	At 31 December 2004 2005 RMB’000 RMB’000 125,005 96,194 77,251 90,072 155,715 10,608 357,971 196,874	2006 RMB’000 143,412 146,322 110,458 400,192	At 30 June 2007 RMB’000 115,543 221,272 139,780
			476,595

Trade and bills payable principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 90 days.

(a) Trade payables

The following is an aged analysis of trade payables at the balance sheet dates:

0 – 90 days 91 – 180 days 181 – 365 days 1 – 2 years 2 – 3 years Over 3 years	At 31 December 2004 2005 RMB’000 RMB’000 305 40,370 16,149 8,462 61,282 20,895 43,742 20,067 1,862 4,371 1,665 2,029 125,005 96,194	2006 RMB’000 32,186 29,196 70,107 3,220 6,642 2,061 143,412	At 30 June 2007 RMB’000 26,827 52,646 21,905 11,000 1,232 1,933
			115,543

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

23. BORROWINGS

Secured bank borrowings Unsecured bank borrowings The borrowings are repayable as follows: Within one year In the second year In the third to fifth year inclusive After five years Total borrowings Less: Amount due for settlement within one year and shown under current liabilities Amount due after one year Total borrowings – at fixed rates – at floating rates Analysis of borrowings by currency: – denominated in RMB	At 31 December 2004 2005 RMB’000 RMB’000 – – 1,315,000 1,491,580 1,315,000 1,491,580	At 31 December 2004 2005 RMB’000 RMB’000 – – 1,315,000 1,491,580 1,315,000 1,491,580	2006 RMB’000 50,000 1,428,000 1,478,000	At 30 June 2007 RMB’000 50,000 1,228,000
				1,278,000
	– – 575,000 740,000 1,315,000 –	30,000 100,000 875,000 486,580 1,491,580 30,000	100,000 475,000 450,000 453,000 1,478,000 100,000	100,000 425,000 320,000 433,000
				1,278,000 100,000
	1,315,000	1,461,580	1,378,000	1,178,000
	– 1,315,000	30,000 1,461,580	50,000 1,428,000	50,000 1,228,000
	1,315,000 1,315,000	1,491,580 1,491,580	1,478,000 1,478,000	1,278,000
				1,278,000

Fixed interest rate borrowings are charged at 5.58%, 5.76% and 5.76% per annum for the years ended 31 December 2005 and 2006 and the six months ended 30 June 2007 (six months ended 30 June 2006: 5.58% per annum) respectively.

Interest on borrowings at floating rates are calculated based on the borrowing rates announced by the People’s Bank of China.

The effective weighted average annual interest rate for the years ended 31 December 2004, 2005 and 2006 and the six months ended 30 June 2007 were 5.75%, 6.09%, 6.26% and 6.75% per annum (six months ended 30 June 2006: 6.26% per annum), respectively.

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FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

24. SHARE CAPITAL

Ordinary shares of RMB1.00 each Issued and fully paid: At 1 January 2004 Transfer from capital reserve (note) At 31 December 2004, 2005, 2006 and at 30 June 2007	The Company Number of shares Share capital ’000 RMB’000 511,700 511,700 255,850 255,850 767,550 767,550	The Company Number of shares Share capital ’000 RMB’000 511,700 511,700 255,850 255,850 767,550 767,550
		767,550

Note: Pursuant to the resolution passed in the 2003 annual general meeting on 29 April 2004, the Company distributed the final dividends for the year 2003 as RMB2.00 plus 5 ordinary shares for each 10 shares held by the shareholders on 15 July 2004. Thereafter the Company’s registered capital was increased from RMB511,700,000 to RMB767,550,000 by creation of 255,850,000 shares of RMB1 each, which were fully transferred from the capital reserve.

25. FINANCIAL INSTRUMENTS

The Group’s management monitors and manages the financial risks relating to the operations of the Group through its analysis on the exposures by degree and magnitude of risks. The risks relating to the operations of the Group are mainly credit risk, market risk and liquidity risk.

25a. Financial risk management objectives and policies

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group. The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Group’s maximum exposure to credit risk. The Group has adopted a policy of only dealing with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. The Group’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the management regularly.

The Group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The Group defines counterparties as having similar characteristics if they are related entities. The credit risk on liquid funds is limited because the counterparties are reputable banks in the PRC.

Market risk

The Group’s activities expose it primarily to the financial risks of changes in interest rate risk. Market risk exposures are further measured by sensitivity analysis. There has been no change to the Group’s exposure to market risks or the manner in which it manages and measures the risk. Details of the market risk are described as follows:

Interest rate risk management

The Group’s fair value interest rate risk and cash flow interest rate risk relate primarily to fixed-rate borrowings and floating-rate borrowings respectively (see note 23 for details of these borrowings). It is the Group’s policy to maintain a majority of its borrowings at floating rate so as to minimize the fair value interest rate risk.

The Group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.

– 148 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

Interest rate sensitivity analysis

The sensitivity analyses below have determined based on the exposure to interest rates for borrowings at the balance sheet dates and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates. A 50 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the possible change in interest rates.

If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Group’s profit for the years ended 31 December 2004, 2005 and 2006 and six months ended 30 June 2007 would decrease/increase by approximately RMB4,916,441, RMB6,603,389, RMB7,161,250 and RMB3,362,671 (six months ended 30 June 2006: RMB3,508,625) respectively. This is mainly attributable to the Group’s exposure to interest rate on its variable rate borrowings.

Liquidity risk

The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities as at 31 December 2004, 2005 and 2006 and 30 June 2007. The tables have been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. The table includes both interest and principal cash flows.

Weighted average effective interest rate As at 31 December 2004 Trade and other payables – Dividend payable – Amounts due to related companies – Amount due to ultimate holding company – payables arising from trade – – interest bearing borrowings 5.31% Variable interest rates borrowings 5.75%	Less than 3 months RMB’000 202,256 14,141 25,865 43,182 94,235 19,985 399,664	3 months to 1 year RMB’000 – – – – – 59,954 59,954	1-2 years RMB’000 – – – – – 81,544 81,544	2-5 years RMB’000 – – – – – 782,404 782,404	Over 5 years RMB’000 – – – – – 819,640 819,640	Total undiscounted cash flows RMB’000 202,256 14,141 25,865 43,182 94,235 1,763,527 2,143,206	Carrying amount RMB’000 202,256 14,141 25,865 43,182 93,000 1,315,000
							1,693,444

Weighted average effective interest rate As at 31 December 2005 Trade and other payables – Dividend payable – Amounts due to related companies – Amount due to ultimate holding company – payables arising from trade – – interest bearing borrowings 5.31% Variable interest rates borrowings 6.09% Fixed interest rates borrowings 5.58%	Less than 3 months RMB’000 186,266 16,407 12,882 118,988 94,235 22,834 413 452,025	3 months to 1 year RMB’000 – – – – – 68,502 31,087 99,589	1-2 years RMB’000 – – – – – 194,967 – 194,967	2-5 years RMB’000 – – – – – 1,066,798 – 1,066,798	Over 5 years RMB’000 – – – – – 555,806 – 555,806	Total undiscounted cash flows RMB’000 186,266 16,407 12,882 118,988 94,235 1,908,907 31,500 2,369,185	Carrying amount RMB’000 186,266 16,407 12,882 118,988 93,000 1,461,580 30,000
							1,919,123

– 149 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

Weighted average effective interest rate As at 31 December 2006 Trade and other payables – Dividend payable – Amounts due to related companies – Amount due to ultimate holding company – payables arising from trade – Variable interest rates borrowings 6.26% Fixed interest rates borrowings 5.76%	Less than 3 months RMB’000 289,734 5,066 198,553 112,858 23,742 720 630,673	3 months to 1 year RMB’000 – – – – 171,225 2,160 173,385	1-2 years RMB’000 – – – – 559,229 2,880 562,109	2-5 years RMB’000 – – – – 538,554 50,197 588,751	Over 5 years RMB’000 – – – – 491,241 – 491,241	Total undiscounted cash flows RMB’000 289,734 5,066 198,553 112,858 1,783,991 55,957 2,446,159	Carrying amount RMB’000 289,734 5,066 198,553 112,858 1,428,000 50,000
							2,084,211

Weighted average effective interest rate As at 30 June 2007 Trade and other payables – Dividend payable – Amounts due to related companies – Amount due to ultimate holding company – payables arising from trade – Variable interest rates borrowings 6.75% Fixed interest rates borrowings 5.76%	Less than 3 months RMB’000 336,815 527,202 188,133 115,408 23,742 720 1,192,020	3 months to 1 year RMB’000 – – – – 165,857 2,160 168,017	1-2 years RMB’000 – – – – 446,062 50,197 496,259	2-5 years RMB’000 – – – – 443,371 – 443,371	Over 5 years RMB’000 – – – – 457,476 – 457,476	Total undiscounted cash flows RMB’000 336,815 527,202 188,133 115,408 1,536,508 53,077 2,757,143	Carrying amount RMB’000 336,815 527,202 188,133 115,408 1,228,000 50,000
							2,445,558

Categories of financial instruments

Financial assets Available-for-sale financial assets Loans and receivables (including cash and cash equivalents) Financial liabilities Amortised cost	At 31 December 2004 2005 RMB’000 RMB’000 3,000 3,000 1,280,963 1,435,668 1,693,444 1,919,123	2006 RMB’000 3,000 2,327,413 3,084,211	At 30 June 2007 RMB’000 3,000
			2,420,064
			2,445,558

– 150 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

25b. Fair value

The fair value of financial assets and financial liabilities is determined in accordance with generally accepted pricing models based on discounted cash flow analysis or using prices from observable current market transactions.

The directors of the Group consider that the carrying amounts of the financial assets and financial liabilities recorded at amortised cost in the Financial Information approximate their corresponding fair values.

25c. Capital structure

The Group manages its capital to ensure that the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance.

The capital structure of the Group consists of debt, which includes amount due to ultimate holding company, and borrowings as disclosed in notes 21 and 23 respectively, bank balances and equity attributable to equity holders of the Group, comprising issued capital, reserves and retained profits.

The directors of the Group review the capital structure from time to time. As a part of this review, the directors consider the cost of capital and the risks associated with each class of capital. Based on recommendations of the directors, the Group will balance its overall capital structure through the new bank loans raised or the repayment of existing debts.

26. COMMITMENTS

		**At **	31 December		**At **	30 June
	2004		2005	2006		2007
	RMB’000		RMB’000	RMB’000	RMB’000
Capital expenditure in respect of
acquisition of property, plant and
equipment contracted for but not
provided in the Financial
Information	793,024		9,547	3,858		7,867

Operating lease commitments

The Group as a lessee

					Six months ended	Six months ended
	**Year **	ended 31 December			30 June
	2004		2005	2006	2006	2007
	RMB’000	RMB’000		RMB’000	RMB’000	RMB’000
					(unaudited)
Minimum lease payment under
operating lease during the
year/period:
– Premises	942		942	942	471	471

– 151 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

At the balance sheet dates, the Group has future minimum lease payments under non-cancelable operating leases in respect of property, plant and equipment as follows:

Within one year In the second to fifth year inclusive After five years	At 31 December 2004 2005 RMB’000 RMB’000 942 942 3,768 3,768 16,956 16,014 21,666 20,724	2006 RMB’000 942 3,768 15,072 19,782	At 30 June 2007 RMB’000 942 3,768 14,130
			18,840

Leases are negotiated for an average term of 6 years and rental was fixed at the date of signing of lease agreements.

27. RELATED PARTY TRANSACTIONS

• (a) The Group has entered into the following significant transactions with its ultimate holding company, Qinghai Salt Lake Industry Group Co., Ltd., during the Relevant Periods:

				Six months ended	Six months ended
	**Year **	ended 31 December		30 June
	2004	2005	2006	2006	2007
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(unaudited)
Purchase of raw materials	30,223	63,738	62,297	30,799	31,700
Electricity and water charges	8,615	11,090	10,511	839	2,039
Construction services	41,471	60,525	8,121	5,944	–
Haloids extracting services
charges	73,830	87,219	91,040	42,654	35,737
Miscellaneous service charges	9,977	13,173	13,456	–	–
Interest expenses	7,579	9,890	3,708	3,708	–

(b) Related party transactions

The Group has entered into the following significant transactions with its related parties during the Relevant Periods:

				Six months ended	Six months ended
	**Year **	ended 31 December		30 June
	2004	2005	2006	2006	2007
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(unaudited)
Purchase of raw materials
– fellow subsidiaries	33,071	54,098	36,471	23,832	38,042
Sales of potash
– subsidiaries of the
Company’s shareholder	480,581	474,534	841,640	363,887	552,088
– a shareholder of the
Company’s subsidiary	–	–	218,417	–	187,911
Sales of raw materials
– fellow subsidiaries	1,318	2,898	2,313	–	3,570

– 152 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

(c) Compensation of key management personnel

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

Short-term benefits Post employment benefits	Year ended 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 966 1,266 1,634 193 253 327 1,159 1,519 1,961	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (unaudited) 817 820 163 163 980 983	Six months ended 30 June 2006 2007 RMB’000 RMB’000 (unaudited) 817 820 163 163 980 983
			983

28. RETIREMENT BENEFIT SCHEME CONTRIBUTIONS

According to the relevant laws and regulations in the PRC, the Company and its subsidiaries are required to participate in a defined contribution retirement scheme administrated by the local municipal government. The Company’s and its subsidiaries’ contribution to fund the retirement benefits of the employees are calculated based on certain percentage of the average employee salary as agreed by local municipal government to the scheme. The principal obligation of the Group with respect to the retirement benefits scheme is to make the required contributions under the scheme.

F. SUBSEQUENT EVENTS

No significant events took place subsequent to 30 June 2007.

G. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Group, the Company or any of its subsidiaries in respect of any periods subsequent to 30 June 2007.

Yours faithfully,

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

– 153 –

APPENDIX II FINANCIAL INFORMATION OF QINGHAI SALT LAKE

MANAGEMENT DISCUSSION AND ANALYSIS

The results of the six months ended 30 June 2007 compared to the six months ended 30 June 2006

Turnover

Qinghai Salt Lake’s turnover for the six months ended 30 June 2007 amounted to RMB1,505.40 million (equivalent to HK$1,584.13 million), representing an increase of 27.90% as compared to RMB1,176.99 million (equivalent to HK$1,238.55 million) for the six months ended 30 June 2006. This increase mainly reflected the positive status of its operations in a favorable market environment, as evidenced by an approximately 5% increase in the selling price of potassium chloride products since the end of the previous year and the output and sales volume hitting a record high.

Gross profit

Qinghai Salt Lake’s gross profit for the six months ended 30 June 2007 amounted to RMB1,078.98 million (equivalent to HK$1,135.41 million), representing an increase of 29.77% as compared to RMB831.47 million (equivalent to HK$874.96 million) for the six months ended 30 June 2006.This increase mainly reflected turnover growth and also the gross profit margin improvement from 70.64% for the six months ended 30 June 2006 to 71.67% for the six months ended 30 June 2007 which was primarily due to the rise in products’ selling prices and the relative stable production cost during this period.

Operating profit

For the six months ended 30 June 2007, Qinghai Salt Lake realised operating profit of RMB1,083.50 million (equivalent to HK$1,140.17 million), representing an increase of 41.61% from RMB765.15 million (equivalent to HK$805.17 million) for the six months ended 30 June 2006. This increase reflected turnover growth and gross profit margin improvement which was partially offset by the increase of operating expenses from RMB107.78 million (equivalent to HK$113.42 million) for the six months ended 30 June 2006 to RMB119.24 million (equivalent to HK$125.48 million) for the six months ended 30 June 2007, representing an increase of 10.63%.

Out of the operating expenses, administrative expenses increased by 86.45% from RMB47.09 million (equivalent to HK$49.55 million) for the six month ended 30 June 2006 to RMB87.80 million (equivalent to HK$92.39 million) for the six months ended 30 June 2007 due to the rise in compensation expenses for mineral resources as a result of the increased turnover of Qinghai Salt Lake and its subsidiaries during this period.

Net profit

For the six months ended 30 June 2007, Qinghai Salt Lake realised net profit of RMB881.09 million (equivalent to HK$927.17 million), representing an increase of 44.41%

– 154 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

from RMB610.12 million (equivalent to HK$642.03 million) for the six months ended 30 June 2006. The net profit margin increased from 51.84% for the six months ended 30 June 2006 to 58.53% for the six months ended 30 June 2007. This increase mainly reflected the strong growth in operating profit, which was partially offset by the increase of the effective tax rate from 15.01% for the six months ended 30 June 2006 to 15.06% for the six months ended 30 June 2007.

The results of the year ended 31 December 2006 compared to the year ended 31 December 2005

Turnover

Qinghai Salt Lake’s turnover for the year ended 31 December 2006 amounted to RMB2,598.76 million (equivalent to HK$2,734.67 million), representing an increase of 63.14% as compared to RMB1,592.97 million (equivalent to HK$1,676.28 million) for the year ended 31 December 2005. This increase mainly reflected the remarkable increase in output and sales of potassium chloride products and higher average selling prices during the reporting period. During 2006, Qinghai Salt Lake’s actual output of potassium chloride products reached 1.73 million tons, representing an increase of 23.57% over that of 2005.

Gross profit

Qinghai Salt Lake’s gross profit for the year ended 31 December 2006 amounted to RMB1,747.85 million (equivalent to HK$1,839.26 million), representing an increase of 67.30% as compared to RMB1,044.74 million (equivalent to HK$1,099.38 million) for the year ended 31 December 2005. This increase mainly reflected the impressive growth in its turnover and also the gross profit margin improvement from 65.58% for the year ended 31 December 2005 to 67.26% for the year ended 31 December 2006.

Operating profit

For the year ended 31 December 2006, Qinghai Salt Lake realised operating profit of RMB1,802.36 million (equivalent to HK$1,896.62 million), representing an increase of 68.78% from RMB1,067.86 million (equivalent to HK$1,123.71 million) for the year ended 31 December 2005. This increase mainly reflected turnover growth, gross profit margin improvement and the increase of other income (including government grant, VAT refund from government, gain from selling raw materials and interest income) by 79.86% from RMB174.15 million (equivalent to HK$183.26 million) for the year ended 31 December 2005 to RMB313.22 million (equivalent to HK$329.60 million) for the year ended 31 December 2006, which was partially offset by the increase of operating expense from RMB151.02 million (equivalent to HK$158.92 million) for the year ended 31 December 2005 to RMB258.71 million (equivalent to HK$272.24 million) for the year ended 31 December 2006, representing an increase of 71.31%.

Out of the operating expenses, distribution expenses increased by 146.08% from RMB47.66 million (equivalent to HK$50.15 million) for the year ended 31 December 2005 to

– 155 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

RMB117.28 million (equivalent to HK$123.41 million) for the year ended 31 December 2006 due to significant increase in sales volumes of Qinghai Salt Lake and its subsidiaries and the newly added road transportation costs in 2006; administrative expenses increased by 36.83% from RMB103.36 million (equivalent to HK$108.77 million) for the year ended 31 December 2005 to RMB141.43 million (equivalent to HK$148.83 million) for the year ended 30 December 2006 due to the increase in compensation expenses for mineral resources as a result of the increased turnover of Qinghai Salt Lake and its subsidiaries in 2006.

Net profit

For the year ended 31 December 2006, Qinghai Salt Lake realised net profit of RMB1,447.74 million (equivalent to HK$1,523.46 million) representing an increase of 74.15% from RMB831.31 million (equivalent to HK$874.79 million) for the year ended 31 December 2005. The net profit margin increased from 52.19% for the year ended 31 December 2005 to 55.71% for the year ended 31 December 2006. This increase mainly reflected the strong growth in operating profit, which was partially offset by the increase in finance cost.

The results of the year ended 31 December 2005 compared to the year ended 31 December 2004

Turnover

Qinghai Salt Lake’s turnover for the year ended 31 December 2005 amounted to RMB1,592.97 million (equivalent to HK$1,676.28 million), representing an increase of 32.43% as compared to RMB1,202.92 million (equivalent to HK$1,265.83 million) for the year ended 31 December 2004. This increase mainly reflected the steady rise in the price of potassium chloride products and the increase in its output and sales during the reporting period. During 2005, its actual output of potassium chloride products reached 1.4 million tons.

Gross profit

Qinghai Salt Lake’s gross profit for the year ended 31 December 2005 amounted to RMB1,044.74 million (equivalent to HK$1,099.38 million), representing an increase of 47.74% as compared to RMB707.13 million (equivalent to HK$744.11 million) for the year ended 31 December 2004. This increase mainly reflected the growth in turnover and gross profit margin improvement from 58.78% for the year ended 31 December 2004 to 65.58% for the year ended 31 December 2005. The improvement in the gross profit margin was primarily due to the rise in the market price of potassium chloride products and the relatively stable production cost during this period.

Operating profit

For the year ended 31 December 2005, Qinghai Salt Lake realised operating profit of RMB1,067.87 million (equivalent to HK$1,123.72 million), representing an increase of 73.30% from RMB616.18 million (equivalent to HK$648.41 million) for the year ended 31

– 156 –

APPENDIX II

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

December 2004. This increase mainly reflected the growth of turnover and improvement of gross profit margin, and also an increase of 3,411.09% in other income (including VAT rebate from government, interest income and transportation service income) from RMB4.96 million (equivalent to HK$5.22 million) for the year ended 31 December 2004 to RMB174.15 million (equivalent to HK$183.26 million) for the year ended 31 December 2005, which was partially offset by an increase of 57.46% in operating expense from RMB95.91 million (equivalent to HK$100.93 million) for the year ended 31 December 2004 to RMB151.02 million (equivalent to HK$158.92 million) for the year ended 31 December 2005.

Out of the operating expenses, distribution expenses increased by 105.96% from RMB23.14 million (equivalent to HK$24.35 million) for the year ended 31 December 2004 to RMB47.66 million (equivalent to HK$50.15 million) for the year ended 31 December 2005 due to significant increase in sales volumes of Qinghai Salt Lake and its subsidiaries and changes in the calculation of short-haul transportation fees charged to customers; administrative expenses increased by 42.04% from RMB72.77 million (equivalent to HK$76.58 million) for the year ended 31 December 2004 to RMB103.36 million (equivalent to HK$108.77 million) for the year ended 30 December 2005 due to the increase in staff payroll and provision for bad debts.

Net profit

For the year ended 31 December 2005, Qinghai Salt Lake realised net profit of RMB831.31 million (equivalent to HK$874.79 million), representing an increase of 77.24% from RMB469.04 million (equivalent to HK$493.57 million) for the year ended 31 December 2004. The net profit margin increased from 38.99% for the year ended 31 December 2004 to 52.19% for the year ended 31 December 2005. This increase mainly reflected the strong growth in operating profit, which was partially offset by the increase in finance cost.

Capital structure, liquidity and financial resources

The total assets of Qinghai Salt Lake amounted to approximately RMB5,930.90 million (equivalent to HK$6,241.08 million) as at 30 June 2007, which included non-current assets of approximately RMB2,864.88 million (equivalent to HK$3,014.71 million) and current assets of approximately RMB3,066.02 million (equivalent to HK$3,226.37 million). Non-current assets primarily consisted of property, plant and equipment amounting to approximately RMB2,840.25 million (equivalent to HK$2,988.79 million), while current assets primarily consisted of bank balance and cash of approximately RMB1,497.01 million (equivalent to HK$1,575.30 million) and trade and other receivables of RMB1,010.12 million (equivalent to HK$1,062.95 million). The non-current liabilities of Qinghai Salt Lake were comprised of bank borrowings of approximately RMB1,178.00 million (equivalent to HK$1,239.61 million). Its current liabilities amounted to RMB1,546.84 million (equivalent to HK$1,627.74 million), primarily consisting of trade and other payables of approximately RMB476.60 million (equivalent to HK$501.53 million) and dividend payable of approximately RMB527.20 million (equivalent to HK$554.77 million). The net current assets of Qinghai Salt Lake amounted to RMB1,519.18 million (equivalent to HK$1,598.63 million) as at 30 June 2007.

– 157 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

The net assets of Qinghai Salt Lake amounted to RMB3,199.20 million (equivalent to HK$3,366.52 million), RMB3,421.15 million (equivalent to HK$3,600.07 million), RMB2,562.77 million (equivalent to HK$2,696.80 million) and RMB2,078.09 million (equivalent to HK$2,186.77 million) as at 30 June 2007, 31 December 2006, 31 December 2005 and 31 December 2004 respectively, and the gearing ratio, which was calculated by total liabilities divided by total assets, was approximately 46.06%, 40.43%, 44.13% and 47.60% respectively.

Borrowings

Secured bank borrowings Unsecured bank borrowings The borrowings are repayable as follows: Within one year In the second year In the third to fifth year inclusive After five years Total borrowings – at fixed rates – at floating rates Analysis of borrowings by currency: – denominated in RMB	At 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 – – 50,000 1,315,000 1,491,580 1,428,000 1,315,000 1,491,580 1,478,000	At 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 – – 50,000 1,315,000 1,491,580 1,428,000 1,315,000 1,491,580 1,478,000	At 31 December 2004 2005 2006 RMB’000 RMB’000 RMB’000 – – 50,000 1,315,000 1,491,580 1,428,000 1,315,000 1,491,580 1,478,000	At 30 June 2007 RMB’000 50,000 1,228,000
				1,278,000
	– – 575,000 740,000	30,000 100,000 875,000 486,580	100,000 475,000 450,000 453,000	100,000 425,000 320,000 433,000
	1,315,000	1,491,580	1,478,000	1,278,000
	– 1,315,000	30,000 1,461,580	50,000 1,428,000	50,000 1,228,000
	1,315,000 1,315,000	1,491,580 1,491,580	1,478,000 1,478,000	1,278,000
				1,278,000

Fixed interest rate borrowings are charged at 5.58%, 5.76% and 5.76% per annum for the years ended 31 December 2005 and 2006 and the six months ended 30 June 2007 (six months ended 30 June 2006: 5.58% per annum) respectively.

Interest on borrowings at floating rates are calculated based on the borrowing rates announced by the People’s Bank of China.

– 158 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

Capital expenditure

During the year ended 2004, 2005 and 2006 and the six months ended 30 June 2007, the capital expenditure used in purchase of property, plant and equipment and lease payment on land use rights were RMB287.23 million (equivalent to HK$302.25 million), RMB403.35 million (equivalent to HK$424.44 million), RMB361.61 million (equivalent to HK$380.52 million) and RMB132.08 million (equivalent to HK$138.99 million) respectively.

Capital commitments

Qinghai Salt Lake leases certain of its properties and equipment under operating lease arrangements. As at 30 June 2007, Qinghai Salt Lake had a future minimum lease payments under non-cancelable operating leases of RMB18.84 million (equivalent to HK$19.83 million), out of which RMB4.71 million (equivalent to HK$4.96 million) would be due within 5 years while the remaining would be due after 5 years.

Qinghai Salt Lake also had additional capital commitments of RMB7.87 million (equivalent to HK$8.28 million) as at 30 June 2007 which were comprised of commitments for capital expenditure in respect of acquisition of property, plant and equipment contracted for but not provided in the consolidated financial statements.

Significant Investment

As at 30 June 2007, 31 December 2006, 31 December 2005 and 31 December 2004, Qinghai Salt Lake held RMB3.00 million (equivalent to HK$3.16 million) of investment in unlisted equity securities issued by private entities in the PRC. Save as aforesaid, Qinghai Salt Lake did not hold any significant investment as at the above dates.

Charge on Assets

As at 30 June 2007 and 31 December 2006, certain of Qinghai Salt Lake’s buildings, plant and machinery with an aggregate carrying value of approximately RMB95.50 million (equivalent to HK$100.49 million) and RMB97.87 million (equivalent to HK$102.99 million) were pledged to bank to secure certain banking facilities. No buildings, plant and machinery were pledged as at 31 December 2005 and 31 December 2004.

Contingent liabilities

As at 30 June 2007, 31 December 2006, 31 December 2005 and 31 December 2004 respectively, Qinghai Salt Lake had no significant contingent liabilities.

– 159 –

FINANCIAL INFORMATION OF QINGHAI SALT LAKE

APPENDIX II

Employees and remuneration policies

For the years ended 31 December 2006, 31 December 2005 and 31 December 2004, Qinghai Salt Lake had a total of 1,495, 1,502 and 1,525 employees respectively.

Qinghai Salt Lake provides remuneration to its employees including a monthly income, plus performance related bonus and other welfare. Total staff costs for the years ended 2004, 2005, 2006 and six months ended June 30, 2007 were RMB108.47 million (equivalent to HK$114.14 million), RMB120.09 million (equivalent to HK$126.37 million), RMB155.13 million (equivalent to HK$163.24 million) and RMB76.49 million (equivalent to HK$80.49 million) respectively.

Material Transaction

Qinghai Salt Lake had no material acquisitions or disposals of subsidiaries and associated companies during the period of three years ended 31 December 2006 and six months ended 30 June 2007.

Exchange Rate Risk

All of Qinghai Salt Lake’s operations are in the PRC, and all of its assets and liabilities are denominated in RMB. Thus, the Company is not aware of any material exposure to fluctuations in exchange rates that may happen to Qinghai Salt Lake.

– 160 –

APPENDIX III PRO FORMA FINANCIAL INFORMATION OF THE GROUP

1. PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE GROUP

ACCOUNTANTS’ REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION TO THE DIRECTORS OF SINOFERT HOLDINGS LIMITED

We report on the unaudited pro forma financial information of Sinofert Holdings Limited (the “Company”) and its subsidiaries (hereinafter collectively referred to as the “Group”), which has been prepared by the directors of the Company for illustrative purposes only, to provide information about how the proposed acquisition of an approximate 18.49% interest in Qinghai Salt Lake Potash Co., Ltd. (the “Target Company”) might have affected the financial information presented, for inclusion in Appendix III of the circular dated 10 December 2007 (the “Circular”). The basis of preparation of the unaudited pro forma financial information is set out on pages 163 to 164 to the Circular.

Respective responsibilities of directors of the Company and reporting accountants

It is the responsibility solely of the directors of the Company to prepare the unaudited pro forma financial information in accordance with paragraph 29 of Chapter 4 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).

It is our responsibility to form an opinion, as required by paragraph 29(7) of Chapter 4 of the Listing Rules, on the unaudited pro forma financial information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

Basis of opinion

We conducted our engagement in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 300 “Accountants’ Reports on Pro Forma Financial Information in Investment Circulars” issued by the HKICPA. Our work consisted primarily of comparing the unadjusted financial information with source documents, considering the evidence supporting the adjustments and discussing the unaudited pro forma financial information with the directors of the Company. This engagement did not involve independent examination of any of the underlying financial information.

– 161 –

APPENDIX III PRO FORMA FINANCIAL INFORMATION OF THE GROUP

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the unaudited pro forma financial information has been properly compiled by the directors of the Company on the basis stated, that such basis is consistent with the accounting policies of the Group and that the adjustments are appropriate for the purpose of the unaudited pro forma financial information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

The unaudited pro forma financial information is for illustrative purpose only, based on the judgements and assumptions of the directors of the Company, and, because of its hypothetical nature, does not provide any assurance or indication that any event will take place in future and may not be indicative of the financial position of the Group as at 30 June 2007 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 adjustment is appropriate for the purposes of the unaudited pro forma financial information as disclosed pursuant to paragraph 29(1) of Chapter 4 of the Listing Rules.

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

10 December 2007

– 162 –

APPENDIX III PRO FORMA FINANCIAL INFORMATION OF THE GROUP

2. UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE GROUP

The following is a summary of the unaudited pro forma statement of assets and liabilities of the Group in connection to the proposed acquisition of an approximate 18.49% interest in the Target Company (“Acquisition”) assuming that the Acquisition had been completed on 30 June 2007 for the purpose of illustrating how the Acquisition might have affected the financial position of the Group.

The unaudited pro forma statement of assets and liabilities of the Group is prepared based on the unaudited consolidated balance sheet of the Group as at 30 June 2007 extracted from the interim report of the Company for the six months ended 30 June 2007 as if the Acquisition had been completed on 30 June 2007.

The unaudited pro forma statement of assets and liabilities is prepared to provide financial information on the Group as a result of completion of the Acquisition. As it is prepared for illustrative purpose only, it may not purport to represent what the assets and liabilities of the Group shall be on the actual completion of the Acquisition.

The Group As at 30 June 2007 Pro forma adjustment HK$’000 HK$’000 (unaudited) Non-current assets Property, plant and equipment 980,470 – Investment properties 14,532 – Prepaid lease payments 105,981 – Mining rights 24,383 – Goodwill 356,503 – Interests in jointly controlled entities 388,398 – Interest in an associate – (Note 1) 7,091,640 Available-for-sale investments 856,976 – Deferred tax assets 15,819 – 2,743,062 7,091,640 Current assets Inventories 5,490,920 – Trade and bill receivables 1,274,307 – Prepaid lease payments 2,359 – Advance payments and other receivables 1,455,757 – Bill discounted to banks 2,493,605 – Pledged bank deposits 10,959 – Bank balances and cash 134,480 (Note 1) (134,480) 10,862,387 (134,480)	The Group As at 30 June 2007 Pro forma adjustment HK$’000 HK$’000 (unaudited) Non-current assets Property, plant and equipment 980,470 – Investment properties 14,532 – Prepaid lease payments 105,981 – Mining rights 24,383 – Goodwill 356,503 – Interests in jointly controlled entities 388,398 – Interest in an associate – (Note 1) 7,091,640 Available-for-sale investments 856,976 – Deferred tax assets 15,819 – 2,743,062 7,091,640 Current assets Inventories 5,490,920 – Trade and bill receivables 1,274,307 – Prepaid lease payments 2,359 – Advance payments and other receivables 1,455,757 – Bill discounted to banks 2,493,605 – Pledged bank deposits 10,959 – Bank balances and cash 134,480 (Note 1) (134,480) 10,862,387 (134,480)	The Group As at 30 June 2007 Pro forma adjustment HK$’000 HK$’000 (unaudited) Non-current assets Property, plant and equipment 980,470 – Investment properties 14,532 – Prepaid lease payments 105,981 – Mining rights 24,383 – Goodwill 356,503 – Interests in jointly controlled entities 388,398 – Interest in an associate – (Note 1) 7,091,640 Available-for-sale investments 856,976 – Deferred tax assets 15,819 – 2,743,062 7,091,640 Current assets Inventories 5,490,920 – Trade and bill receivables 1,274,307 – Prepaid lease payments 2,359 – Advance payments and other receivables 1,455,757 – Bill discounted to banks 2,493,605 – Pledged bank deposits 10,959 – Bank balances and cash 134,480 (Note 1) (134,480) 10,862,387 (134,480)	Pro forma Group HK$’000 980,470 14,532 105,981 24,383 356,503 388,398 7,091,640 856,976 15,819
	2,743,062 5,490,920 1,274,307 2,359 1,455,757 2,493,605 10,959 134,480 (Note 1) 10,862,387	7,091,640 – – – – – – (134,480) (134,480)	9,834,702
			5,490,920 1,274,307 2,359 1,455,757 2,493,605 10,959 –
			10,727,907

– 163 –

PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

The Group As at 30 June 2007 Pro forma adjustment HK$’000 HK$’000 (unaudited) Current liabilities Trade and bill payables 2,331,105 – Receipts in advance and other payables 358,924 – Dividend payable 134,195 – Bank advances for discounted bills 2,493,605 – Amounts due to ultimate holding company 11,328 (Note 1) 6,957,160 Derivative financial liabilities 163,912 – Taxation payable 163,070 – Bank borrowings – due within one year 805,104 – 6,461,243 6,957,160 Net current assets (liabilities) 4,401,144 (7,091,640) Total assets less current liabilities 7,144,206 – Non-current liabilities Bank borrowings – due after one year 439,081 – Convertible loan notes 1,256,854 – Deferred tax liabilities 94,207 – 1,790,142 – Net assets 5,354,064 –	The Group As at 30 June 2007 Pro forma adjustment HK$’000 HK$’000 (unaudited) Current liabilities Trade and bill payables 2,331,105 – Receipts in advance and other payables 358,924 – Dividend payable 134,195 – Bank advances for discounted bills 2,493,605 – Amounts due to ultimate holding company 11,328 (Note 1) 6,957,160 Derivative financial liabilities 163,912 – Taxation payable 163,070 – Bank borrowings – due within one year 805,104 – 6,461,243 6,957,160 Net current assets (liabilities) 4,401,144 (7,091,640) Total assets less current liabilities 7,144,206 – Non-current liabilities Bank borrowings – due after one year 439,081 – Convertible loan notes 1,256,854 – Deferred tax liabilities 94,207 – 1,790,142 – Net assets 5,354,064 –	The Group As at 30 June 2007 Pro forma adjustment HK$’000 HK$’000 (unaudited) Current liabilities Trade and bill payables 2,331,105 – Receipts in advance and other payables 358,924 – Dividend payable 134,195 – Bank advances for discounted bills 2,493,605 – Amounts due to ultimate holding company 11,328 (Note 1) 6,957,160 Derivative financial liabilities 163,912 – Taxation payable 163,070 – Bank borrowings – due within one year 805,104 – 6,461,243 6,957,160 Net current assets (liabilities) 4,401,144 (7,091,640) Total assets less current liabilities 7,144,206 – Non-current liabilities Bank borrowings – due after one year 439,081 – Convertible loan notes 1,256,854 – Deferred tax liabilities 94,207 – 1,790,142 – Net assets 5,354,064 –	Pro forma Group HK$’000 2,331,105 358,924 134,195 2,493,605 6,968,488 163,912 163,070 805,104 13,418,403 (2,690,496) 7,144,206 439,081 1,256,854 94,207 1,790,142 5,354,064
	6,461,243 4,401,144 7,144,206 439,081 1,256,854 94,207 1,790,142	6,957,160 (7,091,640) – – – – –	13,418,403
			(2,690,496
			7,144,206
			439,081 1,256,854 94,207
			1,790,142
	5,354,064	–

Note 1 : The adjustment represents the acquisition of an approximate 18.49% interest in Target Company with the consideration payable by the Group amounting to approximately HK$7,091,640,000 as if Acquisition was completed on 30 June 2007. Goodwill is estimated on the assumption that fair value of the identified assets, liabilities and contingent liabilities of the Target Company is the same as the consideration payable by the Group for the Acquisition. The actual amount of goodwill to be recorded will depend on the fair value of the identified assets, liabilities and contingent liabilities of the Target Company to be determined on the date when the Acquisition is completed. In the directors’ opinion, the expenses attributable to the Acquisition have not been accounted for in the preparation of the unaudited pro forma financial information as such costs cannot be accurately determined at this stage.

Note 2 : On 10 July 2007, the Company entered into a placing and subscription arrangement with third party investor, pursuant to which the Company agreed to place and issue 400,000,000 ordinary shares of the Company at a price of HK$5.9 per share. These shares rank pari passu with the existing shares of the Company. The placing and subscription arrangement was completed on 24 July 2007. The net proceeds from the subscription were approximately HK$2,322 million.

– 164 –

GENERAL INFORMATION

APPENDIX IV

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 the omission of which would make any statement herein misleading.

2. INTEREST IN SECURITIES

(a) Interests and short positions of Directors and chief executive in shares and debentures

As at the Latest Practicable Date, the Directors and chief executive of the Company had the following interests and short positions in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO), and the details of any right to subscribe for shares in the Company, which had to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register of the Company referred to therein or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules, to be notified to the Company and the Stock Exchange:

			Approximate
	Number of		percentage
	underlying		of aggregate
	Shares of	Other derivative	interests to
	unlisted share	interest in the	total issued
	options	Shares	share
Name of Director	beneficially held	beneficially held	capital
	(Note 1)
Liu De Shu	2,453,000	–	0.0395%
Song Yu Qing	1,838,000	–	0.0296%
Du Ke Ping	5,633,000	362,526 (Note 2)	0.0965%
Chen Guo Gang	1,838,000	–	0.0296%
Harry Yang	2,002,000	253,711 (Note 3)	0.0363%
Wade Fetzer III	256,000	–	0.0041%

– 165 –

GENERAL INFORMATION

APPENDIX IV

Note 1: The interests of the Directors and chief executive pursuant to unlisted physically settled equity derivatives are held through unlisted share options granted to them in their personal capacities under the share option schemes adopted by the Company on 26 August 2002 and 28 June 2007. Details of these options are as follows:

	Number of
	Shares in
	which	Date of	Exercise
Name	interested*	grant	price	Exercise period
Liu De Shu	2,033,000	23-1-2006	HK$1.672	23-1-2008 to 22-1-2012	Note 1
	420,000	28-8-2007	HK$4.99	28-8-2009 to 27-8-2013	Note 2
Song Yu Qing	1,582,000	23-1-2006	HK$1.672	23-1-2008 to 22-1-2012	Note 1
	256,000	28-8-2007	HK$4.99	28-8-2009 to 27-8-2013	Note 2
Du Ke Ping	5,213,000	23-1-2006	HK$1.672	23-1-2008 to 22-1-2012	Note 1
	420,000	28-8-2007	HK$4.99	28-8-2009 to 27-8-2013	Note 2
Chen Guo	1,582,000	23-1-2006	HK$1.672	23-1-2008 to 22-1-2012	Note 1
Gang	256,000	28-8-2007	HK$4.99	28-8-2009 to 27-8-2013	Note 2
Harry Yang	1,582,000	23-1-2006	HK$1.672	23-1-2008 to 22-1-2012	Note 1
	420,000	28-8-2007	HK$4.99	28-8-2009 to 27-8-2013	Note 2
Wade Fetzer	256,000	28-8-2007	HK$4.99	28-8-2009 to 27-8-2013	Note 2
III

• Note 1: During the period between 23 January 2008 and 22 January 2009, no more than two-thirds of the options can be exercised and the remaining options can be exercised during the period between 23 January 2009 and 22 January 2012.

• Note 2: The options shall in any event not be exercised between 28 August 2007 and 27 August 2009, but may thereafter be exercised in accordance with the terms of offer of the options.

• The total number of options held by each person is the same as the number of underlying Shares in which that person is interested pursuant to the options.

• Note 2: Du Ke Ping has a derivative interest in respect of 362,526 Shares in the Company within the meaning of Part XV of the SFO. That derivative interest represents Mr. Du’s entitlement to receive an equivalent value in cash of 362,526 Shares in the Company subject to, among other things, satisfaction of certain performance targets.

• Note 3: Harry Yang has a derivative interest in respect of 253,711 Shares in the Company within the meaning of Part XV of the SFO. That derivative interest represents Mr. Yang’s entitlement to receive an equivalent value in cash of 253,711 Shares in the Company subject to, among other things, satisfaction of certain performance targets.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and chief executive of the Company had any interest or short position in the Shares, underlying Shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) and right to subscribe for shares in the Company which had to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which the Director and the chief executive were taken or deemed to have under such provisions of the SFO) or which were required, pursuant to section 352 of the SFO, to be entered in the register of the Company referred to therein or which were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules, to be notified to the Company and the Stock Exchange.

– 166 –

GENERAL INFORMATION

APPENDIX IV

(b) Notifiable interests and short positions of substantial shareholders and other persons in Shares

As at the Latest Practicable Date, so far as was known to the Directors and chief executive of the Company, the following substantial shareholders of the Company within the meaning of the Listing Rules and other persons (in each case other than the Directors and chief executive of the Company) had an interest or a short position in 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:

	Interests in Shares	Interests in Shares
		Approximate
	Number of	percentage of
	Shares	total issued
Name of substantial shareholder	involved	Shares
Sinochem Corporation (Note 1)	4,984,739,015	80.26%
Potashcorp (Note 2)	4,984,739,015	80.26%

Notes:

1. These Shares represent the corporate interest of Sinochem Corporation held through its wholly-owned subsidiary, Sinochem HK. The interests consist of (a) 3,108,863,335 Shares directly held by Sinochem HK and interest in 519,995,539 underlying Shares agreed to be subscribed by Sinochem HK under the Subscription Agreement and (b) 1,161,589,966 Shares held by Potashcorp through its wholly owned subsidiary PCS Barbados and interest in 194,290,175 underlying shares agreed to be subscribed by PCS Barbados under the Subscription Agreement in which Sinochem HK is deemed to have an interest under sections 317 and 318 of the SFO.

2. These Shares represent the corporate interest of Potashcorp held through its wholly-owned subsidiary, PCS Barbados. The interests consist of (a) 1,161,589,966 Shares directly held by PCS Barbados and interest in 194,290,175 underlying shares agreed to be subscribed by PCS Barbados under the Subscription Agreement and (b) 3,108,863,335 Shares held by Sinochem HK and interest in 519,995,539 underlying Shares agreed to be subscribed by Sinochem HK under the Subscription Agreement in which Potashcorp is deemed to have an interest under sections 317 and 318 of the SFO.

Save as disclosed above, as at the Latest Practicable Date, the Directors and chief executive of the Company were not aware of any substantial shareholder of the Company within the meaning of the Listing Rules or other person (in each case other than a Director or chief executive of the Company) who had, as at the Latest Practicable Date, an interest or a short position in Shares or underlying Shares which was required to be notified to the Company pursuant to Divisions 2 and 3 of Part XV of the SFO.

– 167 –

GENERAL INFORMATION

APPENDIX IV

(c) Interests in 10% or more of shares in subsidiaries

As at the Latest Practicable Date, so far as was known to the Directors and chief executive of the Company, the following are the persons who (not being a member of the Group or a Director or chief executive of the Company) were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the subsidiaries of the Company or in any options in respect of such capital:

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|||||||
|---|---|---|---|---|---|
|Approximate|
|Number|of|percentage|of|
|shares|held|or|the|existing|
|extent|of|issued|share|
|registered|capital|or|
|capital|in|registered|
|Name|of|which|capital|of|the|
|Name|of|subsidiary|shareholder|interested|subsidiary|
|RMB22,000,700|46.81%|
|(Fujian|Sinochem|Zhisheng|(Yongan|
|Chemical|Fertilizer|Zhisheng|Chemical|
|Company|Limited)|Company|Limited)|
|RMB4,500,000|45%|
|(Hubei|Sinochem|Dongfang|(Hubei|Dongfang|
|Chemical|Fertilizer|Agricultural|
|Company|Limited)|Center)|
|RMB31,000,000|38.75%|
|(Sinochem|Chongqing|(Chongqing|Fuling|
|Fuling|Chemical|District|Finance|
|Engineering|Company|Bureau)|
|Limited)|
|RMB580,000|29%|
|(Sinochem|Yantai|Crop|(Yantai|
|Nutrition|Co.,|Ltd)|City|Houdao|
|Fertilizer|Company|
|Limited)|
|RMB400,000|20%|
|(Sinochem|Yantai|Crop|(Yantai|Gang|
|Nutrition|Co.,|Ltd)|Group|Company|
|Limited)|

----- End of picture text -----

– 168 –

GENERAL INFORMATION

APPENDIX IV

==> picture [402 x 462] intentionally omitted <==

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

|||||||
|---|---|---|---|---|---|
|Approximate|
|Number|of|percentage|of|
|shares|held|or|the|existing|
|extent|of|issued|share|
|registered|capital|or|
|capital|in|registered|
|Name|of|which|capital|of|the|
|Name|of|subsidiary|shareholder|interested|subsidiary|
|200,000|40%|
|(Guizhou|Kaiyang|(Chen|Yongliang)|
|Qinglongjiang|Company|
|Limited)|
|RMB4,415,268|43.16%|
|(Chongqing|Fuyin|Plastic|(Boshide|Plastic|
|Company|Limited)|Company|Limited)|
|247,500|49.50%|
|(Fengdou|Tengsheng|(Fengdou|Province|
|Agricultural|Material|Agricultural|
|Company|Limited)|Material|Supply|
|Station)|
|19,600,000|49%|
|(Fuling|Water|
|(Chongqing|Fuling|Qilixin|Power|Electricity|
|Tiegongshui|Transport|Investment|Group)|
|Company|Limited)|
|200,000|20%|
|(Chongqing|
|Tengsheng|Agricultural|(Chongqing|Fuling|
|Production|Resources|Xinlan|Chemical|
|Company|Limited)|Industrial|
|Company|Limited)|

----- End of picture text -----

Save as disclosed above, as at the Latest Practicable Date, the Directors and chief executive of the Company were not aware of any person (other than a member of the Group or a Director or chief executive of the Company) who was, as at the Latest Practicable Date, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of the subsidiaries of the Company or in any options in respect of such capital.

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GENERAL INFORMATION

APPENDIX IV

3. MATERIAL CONTRACTS

The following contracts, not being contracts in the ordinary course of business, have been entered into by members of the Group, within the two years preceding the Latest Practicable Date and are or may be material:

1. as disclosed in the Company’s announcement dated 4 July 2006, a subscription agreement was entered into on 28 June 2006 by the Purchaser and Shandong Luxi Chemical Co., Ltd ( Shandong Luxi ) pursuant to which the Purchaser subscribed for 50,000,000 new shares of Shandong Luxi at RMB2.6 per share, representing 4.78% of the total equity interests in Shandong Luxi following completion of the issue of new shares;

2. as disclosed in the Company’s announcement dated 21 July 2006, a subscription agreement was entered into on 20 July 2006 by the Company and Deutsche Bank AG, Hong Kong Branch, pursuant to which the Company agreed to issue zero-coupon convertible bonds due in 2011 for an aggregate principal amount of HK$1,300,000,000 convertible into Shares of the Company at an initial conversion price of HK$3.74 (subject to adjustment);

3. as disclosed in the Company’s announcement dated 22 November 2006, a subscription agreement was entered into on 22 November 2006 by the Purchaser and Shandong Hualu Hengsheng Chemical Co., Ltd (Shanghai Stock Exchange Code No. 600426) ( Hualu Hengsheng ), pursuant to which the Company had subscribed for 15,000,000 new non-public offered A shares of Hualu Hengsheng at RMB7.5 per share, representing 4.54% of the enlarged share capital of Hualu Hengsheng;

4. a subscription was made by Big Day Limited, an indirect wholly-owned subsidiary of the Company on 4 June 2007, to subscribe for 49.90 million new shares of China XLX Fertilizer Ltd (Singapore Exchange Stock Code: CXLX) ( China XLX Fertilizer ) at a price of S$0.77 per share. Such number of shares was eventually issued and allotted to Big Day Limited on 19 June 2007, representing 4.99% of the total share capital of China XLX Fertilizer at that date;

5. as disclosed in the Company’s announcement dated 8 June 2007, a property leasing agreement was entered into on 8 June 2007 by the Purchaser and Beijing Chemsunny Property Company Limited ( Chemsunny ), pursuant to which the Purchaser leased an office premise from Chemsunny at a monthly rental of RMB1,297,296 for the period from 1 June 2007 to 31 December 2009;

6. as disclosed in the Company’s announcement dated 10 July 2007, a placing and subscription agreement was entered into on 10 July 2007 by the Company, Sinochem HK and Citigroup (as placing agent), pursuant to which the Company agreed to place, and Sinochem HK agreed to subscribe for, 400,000,000 new shares of the Company at a price of HK$5.90 per share;

7. as disclosed in the Company’s announcement dated 28 October 2007, a joint venture agreement was entered into on 28 October 2007 by the Purchaser, Guizhou Hongfu Industrial Development Co., Ltd and Gansu Jinchang Chemical Industrial (Group) Co., Ltd, pursuant to which the Purchaser agreed to subscribe for 30% of the equity interest in Gansu Wengfu Chemical Co, Ltd. for a total consideration of RMB22,500,000;

8. the Acquisition Agreement;

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GENERAL INFORMATION

APPENDIX IV

1. the Subscription Agreement; and

2. as disclosed in the Company’s announcement dated 28 November 2007, the Purchaser entered into acquisition agreements with Sinochem Corporation, pursuant to which the Purchaser agreed to acquire 40% equity interest in Tianji Sinochem Gaoping Chemical Engineering Company Ltd. and 51% equity interest in Sinochem Shandong Chemical Fertilizer Company Limited for a consideration of RMB208.83 million and RMB56.38 million respectively.

4. DIRECTORS’ SERVICE CONTRACTS

Mr. Du Ke Ping, an executive Director and the Chief Executive Officer of the Company, has entered into a director’s service contract with the Company for a term of 3 years, with effect from 28 July 2005, subject to: (i) the service contract may be terminated prior to its expiry if either of Mr. Du or the Company serves two months’ prior notice to the other in writing; and (ii) the service contract may be terminated by the Company in the case of bankruptcy, disease and any other significant faults of a director as described in the service contract. Should the Company terminate the contract prior to its expiry, Mr. Du is entitled to receive a cash compensation equivalent to 11 months’ of his basic salary, save for circumstances described in item (ii) above.

Mr. Harry Yang, an executive Director and Deputy General Manager of the Company, has entered into a director’s service contract with the Company for a term of 3 years, with effect from 6 March 2006, subject to: (i) the service contract may be terminated prior to its expiry if either of Mr. Yang or the Company serves two months’ prior notice to the other in writing; or (ii) the service contract may be terminated by the Company in the case of bankruptcy, disease and any other significant faults of a director as described in the service contract. Should the Company terminate the contract prior to its expiry, Mr. Yang is entitled to receive a cash compensation equivalent to 11 months’ of his basic salary, save for circumstances described in item (ii) above.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors had entered into or proposed to enter into any service contract with the Company or any of its subsidiaries (excluding contracts expiring or determinable by the employer within one year without payment of compensation, other than statutory compensation).

5. COMPETING INTERESTS

As at the Latest Practicable Date, Mr. Du Ke Ping, an executive Director and the Chief Executive Officer of the Company, was also a director of Sinochem Shandong and Mr. Harry Yang, an executive Director and Deputy General Manager of the Company, was a director of US Agri-Chemicals Corporation. Sinochem Shandong and US Agri-Chemicals Corporation are held as to 51% and 100% by Sinochem Corporation respectively.

– 171 –

APPENDIX IV

GENERAL INFORMATION

Sinochem Shandong and US Agri-Chemicals Corporation are members of the group comprising Sinochem Corporation and its subsidiaries (other than the Group) which continue to be engaged in the production of fertilizers. As at the Latest Practicable Date, Sinochem Shandong continued to be engaged in the production of fertilizer while US Agri-Chemicals Corporation has ceased its operation since November 2005. As at the Latest Practicable Date, four out of eleven of the directors of Sinochem Shandong are also directors or members of the senior management of the Group and the remaining directors of Sinochem Shandong did not hold any positions or assume any role in the Group. As at the Latest Practicable Date, save for Mr. Yang, none of the directors of US Agri-Chemicals Corporation held any positions or assumed any role in the Group.

In order to limit the competition between the Group and Sinochem Shandong, Sinochem Corporation granted the Option to the Company which allows the Company to acquire Sinochem Corporation’s interests in Sinochem Shandong at a fair market value. In addition, fertilizer purchase and supply agreements were also entered into with Sinochem Shandong. As announced by the Company on 28 November 2007, the Purchaser entered into a conditional acquisition agreement with Sinochem Corporation to acquire Sinochem Corporation’s interest in Sinochem Shandong. Following completion of the acquisition by the Company of Sinochem Corporation’s 51% equity interest in Sinochem Shandong, Sinochem Shandong will become a subsidiary of the Company and as such, the business of Sinochem Shandong will no longer be competing with the business of the Group.

Save as disclosed, as at the Latest Practicable Date, none of the Directors and their respective associates was interested in any business apart from the business of the Group, which competes or is likely to compete, either directly or indirectly, with the business of the Group.

6. OTHER ARRANGEMENTS INVOLVING DIRECTORS

As at the Latest Practicable Date:

• (a) none of the Directors was materially interested in any contract or arrangement subsisting at the date of this circular which is significant in relation to the business of the Group; and

• (b) none of the Directors had any direct or indirect interest in any assets which had been, since 31 December 2006 (the date to which the latest published audited financial statements of the Company were made up), acquired, disposed of by, or leased to any member of the Group, or were proposed to be acquired, disposed of by, or leased to any member of the Group.

7. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since 31 December 2006, the date to which the latest published audited financial statements of the Company were made up.

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GENERAL INFORMATION

APPENDIX IV

8. LITIGATION

As at the Latest Practicable Date, neither the Company nor any member of the Group was engaged in any litigation or arbitration of material importance and there was no litigation or claim of material importance known to the Directors to be pending or threatened by or against the Company or any member of the Group.

9. EXPERT

• (a) The following is the qualification of the expert who has given its opinions or advice which are contained in this circular:

Name

Qualification

Somerley

a corporation licensed to carry out Type 1 (dealing in securities), Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) regulated activities under the SFO

Deloitte Touche Tohmatsu

Certified Public Accountants

• (b) As at the Latest Practicable Date, Somerley and Deloitte Touche Tohmatsu had no shareholding in any member of the Group and did not have any right, whether legally enforceable or not, to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

• (c) As at the Latest Practicable Date, Somerley and Deloitte Touche Tohmatsu had no direct or indirect interest in any assets which had been, since 31 December 2006 (the date to which the latest published audited financial statements of the Company were made up), acquired, disposed of by, or leased to any member of the Group, or were proposed to be acquired, disposed of by, or leased to any member of the Group.

• (d) Somerley and Deloitte Touche Tohmatsu have given and have not withdrawn their written consent to the issue of this circular with inclusion of their respective letters and the reference to their respective names included herein in the form and context in which they respectively appear.

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GENERAL INFORMATION

APPENDIX IV

10. MISCELLANEOUS

• (a) The company secretary of the Company is Mr. Navin Aggarwal, solicitor of Hong Kong.

• (b) The qualified accountant of the Company is Ms. Tse Yin Hung, Bonnie, an associate member of the Hong Kong Institute of Certified Public Accountants.

• (c) The registered office of the Company is at Clarendon House, 2 Church Street, Hamilton, HM 11, Bermuda.

• (d) The principal place of business and head office of the Company in Hong Kong is at Unit 4601-4610, 46th Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wanchai, Hong Kong.

• (e) The principal share registrar of the Company is The Bank of Bermuda Limited at 6 Front Street, Hamilton HM 11, Bermuda.

• (f) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong.

• (g) Sinochem Corporation, the parent company of Sinochem HK, is a state-owned enterprise, and does not have directors.

• (h) The registered office of Sinochem Corporation is at Central Tower, Chemsunny World Trade Center, 28 Fuxingmen Nei Road, Beijing 100031, PRC.

11. GENERAL

In the event of inconsistency, the English text of this circular shall prevail over the Chinese text.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the principal place of business of the Company at Units 4601-4610, 46th Floor, Office Tower, Convention Plaza, I Harbour Road, Wanchai, Hong Kong from the date of this circular up to and including 28 December 2007:

• (a) the Bye-laws;

• (b) the Acquisition Agreement;

• (c) the Subscription Agreement;

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GENERAL INFORMATION

APPENDIX IV

• (d) the annual reports and accounts of the Company for each of the two years ended 31 December 2005 and 2006 and the interim report and accounts of the Company for the six months ended 30 June 2007;

• (e) the accountants’ report on Qinghai Salt Lake set out in Appendix II of this circular;

• (f) the report from Deloitte Touche Tohmatsu on the unaudited pro forma financial information of the Group dated 10 December 2007 as set out in Appendix III of this circular;

• (g) the letter of recommendation from the Independent Board Committee, the text of which is set out on pages 23 to 24 of this circular;

• (h) the letter of advice from Somerley, the text of which is set out on pages 25 to 59 of this circular;

• (i) the written consent referred to in the section headed “EXPERT” in this appendix;

• (j) the material contracts referred to in the section headed “MATERIAL CONTRACTS” in this appendix;

• (k) the service contracts referred to in the section headed “DIRECTORS’ SERVICE CONTRACTS” in this appendix; and

• (l) a copy of each circular issued by the Company pursuant to the requirements set out in Chapters 14 and/or 14A of the Listing Rules which has been issued since 31 December 2006, being the date of the Company’s latest published audited accounts.

– 175 –

NOTICE OF SGM

==> picture [60 x 59] intentionally omitted <==

SINOFERT HOLDINGS LIMITED

*

(Incorporated in Bermuda with limited liability)

(Stock Code: 297)

NOTICE IS HEREBY GIVEN that a special general meeting of Sinofert Holdings Limited (the “ Company ”) will be held at Lounge, Mezzanine Floor, Grand Hyatt Hong Kong, 1 Harbour Road, Hong Kong on 28 December 2007 at 9:40 a.m. (or immediately after the conclusion or adjournment of the special general meeting of the Company scheduled to be convened on the same day at 9:30 a.m. at the same venue, whichever is the later) for the purposes of considering and, if thought fit, passing, with or without modifications, the following resolutions as ordinary resolutions:

ORDINARY RESOLUTIONS

1. “ THAT :

2. (a) the Acquisition Agreement (as defined and described in the circular to the shareholders of the Company dated 10 December 2007, a copy of which has been produced to the meeting marked “A” and signed by the Chairman of the meeting for the purpose of identification) and the execution thereof and the Purchaser’s Undertaking (as defined and described in the circular to the shareholders of the Company dated 10 December 2007) and implementation of all transactions thereunder (including the Acquisition, the Lock-up Undertaking and the Voting Undertaking (each as defined and described in the circular to the shareholders of the Company dated 10 December 2007)) be and are hereby approved, ratified and confirmed; and

3. (b) the Directors of the Company be and are hereby authorised to sign, execute, perfect and deliver all such documents and do all such deeds, acts, matters and things as they may in their absolute discretion consider necessary or desirable for the purpose of or in connection with the implementation of the Acquisition Agreement and the Purchaser’s Undertaking and all transactions and other matters contemplated thereunder or ancillary thereto, to waive compliance from and/or agree to any amendment or supplement to any of the provisions of the Acquisition Agreement which in their opinion is not of a material nature and to effect or implement any other matters referred to in this resolution.”

4. “ THAT :

5. (a) the Subscription Agreement (as defined and described in the circular to the shareholders of the Company dated 10 December 2007, a copy of which has been produced to the meeting marked “B” and signed by the Chairman of the meeting for the purpose of identification) and the execution thereof and implementation of all transactions thereunder be and are hereby approved, ratified and confirmed;

– 176 –

NOTICE OF SGM

• (b) conditional upon the Listing Committee of The Stock Exchange of Hong Kong Limited granting the listing of, and the permission to deal in, the Subscription Shares (as defined in the circular to the shareholders of the Company dated 10 December 2007), the issue and allotment of the Subscription Shares be and are hereby approved; and

• (c) the Directors of the Company be and are hereby authorised to sign, execute, perfect and deliver all such documents and do all such deeds, acts, matters and things as they may in their absolute discretion consider necessary or desirable for the purpose of or in connection with the implementation of the Subscription Agreement and all transactions and other matters contemplated thereunder or ancillary thereto, to waive compliance from and/or agree to any amendment or supplement to any of the provisions of the Subscription Agreement which in their opinion is not of a material nature and to effect or implement any other matters referred to in this resolution.”

By Order of the Board Sinofert Holdings Limited Navin Aggarwal Company Secretary

Hong Kong, 10 December 2007

Head office and principal place of business in Hong Kong: Units 4601-4610, 46th Floor

Office Tower Convention Plaza 1 Harbour Road Wanchai Hong Kong

Notes:

1. The register of members of the Company will be closed from 24 December 2007 to 28 December 2007, both days inclusive, during which period no transfer of shares of the Company will be registered. In order to qualify for voting at the special general meeting of the Company, all transfers of shares of the Company accompanied by the relevant share certificates must be lodged for registration with the Company’s branch share registrar in Hong Kong, Tricor Secretaries Limited, 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong, by not later than 4:30 p.m. on 21 December 2007.

2. Any member of the Company entitled to attend and vote at the meeting is entitled to appoint one or more proxies to attend and vote instead of him. A proxy need not be a shareholder of the Company.

3. To be valid, a proxy form, together with the power of attorney or other authority (if any) under which it is signed, or a notarially certified copy of that power or authority, must be deposited at the branch share registrar and transfer office of the Company in Hong Kong, Tricor Secretaries Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong not less than 48 hours before the time fixed for the holding of the meeting or any adjournment thereof.

4. Where there are joint holders of any ordinary share of the Company, any one of such holders may vote at the meeting, either personally or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such holders be present at the meeting personally or by proxy, that one of such holders so present whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof.

5. Voting of the ordinary resolutions set out in this notice will be by poll.

6. As at the date of this notice, the executive Directors of the Company are Mr. Du Ke Ping (Chief Executive Officer) and Mr. Harry Yang; the non-executive Directors are Mr. Liu De Shu (Chairman), Mr. Song Yu Qing (Deputy Chairman), Mr. Chen Guo Gang, Mr. Stephen Francis Dowdle and Mr. Wade Fetzer III; and the independent non-executive Directors are Mr. Tse Hau Yin, Aloysius, Mr. Ko Ming Tung, Edward and Mr. Tang Tin Sek.

– 177 –